The Dutch economic system is based on consensus. Although this consensus economy has changed over the years, an age-old tradition of negotiation and discussion remains its central feature. The tradition lives on in close and regular contacts between trade unions, employers’ organisations and government.

• General characteristics: open, prosperous, consensus-based
• Strong sectors
• From production to services
• Strategic position
• International trade
• Foreign investment and Dutch overseas investment
• Social factors
• The Dutch economy – key figures
• The Dutch economy – interessting sites
• The future
• The Netherlands in international rankings, interesting links

General characteristics: open, prosperous, consensus-based

The Dutch economy is also open and internationally oriented. For centuries, international trade has been a key element of the Dutch economic system. This can be clearly seen in the statistics for import and export of goods and services, which in 2005 totalled more than half of the Dutch GDP.

Thanks to European integration, the Netherlands has close ties with the other member states. From the outset, the Netherlands supported a strong Europe which would encourage close economic, as well as legal and political, integration. Around half of all imported goods come from EU countries and three quarters of Dutch exports remain within the Union. The Netherlands’ most important trading partners are their neighbours, Germany, Belgium, the UK and France.

The ongoing globalisation process means that the Netherlands is also becoming increasingly involved in the global economy. Beyond Europe, the United States is a key trading partner, and China is becoming a major new export territory.

The Netherlands is ultimately a prosperous nation with a solid and reliable public sector, good social services, effective infrastructure and a dynamic private sector. All this combines to offer the Dutch people a high standard of living.

Strong sectors

The Dutch economy benefits from a number of strong sectors such as the service industry, food products, flowers and the creative sector. The Netherlands is also a source of specialised expertise in the environmental, energy and water sectors. The table below gives an overview of the different sectors’ contributions to the Dutch economy.

Source: Statistics Netherlands (CBS) StatLine

From production to services

Like other EU countries, the Netherlands is experiencing a shift from a production-based to a service-oriented economy. More than 80% of Dutch economic activity is now service-based.

The service industry can be divided into three areas: financial services, business services and communications. In 2005, these subsectors generated revenues of €61 billion, €83 billion and €22 billion respectively. That’s a total revenue of €166 billion.

Services are generally focused on local markets. There are, however, a number of larger players and subsectors which are also internationally oriented. Dutch banks, for example, generate half of their revenues outside the Netherlands’ borders, and this puts them among the most international banks in Europe. The Dutch insurance sector too is active at international level: a quarter of its premiums come from abroad.

The services sector is also innovative. Financial and telecoms services especially are internationally competitive and developing value-added products like triple play services and mobile banking.

Environment and energy
The Dutch are renowned for their pragmatic approach to life, and this comes in useful when tackling environmental challenges. Examples include using waste-water to produce natural gas and generating electricity from refuse. The environmental sector is now an increasingly important exporter, with annual revenues of €5.1 billion. Every year, the Netherlands produces 60 million tonnes of waste, of which 85% is reused, by means of recycling and other technologies. Solutions like these are possible thanks to a commitment, from the public and politicians alike, to protect the environment by developing innovative and entrepreneurial solutions.

The Dutch share growing concerns around the world about climate change and its impact on future generations. The Netherlands has signed up to the Kyoto protocol and the fourth Balkenende government has set targets of 2% annual energy saving and an increase in sustainable energy use to 20% of energy consumption by 2020. In addition, by 2020, greenhouse gas emissions should be cut, preferably at European level, by 30% compared to 1990. The Dutch government will be actively involved in achieving these goals.

Food products and flowers
In 2004, the food, beverages and tobacco industry generated €54.3 billion. The agro-food sector accounts for 10% of GDP and provides more than 600,000 jobs. In fact, one fifth of all Dutch exports fall within this sector, 95% of which is comprised of small businesses with fewer than 100 employees. A number of major players, however, play a key role. They provide the majority of jobs and generate the most revenue.

The four largest subsectors in terms of revenue and jobs are:

• bakery products
• meat, and meat products
• dairy
• animal feeds

Wholesalers and retailers are also an important part of the food products sector. Notable examples are Ahold and Schuitema supermarkets.

And of course, the Netherlands is the Wall Street of global trade in flowers and plants. It is the world’s biggest exporter and importer of cut flowers and pot plants, and home to the largest auction houses for such products. The flower sector is strong because of the climate, the availability of high-tech production methods and the proximity of 500 million consumers across Europe. The Netherlands can also boast major logistical hubs like the port of Rotterdam and Schiphol International Airport.

In 2005 exports of flowers and related products totalled more than €6 billion. Horticulture production enjoys growth of 2% to 4% per year, and roughly 10,000 companies produce cut flowers and pot plants. The Netherlands produces 88% of the world’s tulips, and they take up 10,800 hectares of land.

Creative industry
In recent years, Dutch Design has become a world phenomenon. From fashion to music and new media, the sector is filled with talent. The creative sector includes all activities where initiating creativity, the creation of meaning or symbolic value, forms the core business process. There are currently around 150,000 people working in the Dutch creative industry, a rise of 34% since 1996.

The creative sector comprises three broad areas of activity:

• arts: performance arts, visual arts, cultural heritage and cultural events;
• media and entertainment: film, audio-visual media, literature and journalism;
• creative business services: design, fashion, architecture, new media and games, advertising.

Most creative designers work mainly in ICT and new media innovation. In total, designers account for 6.5% of Dutch jobs. Eindhoven has become a centre for design and technology companies, and Eindhoven University of Technology is home to the Industrial Design degree programme as well as the Science and Industry division of TNO (the Netherlands Organisation for Applied Scientific Research). Arnhem, by contrast, is fashion-oriented. The Arnhem Fashion Biennale Foundation is based there, and the city hosts the Fashion Biennial every two years.

Water
The very name the Netherlands, or low countries, provides a clue to the important role that water plays in Dutch society. Roughly a quarter of the country lies below sea level and two thirds of its land would be at risk from flooding without flood-barrier protection against the sea. So it is understandable that Dutch people have cultivated centuries’ worth of knowledge and experience of water management. The Dutch have expertise in fresh water lakes and rivers, fresh and salt water bays, flood areas, coastal regions, and the production, distribution and treatment of water. With climate change threatening and an expected rise in world population, it stands to reason that we will see an increasing demand for innovative solutions to water-related problems. The Dutch, with their specialised knowledge and experience, can make a real difference here.

Strategic position

Traversed by the rivers Rhine, Maas, and Scheldt as they meander to the North Sea, the Netherlands is a hub of transport and distribution: a natural gateway to Europe and centre for multinational enterprise. Its advantages include an advanced infrastructure both for transport and telecommunications.

The Netherlands also has a highly-educated workforce and a generally favourable investment climate which can effectively meet the needs of both mainports and distribution.

International trade

Size and product range
The Netherlands is a net exporter. Exports in 2006, including energy, totalled €318 billion, while imports, also including energy, totalled €285 billion. This represents a trade balance for goods, including energy, of €33 billion.

Dutch trade mainly comprises machinery and transport equipment, chemical products, fossil fuels and agricultural products. Russian oil is the largest import, although computers from China come a close second.

Although trade with Asia has increased dramatically in recent years, the majority of foreign trade is still conducted within Europe. Germany and Belgium are our most important trading partners, with combined exports of €119 billion and imports of €87 billion in 2006. The US, too, is a key trading partner. It is our third largest supplier by size, with €24 billion in imports in 2006. It is also our largest customer outside Europe, with Dutch exports totalling €16 billion in 2006.

Alongside international goods trading, the Netherlands is also active in the international service sector. In 2006, the Dutch provided €74 billion worth of services abroad, and imported services to the tune of €68 billion. As with other forms of trade, the lion’s share of service provision is conducted within Europe’s borders.

A significant amount of our total international trade is conducted through the Dutch logistical hubs: the ports of Amsterdam and Rotterdam, and Amsterdam’ s Schiphol airport. In 2005, Rotterdam achieved a shipping record of 369 million tonnes, and around 40 million passengers pass through Schiphol International Airport every year.

So the Netherlands is a major global player in international trade in both goods and services. The table below shows the world’s largest exporters by market share:

Source: WTO – International Trade Statistics 2006

Re-exports
Re-exports make up a significant proportion of goods exports. Re-exporting takes place when goods are imported into the Netherlands, minimally processed or adjusted and then exported again. Thanks to the advance of globalisation and the attendant global division of labour, re-exporting has increased enormously in recent years.

Source: Statistics Netherlands (CBS) StatLine

Foreign investment and Dutch overseas investment

The Netherlands is an attractive prospect to foreign investors. The country scores highly in the international rankings of favourite trading partners and bases of operations. As we have seen, the Netherlands enjoys a strategic position on the North Sea, a favourable investment climate and good infrastructure linked to other European countries, so it has real advantages for companies locating here.

As well as being a trading nation, the Netherlands is a centre of operations for many foreign companies. Production development, sales and distribution of products, key management functions and European headquarters: the Netherlands plays host to all these activities and more. These foreign companies already make a major contribution to the Dutch economy: one in ten private sector employees works for a foreign company.

For its part, the Netherlands is also an important investor overseas. Most of this investment takes place in industrialised countries, but investment in emerging markets is also rising noticeably.

Source: OECD

Social factors

As in other European countries, the Dutch population is growing older and living longer. In 2004, one in eight Dutch people were 65 or older. In 2020 that figure will be one in five. At the same time, population growth in 2006 hit a historic low, the number of emigrants exceeded immigrants, and the birth rate continued to fall.

The number of women in the labour market is rising steadily. In particular a large number of single mothers have gone out to work in recent years.

One unique characteristic of the Dutch labour market is the large number of part-time jobs, especially among women. In recent years, the Netherlands has embraced what it calls the ‘one and a half earner model’, in which the man works full time while the woman has a part-time job.

Demographic ageing makes health care and pensions expensive. The government is trying to preserve the existing social security system, but doing so means that people will have to go on working longer than previously. ‘Longer’ means not just working more hours each week, but also until a later age. The OECD is also advising the Dutch to work longer hours until later in life.

The Dutch economy – key figures

In 2006, the Dutch economy’s growth rate was 3%. In 2007 and 2008, the growth rate should be around 2.75%, which means Dutch growth is higher than the European average. In 2005, however, the Netherlands had to contend with a short-term setback in its economic growth, with a rate of 0.9%: well below the European average. There were international and domestic reasons for the fall in growth. On the one hand, the Netherlands was affected, like other countries, by a worldwide slowdown. On the other hand, it was also facing reduced purchasing power at home. Consumer confidence was low and this was reflected in spending. What small growth there was was due in large part to exports growth. In 2006 by contrast, sluggish growth made way for a lively, attractive economy. The government’s budget offered new tax reductions and there was again room to spend a little extra.

In 2005 the Dutch economy ranked 16th in the world, with a GDP of €505 billion.

In 2006, the Dutch unemployment average was 5,5% in a working population of some seven million people, 57% of whom are men and 43% women. According to Eurostat, in April of that year the Netherlands had almost the lowest unemployment of the 27 EU member states. By EU criteria, only 3.5% of the Dutch population is out of work. Only Denmark has a lower percentage: 3.4%. The Netherlands and Denmark can also boast the lowest youth unemployment rate: 6.7%.

In recent years, the budget deficit in the Netherlands has fallen considerably, thanks to a lean, well-managed economic policy. In 2003, the deficit threatened to rise above 3%, the Eurozone limit. Fortunately, by 2005, that figure had fallen below 2%. Inflation that year stood at 1.7%, well below the European average.

The Dutch economy – interessting sites

• The Netherlands Statistics (CBS) website  www.cbs.nl offers the latest figures on Dutch economic and social developments.
• Projections for the coming years can be found at the Netherlands Bureau for Economic Policy Analysis (CPB) website  www.cbp.nl.
• The site of the Dutch central bank (DNB),  www.dnb.nl is also a great source of information. Interesting macroeconomic details about the Netherlands can be found in the ‘Featured Statistic’ section.
• Every year, credit insurer Atradius and Fenedex, the Federation of Dutch Exporters conduct research into export trends. The results are published at  http://www.atradius.com/nl/trendsinexport (Source: Holland Toolkit, Agency for International Business and Cooperation (EVD), April 2006)

The future

The Economist Intelligence Unit (EIU) is generally optimistic about the short-term future. Consumer spending looks set to increase, thanks to government measures and rising employment. The EIU expects to see economic growth of around 2.2% in 2007.

A slight reduction in corporation tax should have a positive effect on investment. For a short time in 2006, inflation rose due to higher fuel and energy prices. According to the EIU, between now and 2010, Dutch inflation will fluctuate around the 1.6% mark, and so should remain below the Eurozone average. Interest rates are expected to rise slowly, but to remain low. Economists also predict that the Dutch economy will benefit increasingly from exports in the future.

Following several years of wage freezes, salaries will slowly start to rise in the coming years. The unions are in a relatively strong position.

In the longer term, demographic ageing will have an impact on economic growth. Without reforms or intensive international cooperation, future economic growth in the Netherlands will be lower than the Dutch have come to expect.

The Netherlands in international rankings, interesting links

A large number of organisations create world rankings based on countries’ economic performance. Here are some interesting links:

• The United Nations Conference on Trade and Development (UNCTAD) offers a trade performance index for a large number of countries at  www.intracen.org.
• The Global Entrepreneurship Monitor at  www.gemconsortium.org compares how countries score on ‘new entrepreneurship’.
• Each year, the UPS Europe Business Monitor at  www.ebm.ups.com reveals the business climate in the various European countries, based on interviews with hundreds of senior managers.
•  www.trendchart.org offers information on how innovative European countries are. The TrendChart is a European Commission initiative.
• You can find an International Business Report at  www.grantthorntonibos.com with trends in entrepreneurship. The results are based on surveys completed by approximately 7000 medium-sized businesses in 26 countries.

A recent trend in the international market place is ‘Nation Branding’. According to the theory, if a country is able to define and communicate exactly what it stands for, it will be better equipped to compete at international level. Countries should ideally be well known for something in particular and make use of this added value status. A good strategy allows the ‘brand’ to transcend geographic size, economic factors, image and reputation.

British marketing specialist Simon Anholt regularly presents a Nation Branding rankings list, supported by a panel of almost 30,000 consumers. They award marks in the fields of tourism, export, government, investment, immigration, culture & heritage and people.
The Netherlands was ranked 12th on the Anholt Nation Brands Index in the fourth quarter of 2005. For more about Nation Branding, visit  www.nationbranding.com and  www.earthspeak.com.

More information

•  Ministry of Economic Affairs.