2021 Entrepreneurial Activity Review

In 2021, Luxembourg was one of only two GEM economies (alongside Switzerland) to have a higher rate of early-stage entrepreneurial activity in the business services sector than the consumer services sector. This is representative of the country’s robust financial and professional services sector, which attracts entrepreneurs, compared to most other economies where entrepreneurs tend to gravitate towards consumer services. It also signals an economically healthy entrepreneurial sector, as business services tend to generate more income and require less in-person activity than other industries; a big advantage to those firms during the COVID-19 era. 

Yet there are also potential downsides to such a financialized entrepreneurial sector, which can dampen other forms of entrepreneurship. Luxembourg, being one of the highest-income economies in the world, means entrepreneurs face high barriers to starting a new business because of how much income they must generate to make it worthwhile leaving their job, as well as to fund their new business’s operations. As a result, Luxembourg’s TEA rate, which measures entrepreneurship across all sectors, has gradually declined over the last few years, even as the rate of business services has increased. In 2021, Luxembourg’s TEA rate was 7.3%, the lowest rate since 2014, while the share of entrepreneurs involved in business services reached 44%, its highest since Luxembourg began participating in GEM in 2013.

In addition to the industry bias generated by this trend, there are also demographic imbalances. Among GEM Level A economies, Luxembourg had one of the lowest rates of female participation in early-stage entrepreneurial activity, as well as one of the highest ratios of college graduates vs. non-graduates. Luxembourg’s early-stage entrepreneurs also have higher under-35 age participation rates than other GEM economies. Taken together, these mean that Luxembourg’s entrepreneurial sector is predominantly young, male and highly educated. This may be seen as a natural result of the economic realities of Luxembourg; however, addressing this imbalance will be necessary to enable the economic opportunities of other groups and other sectors. Policymakers looking to make changes in this area will need to look holistically at educational opportunities as well as role models and network factors shaping the current situation.

2021 Framework Conditions Review

In 2021, experts gave Luxembourg generally low scores compared to its Level A peer economies, with the exception of governance-related conditions. On both financial conditions, Luxembourg received the lowest scores among GEM Level A economies, with Entrepreneurial Finance scored at 4.4 and Ease of Access to Entrepreneurial Finance 4.2. This is a bit surprising given the strength of Luxembourg’s financial sector, but may reflect the high cost of starting a business, which makes funding hard to obtain for entrepreneurs. Addressing this deficiency will be difficult, as it will take substantial capital to meet the demands of new businesses. Looking for alternative funding sources may be necessary for Luxembourgian entrepreneurs.

However, Luxembourg fared a bit better on its governance-related conditions. For example, on the condition Government Policy: Support and Relevance, experts gave a 5.4 score, up from 4.9 in 2020, and seventh among GEM Level A economies. This improved government prioritization will hopefully continue as the economy recovers from COVID-19, since entrepreneurs will provide the new products and services that spur growth after the economy stabilizes. The government should also look for ways that entrepreneurs can more easily access new consumer markets. On the two conditions related to market entry, Luxembourg received low scores, reflecting limited domestic markets for entrepreneurs to access.