July 2009 Flanders Economy and Public Finances. 2 Agenda I.Summary II.Economy III.Public Finances.

July 2009

FlandersEconomy and Public Finances

2

Agenda

I. Summary

II. Economy

III. Public Finances

3

Flanders in a nutshell

Key Points and Major Strengths

Flanders benefits from:

• A wealthy and diversified economy

• Sound budgets despite cyclical economy

• A strong educational system

• A strong taxable basis with a GDP around EUR 200 bn.

• Strong and stable credit ratings

• Solid financial position on a consolidated level

• Prudent and sophisticated management

• Low regional debt and continued focus on fiscal discipline

4

Agenda

I. Summary

II. Economy

III. Public Finances

5

Capital Brussels

Language Dutch

Surface 13 684 km²

Population 6 161 600 (2008)

Density 450 hab./km² (2008)

Currency Euro

N° of Companies 537 800

Nominal GDP EUR 200 bn (2008)

GDP/Capita EUR 30 500 (2008)

Income/Capita EUR 33 300 (2008)

Economy

Main Facts & Figures

6

Economy

Strong Economic Fundamentals

Flanders benefits from very strong economic fundamentals. Despite the current virulent economic

crisis, most economic indicators should remain sound and encouraging in the coming years.

Flanders France Germany Netherlands EU - 27

Unemployment Rate* 3,9% 7,4% 7,6% 2,7% 7,1%

Real GDP Growth Rate* 1,1% 0,4% 1,3% 2,1% 0,9%

(*) 2008 figures

Source: Eurostat, Study Office of the Flemish Government

7

Economy

Stands Out from its Peers

(2007 figures) Flanders Baden-Wuerttemberg

Bavaria Catalonia (region of)

Hesse Madrid (region of)

North Rhine-Westphalia

Credit rating (S&P/M/F)

AA+/Aaa AA+/Aaa/AAA AAA/Aaa/AAA

AA/Aa2/A+ AA/-/AAA AA+/Aa1/AA AA-/Aa1/AAA

Country Belgium Germany Germany Spain Germany Spain Germany

Population 6,0 m 10,7 m 12,5 m 7,2 m 6,0 m 6,0 m 18,0 m

Unemployment rate

3,9% 4,9% 6,2% 6,6% 7,7% 6,3% 9,4%

Operating balance (% of operating revenues)

7,8% 3,5% 9,0% 7,8% -1,0% 14,4% -1,0%

Balance after capital exp.

2,7% -1,4% 1,4% -6,5% -2,3% 3,1% -8,4%

Total Revenues (EUR billion)

22,875 34,267 38,253 22,109 20,386 17,583 47,514

Direct debt (% of operating rev.)

1,2% 129,1% 65,9% 59,1% 160,1% 31,1% 254,9%

Source: S&P, Moody’s

Gov

ern

men

t

8

Economy

An Economy based on Trade and Services

Source: Institute of National Accounts (2007)

Secondary Sector28%

Primary Sector

1%

Tertiary Sector71%

• Real Estate and Business

Services: 24%

• Wholesale and Retail: 15%

• Transport: 8%

• Health Services: 7%

• Construction: 6%

• Chemicals: 4%

• Iron, Metal & Steel: 3%

• Food & Tabacco: 3%

9

Economy

High GDP per Capita (2008)

Source: Eurostat, Study Office of the Flemish Government

20

22

24

26

28

30

32

34

Flanders Belgium France Netherlands Germany UnitedKingdom

EU-15 EU-27

EUR (thousands)

10

Economy

Low Unemployment Rate

Source: Eurostat, Study Office of the Flemish Government

0

2

4

6

8

10

12

Flanders Belgium France Netherlands Germany EU-15 EU-27

2003

2004

2005

2006

2007

2008

%

11

Economy

Flanders’ Employment: Resilient in Periods of Crisis

Economic Growth and Employment in Flanders, 1981 - 2008

-2

-1

0

1

2

3

4

5

6

7

1,900,000

2,000,000

2,100,000

2,200,000

2,300,000

2,400,000

2,500,000

2,600,000

Real % GDP growth (left scale) Total employment (right scale)

Years of Economic

Restructuring

German unifi cation and

preparing for the

Maastricht criteria

Reorganisations

after investment

hausse and dot.com

hype

Source: Eurostat, Study Office of the Flemish Government

%

12

Economy

Flanders’ Key Strengths

• Located in the heart of Europe

• Unique European hub

• Strong export-driven economy

• Diversified base of trading partners

• Foreign direct investment figures & trading partners

• Diversified economy

• Highly qualified workforce

• R&D competence center

13

Economy

Located in the Heart of Europe

Flanders lies at the center of the EU’s

wealthiest and most populated area –

and Flanders has the highly

developed transport and

communications systems required for

companies to take full advantage of

this fact.

14

Economy

A Unique European Hub

Flanders offers companies rapid and efficient

supply and distribution links with other major

European centers and beyond.

Leading ports Antwerp, Ghent, Ostend, Zeebrugge

Airport freight & logistic hubs

Brussels, Ostend

Extensive inland waterway system

Linking into the European system

High density of freeways

Connecting directly to other European countries

High density rail network

Dedicated freight lines to other parts of Europe

15

Economy

Increase in Flemish Exports (EUR billion / Nominal Figures)

201

146

191178

169158

0

50

100

150

200

2003 2004 2005 2006 2007 2008

Regional Distribution of Belgian of Belgian Exports (%)

Flanders80%

Wallonia18%

Brussels2%

Strong Export-Driven Economy

The Flemish economy is strongly export-oriented, in particular in the areas of food, beverage,

automobiles, iron and steel. Flanders’ exports represent over 80% of Belgium’s total export in

volume.

Source: Institute for the National Accounts (National Bank of Belgium)

16

Economy

Diversified Base of Trading Partners

The Flemish export markets have traditionally been focused on Western Europe and more

particularly on Germany.

TOP 10 Flemish Export Markets in 2008 (in EUR billion and as % of total)

16.8%

13.9%13.6%

7.9%

4.9%4.4%

4.0% 2.7% 1.8% 1.8%

0

5

10

15

20

25

30

35

40

Ge

rma

ny

Ne

ther

lan

ds

Fra

nce

Un

ited

Kin

gdo

m

Ita

ly

Un

ited

Sta

tes

Sp

ain

Ind

ia

Po

lan

d

Sw

ed

en

Source: Eurostat, Study Office of the Flemish Government

17

Economy

Foreign Direct Investment Figures & Trade Partnerships

Top 10 biggest investors (in 2008, total =100)

1 USA 28%

2 Netherlands 12%

3 Germany 11%

4 UK 9%

5 Japan 8%

Flanders has a proven track record of welcoming

foreign businesses to its region.

Life Sciences Johnson & Johnson, Pfizer, Schering-Plough, AstraZeneca, ...

Automotive Ford, General Motors, Volvo, …

ICT Alcatel Lucent, British Telecom, Philips, ST Microelectronics, ...

Chemicals BASF, Total, Suez-GDF, Bayer, Kaneka, Nippon Shokubai, ...

Food Products Heinz, Procter & Gamble, Tropicana, ...

Logistics Caterpillar Logistics, Deutsche Post, NYK, ...

Source: Flanders Investment and Trade Office

18

Economy

R&D Competence Center

Share (%) of workers in knowledge intensive sectors

0

5

10

15

Fla

nd

ers

Fra

nce

Th

eN

eth

erl

an

ds

Ge

rma

ny

EU

-27

Source: Eurostat, Study Office of the Flemish Government (2006)

Share (%) of GDP invested in Research & Development

0

1

2

3

Fla

nder

s

Fra

nce

The

Net

herla

nds

Ger

man

y

EU

-27

19

Economy

Education: Flanders on Track for the Future

Source: PISA 2006, Average country scores

Top countries

Finland 563 Korea 556

Hong Kong China 542 Finland 547

Hong Kong - China 536

Excellent countries

Canada 534 Chinese Taipei 549 Canada 527

Chinese Taipei 532 Finland 548 Flanders 522Estonia 531 Hong Kong China 547 New Zealand 521

Japan 531 Korea 547 Ireland 517

New Zealand 530 Flanders 543Flanders 529Australia 527

Netherlands 525

Korea 522

Liechtenstein 522

Average46 countries! 53 countries! 50 countries!

Germany 516 Netherlands 531 Netherlands 507

United Kingdom 515 Germany 504 United Kingdom 495

France 495 France 496 Germany 495

United Kingdom 495 France 488

Scientific literacy Mathematical literacy Reading literacy

20

Economy

Flanders in Action

A well-defined plan to make sure that Flanders will be in the

top five of the European regions by the year 2020 carried by

all social groups in Flanders

To ensure and assure the region’s future by developing it into

an innovation-driven, ecologically sustainable and socially

welcoming society

Vision & Ambition

Goal

20 Concrete Objectives Examples:

• Increase of R&D from 2,1% to 3,0% of GDP

• Double number of participants in lifelong learning

programs

21

Economy

Countering the Economic Crisis in the Nearby Future•Capital injections in financial sector for a total amount of EUR 4.5 bn (KBC, Dexia, Ethias)

•“Restore Confidence” planStrengthen the granting of credit and capital to companies (EUR 300 m guarantee scheme) and

l aunch of XL-fund which provides growth capitalEnhancement of the activation policy on the labour market Speed up investments (total indicative budget of EUR 842 million

•Special measure to increase purchasing power (EUR 710 m)

•Financing was done using existing cash reserves and EUR 2.8 bn in bond issuance. An additional call on the debt capital markets will further complete the financing

Continued focus a balanced budget on the medium termFollowing the elections of June 7, 3 parties (Christian democrats (CD&V), Flemish conservative nationalist party (N-VA) and the socialist SP.A party) are in the process of forming a new government. During the negotiations, all parties have put a special emphasis on savings measures to attain a balanced budget

22

Agenda

I. Summary

II. Economy

III. Public Finances

23

Public Finances

Belgium Federal Structure

Federal State

10 Provinces

3 Regions:FlandersWalloniaBrussels

589 Towns and Cities

3 Communities:FlemishFrenchGerman

The Flemish Community and the

Flemish Region decided to merge

their competences.

As a result, Flanders has one Flemish

Parliament, one Flemish Government

and one public administration,

responsible for community and

regional matters.

24

Federal State

Public Finances

Competence Distribution

•Public Finances•Defense•Security•Justice•Social Security•Public Health•Domestic & International politics •Transport &

Communication

Flanders

Flemish Community

•Education•Culture•Public health

(prevention)•Welfare•Language issues•Child protection

Flemish Region

•Economic development & co-operation•Public infrastructure•Town & country

planning•Environment•Energy•Employment•Agriculture•Foreign Trade•Regional transport•Control & organization of local governments

25

Public Finances

Revenues by Segment

Specific allocations

4%

Regional taxes20%

Others1%

Combined and shared taxes

75%

0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

2009 2010 2011 2012 2013 2014

Combined and shared taxes Specific allocations Regional taxes

Allocated income Other funds Credit grants and participations

Source: Flemish Community, Department of Finance and Budget (2009)

Combined taxes are part of Belgium’s personal income tax levied in Flanders.

Shared taxes are part of Belgium VAT and transferred at endowment to Flanders.

EUR (million)

26

Public Finances

Breakdown of Public Spending

Finance and Budget

5%

Culture,Youth , Sports and

Media5%

Education and Training

37%

Rest9%

Economy, Science and Innovation

4%

Administrative affairs10%

Work and Social Economy

6%

Mobility and Public Works

12%

Public Health and Family

Welfare12%

0

5,000

10,000

15,000

20,000

25,000

30,000

2009 2010 2011 2012 2013 2014

Education and Training Public Health and Family Welfare Mobility and Public Works

Administrative affairs Rest Work and Social Economy

Finance and Budget Culture,Youth , Sports and Media Economy,Science and Innovation

Source: Flemish Community, Department of Finance and Budget (2009)

EUR (million)

27

Public Finances

Flanders Sustaining Belgian Financial Stability

Source: Institute of National Accounts (National Bank of Belgium)

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

-600

-400

-200

0

200

400

600

800

1 000

1 200

1 400

Balance to be achieved (left scale) Realizations (left scale) Difference between balance and realizations (right scale)

EUR (million) EUR (million)

28

Public Finances

History of a Healthy Budget…

Source: Flemish Community, Department of Finance and Budget

EUR (billion) EUR (million)

0

5

10

15

20

25

30

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

*

-1 000

-500

0

500

1 000

1 500

Revenue (Left Scale) Expenditure (Left Scale) Balance (Surplus/deficit) (Right Scale)

(*) Without redemption of local debt (EUR 650 million) and capital injection in Dexia & Ethias (EUR 1 000

million) in 2008

29

Public Finances

…has led to zero-debt in 2008

0

1

2

3

4

5

6

7

8

9

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

From the 1995 peak, Flanders has reduced its debt at the regional to zero end of 2008

Source: Flemish Community, Department of Finance and Budget

EUR (billion)

30

Contacts

Hedwig Van der BorghtSecretary – general

Flemish Community, Department of Finance and Budget+32 2 553 54 09

[email protected]

Luc KeeremanHead of financial management division

Flemish Community, Department of Finance and Budget+32 2 553 54 34

[email protected]

31

Disclaimer

This presentation has been prepared by Flanders for informational purposes only. Although the information in this presentation has been obtained from sources which Flanders believes to be reliable, we do not represent or warrant its accuracy, and such information may be incomplete or condensed. This presentation report is not intended to provide the sole basis for any evaluation of the transactions discussed herein. All estimates and opinions included in this presentation constitute our judgment as of the date of the presentation and may be subject to change without notice. Changes to assumptions may have a material impact on any recommendations made herein. Flanders will not accept any liability whatsoever for any loss howsoever arising, directly or indirectly, from the use of this presentation or the information provided for in this presentation or otherwise arising in connection with this presentation.

This presentation is confidential and is provided to you for information purposes only and does not constitute a public offering or an investment service in Belgium. This presentation is being submitted to selected recipients only and neither this presentation nor any other offering materials may be distributed, published or made available to the public in Belgium. This presentation may not be reproduced or passed on (in whole or in part) to any other person than the selected recipients. Neither this presentation nor any offering materials may be used in relation to any investment service in Belgium unless all conditions of directive 2004/39/EC, as implemented in Belgium, are satisfied. Neither this document nor any offering materials can be used to publicly solicit, provide advice or information to, or otherwise provoke requests from, the public in Belgium in relation to the offering. Any offering in Belgium is made exclusively on a private basis in accordance with article 3 of the Belgian law of 16 June 2006 on the public offering of investment instruments and the admission of investment instruments to the trading on a regulated market.

© March 2009 Flanders. All rights reserved.