The Dutch are business people. The population is highly educated, internationally-oriented and largely multilingual. This explains why the Netherlands has proved attractive for foreign companies in recent years. A number of companies established recently their European head offices in the Netherlands, including China’s Huawei Technologies (telecom), ARI Network Services (US, IT), Zebra Technologies (US, European distribution), Teijin Twaron (Japan, chemicals), Brunner Mond (GB, chemicals), VisualSonics (Canada, biomedical), Abbott Laboratories and Amgen (US, pharmaceuticals).
The Netherlands is ranked fifth, behind Denmark, Finland, Canada and Singapore, in the Global Business Environment Rankings 2006-2010 published in April by the Economist Intelligence Unit (EIU). Ireland, Great Britain, Switzerland and the United States follow the Netherlands in the top ten. Twenty international companies established in the Netherlands confirmed this impressive rating. Accounting firms KPMG and Ernst&Young this year reported that the Netherlands had the best tax climate in Europe, after Switzerland and Ireland. The Netherlands comes second after Switzerland as regards the conditions for establishing a head office.
Declining Costs for Companies
High labor costs are not the decisive factor when advanced knowledge-based companies are deciding whether to locate in the Netherlands or not. What companies do see as an obstacle is the strict legal protection against dismissal, which makes reorganizations expensive. On the other hand, there are numerous compensating factors. The government is working hard to make employment contracts more flexible. In 2006, the rules on admitting knowledge workers to the Netherlands were relaxed. Another advantage mentioned by companies is the government’s customized approach to tax facilities.
More importantly, steps were taken in 2006 to drastically reduce the tax on profits to the European average of 25.5 percent from 2007. Another important change is that legal mergers are now allowed without the need for a takeover, which could yield important tax advantages for Dutch companies and foreign partners.
Finally, there is the attractive cultural climate. Dutch people are still anti-authoritarian, innovative and open-minded.
Picking Up
Exports account for 60 percent of Dutch GDP, which makes the country sensitive to the vagaries of the global economy. Nevertheless, the tentative economic recovery at the end of 2005 seems likely to assume more structural proportions in the coming years. Figures for 2006 and 2007 suggest that optimism is growing. In June, the Netherlands Bureau for Economic Policy Analysis (CPB) revised its forecast for economic growth this year from 2.25 percent to 3 percent. Although it projects a slightly slower growth rate of 2.75 percent in 2007, this is still well above the projected average growth in Europe.
Until well into the 1990s, the Netherlands was one of the best-performing economies in Europe. The “polder model”, the policy of seeking consensus between employers, trade unions and the government on the main points of economic policy, led to phenomenal growth rates. The key lay in controlling labor costs while steadily rising wages undermined the competitiveness of neighboring countries. The turnabout in Dutch competitiveness came after 1998, and between 2000 and 2005 the Netherlands’ growth rates actually slipped below the European average.
But after five years of belt tightening, the Dutch consumer is starting to show signs of life again. Spending on garden and do-it-yourself articles and consumer electronics has shot up.
There has been a remarkable improvement in business confidence for the coming years. Companies expect to invest 8.5 percent more in 2006 and 4 percent in 2007. Companies are more optimistic about the prospect of making profits in the Netherlands than at any time since 1985. We can safely say the outlook is good.
Structural Basis
The CPB forecasts economic growth of 2 percent a year in the 2008-2011 period. The main contribution to growth will come from an increase in labor productivity of 1.7 percent per year. The revival of the world economy is important, but by no means the only one. The reduction of the tax burden for consumers and companies, including foreign enterprises, is essential for boosting confidence in the economy.
Although the relatively high price of energy has a negative effect on industrial production, that is more than compensated for by the income generated from the sale of the one commodity of which the Netherlands has the largest reserves in Europe: natural gas. Gas exports have generated so much profit in recent years that the government is once more able to invest an additional 1.4 billion euros in infrastructure, knowledge and innovation, and education.
