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Spain’s world export share not performing badly compared with its main competitors

  Patronius told Count Lucanor the story of a man who had only lupin seeds to eat. Complaining all the while, he kept throwing away the empty shells along the way. Then, he noticed someone who followed behind was quietly picking them up, so he stopped complaining. This 14th century fable synthesizes Spain’s competitive position in the world today. With the world’s second largest trade deficit in absolute terms, the competitiveness of exports to compensate its big imports is a crucial question. Spain is like the man who ate lupin seeds. In this box, we shall see that it looks good compared to most of its closest trading partners. The problem is that these are the ones that eat the shells due to a serious worsening in their exports position. With the Asian economies and, to a lesser extent, those of Eastern Europe, the comparison is not as favourable.

  In order to tackle a comparative analysis of foreign competitiveness, we may observe the behaviour of the exports share over the world total. The share may vary because of relative changes in labour costs or productivity, specific internal factors or modifications in exchange rates. In any case, the share of exports in the world in current terms indicates the relative attraction enjoyed by products of national manufacture in world markets. This share may grow because of an increase in export prices if combined with an increase or maintenance of volume and, vice versa, something that is only possible with gains in competitiveness. High-priced exports offering products with little attraction could make us feel rich for a time but the share in current terms would end up dropping through lower volumes of exports and the country would end up suffering the consequences. We therefore consider that the share of global exports is an indicator of the level of health of the foreign sector, beyond that of the domestic demand cycle itself, which more directly affects imports.

  The share of the world total held by Spain’s exports has thus been growing constantly and reached 2% of total world exports at the end of 1998 and in June 2006 was 1.8%. Since Spain’s economy adopted the euro, the upward trend was lost and the share has hovered around the latter rate with notable swings, as the graph shows. This relative stability in market share seems good when compared with the downward trend in the main economies, which eat the shells left by China. Since the end of 1998 to June 2006 the United States has gone from 12.6% to 8.8%, the United Kingdom from 5.0% to 3.5%, Japan from 7.2% to 5.6% and the Euro Area from 32.5% to 29.1%. Germany, still the leading world exporter of goods, has also seen its share drop from 10.0% to 9.1%. Things thus do not seem to fare so badly for Spain’s economy.

  But other things happen in this world that complicate any final verdict about the health of the export sector. Goods examples of it are the rapid rise of China’s exports, that starting from a 2% of global exports in current dollars at the beginning of the Nineties reached 7.7% in 2006, the rise in oil prices and other raw materials which swells the share of exporting countries against the rest, or exchange rate fluctuations, with an euro that appreciated a 57% against the dollar since October 2000 and against all those currencies that in some way or another are tied to the dollar.

  To overcome these mentioned distortions and to have an accurate track of the competitive course of Spain’s exports, we may try to compare Spain with other countries of the Euro Area. In recent decades, the share Spain’s exports represent in the internal trade of the Euro Area has been growing continuously, going from 3.4% in 1980 to a high of 8.1% in 1996. The increased opening up of the economy and the process of modernization got support from an exchange rate that, following successive devaluations, kept Spanish products at low price levels. With the euro, the recourse to a weak peseta disappeared whereas relative efficiency of the production fabric became more important. As a result, the upward trend flattened out with a slight downward shift that led to a 6.8% in June 2006, as the accompanying graph shows. Germany and the Netherlands represent the opposite case. Without further appreciations of the deutschemark and the florin, the drop in their shares turned an upward trend. Once more those who eat the shells of lupin seeds cheer us up as in this case they are precisely all Spain’s main importers but Germany. France, Italy and Portugal take 36.3% of Spain’s total exports of goods and have seen substantial drops in their share of trade between those in the Euro Area. This even worse situation of these three important trading partners improves the verdict for Spain’s exports.

  The other side of the coin lies in East Asia which, excluding Japan, includes a large part of the World’s most dynamic economies. Nevertheless, the share of Spanish goods in the region total imports is extremely small (0.2% in June 2006) and furthermore is on a downward trend. Here, there is no one to compare with. Spain’s exports to China are a 14th of Germany’s, a quarter of those from France and a third of Italy’s. They also stand below Dutch exports and even small Finland does it better. Another weak point lies in Eastern Europe. Spanish exports reach only a 1.6% of the ten new EU member states foreign purchases and, furthermore, the ratio goes downward since 2003. A stark contrast is the strong position of Germany, that exports a quarter of the new EU partners total purchases.

  With a somewhat more positive balance, the export share of Spanish goods in purchases by the United States is holding up. Exchange rates, oil prices and China are shifting the share downward but, if we exclude the special case of Ireland, Spain stands ahead of most countries in the Euro Area, only behind Ireland and Austria, even with Portugal and Greece, and better than the performance of the other large European countries. The trend in the share of Spain’s world exports thus comes up with a better-than-expected verdict. Aggregate drops are small although there are significant challenges to be addressed: East Asia and Eastern Europe. This positive view is largely due to the relatively poor performance of European economies such as France, Italy and Portugal, although looking at the one who eats shells of lupin seeds has its risks.

  For the future ahead there is a positive factor and a warning. Exports had been growing in terms of the gross domestic product up to the end of 2000. Later there was a drop, less in the case of goods, which ended in March 2005, afterwards things are getting well back to normal. The warning comes from the settled tendency of the large multinationals, whether US or Japanese, to relocate their production toward Asian markets, seeking the competitive advantages these offer. While in Spain, with smaller companies, this in process is of less importance, the trouble is the little weight held in exports by companies within the high-technology content branches of industry, which also have the highest potential for growth. And the point is that, in order to keep moving ahead, you need to eat something else than just lupin seeds.

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