Direct investment and Belgium’s attractiveness

Belgium, which has long had direct investment links with other countries, is participating fully in the increasingly global economy. At the end of 2005, almost half of the equity capital invested in Belgian companies as a whole was owned directly or indirectly by foreign shareholders. The purpose of the article is to analyse Belgium’s foreign direct investment (FDI) and the incoming investment from abroad, and to view it in perspective, both over time and in relation to other developed countries, especially neighbouring countries. In addition, it aims to identify the main factors determining recent developments and Belgium’s relative position in 2005, the latest year for which data on FDI stocks are available. Although influenced by the same factors as those which determine the development of FDI on a global scale, direct investment links in Belgium differ from those in other developed economies in their magnitude. In fact, the ratio between FDI flows or stocks and GDP is significantly higher in Belgium than in the majority of other developed countries, for both incoming and outgoing FDI. The scale of Belgium’s direct investment links with foreign countries reflects both its function as a financial centre, particularly via the activities of the coordination centres, and its status as a small, open economy in a European Union where integration began earlier – and has progressed farther – than in other free trade areas. In the past ten years, Belgium’s FDI has expanded constantly and at a faster pace than domestic economic activity. While outgoing FDI has, like that of other developed countries, focused more on developing countries, driven by the search for new markets and lower costs, particularly for labourintensive activities, it is nevertheless still concentrated mainly on the developed countries, including the new EU members. The main protagonists in these capital transfers, effected partly via mergers and acquisitions, are Belgian firms active in the service sector. Over the same period, incoming FDI seems to have grown a little more slowly. In terms of stock, it actually stagnated in the early years of this century. However, the recent dynamism of FDI in Belgium has been at least as favourable as in the other European countries taken as a whole, and especially the neighbouring countries. Looking at greenfield investments, which actually lead to the creation or expansion of activities, the number of projects launched in Belgium has been rising, and at a similar rate to those developed in the EU as a whole. Belgium’s main strengths in terms of activity are chemicals – including life sciences – and transport and communications, particularly logistics and distribution. In general, the main motive for FDI projects in Belgium appears to be to serve the European market, or at least its most highly developed core, which includes Belgium. When a location is being selected for a project, Belgium is therefore competing with other EU countries and, more particularly, with neighbouring countries whose economic characteristics are comparable, notably in regard to their standard of living. Compared to other EU countries, especially the new members whose economies are less advanced, Belgium has a handicap in terms of hourly labour costs but, at the same time, it offers high productivity and various advantages as regards environmental and operational criteria, especially the quality of its infrastructures.