Challenges and opportunities

for our companies in a changing world,

a changing Europe and a changing Belgium

ADM

23 June 2011

Rudi Thomaes

CEO FEB

Overview of the presentation

• We need to move forward in a new world.

• Policies to cope with the challenges of public

finance, growth and our ageing population?

• Climate change and natural resources: change

the way we live and see opportunities.

2

From a unipolar world to a multipolar world

3

3.0622.314 2.261 1.885

12.454

5.293

1.918

0

5.000

10.000

15.000

US Japan Germany France UK China Italy

The largest economies in 2005 48,571

37,666

27,235

8,040 8,028 7,8386,162

0

10.000

20.000

30.000

40.000

50.000

China US India Japan Brazil Mexico Russia

The largest economies in 2050

New players on the world market

4

The BRIC countries surge ahead

5

0

5

10

15

20

25

30

35

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

%-s

hare

of w

orld G

DP

(P

PP

)

BRIC Euro area EU USA

BUSINESSEUROPE

pro jections

Source:

BUSINESSEUROPE

based on IMF

0

1000

2000

3000

4000

5000

6000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Currency reserves 2001-2010 (in $ billions - Source: IMF)

EU US Japan Latin America Saudi Arabia China

0

50

100

150

200

250

300

Ind. & Com. Bank of China

China Con. Bank

Bank of China

HSBC JP Morgan Chase

Wells Fargo

Banco Santander

Bank of America

Mitsubishi UFJ

Financial

BNP Paribas

Leading world banks by market capital in $ billions (Source: FT, 2 July 2009)

China: yesterday the world’s factory…

…but tomorrow your banker?

8

The crisis will amplify the contrast

-40

-30

-20

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Industrial production (annual growth rate; Source: IMF)

World Advanced economies Emerging economies Emerging Asia

Conclusions

• The crisis has turned a page in the economic

world order.

• The EU Member States will have to work as a

team to stay in the race.

9

• 4 rules for team EU:

• No doping nor cheating

• Fit team mates

• Motivation to work hard

• Solidarity

10

Policies to cope with the challenges

of public finances, growth and

our ageing population?

11

Primary balance (as a percentage of GDP)

Inte

rest

rate

s (a

s a

pe

rce

nta

geo

f G

DP

) 40 years of public finances…

Inte

rest

rate

s (a

s a

pe

rce

nta

geo

f G

DP

)

40 years of public finances…

Primary balance (as a percentage of GDP)

0

2

4

6

8

10

12

-8 -6 -4 -2 0 2 4 6 8 10

Primary balance (as a percentage of GDP)

Inte

rest

rate

s (a

s a

pe

rce

nta

geo

f G

DP

) 40 years of public finances

Primary balance (as a percentage of GDP)

Intr

est

rate

s (a

s a

pe

rce

nta

geo

f G

DP

)

1970

40 years of public finances…

0

2

4

6

8

10

12

-8 -6 -4 -2 0 2 4 6 8 10

Primary balance (as a percentage of GDP)

Inte

rest

rate

s (a

s a

pe

rce

nta

geo

f G

DP

)

1970

1981

1970-1981

oil crisis + growth of

government apparatus

(various Martens

governments)

40 years of public finances

0

2

4

6

8

10

12

-8 -6 -4 -2 0 2 4 6 8 10

Primary balance (as a percentage of GDP)

Inte

rest

rat

es

(as

a p

erc

en

tage

of

GD

P)

1970

1981

1982: devaluation of the

Belgian franc (Martens – Gol)

1990

1970-1981oil crisis + growth of

government apparatus(various Martens

governments)

40 years of public finances

0

2

4

6

8

10

12

-8 -6 -4 -2 0 2 4 6 8 10

Primary balance (as a percentage of GDP)

Inte

rest

rat

es

(as

a p

erc

en

tage

of

GD

P)

1970

1981

1982: devaluation of the

Belgian franc (Martens – Gol)

1990

1993: Global Plan

1992-1999: Dehaenegovernments

1998

1970-1981oil crisis + growth of

government apparatus (various Martens

governments)

40 years of public finances

0

2

4

6

8

10

12

-8 -6 -4 -2 0 2 4 6 8 10

Primary balance (as a percentage of GDP)

Inte

rest

rat

es

(as

a p

erc

en

tage

of

GD

P)

1970

1981

1982: devaluation of the

Belgian franc (Martens – Gol)

1990

1993: Global Plan

1992-1999: Dehaenegovernments

1998

2008

1970-1981oil crisis + growth of

government apparatus(various Martens

governments)

1999-2008:Verhofstadt governments

40 years of public finances

0

2

4

6

8

10

12

-8 -6 -4 -2 0 2 4 6 8 10

Primary balance (as a percentage of GDP)

Inte

rest

rat

es

(as

a p

erc

en

tage

of

GD

P)

1970

1981

1982: devaluation of the

Belgian franc (Martens – Gol)

1990

1993: Global Plan

1992-1999: Dehaenegovernments

1998

20082008-2015: unchanging policy

1970-1981oil crisis + growth of

government apparatus(various Martens

governments)

1999-2008 :Verhofstadt governments

40 years of public finances

Primary balance (as a percentage of GDP)

Inte

rest

rat

es

(as

a p

erc

en

tage

of

GD

P)

2008-2015: unchanging policy 2009-2015: towards a balanced budget

Scenario of the Belgian High Council of

Finance (CSF/HRF)

How to finance the ageing and foster growth?

A few ideas:

1. Pensions and activation

2. Combining State reform with better organised,

more efficient government

3. Competitiveness, a political priority

4. Abolish nonsensical automatic mechanisms

1. Pensions and activation:

Phase 1: Raise the effective age of retirement by

drastically reviewing early retirement schemes.

The statutory age of retirement must then be

raised.

Adapt the Generation Pact law.

First pillar: differentiated weighting of years worked

Second pillar: choice between cash or a delayed

payout and the introduction of an optional

supplementary pension for working people

Third pillar: maintain the incentives for savers!

Align civil servants’ pensions with the principles

governing private sector pensions

2. Combining State reform with better

organised, more efficient government

• Compared with 3 neighbouring countries:

70,000 excess civil servants and expenditure

totalling €5 billion

• Responsibility at all levels of power

• The next few years will provide a historic

opportunity to replace only some of the civil

servants who retire

25

0,00

0,50

1,00

1,50

2,00

2,50

3,00

3,50

4,00

4,50

NL DE Weighted average in Belgium‘s three

neighbours

FR BE

1995

2007

2008

EMPLOYMENT IN THE PUBLIC ADMINISTRATION IN

ITS STRICT SENSE: BENCHMARKING WITH

BELGIUM‘S THREE NEIGHBOURS

Source: Eurostat – NACE activity “Public administration“

Number of employees in the public administration in a strict narrow sense of the term per 100 inhabitants

(including the Army, but excluding teachers and carers)

Change in absolute terms between 2007 and 2008:

NL -1,900 people

DE -14,000 people

FR -14,000 people

BE + 4,040 people

Show the discipline required to continue to reduce the

wage cost handicap

The example to follow is the German model designed

to safeguard competitiveness

3. Competitiveness, a political priority

0

100

200

300

400

500

600

700

800

900

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

€M

illio

ns

ESTIMATED COST OF CABLES AND GREEN CERTIFICATES FOR OFFSHORE WIND FARMS

(GENERATING 2,300 MW OF POWER)

Source: Elia and estimated timing and capacities

For competitive energy, but also security of supply and

respect for the environment

Need for an open, detailed debate on the federal

electricity levy and the costly and old-fashioned

mechanism for supporting new offshore wind turbines

Extending the working life of nuclear power stations can

help to finance the major expense of offshore wind

farms in the North Sea

Re-establish stability and confidence by maintaining the

notional interest deduction system

R&D is crucial and must be boosted by greater tax

incentives (France has a 30% R&D tax credit)

A green fiscal instrument? Yes, but:

1. based on the European model

2. double neutrality: tax burden and index

3. intelligent green taxation will finance competitiveness

New recipes?

Don’t undermine growth!

No wealth tax

Towards more beneficial taxation for businesses

Towards a more efficient labour market

Intensify the follow-up on job-seeking by unemployed

people aged over 50

Make labour law more flexible

Curb the proliferation of leave systems

Gradually phase out early retirement schemes

Review the system of waiting allowances to enhance

young people’s employability

4. Abolish nonsensical automatic mechanisms

80% of cost-cutting is indispensable!

Implement the reforms essential for making savings on

the labour market and on our social security system

(e.g. standard 4.5% increase in healthcare costs)

Make sure that indexation is no longer a taboo subject

Climate change and natural resources: change

the way we live and see opportunities

33

From an economic to an environmental crisis?

• If China continues to grow at 8% per annum, by

2030 it will have a GDP similar to that of the

USA today (and a population of 1.46 billion).

• Assuming that lifestyle and efficiency remain the

same as today, this will mean:

• 1.1 billion cars (compared to a current worldwide total

of 860 million)

• double the amount of paper being manufactured

today

• 98 million barrels of oil produced per day (as opposed

to 85 million today)

34

The answer: A ‘resource-efficient Europe’

GROWTH

of the economy &

trade

35

ECONOMISING

on raw

materials, water

& energy

→ intelligent more through less policy

≠

without obligations

Climate change: all hands on deck!

36Source: IEA, 2008

Offshore wind farms? Yes, but...

0

100

200

300

400

500

600

700

800

900

1.000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

€m

illio

ns

Estimated cost of cables and green certificates for an offshore wind farm generating 2,500 MW

3200 h/a 3500 h/a

39

The good news: clean technologies, a new

growth sector for Europe

EU51%Japan

29%

USA16%

others4%

Country share of motor vehicle abatement patents

Source: Insead

EU45%

Japan18%

USA18%

others19%

Country share of renewable energy patents

Source: Insead

• PUSH (nice to have)

• - e.g. electronic banking,

text messaging, mobile

internet

• Gradual

• Moderate government

support on the demand

side

• PULL (need to have)

• - Oil price

• - CO2 targets

• On a massive scale

• - G7 + BRIC + next eleven

• Massive support from

media and politicians on

the demand side

The next boom after ICT?

ICT Clean

technology

43

But who will provide the risk capital?

0

1

2

3

4

5

6

7

2005 2006 2007 2008 2009 2010 (3Q)

$ b

illio

ns

Clean technology venture capital investments

Europe&Israël North America Source: cleantech.com

Thank you for your attention

44