Some Fear It Is Too Late : Spain Tries to Prepare for Entry Into EEC

Spain is trying to rouse its economy from its siesta before January, when it meets the full blast of competition from its new partners in the European Economic Community.

Some businessmen and economists say it may already be too late.

In the decade since the death of dictator Francisco Franco, Spain’s leaders have fought hard to keep the lid on potentially explosive political problems at home while largely ignoring a badly needed economic overhaul.

Through a stiff austerity program, Prime Minister Felipe Gonzalez’s Socialist government has, since coming to power in 1982, almost halved inflation to 7.3%.

The current-account balance of payments posted a $2.5-billion surplus last year, compared to a $2.1-billion deficit in 1983.

But the business community, coddled by almost 40 years of protectionism under Franco and still skeptical about the new democratic era, failed to adjust swiftly to the demands of Spain’s fledgling market economy.

‘Groundwork for Recovery’

“Businessmen have begun to invest because the government has laid the groundwork for recovery,” said Miguel Angel Fernandez Ordonez, secretary of state for economic planning.

He told Reuters recently that new capital investment by the private sector has been rising in real terms for the first time in a decade.

The Socialists have brought in investment incentives and a sweeping $6.25-billion industrial restructuring program, trimming 50,000 jobs in unprofitable heavy industries.

But, with Madrid due to join the European Community at the beginning of the year, Spain’s future partners have been snapping up major chunks of vulnerable businesses.

At the top of the shopping list has been Spain’s $23.75-billion food industry, one of the few sectors able to compete within the Common Market.

The recent takeover of Chocolates Elgorriaga, one of the country’s oldest private firms, by France’s Cantalou was the latest in a string of foreign assaults on this industry.

“Foreign food companies now account for 50% of the industry’s sales,” food industry analyst Carlos Guerrero said. “In three years’ time they will control 90%.”

Big international firms such as Switzerland’s Nestle, Douwe Egberts of the Netherlands, Denmark’s United Breweries and Lesieur of France have taken up positions in meatpacking, brewing and edible oils.

In the auto industry, of the six manufacturers with assembly plants here, only SEAT has majority Spanish ownership, and it too is on the verge of selling out to Volkswagen of West Germany.

Multinationals such as Beecham and Wellcome now control almost 60% of Spain’s pharmaceutical sector.

‘Dinosaurs’ in Banking

In banking, international companies have cornered 15% of the industry’s lending assets since 1978, when the government lifted a ban on foreign branch operations. Six Spanish banks--members of what one U.S. banker described as “a herd of dinosaurs”--have so far fallen into foreign hands.

For decades, Spain hid behind import tariffs that far outstripped those levied on Spanish goods by the Common Market. Now, almost all restrictions on foreign investment have been lifted in a drive to attract capital and know-how.

This contrasts sharply with the policies of the 1960s and early 1970s, when Spain enjoyed the second-highest growth rate in the industrialized world after Japan.

In those boom years, with the Franco regime a political outcast among European nations and competition from the Common Market a distant threat, businessmen aimed mainly at the domestic market, where consumer demand lagged up to 50% behind Common Market levels.

“Nobody thought about foreign trade,” the general manager of a local oil refinery said. “The chief concern was to cash in on extravagant government subsidies and sell whatever you could in the rapidly expanding domestic market.”

The oil industry is one sector where the government took steps to gear up for Common Market entry by breaking up the Campsa oil monopoly and creating the INH state holding company.

“It was a matter of survival,” the refinery manager said. “We would have looked ridiculous going to the European Community with 50,000 tons of this or that to sell.”

Former Finance Minister Miguel Boyer, chairman of the state export financing bank, Banco Exterior de Espana, said in an interview with Reuters earlier this year that Common Market membership would have a negative effect in the short term.

“The first three years will be a severe blow,” he said. “Spanish industry will be required to make major sacrifices.”

Several government sources have said privately that many companies, unable to compete with Common Market firms in technology and quality, will be forced to go under. These are mainly in the dairy, banking, chemicals, capital equipment and steel sectors, which are almost defenseless against large European competitors.