CATALONIADoing Business inFINANCIAL TIMES SPECIAL REPORT | Thursday May 6 2010

A jewel in the crown – but with f laws

Business is not thefirst activity thatsprings to mindwhen most outsid-

ers think of Catalonia.This autonomous region

of north-east Spain is betterknown abroad for its artistsand sportsmen, living anddead: Antoni Gaudí inarchitecture; Salvador Dalíand Joan Miró in painting;Ferran Adrià, the chef whoshocked the world’s gour-mets with his Januaryannouncement of the ElBulli restaurant’s two-yearclosure from 2012; JuanAntonio Samaranch, theOlympics administratorwho died last month; andfootballing names such asJoan Laporta, Catalannationalist and president ofthe Barcelona club.

Yet among Spanishregions, only the Basquecountry comes even close toCatalonia in terms of indus-trial heritage and the vital-ity of its small and medium-sized export companies.

All layers of business arerepresented. They include:the Catalan financial giantLa Caixa and its listed Cri-teria holding company; the3,300 multinationals – suchas chemicals group BASF –that have a presence; fami-ly-owned groups such asRoca, the global bathroombrand; and a host of smallerlocal and foreign compa-nies. Fashion, design andbiotechnology have alldeveloped from the tradi-tional manufacturing base.

It is rare to go out for theevening in the cosmopolitanregional capital of Barce-lona and not chance upon aBriton, a Frenchman, a Fili-pina or an American wholaunched a small businessand chose Barcelona as abase because of its climatic,geographical and culturaladvantages.

“We’re not competingwith the poorer regions ofEurope. We compete withregions such as Lombardy,Rhône-Alpes and Bavaria,”says Antoni Castells, theCatalan finance minister.“We’ve closed the gap withthe main European indus-trial regions, and in somecases we’ve passed them.”

Last year Catalonia,whose population of 7.4mputs it in the same demo-graphic league as Austriaand Switzerland, accountedfor nearly 19 per cent ofSpain’s gross domesticproduct.

The region did not escapethe economic crisis, whichin Spain began with the col-lapse of the housing marketbubble and was worsenedby recession in bigger econ-omies such as Germany, to

which exporters send muchof their output. Tax reve-nues from stamp duty onhouse sales in Cataloniadropped from €4bn in 2006to just €1.3bn last year, MrCastells says.

Officials, employers andbankers, however, say theysee tentative signs of recov-ery, both in indicators suchas electricity consumptionand in anecdotal reportsfrom entrepreneurs andinvestors.

They hope “contagion”from the Greek sovereigndebt crisis, including a sov-ereign debt downgrade forSpain from Standard &Poor’s last week, will notstop a revival in its tracks.

“All the indicators showthe worst is past,” says MrCastells.

Joan Rosell, chairman ofFoment del TreballNacional, the employers’group, is more cautious:“There are signs of recov-ery because we are compar-ing the figures for 2009,which was a disaster.”

There is almost universalagreement among employ-ers and economists thatCatalonia and Spain – hav-ing lost competitiveness rel-ative to Germany since theintroduction of the euro adecade ago – need to reformthe inflexible labour mar-ket, invest in innovationand high-technology indus-tries and services and bringgovernment spending undercontrol after a nationalbudget deficit of 11.2 percent of GDP last year.

In spite of protestationsto the contrary from theCatalan government, bothforeign and local companiesalso say the regionalauthorities’ nationalisticpolicies to promote the Cat-alan language and defendthe region’s already highdegree of constitutional

autonomy create bureau-cratic obstacles for businessand simply cost too muchtaxpayers’ money.

According to Mr Rosell,Spain’s central governmentand the 17 autonomousregions generate nearly700,000 pages a year of offi-cial bulletins on regulation.

The constant debateabout autonomy and sepa-ratism, which has intensi-fied ahead of regional elec-tions this autumn, meansthe tripartite Catalan gov-ernment spends too muchtime debating independenceand not enough on impor-tant matters such as theneed to improve education,says one local consultant inBarcelona.

“There’s an immensepolitical noise which makesit hard to focus on impor-tant commercial or educa-tional initiatives,” he says.

Defending the Catalangovernment, Mr Castells isparticularly incensed by theaccusation that the autono-mous regions and theirexpensive bureaucracies areto blame for the overallSpanish budget deficit thathas so spooked interna-tional investors.

“That seems to me pro-foundly unjust and false,”he says, noting that figuresshow regions account for 2percentage points of thetotal deficit of more than 11per cent of GDP.

The strongest argumentin the long term for shun-ning excessive autonomy,or independence, for Catalo-nia is probably the eco-nomic one that arises fromrecent analysis of theregion’s competitiveness byprofessors Pankaj Ghema-wat and Xavier Vives of theIese business school.

They identified weak-nesses in Catalonia and

Spain, including a low rateof research and develop-ment, a shortage of innova-tion and patenting of newproducts – despite increasessince the 1990s – and a“potentially dysfunctional”educational make-up of thepopulation for such anindustrialised region.

But they also found Cata-lonia’s economic strengthslay in its propensity toimport from outside Spainand add value to make

products that are then re-exported to other Spanishregions.

Catalonia is thus animportant trading andimport hub, a status thatmight be diminished in theevent of separation.

“Catalonia trades morewith [the neighbouringSpanish region of] Valenciathan it does with France,”says Prof Ghemawat.

Even so, for all the criti-cism of policy priorities and

implementation,Cataloniacontinues to attract busi-ness.

The key advantages are amix of tangibles and intan-gibles, including theregion’s high quality of life,a useful location, goodtransport infrastructureand wages competitive withthose of northern Europe.

Erwin Rauhe, managingdirector for BASF in south-ern Europe, grumbles aboutthe cost of electricity and

water and, like many corpo-rate executives in Barce-lona, would like to seeimproved productivity andbetter rail freight links toFrance.

However, he is full ofpraise for Catalonia’s edu-cated workforce and inter-national outlook. “Theinfrastructure that Spainhas built up in the past 10years is something thatdoesn’t disappear,” he says.

“We would like less

bureaucracy, but we wouldlike that in Germany, Italyand other countries too.”

Economic recovery afterthe crisis is likely to be aslow and difficult processacross southern Europe, butthe executives and entrepre-neurs based in Barcelonaand the surrounding regionbelieve Catalonia is as wellpositioned as anywhere inthe Mediterreanean basin tobenefit from an eventualreturn of growth.

Victor Mallet explains why business likesthe region but wants less bureaucracyand reform of the labour market

Prudent approach tocash f low pays off

In these times of austerity,low or negative economicgrowth and tight credit,Catalonia’s 947 local gov-ernments – or ajuntaments– are in a bind.

Deprived of the construc-tion and property taxes thatunderpinned their financesduring a decade of growth,many are struggling thesedays to pay their bills.

Delays in remittance tosuppliers of more than ayear are common in someparts, while many local gov-ernments find it impossibleto comply with the so-called“60-day payment rule”.

In Sant Cugat del Vallès,a dormitory city of 84,000people in the industrial val-leys north-west of centralBarcelona, the local govern-ment has, in the past seven

years, developed a morebusiness-like approach tomunicipal administration.As part of this, it last yearannounced a commitmentto paying all supplierswithin 30 days.

What at first was seen asa media stunt, in keepingwith the city’s penchant forself-promotion, is today afact of life: cost-based budg-eting combined withhealthy bank credit lineshas allowed the governmentto keep its promise.

Processing and approvinginvoices is generally donewithin 15 days; onceapproved, payment takesanother 15. Elsewhere, inmany cases, local councilsdrag out the approvals proc-ess to delay payment.

Apart from more stream-lined bureaucracy – whichincludes contracting outsuch functions as sportfacility management, streetcleaning, and rubbish col-lection – the city councilhas something more funda-mental in its favour: pru-dent cash flow manage-ment.

As with most local

authorities in Spain, SantCugat had come to relyheavily on taxes andlicences related to construc-tion during the country’slong residential housingboom, which wound downin 2007. Of total revenues of€70m in 2008, about €18mcame from the constructionsector, says Jordi Joly iLena, deputy mayor andhead of economy.

“Like everyone else, wedidn’t see the crisis coming,but we knew that therewould come a momentwhen there was no moreland in the city for residen-tial development,” he says.

“The income from con-struction was a variablewhich we did not use forcurrent expenditure. Weused that money to financeinvestment, not to pay sup-pliers.

“So when the crisis hit,we were able to pay oursuppliers at 30 days.”

The objective of the pol-icy, apart from promoting apositive image, is to givecompanies – particularly

Sant CugatThe city hasbecome a globalmodel for publicadministration, saysMark Mulligan

InsideEnterprising studentsMark Mulligan saysschools such as Iese(above) are forgingpartnerships Page 2

Big projectsMark Mulligan on effortsto ease congestionPage 3

Banking & finance VictorMallet finds regulationhelped avoid the worstPage 3

Continued on Page 3

The business end: the Agbar Tower dominates the skyline of Barcelona, which for all the criticism of policy priorities and implementation, continues to attract businesses Dreamstime

InsideVictor Mallet findstourism abeneficiary ofthe resurgenceby the Prioratwine region andmeets SalustiàAlvarez,winemaker(right)

www.ft.com/catalonia­2010| twitter.com/ftreports

2 ★ FINANCIAL TIMES THURSDAY MAY 6 2010

Doing Business in Catalonia

ContributorsVictor MalletMadrid Bureau Chief

Mark MulliganMadrid Correspondent

Seb Morton­ClarkCommissioning Editor

Steven BirdDesigner

Andy MearsPicture Editor

For advertising details, contact:Maria González:Phone +34 91 564 1810Fax +34 91 564 1255Email: maria.gonzalez@ft.com

All editorial content in thissupplement is produced bythe FT.Our advertisers have noinfluence over, or prior sight of,the articles or online material.

Scooterswin overtrendycitizens

As the birthplace of thepopular Vespa, Italy haslong been considered thescooter centre of the world.

German entrepreneurTimo Buetefisch thoughtso, too, until he discoveredthat Barcelona had thehighest scooter penetrationrate in Europe – ahead ofRome. Armed with thatfact, and an MBA from theIese business school, hedecided to launch, withthree financial partners, ascooter hire company inthe Catalan capital.

The idea was to lureyoung travellers off thecity tour buses and on tothe same mode of transportused by locals. He dulynamed his companyCooltra – as in “CoolTransport” – paid €30,000for his first 50 Chinese-built scooters and, inMarch 2006, rented out hisfirst vehicle. “Weimprovised in the earlydays,” he says, “puttingdown our own money andstarting out in a garage”.

His company nowmanages a fleet of 1,200scooters, distributedthrough rental shops intwo other Spanish citiesand the Balearic Islands.This makes him thebiggest in his specialistclass in the country, andthere are plans forinternational expansion.

His original targetclientele has been joinedby local residents whowant to travel about on ascooter without the hassleof maintenance andinsurance. “The tendencyin the market these days isthat you rent, you don’tbuy,” says Mr Buetefisch.“We offer rentals from €87a month, all included.That’s €3 a day, which

means we are competingwith public transport.”

Local investors havehelped Mr Buetefisch andhis original partners everystep of the way. “We had avery successful firstsummer, so I decided Ineeded some businessangels,” he says. “So, Iwent back to Iese and didmy pitch.”

A four-strong group putup €700,000 in return for a30 per cent equity stake.Mr Buetefisch used themoney to open a hire shopin Valencia.

Around the same timeCooltra also branched intoscooter sales. This hassince grown into its ownbusiness, accounting for 50per cent of group revenues.From this new base, MrBuetefisch diversified hisrevenue stream further byusing branded scooters andselling advertising spaceon his vehicles. This yearhe also became an officialSpanish importer anddistributor of Star scooters,which are made in Indiaunder an old Piaggiolicence. “We are now a fullscooter company,” he says.“We started with rentals,but keep addingbusinesses.”

He admits that mistakeshave been made: in 2008,for example, there was a“premature” experimentwith franchising, and hefound himself overstaffed.“Like any start-up, this isnot a 100 per cent successstory,” he says.Nonetheless, lastNovember he raisedanother €1m, which he willuse to consolidate theCooltra network in Spainbefore taking the conceptabroad. The company isalso working with theBarcelona city council onan electric scooter roll-out.

Mr Buetefisch forecastsrevenues this year of€2.7m, compared with€1.5m in 2009 and about€110,000 in the first year.

Cheap hotels cater for urban explorers

American John Erceg has atheory about the proliferation ofsmall, global businesses inBarcelona.

Although offering anattractive lifestyle to young,creative business graduates, theCatalan capital is short onconventional job opportunitiesin large financial or industrialcompanies.

“This is not a city of largemultinationals,” he says. “Youcan’t just show up and knockon the door of, let’s say, JPMorgan’s headquarters, and askfor a job.

“You’ve really got to startyour own thing.”

Having said that, aftercompleting an MBA at the Iesebusiness school Mr Erceg, 41,

did land a job withmultinational Hewlett-Packard,which designs and develops itslarge format printers in abusiness park near Barcelona.

During four years at HP,based both in São Paulo andBarcelona, he held a series ofsenior jobs, includingdistribution manager for LatinAmerica. Nonetheless, he waskeen to go out on his own,launching a few failed ventures– including a mobile photo-processing business – beforeinvesting in the local propertymarket. From letting out hisown and other Barcelonaapartments to tourists in 2003,he recognised a nascent trenddriven partly by the growth inlow-cost airlines.

Instead of spending all theirmoney on flights and hotels,travellers were flying with low-cost airlines, checking intobudget hotels and thensplashing out on fine dining,shopping and cultural pursuits.

“There were actually twotrends,” Mr Erceg says. “Peoplewere no longer taking all theirholidays at once and just lyingon the beach for a month: they

would take four, five or moresmaller breaks a year and spendsome of those checking outcities.”

As the demand profilechanged, and cities such asBarcelona also pitched hard fora slice of the meetings and

conferences market, a new typeof hotel was born.

Smart, clean, and high-tech,the new “urban chic” range wasnonetheless based on a no-frillsmodel with low operating costs,

much like the airlines, and soappealed to the budget-conscious.

By acting as a distributor forthese, along with privately-owned apartments and othertypes of affordable but smartbed and breakfast and hostelaccommodation, Mr Erceg saw achance to plug into a fast-growing tourism trend.

Using the trading nameEnGrande, he started inBarcelona, but graduallyexpanded internationally to thepoint where today his mainwebsite, Budgetplaces.com, lists4,000 accommodation options in78 destinations, from Stockholmto Sydney.

Gross bookings handled bythe company were worth €43mlast year, compared with €35min 2008 and €25m in 2007. Sinceits humble inception, EnGrandenow has a full-time staff of 60,covering 25 nationalities.

“From a business perspective,Barcelona has a fantastic assetin that it is full ofunderemployed, highly-talented,multi-lingual people,” he says.“You can always count on thehigh quality of applicants

whenever you are looking torecruit.”

As with most start-upbusinesses, mistakes have beenmade: in 2006 Mr Erceg flirtedbriefly with the rural breakmarket, but it did not work out.The fleeting detour did,however, serve to underline theparticularly strengths of hisurban tourism model.

“When I started out, therewas already competition –online travel distribution washardly new,” he says.

“The trick, then, was to refineit and do it better – and I thinkwe have successfully done this.”

What sets Budgetplaces.comapart from the competition isits focus on central locations ininteresting cities at budgetprices, and its use of videos andonline customer feedback.

Mr Erceg has also eschewedhotel chains and other largesector operators in favour ofdealing with individual propertyowners to better control qualityand the customer experience.

“When it comes toe-commerce, travel is thebiggest thing and we havemanaged to carve out a niche.”

ProfileBudgetplaces.comNo­frills travel marketprovided a lucrativeopportunity, reportsMark Mulligan

Enterpriseenrichedby studentworkforce

It is mid-afternoon inthe upmarketPedralbes district JofBarcelona and two res-

idents of New York City arepitching a business plan toa group of local investors.

Patricia Bayley and Mar-tin Mazza, recent MBAgraduates of the Iese busi-ness school, are back on themain Barcelona campus toattend the 44th “BusinessAngels Forum”, whereyoung entrepreneurs try tocatch the attention of pri-vate financiers.

Their idea is simpleenough: launch a bike-sharebusiness in New York Citybased on the successfulBicing model in the Catalancapital. The proposal, theyenthuse, already has thesupport of Mayor MichaelBloomberg, and the busi-ness could generate reve-nues of nearly US$27m inits fourth year of operation.

The partnership is seek-ing start-up funds of$570,000, out of total esti-mated capital requirementsof $9.6m, to launch the firstphase. If the pitch is suc-cessful, the couple will joina growing list of small com-panies partly financed byprivate equity investorslinked to Iese.

Since launching the busi-ness angels initiative in2004, the school’s investornetwork has helped to build22 companies, including

some of Catalonia’s mostinnovative. That the flow ofideas and willing investorscontinues to expand showsentrepreneurship flourishesdespite – or perhapsbecause of – the financialcrisis, says Jordi Canals,dean of Iese.

Finaves, the school’s ownprivate equity fund, hasbeen more active than ever,he says, while faculty isdedicating more researchcapacity to the subject ofbusiness start-ups.

“We do not want toreplace the role of other pri-vate or public agencies [inhelping launch new busi-ness ventures],” says ProfCanals, “but we do want tobe a catalyst”.

At Esade, the other high-ranking business schoolbased in Barcelona, the roleof business-facilitator isequally well-defined.Eugenia Bieto, director gen-eral of Esade, was also thefounder of the school’sEntrepreneurship Institutein 1997, which, she says,“has become a sort of incu-bator of new ventures”.

Undergraduates and MBAstudents alike often wonderwhether entrepreneurshipcan be taught, or whether itis something that peopleare born with, she says.

“I always tell them thatentrepreneurship is bothborn and made,” she says.“You can learn to be anentrepreneur, but you can’tlearn motivation, which isthe innate part.”

Founded by separateRoman Catholic orders inthe 1950s, both Iese andEsade have grown tobecome global yardsticksfor league-topping MBAs,executive training, and

active involvement in localand international business,as well as the public sector.

In keeping with the finalrole, Esade last year openedits “Creápolis” innovationcentre just outside Barce-lona, in Sant Cugat. There,banks, local governmentoffices, entrepreneurs andother companies minglewith students from theschool’s undergraduate andmasters programmes.

The idea is for business tostimulate academic ideas,while students and academ-ics put their theories towork in real-life settings.

As the world economyrebuilds after the globalcredit crunch and ensuingrecession, both sides have alot of lessons to digest, saysProf Canals.

“I think the first lesson isthe need for a better bal-ance between the publicand private sector when itcomes to the financial sys-tem,” he says. Following onfrom this, he says, is theneed to rediscover the

importance of weighing upfinancial risk, which hadbecome “almost irrelevant”at the peak of the creditbubble. The advantages ofgeographical diversity –

both at a company andmacroeconomic level – werealso brought into sharprelief by the crisis, he says.

Iese was trying to reflectthese points in its MBA andexecutive training pro-grammes. “A better under-standing of the work andfunctions of governmenthas become very impor-tant,” he says, “particularlywhen it has to do with regu-lation”.

“Another thing, of course,is that we’ve been trying toget companies to think a lit-tle deeper and a little moreintelligently about financialstructures.”

Despite their worst fears,both Iese and Esade haveemerged relativelyunscathed from the turmoilof the past three years.

Although income from cus-tomised executive pro-grammes declined just over10 per cent as companiesreined in expenses, demandfor MBAs and open execu-tive courses has held upwell, both schools report.

Helped by cost controls,which strictly excluded fac-ulty reduction and theresearch budget, Esadereported revenues of €71min the academic year thatended last summer, com-pared with €70m for theprevious year. Iese, simi-larly, trimmed operatingcosts while enlarging itsfaculty by four to report“more or less the same levelof revenues”, according toProf Canals.

He has noted a slightrecovery in demand for cus-

tom programmes andstrong demand for the MBAcourses. Located in one ofEurope’s most livable cities,neither school has ever hadproblems attracting keenyoung executives looking torefine their skills base,improve their salary pros-pects or launch a venture.

Some, like budding entre-preneurs Patricia Bayleyand Martin Mazza, taketheir newfound knowledgeelsewhere.

Many, however, try theirluck in Barcelona, or otherparts of Catalonia.

“This whole idea of busi-ness innovation in Catalo-nia didn’t just pop up out ofnowhere,” says Prof Bietofrom Esade. “This is wherethe industrial revolutionentered Spain.”

Business educationTop schools areforging productivepartnerships, saysMark Mulligan

Talent pool: the Iese (above) and Esade business schools in Barcelona have become world leaders in collaborating with public and private business

‘We’ve been tryingto get companiesto think a littledeeper aboutfinancial structures’

The online business founded byChristophe Primault inBarcelona is as unlike thetraditional company – with theparaphernalia of offices, supportstaff, fixed-line telephones andoverhead costs – as it ispossible to be.

“Why would we get anoffice?” asks Mr Primault, a 44-year-old Frenchman wholaunched GetApp.com this yearwith partner Manuel Jaffrin, theonly other full-time staffer.

“This is an ultra-light start-upcompany,” he says at a hotelcoffee shop near his home andaround the corner from the Iesebusiness school. “We’ve set it

up like that and want to remainlike that. We have very, verysmall overheads and veryautomated processes, so we’vegot the ability to scale and stillkeep those low overheads.Location is irrelevant.”

Mr Primault, a former seniormarketing executive with NCR,and Mr Jaffrin, previously withSun Microsystems, run anonline store for businessesseeking software applications.These “apps” were oncelaboriously installed oncorporate computers, but arenow routinely accessed via theinternet.

GetApp.com says it alreadyhas more than 400 applicationproviders signed up to the siteand hopes to move into profitnext year. The site offers sellersof apps a marketing platform,while buyers benefit from aneasy and efficient way offinding what they need for theirbusinesses.

The company, Mr Primault

says, is a “huge user of Skype”and spends only about €100 amonth on phone calls all overthe world. His business cardcarries only his mobile numberand email address.

He and Mr Jaffrin outsourcedthe development of the siteto a local Catalan company.

Design work is done by aFinn living in Barcelona. AGerman, also resident in thecity, is contracted as a searchengine optimisation expert toensure that GetApp comes nearthe top of internet searchresults when a potential user

hunts online for applications.“There is such a network of

talents, of people who are eitherlocal or who come to Barcelonato enjoy the lifestyle,” says MrPrimault. “There are loads ofbusinesses operating in exactlythis way in Barcelona,” he says,describing the city as “aninteresting ecosystem”.

The key to Catalonia’s successin attracting such entrepreneursis therefore not so much thelocal market – GetApp is notparticularly interested in thefledgling Spanish online market,and its main computer serversare in the US – as the allure ofa pleasant place to live that isalso well connected to theoutside world. “We are goingafter global business,” says MrPrimault.

Mr Primault – who firstmoved to Barcelona in 2003with NCR and then spent fouryears in the city as chiefexecutive of Kinamik, a dataprotection technology company

– likes a flexible lifestyle thatallows him to carry out globalbusiness transactions one dayand do a triathlon the next.“We wanted to set up acompany where we would haveno location and timeconstraints.”

The two partners decided touse their own savings tofinance the business rather thanspend time raising equity orbank finance, and will thereforereap the maximum benefit ifthe company succeeds and issold or floated in the future.“The risk is competition. Thechallenge is the ability to buildthe brand,” says Mr Primault.

Nothing is perfect, of course,and the bureaucracy involved inestablishing a business in Spainis considerably more onerousthan in, say, the UK.

“Here you need a gestoría [tofix paperwork and deal withadministrative problems] and anotary, and it takes a fewweeks,” he says.

‘Ultra­light’ online start­up keeps costs ethereal

But the benefits of Barcelonaas a place to live, and now as alaunchpad for his “zero-capex”company, were quickly evidentas soon as he visited the city in2003 after six years of thecorporate life in London.

“I just got seduced by what Iwas seeing and decided, ‘That’sit. Let’s move to Barcelona’,”says Mr Primault. “Really whatattracted me was the quality oflife – it’s as simple as that.”

ProfileGetApp.comEntrepreneur reapsbenefits of local skills,writes Victor Mallet

‘There is such anetwork of talents,of people who areeither local or whocome to Barcelonato enjoy the lifestyle’

Primault: after global business

Buetefisch: man about town

ProfileCooltraMark Mulligan onan idea that saw abusiness race ahead

‘People were nolonger taking all theirholidays at once andjust lying on thebeach for a month’

John Erceg

FINANCIAL TIMES THURSDAY MAY 6 2010 ★ 3

Doing Business in Catalonia

Banks and clients have both been battered in the crisis

Catalonia likes to be differentbut along with the rest of Spainthe region began 2010 with apainful financial hangovercaused by the bursting of thedomestic property market bub-ble and exacerbated by the glo-bal crisis.

With some exceptions, bothsides of the finance business –the banks and their customers –have suffered. The banks havebeen hit by bad loans and fall-ing interest rate margins andtheir clients by the creditsqueeze and the long recessionin the real economy.

From the end of the 1990s,

says Juan María Nin, presidentand chief executive of La Caixa,the venerable Barcelona-basedsavings bank that is Spain’sthird biggest financial institu-tion, “Europe was a sea ofliquidity and Spain was thefastest-growing country . . . thisliquidity was like jet-fuel for theSpanish economy and was avery important factor in thebubble.”

Fortunately for the economyand the Spanish exchequer,many Spanish banks wereat least protected from toxicUS subprime mortgage assetsand from excessive leverageby the strict regulation andsupervision of the Bank ofSpain.

But the smaller banks andcajas de ahorros, the savingsbanks, still face the question ofhow to restore growth whentheir foreign sources of whole-sale financing have driedup, the domestic economy is

stagnant and loan losses arerising.

“The small savings banks atthe moment do not have easyaccess to wholesale financing,”says Mr Nin. “Wholesale financ-ing pressure will increase. Butthe mass of credit fell 3.5 percent in 2009 – the pressure ofrefinancing is therefore high butnot so much that you can’t lookfor internal solutions.”

One result of this creditsqueeze is that Catalan andother Spanish businesses arelikely to endure a long period oftight lending conditions.

“The monetary mass at thedisposal of the banking systemwill not grow,” says Carlos Tus-quets, chairman of Fibanc Medi-olanum, the Barcelona-basedbank and asset manager.

Companies and families haveresponded by tightening theirbelts and sharply increasingtheir savings rates. When theyseek credit, it is more likely to

be to refinance a maturing loanthan for a new investment.

“We [the banks] complain thatthere is no credit demand, butsome people complain that thereis a credit shortage,” says JoséOliu Creus, executive chairmanof Banco Sabadell, the listedCatalan bank and Spain’s fourth

largest. “Entrepreneurs are stillcautious about starting newprojects.”

The Catalan economy doeshave some distinctive features.It was slightly less exposed thansome other regions to theexcesses of the home construc-tion market. The region also has

a strong manufacturing andexport base, particularly ofsmall and medium-sizedcompanies, often controlled byfamilies reluctant to cede con-trol through public listings ormergers.

Bankers and entrepreneursare wary of talking too muchabout the “green shoots” ofrecovery, but they do see signsof an upturn after the recession-ary shock and export decline of2008 and 2009.

“Catalan companies are runby professionals and sometimesby families. This is not so mucha financial type of capitalism,”says Mr Oliu.

“In the kind of crisis we’vebeen having, our companieshave been performing morestrongly.”

Nevertheless, it is the smallercompanies of Europe that arecomplaining most bitterly aboutthe difficulty of accessing creditfrom over-cautious banks. “This

segment of industry and serv-ices in medium-sized companiesis the great hope, but it is alsothe part that will suffer fromlack of financing,” says Mr Tus-quets.

But La Caixa’s Mr Nin saysthat the key issue for Catalancompanies is not access tocapital markets but whetherthe owners are willing to mergeor do whatever else it takesto give themselves sufficientweight.

“The industrial sector inCatalonia is facing the challengeof size. It is very important thatthese companies, which areexcellent, reach the right size tobe competitive at European andglobal levels. You need fundingfor this size.”

In the financial sector itself,the crisis has prompted a waveof merger plans among thesmaller cajas – most are heavilyexposed to property and con-struction in the weak domestic

Spanish market. Of the 10 cajasin Catalonia, six are in mergertalks.

“The dance has begun,” saysMr Nin. “The Spanish financialsystem has always restructuredwith agility.”

La Caixa, like the other largeSpanish financial groups, isdiversifying into new marketsin Asia and the Americas.Although La Caixa is itself theproduct of a merger in 1990 – itsfull Spanish name is La Caja deAhorros y Pensiones de Barce-lona – it is not involved in thelatest round of mergers.

In Catalonia, as elsewhere, thestronger banks and cajas arestarting to reap what benefitsthey can from the consolidationof the financial sector.

“There’s going to be a smallernumber of players, and everytime there are fewer playersthere are opportunities for thosethat remain,” says Mr Oliu ofBanco Sabadell.

Banking & financeVictor Mallet findsstrict regulation by theBank of Spain helpedavoid the worst

‘Liquidity waslike jet­fuel forthe Spanisheconomy and avery importantfactor in thebubble’Juan María Nin

Construction of bigprojects calms critics

Few things inflame passions inCatalonia like inadequateinfrastructure.

When snowstorms isolateurban communities, motorwaysbecome clogged or rail tunnellingthreatens the foundations of impor-tant monuments, Catalans oftenblame penny-pinching or neglect bythe central government in Madrid.

There is a sense that a 1997 consti-tutional pledge by Madrid to correctan infrastructure deficit in the auton-omous region – Spain’s biggest con-tributor to central revenues – is notbeing honoured. Spain’s socialist gov-ernment, and its allies in the regionaladministration, deflect the accusa-tions by brandishing their latestachievements in public works.

Barcelona’s El Prat airport – foryears the overburdened poor cousin ofMadrid’s Barajas – last year opened ahuge state-of-the-art terminal.

Adif, the state rail infrastructurecompany, says it will this year com-plete the final tranche of an extensionof the Madrid-Barcelona high-speedtrain service to the French border.

The Port of Barcelona is pursuing a€3.5bn public and private sector-fi-nanced expansion and pushing forconstruction of a freight railway linefrom the port to the French border.

Work, meanwhile, continues on a€4bn underground train line that willtrace a half-loop from El Prat airport,15km south of the city centre, to Bar-celona’s northern outskirts. There arealso plans to widen from two to fourlanes the transversal C-25 motorwaybetween Girona, 100km north-east of

Barcelona, and Lerida, Catalonia’sthird city and the regional centre ofagri-industry and food processing.

For the most part, projects have notfallen victim to the economic crisis. Aspecial unit within the Economy andFinance Ministry has been chargedwith monitoring public-private part-nerships to address any significantthreats arising from a lack of credit.

However, shortage of credit andstate revenue for big projects is aproblem, agree industry leaders,although some play down the impor-tance of the issue.

“We are going to see a drop in infra-structure investment over the comingyears,” says Jorge Miarnau, chairmanof Comsa-EMTE, Catalonia’s largestconstruction and services group.“However, you could argue that all

the important big projects have beendone. We now have good infrastruc-ture – partly thanks to this, Cataloniais not a bad place to invest.”

Sebastiá Alegre, managing directorof Beton Catalan Group, a subsidiaryof CRH, a building materials business,agrees – but with reservations.

“Is Catalonia well endowed withinfrastructure?” he asks. “Not exactly,but nor is it the case that we areheaded for a disaster.”

“Anything we do now to expand onexisting infrastructure will simplyimprove efficiency.”

One shortcoming that merits con-stant mention in Catalonia is the lackof connectivity with France: plans fora new high-voltage electricity linebetween the neighbours have foryears been held back by lack of politi-cal will and environmental concerns.

France, keen to protect its low-costnuclear-focused electricity system, isin no hurry to buy Spain’s excess out-post, which is increasingly generatedby heavily subsidised wind and solarfarms. Road and rail connections, too,could be better, say many.

“When it comes to its connectionswith Spain, France has never been ina hurry to make them better,” saysAlejandro Lago, a logistics specialistat the Iese business school in Barce-lona.

Nonetheless, heavy vehicle conges-tion on the motorway between Catalo-nia – and, therefore, the rest of Spain– and French logistics centres, is“more about the nodes at the entranceto the big cities than the trunk roadsthemselves”, he says.

The answer, say many specialists,should be the unification and upgradeof Europe’s freight rail network totake some of the pressure off its high-ways. However, gauge incompatibil-ity, and the inadequacy of siding andloading infrastructure in Spain andother countries renders this alterna-tive more of a long-term dream that areal solution.

In the meantime, short sea freightshipping is picking up the slack, andhas become one of Barcelona’s biggrowth stories. The business is domi-nated by two Italian companies –Grimaldi and Grandi Navi Veloci –who have enjoyed robust growth indemand since setting up their freightlines in the Catalan port. Grimaldicurrently offers almost daily freightand passenger services to Civitavec-chia, near Rome, with connecting orseparate routes to Sardinia andLivorno.

According to Prof Lago, the ship-ping lines have secured the same mar-ket share of freight movement in andout of Spain as trains in “a matter offour or five years”.

“People always tend to pin a lot ofhope on trains,” he says, “but it neverreally takes off.”

InfrastructureMark Mulligan reports onthe efforts to placate localsand ease congestion

‘Is Catalonia well endowedwith infrastructure? Notexactly but nor are weheaded for a disaster’

Prudence with cash f low pays off

small, local concerns – afighting chance to ride outthe recession.

This commitment to effi-ciency last year won thecity hall a European PublicSector Award (EPSA), for“Leadership and Manage-ment for Change”.

The city’s policies havealso helped develop SantCugat’s business park, justto the east of the city.Called Sant Joan, the parkwas one of Barcelona’searly experiments in decen-tralisation and is now oneof its best-known businessestates.

It is home to R&D, logis-tics and administration cen-tres for multinationals suchas Hewlett-Packard andRoche and is also the site ofCreápolis, where studentsfrom Esade business schoolmix with established busi-nesses, government agen-cies and small start-ups inan interconnected campusand office complex.

Sant Joan had its share ofcritics at the time of con-ception but was backedwhole-heartedly by SantCugat council.

Although in its early daysit failed to draw the sort ofhigh-tech investments ithad promised, today it is an

important part of what ispromoted as the “CataloniaInnovation Triangle” (CIT).

As part of the effort toenforce its image as thecentre of an innovationcluster, Sant Cugat in 2007ran as a candidate to be thesite of the European Insti-tute of Innovation andTechnology.

Despite intensive lobby-ing in favour of Sant Cugat,Budapest was chosen. How-ever, according to MrJoly i Lena, the candidacyhelped the city focus on itsgoals.

“Although we didn’t win,it was important for us tobe part of the process.”

“We want to create a CITbrand,” he says, “to thepoint where the Hewlett-Packards and Esades of thisworld use the CIT logo”.

Sant Cugat itself, mean-while, has become a globalmodel for public adminis-tration, according to areport by the EPSA judgingcommittee.

“Although the city coun-cil has reduced the publicdebt significantly,” it says,“the administration hasmaintained its ability tostrategically invest toimprove the quality of thecity . . . and build strategicassets for the knowledgesociety.”

Traffic queues: new airportterminals and expanding portshave done little to quellcomplaints regarding congestionon the region’s roads Reuters

Continued from Page 1

Barcelona Hub dreams are pinned on Spanair

Catalonia will nextmonth mark the firstanniversary of Terminal1, the €1.3bn extensionto Barcelona’s El Pratairport, on the southernoutskirts of the city,writes Mark Mulligan.

Hailed at its openingas the region’s mostimportant infrastructureto be built in 20 years,the 544,066 sq mfacility had, according tomost accounts, equippedthe region for 20 moreyears of passengervolume growth.Barcelona, according topublic authorities, wasready to become aglobal hub.

The problem, however,is that the terminal’sopening coincided with aconcerted drive byIberia, the Spanish flag­carrier, to consolidateMadrid, the nationalcapital, as the feed­inhub for its long­haulservices.

As the airline reducedits connections to

Barcelona, it seemed thecity would be relegatedforever to being a point­to­point destination forshort­ to medium­haulleisure and businesstravellers.

“The problem that wehave always had inSpain and Catalonia isthat we have tworelatively big cities withworld­level infrastructure,but at the Europeanlevel you could arguethey are two poles thatare too close together,”says Alejandro Lago, alogistics specialist at theIese business school.

“Barcelona now has aleading airport . . . but weare not yet sure whetherthere is a leading airlineto create anintercontinental hub.”

Determined to remedythis, a group of investorsfrom Catalonia last yearjoined together to bailout Spanair, the troubledSpanish subsidiary ofScandinavian AirlineSystem, with dreams of

creating an internationalhub at El Prat. The firststep has been a brutalround of job cuts as partof a broaderrestructuring.

Spanair has alsostarted to build itsEuropean andMediterranean network.By 2012, it may startoffering flights to theAmericas or Asia.

Spanair chairmanFerran Soriano comparesBarcelona’ with Milan.“In the business sense itis logical for an airline tohave everythingconcentrated in onehub,” he says. “But thecases of Barcelona andMilan are special,because they are bigcities with large GDPs.

“If you exclude transitpassengers, the volumeof passengers starting orending their journeys isroughly the same forBarcelona as for Madrid.

“So, there are groundsfor having a hub here,”he says.

4 ★ FINANCIAL TIMES THURSDAY MAY 6 2010

Doing Business in Catalonia

Can­do attitude thrives in face of crisis

Spain is suffering becauseof the global economiccrisis, and its (untilrecently) sound publicaccounts are beginning tobe affected by highunemployment and itspublic deficit.

The crisis coincides withlegal and political disputesabout Catalonia’sconstitutional place withinSpain, keeping alive ahistorical conflict thatshould be put to rest.

In this context, firstimpressions might suggestthere is little cause foroptimism about theCatalan economy.

Behind this image,however, there is acommunity that has takenadvantage of years of boomto build up competitivenessand consolidate itscapacity to attract peopleand investments.

These years of growthhave pushed Catalonia’sper capita gross domesticproduct to a level12 percentage points abovethe average for theeurozone.

There are two mainareas in which Catalonia’sadvantages are evident.

First, the quality of its“public space”. Apopulation that in themid-1990s was just over 6mhas reached 7.5m. Within15 years, in other words,Catalonia has receivedalmost 1.5m immigrants,equivalent to a quarter ofthe population it had whenthe migration began.

In spite of predictions to

the contrary, this processhas taken place withoutsocial conflict. Andcoexistence is still the ruleof thumb, despite thesevere crisis and the highunemployment rate.

This is no chanceoccurrence but is closelyrelated to the priorityCatalonia has always givento the quality of its publicspace.

The very same spacethat encourages theintegration of immigrantsenables Catalonia toposition itself among theworld’s top touristdestinations.

It also makes Barcelonaa favourite location fortrade fairs and congressesand allows it to excel as acity for university orbusiness school students

and for internationalexecutives, who regard itas one of the best places inEurope to advance theircareers.

The second sign ofprogress is Catalonia’sexport capacity. Faced withthe requirements ofintegration within theeurozone, traditionalindustry has experienced aprofound transformation inrecent years.

When the euro-pesetaexchange rate was fixed,alarm bells sounded in the

Catalan industrial world.For an economy long

accustomed to competitivedevaluation, theabandonment of thispossibility and theacceptance of the singlecurrency while the pesetawas strong seemed anirresponsible decision thatwould encourage thenear-disappearance oftraditional industrialsectors.

In addition, the weaknessof the dollar throughoutthese years only madeglobal competition harder.

But local industrysurprised the sceptics bybeginning a modernisationprocess now reflected in itscurrent exporting capacity,as shown by the recoveryof exports from thebeginning of this year andthe constant growth of itsshare in world exports.

Even so, the difficultiesfaced by Catalonia’seconomy and society aresignificant and evident.

Finding a way out of thecrisis is a responsibilityshared by politicians andbusinesspeople alike, butin view of the extent of thecrisis it is politicians whomust take the lead.

The Catalan governmentmust act directly, orexercise its influence overthe Spanish government,in matters that requireshort-term action, such ascutting public spending,improvement of the labourmarket and reform of thefinancial system.

And it should make acommitment to long-termpolicies in areas such aseducation and energy toencourage a transition

towards a higher valueadded economy. Further, itmust do all this withoutoverlooking the debate onthe best fiscal system toensure an efficient andsufficient welfare state.

There may be fearsthat the autonomousgovernment elections inthe autumn will paralysethe Catalan governmentuntil after the polls, and itwould therefore be usefulto agree on economicpriorities regardless ofwhich party or parties mayend up in control of theregion.

It would also help if thetraditional Catalandiscourse in favour ofindustry acquired greaterweight in Spanish politics,because business realitiesand quality of life inCatalonia show that thishas helped it reach aprivileged economicposition in Spain,underpinned partly byCatalan and Spanishinvestments in LatinAmerica.

Some of the recenteconomic data have shownsigns of improvement but

the best reason foroptimism is the intensemodernisation, both privateand public, that has takenplace over the past 15years – a modernisationthat has encouragedcoexistence in the publicspace, improvedcompetitiveness amongtraditional industries andpromoted emergingeconomic sectors.

Catalonia ranks ninthamong European regionswith the greatest rate ofemployment in technologyand knowledge-intensiveindustries, and it hasfour research centresincluded among the world’stop 100.

Prosperity in the 1980sand 1990s, and the propertyboom in particular, gavebirth to more fiestas andpartying than desirable.

But it turns out that italso generated a great dealmore innovation andmodernisation than weourselves were able toforesee.

Jordi Alberich isdirector-general ofCercle d’Economia

Guest ColumnJORDI ALBERICH

Mayor’s Olympic ambition has a mountain to climb

When Barcelona mayorJordi Hereu announcedplans in January to com-pete for the rights to hostthe 2022 Winter Olympics,there was a collectivegroan from large parts ofthe city.

Despite memories of thesuccessful 1992 summergames, many suspected theidea was a gimmickemployed by city hall torevive the governing party’sflagging fortunes ahead ofregional elections scheduledfor late this year.

Although he supportedthe bid, opposition leaderXavier Trias said the ideareflected electoral “despera-tion” within the left-leaningcoalition in power.

Residents’ patience,meanwhile, has been wornthin by two decades of masstourism in one of Europe’smost visited cities.

If it were to win, Barce-lona’s already-congestedstreets would becomeunbearable, and priceswould soar as local traderssought to cash in on theinflux of competitors,organisers and spectators,was the lament.

In any case, the Catalancapital is a good two hoursby road from the closest skifields, in the eastern Pyr-enees, and further yet fromthe best Catalan resort,Baqueira-Beret, close to theborder with the

neighbouring region ofAragón.

Nor were the inhabitantsof Aragón, which is alsomounting a bid, pleasedwith the sudden competi-tion from a city with aproven Olympic record.

Mayor Hereu, however,was insistent. “This is along-distance race,” he said,“and there are a lot of run-ners.

“Barcelona wants to showitself again to the world.”

Whether or not it wins,Barcelona would benefitfrom the bid, says AntonioDávila, a professor of entre-preneurship at Iese busi-ness school.

He says the boost to thecity’s already strong brandcould help it win the host-ing rights to other high-pro-file sporting or culturalevents, and give it a com-petitive economic edge over

other Spanish and Euro-pean regions.

More importantly, if itwere to win, the subsequentinvestment in infrastruc-ture could help reviveremote mountain communi-ties that have fallen victimin recent years to depopula-tion.

“The Barcelona Olympicsof 1992 were a great excuseto redo the city,” he says ofthe massive urban make-over, particularly along thecity’s ugly, semi-industrialcoast, which preceded theevent’s staging.

“Similarly, the WinterOlympics could be a goodexcuse to invest in infra-structure to make certainareas more sustainablethan they are at themoment.

“Building a tunnel, or anew highway, or putting insome hotels in the Catalan

Pyrenees perhaps won’tyield the same economicreturn as putting them inthe middle of Barcelona,”he says.

“But from a socio-politicalpoint of view there is a lotof value in saving a ruralarea from dying.”

Indeed, the growth in pop-ularity of ski-ing and otheralpine pursuits has alreadyrescued a string ofPyrenean towns and ham-lets from abandonment, notleast because of heavyinvestment in roads, accom-

modation, restaurants andthe ski stations themselves.

The path, however, hasnot been smooth: privatecompanies have struggledto make money out of theresorts, meaning many arethese days controlled bypublic or semi-public organ-isations such as regionalgovernments and cajas,Spain’s unlisted savingsbanks.

The future of at least onecompany-owned ski centrein Catalonia is currently indoubt because of debt con-cerns.

Regardless of this, thepopularity of winter sportscontinues to grow una-bated.

Even in the depths ofSpain’s worst recession indecades, Aragonese resortoperator Aramón recentlyreported its second best sea-son ever in terms of visits.

Despite an abundance ofsnow, the season wasmarred by constantly badweather and visibility, mak-ing the results even moreremarkable.

In Catalonia, thescene was similar: publiclyowned La Molina, theregion’s oldest and mostpopular ski resort, alsoreported one of its best sea-sons ever.

The privately-ownedresort of Baqueira-Beret,winter playground ofSpain’s royalty and socialelite, also reported solidresults in spite of the varia-ble conditions and eco-nomic downturn.

To outsiders, however,Spanish – and Catalan –resorts remain in the sec-ond division of Europeanwinter destinations, whiletheir sportsmen and womenrarely collect medals at the

Winter Olympics.And while Catalonia and

Spain are starting to makea mark in the world ofextreme mountaineering,they lag well behind coun-tries such as France, theUK, New Zealand andKorea.

Catalonian authoritieshope Barcelona’s Olympicbid might speed up thedevelopment of alpine pur-suits in the country, andconsolidate the region’s rib-bon of Pyrenees as a world-class leisure zone.

Pere Alcober, head ofsports at the Barcelona CityCouncil, compares the bidwith that for the 1992 sum-mer event.

“Just as the 1992 OlympicGames opened Barcelona tothe sea, the 2022 gamescould help the metropolisopen itself to the moun-tains,” he says.

The PyreneesThe winter gamescould helpregeneration, saysMark Mulligan

‘The BarcelonaOlympics of 1992were a greatexcuse to redothe city’

Wine spiritsvisitors to aregion oncein decline

High in the hillsabove the smallsouthern Catalantown of Porrera, the

terrain is so steep and rockythat it is hard to imagine aplant up here producing anykind of fruit after the long, drysummers for which the area isknown.

But the vines of the Prioratwine region are nothing if nothardy. The stunted, well-prunedplants – some a century old –send their roots as far as eightor nine metres into the groundin search of a few crumbs offriable soil and a taste of mois-ture.

It is this perpetual struggle inthe face of scorching summerheat and icy winters that givesPriorat wines the deep colours,extraordinary potency and min-eral attributes now prized by

wine lovers from Berlin toBoston.

In modern times, none ofthese qualities counted formuch until the 1990s. El Priorat– named after the Carthusianmonastery of Escaladei (“thestaircase of God”) that oversawthe region for 600 years – wasmarked by poverty and declinein the decades after the Spanishcivil war of the 1930s.

The local wine was sold togive colour and body to cheap,bulk-produced wines in Spainand France. Even this businessfaltered when other wineregions developed methods ofadding colour and alcohol totheir output. El Priorat’syounger inhabitants migrated tothe cities and some vineyardswere simply abandoned.

It took a combination ofinspired vineyard owners andinvestors – they now includefamous names such as GérardDepardieu, the French actor –and government aid for smallgrowers to develop the potentialof Priorat as an internationalbrand.

“The revolution in the 1990swas that we started to think ofwine for the end-consumer, notfor bulk sales,” says SalustiàAlvarez, chairman of the Priorat

wine region’s regulatory counciland winemaker for Vall Llach.“With the Priorat brand we suc-ceeded in that the wine expertsof America, France and the UK

sensed the mineralisation of thisterroir. The great value of ElPriorat is in the soil.”

Globalisation has been essen-tial for the success of this micro-

economy within Catalonia.Growing export markets such asthose of Switzerland and Aus-tria are complemented by occa-sional surges of demand from

places such as Dubai or Mexico.Owners and investors, mean-while, include enthusiasts fromSouth Africa, the UK, Switzer-land, France, Italy and the USas well as Spain.

Some Priorat wines are nowacknowledged as being amongthe world’s finest.

L’Ermita, one of those pro-duced by Alvaro Palacios, mem-ber of a well-known wine familyof La Rioja, has sold for €600 abottle, according to Mr Alvarez.

But for this mountainousinland region away fromthe tourist resorts of theMediterranean coast, probablythe most important economicbenefit of the wine industry’srevival is the way it hasattracted new visitors, whetherweekenders from Barcelona oramateur wine lovers fromEurope and the US.

This in turn has generatedfurther interest in the winesand thus completed a virtuouscircle of complementary eco-nomic sectors.

David Esteller Martí, whoruns the tourism developmentprogramme for the Prioratcomarca (an area of about 10,000inhabitants that includes but isnot identical to the wine regionof the same name), says tradi-tional footpaths and other infra-structure are being restored topromote wine-walking tours“based on the special nature ofthe countryside and the qualityof the wines”.

He estimates that about 30,000tourists went last year to the 45bodegas, or wine cellars, of thecomarca that receive visitors.

The revival of the tourist sec-tor is evident in the growth inthe number of casas rurales –small country hotels and lodg-ings – partly with the help ofEuropean Union aid funds. In1999, there were just seven, butby 2006 the number had grownto 40 and has now reached 50.“The idea is to diversify theeconomy away from agricul-ture,” says Mr Esteller.

El Priorat has not escaped the

effects of the global crisis andthe economic recession in Cata-lonia and Spain.

Before the Spanish propertybubble burst, construction mag-nates were eager to invest in anapparently glamorous businesssuch as wine. “So there wasover-investment and productionwas much higher,” says MrAlvarez. “Prices became vola-tile.”

Weekend visitors from Barce-lona, furthermore, started tospend less money on eating out,and tended to arrive on Satur-days, instead of on Fridaynights. The only consolationwas that some Spaniards whowould once have flown to Lon-don or Paris for a short holidaydecided to take their vacationscloser to home.

Investment in wine and tour-

ism in El Priorat has neverthe-less had a palpably beneficialeffect on the local economy.And the decision to aim forquality rather than quantitywas all but inevitable for a win-ery such as Vall Llach, wherethe slopes are so steep that mostof the work must be done byhand, and it can take as manyas seven vines to produce a sin-gle bottle of red wine.

“Wine is the engine of theeconomy, the reference,” saysMr Alvarez, “and after that thebig engine that accompanies itis the quality of the countrysideand tourism.”

He indicates the harsh terrainaround him and recalls the highcost of working such difficultland. “But there is no pointworking here unless you aregoing to make quality wines.”

El PrioratTourism is probablythe most importanteconomic benefit ofthe industry’s revival,says Victor Mallet

Salustià Alvarez: ‘The great value of El Priorat is in the soil’ Victor Mallet

The best reason foroptimism is theintense privateand publicmodernisation

High unemployment is affecting the public accounts Bloomberg

‘The revolution inthe 1990s was thatwe started to thinkof wine for theend­consumer,not for bulk sales’