VZCZCXRO3387
OO RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHBS #0051/01 0091733
ZNR UUUUU ZZH
O 091733Z JAN 07
FM AMEMBASSY BRUSSELS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3977
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 BRUSSELS 000051 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/OIA, EUR/ERA AND EUR/UBI 
TREASURY FOR OASIA/ICN - ATUKORALA 
USDOC FOR 3133/USFCS/OIO/EUR 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV EIND SOCI BE
SUBJECT: BELGIAN STEWPOT: JANUARY 8, 2007 
 
REF: A. 05 BRUSSELS 3964 
 
     ¶B. 05 BRUSSELS 536 
     ¶C. 06 BRUSSELS 4130 
 
1-2. Investment on the Rise 
¶3. Real Estate Deal Saves Federal Budget 
¶4. Wage Increases Capped for 2007 
¶5. Another Banner Year for Belgian Stocks 
¶6. Belgian Population Growing 
¶7. Wallonia Ups Investment in Aviation 
   Parts Maker SONACA 
¶8. Food Retailer Delhaize Expanding 
¶9. Belgian Sax Appeal 
 
------------------------ 
Investment on the Rise 
------------------------ 
¶1. (U) Both foreign and domestic investment in Belgium rose 
strongly in 2006.  Preliminary data show that domestic 
investment in fixed capital in Belgium rose 3.2 percent in 
2006, after declining marginally in each of the past five 
years.  Surveyed industrial firms expected final 2006 data 
would show a 17 percent increase in investment budgets; only 
automobile and textiles firms expected a net drop in their 
investments in Belgium.  Prospects for 2007 are stronger 
still, with expectations of 19.6 percent growth in investment 
budgets among firms. 
 
¶2. (U) Foreign direct investment (FDI) in Belgium in 2006 
reflected the cresting global economic cycle, and rose also. 
With final data yet to be reported, financial analysts expect 
FDI to surpass easily 
the $24 billion of 2005, perhaps reaching $40 billion. 
Belgium's newly implemented notional interest deduction, 
effective January 1, 2007, is credited with attracting some 
of the foreign investment. 
The deduction effectively reduces a company's marginal tax 
rate from 34 percent to 26 percent on profits (detailed 
further ref A).  Additions to US investment in Belgium came 
chiefly in the pharmaceutical and chemical sectors.  Mohawk's 
purchase of a large Belgian flooring company, Unilin, for 
some 2 billion Euros skewed the figures for 2005-2006. 
 
------------------------------------- 
Real Estate Deal Saves Federal Budget 
------------------------------------- 
¶4. (U) Another piece of good news for the Belgian government: 
the massive real estate sale/leaseback deal of government 
properties was finalized on December 22.  This permited the 
Belgian government to sell 63 government-held properties to a 
real estate property management company Befimmo in exchange 
for an immediate 575.6 million euro payment (US$ 760 
million).  A previous effort to carry out this transaction 
was overturned by the Council of State (Belgium's 
Constitutional Court) on grounds it lacked transparency 
for other potential bidders.  The final deal netted the 
government 10 million euro more than the previous bid 
procedure, yielding enough cash to tip the federal budget 
deficit, foreseen as 0.6 percent of GDP, into a positive 
balance (0.1 percent of GDP, or 200 million euros). 
 
 
-------------------------------- 
Wage Increases Capped for 2007 
-------------------------------- 
¶3. (U) After weeks of fruitless discussion, at 5 am on 
December 21, labor union  representatives and the Belgian 
Employers Federation, mediated by the federal government, 
reached agreement on the level 
of wage increases to be allowed in the coming two-year 
period, 5 percent in total.  This is a notch below the 
previous agreement of 6.2 percent over the 2005-2006 period. 
Even if projected inflation remains modest at 2 percent 
annually, that will leave scarcely half a percent for real 
wage growth in each of the two coming years.  Employers and 
government believe the agreement on modest wage growth is 
anti-inflationary, and will help maintain Belgium's 
competitiveness as an investment venue.  The wage agreement 
will apply to most of Belgium's 2.4 million private sector 
employees. 
 
-------------------------------------- 
Another Banner Year for Belgian Stocks 
-------------------------------------- 
¶5. (U) The Bel-20 stock index of Belgian stocks listed on the 
Euronext exchange in Brussels, Amsterdam and Madrid rose 
strongly in 2006.  Over the past year the basket of 
 
BRUSSELS 00000051  002 OF 003 
 
 
representative stocks rose 
by 22.84 percent, beating out other exchanges such as London 
(FTSE up 11.47), Paris (CAC-40 up 17.5), and even Germany 
(22.2).  Growth of the Bel-20 surpassed analysts' 
expectations, as had previous years gains of 30.7 percent in 
2004 and 21 percent in 2005 (Ref B).  A well-invested Belgian 
may have seen his or her portfolio rise by 75 percent in the 
past three years.  The explanation for the strong performance 
of the Belgian market is (1) the recovery from the internet 
bubble collapse had been delayed in Belgium compared to other 
markets, and (2) the Bel-20 is a narrowly based index, where 
a few strong stocks made major contributions, such as Suez 
(which bought Electrabel and rose 44 percent in 2006), Inbev 
(rose 34 
percent), food retailer Colruyt (rose 28 percent) and UCB 
Pharma (rose 37 percent). 
 
-------------------------- 
Belgian Population Growing 
-------------------------- 
¶6. (U) Belgium is bucking the trend of many European 
countries towards declining population.  The National 
Statistics Institute's official census recorded 10,511,382 
Belgian inhabitants on January 
1, 2006, 65,530 more than on Janury 1, 2005.  Regional 
weights in terms of population:  Flanders counted 6,078,600 
people (57.8 percent of all Belgians), Wallonia 3,413,978 
(32.5 percent), and Brussels 1,018,804 (9.7 percent). 
870,862 foreigners were counted, down from almost 900,000 in 
2000, mainly due to the "Quick Belgian law" (snel-Belgwet) 
that facilitated the naturalization of thousands of 
foreign-born residents.  In Brussels, hub of the European 
Union, NATO and other international organizations, trade 
associations and corporations, 26% of the population is 
non-Belgian. 
 
------------------------------------------ 
Walloon Government Ups Investment in Aviation Parts Maker 
SONACA 
------------------------------------------- 
¶7. (U) The Walloon regional government, already the major 
shareholder in Sonaca, has increased its investment.  The 
company, known for aviation components such as wing front 
edges and fuselage 
panels for Airbus and Embraer, is undertaking a restructuring 
program to trim 63 million euros from its budget and cut 100 
employees (to 1550) from its payroll.  Wallonia will spend 20 
million euros to acquire another 5 percent of the company, 
bringing regional government participation to 89 percent, and 
lowering the shares of Techspace Aero and SFI.  Sonaca plans 
installation of new machinery to further automate production. 
 Techspace was recently cited by the EU Competition 
Commission for receiving excessive 
Belgian government state aid. (ref C). 
 
------------------------------------------- 
Food Retailer Celebrates Triple Anniversary 
------------------------------------------- 
¶8.  (U) In 2007, Belgian based Delhaize Group will mark 140 
years of existence, 50 years of supermarkets in Belgium, and 
50 years of Food Lion, its largest subsidiary in the U.S. 
The retailer is also 
expanding its presence in Belgium by opening 44 new stores, 
including 20 Tom & Co, stores that specialize in food and 
products for domestic animals.  Delhaize already has a 40 
percent market share in the pet sector.  In 2005, the company 
acquired Antwerp-based Cash Fresh and is in the process of 
converting these 
into Delhaize outlets.  Delhaize also has outlets in 
Luxembourg and Germany and will open in France in 2007.  In 
2005, Delhaize Group's net sales exceeded 18 billion euros, 
and net profit was 364 million 
euros.  The United States looms large in Delhaize plans, 
currently accounting for 700 million in direct investment, a 
majority of profits, and 104,000 of its 136,000 worldwide 
employees. 
 
-------------------- 
Belgian Sax Appeal 
-------------------- 
¶9. (U) In an homage to Adolphe Sax, the inventor of the 
saxophone, over 1400 saxophonists gathered in Dinant on 
November for a giant concert on the musician's birthday.  The 
event has taken place every 
four years since 1994 to honor Sax, who was born in Dinant, 
Wallonia, in 1814.  Many of the performers came from abroad, 
dedicated to fostering awareness and love of their 
 
BRUSSELS 00000051  003 OF 003 
 
 
instrument.  Who says Belgians don't have international sax 
appeal? 
 
IMBRIE 
.