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Economy of Belgium

From Academic Kids

Template:Economy of Belgium table Belgium, a highly developed market economy, belongs to the Organisation for Economic Co-operation and Development (OECD), a group of leading industrialized democracies. In recent years, with a geographic area about equal to that of Maryland, and a population of just over 10 million, Belgium's GDP level has placed it in the top 20 for all countries of the world. In 1999, the per capita income was $25,576.

Densely populated Belgium is located at the heart of one of the world's most highly industrialized regions. The first country to undergo an industrial revolution on the Continent of Europe in the early 1800s, Belgium developed an excellent transportation infrastructure of ports, canals, railways, and highways to integrate its industry with that of its neighbours. One of the founding members of the European Community (EC), Belgium strongly supports deepening the powers of the EC to integrate European economies. Belgium became a first-tier member of the Economic and Monetary Union in January 1999.

With exports equivalent to about two-thirds of GNP, Belgium depends heavily on world trade. Belgium exports twice as much per capita as Germany and five times as much as Japan. Belgium's trade advantages are derived from its central geographic location, and a highly skilled, multilingual, and productive work force.

The Belgian industrial sector can be compared to a complex processing machine: It imports raw materials and semi finished goods that are further processed and re-exported. Except for its coal, which is no longer economical to exploit, Belgium has virtually no natural resources. Nonetheless, most traditional industrial sectors are represented in the economy, including steel, textiles, refining, chemicals, food processing, pharmaceuticals, automobiles, electronics, and machinery fabrication. Despite the heavy industrial component, services account for 72.5% of GDP. Agriculture accounts for only 1.4% of the GDP.

Contents

Belgian economy in the 20th century

For 200 years through World War I, French-speaking Wallonia was a technically advanced, industrial region, while Dutch-speaking Flanders was predominantly agricultural. This disparity began to fade during the interwar period. When Belgium emerged from World War II with its industrial infrastructure relatively undamaged, the stage was set for a period of rapid development, particularly in Flanders. The postwar boom years, enhanced by the establishment of the EU and NATO headquarters in Brussels, contributed to the rapid expansion of light industry throughout most of Flanders, particularly along a corridor stretching between Brussels and Antwerp (now the second-largest port in Europe after Rotterdam), where a major concentration of petrochemical industries developed.

The older, traditional industries of Wallonia, particularly steelmaking, began to lose their competitive edge during this period, but the general growth of world prosperity masked this deterioration until the 1973 and 1979 oil price shocks and resultant shifts in international demand sent the economy into a period of prolonged recession. In the 1980s and 1990s, the economic center of the country continued to shift northwards to Flanders.

The early 1980s saw the country facing a difficult period of structural adjustment caused by declining demand for its traditional products, deteriorating economic performance, and neglected structural reform. Consequently, the 1980-82 recession shook Belgium to the core--unemployment mounted, social welfare costs increased, personal debt soared, the government deficit climbed to 13% of GDP, and the national debt, although mostly held domestically, mushroomed.

Against this grim backdrop, in 1982, Prime Minister Martens' center-right coalition government formulated an economic recovery program to promote export-led growth by enhancing the competitiveness of Belgium's export industries through an 8.5% devaluation. Economic growth rose from 2% in 1984 to a peak of 4% in 1989. In May 1990, the government linked the franc to the German mark, primarily through closely tracking German interest rates. Consequently, as German interest rates rose after 1990, Belgian rates have increased and contributed to a decline in the economic growth rate.

In 1992-93, the Belgian economy suffered the worst recession since World War II, with the real GDP declining 1.7% in 1993. Growth improved in 1999, with real GDP growing by an estimated 2.2% (year-on-year) versus the 2% figure recorded in 1998. Business investment (up 4.0% in real terms) and exports (up 4.4%) provided the economy's impetus. Private consumption, held back by weak consumer confidence and stagnant real wages, grew by 1% in real terms and public consumption by 0.9%.

Regional differences

An in-depth discussion of Belgian economy cannot then also mention the main differences between the main Belgian regions. As a matter of fact (cfr. statistics from Eurostat and OECD), Flemish economy is quite different from the Walloon economy, and the two main cities, Brussels and Antwerp, both have some very particular strengths (but also, taken together, over 95% of all daily traffic jams).

Flemish & Walloon economy:

  • productivity is +/- 20% higher per inhabitant in Flanders then in Wallonia (difference per person employed being lower as the percentage of persons employed is lower in Wallonia, see also further below);
  • Flanders managed to attract more, and more diversified investments from multinationals while Walloon economy relied more on heavy industry, and suffered more from the worldwide move away from it;
  • Wallonia has roughly 3/4 as much public servants per 1000 employees, compared with European union averages; Flanders sits roughly 1/4 above EU average;
  • unionisation is stronger in Wallonia, and more confrontationalist, left-leaning (socialist FGTB) whereas in Flanders the more conciliatory Christian-Democratic unions dominate;
  • Flemish economy has a higher spending in research & development, mainly trough a higher private R&D spending, also thanks to higher public R&D spending by the Flemish authorities;
  • unemployment remained consistently twice as high in Wallonia as in Flanders during most of the last 20 years;
  • language skills and general education level are considerably better in Flanders; recent international studies position Flemish education in OECD or EU top quarter, versus bottom quarter for education in the French-speaking community (education being a community competence and not a regional competence);
  • many areas in Flanders, and especially Antwerp and Brussels, have persistent shortages for many skilled or highly skilled functions.

Brussels

Being the de facto European capital, its economy is massively service-oriented. It is heavily dominated by regional headquarters of multinationals, by European institutions, by the still heavily (over)populated Belgian administrations, and by related services. Brussels also has more commuters coming mainly from Flanders, closely followed by commuters from Wallonia (and far smaller numbers of commuters from the Netherlands and France), then local employment. Within Brussels, the unemployment rate is higher than in the other Belgian regions (currently above 20%!). This is mainly explained by a combination of:

  • a local public policy widely recognised as bureaucratic, insensitive and rather hostile towards private companies;
  • higher taxation rates then in Flanders and Wallonia
  • a high percentage of mono-lingual French-speakers (Flemings in Brussels generally speak two languages or more), combined with mismatch between education and labour market needs (tellingly the Brussels-based VW car manufacturing plant found only 7% of its latest new employees in the Brussels region, mainly because of sheer absence of technically trained people in Brussels);
  • a high percentage of immigrants (>25%) with an average education level far below that of native Belgians;
  • extremely poorly functioning public employment agency and more in general public administrations and local political institutions showing sub-standard performance (somewhat 'boxing above their weight' compared especially with Flemish institutions).

Nevertheless, the international role of Brussels provides Belgium with unique opportunities for economic growth. Private companies and international experts stress that improvements can be made (and quite rapidly) by much better education / retraining of the unemployed (both in technical as in language skills), by slimming down public bureaucracy and regulations, and trough significantly better cooperation with Flemish and Walloon authorities.

Antwerp

The Antwerp agglomeration is the second economic centre in Belgium, behind Brussels, and way before the other centers. Its economy relies on:

  • its port (2nd in Europe) and related transport activities (the Antwerp freight railway station accounts for 1/3 of Belgian freight traffic);
  • diamond trade (and to a much lesser and decreasing extent, diamond processing): Antwerp is the first diamond market in the world; diamond exports account for roughly 1/10th of Belgian exports;
  • chemical industry: the Antwerp-based BASF plant is the largest BASF-base outside Germany, and accounts on its own for +/- 2% of Belgian exports;
  • diversified industrial and service activities: car manufacturing, telecommunications, photographic products, ....

Recent stagnation on economy appears related with a rather undynamic and unstable city government, expensive local public administration, rather high taxation by local and Belgian authorities (compared with competing centres abroad) and by relatively low innovation in several sectors.

Foreign investment

Foreign investment contributed significantly to Belgian economic growth in the 1960s. In particular, U.S. firms played a leading role in the expansion of light industrial and petrochemical industries in the 1960s and 1970s. The Belgian Government encourages new foreign investment as a means to promote employment. With regional devolution, Flanders, Brussels, and Wallonia are now courting potential foreign investors and offer a host of incentives and benefits.

More than 1,200 U.S. firms had invested a total of over $20 billion (20 G$) in Belgium by 1999. U.S. and other foreign companies in Belgium account for approximately 11% of the total work force, with the U.S. share at about 5%. U.S. companies are heavily represented in chemical, automotive assembly, and petroleum refining. A number of U.S. service industries followed in the wake of these investments--banks, law firms, public relations, accounting and executive search firms. The resident American community in Belgium now exceeds 20,000. Attracted by the EU 1992 single-market program, many U.S. law firms and lawyers have settled in Brussels since 1989. Other foreign firms, particularly French ones, have invested locally for the same reason.

Monetary

On May 1, 1998, Belgium became a first-tier member of the Economic and Monetary Union. On January 1, 1999, the definitive exchange rate between the Euro and the BF was established at BF 40.3399. Belgium will gradually shift from the use of the BF to the use of the Euro as its currency by January 1, 2002. To minimize confusion the old BF currency and the new Euro will only overlap for a period of 2 months. After that, the BF will be withdrawn from circulation and can only be changed into Euros at the local offices of the National Bank of Belgium.

Trade

About 80% of Belgium's trade is with fellow EC member states. Given this high percentage, it seeks to diversify and expand trade opportunities with non-EC countries. Belgium ranks as the 10th-largest market for the export of U.S. goods and services. If goods in transit to other European countries are excluded, Belgium still ranks as the 12th-largest market for U.S. goods.

Bilaterally, there are few points of friction with the U.S. in the trade and economic area. The Belgian authorities are, as a rule, anti-protectionist and try to maintain a hospitable and open trade and investment climate. The U.S. Government focuses its market-opening efforts on the EC Commission and larger EC member states. In addition, the EC Commission negotiates on trade issues for all member states, which, in turn lessens bilateral trade disputes with Belgium.

Employment

The social security system, which expanded rapidly during the prosperous 1950s and 1960s, has numerous programs, including a medical system, unemployment insurance coverage, child allowances, invalid benefits and other benefits and pensions. With the onset of a recession in the 1970s, this system became an increasing burden on the economy and accounted for much of the government budget deficits. Unemployment, which declined from a high of 14.3% in 1984 to an average of 8.5% in 1999, has become less of a problem recently. However, more than 60% of the unemployed have been so for over 2 years and over 80% for at least one year.

The national unemployment figures mask considerable differences between Flanders and Wallonia. Unemployment in Wallonia is mainly structural, while in Flanders it is cyclical. Flanders' unemployment level equals only half that of Wallonia. In general, sunset industries (mainly coal and steel) dominate in Wallonia and sunrise industries (chemicals, high-tech, and services) in Flanders.

From the second half of 1999 onward, Belgian unemployment figures declined substantially to 8.5%, one percentage point below the European average. Labour market participation also increased significantly from 54% in 1993 to 58.5% in 2000. In some sectors, labour shortages are already beginning to appear. To partly offset the increased labour costs which go with a tight labour market, the Belgian Government introduced stock option legislation for salaried employees in 1999.

Budget

Although Belgium is a wealthy country, it overspent income and under-collected taxes for years. The Belgian Government reacted with poor macroeconomic policies to the 1973 and 1979 oil price hikes: it hired the redundant work force into the public sector and subsidized ailing industries--coal, steel, textiles, glass, and shipbuilding--in order to prop up the economy. As a result, cumulative government debt reached 121% by the end of the 1980s (versus a cumulative U.S. federal public debt/GNP ration of 31.2% in 1990). However, thanks to Belgium's high personal savings rate, the Belgian Government managed to finance the deficit from mainly domestic savings, which minimized the deleterious effects on the overall economy.

The main objective of Belgian Government economic policy in recent years has been to attain a budget deficit of 3% by the end of 1997, a goal that was successfully attained. This was one of the five criteria for membership into the first-tier group of the Economic and Monetary Union (EMU) under the Maastricht treaty. Historically, Belgium has done relatively better on its budget in times of cyclical downswings. The total budget deficit in 1999 (federal, regional plus social security) amounted to 1.2% of GDP. This represents a substantial decrease from the 7.1% deficit recorded in 1992, as well as a significant difference from the expected figure of 2%, well within the Maastricht criterion.

Belgium cannot possibly bring its accumulated debt down from the 1999 level of 113% of GDP to the Maastricht target of 60%. In order to meet the "substantial progress" criterion" for its debt, Belgium has run a substantial primary surplus (excluding interest payments), reaching 6.2% of GDP in 1999.

Overview

This modern private enterprise economy has capitalized on its central geographic location, highly developed transport network, and diversified industrial and commercial base. Industry is concentrated mainly in the populous Flemish area in the north, although the government is encouraging investment in the southern region of Wallonia. With few natural resources, Belgium must import substantial quantities of raw materials and export a large volume of manufactures, making its economy unusually dependent on the state of world markets. About three-quarters of its trade is with other EU countries. Belgium's public debt fell from 127% of GDP in 1996 to 122% of GDP in 1998 and the government is trying to control its expenditures to bring the figure more into line with other industrialized countries. Belgium became a charter member of the Economic and Monetary Union (EMU) in January 1999. The dioxin crisis - beginning in June 1999 with the discovery of a cancer-causing substance in animal feed - constituted a serious blow to the food-processing industry, both domestically and internationally. This crisis slowed down GDP growth with recovery expected in the year 2000.

Industrial production growth rate: -1% (1999 est.) <p>Electricity - production: 78,702 GWh (1998) <p>Electricity - production by source:
fossil fuel: 42.48%
hydro: 0.49%
nuclear: 55.72%
other: 1.31% (1998) <p>Electricity - consumption: 74,543 GWh (1998) <p>Electricity - exports: 6,400 GWh (1998) <p>Electricity - imports: 7,750 GWh (1998) <p>Agriculture - products: sugar beets, fresh vegetables, fruits, grain, tobacco; beef, veal, pork, milk <p>Exports - commodities: machinery and equipment, chemicals, diamonds, metals and metal products <p>Imports - commodities: machinery and equipment, chemicals, metals and metal products <p>Imports - partners: EU 71% (Germany 18%, Netherlands 17%, France 14%, UK 9%) (1998) <p>Currency: 1 Euro (€) = 100 cents (centimes in French) (Pre-1999: 1 Belgian franc (BF) = 100 centimes) <p>Exchange rates: euros per US$1 - 0.9867 (January 2000), 0.9386 (1999); Belgian francs (BF) per US$1 - 34.77 (January 1999), 36.229 (1998), 35.774 (1997), 30.962 (1996), 29.480 (1995)
note: on 1 January 1999, the EU introduced a common currency that is now being used by financial institutions in some member countries at a fixed rate of 40.3399 Belgian francs per euro; the euro will replace the local currency in consenting countries for all transactions in 2002 <p>Fiscal year: calendar year

Reference

Much of the material in this article comes from the CIA World Factbook 2000 and the 2003 U.S. Department of State website.

See also


 
European Union (EU)
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