Ladies and Gentlemen,
I would like to extend a warm welcome to all of you.
Together with my collaborators, we have about fifty minutes to convince you that Luxembourg is a safe and promising place to invest in e-business.
Every previous technological revolution has created a speculative bubble: both economic theory and history suggest that price-earnings ratios first rise and than fall. This was the case during the 19th and the 20th century with railway, electricity, telephones, radios and cars.
There are many similarities with the Internet revolution of the nineties. The ups and downs on the stock market should not frighten us.
More fundamentally the Internet economics is here to stay, simply because it crosses and supports a long-range trend which is the emerging knowledge society.
Knowledge has come to play the predominant part in the creation of wealth. It is not simply about pushing back the frontiers of knowledge; it is also about the more effective use and exploitation of all types of knowledge in all manner of economic activity.
The knowledge driven economy is a more general phenomenon, encompassing the exploitation and use of knowledge in all production and service activities, not just those, sometimes classified as high tech or knowledge intensive.
The growing importance of knowledge element of production is all around us. It is perhaps most obvious in the personal computers, mobile phones and sophisticated electronics of the information and communication industry and in other high-tech industries such as biotechnologies.
Business consultancy, financial services and other knowledge-intensive services are growing in importance too. However knowledge is also transforming other sectors, both in their processes and the nature of their final products. Branding and design accounts for an ever-higher proportion of value of the goods and services we consume. About 70 per cent of the production cost of a new car can be attributed to knowledge-based elements such as styling, design and software. A modern luxury car includes more computing power than Apollo 11.
In the Herald Tribune, Donald J. Johnston, the secretary general of OECD, invited us to see beyond the hype and reminded us of an anecdote I quote “At the Chicago World’s Fair of 1893, one wise person predicted that air travel was the way of the future – not by aircraft (yet to be invented) but by balloons tethered to cables, linking cities like an Alpine telecar. And because pneumatic tubes carried mail of the day in major cities, another prediction foresaw pneumatic tubes carrying cargo across the United States”.
It’s obviously quite difficult to foresee future applications of revolutionary technologies. It is hard to say which of the marvellous technologies and equipments, which are presented at this fair, are groundbreaking and long ranging applications in the future.
We have got here, an application of information and communication technology that is really “transformational” in many ways. Much of the increase in business productivity in recent years can be attributed to it. The question is, will new technology and ways of doing things spread through the retail and wholesale sectors and transform the way buyers and sellers behave?
I’m convinced that e-commerce, for instance, is part of a cycle in an irreversible process of doing business and work in new and different ways through the Internet
Ladies and Gentlemen,
It’s a pleasure for me to show you how the tiniest member country of the EU can make a significant contribution to the overarching goal set by Heads of State in Lisbon and reaffirmed in Stockholm this weekend: “enabling the EU to become the world’s most competitive and knowledge-based economy”.
Luxembourg has already shifted massively from a post-industrial economy to a successful service-economy. Long before the talk about the knowledge based economy become the buzzword, the “new Luxembourg economy” took off.
Growth soared to an average of 5,5% during the last fifteen years, exceeding two times the average growth rate of the European Union and surpassing even the so admired dynamism of the US growth of the last ten years.
In 1999, Luxembourg registered growth figures of 7% and last year of 8,5%.
Add to this that Luxembourg is a very open economy owing its high living standards to trade with other EU member countries. Imagine that exports of goods and services count for more than 100% of GPD.
Growth patterns can be broken down into the basic factors carrying the output: first, the increase of employment, in particular of the high quality labour force, second, the increase of the stock of capital, in particular of information and communication technology investment and, last but not least, the technological progress, through research and innovation.
For Luxembourg, employment has increased very fast during the last years, 3% on average, which is more than two times the EU average during the last fifteen years. As a consequence, unemployment rate is the lowest in the EU, around 2,8%.
But this does not tell the whole story. The latest Employment Report issued by the European Commission calculates that over the period going from 1994 to 1999, Luxembourg increased its highly-educated sector faster than any other country except perhaps Ireland. Jobs going to people with tertiary level education in sectors like R&D, education, computers, office machinery and general business services and the like, went up by 8% per year while the EU average increased by a mere 3%.
The same pattern holds for sectors like radio and television, precision instruments, transport equipment, electricity, gas and water as well as banking and insurance, which experienced a fierce increase of highly educated employees.
Turning to the increase of business investment let me hint at the high level of private investment in ICT. Here too, compared to European standards, Luxembourg has an outstanding record with spending amounting to 2,5% of GDP, according to the last figures available. Total expenditures on ICT by both companies and households is 7,6% expressed as a share of GDP – well above the EU average.
Last but not least, productivity of labour and capital has increased rapidly during the nineties. As the latest OECD report on Luxembourg’s economy shows, the progress of total factor productivity, which catches the effect of technological change and innovation, remains at a high level .
The overall picture thus far that the paradigm shift termed as “new economy” started already fifteen years ago well before the hype about the digital economy became fashionable.
Ladies and Gentlemen,
The International Monetary Fund gives an illuminating answer to the question of the fast growth in its 2000 report.
I quote: “Luxembourg’s case may reflect a host of factors, including: a skilled multilingual workforce; cooperative social partnership arrangements; and regulatory and tax advantages. But since growth took off in the early 1980’s, sound policy management and locational external economies appear to have been the main forces behind Luxembourg’s virtuous growth circle.
Policies reinforced Luxembourg’s locational advantages, particularly for financial services. At the regulatory level, the quick implementation of EU financial directives and the provision of flexible legal frameworks for specialized financial activities helped to develop market niches. At the macroeconomic level, fiscal policy steered a prudent course, despite a swelling tide of revenues, and provided financial stability, a favourable tax system, and a first rate public infrastructure.
Locational external economies generated increasing returns to spatial concentration and included knowledge spillovers between related activities, the advantages of thick labour markets in specialized skills and the backward and forward linkages among suppliers and producers that arise with large local markets”. End of quotation
This is the conclusion of a very carefully conducted scrutiny of our economy by the experts of the IMF. It suggests that the shift to the digital, knowledge driven economy started very early in the beginning of the nineties and is developing endogenously.
There is some sound evidence that e-commerce tool off in Luxembourg.
Luxembourg has the highest number of secure socket layer servers per capita in Europe. The number of secure servers per capita is an important indicator of the development of electronic commerce as they are used for encrypted credit card transactions over the Internet. The main non?retail use is for subscription access to privileged information, such as research disseminated by investment banks or on?line banking.
Ladies and Gentlemen,
The competitiveness of a country has many dimensions. It cannot be reduced only to GDP and productivity, because firms must cope with the political, cultural, and educational dimensions of countries. Therefore, it is in providing firms with an environment that has the most efficient structure, institutions and policies that nations compete with each other.
The overall competitiveness assessment by the renowned International Institute of Management Development based in Geneva puts Luxembourg among the very top countries of its scoreboard.
For the policy maker, the challenge is to create a framework which supports continued development of scientific and technological excellence, greater competition and a culture of enterprise and innovation, which ensures effective protection of the environment.
Enterprise is more likely to thrive where there is a stable financial and economic backdrop; a supportive business and social environment; good access to markets, technology and finance; and a flexible, highly educated and skilled labour force.
Ladies and Gentlemen,
Let me give you now some hints to why Luxembourg is a safe place to e-invest, to invest in Information and Communication Technology and services in view of exporting goods and services all over Europe.
First of all, Luxembourg is the first country, which has adopted a fully-fledged regulatory framework for e-commerce.
Its basic philosophy is non-bureaucratic, flexible giving businesses and consumers the legal security they require.
Luxembourg is one of the very few countries which does not levy any taxes on information society: there are no private copy levies on video tapes, DVD, hard disks, photocopiers and printers. We think that taxing the information society might hamper the diffusion of Internet.
Luxembourg completed a significant reduction of the tax burden for both households and enterprises.
This reduction is aimed at further increasing the competitive position of Luxembourg and creating new incentives for working age people to participate in the labour force and to attract skilled employees. The tax reform includes a substantial increase in the exemption threshold in personal income taxes and a general reduction in marginal tax rates by 2 percentage points.
In addition, the maximum marginal rate has been reduced from 46 per cent to 42 per cent. In 2002, as a second step, another 4 percentage points will reduce most tax rates, so that the highest marginal rate will fall to 38 per cent.
Luxembourg has the lowest VAT rates in Europe permitted in the EU.
This opens new interesting perspectives for those investing in Luxembourg.
I quote from the latest OECD report on Luxembourg :
”This makes Luxembourg a more attractive base than other EU countries for sales of goods and services via the Internet. If the draft EU directive (issued in June 2000) on the VAT treatment of e-commerce is approved, Luxembourg stands to gain sales and a substantial revenue windfall.
The directive aims to create a level playing field in e-commerce for EU and non-EU companies. Presently, companies from outside the EU selling goods and services in the EU via the Internet are not subject to VAT whereas EU-based companies are subject to VAT both on sales within and beyond the EU. The directive would require non-EU companies to register in an EU country and pay VAT there on their sales via the Internet within the EU; this would also bring the tax treatment of such sales more in line with that for sales by traditional means, which are subject to VAT.
EU companies would continue to be subject to VAT on sales within the EU but would be exempt for exports via the Internet, as they presently are for exports sold by traditional means. Many non-EU companies selling goods and services via the Internet in the EU could be expected to register in Luxembourg so as to pay the lowest permitted VAT rate”.
Ladies and Gentlemen,
All in all, Luxembourg strives to be the most competitive and dynamic knowledge-based economy in Europe.
E-commerce is part of a strategy. Luxembourg has committed itself to the development of and inclusive and competitive Information Society.
An ambitious plan , called “e-Luxembourg” has been adopted by the Government, aiming to make out of Luxembourg the most dynamic knowledge-economy in Europe.
The plan is based on four pillars: developing education and life-long learning, research and innovation, e-business and e-government.
Ladies and Gentlemen
Two introductory presentations on the legal framework for e-commerce and the development of one of the most successful Luxembourg companies – SES Société européenne des Satellites – will illustrate the potential of Luxembourg as a place to invest and develop e-business.
There are experts from various fields in the audience who stand ready to answer your questions and are to give you advice and information.