Driving Innovation

Rafael Pampillón Professor. IE Business School and Universidad San Pablo CEU

23 February 2015

The incipient but increasing signs of economic recovery in Spain needs a clear commitment to R&D in order to consolidate and build on a strong industrial base

 

Spain’s Ministry of Finance recently published the latest results of the Competitiveness Index, while the country’s National Institute of Statistics published the Industrial Production Index, and the OECD updated its Main Science and Technology Indicators. These latest figures for Spanish industry point to a definite improvement.

The competitiveness of Spanish exports continued to rise compared to EU and OECD countries thanks to technological advances and cost reductions for Spanish firms relative to those in other countries. According to the latest Competitiveness Index published by Spain’s Ministry of Finance, the level of competitiveness of Spanish firms compared to that of the EU as a whole rose by 0.9% in 2014. Moreover, in the fourth quarter of last year, the competitiveness of Spanish exports gained 3.1% on those registered by the OECD, due, among other things, to the depreciation of the euro.

This improvement in competitiveness has fuelled growth in Spanish industry. A few weeks ago Spain’s National Institute of Statistics announced the Industrial Production Index. In 2014, Spanish industrial production rose by 1.4%. If we allow for the calendar effect, that is to say the differences in the number of working days, the real growth rate would be 1.1%. This rate of annual growth has not been seen since 2007. What is particularly noteworthy is the extraordinary productivity rates of the automobile sector, which rose by 8.1% in 2014. Moreover, this rate of expansion is expected to continue. This month  Renault and Ford announced big investments in their Spanish plants that could translate into a rise of 40% in their production capacity.

Spain’s manufacturing sector continues to send positive signals at the start of 2015. In the current expansive context, which is seeing a reactivation of internal demand and marked gains in competitiveness, industry seems to be on the right track again. In Spain the Purchasing Managers Index (PMI), published this month, drawn up by Markit, is also moving in the same direction. In January it stood at 54.7 points, up from 53.8 a month earlier. A figure over 50 points to improvement, while anything under 50 signifies a step back. Andrew Harker, an economist at Markit, stated that this improvement is based largely on a greater volume of new orders that have fuelled production. The result is a rise in the number of hires, which in turn means that job creation is accelerating to highs that have not been seen since June of 2007. These encouraging figures on Spanish industry for 2014 as a whole and for the beginning of 2015 can be explained by higher levels of competitiveness and quality.

Price indicators are an unequivocal sign that cost reduction and a depreciating euro has resulted in Spanish products being increasingly competitive. Nevertheless, a further increase in competitiveness will require technological innovation, which is a far more important factor than prices.

Improving the technology balance

The OECD recently published new figures on science and technology and it would appear that Spain is also improving in this field. The figures include the technology balance, namely the income and payments related to the international transfer of technology. The OECD includes in these figures the quantities paid out (imports) or received (exports) in the form of royalties, licences, brands, know-how and technical assistance.

The recently published figures correspond to the year 2013 and show that Spain’s technology balance once again has a surplus – 6,600 million euros, up 20% on the 2012 figure, a balance that serves to strengthen positive and growing trend that began in 2008. The US, Japan and Germany, three countries that account for over 50% of world innovation, had technology balance surpluses of 39,000, 29,000 and 12,500 million dollars respectively.

Spain’s positive balance has been further confirmed by the latest figures on Foreign Services Trade issued by the country’s National Institute for Statistics. Between January and September of last year the exportation of royalties (income resulting from other countries’ use of Spanish patents) rose by 18%, while imports went down by 6%.

Both indicators, the technology balance of the OECD and the Institute of Statistics’ foreign services trade, are a consequence of more widespread use of Spanish patents abroad, and Spain’s shrinking dependency on foreign technology, compared with the rest of the world.

Rise in the number of patents

It is well known that one of the biggest economic incentives for launching research projects aimed at generating technological innovation is the patents system. It is also known that the patent brings the inventor or owner exclusive exploitation rights for a prolonged period of time, namely 20 years. 

Requests for patents evidence efforts made by a country’s companies and researchers in the field of research, development and innovation. According to data issued by the World Intellectual Property Organization, in 2013 3,004 patents were awarded in Spain, some 10.4% more than in 2012. This positive trend has permitted the Spanish economy to rise to the 21st position worldwide in terms of the number of patents awarded. 

The countries that are most active worldwide are China, the US, and Japan, with 24%, 20% and 8% respectively of all patents registered with the European Patent Office. The EU countries with the highest levels of patents are Germany, which requested 12% of all patents, and France, with 5%.

With regard to Spain, in 2013 it presented 2,476 patents, which corresponds to 0.9% of patents presented to the European Patent Office. Although it is not a very high percentage, the number of Spanish patents continues to grow. Investment in R&D, however, remains very low.

The latest statistics on levels of R&D for 2013, published some weeks ago by the national Institute for Statistics, give rise for concern. In 2013 spending in the field of R&D as a percentage of GDP fell for the fourth consecutive year from 1.27% of GDP in 2012 to 1.24% in 2013. Moreover, employment levels in the field of R&D fell by more than 5,000 full-time employees.

A simple comparison with other EU member countries shows that spending on R&D for 2013 in Germany stood at 2.9% of its GDP, while it was 2.2% for France, and 1.4% in Portugal. With this level of spending, Spain is situated below the EU average (2%) and that of the Eurozone (2.1%).

Spain has to make a greater effort in the field of R&D if it wants to continue to produce increasingly competitive goods and services for international markets, while creating quality Jobs in the long term.
Although Spain’s investment in R&D is not as high as it should be, it does seem to be well aimed and is permitting the Spanish economy to grow solidly and securely. Spanish production is relying on a fall in prices to compete, but it is also necessary to keep raising levels of quality. Hence, Spain needs a technology policy that will help to build an innovative industrial sector with a more intense focus on technology. We cannot forget that this sector will play an essential role in economic recovery in Spain. The greater part of our exports are industrial products. We still have a long way to go on the road to technological progress, but the way our scant R&D is being leveraged is surprisingly positive and is permitting Spain to transform its productive model.

The technology we currently enjoy is the result of previous investment in R&D. Therefore, if we are to produce larger quantities of competitive products and services in international markets in the future, we have to strengthen our technology policy. Spain has already taken a step in this direction with its fiscal reform and state budget for 2015, but it is crucial to keep insisting on the need to establish a solid, productive industrial base that is competitive in the international environment, and which will sustain economic growth in Spain.

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