Credit: EIB

The European Investment Bank (EIB) and Luxembourg's Minister of the Economy, Franz Fayot, together with "Luxembourg Stratégie", hosted a joint conference called "The Twinning Between the Green and Digital Transitions of Luxembourg" on Monday 13 June 2022, presenting the results of the annual EIB Investment Survey (EIBIS) for the Grand Duchy. 

The conference  was a timely opportunity for representatives from various sectors and from the financial community to debate the short and long-term challenges facing Luxembourg businesses. Together with the EIB Investment Report, the EIBIS polled 13,500 firms across the European Union (EU) to provide an overview of the cyclical and structural dynamics behind investment and investment financing in Europe.

Debora Revoltella, Director of the EIB's Economics Department, presented the study, explaining: "The survey, which is conducted across Europe including in Luxembourg, provides the EIB Group with a powerful policy tool to understand structural investment barriers, where the crises hit firms more and how we can support the recovery, and help mitigate increasing divergences across households, firms, sectors and economies".

EIB Vice-President Kris Peeters commented: "The Luxembourg economy has proved resilient against the shocks of the past years. It is promising to see that firms operating in Luxembourg demonstrate a positive outlook on future investment, yet they do need further support. Steady investments should underpin the growth potential and productivity, increase the economic and social resilience, and facilitate the green and digital transformation of the Luxembourgish economy. These are also priorities for the EIB. As the EU climate bank, we stand ready to support our host country in its endeavour to foster the green and digital transition".

Economy Minister Franz Fayot stated: "There is an urgency to transition towards carbon neutrality. The challenge is to take the people along. But there are many positive signs, behavioural and technological. We need to continue thinking ahead and understand what megatrends mean for us. Luxembourg can be a virtuous world lab by moving rapidly in the right direction. I am an optimist and I am convinced we are moving in the right direction towards decarbonisation, and it is important to do this in a socially inclusive manner, in order to leave nobody behind".

The conference featured a broad debate on investment needs and priorities for Luxembourg in times of COVID-19 and the transition towards a smart and green economy, as well as on the availability of financing sources for investments. The discussion also focused on the firms' readiness and adaptability to the new situation by implementing key digital technologies to support their resilience and competitiveness looking ahead.

The EIBIS for Luxembourg showed that firms in Luxembourg became more optimistic in 2021. While the new results showed that in the last financial year, the share of firms investing had dropped as a result of the pandemic shock, now more firms (nearly one-third of them) expect to increase rather than decrease investment, marking a positive shift. On balance, medium / large firms (22%) have a more positive outlook than micro / small firms (8%).

Asked about the short-term actions undertaken due to COVID-19, digitalisation stood out with 42% having taken action or made investment to become more digital. The survey also found that COVID-19 would have a long-term impact on investment needs and priorities, with 60% of firms expecting to make an increased use of digital technologies in the long-term (an increase of 15% compared to the year before). Innovation activity of firms declined from 47% to 40% over the year (development of new products or processes and services) but remained in line with the EU average.

Regarding drivers and constraints, companies in Luxembourg remained on balance pessimistic about the political and regulatory climate but expectations for the overall economic climate have turned positive again (from -49% to +8%) as have perceptions of business prospects.

Moreover, companies did not perceive major gaps in investment. In spite of the difficult circumstances, over eight in ten firms (85%) believed they had invested about the right amount over the past three years. However, limited availability of skilled staff (81%) remained the most cited long-term barrier to investment, followed by uncertainty about the future (71%).

Access to finance conditions remained benign with only 5% reporting being external finance constrained (in line with the EU average); 13% of companies have increased their level of debt due to COVID-19. But public support was substantial in Luxembourg: 80% of companies reported having received financial support in response to COVID-19 and said that they were generally satisfied.

Luxembourgish firms have felt the impact of climate change and close to half (45%) reported that weather events have had an impact on their business (this is lower than the EU average of 58%). Firms are starting to internalise the risks of the transition to net zero. Overall, slightly more firms saw the transition to stricter climate standards and regulations as an opportunity rather than a risk for their business over the next five years (39% versus 29% respectively). 

Regarding management, about half of Luxembourg companies reported that they have striven for gender balance. This is lower than the 60% EU average. Linking individual performance to pay is where Luxembourg (70%) was in closest alignment with the EU average.

The EIBIS country overview presents selected findings based on interviews with 180 firms in Luxembourg between March and July 2021. The EIBIS has been carried out since 2016. According to the EIB, it is a unique, EU-wide survey of 13,500 firms that gathers quantitative information on investment activities of both small and medium-sized enterprises (SMEs) and larger corporates, as well as their financing requirements and the difficulties they face. It also includes a sample of firms from the United Kingdom (UK) and the United States (US).

The full country overview for Luxembourg can be downloaded from https://www.eib.org/de/publications/econ-eibis-2021-luxembourg#p=1