How the Basque Country is boosting Spain's fragile economy

Machine tooling is speciality of this mountainous and thickly forested industrialised region, prospering even as economic growth in Spain, which will hold early elections on April 28, has begun to slow.

At Rodriguez's feet there are several boxes marked with Chinese characters with train wheel-axles. A client has sent them to test a machine that will be used to adjust with precision these heavy pieces of metal once it is installed at a factory in China. The machine will cost more than one million euros ($1.1 million).

He is the managing director of Danobat, Spain's leading machine tool firm. With roughly 1,300 employees and yearly revenues of 261 million euros, this subsidiary of the Mondragon group, one of the world's largest cooperatives, is a flagship of industry in this damp corner of Spain bordering France.

Unemployment is Spaniards' top concern. But the Basque Country, which is also home to top auto parts makers and renewable energy firms, has the lowest unemployment rate in Spain at 9.58 percent, compared with 14.45 percent nationally.

Its industrial base accounts for roughly a quarter of the region's economic output, compared with 14 percent for Spain.

Like Germany, Europe's largest economy, the Basque Country is home to highly specialised firms that are geared to exporting, helping to make it one of Spain's wealthiest regions.

Looking abroad 

Elgoibar, a town of 11,600 residents nestled in a verdant valley in the heart of the Basque Country, even has a museum dedicated to machine tools, which recounts the long history of the region's industrialisation.

Danobat is the only company that makes certain metal parts and has customers in the auto, energy, oil-and-gas, rail and aeronautics sector.

"We look for niches which have barriers to entry for our competitors," said Rodriguez.

This is why he is not worried about political instability in Spain, which is likely to continue after the elections as polls show no party is likely to win a majority, and its impact on economic growth.

Spain's outgoing Socialist government predicts the economy will expand 2.2 percent this year, down from 2.6 percent in 2018 and 3.0 percent in 2017.

"We export more than 90 percent of our production, we are much more concerned by Brexit, if the Chinese economic growth picks up or not, or if the auto sector will move towards electric vehicles," he said.

Spain's machine tool and advanced manufacturing technologies sector, which is almost entirely based in the Basque Country, had a turnover of 1.73 billion euros last year, nearly three-quarters of it destined for export, the sector's cluster AFM figures show.

"Virtually everything we make here goes abroad," said Agustin Anitua, the commercial director at the Lanbi Group, which supplies steering wheels and suspension machines for companies such as French auto maker Renault.

Ecosystem 

Thanks to a well-established ecosystem, Lanbi can outsource part of its business to a plethora of local suppliers of components and tools.

"Ninety percent of our suppliers are located here in the valley, we bring a lot of money from abroad and we invest it here," said Anitua.

Lanbi's turnover has doubled in the past five years thanks to greater specialisation and the use of more advanced robotics although it has noticed "a deceleration" in activity among its customers due to a slowdown in the global economy, he added.

The firm, which employs 60 people, benefits from the organisation of the economy in the Basque Country around "clusters" of companies that focus on a certain sector.

This allows it to test its machines at a nearby technological centre while a university institute in Elgoibar which specialises in machine tools provides training for employees in new technologies such as data collection and analysis.

"We can develop technologies as much as we want but if we do not have people who are trained to use it, we will have problems," said the director of the institute, Ixaka Egurbide.