Luxembourg, the only Grand Duchy in the world, is a landlocked country in northwestern Europe surrounded by Belgium, France, and Germany. Despite its small landmass and small population (626,000), Luxembourg is the second-wealthiest country in the world when measured on a Gross Domestic Product (GDP) per capita basis.
Since 2002, the Luxembourg Government has proactively implemented policies and programs to support economic diversification and to attract foreign direct investment. The Government focused on key innovative industries that showed promise for supporting economic growth: logistics, information, and communications technology (ICT), health technologies including biotechnology and biomedical research; clean energy technologies, and most recently, space technology and financial services technologies.
Prior to COVID pandemic, the economy had posted a GDP growth rate of 2.3%, higher than the EU average of 1.7%. Given the economic impact of the COVID-19 pandemic, the Luxembourg government projects GDP to contract by 6% in 2020, with a projected rebound of 7% in 2021. Credit rating agencies Fitch and DBRS Morningstar confirmed Luxembourg’s “AAA” rating in September, with a stable outlook. Both agencies highlighted Luxembourg’s favorable position at the start of the crisis, made possible by implementing a prudent fiscal policy in recent years, thus enabling the government to react quickly to implement generous measures to support the economy.
Beyond COVID, other factors that could impact growth include the possible introduction of a wealth tax and an inheritance tax. Although far from adopted, various officials have expressed support for the idea and it appears the Government will debate and consider the proposal.
Luxembourg continues to offer a diverse and stable platform and outsized growth potential for a wide variety of U.S. investments and trade within the EU and beyond. Although the full impact of COVID-19 has yet to be determined, Luxembourg remains a financial powerhouse as a result of the past exponential growth of the investment fund sector through the launch and development of cross-border funds (UCITS) in the 1990s. Luxembourg is the world’s second-largest investment fund asset domicile, after only the United States, with approximately $5 trillion of assets in custody in financial institutions. This has been both an asset and a vulnerability. Foreign investors have taken full advantage. China has also.
Other factors enhancing Luxembourg’s investment climate include:
- Luxembourg is consistently ranked as one of the world’s most open and transparent economies and has no restrictions on foreign ownership. Luxembourg is also consistently ranked as one of the world’s most competitive and least-corrupt economies.
- Luxembourg ranks as the world’s safest city in the Mercer city index.
- Over the past decade, Luxembourg has adopted major fiscal reforms to counter money-laundering, terrorist-financing, and tax evasion.
Luxembourg has not yet adopted national security screening of investments or meaningful cyber protections to meet the emerging risks of the digital economy. However, as an EU member, it is expected to conform to the EU Framework on National Security Screening.
- The Government of Luxembourg has actively supported the development of new sectors to diversify the country’s economy, given the dominance of the financial sector. Target sectors include space, logistics, and information technology, including financial technology and biomedicine.
- Luxembourg launched its SpaceResources.lu initiative in 2016 and in 2017 announced a fund offering financial support for the space resources industry. More than 50 companies dedicated to space initiatives are now active in Luxembourg. Luxembourg added an additional space fund in early 2020 to further bolster its status as a space startup nation.
- Luxembourg has positioned itself as “the gateway to Europe” to establish European company headquarter operations by virtue of its central European location and advanced road, railway, and air connectivity. Due to uncertainties related to Brexit and COVID-19, 50 insurers, asset managers and banking institutions decided pre-COVID-19 to re-locate their EU headquarters to Luxembourg or transfer a significant part of their activity to Luxembourg.
- Luxembourg is actively seeking logistics companies to expand the new logistics hub at Luxembourg Airport, home to Cargolux, Europe’s largest all cargo airline. Inaugurated in 2017, the Luxembourg Intermodal Terminal (LIT) is ideally positioned as an international hub for the consolidation of multimodal transport flows across Europe and beyond. Renovations and expansion at the airport are underway
- Luxembourg is also seeking ICT companies to use the existing high-security, state-of-the-art datacenters, affording high-speed internet connectivity to major international data hubs. Through various initiatives, Luxembourg has initiatives to attract financial technology and biomedical start-ups and small companies to make Luxembourg home.
|TI Corruption Perceptions Index||2019||9 of 198||http://www.transparency.org/
|World Bank’s Doing Business Report||2019||72 of 190||http://www.doingbusiness.org/
|Global Innovation Index||2019||18 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||USD 766,099||http://apps.bea.gov/international/
|World Bank GNI per capita||2019||USD 73,910||http://data.worldbank.org/