The Catalan independence crisis leads hundreds of companies to leave the region

Tensions between Madrid and Barcelona have weakened the Catalan economy and driven out companies and investments

Last month was hit by the victory of the yes vote in the Catalan self-determination referendum, which resulted in the proclamation of the independence of Catalonia. However, the referendum was deemed illegal by Mariano Rajoy’s central government, leading to the destitution of Catalan president Carles Puigdemont and the dissolution of the Catalan parliament. Catalonia was placed under supervision of Spain, after having been autonomous since 2006. The past few weeks have been punctuated by many demonstrations for and against independence, tearing apart the region and the country between the separatists and the unionists.

Companies’ exodus

These tensions do not come without consequences for Catalonian businesses. Indeed, more than 1700 companies have already left the region according to the Colegios de Registradores Mercantiles. The number keeps rising as one company flees Catalonia every fifteen minutes. Most of them are banks, property funds or insurance companies, including CaixaBank, the country’s third biggest bank, which decided to move its headquarters from Barcelona to Valencia, and Sabadell, Spain’s fifth biggest bank, which moved to Valencia. The decisions of the two banks were motivated by a collapse in the value of their securities after the referendum, followed by large withdrawals of deposit from their clients.

All these relocations were facilitated by the central government, which has adopted a decree simplifying formalities for relocating companies from Catalonia to other regions of Spain. Henceforth, the board of directors will be able to decide by themselves whether the company is relocating, whereas before all the shareholders had to approve the decision.

Catalonia, the driving force of the Spanish economy

With 19% of Spain’s GDP, Catalonia is Spain’s richest region and the biggest exporting region  in the country as 35% of Catalan companies export abroad and 70% export to other regions of Spain. In 2016, it had a positive balance of trade of €27 billion. The unemployment rate of the region is 4 points below the national medium, even though it stands at  13.2%. The diversified and dynamic Catalan economy  (tourism, car industry, chemistry, food industry or bank) attracts many investors from around the world since Catalonia concentrates 25% of foreign investments in the country and receives 56% of startup funding.

However, the ongoing tensions between Madrid and Barcelona are scaring off investors, since for an economy to be healthy, its government must be stable. Foreign investments already began to decrease by 10% in the second trimester. Spanish Minister of Economy Luis de Guindos lamented that “at the present time, no investor, whether national or international, would accept to participate in a new investment project as long as the problem is not solved”. Hence, investors fear more the incertitude and the political instability than an actual secession, even though it could have disastrous consequences on the Catalan economy.

Companies located in Catalonia are also located in the European Union and benefit from European grants. Yet, if Catalonia became independent, all the companies present on its territory couldn’t benefit from these grants. The assumption of an independent region could threaten companies’ survival since without financial support from Europe, some of them would file for bankruptcy. Moreover, the region would leave the euro area so Catalan companies would no longer be able export to Europe as freely as they currently can, and their market would considerably be reduced dropping from 550 million potential consumers to 7.5 million.

What next?

After the destitution of Carles Puigdemont and the suspension of Catalan autonomy, one may think that things could get sorted out and the economic situation would improve. Separatist leaders are being judged and regional elections will take place on 21 December in order to constitute a new Catalan government. A return to a political stability seems likely, which would lead to the recovery of the economy, but one never knows what the future holds. 

Anaïs D.