Spain’s chems bonanza can only hold with EU-wide solutions – FEIQUE

LONDON (ICIS)–While Spanish chemicals are going through a bonanza as the country’s economy recovers from the crisis started in 2008, EU-wide solutions are needed to increase competitiveness and secure a future for the industry in the region, the president of Spain’s chemical trade group FEIQUE said this week.

Anton Valero, who on Tuesday was re-elected as president of FEIQUE, added Spain needs to update its infrastructure in order to continue receiving investments in manufacturing, and demanded measures from EU policymakers to bring the cost of energy down in order to keep European chemicals competitive when compared to their peers in the US or Asia.

On 24 October, FEIQUE published its financial estimates for the Spanish chemicals industry for 2016, estimating that by year-end sales will have risen by 2.3% compared to 2015, to €59.4bn. The positive trend would continue in 2017, according to the trade group’s estimates, with sales up 2.5% to €60.6bn.

Political commentators in Spain have showed surprise at the resilience of the economy during 2016 despite the country having a caretaker government since December, when an inconclusive election failed to produce a stable majority in parliament.

Spaniards were called to the polls again in June, to produce a similar result and consequent impasse, and only this week the blockage has been resolved after the main opposition Socialist party said it would abstain in order to allow current acting Conservative Prime Minister Mariano Rajoy to form a new government – albeit a likely unstable one as his majority is thin.

“The last 10 months have showed the Spanish economy has been resilient to the uncertainty of not having a government. It has been a good experience for all of us – it has told us society is in itself more resistant to the ups and down of politics than we thought,” said Valero, who is also general manager, Spain and Portugal, for Dow Chemical.

“It has also been a hint to understand what the role of government in the economy should be – it should be a catalyst for growth, rather than trying to be the main player [acting in the economy].”

However, the Spanish economy’s problems of competitiveness and productivity have only been reduced through an internal devaluation during past years which, as a member of the eurozone, could not come from devaluating its currency but its products – as well as it workers.

Through labour reforms welcome by trade groups but repelled by trade unions passed by Rajoy’s government, business has the upper hand in labour relations, causing social uneasiness about how the recovery is not being enjoyed by all segments of society.

As part of improving competitiveness, the labour reforms gave companies the option to lower salaries, an advantage they widely used – according to the International Labour Organisation (ILO), salaries in 2013 fell on average by 1.5%. In 2012 the reduction had been 3%, in 2011 of 1.9% and in 2010 of 1.1%.

As a sign of the social discontent, the bipartisan system which ruled Spain since the 1970s collapsed this year. In 2011, the Conservative and the Socialists gathered 80% of popular support, while in June that figure stood around 50%.

FEIQUE’s Valero thinks, however, the recovery is finally filtering through to all provinces and social groups, adding chemicals are at the vanguard of the recovery as automobile and the food industry go through their own post-crisis boom, while “even construction is starting to pick up,” he said.

Spain’s crisis was deepened by its dependence on the chemical-intensive construction industry which, after years of practically no new builds as the country digested the housing overhang, is starting to pick up again.

“The economics recovery is palpable in Madrid or Barcelona, but also in the provinces. Spain got tired of the crisis and has started spending again [boosting domestic demand],” said Valero.

“Equally, the Spanish economy depends a lot on tourism, which this year has had record figures. All of it has helped the chemical industry. While the private sector is recovering, we are still missing one thing the most – investment in infrastructure by public administrations.”

However, the room for manoeuvre is limited, as Spain is still battling with the fiscal deficit caused by lower tax receipts in the worst of the crisis. By maintaining essential social services and bailing out its banking system, Spain’s deficit – and public debt – only kept growing.

While asking for more investment from the public administrations, Valero recognises there is little spare change, and points to wealthier EU members like Germany as the ones who should be spending to kick off the eurozone’s economy.

“Spanish public debt is over 100% [of GDP] and is very difficult for the government to find the money to invest in necessary projects. They would have to borrow it, but that wouldn’t be the best way to do it either,” he says.

“Some more actions need to be taken in order to have a deficit which is reasonable, and at the same time we need to start investing in infrastructure again. For instance, creating good connections with the rest of Europe by rail, as well as within Spain with the Mediterranean [railway] line. Equally, we need investments in harbours.

“In the wider eurozone, I can understand those who petition Germany to spend more, as its deficit is very reasonable [Germany is actually on course to register a surplus in 2016].”

The demand for Germany to spend more is not only becoming common outside Germany. Industrialists in the country have pointed to the same case, with some even saying the “rotten” infrastructure mostly built in the 1960s and 1970s is not up to standards for modern manufacturing, like Wacker Chemie’s CEO did earlier this year.

“There have been [budget] restrictions policies [in Germany and the wider eurozone] which haven’t helped Europe to develop. Germany could invest more to put more dynamism and act as a locomotive of the eurozone. If Germany’s capital investments don’t move, it slows down the rest of the eurozone’s economy,” Valero said.

In the year when a member country decided to leave the EU for the first time, the UK’s Brexit process has raised questions for EU policy makers about how the 28-country bloc is perceived by many of its citizens. Valero said the EU needs to be “coherent” and approve measures which make its single market truly single.

“On energy, for example, we cannot have different prices in different countries in a single market, which should mean unique prices not only for energy but for gas or any other utility, as well as waste or the compensations for emissions the industry receives [under the EU’s Emissions Trading System],” he said.

“Energy in Europe does not have to be more expensive than elsewhere per se. We have the energy resources to head towards self-sufficiency, like wind and solar, but we need to develop the tools to connect different countries’ electricity grids and make it a liquid market.

“For instance, it is a pity than in a windy day in Spain we have to waste wind power because we don’t have connections to the EU to sell it. Equally, we have the largest facilities for gas vaporisation in Europe, but we wouldn’t be able to send it anywhere,” he added. 

Although FEIQUE’s president said the EU’s chemical regulation Reach does add costs for the industry which competitors overseas do not have to bear, he added the regulatory framework will be useful as long as “it is protecting people’s health” although said he would like to see the same rules for other major chemical producers, namely China and the US.

“It would be the only thing I would complain about – how there are different rules for different jurisdictions. But we can’t never go against health of citizens and I think we, as Europeans, have to be coherent with what we say and after having set up certain quality of standards, we need to stick to that.”

Interview article by Jonathan Lopez