Capital investment. Its definition is as follows: "Funds invested in a firm or enterprise for the purposes of furthering its business objectives. It may also refer to a firm's acquisition of capital assets or fixed assets. Sources of capital investment are manifold and can include equity investors, banks, financial institutions, venture capital and angel investors. While capital investment is usually earmarked for capital or long-life assets, a portion may also be used for working capital purposes."
So much for the short business lesson, but it is necessary in order to underline what follows. Dun & Bradstreet (D&B) is one of the foremost providers of business information. Its latest report into business performance in Mallorca and Spain reveals one very heartening aspect for the island and the Balearics: the percentage rise - and so relative rise - in the number of businesses created in 2015 was greater than elsewhere in Spain. A seven per cent increase is contrasted with a 0.4% decrease nationally, the decline explained by businesses which close as well as open.
While this is positive news, it disguises another finding by D&B. Last month, the level of capital investment for the whole country was up by a staggering 87%. In December alone, 2,600 million euros were invested. In the Balearics, the figure was equally staggering: capital investment was down by 75% compared with December 2014. This followed what had otherwise been a decent year of investment growth - slightly more than 100% for the year as a whole. But it is the December figure which should be attracting more attention than it is. Indeed, it should be setting the alarm bells ringing.
What one can say is that capital investment, unlike much other business activity in the Balearics, is not determined by the season. In fact, the off-season would typically be a time of high investment for projects that are, hopefully, designed with long-life assets in mind: hotels, just to take one example. As can be seen nationally, there most certainly isn't a seasonal downward factor at play: quite the opposite. In the Balearics, this was true also of December 2014. So why did the figure for last month collapse so dramatically?
A reason could lie with investment that had already been made. One does need to be somewhat cautious in highlighting one month's performance in the context of what otherwise was a decent year. Nevertheless, the slump should raise eyebrows.
There are currently, or have been, highly positive factors going the Balearics way in terms of business and economic development. In addition to all the investment that has been noticeable in the past couple of years since recession drifted away, there has been a benefit for the Balearics from what has been and is happening in Catalonia. Because of the drive towards secession, and just as importantly high rates of tax, businesses have been getting out of Catalonia. Since 2012, some 200 have relocated their operations to the Balearics.
It doesn't necessarily follow that because a business moves its base, mainly for tax reasons, investment increases. This isn't the point. What is, is that there has been confidence in coming to the Balearics, courtesy of a more agreeable corporate tax regime (and no question of secession). This confidence has been matched by investment from whatever source. This is why there have been the highly positive factors for the islands.
But consider what happened between 2008 and 2011 when the previous PSOE-led government was in power. Businesses left the Balearics. The reason? Simple. Tax.
The benign business conditions in the Balearics are changing. Tax amendments by the current government create one such changing condition. Another is government policy, no better characterised than the recent decree that will directly hit the tourism and construction sectors, the two sectors that attract the greatest levels of investment.
The decree hadn't of course been announced in December, but the signs were becoming increasingly clear. Investment made during 2015 was, in part, in order to ensure that projects were in place and couldn't be undone by legal reform. The healthy total investment figure for 2015 was thus partially influenced by necessity.
The Balearic government, primarily the president and vice-president, refer to investment that will be forthcoming, seemingly oblivious to how policies might in fact stall investment. For the vice-president, Biel Barceló, there is the other hat that he wears: the innovation one. He wishes to see greater investment in technologies as a means of economic diversification. This is laudable and would be even more so were he to identify what he actually means and adopt a position that might make technology investment attractive. He might, however, note that there was a flight of investment in high technologies nationally last year. Which was perhaps a case of investors seeking returns from the tried and tested: bricks and mortar and tourism.
Was December just a blip? We are about to find out.
Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts
Thursday, January 21, 2016
Thursday, September 03, 2015
Tango In Madrid: Balearic financing
It's the very stuff of negotiating. There are the red lines which cannot be crossed, which cannot be conceded, but then there are the negotiables, the ones that give the opponent some of what is sought while at the same time not weakening one's own position and perhaps even strengthening it.
When Francina met Mariano it was just conceivable that the latter would have sent the former away with a flea in her ear. Told her never to darken the doors of the Moncloa again. To take herself to the nunnery of the Balearics and to enter, along with the citizenship, a life of penury and asceticism, praying to the Lord for deliverance.
Whatever one thinks of Rajoy, he isn't stupid. He couldn't afford Francina returning to Mallorca as the failed and humiliated victim of his "aggressions" towards the Balearics, but a heroine nonetheless, the martyr of Partido Popular vengeful parsimony. Francina would have been able to take herself off to the La Beata procession in Santa Margalida on Sunday, her head held defiantly high, trailing behind the the simulator of the ascetic Saint Catalina as she defies the destructive force of the devil. Such symbolism.
Rajoy and others at PP high command might have given up on Bauzá long before the electorate did, but this doesn't mean they've given up on the Balearics. There are votes to be had, even in lands that turned their backs on Bauzá's version of the regional PP and placed into boxes their fateful electoral envelopes of PSOE, Més and Podemos. Notwithstanding a shift to the left at the regionals and the constant media reminders that the days of two-party politics are over, high command has reasons to not be totally fearful of how the Balearics might vote at the general election. The awkward squad having ensured that Bauzá was spirited away to the Senate, the PP has a potential new look, even if it will be wearing a familiar brown suit. Not everything that Mateo Isern does is for the best, such as his fashion sense, but Palma's one-time mayor, a darling of some at high command and a popular enough figure in the Balearics, despite the PP, could give the party a boost at the head of the list of candidates for Congress and a consequent boost to Rajoy as well.
Not long after Armengol finally managed to scrape a government together, her finance minister, Catalina Cladera, was despatched to Madrid with instructions to issue a broadside to national finance chief, Cristobal Montoro. The Balearics aren't going to put with PP lack of finance any longer. So there. It was all stirring stuff and all bound to fail, and everyone knew it would, including Francina and Catalina. But Francina had, after all, been on the point of losing the support of Biel Barceló and Més during their own little negotiation fandango. An improvement to financing for the Balearics was a demand from Biel, he also knowing full well that there wouldn't be one. Nevertheless, and for appearances' sakes - those of their respective parties and the general public - Catalina marched off, brandishing her sword and discovering that it was made of plastic rather than metal.
When Montoro said no, everyone was able to blame him and Rajoy. Face was not lost by Francina, Catalina (or Biel). It was all Rajoy's fault, and even the local PP was inclined to agree. For weeks since, Francina has uttered the same mantra. Every day, it has seemed. Deficit this, deficit that. Statutory investments here, special regime for the Balearics there. Rajoy knew exactly what was coming. No, Francina, he would not cross the deficit red line and allow the Balearics to plunge into the red and incur the wrath of watching Europeans in the process. But statutory investments that hadn't been paid? Take a look at the special regime again? Agree that the financing model needs revising, but not this year? Sure. Why not? Rajoy had nothing to lose except the money that Madrid has been withholding and a great deal to win by showing wavering PP voters in the Balearics that he wasn't the devil in disguise.
So the heavy-booted steps on the dance floor of the pre-meeting weeks have ended in the tango of Madrid, Mariano conceding what he was happy to. There was no surprise because, despite Catalina shouting at Montoro, he had some while ago conceded that the Balearics needed better treatment. It was a done deal before Francina got on the plane.
Rajoy says that Balearic financing does need modifying, but it won't be looked at until next year. For Francina, financing and the eco-tax came as a package. Get better financing and the tax could be dropped. Because of the other negotiations, those with Biel, the tax has now become more likely. There are some things you can't give way on.
When Francina met Mariano it was just conceivable that the latter would have sent the former away with a flea in her ear. Told her never to darken the doors of the Moncloa again. To take herself to the nunnery of the Balearics and to enter, along with the citizenship, a life of penury and asceticism, praying to the Lord for deliverance.
Whatever one thinks of Rajoy, he isn't stupid. He couldn't afford Francina returning to Mallorca as the failed and humiliated victim of his "aggressions" towards the Balearics, but a heroine nonetheless, the martyr of Partido Popular vengeful parsimony. Francina would have been able to take herself off to the La Beata procession in Santa Margalida on Sunday, her head held defiantly high, trailing behind the the simulator of the ascetic Saint Catalina as she defies the destructive force of the devil. Such symbolism.
Rajoy and others at PP high command might have given up on Bauzá long before the electorate did, but this doesn't mean they've given up on the Balearics. There are votes to be had, even in lands that turned their backs on Bauzá's version of the regional PP and placed into boxes their fateful electoral envelopes of PSOE, Més and Podemos. Notwithstanding a shift to the left at the regionals and the constant media reminders that the days of two-party politics are over, high command has reasons to not be totally fearful of how the Balearics might vote at the general election. The awkward squad having ensured that Bauzá was spirited away to the Senate, the PP has a potential new look, even if it will be wearing a familiar brown suit. Not everything that Mateo Isern does is for the best, such as his fashion sense, but Palma's one-time mayor, a darling of some at high command and a popular enough figure in the Balearics, despite the PP, could give the party a boost at the head of the list of candidates for Congress and a consequent boost to Rajoy as well.
Not long after Armengol finally managed to scrape a government together, her finance minister, Catalina Cladera, was despatched to Madrid with instructions to issue a broadside to national finance chief, Cristobal Montoro. The Balearics aren't going to put with PP lack of finance any longer. So there. It was all stirring stuff and all bound to fail, and everyone knew it would, including Francina and Catalina. But Francina had, after all, been on the point of losing the support of Biel Barceló and Més during their own little negotiation fandango. An improvement to financing for the Balearics was a demand from Biel, he also knowing full well that there wouldn't be one. Nevertheless, and for appearances' sakes - those of their respective parties and the general public - Catalina marched off, brandishing her sword and discovering that it was made of plastic rather than metal.
When Montoro said no, everyone was able to blame him and Rajoy. Face was not lost by Francina, Catalina (or Biel). It was all Rajoy's fault, and even the local PP was inclined to agree. For weeks since, Francina has uttered the same mantra. Every day, it has seemed. Deficit this, deficit that. Statutory investments here, special regime for the Balearics there. Rajoy knew exactly what was coming. No, Francina, he would not cross the deficit red line and allow the Balearics to plunge into the red and incur the wrath of watching Europeans in the process. But statutory investments that hadn't been paid? Take a look at the special regime again? Agree that the financing model needs revising, but not this year? Sure. Why not? Rajoy had nothing to lose except the money that Madrid has been withholding and a great deal to win by showing wavering PP voters in the Balearics that he wasn't the devil in disguise.
So the heavy-booted steps on the dance floor of the pre-meeting weeks have ended in the tango of Madrid, Mariano conceding what he was happy to. There was no surprise because, despite Catalina shouting at Montoro, he had some while ago conceded that the Balearics needed better treatment. It was a done deal before Francina got on the plane.
Rajoy says that Balearic financing does need modifying, but it won't be looked at until next year. For Francina, financing and the eco-tax came as a package. Get better financing and the tax could be dropped. Because of the other negotiations, those with Biel, the tax has now become more likely. There are some things you can't give way on.
Friday, March 13, 2015
Into The Biosphere: Sustainable/responsible tourism
This has been a week during which it was revealed that Catalonia wishes to become the first tourism region in the world to obtain a Biosphere certification. Which seemed a little odd as Menorca has been a Biosphere for over twenty years: it was declared to be one by UNESCO in 1993. Whatever. Perhaps Menorca isn't a region as such. Anyway, UNESCO has a regional Biosphere which is certified by its Global Sustainable Tourism Council, a body with lofty aims to ensure, inter alia, that "tourism meets its potential as a tool for conservation and poverty alleviation". A Biosphere refers to, among other things, the encouragement of the "social and cultural authenticity of each (tourist) destination and community".
Catalonia's ambition comes at a time when, according to global trends in tourism, "a new traveller" is seeking "creative and sustainable destinations". The argument goes that by promoting sustainability (this Biosphere stuff), a destination can establish greater loyalty from a tourist who, impressed by the efforts to maintain the environment, the local culture, the local heritage, alleviate poverty, etc. etc., will become a repeat tourist. There is a further argument that this approach will enable a destination to in fact increase its tourism in the first place.
Sustainable tourism, responsible tourism and other terms do have specific meanings and grand intentions. But they have also become part of the tourism marketing lexicon for destinations for which they weren't originally intended. Sustainable tourism was derived from sustainable development, initially a UN programme with contemporary origins in the 1980s. Primarily, it was concerned (as was sustainable tourism when it was first conceived) with protection of less-developed parts of the world. Subsequently, the tourism industry latched on to the idea that all this sustainability offered product and marketing possibilities for developed tourist destinations.
This isn't to say that genuine efforts have not been made - as they have - but to come to Catalonia or indeed to Mallorca, how applicable are principles of sustainable (or responsible) tourism? Let's consider a couple. Involve local people in decisions that affect their lives and life chances. Provide more enjoyable experiences for tourists through meaningful connections with local people and a greater understanding of local cultural, social and environmental issues.
While it is undeniable that there are tourists who value the second of these, and do so in Catalonia or Mallorca, there is a vast number who really, let's be perfectly honest, aren't that bothered. And when they are in all-inclusives, their chances of being bothered are significantly lessened. What do advocates suggest? Bussing in loads of locals for the inmates of an all-inclusive to goggle at?
For less-developed parts of the tourism world, there are clear benefits from increasing the volume of tourism so long as this increase stays in harmony with the environment and the needs of the local people. For developed parts, increasing volume runs counter to principles of sustainability/responsbility. The creative or smart tourist destination in the developed world should not be aiming to add more tourists willy-nilly. Instead, it should seek tourists who will maximise economic benefits while keeping social and environmental costs to a minimum.
The argument goes that destinations such as Mallorca have devoted too much attention to constantly increasing numbers of tourists without truly assessing economic benefits, and in the past few days there has been an admission that this is the case. Sort of. It has come from the president of the Balearics, José Ramón Bauzá. In parliament on Tuesday, Bauzá said that there was "no direct relationship between an increase in the number of tourists and variance in Balearics GDP". "The key", he said, was competitiveness profit or loss. Through inference, Bauzá was saying what many have said before. More tourists do not mean greater economic benefits when a proportion of tourist volume contributes little or nothing to the economy or indeed can cause a loss. This is something that has been known about for years but it is not something that politicians and others have chosen to do anything about. The increase in numbers has all they have been worried about.
What Bauzá was saying comes back to a governmental desire for more "quality" tourists, but this does not mean more tourists in total. It means the opposite, and former tourism minister Carlos Delgado, in not so many words, once said as much. But while Bauzá and the PP have sought this course, we now have, repeated this week, the desire of the Mallorcan left-wing for a tourism that will permit "shared prosperity" for the people of the Balearics. From both right and left and so from different political starting-points, a common view appears to be emerging - that the islands' tourism model has to change, and it is a change that may well entail fewer tourists and not more.
Into all of this came an intervention from Gabriel Escarrer of Melià. He said that "the Balearics have to become the elite destination in the Mediterranean": not an elite destination, the elite destination. Meliá is committing itself to ever greater quality, as is the case with the Calvia Beach Resort. This commitment, says Sr. Escarrer, is one that emphasises differentiation from other destinations and - that word again - sustainability. But if Meliá's vision were to be embraced wholeheartedly and were, therefore, Mallorca to be propelled towards tourist elitism, the consequence is clear. It would result in fewer tourists. The current mass could not be converted into the type of tourist that Meliá (and the government) has in mind. And it most certainly could not be converted in this way while lousy and outdated all-inclusives remain.
By the coincidence of Catalonia and its Biosphere and of what Bauzá and Escarrer have said, this past week has encapsulated where Mallorca might be heading. While it is Catalonia that is seeking the Biosphere certificate, it can be certain that a close eye will be kept on that. And if Catalonia were to conclude that entering the Biosphere means sustainability and responsibility through fewer tourists, then others may well draw the same conclusion.
Catalonia's ambition comes at a time when, according to global trends in tourism, "a new traveller" is seeking "creative and sustainable destinations". The argument goes that by promoting sustainability (this Biosphere stuff), a destination can establish greater loyalty from a tourist who, impressed by the efforts to maintain the environment, the local culture, the local heritage, alleviate poverty, etc. etc., will become a repeat tourist. There is a further argument that this approach will enable a destination to in fact increase its tourism in the first place.
Sustainable tourism, responsible tourism and other terms do have specific meanings and grand intentions. But they have also become part of the tourism marketing lexicon for destinations for which they weren't originally intended. Sustainable tourism was derived from sustainable development, initially a UN programme with contemporary origins in the 1980s. Primarily, it was concerned (as was sustainable tourism when it was first conceived) with protection of less-developed parts of the world. Subsequently, the tourism industry latched on to the idea that all this sustainability offered product and marketing possibilities for developed tourist destinations.
This isn't to say that genuine efforts have not been made - as they have - but to come to Catalonia or indeed to Mallorca, how applicable are principles of sustainable (or responsible) tourism? Let's consider a couple. Involve local people in decisions that affect their lives and life chances. Provide more enjoyable experiences for tourists through meaningful connections with local people and a greater understanding of local cultural, social and environmental issues.
While it is undeniable that there are tourists who value the second of these, and do so in Catalonia or Mallorca, there is a vast number who really, let's be perfectly honest, aren't that bothered. And when they are in all-inclusives, their chances of being bothered are significantly lessened. What do advocates suggest? Bussing in loads of locals for the inmates of an all-inclusive to goggle at?
For less-developed parts of the tourism world, there are clear benefits from increasing the volume of tourism so long as this increase stays in harmony with the environment and the needs of the local people. For developed parts, increasing volume runs counter to principles of sustainability/responsbility. The creative or smart tourist destination in the developed world should not be aiming to add more tourists willy-nilly. Instead, it should seek tourists who will maximise economic benefits while keeping social and environmental costs to a minimum.
The argument goes that destinations such as Mallorca have devoted too much attention to constantly increasing numbers of tourists without truly assessing economic benefits, and in the past few days there has been an admission that this is the case. Sort of. It has come from the president of the Balearics, José Ramón Bauzá. In parliament on Tuesday, Bauzá said that there was "no direct relationship between an increase in the number of tourists and variance in Balearics GDP". "The key", he said, was competitiveness profit or loss. Through inference, Bauzá was saying what many have said before. More tourists do not mean greater economic benefits when a proportion of tourist volume contributes little or nothing to the economy or indeed can cause a loss. This is something that has been known about for years but it is not something that politicians and others have chosen to do anything about. The increase in numbers has all they have been worried about.
What Bauzá was saying comes back to a governmental desire for more "quality" tourists, but this does not mean more tourists in total. It means the opposite, and former tourism minister Carlos Delgado, in not so many words, once said as much. But while Bauzá and the PP have sought this course, we now have, repeated this week, the desire of the Mallorcan left-wing for a tourism that will permit "shared prosperity" for the people of the Balearics. From both right and left and so from different political starting-points, a common view appears to be emerging - that the islands' tourism model has to change, and it is a change that may well entail fewer tourists and not more.
Into all of this came an intervention from Gabriel Escarrer of Melià. He said that "the Balearics have to become the elite destination in the Mediterranean": not an elite destination, the elite destination. Meliá is committing itself to ever greater quality, as is the case with the Calvia Beach Resort. This commitment, says Sr. Escarrer, is one that emphasises differentiation from other destinations and - that word again - sustainability. But if Meliá's vision were to be embraced wholeheartedly and were, therefore, Mallorca to be propelled towards tourist elitism, the consequence is clear. It would result in fewer tourists. The current mass could not be converted into the type of tourist that Meliá (and the government) has in mind. And it most certainly could not be converted in this way while lousy and outdated all-inclusives remain.
By the coincidence of Catalonia and its Biosphere and of what Bauzá and Escarrer have said, this past week has encapsulated where Mallorca might be heading. While it is Catalonia that is seeking the Biosphere certificate, it can be certain that a close eye will be kept on that. And if Catalonia were to conclude that entering the Biosphere means sustainability and responsibility through fewer tourists, then others may well draw the same conclusion.
Friday, December 26, 2014
Milking The Balearics' Cash Cow
A ten per cent economic impact on the whole of Spain's tourism is what tourism in the Balearics contributes to the national economy. Good thing, bad thing? Forty-five per cent of Balearics Producto Interior Bruto (PIB or GDP) is derived from tourism. Good thing, bad thing?
Exceltur, the alliance for touristic excellence, has calculated the contributions of tourism to the PIBs of regions of Spain. The Balearics' contribution is greater than that of any other region. Significantly greater. The Canaries lag some fourteen percentage points behind in second place. And behind the Canaries, a long way behind, are Valencia (Benidorm and all with 12.6%) and Andalusia (Costa del Sol and all with 12.5%). Exceltur, to the delight of the regional government, was able to show that the tourism PIB in 2013 had leapt above the level for 2008, the year before the effects of crisis really took hold. It has taken five years for there to be recovery, but recovery there has been and in 2013 the PIB increased by 5.7%.
On the one hand this is good news. Very good news. But on the other hand it isn't good. It is very bad. Almost half the islands' economic activity is generated by one industry. The Balearics is about as close as you can get to having a single-product economy. Tourism is a strength, a mighty strength, but it is also a mighty weakness. If the Balearics were a nation, the panic buttons would have been pressed long, long ago. Compare the Balearics with nations that have a high reliance on tourism. The Dominican Republic, according to the 2014 World Travel and Tourism Council's report, generates 13.3% GDP from tourism. In The Maldives it is 28%. Two developing economies, but with far lower dependence upon tourism. The Balearics is not a developing economy. It is developed, but a developed economy is not supposed to have only one main industry.
When one looks at how Exceltur arrives at its 45% calculation, one wonders why this percentage isn't in fact greater. Three-quarters come from direct effects, such as hotel and restaurant activity. The other quarter is made up from ancillary and supply industries, one of them being construction. It would be interesting to delve deeper into this calculation. Much construction, such as roads, unarguably has an effect on tourism, as does, for instance, building for medical services. When Jaime Martínez, the tourism minister, announced provisions within the recent tourism decree, he said that "all infrastructure has much to do with tourism". He was not wrong in this regard, even if he was bending an argument to justify the legalistic regularisation of land on which Son Espases is built and its inclusion within the framework of tourism legislation.
Fortunately, the Balearics is not a nation. Fortunately for Spain and for the Spanish economy, the Balearics can provide a hugely significant contribution to national wealth. And also fortunately for the nation, Balearics tourism generates almost 40% of the islands' tax revenues that are deposited with the national treasury. These economic and tax contributions make the Balearics the nation's largest tourism cash cow. One region, one industry, and the cow is milked for all it's worth.
One should look at these figures in the context of arguments that the regional government has with national government over financing. The direct investment fund for Balearics infrastructure is low by comparison with other regions, while the income the Balearics receives via the redistribution of tax revenues generated by all regions is vastly inferior to revenues the islands raise, 40% of them coming from one industry. The unjustness of this distribution should be obvious, and it is made more unjust because of the massive reliance on tourism.
When such a reliance exists, there is an inherently high level of risk, especially as tourism can be a volatile industry. The Balearics is lucky in this respect. Despite volatility, Balearics' reliability allows it to withstand shocks to the system. Tourism PIB slumped by 6% in 2009, but recovery was relatively swift. But luck and reputations for safety and reliability should not be allowed to dominate. The treatment of Balearics tourism as a national cash cow badly needs addressing. Economists, academics and even some journalists have been saying so for years. There should be a greater level of state financing but it should come with the proviso of being targeted at economic diversification in the Balearics. 45% tourism PIB is untenable, as is the 35% of employment - direct and indirect - which comes from tourism but that gives rise to the absurdity of the six-month working year.
45% sounds good, but it isn't. The regional government might be able to glow in the light of the increase, but it should be planning the opposite. When that 45% is down to a less dependent level will be the time to celebrate.
Exceltur, the alliance for touristic excellence, has calculated the contributions of tourism to the PIBs of regions of Spain. The Balearics' contribution is greater than that of any other region. Significantly greater. The Canaries lag some fourteen percentage points behind in second place. And behind the Canaries, a long way behind, are Valencia (Benidorm and all with 12.6%) and Andalusia (Costa del Sol and all with 12.5%). Exceltur, to the delight of the regional government, was able to show that the tourism PIB in 2013 had leapt above the level for 2008, the year before the effects of crisis really took hold. It has taken five years for there to be recovery, but recovery there has been and in 2013 the PIB increased by 5.7%.
On the one hand this is good news. Very good news. But on the other hand it isn't good. It is very bad. Almost half the islands' economic activity is generated by one industry. The Balearics is about as close as you can get to having a single-product economy. Tourism is a strength, a mighty strength, but it is also a mighty weakness. If the Balearics were a nation, the panic buttons would have been pressed long, long ago. Compare the Balearics with nations that have a high reliance on tourism. The Dominican Republic, according to the 2014 World Travel and Tourism Council's report, generates 13.3% GDP from tourism. In The Maldives it is 28%. Two developing economies, but with far lower dependence upon tourism. The Balearics is not a developing economy. It is developed, but a developed economy is not supposed to have only one main industry.
When one looks at how Exceltur arrives at its 45% calculation, one wonders why this percentage isn't in fact greater. Three-quarters come from direct effects, such as hotel and restaurant activity. The other quarter is made up from ancillary and supply industries, one of them being construction. It would be interesting to delve deeper into this calculation. Much construction, such as roads, unarguably has an effect on tourism, as does, for instance, building for medical services. When Jaime Martínez, the tourism minister, announced provisions within the recent tourism decree, he said that "all infrastructure has much to do with tourism". He was not wrong in this regard, even if he was bending an argument to justify the legalistic regularisation of land on which Son Espases is built and its inclusion within the framework of tourism legislation.
Fortunately, the Balearics is not a nation. Fortunately for Spain and for the Spanish economy, the Balearics can provide a hugely significant contribution to national wealth. And also fortunately for the nation, Balearics tourism generates almost 40% of the islands' tax revenues that are deposited with the national treasury. These economic and tax contributions make the Balearics the nation's largest tourism cash cow. One region, one industry, and the cow is milked for all it's worth.
One should look at these figures in the context of arguments that the regional government has with national government over financing. The direct investment fund for Balearics infrastructure is low by comparison with other regions, while the income the Balearics receives via the redistribution of tax revenues generated by all regions is vastly inferior to revenues the islands raise, 40% of them coming from one industry. The unjustness of this distribution should be obvious, and it is made more unjust because of the massive reliance on tourism.
When such a reliance exists, there is an inherently high level of risk, especially as tourism can be a volatile industry. The Balearics is lucky in this respect. Despite volatility, Balearics' reliability allows it to withstand shocks to the system. Tourism PIB slumped by 6% in 2009, but recovery was relatively swift. But luck and reputations for safety and reliability should not be allowed to dominate. The treatment of Balearics tourism as a national cash cow badly needs addressing. Economists, academics and even some journalists have been saying so for years. There should be a greater level of state financing but it should come with the proviso of being targeted at economic diversification in the Balearics. 45% tourism PIB is untenable, as is the 35% of employment - direct and indirect - which comes from tourism but that gives rise to the absurdity of the six-month working year.
45% sounds good, but it isn't. The regional government might be able to glow in the light of the increase, but it should be planning the opposite. When that 45% is down to a less dependent level will be the time to celebrate.
Sunday, March 09, 2014
Bono Comes To Spain's Rescue
The European People's Party, "the political family of the centre-right" apparently, had gathered in the Irish capital for its summit. Among the political leaders who form this family are Angela Merkel and Spain's very own Mariano Rajoy. And Mariano made a speech at the gathering. Unfortunately, it wasn't Mariano Rajoy but Mariano Rayor, a simple enough mistake perhaps or alternatively a massive great howler. The name that was projected behind someone who looked remarkably like Mariano Rajoy was Mariano Rayor.
Of course, the Irish might not be terribly familiar with Mariano, but they would most certainly be very familiar with one of the non-political-leader speakers. They can't avoid him. Indeed, no one can avoid him. He still hasn't found what he's looking for, but Bono has spent the past several years in earnest pursuit of its discovery. World peace, poverty, you name it, Bono is seeking a solution.
And in Dublin he came up with a solution for Spain. "Where is the response of the European family? Where is the pan-European campaign for people to take their holidays in Spain, to buy Spanish products and listen to Spanish music?" There has to be European support for the Spanish economy, he went on, as a response to the reforms and measures that the Spanish Government has put in place.
It was all very curious, and doubly so when Bono seemed to intimate that U2 might be about to record a flamenco album. But has there not been European support for the Spanish economy? Or did we imagine all the intervention by Brussels? And what exactly was all this stuff about a pan-European campaign for Spanish tourism? Is Brussels about to diversify into the travel industry?
Unless you prefer Bono sticking to telling us all it's a beautiful day and so stop sticking his nose into European affairs, you will probably think it does little harm for him to make a plea on behalf of the Spanish tourism industry. To be fair, it doesn't do any harm because very few people are likely to pay much attention, but by calling for a campaign for more holidaymaking in Spain, Bono falls into the trap marked "over-reliance on the tourism industry". This may not be a reliance which is common to all parts of Spain, but it is to some, such as Mallorca.
Tourism, and more of it, as an antidote to economic crisis is both necessary and welcome, but tourism has, for too long, been a strength balanced, or rather imbalanced, by the weakness that this strength produces. Mallorca displays this better than anywhere. Its economy does not have adequate balance. There is little scope for a major increase in Mallorca's summer tourism (peak summer, that is), while there is enormous scope for a major increase in the off-season, as I think we know. But the angst that is caused by the absence of off-season tourism and the resultant debates, suggestions and prescriptions create a polemic which is itself imbalanced. The arguments should be about economic well-being from sources other than tourism and about attempting to establish a balance in the economy rather than one in which the summer scale is so heavily loaded that it tips the empty winter scale to an almost vertical position.
The Bono prescription is, therefore, simplistic and short-termist, but then he is a rock singer not a politician, though being a politician offers little guarantee of there being a true understanding of issues, tourism being one of them. Take Mariano, for example. Among his arguments for defending oil exploration off the Balearics was one which drew a comparison with the United Kingdom, Norway and Canada. In each of these countries oil co-exists with fishing and tourism, he said. Which may well be true, but the tourism is of a very different order to that in the Balearics. And as for fishing, with his newly acquired moniker, he might bear in mind that the Mediterranean is very different to the Atlantic. Perhaps he can seek Bono's advice.
Photo: Wikipedia.
Friday, November 22, 2013
From Abnormal To Normal: Spain's economy
Winter, rather than spring, is in the air, but the economic trees are bearing the first shoots of economic recovery. Come real spring and the economy will bloom into a magnificent display of vibrant greenness, its pollen wafted on the breezes to regenerate the barren lands of the past five years. Life will return. Everything will be as it once was. Everything will be normal again.
The Spanish economy is showing signs. They may only be small signs but they are signs nonetheless. Imports grew in September by 4.7%, so suggesting an improvement in domestic demand. Exports, which have been reasonably buoyant anyway, were up by 8.3%. The OECD, taking note of this performance, has issued a more positive forecast for Spain: growth of 0.5% in 2014 rather than 0.4%. Hallelujah. Unemployment is expected to have fallen to 26.4% (as a whole-year figure) rather than be 27.3%. It should fall a further percentage point in 2014. More hallelujahs.
Before we get carried away, however, the OECD, and it is not alone, has identified factors which will continue to pull the economy back, namely the requirement for fiscal consolidation (otherwise known as increased taxes) and a lack of credit. With Spain expected to fail to meet its budget-deficit targets this year and over the next two, then the Rajoy government still needs to find some pretty hefty savings, though how far it dare go with public-sector restructuring, which would certainly help in this respect, is open to question, especially with the elections looming in late 2015.
Those elections are beginning to look even more important than they might normally be. The Partido Popular maintains a lead in opinion polls but that lead (in one poll) is down to three points over PSOE. As things stand, an election could throw up all manner of confusion and potential chaos from the cobbling-together of coalitions, amidst which would be the Catalonia question. Assuming the Catalans haven't by then succeeded in finding a way of seceding from Spain, both of the major parties would be deeply reluctant to admit the Catalonian CiU into any coalition, which also assumes that the CiU doesn't lose further ground to the left.
The Rajoy government will talk up the weak signs of recovery for all they are worth, because in truth they will be all it has to talk up. The hope that IVA and/or income tax might be reduced ahead of the election looks to be as much of a pipe dream as it has been ever since taxes started rising. The pressures for there to be fiscal consolidation (and more of it) and for there to be greater inroads into the budget deficit simply do not permit a reversal in tax policy. Rajoy could badly do with being able to make such a reversal. His political future might be said to depend on it, as it would be the one thing that might convince the electorate.
Other things will not. Very weak growth won't and nor will very moderate falls in unemployment. It should be remembered that pre-crisis the unemployment rate was between 8 to 9%. Such a figure is not going to be attained any time soon. In fact, the bigger question is whether it might ever be attained.
For the foreseeable future, it is impossible to see the construction industry helping out with employment and its own percentage of the employed being brought back to the 14% level that it was at pre-crisis. While there are so many hundreds of thousands of unsold properties and there is so little credit, the property market is going nowhere and so nor is the supply of jobs for house-building. Governments can't help with construction either, as they once did with such profligacy. What about Spain's green economy? That also can't help either. It has been an unmitigated disaster. What about the new "knowledge" economy? What about it, when educational levels are as low as they are in Spain as a whole? What about the public sector? Not a chance. There have to be more cuts to tackle the deficit, though making them in areas of the country where government is the biggest employer will be very difficult, so talk of local and/or regional government reforms - true, tough reforms - are very unlikely.
At the top of this article, I imagined everything being normal again. But what is normal? Increasingly, distinguished economists are arguing that normality will be much like we have at the present. Things may improve by small amounts but not great amounts unless massive bubbles, such as those in housing markets, are manufactured and permit some move towards greater employment. The point is that, even before crisis and before the bubble burst, the employment rate was only reasonable not outstanding, and remember that this was a bubble blown by out-of-control bank lending, especially that by the crony-filled regional savings banks.
I myself have said before that there should be a realisation that possibly things will be never be "normal" in the way they once were, and so demand will remain that much lower than was the case. Perhaps, pre-crisis, things were in fact "abnormal". If so, it is about time that governments, not least the Spanish Government, appreciate this.
The Spanish economy is showing signs. They may only be small signs but they are signs nonetheless. Imports grew in September by 4.7%, so suggesting an improvement in domestic demand. Exports, which have been reasonably buoyant anyway, were up by 8.3%. The OECD, taking note of this performance, has issued a more positive forecast for Spain: growth of 0.5% in 2014 rather than 0.4%. Hallelujah. Unemployment is expected to have fallen to 26.4% (as a whole-year figure) rather than be 27.3%. It should fall a further percentage point in 2014. More hallelujahs.
Before we get carried away, however, the OECD, and it is not alone, has identified factors which will continue to pull the economy back, namely the requirement for fiscal consolidation (otherwise known as increased taxes) and a lack of credit. With Spain expected to fail to meet its budget-deficit targets this year and over the next two, then the Rajoy government still needs to find some pretty hefty savings, though how far it dare go with public-sector restructuring, which would certainly help in this respect, is open to question, especially with the elections looming in late 2015.
Those elections are beginning to look even more important than they might normally be. The Partido Popular maintains a lead in opinion polls but that lead (in one poll) is down to three points over PSOE. As things stand, an election could throw up all manner of confusion and potential chaos from the cobbling-together of coalitions, amidst which would be the Catalonia question. Assuming the Catalans haven't by then succeeded in finding a way of seceding from Spain, both of the major parties would be deeply reluctant to admit the Catalonian CiU into any coalition, which also assumes that the CiU doesn't lose further ground to the left.
The Rajoy government will talk up the weak signs of recovery for all they are worth, because in truth they will be all it has to talk up. The hope that IVA and/or income tax might be reduced ahead of the election looks to be as much of a pipe dream as it has been ever since taxes started rising. The pressures for there to be fiscal consolidation (and more of it) and for there to be greater inroads into the budget deficit simply do not permit a reversal in tax policy. Rajoy could badly do with being able to make such a reversal. His political future might be said to depend on it, as it would be the one thing that might convince the electorate.
Other things will not. Very weak growth won't and nor will very moderate falls in unemployment. It should be remembered that pre-crisis the unemployment rate was between 8 to 9%. Such a figure is not going to be attained any time soon. In fact, the bigger question is whether it might ever be attained.
For the foreseeable future, it is impossible to see the construction industry helping out with employment and its own percentage of the employed being brought back to the 14% level that it was at pre-crisis. While there are so many hundreds of thousands of unsold properties and there is so little credit, the property market is going nowhere and so nor is the supply of jobs for house-building. Governments can't help with construction either, as they once did with such profligacy. What about Spain's green economy? That also can't help either. It has been an unmitigated disaster. What about the new "knowledge" economy? What about it, when educational levels are as low as they are in Spain as a whole? What about the public sector? Not a chance. There have to be more cuts to tackle the deficit, though making them in areas of the country where government is the biggest employer will be very difficult, so talk of local and/or regional government reforms - true, tough reforms - are very unlikely.
At the top of this article, I imagined everything being normal again. But what is normal? Increasingly, distinguished economists are arguing that normality will be much like we have at the present. Things may improve by small amounts but not great amounts unless massive bubbles, such as those in housing markets, are manufactured and permit some move towards greater employment. The point is that, even before crisis and before the bubble burst, the employment rate was only reasonable not outstanding, and remember that this was a bubble blown by out-of-control bank lending, especially that by the crony-filled regional savings banks.
I myself have said before that there should be a realisation that possibly things will be never be "normal" in the way they once were, and so demand will remain that much lower than was the case. Perhaps, pre-crisis, things were in fact "abnormal". If so, it is about time that governments, not least the Spanish Government, appreciate this.
Tuesday, October 29, 2013
Bill Gates And The Spanish Recovery
The purchase makes Gates the second largest shareholder in FCC, some considerable distance behind Esther Koplowitz, who developed a construction firm that she and her sister had inherited from their father, and one that, through merger, became FCC in 1992. Sra. Koplowitz controls 53.9% of what is one of Spain's biggest construction concerns.
But why would Gates be interested in a construction company, and a Spanish one at that? And why would FCC be interested in him becoming a shareholder? The answer to the latter may have to do with the company being in the midst of a restructuring of both debt and strategy. It returned a significant loss in the first quarter this year, partly because of a write down in the value of its renewable energy assets, a move probably in response to the Spanish Government having gone cold on renewables, especially solar, as it seeks to tackle the enormous energy tariff deficit. Otherwise, FCC was, as with the rest of the construction sector, badly hit when public-sector projects were cut and when the property market went belly-up.
Nevertheless, FCC is a company in reasonable shape thanks to its diverse operations and its global status. It is active in 55 countries and its business operations are not confined to mere bricks and mortar. There are environmental services, for example, as well as construction of an industrial nature. It is said that Gates is taking a punt on a recovery in the Spanish construction market. I'm not so sure that someone like Gates either takes a punt or takes one on something as potentially volatile as simple construction. My guess is that it is FCC's global operations, its investment in various technologies, such as with environmental services, and potential in emerging and less-developed markets that has attracted Gates. One can perhaps be persuaded too much that he is an investment benefactor and philanthropist rather than a hard-nosed investor, but I would suggest there is a fair element of the former about his interest in FCC, and FCC would probably feel it could benefit from an association with a universally recognised businessperson who has become known for wishing to pursue good works. As FCC says on its website, it invests globally in "technology, improving processes and developing eco-efficient communities". Bill Gates as part of this? Yes, it would make some sense.
However one interprets Gates's investment, it is an encouraging vote of confidence in a major Spanish company, and it is evidence of what the president of the Santander bank said recently about money "coming in from all directions" into Spain. FCC, with its overseas operations, is evidence also of the export-led recovery of the Spanish economy. These are feelgood elements which will allow the government and others to point to the corner having been turned, but how real are they? The economy may move into growth on the back of exports - tourism and global actors like FCC - but how much impact does this have on the home market, given that, for example, so much of the export earning from tourism is not actually kept in the home market because it is earned by overseas tour operators and airlines? Moreover, what are the targets for all the money that is coming in from all directions? One is real estate, the consequence of an adjustment in property markets which has made Spain attractive to inward investors. Yet, there is a fair amount of evidence to suggest that much of this investment is being directed towards speculative commercial real estate and in particular the rental returns on investment from commercial property. The feelgood element is also being felt in the stock market, but where it isn't being felt is in actual, productive investment, something which might stimulate the domestic market, create employment, increase consumer demand and so effect a more balanced growth in the economy.
Still, things are better and psychologically, if nothing else, Spain may be moving in the right direction. But for the time being it is a psychological boost enjoyed more by investors and bankers than by the man in the street. There is a long way to go yet.
Thursday, September 19, 2013
The Green, Green Tax Of Home (And Only Home)
"It would be amazing were these green taxes to come before parliament again and be ratified. The government says that they will be debated once more in September with an intention to introduce them at the end of the tourism season. But what would have changed to make business more inclined to stomach them? The next election would in fact be that much closer; this is about all that might have changed."
I wrote the above in early June this year. The Balearic Government had announced then that taxes on car hire, on food and drink packaging and on large retail centres - the green taxes - were not going to be introduced as the government had intended. President Bauzá has now said that, despite a promise to bring the taxes back for debate in parliament, there will be no taxes. Not for one moment did I ever imagine that there would have been such a debate or that the taxes would have been introduced.
Bauzá has avoided taking the issue before parliament at all. His announcement came at a briefing for business leaders. There may have been little point in having a parliamentary discussion, but he might at least have afforded the parliament a touch of courtesy and made the announcement to it rather than to a private gathering.
But of course the people he was addressing would have included just those people who objected to the taxes - business leaders. It was they who put the kibosh on the taxes. When the mighty retailers gathered and threatened legal action against the taxes, the government's game was up. A president who knows which side his bread is buttered doesn't bother with announcements to parliament but to those who are the real powers in the land, of which he isn't one.
The spin behind the announcement, though, tells a rather different story. The taxes are not being reconsidered because the economy is improving; hence there is no need for new sources of tax revenue. The deficit requirement placed on the regional government by Madrid has given the Balearics a bit of wriggle room as well and given the government a further reason not to bring in the taxes.
Maybe we should just consider, however, what this economic improvement entails. Growth of 0.3% in the second quarter, excellent hotel occupancy rates and increased tourist spend. I think I have dealt with the latter two of these in a previous article. As for second-quarter growth, it is positive, but let us wait until the winter quarters and see if there is genuine and consistent growth and not just that brought about by seasonal factors.
We should also consider the original motives for the green taxes. One was to raise revenue, the other was to act as "an incentive for greater environmental responsibility". The finance minister and vice-president at the time, Josep Aguiló, conceded that these taxes went counter to the "ideology of the Partido Popular" (a point which has now been reiterated by the party's spokesperson Mabel Cabrer), but one has to ask, therefore, why they were ever conceived. The government's sudden discovery of a previously absent greenness was fiscal imperative wrapped in environmental foliage.
It might be recalled that there was one other green tax. It is the one that has been introduced. It has resulted, in some instances, in householders' water bills doubling. If this ran counter to PP philosophy, then will it now be scrapped? One very much doubts it.
The green taxes were announced right at the end of last year's tourism season. So, despite the revenues from tourism (being repeated this year), the government still felt compelled to invent some new taxes. Oddly though, at the start of this year the government was able to announce that its tax revenues for 2012 had risen unexpectedly. Regardless of this, and running counter to the party's ideology, the green taxes were still to be introduced.
The fact is that they would have been had it not been for pressure from big business, the typical supporters of the PP. They would have been up for introduction now were it not for the same pressure, while there is one other good reason why the government does not intend to consider the taxes again. The government doesn't want to be fighting on too many fronts. It has a fight with the teachers, one it will believe it can handle and depict as leftist, Catalanist agitation. It doesn't want one with an opponent it cannot handle. That which helps put it into government. Big business.
Any comments to andrew@thealcudiaguide.com please.
I wrote the above in early June this year. The Balearic Government had announced then that taxes on car hire, on food and drink packaging and on large retail centres - the green taxes - were not going to be introduced as the government had intended. President Bauzá has now said that, despite a promise to bring the taxes back for debate in parliament, there will be no taxes. Not for one moment did I ever imagine that there would have been such a debate or that the taxes would have been introduced.
Bauzá has avoided taking the issue before parliament at all. His announcement came at a briefing for business leaders. There may have been little point in having a parliamentary discussion, but he might at least have afforded the parliament a touch of courtesy and made the announcement to it rather than to a private gathering.
But of course the people he was addressing would have included just those people who objected to the taxes - business leaders. It was they who put the kibosh on the taxes. When the mighty retailers gathered and threatened legal action against the taxes, the government's game was up. A president who knows which side his bread is buttered doesn't bother with announcements to parliament but to those who are the real powers in the land, of which he isn't one.
The spin behind the announcement, though, tells a rather different story. The taxes are not being reconsidered because the economy is improving; hence there is no need for new sources of tax revenue. The deficit requirement placed on the regional government by Madrid has given the Balearics a bit of wriggle room as well and given the government a further reason not to bring in the taxes.
Maybe we should just consider, however, what this economic improvement entails. Growth of 0.3% in the second quarter, excellent hotel occupancy rates and increased tourist spend. I think I have dealt with the latter two of these in a previous article. As for second-quarter growth, it is positive, but let us wait until the winter quarters and see if there is genuine and consistent growth and not just that brought about by seasonal factors.
We should also consider the original motives for the green taxes. One was to raise revenue, the other was to act as "an incentive for greater environmental responsibility". The finance minister and vice-president at the time, Josep Aguiló, conceded that these taxes went counter to the "ideology of the Partido Popular" (a point which has now been reiterated by the party's spokesperson Mabel Cabrer), but one has to ask, therefore, why they were ever conceived. The government's sudden discovery of a previously absent greenness was fiscal imperative wrapped in environmental foliage.
It might be recalled that there was one other green tax. It is the one that has been introduced. It has resulted, in some instances, in householders' water bills doubling. If this ran counter to PP philosophy, then will it now be scrapped? One very much doubts it.
The green taxes were announced right at the end of last year's tourism season. So, despite the revenues from tourism (being repeated this year), the government still felt compelled to invent some new taxes. Oddly though, at the start of this year the government was able to announce that its tax revenues for 2012 had risen unexpectedly. Regardless of this, and running counter to the party's ideology, the green taxes were still to be introduced.
The fact is that they would have been had it not been for pressure from big business, the typical supporters of the PP. They would have been up for introduction now were it not for the same pressure, while there is one other good reason why the government does not intend to consider the taxes again. The government doesn't want to be fighting on too many fronts. It has a fight with the teachers, one it will believe it can handle and depict as leftist, Catalanist agitation. It doesn't want one with an opponent it cannot handle. That which helps put it into government. Big business.
Any comments to andrew@thealcudiaguide.com please.
Thursday, March 14, 2013
The Recovery Will Not Be Realised
Alfredo Pastor is professor of economics at the IESE Business School. He is also a former secretary of state for the economy - in the last PSOE government of Felipe González. It was interesting, therefore, to find an article of his in "The Bulletin", one entitled "Reasons to believe Spain's recovery is not far away". The reasons why Professor Pastor believes recovery might be in the offing include greater competitiveness through lower labour costs, a growing export market and some hints of business confidence creeping back.
There are some signs of recovery and it would be wrong to talk down the possibility of an improvement in the overall economic picture if not this year then next. BBVA bank has suggested that negative growth of minus 1.1% in 2013, slightly less bad than had been predicted, will be matched by plus 1.1% in 2014. It wouldn't be a huge improvement, but it would still be an improvement. BBVA, like Professor Pastor, emphasises export performance, but the economist Edward Hugh, generally a pessimist rather than an optimist, has made a comparison with the experience in Hungary where, despite good export performance, its economy keeps slipping back into recession. In Hungary, the country's current account balance is in the black. Spain's is moving this way, too, which sounds like a reason to be cheerful, but this disguises the size of the country's external debt.
Because of this debt, gains that are made from having a trade surplus thanks to export performance are used to service the debt. Greater competitiveness because of lower labour costs (internal devaluation) leads to better export competitiveness but doesn't necessarily mean economic growth, or growth that is anything other than small or even sustainable.
The Spanish Government is pinning its hopes on there being some growth, even if it is very moderate, and on this having a positive impact on the 26% unemployment rate. But unless export growth were to be more spectacular, it remains difficult to see how this unemployment is going to be tackled. Despite Professor Pastor's belief that confidence may be coming back, even if it is only trickling back, is this confidence among exporters or among those involved with the domestic market? The retail sector, for instance, is depressed and is likely to stay depressed. It may even become more depressed. And the reason for this is that there are potentially more recessionary measures yet to be taken.
The EU's budget enforcer, Olli Rehn, has suggested that Spain's deficit targets, ones that the government keeps missing anyway, could be eased, but the fact is that the country's fiscal position is currently unsustainable. More cuts and more tax increases are going to be needed at some point. Indeed, the EU has also suggested that there is room for a further rise in IVA (if not to the higher, general rate then to the lower rate, the so-called tourist rate). The political fallout from a rise in the tourist rate might prove too much for the government and for its supporters in the tourism industry who would desert it. But if the higher rate were to rise, then demand would be squeezed even more, meaning a further brake on any possible growth.
The miserable truth is that although taxes have been raised, although cuts have been swingeing, the deficit targets are still not being met, while, as a consequence - and perversely enough - of attempting to curb the deficit as swiftly as the government has been attempting to, the economy has been contracting because of the squeeze on demand.
Growth may return next year but as the government has been hell-bent (mainly because it had no other option) on pursuing a policy of internal devaluation through lower costs, this will also, both in the short and longer-term, have a depressive effect. Salary and wage reductions, some in the order of up to 40%, mainly in the public sector but certainly not exclusively, will do nothing to stimulate demand, and with credit squeezed as well (though movements on banks' recapitalisation may just takes the brakes off to a degree), it is almost impossible to see from where growth, other than any from exports, is likely to come and even more impossible to see how it might be sustained.
Professor Pastor is optimistic that the political situation re Catalonia will not lead to violence (and one can interpret this how one wants). Let's hope he's right. I happen to agree with him, but can there be the same optimism where social discontent is concerned? There is only so much a people can put up with, and while the financial economy might be showing an improvement, in the real world, there is none.
Any comments to andrew@thealcudiaguide.com please.
There are some signs of recovery and it would be wrong to talk down the possibility of an improvement in the overall economic picture if not this year then next. BBVA bank has suggested that negative growth of minus 1.1% in 2013, slightly less bad than had been predicted, will be matched by plus 1.1% in 2014. It wouldn't be a huge improvement, but it would still be an improvement. BBVA, like Professor Pastor, emphasises export performance, but the economist Edward Hugh, generally a pessimist rather than an optimist, has made a comparison with the experience in Hungary where, despite good export performance, its economy keeps slipping back into recession. In Hungary, the country's current account balance is in the black. Spain's is moving this way, too, which sounds like a reason to be cheerful, but this disguises the size of the country's external debt.
Because of this debt, gains that are made from having a trade surplus thanks to export performance are used to service the debt. Greater competitiveness because of lower labour costs (internal devaluation) leads to better export competitiveness but doesn't necessarily mean economic growth, or growth that is anything other than small or even sustainable.
The Spanish Government is pinning its hopes on there being some growth, even if it is very moderate, and on this having a positive impact on the 26% unemployment rate. But unless export growth were to be more spectacular, it remains difficult to see how this unemployment is going to be tackled. Despite Professor Pastor's belief that confidence may be coming back, even if it is only trickling back, is this confidence among exporters or among those involved with the domestic market? The retail sector, for instance, is depressed and is likely to stay depressed. It may even become more depressed. And the reason for this is that there are potentially more recessionary measures yet to be taken.
The EU's budget enforcer, Olli Rehn, has suggested that Spain's deficit targets, ones that the government keeps missing anyway, could be eased, but the fact is that the country's fiscal position is currently unsustainable. More cuts and more tax increases are going to be needed at some point. Indeed, the EU has also suggested that there is room for a further rise in IVA (if not to the higher, general rate then to the lower rate, the so-called tourist rate). The political fallout from a rise in the tourist rate might prove too much for the government and for its supporters in the tourism industry who would desert it. But if the higher rate were to rise, then demand would be squeezed even more, meaning a further brake on any possible growth.
The miserable truth is that although taxes have been raised, although cuts have been swingeing, the deficit targets are still not being met, while, as a consequence - and perversely enough - of attempting to curb the deficit as swiftly as the government has been attempting to, the economy has been contracting because of the squeeze on demand.
Growth may return next year but as the government has been hell-bent (mainly because it had no other option) on pursuing a policy of internal devaluation through lower costs, this will also, both in the short and longer-term, have a depressive effect. Salary and wage reductions, some in the order of up to 40%, mainly in the public sector but certainly not exclusively, will do nothing to stimulate demand, and with credit squeezed as well (though movements on banks' recapitalisation may just takes the brakes off to a degree), it is almost impossible to see from where growth, other than any from exports, is likely to come and even more impossible to see how it might be sustained.
Professor Pastor is optimistic that the political situation re Catalonia will not lead to violence (and one can interpret this how one wants). Let's hope he's right. I happen to agree with him, but can there be the same optimism where social discontent is concerned? There is only so much a people can put up with, and while the financial economy might be showing an improvement, in the real world, there is none.
Any comments to andrew@thealcudiaguide.com please.
Thursday, February 14, 2013
Mariano's Best Mates
To describe Angela Merkel and Mario Draghi as friends would probably be an exaggeration, but Mariano Rajoy can, right now, do with having any friend he can call on. And Rajoy's new best friends are saying things are much better. Like a drunk slowly sliding to the floor of the bar, he's grabbing hold of Merkel and Draghi and drawling "you're my best mates, I really love you", before finally collapsing in a comatose heap.
You couldn't really blame Mariano were he to drink himself into oblivion. Just when he thought that people might be forgetting about the Bárcenas papers, up pop other minor revelations - that Bárcenas was still on the Partido Popular's payroll until a couple of months ago and that graphologists have confirmed that the infamous ledgers were indeed written by Bárcenas (which of course Bárcenas has been denying) and not at one go, as has been suggested by PP prominenti. Ledgergate has required that friends rally round, and so Merkel and Draghi are propping him up by the bar.
Both Merkel and Draghi would have been alarmed by the fact that Spain's borrowing costs started to edge up again because of the nervousness induced by Ledgergate. It was the time for every good man, female Chancellor and president of the European Central Bank to come to the aid of the Partido Popular party, especially Draghi. It was he, after all, who promised unlimited bond buying.
Small wonder then that Draghi should have come before the Spanish Congress and offered some encouragement that there were signs of improvement and that Mariano and his merry men were doing the right things to get Spain out of its slight pickle. He probably hadn't intended for it to slip out, but it did, that he also told Congress that he was aware that adjustments were "still not producing visible improvements in the everyday lives of people". Had he not been aware, Draghi could have dragged himself off to Cas Catala in Calvia and spoken to a pensioner couple who were facing eviction for getting behind on their payments. It would have been too late, though, as the couple would have already committed suicide by the time he got there.
The ECB's intervention has certainly helped the situation, if you can call paying 5% plus on your bonds a healthy state of affairs. It is healthier than it was, but is it just a case of buying time? Economy minister Luis de Guindos can now say with a degree of confidence, all things being relative, that a bailout won't be needed and, moreover, say it without everyone rolling around in fits of laughter, which they were when he was insisting there wasn't a need for a bailout some months ago.
So yes, there are certain signs of improvement where the financial economy is concerned; hence the reason for de Guindos ruling out a bailout. But there aren't signs in the real economy. De Guindos's belief that there will be some positive growth at the end of the year is not one that is widely shared, and even if there were to be, how would it be sustained? Could it be sustained? It is most unlikely. The government is pinning its hopes on export-led growth, enabled by internal devaluation through a lowering of labour costs. There are analysts, and Morgan Stanley bank has one, Joachim Fels, who do think that exports could permit sustained return to growth. An opposing view is that too little has been done to increase Spain's export competitiveness, while it is difficult to see how the domestic market can avoid being anything other than depressed for some considerable time. There just isn't any credit or liquidity to stimulate the real economy. In fact, the capitalisation pressures on the banks could become greater if the private sector remains inert. It's the chicken and the egg; banks can't lend and they don't receive capital either, except from the European Union.
The consequence is one of continuing stasis. The government has hinted that incentives will be offered to banks to lend to smaller businesses, but it has not explained what these might be, while there is no guarantee that they would have any real effect, a conclusion drawn from the recent Spain Summit held by "The Economist".
Despite the better news on the financial economy, the situation remains desperately bleak, and it may be that the government, and everyone else, has to wise up to the fact that it will remain bleak. For years. There is a belief that, as though by some act of God, economies always recover. Well, maybe they don't. And they certainly don't if nothing is done to make them recover.
Any comments to andrew@thealcudiaguide.com please.
You couldn't really blame Mariano were he to drink himself into oblivion. Just when he thought that people might be forgetting about the Bárcenas papers, up pop other minor revelations - that Bárcenas was still on the Partido Popular's payroll until a couple of months ago and that graphologists have confirmed that the infamous ledgers were indeed written by Bárcenas (which of course Bárcenas has been denying) and not at one go, as has been suggested by PP prominenti. Ledgergate has required that friends rally round, and so Merkel and Draghi are propping him up by the bar.
Both Merkel and Draghi would have been alarmed by the fact that Spain's borrowing costs started to edge up again because of the nervousness induced by Ledgergate. It was the time for every good man, female Chancellor and president of the European Central Bank to come to the aid of the Partido Popular party, especially Draghi. It was he, after all, who promised unlimited bond buying.
Small wonder then that Draghi should have come before the Spanish Congress and offered some encouragement that there were signs of improvement and that Mariano and his merry men were doing the right things to get Spain out of its slight pickle. He probably hadn't intended for it to slip out, but it did, that he also told Congress that he was aware that adjustments were "still not producing visible improvements in the everyday lives of people". Had he not been aware, Draghi could have dragged himself off to Cas Catala in Calvia and spoken to a pensioner couple who were facing eviction for getting behind on their payments. It would have been too late, though, as the couple would have already committed suicide by the time he got there.
The ECB's intervention has certainly helped the situation, if you can call paying 5% plus on your bonds a healthy state of affairs. It is healthier than it was, but is it just a case of buying time? Economy minister Luis de Guindos can now say with a degree of confidence, all things being relative, that a bailout won't be needed and, moreover, say it without everyone rolling around in fits of laughter, which they were when he was insisting there wasn't a need for a bailout some months ago.
So yes, there are certain signs of improvement where the financial economy is concerned; hence the reason for de Guindos ruling out a bailout. But there aren't signs in the real economy. De Guindos's belief that there will be some positive growth at the end of the year is not one that is widely shared, and even if there were to be, how would it be sustained? Could it be sustained? It is most unlikely. The government is pinning its hopes on export-led growth, enabled by internal devaluation through a lowering of labour costs. There are analysts, and Morgan Stanley bank has one, Joachim Fels, who do think that exports could permit sustained return to growth. An opposing view is that too little has been done to increase Spain's export competitiveness, while it is difficult to see how the domestic market can avoid being anything other than depressed for some considerable time. There just isn't any credit or liquidity to stimulate the real economy. In fact, the capitalisation pressures on the banks could become greater if the private sector remains inert. It's the chicken and the egg; banks can't lend and they don't receive capital either, except from the European Union.
The consequence is one of continuing stasis. The government has hinted that incentives will be offered to banks to lend to smaller businesses, but it has not explained what these might be, while there is no guarantee that they would have any real effect, a conclusion drawn from the recent Spain Summit held by "The Economist".
Despite the better news on the financial economy, the situation remains desperately bleak, and it may be that the government, and everyone else, has to wise up to the fact that it will remain bleak. For years. There is a belief that, as though by some act of God, economies always recover. Well, maybe they don't. And they certainly don't if nothing is done to make them recover.
Any comments to andrew@thealcudiaguide.com please.
Monday, February 11, 2013
Imperfect Information
Ed Smith, the former cricketer now writer, has discussed the issue of player rotation policy in cricket on the website Cricinfo.com. Smith has highlighted the debate that is raging in Australia over what the national selectors dub "informed player management". The word "informed" is crucial, as the main point Smith makes is that the rotation, especially of fast bowlers, is based on "imperfect information". Because the three formats of international cricket and the demands they make on players have co-existed for only a few years, there is no bank of data relating to players from previous eras on which selectors, coaches, physios and sports scientists can draw. The best anyone can come up with in support of rotation and of managing players' workloads, argues Smith, is "an informed judgement".
The article is interesting in its own right, but what struck me about it was that his subject serves as something of an analogy for politics and economics and indeed for how most if not all of us live our lives.
In Spain, as elsewhere in Europe, imperfect information dominates. The country's politics and economics are tied to two projects that have always been exercises in operating on the basis of imperfect information, namely European integration and the Euro. It is possible to argue, just, that models existed for both projects, but they were far from perfect. The two projects have been experiments, and it is in the nature of experiments that not every outcome can be predicted. Experiments have an inherent quality, that of uncertainty. And uncertainty has a nasty habit of producing the unexpected, though if there is one certainty for any system developed on the basis of imperfect information, then it is that the unexpected will occur.
Sadly, there is no such thing as perfect information. If there were, then decisions would be very much more simple and straightforward than they usually are. To take the Euro and the possibility of Spain exiting it, there are plenty of commentators who claim to know what the outcome would be. But how can they know for certain? Just as the Euro was the product of imperfect information, so an exit would be based on imperfect information. It hasn't happened before. No one can say with certainty what the outcome might be. Two imperfects do not make a perfect; they can just as easily be doubly imperfect.
The current political situation in Spain is a different matter insofar as it is possible to draw on previous information, but that information, commonly what happened in the 1930s, is far from perfect. The circumstances are different today, especially because of European integration. An informed judgement which predicts a similar descent into chaos as occurred eighty years ago is one that uses the perfect information available to us of that period, but it cannot be perfect as it neglects the imperfections provided by contemporary circumstances.
That there are uncertainties surrounding both Spain's economy and political situation is undeniable. And managing these uncertainties is an almost impossible task, given the uniqueness of the circumstances and the very imperfection of the information on which to base decisions. But this is what governments are charged with doing. Even if they themselves don't know, they should give an appearance of knowing and of offering leadership that can at least go some way to ameliorating the stress of uncertainty within society. The Spanish Government is failing to offer this. Instead, it finds itself in the eye of a perfect storm, one that merely adds to the uncertainty.
There is another type of imperfect information. That which is dispensed and which can itself cause greater uncertainty. Set against the economy and the political situation, rules on letting out accommodation and on driving licences for foreign residents are trivial in the extreme. Recently, information in articles, far from clarifying the situation, has only served to increase uncertainty. On both topics, talk to anyone else who is supposedly in the know and you will get a different interpretation.
Yet, here are issues which should be easily enough understood as there should be a clear and unequivocal set of rules. So why does confusion dominate? Is it that governmental officialdom willfully ensures that information is imperfect? Perhaps so. Perhaps, because this officialdom operates under conditions of imperfect information, it expects everyone else to. Hence, you arrive at a situation by which no one knows for sure about anything: governments, citizens, cricket selectors. Everyone tries instead to make an informed judgement, the only problem being that the information is less than perfect.
Any comments to andrew@thealcudiaguide.com please.
The article is interesting in its own right, but what struck me about it was that his subject serves as something of an analogy for politics and economics and indeed for how most if not all of us live our lives.
In Spain, as elsewhere in Europe, imperfect information dominates. The country's politics and economics are tied to two projects that have always been exercises in operating on the basis of imperfect information, namely European integration and the Euro. It is possible to argue, just, that models existed for both projects, but they were far from perfect. The two projects have been experiments, and it is in the nature of experiments that not every outcome can be predicted. Experiments have an inherent quality, that of uncertainty. And uncertainty has a nasty habit of producing the unexpected, though if there is one certainty for any system developed on the basis of imperfect information, then it is that the unexpected will occur.
Sadly, there is no such thing as perfect information. If there were, then decisions would be very much more simple and straightforward than they usually are. To take the Euro and the possibility of Spain exiting it, there are plenty of commentators who claim to know what the outcome would be. But how can they know for certain? Just as the Euro was the product of imperfect information, so an exit would be based on imperfect information. It hasn't happened before. No one can say with certainty what the outcome might be. Two imperfects do not make a perfect; they can just as easily be doubly imperfect.
The current political situation in Spain is a different matter insofar as it is possible to draw on previous information, but that information, commonly what happened in the 1930s, is far from perfect. The circumstances are different today, especially because of European integration. An informed judgement which predicts a similar descent into chaos as occurred eighty years ago is one that uses the perfect information available to us of that period, but it cannot be perfect as it neglects the imperfections provided by contemporary circumstances.
That there are uncertainties surrounding both Spain's economy and political situation is undeniable. And managing these uncertainties is an almost impossible task, given the uniqueness of the circumstances and the very imperfection of the information on which to base decisions. But this is what governments are charged with doing. Even if they themselves don't know, they should give an appearance of knowing and of offering leadership that can at least go some way to ameliorating the stress of uncertainty within society. The Spanish Government is failing to offer this. Instead, it finds itself in the eye of a perfect storm, one that merely adds to the uncertainty.
There is another type of imperfect information. That which is dispensed and which can itself cause greater uncertainty. Set against the economy and the political situation, rules on letting out accommodation and on driving licences for foreign residents are trivial in the extreme. Recently, information in articles, far from clarifying the situation, has only served to increase uncertainty. On both topics, talk to anyone else who is supposedly in the know and you will get a different interpretation.
Yet, here are issues which should be easily enough understood as there should be a clear and unequivocal set of rules. So why does confusion dominate? Is it that governmental officialdom willfully ensures that information is imperfect? Perhaps so. Perhaps, because this officialdom operates under conditions of imperfect information, it expects everyone else to. Hence, you arrive at a situation by which no one knows for sure about anything: governments, citizens, cricket selectors. Everyone tries instead to make an informed judgement, the only problem being that the information is less than perfect.
Any comments to andrew@thealcudiaguide.com please.
Thursday, January 31, 2013
The Incredible Shrinking Spanish Economy
The Spanish economy shrank again in the final quarter of 2012. The provisional figure for the slump during the whole of 2012 is 1.4%, worse than the Bank of Spain had been predicting only a few days ago. Never mind though, the minister for the economy, Luis de Guindos, says that the slump hasn't been as bad as predicted. You pays yer money, you takes yer choice as to whose version you prefer. If you had any money, that is.
The output figure is one piece of bad economic news, the other is the level of unemployment - 26% of the total workforce, with unemployment among the young now reaching 60%. Sixty per cent. Just hold that thought and ask yourself what the future holds for this unemployed youth.
The lost generation of Spain's youth is increasingly looking abroad for work. Overall, there was an exit of over 40,000 people from Spain during the first half of 2012, and many of them are heading to the UK. As the Trans-Iberian blog from "El País" points out, the volume of applications for UK National Insurance numbers by Spanish migrants is second only to those made by people from Pakistan.
It's not as if the young are going to the UK and finding employment commensurate with their qualifications. They are taking bar work, any menial tasks, but at least there is some prospect of work. What is there in Spain? Nada.
The recessionary statistic for the final quarter should not come as a great surprise. It can be partly explained by consumption having been squeezed into the third quarter in order to avoid the rise in prices as a consequence of the increase in IVA (VAT) at the start of September. There are other factors, though, one of them being an impact of the government's labour reforms. Welcomed by some, these reforms have nevertheless contributed to a further weakening of confidence. If job security is lessened, so is the temptation to consume.
De Guindos reckons that positive growth will return in the second half of this year. He may be right, but you shouldn't put money on this either. De Guindos is prone to talking rubbish. (The IMF haven't said as much but disagree with his forecast.) At the end of April last year, let me remind you, he dismissed the idea of increasing IVA until this year. His rationale, if you can consider it rational, was that growth would have kicked in in 2013 and so the time would have arrived to raise indirect tax. Seriously, this is a minister responsible for economic affairs. Not only was he wrong about the IVA rise, as it was made four months later, he was also wrong in his thinking. If there were growth, the last thing that was needed was to stop it in its tracks by increasing tax.
It is a cliché to suggest that politicians don't know what they are doing. Some do. But as far as Spain's are concerned, they do their utmost in proving the cliché to be right. The austerity measures are taking Spain nowhere, except further inside its own basket case. The enormity of the poverty of political economic thought is matched only by the enormity of the brassnecked spin. Take the Balearics own economic genius, José Aguilo. Tax increases will stimulate the economy, he stated earlier this month. The screeches of laughter were drowned out only by the screams of despair. Aguiló's probably next in line for a Madrid cabinet position.
The Balearics finance (and employment and business) minister believes that the rise in taxes will help entrepreneurs because of a consequent lowering in interest rates. But who will be doing any lending? Entrepreneurship is the current flavour of the month of both the regional and national government. Rajoy has announced tax cuts for young entrepreneurs. So what? Growth measures are what will help these entrepreneurs. And credit. Unavailable credit.
But what about tax cuts for everyone else? There is a growing counter-argument to the austerity strategy imposed by the Spanish Government and imposed on it by forces from outside. Spain's problems with its borrowing rate have been eased thanks to European Central Bank intervention. We know what the pound (or euro) of flesh has had to be for this intervention, but what on earth is austerity ever going to achieve? Consider this. If it takes 2% economic growth to cut unemployment by 1% (a not untypical ratio), how long will it be before the 26% unemployment rate is lowered at all significantly? An awfully long time, always assuming there were such growth. And where's this going to come from?
Any comments to andrew@thealcudiaguide.com please.
Index for January 2013
Balearics tourism promotion action plan - 26 January 2013
Bishop of Mallorca - 12 January 2013
Bradley Wiggins and cycling tourism promotion - 27 January 2013
Broadcasting interference in Spain - 24 January 2013
Floating Spain on the stock market - 2 January 2013
Foodstagramming - 29 January 2013
Glosadors - 13 January 2013
Hainan: where Mallorca can't compete - 4 January 2013
Handball - 16 January 2013
Health and safety and traditions - 9 January 2012
Ill Manors adaptation - 19 January 2013
Luis Bárcenas and Partido Popular corruption - 21 January 2013
Madrid Olympics bid - 3 January 2013
Magalluf and Trip Advisor - 30 January 2013
Mallorcan attitudes and winter tourism - 6 January 2013
Osborne bull vandalised again - 1 January 2013
Paradores - 25 January 2013
Pollensa festival funding - 22 January 2013
Porto Cristo's name - 17 January 2013
Reading and misinterpretation or misunderstanding - 7 January 2013
Sant Sebastià: the legend and gay icon - 14 January 2013
Spain stuck in the 1930s - 28 January 2013
Spanish and Latin rock music - 23 January 2013
Spanish economy and unemployment - 31 January 2013
Spanish military, Republicanism and independence - 11 January 2013
The Truth About Magalluf - 5 January 2013, 10 January 2013, 20 January 2013
Tourism areas developments - 8 January 2013
UK resident population in Mallorca - 18 January 2013
Winter season: will there ever be one? - 15 January 2013
The output figure is one piece of bad economic news, the other is the level of unemployment - 26% of the total workforce, with unemployment among the young now reaching 60%. Sixty per cent. Just hold that thought and ask yourself what the future holds for this unemployed youth.
The lost generation of Spain's youth is increasingly looking abroad for work. Overall, there was an exit of over 40,000 people from Spain during the first half of 2012, and many of them are heading to the UK. As the Trans-Iberian blog from "El País" points out, the volume of applications for UK National Insurance numbers by Spanish migrants is second only to those made by people from Pakistan.
It's not as if the young are going to the UK and finding employment commensurate with their qualifications. They are taking bar work, any menial tasks, but at least there is some prospect of work. What is there in Spain? Nada.
The recessionary statistic for the final quarter should not come as a great surprise. It can be partly explained by consumption having been squeezed into the third quarter in order to avoid the rise in prices as a consequence of the increase in IVA (VAT) at the start of September. There are other factors, though, one of them being an impact of the government's labour reforms. Welcomed by some, these reforms have nevertheless contributed to a further weakening of confidence. If job security is lessened, so is the temptation to consume.
De Guindos reckons that positive growth will return in the second half of this year. He may be right, but you shouldn't put money on this either. De Guindos is prone to talking rubbish. (The IMF haven't said as much but disagree with his forecast.) At the end of April last year, let me remind you, he dismissed the idea of increasing IVA until this year. His rationale, if you can consider it rational, was that growth would have kicked in in 2013 and so the time would have arrived to raise indirect tax. Seriously, this is a minister responsible for economic affairs. Not only was he wrong about the IVA rise, as it was made four months later, he was also wrong in his thinking. If there were growth, the last thing that was needed was to stop it in its tracks by increasing tax.
It is a cliché to suggest that politicians don't know what they are doing. Some do. But as far as Spain's are concerned, they do their utmost in proving the cliché to be right. The austerity measures are taking Spain nowhere, except further inside its own basket case. The enormity of the poverty of political economic thought is matched only by the enormity of the brassnecked spin. Take the Balearics own economic genius, José Aguilo. Tax increases will stimulate the economy, he stated earlier this month. The screeches of laughter were drowned out only by the screams of despair. Aguiló's probably next in line for a Madrid cabinet position.
The Balearics finance (and employment and business) minister believes that the rise in taxes will help entrepreneurs because of a consequent lowering in interest rates. But who will be doing any lending? Entrepreneurship is the current flavour of the month of both the regional and national government. Rajoy has announced tax cuts for young entrepreneurs. So what? Growth measures are what will help these entrepreneurs. And credit. Unavailable credit.
But what about tax cuts for everyone else? There is a growing counter-argument to the austerity strategy imposed by the Spanish Government and imposed on it by forces from outside. Spain's problems with its borrowing rate have been eased thanks to European Central Bank intervention. We know what the pound (or euro) of flesh has had to be for this intervention, but what on earth is austerity ever going to achieve? Consider this. If it takes 2% economic growth to cut unemployment by 1% (a not untypical ratio), how long will it be before the 26% unemployment rate is lowered at all significantly? An awfully long time, always assuming there were such growth. And where's this going to come from?
Any comments to andrew@thealcudiaguide.com please.
Index for January 2013
Balearics tourism promotion action plan - 26 January 2013
Bishop of Mallorca - 12 January 2013
Bradley Wiggins and cycling tourism promotion - 27 January 2013
Broadcasting interference in Spain - 24 January 2013
Floating Spain on the stock market - 2 January 2013
Foodstagramming - 29 January 2013
Glosadors - 13 January 2013
Hainan: where Mallorca can't compete - 4 January 2013
Handball - 16 January 2013
Health and safety and traditions - 9 January 2012
Ill Manors adaptation - 19 January 2013
Luis Bárcenas and Partido Popular corruption - 21 January 2013
Madrid Olympics bid - 3 January 2013
Magalluf and Trip Advisor - 30 January 2013
Mallorcan attitudes and winter tourism - 6 January 2013
Osborne bull vandalised again - 1 January 2013
Paradores - 25 January 2013
Pollensa festival funding - 22 January 2013
Porto Cristo's name - 17 January 2013
Reading and misinterpretation or misunderstanding - 7 January 2013
Sant Sebastià: the legend and gay icon - 14 January 2013
Spain stuck in the 1930s - 28 January 2013
Spanish and Latin rock music - 23 January 2013
Spanish economy and unemployment - 31 January 2013
Spanish military, Republicanism and independence - 11 January 2013
The Truth About Magalluf - 5 January 2013, 10 January 2013, 20 January 2013
Tourism areas developments - 8 January 2013
UK resident population in Mallorca - 18 January 2013
Winter season: will there ever be one? - 15 January 2013
Thursday, December 27, 2012
The Great Depression: Spain in 2013
New year celebrations promise renewal, optimism, better fortune. We wish each other a prosperous new year and at midnight on New Year's Eve, we will do so between munching on twelve grapes and engaging in the national pastime of the party.
The grapes are going to taste sour this time. The endless party in fact came to an end a few years ago. Not that everyone has wanted to admit this. While there's a fiesta, there's always hope. Or more accurately, an avoidance of reality. I don't much like having to appear to be a party-pooper but I am dreading 2013.
I have re-watched "The Great Spanish Crash" and this time I watched it with a growing sense of anger. Nothing that Paul Mason revealed was new. Most of it I have spoken about in the past. But when pictures are put to words, the story becomes more powerful. The pictures might be carefully chosen but they do not lie.
It is uncomfortable for a nation to be exposed by a foreigner, but if it is exposure which helps to shake off denial, then so be it. The chances are that it won't, because the defence is one of the reporter deflecting attention from problems in his own backyard or of affecting a superiority. And so the denial continues, except among those who understand the realities of where Spain is at the end of 2012: on life support with little sign of recovery. And this metaphor only deals with the economy. There is far more.
The UK Centre for Economic and Business Research has released its latest world economic league table, one which ranks countries by GDP. It is not terribly encouraging. Spain is set to slide by four places to seventeenth by 2022, which may not sound that bad when compared with other European countries but is when you consider that the country's GDP growth is set to be negligible over the next ten years; by far the lowest of any country currently in the top fifteen.
This very low growth would be far worse were the worst case to occur; the scenario in which Catalonia secedes and is then followed by the Basques. Spain would be plunged into a wholly different economic crisis; the country simply cannot afford to lose either or both of Catalonia and the Basque Country.
The economics are one matter, the politics a very different one. The nuclear option for Spain would be one which requires Spain to leave the Euro. Conceivably, this might bring advantages; it would certainly permit a badly needed devaluation rather than the current internal devaluation through looking to lower labour costs. But the consequences could be extreme. Spain exits, the Euro collapses along if not completely with the political momentum and will behind the European Union. The nuclear option would then turn to nuclear winter were Catalonia and then the Basques to press ahead. Just consider this, as an example. Through which two regions of Spain do the main transport networks to France and therefore the rest of Europe pass?
It is an imperative, as much as any negotiation regarding a bailout, that the Spanish Government finds a rapprochement with Artur Mas and Catalonia. It may be too late, especially now that Mas has got into bed with the altogether more independence-fanatic ERC, but it has to be found. Rather than playing hardball with Catalonia, Rajoy might have been wiser seeking to form some type of government of national unity which embraced Catalonia (and the Basques). Instead, the end game, one in which the European Union may have become marginalised, could be truly disastrous.
But even were this worst case to be avoided, what real hope does Spain have for a genuine recovery? Zapatero attempted to build Spain out of trouble with the so-called Plan E but succeeded only in creating debt. Construction achieves only so much, and as we now know can also bring a country to its knees. And it doesn't address a fundamental lack of competitiveness. Lower labour costs might be helping exports (and they have risen), but Spain, for the size of its economy, has relatively low levels of exports in any case. It also has an underperforming educational system, to which the government's reaction is diversionary - the language issue - or simply wrong; increasing school hours and class sizes will solve nothing. And after school, it has employment that owes more to favouritism rather than merit.
The boom years showed how well Spain can do, but the boom was ultimately built on sand. Literally built. Spain's on life support with potential multiple-organ failure. No amount of partying can disguise the fact. Happy new year.
Any comments to andrew@thealcudiaguide.com please.
The grapes are going to taste sour this time. The endless party in fact came to an end a few years ago. Not that everyone has wanted to admit this. While there's a fiesta, there's always hope. Or more accurately, an avoidance of reality. I don't much like having to appear to be a party-pooper but I am dreading 2013.
I have re-watched "The Great Spanish Crash" and this time I watched it with a growing sense of anger. Nothing that Paul Mason revealed was new. Most of it I have spoken about in the past. But when pictures are put to words, the story becomes more powerful. The pictures might be carefully chosen but they do not lie.
It is uncomfortable for a nation to be exposed by a foreigner, but if it is exposure which helps to shake off denial, then so be it. The chances are that it won't, because the defence is one of the reporter deflecting attention from problems in his own backyard or of affecting a superiority. And so the denial continues, except among those who understand the realities of where Spain is at the end of 2012: on life support with little sign of recovery. And this metaphor only deals with the economy. There is far more.
The UK Centre for Economic and Business Research has released its latest world economic league table, one which ranks countries by GDP. It is not terribly encouraging. Spain is set to slide by four places to seventeenth by 2022, which may not sound that bad when compared with other European countries but is when you consider that the country's GDP growth is set to be negligible over the next ten years; by far the lowest of any country currently in the top fifteen.
This very low growth would be far worse were the worst case to occur; the scenario in which Catalonia secedes and is then followed by the Basques. Spain would be plunged into a wholly different economic crisis; the country simply cannot afford to lose either or both of Catalonia and the Basque Country.
The economics are one matter, the politics a very different one. The nuclear option for Spain would be one which requires Spain to leave the Euro. Conceivably, this might bring advantages; it would certainly permit a badly needed devaluation rather than the current internal devaluation through looking to lower labour costs. But the consequences could be extreme. Spain exits, the Euro collapses along if not completely with the political momentum and will behind the European Union. The nuclear option would then turn to nuclear winter were Catalonia and then the Basques to press ahead. Just consider this, as an example. Through which two regions of Spain do the main transport networks to France and therefore the rest of Europe pass?
It is an imperative, as much as any negotiation regarding a bailout, that the Spanish Government finds a rapprochement with Artur Mas and Catalonia. It may be too late, especially now that Mas has got into bed with the altogether more independence-fanatic ERC, but it has to be found. Rather than playing hardball with Catalonia, Rajoy might have been wiser seeking to form some type of government of national unity which embraced Catalonia (and the Basques). Instead, the end game, one in which the European Union may have become marginalised, could be truly disastrous.
But even were this worst case to be avoided, what real hope does Spain have for a genuine recovery? Zapatero attempted to build Spain out of trouble with the so-called Plan E but succeeded only in creating debt. Construction achieves only so much, and as we now know can also bring a country to its knees. And it doesn't address a fundamental lack of competitiveness. Lower labour costs might be helping exports (and they have risen), but Spain, for the size of its economy, has relatively low levels of exports in any case. It also has an underperforming educational system, to which the government's reaction is diversionary - the language issue - or simply wrong; increasing school hours and class sizes will solve nothing. And after school, it has employment that owes more to favouritism rather than merit.
The boom years showed how well Spain can do, but the boom was ultimately built on sand. Literally built. Spain's on life support with potential multiple-organ failure. No amount of partying can disguise the fact. Happy new year.
Any comments to andrew@thealcudiaguide.com please.
Thursday, October 11, 2012
The Nation's Party Is Cancelled
Tomorrow is a national holiday. Take note. National. Whole of Spain. There is no national holiday more national than tomorrow as it is the Día de la Hispanidad - day of Spanishness, or Hispanicity if you prefer; the Spanish national day that coincides with (took its lead from in fact) the discovery of an island in the Bahamas by an Italian, though some would argue that Columbus wasn't Italian but was in fact Mallorcan. Or Ibizan. Or whatever.
In Catalonia they get a day off like the rest of the population. Will the two million or however many it was who demonstrated recently in favour of independence be putting their feet up? Possibly, though there will doubtless be some who are out on the streets to make their feelings known again. It won't be anything new. Five years ago there was a demonstration at which it was claimed that the Catalan lands (so not just Catalonia) were the last colony of the Spanish monarchy. Also five years ago a vox pop by "Ultima Hora" asked Mallorcans what the day meant to them. One chap said that it was of no consequence except for the fact that he didn't have to work. Chances are that he doesn't have any work to go to now anyway.
This year's Spanishness day should really have been cancelled. It's not as if there is a great deal to celebrate, but the tourism industry would have been up in arms if it had been. Falling on a Friday, it makes a nice little "puente" for long weekends to be flogged, assuming anyone's buying. And of course there are other places that go in for Spanishness day; a total of 27 countries get in on the act, says one source. Being exact is slightly difficult, as the day goes under various titles. Even in Spain it has different meanings - the day of the armed forces, las fiestas del Pilar, and Fiesta Nacional de España. In fact this latter title is what the day officially is - a law of 1987 says so - but Hispanidad has not been forgotten.
It's a curious old thing when you think about it; the way that national days have come about. The Spanish have a day thanks to an Italian, while the Catalonians have a separate day as well, one which commemorates their being on the receiving end of a thorough hiding by nasty old Philip V. Even more curious is that there all these Hispanic sorts across the globe engaged in celebrating something connected with an old empire. The British would never get away with a Britishness day in far-flung former colonies. There is still Commonwealth Day which replaced Empire Day, itself a late Victorian invention by a Canadian, but no one takes any notice.
So, given the global reach of Spanishness, 12 October couldn't just be sidelined for a year, despite the motherland being in an almighty great pickle. In acts of historical fraternity, perhaps the old colonies should start sending food parcels. The Cruz Roja (Red Cross) would be only too happy to dole them out; it has launched, the first time it has ever done this, a campaign to help Spanish families in need. Yep, this year's national fiesta, this year's national party, will only be a party if Red Cross parcels are left on doorsteps.
I wonder what we Brits make of this Spanishness or Hispanicity. It is more than likely that we make precisely nothing of it, but if I were to ask for definitions, what would they be? Above all, one supposes, there is the language, but which one? The Catalonians wouldn't go along with Castellano and nor would those from various other regions. A one-time empire, the Armada and all that? It's probably best to gloss over the latter for fear of bringing up reminders of Drake cruising into Cádiz and giving the Armada a Philip V-sized hammering.
I suspect the answers would be less grand. Xavi would probably make a British list, except of course he is from Catalonia. Julio Iglesias and the boy Enrique? Maybe. Paella and tapas definitely. Bullfighting definitely but hardly popular with the average Brit, except those with their old El Cordobés posters. Miniature donkeys with straw hats? Sombreros? Sylvia and "Y Viva España"? (And Sylvia wasn't even Spanish and nor were the songwriters.)
Other than these cultural symbols, there are the daily bulletins from the Euroland intensive care unit. It is this, I'm sorry to have to say, which is how most Brits and the rest of the world will think of Spanishness in 2012. National fiesta, national party? I'm gonna party like it's ... If only it were still 1999.
Any comments to andrew@thealcudiaguide.com please.
In Catalonia they get a day off like the rest of the population. Will the two million or however many it was who demonstrated recently in favour of independence be putting their feet up? Possibly, though there will doubtless be some who are out on the streets to make their feelings known again. It won't be anything new. Five years ago there was a demonstration at which it was claimed that the Catalan lands (so not just Catalonia) were the last colony of the Spanish monarchy. Also five years ago a vox pop by "Ultima Hora" asked Mallorcans what the day meant to them. One chap said that it was of no consequence except for the fact that he didn't have to work. Chances are that he doesn't have any work to go to now anyway.
This year's Spanishness day should really have been cancelled. It's not as if there is a great deal to celebrate, but the tourism industry would have been up in arms if it had been. Falling on a Friday, it makes a nice little "puente" for long weekends to be flogged, assuming anyone's buying. And of course there are other places that go in for Spanishness day; a total of 27 countries get in on the act, says one source. Being exact is slightly difficult, as the day goes under various titles. Even in Spain it has different meanings - the day of the armed forces, las fiestas del Pilar, and Fiesta Nacional de España. In fact this latter title is what the day officially is - a law of 1987 says so - but Hispanidad has not been forgotten.
It's a curious old thing when you think about it; the way that national days have come about. The Spanish have a day thanks to an Italian, while the Catalonians have a separate day as well, one which commemorates their being on the receiving end of a thorough hiding by nasty old Philip V. Even more curious is that there all these Hispanic sorts across the globe engaged in celebrating something connected with an old empire. The British would never get away with a Britishness day in far-flung former colonies. There is still Commonwealth Day which replaced Empire Day, itself a late Victorian invention by a Canadian, but no one takes any notice.
So, given the global reach of Spanishness, 12 October couldn't just be sidelined for a year, despite the motherland being in an almighty great pickle. In acts of historical fraternity, perhaps the old colonies should start sending food parcels. The Cruz Roja (Red Cross) would be only too happy to dole them out; it has launched, the first time it has ever done this, a campaign to help Spanish families in need. Yep, this year's national fiesta, this year's national party, will only be a party if Red Cross parcels are left on doorsteps.
I wonder what we Brits make of this Spanishness or Hispanicity. It is more than likely that we make precisely nothing of it, but if I were to ask for definitions, what would they be? Above all, one supposes, there is the language, but which one? The Catalonians wouldn't go along with Castellano and nor would those from various other regions. A one-time empire, the Armada and all that? It's probably best to gloss over the latter for fear of bringing up reminders of Drake cruising into Cádiz and giving the Armada a Philip V-sized hammering.
I suspect the answers would be less grand. Xavi would probably make a British list, except of course he is from Catalonia. Julio Iglesias and the boy Enrique? Maybe. Paella and tapas definitely. Bullfighting definitely but hardly popular with the average Brit, except those with their old El Cordobés posters. Miniature donkeys with straw hats? Sombreros? Sylvia and "Y Viva España"? (And Sylvia wasn't even Spanish and nor were the songwriters.)
Other than these cultural symbols, there are the daily bulletins from the Euroland intensive care unit. It is this, I'm sorry to have to say, which is how most Brits and the rest of the world will think of Spanishness in 2012. National fiesta, national party? I'm gonna party like it's ... If only it were still 1999.
Any comments to andrew@thealcudiaguide.com please.
Friday, July 06, 2012
MALLORCA TODAY - Balearics in recession
According to the Centre for Economic Research, the Balearics are in recession. The report from the centre, which conflicts with the official government line, shows negative growth of 0.3% in the first quarter this year and an additional decline of 0.5% in the second quarter. While factors such as a moribund construction industry are obvious contributors, less obvious has been what is described as "weaknesses" in the tourism sector which are also contributing to the lack of growth. The tourism sector is always looked upon as being key to economic stimulation and vital to growth.
Wednesday, July 04, 2012
Sponsored By TUI: Spanish tax policy
Who are the real powers in the lands? Prime Minister Rajoy and his government nationally, President Bauzá and his regional government in the Balearics, other presidents and other governments in other Spanish regions? The answer is none of these. Not if TUI wields its influence.
When TUI or the hotels speak, governments sit up and take note. When the European Union and the IMF urge the Spanish Government to bump up the rate of IVA (VAT), they neglect the fact that this is not a decision for the government. This, at any rate, is how one might style the opposition of TUI and the tourism sector to an increase in IVA that might see the current reduced rate for the tourism sector scrapped. If the government buckles under pressure from tour operators based in other countries, then the game is pretty much up; its impotence is revealed and its role is diminished. Welcome to the Kingdom of Spain, sponsored by TUI.
There is a sour deliciousness about a German company wishing to direct Spanish financial policy when the German Government is doing the same thing, albeit that the policies differ. Spain is now reduced to an argument between German commerce and German politics. What a strange world we live in.
TUI is threatening (and to say threat is not being hyperbolic) to reduce its operations in Spain if the rate of IVA goes up to 18%, the current general rate of IVA. Companies do from time to time issue certain "hints" to all sorts of governments if they don't do what they want them to. The British Government was once warned of the dire consequences of not joining the euro by Japanese car manufacturers. Mostly everyone seems to now have forgotten about this, as there were no dire consequences.
But then the Spanish tourism industry isn't quite like the British motor industry. It is the motor of the economy, as governments nationally and regionally keep reminding us, which the motor industry in Britain wasn't. Woe betide, therefore, any government that wants to get the economy motoring but which ignores the protests of a company so firmly in the driving-seat as TUI is.
TUI does have a point. Of course it does. And its point, though it isn't necessarily stating this, is that an economies, including that of the Balearics, with varying levels of dependence upon tourism cannot be revived if starved of the consumer's euro because of a rise in tax, and a whopping one at that in the case of the tourist rate going up from 8% to 18%.
It isn't just TUI which has a point. The Spanish hostelry federation has put the job losses that would result at 130,000 (9% of all those employed), the fall in consumption at up to 8%, and the loss to gross value added of 6,000 million euros. These losses would come on top of accumulated losses of 20% in the wider hostelry sector since economic crisis took hold.
The impact at the bar or restaurant coalface is not difficult to figure out. Whereas the previous one-point rise from 7% had little effect and could be swallowed by businesses if they wished to, a 10% rise couldn't be without harming even more the bottom line. For a dish costing five euros, for example, the price would increase by 50 cents. This may not sound a lot but multiply it by demand for meals out and then it starts to become so. Reduced spending by tourists is already a fact. Spending would be reduced further. And in Catalonia, where the tourist tax is due to be introduced, they must be having kittens at the thought of an IVA rise.
When you look at potential losses and when you hear the threats from the likes of TUI, you would have to think that the Spanish Government would need its head examining were it to go ahead. However, is it morally right that one sector, tourism, should be given special consideration when most of the rest of the economy isn't? The consumer has experienced increases in prices as it is and may well yet be faced with a rise in the general rate of IVA, thus compounding the effects of rising prices (petrol, gas, electricity, food etc.).
Whether morally right or not, the economic rightness of increasing IVA is being subject to ever more questioning. And so it should be. Austerity economics are being given a hard time because their chances of bringing about recovery or growth are extremely limited, certainly in the short to medium term. But austerity economics are being imposed on Spain, so indirect taxation bears the brunt, as does therefore the consumer. The question, where tourism is concerned, is who has the greater say. The austerity politicians of Europe or Europe's leading tour operator.
Any comments to andrew@thealcudiaguide.com please.
When TUI or the hotels speak, governments sit up and take note. When the European Union and the IMF urge the Spanish Government to bump up the rate of IVA (VAT), they neglect the fact that this is not a decision for the government. This, at any rate, is how one might style the opposition of TUI and the tourism sector to an increase in IVA that might see the current reduced rate for the tourism sector scrapped. If the government buckles under pressure from tour operators based in other countries, then the game is pretty much up; its impotence is revealed and its role is diminished. Welcome to the Kingdom of Spain, sponsored by TUI.
There is a sour deliciousness about a German company wishing to direct Spanish financial policy when the German Government is doing the same thing, albeit that the policies differ. Spain is now reduced to an argument between German commerce and German politics. What a strange world we live in.
TUI is threatening (and to say threat is not being hyperbolic) to reduce its operations in Spain if the rate of IVA goes up to 18%, the current general rate of IVA. Companies do from time to time issue certain "hints" to all sorts of governments if they don't do what they want them to. The British Government was once warned of the dire consequences of not joining the euro by Japanese car manufacturers. Mostly everyone seems to now have forgotten about this, as there were no dire consequences.
But then the Spanish tourism industry isn't quite like the British motor industry. It is the motor of the economy, as governments nationally and regionally keep reminding us, which the motor industry in Britain wasn't. Woe betide, therefore, any government that wants to get the economy motoring but which ignores the protests of a company so firmly in the driving-seat as TUI is.
TUI does have a point. Of course it does. And its point, though it isn't necessarily stating this, is that an economies, including that of the Balearics, with varying levels of dependence upon tourism cannot be revived if starved of the consumer's euro because of a rise in tax, and a whopping one at that in the case of the tourist rate going up from 8% to 18%.
It isn't just TUI which has a point. The Spanish hostelry federation has put the job losses that would result at 130,000 (9% of all those employed), the fall in consumption at up to 8%, and the loss to gross value added of 6,000 million euros. These losses would come on top of accumulated losses of 20% in the wider hostelry sector since economic crisis took hold.
The impact at the bar or restaurant coalface is not difficult to figure out. Whereas the previous one-point rise from 7% had little effect and could be swallowed by businesses if they wished to, a 10% rise couldn't be without harming even more the bottom line. For a dish costing five euros, for example, the price would increase by 50 cents. This may not sound a lot but multiply it by demand for meals out and then it starts to become so. Reduced spending by tourists is already a fact. Spending would be reduced further. And in Catalonia, where the tourist tax is due to be introduced, they must be having kittens at the thought of an IVA rise.
When you look at potential losses and when you hear the threats from the likes of TUI, you would have to think that the Spanish Government would need its head examining were it to go ahead. However, is it morally right that one sector, tourism, should be given special consideration when most of the rest of the economy isn't? The consumer has experienced increases in prices as it is and may well yet be faced with a rise in the general rate of IVA, thus compounding the effects of rising prices (petrol, gas, electricity, food etc.).
Whether morally right or not, the economic rightness of increasing IVA is being subject to ever more questioning. And so it should be. Austerity economics are being given a hard time because their chances of bringing about recovery or growth are extremely limited, certainly in the short to medium term. But austerity economics are being imposed on Spain, so indirect taxation bears the brunt, as does therefore the consumer. The question, where tourism is concerned, is who has the greater say. The austerity politicians of Europe or Europe's leading tour operator.
Any comments to andrew@thealcudiaguide.com please.
Friday, May 04, 2012
Harming Tourism: Government policies
Hugh Morgan, director-general of Cosmos Holidays, bemoans the fact that British reservations for holidays in Spain this summer are down by 5%. Spanish tourism, as a whole, will enter its own recession in 2012, experiencing a fall of 0.3%. In Greece, airport taxes have been scrapped for nine months. In Egypt, these taxes have been reduced, there has been "aggressive promotion" and in the first quarter of 2012 the level of arrivals increased by over 30% compared with the same quarter of 2011.
These different stories are inter-related. In the case of Spanish tourism, the reason for it experiencing negative growth in 2012 is due to a fall in demand from the domestic market, one that will not be compensated for by overseas markets. This local demand is being affected, among other things, by the rise in airport taxes in Spain. British reservations are not being helped for the same reason. Yet in Greece and Egypt ... .
There is more to the British story than just the taxes, there is also the fact that joint promotions between the Spanish tourism agency, Turespaña, and tour operators have all but ceased. Not because the tour operators have wanted them to, but because the Spanish Government has slashed the tourism promotional budget to the extent that it has. And for the Spanish Government, read also the Balearic Government. Yet in Greece and Egypt ... "aggressive promotion."
There are of course other factors affecting a fall in British tourism, but if the boss of Cosmos argues that a lack of joint promotion and a rise in taxes are major ones, then I am not about to disagree with him. It's when you put these different stories together, though, that a picture emerges that paints a scene of governmental ineptitude and one-dimensionality of economic strategy, both nationally and regionally in the Balearics.
Neither Madrid nor Palma are showing the slightest sign of doing anything to inspire growth. Both are interested solely in austerity and in measures that will do nothing to help growth. Tourism, for all that it is a double-edged sword in being a key driver of the economy and being an industry sector on which there is an over-reliance, cannot be treated, should not be treated with the apparent disregard with which it currently is. Attitudes in Madrid and Palma are perverse.
It may prove to be that, with people being killed again in Egypt, the best intentions of Egyptian tourism leaders are dashed. The beneficial effects of the Arab spring on Spanish and Mallorcan tourism had been expected to continue this year, and they may indeed now do so. But it is poor strategic thinking if a reliance is placed on external factors, such as events in Africa, to the detriment of proactivity, e.g. in promotion, or of use of the fiscal system in aiming for growth in the key Spanish tourism sector.
The perversity of attitudes towards tourism is indicative of a serious malaise within governmental circles. Current policies are being aimed mostly at symptoms of Spanish economic troubles and indeed at making these symptoms worse, e.g. by increasing IVA, rather than attacking causes. I have great sympathy for the arguments regarding a rationalisation of public administration, e.g. repatriation of certain responsibilities to central government, elimination of tiers of government or mergers of existing local authorities. I have said previously that a solution is staring the national government in its face, i.e. the system of regional government and decentralisation as it is currently practised, but as I said more recently, in connection with the tiny administration of the village of Búger, it isn't anything like as simple as one might think for this system to be changed.
Political expedience doesn't rule out a change, but would any Spanish government, including the current one, be bold enough to take remedial measures that would, almost at a stroke, have a highly positive effect on the deficits nationally and regionally? The answer is almost certainly no. So instead, the government takes the easy options to do nothing, where promotion to drive tourism and therefore growth is concerned, or to hammer everyone arbitrarily through indirect taxation and to further hammer tourism by raising airport taxes. They are economics of the madhouse, determined by a total absence of political courage in effecting a major change to a root cause of Spain's troubles.
Over in Greece, they know all about economics of the madhouse, but remarkably they also seem to know something about tourism. The Spanish Government clearly doesn't. But then what do you expect if you appoint a property expert as a tourism secretary of state?
Any comments to andrew@thealcudiaguide.com please.
These different stories are inter-related. In the case of Spanish tourism, the reason for it experiencing negative growth in 2012 is due to a fall in demand from the domestic market, one that will not be compensated for by overseas markets. This local demand is being affected, among other things, by the rise in airport taxes in Spain. British reservations are not being helped for the same reason. Yet in Greece and Egypt ... .
There is more to the British story than just the taxes, there is also the fact that joint promotions between the Spanish tourism agency, Turespaña, and tour operators have all but ceased. Not because the tour operators have wanted them to, but because the Spanish Government has slashed the tourism promotional budget to the extent that it has. And for the Spanish Government, read also the Balearic Government. Yet in Greece and Egypt ... "aggressive promotion."
There are of course other factors affecting a fall in British tourism, but if the boss of Cosmos argues that a lack of joint promotion and a rise in taxes are major ones, then I am not about to disagree with him. It's when you put these different stories together, though, that a picture emerges that paints a scene of governmental ineptitude and one-dimensionality of economic strategy, both nationally and regionally in the Balearics.
Neither Madrid nor Palma are showing the slightest sign of doing anything to inspire growth. Both are interested solely in austerity and in measures that will do nothing to help growth. Tourism, for all that it is a double-edged sword in being a key driver of the economy and being an industry sector on which there is an over-reliance, cannot be treated, should not be treated with the apparent disregard with which it currently is. Attitudes in Madrid and Palma are perverse.
It may prove to be that, with people being killed again in Egypt, the best intentions of Egyptian tourism leaders are dashed. The beneficial effects of the Arab spring on Spanish and Mallorcan tourism had been expected to continue this year, and they may indeed now do so. But it is poor strategic thinking if a reliance is placed on external factors, such as events in Africa, to the detriment of proactivity, e.g. in promotion, or of use of the fiscal system in aiming for growth in the key Spanish tourism sector.
The perversity of attitudes towards tourism is indicative of a serious malaise within governmental circles. Current policies are being aimed mostly at symptoms of Spanish economic troubles and indeed at making these symptoms worse, e.g. by increasing IVA, rather than attacking causes. I have great sympathy for the arguments regarding a rationalisation of public administration, e.g. repatriation of certain responsibilities to central government, elimination of tiers of government or mergers of existing local authorities. I have said previously that a solution is staring the national government in its face, i.e. the system of regional government and decentralisation as it is currently practised, but as I said more recently, in connection with the tiny administration of the village of Búger, it isn't anything like as simple as one might think for this system to be changed.
Political expedience doesn't rule out a change, but would any Spanish government, including the current one, be bold enough to take remedial measures that would, almost at a stroke, have a highly positive effect on the deficits nationally and regionally? The answer is almost certainly no. So instead, the government takes the easy options to do nothing, where promotion to drive tourism and therefore growth is concerned, or to hammer everyone arbitrarily through indirect taxation and to further hammer tourism by raising airport taxes. They are economics of the madhouse, determined by a total absence of political courage in effecting a major change to a root cause of Spain's troubles.
Over in Greece, they know all about economics of the madhouse, but remarkably they also seem to know something about tourism. The Spanish Government clearly doesn't. But then what do you expect if you appoint a property expert as a tourism secretary of state?
Any comments to andrew@thealcudiaguide.com please.
Tuesday, May 01, 2012
MALLORCA TODAY - Balearic Government cuts costs by over 250 million euros
The Balearic Government announced cuts yesterday amounting to 263 million euros and an anticipated increase of 83 million euros in its effort to reduce the region's deficit. The cuts will include the closure of two hospitals - the General and Joan March. There will also be adjustment to times of opening of local health centres (they will be reduced), the regional health authority losing in all 68 million euros from its budget.
Monday, April 30, 2012
MALLORCA TODAY - "Revolution" called for by union
1500 or so people demonstrating in Palma might signal the onset of revolution, but UGT union leader in the Balearics, Lorenzo Bravo, has called for this and the occupation of ministry buildings in protest against education and health cuts, to which has now been added the threat of a rise in IVA (VAT) next year.
See more: El Mundo
See more: El Mundo
Saturday, April 21, 2012
Crisis In The Garden Of Eden
What are we to make of Eden Hotels' application for insolvency protection? The company is stressing that it would be only a short-term measure to combat a lack of liquidity and that it is otherwise very much business as usual, but does it represent a wider issue for Mallorca's hotel industry and indeed other parts of the island's tourism industry?
Without knowing the ins and outs of Eden's financial affairs, one can guess at the sort of problems it faces. There are four hotels in the chain, one in Menorca to add to the three in Alcúdia and Muro. None of these hotels is open in the off-season.
The blame for its liquidity problem is placed firmly on the seasonality which denies the company the opportunity of opening hotels through the winter or earlier. But this is nothing new. When it says that it is looking at negotiating with its banks and at seeking to arrive at refinancing, it may well be alluding, though I am guessing, to the fact that credit has become so difficult to obtain.
Even if hotels are closed, the business carries on. There are still staff to pay, maintenance and improvements to be carried out, stock to be invested in, marketing to be undertaken. Depending on arrangements, hotels can be forced to wait into the season to start receiving payments from tour operators. Whatever arrangements they may have, there is not a great deal of revenue to be derived in winter, and there is even less if, as is the case with Eden, there is no international business.
Much attention is granted to the major hotel chains in Mallorca, such as Iberostar or Meliá. These are genuinely global businesses. Regardless of how they might be structured, they generate good cash flows all year which can benefit those parts of the overall business that might be subject to the negative consequences of seasonality. They are also of sufficient size and with strong assets on the balance sheet to be well capitalised, be this through the markets or banks or both. What is perhaps forgotten is the fact that Mallorca also has smallish hotel businesses, and Eden would fall into this category.
If credit is at the heart of the problem, then it is one shared with others in the tourism industry. For businesses which are seasonal (and even for those which aren't), credit has been a natural way of doing business and a natural way of investing prior to the start of the season. It has become the devil's own job to try and get this credit. It isn't just hotels, it is also restaurants, car-hire firms, you name it.
The hotels, as we all know, are central to the regional government's new tourism law and to its provisions, in keeping with the government's wish for modernisation, for re-development and conversion. There is one potential flaw with this, and it is one that was revealed when the government's plans were first being mooted; many of Mallorca's hotels are, if only unofficially, up for sale and many hotel owners would struggle to find the funds to proceed with the type of modernisation the government would like. Meliá can introduce a project to transform part of Magalluf, but Meliá has the wherewithal and the connections to bring in the necessary investment.
Let us suppose that there are hotel businesses in Mallorca which have run up against the double whammy of seasonality and a lack of credit. If they are meant to undertake modernisation, how are they going to fund it? An option might be to sell (and Eden is said to be on the point of selling one of its establishments), assuming buyers could be found. One acquisitive chain is Luabay, itself part of the giant Orizonia group, but there is only so much acquisition that can be financed or be advisable.
This wider issue of finding the means for modernisation can be set in the context of a wider issue still. Despite the constant reference made to tourism being the motor of economic growth, the Mallorca-based Economy Circle of the great and good of the business world reckons that it is precisely the dependence on tourism that will mean the Balearics is the last of the Spanish regions to get out of economic crisis. This means a protracted period of bank reluctance to extend financing, but worse still is what the former finance minister, Carles Manera, has said about there being "systemic crisis" in the Balearics. This can refer to all sorts of things, but fundamentally it is a lack of finance, a one-product economy and a one-product economy that survives on six months business a year. And there are hotels which can probably confirm this.
Any comments to andrew@thealcudiaguide.com please.
Without knowing the ins and outs of Eden's financial affairs, one can guess at the sort of problems it faces. There are four hotels in the chain, one in Menorca to add to the three in Alcúdia and Muro. None of these hotels is open in the off-season.
The blame for its liquidity problem is placed firmly on the seasonality which denies the company the opportunity of opening hotels through the winter or earlier. But this is nothing new. When it says that it is looking at negotiating with its banks and at seeking to arrive at refinancing, it may well be alluding, though I am guessing, to the fact that credit has become so difficult to obtain.
Even if hotels are closed, the business carries on. There are still staff to pay, maintenance and improvements to be carried out, stock to be invested in, marketing to be undertaken. Depending on arrangements, hotels can be forced to wait into the season to start receiving payments from tour operators. Whatever arrangements they may have, there is not a great deal of revenue to be derived in winter, and there is even less if, as is the case with Eden, there is no international business.
Much attention is granted to the major hotel chains in Mallorca, such as Iberostar or Meliá. These are genuinely global businesses. Regardless of how they might be structured, they generate good cash flows all year which can benefit those parts of the overall business that might be subject to the negative consequences of seasonality. They are also of sufficient size and with strong assets on the balance sheet to be well capitalised, be this through the markets or banks or both. What is perhaps forgotten is the fact that Mallorca also has smallish hotel businesses, and Eden would fall into this category.
If credit is at the heart of the problem, then it is one shared with others in the tourism industry. For businesses which are seasonal (and even for those which aren't), credit has been a natural way of doing business and a natural way of investing prior to the start of the season. It has become the devil's own job to try and get this credit. It isn't just hotels, it is also restaurants, car-hire firms, you name it.
The hotels, as we all know, are central to the regional government's new tourism law and to its provisions, in keeping with the government's wish for modernisation, for re-development and conversion. There is one potential flaw with this, and it is one that was revealed when the government's plans were first being mooted; many of Mallorca's hotels are, if only unofficially, up for sale and many hotel owners would struggle to find the funds to proceed with the type of modernisation the government would like. Meliá can introduce a project to transform part of Magalluf, but Meliá has the wherewithal and the connections to bring in the necessary investment.
Let us suppose that there are hotel businesses in Mallorca which have run up against the double whammy of seasonality and a lack of credit. If they are meant to undertake modernisation, how are they going to fund it? An option might be to sell (and Eden is said to be on the point of selling one of its establishments), assuming buyers could be found. One acquisitive chain is Luabay, itself part of the giant Orizonia group, but there is only so much acquisition that can be financed or be advisable.
This wider issue of finding the means for modernisation can be set in the context of a wider issue still. Despite the constant reference made to tourism being the motor of economic growth, the Mallorca-based Economy Circle of the great and good of the business world reckons that it is precisely the dependence on tourism that will mean the Balearics is the last of the Spanish regions to get out of economic crisis. This means a protracted period of bank reluctance to extend financing, but worse still is what the former finance minister, Carles Manera, has said about there being "systemic crisis" in the Balearics. This can refer to all sorts of things, but fundamentally it is a lack of finance, a one-product economy and a one-product economy that survives on six months business a year. And there are hotels which can probably confirm this.
Any comments to andrew@thealcudiaguide.com please.
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