Spain, as we know it, might not exist for much longer. If Catalan President Carles Puigdemont and his regional government have their way, then Catalonia may soon be an independent country. If this happens it will have a massive impact on the economy, not only in Spain and Catalonia, but across the whole of Europe.
But significantly for chemical manufacturers and suppliers, how will a Catalonian split from Spain affect the chemical industry?
This is an important question, not just for chemical traders, but for business across the whole Eurozone and North Africa, as the Spanish chemical industry is big business. As chemical industry consultant Jaume Soley noted in a recent report, “Today, the Spanish chemical industry is one of the pillars of the country’s economy, made up of some 3,300 companies, generating 11.3% of the country’s gross domestic product (GDP).”
Barcelona was even host to the World Chemical Summit in October 2017.
More significantly for global chemical suppliers is that, “Spain is Europe’s fifth largest producer of chemicals, racking up 7% of European chemical business and 2% of chemical business worldwide.”
A large part of this chemicals trade is performed in Catalonia. For example, the regional government run Catalonia Trade and Investment board states that, “Throughout the last decade, Catalan chemical exports have represented 16.7% of Catalan industry exports and 50% (2006-2016) of chemical exports in Spain.”
As the chemical industry journal CHEManager highlights, “In Catalonia, three local industrial production clusters can be identified: one of them is located near Tarragona (raw chemicals) and two of them in the Barcelona metropolitan area (consumer chemical products and pharmaceuticals). At present, the chemical sector in Catalonia is made of more than 1,100 companies, most of them SME’s. Several major chemical corporations also operate plants in Catalonia and play a major role not only in the value chain but also in the implementation of front line R&D activities.”
The journal also adds that, “The Spanish pharmaceuticals sector is primarily concentrated in Catalonia, with 50% of the laboratories, 60% of production, and 66% of the companies that work in fine chemicals. The region is home to seven of the ten major global pharmaceuticals groups: Pfizer, Bristol-Myers Squibb, Merck, Sanofi Aventis, Novartis, GlaxoSmithKline and Roche.”
So, what would happen to the economy if Catalonia were to gain independence?
Of major importance to a stand-alone Catalonia is the removal of the ‘fiscal deficit’, the fact that the region pays more in taxes to Madrid than it receives. The regional executive says this deficit is around €16 billion, or eight percent of Catalonia's GDP. While the central government, with a different methodology, estimates it to be €10 billion, or five percent of regional GDP.
In a recent report on the outcome of a successful Catalonian secession, AlJazeera noted that, “If independence were to happen, Spain's economy ministry claims that Catalonia would leave the European Union, its GDP would fall 25 to 30% and unemployment would double.” Well he would, wouldn’t he?
However, the report continues by noting that, “Some economists believe that the newly formed republic would stay in the EU, predicting its GDP would remain stable in the short term and rise seven percent long term.”
This raises the largest question over future chemical industry trade, ‘Would an independent Catalonia gain EU membership?’
To date, Brussels has remained largely silent on the issue, arguing that the question is too hypothetical. However, the French European affairs minister, Nathalie Loiseau, did state in early October that a Catalonian declaration of independence would not be recognized. She also encouraged further negotiation between Madrid and Barcelona, and as such, her statement may have been a political move, rather than a practical statement based on economic advantages.
The future success of the European chemicals industry would depend on Catalonia trading freely with the rest of the region, and this decision will be made not in Barcelona or even Brussels, but in Madrid.
As the economics and history academic, Leopold Traugott of the London School of Economics, discusses in his analysis Catalonia and Spain: Separation or Divorce? “The often-portrayed idea of a hostile Spain, blocking Catalonia out of the European Union and isolating it, is rather unlikely - at least in the mid- and long run. Catalonia is one of Europe's leading industrial provinces and a strong economic actor, and as such has an important role in the European economy. Therefore, it seems unlikely that other EU member-states will be in favour of a long-term exclusion of Catalonia from all European treaties and institutions, as this would not only harm Catalonia economically, but also other parts of Europe.”
Interestingly, even if Catalonia is allowed free market access there may still be economic repercussions, as Traugott notes, “After the split of Czechoslovakia in 1993, trade between the newly founded Czech Republic and Slovakia fell by 25% compared to their trading volume when they were united – even though both states kept a free-trade agreement after their separation.”
Already there are signs that the dispute is having repercussions, as firms relocate their head offices out of Catalonia or delay new construction. As the industry consultants Handelsblatt Global reports, “Walther von Plettenberg, head of the German chamber of commerce in Spain, says many firms are freezing investment: ‘New investment is on hold, all this could affect plans for new buildings or for expansion of production in Catalonia,’ he said.”
So perhaps after all the voting, the politics, the protests, and the analysis, the biggest impact secession may have over the Spanish chemicals industry is uncertainty. Much in the way that the British economy and chemicals industry is limited by Brexit fears and negotiations. Whether Catalonia becomes independent or not may have little impact on the long-term future of regional chemical production, but for the upcoming months and years it is the unknown that is the problem. And the unknown is rarely good for business, especially in an investment heavy business like the chemicals industry.
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Photo credit:TVN, RT, IndianExpress & Guardian
