MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - FEBRUARY

UNCLAS SECTION 01 OF 02 MADRID 000212 SIPDIS SIPDIS DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA E.O. 12958: N/A TAGS: EAIR ECON ECPS EFIN EFIS EIND EINV ENRG SENV SP SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - FEBRUARY 18-22 MADRID 00000212 001.2 OF 002 Table of Contents: ECON/EFIN: Economic debate kicks off election campaign EFIN: Budget surplus reaches record in 2007, drops in January ENRG: World's largest solar thermal plants - recent and future, both in U.S. ECPS: Cellphone business skyrockets EIND/EINV: Zara making "fast fashion" even faster EINV: Construction company wins Florida contract EAIR: Aviation agreement with Jamaica EFIS/SENV: Spain calls for redistribution of unused fishing quotas ECONOMIC DEBATE KICKS OFF ELECTION CAMPAIGN ¶1. (U) Second Vice President and Economy Minister Pedro Solbes debated Madrid PP parliamentary candidate Manuel Pizarro, who has the prestigious position of being number two on the Madrid list behind party leader Mariano Rajoy, on 2/21/08 on the Antenna 3 TV station. The debate lasted an hour and was largely polite. Solbes took the view that, yes, the Spanish economy faces "turbulence," but not a "crisis." Pizarro said that things were worse than the socialist government was willing to recognize and that the government had not used the last four years well to prepare for more trying economic times. Both protagonists used a lot of statistics, and sometimes displayed charts, to buttress their points. After the debate, Antenna 3 conducted a poll asking respondents for their view as to who the winner of the debate was. The poll showed that 47% of the viewers though that Solbes won and that 37% thought Pizarro won. (Comment: Solbes' mastery of the issues showed, although it is not clear how well his professorial demeanor comes across to the broader electorate. Pizarro did a creditable job, although the fact that he is not a macroeconomist showed. For instance, when asked by Solbes as to how the conservative PP party intends to finance its tax and spending proposals, Pizarro responded by saying that the PP would abolish the Ministry of Housing, eliminate the Office of the Presidency Economic Office, reduce expenditures on Justice Minister Bermejo,s apartment and stop payments to terrorists. This was red meat for the PP base, but it is not clear how relevant these high profile, albeit macroeconomically insignificant, proposals will be perceived by a wider electorate.) BUDGET SURPLUS REACHES RECORD IN 2007, DROPS IN JANUARY ¶2. (U) The government's budget surplus reached a record 2.23% of GDP in 2007, or 23.4 billion euros. This includes central government, regional and municipal governments, and social security. Even after rate cuts, central government personal and corporate income tax revenues rose by 15 and 20 percent, respectively. Value-added tax receipts rose by only 2.2 percent, however. Government officials have cited the surplus as providing room to maneuver in what is likely to be a more difficult 2008. A sign of this came three days later when the January surplus was reported to be 50% below the surplus in January 2007. (El Pais 02/22/08, ABC 02/25/08) WORLD'S LARGEST SOLAR THERMAL PLANTS - RECENT AND FUTURE, BOTH IN U.S. ¶3. (U) In unrelated events this week, Acciona inaugurated what it said was the largest solar thermal power plant built anywhere in the last 17 years and Abengoa announced that it had signed a contract to build the largest solar plant of any kind in the world. The new Acciona plant is the 64-megawatt Nevada Solar One complex in Boulder City, Nevada. Acciona also announced that it would invest 1.8 billion euros in renewable energy projects in the U.S. in the next two years, 1.2 billion to build wind farms with almost 1,000 MW of capacity and 600 million to build solar thermal plants with a combined capacity of 200 MW. Abengoa's 280 MW Solana plant will be in Arizona and is scheduled to begin service in 2011. Abengoa will sell the electricity to Arizona Public Service for 30 years for 4 billion dollars. (El Pais and ABC, 2/22/08; ABC, 2/25/08) CELLPHONE BUSINESS SKYROCKETS ¶4. (U) Spain now has 50 million active mobile phones, 1.12 per person, according to the Comision del Mercado de las Telecomunicaciones. 3.4 million new phone lines were created in 2007. Competition is fierce with Vodafone now number one, followed by Movistar and Yoigo. Orange is losing clients and deactivated 500,000 lines. The number of high-speed Internet users also increased by 20.5 percent from the previous year. MADRID 00000212 002.2 OF 002 DSL connections increased by 44 percent and now account for 1.35 million lines. Telefonica reports a 22 percent increase of broadband lines. (El Pais, 02/21/2008) ZARA MAKING "FAST FASHION" EVEN FASTER ¶5. (U) Zara is part of the Inditex group, the world's second largest clothing manufacturer after Gap. Inditex's flagship store is Zara, but the group owns seven other store brands as well, including the more upscale Massimo Dutti. The first Zara store opened in 1975, and Inditex now owns 3,691 stores in 68 countries. Without a doubt, Zara is a phenomenon, a prime example of Spain's newfound business strength. "Fast fashion" means producing new designs quickly, inexpensively, and in limited quantities so as to create an air of exclusivity. Zara addicts (and there are many around the world) know that if they want something they have to get it quickly and not wait for sales, which the group does not use much. Unusually, most of the manufacturing is in Spain, Portugal, Morocco, or Turkey, not Asia. Labor costs are higher, but proximity has efficiency advantages. The problem for Inditex is that competitors such as Bennetton, Fast Retailing Co., Patagonia, Hennes & Mauritz, and Mango are copying its supply chain management. As a result, the group is trying to find ways to order and unpack merchandise faster and add new cargo routes. As new stores are opened around the world, Inditex may also have to open regional logistics centers outside Spain, including in Asia. (Comment: Inditex owner Amancio Ortega Gaona is a self-made man who is Spain's richest individual. He prefers to maintain a low profile and is grooming his daughter to take over the company.) (Wall Street Journal, 2/20/08) CONSTRUCTION COMPANY WINS FLORIDA CONTRACT ¶6. (U) Community Asphalt, the U.S. subsidiary of OHL, one of Spain's six largest construction companies, recently won a USD 111 million Florida Department of Transportation contract to extend and reconstruct 17 km of US-1. Payment will be received after the project is completed. The Caja Madrid savings bank is providing and coordinating financing. (Expansion, 2/20/08) AVIATION AGREEMENT WITH JAMAICA ¶7. (U) Spain and Jamaica have signed an air service agreement to encourage tourism. The island is seeking to open itself up to European Union flights. The agreement is expected to be implemented provisionally until it formally takes effect after legislative ratification in both countries. (Hosteltur.com, 2/22/08) SPAIN CALLS FOR REDISTRIBUTION OF UNUSED FISHING QUOTAS ¶8. (U) Secretary of State for Fishing Juan Carlos Martin Fragueiro asked the European Commission to create a mechanism through which EU countries could redistribute unused fishing quotas. He argued that each year some countries do not reach their allocated quotas, which could be made available to "those who really need them." He did not call for modifying the current percentages allocated to each member, only for allowing flexibility to redistribute. (AFP, 2/20/08) AGUIRRE