Spain Pestel

Spain
In-depth PESTLE insights
Country Profile Series
Report Code: ML00002-026

Published: December 2021
1. Overview
1.1. Catalyst
This profile analyzes the political, economic, social, technological, legal and environmental (PESTLE) structure in
Spain. Each of the PESTLE factors is explored on four parameters: current strengths, current challenges, future
prospects and future risks.
1.2. Summary
1.2.1. Key findings
Spain has an effective system of governance; however, Spain’s migrant crisis remains a
cause for concern
Spain has been successful at making the transition from dictatorship to democracy. Since 1978, when the new
constitution came into effect, democratic principles have taken firm root. The first years of democracy were
dominated by the Spanish Social Workers’ Party (PSOE). Targets set under the Maastricht Treaty bind the Spanish
government and do not allow it much room to diverge from EU practices. Therefore, the government’s economic
policies, which aim to achieve fiscal consolidation, have continued. In the 2021 World Governance Indicators (WGI),
Spain had a strong percentile score of 80.68 in terms of voice and accountability, which measures the extent to
which a country's citizens are able to participate in selecting their government, as well as freedom of expression,
freedom of association, and freedom of the media. This indicates the effectiveness of the republican constitution.
According to data from the United Nations High Commissioner for Refugees (UNHCR) and Spain’s Ministry of
Interior, the total number of refugees and migrant arrivals in Spain was recorded at 33,623, as of October 24, 2021.
According to the Ministry of Interior’s data, during January 1, 2021 to August 15, 2021, a total of 8,222 migrants
arrived in the Canary islands illegally, compared to 3,364 migrants who arrived during the same period in 2020. In
May 2021, around 8,000 migrants crossed the border from Morocco to Ceuta, a Spanish autonomous city on the
north coast of Africa. A huge influx of migrants into Ceuta led to strained relations between Morocco and Spain.
Although the main reason behind the influx of migrants is unknown, is it believed to be a retaliation against Spain for
having the militant group leader Brahim Ghali, president of the Sahrawi Arab Democratic Republic, spend more than
a month at a hospital in Spain. Brahim Ghali heads the Polisario Frront, which is fighting for an independent Western
Sahara, a former Spanish colony that was taken over by Morocco in the 1970s. According to the Ministry of Interior,
about half of adult migrants have been asked to return to Morocco. The influx of migrants represents a humanitarian
and a political challenge for the current Spanish government.
The country has undertaken various government measures to help the economy recover, but
a high level of debt burden is an area of concern
In February 2021, the government announced a fresh stimulus package for struggling sectors such as tourism,
restaurants, and small businesses. The total package was worth EUR11.0 billion ($13.3 billion) to help businesses
hard hit by COVID-19 pandemic. Multiple stimulus packages, which in total amount to $335.75 billion (equivalent to
26.94% of GDP), have been announced by the government since March 2020. In October 2020, the Spanish
government unveiled a major plan to reshape the economy, as well as create 800,000 jobs over the next three years.
PESTLE Country Analysis Report: Spain ML00002-026/Published 12/2021

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The country plans to spend EUR140 billion ($162 billion) over the next three years. The aim of the plan is to have
Spain to transition to green energy and a digital economy. Additionally, the plan also aims to strengthen the public
health service, improve public infrastructure, enhance energy efficiency, and develop professional training schemes.
In 2021, the Spanish treasury launched a green bond program, aiming to provide guidance to public and private
entities with respect to participation in the domestic market. The inaugural issuance of the program amounted to
EUR5.0 billion ($6.1 billion) with a maturity of 20 years. The program was launched as part of a national sustainable
finance plan that aims to encourage the financial sector to fight against climate change and promote the
reorientation of capital flows towards a more sustainable economy.
Spain has a higher level of government debt compared to its European counterparts. The country’s general
government debt stood at 119.92% of GDP in 2020, compared to 69.06% of GDP in Germany the same year,
according to the IMF. This high level of government debt is a threat to the country’s macroeconomic stability in the
long-term. It increases the risk of amplified macroeconomic and asset price shocks. According to the IMF, in 2021,
Spain’s general government gross debt is forecast to rise further to 120.22% of GDP.
The country has a prudent social welfare system; however, its aging population remains a
challenge
The country’s social security framework is comparable to other EU nations. The nation's Agreement for Improvement
and Development of the Social Protection System laid the foundation for social security reforms, particularly in terms
of overhauling the pension system and encouraging people to work beyond the age of 65. Spain’s government
spending on the social sector is higher than that of its peer group countries; it stood at 24.7% of GDP in 2019,
compared to the OECD average of 20.0% in 2019. These measures have continued to deliver positive results for the
welfare of Spanish society.
Spanish society faces the challenge of an aging population, which has not been balanced by a proportionate increase
in the birth rate. The nation's birth rate has been declining continuously and fewer people are entering the
workforce. Spain is facing the challenge of a disproportionate increase in the number of elderly people compared to
the young population. The old-age dependency ratio (the number of people older than 65 years per 100 people of
working age (20–64)) is also increasing because of increased life expectancy and a falling fertility rate. This will affect
government finances, as the working age population’s contributions to support the non-working will decrease in the
future. Although this is similar to the situation in all developed nations, the trend in Spain is among the steepest. This
will lead to growing pressure on the social security system, which may become unsustainable as the number of
contributors continues to decline. According to the OECD, the old age dependency ratio is forecast to reach 77.5 in
2050. According to MarketLine, the old-age dependency ratio in Spain was 29.79 in 2020.
Well-developed ICT sector, but gross expenditure on R&D remains low

The country has a strong, diversified communications market, which includes telecommunications services, digital
content, IT, telecommunications industries, consumer electronics, and professional electronics. Spain also has one of
the largest mobile markets in Europe, and the sector is highly competitive with the presence of leading telephone
service companies. According to Invest in Spain 2020, there are more than 35,000 Spanish and foreign ICT companies
operating across the country which directly hire more than 500,000 workers. In addition, in 2019, the turnover of the
ICT industry in Spain amounted to EUR120 billion ($134.34 billion) in billion, 3.80% of total GDP. In September 2020,
French Telecom giant Orange began offering 5G services in Spain’s largest five central areas of Madrid, Barcelona,
Valencia, Seville and Malaga, without any additional cost on their telecom bill. Moreover, Orange expects its 5G
network to reach over 90% of the Spanish population by 2022. According to the Global Innovation Index, 2021, Spain
ranked 19th out of 132 nations on the overall ICT parameter, and ranked 17th out of 132 countries on the use of ICT
parameter.
According to the OECD, Spain’s R&D intensity, measured as total expenditure on R&D as a percentage of GDP, stood
at around 1.25% in 2019, far below the 2020 target of 3% and well below that of Spain’s peers such as France (2.20%
of GDP), Belgium (3.17% of GDP) and Germany (3.19% of GDP) in the same time period. Spain’s lack of innovation

and entrepreneurship is because very few SMEs are involved in innovation, and the participation of the private
sector and venture capitalists is low. As part of an initiative, the Spanish government has set up an action plan for
scientific institutions, as well as research and development in strategic business sectors, which is expected to cover
2021–24. In addition, in 2021, the Spanish government set out its R&D spending plan for 2021–25. The government
aims to invest EUR456 million ($554.79 million) in the R&D spending plan.
Although Spain has strong governing indicators, starting a business takes too long
According to the World Justice Project’s WJP Rule of Law Index 2021, Spain ranked 21st out of 139 economies on the
rule of law parameter, with a score of 0.73 out of one. On the fundamental rights parameter, the nation ranked 15th
out of 139 economies. On the regulatory enforcement parameter, which measures the extent to which regulations
are effectively implemented and enforced, Spain ranked 27th out of 139 countries. Lastly, on the civil justice
parameter, where the index measures whether ordinary people can resolve their grievances peacefully through the
civil justice system, Spain ranked 27th out of 139 nations.
However, according to the 2020 Doing Business report, it takes 12.5 days to start a business in Spain, compared to
the OECD average of 9.2 days. It takes seven procedures to start a business in Spain, while the OECD average is 4.9.
Starting a business still takes longer than the OECD average even after the administration introduced reforms in
2014, which introduced an electronic system connecting several public agencies, thus streamlining business
registration. Over the years, Spain has undertaken measures to ease the country’s overall business environment.
According to the 2020 Doing Business report, by clarifying ownership and control structures, Spain strengthened
minority investor protections.
Spain has a strong commitment to the environment at the national and regional government
levels, but the loss of biodiversity and forest cover remain concerns
Spain has a large number of environmental agreements in place that have been ratified by the EU. Both national and
regional governments are responsible for the implementation of environmental regulations. Spain’s strong
environmental policy framework has delivered results in the past, as environmental authorities at both levels are
functioning according to EU directives. These authorities are focusing on environmental infrastructure investment
and financing. They have also successfully managed to improve enforcement activities.
According to the Environmental Performance Index (EPI) 2020, the Biodiversity Habitat Index (BHI) is defined as an
indicator which estimates the effects of habitat loss, degradation and fragmentation on the expected retention of
terrestrial biodiversity. A score of 100 indicates that the country has not experienced any habitat loss or degradation,
whereas a score of zero indicates completes habitat loss. According to the EPI 2020, Spain ranked 163rd out of 180
nations on the BHI parameter, with a score of 40.8 out of 100. According to Global Forest Watch, in 2010, Spain had
6.0Mha of natural forest, which stretches over 21% of its land area. In 2020, the country lost 52.7kha of natural
forest, which is equivalent to 24.1Mt of CO2 emissions.

1.3. PESTLE highlights
Political landscape
• In the November 2019 elections, Pedro Sanchez’s Spanish Socialist Workers' Party (PSOE) emerged as
the largest party with 120 seats, but the party failed to secure the majority required to form a
government, which led to a political deadlock. A further two elections were held within the next 12
months, following which Pedro Sánchez was declared president of a new left-wing coalition in January
2020.
• In 2020, Spain’s percentile rank was 58.02 out of 100 in terms of political stability and the absence of
violence, according to the World Governance Indicators. Political stability and the absence of violence
measures perceptions of the likelihood that the government will be destabilized or overthrown by
unconstitutional or violent means, including domestic violence and terrorism. Italy recorded a score of
59.91 the same year.
Economic landscape
• The services sector is the highest contributor to the economy. According to MarketLine, the services
sector’s share of GDP stood at 74.0% in 2020.
• According to the IMF, the general government deficit was 10.97% in 2020. However, the general
government deficit is forecast to reduce to 8.63% in 2021, according to the IMF.
Social landscape
• According to MarketLine, as of 2020, the age structure showed that 65.84% of the population were in
the 15–64 age group, 14.54% of the population were in the 0–14 age group, and 19.62% of the population
were aged 65 years or above.
• Spain had a literacy rate of 98.58% in terms of its total adult population (15 years and above) as of 2020,
according to MarketLine. While the male literacy rate was at 98.94%, the female literacy rate was slightly
lower at 98.06%.
Technological landscape
• Spain has been slow to adopt technological advancements compared to other European Union (EU)
countries, although policy measures have been undertaken in this area. Spain was grouped with the
moderate innovators in the Innovation Union Scoreboard for 2021, an innovation index of the EU nations.
• According to the Global Innovation Index 2021, Spain ranked 30th among 132 nations on the overall
innovation parameter. In addition, the country ranked 19th among 39 countries in Europe. Spain ranked
23rd out of 132 nations on the research and development parameter.

Legal landscape
• According to the OECD, in 2020, Spain’s tax wedge (ratio between the amount of tax paid by a single
worker without children and corresponding labor costs for the employer) is higher than the OECD
average. Spain’s tax wedge as of 2019 stood at 39.3%, compared to the OECD average of 34.6% in 2020.
• Spain was ranked 39th out of 186 countries in the 2021 Index of Economic Freedom. Spain performed
strongly in terms of labor freedom, monetary freedom, property rights, judicial effectiveness and
government integrity, but was relatively weak in terms of tax burden and government spending.
Environmental landscape
• The 2020 Environmental Performance Index, published by Yale University, ranked the country 14th out
of a total of 180 countries. It was ranked below Germany (10th) and the Netherlands (11th).
• The country's environmental policies have been developed in line with EU guidelines. Strategies on
sustainable development and climate change have been approved to reduce greenhouse gas emissions.
According BP Stats, CO2 emissions declined to 220.4 million metric tons in 2020 from 288.0 million metric
tons in 2015.
1.3.1. Key fundamentals
Table 1: Spain – Key fundamentals, 2018–25f
2018 2019 2020 2021f 2022f 2023f 2024f 2025f
GDP, constant 2010 prices ($ trillion) 1.54 1.57 1.40 1.48 1.56 1.60 1.63 1.66
GDP growth rate (%) 2.43 1.95 (-10.95) 5.32 6.10 2.51 1.87 1.50
GDP, constant 2010 prices, per capita ($) 32,851.35 33,212.11 29,382.64 30,803.07 32,568.92 33,287.04 33,842.36 34,284.13
Inflation (%) 1.68 0.70 (-0.32) 2.44 1.68 2.00 2.09 2.22
Exports, total as a percentage of GDP 35.37 35.24 30.44 29.59 28.48 27.75 27.26 27.10
Imports, total as a percentage of GDP 33.30 32.86 29.61 26.35 25.46 24.90 24.54 24.48
Mid-year population (million) 46.94 47.33 47.64 47.90 48.11 48.27 48.38 48.48
Unemployment rate (%) 15.25 14.10 15.53 16.54 15.56 14.75 14.29 14.10
Mobile penetration (per 100 people) 115.99 116.92 117.85 118.78 119.73 120.68 121.64 122.61
Source: Country Statistics, MarketLine ©M A R K E T L I N E

1.4. Recovery of the economy from the COVID-19 crisis
1.4.1. Snapshot
According to Johns Hopkins University, the total number of confirmed COVID-19 cases in Spain amounted to 5.1
million as of November 25, 2021. The total number of deaths amounted to 87,866.
1.4.2. Vaccination
According to Johns Hopkins University, the percentage of the population who were fully vaccinated stood at 79.78%,
as of November 25, 2021. Moreover, Spain has administered a total of 75.4 million vaccine doses as of November 25,
2021.
1.4.3. Government measures
• Multiple stimulus packages, which have been available in tranches, amounting in total to 22.15% of GDP,
have been announced by the Spanish government since March 2020.
• An increase in cash flow into the economy was facilitated through the purchase of assets under the
Pandemic Emergency Purchase Programme (PEPP). Additionally, there was in increase in sick pay for people
who were affected by COVID-19. Also, under protective measures, there was a controlled opening of the
manufacturing and construction sectors.
• The Spanish government extended government guarantees for firms and the self-employed, covering both
loans and the commercial paper of medium-sized companies that participate in Spain’s Alternative Fixed
Income Market. Other measures included the introduction of special credit lines for the tourism sector, a
ban on the short selling of stocks until May 18, 2020, a mechanism related to the renegotiation and
deferment for rent for business premises, and reduced notary fees for the notation of non-mortgage loans.
1.4.4. Lockdown measures
Banned
• Spanish authorities are maintaining measures imposed to combat the spread of COVID-19 as of July 6, 2021.
Nonessential travel to Spain is currently only permitted for travelers from the European Union. (July 6,
2021)
• Spain extended travel restrictions on arrivals from the UK, South Africa, and Brazil. (February 9, 2021)
• Spain’s capital Madrid increased checks after new lockdown restrictions were imposed to prevent the
spread of the new variant of COVID-19. (January 26, 2021)
• Spain’s capital Madrid postponed the reopening of schools until January 20, 2021. (January 16, 2021)

• The Spanish government banned flights from the UK starting December 22, 2020, due to fears over the new
COVID-19 strain. (December 21, 2020)
Exempted
• Spain lifted the COVID-19 state of emergency, which was imposed in October 2020 to fight the pandemic.
(May 8, 2021)
• The Spanish government allowed residents from 12 non-EU countries to enter Spain, as recommended by
the EU council, effective July 4, 2020. (June 30, 2020)
• The country reopened its borders to tourists from other European nations, except Portugal. (June 21, 2020)
• The country decided to reopen its borders to the EU’s Schengen zone, except for Portugal and the UK, from
June 21, 2020. From June 21, travelers arriving in Spain no longer have to go through quarantine for two
weeks; travel for non-EU regions will be allowed from July 1, 2020. (June 14, 2020)
• Madrid and Barcelona announced they would move from Phase 1 to Phase 2 from June 8 in terms of the
easing of restrictions. (June 6, 2020)
1.4.5. Travel restrictions
• November 22, 2021: Malta has been placed on Spain’s high-risk list. Travelers from Malta are required to
provide proof of vaccination against COVID-19. Unvaccinated and unrecovered travelers from Malta need to
present a negative COVID-19 test result to enter Spain. Several regions in Finland and Italy have been added
to the high-risk list.
• November 15, 2021: Spain added France and three regions of Italy, including Basilicata, Lombardy, and
Piedmont, to its high-risk list, thereby subjecting the incoming travelers from these territories to additional
entry rules.
• November 8, 2021: Spain extended its existing travel restrictions and bans until November 14, 2021.
• November 2, 2021: Spain added Norway, Sweden, Poland, regions in France (Grand Est, Hauts de France,
Réunion, Normandy, Occitanie) and regions in Italy (Emilia Romagna, Lazio) to its high-risk list.
• November 1, 2021: The Spanish authorities announced the extension of the non-essential entry ban until
• October 31, 2021: Spain joined the list of European countries that recognized the Oxford-AstraZeneca
vaccine Covishield. Travelers who have completed their immunization process against the coronavirus are
eligible to travel to the country. Besides Spain, the following countries also approved the Covishield vaccine
for travel: Poland, Belgium, Hungary, Greece, Austria, Croatia, Switzerland, France, Germany, Sweden,
Iceland, Latvia, the Netherlands, Slovenia, Finland, Bulgaria, and Romania.
• October 26, 2021: Travelers from Greece, Denmark, the Czech Republic, Liechtenstein, certain regions of
France, certain regions in Poland and certain regions in Italy, now need to follow additional entry rules as
the countries have been placed on the high-risk areas list.
• October 19, 2021: The Spanish Ministry of Health announced that travelers from Finland would be subject
to additional entry rules when travelling to Spain since the country has been placed on the high-risk areas
list.
• October 11, 2021: Spain’s Ministry of Health placed Portugal and Hungary on its high-risk areas list.

• September 24, 2021: Spanish citizens travelling to the UK will be required to present a valid passport to be
permitted entry into its territory from October 1, 2021, following the UK’s exit from the European Union.
Travelling with only an identity card will no longer be possible.
• September 5, 2021: From September 6, 2021, American visitors will need to present proof of complete
vaccination, certificate of recovery or a negative COVID-19 test to enter Spain.
• August 31, 2021: Spain has updated its list of high-risk areas and added Austria and Croatia to the high-risk
list.
• August 26, 2021: Germany, Norway, Bulgaria, and Slovenia have been added to Spain’s list of high-risk
COVID-19 countries and regions.
• August 24, 2021: Spain has removed the mandatory 10-day quarantine for travelers from Argentina, Bolivia,
Brazil, Colombia, Namibia and South Africa.
• August 6, 2021: Spain reopened its consular offices in India for all visa categories.
• August 3, 2021: Spain has reopened its borders to travelers from India provided that they are fully
vaccinated.
1.4.6. Stimulus measures
• February 24, 2021: The government announced a fresh stimulus package for struggling sectors which were
severely impacted by the COVID-19 pandemic, including tourism, restaurants and small businesses. The
package amounted to EUR11 billion ($13.3 billion).
• September 7, 2020: The government announced a stimulus package of EUR72 billion ($84.92 billion) to help
the economy rebound from COVID-19.
• June 15, 2020: The government announced a stimulus package worth EUR3.75 billion ($4.23 billion) to
support the automotive industry.
• March 23, 2020: Increased sick pay for COVID-19 infected workers or those quarantined, from 60% to 75%
of the regulatory base, paid by the Social Security budget.
• March 18, 2020: Spanish Prime Minister Pedro Sanchez announced the largest financial aid package in the
country’s democratic history, of up to EUR200 billion ($220 billion), to fight COVID-19, which is equivalent
to one-fifth of the country’s GDP. Up to EUR100 million ($111 million) of the stimulus package will be used
to guarantee liquidity to Spanish businesses.
• In addition, the government extended up to EUR100 billion in government loan guarantees for firms and
the self-employed; up to EUR2 billion in public guarantees for exporters through the Spanish Export
Insurance Credit Company; and guarantees for loan maturity extensions to farmers using the special 2017
drought credit lines.
1.4.7. Impact on the economy
The Spanish government declared a national state emergency in October 2020, which lasted until May 2021.
According to the National Statistics Institute (INE), the economy registered growth of only 1.1% in Q2 2021,

compared to the previous quarter. Spain’s annual GDP growth was 17.5% in Q2 2021. Spain’s unemployment rate
declined slightly to 14.57% in Q3 2021, compared to 15.26% in Q2 2021. In Q3 2021, employment numbers
registered an increase of 359,300 people, bringing the total number of people employed up to 20.03 million, as of
Q3 2021. According to MarketLine, Spain’s economy is forecast to grow by 5.32% in 2021.

Table of Contents
1. OVERVIEW 2
1.1. Catalyst 2
1.2. Summary 2
1.2.1. Key findings 2
1.3. PESTLE highlights 5

1.3.1. Key fundamentals 6
1.4. Recovery of the economy from the COVID-19 crisis 7
1.4.1. Snapshot 7
1.4.2. Vaccination 7
1.4.3. Government measures 7
1.4.4. Lockdown measures 7
1.4.5. Travel restrictions 8
1.4.6. Stimulus measures 9
1.4.7. Impact on the economy 9
2. KEY FACTS 19
3. GEOGRAPHIC LOCATION 20
4. PESTLE ANALYSIS 21
4.1. Summary 21
4.2. Political analysis 23
4.2.1. Overview 23
4.2.2. Current strengths 24
4.2.3. Current challenges 24
4.2.4. Future prospects 24

4.2.5. Future risks 25
4.3. Economic analysis 27

4.3.1. Overview 27

4.4. Social analysis 33
4.4.1. Overview 33
4.5. Technological analysis 41
4.5.1. Overview 41

4.6. Legal analysis 45

4.6.1. Overview 45

4.7. Environmental analysis 49
4.7.1. Overview 49

5. POLITICAL LANDSCAPE 52
5.1. Summary 52

5.2. Evolution 52
5.2.1. Pre-1940 52
5.2.2. 1976–2000 53
5.2.3. 2001–19 53
5.3. Structure and policies 55

5.3.1. Key political figures 56
5.3.2. Structure of government 56
5.3.3. Structure of legislature 56
5.3.4. Key political parties 56
5.3.5. Key policies 58
5.4. Performance 59
5.4.1. Governance indicators 59
5.5. Outlook 60
6. ECONOMIC LANDSCAPE 61
6.1. Summary 61
6.2. Evolution 61
6.2.1. 1940–75 61
6.2.2. 1976–2020 62
6.3.1. Financial system 63

6.3.2. Spanish stock market 64
6.4. Performance 64
6.4.1. GDP and growth rate 65
6.4.2. GDP composition by sector 65

6.4.3. Fiscal situation 69
6.4.4. Current account 70
6.4.5. Exports and imports 71

6.4.6. External debt 72
6.4.7. General government gross debt 72

6.4.8. International investment position 73
6.5. Outlook 75
7. SOCIAL LANDSCAPE 76
7.1. Summary 76
7.2. Evolution 76
7.3.1. Demographic composition 76
7.3.2. Education 78
7.3.3. Healthcare 79
7.3.4. Social welfare 79
7.4. Performance 80
7.4.1. Healthcare 80
7.4.2. Education 81
7.5. Outlook 82
8. TECHNOLOGICAL LANDSCAPE 82
8.1. Summary 83
8.2. Evolution 83

8.3.1. Intellectual property 84
8.4. Performance 84
8.4.1. Mobile and internet 84
8.5. Outlook 85
9. LEGAL LANDSCAPE 86
9.1. Summary 86
9.2. Evolution 86

9.3.1. Judicial system 86

9.3.2. Labor laws 87
9.3.3. Corporate governance 87
9.4. Performance 87
9.4.1. Effectiveness of the legal system 87
9.5. Outlook 88
10. ENVIRONMENTAL LANDSCAPE 89
10.1. Summary 89
10.2. Evolution 89

10.3.1. Environmental regulations 89
10.4. Performance 90
10.4.1. Environmental impact 90
10.5. Outlook 91
11. APPENDIX 92
11.1. Ask the analyst 93
11.2. Disclaimer 93

List of figures
Figure 1: Map of Spain, 2021 20
Figure 2: General government gross debt (% of GDP), 2011–21f 28

Figure 3: Unemployment rate (%), Q3 2021 29
Figure 4: Key macroeconomic indicators (index/%), January–October 2021 31
Figure 5: Bank capital to assets ratio (%), 2020 32
Figure 6: Social spending (% of GDP), 2019 34
Figure 7: Social benefits to households (% of GDP), 2020 35
Figure 8: Public spending on labor markets (% of GDP), 2019 36

Figure 9: Old age dependency ratio (number of people older than 65 years old per 100 people of
working age), 2050 37
Figure 10: Youth (15–29 years old) not in employment, education or training (% of the same
group), 2020 38
Figure 11: Gini coefficient (zero = complete equality and 100 = complete inequality), 2020 40
Figure 12: R&D expenditure (% of GDP), 2019 42
Figure 13: Population of 25–64 year olds that have attained below upper secondary education
(%), 2020 44
Figure 14: Time required to start a business (days), 2020 46

Figure 15: Tax wedge (percentage of labor cost), 2020 48
Figure 16: Energy consumption from renewable sources (percentage of total energy
consumption), 2010–19 50
Figure 17: Environmental tax (percentage of total tax revenue), 2019 51

Figure 18: Key political events timeline 55
Figure 19: Key political figures 56
Figure 20: Structure of parliament, October 2021 58

Figure 21: Historical GDP growth rate (%), 2011–20 63
Figure 22: IBEX 35 index, January–October 2021 64
Figure 23: GDP and GDP growth rate ($ trillion/%), 2016–25f 65

Figure 24: GDP composition by sector (%), 2020 66
Figure 25: Agricultural output (EUR billion/%), 2016–21f 67
Figure 26: Industrial output (EUR billion/%), 2016–21f 68

Figure 27: Services output (EUR billion/%), 2016–21f 69
Figure 28: General government net lending/borrowing (EUR billion/%), 2016–25f 70
Figure 29: Current account balance ($ billion/%), 2016–25f 71
Figure 30: External trade ($ billion), 2016–21f 72

Figure 31: General government gross debt (EUR billion/%), 2016–25f 73
Figure 32: Consumer price index and CPI-based inflation, 2016–25f 74
Figure 33: Unemployment rate (%), 2016–25f 75
Figure 34: Composition by religion (%), 2021 78
Figure 35: Expenditure on healthcare ($ billion/%), 2011–20 81
Figure 36: Government expenditure on education ($ billion/%), 2011–20 82
Figure 37: Internet users (millions/%), 2016–20 85
Figure 38: Carbon dioxide emissions (million tonnes/%), 2011–20 91

List of Tables
Table 1: Spain – Key fundamentals, 2018–25f 6
Table 2: Spain – key facts, 2021 19

Table 3: Analysis of Spain's political landscape 23
Table 4: Analysis of Spain's economic landscape 27
Table 5: Analysis of Spain's social landscape 33
Table 5: Analysis of Spain's technological landscape 41
Table 6: Analysis of Spain's legal landscape 45
Table 7: Analysis of Spain's environmental landscape 49

Table 8: Mid-year population by age (as a percentage of the total population), 2020 77

Key Facts and Geographic Location
2. Key Facts
Table 2: Spain – key facts, 2021
Country and capital

Full name Kingdom of Spain
Capital city Madrid
Government
Government type Parliamentary constitutional monarchy
Head of state King Felipe VI (since June 19, 2014)
Head of government Pedro Sanchez Perez-Castejon (since June 2, 2018)
Population (2020) 47.6 million
Currency Euro
GDP per capita (PPP) (2020 est.) $37.978.1
Internet domain .es
Demographic details
Life expectancy (2020 est.) 82.00 years (total population)

79.00 years (men)
85.20 years (women)
Ethnic composition (2021 est.) Spanish (84.80%), Morocco (1.70%), Romania (1.20%)
and Other (12.30%)
Major religions (2021 est.) Roman Catholic (58.20%), Atheist (16.20%), Agnostic
(10.80%), others (2.70%), Non-believer (10.50%) and
Unspecified (1.70%)
Country area 505,370 sq. km
Language Castilian Spanish (official) (74%), Catalan (17%), Galician

(7%), and Basque (2%)
Exports Cars and vehicle parts, refined petroleum, packaged

medicines, delivery trucks, clothing and apparel
Imports Crude petroleum, cars and vehicle parts, packaged

medicines, natural gas, refined petroleum
Source: The CIA World Factbook ©M A R K E T L I N E

Key Facts and Geographic Location
3. Geographic Location
Spain is located in Southwest Europe, bordering the Bay of Biscay, the Mediterranean Sea, the North Atlantic Ocean,
and the Pyrenees Mountains to the southwest of France. It shares its boundaries with Portugal and France.
Figure 1: Map of Spain, 2021
©MARKETLINE
Source: The CIA World Factbook

PESTLE Analysis
4. PESTLE Analysis
4.1. Summary
In June 2018, Pedro Sanchez, the leader of the main opposition Socialist party, was sworn in as Spain's prime minister
after his predecessor, Mariano Rajoy, was ousted over a long-running corruption scandal. He has continued as the
acting prime minister since the 2019 Spanish general election, which was held on April 28. Sanchez’s government
lacked a majority and failed to form a government due to the lack of support from other political parties. After failed
talks with other political parties regarding the formation of a new government in September 2019, the country agreed
to another election on November 10, 2019. In the November 2019 election, Pedro Sanchez’s party (PSOE) won the
highest number of seats but failed to win a majority. Pedro Sánchez formed a government in January 2020, in coalition
with Unidas Podemos.
Spain’s autonomous communities, such as Catalonia, are striving for independence from Spain, often fueling social
unrest. The Basque terrorist group Euskadi Ta Askatasuna (ETA) called for an end to the armed struggle for an
independent Basque country, which was one of the major recent milestones in the Spanish political landscape.
Spain’s real-estate driven growth came to a head when the debt-fueled bubble burst in 2007–08. After over two years
of recession up to 2010, Spain recorded stagnant growth in 2011. The economy re-entered a recession in 2012 due to
the imposition of stringent austerity measures to cut the deficit and government debt. The economic contraction
continued in 2013, with the economy continuing to contract by 1.44% due to weak domestic demand and other
macroeconomic factors; however, the economy made a modest recovery to post an average growth rate of 2.61% in
2014–15. After experiencing bouts of double dip recession since the euro crisis, Spanish growth was recorded at 2.60%
during 2014–19, according to MarketLine. According to MarketLine, Spain’s economy contracted by 10.95% in 2020,
due to the outbreak of the novel coronavirus. As per MarketLine, the economy is forecast to grow by 5.31% in 2021.
However, the high level of unemployment remains a cause for concern.
The government has initiated both pension and labor market reforms which are likely to reduce the stress on social
security funds. The country’s aging population and reducing work force are one of the biggest challenges Spain has to
tackle in the future. Income inequality is high in Spain compared to other European counterparts. In addition, the
government has embraced the Services Directive in order to modernize its business environment. It also aims to
liberalize access to the product market and foster competition and mobility. With the outbreak of the COVID-19
pandemic, multiple stimulus packages, amounting to 22.15% of GDP, have been announced by the Spanish
government since March 2020. Moreover, the government has also initiated an increase in cash flow into the
economy, facilitated through the purchase of assets under the Pandemic Emergency Purchase Programme (PEPP).
Spain has been slower to adopt technological advancements than other EU countries, although several policy
measures have been undertaken. Spain was grouped with the moderate innovators in the Innovation Union
Scoreboard for 2021, and its performance was below the EU28 average. According to the OECD, Spain’s R&D intensity,
measured as total expenditure on R&D as a percentage of GDP, stood at around 1.25% in 2019, far below the 2020
target of 3%. Spain’s lack of innovation and entrepreneurship is because very few SMEs are involved in innovation,
and the participation of the private sector and venture capitalists is low.
The regulatory regime in Spain has comprehensive and transparent laws to establish companies and carry out
operations in Spanish territories. These laws are in line with the majority of other EU nations, making business
operations smooth. However, the country has a high tax wedge. According to the OECD, in 2020, Spain had one of the
highest total tax wedges (ratio between the amount of tax paid by a single worker without children and the
corresponding labor cost for the employer) among the OECD countries. Spain’s tax wedge, as of 2020, stood at 39.3%,
compared to the OECD average of 34.6% in 2020. High taxes on labor are likely to act as a deterrent to prospective
skilled migrants who may wish to migrate to Spain.

PESTLE Analysis
EU membership has given the country an opportunity to undertake measures to meet the environmental and
technological standards of its EU peers. Despite this, the country’s performance is below the EU average. A low level
of R&D expenditure is the main challenge Spain faces in the technology and innovation landscape. The low level of
environmental tax in Spain could lead to the over exploitation of natural resources. However, the increasing level of
energy production from renewable sources shows Spain’s commitment to improving its environmental landscape.

PESTLE Analysis
4.2. Political analysis
4.2.1. Overview
Spain has undergone a successful transition from monarchy to dictatorship to democracy. The first years of democracy
were dominated by two parties, the center-right PP and the center-left PSOE. The PSOE initially received the greatest
amount of support from the Spanish population, but the PP emerged as the largest single party in the 1996 elections
and held onto power in 2000. During this time, the PP initiated a number of economic reforms and introduced the
process of fiscal discipline. Despite these economic successes, the domestic popularity of the PP’s two-term Prime
Minister José Maria Aznar declined due to his support of the US’s Iraq policy. He was subsequently voted out of
power, with the PSOE, led by José Luis Rodriguez Zapatero, winning both the 2004 and 2008 elections. In the elections
held in November 2011, the PP came back to power with an absolute majority as voters rejected the PSOE, holding
the socialists responsible for the high budget deficit and rampant unemployment.
Although political conditions improved in October 2011 after the ETA, the Basque terrorist group, called an end to its
armed resistance, Catalonia’s warning regarding the breaking of the constitutional order sparked fresh tensions. In
addition, the Democratic Convergence of Catalonia (Convergència Democràtica de Catalunya [CDC]) has demanded
political independence for the region. These developments could destabilize the country’s political landscape.
In October 2016, the leader of the Conservative Party and the former prime minister resumed office as the new prime
minister, following two general elections and a series of political upheavals starting in December 2015. Mariano Rajoy
was ousted as prime minister by a no-confidence vote led by the PSOE in 2018. In June 2018, Pedro Sanchez, the
leader of the main opposition socialist party, was sworn in as Spain's prime minister after his predecessor, Mariano
Rajoy, was ousted over a long-running corruption scandal. He has continued as acting prime minister since the 2019
Spanish general election, which was held on April 28. The incumbent Prime Minister Pedro Sanchez’s Spanish Socialist
Workers' Party (PSOE) emerged as the largest party, with 123 deputies out of 350 deputies elected to Congress.
However, the Sanchez administration failed to form a government due to the lack of support from other political
parties. After failed talks with other political parties, the country had another election on November 10, 2019, with
much the same results, leaving the country without a proper government and a political deadlock. Following the weak
results declared in November 2019, Pedro Sánchez agreed to form a government with the leader of the radical Unidas
Podemas party, Pablo Iglesias, in January 2020.
Table 3: Analysis of Spain's political landscape
Current strengths Current challenges

• Effective democratic system of governance • Spain’s migrant crisis
Future prospects Future risks

• Transforming Spain by 2050 • Catalonian crisis
Source: MarketLine ©MARKETLINE

PESTLE Analysis
4.2.2. Current strengths
Effective democratic system of governance

Spain has been successful at making the transition from dictatorship to democracy. Since 1978, when the new
constitution came into effect, democratic principles have taken firm root. The first years of democracy were
dominated by the Spanish Social Workers’ Party (PSOE). Targets set under the Maastricht Treaty bind the Spanish
government and do not allow it much room to diverge from EU practices. Therefore, the government’s economic
policies, which aim to achieve fiscal consolidation, have continued. In the 2021 World Governance Indicators (WGI),
Spain had a strong percentile score of 80.68 in terms of voice and accountability, which measures the extent to which
a country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom of
association, and freedom of the media. This indicates the effectiveness of the republican constitution.
4.2.3. Current challenges
Spain’s migrant crisis

According to data from the United Nations High Commissioner for Refugees (UNHCR) and Spain’s Ministry of Interior,
the total number of refugees and migrant arrivals in Spain was recorded at 33,623, as of October 24, 2021. According
to the Ministry of Interior’s data, during January 1, 2021 to August 15, 2021, a total of 8,222 migrants arrived in the
Canary islands illegally, compared to 3,364 migrants who arrived during the same period in 2020. In May 2021, around
8,000 migrants crossed the border from Morocco to Ceuta, a Spanish autonomous city on the north coast of Africa. A
huge influx of migrants into Ceuta led to strained relations between Morocco and Spain. Although the main reason
behind the influx of migrants is unknown, is it believed to be a retaliation against Spain for having the militant group
leader Brahim Ghali, president of the Sahrawi Arab Democratic Republic, spend more than a month at a hospital in
Spain. Brahim Ghali heads the Polisario Frront, which is fighting for an independent Western Sahara, a former Spanish
colony that was taken over by Morocco in the 1970s. According to the Ministry of Interior, about half of adult migrants
have been asked to return to Morocco. The influx of migrants represents a humanitarian and a political challenge for
the current Spanish government.
4.2.4. Future prospects
Transforming Spain by 2050

In May 2021, Spain’s Prime Minister Pedro Sánchez of the Socialist Party (PSOE) presented Spain 2050, a plan which
aims to focus on improving key sectors, including education, health, pensions, employment, taxes and environment
over the next three decades. Some of the main objectives include:
• Due to demographic changes, the number of students aged between three to 15 have reduced. The
government therefore aims to increase its spending per student from EUR4,880 ($5,937.23) to EUR9,640
($11,728.47) by 2050.
• A 20% increase in graduates with a degree higher than secondary school diploma. In addition, the
government aims to bring down Spain’s school-dropout rates from 17% to 3% by 2050.
• Increasing healthcare spending from 5.7% of GDP to 7% of GDP over the next decade. Currently, Spain’s life
expectancy stands at 83 years; by 2050, it is expected the life expectancy will reach 86 years. Due to the
increase in life expectancy, the government aims to bring about institutional changes to the current
healthcare system.

PESTLE Analysis
• The government aims to increase the funding towards Spain’s caregiving system from 0.8% of GDP to 2.5% of
GDP by 2050. The plan also envisions helping citizens to decide between care at home or at an outside facility
or a mixture of both.
• Increasing tax revenues from 35% of GDP in 2019 to 37% of GDP by 2030, to 40% by 2040 and to 43% by
2050, which would help reduce the seven point difference between Spain and the Eurozone. The government
aims to increase taxes on alcoholic beverages, tobacco products, and petroleum-derived fuels, and introduce
incentives that would encourage a greener economy.
• Digitalization of the public sector so that citizens can use the majority of the services online. In addition, the
government aims to utilize artificial intelligence, which would be useful to analyze information, design
policies, and evaluate services. Some of the applications where artificial intelligence would be used include
real-time data on the evolution of the job market, the cost of medical procedures, and statistics on social
services.
• With respect to employment, the government aims to increase the presence of under-represented groups in
the workplace. In addition, the government aims to increase the number of women and young people in the
current labor force and increase the integration of immigrants in the job market. Moreover, the government
aims to reduce the working hours from 37.7 hours per week to an average of 35 hours per week.
• The smaller regions of Spain should have access to services and technology.
4.2.5. Future risks
Catalonian crisis
Increased hostility toward the central government is a cause for concern. The CDC, a major party in the Convergence
and Union (Convergència i Unió [CiU]) that governs the state of Catalonia, approved a motion regarding the political
independence of Catalonia from Spain in March 2012. Since then, the call for Catalan’s independence has grown
stronger, although it has been simmering since the economic crisis began in the early part of the decade. They
contend that Catalans contribute a higher share to the central treasury than other regions of Spain and hence will be
much better off economically by seceding from Spain. Another radical left party, the Catalan Republican Left, has long
demanded a referendum on independence. In October 2014, the national constitutional court ruled that such a
referendum would be illegal. In December 2016, Catalan’s foreign minister Raul Romeva alleged that the country’s
judiciary is being polarized politically to curb the Catalan government’s agenda to hold a referendum on the
independence of the region from the rest of Spain, which was due in September 2017. People in the urban part of the
state have shown their faith in the federal structure, but the separatist bloc is still adamant regarding its demands for
a separate state.
In October 2017, the pro-independence leaders of Catalonia called for a referendum, which was considered illegal by
the constitutional court of Spain. According to official sources, 90% of the voters wanted Catalonia to be a separate
state and the separatist leaders in the Catalan parliament declared independence on October 27, 2017. The
government dissolved the Catalan parliament using emergency powers and Prime Minister Mariano Rajoy triggered
snap elections on December 21, 2017. The pro-independence parties won a majority of 70 seats out of 135 in
parliament, but were unable to win the popular vote. In March 2018, thousands of separatists marched in the streets
of Barcelona, campaigning for a government in Catalonia that will work towards separation from Spain. The
unresolved state of this issue is a big concern for the political stability of Spain. In September 2019, nine Catalonian
separatists were arrested by Spanish police for planning an attack on the anniversary of the invalidation of the Catalan
independence referendum by Spanish courts. The Catalonian crisis continues this year amid the COVID-19 pandemic.
The separatists are now using the COVID-19 pandemic crisis as a motive to demand independence from Spain. A poll
conducted between February 10, 2020 and March 9, 2020, by a Catalan government agency, suggested that 47.1% of
Catalans were against independence with 44.9% in favor. In 2021, the Spanish government pardoned nine Catalan
independent leaders who were convicted over a failed independence bid in 2017. However, the Catalonian crisis
continues, as thousands of Catalans marched in Barcelona in September 2021, calling for the region’s independence.

PESTLE Analysis
In September 2021, talks resumed between Spain’s Prime Minister Pedro Sánchez and Catalonia’s regional leader Pere
Aragonès; however, both parties believed that their negotiations with respect to declaring the Catalonia region
independent were “very far apart.”

PESTLE Analysis
4.3. Economic analysis
4.3.1. Overview
The Spanish economy has shown significant recovery after the European debt crisis in 2012. The country’s growing
industrial sector positively affects the country’s export sector. The economy is under pressure due to the country’s
high deficit and public debt, although stringent austerity measures have been adopted to tackle the situation. The
fragility of the government is also a big challenge for the economy. The government is still not able to pass a budget
for the current financial year. Sluggish labor productivity and utilization have put pressure on the country’s economic
growth. The government needs to give more importance to labor mobility and an efficient progressive tax system to
improve production growth. With the outbreak of the COVID-19 pandemic, the Spanish economy has been severely
impacted. There has been a decline in GDP growth, along with a rise in unemployment. Although the government has
introduced various measures in order to mitigate the impact on the economy, the tourism sector has been among the
worst hit, since the Spanish economy is highly dependent on tourism. However, with a steady vaccination drive, the
economy is gradually opening up to tourism, and an overall increase in economy activity the Spanish economy is
forecast to grow by 5.32% in 2021, according to MarketLine.
Table 4: Analysis of Spain's economic landscape

• Well-developed infrastructure and a solid market • High government debt
• High level of unemployment

• Economic Recovery Plan • Low Capital to Risk-Weighted Asset Ratio
• Recovery of the Spanish economy from the
COVID-19 crisis
Well-developed infrastructure and a solid market

According to the Global Competitiveness Report 2019, published by the World Economic Forum, Spain ranked seventh
out of 141 countries on the infrastructure parameter. The country ranked ninth out of 141 nations in terms of overall
transport infrastructure and the efficiency of train services. Spain ranked eighth out of 141 countries in terms of
airport connectivity and ranked first in terms of road connectivity. Additionally, the country was ranked 15th out of
141 nations in terms of market size, considering its overall GDP.

PESTLE Analysis
High level of government debt

Spain has a higher level of government debt compared to its European counterparts. The country’s general
government debt stood at 119.9% of GDP in 2020, compared to 69.06% of GDP in Germany the same year, according
to the IMF. This high level of government debt is a threat to the country’s macroeconomic stability in the long-term. It
increases the risk of amplified macroeconomic and asset price shocks. According to the IMF, in 2021, Spain’s general
government gross debt is forecast to reach 120.2% of GDP, while Germany’s general government gross debt is
forecast to reach 72.50% of GDP.
Figure 2: General government gross debt (% of GDP), 2011–21f
SOURCE: IMF October 2021 Database ©MARKETLINE
High level of unemployment

A high level of unemployment is one of the major challenges the Spanish economy is currently facing. According to the
OECD, unemployment in Spain was 14.80% in Q3 2021, compared to the OECD average of 5.97% the same period. This
high level of unemployment reduces the overall income level, as well as demand and consumption expenditure, which
in turn affects overall economic productivity. Additionally, countries such as Germany and the Netherlands had a
lower unemployment rate. The unemployment rate in the Netherlands and Germany was 3.13% and 3.43%,
respectively, in Q3 2021.

PESTLE Analysis
Figure 3: Unemployment rate (%), Q3 2021
SOURCE: OECD ©MARKETLINE
Economic recovery plan

In October 2020, the Spanish government unveiled a major plan for the economy, in order to reshape the economy
and create 800,000 jobs over the next three years. The country plans to spend EUR140 billion ($162 billion) over the
next three years. The aim of the plan is to have Spain to transition to green energy and a digital economy. Additionally,
the plan also aims to strengthen the public health service, improve public infrastructure, enhance energy efficiency,
and develop professional training schemes. In 2021, the Spanish treasury launched a green bond program, aiming to
provide guidance to public and private entities with respect to participation in the domestic market. The inaugural
issuance of the program amounted to EUR5.0 billion ($6.1 billion) with a maturity of 20 years. The program was
launched as part of a national sustainable finance plan that aims to encourage the financial sector to fight against
climate change and promote the reorientation of capital flows towards a more sustainable economy.
Recovery of the Spanish economy from COVID-19 crisis

COVID-19 resulted in a severe impact on the business sector, global supply chains, global demand and some major
macroeconomic parameters. The number of people who registered for unemployment increased in 2020 because of

PESTLE Analysis
COVID-19, international travel restrictions, and the imposition of domestic lockdowns. However, as the Spanish
economy reopens in 2021, the economy is slowly recovering.
According to the National Statistics Institute (INE) Spain, the economy grew by 17.5% annually in Q2 2021. In addition,
in Q2 2021, the exports and imports of goods and services grew by 38.9% and 38.4%, respectively, annually. In July
2021, exports increased by 13.6% compared to the same month in 2020, amounting to EUR26.57 billion ($32.33
billion), whereas imports grew by 18.9%, amounting to EUR28.17 billion ($34.27 billion). Moreover, between January
and July 2021, exports grew by 21.7% compared the same period last year. Total exports between January and July
2021 amounted to EUR179.53 billion ($218.42 billion). Imports increased by 20.1% between January and July 2021,
compared to the same period the previous year. Total imports between January and July 2021 amounted to
EUR186.52 billion ($226.93 billion).
According to data by the National Statistics Institute (INE), the unemployment rate was recorded at 15.3% during
April–June 2021, compared to 16.0% the previous quarter. In Q2 2021, an increase in employment was seen across all
sectors of the economy. The largest increase was recorded in the services sector, with 365,700 more people working,
which was followed by industry (23,000) and construction (63,100). According to the INE, the number of foreign
visitors to Spain in September 2021 amounted to 4.7 million, an increase of more than 300% compared to September
2020. The total amount spent by foreign tourists in September 2021 amounted to EUR5.0 billion ($5.8 billion), far
higher than the EUR964 million ($1.2 billion) spent in September of 2020. Moreover, during January–September 2021,
the total number of tourists that visited Spain amounted to 19.7 million, an increase of 17.2% compared to the same
period in 2020.

PESTLE Analysis
Figure 4: Key macroeconomic indicators (index/%), January–October 2021
4.3.5. Future risks
Low bank capital to assets ratio

Spain’s banking sector has a low capital to asset ratio, which could seriously risk the protection of depositors’ assets.
According to Basel II requirements, the minimum bank capital adequacy is 8%. In 2020, Spain had the lowest bank
capital to assets ratio, at 6.5%, compared to some of its other peer nations, including Iceland (15.7%), the Slovak
Republic (10.2%) and Greece (8.8%).

PESTLE Analysis
Figure 5: Bank capital to assets ratio (%), 2020
SOURCE: The World Bank ©MARKETLINE

PESTLE Analysis
4.4. Social analysis
4.4.1. Overview
The economic growth achieved by Spain over the last two decades has had a positive impact on the nation's social
landscape. The social issues in Spain are similar to those experienced by many other European nations, including the
challenges of an aging population. The birth rate has been declining continuously, and there are fewer people entering
the workforce. Pension reforms in the recent past have helped to improve the sustainability of pension funds.
However, rising inequality could fuel social unrest. The current retirement age as of 2020 is 65 years, however, the
government has plans to increase the retirement age to 67 by 2027.
Table 5: Analysis of Spain's social landscape

• Prudent social welfare measures • Aging population
• Social benefits to households • High level of youth not in employment, education
• Public spending on labor markets or training

• Pension reform • Growing income inequality
• Spain’s Recovery and Resilience Plan
Prudent social welfare measures

Despite being a late starter, Spain has made strong progress in terms of social welfare. The country’s social security
framework is comparable to other EU nations. The nation's “Agreement for Improvement and Development of the
Social Protection System” laid the foundation for social security reforms, particularly in terms of overhauling the
pension system and encouraging people to work beyond the age of 65. Spain’s government spending on the social
sector is higher than that of its peer group countries; it stood at 24.7% of GDP in 2019, compared to the OECD average
of 20.0% in 2019. These measures have continued to deliver positive results for the welfare of Spanish society.

PESTLE Analysis
Figure 6: Social spending (% of GDP), 2019
Social benefits to households

According to OECD, social benefits to households can be distinguished under two categories: social benefits other than
social transfers in kind and social transfers in kind. The social benefits mainly entail benefits to households in cash,
whereas social transfers in kind are related to the provision of goods and services, which mainly constitute healthcare
and education. In 2020, Spain’s social benefits to households amounted to 20.4% of GDP. However, it was lower
compared to other nations such as Greece (20.8% of GDP), France (22.6% of GDP) and Italy (24.2% of GDP).

PESTLE Analysis
Figure 7: Social benefits to households (% of GDP), 2020
Public spending on labor markets

According to the OECD, public spending on labor markets includes public employment services (PES), training, hiring
subsidies, direct job creation in the public sector, and unemployment benefits. PES includes placements, whereas
training includes institutional and workplace training, along with special support for apprenticeships. The public
spending on labor markets is based on the labor market information that appears in the state budget and is measured
as a percentage of GDP. In 2020, Spain’s public spending on labor markets amounted to 2.2% of GDP. However, it was
lower compared to other nations such as France (2.6% of GDP), Denmark (2.8% of GDP) and New Zealand (4.6% of
GDP).

PESTLE Analysis
Figure 8: Public spending on labor markets (% of GDP), 2019
Aging population
Spanish society faces the challenge of an aging population, which has not been balanced by a proportionate increase
in the birth rate. The nation's birth rate has been declining continuously and fewer people are entering the workforce.
Spain is facing the challenge of a disproportionate increase in the number of elderly people compared to the young
population. The old-age dependency ratio (the number of people older than 65 years per 100 people of working age
(20–64)) is also increasing because of increased life expectancy and a falling fertility rate. This will affect government
finances, as the working age population’s contributions to support the non-working will decrease in the future.
Although this is similar to the situation in all developed nations, the trend in Spain is among the steepest. This will lead
to growing pressure on the social security system, which may become unsustainable as the number of contributors
continues to decline. According to the OECD, the old age dependency ratio is forecast to reach 77.5 in 2050. According
to MarketLine, the old-age dependency ratio in Spain was 29.79 in 2020.

PESTLE Analysis
Figure 9: Old age dependency ratio (number of people older than 65 years old per 100 people of
working age), 2050
High level of youth not in employment, education or training

Combined with a high inflation rate, a high level of youth not in employment, education or training creates a serious
challenge for Spain. Young people without education or training leads to the waste of human resources; eventually,
this will become a social burden for the economy. According to the OECD, Spain’s youth (15–29 years old) not in
employment, education or training as a percentage of the same age group stood at 18.5%, compared to the OECD
average of 13.4% as of 2020.

PESTLE Analysis
Figure 10: Youth (15–29 years old) not in employment, education or training (% of the same
group), 2020
Pension reform
In September 2020, the Spanish government declared there was an urgent need to reform the pension system. The
government proposed a series of changes to incentivize people to continue working post the retirement age and to
make early retirement less attractive. The current retirement age as of 2020 is 65 years, however, the government has
plans to increase the retirement age to 67 by 2027. Moreover, the worker will be able to access life-long monthly
pensions, subject to the base amounts the worker paid towards social security during their working life, the number of
years they contributed towards social security, and the type of retirement they are accessing. According to the latest
OECD data available, in 2017, the Spanish government’s spending towards pensions amounts to 11% of GDP, higher
than the global OECD average of 8%.
Spain’s Recovery and Resilience Plan

In June 2021, the European Commission approved Spain’s recovery, transformation and resilience plan. With an aim
to promote sustainable growth, digital transformation and digital education and skills, and tackle youth
unemployment, the plan will invest EUR69.5 billion ($84.6 billion). The plan can be extended to an amount of more
than EUR140 billion ($170.3 billion) in loans, if necessary, until 2026.
EUR3.6 billion ($4.4 billion) will be dedicated towards digital skills training across all levels of the Spanish population,
modernizing education, and increasing the number of professionals across the ICT sector. An investment of EUR3.2
billion ($3.9 billion) would be for public administration and digital services, such as health, justice, employment, and

PESTLE Analysis
social services, accessible to all online. An additional EUR3 billion ($3.6 billion) will be invested in the digital
transformation of businesses, with a special focus on small and medium enterprises. An investment of EUR1.4 billion
($1.7 billion) will be made in the digitalization of education, so that all schools and teachers will have the required
digital infrastructure available and have access to advanced digital skills training. The Spanish government aims to see
at least 700,000 teachers being digitally trained by 2025. The government plans to invest EUR2 billion ($2.4 billion)
towards upskilling the labor force and reforming digital skills in vocational education and training (VET). Moreover, the
government plans to create 135,000 new positions in the VET area. In order to tackle youth unemployment in Spain,
the Spanish government has allocated EUR765 million ($930.7 million) for the same cause. Other measures include
supporting the resilience of companies, businesses and employers through workforce training initiatives, so they are
better prepared to face future challenges. In addition, Spain’s recovery and resilience plan also includes creating new
education resources with respect to cybersecurity and artificial intelligence.
4.4.5. Future risks
Growing income inequality

The Spanish economy grew rapidly after the country obtained EU membership. While per capita income increased, the
distribution of income was unequal, highlighting class divisions. From the mid-1980s to the late 2000s, income
disparities increased. According to Eurostat, Spain’s Gini coefficient (a measure of income inequality) stood at 32.1 in
2020, compared to France (29.3). A Gini coefficient score of zero corresponds to complete equality, while a score of
100 corresponds to complete inequality. Rising inequality creates political, social and economic challenges and stifles
upward social mobility. Taxes and benefits need to be reformed and redistributive policies need to be framed to tackle
high inequality.

PESTLE Analysis
Figure 11: Gini coefficient (zero = complete equality and 100 = complete inequality), 2020
SOURCE: Eurostat ©MARKETLINE

PESTLE Analysis
4.5. Technological analysis
4.5.1. Overview
Spain has been slower to adopt technological advancements than other EU countries, although several policy
measures have been undertaken. Spain was grouped with the moderate innovators in the Innovation Union
Scoreboard for 2021, and its performance was below the EU28 average. There is a need for a unified R&D policy
across the various regions, as the autonomy of regional governments in matters related to R&D has led to the
slackening of innovation. The increase in the number of authorities and the diversity of funding programs has
increased the complexity of the innovation system. The level of coordination must improve if the desired results are to
be achieved. A positive environment could be created by enhancing incentives and making the venture capitalist
funding procedure simpler.
Table 5: Analysis of Spain's technological landscape

• Well-developed ICT sector • Gross expenditure on R&D remains low

• Government policies promoting R&D • Need to overhaul outmoded educational system
• Digital Spain 2025 Agenda
Well-developed ICT sector

The country has a strong, diversified communications market, which includes telecommunications services, digital
content, IT, telecommunications industries, consumer electronics, and professional electronics. Spain also has one of
the largest mobile markets in Europe, and the sector is highly competitive with the presence of leading telephone
service companies. According to Invest in Spain 2020, there are more than 35,000 Spanish and foreign ICT companies
operating across the country which directly hire more than 500,000 workers. In addition, in 2019, the turnover of the
ICT industry in Spain amounted to EUR120 billion ($134.34 billion) in billion, 3.80% of total GDP. In September 2020,
French Telecom giant Orange began offering 5G services in Spain’s largest five central areas of Madrid, Barcelona,
Valencia, Seville and Malaga, without any additional cost on their telecom bill. Moreover, Orange expects its 5G
network to reach over 90% of the Spanish population by 2022. According to the Global Innovation Index, 2021, Spain
ranked 19th out of 132 nations on the overall ICT parameter and ranked 17th out of 132 countries on the use of ICT
parameter.

PESTLE Analysis
Gross expenditure on R&D remains low

According to the OECD, Spain’s R&D intensity, measured as total expenditure on R&D as a percentage of GDP, stood at
around 1.25% in 2019, far below the 2020 target of 3% and well below that of Spain’s peers such as France (2.20% of
GDP), Belgium (3.17% of GDP) and Germany (3.19% of GDP) in the same time period. Spain’s lack of innovation and
entrepreneurship is because very few SMEs are involved in innovation, and the participation of the private sector and
venture capitalists is low.
Figure 12: R&D expenditure (% of GDP), 2019
Government policies promoting R&D

The Spanish government has adopted several initiatives to promote R&D activities. It has undertaken measures to
expand R&D infrastructure and to improve the operations of all agencies involved in the system. According to the
OECD, Spain’s R&D intensity, measured as total expenditure on R&D as a percentage of GDP, stood at around 1.25% in
2019, far below the 2020 target of 3.0%. As part of an initiative, the Spanish government has set up an action plan for

PESTLE Analysis
scientific institutions, as well as research and development in strategic business sectors, which is expected to cover
2021–24. In addition, in 2021, the Spanish government set out its R&D spending plan for 2021–25. The government
aims to invest EUR456 million ($554.79 million) in the R&D spending plan.
Digital Spain 2025 Agenda

In June 2021, the president of Spain, Pedro Sánchez, presented the Digital Spain 2025 Agenda. The agenda aims to
support the country’s digital transformation by guaranteeing digital connectivity, the roll out of 5G, increased cyber-
security capabilities, the digitalization of public administration services and companies including small and medium-
sized enterprises (SMEs), developing the data economy and artificial intelligence, and guaranteeing digital rights for
citizens. Between 2021 and 2023, EUR20 billion ($24.3 billion) of public investments are expected to be spent on
digitalization. In addition, Spain’s general budget for 2021 has allocated EUR3.7 billion ($ 4.5 billion) for the
implementation of the Digital Spain 2025 Agenda. Some of the main priorities of the agenda include:
i) Digital connectivity. Guaranteeing digital connectivity for the entire population, thereby eliminating the
digital gap between the rural and urban areas. The aim is to ensure the entire population has access to
100 Mbps coverage by 2025.
ii) Continuing to lead the roll-out of 5G technology across Europe, thereby encouraging the contribution of
5G technology towards enhancing economic productivity, social progress, and territorial structuring.
iii) Strengthening the digital skills of workers, with a special emphasis on the labor market, thereby bridging
the digital divide in education. This objective aims to cover 80% of the total population with basic digital
skills.
iv) Strengthening the capacity in cybersecurity, with an aim to have 20,000 specialists in cybersecurity,
artificial intelligence, and data by 2025.
v) Promoting the digitalization of public administrations in key areas, including employment, justice and
social policies.
The Digital Spain 2025 Agenda includes other national digitalization plans: the Digitalization of SMEs Plan 2021–25, the
Digitalization of the Public Authorities Plan, and the National Plan for Digital Skills.
4.5.5. Future risks
Need to overhaul outmoded educational system

Spain’s education system is centralized and rigid. Due to its inflexibility, the education system has not evolved to meet
the requirements of emerging industries. There is a need to impart vocational education so that the labor force meets
the changing needs of the economy. The education system is also inadequate to meet the needs of a knowledge-
based economy. Spain therefore performs very poorly in terms of knowledge-intensive services exports and
employment in knowledge-intensive activities. Tertiary education attainment among the working age population is
lower compared to its peer group nations. According to the OECD, Spain’s population of 25–64 year olds that had
attained below upper secondary education stood at 37.1% of the total population 2020, compared to the OECD
average of 19.6%.

PESTLE Analysis
Figure 13: Population of 25–64 year olds that have attained below upper secondary education
(%), 2020

PESTLE Analysis
4.6. Legal analysis
4.6.1. Overview
Spain’s economic reform program has been coupled with regulatory changes to meet the challenges of the new
economic landscape. The Spanish government has initiated numerous legal reforms to ensure integration with the
EU. Tax rates have been reduced, investment regulations have been eased, and hitherto restricted sectors are being
opened up to encourage private investment. The Spanish legal system is federal in nature; however, for jurisdictional
purposes, the Spanish territory is divided into municipalities, judicial districts, provinces, and autonomous
communities. Spain has performed well in terms of product market regulation. The autonomous communities have
wide-ranging legislative and executive powers.
Table 6: Analysis of Spain's legal landscape

• Legal framework comparable to other EU nations • Starting a business takes too long
• Strong governing indicators • Restrictions to foreign direct investments

• Easing product market regulations • Tax wedge higher than the OECD average
Legal framework comparable to other EU nations

Legal and regulatory aspects are crucial in order to create a successful business environment in any country. They
reflect the policy framework and the governmental structure of that nation. The regulatory regime in Spain has
comprehensive and transparent laws to establish companies and carry out operations in Spanish territories. These
laws are in line with the majority of other EU nations, making business operations smooth.
Strong governing indicators

According to the World Justice Project’s WJP Rule of Law Index 2021, Spain ranked 21st out of 139 economies on the
rule of law parameter, with a score of 0.73 out of one. On the fundamental rights parameter, the nation ranked 15th
out of 139 economies. On the regulatory enforcement parameter, which measures the extent to which regulations
are effectively implemented and enforced, Spain ranked 27th out of 139 countries. Lastly, on the civil justice
parameter, where the index measures whether ordinary people can resolve their grievances peacefully through the
civil justice system, Spain ranked 27th out of 139 nations.

PESTLE Analysis
Starting a business takes too long

According to the 2020 Doing Business report, it takes 12.5 days to start a business in Spain, compared to the OECD
average of 9.2 days. It takes seven procedures to start a business in Spain, while the OECD average is 4.9. Starting a
business still takes longer than the OECD average even after the administration introduced reforms in 2014, which
introduced an electronic system connecting several public agencies, thus streamlining business registration. Over the
years, Spain has undertaken measures to ease the country’s overall business environment. According to the 2020
Doing Business report, by clarifying ownership and control structures, Spain strengthened minority investor
protections.
Figure 14: Time required to start a business (days), 2020
SOURCE: The World Bank ©MARKETLINE
Restrictions to foreign direct investments

Due to the outbreak of the COVID-19 pandemic in 2020, the government imposed certain restrictions with respect to
foreign direct investments in Spain. The new measures include certain restrictions on foreign investors who are
residing in other EU (European Union) or EFTA (European Free Trade Association) countries. According to the new
law, the Spanish government set forth a transitional regime for the suspension of the liberalization of certain foreign
direct investments made by residents of other EU and EFTA countries until December 31, 2021, and in Spain whose
ultimate owner is established in the EU or EFTA. Such ownership exists when the entity ultimately holds or controls,
directly or indirectly, over 25% of equity or voting rights of the investor. Such ultimate ownership also means the
entity, by other means exercises control, directly or indirectly, over the investor. The restrictions apply when these
entities invest in companies that:
i) Carry out certain strategic activities, which include critical infrastructure both physical and virtual
(energy, transport, water, healthcare, communications, media, and data storage), critical technology
and dual use products, and essential supplies (energy, hydrocarbons, electricity, raw materials, and
food)
ii) Listed in Spain, which includes companies that are either wholly or partly traded on the Spanish
secondary market and have their registered office in Spain.

PESTLE Analysis
iii) Unlisted Spanish companies if the value of investment exceeds more than EUR500 million ($608.3
million).
FDI in these companies would require prior approval by the Spanish government, if after the investment, the
investor holds 10% of the share capital of the Spanish company. The Spanish government stated that failure to
obtain any prior authorizations with respect to foreign direct investments in Spain would render the transactions null
and void and may also involve the payment of significant fines.
Easing product market regulations

Spain has been improving its product market regulation. Product market indicators are a set of metrics that measure
the extent to which policies framed by the government promote or inhibit competition in areas of the product
market where competition is possible. Many of the sectors are less regulated compared to their European
counterparts. This is indicative of a more competition friendly market and fewer monopolies in various sectors. The
government continues to ease product market regulation to increase competition. The government has partially
opened up the telecom, energy, and transport sectors by selling off stakes in government-owned enterprises. The
new competition commission is expected to have greater independence from political authorities, particularly in the
case of mergers. Since the commission will be more accountable, the link between investigations and enforcement
will be stronger. To increase competition in various sectors, a proposal is in place to set up sectoral regulatory
bodies. The law on professional services is expected to ease access and foster competition and mobility in terms of
professional services. These steps will go a long way toward reducing market rigidities. According to the Global
Competitiveness Report 2019, by the World Economic Forum, Spain ranked 34th out of 141 countries on the product
market parameter.
4.6.5. Future risks
Tax wedge higher than the OECD average

According to the OECD, in 2020, Spain had one of the highest total tax wedges (ratio between the amount of tax paid
by a single worker without children and the corresponding labor cost for the employer) among the OECD countries.
Spain’s tax wedge, as of 2020, stood at 39.3%, compared to the OECD average of 34.6% in 2020. According to the
OECD, Spain had the highest tax wedge in 2020 among the 37 OECD member nations. Income tax and employer
social security contributions account for 88% of the total tax wedge in Spain, compared to the OECD average of 76%.
Moreover, the tax wedge increased by 0.7 percentage points for the average single worker from 38.6% to 39.3%,
between 2000 to 2020, according to the OECD. However, during the same period, the average tax wedge decreased
by 1.8 percentage points from 36.4% to 34.6%, across the OECD. High taxes on labor are likely to act as a deterrent
to prospective skilled migrants who may wish to migrate to Spain. This can affect businesses by acting as a barrier to
attracting talent to Spain’s labor pool. Since Spain is already facing the problem of an aging population and the
reduction of its work force, a high tax wedge can aggravate the situation.

PESTLE Analysis
Figure 15: Tax wedge (percentage of labor cost), 2020

PESTLE Analysis
4.7. Environmental analysis
4.7.1. Overview
Spain was a late starter with regards to tackling environmental issues. The subject received government attention
after Spain became a member of the EU. Following the establishment of the Ministry of Environment in 1996, the
legislative process gained momentum. Spain has participated in a number of important environmental agreements
and is committed to meeting its obligations, but its performance on environmental parameters falls behind other EU
nations.
Table 7: Analysis of Spain's environmental landscape

• Commitment of national and regional • Decentralized structure
governments • Loss of biodiversity and forest cover

• Meeting energy needs through renewable • Low environmental tax
energy
Commitment of national and regional governments

Both national and regional governments are responsible for the implementation of environmental regulations.
Spain’s strong environmental policy framework has delivered results in the past, as environmental authorities at
both levels are functioning according to EU directives. These authorities are focusing on environmental
infrastructure investment and financing. They have also successfully managed to increase enforcement activities.
The 2020 Environmental Performance Index, published by Yale University, ranked the country in 14th place out of a
total of 180 countries. It was ranked below Germany (10th) and the Netherlands (11th).
Decentralized structure
The management of the country’s environmental framework is highly decentralized, which opens up gaps for further
infringement. There are 17 different autonomous communities which function in various aspects, but no single body
to take care of environmental regulations and implement them uniformly across regions. EU requirements have
helped with the consolidation of environmental health, but the imposition of directives has been lagging.
Loss of biodiversity and forest cover

According to the Environmental Performance Index (EPI) 2020, the Biodiversity Habitat Index (BHI) is defined as an
indicator which estimates the effects of habitat loss, degradation and fragmentation on the expected retention of
PESTLE Analysis
terrestrial biodiversity. A score of 100 indicates that the country has not experienced any habitat loss or degradation,
whereas a score of zero indicates completes habitat loss. According to the EPI 2020, Spain ranked 163rd out of 180
nations on the BHI parameter, with a score of 40.8 out of 100. According to Global Forest Watch, in 2010, Spain had
6.0Mha of natural forest, which stretches over 21% of its land area. In 2020, the country lost 52.7kha of natural
forest, which is equivalent to 24.1Mt of CO2 emissions.
Meeting energy needs through renewable energy

Spain has a strong dependence on renewable energy sources. The initiatives undertaken by the government include
a combination of both regulatory and financial measures, and these developments are expected to help Spain meet
its energy needs through sustainable means. Renewable energy’s share of final gross consumption has been
increasing during the past few years. According to EuroStat, the consumption of renewable energy in terms of final
energy consumption increased from 13.8% in 2010 to 18.4% in 2019. In November 2020, Spain approved regulations
to improve its renewable energy auction system and plans to replace the previous system from 2013. The new rules,
if not complied with the generation permits, would expire. In the country’s National Integrated Energy and Climate
Plan, the government aims to install 50GW of renewable generation by 2030. According to Red Eléctrica de España
(REE), in 2020, renewables contributed 44% of total national production, 6.0% higher compared to 2019. In addition,
according to Red Eléctrica de España (REE), in May 2021, renewables produced 50.7% of Spain’s electricity, thereby
generating 10% more “green gigawatt-hours” compared to May 2020. Renewables share in Spain’s power
production mix was recorded at 46.2% in April 2021. Spain aims to have 100% of its energy mix come from
renewable energy by 2050.
Figure 16: Energy consumption from renewable sources (percentage of total energy
consumption), 2010–19

PESTLE Analysis
SOURCE: EuroStat ©MARKETLINE
4.7.5. Future risks
Low environmental tax

Taxes imposed on environmental matters are lower in Spain. This could lead to the unsustainable exploitation of
natural resources and a high level of pollution. According to the OECD, tax revenue from Spain’s environment tax
stood at 5.1% of total tax revenue in 2019, compared to 6.8% in the UK. Authorities have to implement an effective
environmental tax regime in order to prevent these environmental issues.
Figure 17: Environmental tax (percentage of total tax revenue), 2019

Political Landscape
5. Political Landscape
5.1. Summary
Spain’s transition from monarchy to democracy involved numerous political upheavals. After years of French and
British rule, the nation passed into a dictatorial regime under General Francisco Franco. After Franco’s death, Spain
embarked on the path to democracy, and a modern constitution based on the rule of law was established in 1978.
The initial years of democracy were dominated by two distinct ideologies, those of the center-right People's Party,
and those of the center-left PSOE. The PSOE received popular support in the early years of democracy, as it was seen
as a viable alternative to the PP, the image of which was sullied because of its perceived closeness to Franco’s
regime.
After failing to win any of the first four elections, the PP emerged as the largest single party in the 1996 elections,
allowing it to form a coalition government with several of the smaller regional parties. In 2000, leveraging strong
economic growth, the PP returned to power with an absolute majority. Despite its economic successes, the PP’s two-
term Prime Minister José Maria Aznar saw his domestic popularity decline due to his support for the US’s Iraq policy.
The PSOE came to power in the 2004 and 2008 elections under the leadership of José Luis Rodriguez Zapatero, but
lost the general elections in 2011 to the PP as voters held the PSOE responsible for the unsustainable deficit, high
unemployment, and falling growth. The new government initiated economic reform policies and focused on the
process of fiscal discipline. However, the high fiscal deficit put tremendous pressure on the government to
undertake austerity measures, resulting in social unrest in many regions. The elections held in December 2015
resulted in a political deadlock. Neither the PP (137) nor PSOE (85) were able to gain a clear majority
In October 2016, the leader of the Conservative Party and the former Prime Minister Mariano Rajoy resumed office
as the new prime minister following two general elections and a series of political upheavals since the December
2015 elections. He thus ended a period of political deadlock, unprecedented since the inception of democracy 40
years ago. In June 2018, Pedro Sanchez, the leader of the main opposition Socialist party, was sworn in as Spain's
prime minister after his predecessor Mariano Rajoy was ousted over a long-running corruption scandal. He has
continued as acting prime minister since the 2019 Spanish general elections, which were held on April 28. Sanchez's
Spanish Worker Socialist Party (PSOE) won 123 seats of Congress’s 350, while in the Senate it won 123 out of 266
seats. After failed talks with parties to form a government in September 2019, the country held its fourth election in
four years on November 10, 2019. The PSOE won the highest number of seats involved in the November 10 election,
but they failed to win a majority. The PSOE won 120 seats in Congress. On November 10, 2019, the next elections
were held, in which the PSOE won the highest number of seats. Pedro Sánchez formed a government in January
2020 in coalition with Unidas Podemos. The next elections are expected to be held no later than December 10, 2023.
5.2. Evolution
5.2.1. Pre-1940
Spain’s history has been dominated by the monarchial rule of several different dynasties. The country went through
periods of varying strength and influence as its rulers changed. It was considered to be a glorious nation in the 16th
century but lost that reputation in the 17th and 18th centuries as it came under the rule of the French Bourbon
dynasty. Spain fought alongside France against Britain in the 18th century. However, the former allies became
enemies in 1789 when Napoleon Bonaparte conquered Spain. In 1813, with British help, Spain was successful in
shaking French rule. In 1812, during the formation of the country's first republic, a national assembly in Cadiz drafted

Political Landscape
a liberal constitution; however, it was not adopted because of differences between various factions over rules of
governance. A second Spanish republic with a modern, democratic, and secular constitution came to pass in 1931,
but did not last long.
Spain remained neutral during both World Wars. However, the country witnessed severe fighting during 1936–39, as
differences between right-wing and left-wing individuals over religion, land, and social reforms resulted in a civil war.
The war was won by the right under the leadership of General Franco. He annulled most republican reforms and
suppressed regionalism. He also established the supremacy of the Catholic Church. After Franco’s death, Spain came
out of almost four decades of dictatorship in 1975. The new king, Juan Carlos I, ushered in a gradual transition to
democracy.
5.2.2. 1976–2000
Spain adopted a new constitution in 1978, which established the country as a constitutional monarchy and granted
limited autonomy to different regions. The PP's association with Franco’s rule sullied the party's reputation, all but
assuring political success for the center-left PSOE in the early days of democracy. The PSOE came to power in 1982
and won four consecutive general elections under the leadership of Felipe Gonzalez Marquez. The party followed a
centrist policy, with traces of liberalism evident in terms of its economic and social policies. However, the party’s
uninterrupted rule led to complacency, and its reputation was damaged by a series of corruption scandals that
resulted in the Spanish population voting it out of power in 1996. In its place, the PP emerged as the single largest
party, allowing it to form a coalition government with several of the smaller regional parties. In 2000, leveraging
strong economic growth, the PP returned to power with an absolute majority under the leadership of José Maria
Aznar.
5.2.3. 2001–19
Prime Minister Aznar’s steady economic growth record won him admirers at home and abroad. However, his
domestic popularity was affected following his decision to back the US-led attack on Iraq in 2003. Although the party
had looked set to win a third term, the March 2004 Madrid terrorist attack confused the situation. The PP’s apparent
attempts to shift suspicion surrounding the attack from Islamist groups to Euskadi Ta Askatasuna (ETA) in order to
deflect criticism of its decision to participate in the Iraq war backfired. As a result, the PP was defeated by a 5%
margin.
The newly elected socialist Prime Minister José Luis Rodriguez Zapatero quickly withdrew Spain’s 1,300 troops from
Iraq. Overall, the country's foreign policy orientation changed, moving closer to that of two other European powers,
France and Germany. There were no major shifts in economic policies, however, as economic growth continued
during this period. The PSOE returned to power following the 2008 elections but fell short of an absolute majority by
seven seats and was dependent on the support of at least one of the smaller regional parties in order to form a
government. Between January and July 2010, the country assumed the EU presidency. In October 2011, the ETA
renounced its armed struggle and called for a dialogue with the Spanish government. However, the separatist
movement continues in Catalonia, a Spanish region.
In the November 2011 general elections, the PP returned to power with an absolute majority against the backdrop of
an unsustainable deficit, high unemployment and falling growth. In June 2014, Felipe VI became the King of Spain
after his father, the former King Juan Carlos I, abdicated his throne. Around the same time, Catalonia’s wish to
become independent from Spain became stronger, although the referendum to secede from Spain was declared
unconstitutional in October 2014 by the constitutional court in Spain. Podemos emerged as a new force, after
securing 69 seats in its very first election.
In October 2016, the leader of the Conservative Party and the former prime minister resumed his office as the new
prime minister following two general elections and a series of political upheavals. He ended a period of political
deadlock, unprecedented since the inception of democracy 40 years ago. But Pedro Sanchez from the PSOE party
Political Landscape
became the prime minister in June 2018 following the no-confidence motion against Mariano Rajoy. The country
went for a snap election in April 2019 because Sanchez’s government lacked a majority. The election didn’t produce
the desired results as the PSOE couldn’t secure a majority or the support of the other parties. The election in
November 2019 also didn’t produce a majority, leaving the political landscape in Spain unsettled, with no clear route
forward. Following the weak results declared in November 2019, Pedro Sánchez agreed to form a government with
the leader of the radical Unidas Podemas party, Pablo Iglesias, in January 2020.

Political Landscape
Figure 18: Key political events timeline
5.3. Structure and policies

Political Landscape
5.3.1. Key political figures
The key political figures in Spain are:
▪ Head of state King Felipe VI.
▪ Head of government Prime Minister Pedro Sanchez.
Figure 19: Key political figures
5.3.2. Structure of government
Spain is a parliamentary monarchy, with a hereditary monarch and a bicameral parliament known as the General
Courts (Cortes Generales). The executive branch comprises a council of ministers, which is presided over by the
president, proposed by the monarch, and elected by parliament following legislative elections.
5.3.3. Structure of legislature
Spain’s parliament consists of two houses, the upper house is called the Senate and the lower house is called the
Congress of Deputies. The total strength of the Senate is 265, out of which 208 members are elected directly and 57
members are appointed by the regional legislators. Each member is elected for a period of four years. The number of
seats in the Congress of Deputies is 350 and each member is elected by the proportional representative system for a
period of four years.
5.3.4. Key political parties

Political Landscape
Three main parties dominate Spanish politics: the center-right PP, the center-left PSOE, Podemos and the much
smaller Communist-led coalition, United Left (Izquierda Unida [IU]). Important regional parties include the left-wing
Republican Left of Catalonia (Esquerra Republicana de Catalunya [ERC]), the center-right CiU, and the center-right
Basque Nationalist Party.
The PP (People’s Party) is a center-right political party. The party evolved from the Popular Alliance, which was
founded by Manuel Fraga, a minister during Franco’s regime. Indeed, the party’s closeness to Franco was the main
reason for its loss of popular support during the first two decades of democracy. Furthermore, numerous internal
divisions within the party had a negative effect.
The party adopted its current name in the 1989 elections, when it also elected a new leader, José Maria Aznar. Aznar
was successful in transforming the PP into a cohesive party, which gathered strength in subsequent years and
eventually came to power in 1996. Aznar worked towards the decentralization of power to the nation's regions and
initiated economic reforms regarding liberalization and privatization. During his term, Spain became fully integrated
with the various European institutions, and qualified for the European Monetary Union.
The PP was voted back into power in the 2000 elections, with absolute majorities in both houses of parliament.
During this period, Spain, along with the US and other North Atlantic Treaty Organization (NATO) allies, participated
in military operations in Iraq, Afghanistan, and the former Yugoslavia. This move did not receive public support,
particularly the deployment of the Spanish Armed Forces in Iraq. Aznar stepped down before the parliamentary
elections in 2004, handing over control of the party to Mariano Rajoy. In the 2004 elections, which were held three
days after a devastating bomb explosion in Madrid, the PP was ousted. The party was held responsible for growing
Islamic militancy in the country, although the government held ETA responsible for the attack. The party also lost in
the 2008 elections. The party had 66 seats in the Congress of Deputies after the April 2019 election and its position
improved to 89 seats after the November 2019 election.
The PSOE (Spanish Socialist Workers’ Party) is the oldest party in Spain, founded in 1879, and was the main
opposition party following its defeat in the November 2011 elections. After the onset of democracy in Spain, the
party came to power in 1982 under the leadership of Felipe Gonzalez and remained in power for most of the 1980s
and 1990s. This uninterrupted rule made the party complacent, however, and it consequently lost popular support.
A number of office bearers were linked to corruption scandals, which contributed to the party losing the 1996
elections. In the 2000 elections, the party suffered a humiliating defeat, and consequently, José Luis Rodriguez
Zapatero was elected as the new leader of the party. The PSOE went on to win the 2004 elections, although the
victory was attributed to a wave of anti-PP sentiment following terrorist attacks in Madrid. Zapatero placed the issue
of corruption at the top of his party's agenda and received enormous support from the Spanish people. The PSOE
won the 2008 elections, with Zapatero securing his second term as prime minister.
The party’s economic measures are mostly liberal, although a few interventionist elements have gained support. In
terms of foreign policy, the party has moved closer to the approaches taken by other European nations; there are
also several ardent anti-American members within the party, and anti-clerical elements have surfaced in clashes with
the Roman Catholic Church. In the April 2019 elections, the party secured 123 seats in the Congress of Deputies, but
the party managed to secure only 120 seats in the November 2019 election.
Unidos Podemos, formed in March 2014, is a left-wing political party. The party was formed as a result of protest
movements against inequality and corruption and is the second largest party after the PP in terms of membership. In
the elections held in December 2015, it became the third largest party in parliament. The party wants to address the
problems of inequality, corruption and unemployment that emerged after the European debt crisis. In the April 2019
election, Unidos Podemos secured 42 seats in the Congress of Deputies, but the number of seats reduced to 35 in
the November 2019 election.
Composition of the lower house of parliament

As of November 2019, out of a total of 350 seats, the POSE secured 120 deputies. The PP managed to win 89
deputies. The Unidos Podemos, Vox, ERC and others secured the rest.

Political Landscape
Figure 20: Structure of parliament, October 2021
Source: The CIA World Factbook ©MARKETLINE
5.3.5. Key policies
Economic and social

In October 2021, Spain’s Finance Minister presented the 2022 budget draft before parliament. Spending in the 2022
budget is expected to amount to EUR196.1 billion ($238.6 billion), mainly financed by the EU’s recovery fund. The
following are the highlights of the 2022 budget:
• The government expects economic growth to be 7% and the budget deficit to narrow down to 5% of GDP.
• The total amount allocated to social spending was EUR248.4 billion ($302.2 billion), 3.6% higher than in
2021. Social spending includes more than EUR40 billion ($48.7 billion) for investments and capital transfers.
• EUR11.8 billion ($14.4 billion) was allocated towards improving and constructing new highways and
modernizing commuter trains.
• The amount allocated to pensions is expected to be revised according to inflation rates. There will be a 2%
increase in salaries for Spain’s civil servants.
• Tax rate charged to corporations will be raised to 15%.
• An allocation of EUR12.5 billion ($15.2 billion) has been assigned towards the employment of youth policies,
housing, culture and study scholarships.
• The amount allocated towards research and development, innovation and digitalization totals EUR13.3
billion ($16.18 billion).
• An allocation of EUR171 billion ($208.1 billion) will go towards pension payments. This will include
payments for retirees, widows, people with disabilities, orphans, and dependents.

Political Landscape
• The government plans to impose a minimum of 15% corporate tax for large companies. This tax rate is
expected to affect around 1,070 businesses.
• The government has allocated EUR6.8 billion ($8.3 billion) towards the recovery, transformation and
resilience plan to spur urban regeneration, the construction of social rental housing in energy-efficient
buildings, and renovations.
• The defense sector was allocated EUR10.2 billion ($11.7 billion), 7.8% higher compared to the amount
allocated in 2021. In addition, EUR939 million ($1.1 billion) has been allocated to military research and
development.
Foreign
Fiscal and financial difficulties have weakened Spain’s position in the EU, so it has been forced to adopt structural
reform and austerity measures imposed by the EU. However, its standing in the EU has improved as its economy has
recovered to register growth, unlike its Eurozone partners such as France and Italy. Since the formation of the EU,
Spain has always had a positive opinion regarding the closer integration of the European nations and it has not
changed its stance, even after it was forced to accept all the harsh austerity measures imposed by EU. In July 2020,
India and Spain agreed to strengthen their bilateral economic cooperation regarding economic, business, cultural,
scientific, educational and people-level cooperation. In November 2020, India and Spain signed a MoU to develop
scientific and technical collaborations in the field of astronomy.
In June 2021, Spain and South Korea signed a MoU to strengthen technological collaboration in the field of energy. In
June 2021, Libya and Spain signed a MoU to encourage investment between both the nations and increase the
volume of trade exchanges. In July 2021, ArcelorMittal signed a MoU with Spain, with investment amounting to
EUR1.0 billion ($1.2 billion), to create decarbonization technologies at ArcelorMittal Asturias’ plant in Gijón, Spain. In
July 2021, the UAE International Investors Council (UAEIIC) signed a MoU with the Spanish Confederation of
Employers’ Organizations (CEOE). The MoU aims to enhance investments and promote bilateral dialogue between
the UAE and Spain and attract foreign direct investments between the two nations.
In November 2021, Italy and Spain signed a MoU to increase cooperation in the naval and maritime fields. In
November 2021, the UAE and Spain signed a MoU to develop an advanced technological framework. The MoU aims
to increase collaboration in the fields of technological advancement and technology transfers.
Defense
Spain’s defense policies have continued to focus on issues affecting international peace, security, and stability, as
well as its own defense. Spain’s defense policy is guided by the National Defense Directive, which focuses on peace
and humanitarian operations within the framework of the United Nations Security Council, boosting common
security and defense policy, active participation in NATO, reinforcing EU-NATO relations, contributing to increased
security in the Mediterranean, maintaining close relations with the US and the Ibero-American Community of
Nations, the promotion of peace, prosperity, and stability on the African continent, and the enhancement of defense
diplomacy. Spain sent 1,500 military personnel under NATO to improve the security situation in Afghanistan, in
addition to supporting NATO operations to fight piracy off the Somali coast. Furthermore, Spain gave military
support to NATO operations in Libya in 2011. In March 2015, during his visit to the country, NATO Secretary General
Jens Stoltenberg praised the country for its valuable contributions to the NATO alliance. In December 2018, the
Spanish government decided to spend EUR7.3 billion ($8.2 billion) on the renewal of military equipment. In May
2019, Spain announced the withdrawal of its frigates from the US-led naval group in the Gulf.
5.4. Performance
5.4.1. Governance indicators

Political Landscape
The World Bank report on governance uses voice and accountability, political stability and absence of violence,
government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 214 countries
and territories over 1996–2020 and beyond. The most recent study was carried out by Daniel Kaufmann of the
Brookings Institution, Massimo Mastruzzi of the World Bank Institute, and Aart Kraay of the World Bank
Development Economics Research Group. For any country, a percentile rank of zero corresponds to the lowest
possible score and a percentile rank of 100 corresponds to the highest possible score.
Spain had a score of 80.68 in terms of voice and accountability in 2020, which measures the extent to which a
country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom of
association, and freedom of the media. Democratic principles in Spain have taken deep root since the adoption of
the republican constitution in 1978. The country's elections are considered to be transparent, and there is respect
for both freedom of expression and the media. Spain’s score is lower than Italy’s score of 82.13 in 2020.
Spain scored 58.02 in terms of political stability and absence of violence in 2020. Political stability and absence of
violence measure perceptions of the likelihood that the government will be destabilized or overthrown by
unconstitutional or violent means, including domestic violence and terrorism. Italy recorded a score of 59.91 the
same year.
On government effectiveness, Spain scored 77.88 in 2020. Government effectiveness measures the quality of public
services, the quality of the civil service and the degree of its independence from political pressures, the quality of
policy formulation and implementation, and the credibility of the government's commitment to such policies. Spain's
score was higher than Italy’s (67.31) in 2020. Spain has a well-developed set of rules and regulations; the country has
undertaken a large number of legislative reforms in order to meet the objectives set by the EU, and the government
is committed to fiscal discipline, pursuing economic policies that will ultimately lead to stability regarding policy
formulation and implementation.
Spain scored 73.56 on regulatory quality in 2020. Regulatory quality measures the ability of the government to
formulate and implement sound policies and regulations that permit and promote private sector development. The
Spanish government has initiated measures to liberalize and modernize its economy. By comparison, Italy scored
68.27 the same year.
Spain ranked in the 78.37 percentile on rule of law in 2020. Rule of law measures the extent to which agents have
confidence in and abide by the rules of society, and in particular the quality of contract enforcement, the police, and
the courts, as well as the likelihood of crime and violence. Spain is yet to completely move away from the restricted
and bureaucratic regime that existed in its dictatorial past. Many other EU nations have transparency in governance
that is still lacking in Spain at present. In terms of rule of law, Spain ranked higher than Italy, which ranked in the
60.58 percentile.
Spain ranked in the 76.44 percentile on control of corruption in 2020. Control of corruption measures the extent to
which elites and private interests exercise public power for private gain, including both petty and grand forms of
corruption, as well as "capture" of the state. Although Spanish society is not completely free from corruption, it has
proven to be one of the countries least affected by bribery out of those surveyed, according to anti-corruption
organization Transparency International. Italy had a lower percentile score of 69.23.
5.5. Outlook
In the November 2019 election, Pedro Sanchez’s party (PSOE) won the highest number of seats but failed to win a
majority. Pedro Sánchez formed a government in January 2020, in coalition with Unidas Podemos. However, there is
still some unrest across the country due to the crisis in the Catalonian region.

Economic Landscape
6. Economic Landscape
6.1. Summary
The economy facing a high deficit and public debt, although stringent austerity measures have been undertaken to
tackle them. The situation had been exacerbated by the banking crisis, which has too much exposure to toxic real
estate assets; however, with the successful recapitalization of the banks, such risks have declined. Responding to the
deteriorating macroeconomic conditions, the government has initiated aggressive labor market reforms to make the
economy more competitive. In addition, the government has focused on consolidating the financial sector to clean
up bank balance sheets and enhance transparency. After experiencing bouts of double dip recession since the euro
crisis, Spanish growth has rebounded, as the economy grew by 2.6% during 2014–19, according to MarketLine.
According to MarketLine, Spain’s economy contracted by 11.0% in 2020, due to the outbreak of COVID-19, which
resulted in the imposition of a domestic lockdown and international travel ban. Consequently, Spain’s tourism
industry was severely impacted. According to MarketLine, the industry is forecast to grow by 5.3% in 2021.
6.2. Evolution
6.2.1. 1940–75
During the late 1930s, when Spain was under the dictatorial regime of Franco, the country's economy was in a state
of decline. After the civil war, the country was faced with formidable economic challenges. It did not retain any gold
or foreign exchange reserves, which would have enabled it to meet demand through imports, and the production
capacity of both agriculture and industry had bottomed out. Because of the country's global isolation, its autocratic
regime resorted to economic self-sufficiency. During World War II, expenditure on foreign arms shot up, adding
further pressure to the economy. The 1940s saw a decade of negative growth, and by the early 1950s, per capita
GDP was around 40% of the average of Western European nations. After years of economic stagnation, coupled with
the tripling of prices amid the growth of a black market during 1940–50, gradual improvements started in the mid-
1950s. The dictum of self-sufficiency was slowly abandoned, and agricultural and industrial production picked up.
The economy received a boost in 1953 after the Pact of Madrid was signed between Spain and the US. The Franco
government permitted the establishment of US military bases on Spanish soil; in return, the US government
provided substantial economic aid to Spain. More than $1.0 billion of economic aid was provided to the country
during 1953–58.
In the following years, economic growth continued, and piecemeal reform measures were initiated. However, an
inefficient bureaucracy restricted the implementation of these reforms. The economy faced a crisis in the late 1950s
as domestic demand outstripped supply, leading to a rise in inflationary pressure and declining exports and foreign
exchange reserves.
In 1959, Spain launched its economic stabilization plan. The objectives of the plan were to take the necessary fiscal
and monetary measures to restrict demand and contain inflation. It also aimed to liberalize foreign trade and
encourage foreign investment. Consequently, the 1960s and 1970s saw buoyancy in the economy, as a large amount
of foreign investment flowed in. The country experienced an economic boom between 1961 and 1973, with the
economy growing 7.3% annually. In addition, the booming tourism and automotive sectors boosted the economy

Economic Landscape
and fueled the development of the supply and services sectors. The country witnessed fast economic growth until it
was hit by the 1973 oil crisis, which resulted in an economic slowdown.
6.2.2. 1976–2020
In the initial years of democracy, the focus of policymakers was on achieving a smooth transition from dictatorship to
democracy, and economic policies took a back seat. As a result, the economy failed to adjust to the changing
economic environment that came into existence after the oil price shocks. The level of wages increased during 1974–
76, and there was a rise in unemployment while the government budget deficit swelled. A recession began in 1975,
and the Spanish economy was found to be more vulnerable than most other modern economies due to structural
deficiencies.
When the socialist government took office in late 1982, inflation was running as high as 14.4% and public spending
was out of control. The government initiated severe austerity measures in order to rejuvenate the economy. There
was a marginal improvement in the early 1980s, but the growth process did not truly gather momentum until after
the mid-1980s, when an increase in demand was accompanied by growing industrial output.
Spain’s accession to the EU in 1986 required the country to further liberalize its economy and undertake economic
reform measures in order to conform to EU guidelines. Following peak growth years in the late 1980s, a global
economic slowdown triggered an economic recession in 1992. Spain's economy partially recovered during the first
Aznar administration (1996–2000), driven by greater consumer confidence and increased private consumption. The
economy continued to grow over the following years, albeit at a slower rate. The economy grew by an average of
3.3% during 1993–2007. However, in 2008, the global meltdown caused Spanish economic growth to subside to
0.9%. The country was in recession in 2009, and its economy contracted by 3.8%. However, GDP registered a
marginal increase of 0.2% in 2010, only to slip again into recession in 2011 and 2012, with the economy contracting
by 0.8% and 3.0%, respectively. Spain remained in recession in 2013, with the economy contracting by 1.4%. During
2014–18, the economy grew by 2.7%. According to MarketLine, GDP grew by 2.0% in 2019, due to stable consumer
spending and investments. In 2020, due to the outbreak of the COVID-19 pandemic, the economy contracted by
11.0%, according to MarketLine.

Economic Landscape
Figure 21: Historical GDP growth rate (%), 2011–20
Source: Country Statistics, MarketLine ©MARKETLINE
6.3.1. Financial system
Overview
Spain is a member of the EU and has thus relinquished control of its monetary policy authority to the ECB. The Bank
of Spain (Banco de Espana) is the country's central bank and is responsible for the implementation of monetary
policy. Spain began the deregulation of its financial system in the 1990s after becoming a member of the EU. The
central bank is responsible for ensuring the smooth operation and stability of the Spanish financial system.
Financial authorities and regulators

Banco de Espana is responsible for the implementation of monetary policy and follows the directives of the ECB. It is
also the main supervisory agency for the quality of commercial bank portfolios and the protection of the monetary
system against bank failures. To comply with the requirements of the 1992 Maastricht Treaty, the bank was required
to become independent from the government and has consequently enforced strict limits on government use of the
money supply as a source of loans.
Banco de Espana is responsible for defining and implementing the EU’s monetary policy, with the principal aim of
maintaining price stability across the Eurozone. The bank is also responsible for the sound working of the country’s
payment systems.
The Comision Nacional del Mercado de Valores (CNMV) is the agency in charge of supervising and inspecting the
Spanish stock markets and the activities of the participants in those markets. It was created by the Securities
Economic Landscape
Markets Law, which initiated stock market reforms. The scope of the commission includes all companies that issue
securities. The commission also supervises entities such as brokers and dealers engaged in the purchase and sale of
securities. Portfolio management companies focusing primarily on individuals' assets are also subject to CNMV
supervision.
6.3.2. Spanish stock market
Bolsas y Mercados Espanoles (BME) is Spain’s official stock exchange. It consists of the Barcelona, Bilbao, Madrid,
and Valencia stock exchanges. The BME is the umbrella organization that coordinates the Spanish equity, fixed
income and derivatives markets, and their clearing and settlement systems. The Madrid stock exchange is the largest
and accounts for more than 90% of the total market capitalization of all the exchanges in Spain. The IBEX 35 is the
benchmark equity index of the Madrid stock exchange and consists of the 35 most liquid stocks. Listed stocks are
from diverse sectors such as construction, financial services, communications, consumer, capital/intermediate
goods, energy, and market services.
Figure 22: IBEX 35 index, January–October 2021
6.4. Performance
Economic Landscape
6.4.1. GDP and growth rate
Since the mid-1990s, Spanish economic growth has largely outperformed the rest of the Eurozone, primarily driven
by tourism and European subsidies. The economy grew at an average rate of 4.5% during 1997–2000. The country’s
growth slowed somewhat during 2001–03 and averaged 3.2%; the economy registered an average growth rate of
3.7% during 2000–07. After recording steady growth during 2000–07, the Spanish economy started to decline in
2008, recording growth of 0.9%. The deceleration in 2008 came about as a result of the sharp slowdown in national
demand, while real estate market prices also showed signs of weakening. Moreover, weak consumption and
investment expenditure also affected growth, as household wealth was eroded due to the crash in housing prices.
The downward trend continued in 2009, and the economy contracted by 3.8%. In 2010, the economy grew by just
0.2%, and again slipped into recession, which continued during 2012 and 2013, according to MarketLine. In 2014 and
2015, the country posted modest growth of 1.4% and 3.8%, respectively. The country grew by 3.0% in 2016 and
2017. According to MarketLine, the economy grew by 2.4% in 2018 and by 2.0% in 2019. The marginal slowdown in
the economy in recent years is due to the adverse impact of the global economic slowdown, which affected
household consumption and investments. According to MarketLine, the economy contracted by 11.0% due to the
outbreak of COVID-19. According to MarketLine, the economy is forecast to grow by 5.3% in 2021.
Figure 23: GDP and GDP growth rate ($ trillion/%), 2016–25f
6.4.2. GDP composition by sector

Economic Landscape
The services sector is the major contributor to the economy. Its share of GDP stood at 74.0% in 2020. It is also the
fastest growing sector, followed by manufacturing and agriculture. In 2020, the industrial sector contributed 22.6%
of GDP and agriculture contributed the remaining 3.5%.
Figure 24: GDP composition by sector (%), 2020

Economic Landscape
Agriculture
Agriculture was a dominant sector of the Spanish economy up until 1945; however, its significance gradually
declined in the aftermath of industrialization. During the 1950s, there was large-scale migration to cities as food
prices increased rapidly and the surplus labor pool began to shrink. With increasing industrialization, the share of
agriculture declined.
The fruits and vegetables segment is a significant segment in the agriculture sector and it generates around one
quarter of the sector's revenue. In the northwest of the country, cereals, potatoes, and sugar beets are important
products. Agricultural production in Spain has been declining, and one of the major concerns has been the
abandonment of farms by farmers. According to MarketLine, agriculture growth was 8.7% in 2020 and the sector is
forecast to grow by 1.8% in 2021.
Figure 25: Agricultural output (EUR billion/%), 2016–21f
Note: the sectoral breakdown is given in local currency due to the

fluctuation of the currency rate.

Economic Landscape
Industry
Initially, the focus of industry was on the production of goods for domestic consumption and on intermediate
products linked to infrastructure and construction services, but gradually the sector became broad-based, with the
inclusion of capital goods and goods for export. According to MarketLine, industrial growth contracted by 9.5% in
2020, due to the outbreak of the COVID-19 pandemic. The industrial sector is forecast to grow by 3.9% in 2021,
according to MarketLine.
Figure 26: Industrial output (EUR billion/%), 2016–21f

Services
In the services sector, retailing, tourism, banking, and telecommunications are the most important contributors. The
tourism sector is the largest foreign exchange revenue earner for the Spanish economy. In 2020, due to the outbreak
of the COVID-19 pandemic, the tourism sector was heavily impacted due to the imposition of domestic lockdowns
Economic Landscape
and an international travel ban. As per MarketLine, in 2020, the services sector contracted by 10.0%. According to
MarketLine, the services sector is forecast to grow by 6.8% in 2021.
Figure 27: Services output (EUR billion/%), 2016–21f

6.4.3. Fiscal situation
According to the IMF, the general government deficit was 11.0% of GDP in 2020. In 2021, the general government
deficit is forecast to reduce to 8.6% of GDP.

Economic Landscape
Figure 28: General government net lending/borrowing (EUR billion/%), 2016–25f
Source: IMF October 2021 Database ©MARKETLINE
6.4.4. Current account
The country has maintained a current account surplus from 2013 onwards. In 2019, the current account surplus
stood at 2.1% of GDP, compared to 1.9% of GDP the previous year. However, in 2020, according to IMF, the current
account balance was recorded at $8.8 billion and decreased to 0.7% of GDP. The decrease in current account surplus
was mainly due to lower export growth and a reduction in the inflow of remittances due to the outbreak of the
COVID-19 pandemic. According to the IMF, the current account surplus is forecast to be 0.4% of GDP in 2021.

Economic Landscape
Figure 29: Current account balance ($ billion/%), 2016–25f
6.4.5. Exports and imports
According to MarketLine, exports decreased from $491.1 billion in 2019to $379.4 billion in 2020, while imports
decreased from $457.9 billion in 2019to $369.0 billion in 2020. According to the UN Comtrade Database, Spain’s
major export partners in 2020 were France (15.4%), Germany (10.8%), Italy (7.5%), Portugal (7.3%), and the UK
(6.0%). Spain’s major import partners in 2020 were Germany (11.8%), China (10.2%), France (9.9%), Italy (6.2%), and
the US (4.9%).

Economic Landscape
Figure 30: External trade ($ billion), 2016–21f
6.4.6. External debt
The Spanish economy’s gross external debt stood at $2.3 trillion in 2019, compared to $2.4 trillion in 2018, according
to the CIA World Factbook.
6.4.7. General government gross debt
According to the IMF, general government gross debt was 119.9% of GDP in 2020, compared to 95.5% of GDP in
2019, due to the various stimulus measures undertaken by the government. According to the IMF, general
government gross debt is forecast to increase to 120.2% of GDP in 2021 and gradually reduce to 116.4% of GDP in
2022.

Economic Landscape
Figure 31: General government gross debt (EUR billion/%), 2016–25f
6.4.8. International investment position
Foreign direct investments (FDI)

According to the UNCTAD World Investment Report 2021, the country’s total inward FDI inflows stood at $8.9 billion
in 2020 compared to $8.5 billion in 2019, which indicates that it has done well in terms of attracting FDI.
Credit rating
In June 2021, Fitch ratings affirmed Spain’s Long-Term Foreign-Currency Issuer Default Rating at A-, with a stable
outlook.
Monetary situation
Key monetary indicators
Interest rate
As a member of the EU, Spain’s fiscal policy is controlled by the ECB. Banco de Espana is responsible for the
implementation of monetary policy. One of the main objectives of monetary policy is maintaining price stability. The
ECB has announced measures to boost lending to firms, which should alleviate the credit crunch of firms in the Euro
area (Spain is a member of the Euro area), in the short-to-medium term. The Governing Council of the ECB has
steadily decreased the headline interest rate, or the interest rate on the main refinancing operations of the
European Central bank, since 2012. The interest rate was reduced to 0% in 2016 from 1% in 2012. It has remained
unchanged at 0% since 2016. In the monetary policy meeting held on October 28, 2021, the Governing Council kept
the interest rate on the main refinancing operations unchanged at 0%. In addition, the Governing Council stated it
Economic Landscape
plans to continue the net asset purchases under the Pandemic Emergency Purchase Programme (PEPP), with a total
envelope of EUR1.8 trillion ($2.3 trillion) until at least the end of March 2022.
Inflation
According to MarketLine, the inflation rate was -0.3% in 2020. According to MarketLine, inflation is forecast to
increase to 2.4% in 2021.
Figure 32: Consumer price index and CPI-based inflation, 2016–25f
Employment
The Spanish economy is suffering from high levels of unemployment and has for quite some time. With the outbreak
of the novel coronavirus, the situation has worsened further, particularly considering how reliant the economy is on
tourism. According to MarketLine, the unemployment rate was 15.5% in 2020 and it is forecast to increase to 16.5%
in 2021.

Economic Landscape
Figure 33: Unemployment rate (%), 2016–25f
6.5. Outlook
Although the Spanish economy is forecast to recover in 2021, the high unemployment rate continues to remain a
challenge. With the outbreak of the COVID-19 pandemic in 2020, and the government implementing various
stimulus measures, Spain’s high general government gross debt continues to pose a risk to the economy in the
coming years.

Social Landscape
7. Social Landscape
7.1. Summary
Key social issues in Spain, such as an aging population and high unemployment, are similar to those experienced by
many other European nations. The birth rate has been declining in recent years, and there are fewer people entering
the workforce. The Spanish education system has undergone significant reforms, which has led to its above average
performance in terms of tertiary education. The fiscal consolidation measures will lead to the contraction of its social
security expenditure due to the outbreak of the COVID-19 pandemic. Due to the pandemic, the government finds its
finances coming under pressure, as it undertakes various stimulus measures in order to mitigate the impact of it and
pays out benefits to poor households in order to reduce inequality and unemployment benefits to people who have
been out of work. However, in 2021, the government has taken various steps to improve the education and
healthcare sectors in order to improve the socioeconomic situation across the country.
7.2. Evolution
Spain’s social landscape underwent significant changes after the abolition of the dictatorship and the adoption of a
democratic government. Spain’s post-civil war economic development transformed a conservative society into an
advanced industrial society. By the 1980s, Spain had acquired most of the characteristics of European society, such
as declining birth rates, the migration of rural workers to urban areas and the participation of women in the labor
force. The government became more proactive in providing social security to its population, and social welfare
measures increased during the late 1980s and the 1990s.
Spain's population is drawn from a diverse range of ethnic and linguistic groups. As this diversity gave rise to
conflicts, the 1978 constitution provided for the establishment of regional autonomous governments with the
powers and the resources necessary to protect their ethnicity and regional languages. The influence of the Roman
Catholic Church, which at one time played a dominant role in Spanish life, has gradually diminished over the years as
society has become more secular.
7.3.1. Demographic composition
Age and gender-wise composition

According to MarketLine, as of 2020, the age structure showed that 65.8% of the population were in the 15–64 age
group, 14.5% of the population were in the 0–14 age group, and 19.6% of the population were aged 65 years or
above. With this age structure, Spain has a demographic trend similar to that seen across the rest of Europe. There
has been an increase in the elderly population and fewer people are entering the workforce. The gender ratio in
Spain was 94.3 males per 100 females as of 2020, according to MarketLine.

Social Landscape
Table 8: Mid-year population by age (as a percentage of the total population), 2020
Age group Female Male

0–4 4.1 4.5
5–9 4.7 5.2
10–14 5.1 5.7
15–19 4.8 5.4
20–24 4.8 5.2
25–29 5.2 5.5
30–34 5.8 6.0
35–39 6.9 7.1
40–44 8.1 8.6
45–49 8.0 8.4
50–54 7.6 7.9
55–59 7.1 7.2
60–64 6.2 6.1
65–69 5.3 5.0
70–74 5.0 4.4
75–79 4.1 3.4
80+ 7.4 4.6

Social Landscape
Religious composition
Roman Catholicism is the dominant religion in Spain, with 58.2% of the population following this religion, as of 2021.
Figure 34: Composition by religion (%), 2021
Source: The CIA World Factbook ©MARKETLINE
7.3.2. Education
The current education system in Spain is based on the 1990 education law Ley Organica de Ordenacion General del
Sistema Educativa, which translates as the Organic Law on the General Organization of the Educational System. This
law restructured primary and secondary education, providing free and compulsory education from six to 16 years of
age. School curriculums were also protracted to incorporate newer technical subjects and foreign languages.
The breakup of the stages of education for Spanish children includes preparatory education, primary education,
compulsory secondary education, post-compulsory secondary education and tertiary education.
Although basic education begins as early as three years of age, the first three years of education are not compulsory.
They are, however, considered an integral part of the system, and are available in almost all primary schools.
Universities in Spain date back to the medieval ages and are based on the 19th century liberal and centralized French
model but have been gradually moving toward a self-governed and decentralized model. Education in universities is
not free, but university grants and scholarships are available for both residents and foreign students, and one in

Social Landscape
every seven students receives a grant. Fees are lower for Spaniards and EU nationals, as is the cost of
accommodation. US universities also operate in Spain with the same standard of teaching and learning.
Schools are maintained by three types of management: public, private, and a combination of both called
"concertado". A concertado school is maintained by a public administrative body but is subsidized by the
government. The concertados usually combine both primary and secondary education.
7.3.3. Healthcare
Healthcare services
The current healthcare system came into existence during the transition to democracy. The central government is
responsible for promoting coordination and cooperation among health units. The 1986 General Healthcare Act
outlines the main principles of the National Health Service. From 1986, healthcare financing was changed, with the
former insurance-oriented system transformed into a system financed by taxes, providing Spanish residents with
almost universal coverage. The decentralization reform was completed in 2002, which resulted in governance of the
system being decentralized to all 17 autonomous provinces. At a provincial level, the two main sources of finance are
taxes and allocations from the central government. Private healthcare finance consists of out of pocket payments to
the private sector and voluntary health insurance. The government has to focus more on improvements to
accessibility and spending on healthcare. According to the OECD, the Spanish government’s per capita expenditure
on healthcare stood at $3,600.3 in 2019, which is lower than the per capita expenditure on healthcare in Germany
($6,518.0). Spain has to improve the human resources available in the healthcare sector. According to the OECD, the
number of nurses available per 1,000 inhabitants stood at 5.9 in 2019, compared to 14.0 nurses per 1,000
inhabitants in Germany the same year.
7.3.4. Social welfare
Social welfare policies

The social welfare scenario in Spain has changed from a series of social security schemes to a whole range of social
welfare bodies, industrial foundations, insurance societies, friendly societies, pension schemes, and funds. Social
welfare policies started later in Spain than in most European countries. Until the late 1930s, the Catholic Church had
a great deal of influence over welfare policies and often designed them in a way that favored the ruling autocratic
family. When Franco came into power after the civil war of 1936, he discarded the existing system of welfare
reforms and introduced new laws that were more people-oriented.
The social security system improved after the country formed a democratic government. The PSOE came into power
in the first democratic elections held in 1982. It brought about dramatic changes to the existing welfare system and
planted the roots of reform. From a social standpoint, the new welfare system was more comprehensive than the
previous one in the sense that it included healthcare, housing, and education, which were overlooked by the
previous government. The Felipe Gonzalez-led administration was particularly mindful of the working class and
introduced earnings-related contributory benefits for employees. These benefits were designed to address issues
such as post-retirement benefits, disability benefits, sickness benefits, and widowhood benefits. The government
adopted the "pay as you go" pension system as a conduit to make these policies effective for the economically active
population. The PSOE established healthcare reforms in 1986 in order to guarantee access and the right to
healthcare for all Spaniards and foreigners in Spain, by making healthcare insurance available to everyone.
Housing has been of major concern for the Spanish government since the "Spanish Miracle" of 1960, when real
estate prices reached dizzying heights. Under the Franco regime, prices dropped only marginally, making it difficult
for the lower classes to be able to afford housing. The Gonzalez government made home ownership more affordable
through mortgage subsidies.

Social Landscape
After the financial crisis that hit Spain in the early 1990s, unemployment became a key problem for the economy. As
the number of people losing their jobs increased, those claiming unemployment benefits also rose, causing a strain
on government finances. The funds available were inadequate to cover the insurance benefits of all claimants. Spain
has a tenacious insurance system in place, and the benefits accrued by these plans are more remunerative than
those in other EU nations. However, since the onset of the crisis, government has announced major cuts in
healthcare, education, and unemployment benefits as a part of the austerity plan to cut the deficit. With the
outbreak of the coronavirus pandemic and in order to curb the rising poverty, Spain introduced measures where
poor households (defined as gross annual income not exceeding EUR16,000 ($17,900)), would be entitled to EUR462
($508.83) in monthly benefits beginning in June 2020. However, for every child living in a poor family, the payout
would be increased by EUR130 ($143.18) per household. In 2021, the government introduced new exemptions for
outpatient prescriptions, a reform that is expected to benefit more than 6 million people. Beginning January 1, 2021,
low-income pensioners, moderately and severely disabled children, and households receiving child benefits would
not have to bear out of pocket expenses for prescribed medications. The government has allocated EUR49 million
($59.6 million) with respect to expanding dental coverage. The above initiatives aim to reduce inequalities in terms
of access and strengthen financial protection and are in line in WHO recommendations with respect to countries
making progress towards universal health coverage.
7.4. Performance
7.4.1. Healthcare
Spain spent 11.1% of GDP on healthcare in 2020. Healthcare is primarily financed through the public and private
sectors; however, the public sector is still the dominant player, accounting for almost 70% of the total contribution.

Social Landscape
Figure 35: Expenditure on healthcare ($ billion/%), 2011–20
7.4.2. Education
Spain had a literacy rate of 98.6% for the total adult population (15 years and above) as of 2020, according to
MarketLine. While the male literacy rate was at 98.9%, the female literacy rate was slightly lower at 98.1%.
Government expenditure on education as a percentage of GDP was 4.3% in 2020, compared to 4.0% in 2019,
according to MarketLine.

Technological Landscape
Figure 36: Government expenditure on education ($ billion/%), 2011–20
7.5. Outlook
The outbreak of the COVID-19 pandemic has resulted in a severe impact on the Spanish economy. In the coming
years, Spain will need to focus on additional spending on healthcare, reducing inequality and poverty as a result of
the pandemic, and combating rising unemployment. The aging population will continue to stretch public finances.
However, with the government bringing in initiatives related to healthcare and the education sector, the country’s
social landscape is set to improve in the coming years.
8. Technological Landscape
8.1. Summary
Spain has been slow to adopt technological advancements compared to other European Union (EU) countries,
although policy measures have been undertaken in this area. Spain was grouped with the moderate innovators in
the Innovation Union Scoreboard for 2021, an innovation index for the EU nations. Although it performs well in
terms of knowledge creation, the innovation climate is not particularly productive. This situation has arisen because
of the large role the public sector plays with regard to research and development (R&D). The private sector has
limited participation in enhancing R&D levels. According to the Global Innovation Index 2021, Spain ranked 30th
among 132 nations on the overall innovation parameter. In addition, the country ranked 19th among 39 countries in
Europe. Spain ranked 23rd out of 132 nations on the research and development parameter. According to the
Speedtest Global Index, as of September 2021, Spain ranked 14th out of 181 nations on the fixed broadband
indicator, with a download speed of 201.47 Mbps and upload speed of 178.50 Mbps. However, the country ranked
43rd out of 138 countries on the mobile internet speed indicator, with a download speed of 61.62 Mbps and upload
speed of 14.34 Mbps.
8.2. Evolution
Spain’s sudden boost in performance in the 1960s had more to do with the economy and political factors than the
country’s R&D and technological development. In the early years of industrialization, Spain was dependent on
foreign technology; however, Spain's policymakers soon realized that this dependence was a drain on its resources
and started working toward self-sufficiency. Following on from the rule of Franco, enterprising endeavors were
undertaken by the government in order to modernize its industries. The University Reform Law was enacted in 1983,
followed by other science laws and procedures in 1986, such as the Patent Law. Since then, a great deal of effort has
gone into stimulating scientific and technological development. These efforts gathered momentum with the
country's accession to the European Community. Spanish companies and scientific communities have been
participating in European programs such as the Framework Program, EUREKA, and the European Space Agency.
In the late 1980s and early 1990s, government policy focused on the "science-technology-industry system", and
funding research was prioritized according to the needs of the economy and society. However, there was a lack of
coordination and consistency in terms of the implementation of policies. A shift in technology policy occurred in
1996, when the conservative People's Party government assumed office. Policy became pro-business and the
government moved to a more innovation-centered approach. In 2000, a new Ministry of Science and Technology
was created and was made responsible for the development and application of science and technology. Spain plans
to invest EUR15 billion ($16.5 billion) it received from the European coronavirus rescue plan. The country plans to
boost its digital transformation. The aim is to develop a faster 5G network and extend coverage to rural areas in
order to facilitate digital education for the population. Moreover, the government plans to invest a total of EUR70
billion ($77.1 billion) into digital transformation during 2020–22. In 2021, the Spanish government set out its R&D
spending plan for 2021–25. The government aims to invest EUR456 million ($554.8 million) in the R&D spending
plan.
In September 2021, the new Universilation of Digital Infrastructures for Cohesion Programme (UNICO), launched by
the Ministry of Economic Affairs and Digital Transformation, expects telecom operators to provide 100 Mbps to
100% of the population by 2025. According to the Ministry of Economic Affairs and Digital Transformation, an
investment of EUR4.0 billion ($4.9 billion) is set to provide extended connectivity, the deployment of 5G networks,
and boost the cybersecurity ecosystem. In September 2021, Microsoft chose Spain as its base with respect to its new
research and development hub, specialized in applying artificial intelligence technology in order to improve the user
experience on the web.


The Spanish regulatory framework is decentralized; it allows regional governments to develop their own innovation
and entrepreneurship policy. Each autonomous community has created its own regional development agency, the
main activities of which include the establishment of science and technology parks and technology transfer
organizations, as well as the initiation of university-enterprise interfaces.
One of the most important policy changes was the Spanish Innovation Strategy 2013–20, as part of the ERA 2020
Vision. It calls for increased cooperation between the public and private sectors, as well as reaffirming existing
measures, giving more importance to risk capital funding and introducing a public procurement policy for the first
time based solely on innovation. In May 2011, the Spanish government approved a law on science, technology, and
innovation to replace the existing Law of Scientific and Technological Research of 1986. The law mainly aims “to
establish a general framework within which to strengthen and coordinate scientific and technical research in order
to contribute to sustainable development and social welfare by generating and sharing knowledge and innovation”.
The main agencies involved in the development and implementation of strategy, technology and innovation policies
are the Ministry of Education and Science and the Ministry of Industry. The Interministerial Commission on Science
and Technology coordinates the R&D activities of different ministries and plays a key role in the Spanish National
R&D and Innovation plan. The Spanish National Plan for Scientific Research, Development, and Technological
Innovation covers a broad range of scientific areas and develops policies for innovative practices by supporting
technological innovation and R&D excellence. The national R&D plan is the embodiment of various technological
development plans, including strategic R&D programs and general funding mechanisms for non-oriented and non-
prioritized research activities.
8.3.1. Intellectual property
Spain has well-developed intellectual property rights (IPR) legislation, which is similar to the system followed in other
EU nations. Spain ratified the 1973 Munich European Patent Convention, which made the country a designated
nation for European patent applications. The IPR law provides for both product and process patents. A non-
renewable 20-year period for working patents is granted. Spain is also a signatory to the Universal Copyright
Convention, which protects all literary, artistic, and scientific creations (including computer software). The Spanish
office of patents and trademarks is responsible for the protection of trademarks, which, once registered, receive
protection for 10 years and can be renewed. According to US Patent and Trademark Office (USPTO), 1,187 patents
were issued for Spanish residents in 2020, compared to 1,058 patents in 2019. Spain’s performance is poor
compared to the 19,799 patents granted to people in Germany in 2020.
8.4. Performance
8.4.1. Mobile and internet
According to MarketLine, mobile penetration stood at 117.85 per 100 people in 2020, with total subscribers at 55.6
million. Internet users, as of 2020 stood, at 44.1 million, with a penetration rate of 92.6% the same year. Internet
subscribers grew at an average rate of 3.7% during 2011–20.

Figure 37: Internet users (millions/%), 2016–20
8.5. Outlook
The government has initiated measures to address the shortfall in the innovation system by revamping the
education system and introducing new technology. The lack of innovation and entrepreneurship in the system has
emerged because a low percentage of small and medium-sized enterprises are involved in innovation, and because
of the low participation of the private sector and venture capitalists. The low level of innovation in Spain is reflected
by the low number of patents registered. The country only registered 1,187 patents in 2020, compared to France and
Germany, which registered 7,981 and 19,799 patents, respectively. Although the number of patents is on the rise,
the figure is still significantly behind the levels seen in other leading nations. Any continuation of this trend is
expected to hamper the country’s scientific prospects.
A positive environment could be created by enhancing incentives and making the venture capitalist funding
procedure simpler. The government’s decision to promote early stage investment rather than focusing on expansion
is a step in the right direction and should show positive results in the long-term. Furthermore, the new policy on tax
incentives for R&D enterprises will also boost efforts in this direction.

Legal Landscape
9. Legal Landscape
9.1. Summary
The Spanish legal system owes its origins to the constitution of 1978. The country has an independent judiciary, free
from other branches of government. There are four categories of courts: civil, criminal, administrative, and social.
The federal system of governance is also reflected in the judicial structure. For jurisdictional purposes, the Spanish
territory is divided into municipalities, judicial districts, provinces, and autonomous communities. The autonomous
communities have wide-ranging legislative and executive powers.
After assuming EU membership, the Spanish government initiated legal reforms to ensure greater integration. Tax
rates have been reduced, investment regulations have been eased out, and hitherto restricted sectors are being
opened up to encourage private investment. Nevertheless, government interference in economic matters still exists,
which can make economic decision-making somewhat rigid.
9.2. Evolution
The Spanish judiciary system owes its origins to the constitution, which came into effect in 1978. As per the
constitution, justice emanates from the people and is administered in the name of the king by independent judges.
The constitution made the judiciary independent of the executive and legislative branches of government. The
judicial system is based on civil law and is governed by precise codes.
As a member of the EU, Spain's constitution allows for the exercise of constitutional powers by international
organizations and the restriction of national sovereignty under several conditions. In this way, Spanish law has been
greatly influenced by EU legislation. The regulations of the European Council have played an important role in
shaping the nation’s laws. A number of amendments have been passed to ensure the harmonization of laws across
all the EU member states.
9.3.1. Judicial system
Structure of the system

The Supreme Court is the highest body in the judicial pyramid, with authority over all legal issues except
constitutional questions. The judicial system is controlled by the Consejo General del Poder Judicial (CGPJ), which
translates as the General Council of the Judiciary. The CGPJ is an independent government body responsible for the
power of the judiciary, and it has jurisdiction over the whole country. The members are proposed by Congress and
the Senate.
Given the federal structure of the country, the judiciary is hierarchical in nature, based on territorial divisions. For
jurisdictional purposes, the country is divided into municipalities, judicial districts, provinces, and autonomous
communities. There is a system of appeals against the decisions of lower courts to higher courts, and finally to the
Supreme Court. Only the Supreme Court and the National Court have jurisdiction over all the territories of Spain.

Legal Landscape
According to the subjects for decision, Spanish courts are organized into four categories: civil (for civil or commercial
issues), criminal (for violations of the criminal code), social (for social security and employment contracts issues), and
administrative (for claims based on acts performed by public administration).
Corporate income tax

Corporate income tax applies to entities that are tax residents in Spain. Any company registered in Spain is taxed on
its worldwide income. An entity is considered a resident in Spain for tax purposes if it has been formed in accordance
with the laws of Spain, or if it has its registered office or its effective place of management in the country. The
combined corporate income tax rate (central government corporate income tax plus sub-central corporate income
tax) is 25% as of 2021. There is no alternative minimum tax in Spain. Any dividends received are subject to corporate
income tax; however, they may be exempted in certain cases.
Income tax
Individual residents in Spain have to pay personal income tax. The country follows a system of progressive taxation
with rates that start at 19% and can go up to a tax rate of 26%, as of 2021.
9.3.2. Labor laws
The labor market in Spain is plagued with the rigidities of employment regulations. Collective labor agreements
make it possible for employees to negotiate with employers – a system that gives rise to a number of labor disputes.
Collective bargaining is prevalent in both the private and public sectors. Nearly 60% of the working population is
covered by collective bargaining agreements. The government has initiated measures to increase the number of full-
time hires, but the impact of such a move has been limited, and the Spanish market remains dominated by
temporary hires. All employees have to enter into an employment contract with their employer, which can be for an
indefinite or fixed term.
9.3.3. Corporate governance
Spain has made considerable progress with regard to developing corporate governance for its companies. A number
of companies have been successful in adopting best governance practices from different systems, especially the
Anglo-Saxon codes. In 2003, Spanish firms created a code of business practices and ethics, which was codified by
Spanish regulatory agencies in 2004. Spain’s listed companies are required to comply with such codes and
transparency rules.
9.4. Performance
9.4.1. Effectiveness of the legal system
A significant number of commercial laws and regulations were modernized in 1986 after the country attained EU
membership, and the country's local regulatory framework compares well with other EU nations. Government
intervention in economic matters has not stopped altogether, but bureaucratic procedures have been streamlined
by the elimination of red tape. However, the legislation and implementation of business regulations is not uniform
across the nation due to regional autonomy. According to the 2020 Doing Business report, Spain ranked 30th out of
190 countries. In terms of resolving insolvency, the country ranked 18th out of 190 countries and country was
ranked 26th for enforcing contracts.

Legal Landscape
Spain was ranked 39th out of 186 countries in the 2021 Index of Economic Freedom. Spain performed strongly in
terms of labor freedom, monetary freedom, property rights, judicial effectiveness, and government integrity, but
was relatively weak in terms of tax burden and government spending.
9.5. Outlook
Spain’s regulatory reform measures began in the post-liberalization period. Economic reform programs were coupled
with legislative changes to meet the challenges arising from the new economic landscape. Nevertheless, starting a
business takes longer than the OECD average. According to the 2020 Doing Business report, it takes 12.5 days to start
a business in Spain, compared to the OECD high income average of 9.2 days. It takes seven procedures to start a
business in Spain, while the OECD high income average is 4.9. However, the country improved its ranking in terms of
starting a business by streamlining the procedures required to start a business, which is a step in the right direction.
It has also eased the procedure of paying taxes and has taken effective steps to protect minority investors. The
government’s move to free up professional services and curb tax evasion are welcome for a country in deficit. The
regulatory regime is expected to see further reforms, which are expected to improve the country’s investment
landscape.

Environmental Landscape
10. Environmental Landscape
10.1. Summary
In the policymaking process, the significance of the environment emerged after Spain became a member of the EU.
The associated legislative process gained momentum after the formation of the Ministry of Environment in 1996.
Spain has participated in important environmental agreements and is committed to meeting its obligations. The
country has increased its international commitments to help improve the climatic conditions of underdeveloped
nations, particularly in Latin America.
Both national and regional governments are responsible for the legislation and implementation of environmental
directives. However, despite the continued efforts of successive governments, coupled with increased participation
from the private sector, the country has achieved only partial success in terms of improving its environmental
conditions. In 2018, Spain announced an environmental policy where the country would end its dependance on fossil
fuel. Additionally, the country also announced that it would generate 75% of its electricity from renewable sources,
with an aim to generate 100% electricity from renewable sources by 2050 and decarbonize the economy thereafter.
Moreover, Spain plans to ban the sale of fossil fuel vehicles by 2040. The country also aims to reduce its greenhouse
gas emissions by at least 23%, compared to 1990 levels, by 2030.
10.2. Evolution
The environmental agenda had a delayed entry into the Spanish policymaking process. The topic only truly received
domestic attention after Spain became a member of the EU. After joining the EU, the government was expected to
adhere to a number of EU directives with regards to the environment. More often than not, the Spanish approach
has been reactive rather than proactive. Following the creation of the Ministry of Environment in 1996, the concept
of sustainability became part of the government's agenda. Since the 1990s, the government has been active in
meeting international commitments to safeguard the environment.
10.3.1. Environmental regulations
Overview
In Spain, the central government is responsible for the coordination and promotion of environmental policies, as well
as issuing basic environmental guidelines with regard to the management of public water resources, transport, and
energy. The autonomous communities are responsible for the implementation and monitoring of environmental
policies, and are also authorized to issue additional, more restrictive laws on the exploitation of natural resources
within their provinces. In addition, they are responsible for managing and implementing policies in matters that have
a local impact.
The Spanish Climate Change Office is responsible for developing the national climate change policy. There are other
bodies, such as the General Direction of Nature Conservation and the General Sub-direction of Woods, which are
responsible for the evaluation and control of the forest sector. These bodies are also responsible for coordination

with the autonomous communities and various academic and environmental institutions, as well as for the collection
of environmental data and observation of the climate.
Policy
In order to protect the environment from different pollutants, the Spanish government has passed many laws and
decrees. The first ever law to curb the emission of greenhouse gases was passed by the Aznar administration in
2004. Following suit, the current government is in the process of creating a strategy for sustainable development and
climate change to be implemented by every ministry and province. The most pressing environmental issues that
need to be addressed by the Spanish government are greenhouse gas emissions, water management, biodiversity
conservation, climate change, air pollution, sustainable tourism, and the management of waste disposal.
The Air Pollution Plan is Spain’s first serious attempt at maintaining its air pollution levels under the targets
stipulated by the Kyoto Protocol. Under this plan, all industrial and energy production plants – which are known to
emit the highest amount of CO2 – will be assigned a CO2/other greenhouse gases limit.
Other national laws include a law on packaging waste introduced in 1997, an environmental impact assessment
introduced in 2001, an integrated pollution prevention and control law introduced in 2002, and a regulation offering
protection for forests was introduced in 2003. The autonomous communities have also legislated their legal
frameworks. The legislation on biodiversity protection has been modified to meet the requirements of both the EU
and the United Nations (UN).
Both national and regional governments have been functioning as per EU directives. These bodies are focusing on
environmental infrastructure investment and financing. The national government has managed to increase
enforcement activities at all levels. For instance, it developed product charges on packaging waste and introduced
landfill taxes on municipal waste. The government rolled out a national renewable energy plan for 2011–20, which
consisted of a range of financial and regulatory measures designed to increase dependency on renewable energy.
However, the government’s move in 2014 to drill for oil off the coast of Spain in the Atlantic was criticized by
environmentalists. The COP21 agreement in Paris was ratified by the Spanish government in 2015.
According to the parliamentary draft plan, Integrated National Energy and Climate Plan 2021–2030, 74% of Spain’s
total electricity supply is expected to come from renewable sources. The bill plans for an investment of EUR237
billion ($263.3 billion) during 2021 to 2030, which is expected to create 300,000 jobs. According to Spain’s National
Energy and Climate Plan, the country aims to have 5 million electric vehicles on the roads by 2030, including cars,
vans, motorcycles, and buses.
In July 2021, President Pedro Sánchez presented the Recovery and Economic Transformation (PERTE) project, which
is based on public-private partnership, with a focus on strengthening the value chains of the automotive industry in
Spain. The PERTE project expects an investment of EUR24 billion ($29.2 billion) over 2021–23. The public sector’s
contribution is expected to be EUR4.3 billion ($5.2 billion) and the private sector’s investment is expected to be
EUR19.7 billion ($24.0 billion). With the investment, the government aims to increase electric vehicles’ share of GDP
by 15% by 2030. The main purpose of the project is to create an environment which would help develop and
manufacture electric and grid-connected vehicles, thereby turning Spain into the European hub for electromobility.
In addition, with the implementation of PERTE, 140,000 jobs are expected to be created over 2021–23. Under PERTE,
the government expects the register 250,000 electric vehicles by 2023.
10.4. Performance
10.4.1. Environmental impact
According to BP Stats, CO2 emissions declined to 220.4 million tonnes in 2020 from 288.0 million tonnes in 2015.
Yale University conducts the Environmental Performance Index (EPI), which ranks countries based on their
performance on various indicators. In the 2020 EPI, Spain ranked 14th out of 180 countries. Its air quality was ranked
22nd among 180 countries. It was also ranked 23rd in terms of solid waste and 15th in terms of sanitation and
drinking water, according to the EPI index. The country, however, ranked first in terms of marine protected areas.
Figure 38: Carbon dioxide emissions (million tonnes/%), 2011–20
Source: BP Stats ©MARKETLINE
10.5. Outlook
The government’s move towards dependency on renewable energy by 2050 is a welcome change. The Spanish
government needs to take proactive measures to decrease the emission of greenhouse gases, otherwise it will face
negative economic consequences in the long run. The scrapping of the oil exploration project in the Canary Islands
by Repsol has been well received by environmentalists. In February 2019, the Spanish government announced a
public investment plan worth EUR47 billion ($53 billion) to address climate change. This fund will be partially raised
by issuing green bonds. Spain plans to cut net greenhouse gas emissions to zero by 2050.

Appendix
11. Appendix
Country ISO code Country ISO code
Australia AUS Japan JPN
Austria AUT Korea KOR
Belgium BEL Luxembourg LUX
Canada CAN Mexico MEX
Chile CHL Netherlands NLD
Czech Republic CZE New Zealand NZL
Denmark DNK Norway NOR
Estonia EST Poland POL
Finland FIN Portugal PRT
France FRA Slovak Republic SVK
Germany DEU Slovenia SVN
Greece GRC Spain ESP
Hungary HUN Sweden SWE
Iceland ISL Switzerland CHE
Ireland IRL Turkey TUR
Israel ISR United Kingdom GBR
Italy ITA United States USA
Brazil BRA Indonesia IDN
China CHN Russian Federation RUS
India IND South Africa ZAF

Appendix
11.1. Ask the analyst

MarketLine’s Country Analysis Practice consists of a team of economists, analysts, and researchers, all with expertise
in their given fields. For any questions or comments about this report you can contact the author directly at
reachus@marketline.com
11.2. Disclaimer
All Rights Reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means,
electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher,
MarketLine.
The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note
that the findings, conclusions and recommendations that MarketLine delivers will be based on information gathered
in good faith from both primary and secondary sources, whose accuracy we are not always in a position to
guarantee. As such MarketLine can accept no liability whatever for actions taken based on any information that may
subsequently prove to be incorrect.


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Spain

In-depth PESTLE insights

Country Profile Series

Report Code: ML00002-026

1.2.1. Key findings

PESTLE Country Analysis Report: Spain ML00002-026/Published 12/2021

Well-developed ICT sector, but gross expenditure on R&D remains low

PESTLE Country Analysis Report: Spain ML00002-026/Published 12/2021

PESTLE Country Analysis Report: Spain ML00002-026/Published 12/2021

PESTLE Country Analysis Report: Spain ML00002-026/Published 12/2021

1.3.1. Key fundamentals

Table 1: Spain – Key fundamentals, 2018–25f

2018 2019 2020 2021f 2022f 2023f 2024f 2025f

Source: Country Statistics, MarketLine ©M A R K E T L I N E

PESTLE Country Analysis Report: Spain ML00002-026/Published 12/2021

1.4.3. Government measures

1.4.4. Lockdown measures

PESTLE Country Analysis Report: Spain ML00002-026/Published 12/2021

1.4.5. Travel restrictions

PESTLE Country Analysis Report: Spain ML00002-026/Published 12/2021

1.4.6. Stimulus measures

1.4.7. Impact on the economy

PESTLE Country Analysis Report: Spain ML00002-026/Published 12/2021

PESTLE Country Analysis Report: Spain ML00002-026/Published 12/2021

1.3. PESTLE highlights 5

1.4. Recovery of the economy from the COVID-19 crisis 7

1.4.3. Government measures 7

1.4.4. Lockdown measures 7

1.4.5. Travel restrictions 8

1.4.6. Stimulus measures 9

1.4.7. Impact on the economy 9

4.2. Political analysis 23

4.2.3. Current challenges 24

4.2.4. Future prospects 24

4.3. Economic analysis 27

4.3.2. Current strengths 27

PESTLE Country Analysis Report: Spain ML00002-026/Published 12/2021

4.3.5. Future risks 31

4.4. Social analysis 33

4.4.3. Current challenges 36

4.4.4. Future prospects 38

4.4.5. Future risks 39

4.5. Technological analysis 41

4.5.2. Current strengths 41

4.5.4. Future prospects 42

4.5.5. Future risks 43

4.6. Legal analysis 45

4.6.2. Current strengths 45

4.6.3. Current challenges 45

4.6.5. Future risks 47

4.7. Environmental analysis 49

4.7.3. Current challenges 49

4.7.4. Future prospects 50

PESTLE Country Analysis Report: Spain ML00002-026/Published 12/2021

5.3. Structure and policies 55

5.3.2. Structure of government 56

5.3.3. Structure of legislature 56

5.3.4. Key political parties 56

5.3.5. Key policies 58

5.4.1. Governance indicators 59

6.3. Structure and policies 63

6.3.1. Financial system 63