What do we really know about Luxembourg? City or country? City and country, all as big as a pocket handkerchief, barely 2,500 km long.2. Clichés run riot. The image of a tax haven nestled between France, Belgium and Germany still has a hard skin, despite the lifting of banking secrecy in 2015 and a corporate tax rate of up to 25 %. Is Luxembourg little-known? Certainly. Jealous? Without a doubt. With the highest GDP per capita in the world, this is understandable... However, what is often forgotten is that, in addition to a population of 615,000, there are more than 100,000 people every day. 200,000 employees from neighbouring countries and which account for 50 % of jobs in Luxembourg. The result would be a significant drop in this mirific GDP per capita, if calculations allowed.
Border workers who have suddenly disappeared with the arrival of the closure of borders due to the pandemic. "The country quickly had to reach agreements with its neighbours so that employees could telework without any problems tax and social securityIn the past, they were subject to contributions and tax at the rates applied in their country of residence," explains Christel Chatelain, Director of Economic Affairs at the Luxembourg Chamber of Commerce. Indeed, beyond a quota of around twenty days, they were previously subject to contributions and taxes at the rates applied in their country of residence. "This system has been neutralised, with agreements extended until the end of 2020."says Christel Chatelain.
Teleworking, short-time working, direct non-refundable aid to companies, deferred payment of taxes and social security charges: with limited levels of power, Luxembourg has been able to take swift action to tackle the crisisThe Chamber of Commerce was soon in contact with the Ministers for the Economy and SMEs to see how it could help businesses. "Even if all this has to be paid for at some point, it has given us a breath of fresh air."says the Director of Economic Affairs at the Luxembourg Chamber of Commerce.
Despite the current crisis, this small country remains fundamentally prosperous, and not just thanks to the banking sector. As Christel Chatelain reminds us, diversifying the economy has long been a priority: "It all began in the 60s and 70s, when the Grand Duchy, which depended on the steel and iron industry, saw this sector decline. The government began to think about how to move forward. Finance was already present, but to a very limited extent, and the transition to the tertiary sector was clearly imposed."Today, industry only accounts for around 7 % of the country's GDP, with Arcelor Mittal in particular, the country's fourth largest private employer.
If diversification The Grand Duchy's dynamism is the result of a strong political will. As early as 2002, a dozen key sectors were identified as strong points on which the country intended to play its card. Among these sectors, information technology - ICT - stood out as an obvious choice. "With 27 data centres, eight of which are ultra-secure and Tier IV certified - a requirement of the financial sector - Luxembourg clearly had an ace up its sleeve."says Violaine Mathurin, International Affairs Coordinator at the Luxembourg Chamber of Commerce. 87.5 % of Luxembourg's value added today comes from services, including 26.5 % from financial services alone.
"The financial and insurance sector is one of the least affected at the moment, but we have to be careful that the economic crisis does not turn into a banking crisis again if the loans granted to companies cannot be repaid."says Christel Chatelain. Because this sector remains a driving force in the Luxembourg economy. "The country has fourteen banks of French origin and as many Chinese banks, twenty-five German banks and eleven Swiss banks on its territory"Laurence Sdika, Director of the Business Club France Luxembourg, points out that the links between finance and technology are increasingly close these days.
As an example, she cites LHoFT (Luxembourg House of Financial Technology), a public-private foundation set up to promote the strong growth of fintech in Luxembourg. Another structure promoting the construction of a "start-up nationThe House of Startups brings together incubators, accelerators and innovation centres, while the Fit4start programme, an initiative of the Ministry of the Economy, provides support for start-ups. As part of this virtuous circle of the economy, Luxembourg is also taking an increasing interest in eco-responsible finance, with the launch in 2016 of the Luxembourg Green Exchangethe world's first 'green stock exchange', where only socially and environmentally sustainable investments and projects are accepted.
Another major sector of the economylogistics. Strategically located at the heart of Europe, Luxembourg aims to position itself as a rail, road and air hub, linked to 90 destinations. This is why it is investing 4 % of its GDP in improving and expanding its infrastructure. Visit air cargo centre Luxembourg ranks sixth in Europe, thanks in particular to Cargolux. "It is one of the world's major players. Thanks to its joint venture with Henan Civil Aviation, bilateral relations between Luxembourg and China have been strengthened. This alliance demonstrates Luxembourg's support for China's 'Air Silk Road' initiative.says Violaine Mathurin. In terms of rail infrastructure, the Bettembourg multimodal hubinaugurated in the south of the country in July 2017, is the most modern in the Benelux and, since 2019, has offered a direct rail freight connection with Chengdu. "Luxembourg's role as a logistical hub has not deteriorated significantly as a result of the health crisisstresses Christel Chatelain. Exchanges and supply continued."
While the various areas in which the country intends to diversify its economy have been defined for two decades, the novelty lies in the space sectormore specifically in space mining. "Since 2016, the Grand Duchy has been a pioneer in the exploration of space resources"explains Violaine Mathurin. One might ask why such a small country should specialise in such a niche, not to say such an extravagance. However, it should not be forgotten that in 1985, Luxembourg was the birthplace of SES, the world's leading operator and supplier of satellite telecommunications services which has 70 aircraft in orbit. "There were no international regulations governing the ownership of space resources.says Jean-Michel Gaudron, Director of Content at Luxinnovation, the national innovation agency. Luxembourg is currently in talks with NASA, the European Space Agency and start-ups about sending Luxembourg-made exploration robots to the moon."
Boldness and responsiveness are key words in the Grand Duchy, but so is a sense of opportunity. If Luxembourg has succeeded in attracting major digital players such as Amazon, Paypal and Skype, it's by taking advantage of a number of opportunities. regulatory niches. In the early 2000s, the VAT applicable to electronic services was that of the place where the online vendor was established, not the place of destination. As a result, the GAFAs chose Luxembourg, with its advantageous VAT rate at the time, to set up their European headquarters. In the meantime, European regulations have changed, but most of these large companies have stayed.
Bold and responsive... or, to use the three terms chosen for 'nation branding' : openness, dynamism and reliability. Indeed, the stability that characterises Luxembourg is inevitably associated with multiculturalism. This tiny country is home to a number of European institutions, 175 nationalities, and an easy switch from French to German and Lëtzebuergesch, the three official languages, as well as English, opening up to the world is an obvious choice.
The country is counting on talent from abroad to continue its expansion. To this end, the University of Luxembourg, created at the start of the new millennium, has joined the Top 15 of the best young universities in the world. "For French entrepreneurs, Luxembourg is a very good laboratory, but also a gateway to the rest of the world."concludes Alexandra Benel, Director of the French Chamber of Commerce and Industry in Luxembourg.
