Belgium is small but perfectly complicated; aside from Brussels, it consists of a French-speaking region (Wallonia) and a Flemish-speaking region (Flanders), and a capital which, doubling as the capital of the European Community, is so polyglot that it does not fit neatly and without argument into one region or the other. There are lots of issues to discuss around the constitution and future of Belgium, but in the meantime, the respective governments of Flanders and Wallonia are content to get on with the job at hand: building competitive economies at the crossroads of western Europe.

While Wallonia was once the industrial and hence economic powerhouse of Belgium, Flanders now also enjoys a number of advantages. Not least, Flanders possesses the entirety of the Belgian coastline, with all the communication and logistical benefits that brings. Although small, Flanders is in close proximity to so many regional economies – Germany, the Netherlands, France and the UK across the Channel – and a well-trained, and more often than not, a multilingual workforce (most Flems speak Flemish, French, English and often also German).

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Unlike Wallonia, Flanders has relatively low rates of unemployment – this is one of the advantages of not being a post-industrial region. In addition, the ports of Zeebrugge, Ghent, Antwerp and Ostend are all major employers and absorb large volumes of labour. Nonetheless, the government of Flanders is aware of the need to maintain a competitive edge.

Flanders Investment and Trade is the public sector body responsible for ensuring that Flemish companies are on the world map, accessible to investors and competing at an international level. It also plays an important role in ensuring that the right synchronicities exist between all concerned – public and private sectors, and governments – to give direction to the Flemish offering.

At the beginning of 2009, a consortium of Flemish leaders from the worlds of business and politics signed the ‘Pact 2020’ – outlining a vision for Flanders’ social and economic development of the next 10-plus years, with the general objective of increasing prosperity and welfare, ensuring that the economy remains both competitive and sustainable, and keeping employment high and government administration efficient and effective.

A key part of Pact 2020 will be the ‘Flanders in Action’ plan, which is focused on what the regional government describes as five “breakthrough actions”, all of which have a high-tech and international edge.

 

Logistical centre

Flanders regards logistics as being one of its major assets, with its seaports constituting one-tenth of the region’s GDP, and the government claims that no comparably sized region can boast of as finely tuned railroad and highway connectivity. A 2006 report on European distribution gave Flanders top ranking as a logistics location, based on factors including the cost of warehousing land and employment, quality of transport systems and accessibility – attributes which, it forecasts, will keep Flanders at or near the top of the pile at least until 2019.

The seaports in particular are regarded by the government as a major strategic asset. Antwerp, for example, is one of the largest ­petro-chemical centres in Europe, with a cap­acity of some of 1960 million tonnes of ethylene a year, or 9.21% of Europe’s total, and home to five oil refineries and four steam crackers.

A major player is DP World, which took over P&O Ports in 2006 and is investing some e500m in the port, where it operates Antwerp’s second largest port terminal, the Antwerp Gateway. The Flanders regional government says the attraction of its ports lies, in addition to its location, in the expertise of its engineers and in the productivity of its workers, and has figures to suggest that ships docking in Antwerp are unloaded 20% to 30% quicker than in neighbouring countries.

But Flanders knows that its logistics generally – road, rail, sea and air – are in danger of becoming over-burdened and as part of its vision must look toward intelligent systems for reducing congestion, maximising capacity while maintaining green credentials. With this in mind, local authorities, industry and research institutions are already collaborating on devising information and communication technologies (ICT) applications to traffic management systems which in time, it believes, will come to be regarded as state of the art.

 

Linking up research and clinical practice

Other planks of Pact 2020 include Medical Centre Flanders, which has been initiated to face full-on the healthcare challenges posed by fast-changing demographics and technological advances. A key part of this involves research and implementation in the field of translation medicine: essentially, a cross-pollination between clinical practice (ie: what happens in hospitals) and the biomedical research that occurs in laboratories. The authors of the Flanders in Action believe that this is the path to achieving breakthroughs in terms of early diagnosis, personalised medicine, cell therapy, biomarkers and other innovative solutions to health issues.

Other areas of forward-thinking research include looking at fields including the application of nano-technology in medicine, and ICT in the field of senior care services, including the global electronic medical dossier, tele-monitoring, multi-sensoring and home-electronic systems.

One of Flanders’ most exciting sectors is biotech, an area where serious investments are being made through both the public and private sectors. And as in other spheres, the government of Flanders is keen to make sure that the investment is targeted in the right places.

Investing in this space takes considerable commitment. Because of the nature of the research there is considerable attrition rate; and when projects are successful, the lead time between drawing board and application can be considerable. Successful investment requires much more than money: in particular, it takes coordinated collaboration, ensuring that researchers, producers, investors and other interested parties understand what other parties are doing and how they can come together to create and exploit new opportunities.

It was with these needs in mind that FlandersBio, the body responsible for cultivating and promoting the sector, was established in 1996 with the mission statement of supporting and facilitating sustained development in biotech and ensuring that the life sciences remained a strong driver of economic growth in the region. The tools at its disposal include all important networking activities – bringing innovative companies in the biopharma, medical technology and agricultural and industrial biotech sectors that may still be at the R&D stage with biotech-related companies which already have a production track record. And increasingly – and in keeping with the strategic priorities of Flanders Investment and Trade – these companies are taking their offerings into Europe and beyond.

Dr Ann Van Gysel, formerly a plant molecular biologist and currently general manager of FlandersBio, explained to fDi that the organisation had identified research under three separate heads as strategic priorities: the medical sector, focusing on healthcare; plant biotechnology focusing on sustainable agriculture; and industrial applications, including bioprocessing technologies for production.

Ms Van Gysel: “We are essentially a private, but not-for-profit membership organisation formed in 2004 by a number of spin-off companies which had their origin in Flanders universities. Now we’re 160 strong.”

FlandersBio’s members include some 90% of Flanders’ biotech R&D companies, but also and increasingly a significant number of R&D-focused medical technology companies, bio­pharma companies, capital providers, service providers and university and research institutes. Member companies range from the small, employing five to 10 people each, to those employing upwards of 200 employees. “Our key purpose is to help our members share information and knowledge, organising workshops and seminars, encouraging investment and collaboration – especially with other clusters of innovation,” says Ms Van Gysel.

In some instances, the emphasis is on the social. FlandersBio will soon be organising a cycling tour in the Ardennes for its members – but other forthcoming events include, for example, a seminar on opportunities in tissue engineering, which will explore the technical and scientific developments in the field but also business and regulatory related issues. Another FlandersBio-organised event will concentrate on partnering in biomedical imaging in Brussels. But Ms Van Gysel is particularly keen that her companies have international exposure – and FlandersBio will be taking a large delegation to Japan Bio, the country’s largest biotech trade fair.

 

University access

FlandersBio’s companies enjoy access to some high-quality academic institutions, including the Catholic University of Leuven, Ghent University, VUB in Brussels, the University of Antwerp and Hasselt University, and also a number of government-funded strategic research centres.

The biggest of these, Leuven-based IMEC, was set-up in 1984 and specialises in nanotechnology but is increasingly moving towards the biosciences – and has an established reputation for the quality of research and development of its international collaborations. Others include VIB, based across a number of universities and specialising in technology transfer, intellectual property rights and communication technology, and the newly established Centre for Medical Innovation and Neuro-Electronics Research Flanders, a collaboration between VIB and IMEC dedicated to neuro-electronic research.

Since 1996, the key investment manager has been the Belgian private equity and venture capital house GIMV, which in 1996 was given a mandate by the Flanders government to manage its investments into the biotech space; typically other investors then follow. The investment statistics make interesting reading, and demonstrate the kinds of collaboration between public and private sectors which is required for these kinds of new technologies to flourish. Total turnover in the biotech sector in Flanders falls just short of €1.9bn, with more than €500m of private sector investments in biotech R&D. The vast majority of this money goes into the companies themselves, but in 2007 the universities collectively, and the VIB research centre, attracted €12m and €17m of private sector money, respectively.

In the same year, the government of Flanders invested some €266m, spread across the companies, universities and colleges, and other programmes. Up until the economic downturn, the sector produced a number of stars on stock exchange Euronext, including Devgen, a biotech company focusing on plant traits and pest control; Galapagos, which researches new therapies for bone and joint diseases; and Thrombogenics, which develops treatments for eye and vascular diseases and cancers.

 

Innovations in the health sector

Ms Van Gysel says that while by no means disparaging the notion of innovation for innovation’s sake, FlandersBio has taken on board the message that a commercial application should always remain in sight. Aligning itself with the Pact 2020 vision, FlandersBio is focusing particularly on the area of ‘translational medicine’ – in effect, the acceleration of efforts from research project to clinical applications (“from bench to bedside”) pushing forward innovations so that they can realise their economic value in the shortest time span. Ms Van Gysel says: “The government is really keen to make the difference. This lies in bridging between universities and companies and in ensuring that the public and private sectors can work with each other.”

But more old-fashioned industries also have a role to play in Flanders’ economy – and both contribute to and benefit from innovation elsewhere. The automotive sector is a major employer in Flanders. Volvo, for example, has a major truck-producing plant in Oostakker which is responsible for 30% of the company’s global truck production, and thus makes it the largest Volvo truck assembly plant in the world.

Again, logistics plays a role in Flanders’ success in the sector – 2 million cars pass through the port of Zeebrugge every year. And the port is adding value to the industry in the form of the post-assembly facilities it offers – namely, the installation of options and final inspection.

 

Tax breaks

Among its attractions, Belgium (and thus Flanders) boasts an extremely favourable tax regime for investors – near the top of the list, it claims, of the reasons behind the high number of companies establishing their European headquarters in the region.

One recent fiscal initiative was the introduction of a domestic dividend withholding tax exemption, extending the EU Parent-Subsidiary Directive between the 25 EU countries (and Switzerland) to all countries worldwide that have a double tax treaty with Belgium, as long as the treaty provides for the exchange of information between Belgium and the other country.

In effect this means that by using Flanders as a holding location for European investments, corporate investors from treaty countries can repatriate their European profits without paying dividend withholding tax and without a limitation on benefits. Also, dividends which are paid to corporate shareholders by Flanders-domiciled holding companies are exempt from withholding tax and capital gains on shares realised by this holding company are in principle exempt from corporate income tax.

Of particular benefit to capital-intensive companies, headquarters and treasury centre is a tax measure introduced in 2006 called the ‘notional interest deduction’, in effect giving a tax advantage to entrepreneurs investing their own capital into the companies they start – also abolishing a 0.5% registration fee on capital contributions. Eligible companies include all companies paying Belgian corporate income tax or non-resident corporate income tax. This generally includes all Belgian companies, the Belgian branches of foreign companies, and foreign companies owning real estate located in Belgium.

The measure was drafted with a number of advantages in mind, including a reduction in the taxable base of a company, protecting company capital and flexibility.

 

Patent benefit

Given the importance of innovation to the region, it’s little surprise that a measure has been introduced which provides a tax incentive for patents and thus a real boon for companies with research and development activities.

The patent deduction allows Belgian companies and the Belgian branches of foreign companies to deduct some 80% of their gross patent income from their tax base, thus leading to a maximum effective tax rate of 6.8% on the gross patent income. The deduction, which covers a broad spectrum of patent protected intellectual property and extends to patents valid in non-Belgian jurisdictions, is calculated as being 80% of the remuneration for patent licences granted by the company to third parties plus patent remuneration embedded in the sales price of its patented products minus remuneration and depreciation on acquired patents and patent licences.

Flanders isn’t alone among European regions looking to the future, but it certainly is in a position of great strength – and is taking an intelligent approach to the respective roles of the public and private sector which looks set to endure, regardless of what the future holds for Belgium.