Spanish Companies Need Latin America For Economic Expansion – Analysis


By Mar Guinot Aguado and Darya Vakulenko

As the European financial crisis intensifies, Spanish corporations have exhibited a rather bold economic game plan in the Latin American market. However, this is not the first time that Spanish corporations have turned to the once shunned region in the search for economic growth and prosperity. The potential economic benefits to be found in Latin America are pivotal to foreign investors and critical for many Spanish corporations to expand.

Spanish Stock Market in Madrid (La Bolsa de Madrid)
Spanish Stock Market in Madrid (La Bolsa de Madrid)

Previous developmental plans and investments in the private sector concentrated solely on the economic prosperity of these business firms while ignoring the social well being of the host country. This latest Spanish investment wave focuses on non-extractive sectors of the economy, such as banking and telecommunications, which have progressed in such a way that various social and economic developments of several enterprises were able to coexist. Despite the region’s volatile political environment and recurrent collisions of economic interests, the area has shown significant progress in the accumulation of revenue from Spanish investors.

Pre-2008 Crisis Spanish investments in Latin America: The First Wave

In the past, Spanish investments in Latin America have occurred in two different waves. During the Francisco Franco authoritarian regime, which lasted to his death in 1975, all foreign direct investment (FDI) required approval from the Spanish Council of Ministers, complicating and retaining the outflows of Spanish investments.(1) However, the legislative reforms prior to the Spain’s accession into the European Community in 1986 made “the notification of the FDI for statistical purposes the only requirement with no need of approval,” thereby helping to spawn the most recent wave of Spanish investments to Latin America.(2)

Ever since Spain acceded into the European Community’s single market in 1986, the country had to align its agricultural, industrial, and monetary policies with those of other member states of the European Union as a means to achieve complete economic integration.(3) However, Spain lost its comparative advantage after entering the economic treaty when stronger economies, like Germany and France, could produce similar commodities at only a fraction of the cost that it takes Spain to produce.(4) As a result of this new competition, Spain saw foreign investment opportunities as a tempting alternative and sought to enter the recent revival of rapidly expanding Latin American markets.

After years of Franco’s protectionism and authoritarian practices, it was essential for Spain to quickly modernize to adhere to the European Union’s stipulation of open markets. This process of modernizing Spain’s economy in the late 1970s and early 1980s bore resemblance to 1980s and 1990s economic trends in Latin America that implemented large-scale privatization initiatives. These similarities, as well as the convenience of a shared language, eased Spanish companies’ admittance into various Latin American countries.

Throughout the 1990s, Latin American governments lacked sufficient resources to invest in modern industrial sectors, such as telecommunications and energy, which propelled most countries to privatize such services.(5) At the start of this privatization process in Latin America, many Spanish companies proceeded to take advantage of this juncture and eagerly entered the new market. For example, Repsol, a Spanish oil and gas company, bought 97.8 percent of the Argentine oil company, YPF, in 1999.(6) However, after investing in such lucrative industries, widespread “anti-Spanish cries of neocolonialism” directed towards the Spanish companies irrupted across Latin America.(7) As a result of former exploitation of natural resources by foreign investors, a large portion of Latin American society viewed the return of Spanish investments to the continent as a reconquista, the reconquering of the Iberian Peninsula by the Christians. Such concerns are not entirely confounded after considering that historically foreign investments in Latin America have disregarded the welfare of the local populations, while capitalizing on extracting/ exploiting the natural resources. However, Spain has sought to differentiate itself from the highly criticized approach of self-interest by the United States in the region by concentrating its foreign investments in such sectors as banking, telecommunications, public utilities, oil, and natural gas. On the contrary, according to data from the OECD, the U.S. FDI was focused on the mining, quarrying, and food manufacturing sectors. This focus was supported at that time by the economic policies established towards Latin America in the Washington Consensus.

The Washington Consensus economic policy outlined the first step in liberalizing Latin American economies, based on the ten pieces of advices conjured up by Washington-based regional and international economic organizations. The main goal of this policy was to implement an access to developing markets in a controlled economic environment. Specifically, the Washington Consensus encouraged certain Latin America exports by removing the trade barriers on Latin American imports to the United States.(8) However, United States’ involvement in the region has been more than problematic, tracing back to the Monroe Doctrine in 1823, after which the United States claimed the region as its definitive “backyard. Furthermore, Arturo Valenzuela, the former Assistant Secretary of State at the Bureau of Western Hemispheric Affairs, mentioned that “United States’ involvement in Latin America in the twentieth century was sporadic and discontinuous” and it has hastily abandoned the region during times of economic difficulty.(9) As a result, in the 1990s, Spain became “the second biggest foreign direct investor in Latin America, behind the United States”—investing roughly $58 million USD in the region between 1994 and 1999.(10)(11) Since 1998, Spain’s FDI flows to the region have actually surpassed that of the United States.

Nevertheless, Spain suffered a decline in Latin American ties during Aznar’s presidency from 1996-2004 after the right-wing Spanish government enacted a change in the European’s Union policy towards Cuba by launching the “Common Position” approach in 1996. Spain’s conflicting economic interests with Latin America during this period precipitated the European Union’s affirmation that democratization of the island, specifically human rights, was necessary in order to continue trade relations. Consequently, as Spain and Latin America’s economic ties were flourishing, the Aznar’s administration set limits on the level of partnership with one of its players—Cuba.

Following the Argentinean financial crisis from 1999-2002, the amount of Spanish investments in Latin America slowed as a consequence of heightened economic instability, thus concluding the first wave of Spanish investments in the region.

Post-2008 Spanish investments in Latin America: The Second Wave

While the 2008 global economic crisis prompted a downturn in Ibero-American profits and the debt crisis negatively impacted the European market, Latin America retained its dynamic economic activities by remaining an attractive venue for foreign investments. During the second wave of foreign direct investments, Spanish companies consolidated their positions in the Latin American market by strengthening their former economic ties while simultaneously significantly increasing their investments in the region. Hence, Spain’s direct investments in Latin America soared from €45 billion in 2007 to €116 billion in 2010.(12) Additionally, Latin American subsidiaries have contributed €115 billion, a quarter of the total revenue, to the growth of Spanish firms, which now regard foreign investments as a crucial investment to their market.(13)Spanish enterprises have become increasingly more dependent on the economic and political situation in the region, since a considerable part of their profit (between 16 and 51 percent) is generated in Latin America.(14)

Overall in 2008, six firms– Telefónica, Repsol, Santander, BBVA, Endesa and Iberdrola– represented 95 percent of the Spanish investments in Latin America. For example, Santander, a large banking company, invested $13.7 billion USD into expanding its company throughout Latin America since the region generates almost half of Santander’s total sales.(15) Similarly, Telefónica spent $100 billion USD to capture almost all of the larger Latin American markets, which ensured one third of its total operating profit.(16) Following the most recent economic crisis, Spanish companies are attempting to reestablish the relatively attractive investment opportunities still available in the region.

Due to the relatively lack of impact from the 2008 global crisis on Latin America’s economic prosperity, foreign investors are even more entice by the locale investment opportunities. Increasing consumption, population, and production have all played a part in this economic boom. With the 70 million young people already employed from the previous decade combined with the 70 million expected to join the labor force within the next decade, the labor demography offers considerable potential itself. Furthermore, approximately 100 million citizens have advanced to the middle socioeconomic strata, while an additional 56 million of the population have decreased their levels of poverty.(17)

Foreign investments can generate positive benefits for Latin America’s economy, such as marked salary increases, job creation, high quality products, and investments in basic research. Despite these tempting incentives, several challenges to sustain economic growth remain. Although socially responsible investments can encompass ethical and environmental issues, not all of them truly participate in the developmental process; private interests often surpass the necessities of the countries. In fact, recent decision by the Argentinean government to nationalize the YPF, a Spanish owned oil corporation belonging to Repsol, has spread fear among foreign investors in Latin America and several governments, such as Mexico and the European Union, have condemned the decision. President Cristina Kirchner accused the company of providing huge dividends to shareholders while failing to invest in the economy and providing for the country’s needs.(18)

According to the 2012 Foreign Direct Investment Report by the U.N. Conference on Trade and Development, a number of developing countries are reexamining the way they attract FDI and debating on which regulations to establish in order to maximize the benefits.(19)Even though the primary goal of investments is to create profits for the company, they can also develop human capital, which will decrease poverty. The second wave of Spanish investments focuses more on the supply of basic social services for a larger portion of the population, contrary to the traditional U.S. foreign investments approach of exploiting natural resources.


Latin America is unquestionably appealing to foreign investors with a labor market consisting of 500 million people. After this decade’s economic crisis, Spanish companies appear to be willing to expand even further. Spanish corporations’ willingness to focus on long-term objectives has increased the investments made in basic labor sectors that are becoming more important to both the companies and the countries involved. While Spanish companies’ dependency on the Latin American market is growing, some countries are beginning to question whether foreign direct investments obstruct their pathway to development, regardless the social benefits that manage to reach the population.

Mar Guinot Aguado and Darya Vakulenko, Research Associates at Council on Hemispheric Affairs


(1) Toral, P. Spanish Investment in Latin America. FOCAL: Canadian Foundation for the Americas. April 2006. p.13

(2) Toral, P. Spanish Investment in Latin America. FOCAL: Canadian Foundation for the Americas. April 2006. p.4

(3) Toral, P. Spanish Investment in Latin America. FOCAL: Canadian Foundation for the Americas. April 2006. p.4

(4) European Commission Eurostat, GDP per capita in PPS.

(5) Toral, P. Spanish Investment in Latin America. FOCAL: Canadian Foundation for the Americas. April 2006. p.11

(6) Repsol, “Our history” Profile.

(7) Toral, P. Spanish Investment in Latin America. FOCAL: Canadian Foundation for the Americas. April 2006. p.4

(8) Stiglitz, J.E. Global and its Discontents. W.W.Norton & Company. New York. 2002. p.92.

(9) VALENZUELA, A.A. Remarks at the Council of the Americas Madrid Conference. February 2, 2010.

(10) Toral, P. Spanish Investment in Latin America. FOCAL: Canadian Foundation for the Americas. April 2006. p.4

(11) Chislett, W. Spanish Direct Investment in Latin America: Challenges and Opportunities. Real Instituto Elcano de Estudios Internacionales y Estrategicos. pp.22-24

(12) Iglesias, E.V., Toral, P., Steinberg, F., Roy, J., Moltó, A. ¨How Closely Tied are Spain’s and Latin America’s Fortunes?¨ Latin America Advisor. June 18, 2012.

(13) Rucinski, T., Hetz, R. ¨Corporate Spain not blind to Latin American risk¨. Reuters. May 8, 2012

(14) ¨Spanish companies in Latin America. A Good bet? Investments in Latin America offer protection against Spain’s slowdown¨. The Economist. April 30, 2009. http://www.e

(15) Sills, B., Woods, R. ¨Can Spanish Companies Rely on Latin America?¨ Bloomberg Businessweek. May 17, 2012.

(16) ¨Spanish companies in Latin America. A Good bet? Investments in Latin America offer protection against Spain’s slowdown¨. The Economist. April 30, 2009.

(17) AGENCIAS. ¨América Latina, considerado en el crecimiento orgánico de Santander¨. Uniradioinforma. June 27.

(18) Henao, L. A. ¨Argentina YPF Nationalization: Energy Crisis Provoked Government Expropriation Of Repsol YPF¨. The Hufftington Post. April 22, 2012.

(19) Rebossio, A. “¿Qué países aprovechan mejor el capital extranjero para su desarrollo?” El País. July 6 2012


COHA, or Council on Hemispheric Affairs, was founded in 1975, the Council on Hemispheric Affairs (COHA), a nonprofit, tax-exempt independent research and information organization, was established to promote the common interests of the hemisphere, raise the visibility of regional affairs and increase the importance of the inter-American relationship, as well as encourage the formulation of rational and constructive U.S. policies towards Latin America.

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