Africa has become a commercial priority for Spain
The pandemic has brought to the table some existing debates within the business community on issues ranging from the slowdown of globalisation to the current context of global value chains and the criteria for addressing it. The pandemic has also raised the alarm about China's role in trade and business, something that will bring about a change in the relations of many countries, including developing countries, with the Asian giant.
Given the importance of the internationalisation of companies, will the international trade scenario change with the arrival of Joe Biden in the White House?
This is one of the uncertainties in the immediate future. During Trump's term in office, multilateralism and free trade experienced a major setback and everything suggests that we will see a change in this regard. The US is expected to return to the main international fora, the Paris agreement and the push for the WTO being two examples. However, I think we should be cautiously optimistic. The toughest positions will be abandoned, but there are certain aspects in which Biden's arrival will not bring variations, such as in the case of the trade war with China. Perhaps the language will be softened by the new administration, but everything indicates that the United States will maintain a tough and firm position with China, especially in the technology sector. This is not unique to the United States, but is also spreading to other countries and areas, particularly the European Union.
What are the elements to be taken into account when following a business internationalisation policy? What criteria should a company, especially an SME, follow?
Well, when it comes to internationalisation, we must not only take into account the micro aspects of companies, but also the macro aspects of governments themselves. In this sense, and starting from the macro to the micro, governments must implement a policy that allows them to be in line with other countries in terms of competitiveness. To this end, attention must be paid to the measures taken by competing countries so that national companies can become competitive. Secondly, the general economic framework is very important when it comes to internationalisation and there are examples that go against business internationalisation: tax increases, tax exemptions when repatriating dividends from subsidiaries abroad, the rise in the minimum wage, etc... At the micro level, at the level of the company itself, the resources available to embark on internationalisation must be analysed. Many SMEs do not have the necessary resources: on the one hand, human resources - people trained to work in international markets - and, on the other, financial resources. In Spain there is a mantra that internationalisation is an irreversible necessity for SMEs, but this is not always the case, as not all of them are prepared.
Spain has been trying to make some conversion in its presence abroad, and to increase the weight of the economic and commercial sphere in embassies and representations, but has this been achieved?
If we take a temporal perspective, there has been a great effort on the part of the Administration to develop support structures for companies that decide to go abroad. Trade offices have been opened in many new countries and others have increased in number, China being a case in point. There has also been an effort to raise awareness at the diplomatic level that economic and trade issues should be given importance. However, there is still a long way to go, even if the foundations have been consolidated over the last two decades. It should be borne in mind that the budgetary framework of recent years has not been the best for promoting and expanding the network of offices abroad.
The focus is often on exports, but imports are also important. What is the correlation between the two activities?
There is a fact that often goes unnoticed, but which shows the importance and the strong relationship between exporting and importing: the companies that export the most are generally among those that import the most. This fact is significant and highlights the importance of importing. And this fact is closely linked to global value chains. The fragmentation of production processes between different locations to take advantage of their potential has forced companies to import elements that are necessary in their production process. This need to import key components in a company's production process means that emphasis must be placed on the price at which these components are obtained, that these are competitive, that there are administrative and logistical facilities, etc., in order to favour the company's competitiveness.
The expansion of global value chains is closely linked to globalisation, but the elasticity of foreign trade has decreased with respect to growth. Has globalisation reached its peak?
De-globalisation is one of the topics under discussion right now, some even speak of slowbalisation, and it is obvious that the COVID-19 pandemic has called into question the current context of global value chains. For several decades, mainly in the years leading up to the 2008 crisis, there was a period of hyperglobalisation, i.e. of very strong growth in globalisation, which reached a rate of 2:1 between the growth of trade and the growth of countries' gross domestic product. And this stage was already showing signs of slowing down, as was only natural. The arrival of the pandemic has accentuated this slowdown, but it has also brought another debate. Until 2020, the main criterion for defending global value chains was efficiency - if it was cheaper to produce elsewhere, offshoring was the way to go. However, in the wake of the pandemic, another important criterion has emerged, that of resilience. Different threats that may arise in the future, from conflict to other environmental, climate or health issues, as we have seen, can disrupt or disrupt the smooth functioning of these value chains. Therefore, companies must now also address the security criterion. This may lead to a shortening of global value chains or even a relocation of many companies. Other possibilities, however, would avoid a radical severing of global value chains in order to maintain the advantages of international trade. One would be to diversify suppliers geographically, to avoid exclusive reliance on a single producer. Another would be to increase the stock levels of components held by companies, in order to be able to cope with supply disruptions for longer. But there is also the possibility of proximity localisation which, in the particular case of Spain and Europe, the African continent could gain a lot of weight in the coming years.
The pandemic has brought to many European countries the fear of dependence on production in China for many products that affect strategic sectors, such as healthcare. Do you think that, in these sectors, the solution lies in relocating to European soil?
I think that in certain strategic sectors there will be a move towards relocation to increase protection against threats such as the pandemic. At the same time, steps are also being taken in the European Union, and in Spain itself, to monitor foreign investment in these key sectors, in order to avoid the control of certain countries over issues that are vital for the proper functioning of a country. This is mainly to deal with investments by Chinese companies. These state-owned companies are highly dependent on the Chinese government and enjoy large profits and capital injections that give them an advantage in the sectors in which they compete. All of this will lead to changes in which proximity production will gain a lot of weight. Within this proximity, Europe has two regions that could be attractive. One would be Eastern Europe, and the other, as I have already mentioned, would be Africa. The continent has been improving the business perception of how business works in many countries, which is attracting business presence. Spain, in fact, has recently opened commercial offices in some African countries, which would support this image that Africa can be a new business target, as Southeast Asia was before. Everything will depend, of course, on the sectors and objectives of each company. In the same way that I believe that Africa will gain weight, the Latin American continent will lose it, mainly because of legal insecurity and political instability in some countries.
Is Morocco a gateway to Africa in this sense?
Clearly it is. Morocco is making a lot of effort and is serious about being a gateway to the African continent.
The New Silk Road, in which Spain could have played an important role, has lost a lot of prominence, partly because of the growing suspicion of Chinese investment, where does the project stand?
The New Silk Road has indeed lost a lot of prominence. During 2020, investment in this initiative has been significantly reduced compared to previous years. China has invested a lot of money in several countries and is now facing problems in recovering the credits offered. Because of this, Chinese banks' financing in this area has been taken much more cautiously. Another aspect is that suspicion is now also growing in developing countries, something that did not exist in previous years. Finally, the participation of non-Chinese companies has been very low, which has reduced the attractiveness for other countries. This has been the case in Spain, with important companies in the construction and infrastructure sector, but which have hardly participated in New Silk Road projects. In short, the New Silk Road initiative is going to lose steam, and also because of internal issues within the Chinese economy itself.
Given the importance of Chinese investment in almost the entire African continent, could this growing suspicion of Chinese investment be an advantage for European countries?
I think so. And, furthermore, this is going to be favoured by the factors we mentioned earlier and which have accelerated the pandemic, such as proximity production. Africa's advantages are similar to those that China had 30 years ago, with the advantage of greater proximity, such as low wage costs. Africa's attractiveness has increased a lot in recent years, also due to the improvement of the general framework in many African countries. In the case of Spain, Africa has become a priority for Spanish trade policy, which has been reflected in the adoption of a new Africa Plan by the Ministry of Foreign Affairs last year, and a strategy called Horizon Africa by the Secretary of State for Trade. With all this, Spain wants to give a boost to the internationalisation policy of our companies on the continent.