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24 February, 2021updated 18 Oct 2021 07:16

Will tech become the FDI driving force across Iberia?

Digital, software and technology has emerged as the top sector for FDI attraction in Spain and, due to Covid-19, is set to play a key role across the Iberian peninsula.

By Viola Caon

iberian-tech-fdi

A strong start-up environment that has produced the likes of foodtech company Macco Robotics has helped to bring in tech-based FDI to Spain and Portugal, a trend that is likely to increase during the Covid-19 pandemic. (Photo by Cristina Quicler/AFP via Getty Images)

Investment Monitor’s Spain and Portugal investment promotion agency (IPA) maps show that the agribusiness, food and beverages sector has played a key role in terms of attracting foreign direct investment (FDI) into the region, with digital, software and technology the leading sector in Spain.

In Spain, the sector has a slight lead on agribusiness, food and beverages, which sits second alongside energy, and logistics, warehousing and transportation.

The software development industry has continued to attract FDI during the pandemic. This is clearly aligned with the acceleration of digitalisation. Trini Bofarull, Catalonia Trade & Investment

While in Portugal the digital sector does not appear as high up in the chart, the country’s tech start-up scene has been growing significantly in recent years and seems set to play a more prominent role in FDI attraction in the wake of Covid-19.

“In recent years, with the recognition of the highly skilled local talent and the attractiveness of Portuguese cities to attract international talent, we have been registering an increase of projects from US companies in software development activities, such as Cisco, Cloudflare, Microsoft and Google,” says Philomène Dias, director of inward investment at Aicep Portugal Global.

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As the chart above shows, agribusiness, food and beverage, and then tourism have a strong lead in the country on the next most popular FDI sectors, which are manufacturing and engineering; logistics, warehousing and transportation; and metals, minerals and mining.

The spread of the Covid-19 virus, however, has had a negative impact on some of those sectors – mainly tourism, manufacturing and transportation – but has proved the resiliency of others, such as digital, research and development (R&D) and life sciences, which are likely to continue to be a driving force for FDI in Spain and become increasingly relevant in an already-growing environment in Portugal.

IT on the rise across the Iberian peninsula

The FDI make-up of the region of Catalonia, home to the city of Barcelona, reflects Investment Monitor’s top sectors map quite closely, with digital as its leading sector, followed by food and agribusiness, then automotive and life sciences.

Covid-19, however, has dealt a blow to the automotive sector, which is likely to see it fall behind both digital and life sciences. Nissan, for instance, announced in May 2020 that it plans to leave the region, putting some 20,000 jobs at risk.

However, as with all crises, some opportunities have emerged, according to Trini Bofarull, FDI director at Catalonia Trade & Investment. “We foresee that Covid’s blow to the automotive sector will be long-lasting in terms of FDI attraction into Catalonia,” she says. “However, this opens up some space for promoting different types of mobility investment. For instance, we have a few ongoing processes in the electric vehicle space.”

Bofarull adds that the region has seen two winners during the pandemic: software development and life sciences companies. “The software development industry has continued to attract FDI during the pandemic,” she says. “This is clearly aligned with the acceleration of digitalisation due to the pandemic. We have one of Europe’s top start-up ecosystems with more than 1,500 start-ups, while one of Catalonia’s, and especially Barcelona’s, main assets is talent, which is particularly valued in ICT sectors. Barcelona and Catalonia also offer a unique lifestyle, which can be really attractive for international talent,” she adds.

How tech investors are thinking smaller

While digital, life sciences and R&D are likely to play a pivotal role in terms of FDI attraction in the post-pandemic era, on a global level, food and agribusiness will also remain high on foreign investors’ agendas, particularly when looking at other southern European countries, according to Bofarull.

Working remotely has caused the digital, software and technology sector to flourish during the pandemic across a large number of countries; in terms of job and value creation of FDI into local economies, however, it can create some hurdles.

In a few cases, for instance, industry players have reported tech companies rethinking or scaling back plans to establish a significant presence in a new location as they can now achieve similar goals by setting up a smaller physical presence while having employees working remotely.

The IT sector has not suffered at all during the outbreak. Maybe companies slowed down their hiring plans, but the workflow has continued as usual. Helena Silva, InvestBraga

This has not perturbed the city of Braga in Portugal, however, which has long been investing in its IT and software development capabilities, and it sees this as a priority FDI sector in the post-pandemic recovery.

“The IT sector has not suffered at all during the outbreak,” says Helena Silva, who works in the IPA’s investment attraction department. “Maybe companies slowed down their hiring plans, but the workflow has continued as usual. This sector, in particular in the software development area, is a big priority for us at InvestBraga.”

Already home to companies such as Accenture, Fujitsu and Webhelp, Braga has grown as a tech start-up hub in Portugal in recent years. “We receive interest in this sector from foreign investors on a daily basis,” says Silva.

Beyond IT, Braga has traditionally been home to a strong metal mechanics sector – which experienced a significant downturn during the global financial crisis of 2008 – and, more recently, to the automotive sector.

Despite the strain that Covid-19 has put on the latter, Bosch has a strong foreign presence in the city, employing 4,000 people and forming the centre of a strong network that directly contributes to local job creation.

“Bosch also has a partnership with the University of Minho, another strong hub for both the city and the region when it comes to creating, retaining and attracting talent and, as a consequence, to driving FDI,” explains Silva.

Portugal maintains IT and life sciences focus

At national level, Aicep’s Dias reflects the view that the IT and life sciences sectors are among those that are flourishing across Portugal during the pandemic. “In the midst of a pandemic there are several opportunities that arise for life sciences, medical devices and technical textiles’ companies,” she says. “The tremendous increase of online activity leads to further investment in new products and digital solutions.

“A country such as Portugal, with highly skilled talent and renowned engineering capabilities, has been witnessing an increase in the number of projects, creating new competence and software development centres.”

While more traditional sectors such as agribusiness, food and beverages will continue to attract FDI across Iberia, Covid-19 has shown the resilience of the digital, software and technology sector, which is likely to become a growing driving force of foreign capital into the region.

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