Interview with Franz Fayot in Delano International "A reflection I want to lead over the next three years"

Delano: I understand you'll be participating in the official space mission to Dubai, among others. Could you tell us a bit about the potential you see in this sector: how important is it in terms of the diversification of Luxembourg's economy?

Franz Fayot: Its very important because internationally, it really puts us on the map as a country of innovation, as a country that does not hesitate to make bold moves by going into the new space economy, investing quite importantly in this Space Resources initiative, where the idea is to build an ecosystem, which involves research, incubators, [and also] legislation, partnerships such as the Artemis Accords, but also partnerships with a number of other countries... where new space companies can establish and set up shop in Luxembourg and really work with each other to advance with new business models. [These] are all geared towards seeing how you can, in the first stage, really use the data that you get through Earth observation, and combine that with data sets here on Earth, and use that, for instance, for space traffic, debris management. I think these are the first applications that we see, but also Earth observation, with a range of different applications in maritime, precision farming, also potentially in development cooperation and humanitarian fields to observe droughts, severe climate phenomenon and really make a difference also for the Earth. I think that's a very exciting field, and its one that has been started by my predecessor [Etienne Schneider], but which I'm also very keen to continue.

Delano: There has been debate over the last two years about what sort of economic sectors Luxembourg should attract-the dichotomy between industrial entities like Fage and high-tech initiatives like the Google data centre, for instance. Which sectors are most promising, in your opinion?

Franz Fayot:...We had [previously] identified a number of sectors to diversify our economy, which include healthtech, cleantech - all companies involved in basically making the Earth cleaner and also building on circular economy. This also involves everything that is digital, but I would qualify digital and ICT more as an enabling sector for the rest. Space is also among them. Logistics is also a very strong field that we have also a bit of an enabler because you see that logistics is really evolving into this supply chain management which is a very high added value form of logistics, and which has been instrumental in managing the covid-19 crisis. We have been able to draw on this strong logistics sector that we have very high added value logistics, but also very competitive with Cargolux, with trains, very good infrastructure, such as our Euro hubs and strong digitalisation. And then, we also have the most traditional industry, which is really on the way to this green and digital transition, which is getting ever more sophisticated, evolving into industry 4.0. You see that in all the industries that we have: they are using ever more data to improve their business models. And I think that's also very promising: to keep this industrial fabric that we have here in this country, and to accompany it in the transition towards a more sustainable and more digital future. And I think that's the way to go. When we really look at what's happening in Europe, in the US, pretty much everywhere in the world, it's a shift towards decarbonising the economy, towards digitising the economy, with the end goal to attain climate neutrality, to preserve biodiversity and to keep us competitive and productive, while at the same time [doing] it in a more sustainable way... I think everything pertaining to more low-tech businesses - meaning the arts and crafts, more manual work is also something that is hugely promising. You see that particularly during a crisis: you see how important it is to have a good plumber, a good electrician all these jobs and crafts that have not been so prominently featured recently but which, I think, are also what's becoming more digitised [and] which are also hugely important in the future.

Delano: A Eurostat country tracker [and report] focused on the Sustainable Development Goals (SDGs) shows that Luxembourg has been slipping a bit in certain areas, e.g., Goal 8 ("Decent Work and Economic Growth"). How will the country get back on track in this area?

Franz Fayot: Obviously, there are two dimensions to the SDGs: there's the international dimension, which is where my ministry of development cooperation is in charge of really tracking the progress on these SDGs, and the SDGs are applied to the national level... I think we are making, of course, huge efforts here to preserve the working conditions, and I think it's fair to say that we still have pretty decent work in international comparison. We have a very strong set of laws and regulations protecting workers. Obviously, we have social security and global health insurance, which is not the case everywhere in the world. We have the minimum wage, which has also been increased recently [by 2.8%1, adapted to the general inflation of salaries... I think it's fair to say that on decent work, we are really making huge efforts and, of course, it's also my party's role and my party's bread and butter to make sure that this is still very much preserved. On competitiveness, that's the big issue, or rather on sustainable growth, about qualitative growth, and that's a discussion we have been leading now for five, six, seven years. Also in the context of what you mentioned.., what kind of growth do we want? What sectors, industries are still a match with the country, which is small, which is also reaching its limits in terms of available industrial land, which also has an issue with traffic, housing, all these externalities that people are concerned about? Of course, [one] which wants to preserve the quality of its environment, its nature, its biodiversity. And that's really the discussion at the end of the day about what's the importance of growth, of classic growth in terms of GDP, as opposed to maybe more nuanced refer[ences] such as PlBien-être' (wellbeing index), all these alternative benchmarks that we now have also in the international discussion. And I think that's really a societal discussion that we need to lead. That's also why I have created `Luxembourg strategic' [which] has the mission to reflect on the future of the Luxembourg economy, on future growth, on its opportunities' potential, by taking in all the different factors that are important in terms of demographics, social conditions, environment, the necessity to adapt to the Paris Agreement, CO, neutrality - all these parameters that are now really conditioning the way a country also develops economically. That's a reflection I want to lead over the next three years.

Delano: Let's switch gears a bit to your other portfolio in development cooperation and humanitarian affairs. What intersections do you see between your two portfolios? How do you balance the two, and how has Covid potentially shaped this more recently?

Franz Fayot: That's an excellent question. What is quite obvious is that Luxembourg does not, and has never, used its development cooperation to further its economic agenda. So there is a clear separation between the two. We don't have that tradition, and I think that's a very good thing. We don't use our influence that we gain through development cooperation to further any business agenda. I think that this is one important point that is somehow raised [by] people who are critical of the fact that I accumulate these two ministries. On the other hand, I think there are our unique selling propositions that we have as a country, from our economic development. That includes digitisation, space, the whole finance sector, and also inclusive finance, which can be used to advance the SDGs. It's quite clear that ODA (official development assistance) in itself is not sufficient to finance the SDGs, in particular not by 2030, so the private sector is needed to participate in that effort. That's why I have launched this new strategy on inclusive finance. We have a microfinance, now inclusive finance sector, which has been built up over the last 20 years which includes all fields [ranging] from microcredits to micropayments, micro-insurance, financings to small farmers, women, etc. but also drawing on the more traditional finance to set up funds, which go into development cooperation, which are typically de-risking funds. We have set up two of those. One of them is the Build Fund, which we've done together with UNCDF [UN Capital Development Fund]. The other one is the ABC [Agri-Business Capital] Fund on farming, and these have been set up with a management company, Bamboo Capital. It's really an example of what can be done to bring in the traditional financial sector, to participate in these efforts, to lift up the least developed countries and to achieve the SDGs. The same goes for the digitisation strategy, which we are going to present, which is called digital development, where we draw on the infrastructure we are building up, but also on the skills in cybersecurity and fintech to make a difference with our partner countries and generally in the global south. So I would say it's using the strength and synergies of the private sector to make progress on development cooperation, under the leadership, of course, of the ministry in charge of structuring that. I also see this potential in space. As I told you, observation is a very powerful tool. I think it's quite a unique position to be in as a minister, because you see all these things in the economy, these innovations and what businesses are doing, and how you can use them in development cooperation work.

Delano: The grand duchy has exceeded the UNs 0.7% aid target. Other countries like the UK, however, are reducing their efforts. Is this a commitment that you see could be maintained despite the toll of the pandemic?

Franz Fayot: Absolutely. I think that's a commitment that will be maintained. It's quite clearly set in the coalition agreement, and we have also maintained it in 2021, despite, of course, a difficult financial environment. In 2020, the ODA decreased a little bit because mechanically, of [GNI] was less than foreseen, due to the crisis, so we went down a little bit in 2020. In 2021, we went up again. But the 1% of GNI is not under discussion and has never been under discussion so I think that's quite a strong commitment that Luxembourg has, and it is also one for which we are highly respected, because, as you said, you see countries like the UK or others who really use this as a kind of buffer, probably also in the aftermath of Brexit, to save money, which I think is the wrong signal. Anyway, I think we are really very strongly committed to that level of ODA.

Delano: Could you tell us what you're most looking forward to with the world expo not only in Dubai in light of your upcoming visits, but also with an eye ahead to the next world expo in Osaka, Japan, in 2025?

Franz Fayot: First, I'm looking forward to being [in Dubai] in October. It's hopefully less hot than now, or when we visited in June, which was excruciatingly hot already-mid-405... So I hope it will be a little bit cooler when we are there during the expo season. I think I will visit on three or four occasions the first time in October, that will be the very first visit of a government official for this space summit, and again there are two or three more visits scheduled. Dubai will be hopefully the first big global gathering again of the international community, of course also the business community, so it will be an opportunity to meet with people, to exchange, to find new opportunities. It's also going to be obviously a very important rendez-vous in our external trade efforts to position our companies, but also to see what new markets we can access with our companies. On my first visit, I had very good discussions with the Emirati government authorities, which are very open to collaborations with Luxembourg, in a whole range of different fields from circular economy to clean energy, to renewable energies, to space. Digitisation is, of course, also something that they are working on a lot, so that's going to be a big potential. It's something that is very well prepared by the Expo team, but also by our embassy and our LTIO on the ground... It's the fullest, I think, schedule of any expo we had so far, so there are a record number of events that are already organised and planned. Looking a bit further to Osaka, where we have declared that we would participate, this will also be a project that I'm very excited about because I really want to use this as a showcase of what we can do to make our economy more sustainable. The theme of Osaka is designing future societies and, for me, it's obvious that future societies will be decarbonised [and] more environmentally friendly, and that our economic systems must also adapt to this new reality. So, the idea in Osaka is really to build a pavilion which is self-built, on a middle-sized plot, which will be fully circular. We already have a very good collaboration with Batiments Publics [the Public Building Administration], who are going to help us in building this pavilion, to make sure that right from the start, its designed so that we know what is going to happen with it at the end of the Expo, how we can reuse it and recycle it. So, it's really going to be, I think, the very first building and Dubai also has elements of circularity where we really design it in this closed cycle of the circular economy. And I think that, in itself, it will be a very powerful statement on where Luxembourg is going with the future of its economic development.