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Instituto Nacional De Industria Business Information, Profile, and History

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Plaza del Marques de Salamanca
Madrid
28006
Spain

History of Instituto Nacional De Industria

Spain's economy existed on a shaky foundation of regionalism, protectionism, and premodernization longer than that of any country in Europe. By 1939 the foundation was crumbling and Spain's new government, headed by Francisco Franco, was faced with the task of repairing the severely damaged structure. Spain's tradition of extreme protectionist economic policies and political isolationism, coupled with the aftermath of the Spanish Civil War and the outbreak of the Second World War, placed the Franco regime in the unenviable position of reconstructing the economy with very limited resources and no outside help.

The years 1939 to 1959 are known as Spain's period of autarky, establishing a self-sufficient and independent national economy. The period officially started with the passage of The Law of Protection and Development of National Industry, in October of 1939. It was drafted by Juan Antonio Suanzes, childhood friend of Spain's new leader Francisco Franco. The law was designed to help Spain compete with the more advanced capitalist nations. Under the law every investment decision required government approval. No new industrial facility could be established and no installation could be modified or relocated without official sanction.

Two year later, the Instituto Nacional de Industria (INI) was created as a state holding company under the direction of Suanzes. INI was modeled after Italy's Instituto per la Riconstruzione Industriale (IRI) created in 1933 to reconstruct Italy's economy during the aftermath of its own civil war. IRI was closely linked to the Fascist regime of Benito Mussolini. Like its Italian counterpart, INI became closely linked with its country's ruler. INI was initially created to improve Spain's military defense and strengthen the economy by making Spanish industries less dependent on imported raw materials.

INI underwent an enormous period of growth during the 1940's. During its first decade, INI specialized in three major areas, including mining, chemical fertilizers, and electricity. In 1944 INI created the Empresa Nacional de Electridad (ENDESA) to construct power stations. Two years later INI formed the Empresa Nacional Hidroelectrica del Ribogorzana (ENHER) to harness the power of the River Noguera-Ribogorzana and its tributaries in the Catalan. Both power companies helped reduce the country's excess demand for electrical power, smoothing the path for industrial development.

Despite progress in the areas of electric and hydroelectric power, the Spanish industry continued to suffer from a shortage of energy. In addition, inadequate transportation and lack of modernization kept industry production below prewar levels until the 1950's.

The decade of the 1950's was a period of economic change with INI at the forefront. The decade began favorably enough with rapid industrial expansion, but ended on a less optimistic note. During this time, INI had interests in most of Spain's major industries, including petroleum, aviation, transportation, engineering, and manufacturing. However, even with all its financial problems, Spain's rate of industrial production between 1951 and 1959 was double that during the reign of its first dictator, Primo de Rivera (1923-30).

To improve the still flagging industrial economy, Spanish manufacturers were encouraged to join forces with foreign interests. INI played a major role in this area, often providing attractive incentives such as low interest loans and other accommodations to foreign investors. In 1950 the Sociedad Espanola de Automoviles de Turismo (SEAT) was founded by INI in partnership with Fiat, the Italian automobile company. Fifty-two percent of SEAT's capital was provided by INI while Fiat initially held 6% of the company's stock.

Franco made the decision after World War II not to participate in the U.S. sponsored Marshall Plan. It was one of the first, but certainly not the last, of Franco's decisions that eventually hurt Spain's economy. In 1951, several years after other European nations had taken advantage of the Marshall Plan, Spain received its first loan from the U.S. government. Later that year Spain and the U.S. signed the Pact of Madrid. Under the terms of agreement, the United States received permission to build military bases in Spain in return for considerable economic aid. In an undoubtedly related incident, many of the United Nations imposed economic sanctions and restrictions (due to Fascist associations and human rights violations) against Spain were lifted, opening the door to foreign investments and markets.

Although significant, these measures were not enough to make Spain's industrial sector equitable with the rest of Europe. As late as 1958, 85% of Spain's industrial structure was comprised of small, nonmodernized companies with low levels of production. Between the years 1950-51 and 1957-58 the country's export/gross domestic product and import/gross domestic product ratios never exceeded 5%, an extremely low figure for any industrialized nation. Also that year, INI ceased to receive budgetary support from the Spanish government and, as a result, the level of self-financing among INI companies fell dramatically from 83% in 1957 to 18% in 1958.

The low export figures, combined with the nation's rising inflation rate, created a volatile situation for Spain's economy and Franco's government. In one year, the nation's rate of inflation rose from an average of 9.1% to 15.5%. In an effort to contain the problem, the Franco regime instituted a series of economic measures collectively known as the "Stabilization Plan." A ceiling of 80,000 million pesetas was imposed on government spending during the coming year. Strict limits were enforced on lending by the banking system to the public sector. Transportation and public utilities prices were increased up to 50%. Limits were also placed on the amount of credit banks could make available to the private sector. Furthermore, additional efforts were made to attract foreign investors.

The effects of the plan were quick and dramatic. By the end of 1960 prices in general had been stabilized and some prices had even started to decrease; investments in the public sector were increased and interest rates were lowered.

As a result of these measures, the 1960's and 1970's were collectively referred to as the "Spanish Miracle." In 1964 the first of three "Plans of Development" was initiated to develop Spain's underdeveloped regional industries. INI's role in this development was relatively small during the first two plans, but was crucial during the third and final plan. During the period between 1968-71, 72% of INI investments were directed towards activities which were either undesirable to or economically unviable for the private sector. This was in keeping with INI's original goal of supplementing the private sector where private business could not fulfill investment needs.

In an effort to bring the company more in line with the rest of the industrial sector, in 1968 INI was placed under the jurisdiction of the Ministry of Industry. Claudio Boada was appointed president of INI in 1970. He was expected to take a more business-like approach to the Institute's finances. One of his first steps was to create a three year reorganizing plan designed to make the company more profitable and less dependent on government subsidies. It was hoped that the plan would force INI's subsidiaries and affiliates to operate more like regular industries, on a profit and loss basis. However, the Institute continued to acquire or create companies that were not economically profitable. In addition, later that year a government subsidy of 3,900 million pesetas was granted to INI's coal mining subsidiary Empresa Nacional Hulleras del Norte (HUNOSA) to meet debts incurred between 1967 and 1970. Also that year, for the first time since 1958, INI received direct budgetary support from the government.

The international steel crisis of the 1970's had a devastating effect on Spain's industrial industry which was dominated by INI companies. In 1973 INI's two major steel companies Ensidesa and Uninsa were merged in an effort to increase productivity. The efforts proved futile. By 1980 Ensidesa, the country's largest state-owned integrated steel company, lost more money than any of INI's other holdings.

Soon after the steel crisis came the international oil crisis of the mid-to-late 1970's. Franco continued to subsidize oil prices despite the rapidly rising costs. As a result, while the rest of Europe and the world was reducing oil consumption, Spain increased oil consumption more than 13% from 1973 to 1979. The ramifications of Franco's decision would be felt in following years.

In 1974 INI was brought into the forefront of the industrial sector by the Institute's newest president, Fernandez Ordonez. By the end of 1974, production by INI companies in the refined petroleum sector amounted to 32% of the national total. In 1974 INI participated directly in 60 companies of which 15 were wholly-owned by the Institute. In 1975 INI and its subsidiaries were responsible for 45% of all steel produced, 92% of ship tonnage launched, and 100% of Spain's major airline activity.

1975 was a significant year for INI and Spain. After almost four decades, the dictatorship of Francisco Franco came to an end with his death in November of that year. Prince Juan Carlos, who had been designated ruler since the monarchy was restored by the 1947 Law of Succession, finally took over on November 22, 1975. King Juan Carlos' ascension did not occur without significant opposition from various conservative parties.

The subsidies of oil prices ceased after Franco's death, just in time for the international oil crisis of the late 1970's. Due to the fact that Spain's oil prices had not reflected the true level of inflation, Spain's prices tripled when the rest of Europe's oil prices merely doubled. In Spain, INI operated the largest amount of oil companies and consequently suffered the largest amount of losses. These losses, coupled with other losses, promoted the new government to consider changing the company's structure.

Despite the oil crisis and its effects on Spain's economy, INI continued to expand. By 1976 INI was responsible for more than 50% of the total production of Spanish cars, ships and aluminum, and coal.

The 1980's will be remembered as INI's period of reconstruction. Fiat, which had born the brunt of the company's losses since its partnership with INI began, decided to sell its interests. Thus INI was completely responsible for SEAT's finances. As a result, in 1980 INI began a five-year investment plan. The investments were anticipated to show profits by 1985 when Spain was scheduled to enter the European Community's Common Market. Projected investment for the years 1981 to 1985 was estimated to be approximately $24 billion.

On the heels of a significant victory towards making INI profitable and self-sufficient, Jose Miguel de la Rica, who took over INI's leadership in 1978 and made valiant efforts to increase INI's profitability, was replaced in 1981 by Carlos Bustello. Under de la Rica's leadership, INI had won the right not to be forced to take over failing companies except by Parliamentary order. Prior to the agreement, INI was required to assume control over companies at the government's request. The new agreement with Parliament would make it harder for INI to absorb ailing companies. Moreover, in an attempt to reduce its losses, INI sold or eliminated a significant number of unprofitable companies in 1984. In 1986, 51% of INI's shares of SEAT were sold to the Volkswagen corporation.

By the end of 1985, Spain's economy appeared to be experiencing its second miracle. Foreign investment increased by significant amounts. The Japanese, which had invested one million dollars in Spain during 1980, invested $100 million during 1985 and over $200 million during 1986. Furthermore, forecasts by the Organization for Economic Cooperation and Development estimated that Spain will add 104,000 more workers to its work force by 1987.

The future of Spain's economy is looking better than it has for several decades. International economists have noted that INI's cost-cutting measures are a step in the right direction. However, it still has a long way to go before its goals for the Spanish economy are accomplished.

Principal Subsidiaries: ENDESA; ENCASUR; ENHER; Gas y Electricidad, SA; Unió Elétrica de Canarias, SA; ERZ; ENUSA; Empresa Nacional Siderúrgica, SA; FOARSA; PRESUR; Empresa Nacional Hulleras de Norte, SA; Minas de Figaredo, SA; ENADIMSA; BAZAN; Construcciones Aeronáuticas, SA; SANTA BARBARA; ENASA; INISEL; ENOSA; ERIA; Astilleros Españoles, SA; Astilleros y Talleres del Noroeste, SA; Astilleros Canarios, SA; BARRERAS; ATEINSA; Babcock Wilcox Española, SA; Equipos Nucleares, SA; FSC; MTM; INESPAL; ALUMINIO ESPAÑOL SA; ALUMINA ESPAÑOLA SA; ENDIASA; CARCESA; Lactaria Española, SA; Oleaginosas Españolas SA; Pesa Electrónica, SA; Empresa Nacional de Autocamiones, SA; ENFERSA; POTASAS; ALMAGRERA; IBERIA; AVIACO; ELCANO; Compañia Transatlantica Española, SA; INITEC; AUXINI; Empresa Nacional de Celulosas, SA; ARTESPAÑA; GRUPO ALVAREZ; Iniexport, SA; CARBOEX; INFOLEASING, SA; MUSINI; SODIGA; SODICAN; SODIEX; SODIAN; SODICAL; SODIAR; ENISA.

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