This own-initiative report is intended to contribute to the debate on the size and significance of the Spanish economys external balance. It takes the relatively unusual approach of considering the issue through trends in imports of goods and services. The Council seeks to analyse the importance of purchases abroad in stimulating economic activity with a view to creating employment and reducing external borrowing. The report was prompted by the need to take the opportunities offered by Spains buoyant growth. The Council expresses concern that part of this growth may be diverted to imports, diverting employment to other economies. Accordingly it calls for improvements in competitiveness so that Spanish firms may increase their market shares not only abroad but also domestically. The report begins with a detailed study of the structure of Spains imports so as to elucidate the causes of its high trade deficits, apart from energy dependence, with a view to helping find a way to correct this structural imbalance in our economy. The Reports main conclusions are:- In the past two decades, growth in the Spanish economy has been largely based on expansion in domestic demand, whereas growth across the EU has been sustained by contributions to increases in GDP by the foreign sector. - The large share of imports in the meeting of demand for consumer goods and the large contribution of imports in the production of Spanish exports two peculiarities of the Spanish economy represent challenges with a view to economic recovery. - Regarding demand for consumer goods, the percentage of imports in Spain is higher than in Germany, France and Italy, i.e. both direct imports of goods for end consumers and imports incorporated into the production of goods finally consumed in Spain (import content) are higher than in those three countries. - Spanish industrys greater dependence on imports is chiefly due to an external input effect, i.e. at the same level of productive specialisation, our industry requires relatively more imported materials to produce its output; though there is also a specialisation effect, i.e. our industry is more geared to branches of activity with a high dependence on imported inputs than is industry in other Community countries.- Imported materials incorporated into the production of goods for export do not in principle have an adverse effect on our current account balance, and they broadly reflect the Spanish economys involvement in global value chains. Yet the large content of imported materials in Spains exports and their cyclical variations are aspects to consider when devising measures to promote Spanish sales abroad.- Moreover, in order to make the most of the opportunities for economic growth and employment offered by Spains participation in global value chains, it is important not only to increase exports but also for a portion of that value chain to be produced locally.- Most of the manufactured goods imported by Spain contain medium-level or high technology, pointing to the Spanish economys shortcomings in the production of goods with high technological content, which have to be supplied by imports, as against our specialisation in manufactured goods containing low or medium technology.- Energy products account for a significant portion of our imports as a result of the economys high levels of energy dependence and energy intensity, compromising the competitiveness at home and abroad of many branches of activity. Efforts to gain competitiveness in other spheres, such as the labour market or research, development and innovation (RDI), may be cancelled out by trends in energy or transport costs.As PROPOSALS for mitigating the effect of Spains high level of imports on its external accounts in a context of recovery, the following strategies could be considered:- Short termPromoting domestic products. With a more immediate impact on final consumption and therefore on our trade balance, it would be advisable to promote Spanish industrial products of quality in keeping with the governments proposal in its Agenda for boosting the industrial sector. - Medium and long term Strengthening the Spanish economys competitive capacity. This would involve action in many spheres on both a micro and macro scale so as to improve our external accounts both by importing less and by exporting more. Some such actions are included in the aforesaid Agenda, but the Councils report points to a few priorities:- Energy efficiency measures.- Innovation and development. These should be among the priorities of both public and private sectors, which means promoting RDI, especially in business, and fostering and disseminating an innovative culture. But it also means encouraging public-private coordination, seeking formulas for greater cooperation between companies and universities and research centres and establishing mechanisms to boost the transfer and dissemination of knowledge and technology from the scientific sphere to the business world. Greater innovation would contribute to the production of high-technology goods and less dependence concerning this type of products. - Improved endowment and quality of human capital. This will involve improving the education system and its linkage with the economy so that higher quality in education and training may adequately meet companies needs for training and vocational qualification of workers.- Giving more attention to intangible assets directly linked to business activity and product development, such as:- access to finance, especially significant in a context of restricted credit;- brand image, one of the most important intangible assets as it allows products to be differentiated from each another, and linking this to quality or good service, offering a guarantee, security and prestige;- market position and closeness to customers;- design, quality and distribution and marketing strategy;- business planning or business organisation tools.PARTICIPATION by the social partners. Working to achieve these factors has been and remains a major goal shared by the government and the social partners. Their involvement and support from the social dialogue process may positively contribute to the design of the necessary measures for enhancing companies competitiveness, especially in the industrial sector. SERVICES SECTOR. In this branch of the economy, public action focuses chiefly on tourism, transport and professional activities. But there is also a need to support the development of other service branches and activities, especially more innovative activities involving knowledge and the use of highly qualified human capital, increasing their role in the Spanish economy.
