US Direct Investment in Belgium Report Study commissioned to Vlerick Leuven Gent Management School

Transcription

1 US Direct Investment in Belgium Report 2010 Study commissioned to Vlerick Leuven Gent Management School November 2010

2 2 TABLE OF CONTENTS INTRODUCTION 3 I. FOREIGN DIRECT INVESTMENT IN THE WORLD Global FDI outflows Global FDI inflows Global FDI stocks 11 II. FOREIGN DIRECT INVESTMENT : BELGIUM 13 III. US DIRECT INVESTMENT IN THE WORLD AND THE EUROPEAN UNION 15 III.1 USDI in the World 15 III.2 USDI in Europe 20 IV. UNITED STATES DIRECT INVESTMENT IN BELGIUM 24 IV.1 USDI Inflows in Belgium 24 IV.2 USDI Stock in Belgium 27 V. STRUCTURE AND EVOLUTION OF US AFFILIATES IN BELGIUM 31 V.1 Value Added 31 V.2 Employment 32 V.3 Employment by US affiliates in Belgium by sub-sector 35 V.4 Profitability 38 V.5 Research and Development activities 39 VI. LARGEST US FIRMS IN BELGIUM 41 CONCLUSIONS 43 ABBREVIATIONS AND GLOSSARY 46 APPENDICES 47 BIBLIOGRAPHY 50

3 3 Introduction This 2010 edition of the American Chamber of Commerce in Belgium s Annual Report on United States Direct Investment in Belgium examines the structure and evolution of the activities of US-owned affiliates operating in Belgium. In addition, the report reviews major trends in the level of US direct investment in Belgium as well as in global direct investment flows. The financial crisis of had a substantial negative impact on the level of foreign direct investment (FDI) flows. Belgium, one of the most open economies in the world, was strongly hit by these developments. Since 2010 the situation started improving and the outlook for the next two years is rather positive. These positive changes in FDI in 2010 are reversing the situation in the right direction. It is not only the financial crisis that is affecting FDI flows. There are important structural changes in the world economy that have an equally profound effect on FDI, and consequently on Belgium s attractiveness. The first and most important structural change is the global rebalancing. In 1960, the United States accounted for over 40% of world economic activity. By 2008, they accounted for only over 20% of world economic activity. A similar change occurred in other developed countries, including the older EU countries. Conversely, the share of world output accounted for by developing nations is rising and is expected to account for more than 60% of world economic activity by This rebalancing has a strong impact on foreign direct investment. In the 1960s, US firms accounted for about two-thirds of worldwide FDI flows. Today, the United States accounts for less than one-fifth of worldwide FDI flows. Also the share of EU countries is declining. The post-war growth and integration of EU countries has given a strong boost to crossborder investment, with the share of the EU in FDI outflows growing over a considerable period of time. More recently, the strong growth in FDI by firms from developing countries has been reducing the relative importance of EU investments in total FDI outflows. Developing countries, especially China, have also become popular destinations for FDI. The global economy has also shifted in terms of the types of companies that are involved in FDI. Since the 1960s, there has been a strong rise in non-us multinationals, and a growth of new smaller multinationals originating from different types of industries. In the same period off-shoring of activities has been increasingly used by Western companies to improve their global competitive position on world markets. Another important trend is the emphasis on sustainable investment; in other words, investments in energy saving and ecological friendly production processes and products. Not only has this created rapidly developing clean technology sectors in which new multinationals emerged; it has also stimulated new foreign direct investment to lower the ecological footprint of existing activities in foreign countries. A final important trend is the changing role of national governments in the local economies and social systems of countries. The social models of many Western countries are increasingly challenged by changes in demographic structure, including ageing populations and rising immigration flows. At the same time, the continuing liberalization and deregulation

4 4 of industries especially services industries is creating new opportunities for firms to operate across borders and to widen their networks. Equally interesting opportunities arise in developing countries that are opening their markets for foreign direct investment. It is against the background of this rapidly changing global environment that the figures reported in this report should be interpreted. Considered as the most globalized country in the world (KOF foundation), Belgium is increasingly challenged by the rapid and drastic developments in the world economy. Study commissioned by AmCham Belgium Priscilla Boiardi Professor Leo Sleuwaegen Vlerick Leuven Gent Management School

5 5 I. Foreign Direct Investment in the World I.1 GLOBAL FDI OUTFLOWS Outward flows of FDI (or FDI abroad) report (financial) investment by entities resident in the reporting economy in an affiliated enterprise abroad. 1 The financial and economic crisis of had an extremely negative impact on foreign direct investments on a global level. After strong growth in FDI flows from 2002 to 2007, global FDI plummeted in both 2008 and Global FDI flows only reached a total value of $1,101 billion in 2009, or 53 % of its value in the pre-crisis year of The decrease in global FDI flows was larger in 2009 than in 2008, especially for FDI flows coming from developed economies. Developing and transition economies also experienced, for the first time, a decrease in outflows in In 2009, total outflows of FDI equaled $280 million, which is 20% less than its value in The decline in world FDI flows in 2009 was in sharp contrast to the steady increases in FDI outflows from developing countries over the period After the marked downturn in 2009, the outlook for 2010 is rather positive, with world FDI flows expected to increase in 2011 and to fully recover to their pre-crisis level by Source regions About 75% of the total volume of FDI in 2009 came from developed countries, a 6% decrease compared to Developing and transition economies 2 saw their share of world FDI flows increase to 25%. Figure 1: FDI outflows, global and by groups of economies, ($ billion) Source: UNCTAD World Investment Report Source: Eurostat 2 Developing economies are: Africa, Latin America and the Caribbean, South, East and South East Asia and Oceania. Transition economies are South East Europe and CIS.

6 6 In 2009, Europe 3 maintained its position as the primary source of FDI in The share of European countries in world FDI flows was 53%, 3% smaller in the period compared to the period. EU countries accounted for 49% of the total, 41% of which consisted of intra-eu cross border flows and 8% of FDI flows to countries outside the EU in the period (see Figure 2) 4. Figure 2: Regional shift in FDI outflows (% of worldwide outflows) Source: UNCTAD World Investment Report 2010 The share of US firms in worldwide FDI inflows experienced a 3% increase over the same period. Other Developed Countries experienced a 12% decrease while Developing Countries strengthened their position with a 12% increase. The strongest growth came from the developing countries in Asia and Oceania. Latin America and the Caribbean experienced a 2% increase, and other developing economies a 3.7% increase. Outward FDI from all the major source countries strongly decreased in absolute terms from 2008 to The biggest decreases worldwide were for the United Kingdom and Germany. The UK s contributions dropped by 84% (from $111 billion to $18 billion) while Germany s contribution dropped by 60% *from $156 billion to $63 billion. These sharp falls were the result of a strong decline in cross-border M&As. Not only did the number of M&As drop, so too did the size of the deals that were concluded. In spite of these recent declines, the United States and France remained the largest source countries for FDI in 2009, accounting for 36% of the global amount. The top ten source countries covered 57% of the global FDI outflows in 2009, 2% less than in Europe includes Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Latvia, Lithuania, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom, Gibraltar, Iceland, Norway and Switzerland. The European Union (27) includes Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Latvia, Lithuania, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. 4 Data for on intra-european flows is not available. Eurostat defines foreign direct investment (FDI) as the category of international investment made by a resident entity (direct investor) to acquire a lasting interest in an entity operating in an economy other than that of the investor (direct investment enterprise). The lasting interest is deemed to exist if the investor acquires at least 10 % of the equity capital of the enterprise.

7 7 Figure 3: Largest FDI sources ($ billion) Source: UNCTAD World Investment Report 2010 Sectoral distribution In terms of the sectoral 5 distribution of FDI in the period , firms belonging to the service sector represented 61% of total FDI outflows ($1,138 billion), a 10% increase compared to the period The primary sector also increased its share - by 3% - over the same period. Conversely, manufacturing industries experienced a 15% decrease in FDI outflows during this period. 5 Primary sectors include: Minerals; Coal, oil and natural gas; Alternative/renewable energy. Manufacturing includes: Food, beverages and tobacco; Textiles; Wood and wood products; Chemicals and chemical products; Non-metallic minerals; Metals; Machinery and equipment; Electrical and electronic equipment; Medical devices; Motor vehicles and other transport equipment; Consumer products. Services include: Hotels and tourism; Transport, storage and communications; Financial services; Business activities; Space and defense, Healthcare, Leisure and entertainment.

8 Figure 4: Global FDI outflows evolution of sectoral distribution Source: UNCTAD World Investment Report 2010 I.2 GLOBAL FDI INFLOWS Inward flows of FDI report investment by foreign entitities in affiliated enterprises resident in the reporting economy. Data on global FDI inflows, the mirror image of FDI outflows, show the same contraction for the year The economic crisis negatively affected the number and value of M&A 6 transactions throughout 2009, as it did in Both uncertainty about future conditions and the reduced availability of funds were largely responsible for the decline in merger and acquisition activity. However, the negative impact on M&A activity appears to have come to an end. During the first five months of 2010, crossborder M&As rose by 36% compared to the same period in the previous year 7. Data on FDI inflows per region show that Europe was the largest recipient of FDI in the past two years. However,its share dropped from 48% during the period from 1989 to 1991 and to 38% from 2007 to 2009 The European Union accounted for 37% of the total global inward FDI. Following the figures for FDI outflows, about 83% of the total flows in Europe are intra- EU - i.e. FDI from one EU country to another EU country. 6 The main causes of the reduction in M&A activity during the past year can be found among others in the increased difficulty in equity and debt financing of M&A and the deterioration of banks lending conditions. 7 Source: UNCTAD World Investment Report

9 9 The US, as the second major recipient region, saw its share of FDI inflows shrink from 25% in the period to 14% in the period (see figure 5). Other developed economies share of FDI inflows remained constant over the period Figure 5: Regional shift in FDI inflows (% of worldwide inflows) Source: UNCTAD World Investment Report 2010 The decline in the share of FDI inflows to developed countries went together with a 20% increase in the share of FDI inflows to developing economies. The biggest increase - 8% - in FDI inflows was experienced by Asia and Oceania, indicating the increasing significance of developing countries as recipients of foreign direct investments. The shift of FDI inflows from developed to developing economies becomes even clearer by looking at aggregate data. In the period , developed economies accounted for 81% of total world FDI inflows, while in the period this share declined to 61%. This indicates that the landscape has changed, with developing economies increasingly the preferred targets for new international direct investments. Country level data show a contraction in FDI inflows towards all the main developed country recipients, except Germany and Italy. These countries both showed a small increase in 2009 after the fall experienced in The decline in FDI flows that started in 2008 continued for most of the top FDI recipients in 2009, with the biggest losses registered by the United States (-59%), Canada (-58%) and the United Kingdom (-53%). In contrast, Germany experienced a 44% increase compared to 2008, despite the value of global FDI inflows being 36% below those reached in Italy also showed signs of recovery, with FDI inflows reaching $31 billion, a 82% increase. However, this value is still 22% lower than the value registered in the pre-crisis year Notwitstanding these developments, in 2009 the United States remained the largest recipient of FDI ($130 billion), followed by China ($95 billion) and France ($60 billion). Some changes therefore took place in the top ten. China surpassed France to become the second main beneficiary of FDI in Hong Kong s value also decreased in 2009 but it gained one position, reaching number four. Both the UK and Belgium lost significance. In this regard, Belgium s figures show the same trend as other developed countries, with a 44% decrease in FDI inflows from 2008 to 2009.

10 10 Figure 6: Global FDI inflows, top 10 recipients ($ billion) Source: UNCTAD World Investment Report 2010 It is interesting to note that in response to worsening economic situation and the fall in FDI, about 70% of the new policy measures affecting FDI in 2009 were favourable to attracting new investments, especially in Asian and African countries. This contrasts with the situation in 2008 when, in a significant number of countries, a more restrictive FDI approach had emerged.

11 11 I.3 GLOBAL FDI STOCKS Who invested more abroad? Outward FDI stock FDI flows are new investment made during the reference period, whereas FDI stocks provide information on the position, in terms of value, of new and previous investments at the end of the reference period. Data on the stocks of FDI 8 show that in 2009 the European Union owned 47% of the global outward stock of FDI, 3% less than in US firms owned 23%, a 3% increase compared to the previous year. Japan s share was stable at 4%, while both Latin America and Asia and Oceania experienced a 1% decrease. The percentages for Japan, Africa and South- East Europe and CIS remained stable. From 1980 to 2009, the EU share of the total outward stock of FDI grew by 10%, while the US experienced a 15% decrease. The share of Asia and Oceania grew steadily over the period , but it experienced a small decrease to 10.2% in Figure 7: Outward FDI stock change in regional distribution (in %) Source: UNCTAD World Investment Report 2010 Who received most FDI? Incoming FDI stock The European Union is not only the region that is investing more abroad, it is also the main recipient of foreign investments: in 2009, the EU held 42% of the total stock of inward FDI. This data is of course affected by the large amount of intra-european cross-border investments triggered by the common European market 9. In % of outward FDI stock in Europe was located in EU27 countries. Of this amount, 55% represented intra-eu27 stocks. At the country level, the US remained the largest investor in terms of its share of the total world stock of inward FDI. 8 Stock data represent the cumulative sum of all past foreign direct investment. Inward stock represents the total investment in a country, while outward stock represents the total investment of a country abroad. 9 No data is available regarding the value of intra-eu FDI outflows. However, if we look at M&A data we see that in of the 10 largest cross-border M&As took place in the EU and 4 of these were intra-eu transactions. Another interesting figure as in the March 2009 issue of the ECB Bulletin shows that FDI inflows from third countries into the euro area declined sharply in 2008 to 50 billion, compared to the 365 billion figure of 2007.

12 12 Among developed countries, only the US was able to increase its share of the total world stock of inward FDI, from 15% to 18%. The shares of Japan and other developed economies remained stable at around 1% and 9% respectively. Figure 8: Inward FDI stock change in regional distribution (in %) Source: UNCTAD World Investment Report 2010 Developing countries from Asia and Oceania experienced a 5% increase between 1990 and 2009 in their share of the total world stock of inward FDI. With 16% of the total stock of FDI in 2009, these countries ranked third behind the EU and the US position in the regional rankings. Transition economies in South-East Europe and the CIS countries kept a small but stable share of 3%. In 2009, Africa and Latin America held 3% and 8% of the world stock of inward FDI, respectively.

13 13 II. Foreign Direct Investment: Belgium This section focuses on foreign direct investment in Belgium and on Belgian direct investment abroad, using data from the UNCTAD World Investment Report Looking at the overall FDI inflow rankings in 2009 among EU27 countries Belgium was back to the 4 th position it occupied in 2007, down from the 1 st position of The negative evolution that began in 2008 continued into 2009, with a slump in both FDI inflows and outflows for Belgium. After the positive growth of the period , inward FDI plummeted to a total value of $33.8 billion, equaling its value in The situation was even worse for outflows, which for the first time recorded a negative value of -$15 billion, implying strong disinvestments abroad. Figure 9: FDI inflows and outflows in Belgium ( ; $ billion) Source: UNCTAD World Investment Report 2010 The decline in FDI flows for Belgium is strongly related to the decrease in value and number of mergers and acquisitions. In Belgium, both the number of sales and number of purchases of firms decreased substantially from 2008 to 2009, in line with the trend experienced by all developed economies. Interestingly, while the (net) value of purchase deals plummeted to - $10 billion, the (net) value of sales deals increased to $12 billion in 2009.

14 14 Figure 10: Number and value of M&A-deals (sales and purchases) in Belgium ($ billion and number of deals) Source: UNCTAD World Investment Report 2010 The negative number and value of cross-border acquisitions or purchases by Belgian firms in 2009 is due to the high number of disinvestments by Belgian firms abroad. A divestment by a Belgian firm by means of selling a foreign affiliate abroad to a non-belgian firm is recorded as a negative purchase (WIR, methodological notes, 2010).

15 15 III. US direct investment in the world and the European Union III.1 USDI IN THE WORLD USDI Outflows Total US direct investment outflows dropped to $248 billion in 2009, a 25% decrease compared to Financial flows in 2009 consisted of re-invested earnings of $219 billion, net equity investments of $18 billion, and net inter-company debt investment of $10 billion 10. The numbers on USDI in 2009 presented in this report are based on provisional estimates by the BEA. Furthermore, differences in methodology between different institutions (e.g. UNCTAD, OECD) collecting and reporting data on FDI may limit the comparability of USDI and FDI stocks and flows. The provisional numbers published in this report reflect the most recent global trends and evolutions. Interpretation of these numbers, however, needs to be done with care. This report presents the most recent data on USDI. Data on direct investment positions and flows for 2009 are preliminary and based on estimates by the US Bureau of Economic Analysis. Furthermore, the revisions to USDI data made in 2007 and 2008 are incorporated in this report. Consequently, data on the USDI stocks and flows may differ from those presented in previous reports on USDI in Belgium. The total stock of USDI in the world for 2007 was revised up by $77 billion, to $2,994 billion. This revision is based on upward revisions of valuation adjustments and capital flows. Preliminary estimates for 2008 were revised $57 billion to $3,219 billion. This revision results from the 2008 adjustment and a revision of valuation adjustments and capital flows. The first preliminary data for 2010 show a marked improvement over the previous year in the value of US direct investments abroad. Worldwide outflows of USDI in the first quarter of 2010 were $187 billion, up from $103 billion in the first half of 2009 although still down from $194 billion in the first half of USDI Stock Position Taking a longer term perspective, the strong increase in USDI in 2007 together with the long-term average growth rate of 13% registered over the period meant that the total global stock value of USDI (at historical cost) increased less in It reached a value of $3,219 billion, a 9% growth compared to the previous year. In 2009 the total world stock of USDI remained stable at around $3,508 billion. When analyzing the data it is important to mention that valuation adjustments had an impact on these values: the position in 2008 was held back by an appreciation of the US dollar, while the position in 2009 was affected by currency depreciation. Table 1 shows the impact of valuation adjustments, which resulted from an appreciation of the dollar against major currencies, especially the Euro. 10 Source: BEA

16 16 Table 1: Alternative US Direct Investment position estimates (2008 and 2009, $ million) Position at Changes in 2009 Position at year end 2008 Total Capital flows Valuation adjustments year end 2009 Historical cost 3,219, , ,074 40,343 3,508,142 Current cost 3,742, , ,680 39,676 4,051,191 Market value 3,103,704 1,199, , ,467 4,302,851 Source: BEA BEA methodology for USDI data collection and valuation The BEA produces data on US MNCs based on balance of payments and direct investment position data and on financial and operating data of these MNCs and their affiliates. The value of transactions between US parents and their foreign affiliates and the cumulative value of parents investments in their affiliates are reported in the balance of payments and direct investment position data. The financial and operating data focus on indicators of the operations of US MNCs and their affiliates, irrespective of the degree of intra-firm funding. Data on the investment activities and their operations of US MNCs and their affiliates are collected by the BEA in its compulsory quarterly surveys. The survey results are used to make estimates for the total population of US affiliates abroad. More comprehensive data on the operational and investment activities of these firms are collected by means of a census of all US affiliates abroad. Detailed estimates of USDI stock by country and industry are prepared only on a historicalcost basis. As a result, these estimates largely reflect historical price levels. Current-cost and market-value estimates are prepared on an aggregate level. The current-cost estimates value the investment in plant and equipment using price indexes and estimates of replacement costs for the US parents shares of their affiliates investment. The market-value estimates use indexes of stock market prices to value the equity portion of direct investment. Generally, the current costs of tangible assets and the stock market valuations of firms tend to increase over time. Accordingly, the historical-cost estimates tend to be lower than the current-cost and market-value estimates of USDI stock. However, due to significant positive valuation adjustments in 2008 (-$930 billion), market-value estimates are lower than currentcost estimates. These significant valuation adjustments are due to the turbulence in financial markets in Table 1 and Figure 11 show the alternative valuation of USDI stock in 2008 and changes in USDI stock in 2009.

17 17 Figure 11: Alternative US Direct Investment position estimates (2008 and 2009, $ billion) Source: BEA USDI by destination region and country In 2009, Europe held $1,976 or 56% of the stock of USDI. As in previous years, a large part was located in The Netherlands ($471.6 billion) and the UK ($471.4 billion). Both countries strengthened their position in 2009, The Netherlands registering a 10% increase and the UK registering a 5% increase. The USDI stock in Canada increased from $239 billion to $260 billion in 2009, following an $11 billion decrease in In 2009, Canada, The Netherlands, and the UK held together one third of the worldwide stock of USDI. The stock of USDI in Europe increased by $149 billion in 2008 and by $ 145 billion in In the period , the stock of USDI in Europe grew by 17%. This growth was somewhat slower than for Latin American countries (+22%), the Middle East (+30%) and Africa (+37%). In Latin America, the USDI stock increased by $35 billion in 2008 and by $88 billion in 2009 to reached a value of $679 billion. The Asia/Pacific region held $511 billion in 2009, up from $444 billion in In Africa, the value of USDI stock increased by $8 billion and by $5 billion in the Middle East in Table 2: Change in global distribution of USDI stock, ($ billion) USDI USDI 2009 % change (07-09) Canada % Europe 1, ,976 17% Latin America % Africa % Middle East % Asia/Pacific % All countries 2, ,508 20% Source: BEA

18 18 The distribution of the stock of USDI across different regions remained fairly stable over time (cf. Fig 12 which compares the distribution of 2009 with that in 1996). In 1996, Europe held 49% of the global USDI stock and more than half (56%) of global USDI stock in The Asia Pacific region and Latin America lost some share from 1996 to 2009: Latin America s share dropped from 20% in 1996 to 19% in 2009 and Asia/Pacific s from 18% to 15%. After a drop in 2006, Canada s share further declined in 2007 and 2008, and was stable at 7% in Figure 12: Global distribution of USDI stock (1996 and 2009) Source: BEA In absolute value, in Europe USDI stock increased from $389 billion in 1996 to $1,976 billion in 2009, whereas USDI stock in other parts of the world increased from $406 billion in 1996 to $1,532 billion in Figure 13: USDI Stock in Europe and the rest of the world ( , $ billion) Source: BEA

19 19 Which regions and countries attract relatively more investments from the US than from the rest of the world? The relative representation of US investments worldwide can be illustrated by comparing the US share of the total FDI stock in a given country/region to the US share of the world stock of FDI. A value of this index (or ratio of the two shares) greater than 1 indicates a higher than average representation of US investment as compared to other investing countries in a given country/region. A value of this index smaller than 1 indicates a lower than average representation of US investment within a given country/region. As indicated in Figure 14, the representation of USDI was high in Japan, Canada and Latin America and low in Brazil, India, Russia, and China. This means that the BRIC countries attract more FDI from other countries than from the US. The representation of USDI in the EU-27 is also high, but substantially below its representation in Switzerland. Figure 14: Relative representation of USDI stock in the world (1996 and 2009) Source: UNCTAD World Investment Report 2010 and BEA

20 20 Table 3: FDI and USDI stock in selected countries and regions, 1996 and 2009 ($ million) USDI /FDI FDI 1996 FDI 2009 USDI 1996 USDI 2009 (%, 2009) Australia 116, ,090 30, ,370 32% Brazil 54, ,808 29,105 56,692 14% Canada 132, ,938 89, ,792 49% China 128, ,083 3,848 49,403 10% EU-27 1,245,097 7,447, ,704 1,773,403 24% India 8, ,959 1,344 18,610 11% Japan 29, ,141 34, ,643 52% Korea, Rep. of 11, ,770 6,508 26,953 24% Latin America 215,007 1,472,744 95, ,956 46% Mexico 46, ,523 19,351 97,897 32% Russia 8, ,456 1,334 21,328 8% Singapore 75, ,599 14,912 76,862 22% Sw itzerland 53, ,799 30, ,239 32% All countries 3,083,106 17,743, ,195 3,162,021 18% Source: UNCTAD World Investment Report 2010 and BEA As shown in Table 3, 49% of the foreign direct investment stock in Canada originated from the US, whereas the average proportion of USDI in total FDI across all countries is 18%. In Russia, on the other hand, the share of US direct investment in total foreign direct investment was only 8%. The EU-27 share of USDI in total FDI stock was above average at 24%. III.2 USDI IN EUROPE The stock of USDI in Europe increased by $166 billion in A large part of this increase, $117 billion or 70%, was in the EU-15 countries 11. However, in 2009, the USDI stock decreased in some of the EU-15 countries, following a downward trend that started in The strongest decreases took place in Sweden (-$10 billion), Denmark (-$ 960 million) and Portugal (-$508 million). Some EU-15 countries strengthened their position. The largest increase was in The Netherlands ($44 billion), followed by the United Kingdom ($21 billion) and Luxembourg ($ 21 billion). The USDI stock in Belgium increased by almost $5 billion in 2009, following the smaller increase of $2 billion in In 2009, Belgium represented $70 billion of the total USDI stock value. This represents 4% of the total stock of US direct investments in the EU-15 and almost 2% of the worldwide stock of USDI. 11 The European Union (15) includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom.

21 21 Table 4: Change in stock of USDI in EU-15 countries, ($ million) USDI USDI 2009 Austria 14,646 1,280 2,277 18,203 BELGIUM 62,491 2,537 4,745 69,773 Denmark 8,950 1, ,318 Finland 2, ,094 France 74,179 7,574 4,048 85,801 Germany 100,601 7,616 8, ,832 Greece 2, ,028 Ireland 117,708 28,964 19, ,924 Italy 28, ,791 31,470 Luxembourg 144,180 8,645 21, ,092 Netherlands 412,122 14,640 44, ,567 Portugal 2, ,461 Spain 61,093-10, ,644 Sw eden 36,615 1,388-10,585 27,418 United Kingdom 426,357 23,164 21, ,384 EU-15 1,494,530 87, ,356 1,699,009 Source: BEA Which countries of the EU-15 attract more USDI than other FDI? The relative representation of US investments across the EU-15 member states can be indicated by comparing the US share of the world stock of FDI in a given EU member state to the US share of the world stock of FDI in the EU-15 as a whole. Following this measure, USDI tends to be focused in a small number of EU-15 countries, mainly Luxembourg, Ireland, the Netherlands and the UK. Countries for which the focus of USDI increased relative to 1996 were Luxembourg, Ireland and The Netherlands. USDI in the EU-15 is not focused on Belgium, and with a reduction between 1996 and The loss in focus is not only due to a reduced value of investments by US companies in Belgium but also to an increased value of FDI flows towards Belgium originating from countries other than the US (cf. table 5). Figure 15: Relative representation of USDI stock in EU-15 countries (1996 and 2009) Source: UNCTAD World Investment Report 2009 and BEA (*Belgium and Luxembourg: estimated FDI 1996)

22 22 Table 5 shows total FDI stock and USDI stock in the EU-15 countries in 1996 and The share of USDI in the total stock of FDI in the EU-15 was 26% in 2009, while in Belgium it was only 8%. Luxembourg had the highest share of USDI in FDI 12. Table 5: Stock of FDI and USDI in EU-15 countries, 1996 and 2009 ($ million) USDI /FDI FDI 1996 FDI 2009 USDI 1996 USDI 2009 (%, 2009) Austria 19, ,550 2,854 18,203 11% BELGIUM* 107, ,101 18,740 69,773 8% Denmark 22, ,627 2,554 9,318 6% Finland 8,797 88, ,094 2% France 200,095 1,132,961 35,200 85,801 8% Germany 162, ,643 41, ,832 17% Greece 12,029 44, ,028 5% Ireland 46, ,302 10, ,924 86% Italy 74, ,990 16,193 31,470 8% Luxembourg* 16, ,626 7, , % Netherlands 126, ,669 54, ,567 79% Portugal 19, ,272 1,423 2,461 2% Spain 119, ,550 12,252 50,644 8% Sw eden 34, ,504 5,248 27,418 9% United Kingdom 228,643 1,125, , ,384 42% EU-15 1,200,248 6,632, ,944 1,699,009 26% Source: UNCTAD World Investment Report 2009 and BEA *Belgium and Luxembourg: estimated FDI 1996 The total USDI stock in Belgium increased from $26 billion in 2002 to almost $70 billion in 2009 (a 171% increase or an average 18% per year), while the total stock of USDI in the EU-15 increased by 124% (or 14% per year) over the same period. During the period , Belgium showed the fifth largest relative increase in USDI stock among EU-15 countries. However, the growth in the USDI stock in Belgium is slowing down. Between 2005 and 2009, the USDI stock in Belgium increased by 41%, while the USDI stock in the EU-15 increased by almost 60%. As a result, Belgium s share for the USDI stock in the EU- 15 dropped from 4.6% in 2005 to 4.1% in Due to differences in methodologies used by UNCTAD and BEA, the share of USDI in total FDI may exceed 100%, as is the case with Luxembourg. Therefore, the share of USDI in FDI should only be considered relative to other countries.

23 23 Table 6: USDI stock in EU-15 countries ($ million and % change ) Austria 4,011 6,366 9,264 11,236 14,897 14,646 15,926 18, % BELGIUM 25,727 27,415 41,840 49,306 51,862 62,491 65,028 69, % Denmark 6,184 5,597 6,815 6,914 5,849 8,950 10,278 9,318 51% Finland 1,722 1,677 2,208 1,950 2,107 2,202 2,072 2,094 22% France 43,348 51,229 63,359 60,526 63,008 74,179 81,753 85,801 98% Germany 61,073 72,262 79, ,473 93, , , ,832 91% Greece 981 1,431 1,899 1,884 1,804 2,179 2,139 2, % Ireland 51,598 60,604 72,907 55,173 86, , , , % Italy 23,771 23,092 25,184 24,528 25,435 28,216 28,679 31,470 32% Luxembourg 62,181 68,298 83,634 79, , , , , % Netherlands 158, , , , , , , , % Portugal 3,093 2,402 1,915 2,138 2,832 2,991 2,969 2,461-20% Spain 38,001 41,119 48,409 50,197 49,356 61,093 50,809 50,644 33% Sweden 30,114 27,004 29,730 30,153 33,857 36,615 38,003 27,418-9% United Kingdom 247, , , , , , , ,384 90% EU , ,108 1,016,431 1,066,133 1,241,876 1,477,142 1,581,653 1,699, % Source: BEA During the period , the UK lost its dominant USDI position to share it with the Netherlands. Indeed, while the Netherlands increased its share of USDI stock from 21% in 2002 to 28% in 2009, the UK saw its share drop from 33% to 28% over this seven year period. Sweden, Spain, Italy and Germany also lost some USDI share, while Ireland and Luxembourg increased their shares. A comparison of 2009 figures with those of 1990 reveals even more important shifts in the distribution of USDI among EU-15 countries. The UK s share dropped significantly: from 40% in 1990 to 28% in Three countries gained share over this period: the Netherlands, Luxembourg and Ireland. In particular The Netherlands share rose from 10% to 28%. In contrast, Germany s share dropped from 15% to 7%, France s share dropped from 10% to 5% and Italy s share fell from 8% to 2%. While Italy held the fifth largest stock of USDI among the EU-15 countries in 1990, it only held the tenth largest stock in Belgium s share dropped from 5% in 1990 to 4% in Austria, Denmark, Finland, Greece and Portugal together accounted for only 2% of the total stock of USDI in the EU-15 in Figure 16: Country share in total USDI stock in EU-15 (%) - source: BEA *Other countries are Austria, Denmark, Finland, Greece and Portugal.

24 24 IV. United States Direct Investment in Belgium IV.1 USDI INFLOWS IN BELGIUM Inflows of USDI in Belgium increased slightly from $4.8 billion in 2008 to $5 billion in Preliminary data suggest that USDI inflows in Belgium will start to pick up again during This is reflected by a provisional figure of $7.2 billion in the first half of 2010 (cf. Table7), i.e. more than in all of Inflows of USDI in Belgium experienced an 84% decrease between first half of 2008 and first half of This slump was much greater than the general decline in US direct investments in Europe and the world. On the other hand, the exceptional 1307% increase between the first half of 2009 and the first half of 2010 is by far higher than the 72% increase in Europe and the 73% increase in the world. This exceptional growth difference is explained by the dramatic drop in USDI in Belgium in the first half of This drop corrected itself in the second half of 2009, resulting in a year-end result of about $5 billion. Worldwide inflows of USDI in the first half of 2010 were $186 billion, up from $108 billion in H1 2009, but still lower than the $195 billion in H Table 7: USDI inflows in Belgium and the world (1 st half of 2008, 2009 and 2010, $ million and % change) % change % change H H H (08-09) (09-10) Belgium 3, ,248-84% 1307% Europe 122,536 59, ,703-51% 72% All countries 195, , ,615-45% 73% Source: BEA USDI in Belgium by sector USDI inflows in Belgium in 2009 were larger in Services ($2,665 million) than in Manufacturing ($2,334 million). Inflows in Manufacturing declined in 2009 compared to 2008, while inflows in Services expanded (cf. Table 8). Figure 17 depicts the evolution of USDI inflows in Belgium in Manufacturing and Services over the ten-year period The graph clearly shows the exceptional inflows in Manufacturing in This $5.2 billion inflow was driven by two major acquisitions with a total value of $4.4 billion. The USDI inflows in Services appear to be much more cyclical. This might be due to the fact that in services most of the new investments are triggered by the entrance of new firms and less by increased investments by existing companies. This makes them more sensitive to business cycles. In 2006 and 2007, inflows in Services surpassed those in Manufacturing, whereas in 2008, inflows in Manufacturing ($4.4 billion) were again higher than in Services, the latter plummeted to a value of $459 million. In 2009, Services inflows were once again slightly above Manufacturing, with a value of $ 2.7 billion.

25 25 Figure 17: USDI inflows in Belgium in Manufacturing and Services ( , $ million). Source: BEA Table 8: USDI inflows in Belgium in Manufacturing and sub-sectors ($ million, ) All Industries Total Manufacturing Food Chemicals Metals Machinery Computers and electronic products Electrical equipment, appliances, and components , , , ,195 1, (D) -42 (D) ,664 1, , (D) (*) (D) ,954 5, , (D) 49 (D) ,524 1, (D) 57 (D) ,562 1, , ,887 4, , , ,095 2, Source: BEA (D) indicates data are suppressed to avoid disclosure of data of individual firms. Transportation equipment Other manufacturing Within Manufacturing, the largest inflows in 2008 and 2009 were in Chemicals. In 2008 Chemicals accounted for half the inflows in Manufacturing ($2,848 million on total Manufacturing investments of $4,437 million).

26 26 Table 9: USDI inflows in Belgium in Services and sub-sectors ($ million, ) All Industries Total Services Wholesale trade Information Depository institutions Finance (except Dep. Inst.) and insurance Professional, scientific, and technical services ,431 1, (D) (D) ,508-1, (D) (D) ,126 3, , ,195 1, ,664 6, ,086 1, ,954 2, , ,524 3, , ,562 5,742 1, (D) 3, (D) (D) , (D) 1, (D) (D) ,095 2, (D) 1, (D) Source: BEA (D) indicates data are suppressed to avoid disclosure of data of individual firms. Holding companies (nonbank) Other industries Except for Finance and Insurance Services, inflows in services increased in Belgium in all listed sectors in Notwithstanding its recent negative evolution (with a total value of $1,108 million, a 47% decrease compared to 2008 value of $1,948 billion), Finance and Insurance Services remained the sectors attracting most of inflows of USDI in Services in Belgium.

27 27 IV.2 USDI STOCK IN BELGIUM Figure 18: Stock of USDI in Belgium in 2007 and increases in 2008 and 2009 ($ million) Source: BEA In 2009 the total stock of USDI in Belgium equaled $26 billion in Manufacturing and $43 billion in Services in Figure 18 shows that almost 60% of the change in the USDI stock in Belgium in 2009 was in Manufacturing ($2.8 billion in Manufacturing vs. $1.9 billion in Services). The situation was similar in 2008, when the USDI stock in Manufacturing exceeded that in Services. Differently from Services, Manufacturing is less exposed to business cycles. This because the increases in FDI are to be attributed more to increased investments of existing firms and less to investments of new entrants. USDI sector specialization The sector concentration of USDI stock in Belgium is summarized by an index of relative sector focus 13, also called sector specialization index. This index measures a sector s share of the total USDI stock in Belgium relative to that sector s share of the total USDI stock in the EU-15 (Figure 19). The values of this index indicate that the sector focus of USDI in Belgium relative to the sector focus of USDI in the EU-15 is highest in Manufacturing in both 2000 and 2009, and this relative focus was stronger in 2009 compared to Within Manufacturing, USDI is focused in Chemicals (including Pharmaceuticals). This points to the very prominent US presence in the Belgian Chemical and Pharmaceutical sectors. Over 50% of the total employment in the Pharma is US owned. Between 2000 and 2009, the relative focus of USDI declined in Computers, to become more focused on Transportation Equipment and Food. Among Service sectors, USDI is more focused on Finance and Wholesale Trade and less on Holding Companies. 13 See Appendix I for classification details.

28 28 Figure 19: Industry focus of USDI in major industries in Belgium relative to the EU-15 Source: BEA. *Holding companies (non-bank): no data before 2004 USDI stock by sector As shown in Table 10, the stock of USDI in Belgium is concentrated in the Finance, Chemicals and Wholesale trade sectors. Services industries account for 63% of the total USDI stock, with Finance (and insurance) holding the largest stock of $31.4 billion or 45% of the total USDI stock in Belgium. The Chemicals sector is the largest host sector in Manufacturing, holding $12.3 billion or 18% of the USDI stock in Belgium in Table 10: Stock of USDI industries in Belgium and EU-15, 2000 and 2009 ($ million) Belgium EU share growth* share growth* MANUFACTURING 7,747 26,127 37% 14% 157, ,788 14% 5% Food 284 1,452 2% 20% 10,664 19,342 1% 7% Chemicals 4,641 12,343 18% 11% 41,290 47,035 3% 1% Metals % 5% 8,479 10,195 1% 2% Machinery 112 1,078 2% 29% 12,919 20,225 1% 5% Computers 36 1,045 1% 45% 23,373 21,624 1% -1% Electrical equipment % -2% 4,609 16,346 1% 15% Transportation equipment % 10% 19,686 21,345 1% 1% Other manufacturing 1,810 8,515 12% 19% 35,280 56,255 3% 5% SERVICES 10,220 43,634 63% 18% 433,236 1,405,570 83% 14% Wholesale trade 1,501 6,234 9% 17% 38,549 70,999 4% 7% Information ,204 98,248 6% 13% Depository institutions 266 (D)** 21,899 26,384 2% 2% Finance 4,364 31,434 45% 25% 69, ,056 21% 20% Professional services 1,355 1,811 3% 3% 15,880 46,629 3% 13% Holding companies*** 2,857 4% 712,025 42% Other Industries 1,959 (D)** 254,137 72,145 4% -13% All industries 17,973 69, % 16% 609,674 1,699, % 12% *Compound annual growth rate ** (D) Suppressed to avoid disclosure of data of individual companies ***Holding companies (nonbank): no data before 2004 Source: BEA, see Appendix I for classification details

29 29 Figure 20 shows the evolution of the USDI stock in Belgium and the EU-15 in Manufacturing and Services over the period In both Manufacturing and Services, the USDI stock grew faster in Belgium than in the EU-15. However, in recent years the gap between the growth in the USDI stock in Services in the EU-15 and Belgium started to narrow again. It should also be stressed that USDI in Services in Belgium started from a relatively small base in the initial index year 2000 (cf. data in Table 10). By the end of 2009, Services represented 63% of the USDI stock in Belgium and 83% of USDI stock in the EU-15. Services have clearly gained importance in recent years, as witnessed by the higher growth rates since 2004, but apparently it is manufacturing in Belgium that is still outperforming other EU-15 countries in attracting USDI. Figure 20: Evolution of USDI stock in Belgium and in the EU-15 in Manufacturing and Services (2000=100) A large part of the increase in the USDI stock in Services can be attributed to rapid growth of USDI in Finance (except Depository Institutions) and Insurance. The USDI stock in this sector (henceforth Financial Services) grew exponentially in the period (+284%). Figure 21 clearly depicts the impact of the increase in the USDI stock in Financial Services in Belgium since While the total stock of USDI in Belgium grew by 171% between 2002 and 2009, the USDI stock in Financial Services increased by 284%. Over the same period, the USDI stock in Manufacturing increased much faster (+239%) than the USDI stock in all other Services (i.e., excluding Financial Services), which increased by only 24%.

30 30 Figure 21: Evolution of USDI stock in Belgium in Manufacturing and Services ($ million, ) USDI in Financial Services has increased rapidly since The USDI stock in Belgium in this sector in 2009 was $31.4 billion, compared to $26 billion in Manufacturing and $12.2 billion in all other Services (i.e. excluding Financial Services). Although the USDI stock in Financial Services substantially increased in a number of other (European) countries, its evolution in Belgium was remarkable when compared with the worldwide evolution of USDI by sector (cf. Figure 22). Figure 22 shows that, in 2009, the world stock of USDI in Financial Services was about the same size as the world stock of USDI in Manufacturing. However, the world stock of USDI in Non-financial services was about three times the size of the USDI stock in Financial Services, while for Belgium Non-financial services represented only 40% of the value of the USDI stock in Financial Services in Figure 22: Evolution of USDI stock in the world in Manufacturing and Services ($ billion, )

31 31 V. Structure and Evolution of US affiliates in Belgium This section reports on the structure and evolution of US affiliates in Belgium, using different sources of information. The US Bureau of Economic Analysis (BEA) provides data on value added and employment for majority-owned non-bank foreign affiliates, allowing a comparison with US affiliates in other countries. Other data on the operations of US affiliates in Belgium have been retrieved from Belfirst and the VIO database of the Vlerick Leuven Gent Management School. V.1 VALUE ADDED In 2008, US affiliates in Belgium accounted for 4.5% of total value added in Belgium (Table 11). This share puts Belgium in 9 th place in terms of the relative importance of US investment in a country s economy. In the same year, the share of value added of US affiliates was the highest in Ireland (20.8%). The highest growth over the period was registered in Switzerland, where the share of value added by US firms in GDP increased from 0.5% in 2000 to 5.7% in Table 11: Value Added of US non-bank Majority-Owned Foreign Affiliates as a Percentage of GDP, Ireland Singapore Canada Nigeria United Kingdom Switzerland Hong Kong Honduras BELGIUM Costa Rica Source: BEA Total value added by US non-bank affiliates in Belgium was $22.5 billion in 2008, a 4.1% decrease relative to Although in 2008, 63% of the USDI stock in Belgium was in Services and 37% in Manufacturing, the distribution of value added by US firms was quite dissimilar. Services accounted for 42% of the total value added by non-bank US affiliates in Belgium, while Manufacturing accounted for 58% in However, value added in Manufacturing decreased by 5% in 2008, while value added in Services decreased only by 3.1%. Within Manufacturing, Chemicals (29.2% of value added by US firms in Manufacturing) was still the most important sector in terms of value added in Other sectors, including Finance and Wholesale trade, are catching up.

32 32 Figure 23: Evolution of Value Added in US affiliates in Belgium (million $ and %, ) Source: BEA Percentages are the compound annual growth rates. V.2 EMPLOYMENT Data from the BEA s Survey of Current Business indicate that majority-owned non-bank US affiliates in Belgium employed 129,000 persons in This represents 3% of Belgian total private employment, and a 6.1% increase over the 121,600 jobs in In Europe, employment in majority-owned non-bank US affiliates increased by 3.2% in the same period, up to 4.2 million in US affiliate employment in the world increased by 6.6% to a total of 10.1 million employees in Table 12: Employment in majority-owned non-bank US affiliates in the world, Europe and Belgium ( , thousands of employees) World 6,900 7,766 8,065 8,193 8,256 8,242 8,617 9,101 9,498 10,017 10, % Europe 3,145 3,531 3,688 3,749 3,728 3,704 3,879 3,947 4,083 4,185 4, % Belgium % Source: BEA Considering a longer period of time, worldwide employment in majority-owned non-bank US affiliates increased by 46.7% between 1998 and 2008, from 6.9 million in 1998 to 10.1 million in Employment growth in Europe was somewhat slower: 34%. In Belgium, employment growth over the same period was 25.5%. The number of employees in majorityowned non-bank US affiliates in Belgium increased from 102,800 in 1998 to 129,000 in 2008.

33 33 Table 13: Employment in majority-owned non-bank US affiliates in the world, Europe and Belgium in Manufacturing ( , thousands of employees) World 3,977 4,357 4,353 4,309 4,293 4,217 4,309 4,397 4,536 4,728 4, % Europe 1,794 1,925 1,906 1,868 1,858 1,841 1,883 1,876 1,891 1,927 1, % Belgium % Source: BEA Table 13 and Figure 24 depict the evolution of employment in majority-owned US Manufacturing affiliates in the world, in Europe and in Belgium between 1998 and In Manufacturing, the number of employees of US affiliates in the world increased by 15.7%, while growth in Europe was limited to 6.6%. Over this ten year period, net employment growth in majority-owned US affiliates in Europe in Manufacturing was limited to 117,900 jobs. In Belgium, Manufacturing employment grew faster than in Europe: the number of jobs increased from 61,200 in 1998 to 68,200 in 2008 (+11.3%). However, the pace of job growth decreased during the period Figure 24: Evolution of employment in majority-owned non-bank US affiliates in the world, Europe and Belgium in Manufacturing (1998=100) Source: BEA Figure 24 shows that Manufacturing employment in Belgium decreased in 2000 and 2001, following a substantial increase in Between 2002 and 2006, Manufacturing employment in majority-owned US affiliates in Belgium grew faster than in Europe. However, in the period , the growth rate of employment slowed in Belgium and is now converging towards European growth rates. Employment in majority-owned US manufacturing affiliates in Europe remained fairly stable after an increase in In 2008, employment was again at the same level as in In Services, employment in majority-owned non-bank US affiliates grew faster compared to Manufacturing. The number of US affiliates jobs in Services increased by 81% in the world between 1998 and 2008, while employment growth in Europe increased by 67%. In Belgium, however, Services employment increased only by 45% over this same period, pointing to a lot of untapped potential.

34 34 Table 14: Employment in majority-owned non-bank US affiliates in the world, Europe and Belgium in Services ( , thousands of employees) World 2,923 3,409 3,712 3,885 3,963 4,025 4,308 4,704 4,962 5,102 5, % Europe 1,351 1,605 1,782 1,882 1,870 1,863 1,996 2,070 2,191 2,222 2, % Belgium % Source: BEA Employment in majority-owned US affiliates in Belgium does not follow the trend in employment of US affiliates in Europe. In Manufacturing, the number of jobs in Europe increased from almost 1.8 million in 1998 to more than 1.9 million in 2008 (+6.6%). In Belgium, Manufacturing employment increased from 61,000 to 68,000 over the same period (+11.3%). In Services, the picture is quite the opposite. The number of FTE (full time equivalent) workers in majority-owned US affiliate in Services increased by 67% in Europe. The increase in Belgium was only 46%. Figure 25: Evolution of employment in majority-owned non-bank US affiliates in the world, Europe and Belgium in Services (1998=100) Source: BEA Figure 25 shows that over the period , employment growth in majority-owned nonbank US affiliates in Services in the world and in Europe was higher than in Belgium. Interpreting employment data US affiliates in Belgium report employment data to the US Bureau of Economic Analysis (BEA) and the National Bank of Belgium (NBB). The BEA collects data through annual surveys among US Multinational Companies. Based on the survey response, estimates are made for the population. In these surveys, employment is measured as the number of fulltime and part-time employees on the payroll at year end (respondent s fiscal year). Estimates are made for non-bank US affiliates. Detailed data are only available for majorityowned US affiliates. Due to changes in ownership, the BEA s sample changes every year. These data are a good indicator to measure US affiliates employment in a country at a certain point in time. However, their cross-sectional nature makes these data less suited to measure employment growth of US affiliates (i.e. jobs created by these firms over a certain period).

35 35 Figure 26 shows data on employment in majority owned non-bank US affiliates in Belgium and its rate of growth in each of the past nine years. The pace of growth decreased in 2007 and 2008 but remained positive. Since 2002, the number of FTE (full time equivalent) workers steadily increased, reaching 129,000 in Data for 2009 are not yet available. They will undoubtedly show a negative impact of the 2008/09 economic crisis on employment. Figure 26: Employment in US affiliates in Belgium, and growth rate Source: BEA V.3 EMPLOYMENT BY US AFFILIATES IN BELGIUM BY SUB-SECTOR Employment by US firms increased by 8% between 1998 and This result is driven largely by the growth in employment in Services; Manufacturing employment decreased by 5% for US firms in Belgium whereas employment in Services increased by 30%. Still the growth in Services is well below other countries, pointing to important upward potential. Manufacturing and services show opposite trends in employment also in earlier years. As seen in Figure 27, employment in Manufacturing remained relatively stable from 2004 until 2008 while employment in services grew steadily to reach a combined total of 129,000 FTE workers in Consequently, Manufacturing shrank from a share of 61% of total employment in 1999 to a share of 54% in In contrast, the share of employment in Services grew from 39% to a 46% over the same period.

36 36 Figure 27: Employment in US affiliates in Belgium in Manufacturing and Services, Source: BEA Figure 28 shows employment by US affiliates in Belgium by manufacturing sub-sectors for the periods and In Figure 28 a distinction is made according to the technology content of a sector (cf. OECD classification, see appendix). High Technology Manufacturing (HT) represents 36% of the employment by US affiliates in , down from 45% in the period In , the HT and Medium Low Technology subsectors (MLT, 36%) were the most important sectors for employment when measured relative to the Low Technology Manufacturing industries (LT, 14%) and Medium High Technology (MHT, 12%). Figure 28: Employment in US affiliates in Belgium in Manufacturing and sub-sectors, and Source: Belfirst and VIO database In Services, the picture changed more radically over the period analyzed. Within Services, Knowledge Intensive Services 14 (KIS) increased their employment share to 65%, a value 14 See Appendix II B for classification details.

37 37 substantially higher than the share of Less Knowledge Intensive Services (LKIS). Within Knowledge Intensive Services, the sub-sector Knowledge Intensive High Tech Services (KIHT) share remained substantially unchanged (-4%) The biggest increase in employment share was in Knowledge Intensive Market Services (KIM; +20%). Finally, the employment share of Knowledge Intensive Finance Services (KIF) grew from 3% to 8% over the 10-year period. Figure 29: Employment in US affiliates in Belgium in Services and sub-sectors, and Source: Belfirst and VIO database Figure 30 illustrates the difference in employment growth by BEA-sector. The fastest growing sectors were Primary fabricated metals, Computers and electronic products and IT services, growing at a compound annual rate of 5%. Among Manufacturing sectors, Chemicals had the highest share of employment with a total of 19,000 FTE workers in 2008 (despite the growth of -1% over the period ). In services, the Wholesale sector remained the most important sector for job creation, employing 15,000 FTE workers in Figure 30: Employment of US affiliates in Belgium by BEA sector, in thousands of employees, Source: BEA Growth is the compound annual growth rate.

38 38 Table 15: Employment (in 000 s) of US affiliates in Belgium by sector, growth Food % Chemicals % Primary fabricated metals % Machinery % Computers and electronic products % Electrical equipment, appliances, and components % Transportation equipment % Wholesale % IT services % Finance % Other business services % Other industries % Source: BEA Growth is the compound annual growth rate. V.4 PROFITABILITY Profitability, as measured by the net return on total assets before taxes (ROA), was 4.7% for all US firms in Belgium in 2008, down from 5.3% in Figure 31: Net return on total assets before taxes of US affiliates in Belgium (%; ) Source: BEA The total after-tax profit of all US firms decreased in from $16.4 billion in 2007 to $16 billion in Provisional figures for a small subset of firms indicate, not surprisingly, that profitability was even lower in 2009.

39 39 V.5 RESEARCH AND DEVELOPMENT ACTIVITIES Research and Development (R&D) expenditure 15 by US foreign affiliates was $36.9 billion in 2008, of which 65.4% ($24.15 billion) was invested in Europe ($22.2 billion in the EU-15). R&D expenditure by US affiliates in Belgium - as reported in the BEA s Survey of Current Business - rose from $373 million in 2004, after a significant jump in 2005 to $1,259 million in 2008, an increase of 236%. This value represented 19% of all R&D expenditure by business enterprises in Belgium in 2008 (see Figure 32). The acquisitions of two major innovating Belgian companies (Unilin and UCB Surface Specialities) by US firms in 2005 have undoubtedly contributed to the jump in R&D spending by US affiliates in R&D expenditure by US affiliates in Belgium represented about 5.7% of all R&D expenditure made by US firms in the EU-15 in This relative high share, and its positive trend, is due largely to the strong concentration in Belgium of US affiliates in the Chemicals, especially Pharmaceuticals, and Equipment Goods sectors. Europe s share in total R&D expenditure by foreign affiliates of US companies decreased in the period in favour of expenditure in other parts of the world. Within Europe, Great Britain was surpassed by Germany as the largest receiver of US FDI in R&D. The evolution was generally positive in all EU 15 countries, with the highest growth rates in Austria, Greece and Ireland. Table16: Research and Development expenditures by majority-owned US affiliates in EU-15 countries ($ million intramural) Growth Austria 82 (D) % 22% Belgium ,191 1, % 14% Denmark (D) (D) % 20% Finland % 14% France 1,452 1,465 1,411 1,690 1,797 1,854 2,248 1,447 1,557 2,171 50% 5% Germany 3,377 3,115 3,280 3,598 3,676 4,693 4,609 4,919 6,403 7, % 9% Greece % 22% Ireland (D) (D) ,510 1, % 22% Italy % 2% Luxembourg (D) (D) (D) (D) (D) (D) Netherlands (D) , % 17% Portugal % 14% Spain (D) Sweden 1,036 1, ,317 1,404 1,525 1,652 1,536 1,584 1,576 52% 5% United Kingdom 4,000 4,111 3,642 3,856 4,038 5,462 5,406 5,378 6,000 5,157 29% 3% EU-15 11,587 12,257 11,457 12,307 12,634 16,871 17,437 17,301 21,164 22,198 92% 7% Source: BEA (D) indicates data are suppressed to avoid disclosure of data of individual firms. 15 R&D expenditure is the expenditure for R&D performed by the MNC rather than R&D funded by the MNC.

40 40 Figure 32: Percentage of R&D expenditure by affiliates of US firms in Belgium and R&D expenditure by all business enterprises in Belgium (million Euros total intra and extra mural) Source: Commissie Federale Samenwerking, Overleggroep CFS/STAT; berekeningen Federaal Wetenschapsbeleid. Figure 32 shows the total value of R&D investments by US firms as a percentage of total R&D investments by business enterprises in Belgium. R&D expenditure by US affiliates in Belgium grew at an average rate of 12% from 1999 to 2003, with a slow-down in In 2005 R&D expenditure by US affiliates jumped to one-fifth of all R&D business R&D expenditure in Belgium, and have grown since then at an average annual growth rate of 19% in nominal value.

41 41 VI. Largest US firms in Belgium The top 20 US firms (in terms of turnover, value added and employment respectively) operating in Belgium accounted for 65% of turnover, 44% of value added, and 30% of the employment of all US affiliates in Belgium in By turnover, the five largest US firms in Belgium were ExxonMobil, Delhaize Group, Volvo Cars, GlaxoSmithKline (GSK) and Janssen Pharmaceutica. ExxonMobil s turnover was by far the highest of the group, with a value of almost 20 billion. The second highest Delhaize Group had a value of 4.5 billion. These five firms represented 47% of total turnover of all US firms in Belgium. By employment, the five largest US firms in Belgium were Delhaize Group, Manpower, GlaxoSmithKline Biologicals (GSK), Janssen Pharmaceutica and Caterpillar. Employment in these five firms reached 37,967 or 30% of all employment by US firms in Belgium in All companies except GlaxoSmithKline Biologicals (GSK) which saw employment growing by 17% - had decreased their total number of FTE workers in 2009 compared to Employment decreased by 13% at Volvo Cars, 12% at Janssen Pharmaceutica, 8% at Manpower and 1% at Delhaize Group. By value added, the five largest US firms in Belgium were GlaxoSmithKline Biologicals (GSK), Janssen Pharmaceutica, Delhaize Group, ExxonMobil and Telenet. As shown in Table 17, the largest firms by turnover, value added and employment were mostly the same firm. However, there are some exceptions: ExxonMobil was by far the largest US firm in terms of turnover, but it was not in the top ten in terms of employment. On the other hand, Manpower was the largest US employer in Belgium, but was not part of the top five firms in terms of turnover in Table 17: Largest US affiliates in Belgium (by turnover, employment and value added, 2009) Top 5 by turnover (2009) Turnover Value added Employment EXXONMOBIL 19,968, ,147 2,176 GROUPE DELHAIZE 4,488, ,197 13,049 VOLVO CARS 3,321, ,660 4,116 GLAXOSMITHKLINE BIOLOGICALS 1,955,058 2,091,765 6,042 JANSSEN PHARMACEUTICA 1,814,086 1,642,005 3,913 Top 5 by employment (2009) Turnover Value added Employment GROUPE DELHAIZE 4,488, ,197 13,049 MANPOWER 231, ,276 11,491 GLAXOSMITHKLINE BIOLOGICALS 1,955,058 2,091,765 6,042 JANSSEN PHARMACEUTICA 1,814,086 1,642,005 3,913 CATERPILLAR 277, ,149 3,472 Top 5 by value added (2009) Turnover Value added Employment GLAXOSMITHKLINE BIOLOGICALS 1,955,058 2,091,765 6,042 JANSSEN PHARMACEUTICA 1,814,086 1,642,005 3,913 GROUPE DELHAIZE 4,488, ,197 13,049 EXXONMOBIL 19,968, ,147 2,176 TELENET 1,027, ,067 1,706 Source: Belfirst and VIO database

42 42 Many of the larger US firms have been active in Belgium for a long period of time. In an attempt to study the long-term performance of such established US firms in Belgium Vlerick Leuven Gent Management School constructed a sample of US firms with a continuing presence in Belgium over the last ten years. From different data sources, 944 non-bank US affiliates were identified in Belgium. Of these 944 firms, 225 US affiliates reported employment figures annually since at least As these firms had a constant presence in Belgium for the last ten years and in many cases much longer, they provide a useful sample to analyze the growth dynamics of well established US affiliates in Belgium 16. Between 1998 and 2007, these 225 US affiliates saw their turnover grow by 47%, increased their value added by 60% and increased their employment by 20%. Over this ten-year period, they created 11,558 new jobs. However, as shown in Table 11, over the period these generally positive trends came to a halt, with both turnover and employment returning almost to their levels in The drop in the values in 2008 was of course due to the economic crisis, which hit these companies relatively hard. However, the level of value added did not change to the same extent, suggesting that these firms downsized those activities with a relatively small value added contribution. Table18: Evolution of turnover, value added and employment in 225 US affiliates with continuous presence in Belgium since 1998 (million Euro and FTE employees) Turnover Value added Employment ,385 4,990 56, ,599 7,974 68, ,022 7,041 53,929 (98-08) 9% 41% -5% Source: Belfirst and VIO database *compound annual growth rate 16 The 2009 report analyzed a subset of 340 companies. The fact that the analysis for this year was conducted on a smaller sample does not mean that 115 firms do not invest anymore in Belgium, but is caused by the fact that these companies haven't reported 2008 data yet.

43 43 Conclusions Foreign Direct investment shows clear signs of recovery World Foreign Direct Investment was strongly affected by the economic crisis that hit the world economy in After strong growth since 2002, world FDI plummeted in both 2008 and 2009, reaching a total value of $1,101 billion at the end of This represented a decline of 57 % in the value of world FDI in 2007, when FDI reached its peak value. The decrease in world FDI was sharper in 2009 than in 2008, especially for flows coming from developed economies. Moreover, in 2009 developing and transition economies also experienced a decrease in outflows. This decline came after a steady increase in FDI outflows from these countries over the period In 2009, the value of FDI outflows dropped to $280 billion, 20% lower than in Despite the sharp downturns of 2008 and 2009, the outlook for 2010 is positive, with world FDI flows expected to increase strongly in 2011 and to reach a full recovery by The recovery in global and USDI is helping the Belgian economy grow again The negative evolution of world FDI flows also affected Belgium. The decrease in world FDI flows that started in and continued in led to a decline in both FDI inflows and outflows in Belgium. After registering positive growth over the period , inward FDI in Belgium fell to a total value of $33.8 billion, which equaled the value of Belgium s inward FDI in The situation was worse for Belgium s outflows of FDI which recorded for the first time a negative value (-$15 billion), suggesting important disinvestments abroad by firms based in Belgium. Total outflows of US direct investment worldwide dropped to $248 billion in This represented a 25% decrease compared to However, the outlook for USDI in 2010 is positive, with worldwide outflows of USDI in the first half of 2010 equaling $187 billion, up from $103 billion in H In Belgium, USDI inflows are also picking up since Preliminary figures suggest that USDI inflows in Belgium will rise even further during This is based on the increase of $7.2 billion in the first half of 2010, a value already 44% higher than the value for all of Reflecting increased outflows and reinvested earnings, the total increase in the worldwide stock of USDI reached $226 billion in 2008 and $288 billion in In 2009, Europe held $1,976 billion or 56% of the global USDI stock of FDI. As in previous years, a large part of this stock was located in the Netherlands ($471.6 billion) and the UK ($ billion). Both countries strengthened their positions in 2009, with the Netherlands share increasing by 10% and the UK s share increasing by 5%. Not only were the Netherlands and the UK successful in attracting more USDI, so did Luxembourg and Ireland, and this in spite of a severe crisis in Ireland.

44 44 Belgium shows some structural weaknesses in attracting USDI in services Over a period of ten years, from 1999 to 2009, Belgium has become relatively less attractive for USDI, especially when measured by the number of jobs created by USDI, and this is comparison to the jobs created by US affiliates in Europe and in the world. In the period , worldwide employment in majority owned non-bank US affiliates outside the US grew by 46.7% but only by 34% in Europe. In Belgium, employment growth in majority owned non-bank US affiliates showed a proportionally much weaker increase of 25.5% and reached 129,000. In the period , USDI in Services was an increasingly important source of new employment, both at the European level (+66.9%) and worldwide (+81.3%). In Belgium, employment growth in services over the same period was 46.2%, with much of this occurring in Knowledge-Intensive Services. However the pace of employment growth in Belgium was slower than in the rest of Europe and the world. Employment by US affiliates in Belgium in the services sector equaled 61,000 FTE (Full-Time Equivalent) workers in Knowledge Intensive Services (KIS) held the biggest share (65%) of employment created by US firms in services in Belgium. Service sectors are gaining in importance for USDI, especially Knowledge-Intensive Services (KIS). However, comparing different host countries, employment in Services by US companies is growing more slowly in Belgium than in the rest of Europe. There are still important untapped possibilities. In order to realize these possibilities a more favorable economic climate needs to be created. The policy recommendations made by AmCham Belgium in its recent investors briefing provide a useful input to change policies in the right direction and improve the attractiveness of Belgium for foreign investors. In Manufacturing, the trend in employment by US affiliates over the period was generally positive for Belgium. During this period, the growth in manufacturing related employment in US firms in Belgium rose 11.3%. This growth was less than the 15.7% employment growth in US affiliates worldwide, but was higher than the 6.6% growth in Europe over the same period. However, following the strong expansion during the period , growth in Manufacturing jobs at US affiliates in Belgium slowed in the period , converging towards Europe wide growth rates. US affiliates in Belgium operating in High Technology Manufacturing (HT) and Medium high-tech Manufacturing sectors employ the highest number of workers (employment share of 36% for both sectors). In 2008, Chemicals (including pharmaceuticals) was the most important sector in terms of employment and value added by US firms in Belgium. The strong concentration of US affiliates in the Chemical, Pharmaceutical and Equipment Goods sectors also explains the relatively large R&D expenditures by US affiliates in Belgium. R&D expenditure by US firms in Belgium rose by 6% in 2008 to $1,259 million. This value represented about 5.7% of all the R&D expenditure by US affiliates in the EU-15, while the stock of USDI in Belgium was only 4.1 % of the stock of USDI in the EU-15 countries.

45 45 USDI in Belgium is an important catalyst and source of growth of the knowledge economy of Belgium R&D expenditure by US affiliates in Belgium grew at an average rate of 12% from 1999 to 2003, with a slow-down in Since 2005 R&D expenditure by US affiliates grew more strongly than the total of all R&D expenditure by business enterprises in Belgium, with an average annual growth rate of 19.25%. Those findings illustrate how US affiliates continue to play a major role in the Belgian economy and its transformation towards a modern knowledge-based economy. In 2008, majority-owned US affiliates accounted for 4.5 % of Belgium s GDP and more than 3% of all direct employment in the private sector (129,000 jobs in 2008, up from 121,600 jobs in 2005). In 2008 investment in R&D by Belgian affiliates of US companies represented 19% of total R&D investment by business enterprises in Belgium. Employment and value added in US affiliates in Belgium are concentrated in R&D-intensive sectors, especially Chemicals and Pharmaceuticals. R&D expenditures by US affiliates in Belgium represented about one fifth of all business R&D expenditures in Belgium in 2008.

46 46 ABBREVIATIONS & GLOSSARY BEA United States Bureau of Economic Analysis BLEU (BeLux) Belgium-Luxembourg Economic Union EU-15 The European Union (15) comprises Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom. EU-25 The European Union (25) comprises Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. EU-27 The European Union (27) comprises the EU-25 countries plus Bulgaria and Romania FDI Foreign Direct Investment. FDI is defined as any investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate) (UNCTAD). Flow (of direct investment) Net Inflow of Direct Investment High Tech (HT) High and Medium High Technology Manufacturing (OECD classification) KIS Knowledge Intensive Services (Eurostat classification) LKIS Less Knowledge Intensive Services (Eurostat classification) Low Tech (LT) Low and Medium Low Technology Manufacturing (OECD classification) MNC Multinational Corporation MNE Multinational Enterprise NAICS North American Industry Classification System OECD Organization for Economic Co-operation and Development R&D Research and development Relative representation The relative representation of US investments across EU-15 member states can be indicated by comparing the US share of the world stock of FDI in a given EU member state to the US share of the world stock of FDI in the EU-15 as a whole. SME Small and Medium Sized Enterprise Stock (of direct investment) Direct Investment Position UNCTAD United Nations Conference on Trade and Development USDI United States Direct Investment Abroad WTO World Trade Organization

47 47 APPENDICES Appendix I: BEA Classification based on NAICS MANUFACTURING Food Grain mill and bakery products Beverages Meat products Dairy products Other food products Chemicals Industrial chemicals and synthetics Drugs Soap, cleaners and toilet goods Agricultural chemicals Other chemical products Metals Primary metal industries (ferrous/non-ferrous) Fabricated metal products SERVICES Wholesale trade Durable goods Nondurable goods Information Newspapers, books, periodicals Software publishers Motion picture and video Sound recording Radio and television broadcasting Cable networks and program distribution Telecommunication Information services Data processing Depository institutions Banking Machinery Farm and garden machinery Construction, mining and materials handling machinery Other machinery, excluding computer and office equipment Computers Computer and office equipment Household appliances Audio, video, communication equipment Electronic components and accessories Other electronic equipment Transportation equipment Motor vehicles and equipment Other Finance and insurance (excl. Depository institutions) Activities related to credit intermediation Non-depository credit intermediation Securities and commodity contracts intermediation Agencies, brokerages ad other insurance related services Life insurance carriers Other financial and insurance services Professional, scientific and technical services Legal services Accounting Architectural, engineering and related services Specialised design services Computer systems design and related services Management, scientific and technical consulting Scientific research and development services Advertising and related services Other professional services

48 48 Appendix II: Classifications of Manufacturing industries based on Technology Intensity and Service industries based on Knowledge Intensity A. MANUFACTURING High-technology industries ISIC Rev. 3* Aircraft and spacecraft 353 Pharmaceuticals 2423 Office, accounting and computing machinery 30 Radio, TV and communciations equipment 32 Medical, precision and optical instruments 33 Medium-high-technology industries Electrical machinery and apparatus, n.e.c. 31 Motor vehicles, trailers and semi-trailers 34 Chemicals excluding pharmaceuticals 24 excl Railroad equipment and transport equipment, n.e.c Machinery and equipment, n.e.c. 29 Medium-low-technology industries Building and repairing of ships and boats 351 Rubber and plastics products 25 Coke, refined petroleum products and nuclear fuel 23 Other non-metallic mineral products 26 Basic metals and fabricated metal products Low-technology industries Manufacturing, n.e.c.; Recycling Wood, pulp, paper, paper products, printing and publishing Food products, beverages and tobacco Textiles, textile products, leather and footwear * UN Classification of economic activities Source: OECD Science, Technology and Industry Scoreboard Towards a knowledge-based economy, Appendix 1

49 49 B. SERVICES NACE Rev. 1.1** Knowledge-intensive high-tech services Post and Telecommunications 64 Computer and related activities 72 Research and development 73 Knowledge-intensive market services (excl. financial intermediation and high-tech services) Water transport 61 Air transport 62 Real estate activities 70 Renting of machinery and equipment without operator, and of personal and household goods 71 Other business activities 74 Other knowledge-intensive services Education 80 Health and social work 85 Recreational, cultural and sporting activities 92 Less knowledge-intensive market services Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of automotive fuel 50 Wholesale trade and commission trade, except of motor vehicles and motorcycles 51 Retail trade, except of motor vehicles and motorcycles; repair of personal and household goods 52 Hotels and restaurants 55 Land transport; transport via pipelines 60 Supporting and auxiliary transport activities; activities of travel agencies 63 Other less knowledge-intensive services Public administration and defence; compulsory social security 75 Sewage and refuse disposal, sanitation and similar activities 90 Activities of membership organization n.e.c. 91 Other service activities 93 Private households with employed persons 95 Extra-territorial organizations and bodies 99 ** Classification of economic activities in the European Community Source: Eurostat

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51 51 U.S. Bureau of Economic Analysis (2010), Survey of Current Business, Government Printing Office. U.S. Bureau of Economic Analysis (2007), Research and Development Activities of U.S. Multinational Companies, Government Printing Office. U.S. Bureau of Economic Analysis (2010), Research and Development Activities of U.S. Multinational Companies, Government Printing Office. UNCTAD (2007), World Investment Report UNCTAD (2008), World Investment Report UNCTAD (2009), World Investment Report UNCTAD (2009), World Investment Report 2010.

52 About AmCham Belgium AmCham Belgium is a dynamic non-profit organization with over 600 member organizations of diverse size and industry focus. AmCham Belgium is part of the European Council of American Chambers of Commerce, which represents the interests of more than American and European companies, based in 41 countries and employing more than 20 million people. ISBN: EAN: American Chamber of Commerce in Belgium ASBL/VZW Rue du Commerce 41 Handelsstraat 1000 Brussels, Belgium Tel. (32 2) Fax. (32 2) gchamber@amcham.be Responsible Publisher: Marcel Claes, Rue du Commerce 41 Handelsstraat, 1000 Brussels, Belgium