Amcham: In your capacity as the Chairman of the Luxembourg Chamber of Commerce, how do you assess the overall impact the Covid crisis has had on economic activities?
Luc Frieden: This is a major shock for the economy as many businesses were shut down by governments around the world. It will take some time before we will be back to normal. Based on what we saw in the financial crisis, our economies might only be back to pre-crisis levels in two to three years. This being said, the Luxembourg economy managed quite well so far, mainly because of the financial assistance from the State on the one hand and because large sectors of the Luxembourg economy, in particular the financial services industry, could continue to operate by teleworking. However, it is very early to see the exact long term consequences of this crisis, as Luxembourg is an international hub and a lot will depend on when and how the global economy will pick up again.
What are your expectations regarding the strength of the various sectors of the Luxembourg economy?
Obviously some sectors are more affected than others by this crisis. The hotels, restaurants, travel and events industry are tremendously harmed by this pandemic as they could not work for quite a long time. Other businesses did rather well, for instance the transport of goods sector or the financial sector. Some retail shops managed to recover fast, such as the furniture shops, whilst others suffer from the absence of clients due to homeworking. For the Luxembourg services sector and the industry, I am rather optimistic, depending however on the length of the crisis. That is why it is so important to accelerate the production and distribution of the vaccines. Luxembourg as a small country should be able to vaccinate the whole population within three months. For Luxembourg it is also important that we make sure the Luxembourg economy remains competitive, so that we can create growth and jobs as soon as this global crisis comes to an end. Financial assistance from the State during the crisis is only for the short term. We have to plan now for the next five to ten years.
Are there additional steps which should be taken to support the retailing and independent/ micro sector of Luxembourg?
We have to draw the lessons from the crisis. In general, the financial assistance was adequate. In fact, a lot of the reimbursable financial assistance, such as state backed loans, that was offered was not used, neither in Europe nor in Luxembourg, as companies were uncertain about the future. For independent workers, who do not have an employment contract, we need to take initiatives to better protect them in the future. I believe that as they pay taxes like other people as well, they should also benefit from the national solidarity in case of an exceptional crisis like this one.
What is the Chamber of Commerce doing to champion and support the diverse business communities within Luxembourg?
The Luxembourg Chamber of Commerce is the official representation of all economic sectors in Luxembourg other than craftsmen and farmers. The law requires all companies to be members of the Chamber. The Chamber of Commerce writes an opinion on all laws having an economic impact. Thus the Chamber is a key player in the shaping of the economic policy of Luxembourg. It further is very active in professional training programs and supports companies in their digital or international development. It is also an important advisor to companies; for instance during the crisis, it advised numerous companies on how to benefit from the various public assistance programs. The Chamber of Commerce is a kind of parliament and spokesperson of the business community in Luxembourg. For international companies based in Luxembourg, it is often the door to the public authorities, which is even more important in a country where only about seventy-five percent of the workforce does not vote in national elections because of their nationality.
In what ways has the impact of Brexit on Luxembourg been negative or positive?
Many of any country’s challenges today, such as climate, security, migration, trade or international finance, require common actions. It is therefore difficult to understand that the UK chose to leave the EU. On financial services, the UK used to be an important ally of Luxembourg on EU legislation regarding cross border financial legislation. However, I do believe that the strong business relationship between Luxembourg and London will continue. As the UK is no longer part of the EU single market, the daily life of many commercial companies doing business between Luxembourg and the UK becomes more difficult. And UK financial institutions will not be able to automatically access the European market any more. But many prepared well for this situation and set up or expanded their operations on the European continent. Luxembourg welcomed a number of such financial companies who left the UK because of Brexit.
Please assess the current status of the economic partnership between the US and Luxembourg. What is successful, what is not, and what initiatives can and should be undertaken to further strengthen this partnership? and why?
We always had and will continue to have an excellent relationship with the United States. That is part of the DNA of Luxembourg. People in Luxembourg have not forgotten the assistance of the US in and after World War II. Moreover, we share the fundamental values of the US and are attracted by many aspects of the US lifestyle, such as movies or music. I welcome the fact that the new Biden administration wants to work again closely with Europe and shares our views on the merits of multilateralism. This should be used to strengthen and expand our political and economic partnership.
Now that the EU has undertaken a free trade agreement with China, what is stopping a similar deal with the United States?
The EU and China have agreed on the broad principles of an investment agreement, which goes less far than a free trade agreement. I am optimistic that the EU and the US can further deepen their economic relationship. We have of course to learn and take into account what happened with TTIP. Something less ambitious than a broad free trade agreement with the US might be more realistic. As a major economic player, the EU needs to deepen its relationship both with China and the US. This is also true for Luxembourg, which is a European hub for many US and Chinese companies. I also encourage Luxembourg companies to look for growth opportunities in Asia and America, in particular as those economies seem to grow faster than Europe in the coming years.
Please give our readers a S.W.O.T. analysis of Luxembourg as an international business location?
Luxembourg is and remains an ideal location for international business as it is a safe, predictable and business friendly location especially for companies who want to do cross border business. The corporate and financial law framework is particulary well suited for such companies. The fact that the Luxembourg workforce is very international and multilingual is also a major advantage for many companies. And our ICT infrastructure must remain state of the art. Luxembourg did quite well in this area over the past twenty years. The challenge for Luxembourg is to continuously remain attractive in all areas of its regulatory and tax framework. As a small economy, we have to be open to foreigners and agile in our decision making. The weakest point is probably that there are no direct intercontinental flights, but this might become less important in the future due to the videoconferencing that we know all to use much better since the crisis. Some would probably also mention that the cost of living and salaries are high in Luxembourg. That is true, but compared to for instance house prices in other financial centers, such as London or Zurich, it is still OK. The high quality of living in Luxembourg, in a safe environment, compensates for some high costs.
What steps can and should be undertaken to enhance Luxembourg as a business location, for both current and future business entrants?
What is important is that we continue to be business friendly. This means that we must be flexible, un-bureaucratic and fast in the decision making process. It is probably the biggest challenge. We also must continuously review our regulatory and tax framework to keep it business friendly. And we must always remind ourselves that competitiveness means to be more attractive than our neighbours. For many companies based in Luxembourg their market is the world, whereas for many other countries their home market comes first. Our business model must be international focused, with a strong ecosystem for companies – law firms, accounting and consulting firms, international schools, good health system- here in Luxembourg. The up and re-skilling of our workforce and the digitalization of our economy are also key factors for the future success of Luxembourg.
As Luxembourg businesses move themselves further up market to become even more specialized in their business offerings, the shortage of highly specialized and skilled employees will become ever more dire. Is it not time to modernize the work permit approval regime to simplify and speed up the approval process for the highly qualified employee candidates we need to ensure the future we all hope to have?
Hiring specialized people is sometimes a challenge, but free movement of people in the EU allows Luxembourg companies to hire people in the huge European market of talents. The close cooperation and dialogue between the international companies and the relevant government departments usually leads to pragmatic solutions in cases related to workers from non EU countries.