The drought or fallow land in public subsidies and financial aid
COVID-19 does not discriminate between classes or age groups nor between public or private sectors. In a very globalised world, the virus did not want to be any different and has infected the world's health and economies. Individuals, small businesses, medium and large companies... and so on, even infecting the government agencies.
Indeed, the first half of 2020 has been characterised by a severe shortage in the transfer of public funding to businesses and self-employed individuals. In other words, the amount granted in subsidies was cut by almost 40%. The cutback was also noticeable in the number of public subsidies channelled to companies, which fell by almost 30%. When it comes to the total figures, and according to the Public Administration Subsidies and Tenders Yearbook for 2019 and the first half of 2020, drafted by Axesor's Economic Research Department, a total of 140,859 subsidies were awarded in the first six months of the year amounting to 2,208.7 million euros.
However, it is important to point out that this decline is based on data collected at the beginning of October, and therefore part of the decline could be explained by the time lag between the actual granting of subsidies and the publication of the data by official sources.
The data contrasts with the flood of public funding that was distributed in 2019 as a whole. Last year, public administrations transferred 9,244.7 million euros between capital companies and individual entrepreneurs A figure 229.3% higher than in 2018. If we look at the number of public subsidies and aids, we see that 178.6% more were granted than in the previous year, i.e. a total of 545,872 subsidies.
However, virtue lies in the middle. Not so much as in 2019, because it is a proven fact that living off public funding seriously damages the competitiveness of some (not all) companies and, therefore, the economy. Not to mention the hole it burns in the government's accounts. Let us consider that this figure of close to 1% of GDP in expenditure is a “carried-forward value” that has a direct impact on the budget balance. This expenditure is often inefficient due to its low or no return, and has to be compensated with the tax revenue or through the financial markets, or what would become public debt. This would be unsustainable if coupled with the effect of COVID on the economy, which will increase Spain's public debt by 122% next year, and could reach 124% in 2022. Brussels has already warned about these figures in its most recent and latest European Semester.
Furthermore, the Commission did not hesitate to “invite” Spain to “regularly review the use, efficiency and adequacy of support measures and be prepared to adapt them as necessary to changing circumstances”.
It also cannot be as little as in the first half of 2020, because at this time, companies and self-employed individuals need the support of the government to guarantee not only the continuity of their businesses, but also the continuity of the economy as a whole. However, as reported in our Yearbook, commercial companies suffered the most from the decline in public funding, with 46% less financial aid (volume-wise) than in the first half of 2019.
At this point it is important to emphasise that Spain is, has been and will continue to be (we will have to wait a decade or two to see how our business network develops and approaches that of countries such as Germany) a country of SMEs, a country of small businesses. Indeed, these small businesses are precisely the ones who have been surviving under the threat of the sword of Damocles hanging over their heads ever since the pandemic took over our day-to-day lives. Let's go over the data again. Hotel and catering businesses, administrative activities and education are the three sectors that have seen an increase in the number of insolvencies up to October. These are precisely the sectors that account for a large number of small businesses and companies. Especially in the hotel and catering business, with an increase of 10.6%, ending the first ten months of the year with a negative rate of 27.2% in start-ups.
Apart from the reality of the data, the Public Administration Subsidies and Tenders Yearbook for 2019 and the first half of 2020 highlights the effort made by regional and local governments when it comes to transferring funds to the real economy. They doubled their contribution to the distribution. They granted 535 million euros and went from representing 19.5% of the first half of 2019 to 35% of the same period in 2020. In contrast to the Central Government, where the amount granted in financial aid and subsidies fell to 991.4 million euros. A decrease of 15 points in one year, from 80.5% to 65%.
Considering the above data and the bleakness of the situation on the side walk shops, as highlighted in our Yearbook: Spain must prepare an adequate response concerning productive, industrial and sectoral development, which differs from business as usual. We must carry out research into which activity sectors have the greatest future, as well as in which we occupy a comparatively competitive position and have the potential to develop our productive system as a driving force.
Given the situation, we hope that what we have described as a drought in the first half of the year will turn into a fallow land - forced by the paralysis of activity during the most critical months of the pandemic - which will give way to more fertile land in the coming years.
You can download the yearbook here: