Identifier
Created
Classification
Origin
07BRUSSELS2608
2007-08-16 11:55:00
UNCLASSIFIED
Embassy Brussels
Cable title:  

ECONOMIC GROWTH OF BELGIUM'S WALLOON REGION

Tags:  ECON ELAB BE 
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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHBS #2608/01 2281155
ZNR UUUUU ZZH
R 161155Z AUG 07
FM AMEMBASSY BRUSSELS
TO RUEHC/SECSTATE WASHDC 6183
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES COLLECTIVE
UNCLAS SECTION 01 OF 03 BRUSSELS 002608 

SIPDIS

SIPDIS

STATE FOR EB/ESC AND EUR/UBI
USDOC FOR 3133/USFCS/OIO/EUR
TREASURY FOR OASIA - ATUKORALA
PARIS FOR USOECD ? BARLERIN

E.O. 12958: N/A
TAGS: ECON ELAB BE
SUBJECT: ECONOMIC GROWTH OF BELGIUM'S WALLOON REGION
REMAINS ON POLITICAL AGENDA


UNCLAS SECTION 01 OF 03 BRUSSELS 002608

SIPDIS

SIPDIS

STATE FOR EB/ESC AND EUR/UBI
USDOC FOR 3133/USFCS/OIO/EUR
TREASURY FOR OASIA - ATUKORALA
PARIS FOR USOECD ? BARLERIN

E.O. 12958: N/A
TAGS: ECON ELAB BE
SUBJECT: ECONOMIC GROWTH OF BELGIUM'S WALLOON REGION
REMAINS ON POLITICAL AGENDA



1. (U) Summary. One of the issues Belgian politicians are
grappling with as they form a new government is how to
craft economic policies given the differences between the
economies of Wallonia and Flanders. As Wallonia's top
investor, the United States has an interest in the overall
economic health of the region. The good news is that the
Walloon economy is growing, foreign direct investment has
increased along with job creation, six-year unemployment
figures are down, and exports and median income are up.
The bad news is that Wallonia still lags significantly
behind Flanders in net income and overall GDP, and it
continues to suffer from high unemployment. To keep the
economy growing, Wallonia needs to improve its public
governance, human capital development, labor market, and
above all its entrepreneurial spirit. End Summary.

The Good News
--------------

2. (U) The Walloon economy appears to be picking up
momentum, according to reports in the economic press and
government statistics. Trends-Tendances announced that
Wallonia enjoyed a 58% boost in foreign direct investment
in 2006. Foreign direct investment totaled 1.2 billion
euros, including 746 million euros spent creating new
businesses. These investments resulted in 1,912 new jobs.


3. (U) Several American businesses recently invested in
Wallonia: Google in Saint-Ghislain; Dolce in La Hulpe;
Johnson & Johnson in Courcelles; and Baxter in Lessines.
According to the daily business paper, L'Echo, U.S.
investment accounts for 40 percent of all FDI in Wallonia,
which makes it the region's primary investor. In fact,
U.S. investment is twice that of France. Currently, 200
U.S. businesses account for 20,000 jobs in the region.


4. (U) Oxford Intelligence reports that of the 185 new
investments in Belgium in 2006, Wallonia captured 25% of
them. In its ranking of European regions that are most
attractive to foreign investors (in terms of new investment
projects),the province of Hainaut, in Wallonia, ranked
28th in 2006, with 22 new projects. This is a significant
improvement over 2005, when it ranked 40th. Only one
Belgian city, Antwerp, made it into the top 10 in 2006,

while Brussels ranked 21st.


5. (U) In terms of unemployment and exports, in March 2007,
Wallonia had 8,000 fewer people unemployed than at that
time a year ago. Between 2000 and 2006, 11,370 jobs were
created, with 1,624 created on average each year from
foreign investment. Trends-Tendances reports that Wallonia
now accounts for a greater percentage of Belgian exports as
well. From 2001 to 2005, Wallonia's level of exports grew
from 15% to 18% of total Belgian exports.


6. (U) Wallonia's economic growth and median income are
also on the rise. In 2003 and 2004, Walloon economic
growth surpassed that of Flanders by 0.5%, according to the
ICN (National Accounts Institute) and the UWE (Union of
Walloon Enterprises). In 2005, economic growth took a
slight dip, but is expected to rebound in 2006 and reach
the level of economic growth in Flanders. According to the
Federal Public Service Economy (equivalent to a ministry of
economy),2004 also saw the median income of Walloon
residents increase by 5.5%, compared to 4% in Flanders.


7. (U) 2007 is projected to be even better. The industries
that enjoyed the greatest gains in 2006 were
pharmaceuticals, chemicals, energy, logistics, information
technologies and telecommunication.

The Bad News
--------------

8. (U) While Wallonia is clearly in a period of economic
growth, it is starting from a lower base than economically
dominant Flanders. Net income is approximately 1,600 euros
greater in Flanders than in Wallonia, not surprising since
the GDP of Flanders continues to be 37% greater than that
of Wallonia. The number of jobs created per new investment
lags behind the rest of Belgium and much of Europe.
According to Trends-Tendances, only 20 jobs were created
per project on average in Wallonia, compared with an
average of 47 per year in Belgium and 95 per year in 15
other European countries.


9. (U) Unemployment persists, and only 36% of Walloon

BRUSSELS 00002608 002 OF 003


businesses say that they will increase their recruitment in
the coming onths, according to a UWE (Union of Walloon
Enterprises) survey. This is a 2% decline compared to the
same number in November of 2006. The reason is that 94% of
companies report difficulties in hiring. The first problem
is that there are not enough job-seekers with the
qualifications that Walloon businesses are looking for. Two
employment firms stress that the comfortable unemployment
package offered in Wallonia means that it is not worthwhile
for most people to accept a job unless it pays in the
middle range of salaries. Employment agencies and
companies themselves often must recruit in northern France,
where unemployment benefits have limits, in order to fill
jobs. Other problems relate to the cost of hiring and a
candidate?s motivations for the job.


10. (U) Furthermore, optimistic economic forecasts are not
causing leading Walloon entrepreneurs to increase their
investments. The percentage who reported that they wanted
to invest more in the next six months decreased from March
2006, according to the UWE. In addition, many Walloon
companies seem to be limiting their exports to northern
France and Western Germany, rather than trying to expand
their goods into other markets.


11. (U) Ironically, while Wallonia suffers from high
unemployment, Flanders has a labor shortage. Jobs in
Flanders are being filled by workers in neighboring France,
rather than Wallonia. French workers drive over 62 miles
each day to work in the Flemish cities of Ypres and
Kortrijk, according to Philippe Donnay, Economic Advisor at
the Federation of Enterprises in Belgium.


12. (U) The two regional authorities have tried
unsuccessfully to create incentives to encourage labor
mobility between the regions. One of the reasons is that
the labor market is too rigid. A worker changes jobs every
12 years, on average. High unemployment also highlights
this rigidity. Second, cooperation between the regions on
this issue is in its infancy. While job placement agencies
in each region have been exchanging employment
opportunities for one or two years, labor markets have been
regionalized for more than twenty. As a result, businesses
in Flanders may have needs in areas that cannot be met by
unemployed workers in Wallonia. Third, many unemployed
workers lack the proper education and training for many
jobs in today?s labor market, and at the same time, the
competencies needed in many fields are changing rapidly.
Fourth, the gap between social welfare benefits and
salaries is too small to encourage unemployed workers to
look for a job. Finally, Donnay notes that the cultural
and linguistic differences between the two regions are a
further barrier to mobility.

Improving Wallonia's Economy
--------------

13. (U) In order to continue Wallonia's economic growth,
the region must improve public governance, develop its
human capital development, make its labor market more
flexible, and release the region?s entrepreneurial
potential.


14. (U) Two years ago, the Walloon regional government
announced a Marshall Plan for Wallonia, but this idea has
not taken off. It is a one billion euro initiative to
boost the Walloon economy. The key points of the Marshall
Plan are to increase economic activity, grow competitive
sectors of the economy, invest in job and language
training, as well as in research and development, and
reduce property taxes. Under the original Marshall Plan,
the Walloon regional government invested 280 million euros
in refurbishing smokestack industries that soon were
overtaken by new plants in Germany and became uneconomic.
Flanders, in contrast, invested in training, education, and
subsidies for small and medium-sized businesses. Today in
Flanders, 95% of private sector employment is with
companies having 50 employees or less.


15. (U) Good public governance is essential to implementing
successful reforms. Beset by Socialist Party scandals in
the Walloon city of Charleroi, the entire city cabinet
resigned from office in June. Donnay believes that
developing a modern, efficient government administration,
with less intervention in the economy, is the first step
towards improving the Walloon economy.

BRUSSELS 00002608 003 OF 003




16. (U) Developing human capital requires a strong
educational system, and Wallonia's is in need of
improvement. For the past 20 years, roughly one-third of
secondary school students have become unemployed adults.
Walloon schools are doing a poor job preparing students for
work: the Reading and Writing Association estimates that
300,000 adults are illiterate in Wallonia. The school
system is also one of the most costly in Europe. Jean-Yves
Huwart of Trends-Tendances urges schools to improve basic
education by delaying the year in which they make their
vocational choices. Donnay believes that the education
system should be tied more closely to the labor market.


17. (U) Huwart also recommends improving the higher
education system by forming one large University of
Brussels-Wallonia (instead of many universities with
similar programs),with universities in each town
specializing in different subjects, similar to the public
university system in many U.S. states. The universities
would reach a critical mass of resources likely to improve
research and teaching, and in turn, make the schools more
attractive to employers. A 2004 OECD study comparing the
educational performances between Flanders and Wallonia was
very critical of that in the latter.


18. (U) Improvements should also be made in the labor
market. There are no limits to unemployment compensation
and little labor mobility between Flanders and Wallonia.
In addition, the difference between unemployment
compensation and the salaries of unskilled workers is very
small, discouraging employment. On the employer side,
companies bear a lot of the social costs when they hire an
employee and therefore, it is often very costly for them to
hire unskilled labor. In addition, Wallonia's public
employment service, the Forem, does a poor job of matching
workers' skills to the needs of employers. It should
develop better "skill mappings" with employers as well as
create more sophisticated tests for job seekers so that
they more accurately reflect the needs of employers.


19. (U) Finally, Wallonia needs to become more results-
oriented, according to Huwart. Businesses should embrace
globalization and seek out transcontinental markets for
their goods. They should develop a more entrepreneurial
spirit to take advantage of the opportunities offered by
globalization.


20. (U) COMMENT: Wallonia has made some progress in moving
away from its rust belt past. Foreign direct investment is
flowing in but not at a level which brings its economic
development up to a par with Flanders. In this globalized
world, Wallonia is not merely competing for investment with
Flanders but with the Singapores and Chinas and UKs of the
world. Wallonia must continue to improve the training of
its students at the same time that it reduces the
incentives for unemployed workers to stay on the dole
rather than seek work. END COMMENT
IMBRIE