María Peña, CEO of ICEX: "We must support the foreign sector so that it becomes a driving force for recovery".
The closure of borders, the curtailment of non-essential activities, the contraction of production and consumption, and the confinement of millions of people to their homes, all as a result of the COVID-19 pandemic, are affecting international trade, both exports and imports.
However, according to World Trade Organization data, a downward trend in international trade was already visible by mid-2018. The WTO expects a drop of 12.9-31.9 percent this year, although it could return to pre-pandemic levels by 2021.
In Spain, ICEX Spain Exports and Investments is a national public business entity under the Ministry of Industry, Trade and Tourism whose mission is to promote the internationalisation of Spanish companies and the promotion of foreign investment.
According to María Peña, CEO of ICEX, the entity has adapted to the situation from the outset in order to continue supporting companies with international activity in the new conditions of mobility restrictions.
In the face of the COVID-19 pandemic, which represents an unprecedented disruption of the world economy and trade, how is ICEX responding? We are particularly interested in the outstanding work being carried out by the Spanish trade offices.
The ICEX's action is part of the Secretary of State’s Shock Plan. All the reformulation of our activity and the lines put in place as a reaction to the pandemic have the fundamental objective of adapting as quickly as possible to the situation imposed by confinement and restrictions on mobility, in order to help companies, as far as possible, to maintain their internationalisation strategies active. The fundamental task is to be part of the solution and not to aggravate the problem.
Trying to keep the machine moving meant flexibility and pragmatism. In this context, one of the essential elements was to obtain a mandate from the Council of Ministers, which would allow us to reimburse companies 100% of the quota they had paid for international activities that were cancelled or postponed due to the crisis, even if we could not recover all the costs from the event organiser.
At the same time, other initiatives were launched to help alleviate the financial situation of the companies: free of charge in our virtual service offer, discounts in the personalized services offered by the commercial offices abroad or the extension of the co-financing percentage of the 2nd phase of the internship programme. And, also, the flexibility of programmes such as ICEX NEXT, which provides strategic advice and consultancy to the company.
As I said earlier, the priority objective was to enable companies to have the machine up and running and this is where we channeled all our activity into three main lines of work.
The first strategic line focused on proximity to the target markets. Within this framework, the work of the Economic and Commercial Office Network of the Secretary of State for Trade has been and continues to be fundamental. On the one hand, to provide the commercial offices with a flexible and pragmatic capacity to be able to provide all those services necessary for the company in a context of mobility restrictions. This includes anything from collecting specifications for a bid to any management to be done with the regulator or suppliers. Having local staff available to companies, with knowledge on the ground, as well as on their needs and interests, is extremely valuable.
We also work to bring business opportunities closer to the company. With this global crisis, but deeply asymmetric from the sectorial point of view, there have been sectors with an exponential peak and others that have collapsed, such as the cases of ICT and tourism, respectively. For this reason, we have tried to identify, with a very sector-market focus, all those business opportunities which could be emerging at a given moment.
Another of our strategic lines has been to strengthen the image of our companies, products, services and brands, which may have been affected in international markets. For this reason, we are working very hard on sector-market image campaigns, which have focused on emphasising the competitiveness of our most internationalised companies and the extraordinary work they are doing during the pandemic.
In this regard, we could highlight the image campaign we have launched with the Ministry of Agriculture, entitled 'Spain Food Nation', which has been allocated four million euros, in which the quality and excellence of the Spanish agri-food sector and its exportable offer will be promoted in specialised international media over the course of a year.
The third strategic line of work, in which ICEX already had a very important role and which has now been strengthened, is digitalisation. We had already been working on this for many years, but if the pandemic has made one thing clear it is that digitalisation has not only come to stay, but is no longer an option, i.e. a company with an exportable offer which does not use online channels for internationalisation is clearly losing competitiveness and falling behind. Throughout the months of the state of alarm we carried out almost 40 training activities linked to electronic markets with a very high participation rate: almost 6,000 companies.
In addition, a consultancy programme for the design of online strategies has been launched, and our alliances with traditional strategic partners such as Amazon have been reformed, as well as creating new ones with other leading platforms, such as Zalando and Joor in the world of fashion, to improve companies' positioning in them.
Which sectors have best managed and are currently managing the crisis?
There are sectors that have grown exponentially and other sectors have been very affected. For example, the food and drink sector, whose exports have grown by 5.5% between January and August, in other words, a significantly better performance than the European average. At the other extreme, the automobile sector, which is emblematic of the Spanish export sector, has fallen by 22%, a figure which, in any case, is no worse than that of the European environment.
Which regional international markets have best withstood the COVID-19 crisis and which would emerge stronger?
Answering that question is very complicated as, if anything, we know that today's framework is uncertain. The impact of the crisis depends on a multiplicity of factors. On the one hand, the productive structure of the market economy: the greater the weight of services, the greater the impact. It also depends on the structure of the labour market. We have traditionally seen that at times of crisis in developing countries, the informal sector, which is closely linked to the service sector, is growing as a refuge market. Restrictions on mobility and confinement have made this sector disappear, leaving many people expelled from the formal labour market with no alternative.
The impact of the crisis will also depend on the structure of the balance of payments. Think of those countries that are highly dependent on development aid and remittances. Another determining factor is the credibility of economic policies. Demand policies advocate keeping activity going and protecting the productive structure so that there is no net destruction. They also include combining such demand policies with structural reforms to make production structures more resilient to new crises. But not all countries have the economic and financial capacity to carry out this process.
According to the latest data in the International Monetary Fund's October Outlook, there has been an upward revision in the growth outlook, especially for developing countries. World growth is estimated at -4.4%, but this growth rate is building on the positive expectations as we enter the summer. July, August and September were months when all expectations were positive for a rapid recovery. But today we are experiencing new partial restrictions and new partial confinements around the world, which means that the 4th quarter growth rate will have nothing to do with the 3rd quarter.
We are all looking at China, the only country which, according to IMF estimates, is going to end up in the black, with an estimated growth of 1.9% in 2020 and 8.2% in 2021.
In any case, no one is bound to win in this crisis. Those countries with the least capacity to compensate for this situation will be more vulnerable and will be the least developed.
What was the impact of the COVID-19 crisis on Spanish exports? (products and services)
The Spanish export sector cannot be unaware of the process that has taken place with a very strong impact on international trade flows. WTO estimates put the drop in international goods trade at around 9.2% for this year, and it will not fully recover by 2021 (around 7.2%). Services, on the other hand, have been greatly affected for two reasons: international transport and tourism.
The rate of Spanish exports has fallen by 14%, but it is true that there are signs that allow us to be moderately optimistic and show our foreign sector is much better prepared than it was during the 2008 crisis.
For example, the growth rate of the fall in Spanish exports is very much in line with the rate of fall in exports from the EU and the Euro zone. In January-August, in Spain it is 14%, in the euro area it is 12.3% and in the case of the EU-27 it is 11.7%. But if we look at the main trading partners, the January-August export rate in France is falling by around 20%, that of the United Kingdom by 16% and that of Italy by over 13%. Our sector is not behaving any worse than that of other countries, and is even doing better than countries like France, which has a much longer exporting tradition.
Another important element is that our regular exporters (those who have managed to export more than four years in a row, thus consolidating their foreign market) are growing. In January-August they have grown by 1% compared to the rate of regular exporters in 2019. The raison d'être of ICEX, as you know, is to reinforce the capacity of the export sector and one of our priorities is to help the export sector to consolidate itself as a regular exporter, especially in the first few years. It is therefore important to maintain this regular base of export activity, even if the overall volume of exports is falling.
There are also strong differences between countries: from China's growth of 18.3% (which has gone from being our 10th market to the 8th) to Morocco's fall in similar terms (-18.1%) from the 8th to the 10th market during this period. The rates of decline in third markets are generally higher than in the EU, and the year could therefore bring greater concentration, but it is still too early to draw conclusions.
Looking at foreign direct investment, Greenfield projects (projects from scratch, new projects) in Spain have fallen in line with the rest of the world, and between January - August, we ranked fifth worldwide in the reception of Greenfield projects, according to the Financial Times' FDI Markets.
What is clear is that our export sector is demonstrating, in such an adverse situation, a great capacity for resistance and we must continue to strengthen efforts to make it the engine of recovery.
Africa's heavy dependence, both in production and consumption, is responsible for the negative consequences of COVID-19 on the continent's economies. Do you not think that African governments should promote intra-African value chains, and thus replace "uncontrolled" imports from other continents? Can this be solved with the future entry into force of the continental free trade area?
Promoting intra-African value chains by definition may or may not be efficient.
We are talking about a continent (Africa) that we treat as a single continent and Africa has many countries and many realities and variables to introduce. The greater or lesser stability and guarantee is not necessarily provided by integration because they are apparently close or equal countries, when this is not well founded from a political, economic and institutional point of view. This analysis is equally valid for other continents, not only for Africa.
Our reality is that Spanish companies can find good business opportunities in Africa, contributing with their international experience to the sustainable and inclusive development of that continent. The Horizon Africa strategy set up by the Secretary of State for Trade moves in this direction.
What could competitive intelligence bring at this time to the internationalisation of companies?
There are two ways in which we use the concept of competitive intelligence in ICEX: one is to manage the information we have about our clients in order to be able to foresee their needs, weaknesses and strengths and thus be able to design tailor-made instruments. This is an area of customer management and data management to increase the added value of the services we make available to the company.
But at a time like this it is crucial to be able to talk about competitive intelligence in the foreign market. The aim of competitive intelligence is to translate information into knowledge, knowledge into analysis, analysis into intelligence, and intelligence into information that allows the best strategic decisions to be taken, applied to the company's business.
This is the field work of the 1,000 professionals abroad in the network of Economic and Commercial Offices of the Secretariat of State for Trade: to distinguish a good partner from a bad one; to investigate the distributor who will best optimise the penetration of our products; to anticipate a regulatory change or to analyse in depth the financing of an investment plan, are all key information tasks that can determine the success or failure of a strategy for entering a new market.
At a time like the present, when markets are highly uncertain and fragmented, with a spiral of risks growing as a result of the pandemic and companies having very limited capacity to move, a network available to companies is invaluable.