Investors want a (more) tax-friendly and politically stable investment climate

  • Share

Brussels, 1 June 2010 - In 2009 Belgium rose from 8th to 6th place on the list of the most attractive European countries for investment. This appears from the seventh edition of the annual ´Barometer of Belgian Attractiveness´, which is published today by EY. In comparison to 2008 the number of foreign investments in Belgium rose from 142 to 146. One very positive aspect is that 100 of these investments are entirely new projects. That our attractiveness for foreign investors rose in 2009 may be related to the period of (relative) political and administrative calm which we experienced after two years of political turmoil in 2007-2008. One thing is clear: a positive investment climate and administrative stability go hand in hand. The key question now is will investors once again turn their backs on us as we find ourselves back in turbulent Community waters?

Wallonia achieves its best score ever

Compared to last year, the number of foreign investments in Belgium rose from 142 to 146. Flanders accounts for 64 investments (43.9%), Wallonia for 57 (39%) and finally Brussels for 25 (17.1%). It is striking that Flanders has seen its share shrink systematically over the past 5 years. Companies are also deciding against Brussels as a potential location and in favour of the Flemish-Brabant and Walloon-Brabant provinces, and more particularly the region around Nivelles. Of all Belgian provinces, Antwerp still lands the most projects, but it has been in a holding pattern some time. In sum, we can say that Flanders and Brussels received their worst scores ever. The Walloon Marshall Plan, by contrast, appears to be generating results.

Who is investing in Belgium?

The group of foreign investors in Belgium is still led - with 33 investments – by the United States, although the overall number of American investments has been declining since 2005. Belgium is above all dependent on intra-European investments. Here one notes that the United Kingdom (from 11 to 16 investments) and Luxembourg (from 0 to 4) have an increased interest in Belgium, in contrast to France (from 17 to 14) and the Netherlands (from 13 to 9 investments). The United States and our neighbouring countries together account for 61% of all direct foreign investments in Belgium. Last year this was still 65%. The share of the BRIC countries (Brazil, Russia, India and China) in the direct foreign investments in Belgium continues to fall alarmingly. In 2008 these countries had a 7% share in all direct foreign investments. This year it is scarcely 4%. It is striking that Japan, with 12 investment projects, made twice as many investments in Belgium as did all of the BRIC countries combined.

Damper on the optimism

According to Gust Herrewijn, Managing Partner of EY Belgium, it is significant that the perception of the interviewed managers has evolved in a positive direction: "In 2009 managers once again began to see Belgium as a location where the productivity of their companies can increase. They highly appreciate Belgium, and especially for its quality of life and its telecom infrastructure."

No fewer than 87% of all respondents find Belgium attractive on that level (respectively +4% and +10% compared to last year). Places three through five are held by - in order - the “transport and logistics infrastructure” (83%, +7%), the “competences of Belgian employees” (82%, +11%) and the “stable social climate” (80%, +13%). The latter factor belongs, together with the “stability and transparency of the political and legal framework” (60%, +21%) and the “culture of entrepreneurship” (77%, + 18%), among the aspects that rose most sharply this year.

"The figures prove once again just how important political stability is for attracting foreign investments," explains Gust Herrewijn. " 2008 was a politically turbulent year that was followed in 2009 by a period of relative political and administrative calm. It is very much the question whether we will be able to extend this nascent recovery of confidence in 2010, now that we find ourselves yet again mire d in a political crisis. The new government, which will hopefully take office quickly, will immediately be confronted with major challenges."

Don´t touch the notional interest deduction!

Managers have divergent opinions about the advantages offered by Belgium, but all of them agree that our country, along with political stability, needs business-friendly fiscal measures to offset the high tax burden. The notional interest deduction was introduced as a tax break measure in 2005, but last year scarcely 39% of the interviewed companies were aware of its existence. This year familiarity with the measure is up to 67%, probably as a result of the Belgian image campaigns abroad and the political controversy surrounding the notional interest deduction. For no fewer than 96% of the surveyed companies which are aware of it, abolishing or limiting the measure would have a negative impact on the Belgian investment climate.

What applies for Belgium also applies for Europe...

This year Western Europe once again had to cede its leading position as the world´s most attractive investment region to China. With an attractiveness score of 39% China improved on its score of last year by no fewer than six points. Western Europe receives a score of 38% (-2 compared to last year). The top three is rounded out by the Central and Eastern European countries, which however dropped substantially compared to previous years (from 42% to 24%). These figures teach us that elsewhere in the world as well investors opt for security and stability in the first instance. China has in the meantime proven itself to be a politically stable country.

The attractiveness index over three years: Western Europe wake up!

The EY study indicates that the confidence of investors and their willingness to take risks are gradually returning. The interviewed managers confirm that the economic prospects are generally better than last year. To this, however, they add that they see not Western Europe, but rather China, India, Central and Eastern Europe, as their path to the future. These regions are the most attractive locations for future production, R&D and service projects. Western Europe, which is currently regarded as the second most popular destination for direct foreign investments, comes in only at fifth place behind Brazil in the future attractiveness index.

Recommendations for the new government

  1. Political and administrative stability is crucial
  2. Work needs to be done immediately on one of our country's most important perceived handicaps, namely its high corporate taxes and high labour costs
  3.  Notional interest deduction : leave it alone!
  4. The corporate income tax must urgently be lowered and brought into line with the rates of the competing economies around us.
  5. The ruling committee must demonstrate its usefulness and activity even more strongly
  6. There is a need for more fiscal stimuli for innovation and high-tech. This could be achieved e.g. by an extension of the ´patent box´ regime
  7. Investment agencies : place even greater emphasis on attracting investments.
  8. Green enterprise, innovation and R&D are major paths to the future. A forward-looking government will therefore have to incorporate adequate incentives for these into its policy.

Professor Sleuwaegen (K.U. Leuven and Vlerick Leuven Gent Management School) calls on the new Belgian government not to procrastinate with the necessary reorientation of economic policy. "Belgium must reflect urgently and thoroughly about how we can actively address new investors, and especially those from the BRIC countries. The first question, moreover, is whether a totally new approach isn´t urgently needed in order to attract investors. The world is changing quickly, and if we don´t succeed in responding to the new developments in a timely manner, this could have catastrophic effects over the long term. The clock is ticking".


About the Barometer of Belgian Attractiveness

With its annual Barometer of Belgian Attractiveness - which in 2010 is in its seventh edition - Ern st & Young takes the pulse of the Belgian investment climate. The study is based on an original, twofold methodology which firstly presents the real attractiveness of Europe for direct foreign investors on the basis of the European Investment Monitor (EIM) of EY, and secondly presents the ´observed´ attractiveness of Europe and its competitors on the basis of a representative panel of 814 international decision makers. The study can be requested from  and can also be downloaded :

dutch version: Barometer van de Belgische Attractiviteit (pdf, 2mb)  
french version: Baromètre de l'Attractivité en Belgique (pdf, 2mb)