Economy of Andalusia: present situation and prospects
The relative importance of the economy of Andalusia in the total national economy of Spain, while still far from the level in line with its high potential capacity, has shown a notable recovery since the second half of the Eighties. As a differentiating factor, however, the period included stages of greatest growth and the most recessive phases. Between 1987 and 1989 which was the period of greatest growth in the past ten years Andalusia's gross national product (GDP) showed average annual growth of 6.2%, nearly one point above that for Spain as a whole. On the other hand, during the most contractile stage (1992-1993) the recession in the Andalusian economy (0.8% as annual average) was more than a half-point above the Spanish national total.
The sharp growth of the Andalusian economy which began in the second half of the previous decade was largely based on the strong thrust in public spending, both current spending and investment spending, the strong activity in construction and the drive in foreign demand (exports and tourism). The latter has recently been a key factor in the recovery begun in 1994 which, as in the previous decade, also rested on the devaluation of the peseta.
Nevertheless, in spite of the intense efforts carried out in recent years Andalusian economic development indicators and social welfare indicators continue to stand below the Spanish average. Per capita GDP in recent years has remained at a level equal to 71% of the Spanish total and in no case exceeds 55% of the European average. The difference between taxes and social security contributions paid and benefits received (favourable to Andalusia) cushions this inequality and means that its position on the national scene is improved by 6.3 percentage points (around 83,000 pesetas per capita) in terms of available household income.
At this moment, the situation of the Andalusian economy is showing a strong parallel to that for Spain as a whole. The slowdown noted in the second half of 1995 was expected to end in the early months of this year based on the likelihood of a recovery in the economic growth rate as of the second half of this year. The favourable balance in the farm sector, the positive results in tourism and the good overall performance in the services sector make up the launching pad for recovery in Andalusia.
Primary sector
The contribution of the primary sector in the make-up of Andalusia´s
GDP is outstanding and is double that in the overall Spanish figure.
While the relative weight of the latter has gone down in recent years, the
primary sector contribution to gross value added (GVA) for the region
continues to be relatively high and recently stabilized d at around 9.5%.
The agricultural sub-sector today contributes nearly three-quarters of
final production and shows a strong export capacity (more than one
third of 1995 production went abroad). The share of livestock in total
production, on the rise since 1985, swings around 16% while the fishery
does not reach 8%.
Andalusian agriculture is especially noted for its variety due to the physical conditions of the land. Cultivation of fruit and vegetables (which now contributes nearly one third of total agricultural production) presents very favourable prospects since Spain joined the European Union (EU). The rest of agriculture lies in a more complicated situation because of climatic factors (dry region) and costs (areas irrigated along Guadalquivir river), technology and demand (single cropping).
So far as the rest is concerned, the production structure of the Andalusian countryside shows a sharp bipolarity. More than 71% of farms are of small economic size (in 1993 they generated a gross margin of less than 715,000 pesetas). Together these farms make up nearly 18% of useful farmland. On the other hand, the number of large farms (with a gross margin of more than 3 million pesetas) account for less than 8% of total number of farms but take up nearly 58% of all farmland.
In the last twenty years while Andalusia´s farm income has dropped overall in real terms the loss of more than 300,000 jobs has meant that the income generated per worker has increased by around a annual average rate of 4% (nearly double the figure for Spain as a whole). Since Spain joined the EU the amount of subsidies has been a key factor in sustaining Andalusia´s farm income and has progressively increased its share from 2.5% in 1985 to 28.5% in 1995.
The performance of the primary sector in the past four years has been influenced by factors associated with the drought, particularly in 1995 to which must be added the negative impact of the difficult relations with Morocco over fishing rights. The change in the weather cycle and new fishing agreements indicate a substantial improvement in sector income in 1996.
In the Spring-Summer season, the fruit and vegetable harvest was excellent and furthermore good prices have been operating in the markets. Prospects are also very favourable for dry-farming products although a somewhat longer period is needed for the benefits of improved weather to show up in olive production. In addition, the livestock sector has enjoyed much lower costs due to abundant pastures while the fishing sector appears to have fully recovered normal activity.
Industry and construction
In general terms, Andalusia's industrial sector suffers from being of
small size. It share of regional gross value added (14%) is well below that
for the national total (22%). In addition, the newer industries have had a
sharp peripheral nature. Generally, they have been plants belonging to
companies (mainly multinationals) whose decision-making centres lie
outside the region, with production largely oriented to export, very
dependent in turn on imports of intermediate goods and in fact having
very little to do with other sectors in Andalusia.
This model offers a high degree of vulnerability subject as they are to possible changes in global production strategies as has been made clear by certain recent events. In addition, the dependence of Andalusian industrial production on foreign demand is very strong and has continued to increase in recent years. In 1990 the percentage of gross value added in the sector going for export was close to 40% and in 1995 was above 61%.
The agro-food sub-sector is the one carrying the biggest relative weight in Andalusian industry. According to the 1993 industrial survey, it took up close to 41% of total business volume in the sector and accounted for nearly 28% of the working population. In trade relations with abroad its importance was also notable as it contributed nearly one quarter of all industrial exports from the region.
Another group of activities of great significance in Andalusian industry is metallic and non-metallic mining which together represent nearly a quarter of total industrial production value. It export capacity has been slowing dropping and today more than half of all sales go to other Autonomous Communities in Spain.
Following the sharp recession in 1991-92 the process of recovery in Andalusian industry was consolidated in 1995 although in keeping with what happened in the whole of Spain and the main industrialized countries some weakness was noted in the second half of 1995 and this continued into the early months of 1996. Nevertheless, it may be expected that is process will be turned around in the second half helped along by the renewed drive in exports and the moderate recovery in domestic consumption.
With regard to construction, this sector has been one of the main pillars of Andalusia's economic development in the past ten years. Its contribution to regional GDP today runs around 10% (in 1991 an all-time high of 12.3% was recorded), two percentage points above the national average.
Apart from its relative weight in Andalusian gross value added, the importance of construction activity lies in the major drag effect it has on the regional economic fabric. Input-output tables for 1990 show that demand for intermediate goods in the sector had an effect on 14 branches of regional production which together contribute nearly a fifth of total production.
Specialization of the Andalusian economy in construction goes back to the Sixties thanks to the boost in tourism and geographical changes in population (movement from rural areas to urban and industrial areas). In the second half of the Eighties, the sector recovered its drive due to the boost in public works and subsidized housing projects. Following the 1992 recession, construction has again turned out to be one of the pivots of economic recovery, this time due to the drive in the residential sector.
During the current year the positive path maintained since 1994 seems to have worn out its strength due basically to the halt in public works because of budget cuts and the weaker situation in residential construction.
Services
In overall terms, services make up the core of activities of greatest
importance in the Andalusian economy. In 1995 they contributed more
than 66% to regional gross value added and provided a slightly lower
percentage (65.3%) of total employment, as against clearly lower
proportions for the Spanish total (65.0% and 60.7%, respectively).
The phenomenon of tertiarization of the Andalusian economy has some points in common with other developed economies, following in part the process of «farming out» activities used by many companies which used to operate with a higher degree of self-sufficiency. In any case, certain profiles peculiar to the Andalusian economy can be noted such as the over-extension of public services not intended for sale which make up approximately one third of gross value added for the sector.
In private services, the biggest areas is wholesale and retail trade which contributes nearly one quarter of regional gross value added. In tourism, the contribution of directly related activities (hotel trade and restaurants) was around 10% although if inter-sector effects are taken into account this share would become 15% of overall economic activity. Finally, we should mention transportation and communications, finance and insurance and building rentals which each contributes between 8% and 10% of total gross value added for the sector.
Since 1994 the services sector has held a sustained growth rate revolving naturally around tourism but also spreading out to other production sectors. In 1996 the tone of the sector has continued positive and has been one of the basic supports of economic activity in contrast to the stagnation noted in industry and construction.
Foreign sector
The growing internationalization of the Andalusian economy is
clearly reflected in the volume of its foreign trade and the inflow of
foreign investment. The total of imports and exports which in 1988
amounted to 18.7% of regional gross value added in 1995 came to
represent 22.4%. In addition, the orientation towards exports, measured
by the proportion of the value of exports over farm and industrial gross
value added , has maintained a growth trend since 1988 and in 1995
exceeded 48%.
The main characteristics of Andalusian foreign trade is the specialization of exports in the agro-food group which in 1995 make up nearly 42% of total sales. Other sub-sectors closely linked to exports are transportation equipment and metal mining and processing with a contribution of more than 14% of the total in both cases. With regard to imports, the largest heading is for fuel purchases which represent more than 36% of the total. The countries of the European Union take more than two-thirds of all sales abroad while non-energy imports from that area are lightly less in proportion.
In terms of foreign investment, that coming directly to Andalusian companies in the last nine years amounted to 1.6% of gross value added during that period which makes Andalusia one of the regions receiving the highest level of foreign capital.
Labour market
With regard to employment, the trend in Andalusia in the last two
decades was characterized by the loss of farm jobs and the process of
tertiarization. In 1995 the primary sector accounted for barely 12% of
total employment (approximately half that in 1980) while services
accounted for nearly 65% (17 points more).
The labour force in Andalusia has risen by 34% since 1980 (double the rate for Spain as a whole) mainly due to the demographic development of the region and the sharp rise in the number of women joining the labour force. This meant that in spite of the fact that in this period employment grew proportionately more in Andalusia (8.7%) than in Spain as a whole (2.1%) the unemployment rate in Andalusia advanced notably coming close to 35% in 1994. Later economic recovery made it possible to slightly reduce this level bringing it down to 32.4% in the second quarter of 1996. The provinces worst hit by unemployment are Cádiz, Málaga and Granada while those least affected are Almeria and Huelva.
As evidence up to a certain point of the rigidity of the labour market, wages in Andalusia in the last five years have shown a relatively stronger upward performance thus shortening the distance that still exists compared with Spain as a whole. Thus, in 1995 average annual worker earnings came to represent 94.7% of the Spanish figure, nearly two percentage points more than at the beginning of the decade. On the other hand, the general trend in prices has been similar. In the last five years the consumer price index (CPI) recorded a cumulative increase of 27.8% in Andalusia as against 28.6% for Spain as a whole.
Finance
At an institutional level, we should mention that the Community of
Andalusia provides rather more than 11% of total State revenues and
benefits from a proportion close to 16.5% of total spending which means
a fiscal balance very favourable to Andalusia.
The savings habit in Andalusia is relatively weak in keeping with the lower income levels so that its ability for self-financing (private deposits per capita) runs at nearly half the figure for Spain as a whole. Overall, the volume of deposits in Andalusia equals 9.4% of the national total, a percentage very much below its relative weight in Spain's population and national gross value added. This proportion has even worsened slightly in the past ten years.
Loans in Andalusia expressed as a share of total national loans is somewhat higher (12.0%) and a clear upward trend can be noted. Since 1985 this has moved up by nearly four percentage points. From 1994 on the position of Andalusia in the banking system has been clearly on the debit side with loans exceeding total deposits.
In addition, the Andalusian banking network (second in size in terms of number of branches) is relatively less developed than in the rest of Spain but it stands below national indices in terms of total private deposits and loans managed per branch (68.3% and 85.7% of national averages respectively).
Prospects
Looking toward the future, we may expect a continuation of the
process of restructuring of the primary sector, strengthening of the
industrial sector and development of the services sector. The Andalusian
economy shows considerable growth potential especially if we take into
account both its demographic strength and the possibilities offered by
the agro-food sector, tourism and construction. In more general terms,
the Andalusian economy cannot separate itself from the demand for
flexibility faced by all developed economies but it is precisely this
flexibility which will allow it to develop its growth potential, especially if
at the same time it continues the efforts already made both to improve
its physical capital (public and private investment) and human resources
(education and vocational training).
Reproduced courtesy of "La Caixa" Bank
"La Caixa" publish the English language Spanish Economy Monthly Report. It is available in Adobe Acrobat (C) format from http://lacaixa.datalab.es/inf_an.html
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