Austria has a well-developed market economy that welcomes foreign direct investment, particularly in technology and R&D. The country benefits from a skilled labor force, and a high standard of living, with its capital, Vienna, consistently placing at the top of global quality-of-life rankings.
With more than 50 percent of its GDP derived from exports, Austria’s economy is closely tied to other EU economies, especially that of Germany, its largest trading partner. The United States is one of Austria’s top two-way trading partners, ranking fifth in overall trade according to provisional data from 2021. The economy features a large service sector and an advanced industrial sector specialized in high-quality component parts, especially for vehicles. The agricultural sector is small but highly developed.
The COVID-19 crisis deeply affected Austria’s economy, contributing to a GDP decrease of 6.7% in 2020 with the unemployment rate increasing to a peak of 5.4% at the end of 2020. Austria’s economy rebounded with 4.5% GDP growth in 2021 and unemployment lower than before the onset of the pandemic, but forecasters recently lowered expectations to 3.8% growth for 2022 due to instability stemming from Russia’s invasion of Ukraine. At the same time, Austria is experiencing a record number of vacancies, largely stemming from a shortage of skilled labor.
The country’s location between Western European industrialized nations and growth markets in Central, Eastern, and Southeastern Europe (CESEE) has led to a high degree of economic, social, and political integration with fellow European Union (EU) member states and the CESEE.
Some 220 U.S. companies have investments in Austria, represented by around 300 subsidiaries, and many have expanded their original investment over time. U.S. Foreign Direct Investment into Austria totaled approximately EUR 11.6 billion (USD 13.7 billion) in 2020, according to the Austrian National Bank, and U.S. companies support over 16,500 jobs in Austria. Austria offers a stable and attractive climate for foreign investors.
The most positive aspects of Austria’s investment climate include:
Relatively high political stability;
Harmonious labor-management relations and low incidence of labor unrest;
Highly skilled workforce;
High levels of productivity and international competitiveness;
Excellent quality of life for employees and high-quality health, telecommunications, and energy infrastructure.
Negative aspects of Austria’s investment climate include:
A high overall tax burden;
A large public sector and a complex regulatory system with extensive bureaucracy;
Low-to-moderate innovation dynamics;
Low levels of digitalization;
Low levels of private venture capital.
Key sectors that have historically attracted significant investment in Austria:
ICT and Electronics;
Key issues to watch:
Due to a strong reliance on Russian natural gas and the third-highest banking exposure to Russia among EU Member States, Austria could be one of the hardest countries hit by sanctions against Russia. Russia’s invasion of Ukraine and sanctions are expected to cause a 0.4-0.5% decrease in Austria’s GDP. However, the impact is likely to be greater if natural gas supplies are disrupted. Austria relies on Russian imports for approximately 80% of its natural gas demand.
At the same time, Austria’s export-oriented economy makes it particularly sensitive to events affecting trade, which could include potential setbacks in the pandemic, particularly during the winter months. The tourism sector, which, together with hotels and restaurants, accounts for 15 percent of the country’s GDP is still struggling, currently operating at two-thirds of its pre-crisis output levels. Many companies are also struggling to find skilled labor, which is hindering the economy from reaching its full output potential.
1. Openness To, and Restrictions Upon, Foreign Investment
According to its most recent report, the Belgian central bank expects gross domestic product (GDP) to grow 2.6% in 2022 despite economic headwinds linked to global supply chain bottlenecks, spiking energy costs, and uncertainty related to COVID-19 and the Russian invasion of Ukraine. Experts project that Belgium’s growth rate will slow but remain above potential, dipping slightly to 2.4% in 2023 and further to 1.6% in 2024. The labor market remains strong as overall job numbers continue to increase, and analysts anticipate that the unemployment rate will decline steadily to 5.7% by 2024. The inflation rate will likely continue to increase, largely driven by rising energy prices. The Belgian central bank expects the rate to peak in 2022 at 4.9% and then decline as energy markets stabilize. Belgium’s budget deficit is projected to reach 6.3% of GDP for 2021 – down from a high of 9.1% in 2020 – and will likely remain above 4% of GDP through 2024. The level of government debt will hold steady, with most experts projecting 108.9% of GDP in 2021, 106.3% in 2022 and 107.5% in 2023.
Belgium is a major logistical hub and gateway to Europe, a position that helps drives its economic growth. Since June 2015, the Belgian government has undertaken a series of measures to reduce the tax burden on labor and to increase Belgium’s economic competitiveness and attractiveness to foreign investment. A July 2017 decision to lower the corporate tax rate from 35% to 25% further improved the investment climate. The current coalition government has not signaled any intention to revise this tax rate.
Belgium boasts an open market well connected to the major economies of the world. As a logistical gateway to Europe, host to major EU institutions, and a central location closely tied to the major European economies, Belgium is an attractive market and location for U.S. investors. Belgium is a highly developed, long-time economic partner of the United States that benefits from an extremely well-educated workforce, world-renowned research centers, and the infrastructure to support a broad range of economic activities
Belgium has a dynamic economy and attracts significant levels of investment in chemicals, petrochemicals, plastics and composites; environmental technologies; food processing and packaging; health technologies; information and communication; and textiles, apparel and sporting goods, among other sectors. In 2021, Belgian exports to the U.S. market totaled $27.7 billion, registering the United States as Belgium’s fourth largest export destination. Key exports included chemicals (37.6%), machinery and equipment (10.9%), and precious metals and stones (5.9%). In terms of imports, the United States ranked as Belgium’s fourth largest supplier of imports, with the value of imported goods totaling $27.6 billion in 2021. Key imports from the United States included chemicals (38.8%), machinery and equipment (11%), and plastics (10.7%).
1. Openness To, and Restrictions Upon, Foreign Investment
France and Monaco
France welcomes foreign investment and has a stable business climate that attracts investors from around the world. The French government devotes significant resources to attracting foreign investment through policy incentives, marketing, overseas trade promotion offices, and investor support mechanisms. France has an educated population, first-rate universities, and a talented workforce. It has a modern business culture, sophisticated financial markets, a strong intellectual property rights regime, and innovative business leaders. The country is known for its world-class infrastructure, including high-speed passenger rail, maritime ports, extensive roadway networks, a dense network of public transportation, and efficient intermodal connections. High-speed (3G/4G) telephony is nearly ubiquitous, and France has begun its 5G roll-out in key metropolitan cities.
In 2021, the United States was the leading foreign investor in France in terms of new jobs created (10,118) and second in terms of new projects invested (247). The total stock of U.S. foreign direct investment in France reached $91 billion. More than 4,500 U.S. firms operate in France, supporting over 500,000 jobs, making the United States the top foreign investor overall in terms of job creation.
Following the election of French President Emmanuel Macron in May 2017, the French government implemented significant labor market and tax reforms. By relaxing the rules on companies to hire and fire employees, the government cut production taxes by 15 percent in 2021, and corporate tax will fall to 25 percent in 2022. Surveys of U.S. investors in 2021 showed the greatest optimism about the business operating environment in France since 2008. Macron’s reform agenda for pensions was derailed in 2018, however, when France’s Yellow Vest protests—a populist, grassroots movement for economic justice—rekindled class warfare and highlighted wealth and, to a lesser extent, income inequality.
The onset of the pandemic in 2020 shifted Macron’s focus to mitigating France’s most severe economic crisis in the post-war era. The economy shrank 8.3 percent in 2020 compared to the year prior, but with the help of unprecedented government support for businesses and households, economic growth reached seven percent in 2021. The government’s centerpiece fiscal package was the €100 billion ($110 billion) France Relance plan, of which over half was dedicated to supporting businesses. Most of the support was accessible to U.S. firms operating in France as well. The government launched a follow-on investment package in late 2021 called “France 2030” to bolster competitiveness, increase productivity, and accelerate the ecological transition.
Also in 2020, France increased its protection against foreign direct investment that poses a threat to national security. In the wake of the health crisis, France’s investment screening body expanded the scope of sensitive sectors to include biotechnology companies and lowered the threshold to review an acquisition from a 25 percent ownership stake by the acquiring firm to 10 percent, a temporary provision set to expire at the end of 2022. In 2020, the government blocked at least one transaction, which included the attempted acquisition of a French firm by a U.S. company in the defense sector. In early 2021, the French government threated to block the acquisition of French supermarket chain Carrefour by Canada’s Alimentation Couche-Tard, which eventually scuttled the deal.
Key issues to watch in 2022 are: 1) the impact of the war in Ukraine and measures by the EU and French government to mitigate the fallout; 2) the degree to which COVID-19 and resulting supply chain disruptions continue to agitate the macroeconomic environment in France and across Europe, and the extent of the government’s continued support for the economic recovery; and 3) the creation of winners and losers resulting from the green transition, the degree to which will be largely determined by firms’ operating models and exposure to fossil fuels.
1. Openness To, and Restrictions Upon, Foreign Investment
As Europe’s largest economy, Germany is a major destination for foreign direct investment (FDI) and has accumulated a vast stock of FDI over time. Germany is consistently ranked as one of the most attractive investment destinations based on its stable legal environment, reliable infrastructure, highly skilled workforce, and world-class research and development.
An EU member state with a well-developed financial sector, Germany welcomes foreign portfolio investment and has an effective regulatory system. Capital markets and portfolio investments operate freely with no discrimination between German and foreign firms. Germany has a very open economy, routinely ranking among the top countries in the world for exports and inward and outward foreign direct investment.
Foreign investment in Germany mainly originates from other European countries, the United States, and Japan, although FDI from emerging economies (and China) has grown in recent years. The United States is the leading source of non-European FDI in Germany. In 2020, total U.S. FDI in Germany was $162 billion. The key U.S. FDI sectors include chemicals ($8.7 billion), machinery ($6.5 billion), finance ($13.2 billion), and professional, scientific, and technical services ($10.1 billion). From 2019 to 2020, the industry sector “chemicals” grew significantly from $4.8 billion to $8.7 billion. Historically, machinery, information technology, finance, holding companies (nonbank), and professional, scientific, and technical services have dominated U.S. FDI in Germany.
German legal, regulatory, and accounting systems can be complex but are generally transparent and consistent with developed-market norms. Businesses operate within a well-regulated, albeit relatively high-cost, environment. Foreign and domestic investors are treated equally when it comes to investment incentives or the establishment and protection of real and intellectual property. Germany’s well-established enforcement laws and official enforcement services ensure investors can assert their rights. German courts are fully available to foreign investors in an investment dispute. New investors should ensure they have the necessary legal expertise, either in-house or outside counsel, to meet all national and EU regulations.
The German government continues to strengthen provisions for national security screening of inward investment in reaction to an increasing number of high-risk acquisitions of German companies by foreign investors, particularly from China, in recent years. German authorities screen acquisitions by foreign entities acquiring more than 10 percent of voting rights of German companies in critical sectors, including health care, artificial intelligence, autonomous vehicles, specialized robots, semiconductors, additive manufacturing, and quantum technology, among others. Foreign investors who seek to acquire at least 10 percent of voting rights of a German company in one of those fields are required to notify the government and potentially become subject to an investment review. Furthermore, acquisitions by foreign government-owned or -funded entities will now trigger a review.
German authorities are committed to fighting money laundering and corruption. The government promotes responsible business conduct and German SMEs are aware of the need for due diligence.
1. Openness To, and Restrictions Upon, Foreign Investment
The Greek economy has proven resilient in recent years as it continues to rebound from the 2007 economic crisis – including the rigid fiscal constraints demanded by creditors — and the global COVID-19 pandemic. In early 2020, COVID-19 held the potential to permanently scar an economy that still suffered from legacy issues, including high debt and non-performing loans, limited credit growth, near zero capacity for fiscal expansion, and a hollowed-out healthcare system. While continuing its aggressive reform agenda, the Mitsotakis government rose to meet the pandemic challenge, as European institutions effectively welcomed Greek debt back into the eurosystem, the IMF and EU evaluated the country’s public debt as sustainable, Moody’s upgraded Greek sovereign debt, the country began borrowing at historically low cost, and strategic investors returned, favorably considering Greece’s current and long-term value proposition. Meanwhile, over the past several years, our bilateral relationship has deepened significantly via our defense and strategic partnerships, and Greece ambitiously seeks now to bring our economic ties to similar, historic heights. Far from being the problem child of Europe or the international financial system, Greece is increasingly a source of solutions – not just in the fields of energy diplomacy and defense, but in high-tech innovation, healthcare, and green energy, improving prospects for solid economic growth and stability here and in the wider region.
The Mitsotakis government was elected in July 2019 on an aggressive investment and economic reform agenda which has plowed forward despite the pandemic. During its first nine months in power, Mitostakis’s team pushed market-friendly reforms and Parliament voted through dozens of economic-related bills, including a key investment law in October 2019, designed to cut red tape, help achieve full employment, and adopt best international practices – including by digitizing government services. GDP growth reached 8.3 percent in 2021, a major leap forward following the detrimental effects of the COVID-19 pandemic.
Greece maintains a liquidity buffer, estimated at €30 billion, but is intent on boosting its coffers as the economic fallout from the COVID-19 pandemic is larger than expected. So far untouched, the buffer should be sufficient to cover the country’s financing needs until at least the end of 2022, and the country’s leadership maintains its intention to reserve the European Stability Mechanism (ESM) tranche solely for sovereign debt interest payments. While capital controls were completely lifted in September 2019, Greece remains subject to enhanced supervision by Eurozone creditors. However, the European Commission’s (EC) latest positive assessment on the Greek economy, will – most likely – pave the way for the end of the country’s enhanced surveillance status in Q3 2022.
Greece’s banking system, despite three recapitalizations as part of the August 2015 European Stability Mechanism (ESM) agreement, remains saddled with the largest ratio of non-performing loans in the EU, which constrains the domestic financial sector’s ability to finance the national economy. As a result, businesses, particularly small and medium enterprises, still struggle to obtain domestic financing to support operations due to inflated risk premiums in the sector. To tackle the issue, and as a requirement of the agreement with the ESM, Greece has established a secondary market for its non-performing loans (NPLs). According to the Bank of Greece, non-performing loans (NPLs) came, on a solo basis, to €58.7 billion at end-September 2020, down by €9.8 billion from December 2019 and by €48.5 billion from their March 2016 peak. The NPL-to-total loan ratio remained high in September 2020 at 35.8 percent. The high percentage of performing loans benefited from moratoria until December 31, 2020, and contained the inflow of new NPLs. Non-performing private debt remains high, irrespective of the reduction in NPLs on bank balance sheets via transfer to non-bank entities. 2020 saw substantial reforms aimed at resolving the issue of NPLs. These involved the securitization of NPLs through the activation of the “Hercules” scheme and the enactment of Law No. 4738/2020 which improves several aspects of insolvency law. Nevertheless, NPLs will remain high, and considering that there will be a new inflow of NPLs due to the pandemic, other solutions complementary to the “Hercules” scheme should be implemented. In addition to sales of securitized loan packages, banks have exploited other ways to manage bad loans. For example, nearly all of Greece’s systemic banks employ loan servicing firms to manage non-performing exposure. Greece’s secondary market for NPL servicers now includes 24 companies including: Sepal (an Alpha Bank-Aktua joint venture), FPS (a Eurobank subsidiary), Pillarstone, Independent Portfolio Management, B2Kapital, UCI Hellas, Resolute Asset Management, Thea Artemis, PQH, Qquant Master Servicer, and DV01 Asset Management.
Greece’s return to economic growth has generated new investor interest in the country. Pfizer, Cisco, Deloitte, and Microsoft, to name a few, have all announced major investments in the past few years, due in part to improved protection of intellectual property rights and Greece’s delisting from the U.S. Trade Representatives Special 301 Watch List in 2020. In March 2021, Greece successfully raised €2.5 billion from its first 30-year bond sale in more than a decade, with the issue more than 10 times oversubscribed. The bond, which has so far received investor demand of more than €26.1 billion, will price at 150 basis points over the mid-swap level, resulting in a yield of 1.93 percent.
In January 2022, Fitch Ratings Agency maintained Greece’s credit rating at BB and noted the country’s outlook as ‘stable’ due to the financial impact of COVID-19. On April 1, 2021, Moody’s improved its outlook of the Greek banking system from “stable” to “positive.”Standard & Poor’s affirmed its credit rating for Greece at BB-in October 2020 and also kept its outlook to “stable.” The European Central Bank (ECB) included Greek government bonds in its quantitative easing program, with €12 billion worth of Greek government debt earmarked for purchase under the ECB’s €750 billion Pandemic Emergency Purchase Program in 2020. In February 2022, Greece has received the Eurogroup’s approval to repay the final tranches of bailout loans from the International Monetary Fund (IMF) early, along with a small part of bilateral loans from its eurozone partners. Greece plans to repay loans worth €1.9 billion to the IMF by March, two years ahead of schedule.
The Greek government was given strong marks for its initial response in limiting the spread of the pandemic and has implemented several innovative digital reforms to its economy during COVID-19. The Greek economy contracted by 10 percent in 2020 with a gross domestic product (GDP) of €189 billion but its GDP rose to €211 billion in 2021. This was largely attributed to the successful 2021tourism season, which brought in €10 billion to the Greek economy. The unemployment rate was 15.8 percent in 2021, a slight increase from 15.5 percent in 2020.
In response to the pandemic, Greece’s recovery and resilience plan was among the first plans that were formally approved by the European Council, in July 2021. Greece received €4 billion of the disbursement in August. The plan will disburse €17.8 billion in grants and €12.7 billion in loans over the course of five years. Greece has earmarked funding for many climate-relevant investments and digitalization efforts. Greece was also the first Member State to finalize its Partnership Agreement for the 2021-2027 programming period. The Partnership Agreement outlines the plan for deploying of more than €21 billion worth of investments to support Greece’s economic, social and territorial cohesion.
The Greek government also took measures to support businesses throughout the pandemic in 2021. In February 2021, the government approved a €500 million scheme to support small and medium-sized businesses affected by the pandemic. The state aid Temporary Framework was open to small and medium-sized enterprises active in all sectors except financial, primary agriculture, tobacco, and fisheries sectors. This public support, in the form of direct grants, sought to provide sufficient working capital for businesses affected by the pandemic. In May 2021, the European Commission approved a €793 million support measure for micro, small and medium-sized enterprises affected by the coronavirus outbreak in the form of direct grants, which is open to companies active in all sectors except the financial one. The aid aims to provide liquidity support to qualifying beneficiaries, to safeguard businesses against the risk of default, allowing them to preserve their economic activity and helping them recover after the pandemic.
Rounding out 2021, the Greek government enacted a €665 million scheme in November 2021 to support households affected by the pandemic. The scheme was adopted to assist households at risk of losing their primary residence by defaulting on their mortgage loans. On 3 November 2021, the European Commission approved modifications to ensure the extension of the loan period and a reduction of the maximum aid amount per beneficiary.
1. Openness To, and Restrictions Upon, Foreign Investment
Italy’s successful vaccination campaign, an ambitious reform and investment plan funded and approved by the European Union, and Prime Minister Mario Draghi’s leadership which has boosted Italy’s role on the international stage, helped the Italian economy to grow a healthy 6.6 percent in 2021 – one of the fastest rates in Europe. Growth was underpinned by a robust 17 percent increase in investment. However, energy price spikes, supply chain disruptions, and Russia’s full-scale invasion of Ukraine create uncertainty affecting consumer and business confidence. Italy now forecasts its economy, the euro area’s third largest, will grow by 3.1 percent (down from a 4.7 percent projected in September 2021). For 2023, the government projects GDP will grow 2.4 percent (down from the previous target of 2.8 percent). The public debt, proportionally the highest in the eurozone after Greece’s, is targeted at 147 percent of GDP in 2022, down from 2020’s 156 percent, and projected to decline to 145 percent in 2023.
Italy’s National Resilience and Recovery Plan (NRRP) combines over €200 billion in investment to accelerate the digital and green transition coupled with wide-ranging reforms addressing the Italian economy’s longstanding drags on growth — namely its slow legal system, tax administration and bloated bureaucracy — while rebalancing policies to address gender, youth, and regional disparities. This combination of investment and reform, with some easing of fiscal constraints from Brussels, may reposition Italy, the eurozone’s second largest industrial base, as an engine for growth. In April 2022, the European Commission disbursed €21 billion in the first tranche of Next Generation EU funds pandemic aid to Italy after determining the Italian government successfully met the 51 objectives of its NRRP set out for 2021. Italy will have to achieve a further 45 milestones and targets by June 30, 2022, to receive the second tranche of funds worth €24.1 billion. Crucial for improving Italy’s investment climate and spurring growth is reform of Italy’s justice system, one of the slowest in Europe. According to the European Commission, the average Italian civil law case takes more than 500 days to resolve, versus an average of about 200 days in Germany, 300 in Spain and 450 in Greece. For U.S. investors, judicial reform and bureaucratic streamlining would minimize uncertainty and create a more favorable investment climate.
Italy is and will remain an attractive destination for foreign investment, with one of the largest markets in the EU, a diversified economy, and a skilled workforce. Italy’s economy, the eighth largest in the world, is dominated by small and medium-sized firms (SMEs), which comprise 99.9 percent of Italian businesses. Italy’s relatively affluent domestic market, access to the European Common Market, proximity to emerging economies in North Africa and the Middle East, and assorted centers of excellence in scientific and information technology research, remain attractive to many investors. Italy is the eighth largest consumer market in the world, the seventh largest manufacturing producer, and boasts a diversified economy and skilled workforce. The clustering of industry, the infrastructure, and the quality of life are also among the top reasons international investors decide to start or expand a business in Italy. According to Italy’s Institute of Statistics, over 15,000 foreign multinationals employ one out of seven Italian residents. Foreign companies account for 18 percent of Italian GDP and 14 percent of investments. Exports of pharmaceutical products, furniture, industrial machinery and machine tools, electrical appliances, automobiles and auto parts, food and wine, as well as textiles/fashion are an important source of external revenue. The sectors that have attracted significant foreign investment include telecommunications, transportation, energy, and pharmaceuticals. The government remains open to foreign investment in shares of Italian companies and continues to make information available online to prospective investors.
1. Openness To, and Restrictions Upon, Foreign Investment
Luxembourg, the only Grand Duchy in the world, is a landlocked country in northwestern Europe surrounded by Belgium, France, and Germany. Despite its small landmass and small population (634,700), Luxembourg is the second-wealthiest country in the world when measured on a Gross Domestic Product (GDP) per capita basis.
Since 2002, the Luxembourg Government has proactively implemented policies and programs to support economic diversification and to attract foreign direct investment. The Government focused on key innovative industries that showed promise for supporting economic growth: logistics, information, and communications technology (ICT), health technologies including biotechnology and biomedical research; clean energy technologies, and most recently, space technology and financial services technologies. With the COVID-19 pandemic, the health-tech sector has become a priority sector to attract to Luxembourg.
Luxembourg’s economy proved resilient during the COVID-19 pandemic, as 2020 GDP only contracted by 1.3 percent. Luxembourg’s economy rebounded strongly in 2021 with a growth rate of 6.9 percent. Luxembourg fared better than the EU growth rate of 5 percent. This rebound is due to a well-performing financial sector which managed to quickly revert to telework and only suffered limited effects of the pandemic. The Government of Luxembourg also provided a major economic stimulus package of 11 billion euros ($13 billion), equivalent to 18.5 percent of Luxembourg GDP, which helped stabilize the economy. This package includes direct subsidies and compensatory payments to companies, state-guaranteed loans, deferral of taxes, and social security contributions. The Government of Luxembourg borrowed a total of 5 billion euros ($6 billion) at negative interest rates due to the Grand Duchy’s Triple A credit rating.
Unemployment decreased 6.3 to 5.2 percent in 2021 and went back to pre-pandemic levels. This rapid job market recovery was supported by the government’s part-time employment reimbursement scheme, which allows workers to go on extended leave while receiving 80 percent of their salary and keeping their job. This measure cost the State of Luxembourg 1.3 billion euros in 2020 and 216 million euros in 2021.
The Russian invasion of Ukraine represents a major downside risk for the Luxembourg economy, with rising energy prices and a general spike in inflation stifling growth in 2022. The forecast 3.5 percent growth rate for 2022 might be out of reach.
Luxembourg remains a financial powerhouse thanks to the exponential growth of the investment fund sector through the launch and development of cross-border funds (UCITS) in the 1990s. Luxembourg is the world’s second largest investment fund asset domicile, after only the United States, with over $6 trillion of assets in custody in financial institutions.
Luxembourg has committed to the EU target of 55 percent Greenhouse Gas (GHG) Emissions reductions by 2030 and net-zero emission by 2050, and has also set itself a national target of 25 percent renewable energy and 35-40 percent energy efficiency improvement by 2030.
Luxembourg is consistently ranked as one of the world’s most open and transparent economies and has no restrictions on foreign ownership. It is also consistently ranked as one of the world’s most competitive and least-corrupt economies.
Over the past decade, Luxembourg has adopted major fiscal reforms to counter money-laundering, terrorist-financing, and tax evasion.
The Government of Luxembourg actively supports the development of new sectors to diversify the country’s economy, given the dominance of the financial sector. Target sectors include space, logistics, and information technology, including financial technology and biomedicine.
Luxembourg launched its SpaceResources.lu initiative in 2016, and, in 2017, announced a fund offering financial support for the space resources industry. More than 50 companies dedicated to space initiatives are now active in Luxembourg. Luxembourg added an additional space fund in early 2020 to further bolster its status as a space startup nation.
Luxembourg has positioned itself as “the gateway to Europe” to establish European company headquarters operations by virtue of its central European location and advanced road, railway, and air connectivity. Due to uncertainties related to Brexit, 50 insurers, asset managers and banking institutions have decided to re-locate their EU headquarters to Luxembourg or transfer a significant part of their activity to the country.
Luxembourg is actively seeking logistics companies to expand the new logistics hub at Luxembourg Airport, home to Cargolux, Europe’s largest all cargo airline. Inaugurated in 2017, the Luxembourg Intermodal Terminal (LIT) is ideally positioned as an international hub for the consolidation of multimodal transport flows across Europe and beyond.
Luxembourg is also seeking ICT companies to use the existing high-security, state-of-the-art datacenters, affording high-speed internet connectivity to major international data hubs. Luxembourg has set up a high-performance computer which will be part of the EU’s high-performance computer network called EURO HPC
1. Openness To, and Restrictions Upon, Foreign Investment
The Portuguese economy bounced back from the pandemic, expanding by 4.9 percent in 2021 after an 8.4 percent contraction the prior year, benefitting from EU fiscal and monetary stimulus and a very high vaccination rate. The labor market has shown remarkable resiliency, with unemployment at 6 percent in January 2022, down from 7 percent a year before. GDP is expected to grow again by an estimated 5 percent in 2022, despite the economic shocks from the Russian war against Ukraine
The country will have a chance to boost its economic recovery, deploying more than €16 billion in EU grants and credit expected to fund state coffers between 2021 and 2026. It is expected these funds will be allocated in support of energy and digital transitions.
Increased flows of fossil fuels contributed to a 40 percent jump in trade in goods and services between Portugal and the United States to a record $10 billion in 2021. However, bilateral trade remains lop-sided with a large U.S. trade deficit of around $2.2 billion. Many U.S. companies nvest in business/service delivery centers in Portugal, taking advantage of Portugal’s relatively low-cost, talented, and multilingual labor force.
The country continues to push to improve market attractiveness. Portugal’s export and FDI promotion agency (AICEP) celebrated a record €2.7 billion of contracted FDI in 2021, double that locked-in during the last (2019) high mark. Portugal’s metalworking, auto component, and machinery industries predominate the recent FDI trends, accounting for about 30 percent of the contracted flows, according to the Government.
Portugal’s tech startup scene is thriving, featuring at least six fast-growing firms with ‘Portuguese-U.S. DNA’ that achieved ‘unicorn’ status with valuations above $1 billion– Outsystems, Talkdesk, Feedzai, Remote, SwordHealth and Anchorage. These high-tempo firms are flourishing after tapping into opportunities in the U.S. startup ecosystem that provides not only funding but also knowhow, networks, and customers, ultimately producing jobs on both sides of the Atlantic.
Established in 2012, Portugal’s “Golden Visa” program gives fast-track residence permits to foreign investors who meet certain conditions, such as making substantial capital transfers or certain real estate acquisitions. Between 2012 and February 2022, Portugal issued 10,442 ‘Golden Visas’, representing €6.2 billion of investment, of which more than €5.6 billion went to real estate. Chinese nationals have been the main beneficiaries of the special program for residence permits, accounting for almost 50 percent (5,066) of the 10,442 total, followed by Brazilians with 1,072. Russian citizens were assigned 431 Golden visas since 2012. As of January 2022, Portugal modified the “Golden Visa” program to restrict the purchase of real estate to regions outside urban hotspots such as Lisbon, Porto, and overbuilt areas of the popular Algarve with the aim of boosting rural investment. Loopholes in the program appear to be enabling urban purchases in any event. On March 28, the European Commission urged member states to immediately repeal existing investor citizenship schemes, which the Commission claimed pose inherent risks.
In terms of risks, the independent Portuguese data protection agency (CNPD) has targeted U.S. companies by issuing a succession of judicial opinions warning against the use of U.S. technology firms – including Cloudflare, Respondus, and Amazon Web Services (AWS), arguing that as they are headquartered in the United States and therefore subject to U.S. law, by definition, they have inadequate data privacy standards. CNPD has not found any specific wrongdoing by any U.S. technology firm but bases its rulings on the grounds that a target company is headquartered in the United States. On March 25, President Biden and EU Commission President von der Leyen announced a deal in principle on the Trans-Atlantic Data Privacy Framework, which will supplement the U.S.-EU Privacy Shield Framework (Privacy Shield). However, it remains to be seen how this new Trans-Atlantic Data Privacy Framework will affect EU-U.S. data flows in Portugal.
Portugal ranks second highest in terms of PRC investments in Europe (in relation to GDP). These investments are predominantly in the premier Portuguese companies, which the PRC leverages to reach other markets in Europe, Latin America, and Africa. Portugal’s investment screening regime was established in 2014, but the Government of Portugal has never strictly enforced it.
Despite the security risks, the Government continues to allow investments by and collaboration with untrusted vendors in 5G and Artificial Intelligence (AI). Huawei is using its educational and gender-equity programs to increase influence with high achieving students and access to key technology policymakers in the Government and private sector. The PRC is also attempting to gain a foothold in Portuguese 5G, AI, solar, and related infrastructure industries.
Portugal’s public debt, estimated at 127percent of GDP at the end of 2021, remains an issue, particularly if there is a shift in the benign monetary and sovereign risk sentiment that enabled Lisbon to enjoy issuing debt at record low prices in the last few years. The pace of corporate and household indebtedness has also increased.
Portugal’s primary trading partners are Spain, France, Germany, the United Kingdom, and the United States. Portugal suffers an acute brain drain, with high emigration rates among professionals leaving for higher paying careers in Switzerland, France, the UK, and elsewhere.
Beyond Europe, Portugal maintains significant links with Portuguese-speaking countries including Brazil, Angola, Mozambique, Cape Verde, and Guinea-Bissau. Portugal has one of the lowest fertility rates in Europe and net immigration (from Ukraine, Brazil, and other Portuguese-speaking countries) has prevented a fall in population.
Russia’s invasion of Ukraine will impact the Portuguese growth curve. Except for grain imports from Ukraine, energy intermediate goods, and liquified natural gas (LNG) imports from Russia, the country’s trade and investment relationship with both countries is limited. In LNG specifically, Russia accounted for 15 percent of imports, well below the 45 percent EU average. However, Portugal is a net importer of energy products, fully dependent on outside supply of crude and refined fossil fuels. It also imports natural gas for energy and generation, which acts as a key complement to the fast-growing renewable energy footprint of its solar, wind and hydro power assets. The country’s commercial balance will be negatively impacted by a long period of high global energy prices.
Portugal’s low installed solar capacity of about 7 percent of the energy mix is expected to reach 8 GW of solar capacity, or 27 percent of the mix by 2030. The Government is promoting significant investments in wind and solar energy development to meet its target of 47 percent energy from renewables by 2030. By 2021 the country reduced its external energy dependence by 9 percentage points (from 2005), seeking greater supply security by increasing domestic energy generation and reducing the consumption of primary energy by 17 percent. The Government has also talked about plans to launch a 2-5 GW offshore wind auction this summer (without providing details), in hopes of speeding up the deployment of large-scale offshore wind capacity to reduce energy dependence on Russia.
Portugal’s path to a carbon neutral economy includes incentives for energy efficiency; promoting diversification of energy sources; increasing electrification; reinforcing and modernizing infrastructure; developing more interconnections; market stability for investors; reconfiguring and digitalizing the market; incentives for research and innovation, promoting low-carbon processes, products and services; and improving energy services and information for consumers.
1. Openness To, and Restrictions Upon, Foreign Investment
Spain is open to foreign investment and actively seeks additional investment as a key component of its COVID-19 recovery. After six years of growth (2014-2019), Spain’s GDP fell 11 percent in 2020 – the worst performance in the Eurozone – due in large part to high COVID-19 infection rates, a strict three-month lockdown, border closures, and pandemic-related restrictions that decimated its tourism and hospitality sectors. By building on healthy fundamentals and fueled by up to 140 billion euros in Next Generation EU recovery funds, Spain rebounded with 5.1 percent GDP growth in 2021, and unemployment improved to 13.3 percent. Economic activity is expected to return to its pre-crisis level in 2023, though Russia’s unprovoked war in Ukraine could threaten the recovery by pushing up energy prices, compounding supply chain disruptions, and stoking inflation. Service-based industries, particularly those related to tourism, and energy-intensive industries remain most vulnerable to the economic shock. Spain’s key economic risks are high public debt levels and ballooning pension costs for its aging population, though these areas are targets for government reforms.
Despite COVID-19’s economic shock, Spain’s excellent infrastructure, well-educated workforce, large domestic market, access to the European Common Market, and leadership on renewable energy make it an appealing foreign investment destination. Spanish law permits up to 100 percent foreign ownership in companies, and capital movements are completely liberalized. According to Spanish data, in 2021, foreign direct investment flow into Spain was EUR 28.8 billion, 17.7 percent more than in 2020. Of this total, EUR 1.6 billion came from the United States, the fifth largest investor in Spain in new foreign direct investment. Foreign investment is concentrated in the energy, real estate, financial services, engineering, and construction sectors.
Spain aims to use its Next Generation EU recovery funds to transform the Spanish economy, especially through digitalization and greening of the economy, to achieve long-term increases in productivity and growth. Full financing is contingent on additional economic reforms beyond labor reform. Spain’s credit ratings remain stable, and issuances of public debt – especially for green bonds – have been oversubscribed, reflecting strong investor appetite for investment in Spain. However, small- and medium-sized enterprises (SMEs), which account for more than 99 percent of Spanish businesses and have been acutely impacted by the COVID-19 pandemic, still have some difficulty accessing credit and rely heavily on bank financing. Small firms also experience more challenges accessing EU recovery funds.
1. Openness To, and Restrictions Upon, Foreign Investment
Sweden is generally considered a highly favorable investment destination. Sweden offers an extremely competitive, open economy with access to new products, technologies, skills, and innovations. Sweden also has a well-educated labor force, outstanding communication infrastructure, and a stable political environment, which makes it a choice destination for U.S. and foreign companies. Low levels of corporate tax, the absence of withholding tax on dividends, and a favorable holding company regime are additional incentives for doing business in Sweden.
Sweden’s attractiveness as an investment destination is tempered by a few structural business challenges. These include high personal and VAT taxes. In addition, the high cost of labor, rigid labor legislation and regulations, a persistent housing shortage, and the general high cost of living in Sweden can present challenges to attracting, hiring, and maintaining talent for new firms entering Sweden. Historically, the telecommunications, information technology, healthcare, energy, and public transport sectors have attracted the most foreign investment. However, manufacturing, wholesale, and retail trade have also recently attracted increased foreign funds.
Overall, investment conditions remain largely favorable. In the World Economic Forum’s 2019 Competitiveness Report, Sweden was ranked eight out of 138 countries in overall competitiveness and productivity. The report highlighted Sweden’s strengths: human capital (health, education level, and skills of the population), macroeconomic stability, and technical and physical infrastructure. Bloomberg’s 2021 Innovation Index ranked Sweden fifth among the most innovative nations on earth; a pattern reinforced by Sweden ranked second on the European Commission’s 2021 European Innovation Scoreboard and second on the World Intellectual Property Organization/INSEAD 2021 Global Innovation Index. Also in 2021, Transparency International ranked Sweden as one of the most corruption-free countries in the world – fourth out of 180. Sweden is perceived as a creative place with interesting research and technology. It is well equipped to embrace the Fourth Industrial Revolution with a superior IT infrastructure and is seen as a frontrunner in adopting new technologies and setting new consumer trends. U.S. and other exporters can take advantage of a test market full of demanding, highly sophisticated customers.
The COVID-19 pandemic considerably impacted the Swedish economy, but following several fiscal stimulus packages, a successful vaccination rollout, and a relaxation of pandemic-related restrictions, Sweden’ economy has recovered fully to pre-pandemic levels with no notable impact on the investment climate. Climate and the environment are a central concern for the Swedish government, political parties across the political spectrum, businesses, and the public at large. Successive Swedish governments have actively lobbied for ambitious action to protect the environment and to curb greenhouse gases within a multilateral, internationally binding framework and by welcoming research, innovation, and investment within the fields of climate and the environment.
1. Openness To, and Restrictions Upon, Foreign Investment
The Netherlands consistently ranks among the world’s most competitive industrialized economies. It offers an attractive business and investment climate and remains a welcoming location for business investment from the United States and elsewhere.
Strengths of the Dutch economy include the Netherlands’ stable political and macroeconomic climate, a highly developed financial sector, strategic location, well-educated and productive labor force, and high-quality physical and communications infrastructure. Investors in the Netherlands take advantage of its highly competitive logistics, anchored by the largest seaport and fourth-largest airport in Europe. In telecommunications, the Netherlands has one of the highest levels of internet penetration in the European Union (EU) at 96 percent and hosts one of the largest data transport hubs in the world, the Amsterdam Internet Exchange.
The Netherlands is among the largest recipients and sources of foreign direct investment (FDI) in the world and one of the largest historical recipients of direct investment from the United States. This can be attributed to the Netherlands’ competitive economy, historically business-friendly tax climate, and many investment treaties containing investor protections. The Dutch economy has significant foreign direct investment in a wide range of sectors including logistics, information technology, and manufacturing. Dutch tax policy continues to evolve in response to EU attempts to harmonize tax policy across member states.
Until the COVID-19 crisis, economic growth had placed the Dutch economy in a very healthy position, with successive years of a budget surplus, public debt that was well under 50 percent of GDP, and record-low unemployment of 3.5 percent. This allowed the Dutch government significant fiscal space to implement coronavirus relief measures. In response to COVID, the Dutch government implemented wide-ranging support for businesses affected by the COVID crisis, including support to cover employee wages, benefits to self-employed professions to bridge a loss of income, and compensation for fixed costs other than wages. The financial support measures added up to about $70.5 billion (€60 billion) in the first year of the crisis. These programs prevented a wave of bankruptcies – bankruptcy filings in 2020 and 2021 were the lowest in two decades.
The new coalition government announced in early 2022 plans to be climate neutral by 2050. The government said it would adjust domestic climate goals to at least 55 percent CO2 reduction by 2030 compared to 1990, with ambitions to aim higher for a 60 percent reduction. The government has named a Minister for Climate and Energy Policy to work on domestic issues in addition to a Climate Envoy focused on international efforts. The Netherlands joined the U.S.-EU Global Methane Pledge and promised to end all investment in new coal power generation domestically and internationally. In April 2022, the government joined the AIM for Climate initiative.
The 2019 National Climate Agreement contains policy and measures to achieve climate goals through agreements with various economic sectors on specific actions. The participating sectors include electricity, industry, “built environment,” traffic and transport, and agriculture.
The Netherlands business community suffered a two-pronged loss in the planned departure of two of its major national corporate champions. Energy leader Shell and food and household products conglomerate Unilever announced in 2021 a relocation of their corporate headquarters from The Hague and Rotterdam, respectively, to London. The companies cited concerns with Dutch tax law relative to dividend taxation and need for consolidated management structure. (Note: Both companies previously split their corporate governance between the Netherlands and the UK. End Note.)
In March 2022, the Dutch Central Planning Bureau (CPB) published its 2022 economic projections. Due to the Russian invasion of Ukraine, the outlook was marked by uncertainty and flagged “even higher” energy prices as the most important economic consequence. Because of increased energy prices and high inflation from the COVID pandemic, CPB estimates a 5.2% inflation rate for 2022 with a range of 6.0% and 3.0% depending on how long energy prices remain high. CPB estimated economic growth of 3.6% in 2022 and 1.7% in 2023. CPB predicted unemployment at 4 percent in 2022, down from 4.2% in 2021. The low unemployment rate reflects a similar challenge also faced by the United States – businesses are finding it difficult to recruit qualified staff. Government debt is expected to rise to 61 percent of GDP by 2025 due to increased spending under the new coalition government, including on defense, outlays to support an aging population, and support to low-income families to offset inflation in energy and food prices.
According to the U.S. Bureau of Economic Analysis (BEA), when measured by country of foreign parent, the Netherlands is the second largest destination for U.S. FDI abroad in 2020 after the UK, holding $844 billion out of a total of $6.1 trillion total outbound U.S. investment – about 14 percent. Investment from the Netherlands contributed $484 billion FDI to the United States, making it the fourth largest investor at the end of 2020 of about $4.6 trillion total inbound FDI to the United States– about 10.5 percent. Measured by ultimate beneficial owner (UBO), the Netherlands was the seventh largest investor at $236 billion. For the Netherlands, outbound FDI to the United States represented 14 percent of all direct investment abroad.