The COVID-19 pandemic negatively impacted the Belgian economy in 2020. The National Bank of Belgium has estimated that real GDP could contract by as much as 8% in 2020, and the impact on public finances could lead to a deficit of at least 7.5% of GDP, withthe national debt to increase to around 115% of GDP by the end of 2020. Belgium will rely on European Union financial support mechanisms and interventions by its regional governments to pull itself out of the economic crisis created by the global health pandemic.
Belgium holds a unique position as a logistical hub and gateway to Europe, which will be of critical importance to jump-start the economy. Since June 2015, the Belgian government has undertaken a series of measures to reduce the tax burden on labor and to increase Belgium’s economic competitiveness and attractiveness to foreign investment. A July 2017 decision to lower the corporate tax rate from 35 to 25 percent further improved the investment climate. Post-pandemic measures to attract investment are under review with national and regional authorities.
In January 2016, the European Commission ruled that Belgium had to reclaim more than USD 900 million from companies that had benefitted from “excess profit” rulings. The scheme had reduced the corporate tax base of the companies by between 50% and 90% to discount for excess profits that allegedly resulted from being part of a multinational group. However, in 2019 the EU General Court decided that the excess profit ruling was not a State-aid scheme. The Commission has appealed the judgment to the European Court of Justice; these proceedings are ongoing.
Belgium boasts an open market well connected to the major economies of the world. As a logistical gateway to Europe, host to major EU institutions, and a central location closely tied to the major European economies, Belgium is an attractive market and location for U.S. investors. Belgium is a highly developed, long-time economic partner of the United States that benefits from an extremely well-educated workforce, world-renowned research centers, and the infrastructure to support a broad range of economic activities. Brexit and pandemic recovery create uncertainties and it is difficult to predict what the impacts will be on the Belgian economy.
Belgium has a dynamic economy and attracts significant levels of investment in chemicals, petrochemicals, plastic and composites; environmental technologies; food processing and packaging; health technologies; information and communication; and textiles, apparel and sporting goods, among other sectors.
To fully realize Belgium’s employment potential, it will be critical to address the fragmentation of the labor market. Jobs growth was accelerating until the COVID-19 pandemic, driven by the cyclical recovery and the positive impact of past reforms. Large regional disparities in unemployment rates persist, and there is a significant skills mismatch in several key sectors. Temporary unemployment skyrocketed to 1.26 million workers in April, 2020, but it is uncertain how the pandemic will impact overall unemployment in 2020.
France welcomes foreign investment and has a stable business climate that attracts investors from around the world. The French government devotes significant resources to attracting foreign investment through policy incentives, marketing, overseas trade promotion offices, and investor support mechanisms. France has an educated population, first-rate universities, and a talented workforce. It has a modern business culture, sophisticated financial markets, a strong intellectual property rights regime, and innovative business leaders. The country is known for its world-class infrastructure, including high-speed passenger rail, maritime ports, extensive roadway networks, public transportation, and efficient intermodal connections. High-speed (3G/4G) telephony is nearly ubiquitous.
In 2019, the United States was the leading foreign investor in France with a stock of foreign direct investment (FDI) totaling over $87 billion. More than 4,500 U.S. firms operate in France, supporting nearly 500,000 jobs. The United States exported $59.6 billion of goods and services to France in 2019.
Following the election of French President Emmanuel Macron in May 2017, the French government implemented significant labor market and tax reforms. By relaxing the rules on companies to hire and fire employees and by offering investment incentives, Macron has buoyed ease of doing business in France. However, Macron will likely delay or abandon the second phase of his envisioned reforms for unemployment benefits and pensions due to more pressing concerns related to the COVID-19 crisis.
Recent reforms have extended the investigative and decision-making powers of France’s Competition Authority. France implemented the European Competition Network or ECN Directive on April 11, 2019, allowing the French Competition Authority to impose heftier fines (above €3 million / $3.3 million) and temporary measures to prevent an infringement that may cause harm.
On December 31, 2019 the government issued a national security decree that lowered the threshold for State vetting of foreign investment from outside Europe from 33 to 25 percent and enhanced government-imposed conditions and penalties in cases of non-compliance. The decree further introduced a mechanism to coordinate the national security review of foreign direct investments with the European Union (EU Regulation 2019/452). The new rules entered into force on April 1, 2020. The list of strategic sectors was also expanded to include the following activities listed in the EU Regulation 2019/452: agricultural products, when such products contribute to national food supply security; the editing, printing, or distribution of press publications related to politics or general matters; and R&D activities relating to quantum technologies and energy storage technologies.
Economy and Finance Minister Bruno Le Maire announced on April 29, 2020 that France would further reinforce its control over foreign investments by including biotechnologies in the strategic sectors subject to FDI screening, effective on May 1, 2020 and through the end of the year. This includesloweringfrom 25 to 10 percent the threshold for government approval of non-European investment in French companies, which was implemented in response to the COVID-19 crisis to limit predatory acquisitions of distressed assets and is valid at least until the end of 2020.
In 2019 France passed a digital services tax. The 2019 tax law reduces corporate tax on profits over €500,000 ($550,000) to 31 percent for 2019, 28 percent in 2020, 26.5 percent in 2021 and 25 percent in 2022.
In 2020, the impact of the COVID-19 pandemic on France’s macroeconomic outlook will be severe. GDP shrank 5.8 percent in the first quarter of 2020 compared to the previous quarter, the sharpest economic contraction since 1949. France’s official statistical agency INSEE attributed this fall to the government’s restrictions on economic activity due to the pandemic. However, the GDP figure incorporates only two weeks of France’s confinement, which began March 17, leading economists to predict that second quarter figures will be significantly worse. The Q1 figure marks the second consecutive quarter of economic contraction, after shrinking 0.1 percent in Q4 of 2019, meaning France has officially fallen into a technical recession. Finance Minister Bruno Le Maire announced in April 2020 that he expects economic activity to decline by 8 percent in 2020, the public deficit to increase to 9 percent of GDP, and debt to rise to 115 percent of GDP.
In response to the economic impact of the pandemic, the government launched a €410 billion ($447 billion) emergency fiscal package in March 2020. The bulk of the package aims to support businesses through loan guarantees and deferrals on tax and social security payments. The remainder is allocated to stabilizing households and demand, largely through its €24 billion ($26 billion) temporary unemployment scheme that allows workers to stay home while continuing to collect a portion of their wages.
Although France’s emergency fund is sizeable at 16 percent of GDP, it is not sufficient to fully absorb the economic impact of the pandemic. Key issues to watch in 2020 include: 1) the degree to which COVID-19 continues to agitate the macroeconomic environment; and 2) the size and scope of recovery measures, including additional fiscal support from the government of France, a broader EU rescue package, and the monetary response from the European Central Bank.
As Europe’s largest economy, Germany is a major destination for foreign direct investment (FDI) and has accumulated a vast stock of FDI over time. Germany is consistently ranked as one of the most attractive investment destinations based on its reliable infrastructure, highly skilled workforce, positive social climate, stable legal environment, and world-class research and development.
The United States is the leading source of non-European foreign investment in Germany. Foreign investment in Germany mainly originates from other European countries, the United States, and Japan. FDI from emerging economies (and China) has grown slowly over 2015-2018, albeit from low levels.
The German government continues to strengthen provisions for national security screening inward investment in reaction to an increasing number of high-risk acquisitions of German companies by foreign investors in recent years, particularly from China. German authorities strongly support the European Union framework to coordinate Member State screening of foreign investments, which entered into force in April 2019, and are currently enacting implementing legislation.
In 2018, the government lowered the threshold for the screening of investments, allowing authorities to screen acquisitions by foreign entities of at least 10 percent of voting rights of German companies that operate or provide services related to critical infrastructure. The amendment also added media companies to the list of sensitive businesses.
Further amendments, still in draft as of May 2020, will
a) introduce a more pro-active screening based on “prospective impairment” of public order or security by an acquisition, rather than a de facto threat,
b) take into account the impact on other EU member states, and
c) formally suspend transactions during the screening process.
Furthermore, acquisitions by foreign government-owned or funded entities will now trigger a review, and the healthcare industry will be considered a sensitive sector to which the stricter 10% threshold applies. The Federal Ministry for Economic Affairs and Energy said it would draft a further amendment later in 2020 which would include a list of sensitive technologies (similar to the current list of critical infrastructure) to include artificial intelligence, robotics, semiconductors, biotechnology, and quantum technology. Foreign investors who seek to acquire at least 10% of ownership rights of a German company in one those fields would be required to notify the government and potentially become subject to an investment review. With these draft and planned amendments, Germany is implementing the 2019 EU Screening Regulation.
German legal, regulatory, and accounting systems can be complex and burdensome but are generally transparent and consistent with developed-market norms. Businesses operate within a well regulated, albeit high cost, environment. Foreign and domestic investors are treated equally when it comes to investment incentives or the establishment and protection of real and intellectual property. Foreign investors can rely on the German legal system to enforce laws and contracts; at the same time, this system requires investors to closely track their legal obligations. New investors should ensure they have the necessary legal expertise, either in-house or outside counsel, to meet all national and EU regulations.
German authorities are committed to fighting money laundering and corruption. The government promotes responsible business conduct and German SMEs are aware of the need for due diligence.
The Netherlands consistently ranks among the world’s most competitive industrialized economies. It offers an attractive business and investment climate and remains a welcoming location for business investment from the United States and elsewhere.
Strengths of the Dutch economy include the Netherlands’ stable political and macroeconomic climate, a highly developed financial sector, strategic location, well-educated and productive labor force, and high-quality physical and communications infrastructure. Investors in the Netherlands take advantage of its highly competitive logistics, anchored by the largest seaport and fourth-largest airport in Europe. In telecommunications, the Netherlands has one of the highest internet penetrations in the European Union (EU) at 96 percent and hosts one of the largest data transport hubs in the world, the Amsterdam Internet Exchange.
The Netherlands is among the largest recipients and sources of foreign direct investment (FDI) in the world and one of the largest historical recipients of direct investment from the United States. This can be attributed to the Netherlands’ competitive economy, historically business-friendly tax climate, and many investment treaties containing investor protections. The Dutch economy has significant foreign direct investment in a wide range of sectors including logistics, information technology, and manufacturing. Dutch tax policy continues to evolve in response to EU attempts to harmonize tax policy across member states.
In the wake of the worldwide financial crisis a decade ago, the Dutch government implemented significant reforms in key policy areas, including the labor market, the housing sector, the energy market, the pension system, and health care. Dutch reform policies were crafted in close consultation with key stakeholders, including business associations, labor unions, and civil society groups. This consultative approach, often referred to as the Dutch “polder model,” is how Dutch policy is generally developed.
Until the coronavirus crisis, years of recovery and associated “catch-up” economic growth had placed the Dutch economy in a very healthy position, with successive years of a budget surplus, public debt that is well under 50 percent of GDP, and record-low unemployment of 3.5 percent. This has allowed the Dutch government significant fiscal space to implement coronavirus relief measures aimed at specific commercial sectors and at the economy at large.
Prior to the coronavirus crisis, the Netherlands Bureau for Economic Policy Analysis (CPB) forecast stable but low growth for the coming years, with annual GDP growth at around 1.5 percent. The CPB has now revised its projection downward, with various scenarios of economic decline and recovery depending on the duration of coronavirus-related mitigation measures. In late March, the CPB calculated four scenarios, all of which anticipate a recession, and the Netherlands is bracing itself for an across-the-board economic decline, the full ramifications of which are not yet captured in CPB models.
In the best-case scenario, which involves three months of mitigation measures, the Dutch economy shrinks 1.2 percent in 2020 with unemployment of around 4 percent, and grows 3.5 percent in 2021 with unemployment of around 4.5 percent. Scenario two involves six months of mitigation measures in which the economy shrinks 5 percent in 2020 and grows 3.8 percent in 2021. Scenario three involves six months of mitigation measures in which the economy shrinks 7.7 percent in 2020 and grows 2 percent in 2021. In the worst-case scenario which involves 12 months of mitigation measures and additional problems in the Dutch financial sector and from abroad, the Dutch economy shrinks 7.3 percent in 2020 with unemployment of around 6.1 percent, and shrinks 2.7 percent in 2021 with unemployment of around 9.4 percent. In the worst-case scenario, government debt will reach 73.6 percent of GDP at the end of 2021.
The Netherlands is a top destination for U.S. FDI abroad, holding just under $900 billion out of a total of $6 trillion total outbound U.S. investment – about 16 percent. For the Netherlands, inbound FDI from the United States represents 17 percent of total inbound FDI. Dutch investors contribute $367 billion FDI to the United States of the $4 trillion total inbound FDI– about 10 percent. For the Netherlands, outbound FDI to the United States represents 16 percent of all Dutch direct investment abroad.