Original article on ey.com
Cleantech and industrial high-tech are seen as the business sectors that will drive Belgium’s growth in the coming years.
Despite the turbulence caused by the pandemic, Belgium maintained its fifth position in the ranking of European countries for foreign direct investment (FDI). That is the main conclusion of the EY Belgian Attractiveness Survey 2021, an annual study conducted by EY that gauges the attractiveness of Belgium as a location for investment.
There is cause for vigilance, though, as Belgium lags the average European prospects for recovery. There are green shoots in the sector of cleantech and industrial high-tech, while targeted efforts to increase its digital skills can further elevate the attractiveness of our country as investment location.
1. Belgium holds on to its position in the top 5 of European countries that attract the most foreign investment
It is no surprise that the COVID-19 crisis had an impact on the number of investment projects in Belgium. All in all, Belgium recorded 227 projects, which generated 5,098 jobs in 2020. That means COVID-19 pushed the number of projects down by 15% compared to 2019, which is slightly more than the European average of a 13% drop. With this result, Belgium holds on to fifth place in European ranking for foreign direct investment (FDI) in 2020.
2. Optimism about COVID-19-recovery boosts short-term investment plans
COVID-19 will also claim a major role in 2021, but more likely in a positive sense. It appears that investment plans were merely delayed and not cancelled last year. This is reflected by the fact that 66% of respondents replied positively when asked if they had plans to establish or expand operations in Belgium in the coming year, compared to 10% last year.
Though investors expect that the attractiveness of Belgium for investments will pick up after the COVID-19 crisis, these expectations are considerably more modest in the long term. Whereas 62% expect that the attractiveness of Europe will increase slightly to significantly over the next three years, only 35% expect a comparable uptick for Belgium.
Belgium holds many assets that are appreciated by foreign investors. But our country has to defend its reputation as a trade hub, which should be able to attract more investments.Tristan DhondtEY WEM Strategy and Transactions Partner; Strategy and Transactions Leader for EU institutions
3. Business services remains most important sector for FDI in Belgium, pharmaceutical jump
As in previous years, 4 key sectors accounted for more than half of the investment projects in 2020. But the composition of this top-4 reflects the global race for cures, treatments and finally vaccines against the coronavirus. Pharmaceuticals jumped from the ninth position in 2019 to third place in 2020, accounting for 22 projects. With this, the pharmaceutical industry pushed the agri-food business out the top list, and landed in front of the digital sector.
Three activities account for more than half of all FDI projects in 2020: sales and marketing (53), manufacturing (44) and business services (43). The number of headquarter projects rebounded to 15 after a drop to 5 in 2019.
4. UK confirms rising trend and becomes biggest investor in Belgium
The UK, in a post-Brexit reality, maintained its level of investment projects in Belgium despite the COVID-19 crisis. Because other big investors like the USA and France drastically scaled back the number of projects, the country became Belgium’s main source of FDI. China more than doubled its investment projects in our country in 2020.
5. Investors appreciate Belgian entrepreneurial culture and quality of labor force, tax regime is the main concern
When we take a look at the reasons why Belgium is attractive for investors, we see that the quality of the labor force remains Belgium’s most important asset. Together with the entrepreneurial culture, it is the main factor that positively influences investment decisions in Belgium.
If we take the lessons from this report and use them right, we can create the opportunities for future growth.Marie-Laure MoreauEY Belgium Assurance Partner and Regional Managing Partner Wallonia
The main risks for Belgium’s attractiveness have consistently been the level and complexity of its taxation, the cost of labor and political, regulatory and administrative stability. But this “top three” has been shaken up drastically. The level and complexity of taxation has now jumped to the top of the list of risks to Belgium’s attractiveness.
6. Cleantech confirms its status as the main engine for growth
Cleantech and renewables firmly establishes itself as the main sector that will contribute to the future growth of FDI in Belgium. This trend became apparent last year, when a third of respondents highlighted these industries as a major growth prospect. The EU Green Deal plays a big part in this, but also the general quest for carbon neutral and otherwise sustainable technologies and business models has become an unstoppable force.
Cleantech 42% of respondents believe cleantech and renewables will be the business sector that drives Belgium’s growth in the coming years.
With all this in mind, EY has the following recommendations for all relevant stakeholders:
- Focus on investors that are already present
We must keep giving attention to companies that already established activities in Belgium, that are confronted with political and regulatory instability and diminishing mobility. An important step is, without a doubt, a simplification of all procedures and the creation of a stable social climate and a robust legal and fiscal investment framework
- Lowering the corporate tax rate to 20%
Though the first tax shift already lowered the corporate tax rate to a more acceptable 25%, the global tax rate remains an important obstacle for drawing in new investments. Our advice is to lower the corporate tax rate to 20%.
- Investing in digital skills
Digital skills have long been on the list of priorities for countries that wish to attract foreign investments. The new role technology has acquired as a result of COVID-19 – digital customer experiences, ‘phygital’ work environments and more automated production lines and back offices – makes this an absolute necessity.
- Focus on cleantech and industrial high-tech
Belgium has a real chance to become a major player in the cleantech industry. This can be achieved by focusing on a dynamic ecosystem of technology and cleantech companies, by simplifying tax measures and by incentivizing the adoption of new technologies.
Belgian Attractiveness Survey 2021
Read the full report for more insights, recommendations, viewpoints from the investment agencies, testimonials by foreign investors and more.
Open the PDF.
The COVID-19 crisis has upended the global economy. In this context, it is encouraging to see that foreign direct investment in Europe showed remarkable resilience by declining only 13 percent in 2020, compared to the year before. Belgium managed to maintain its fifth position among European countries. Our country holds all the levers to increase its attractiveness for the short and long term. Building on its strengths and tackling its weaknesses in a concerted effort by governments and businesses is key to achieving this goal.
EY WEM Strategy and Transactions Partner; Strategy and Transactions Leader for EU institutions
EY Belgium Assurance Partner and Regional Managing Partner Wallonia