There are few more striking examples of Luxembourg’s determination to diversify its economy than the fact that is has become a centre of creative thinking about how to get water from the moon.
Ispace, a Japanese robotics company, set up operations in the country two years ago. From its offices, close to the city’s main station, a 13-strong team are working on the instruments needed to extract any water deposits from beneath the lunar surface.
For Kyle Acierno, managing director of ispace Europe, lunar landings should be a “test bed — a stepping stone for us into the solar system”.
The country’s space resources sector is still in embryonic form. The notion that this minor EU state is basing part of its economic development policy on taking a lead in monetising any future bounty from outer space might seem far-fetched to many.
Nevertheless, Luxembourg’s decision to invest heavily in near-space, orbital satellite networks since the 1980s has reaped dividends. The rise of state-backed satellite company SES was also based on the then-risky investment premise that space-based technology would transform television. It is now an enterprise valued at close to €8.2bn.
For economy minister Étienne Schneider, space “is a sector that has the economic potential to one day replace the importance of the financial sector, in terms of its importance to the Luxembourg economy”.
The need to take some risk on developing the sector further is based on concerns over the long-term prospects of its financial services sector. Luxembourg’s leaders recognise that the country’s strength in fund management and private banking has equipped it with a formidable economic motor, and this sector stands to be a beneficiary of Brexit-related relocations from London.
But times are changing. New financial regulations introduced by the EU after the 2008 financial crisis, coupled with an international push for tax transparency, have contributed to a deeply rooted sense that Luxembourg must diversify.
The impact of digitalisation has only strengthened this conviction. A survey published by the OECD club of mostly rich nations in June 2017 warned that “many mid-skilled jobs, including routine tasks in the financial sector such as accounting, data collection and processing and contract verification, are at risk of automation that does not require substantial capital investment and may occur fast”.
It added: “With a specialisation in back-office activities, Luxembourg is particularly exposed.” The message is simple, Mr Schneider says: “We have to develop new activities.”
Aside from attempts to carve out a greater role in the commercialisation of space, priority areas identified by state planners include green tech, health tech, building on its strengths in logistics, as well as information and communication technologies.
The challenge of future-proofing the local economy is big. The financial services sector directly accounts for about a quarter of Luxembourg’s GDP, with the number even higher when you factor in the supporting role it plays for other industries. The information and communications sector accounts for around 8 per cent. By way of comparison, the headline-grabbing space and satellite sector, broadly defined, accounts for just close to 2 per cent of GDP.
Policymakers and business leaders note that debate on encouraging new industries is only the latest in a series of planned reinventions, beginning with its response to the decline of the steel industry in the 1970s.
To encourage the growth of new sectors, Luxembourg has relied on a tried and tested recipe of creating the right business environment — be it in terms of regulatory regime, benign tax system or research and development grants.
That forward planning applies to other sectors, too.
Arnaud Lambert, chief executive of CHAMP Cargosystems, a company that provides IT systems for the air cargo industry, recalls high-level meetings of policymakers and industry in the 1990s dedicated to making Luxembourg “the Silicon Valley of Europe”.
This was followed by a concerted push to develop the country’s digital infrastructure by rolling out high-speed fibre-optic networks, as well as state support for the development of top-quality data centres.
What emerged may not match that original ambition to be ranked as Europe’s leading location for digital innovation, but the country can claim success in attracting more than its fair share of tech businesses, say observers.
Jean-Paul Olinger, the head of the Luxembourg employers’ federation, says that the challenge for the country is to continually find “niches” that others in the EU have yet to explore properly.
Some of those are still to be found in the financial sector itself, where the country’s stock exchange has pioneered trading in green bonds.
Philanthropy and microfinance have also been identified as promising growth areas.
Mr Olinger says the country is approaching something of a tipping point: one where technology has the potential to revive manufacturing and rebalance the economy.
“Finance has grown very quickly,” he says. “But there are also big opportunities in the industrial sector because of digitalisation, technologies that make production cheaper again.”