(L-R) Bart van Droogenbroek, Tax Leader; Olivier Coekelbergs, Country Managing Partner; Brice Lecoustey, Consulting Partner; Julien Delpy, Director, Markets and Communications; Credit: EY Luxembourg

EY recently presented the second edition of its Luxembourg Attractiveness Survey, which assesses what makes the country competitive on an international level and the main barriers to growth as perceived by (potential) investors.

At the European level, the EY Attractiveness Survey has existed for 22 years. According to EY, the study mirrors both the reality of foreign direct investment (FDI) in a country through the analysis of investments that create new facilities and jobs and through a survey reflecting the perception of international decision-makers.

With 37 FDI projects in 2022 (compared to 25 in 2021), Luxembourg has shown an increase of 48%. For the second year, Luxembourg ranked first per capita with 5.83 projects per 100,000 inhabitants compared to 3.94 in 2021.

In Europe, FDI has seemingly come to a halt, noted EY, as a total of 5,962 projects were announced in 2022 - a marginal increase of 1% from 2021. France, the United Kingdom and Germany retained their top three placements for FDI, representing over 50% of the total projects for Europe. Countries with strong nearshoring and back-office capabilities like Portugal, Italy, Turkey and Poland climbed the rankings and saw double-digit increases (respectively +24%, +17%, +22% and +23%). EY described Ireland, which draws parallels with Luxembourg, specifically in finance and asset management, as "a country to watch" with a 21% jump in FDI.

Moreover, while 67% of investors planned to invest in Europe in the next twelve months, 11% specifically cited Luxembourg as one of the top three attractive countries in Europe, compared to 9% one year earlier. Luxembourg thus secured joint 8th place with Switzerland. 

According to the study, Luxembourg's biggest growth drivers could be found in the sectors that support the economy. Business services accounted for 54% of all FDI activity. EY noted, however, that this primary focus of investments does not align with the country's objective of attracting industrial and primary business activities - projects that involve pure manufacturing have even halved.

The top priorities will be to tackle key overarching barriers to business growth, such as land costs, labour and tax, according to the study. More specifically, EY highlighted the following potential risk areas on which to focus: agility, which applies to all elements of finance and asset management; sustainability; alternatives; industry; tax; talent, which again emerged as both the biggest positive contributor and the biggest risk to investing in Luxembourg (for both the finance and industrial sectors).

EY concluded that Luxembourg remains a favourable choice for FDI in Europe in the eyes of international decision-makers. However, it is crucial to address the main challenges related to talent acquisition and tax issues as a priority, to sustain and enhance the country's attractiveness. While not currently among the top three choices, Luxembourg is steadily making progress and gradually ascending the ranks, concluded EY.

The full Luxembourg Attractiveness Survey 2023 is available at https://www.ey.com/en_lu/attractiveness/luxembourg-attractiveness-survey.