Spain’s new cabinet should widen industrial focus, energy costs still a drag - FEIQUE

Source: ICIS News

2019/04/11

MADRID (ICIS)--Spanish politicians have finally realised the country needs to step up its industrial game to be globally competitive and chemicals firms are hopeful long-held demands are to become law in the next parliamentary term, according to the president of trade group FEIQUE

Carles Navarro, who is also the director general of BASF in Iberia, added that a regulation that has been 10 years in the making to lessen the burden of electricity costs for energy-intensive sectors like chemicals is likely to become a reality in the next term.

The country’s chemicals sector speaks from a position of strength following 10 booming years in which the industry has increased its revenue by close to 30% to nearly €66bn in 2018 (see chart).

Chemicals has been one of the best performing manufacturing sectors after the 2009 financial crisis that hit Spain and its construction bubble hard.

However, on the back of global economic and political woes, as well as higher crude prices, FEIQUE expects the sector to cool down slightly in 2019.

Adding to the global uncertainty, Spain will go to the polls on 28 April after the minority socialist government of PSOE was unable to pass the annual budget earlier this year.

The shortest government of its young democracy, Prime Minister Pedro Sanchez came to power in June 2018 after a vote of no confidence toppled its conservative predecessor Mariano Rajoy, from the PP party.

With a multiparty system on the rise, the general election’s result is an enigma and the likely outcome will require coalitions to form a stable government. However, FEIQUE is hopeful that whatever the outcome the newly-born push to boost industrial sectors will continue.

INDUSTRY KEY TO SOFTEN BLOWS
“Spanish politicians have realised that manufacturing is important for the economic structure of a country. Services sectors are hit the hardest when a crisis strikes, and a strong industry helps palliate the blow,” Navarro said, interviewed in Spanish.

“A few months ago, no party in parliament opposed resolutions passed to support industry. We are on the right path, and the fact that no-one opposed them is a back-up for us: the new government and parliament has to sustain that support.”

The previous cabinet led by Rajoy had already started up an industry agenda which Sanchez continued. One of the measures likely to be approved is some sort of fiscal exemption for energy-intensive industries like chemicals.

According to the EU’s statistical agency Eurostat, Spain’s electricity costs – a key expense for chemicals – are the fourth highest within the 28-country bloc. See a full list here.

Sanchez’s government suspended a tax on electricity generation that is already saving Spanish corporations and final consumers up to 5%, or around €2.8bn/year, on their electricity bills, according to FEIQUE.

“We are now collaborating [with the ministry of industry] in a draft regulation to further support energy-intensive sectors, but this will need to wait until after the election. We hope it will be approved by the new government soon after,” Navarro said.

“We have a good relationship with the Ministry of Industry [re-established by Sanchez in June 2018] and they have a clear intention to listen to the industry and to bring solutions to the table that improve our competitiveness.”

However, other areas have been less favourable to FEIQUE’s interests. Sanchez also approved an increase in social security contributions that will cost chemicals firms around €40m/year, according to the trade group.

Asked whether he feared a potential government formed by PSOE and the far-left Podemos party, which could pass more measures adding to the cost side for chemicals, like higher taxes, a diplomatic Navarro would not directly answer.

“We are interested in an agenda which favours the industry – that can be done from many fronts: facts, rather than manifestos [electoral programme] is what matters,” he said.

BREXIT: CONFIDENT OF A DEAL
Navarro’s interview took place on 10 April, right before the EU gave yet another extension to the UK in order to pass a withdrawal agreement that would take the country out of the 28-country bloc.

However, the political turmoil in the UK in recent months still puts a no-deal Brexit as a likely scenario.

Navarro said, however, that he is confident a deal will be passed given the significant disruption a disorderly Brexit might mean for European economy.

Nearly three years after the referendum on EU membership, the UK Government has been unable to convince Parliament to pass a withdrawal agreement, and Parliament itself has been able to agree a way forward.

“It’s difficult to put oneself in other people’s shoes. Evidently, the Brexit process has been much more complicated than we thought it would be. It has proved how difficult it is to get out of a structure in which you have been a key member for more than 40 years,” he said.

“While Spanish chemicals are ready for a potential no-deal Brexit, I am confident in the end an agreement will be passed to avoid such a scenario.”

Spain chemicals turnover 2007-2018
(€/million)

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Pictures source: FEIQUE

Interview article by Jonathan Lopez