More than other sovereign states, Luxembourg has managed throughout its history to set up a favourable business development policy by means of a modern, innovative and liberal legal framework. In its effort to improve the competitiveness of companies and to reduce their production costs, Luxembourg strives to create a legislative framework that favours the development of the Luxembourg economy.
The results of these efforts have resulted in a consistently excellent performance in various international studies on competitiveness.
In 2019, the country ranked 12th in IMD's Global Competitiveness Index, which classifies and analyses the ability of nations to create and maintain an environment fostering the competitiveness of local businesses. The Grand Duchy ranked 18th in the 2019 Global Competitiveness Report of the World Economic Forum (WEF), a report which measures the degree of competitiveness of 141 countries in the world.
The discovery of iron ore around the mid-19th Century and the development of a giant global iron and steel industry made the wealth of the Grand Duchy. For many years, ARBED - the steel company founded in 1911 - was the largest employer, taxpayer and exporter of the Grand Duchy. In the 1970s, the sudden impact of the global crisis in the steel industry hit the Luxembourg economy hard.
Aware of the danger inherent in monolithism related to the iron and steel industry, the political authorities had been working towards industrial diversification since the 1960s.
These actions have been rewarded by a remarkable success: other industrial companies of various sizes have been added to the nation's heavy industry. They belong to a wide range of lines of business and utilise advanced technologies.
Towards a service economy
The transformation from an industrial economy dominated by the iron and steel industry to a service economy dominated by financial services, was almost accomplished in one decade from the mid-1970s onwards.
Today, the financial sector is the main driving force behind Luxembourg's economy. The financial centre is one of the top international financial centres and Luxembourg's fund industry is the largest in the European Union and even second largest in the world.
The financial sector has diversified internally over the past few years, fostering the development of the sustainable finance sector in particular. In fact, with the Luxembourg Green Exchange(LGX), Luxembourg acquired the first stock exchange devoted to green finance in the world in 2016. This effort is often recognised by international benchmarks, such as the Global Green Finance Index in which Luxembourg ranked 2nd in the world for green finance penetration (2019)
However, Luxembourg authorities pursue a policy of diversification of the national economic fabric through a strategy of multi-sector specialisation, as they are aware of the risks involved if the economy is highly dependent on a single sector. Luxembourg actively promotes the diversification of its economy by supporting information and communication technology (ICT), logistics, life sciences and cleantech, research, as well as the space industry and the shipping sector.