Look Out for the Spanish Bulls

By Adam Zagorin/Madrid

Except for the international set that frolics on its Mediterranean beaches, Spain has long been anything but an In country. It was something of a pariah for decades under the dictatorial rule of Generalissimo Francisco Franco. Suddenly, however, it has become one of the hot spots on the international business scene. Just one year after Spain won full-fledged membership in the European Community, the country's economic growth is accelerating, its stock market is surging, and foreign capital is pouring across its borders at a record rate. Spanish businessmen are already looking ahead to an expected bonanza from the 1992 Summer Olympic Games in Barcelona and a Seville world's fair that year to commemorate the 500th anniversary of Columbus' first voyage to the Americas. The mood in Spain is distinctly bullish.

Much of the credit goes to the pragmatic Socialist government of Prime Minister Felipe Gonzalez Marquez, 44, who is now in his fifth year in office. Gonzalez has offered generous investment incentives to both domestic and foreign companies. These subsidies often include grants amounting to as much as 30% of a firm's capital outlays, as well as tax breaks that increase with the number of Spanish workers hired. Under the government's direction, many once sclerotic state-owned companies are selling off parts of their operations or forming joint ventures with private firms. Most important, by leading his country into the European Community, Gonzalez has opened large new markets for Spain's companies. One unfortunate side effect -- for the U.S., at least -- is that E.C. rules require Spain to boost its tariffs on American grain. The U.S. has threatened to slap a 200% punitive tariff on such European products as Gouda cheese and gin.

Whatever controversy Spain's new economic policies have stirred up, they have helped boost Spain's economic growth rate from 2.1% in 1985 to an estimated 3% last year. They have attracted a phenomenal influx of foreign money. According to government figures, $4.17 billion flowed into Spain during the first ten months of 1986, an increase of 115% over the same period in 1985. Two attractions: Spain's low labor costs, which run 15% less than the European average, and the country's large population of consumers (39 million). Says Courtenay Worthington, Citibank Espana's general manager: "Spain is becoming a magnet for foreign investment. Many companies are putting up money, and those that aren't are wondering if they should."

The signs of Spain's new international standing are abundant. Along the stately, tree-lined Paseo de la Castellana, a boulevard that runs through Madrid's main business district, a rush by foreign banks and other multinational companies to rent or buy scarce office space has helped raise real estate prices 20% over the past year. U.S., European and Japanese businessmen throng Spanish golf courses and savor Madrid's night life.

In a new industrial zone just outside the capital city, joint ventures between Spanish and foreign firms are mushrooming. Perhaps the most impressive project is a $200 million plant being built by a partnership of AT&T and Spain's Telefonica. The factory will soon begin producing 3,000 highly complex custom-made electronic microchips a week for export. AT&T was lured in part by the Spanish government's aid, which included a $74 million cash subsidy, a $75 million loan and 400 acres of land.

Spain's auto industry has drawn heavy foreign interest. Ford Espana plans a $600 million expansion over the next four years. Volkswagen recently took control of Spain's SEAT carmaker, received $1.2 billion in cash aid from the Spanish government and plans to pour $3.6 billion into its acquisition by 1997.

One sure sign that Spain has joined the business big leagues is the arrival of the Japanese. Their investments in manufacturing, banking and other enterprises have grown from less than $1 million in 1980 to an estimated $200 million last year. Fujitsu intends to spend $50 million in the next three years to double the size of a factory in Malaga that produces mainframe computers. Sharp will soon start building television sets in Barcelona.

As foreigners say ole to Spain, the Madrid stock exchange is becoming an almost constant fiesta. The ornate 19th century bourse has been Western Europe's top performer; its main market index rose 101% in 1986. Foreign investors bought Spanish stocks worth $3 billion in the first ten months of last year, in contrast to $740 million during 1985.

For all the new excitement in Spain, the country continues to have serious economic problems. Unemployment remains at a distressing 20.7%, and inflation, though down from 14.4% four years ago, hovers at about 9%. Laws that make it costly to lay off unneeded employees have kept productivity low, and threats against foreign businesses by ETA, the terrorist Basque-separatist organization, are worrisome. But the unprecedented flood of foreign money into Spain and the government's resourceful policies are offering the country its best chance in decades to build a modern economy and a prosperous society.