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The engine of Belgium’s economy: Multinational companies

According to a study by Joep Konings (Professor in Economics at the University of Leuven) published on June 26, foreign and homegrown multinational companies (MNCs) are the engine of the economy in Flanders. Retaining foreign investors in Flanders, but also in Brussels and Wallonia, is a key priority for Belgium as a whole.

The study was performed in the context of a research project by VIVES: Centre for Regional Policy, which aims to uncover the driving forces behind companies’ growth in Flanders. Although the study uses a sectoral approach to analyze economic growth of a sample of 50,000 companies in Flanders, the results expose a more general finding: MNCs are important for Belgium’s economy.

According to Konings’ findings, international companies – homegrown or foreign – are essential for the economy in Flanders. Excluding the services sector, foreign companies in Flanders are responsible for 56% of added value and 46% of employment. On average, a multinational company is 5% more productive than a local company, largely due to the fact that it is managed better and has accumulated more know-how and market experience over time.

The presence of foreign MNCs has a distinctive positive effect on local companies. Local companies try to reap the benefits of the advantages and attractiveness for the labor market that MNCs bring to the region. The spillover effects arise when employees change companies and, thus, transfer their knowledge and experience. This knowledge is also shared in networks of companies, as they often do business with each other or collaborate in developing new products. The results of the study show that an increase of 10% in a foreign investment leads to an average increased productivity of 0.6% in other companies in the area. The opposite is also true: When an MNC decides to delocate from Belgium, there is a direct negative effect on the productivity of local companies in addition to the direct loss in activities and jobs in the region.

It is of utmost importance for Belgium’s economy that these MNC retain their investments in the country and that new investments are attracted. “When MNCs decide to relocate certain activities from China to Europe, the government should do everything in its power to promote Belgium’s attractiveness rather than letting other European countries get away with the investment”, says Joep Konings. In the end, environmental factors such as the fiscal and social climate, the price of energy and labor, the logistics infrastructure, etc. are decisive on whether or not an MNC will invest in Belgium.

AmCham Belgium’s position

Recent reports from IBM and Ernst & Young, AWEX, FIT and other organizations have come up with contradicting figures on foreign investments in Belgium, largely due to the use of different formulas when analyzing investments. Despite their different outcome, one thing is clearly reflected by each of those studies: the government must do everything in its power in order to retain and attract foreign investments. Providing MNCs with a stable fiscal and regulatory environment, lowering labor costs and energy prices and tackling the system of automatic wage indexation are measures which the government must consider in order to improve Belgium’s competitiveness. To see AmCham Belgium’s recommendations for retaining and attracting foreign investments and improving competitiveness, please see our 2012 Priorities for a Prosperous Belgium.