Dutch economy needs some fixes for competitiveness, warns AmCham

The Dutch economy risks losing its status as a top destination for American companies venturing into Europe, warns a new report by the American Chamber of Commerce in the Netherlands. To remain at the forefront of competitiveness, four points need to be addressed – human capital, taxation, innovation and infrastructure.

Foreign Direct Investment (FDI) is an important driver of the Dutch economy. In 2016 total FDI stood at around $850 billion (the highest level in two decades), which represents around 10% of all FDI that flows into Europe. Not surprisingly, the UK, Germany and France are the continent’s largest havens for foreign capital. 

The Dutch economy is however in relative terms highly internationalised, with about 40% of business revenue in the country driven by foreign-owned companies. North America, in particular the US, is a key player, accounting for a large share of this total. In 2016, North America was the largest contributor to job creation in the Netherlands driven by foreign funding, ahead of the rest of Europe and Asia. However, its role in the Dutch scene is sliding, warns the report by AmCham Netherlands in collaboration with Bain & Company, a US-headquartered global strategy consultancy. 

Their joint research, titled ‘The Dutch Investment Climate Survey’, questioned over 70 local executives on their opinion of the attractiveness of the Netherlands to foreign businesses. The respondents said that the Netherlands remains an attractive destination for international companies to establish or expand their business. 84% of executives are positive about the economic outlook of the Netherlands, while 46% are very likely to recommend the country to their peers. 

Overall, the picture for the Dutch landscape is solid, building on similar results in previous years. Several factors are highlighted as strong points for the country, including technological / digital readiness, quality of the workforce (which besides functional skills also enjoys a high English proficiency) and the overall economic environment. Data from the CBS, the Dutch national statistics office, shows that the Netherlands is on a roll economically – the 3.1% GDP growth in 2017 was the highest level in a decade, with 2018 forecasted to be just as sunny.

Areas for improvement

However, the survey also pinpoints a number of areas which are “concerning” said Patrick Mikkelsen, Director of AmCham, the American Chamber of Commerce in the Netherlands. “The Netherlands is no longer the automatic destination of choice for internationally expanding American companies, he stated to Dutch newspaper AD, adding that “they are increasingly eyeing for example France, Germany, the UK and Switzerland.”

Data from the Netherlands Foreign Investment Agency endorses his concern. In 2016, US companies concluded 88 investment projects in the Netherlands, one year later, this figure had dropped to 68. Following the slash in investments, the numbers of jobs created by US companies dropped from more than 4.000 in 2016 to under 3.000 last year. “The Netherlands needs to address a number of priority areas." 

The issues identified by AmCham and Bain & Company centre around four key areas. In particular the workforce and the dynamics that rule the marketplace need attention. “The overall costs of the workforce are high, which is the main reason why companies move capacity abroad. And the rigidity of hiring and firing practices is experienced as the worst factor of doing business.” Although this follows from an approach that is “embedded in the culture and business ethics of the Netherlands,” Patrick Mikkelsen said that it remains a matter that is likely to deter foreign companies that are less familiar with these policies. 

Innovation is the second point. The Netherlands does not give sufficient importance to R&D and innovation, highlight the researchers, which in turn will affect the capacity to innovate. A more stringent Intellectual Property to protect the R&D investments of companies is deemed beneficial.

Third is the corporate tax rate. “A competitive profit tax rate is vital for the Dutch investment climate,” said Patrick Mikkelsen, however “it is in comparison with other countries not competitive enough, for instance compared to the UK.” Although the Dutch government has taken steps last year to lower the profit tax rate, the move is in the eyes of AmCham not progressive enough. “More simplicity and a lower, flat corporate tax rate would benefit attractiveness.” 

One specific tax component which is highlighted by AmCham is the tax-ruling for high value-adding expats. This ruling provides employers with the possibility to exempt 30% of the salary of their expats from taxes who temporarily reside in the Netherlands. Last month, the Dutch government, headed by Prime Minster Rutte, announced it would shorten the duration of the ruling from eight to five years. Patrick Mikkelsen stated that AmCham hopes the government will turn back its intention, to the benefit of employers and the international scene of the Dutch economy. 

The Dutch infrastructure is labeled as leading globally by many, including the World Economic Forum, and AmCham’s report reiterates this view. “Building on its strategy of being the ‘Gateway to Europe’, infrastructure is in fact is one of the Netherland’s key benefits.” The report adds however that the infrastructure at the same time risk facing "serious capacity issues. Anticipating on changing and increasing needs, rather than reacting to them, is essential.” 

Asked about confidence in government, the surveyed executives said that the government is in their perspective across the board well positioned to have a positive influence on foreign investment, the economic situation, social climate and competitiveness. 

Earlier this month, AmCham presented its findings with Wopke Hoekstra, a former McKinsey & Company partner and now the Dutch Minister of Finance. “The Netherlands is still an attractive country to do business, with a highly educated workforce and a good infrastructure, yet we want to provide the government with a signal,” concluded Patrick Mikkelsen.

US companies in Germany

Earlier this month, AmCham Germany – AmCham Netherlands’ counterpart for the German economy – released a similar German and US business relations remain strong despite protectionist risk, finding that US executives remain highly positive about the German economy and the opportunities it provides. Conducted together with Roland Berger, the study also found that protectionism is the top concern among executives of both nations, with particularly German companies in the US disturbed about uncertain political commitments.