28 Nov Attracting growth amidst adversity
Albert Castellanos Maduell, Secretary of Enterprise and Competitiveness, Agency for Business Competitiveness, details the reasons Catalonia has continued to grow despite a worldwide slump in economies and the organization’s efforts to develop the region’s global attractiveness.
What key pillars does Catalonia’s significant economic strengths sit on and how does it differentiate from the rest of Spain and the EU?
Catalonia has a strong industrial tradition. Our industry accounts for almost 20 percent of the Spanish gross domestic product and one-fourth of the country’s industrial production. However, we are even more valuable as an industrial economy in a European context. We have a ratio of exports to GDP similar to Denmark’s and higher than Portugal’s and Finland’s. Catalonia has a population of 7.7 million inhabitants, similar to Switzerland or Austria and larger than Denmark. Our strengths granted us a fast recovery from the economic crisis before the COVID-19 pandemic, which allowed us to grow at a faster pace than the European average. Apart from 2020, which was a very tough year for Catalonia considering how crucial tourism is, we have been growing steadily. Our growth in 2021 was faster than the European average thanks to the weight of industry. From a foreign investment point of view, Catalonia has remained southern Europe’s most dynamic region in terms of the presence of multinationals, startups and the digital ecosystem. We want to grow closer to the Central European economies of Germany and Austria whose industry accounts for a higher percentage of their gross domestic product. We have no reasons to believe this will not continue in the future; ACCIÓ is working with a portfolio of more than 500 potential investment projects, a record figure.
We are an innovative region. We account for 23 percent of Spanish spending on research and development and have the greatest number of innovative companies by region. Our companies rank well from a European perspective. In the EU’s Horizon 2020 program, Catalonia received around 2.6 percent of total funding in Europe. Considering Catalonia’s population accounts for just 1.5 percent of the 28 EU countries, we received almost twice the amount of funds in proportion to the space we occupy.
Catalonia and Barcelona are also a magnet for talent, with assets that do not need much promotion such as weather and quality of life. However, these are not the only attractors. We are a draw for talent because we have a strong network of public and private educational institutions. Barcelona is the only European city with two business schools in the top 10 global Master of Business Administration rankings, these being Esade and IESE Business School. These two institutions are useful and effective in attracting talent, investors and executives wanting to work in Barcelona. We boast solid scientific and technological infrastructure. We have the Barcelona Supercomputing Center, which contains the first quantum computer in Southern Europe. It is part of a network of supercomputers in Europe designed to distribute the public investment of the EU to compete with China and the U.S., which is not easy at all. We also have Southern Europe’s first particle accelerator, the ALBA synchrotron. In addition, Catalonia has become the first 5G open laboratory, another reason we attract digital companies. These factors have led to €23 billion in foreign investment attracted from 2016 to 2020, which was 27.5% more than the previous five-year period. With 8,900 subsidiaries of foreign companies located in Catalonia, the region is known for being the best region in Southern Europe for foreign investment in the financial year 2020/2021 for third consecutive time according to European Cities and Financial Times Group.
How is the region’s startup ecosystem working to attract larger entities to set up a local base?
We have a very attractive startup ecosystem due to our mixture of private entrepreneurship and an industrial innovative economy. In Catalonia we currently have around 1,900 startups with 25 percent of the workforce from abroad. For the fourth year in a row, Barcelona was the second top choice when deciding on a European Union startup destination for companies. Catalan startups raise €1,479 million in investment in 2021, the highest figure on record. Barcelona is ranked fourth in the European Union for the number of start-up financing rounds, ahead of Amsterdam and Munich. Multinationals know they might not find as many advantages in other cities from an administrative point of view. Furthermore, they can find local startup companies to help in innovating their processes. Microsoft recently announced that one of their digital hubs will settle in Barcelona. PepsiCo also recently announced that their digital hub will be settled in the city. These companies are joining other multinationals who have a base here, such as Nestle, Amazon, Lidl, Porsche Digital and Festo. The existence of a dynamic startup system is one of the main attractors for multinational companies wanting to set up their digital hubs and attract talent.
What key sectors in Catalonia are undergoing the largest transformations?
Mobility or the automotive sector is undergoing a profound transformation; one of Spain’s main goals is to transform the entire automotive sector into an electric vehicle sector. We are one of the main production centers in Spain. After Germany and France, we are one of the leading regions producing vehicles in Europe. The Catalan automotive industry employs 40,000 people through more than 350 car manufacturing companies. We have companies that are leading the local automotive sectors such as SEAT, one of the main brands of the Volkswagen Group. The group contains an industry support ecosystem made up of engineering and service companies, technology and research and development centers, clusters, trade fairs, universities and training centers. A prudent path forward would be to apply for Next Generation EU funds to transform the entire value chain, meaning not only production of electric vehicles but production of batteries and components needed by electric vehicles. These funds are crucial in being leaders in mobility and the connected mobility sector as a region. If we are not able to transform leading companies such as Volkswagen together with those providing different car parts in adjusting their production capabilities to electric vehicles, we will neither find success nor take advantage of the gains we have made in recent years. We deeply trust in the leadership and capability of SEAT to undergo this sector-wide transformation with public aid other providers they work with. The food and drinks industry is also a key sector in Catalonia. The industry employs around 164,000 people overall, both in the primary sector and the transformative space of the food sector. Furthermore, Catalonia is becoming a digital hub, not only in Barcelona but in its surrounding areas. Southern Europe is attractive for companies to invest in and install digital hubs and research centers. In 2021, one-third of foreign investment coming to Catalunya was in new digital technologies, which is a clear shift from previous foreign direct investment pathways.
What can be done to further grow the region’s smart city industry?
The smart city sector in Catalonia has grown quite a lot lately. A key builder of this was Barcelona hosting the annual Smart City Expo World Congress, which is a meeting point for the most important companies working in the field. In the last five years, the number of companies in the smart city sector grew around 60 percent. There are almost 450 companies working in the smart city sector in mobility, smart facilities and other areas. Their total revenue was around €10 billion. A sector that at one point seemed futuristic and narrow from an economic point of view has become one of the leading sectors in Barcelona. As far as local implementation, one opportunity that we have not exploited enough is being more innovative in public procurement; we need to be less bureaucratic. We have tried to introduce innovation into the public domain in recent years but have not gone far enough. There needs to be less reluctance for innovative solutions in mobility, smart facilities and similar areas. The main client for these companies is the public government. At the end of the day, the growth of the sector depends on what public administrations buys.
What impact has the COVID-19 crisis had on the way companies in Catalonia market their products?
In Catalonia and worldwide, e-commerce has grown considerably because we have been forced to change our consumption habits. While it may account for 1.5 percent of Catalonia’s total gross domestic product, e-commerce transactions have risen by more than 40 percent since 2015. There has been an increase in e-commerce activity in Catalonia, which implies we have attracted more companies here. We currently have just under 830 companies in Catalonia focused mainly on e-commerce, which employ around 18,000 people. The pandemic changed not only consumer habits but forced many companies to change their way of commercializing products. We launched a new service called International eTrade to promote the internationalization of Catalan companies by taking advantage of new digital channels that have come to the fore during this period. These tools were formerly not used by all Catalan companies, but most have discovered they are an effective way to open new markets. In 2020, it was more of a forced strategy. However, we want to consolidate this new way of promoting internationalization that does not necessarily require the internationalization of a company.
How significant is funding by the European Union in the development of the Catalonian private sector?
These funds are critical to promote transformation and digitalization of our economy and make it more productive and sustainable. The Spanish and Catalonian government have created a plan to develop and coordinate funding. There is a political commitment to co-manage 50 percent of these funds next year. The Catalonian government will have a role in at least the execution of these funds. Included in the strategy are the aforementioned transformation of the automotive sector in Catalonia and the evolution of our meat-based food sector into an alternative proteins sector. In February 2021, we presented what for us were the 27 most strategic projects to transform our economy into a more digitalized and sustainable economy.
One of our main concerns is the wise use of these funds. We want to guarantee at least 20 percent of funds in Spain come to Catalonia, a proportion that is adjusted to our industrial and economic contribution. The Catalan government wants to make things easier for small and medium-sized enterprises to apply for different funds. One of our main projects at ACCIÓ is the Next Generation Office, whose main mission is to facilitate application of our different goals depending on the prioritizations of each company. Large companies have the support and internal resources to prepare applications that are much more complex than ones normally prepared by small and medium-sized enterprises. We act as a public consultant for small and medium-sized enterprises so they may also take advantage of the Next Generation EU funds.
What is Agency for Business Competitiveness’s (ACCIÓ’s) role in supporting development of the private sector in Catalonia?
ACCIÓ’s general mission is to promote the competitiveness of Catalan companies. We do this through strategies aimed at driving internationalization of our partners. Catalonia is one of the most internationalized Spanish regions. The region finished 2021 with record exports of more than €78 billion, which is especially impressive given it was far from a normal year. We still have a lot of work to do. We want companies to sell part of their production abroad and settle in other countries as well. Our aim is to consolidate the international standing of Catalan companies. Another goal is to stimulate innovation. Most companies that go global from Catalonia are extremely innovative, and this is something we try to foster. A final goal is to attract foreign investment into Catalonia. ACCIÓ makes foreign investment easier for companies abroad to invest in Catalonia and expand their production centers here. We are a regional agency with a strong network of 40 offices abroad that allow us to cover approximately 100 markets across the world.
How has the organization transformed its internal operations to accommodate the latest trends caused by worldwide lockdowns?
Despite the unfavorable context of the COVID-19 pandemic, the organization attracted 31% more foreign investment for Catalonia in 2020 compared to the previous year. The Catalan government was ahead of its times when it set up ACCIÓ in 1985; few regions in Europe today have a unit specialized in attracting foreign investment with so much experience. COVID-19 slightly changed the way we work at ACCIÓ to promote internationalization. During the toughest months of the pandemic, we could not incentivize or promote the physical internationalization of companies or visit our networks. We started developing what we called virtual missions. While companies were not going to our offices in Asia, the U.S. or elsewhere, they were getting in touch with people in international markets; first meetings and first market prospects were done online. While this may seem obvious as a matter of common sense, it was not done beforehand. People preferred to travel to Asia, Africa or elsewhere, and the real market prospect was starting in person. Of course, the online experience cannot substitute face-to-face interaction as a service. However, we are making the process more efficient by starting out with a virtual meeting to evaluate the market potential of companies. This way, clients have a much better idea of what they are going to do once on the ground.
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