Welcome to the third and final episode of our podcast on the productivity issue in Spain. I'm HB I am Deputy Chief Economist and I am also in charge of the OECD team in the Economics Department of BNP Paribas. I am still with Guillaume Derrien, senior economist in the OECD team. In the first two episodes, we found a more than mixed picture of productivity developments in Spain. But there are grounds for optimism. In the article Ecoconjoncture, on which this podcast is based, there is a focus, in particular, on the expected contributions of the so-called national recovery plan, an investment plan of EUR 69 billion spread over five years (2021-2026).
These points of optimism, Guillaume, what are they?
So, first of all, with regard to the digitisation of activities, and paradoxically to the low level of investment I mentioned in previous episodes, Spain ranks among the most advanced EU countries if we look at the European Commission’s DESI surveys, DESI standing for Digital Economy and Society index. This index is updated every year and the latest publication was last July. Spain ranks seventh in the EU, winning two places compared to 2021. This is not so bad.
That's not bad indeed. However, there are weaknesses highlighted in this report?
That's right. The report mentioned, and I quote that “companies are not taking sufficient advantage of new technologies such as artificial intelligence, big data and cloud, which could boost productivity and the deployment of electronic commerce”. End of the quote.
Labour shortages are another important problem I think…
Yes, but it is not exclusive to Spain, even if the problem appears even more important here. The share of ICT specialists in total employment is below the European average. It was 4.1% in 2021, compared to an average of 4.5% for the EU as a whole.
If we put the weak points aside and look at the recovery plan implemented by the Spanish authorities, in particular through a new public-private partnership to support investment in strategic sectors. What more can you tell us?
These are the P.E.R.T.E. programmes. which have been gradually launched since the summer of 2021. This is, I would say, a structuring part of the Spanish recovery plan. The programme aims to invest more heavily in 11 sectors with very high growth potential. The government supports investment by private companies and research centres through grants and loans. From its launch in July 2021 to 2027, EUR 33 billion in public aid (the equivalent of just under 3% of GDP) will be allocated to financing these strategic projects.
This state aid allocated to selected enterprises – mainly SMEs – is estimated by the Spanish government to help raise an additional EUR 36 billion from the private sector by 2030.
You said 11 sectors were targeted by this program. You can tell us a few, the most important
I would divide these projects into two broad categories. On the one hand, there are sectors that are essential for the energy and digital transition: electric vehicles, the shipbuilding industry and the circular economy. On the other hand, we can group together programmes that aim to develop activities that are still limited in size, but which are deemed to become important in the future and essential for facing the energy and industrial challenges: this is the hydrogen industry, electric batteries, or the semiconductor industry.
These initiatives should make it possible, alongside the España 2050 strategy, to increase R&D spending in Spain, which would be an important first step towards improving productivity in the country.
?Remind us why boosting productivity is crucial for Spain, and indeed for any country?
This increases long-term growth, which is also called potential growth. Potential growth in Spain has been evolving, since the 2008 crisis, at an average annual rate much lower than in the past. We are roughly at around 1% year on year today, compared to more than 2% before the 2008 crisis.
And what are the levers for redressing potential growth?
There are three main pillars for increasing potential growth: investment, productivity, and labour. Let us not forget that the labour factor tends to weaken due to demographic ageing and the downward trend in the labour force. To address this, investment and productivity gains will need to strengthen even further to maintain a sustainable and sufficient growth trajectory, particularly necessary to contain the country’s debt trajectory.
When you talk about the long term, you have in mind, in particular, the España 2050 plan unveiled in 2021 by Prime Minister Pedro Sanchez, which you mentioned a moment ago
Indeed, and one of the central objectives of the España 2050 plan is to increase high-tech investment and thus the level of productivity.
In a nutshell, this plan consists of 50 indicators, which are themselves divided into nine major themes. One of the key motives for this plan is that Spain reduces the deficit the country has accumulated vis-à-vis the most advanced European countries, including on labour productivity. The Espana 2050 plan targets an increase in productivity of 10% by 2030, which will go up to 50% by 2050.
To achieve this, R&D spending will be significantly increased, with the objective of achieving expenditures equivalent to 3% of GDP, which is more than double the current level; it was 1.4% of GDP in 2020, according to the OECD.
This would enable Spain to catch up with the developed countries. Do we have reason to believe that?
It is still a little early to say. At the moment, this España 2050 plan offers only big directions. This, I would say, must also be backed up by more concrete projects or structural measures to assess its potential for success. Nevertheless, it already has the merit of putting on paper the profound weaknesses of the Spanish economy and the strategic guidelines for addressing them, which seem both credible and feasible.
The last point, or rather the last two points Guillaume, the recovery plan, is where we are today and is there a significant effect on aggregate investment?
Based on information given by the Spanish authorities, there is a gradual build up in momentum: between the beginning of 2022 and September 2022 (14 September), the Spanish government released nearly EUR 19 billion through this programme. EUR 7 billion more than at the same time last year
To answer your second question: The effects on investment are currently contained. Nevertheless, the bulk of the effects are still to come: it is over the next two to three years that the effects of this plan on investment are likely to be most visible, while the benefits in terms of productivity and job creations will be more spread over time.
Thank you very much, Guillaume, for your detailed insight into the question of productivity in Spain. This concludes the series of 3 episodes of this podcast on this theme. Thank you all for your attention and we – BNP Paribas Economic research Department – look forward to offering you a new podcast very soon. See you soon.
