Tiny and rich, Luxembourg’s wealth originally came from steel ©Getty Images
Tiny and rich, Luxembourg’s wealth originally came from steel ©Getty Images

Country spotlight: Luxembourg

13 March 2020

Population
622,524 

Area
2,586 km2 

The helicopter view
Officially the Grand Duchy of Luxembourg, this tiny country is bordered by Belgium, Germany and France. Luxembourg City is one of the EU’s four official capitals. 

Economic outlook
Home to just 0.01% of the world’s population, it’s the second richest country globally, with a GDP of $114,360 per head. Historically built on the steel industry, its financial sector has since overtaken – more than 135 banking institutions are located there and financial services make up a third of GDP. 

Biggest investors
Its stable banking ecosystem has recently seen China’s seven largest banks incorporate their European hubs in the country. In total, since 2016, more than 60 financial firms have moved their operations there to insulate against the impact of Brexit.

Supply chain issues
The LuxLeaks scandal of 2014 (where hundreds of corporations were revealed to be paying near 0% tax), saw European competition commissioner Margrethe Vestager announce the country’s secret tax deals would finally be investigated.

Strengths
Still very pro-business. Income tax and business tax exemptions of 25% for eight years were recently granted to start-up businesses. Luxembourg is ranked 18th on the Global Competitiveness Report. From 1 March this year it became one of the first countries to offer free public transport nationwide.

Challenges
Its weakly diversified economy sees it dependent on its banking sector. It also relies on foreign labour (half the workforce commutes from another country). It also has an emerging ageing population problem. By 2060, a quarter of its citizens will be over 65 (vs 14% today). 

Bottom line
Diversification would provide protection. Investment in tourism has seen the sector grow 4.5%, accounting for 6.5% of GDP. 

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