Speech by the President of the Government at the Conference on Business Growth and Competitiveness held by the Spanish Chamber of Commerce

Madrid

Ministers, Mr President of the Spanish Chamber of Commerce, Ladies and Gentlemen, my friends,

I would like to begin this speech by thanking the Spanish Chamber of Commerce and the Ministry of Economy for organising this conference. As you have just heard, and you now know, it aims to deal with a problem that is of extreme importance for the Spanish economy: I am referring to the reasons that limit the increase in size of SMEs and the different ways of helping them to grow.

This conference will include the participation of people with sufficient authority to talk about what concerns us here, to all of whom we express our deepest thanks. Their conclusions will help us prepare a strategy that I think we need and that will help to increase the scale of our companies and at the same time make them more competitive.

Allow me to begin this brief speech with some initial comments. After a number of years of global economic slowdown, the economy is recovering and it is expected to grow at around 3.5% this year. Despite the latent uncertainties, economic growth is gaining strength in the world, thanks mainly to the recovery in international trade and the strength of emerging economies.

Europe is experiencing its best period since the start of the crisis and this year will grow at a rate of close to 2%. Beyond any legacy of the past crisis, the main uncertainty on the horizon would be associated with the United Kingdom's exit process.

At the same time, Spain is growing at a significant rate and in a balanced, sustainable and job-creating manner. Let me give you some figures to illustrate what I have just said.

Spanish growth leads the way in the major European economies: 3.2% in 2016, the third straight year of growth, practically twice the figure for the Eurozone. In 2017 Spain continues to lead growth in Euope with a rate of 0.8% in the first quarter; in the second quarter analysts expect higher growth of close to 1%. That is why at its Council of Ministers meeting this Monday, the Government has revised its official GDP growth forecast - and this is the second time this year we have done so - to 3%. Thanks to this rate of growth, this year we will exceed the pre-crisis level of GDP. I would like to remind you that in the five years of recession Spain lost nearly 10% of our Gross Domestic Product and precisely this year we have recovered it.

Spain is also in the lead in Europe in job creation. In the last two years, 2015 and 2016, the Spanish economy has generated 25% of all the jobs in the Eurozone, 40% of youth employment, and has also contributed to the 50% reduction in unemployment. More than 18 million people are now paying into the Social Security system, at 18,433,207, a total of 584,152 jobs were created in the first six months of this year and over the last year the number of people in the social security system has increased by 672,486. Our forecasts indicate that we will reach a figure of twenty million people in work in 2019.

The figures released yesterday refer to registered unemployment and people in the Social Security system, and are enormously positive. Above all, they are very encouraging and constitute a stimulus to continue working in the future, because they are also quality jobs: the number of permanent contracts is increasing a great deal; there has also been a very significant reduction in youth unemployment, in a trend that has been continuing for some months; and what is more, today we can say that more women work in Spain than ever in the history of our country.

Well, in this process, which we have to maintain in the future, the foreign sector and competitiveness take the lead. Today, Spain exports more than a third of its GDP and before this crisis the figure was only 25%. Among the major countries in the European Union only Germany exports more in proportion to its gross domestic product.

We have had four years of current-account surplus, which is unprecedented in our economy. If we continue along this path, our forecasts suggest that we will maintain this surplus until at least 2020. And the latest data show that this trend is continuing: exports of goods have grown at an annual rate of nearly 10%, 9.8% to April, a new all-time high.

I have to say that this recovery is undoubtedly the result of many things; an economic policy that is committed to reforms and control of the public accounts, of course; but what has also been very important and decisive are the efforts of very many entrepreneurs who, in what were very tough and difficult times, have been capable of stepping up to the mark. They will for ever have a place in the history of our country as people who have been decisive in Spain emerging from the biggest economic crisis of its history.

Well, having said that, we have to continue with the reforms, we have to ty to be increasingly competitive and we have to pay attention to some issues that can undoubtedly contribute towards these goals. And one of these issues, a key issue, which I know is of concern to Spanish entrepreneurs, is undoubtedly the size of our companies and their limited scale. This is something we have to address before long.

Small and medium-sized companies account for 99.8% of business in Spain, employ nearly 10 million people and contribute over 60% of GDP. In comparative terms, the OECD data show that 73% of Spanish workers are employees of small and medium-sized companies, while 27% work in large companies. In the case of Germany, to cite a major example, employees in SMEs account for 62% and those who work in large companies account for 38%, 11 percentage points higher than in Spain. As a result, it is no surprise that while in Spain the average number of employees per company is 4.7, in Germany the number is nearly three times as much, at 11.7.

So, those are the figures. But the most important thing about the figures is what they mean and their importance. The reduction in the business size creates difficulties when undertaking international projects; it also reveals a lower investment capacity, particularly in areas as important as R&D+i.

The challenges of scale do not end there, because a bigger business size makes finance easier, strengthens the financial structure of the companies through an increase in own funds rather than third-party funds, and is also linked to better corporate governance and higher qualifications of the management teams.

Thus business size and growth improves productivity and our economy's potential growth. That is why it is essential to increase the scale of our companies and make them more competitive, as has been recommended by numerous international economic institutions and various specialised forums. The Government of Spain is committed to this goal, and that is why it is working to draft a Business Growth Strategy.

There are many reasons for the reduced size of companies, their lack of growth and the relative lack of extremely fast-growing companies - the so-called "gazelles". These reasons are related to the economic structure itself and even social and cultural reasons. Allow me to refer briefly to some of these factors that could have an effect on the process of business development.

One, the regulatory thresholds are identified in the specialised literature as one of the possible difficulties for business growth. The Government has carried out a cross-cutting national regulatory review and has found more than 130 regulations linked to size, in other words regulations that are activated when the companies exceed certain thresholds: some, linked to the number of workers, some to turnover, and others both. The Government's analysis is focused on checking whether regulations of this type linked to size make the process of convergence towards optimal size difficult. Of course, this optimal size is variable and relates to market conditions.

Two, it is also important to maintain a business-friendly institutional environment that allows investment activity to prosper, because this constitutes a significant factor in growth. As a result, the Government considers that the business climate, meaning the institutional conditions for opening, running and closing a company, is another important determining factor for increasing the scale of our companies. I would like to highlight that major progress has been made in this area: in the most important indicator at international level, the World Bank's "Doing Business", Spain in 2010 was in 62nd place and is now 32nd. If a further effort is made, and one has to be made, there is still room to rise some more positions in the ranking.

Three, we are aware that companies are having to deal with a proliferation of regulations, both sector-based and territorial, and burdensome administrative costs. In addition, sometimes there is fragmentation in the domestic market, which generates legal insecurity and prevents companies from taking full advantage of economies of scale and scope, introducing barriers to business growth. That is why in our opinion it is essential to perfect our regulations, ensure they are guided by the well-known principles of need and proportionality, promote cooperation between the different levels of government and consolidate a single market that fosters trade.

Four, the difficulties in accessing finance to undertake business projects are another of the bottlenecks for business growth. Furthermore, the excessive dependence on bank credit is an endemic feature of Spanish business. Against this backdrop, the Government has set as an economic policy goal to make available a wide range of financial instruments that adapt to the different phases of business development, from the initial phases of research and incubation, to the full development phase.

Without wishing to be too exhaustive, I will quote number five, the last point, which is company internationalisation. As I mentioned at the start of my speech, macroeconomic data have been very positive in this field, where we can highlight the four consecutive years of current-account surplus in the balance of payments.

Well, ladies and gentlemen, this conference on "Economic Growth and Competitiveness" has a number of Spanish and international institutions with us that have examined in some depth the causes of business size and enriched the analysis of business size and growth. Also present are the key players in this growth, the companies themselves. Without a doubt, the discussion we will have next on the causes limiting the size of SMEs, and the different ways of fostering their growth, will help define the Business Growth Action Plan more clearly.

The Government's idea is that at the end of July the Minister of Economy should present the report on business size and growth and begin straight away to suggest measures that will allow us to make progress in the right direction in the future. And we are doing so convinced that if we are to continue with the recovery and improve competitiveness and ensure that in 2019 there will be 20 million people in work in Spain, it is essential to continue with the reforms, not to reverse those that were implemented before, keep a firm grip on the public accounts and maintain political stability.

We live in difficult times, as you know, from the political point of view. We need pacts and agreements, and we need to make Spanish society as a whole, the markets and economic and social agents aware that in Spain we have sufficient political stability to continue along the path that we have followed over these years and that has undoubtedly been key and decisive in our emergence from an extremely difficult period to one of economic recovery that we are absolutely convinced must be maintained over the coming years.

And we have a great country to help us do it. Spain is a great nation in terms of creativity, energy, ambition, capacity for improvement, and today also international image. Spain is a modern country, which is emerging from an enormous crisis and which will face the future with energy and confidence. Spain is a country with an exemplary democracy, capable of responding to the challenges of the future and to the challenges posed by those who want us to return to the past.

And Spain is also a great country because it has the energy of many wise, democratic and moderate Spanish people, including many Catalans, who are increasingly forgotten in a radical and divisive turn of events. And I would like to say to all these Catalans and to all the Spanish people that you should continue to maintain your confidence in the future, because authoritarian and sectarian agitation will never win against the serenity and balance of our democratic State.

Thank you very much to all of you.