- Thousands of companies have moved their corporate bases out of Catalonia amid uncertainty over the region’s political future.
- Recent economic data shows rising unemployment and falling retail and tourism activity in the northeastern region of Spain which voted for independence in October.
- The full impact on the Spanish economy is far from determined.
MADRID — Caixabank, Gas Natural and Banco Sabadell made headlines during the Catalonian political crisis when they announced they would move their registered offices out of the northeastern region of Spain that voted for independence in October.
But the three firms were not alone in deciding to move. Far from it. A total of 3,023 companies moved their registered offices out of Catalonia between October 2nd and December 13th, according to the data gathered by the Spanish Association of Registrars.
The economic fallout from the Catalan vote is not limited to corporate flight. Other economic indicators such as tourism and consumption are being affected as well, although it will be some time before the full impact is clear.
The Catalan independence referendum held on the 1st of October — without the Spanish Government’s authorisation – triggered doubt over the future of Catalonia. Debate over the region’s economic performance has become a political battlefield, and the Catalonian government’s threat to approve a unilateral declaration of independence increased uncertainty about the legalities of the situation.
This meant listed companies based in Catalonia (especially the banks) were punished on the stock market.
Smaller listed companies such as Oryzon or Eurona were the first to announce the move of their registered offices. Bigger companies later followed, triggering further corporate flight and marking one of the turning points in the Catalan crisis.
“The relevant aspect of the registered office’s change is not so much the direct impact (which does not happen if production is not transferred), but it is an indicator of the extreme uncertainty [in the region],” says María Jesús Fernández, a senior economist at Funcas, a Spanish think tank dedicated to economic research.
Fernández says this uncertainty could be having an effect on productive investment too. For now, he believes the economic indicators on consumption or unemployment “reflect a certain change in trend”.
“It’s not dramatic, nor was it expected to be dramatic, but it is a change”, he says.
A change of registered office does not necessarily imply a general transfer of staff, production or all offices. However, on many occasions this has been accompanied by a transfer of fiscal domicile which implies a group of managers must change their location.
With regard to the payment of taxes, the change of domicile does not have a direct impact on the Spanish economy in terms of corporate taxes, which are collected by the State Administration.
But the flight of thousands of companies to other regions would be a massive blow to the hypothetical Catalan Tax Agency proposed by the secessionist politicians.
There are other minor taxes, like tax on legal documents and property taxes, which are paid on a regional and local level that would also be affected, although the revenues are significantly smaller than those from corporate taxes.
Big companies lead the way
Banco Sabadell, the fourth largest Spanish banking group, decided on October 5th to change its registered office to Alicante, in the southeast of Spain, ending a 130-year history of association with Catalonia. That day, it emerged the Government was preparing to allow the companies to transfer their registered offices without the approval of the company’s board.
The regulation, which in practice speeds up the change of domicile, was approved the following day in the Council of Ministers.
That same day, October 6th, Caixabank, the second largest Spanish bank by assets, announced the transfer of its registered office to Valencia. That afternoon, Gas Natural took the same decision, moving its registered office to Madrid.
Three of the most iconic companies of the traditional Catalan industrial fabric decided to take the step. The move was largely symbolic but signalled that the big Catalan companies rejected a possible unilateral declaration of independence. Other names as Abertis, Cellnex and Catalana Occidente followed.
Other privately-held firms, such as Codorniú or Bimbo, did the same to guard against legal uncertainty.
According to Fernando de Trias de Bes, a professor at the Esade business school in Spain, these changes may seem initially cosmetic but over time may lead to a partial relocation of economic activity to other regions. Trias de Bes conducted a survey of a hundred Catalan managers and concluded there was a certain paralysis of investments while the companies await a political resolution.
The application of Article 155 of the Spanish Constitution, which allows the central Government to intervene in Catalonia and call elections, have calmed the situation. As a result, some business operations are being reactivated. For example, in real estate, BBVA completed the sale of its real estate portfolio to Cerberus. The signing of the operation had been under way for months and was even on the verge of failure due to political instability in Catalonia, where 47% of its portfolio is located.
The economic impact
After a volatile period, the Ibex 35 – Spain’s benchmark stock index – now trades at similar levels to those prior to the referendum. The index closed on 13th December at 10,260 points, only 1.1% below the numbers of September 30th closing (the last session before the referendum).
Fernández de Funcas points to other indicators of change, including consumption. In October, Catalonia led a national decline in retail sales, with a fall of 3.9%, while the Spanish average stood at 1.2% compared to a year earlier.
Tourism is one of the vital sectors of the Catalan economy, and we can compare the number of overnight stays. In October, there were 4.56 million overnight stays in hotels in Catalonia, a decrease of 2.7%. In contrast, the national total recorded more than 30 million overnight stays, an increase of 1.1% over the same month in 2016. The number of tourists who stayed overnight in hotels in Catalonia fell by 4.4% over the previous year.
Then there’s registered unemployment. In this case, the number of unemployed persons was 14,698 higher in October, a monthly increase of 3.67%, the largest increase in Catalonia since 2008.
Several experts agree that the impact on GDP will depend on how long the uncertainty will be. Catalonia accounts for 18.9% of the Spanish economy. For now, Funcas’s economic forecasting panel, which includes the forecasts of 17 analysis services and is one of the most widely to measure the evolution of the Spanish economy, has cut just 0.1 percentage points off the forecast of economic growth in Spain for 2018 to 2.6%, partly due to the effect of the Catalan political crisis.
Funcas’ work has looked at the Catalan crisis and how it complicates growth forecasts. A recent report highlights “the great uncertainty surrounding the forecast for 2018 due to the difficulty of quantifying the economic impact of such an unusual situation; an effect that, moreover, can be very different depending on how events evolve in the coming months”.
In short, the uncertainty is far from over.