Thomas White Global Investing
Country Profile
Belgium
January, 2009
Thomas White International, Ltd.
Thomas White Global Investing 2
Thomas White Global Investing
It has never been more important for you to understand what is
occurring in the world beyond your country’s borders. Whether
you realize it or not, we are now all fellow citizens…Global
Citizens.
The Thomas White organization was founded 1992 with the goal
of bringing the benefits of globalization to investors around the
world. We believed that once investors understood that
globalization was a positive force, they would also see the
advantages of adding international equities to their portfolios. It
only makes common sense that professional investors would
begin searching the globe for the most attractive opportunities.
Researching a wider universe of companies should improve
long-term performance. Moreover, broad diversification typically
lowers return volatility. Multinational corporations have been
using this global strategy for years; why shouldn’t investors do
the same?
Now 15 years later, our firm growth and strong subsequent
portfolio performance has confirmed our investment premise.
Currently, Thomas White professionals are performing research
and managing over one billion dollars in close to 50 countries.
We believe one reason for our success is that the nationalities of
these analysts are as globally diverse as our portfolios.
Thomas White Global Investing
Country Profile
Belgium: Small Nation Packs a Big Punch
Belgium, with its multicultural
and multilingual heritage,
remains one of Europe’s best-
kept secrets. This tiny nation is
home to some of the world’s
best chocolates and laces, but
also serves as the nerve center
of the European community.
Wedged between giants such
as Germany and France, it
cradles an immensely rich
history, and offers a wealth of
art, food and architecture.
Divided into two parts, the
country is comprised of
Flanders in the north with cities
like Antwerp, Bruges, and
Ghent and a network of
crisscrossing canals; and
Wallonia to the south with its
rolling hills, countless castles,
and an atmosphere of charm in
such cities as Liege, Namur,
and Tournai. With this, Belgium
is a fascinating compendium – a
mélange of the best of
European traditions.
Tumultuous past giving way
to stability
Belgium's history has always been linked to both commercial and cultural
exchange, and much of its character is due to its role as the great meeting
place of Western Europe, namely Brussels, one of the world’s most
cosmopolitan cities. Belgium derives its name from a Celtic tribe, the Belgae,
who were forced to cede power to Roman legions during first century B.C.
Since then, the tiny nation passed through a series of rulers – from the
Germanic tribe of the Franks, to the rule of the Duke of Burgundy, and
eventual occupation by Spain, Austria, France and finally the Netherlands.
Considered one of the most beautiful cityhalls in the Low Countries, the BrusselsTown Hall or Hotel de Ville is a Gothicstructure from the Middle Ages. Today,with a population of just over a million,Brussels is home to some 54,000businesses and produces 19.3% ofBelgium’s GDP.
Thomas White Global Investing 4
Independence flowered in the country in 1830 when the long-suffering
Belgians revolted against centuries of external rule. The Belgians then chose
Leopold of Saxe-Coburg to be their first king, albeit under a constitution that
significantly diluted the powers of the monarchy. His successor, Leopold II,
laid the foundation for exploration of the Congo River Basin of Africa, the
beginning of Belgium’s
colonial mastery of the
Congo.
Despite maintaining a
policy of neutrality,
Belgium was caught in
the crossfire of World
War I with Germany
invading the country on
August 4, 1914. The
country was thrown into a
fierce battle for freedom
and aligning with the
Allies, Belgium tried to
yank the yoke of German
imperialism. The city of
Ypres in the Flemish
province of West
Flanders turned into a
raging inferno as nearly
100,000 troops lost their
lives in 1915. Under the
Treaty of Versailles in
1919, Belgium obtained
the German-speaking
districts of Eupen,
Malmedy, St.Vith, and Moresnet. Despite a resilient economic recovery
following the war, Belgium was again mercilessly bombed by the Germans in
World War II resulting in the unconditional surrender of King Leopold III.
Eventually, the Belgian government-in-exile in London was restored to power
following the end of the war, and an uneasy tense period of political drama
began. Leopold III was allowed to return from Germany as the sovereign
although protests against his reign prompted the king to abdicate in 1951,
paving the way for Baudouin as his successor.
Again, although economically the country flourished in the immediate years
following the war, Belgium continued to suffer from internal and external
turmoil. Its status as a colonial superpower began to erode when the Belgian
Belgium and the World
Nominal GDP ($) 448.60 billion
GDP Rank 18/185
Per Capita GNI ($) 40,710
Per Capita GNI Rank 21/209
Population Rank 76/226
Geographical Area Rank 140/250
Global Competitiveness Rank 19/131
Economic Freedom Index
Rank20/157
Human Development Index
Rank17/177
Major Industries
Chemicals, Basic
Metals, Engineering,
Automotive,
Processed food and
beverages, Glass,
Transportation
equipment
Thomas White Global Investing 5
Congo (now the Democratic Republic of Congo) declared independence,
followed by Ruanda-Urundi (present day Rwanda and Burundi).
Adding to this, in 1977, the country was divided into three administrative
regions: Flanders, Wallonia, and Brussels. In 1980, the Belgian constitution
was changed to recognize this separation, shifting the structure of the nation
to a federation. The country is a Parliamentary democracy under a
constitutional monarch. The 1994 constitution, granted autonomy to Wallonia,
the Flemish region or Flanders, and the bilingual Brussels-Capital region. In
addition autonomy was also assured for the Flemish, French, and German-
speaking communities. The central government however retains
responsibility for foreign policy, defense, taxation, and social security.
Currently, the country is grappling with an ethnic crisis with tensions rising
between the Dutch-speaking Flemish and French-speaking Francophones.
The conflict has spilled over into Belgium’s politics as well. With barely nine
months in power, Prime Minister Yves Leterme was forced to resign in
December 2008, as he became embroiled in the ethnic rift, and the
controversial handling of a bank bailout. The speaker of the Belgian
parliament, Herman Van Rompuy, a Flemish Democrat, is now touted to lead
the country’s five-party coalition.
A land that loves food, drink and chocolates
Despite more than
2,000 years of
foreign occupation,
Belgium has
managed to carve
its own identity on
the European map.
The land has given
the world Tintin, a
beloved comic
book character, as
well as more than
100 varieties of
beer, melt-in-the-
mouth praline
chocolates and
exquisite Belgian
laces. With three
language
communities –
Flemish-speaking
Flanders in the
The world-famous Belgian pralines were invented by achocolatier called Jean Neuhaus who used a specialversion of chocolate called couverteur as a cold shell forhis pralines. Today, Belgium produces 172,000 tons ofchocolate annually with more than 2,000 shops across thecountry.
Thomas White Global Investing 6
North, French-speaking Wallonia in the South and a small German-
speaking population in the East – Belgium’s linguistic heritage is vast and
varied. Some of the world’s best-known composers such as Cesar Frank,
Eugene Ysaye, and Wim Mertens have graced the Belgian music stage,
while Adolf Sax, the inventor of the saxophone, was born in Belgium.
Contrary to what the name implies, French fries were actually a Belgian
invention, and six of the seven breweries that are authorized to produce the
world-famous Trappist beer are in Belgium. A wealth of architecture is richly
showcased in the Romanesque castles of Lavaux Saint Anne and Bouillon,
gothic structures like the Brussels Cathedral, and the classical 19th century
styles of the Palace of Lorraines in Brussels.
Services-reliant economy shows continued resilience
Despite suffering the onslaught of
two World Wars, Belgium’s
economy has always shown a
tendency to be remarkably
resilient. The country has a highly
developed market economy and
belongs to the Organization of
Economic Cooperation and
Development (OECD). With a
population of 10.4 million,
Belgium boasts one of the highest
per capita GDP in the world,
classifying it as a high-income
economy in the OECD.
The Brussels Capital Region
stands at the forefront one of the
world’s most highly industrialized
regions. Being one of the
founding members of the
European Community (EC, now
known as the European Union),
the nation was the first to
undergo an industrial revolution
in continental Europe in the early
1800s, eventually becoming a
major steel producer in the 19th
century. Prospering by this growth was the southern region of Wallonia,
especially the Sambre-Meuse valley with its rich deposits of coal.
Throughout the country’s rapid industrial growth, the agricultural sector
declined, and this trend became even more pronounced post World War II.
Antwerp is Europe’s second largest portand the fourth largest in the world,handling over 180 million tons of maritimegoods.
Thomas White Global Investing 7
Today, this sector accounts for just 1% of Belgium’s GDP. The main crops
are wheat, oats, sugar beets, potatoes and flax.
Accompanying the boom of industrialization was the development of highly
efficient and capable transportation and infrastructure along with a skilled and
talented workforce. Flanders flourished in the postwar bustle as not only a
center of the petrochemical and light manufacturing industries, but as also as
the home of Europe’s second-largest port, Antwerp. The city also doubles up
as the leading diamond-cutter in the world, producing about 70% of all
finished diamonds. Thriving on steel manufacturing, Wallonia became the
center of growth in the 19th century. However, as coal reserves became
exhausted, and an aging steel industry grew increasingly inefficient, the area
declined.
The 1971 and 1979 oil price shocks
sent the economy into a period of
prolonged recession as
unemployment soared, personal
and consumer debt increased, and
the nation’s deficit rose. In fact,
cumulative government debt
reached 121% of GDP by the end
of the 1980s. In 1990, after linking
the Belgian franc to the German
mark through interest rates, the
economy slowly seemed to recover.
Then in 1992, a rollercoaster ride
began, with Belgium’s economy
sinking into a recession, eroding the
country’s GDP by 1.7%. This was
followed by consistent growth until
a sharp dip in 2001-03 due to a
global economic slowdown. From
2004 to 2007, the Belgian economy
staged a modest recovery, with
2006 GDP touching 3.2%. and the
economy expanding at 2.8% in
2007. In the wake of the broader
economic deceleration in the Euro-
zone, GDP growth is expected to
moderate to about 1.4% in 2008
(Eurostat), with private
consumption, investment, as well
as exports witnessing a slowdown.
Antwerp is one of the global
powerhouses in the diamond industry.
Almost 85% of the world’s rough
diamonds and about half of the
polished diamonds pass through the
city, making it the world’s diamond-
cutting capital. The Antwerp diamond
sector has a turnover of $39 billion,
contributing to 8% of Belgium’s exports.
Thomas White Global Investing 8
Belgium's economy today is mostly dependent on services. Retail,
businesses and tourism account for a larger percentage of the nation's GDP,
while financial services continue to expand and attract foreign investment.
Transportation, trade, and industry follow closely behind. On May 1, 1998,
Belgium became a member of the European Monetary Union and adopted
the Euro as its currency after January 1, 2002.
The country is one of the world leaders in the pharmaceutical industry –
employing almost 30,000 people. This sector alone accounts for 10% of all
Belgian exports. Interestingly, 36% of all private sector R&D investment is
ploughed into pharmaceuticals – nearly twice the European average. The
country is heavily dependant upon imports for most of its raw materials,
having virtually no natural resources. The result is that Belgium functions as a
processing machine – turning the imported raw materials into high-quality
goods. Services account for a
staggering 75% of Belgium’s
GDP, with industries contributing
to 24% of the country’s output.
Dependent on Europe for most
of its trade, Belgium’s main
partners are Germany, the
Netherlands, France and the UK.
Leading exports are electrical
equipment, vehicles, diamonds,
and chemicals.
Manufacturing is mainly
concentrated in East Flanders,
Limburg and Hainaut. The
coalmines of Sambre-Meuse,
and Kempenland, which had
nurtured Belgium’s energy
needs since the 13th century
ceased to function by 1992.
Today the country remains an
importer of coal. Textile
production, which began in the
Middle Ages, is still concentrated
in the cities of Ghent, Verviers,
and Tournai. Belgian lace
remains one of the countries
finest and most exquisite
products, a celebration of fine
needlework produced in cities
such as Bruges, Brussels and
Mechelen.
The Brussels Bourse/Bears functions as
one of the units in the transatlantic NYSE
Euronext. This family of exchanges,
located in six countries, lists around 4,000
companies representing a combined total
global market capitalization of $30.5
trillion. (Data as on December 31, 2007).
Thomas White Global Investing 9
Belgium’s first stock exchange – the Bourse de Fonds Publics de Bruxelles,
was opened as far back as 1801, when the country was still under French
rule. In 1999, a royal decree officially established the Brussels Exchange as
an integrated market operator comprised of the Belgian Futures and Options
Exchange (Belfox), the Bourse de Bruxelles, and the Central Securities
Depository (CIK). The following year, in an historic merger, the Brussels
Exchange combined with the Paris Bourse, the Lisbon Stock Exchange and
the Amsterdam Exchanges to create Euronext, the first pan-European
exchange. Later, in April 2007, the New York Stock Exchange (NYSE) bought
the Euronext exchange, in a $10 billion cash and shares deal, creating the
world’s first transatlantic stock market called NYSE Euronext.
With a life expectancy at birth of 75.8 years for men, and 81.8 for women,
Belgium has a fertility rate of 1.6 births per woman. (Human Development
Index Data, 2000-05). Belgium’s social security system includes a medical
system, child allowances, unemployment insurance coverage, and invalid
benefits, among others. The country’s unemployment rate was 8.5% in 2006,
with 2007 estimates expected at around 7.6%.
Encouragingly, the country is ranked as the world’s 20th freest economy, and
10th freest in Europe, according to the 2008 Index of Economic Freedom.
With 104 banks, including over 70 foreign banks, Belgium has had one of the
world’s most developed financial systems.
Yet, the ripple effects of the 2008 financial crisis that shook financial markets
the world over were strongly felt in Belgium. Two of the country’s largest
banks, Fortis and Dexia had to be rescued. Fortis has been a market leader
in Belgium, the Netherlands and Luxembourg (Benelux countries). Apart from
having a significant presence in many European economies, the Franco-
Belgian bank Dexia has enjoyed a strong presence in retail banking in
Belgium, Luxembourg, Slovakia and Turkey, with many subsidiaries spread
across Europe, as well as other parts of the globe. In the end, the
Netherlands fully nationalized Fortis, and Dexia was given a lifeline through a
€6.4 billion ($9 billion) cash injection from the Belgian, French and
Luxembourg governments, along with a guarantee for its new loans and
deposits for at least a year. KBC, another banking and insurance group with a
significant footprint across Eastern Europe, had to seek a €3.5 billion ($4.38
billion)) recapitalization by the government in the wake of the financial crisis.
In addition, the government injected €1.5 billion ($1.88 billion) into cash-
strapped Belgian insurer Ethias.
Problems peek on the horizon
Although Belgium’s future is promising, there are a few obstacles to
overcome. Regional differences still persist in the nation’s economy –
especially in the Wallonia and Flanders areas. Flanders attracts a
disproportionate level of investment compared to Wallonia, where dwindling
Thomas White Global Investing 10
coal resources have meant a decline in steelmaking and industry.
Unemployment rates are two to three times higher in Wallonia than in
Flanders, though the government has been making concerted attempts to
attract investments to Wallonia.
With a paucity of natural sources, Belgium has extensively developed its
nuclear energy resources. Seven nuclear power plants help to meet around
57% of the country’s electric power needs. However, legislation passed in
2003 requires Belgium to close all its nuclear reactors between 2015 and
2025 citing environmental concerns. This raises the question – how will the
country cope with losing almost two-fifths of its energy supply? Biomass,
geothermal, and solar powered reactors are being developed, but clearly, this
is a problem that is not likely to go away soon. Labor costs, which are among
the highest in the OECD countries, have also emerged as an impediment to
businesses in the region. With only around 40% of the low-skilled workers
employed, aided by generous out-of-work benefits, the labor market has little
incentive to offer.
An aging population (by 2050,
one out of four citizens will be
older than 65) and a relatively
high unemployment rate of 7.5%
in 2007 (Eurostat) remain key
issues for the government to
address. In the face of a rapidly
aging population, the high public
debt which stood at 85% in 2007
is also a matter of concern for
fiscal sustainability.
Driven by high energy and food
prices, the inflation rate has
been accelerating over 5% on an
average in 2008, compared to
1.8% in 2007. The political
stalemate, stemming from the
strong language divide in the
region, is also likely to cloud
economic prospects if not settled
amicably.
And, given Belgium’s reliance on
fellow EU member states for
most of its trade, any slowdown
in these countries is likely to
significantly impinge on the
The Atomium monument, built for the 1958World Fair, has become the Eiffel Tower ofBrussels. As a visual representation of anatom, the monument today stands as amodern day symbol of Belgium, and thepromise the nation holds for the future.
Thomas White Global Investing 11
country’s progress. Though it is inextricably linked to Europe, it is crucial
that this tiny nation diversifies and expands its opportunities in order to boost
future growth. This becomes even more critical against the backdrop of the
current slowdown in the global economy.
Despite the devastation left by two World Wars, and these more recent
challenges, Belgium’s economy has remained resilient. At the heart of it
stands Brussels – the headquarters of the North Atlantic Treaty Organization
(NATO), European Union (EU), Benelux Economic Union, Customs
Cooperation Council, Eurocontrol and the Western European Union. As a
true pan-European capital, Brussels encompasses the cosmopolitanism, the
stability, and the resilience that Belgium offers. Host to more than 1,000
international organizations and 2,000 international corporations, and
economically poised to advance its economic growth well into the 21st
century, Brussels represents the intercultural, international spirit of Belgium.
Brussels, the “Capital of Europe” as it is called, with its geographic location
and infrastructure, ensures that Belgium will continue to serve as the
preeminent point of entry for goods and services going into Europe. Although
Belgium has been a country divided by language, its ability to thrive as an
integrated nation is testimony to its capital’s motto: "L'Union fait la force–
Eendracht maakt macht." (Unity is powerful).
Thomas White International, Ltd.One Financial Place,
440 South LaSalle Street,
Suite 3900,
Chicago, Illinois 60605.
Tel.: 1-800-811-0535
Thomas White India Pvt., Ltd.Suite 300, 3
rdFloor
Phoenix Towers
16/1 Museum Road
Bangalore 560001
Tel.: 91-80-40187777
www.thomaswhite.com