Luxembourg as a European logistics hub
The logistics sector is a rapidly growing part of the Luxembourg economy. Over 80% of the goods and services produced in Luxembourg are bound for foreign markets. The Government recently confirmed the implementation of a free trade zone near the airport in order to facilitate the trading and handling of valuable goods. Luxembourg for Finance spoke to Carlo Thelen, Chief Economist and Head of the International Department of the Luxembourg Chamber of Commerce, on why Luxembourg is on its way to becoming one of the main European logistics hubs.
What legal changes were made in recent years to turn Luxembourg into a European logistics hub ?
In recent years, the Government adopted several laws that are beneficial for Luxembourg as a logistics hub. These were chiefly the law to promote research and development instruments in 2009, the law on intellectual property dating from the same year, the special tax regime for expatriates and most recently the draft law on the VAT regime for a free trade zone. With the exception of the free trade zone, these initiatives were not specifically designed for the logistics sector. However, they contribute to increasing the attractiveness of our country and build industrial substance, which is vital for the further deployment of the logistics hub.
Did the initiative to build a logistics hub meet with consensus in the industry?
At the beginning, pessimism was indeed palpable, but this turned out to be misplaced. With the cargo airline Cargolux, Luxembourg already boasts a world-scale logistics player. Another significant advantage is the central location of Luxembourg within the economically most developed part of the European Union; this was an important condition from the beginning. Even though Luxembourg is a landlocked country, this fact didn’t stand in the way as we are linked via the Rhine-Moselle network to several huge European ports such as Rotterdam, Antwerp and Zeebrugge, for which ports we are a natural hinterland. Besides that, Luxembourg has a high degree of openness to foreign trade, be it investment flows or cross-border trade flows, in comparison with our neighbouring countries.
Has this initiative become more important since the financial crisis ?
During the financial crisis, business in the logistics sector fell by 18%, but this loss has already been made up. Of course, there are some companies that are still suffering or only slowly recovering from the economic slowdown. But I don’t think the crisis had any particular impact on the initiatives, because the Government’s strategy in the field of economic diversification was already defined beforehand and was maintained during the last couple of years. In short, the crisis didn’t cause the Government to change its mind or direction. This was a good choice.
What opportunities can a small country like Luxembourg offer, that other European countries cannot?
Our economy is wide open, and economic growth largely depends on export activities. Because we are small and key stakeholders are readily available, we should be able to react faster to trends that drive economic growth. The development of the financial centre was also helped by short, straightforward decisions lines and its expansion was accelerated by fast and efficient implementation of new laws and the intelligent transposition of relevant European Directives. To give an example, in Luxembourg, a businessman can often speak directly to the Minister of Economy and a banker can talk to the Minister of Finance about their grievances. This is truly exceptional. For the diversification of our economy, commercial neutrality has also turned out to be advantageous. In Luxembourg national competitors are rare, which often influences multinationals’ investment decisions. Our multilingual workforce and the successful integration of 40%+ foreign nationals and a further 151,000 cross-border commuters is also extraordinary.
Does the infrastructure in Luxembourg meet international standards ?
As a small country at the heart of Europe, we need an excellent infrastructure. Today, Luxembourg has a modern airport and investment in the road and rail network has contributed to an efficient transport network for goods and freight. Compared to other countries, public investment is quite high when expressed as a share of GDP. Regarding the non material infrastructure, our education system is adapting to developments as well. As a traditional niche player, you need highly educated staff. Unfortunately, there is shortage of engineers in Luxembourg. In the Cluster for Logistics, we have a working group that is focusing on education and training specifically for the sector. Its members are working closely with public research centres and the university. The university should offer a backup for the niches developed by the Government, be it logistics, bio-health or ICT. All in all, what is needed is a coherent approach and efficient collaboration between all the stakeholders, be its businesses, government or research and innovation centres.
Which sectors can benefit from the development of the logistics sector ?
A variety of sectors can benefit from a strong logistics hub. The transport sector, handling agencies, security services, ICT, the building and construction industry, to name only a few. In addition, there is a whole value chain around the airport. The dedicated services sector is also very important. 26,000 people work in the communication sector alone in Luxembourg. The transport and handling sectors make up roughly 5% of GDP, and if you add communications, this figure grows to 7-8% of GDP. These are impressive figures.
Do you see the logistics sector becoming a pillar of the Luxembourg economy?
It is already a key pillar today! Significant inroads have been achieved in recent years. The openness and attractiveness of our country and its localisation in the “blue banana belt” make Luxembourg not only a door to Europe, but also a place where new business flows are created.
 The Cluster for Logistics a.s.b.l. is an initiative of seven institutional partners to pool their know-how and resources with the objective of boosting the logistics sector in Luxembourg. The Chamber of Commerce is a founding member.
 The “blue banana belt” is a discontinuous corridor of urbanisation in Western Europe, stretching approximately from North West England in the north to Milan in the south. It covers one of the world’s highest concentrations of people, money and industry.