Belgium FRONT COVER.doc - Thomas White … · and managing over one billion dollars in close to 50 countries. ... Eugene Ysaye, and Wim Mertens have graced the Belgian music stage,

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.

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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

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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.

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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.

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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.

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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).

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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

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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.

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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).

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