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Spain’s economy took a hit in 2020 as the Covid-19 pandemic hit and tourists deserted hubs such as Las Ramblas in Barcelona (pictured). The country has been a key FDI market, however, and foreign investors will play a strong role in its recovery. (Photo by David Ramos/Getty Images)

Spain has been one of the countries worst hit by the Covid-19 pandemic, and it was the first western European country to reach one million cases. This led to a decline in foreign direct investment (FDI) in the first quarter of 2020, but since then flows have started to increase.

According to ICEX Invest in Spain, the country’s investment promotion agency, FDI flows rose by 83% in the second quarter for 2020 when compared with the first quarter. Gross FDI (holding companies and non-holding companies) levels in Spain reached €5bn in the second quarter, while net FDI (gross investment minus disinvestment) reached €3.6bn, according to figures from the foreign investments registry at the Ministry of Industry, Commerce and Tourism.

The level of FDI in Spain lowered in 2019 following three consecutive years of growth, according to the UN Conference on Trade and Development’s (UNCTAD) World Investment Report 2020, with a fall of 72% in comparison with 2018, while cross-border mergers and acquisitions went down from $72bn in 2018 to $8.3bn in 2019.

However, according to UNCTAD, Spain ranks 11th in the world for recipients of FDI stock, with flows in 2019 reaching $750bn, about 54% of the country’s GDP.

According to ICEX Invest in Spain, figures in the foreign investment register of the Ministry of Industry, Commerce and Tourism show that over 16,000 foreign capital companies operate in Spain, employing more than a million and half people.

How Covid-19 has affected Spain’s FDI figures

Spain ranked 30th in the 2020 Doing Business Report by the World Bank, and according to ICEX Invest in Spain, the pandemic did not translate into large volumes of disinvestment by foreign companies. In fact, during the first half of 2020, disinvestment lowered by 22% compared with the same period in 2019.

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At the beginning of December 2020, the investment promotion agency announced a new round of the ‘‘Rising Up in Spain’ programme aimed at entrepreneurs and foreign companies looking to launch innovative business models in the country, with applications open until 1 March 2021. The programme intends to put Spain on the map as one of the main technology and innovation hubs in Europe.

The International Monetary Fund predicts that in a scenario where no strict lockdown measures take place again, economic activity in Spain is expected to have contracted by about 12% in 2020, to then recover by about 7% in 2021.

In November 2020, the Spanish government voted to extend temporary foreign investment restrictions, which had been put in place in March 2020 as a result of the pandemic, until June 2021.

As Covid-19 vaccines start being administered across the world, there are strong hopes in Spain that economic growth will return, followed by renewed interest from foreign investors.