Thank you for joining us this morning.
I will be brief in my introduction since I know that the language of business is not one of hyperbole. You are representing Hong Kong's most successful players in finance and I am glad that you answered our call to assist at a presentation about Luxembourg as THE gateway to Euroland.
I will not go into the details of the reasons why Luxembourg should be your key partner in Europe for banking and investment. Mr. Yves Mersch, President of the Luxembourg Central Bank and Mr Lucien Thiel, Member of Parliament and Vice-President of the Financial Sector Professional's Association are much better placed than me to tell you about the current situation in Europe and more specifically about Luxembourg in regard of the financial sector.
You may now ask yourself: What added value is the Grand-Duchy providing to a Hong Kong company? Or, why should a tiny, land-locked state become your gateway to Europe?
Let me tell you about my country: Luxembourg is located in the very heart of Europe, sharing borders with France, Belgium and Germany. It is actually situated right in the middle of the banana belt which stretches from London to Milan and encompasses a market of some 150 million people enjoying the highest average per capita income in the EU.
Indeed, most European capitals and business centers can be reached in less than one and a half hour by plane, using Luxair, our national flag carrier.
The EU is the world's largest single market, counting today some 450 million consumers. In other words, you can reach about a tenth of the world population with a high purchasing power and belonging to a single market. Even more interestingly, Luxembourg is the center of the so-called Saar-Lor-Lux Region which combines the very deeply integrated economies of Luxembourg, the French Lorraine region, the German Rhineland-Palatinate and Saar as well as the French-speaking provinces of Belgium, which gather all together more than 11 million consumers. Luxembourg has been, is and will be a crucial hub and a dynamic force in and for a larger region of which it is the center.
In this regards, Luxembourg is very similar to Hong Kong by its role as a port of entry to a much larger region. You among all people do certainly understand the role of being a commercial hub.
But there is more than just our ideal central geographic situation with direct access to the EU single market. One of our outstanding features is doubtlessly the multilingual tradition of our population which of course is of tremendous value if you are active in international trade. Language skills remain among the top assets required to compete successfully in European markets.
Whereas half of the Europeans do not speak any foreign language at all, almost all Luxembourg citizens are fluent in French, German and English, besides their mother tongue Luxembourgish. Spanish, Portuguese and Italian are also largely spoken thanks to the important influx of immigrants from these countries in recent decades and they are taught in schools as well. In fact, 72% of students in secondary education study and are fluent in at least 3 languages.
I like to say that in Luxembourg we speak the language of our customers, which is a must in today's globalized world.
The openness of our society can be best illustrated by the fact that more than 35% of our resident population and over 50% of the workforce are foreigners, coming in their majority from EU countries. Thus, Luxembourg companies have at their disposal a highly qualified, multilingual workforce with an outstanding level of productivity.
The government's efforts to provide the best possible conditions for businesses to prosper have recently been recognized by a first place in the World Market Research Centre's study on the "Most stable business environments".
To be a gateway, it is obvious that one needs a port of entry. Being a landlocked country, we have shunned no effort to develop Luxembourg into a major hub for air freight. Luxembourg's airport boasts one of the most modern cargo handling facilities in the world, with an annual turnover of some 700.000 tons per year. The other airline apart from Luxair which operates from Luxembourg airport, Cargolux, owns a fleet of thirteen 747 aircraft, which make it the largest all cargo-airline in Europe and the 10th in the world. Cargolux, whose Chairman, Mr. Pierre Gramegna and CEO, Mr. Ulrich Ogiermann joined us for this mission operates regular flights to Hong Kong and is eager to extend its business in this region and to become a pillar of trade between Europe
and Asia.
Besides these specific assets – location, communication and access – let me make some remarks about Luxembourg's macroeconomic performance and its economic structure. Our rate of GDP growth has by far outperformed the average EU growth rate for more than a decade. After a splendid performance of some 9% in the year 2000, Luxembourg's economy still managed to grow at a pace of 1,3% in the difficult year 2001, thus staying ahead of its neighboring countries. In 2002 and 2003 the slump in world markets has nevertheless also hit our very open, and thus dependent, economy. Yet growth rates have remained clearly positive and the outlook for 2004 is brighter again with a projected GDP growth rate of 4%.
The situation of our public finances remains very solid. Sustained budget surpluses coupled with a very low level of public debt made Luxembourg the first EU country to fulfill the now famous Maastricht criteria necessary to qualify for the "Euro".
The single European currency opens a whole array of new perspectives for businesses. A sound public spending policy have spared Luxembourg the budgetary troubles that our neighbors are facing (now that their economies live a more troubled time). A tax reform, which came into force in January 2002, did further boost the competitiveness of the Luxembourg economy. The comprehensive tax burden on companies of 30% is one of the lowest in Europe and has led to substantial tax savings for companies established in Luxembourg. The present government pledges to further reduce this tax rate with a specific emphasis on small and medium sized companies.
As for private persons, the overall tax burden on income has been regularly reduced throughout the last years. We have also decided to abolish the existing "net worth tax" and replace it by a capital gains tax at a flat and final rate of 10%, which, I believe, will be the most competitive rate in Europe.
Low taxes, coupled with low social security contributions, mean that the wage cost in Luxembourg is among the lowest of Western Europe. Although we are reputed to be a high wage country, this does in our case not mean that the final cost to the employer will be higher than elsewhere. Fact is that in Luxembourg, you can pay your employee more and still save money!
But it is not only in the field of direct taxation that Luxembourg strives to maintain its attractiveness: currently at 15%, our VAT rate is the lowest within the European Union, including the new member states. The same applies to duties levied on alcohol and petrol products.
Speaking of finance and taxation, let me tell you about the meeting I had yesterday with Financial Secretary Henry Tang.
Now back to Luxembourg: the healthy economic situation in Luxembourg owes much to the Government's efforts to offer a business friendly environment for local companies and foreign investors. As a result, the unemployment rate of 4% is one of the lowest in the EU and the vitality of our labor market is demonstrated by yearly job creation rates exceeding 2%. Inflation remains under control at about 2%. The current account balance, which has shown a surplus of 4% of GDP last year, reflects best the transformation of my country from an industrial to a service economy.
A structurally negative trade balance, due in part to the purchase of expensive hardware like airplanes, satellites and computer equipment, is more than offset by the growing surplus in the services sector, which uses these equipments to generate revenue.
Despite the overwhelming importance of services, we maintain a strong and very competitive industrial base mainly geared towards the production of semifinished goods. But as in all advanced economies, the services provide the lion's share of our past and future growth.
The financial sector is doubtlessly one of the crown jewels of the services sector, though by no means the only one. Some 167 international banking institutions, Europe's largest investment fund industry and a thriving Stock Exchange add up to the 7th largest financial center in the world. Rest assured, I will keep my promise and let others go into the details.
Let me just say that our financial sector's outstanding performance stems from the professional skills of around 27.000 people working in the sector, notably in our investment fund industry where we are second in size only to the United States. The life blood of today's service based economies is the know-how of the people. Education reverts consequently a role of prime importance. The Luxembourg School of Finance has been created in close association with the local financial community in order to build on the competence that Luxembourg developed over the years and to invest in the future through research and development of new products.
Luxembourg is not an island. The receding growth rates in the past two years have nevertheless confirmed what we already knew for a fact: Luxembourg's dependence from its EU trade partners and its vulnerability to external shocks. The solid but dynamic economic policy of the Luxembourg government aims at developing new business opportunities for Luxembourg. Part of our policy is to diversify the structure of our foreign trade by putting a particular emphasis on countries outside of the European Union.
Putting Luxembourg on the map internationally is my job and helping our companies prosper both at home and abroad my mission. If you have any questions where you think that I might be of help, do not hesitate to ask after the presentations.
Ladies and gentlemen,
let me now finish my speech by thanking our host, the Belgium-Luxembourg Chamber of Commerce – whose Vice-President, Dr. James Kung is also Honorary Consul of Luxembourg – for their efforts in organizing this event.
I am sure that the whole Luxembourg delegation will leave this great city, the Fragrant Port, with fond memories. Our stay is too short to take in all the sights that Hong Kong has to offer but I personally, as an avid sailor, enjoy coming to a city with such a prominent maritime history. I hope to see at least some of you one day in Luxembourg so that my people can show you that, like Hong Kong, we are small in size, but by no means small in culture. Visit my country and you will find out by yourself that the old saying "small is beautiful" is truer than ever.
Thank you.