Foreign direct investment (FDI) in Europe is recovering from the considerable slowdown of the pandemic year 2020. This is the first conclusion of EY’s Luxembourg Attractiveness Survey 2022, the first edition devoted to Luxembourg since the launch of this type of study 20 years ago. It analyses FDI projects that have resulted in the creation of new facilities and jobs, and takes into account the opinions of a panel of 152 international decision makers.
Manufacturing and R&D key foreign direct investment categories
According to EY, a total of 5,877 greenfield and expansion projects were announced in 43 European countries in 2021. This is an increase by 5% compared to 2020, although it is still lower than pre-pandemic levels. Most FDI projects in Europe fall into the manufacturing category, followed by sales and marketing, logistics, and research and development. The biggest increase compared to 2020 was also in manufacturing (+34%), followed by headquarters (+12%), logistics (+10%) and R&D (+7%).
Luxembourg has a great industrial legacy that we need to capitalise on.
In Luxembourg, manufacturing sites and R&D centres represented 44% in 2021, while the relative weight of FDI in business services dropped from 78% in 2020 to 28% in 2021. “The generalisation of remote working has a big impact on FDI in the services sector,” comments Mr Lecoustey. “Today, these type of operations can be handled much more easily remotely with the rapid adoption of digital tools that was spurred by the pandemic.”
On the other hand, he recognises real potential in the manufacturing sector. “Luxembourg has a great industrial legacy that we need to capitalise on. We still have a strong industrial base, and a digital infrastructure that makes the country attractive for industry 4.0 type factories of the future. As a geographically small country, the challenge is to find the space needed to host such investments, but all the framework conditions are there.”
Close to 50% of the respondents to the EY Attractiveness Study mentioned the “unique pool of multilingual, highly skilled talent” as a reason why they would invest in Luxembourg’s finance hub. At the same time, the global competition for talent is growing increasingly fierce, and the study points out that over 65% of C-suite cite the ability to attract and retain talent as the two biggest challenges for Luxembourg to remain attractive.
The living and working environment is very secure, and this is critical for our attractiveness to foreign investors.
“This is indeed a challenge, in particular when we talk about younger people,” stresses Mr Lecoustey. “Millennials want jobs that are intellectually and financially rewarding in an environment where they are happy to live, otherwise they do not hesitate to go elsewhere.”
He sees Luxembourg’s living conditions as an important asset. “The living and working environment is very secure, and this is critical for our attractiveness to foreign investors. It is easy to access nature, and the infrastructure is very well developed. Public transport is amazing, and free of charge for all its users. The FDI done here testifies to the fact that Luxembourg is still an attractive place both to operate and to settle people in.”
Luxembourg #1 in FDI per capita
Although the number of foreign direct investment projects in Luxembourg is modest in absolute terms, the country ranks first in Europe in terms of FDI projects per capita. “As Luxembourg has a small population, this ratio can obviously move quite fast,” comments Mr Lecoustey. “Nevertheless, it clearly shows that the country is very attractive for FDI.”
His overall conclusions from the study are very positive. “Luxembourg has a well-defined value proposition, and it is clear what the country needs to focus on in the future. The financial centre remains one of the pillars of our economy, and we are confident that it will remain strong with a number of areas that have great potential for further development: alternative funds, regtech and fintech, for example.”
Luxembourg has a well-defined value proposition, and it is clear what the country needs to focus on in the future.
While the country is sometimes limited by its small surface, its size and exceptional diversity also has its advantages. “A first point that international companies coming to Europe need to clarify is whether their products or services fit the European market. This is not a given, as European consumers might have different working habits, technical systems or behaviour, for example. Luxembourg can be an excellent testbed for businesses that want to adapt and localise their offering to the EU market. To quote the Attractiveness Survey, I recommend them to ‘try it out of Luxembourg’.”
Photo credits: EY Luxembourg / 2022 JackKPhoto/Shutterstock