Meet Luxembourg: The Evolution of Its Economy
In efforts to assist startups in understanding Luxembourg, its lifestyle, culture, entry pain points, opportunities, and resources it provides to foreign startups to softland their business, Startup Island TAIWAN will publish a series of articles exploring Luxembourg and its startup ecosystem. To start off the series, this article will explore Luxembourg’s economy from the founding of the nation up until today.
Founded in 1839, Luxembourg is a small country bordering France, Germany, and Belgium in Western Europe. The name Luxembourg derives from “Lucilinburhuc”, which translates to “Little Fortress” in English. With its landmass slightly smaller than Rhode Island, its GDP per capita is one of the highest in the world. This lesser-known country is also the founding member of multiple notable organizations such as the Benelux Union, the United Nations (UN), the European Union (EU) and Schengen Agreement, the North Atlantic Treaty Organization (NATO), and the Organization for Economic Co-operation and Development (OECD). Its alliances and phenomenal geographical location make Luxembourg the perfect proxy point to a market of over 445 million consumers in 27 European countries.
Economy History
Luxembourg’s economic miracle began on a muddy road. Originally, Luxembourg’s economy was based on agriculture; it included verticals such as potteries, breweries, and tanneries. Its first industrial revolution started when iron ore deposits were uncovered south of Luxembourg. Before World War I, Luxembourg became the sixth biggest steel producer globally. However, for such a small country, an undiversified economy is risky. In 1970, over 25% of Luxembourg’s wealth was generated solely from this industry. Understanding the danger, its government initiated significant efforts for economic diversification. Its economy then shifted into the finance industry, becoming a global financial center in the 1980s. Since then, Luxembourg has succeeded in persistently diversifying its economy, transitioning into space, digital, R&D, and other knowledge-based economies. Today, Luxembourg’s steel industry remains strong. It manufactures about 10% of the worldwide supply, with ArcelorMittal being the biggest steel producer in the world. Despite ArcelorMittal’s success, the steel sector currently totals only approximately 2% of its economy.
Luxembourg’s Economy Today
The financial industry accounts for about 26% of Luxembourg’s GDP share. It is the second largest dwelling place of investment funds, with over $5 trillion in total assets in its domiciled investment funds. Since 2002, Luxembourg’s government has actively administered policies and programs to strengthen its financial industry, diversify its economy, and attract foreign direct investments contributing to its economic success. Another factor contributing to Luxembourg’s economic miracle is many multinational corporations choosing to locate their global headquarters/European headquarters there. This decision is influenced by its historical, social, and political stability, highly skilled international workforce, and favorable regulatory framework. Companies can also benefit from Luxembourg’s extensive network of double tax treaties with 86 countries, including Taiwan, Japan, South Korea, China, Hong Kong, and Singapore.
Today, Luxembourg intends to use its strong foundations to develop its data economy further. The vision for its future is to become Europe’s leader in digitalizing key strategic sectors such as Smart Mobility, CleanTech, HealthTech, Logistics, Space, Financial Services, and Industry 4.0. To support this vision and stimulate its economy’s innovation, Luxembourg’s Ministry of Economy created its flagship acceleration program, Fit 4 Start. It aims to attract and assist these strategic sectors’ startups with innovative technologies at the core of its business to softland in Luxembourg. Since the launch of this program, more than 133 startups have joined this program, and 99 startups successfully graduated from various editions, receiving a total of more than €10 million in seed funding from the Luxembourg Ministry of Economy.
From Luxembourg’s economic history, the world can see that it is a country that continuously reinvents itself. Currently, its government is concentrating on its vision for a digitalized future through startups and innovations. The Grand Duchy’s strategic geographical location, extensive double tax treaties, and favorable regulatory frameworks make it an ideal place for startups to expand or locate their business. In the upcoming articles, Startup Island TAIWAN will explore the following:
● Luxembourg’s lifestyle and culture
● Major startup events, resources available, and opportunities
● Key success factors and funding opportunities
Stay tuned for our upcoming articles if you are interested in learning more about Luxembourg, and the opportunities they have to offer.
Writer: Sebastian Chen
Editor: Cristel Chu Gómez
