Jaime Malet, AmCham Spain: “I know that it is not the trend and we are acting in the opposite direction, but we must liberalize more the labor market and rethink the welfare state”

Interview by Manuel López Torrents

Hello, and welcome to Estrategias de Inversión. Today, we are pleased to have Mr. Jaime Malet joining us. He is a prominent figure in the realm of business and finance in Spain, serving as the Chairman of the American Chamber of Commerce in Spain, AmChamSpain. Given our shared investment interests, Mr. Malet's insights are invaluable. While the U.S. has historically been a significant investor in Spain, it's essential to highlight Spain's growing role as an investor in the U.S., which might not be widely known. This underscores the importance of having Don Jaime Malet here today. Welcome!
Thank you
 

Firstly, could you share a bit about what AmChamSpain represents?
Certainly, AmChamSpain, or the American Chamber of Commerce, has been established in Spain since 1917, marking our 107-year presence. Our organization comprises major American companies that invest in Spain and key Spanish companies that invest in the U.S. Primarily, we serve as an entity that aggregates various interests, distinct from local or foreign chambers. We bring together a diverse range of partners, including large, small, and some medium-sized companies across different sectors, addressing common concerns such as labor, taxation, women's access to leadership roles, and supporting young managers. Additionally, we function as a robust networking platform. Our core objective revolves around maximizing business opportunities for Spanish companies in the U.S. and American companies in Spain, facilitating collaboration on a global scale.

Has the focus of Spanish companies shifted from Latin America to the United States within the past five years or so?
In the U.S., we currently have around $70-80 billion in invested capital. While I haven't recently seen the exact investment figures of Spanish companies in Latin America, it was approximately $170 billion at some point. The shift in focus began in the 1990s, following Spain's economic opening after the Democratic Transition. Initially, there was significant investment in Latin America, but since the 2000s, the emphasis has increasingly leaned towards the northern part, particularly the United States. This investment shift is noteworthy, with $70 billion being particularly significant.
Regarding Spanish companies in the U.S., where do you see our strengths and potential growth?
Our strengths lie where our partner companies excel. In the energy sector, we have prominent companies like Iberdrola, a major investor, alongside Acciona and other strong partners. In finance, there's Santander and Mapfre. Grífols stands out in the pharmaceutical sector. In construction, we have robust companies like FCC and ACS, who are also our partners. Additionally, emerging smaller companies are making headway, such as Wallbox. Medium to large companies like Cosentino are investing in the country for manufacturing. The added value and effort of Spanish companies in the American market over the past two decades have been remarkable. It's a fantastic market, and I believe there's potential for much more investment.

Is it feasible to anticipate a second wave of small business investment? What incentives or opportunities does the market offer?
The primary incentive lies in the homogeneity of the American market. While the European and Latin American markets are fragmented, the U.S. market stands out for its unity and vast scale. After the financial crisis, the United States has exhibited more substantial growth compared to Europe, boasting a GDP per capita of over $60,000, while Europe's stands at about $29,000. Even the poorest state in the U.S., Mississippi, showcases an income level on par with that of France. This economic richness and market homogeneity signify that success in one region can often translate into success in others. In essence, it's challenging to achieve global conquest without a stake in the American market. Therefore, Spanish companies should be encouraged to invest there.
Moreover, there are favorable fiscal plans aimed at promoting manufacturing and specifically initiatives related to renewable energy production, semiconductors, and various other sectors. These initiatives bear a semblance to the public incentives akin to the European Union's Next Generation funds, yet are significantly more substantial within the U.S.

Are new players welcomed in the market or does it lean towards protectionism?
The United States features a degree of protectionism, notably with initiatives like 'Made in America' promoting domestic manufacturing. However, this protectionist stance primarily centers around aspects concerning imports and exports. In terms of investment, the U.S. stands as an appealing destination, similar to Spain, as there's no preferential treatment for American companies over their European counterparts. While there's fierce competition between states, a Spanish company investing and creating employment within a particular state is typically viewed as a local business within that state, rather than being perceived as distinctly European throughout the rest of the U.S. What matters most is the value created and the jobs generated.
Are companies able to establish themselves quickly, or is there a significant amount of bureaucracy involved?
The U.S. entails a fair amount of bureaucracy, although it's notably less burdensome compared to Spain.

How are Spanish companies perceived in the U.S.?
Spanish companies do not necessarily exhibit a 'Spanish' identity. Rather, they are viewed as global entities by various stakeholders—be it consumers, clients, suppliers, or investors. Defining a precise perception is challenging, as Spanish companies do not possess a distinct positioning comparable to certain other countries within the U.S.

In the eyes of American companies and investors, how is Spain perceived - as a mature market or one with considerable potential for growth?
The United States stands as the foremost foreign investor in Spain, maintaining this position consistently for the past four decades. While Spanish investment in the U.S. holds less historical tradition, American investment in Spain dates back to the 1960s. Notably, the U.S. has consistently maintained a higher investment stock in Spain compared to other nations. American companies vary in their approach and engagement with the local business landscape. Many of these companies, forming alliances with the local productive network, develop strong ties. Some companies even position themselves more as Spanish entities than American, particularly those involved in production or holding licenses and supply contracts with significant automotive manufacturers or utilizing American technology under various licenses. These collaborations often don't categorize as U.S. investments but rather align closely with Spanish investment practices. American companies, in general, forge numerous partnerships and integrations within the Spanish productive fabric. They assimilate well within the local market.

The integration of American companies is indeed significant.
Yeah.

How do you see this bilateral relationship within AmChamSpain, is it going to grow?
In our view at AmCham, we anticipate considerable growth in this bilateral relationship. The rising interest in Spain can be attributed mainly to two key factors. Firstly, Spain boasts an energy mix that, while not as advanced as that of the United States, is superior to that of several other countries. With seven regasification plants and a substantial investment stock in photovoltaics and wind energy, we offer an appealing combination for green energy production. Furthermore, our geographical distance from the Russian border is crucial. Several European nations relying heavily on Russian gas pipelines have encountered substantial energy supply disruptions, which Spain has been relatively shielded from. This situation positions Spain as a strategic location for companies seeking to establish critical infrastructure concerning security or potential future energy challenges in the western part of Europe, and we see this as a positive development for Spain.

How does the pace of business establishment and bureaucracy affect investment? Also, how have challenges like the independence movements, frequent elections, and the 'Frankenstein Government' impacted investment decisions? Is the American investor more focused on the long-term despite these issues?
The American investor, much like global investors, considers various factors when making investment decisions. Among these, political stability holds particular significance. Looking back over the past seven years, investment considerations have been influenced by the prevalent issues within and around us. For instance, in 2017, there were numerous concerns locally, while the environment outside appeared relatively calmer.
Presently, decision-makers are dealing with a complex global landscape, wherein concerns like those in France, the United Kingdom, Italy, conflicts in Ukraine, and the Middle East occupy their attention. Although Spain faces governance issues, they don't seem substantial enough to deter investment plans, at least based on my personal and subjective viewpoint. As things stand, I don't perceive any obstacle significant enough to halt investment strategies—at least not at the moment. However, the formation or absence of a government and the subsequent decisions made, particularly if they are unfavorable towards investments or attracting foreign investment, could indeed impact the investment climate.
Furthermore, if governmental indecision led to delays in legislative initiatives affecting specific investors, it would also have repercussions. Ultimately, the nature of government decisions and the direction they take in terms of attracting foreign investments will significantly influence the investment climate.

What advice is AmCham offering to the Spanish economy, given the current complex global landscape filled with international conflicts and the constant sense that another conflict might arise at any moment? Is it almost idealistic to propose recommendations in such a challenging environment?
We have numerous recommendations to offer; in fact, we're a veritable engine for suggestions. While we could spend countless hours discussing various issues, we consistently bring forth three critical areas for consideration. Spain, despite its advantages, faces significant drawbacks, notably the pressing issue of productivity.
To address this, we propose a dual approach. Initially, there's a need to establish a framework for technological investment. Given that new tools, particularly Artificial Intelligence, are novel to everyone, an intensified effort is required to reinforce the technological skills of the population. This not only attracts new investors but also fosters the creation of companies and start-ups. Nations failing to embark on this path risk being left behind, and we strongly believe that the time for action is now.
In addition to productivity, Spain faces an associated challenge with education. It's imperative to enact policies embraced by a wide spectrum of society and political representatives, especially to improve technical education in mathematics, physics, chemistry, and other subjects crucial for the future. Neglecting this aspect may result in Spain falling behind in the swiftly evolving world.
Moreover, in the context where Spain experiences declining productivity, it also grapples with stagnant or declining population growth and an aging demographic. Despite boasting one of the world's best healthcare systems, the nation observes an increasing aging population without a sufficient replacement birth rate. Initiating measures to reduce the deficit and public debt is key. Spain's significant public debt level is unsustainable, and addressing it is crucial to avert potential hardships for future generations. Fundamentally, we believe that focusing on improving productivity, adapting to new business paradigms, and addressing deficit and debt reduction are essential steps to secure Spain's future.

The issue of debt, which is massive in Europe, extends beyond just Spain. Some large economies face similar or worse situations than Spain. The core problem lies in the existence of structural deficits. It's akin to attempting to empty a pool using a bucket while a steady stream of water keeps filling it. It appears that this can only be resolved through consistent and robust growth. How can Spain achieve sustained and steady growth?
Cost reductions will be particularly challenging as they can negatively impact the state's welfare in two significant ways. Firstly, due to the pressing need for fiscal consolidation, not just in Spain but across most Western nations, which have seen an extraordinary surge in public debts. Secondly, this will require a significant increase in defense spending, with an emphasis on contributing at least 2% of the GDP, or potentially more, for defense purposes. This shift will inevitably affect our overall well-being.
Another crucial issue, among many others, is the imperative to liberalize the labor market. While this idea isn't popular or in vogue currently—on the contrary, it appears the trend is quite the opposite—Spain, along with other countries, has experienced persistently high double-digit unemployment. Although we've seen some improvement, with unemployment dropping from the crisis peak of over 20% to the low double digits, it remains essential to liberalize the labor market. The current situation, where so many people remain unemployed, demands a rethinking of the labor market policies. There is an understanding that support should be provided to those who are jobless, but not for an extended period, unless it's to prevent extreme poverty, as extended benefits can dissuade people from returning to work. This requires rigorous analysis and application, not for political motives, but to enhance efficiency.
In discussions with unions and experts in the field, there's an intuition that those currently employed are better protected than those who are jobless, despite constituting a smaller portion. It's vital to recognize that ensuring everyone has employment is of utmost importance.

However, the political measures that are being implemented are going in the opposite direction.
I say what we see.

There's a lack of political courage to confront this. It might require enforcement through 'article 33' in the face of a major crisis?
Maybe it can happen. You never know. And the fourth additional element is to restore the financial structure we had before the big crisis. It's essential for our companies, from small startups to well-established ones, to have reliable debt and equity avenues. Spanish banks are performing well, which is positive news. Our bank partners are in good shape. We need to ensure their continued stability and avoid them getting stuck in their processes. But the challenge lies in financing SMEs, startups, or large corporations through the capital markets. I recall when the Ibex was at 14,000 points. Presently, it hovers around 9,000, dropping to 8,000 every couple of months. It feels like a loss, yet when it gets back to 9,000, we seem elated. But let's not forget, we started at 14,000. Spain's public debt was around 38% of the GDP, now it's somewhere between 119% to 115%. Our stock market was at 14,000 points, not 9,000. We need to reclaim all of that.
Speaking of markets, it's an intriguing subject as we are in the Stock Market. A notable number of Spanish companies have preferred to go public in the US rather than in Spain.
We lack a tradition of organized savings, and that's a handicap for Spain and other nations. I'm referring to managing savings. In the US, savings are meticulously organized. Funds wield substantial power. It's a completely different scenario when you examine how the private sector utilizes their savings and invests their money. If you observe where wealth accumulates in the world, it's in places where they know how to manage it—essentially the Anglo-Saxon world: the United States, the United Kingdom, Australia... Their sovereign funds, pension funds, or private equity funds are well organized. And then there's the other place where excessive wealth concentrates in a sovereign fund—countries with oil or similar resources. Since we lack oil, we need to consider this too. That was the fourth and last priority we see: arranging the market so that savings are well organized and we have financing not just from abroad but from within.

Mr. Jaime Malet, we appreciate your presence. There are numerous topics to discuss; we could spend hours talking. We invite you back in the near future, hoping for increased bilateral investments.
Perfect. I’ll be delighted to come back. 

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