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Viewing cable 07BRUSSELS2608, ECONOMIC GROWTH OF BELGIUM'S WALLOON REGION

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Reference ID Created Released Classification Origin
07BRUSSELS2608 2007-08-16 11:55 2011-08-26 00:00 UNCLASSIFIED Embassy Brussels
VZCZCXRO1950
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHBS #2608/01 2281155
ZNR UUUUU ZZH
R 161155Z AUG 07
FM AMEMBASSY BRUSSELS
TO RUEHC/SECSTATE WASHDC 6183
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES COLLECTIVE
UNCLAS SECTION 01 OF 03 BRUSSELS 002608 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/ESC AND EUR/UBI 
USDOC FOR 3133/USFCS/OIO/EUR 
TREASURY FOR OASIA - ATUKORALA 
PARIS FOR USOECD ? BARLERIN 
 
E.O. 12958: N/A 
TAGS: ECON ELAB BE
SUBJECT: ECONOMIC GROWTH OF BELGIUM'S WALLOON REGION 
REMAINS ON POLITICAL AGENDA 
 
 
1. (U) Summary. One of the issues Belgian politicians are 
grappling with as they form a new government is how to 
craft economic policies given the differences between the 
economies of Wallonia and Flanders.  As Wallonia's top 
investor, the United States has an interest in the overall 
economic health of the region.  The good news is that the 
Walloon economy is growing, foreign direct investment has 
increased along with job creation, six-year unemployment 
figures are down, and exports and median income are up. 
The bad news is that Wallonia still lags significantly 
behind Flanders in net income and overall GDP, and it 
continues to suffer from high unemployment.  To keep the 
economy growing, Wallonia needs to improve its public 
governance, human capital development, labor market, and 
above all its entrepreneurial spirit. End Summary. 
 
The Good News 
------------- 
2. (U) The Walloon economy appears to be picking up 
momentum, according to reports in the economic press and 
government statistics.  Trends-Tendances announced that 
Wallonia enjoyed a 58% boost in foreign direct investment 
in 2006.  Foreign direct investment totaled 1.2 billion 
euros, including 746 million euros spent creating new 
businesses.  These investments resulted in 1,912 new jobs. 
 
3. (U) Several American businesses recently invested in 
Wallonia:  Google in Saint-Ghislain; Dolce in La Hulpe; 
Johnson & Johnson in Courcelles; and Baxter in Lessines. 
According to the daily business paper, L'Echo, U.S. 
investment accounts for 40 percent of all FDI in Wallonia, 
which makes it the region's primary investor.  In fact, 
U.S. investment is twice that of France.  Currently, 200 
U.S. businesses account for 20,000 jobs in the region. 
 
4. (U) Oxford Intelligence reports that of the 185 new 
investments in Belgium in 2006, Wallonia captured 25% of 
them.  In its ranking of European regions that are most 
attractive to foreign investors (in terms of new investment 
projects), the province of Hainaut, in Wallonia, ranked 
28th in 2006, with 22 new projects.  This is a significant 
improvement over 2005, when it ranked 40th.  Only one 
Belgian city, Antwerp, made it into the top 10 in 2006, 
while Brussels ranked 21st. 
 
5. (U) In terms of unemployment and exports, in March 2007, 
Wallonia had 8,000 fewer people unemployed than at that 
time a year ago.  Between 2000 and 2006, 11,370 jobs were 
created, with 1,624 created on average each year from 
foreign investment.  Trends-Tendances reports that Wallonia 
now accounts for a greater percentage of Belgian exports as 
well.  From 2001 to 2005, Wallonia's level of exports grew 
from 15% to 18% of total Belgian exports. 
 
6. (U) Wallonia's economic growth and median income are 
also on the rise.  In 2003 and 2004, Walloon economic 
growth surpassed that of Flanders by 0.5%, according to the 
ICN (National Accounts Institute) and the UWE (Union of 
Walloon Enterprises).  In 2005, economic growth took a 
slight dip, but is expected to rebound in 2006 and reach 
the level of economic growth in Flanders. According to the 
Federal Public Service Economy (equivalent to a ministry of 
economy), 2004 also saw the median income of Walloon 
residents increase by 5.5%, compared to 4% in Flanders. 
 
7. (U) 2007 is projected to be even better.  The industries 
that enjoyed the greatest gains in 2006 were 
pharmaceuticals, chemicals, energy, logistics, information 
technologies and telecommunication. 
 
The Bad News 
------------ 
8. (U) While Wallonia is clearly in a period of economic 
growth, it is starting from a lower base than economically 
dominant Flanders.  Net income is approximately 1,600 euros 
greater in Flanders than in Wallonia, not surprising since 
the GDP of Flanders continues to be 37% greater than that 
of Wallonia.  The number of jobs created per new investment 
lags behind the rest of Belgium and much of Europe. 
According to Trends-Tendances, only 20 jobs were created 
per project on average in Wallonia, compared with an 
average of 47 per year in Belgium and 95 per year in 15 
other European countries. 
 
9. (U) Unemployment persists, and only 36% of Walloon 
 
BRUSSELS 00002608  002 OF 003 
 
 
businesses say that they will increase their recruitment in 
the coming onths, according to a UWE (Union of Walloon 
Enterprises) survey.  This is a 2% decline compared to the 
same number in November of 2006.  The reason is that 94% of 
companies report difficulties in hiring.  The first problem 
is that there are not enough job-seekers with the 
qualifications that Walloon businesses are looking for. Two 
employment firms stress that the comfortable unemployment 
package offered in Wallonia means that it is not worthwhile 
for most people to accept a job unless it pays in the 
middle range of salaries.  Employment agencies and 
companies themselves often must recruit in northern France, 
where unemployment benefits have limits, in order to fill 
jobs.   Other problems relate to the cost of hiring and a 
candidate?s motivations for the job. 
 
10. (U) Furthermore, optimistic economic forecasts are not 
causing leading Walloon entrepreneurs to increase their 
investments.  The percentage who reported that they wanted 
to invest more in the next six months decreased from March 
2006, according to the UWE.  In addition, many Walloon 
companies seem to be limiting their exports to northern 
France and Western Germany, rather than trying to expand 
their goods into other markets. 
 
11. (U) Ironically, while Wallonia suffers from high 
unemployment, Flanders has a labor shortage. Jobs in 
Flanders are being filled by workers in neighboring France, 
rather than Wallonia.  French workers drive over 62 miles 
each day to work in the Flemish cities of Ypres and 
Kortrijk, according to Philippe Donnay, Economic Advisor at 
the Federation of Enterprises in Belgium. 
 
12. (U) The two regional authorities have tried 
unsuccessfully to create incentives to encourage labor 
mobility between the regions.  One of the reasons is that 
the labor market is too rigid.  A worker changes jobs every 
12 years, on average.  High unemployment also highlights 
this rigidity.  Second, cooperation between the regions on 
this issue is in its infancy.  While job placement agencies 
in each region have been exchanging employment 
opportunities for one or two years, labor markets have been 
regionalized for more than twenty.  As a result, businesses 
in Flanders may have needs in areas that cannot be met by 
unemployed workers in Wallonia.  Third, many unemployed 
workers lack the proper education and training for many 
jobs in today?s labor market, and at the same time, the 
competencies needed in many fields are changing rapidly. 
Fourth, the gap between social welfare benefits and 
salaries is too small to encourage unemployed workers to 
look for a job.  Finally, Donnay notes that the cultural 
and linguistic differences between the two regions are a 
further barrier to mobility. 
 
Improving Wallonia's Economy 
---------------------------- 
13. (U) In order to continue Wallonia's economic growth, 
the region must improve public governance, develop its 
human capital development, make its labor market more 
flexible, and release the region?s entrepreneurial 
potential. 
 
14. (U) Two years ago, the Walloon regional government 
announced a Marshall Plan for Wallonia, but this idea has 
not taken off.  It is a one billion euro initiative to 
boost the Walloon economy.  The key points of the Marshall 
Plan are to increase economic activity, grow competitive 
sectors of the economy, invest in job and language 
training, as well as in research and development, and 
reduce property taxes.  Under the original Marshall Plan, 
the Walloon regional government invested 280 million euros 
in refurbishing smokestack industries that soon were 
overtaken by new plants in Germany and became uneconomic. 
Flanders, in contrast, invested in training, education, and 
subsidies for small and medium-sized businesses.  Today in 
Flanders, 95% of private sector employment is with 
companies having 50 employees or less. 
 
15. (U) Good public governance is essential to implementing 
successful reforms.  Beset by Socialist Party scandals in 
the Walloon city of Charleroi, the entire city cabinet 
resigned from office in June.  Donnay believes that 
developing a modern, efficient government administration, 
with less intervention in the economy, is the first step 
towards improving the Walloon economy. 
 
BRUSSELS 00002608  003 OF 003 
 
 
 
16. (U) Developing human capital requires a strong 
educational system, and Wallonia's is in need of 
improvement.  For the past 20 years, roughly one-third of 
secondary school students have become unemployed adults. 
Walloon schools are doing a poor job preparing students for 
work:  the Reading and Writing Association estimates that 
300,000 adults are illiterate in Wallonia.  The school 
system is also one of the most costly in Europe.  Jean-Yves 
Huwart of Trends-Tendances urges schools to improve basic 
education by delaying the year in which they make their 
vocational choices.  Donnay believes that the education 
system should be tied more closely to the labor market. 
 
17. (U) Huwart also recommends improving the higher 
education system by forming one large University of 
Brussels-Wallonia (instead of many universities with 
similar programs), with universities in each town 
specializing in different subjects, similar to the public 
university system in many U.S. states.  The universities 
would reach a critical mass of resources likely to improve 
research and teaching, and in turn, make the schools more 
attractive to employers.  A 2004 OECD study comparing the 
educational performances between Flanders and Wallonia was 
very critical of that in the latter. 
 
18. (U) Improvements should also be made in the labor 
market.  There are no limits to unemployment compensation 
and little labor mobility between Flanders and Wallonia. 
In addition, the difference between unemployment 
compensation and the salaries of unskilled workers is very 
small, discouraging employment.  On the employer side, 
companies bear a lot of the social costs when they hire an 
employee and therefore, it is often very costly for them to 
hire unskilled labor.  In addition, Wallonia's public 
employment service, the Forem, does a poor job of matching 
workers' skills to the needs of employers.  It should 
develop better "skill mappings" with employers as well as 
create more sophisticated tests for job seekers so that 
they more accurately reflect the needs of employers. 
 
19. (U) Finally, Wallonia needs to become more results- 
oriented, according to Huwart.  Businesses should embrace 
globalization and seek out transcontinental markets for 
their goods.  They should develop a more entrepreneurial 
spirit to take advantage of the opportunities offered by 
globalization. 
 
20. (U) COMMENT: Wallonia has made some progress in moving 
away from its rust belt past.  Foreign direct investment is 
flowing in but not at a level which brings its economic 
development up to a par with Flanders.  In this globalized 
world, Wallonia is not merely competing for investment with 
Flanders but with the Singapores and Chinas and UKs of the 
world.  Wallonia must continue to improve the training of 
its students at the same time that it reduces the 
incentives for unemployed workers to stay on the dole 
rather than seek work. END COMMENT 
IMBRIE