Positive outlook on Luxembourg investment climate

Luxembourg’s investment climate is largely positive according to a country overview recently released by the European Investment Bank (EIB).

The EIB interviewed 150 firms from Luxembourg in the framework of an EU-wide survey of 12,500 firms that gathered quantitative information on investment activities by both small and medium enterprises (SMEs) and larger corporates, their financing requirements and the difficulties they face.

Overall, the EIB sees a positive outlook for the Grand Duchy driven mostly by larger corporates in infrastructure and construction sectors.

Smaller firms and companies operating in the manufacture and service sectors however, seem to face a challenging investment environment and expect a contraction in investment activity.

While 88% of firms invested in the last financial year, the investment per employee is below EU average.

Too little investment, certain barriers

Overall 13% of firms reported having invested too little with a significant investment mismatch in the manufacturing sector, where almost 40% of firms think they invested too little to ensure the success of their business going forward.

This seems to be linked to certain investment barriers, of which the unavailability of staff with the right skills and uncertainty about the future are perceived to be the most important ones.

At the same time, 70% of companies in Luxembourg report that they operated at or above capacity in the last financial year, putting it at nearly 20% above the EU average.

Equipment with state-of-the-art machinery is in line with EU aggregates and firms’ share of building stock in Luxembourg is considered meeting high efficiency standards at 32%.

State-of-the-art equipment and future priorities

Machinery and equipment consequently make up the largest chunk of investment for Luxembourg firms, followed in most sectors by land, business buildings and infrastructure, then software, data, IT and website and finally training of employees.

Despite the international character of the Luxembourg economy, only 16% of companies in Luxembourg invest abroad, which is however in line with the EU average of 12%. The foreign investments are driven mostly by the construction and infrastructure sectors.

When it comes to future investments, 44% of firms see replacements as their priority over the next three years, while 25% are putting emphasis on capacity expansion and the development of new products, processes and services.

Furthermore, 2% of micro and small enterprises are finance constrained, meaning that they are either dissatisfied with the amount of finance they received, had an application rejected, thought borrowing costs would be too high or were discouraged from applying.

Compared with the EU, firms in Luxembourg have higher productivity, except in the manufacturing sector and productivity levels are varying more within sectors.

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