On June 9, 2020 the annual Investment Climate Study was presented during an online session. The study is commissioned by AmCham and executed by Bain & Company and can be downloaded here.
Aimed at monitoring important trends with regard to foreign direct investment and the attractiveness of the Netherlands for foreign companies, the Investment Climate Study is an important source for AmCham to shape its advocacy agenda. In this 6th edition, the emphasis is on ‘Priorities for Retooling the Dutch Economy After COVID-19’. Bain & Company has identified a number of global foreign direct investment trends as well as strengths and opportunities in the Dutch economy – which were all already present but have been reinforced by the COVID-19 crisis. The focus of this study is on the future, and on priorities for retooling the economy in four important areas as we move out of this crisis.
Key Points
- Foreign direct investment (FDI) is an important driver of economic productivity. At the beginning of 2020, global FDI had already been on a slight downward trajectory for a number of years. COVID-19 is expected to lead to a significant further decline. Even in the most optimistic scenario, a drop of 30+% from 2019 levels is expected [1].
- Similarly, global trade was experiencing challenges before COVID-19 struck, driven by factors such as increasing regulation and a waning popularity for globalization. COVID-19 has acted as an accelerator for a number of such trade trends already taking hold.
- The Netherlands (recognized as the world’s fourth most competitive economy[2] last year) has benefitted immensely from FDI and foreign companies. Such businesses, for example, add 18% of value to the economy, create jobs and contribute 30% of all private R&D spending[3]. A drop in FDI will likely impact the Dutch economy significantly.
- Against the backdrop of declining FDI and disrupted global trade, this study outlines three phases that the Dutch government can follow to protect, recover and then ‘retool’ its economy so that it can thrive in the new normal.
- The study focuses on four ‘retooling’ recommendations. These cover the transition to a sustainable economy, taking the lead in (digital) technology and preparing the labor market and the country’s infrastructure for a path of sustainable growth.
- Government focus on these four topics, with support from businesses, will also ensure that the Netherlands remains an attractive destination for FDI in the future.
Recommendations for Retooling the Economy in Four Important Areas:
- Faced with threats posed by climate change, capitalize on innovation and expertise to lead the transition towards a sustainable future.
- Confronted with the prospect of AI and other high tech solutions transforming society, continue to outperform in high tech solutions and accelerate, with a sense of urgency, Dutch AI performance.
- As rapid tech development may render many jobless and unprepared for the future (digital) economy, foster continuous learning for a diverse and digitally-enabled workforce.
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Embrace institutional stability and consistent policy, and ensure infrastructure supports growth.
For the detailed recommendations, consult the study here.
Conclusion
The Dutch economy was in a strong position before the COVID-19 crisis hit. It was recognized as having the most competitive economy in Europe and the fourth most competitive economy in the world. It was a popular country for foreign businesses and FDI, which in turn played a vital role in the economy.
The Dutch economy is likely to recover well, supported by a committed government and having entered the crisis with a relatively low state debt. The four ‘retooling’ focus areas are aimed at helping the economy thrive in the new normal, thus also continuing the country’s attractive investment climate. Underlying these, we reiterate the importance of stable, long-term oriented policy and an open, collaborative dialogue between the government and private sector as the Netherlands continues along a path of sustainable growth.
[1] OECD, mid May 2020
[2] The World Economic Forum’s Global Competiveness Index measures national competiveness defined as the set of institutions policies and factors that determine the level of productivity
[3] Dutch Ministry of Economic Affairs and Climate/ CBS
