OBS Report: Analysis of foreign direct investment
Spain attracts almost 30 billion euros in foreign investment
- The United States, the United Kingdom and Germany are the main investors in Spain. The main recipient sectors are: Services, Industrial, Energy production and Construction.
- Madrid, Catalonia and the Basque Country receive almost 89% of foreign investment in Spain.
- Foreign direct investment exceeds 1.3 trillion dollars globally and with a decline of 8% by 2024.
OBS Business School, part of the Planeta Formación y Universidades network of higher education institutions, publishes the report Análisis de la inversión extranjera directa, directed by Professor and Director of InveretiK, Jaime Martínez Tascón.
Foreign direct investment (FDI) is a fundamental pillar of global economic development, facilitating the flow of capital, technology and knowledge between countries.It also has a significant impact on job creation, competitiveness and the integration of economies in the context of globalisation. However, in order to attract this foreign investment, the host country must meet several requirements: It must be economically and politically stable; it must have an adequate transport network, good telecommunications and a reliable energy supply; it must have a strong education system and competitive wage costs; it must offer tax incentives; it must have a large middle class with purchasing power; it must offer legal protection for investments; it must have natural resources, energy, fertile land, water; it must have a strategic location and a favourable export policy; it must have a highly developed financial sector that facilitates credit; and finally, it must be committed to sustainability.
Global FDI
Foreign direct investment represents an essential component of trade and globalization. According to the United Nations Conference on Trade and Development (UNCTAD), global FDI flows have exceeded US$1.3 trillion in recent years, with a significant impact on emerging and developed economies. Regions such as Europe, Asia and Latin America have been key destinations. But by 2024 there is estimated to have been an 8% reduction in global FDI, reflecting uncertainty in the world economy due to factors such as inflation, rising interest rates and geopolitical conflicts. Despite this, investments in digitalization, AI and clean energy are emerging as key growth drivers for the future.
The US remains the largest recipient of foreign investment, followed by China. However, the Asian giant has seen a decline in FDI flows due to increased regulation in strategic sectors and trade tensions with other powers. Europe has also seen a decline in foreign investment, particularly in Germany, due to economic uncertainty and changes in energy policy.
FDI in Spain
In 2023 (latest data available), productive FDI in Spain reached 28,215 million euros, a decrease of 18.5% compared to 2022, but within the average of the last five years (29,002 million euros). The OECD continues to be the main source of this investment, accounting for almost 94.6% of the total. Specifically, the countries that invest the most in Spain are the United States with 8,146 million euros (28.9%), the United Kingdom with 3,693 million euros (13.1%) and Germany with 3,000 million euros, representing 10.6%. For their part, mergers and acquisitions accounted for 12 billion euros, remaining in line with the average of the last five years and reflecting the smooth integration of foreign capital into the Spanish economy.
The sector that received the most investment was Services (54.3% of the total) and, within this sector, the most attractive were Wholesale Trade, Telecommunications due to the expansion of fibre optic networks and 5G technologies, and electric energy with the drive towards renewable energies. The Industrial sector was the second most foreign invested sector (42.2%) and within this sector, advanced manufacturing stands out, which includes automotive and electronics factories, key sectors in the Spanish economy. Similarly, investment in energy production was maintained due to energy transition and digitalization policies, a sector that is attracting growing interest. One example is the Chinese companies that have announced significant investments in green hydrogen projects in Andalusia with a total investment of 2,000 million euros. And although with a smaller share, construction continued to attract foreign investment (3%), especially in infrastructure and urbanization projects.
Madrid continues to be the epicenter of FDI in Spain, accounting for 54% of the country's total (15,323 million euros), but it has suffered a decrease compared to the average of the last five years, when it represented 62.8%. In second place is Catalonia, which has recorded a growth of 18% over the previous year. And behind is the Valencian Community, which has experienced strong growth of 63.6% compared to 2022; thanks to this it has overtaken the Basque Country, which had been in third place in recent years and which has attracted 1,556 million euros. After them are, in this order, Andalusia, Murcia, Galicia, Balearic Islands, Castile-La Mancha, Aragon, Canary Islands, Extremadura and Castile and Leon. Navarra, Ceuta and Melilla, Cantabria and La Rioja do not attract FDI.
Opportunities for FDI in Spain
There are key opportunities that can drive FDI growth in the coming years: energy transition, investment in renewables, green hydrogen and energy efficiency. And sectors such as AI, big data and automation will continue to attract investment. Jaime Martínez Tascón explains:
Spain has the potential to attract FDI in strategic sectors such as technology, renewable energy and advanced manufacturing; however, the key is to strengthen the institutional frameworks and provide incentives that build long-term investor confidence.
Spain has established a legal framework and specific policies to regulate and promote FDI, balancing the attraction of foreign capital with the protection of the protection of national interests (Law 19/2003, of July 4, 2003). This law establishes the general principle of liberalization of the foreign investment, allowing most of the investments without the need for prior authorization. However, there are exceptions to protect public safety, order and health: investments in the media, the supply of essential inputs and dual technologies (those with both civil and military applications), among others.
Spain offers tax, financial and administrative incentives, and also has a network of reciprocal investment protection agreements and agreements to avoid double taxation, providing legal certainty for foreign investors. Organizations such as 'ICEX España Exportación e Inversiones' provide support by offering information, advice and assistance in carrying out projects in Spain.
Challenges that generate uncertainty
Despite the optimism for FDI in the coming years, there are a number of challenges that are causing uncertainty among investors and could change the dynamics in many cases: first, inflation and interest rates, which could reduce access to project finance; second, geopolitical conflicts; third, protectionist policies that tighten regulations on foreign investment in strategic sectors such as technology, energy and critical infrastructure; fourth, new environmental regulations that could increase costs, although they could also open up opportunities in green sectors; fifth, automation, which could hurt certain countries with cheap labour; and, finally, increasingly stringent data protection regulations.
Content written by:
Carmen García-Trevijano
OBS Business School's Press Office
