The report of the OCDE Capital Market Review of Spain 2024 highlights the structural deficiencies of the capital markets in Spain, highlighting how these limitations slow down economic growth and business competitiveness. The OECD does not mince words, it is clear and direct.
With an economy highly dependent on bank financing and insufficient participation in capital markets, Spain has a crucial challenge: creating a more attractive environment for investors and companies. Of the challenges and proposals proposed in the report, we are left with the 4 that we consider most important. In addition, we added some graphs from the report that are worth seeing to understand the depth of the reforms we have to make.
1. Greater participation of households in capital markets
One of the most serious problems is the low participation of Spanish households in capital markets. Unlike other European countries, where citizens invest in stocks, bonds and funds, in Spain families’ financial assets are disproportionately concentrated in real estate and bank deposits. We already know, brick and deposits, the consequence of a very low financial education. This limits market dynamism and reduces wealth generation opportunities. To reverse this trend, the OECD proposes:
• Create savings accounts for investment: These accounts would allow citizens to invest in different assets with tax advantages, such as a simplification in the taxation of capital gains. They would be a key tool to diversify family savings and channel them into the stock market.
• Promote financial education: The low rates of financial literacy in Spain make it difficult for citizens to understand the advantages of investing. Educational campaigns and programs aimed at young people and adults could transform this reality and increase confidence in the capital markets. Here we are making a special effort from Investment Strategies to help all citizens train in a simple and comfortable way.
2. Strengthen the investment and pension fund sector
The report highlights that pension funds in Spain are in the doldrums, representing just 2.5% of GDP, well below the European average. This not only weakens the financial security of retirees, but also reduces the pension system’s ability to act as an institutional investor in capital markets. To reverse this situation, the OECD suggests:
• Increase tax incentives: increase deductions for contributions to personal pension plans, especially for those not covered by a business plan, which would encourage long-term savings.
• Review contribution limits: The OECD recommends eliminating current limits or at least increasing them significantly, especially for self-employed workers.
3. Facilitate access for SMEs to capital markets
In Spain, 99% of companies are small and medium-sized (SMEs), which generate more than two-thirds of employment and close to 60% of the economy’s added value. Spanish companies rely heavily on bank loans for financing, representing 90% of debt financing at the end of 2023. This high level of dependence limits financing options and risk diversification for companies. Furthermore, these companies have enormous difficulties accessing capital markets, which restricts their ability to grow and innovate.
Since 2000, 107 companies have gone public on the main market in Spain, while 200 companies have gone private. OECD recommendations include:
• Establish public-private cooperation: A collaboration between chambers of commerce, stock exchange operators and private equity associations could provide SMEs with the information and resources necessary to take advantage of market-based financing.
• Reduce regulatory barriers: allow SMEs to transition more easily from the Alternative Stock Market (MAB) to regulated markets, eliminating unnecessary requirements.
• Promote information coverage of SMEs: Support independent analysts and research firms to generate studies on these companies, increasing their visibility to potential investors.
4. Increase the activity of institutional investors
The report highlights the importance of institutional investors (pension funds, insurers and investment funds) as pillars of capital markets. However, in Spain, these actors are underdeveloped and their investments in corporate capital are minimal. Recommendations include:
• Reduce regulatory restrictions: allow greater diversification of the portfolios of these funds, including higher risk assets such as stocks.
• Extend tax benefits to more products: for example, making it easier for ETFs to enjoy favorable tax regimes, increasing their attractiveness to investors.
The OECD warns that these reforms must be carried out in a coordinated manner and not in isolation. Spain needs a much more pro-market approach that combines regulatory improvements, tax incentives and educational programs. Only then can the potential of capital markets be unlocked and allowed to play a central role in the country’s economic growth and financial sustainability.
With these strategies, Spain will not only strengthen its capital markets, but will also open new opportunities for companies, investors and citizens, contributing to a more dynamic and competitive economy. From Investment Strategies we could not agree more with this OECD report and, in our part, we will put all our efforts to help Spain improve in all the sections suggested by the OECD, supporting, in First of all, the development of capital markets and financial education.