EXECUTIVE SUMMARY
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 (634,700), 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. With the COVID-19 pandemic, the health-tech sector has become a priority sector to attract to Luxembourg.
Luxembourg’s economy proved resilient during the COVID-19 pandemic, as 2020 GDP only contracted by 1.3 percent, with a projected growth rate of 4 percent for 2021. Luxembourg fared much better than the 2020 EU rate of contraction of 6.4 percent. This resilience is due to a well-performing financial sector which managed to quickly revert to telework and only suffered limited effects of the pandemic. The Government of Luxembourg also provided a major economic stimulus package of 11 billion euros ($13 billion), equivalent to 18.5 percent of Luxembourg GDP, which helped stabilize the economy. This package includes direct subsidies and compensatory payments to companies, state-guaranteed loans, deferral of taxes, and social security contributions. The Government of Luxembourg borrowed a total of 5 billion euros ($6 billion) at negative interest rates due to the Grand Duchy’s Triple A credit rating.
Unemployment rose from 5.4 to 6.3 percent in 2020, a limited increase due to the generalization of a part-time employment reimbursement scheme by the State, which allows workers to keep their jobs while receiving 80 percent of their salary while having to stay at home. This measure cost the State of Luxembourg 1.3 billion euros in 2020.
Luxembourg remains a financial powerhouse thanks to the 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 nearly $6 trillion of assets in custody in financial institutions.
- Luxembourg is consistently ranked as one of the world’s most open and transparent economies and has no restrictions on foreign ownership. It 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.
- The Government of Luxembourg actively supports 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, 50 insurers, asset managers and banking institutions have decided to re-locate their EU headquarters to Luxembourg or transfer a significant part of their activity to the country.
- 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.
- 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. Luxembourg has set up a high-performance computer which will be part of the EU’s high-performance computer network called EURO HPC. Through various initiatives, Luxembourg seeks to attract financial technology companies to make Luxembourg home.
Measure | Year | Index/Rank | Website Address |
---|---|---|---|
TI Corruption Perceptions Index | 2020 | 9 of 175 | http://www.transparency.org/research/cpi/overview |
World Bank’s Doing Business Report | 2019 | 72 of 190 | http://www.doingbusiness.org/en/rankings |
Global Innovation Index | 2020 | 18 of 131 | https://www.globalinnovationindex.org/analysis-indicator |
U.S. FDI in partner country ($M USD, historical stock positions) | 2019 | USD 766,099 | https://apps.bea.gov/international/factsheet/ |
World Bank GNI per capita | 2019 | USD 73,910 | http://data.worldbank.org/indicator/NY.GNP.PCAP.CD |