BELGIUM: THREE REGIONAL INVESTMENT AGENCIES WORK TO ATTRACT

UNCLAS BRUSSELS 001056

SIPDIS

SENSITIVE

COMMERCE FOR 4212/ITA/MCA/EUR/OECA/WNE/JLEVINE

E.O. 12958: N/A
TAGS: EINV ECON BE
SUBJECT: BELGIUM: THREE REGIONAL INVESTMENT AGENCIES WORK TO ATTRACT
FOREIGN INVESTMENT


1. (U) THIS REPORT IS FOR U.S. GOVERNMENT USE ONLY, AND SHOULD NOT
BE POSTED ON THE INTERNET.

SUMMARY
--------------


2. (U) BelgiumQs three regions -- Flanders, Wallonia, and Brussels
-- compete among each other and against neighboring countries for
foreign direct investment (FDI) projects. Emboff met with each
regionQs professional regional trade investment agency to learn
about the strategies used to encourage investment and to determine
the affect the economic downturn has had on investment. All three
pitch a similar message to prospective investors, especially those
from the United States: Invest in Europe by coming to Belgium.
Flanders, the Dutch-speaking northern region, has had historical
success enticing investors with its major port facilities and
multilingual population, marketing itself as a cost effective
version of the Netherlands. Wallonia, the French-speaking southern
region, continues to develop as an investment destination,
aggressively selling itself as a cheaper version of Flanders.
Brussels, the capital city region and host to both the European
Union and NATO headquarters, promotes itself as the capital of
Europe. The economic downturn has adversely affected Belgium, with
the number of FDI projects down 19 percent in 2008 from 2007 levels.
The United States had more than double the number of FDI projects
in 2008 than the next closest country, France. End summary.


BelgiumQs FDI profile
--------------


3. (U) The United States is the leader in the number of foreign
direct investment (FDI) projects in Belgium, followed by France,
Germany, the Netherlands, and the United Kingdom.

Number of FDI Projects in Belgium by Investor Country (source: Ernst
and Young)

Country 2005 2006 2007 2008

United States 49 45 49 38
France 23 25 21 17
Germany 15 15 13 13
The Netherlands 23 11 14 13
United Kingdom 16 16 16 11
Other 53 73 62 50

Total 179 185 175 142


4. (U) Belgium dropped to eighth place among Western European
countries in terms of new investment projects in 2008, with 142, as
opposed to 175 new projects in 2007, according to Ernst and Young.
But even with that decline, Belgium has still consistently
outperformed its closest peer, the Netherlands, in terms of the
quantity of new investment projects for the last several years,
likely due to its cost competitiveness.

Number of FDI Projects in Europe (Ernst and Young)

Country 2005 2006 2007 2008

United States 559 686 713 686
France 538 565 541 523
Germany 182 286 305 390
Spain 147 212 256 211
Poland 180 152 146 176
Romania 86 140 150 145
Russia 111 87 139 143
Belgium 179 185 175 142
Switzerland 93 136 124 125
The Netherlands 82 95 123 116


5. (U) All three Belgian regions measure their success based on the
number of realized FDI projects in the region as opposed to using
the Euro or dollar value of FDI inflows. Their logic is that FDI
projects represent investments in new plants, equipment, and job
creation, as opposed to FDI inflows, which the regions say can be
inflated by mega deals and large portfolio investments, and can
include equity capital, reinvested earnings and intra-company loans.
For example, BelgiumQs stock of U.S. direct investment (USDI) was
USD 54 billion in 2007, by itself a respectable amount, but dwarfed
by the USDI in the United Kingdom (USD 399 billion),the Netherlands
(USD 370 billion),and Luxembourg (USD 114 billion). Additionally,
though project size obviously matters, the agenciesQ emphasis is not

on trying to capture the Qone large dealQ but on bringing in any
number of targeted investments.

Welcome to Belgium, Gateway to Europe
--------------


6. (U) BelgiumQs three regional investment agencies use the same
marketing message: Invest in Europe by coming to Belgium. All
three have done their market research and understand that the name
QBelgiumQ does not have strong brand recognition among potential
American and non-European investors. Each agency has
representatives abroad that serve either in embassies or in
dedicated trade offices. Through a convention that determines where
each agency is located, representatives in many instances work for
the other agencies to reduce duplication and ensure that every
country is covered. Each recognizes that its region is an entry
point for new and continued expansion into the western European
market, especially to neighboring France, Germany, the Netherlands,
and the United Kingdom--and emphasizes its central location for
logistics combined with excellent infrastructure, low-cost real
estate (compared to the main foreign competitor, the Netherlands),
and an educated, multilingual population. Additionally, the regions
also tout a particular Belgian tax incentive, the notional interest
deduction, that has the effect of creating lower actual tax
obligations.

FDI Snapshot for the Regions
--------------

7. (U) The leading sectors for both Wallonia and Flanders are in
logistics, automotive, the food and life sciences, and high
technology. Flanders also has a dynamic chemical industry clustered
around its leading port, Antwerp. Brussels also has some investment
in the automotive, life sciences, and high technology sectors, and
its function as the EU capital naturally also has helped it attract
international organizations and others who desire to be close to EU
government decision-makers. Some important U.S. investors in
Brussels are Baxter, GE, Oracle, FedEx, and the Bank of New York.
Wallonia has U.S. companies Caterpillar, Johnson & Johnson, Google,
and Microsoft, while Flanders counts Exxon-Mobil, DuPont, Ford,
Nike, and Proctor and Gamble.

Number of FDI Projects in Belgium, By Region (Ernst and Young)
-------------- --------------
2005 2006 2007 2008
Brussels 31 33 42 28
Wallonia 38 47 44 40
Flanders 110 105 89 74

Total 179 185 175 142


Wallonia -- Trying Harder to Overcome Its Past
-------------- -


8. (U) The Wallonia Export and Inestment Agency (AWEX) (45
employees) has the job of trying to turn WalloniaQs economic
fortunes around. Wallonia is home to about 40 percent of BelgiumQs
almost 11 million inhabitants, and was once a leading industrial
region, but its fortunes began to fall in the middle of the 20th
century, and now it is better known for antiquated steel mills and
high unemployment. To try to turn things around economically, the
regional government of Wallonia launched in 2005 its economic
recovery program, the QMarshall Plan,Q and funded it with 1.5
billion Euros. The Marshall Plan has five pillars: create
competitive clusters, stimulate business start-ups, reduce corporate
taxes, boost research and development in association with companies,
and generate job skills. The plan is geared to promote Qgreenfield
knowledge, commercial and industrial parks outside the main cities
of each of the regionQs five provinces. AWEX, infused with a Qwe
try harderQ mind-set, has had some success, as the regionQs share of
the total number of FDI projects in Belgium has increased since

2005. High profile names include Google and Microsoft. In 2008,
AWEX calculated that Wallonia received new project investments
totalling 535 million Euros, 201 million Euros of which from U.S.
investors.


9. (SBU) Each province in Wallonia also has its own investment
agency that coordinates with AWEX, and each is in charge of managing
the local Marshall Plan-based business park and ensuring investors
needs are being met. Most of the business parks have been
tailor-made to fit the needs of high-tech companies. For example,
Wallonia hosts one of the few life science research companies in the
world that works on specialized pathogens. In postQs opinion, AWEX
comes across as having a well-thought out plan to attract investment

that takes advantage of its logistical assets and lower costs. On
the negative side, Wallonia must work to overcome its reputation as
an economic has-been, and while its university system is good, its
younger students score below their Flemish counterparts on most
international tests.

Flanders Still Leads
--------------


10. (SBU) The Flanders Investment and Trade (FIT) agency (168
employees),seeks investments to flow to the region as a logical
consequence of the Netherlands becoming prohibitively expensive and
logistically congested. In emboffQs discussions with FIT officials,
the organization came off as a professional investment agency that
appeared to lack the drive and clearly-defined plan of AWEX, which
attempts to promote Wallonia as a lower-cost alternative to
Flanders. But nonetheless, Flanders continues to attract about half
the FDI projects in the country, with 74 in 2008 at a value around
945 million Euros, according to FIT. The Flemish competitive
advantage of a well-educated population that is fluent in English
and other languages, combined with a world-class port in Antwerp and
excellent location to service much of Europe, still entices
investors who may feel more comfortable with the part of Belgium
most similar to the Netherlands. Flanders also has a strong
entrepreneurial bent to go with its excellent universities and
educational system. Its main negative is its increasingly congested
traffic around Antwerp.

Brussels Region - Selling Itself as EuropeQs Capital
-------------- --------------


11. (U) The Brussels Enterprise Agency (BEA) (58 employees) pursues
different investors then the other two regions, seeking to leverage
the importance of Brussels as the home of the European Union and
North Atlantic Treaty Organization to attract government lobbying
entities and non-governmental organizations (NGO),in addition to
high technology companies. Thus while Wallonia and Flanders pursue
large and very large companies in search of greenfield projects, BEA
is content to reach out to small and medium-sized investors, and
tries to locate the legal or government affairs departments of large
corporations inside the city limits. One unique incentive that
Brussels has successfully used is an in-house incubator office
space, allowing companies to set up shop rent-free for three months
while they test the waters. BEA considers the Flanders region as a
rival because many neighborhoods that appear to be in Brussels
actually lie outside of the cityQs (and the Brussels regionQs) legal
boundaries. Thus the Brussels airport and all of its adjacent
office buildings are actually in Flanders, and any investments
taking place there are counted as such in FDI project rankings.
Outside of Belgium, the city of Amsterdam is considered by BEA to be
BrusselsQ main rival. BEA is confident about the future of
Brussels, even though 2008 saw a large fall in FDI projects from
2007 levels; the agency believes that the city/regionQs role as
EuropeQs capital will continue to increase its importance for
investors.

Promoting Regions, Not Belgium
--------------


12. (SBU) In a country without a strong national identity to
prospective outside investors, where regional differences are often
sharp, it is not surprising that each region looks to promote
investment on its own, much as U.S. states may compete against each
other for FDI. WalloniaQs AWEX appears to have a solid future, due
to its Marshall Plan, which has been endorsed by the new regional
government elected in June, 2009. Its emphasis on business parks
and competitive clusters, and a high level of service to ensure
investorQs needs are met, appear to be working for Wallonia despite
the economic downturn. Flanders has many of the right features to
attract investors, such a very educated, English-speaking population
and a first-rate location and infrastructure base, but by competing
on price against the Netherlands, it has set itself up to be
potentially undercut by less expensive Wallonia. Finally, Brussels
appears to be in a decent position, but its investment agency will
need to continue to convince potential investors that the Qcapital
of Europe,Q with its central location and access to decision makers,
is reason enough to set up a new office. And while each region has
its legitimate attractions selling themselves as the entry point for
investing in Europe, each also has to try to overcome issues outside
its control, especially BelgiumQs unenviable position as one of the
highest-taxed and most indebted countries in the European Union.

BUSH