Entrepreneurial activities in Luxembourg have experienced a slowdown since 2019, both in absolute numbers and compared to other European countries. However, recent data suggests reasons for optimism as prospects for new business creation are returning to pre-pandemic levels. These are among the findings from the latest GEM Luxembourg National Report.
Over the past decade, business demography data revealed that new business creations consistently outpaced closures. Until 2020, the number of active businesses steadily rose, reaching approximately 41,000. According to GEM, from 2013 to 2022, the average percentage of individuals actively involved in creating or managing a new business was higher in Luxembourg – 8.7% – than the European average – 8.2%. (This is Total early-stage Entrepreneurial Activity, also known as the TEA rate. It is defined as the percentage of the 18-64 population who are either a nascent entrepreneur or owner-manager of a new business).
However, the last three years have been marked by various shocks, starting with the COVID-19 pandemic, escalating geopolitical tensions and deteriorating credit conditions. As a result, the percentage of entrepreneurs in the country declined from 10.2% in 2019 to 6.9% in 2022. This decline is more significant compared to the European average, which decreased from 9.4% in 2019 to 8.7% in 2022.
Characteristics of Entrepreneurs in Luxembourg
The proportion of new entrepreneurs is consistently lower among women than men (5.3% vs. 8.4% in 2022). Individuals with a high level of education and immigrants significantly contribute to entrepreneurship. In 2022, the proportion of new entrepreneurs was higher among individuals with high levels of education (10%) compared to others (4.1%). Initial-phase entrepreneurial activity among immigrants stood at 8.2%, compared to 5% among individuals born in Luxembourg.
Necessity-Driven Entrepreneurship on the Rise
In most European countries, comparing 2022 to 2019 reveals an increase in entrepreneurship out of necessity (individuals forced to start a business due to lack of employment). Opportunity-driven entrepreneurship, people creating a business to seize an opportunity, declined. Luxembourg continues to exhibit a remarkably high percentage of opportunity-driven entrepreneurship (56%, compared to a European average of 43%), and one of the lowest percentages of necessity-driven entrepreneurship (46%, compared to 56% for the rest of Europe).
Signs of Recovery
The proportion of individuals surveyed who plan to start a business in the next three years rebounded to 19.1% in 2022. This figure is higher than the historical average for Luxembourg (18%) and significantly above the European average for 2022 (14.5%).
Reduced Barriers to Entrepreneurship
Since 2016, GEM Luxembourg has been asking respondents to assess the strengths and weaknesses in the Luxembourg entrepreneurial ecosystem. Perceived barriers to entrepreneurship have shown a downward trend, indicating that over time, these factors have become less hindering for entrepreneurs. The availability of training programs and access to information are increasingly viewed as less of an obstacle to entrepreneurship.
Business Creation is Stronger in High-Value Added Sectors
Nearly 50% of the 27,400 businesses created in Luxembourg between 2013 and 2020 operate in knowledge-based services. Around 6,000 businesses were established in specialized, scientific and technical activities, about 5,000 in trade, and approximately 3,200 in education, health, and other service activities. These sectors are characterized as both high business creation and high added value.
Government Assistance Highly Appreciated
In Luxembourg, about 65% of entrepreneurs believe that the government's response to the COVID-19 crisis has been satisfactory. In contrast, the European average is only 37%.
This year marks the 10th anniversary of GEM Luxembourg. Since 2013, STATEC, in collaboration with the General Directorate for Small and Medium-Sized Enterprises and the Chamber of Commerce, has taken part in GEM research. Over the past decade, GEM Luxembourg has provided valuable insights into the intensity and evolution of entrepreneurial activities, profiles of entrepreneurs, and the challenges they face.
This article was initially published in French by STATEC. You can access the French version at the following link. You can also access this infographic which summarizes the key findings of the report.