The Canary Islands are facing an energy crisis, a migration crisis, a housing crisis due to a lack of housing…, and also an investment crisis. And a serious one. This was stated yesterday by the President of the Provincial Confederation of Employers of Santa Cruz de Tenerife (CEOE-Tenerife), Pedro Alfonso, who warned about the added difficulties of facing the historical problems of the archipelago – high unemployment rate, low salaries, progressive deviation from the national average income, without being an attractive destination for investment. Furthermore, the CEOE-Tenerife’s top executive, who, along with the Canary Islands Business Confederation, the CCE of Las Palmas, in a way, is part of the main business association of the Autonomous Community, explained that in addition to the well-known problems the region faces in attracting foreign funds or funds from other parts of the country, there is now the difficulty of the difficult period experienced by public works, which makes investment, one of the main engines of the economy and employment, orphaned.
“We need to increase public investment,” Alfonso requested yesterday during the presentation of the Economic Situation Report of the Canary Islands and corresponding perspectives for the second quarter of 2024. The businessman pointed out that public works tenders remain outdated. The Administration, whether it’s the central and regional Governments, the councils or the municipalities, continues without reviewing the prices of the contracts put out to tender or public competition, budgeting wood, aluminium, copper, steel, cement, lime or any other construction material as if in April 2021 an inflationary wave had not started that has raised prices.”
Brick sector trade associations have been asking for the updating of public contracts and agreements, but the truth is that it is still not being done. In fact, only in the first half of 2024, tenders valued at almost €31 million have been left deserted, an amount that reaches €126 million if the last year and a half is taken as a reference period, during which up to 243 public works of all types have been blocked, unable to start: in schools, on roads, in infrastructures, in services… What happens then? Well, the Administration assigns these works to the usual public company, thus depriving the private sector of that investment, a practice that Alfonso unequivocally denounced yesterday.
Low productivity and the progressive deviation from the national average income persist
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The cycle is as follows: institution X tenders a work with prices not updated; no company applies to the tender because they would not gain anything by carrying out the work at a pre-inflation cost; the contract remains deserted; and ends up being entrusted to the public company. It’s not that this latter company spends less on construction materials, not at all, “they cost the same,” reminded the President of the CEOE-Tenerife, only that unlike the SME or self-employed person, the public company has the economic support of the Administration. A support that, to make matters worse, could end up subtracting funds from other items for aid or incentives to the private sector, thus doubling the punishment, Alfonso pointed out. And all this problem is exacerbated, he continued, when historical barriers to private investment remain unmoved: mistrust, lack of legal security, bureaucracy… Ultimately, the businessman concluded, the Canary Islands “are undergoing a very complex investment crisis”.
2.5%
2024
- CEOE-Tenerife, the employers’ association of the province of Santa Cruz de Tenerife, maintains its economic growth forecast for the current year at 2.5%.
€31
Million
- Yesterday, CEOE lamented the “investment crisis” facing the archipelago. In just the first six months of 2024, tenders worth about €31 million have been left deserted.
-10%
Unemployment Rate
- Economist José Miguel González believes that reducing the unemployment rate to less than 10% is a feasible objective or should be considered feasible, but the reality is that it has still not been achieved.
+
On the Rise
- It is very likely, given the “good” performance of the regional economy so far this year, that the GDP growth forecast will be revised upwards next quarter.
€126
Million
- The value of deserted public works contracts amounts to €126 million in the last year and a half. Up to 243 works have not been able to be carried out.
1
Million Occupied
- The unemployment rate continues to remain above 10% even though the number of people employed exceeds one million for the first time in history, according to the latest Active Population Survey data.
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Economist José Miguel González, Director of the Consulting Area of Corporation 5 – the firm that prepares the quarterly reports for the CEOE – pointed out that this investment crisis coincides with a period in which construction “has great potential for activity and employment”. This is a potential that,
Wasting Opportunities for Economic Growth in the Canary Islands
The potential for economic growth in the Canary Islands is being wasted, stated Alfonso. He highlighted that the banking sector has more than enough leeway to fund projects.
Alfonso demands an end to the practice of entrusting unfulfilled contracts to public companies
González explained that, for now, Corporación 5 and the Tenerife business association are choosing to maintain the regional economic growth forecast for this year at 2.5%. However, it is highly likely that the calculation will be revised upwards in the next quarterly report, given the “good” performance of the economy. Despite challenges, the Canary Islands’ economy is performing reasonably well, with over a million people employed for the first time in history – as confirmed by the latest Active Population Survey, published just yesterday – and GDP is increasing. The issues facing companies and workers in the Islands, and society as a whole, are more structural than cyclical.
The unemployment rate remains stubbornly above 10% despite the record number of people employed; productivity only increases when jobs are lost; there is a clear “insufficiency” of medium-sized companies; and “almost all” new jobs created are “linked” to the tourism cycle, maintaining the “monoculture” – as Alfonso puts it – of services. This dependence, exposed during the pandemic, has not been corrected by the desired economic diversification, but has instead been reinforced.
Confidence in a Reduction of IGIC in 2025
The president of CEOE-Tenerife, Pedro Alfonso, expressed confidence yesterday in the Government of Canarias finally lowering the general rate of IGIC by 2025. The business federation is aware that their wish is less likely after Junts recently voted against the spending ceiling, undermining the general state budget for 2025, but they still believe there is room for it. Economist José Miguel González believes that Canarias not only can but “needs to reduce the tax burden”. This reduction should come not only through IGIC, the equivalent of the mainland’s VAT and the major consumption tax in the Autonomous Community, but also through a generalized deflation of IRPF – deflating a tax is not even lowering it, just adapting it to inflation – and by reducing social security contributions, which are ultimately part of companies’ tax burden. On the other hand, reducing the working week, as Minister Yolanda Díaz proposes, would be hardly sustainable for Canary SMEs, warned Alfonso. | M. Á. M.
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