Have you ever heard of the Dutch disease?
It is not an illness affecting the Dutch population, instead, it is an economic behavior that countries tend to follow whenever they find abundance of natural resources. They start exporting the raw material, with the result that the foreign currency that they receive in exchange of this export increases the value of their own currency, which makes their domestic, industrial companies, less competitive. Over time the domestic manufacturing companies become less and less competitive and the economy becomes ever more dependent on the natural resource, the original treasure, that the country discovered.
What does it have to do with the Netherlands?
Nowadays, nothing, but in the 1970s the Netherlands discovered a huge gas field under its territory, and it started exporting it.
Eventually the country understood that it could not rely only on the exportation of gas alone, but that it had also to continue developing its own domestic industry.
And it did succeed in doing so, because cause nowadays the Netherlands is one of the most advanced economies in the world.
The Netherlands is a small country, more or less the size of Belgium, Austria, Switzerland and Denmark, but it has way more population than these countries; so where for example Austria has only 7 million people or Belgium 10 million people, the Netherlands has 17 million people.
So it is a small country, but not that small.
The capital is divided between Amsterdam (political and economic capital) and The Hague (seat of the government) but another important city in the Netherlands is Rotterdam, which is the country’s logistic capital, and we’ll see later on why it matters so much.
First opportunity: wealthy middle-sized market
The first opportunity is its market: the Netherlands is a country of 17 million people with the second highest GDP per capita in the EU after Luxembourg.
Of course, this makes the internal market of this country quite attractive.
Second opportunity: great investment environment
The second opportunity has to do with the great investment environment that this country has developed throughout the years. Not only is it one of the least corrupted countries in the world, which translates into an efficient public sector, but also if you combine it with a multi-lingual, skilled workforce, and the tax incentives that this country has given, I would say it has a very business-friendly environment, especially when it comes to dividends and royalties. Therefore it is not a surprise that this country is a great place to make investments both in finance and in manufacturing.
Third opportunity: EU and Eurozone membership
The third reason is that the Netherlands is a member of both the European Union and the Euro. It is one of the founding states of the European Union and it joined the Euro in 1999 when it was launched. Due to its sound public finances we consider this country very integrated into the European financial system, that we view it as a source of stability for the country.
Fourth opportunity: world-class logistics
The fourth opportunity has to do with its port. As I said before, Rotterdam is a very important city, but why? Because it is the busiest port in all the European Union and the 12th busiest port in the whole world.
The Netherlands, through the port of Rotterdam, is basically the logistic hub for the whole of Europe, both for the flows of goods in and outside the Continent.
Fifth opportunity: technology hub
The fifth opportunity is that the Netherlands is a technology hub. Not only it is the home of among the most important technological companies in Europe, but it has also attracted technological companies from outside of the EU. We think about for example the Tesla assembly plant in Tilburg. Moreover, the technological boom has spread to more traditional sectors like agriculture.
The Netherlands, because of a highly technological agricultural sector, which employs only 2% of the population, is the 2nd largest exporter in the world of agricultural products.
Among the numerous food exhibitions that the Netherlands hosts every year you can find a large number of international wholesale food suppliers.
The Netherlands is also at the forefront of food sustainability: if you are looking for a sustainable supplier, this is definitely the place to be.
First risk: high real estate prices
Is it everything perfect in the Netherlands? Well, it is not. Here at Globartis we strive to emphasize also the possible risks that can happen in a country.
Let’s start with the first one: the real estate.
Like any country with a small territory and a very productive workforce, which earns high wages, real estate tend to be pricey.
This is the same for Switzerland, Austria, Belgium, Denmark, which are countries that I mentioned before.
But in the Netherlands the problem is that real estate prices sometimes can go really sky-high. This happened before the real estate financial crisis of 2008-2009 and issue is that, because the population take on debt to buy houses, when real estate prices crash, they do not have enough money to spend on goods and services.
This is what happened in the Netherlands: for 4 consecutive years consumption levels decreased.
Second risk: banking concentration
The second possible source of risk is the concentration of its banking sector: 80% of the assets are held by only 4 banks, which represent 4 times the GDP of the Netherlands.
We are not saying that the Netherlands has an unstable financial system, on the contrary, but whenever a financial system is so concentrated and is so larger than the overall economy, there might be problems whenever there are shocks coming from outside.
Third risk: under-consumption
And that is another risk in the Netherlands, that is given by its high trade surplus.
The high trade surplus, which represents around 9% of GDP, and overall we say, that it is much better for a small country to run a trade surplus than a trade deficit, however, when the trade surplus is so high, that might lead us to think that the market may be is a little bit smaller than we thought.
If so many goods and services are shipped and not consumed in the Netherlands, that first opportunity we mentioned before, i.e. high GDP per capita, might be a little bit lower if it does not actually represent internal consumption.
A high trade surplus in general might say that the country is under-consuming.
Fourth risk: dependency on foreign trade
Another risk in the Netherlands is its deep connection with international trade.
This is a very competitive economy, which takes advantage of international opportunities. Yet, whenever there are shocks coming from the international markets or coming from big countries where the Netherlands has close ties with, for example Germany, this may be a source of concern for the domestic market, especially considered that 25% of the exports go to Germany, as we just wrote. And Germany is itself well integrated and very dependent on international markets.
So there is a double-dependence on international markets that, whenever there is a shock in the global economy, it might be felt quite dramatically in the Netherlands.
Fifth risk: tax haven status and high cost of labor
The fifth risk that we highlight in the Netherlands is its position as an investment hub: we said that it is a great place where to invest, and in fact it is. However, there is a drawback: some of these tax incentives went a little bit too far and exposed the position of the Netherlands as to be very close to a tax haven.
There have been scandals also in Luxembourg and Ireland, and this of course could lead these countries, including the Netherlands, to change the tax system and to cut some of the tax incentives that our nowadays provided.
The other thing is that there are talks at the European Union level of a form of a federal tax; of course the Netherlands and other small countries oppose it, but if it were to be implemented, it would be detrimental for the country.
The other drawback of being such a stable country with such a skilled workforce, is that labor is costly. The Netherlands, similar to Germany and the Nordic Countries has a social market economy, which means that workers rights are very important for the country and, while they are very skilled and productive, they are costly and it is not easy to get rid of them whenever the business faces problems. Perhaps the country lacks the flexibility that other countries have, for example the UK or the United States, in this environment.
We think that the Netherlands is a great place both for the size of its market, which is small but considered its wealth is attractive, and for finding suppliers of agricultural products or technology products. It is also a country where to make investments both in the financial services sector or also in the manufacturing and technology sector.
However, its sensitivity to global markets may create risks coming from external shocks, which could have an impact on its internal market.
More information about the Netherlands in our Country Data page: Netherlands
Are you looking for sourcing products from the Netherlands? Check out our business platform.