Competitiveness Report 2019: Focus on Entrepreneurship

NOVEMBER 2019 N° 35 PERSPECTIVES DE POLITIQUE ÉCONOMIQUE Focus onentrepreneurship Focus REPORT COMPETITIVENESS 2019 NOVEMBER 2019 NOVEMBER PERSPECTIVES N° 35 DE POLITIQUE ÉCONOMIQUE 2019 COMPETITIVENESS REPORT Focus on entrepreneurship The “Perspectives de Politique Économique” series includes reports, studies, research results or summaries of conferences commanded by or carried out by employees of the Ministry of the Economy or by experts of associated institutions. The opinions expressed in these publications are those of the authors and do not necessarily correspond with those of the Ministry of the Economy or the government. For any request or suggestion, please contact the Observatoire de la compétitivité of the Ministry of the Economy of the Grand Duchy of Luxembourg. Ministère de l’Économie Observatoire de la compétitivité 19-21 Boulevard Royal L-2449 Luxembourg [email protected] November 2019 ISBN: 978-2-919770-26-7 This publication can be downloaded from https://odc.gouvernement.lu © Ministère de l’Économie, Luxembourg 2019 Competitiveness Report The following persons contributed to this publication: Serge ALLEGREZZA Ministry of the Economy/STATEC Martine HILDGEN Max JENTGEN Laurent PUTZ Giulia SPALLETTI Pierre THIELEN Ministry of the Economy Chiara PERONI STATEC and the STATEC Research ASBL team 3 2019 Competitiveness Report Introduction The European economy is currently experiencing its seventh consecutive year of growth and it is forecast to continue growing in 2020 and 2021, against a difficult global backdrop. However, the external environment has become much less favourable and there are great uncertainties, such as global trade tensions and significant international political uncertainties. Although the situation varies considerably between Member States, these factors are not to be ignored as investors’ concerns are reflected in the markets in real time, thus weakening the growth forecast. In Luxembourg, although the negative risks have also risen , a considerable number of short-term indicators and medium-term predictions remain positive compared to other countries. Luxembourg’s GDP stood at +3.1% in 2018. Forecast predicts that GDP will grow by 2.4% in 2019 and 2020, and that domestic employment rates will grow by 3% in those two years. Luxembourg has mitigated risks and our economy is benefiting from a relatively serene short and medium-term environment. This report by the Observatoire de la compétitivité (ODC) provides feed for discussions annually around the structural development of our country. I have come to a number of conclusions concerning this 2019 edition. According to the results of the composite indicator calculated by the ODC based on the national scoreboard, Luxembourg comes in 8th position in the EU ranking and is therefore in the leading group of countries. Luxembourg still faces a series of challenges in order to strengthen the resilience of its economy though, including boosting the productivity of firms, improving investments, sustainable development and fighting inequality. Our country is in a solid position to face these challenges, but it is time to push ourselves into the next level. The priorities of the economic policies of the past years remain the same today, and efforts will have to be intensified within the framework of our National Reform Programme while implementing responsible budgetary policies. 4 2019 Competitiveness Report In the same mindset, in its economic survey for 2019 – of which a short summary has been included in this report – the OECD has highlighted the fact that the firm productivity remains a key factor in the Luxembourgish economy. The increase in productivity must be viewed as a driver for economic growth in Luxembourg. In order to move forward with high-quality development, the focus will have to be on a strategy that aims to maximise the gains achieved in productivity. The concept at the very core of this debate is digitalisation. Indeed, our companies are directly affected by this trend. How can one best conceive and link business and production processes? Which channels should be used to communicate with employees and clients? Which technologies should be applied, and at which stages of the value chain? These are all questions that companies need answers to in an environment that is in full transition, and the Ministry of the Economy supports them. Finally, the results of the Global Entrepreneurship Monitor survey also aroused my interest, as they provide impetus for my own future political initiatives. The GEM report revealed that more than half of those questioned perceive Luxembourg as offering a favourable business environment for starting a business. On the other hand, fear of failure prevents half of those people from doing so. As the Minister for Small and Medium-Sized Enterprises, I feel it is important to deal with this anguish so that in the long term, entrepreneurship rates may grow in Luxembourg. Lex Delles Minister for Small and Medium-Sized Enterprises 5 2019 Competitiveness Report Summary Chapter 2 The debate on territorial competitiveness is regularly revived at the time of publication of benchmarks and international rankings. The most closely monitored annual reports include those issued by the World Economic Forum, the International Institute for Management Development (IMD), the Heritage Foundation and the European Commission. In these four major reports Luxembourg is ranked between 5th and 8th in the EU in 2019. A strong correlation may also be observed between these four international rankings and the national system of indicators among the Member States of the European Union (see Chapter 3). In addition to these major benchmarks released annually, a multitude of others are also published regularly or occasionally. Although the final ranking often constitutes the most widely publicised element, these analyses tell a more complex story, which belies the simplicity of the ranking. We must not lose sight of the limitations of such an exercise, such as the relativity of the rankings, the quality of the sources, the ‘one size fits all’ approach, etc. Despite the numerous reservations one may have in the face of territorial benchmarking, these reports deserve to be monitored, because they represent powerful communication tools. Chapter 3 Chapter 3 is dedicated to the national competitiveness scoreboard, which constitutes a central component of competitiveness analysis. Indeed, in 2003, the Tripartite Coordinating Committee of Luxembourg recognised the need for a table of indicators to take account of the national specificities, so as to gain a better understanding of the competitiveness of the country, which is not possible through the simple use of international benchmarks. This scoreboard, which was drawn up by Prof. Fontagné at that time, was revised by the Economic and Social Council in 2016. The present Report contains now the first annual update of this new national system of competitiveness indicators. The updated results show that Luxembourg’s performances are generally mixed in all three aspects. More precisely, the result for the economic dimension revealed a mixed performance. For many indicators, Luxembourg’s results are close to the EU’s average. However, the analysis of Luxembourg’s performance in the social dimension clearly points to positive developments. Often, Luxembourg ranks among the top countries for the social indicators. As to the environmental dimension, the country’s performance is stable. Following a detailed analysis of the scoreboard indicators, the ODC calculated its traditional composite indicator based on all 68 indicators. Overall, Luxembourg ranks among the best- performing countries, in 4th place. For the dimension-based rankings, Luxembourg is among the high-performance countries for the economic and environment dimensions, i.e. in 11th and 12th place respectively, whereas for the social aspect, Luxembourg ranks 3rd. 6 2019 Competitiveness Report Chapter 4 The Europe 2020 strategy constitutes a central element of the EU response to the economic crisis, now a decade old. Overcoming the crisis was considered a shift towards a social, greener and more intelligent market economy. Five broad objectives were confirmed at European Union level with regards to promoting employment, improving the conditions for innovation and R&D, fulfilling the objectives relating to climate change and energy issues while improving levels of education and encouraging social inclusion. Each Member State later fixed its own national targets. For some of the targets established by Luxembourg (2010), the indicators have evolved in the right direction, while for others, the situation is less favourable. In its recent monitoring report on the Europe 2020 indicators (released in October 2019), Eurostat came to the following conclusions: Luxembourg has steadily improved towards reaching its school drop-out rate target; the country has one of the highest rates of post-secondary graduates in the EU but has yet to make progress to reach its highly ambitious national target; the country is coming closer to its employment rate target but has not quite reached it yet; it spends less than the EU average on R&D and is moving away from its national target; the risk of poverty and social exclusion has been rising over the years, widening the gap between reality and its national target; the country has one of the lowest rates for renewable energy in the EU and has not achieved its national target; the reduction of greenhouse gases

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