Brussels, June 7th 2021 – 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 Belgian Attractiveness Barometer, 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 hightech, while targeted efforts to increase its digital skills can further elevate the attractiveness of our country as investment location.
It is no surprise that the corona crisis had an impact on the number of investment projects in Belgium in 2020. With a drop of 15%, our country performed only slightly weaker than the European average of a 13% drop. All in all, Belgium recorded 227 projects, which generated 5,098 jobs in 2020. Zooming in on the regions, Flanders showed the biggest resilience, while Wallonia fell back from the record numbers it posted in 2019.
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.
The UK, in a post-Brexit reality, maintained its level of investment projects in Belgium. Because other big investors like the USA and France drastically scaled back the number of projects, the country became Belgium’s most important investor. China, meanwhile, almost doubled its investment projects in our country.
Belgium needs to be mindful of its future potential for investors. While our country still has a number of important advantages, countries like Spain and Italy are rapidly on the rise in our attractiveness study. The main risk for our country is now the level and complexity of the taxation system, which overtook the cost of labor as the main concern for investors.
That labor force, though still considered an asset for Belgium, has one particular field where there is room for improvement: invest further in specific digital skills. There lies both a threat and an opportunity in this, as those same investors highlighted the digital economy as a growth engine for Belgium. But to give that engine the fuel it needs, improvements need to be made in the fields of AI, robotics, big data and analytics and cybersecurity.
But no sector is more important for Belgium’s future growth than cleantech & industrial hightech. This trend became apparent last year, when a third of respondents highlighted these industries as a major growth prospect. In this year’s study, it simply tops the list of important sectors to drive FDI in Belgium. Obviously the EU Green Deal plays a big part in this, but the general quest for carbon neutral and otherwise sustainable technologies and business models has become an unstoppable force. This does not mean, however, that this is the only sector with an investment dynamic. Last year, pharmaceuticals rose considerably in the ranking of sectors that drove investments, in large part for obvious, corona-related reasons. And logistics remains an important sector for our country: it claimed the top position last year in terms of job creation.
Belgium still holds many assets that are appreciated by foreign investors, but the last thing we need is complacency. Belgium has to defend its reputation as a trade hub, which should be able to attract more investments.
comments Tristan Dhondt, partner at EY Belgium.
If we take the lessons from this report and use them right, we can create the opportunities for future growth, the fact that investors emphasize the importance of skills in the field of AI and robotics, while at the same time pointing to digital economy as one of the top sectors to drive future Belgian growth, is just one example of signals that shouldn’t be ignored.
adds Patrick Rottiers, CEO of EY Belgium.
With all this in mind, EY has the following recommendations for all relevant stakeholders:
1. 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.
2. 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%.
3. 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.
4. Focus on cleantech and industrial hightech
Belgian 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.