Amcham: Please tell us about the role, organization and activities of UEL…
Jean-Paul Olinger: As the voice of Luxembourg’s business leaders, UEL works with all like-minded organizations to develop a sustainable and prosperous economy for Luxembourg, its inhabitants and those who work there. I am therefore glad for this opportunity to interact with Amcham members: together we help create an environment that is attractive to both investors and talented individuals.
UEL stands for Union des Entreprises Luxembourgeoises… I don’t believe the name needs translating! It’s the umbrella organization of the Luxembourg Employers’ Associations, representing all of Luxembourg’s private-sector businesses except for the primary sector. It includes the Grand Duchy’s professional chambers and employer federations ABBL, ACA, clc, FDA, FEDIL and HORESCA. The governance of UEL reflects this: if you look at its Board of Directors and Executive Committee, all these economic sectors are represented with the Presidents and Directors of their business federations.
Technically, UEL focuses on common topics, mainly related to social dialogue, such as employment and labour law, social security and tax. But we also deal with other key topics of interest to companies, for instance with a focus on sustainable development and ESG. Indeed, in 2007, UEL founded the INDR or National Institute for Sustainable Development and Corporate Social Responsibility. Its job is to promote CSR within Luxembourg businesses and help them contribute to sustainable development.
To accomplish its mission, UEL facilitates working groups and discussions with its member organizations on major inter-branch topics. It is thereby able to present joint positions to the public authorities and social partners which they can then review together.
What is UEL’s view of the current economic situation within Luxembourg?
Our situation is relatively good, considering the massive impact of Covid, especially when compared with neighboring countries. But we do share many of the challenges that other so-called developed countries face, mostly linked to the demographic factor. And the openness of our economy creates higher volatility in good times and bad.
The Covid crisis has demonstrated the relative resilience of our economy. We have full employment and high social standards. And, in the short term, Luxembourg’s public finances seem healthy, when you look at the State’s annual budget or the level of public debt, and our AAA sovereign credit rating underlines this. But one must keep in mind that the deficit of the central administration budget is financed by the surplus from the private sector pension system.
The medium and long-term perspective is more challenging. We must anticipate the negative impact on public finances of the cost of maintaining high social standards, especially when you take into account our ageing population and generous pension system. To compensate, we would need to attract more young professionals and entrepreneurs, but they are deterred by the rising cost of living in Luxembourg and a risk-averse attitude towards entrepreneurship and certain industrial activities. The current shortage of talent comes as a warning of potential future difficulties. We must act now.
What is your assessment of the relative attractiveness and weaknesses of Luxembourg as a business location for international companies looking for European headquarter locations?
I’d say our main weakness is the ransom of success: when people are full, they are less hungry. And we share that issue with most North-Western European countries. In addition, we may be losing our advantage in terms of agility: the so-called “short paths” are becoming longer, due to the increase in administrative burdens for businesses. The growing complexity of regulations within the EU increases costs and favors the consolidation of activities at headquarter level. This may also reduce our attractiveness compared to non-EU countries.
Yet Luxembourg remains attractive. It’s a great entry point for the EU market and a bridge between America, Europe and Asia. In particular, for US businesses, we remain an important partner because of our openness and experience with foreign investors, our highly skilled, multi-lingual workforce and our multi-cultural population. Imagine: a country of little over 600,000 inhabitants is home to more than 170 nationalities!
People come for a short-term assignment and stay to enjoy a great and safe place to live. With a few exceptions perhaps, people here are mostly nice, and we have social and political stability, good public infrastructure and many professional opportunities. And we are profoundly European, as evidenced by the many EU institutions based here.
For companies, our well-developed legal framework is adapted to multinational players. Our stable political environment is a definite plus, including our tradition of consultation with social partners, in which UEL plays a key role of course. And our culture of public private partnerships has helped attract many international companies in a variety of sectors, including commerce, finance and industry, and continues to help us develop new sectors such as space and health. This is supported by our commitment to innovation, with Luxinnovation, LIH and LIST, to name only those and our position as a regulated hub for international finance.
Which economic challenges is UEL most concerned about? And what solutions do you recommend the government should implement to address these challenges?
Our three main topics are employment, social security and tax. They all need to be considered in the overall context of the necessary transition towards a sustainable economy, as we aim to achieve the UN’s 17 sustainable development goals.
Regarding employment, the world of work is undergoing a rapid transformation. Companies and employees must address many challenges, such as digitization, new working structures and the war of talents. To increase the attractiveness of the Luxembourg workplace we recommend implementing flexible working time for the benefit of people and businesses.
Luxembourg’s relatively low level of social security contributions is one the country’s last competitive cost advantages and it is facing the consequences of an ageing population. To anticipate this trend we recommend engaging a reform sooner rather than later.
Finally, in an increasingly complex and changing international tax environment, it is essential that Luxembourg is able to maintain a competitive, stable and transparent tax system, in line with international standards. Here we recommend encouraging investment in the digital and green transition, to achieve the necessary up-skilling of our people. We must also maintain a competitive tax legislation for the financial sector. And we need to increase legal certainty for all companies thanks to clear and concise laws, timely interpretation and a transparent fast lane access to the tax authorities, in line with international standards as encouraged by the OECD and EU.
Adding to that, right now we are facing a hike in inflation, which is highly problematic as the automatic indexation of wages increases production costs faster in Luxembourg compared to neighboring countries. The government must come up with a proposal in this area if we wish to avoid creating our own self-defeating inflationary spiral. In the medium term, public authorities must keep in mind that the success of our initiatives to diversify the economy may play out against a backdrop of lower potential growth.
As a small country at the heart of Europe, what should Luxembourg focus on?
You are right, Luxembourg is very small. We have limited resources of our own… and our most important legislation is decided at the EU or OECD levels. We must therefore adapt our strategy and choose our battles.
Internationally, we are too small for ideological discussions with big countries, for instance on energy supply. As we cannot be present at all the negotiation tables we need to focus on our interests as an economy… and work hand in hand with our friends at an international level.
Nationally, we should pay more attention to the coherence of our policies, for instance by grafting fiscal policy onto economic policy. It would be great to check that one issue is really solved before moving on to the next topic. And I would add that creating public-private partnerships and integrating digital solutions should be our default mode for all projects, to gain traction and ensure the efficient use of resources.
You mentioned the need to bring highly skilled people into the Luxembourg work force. Given the small population of Luxembourg, relative to a very large number of varied international companies, do you support simplifying and speeding up the work permit approval process so companies can get the talent they need faster and more easily?
Yes, this is all the more important because we need specific skills that can no longer be found by recruiting only in our neighboring countries. In this area, UEL is working closely with the national employment agency ADEM to build the skills that the economy needs and reduce the mismatch in the labor market. Our joint “Partnership for employment” initiative looks at both talent attraction and retention. I recommend reading our recent sectoral studies on talent needs and trends, which will be usefully complemented by the upcoming OECD study on skilling that we pushed for during the 2020 three-way ‘tripartite’ meetings with the government and trade unions. This will feed into the work of the dedicated inter-ministerial working group driving related government efforts.
What else can we do to make Luxembourg strong and successful for the future?
We need to listen more to our friends, starting with Amcham members! Many problems will only be addressed in a better way once all those concerned have a political voice. Therefore, we need to involve more Luxembourg residents who do not yet hold a Luxembourgish passport into our political decision-making process. The 2023 elections provide an opportunity to make progress in this area.
Finally, we have a proposal that should be music to your ears. Over the last few decades, English has become a common language in Luxembourg and connects us to people all over the world. Luxembourg should become the first country in continental Europe to adopt it as an administrative language: this would create an immense competitive advantage, especially after Brexit.
Amcham would like to take this opportunity in thanking Mr Olinger for this interview