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Luxembourg - RIO Country Report

RIO Country Report Luxembourg 2015

The annual RIO Country Report offers an analysis of the R&I system in Luxembourg, including relevant policies and funding, with particular focus on topics critical for EU policies. The report identifies the main challenges of the Luxembourgish research and innovation system and assesses the policy response

R&I Challenges
Consolidating the research and innovation system and meeting R&D intensity targets
Challenge description: 

The diversification of Luxembourg's economy, which is an overarching objective of its development, is related to fostering the research and innovation system. In view of the economy's heavy reliance on the financial sector, alternative sources of growth with a particular focus on sectors showing a high gross value added potential are needed. Such sectors tend to be technology and knowledge intensive. However, private investment in Research and Development (R&D) remains relatively low in Luxembourg, although progress towards a more diversified, knowledge-intensive economy represents a political priority. Indeed, the fivefold increase of public sector R&D intensity since 2000 (from 0.12% in 2000 to 0.59% in 2014) reflects the authorities' resolve to build up public research capacities, but Luxembourg is not on track to reach its R&D intensity target of 2.3-2.6% of GDP by 2020. R&D intensity was at 1.24% in 2014, a relatively low level compared with the EU average (2.09%). This is due to the sharp drop in business investment from 1.5% of GDP in 2000 to 0.65% in 2014.

Policy Response: 

Following the 2013 decision of the government to strengthen the country's policy on innovative clusters, two laws reforming some components of the Luxembourg's R&I system were adopted in 2014. The first law aims to consolidate public research organisations, in particular through the merger of the Tudor and Lippmann Public Research Centres. The build-up of public research capacities has not always been based on a sufficiently thorough assessment of the potential for the development of related economic activities in Luxembourg. Nevertheless, the merger of the Tudor and Lippmann Public Research Centres will help to a certain extent to build critical mass in areas with major prospects for cooperation with Luxembourg's industry, such as materials and sustainable development, with some less promising research subjects being discontinued.

The second law aims to reform the National Research Fund, which allocates funds on a competitive basis. The Fund's reform will enable better valorisation of research results, notably through enabling actions to support 'proof-of-concept' and the reform of the Fund's researchers training scheme will foster inter-sectoral (public/private) mobility.

Measures in place to encourage increases in BERD include the Law of 5 June 2009 for private sector research subsidies and the IP Law of 2008. Luxinnovation promotes private sector R&D through the Cluster initiative, Business Meets Research days and identifying other funding opportunities for businesses.

Policy assessment: 

Positive signs in the R&I system development include the reinforcement of the country’s policy on clusters and the reforms of the public research organisations and of the National Research Fund, although their scope is limited. While the initiatives undertaken could provide an opportunity to foster a more coherent development of the research system, it is essential that the initiatives are steered through a governance system that is able fully to integrate the economic dimension and to ensure that research plays the expected role in promoting innovation-led growth.

Addressing gender gaps among researchers
Challenge description: 

With a low share of female researchers in its research and innovation system, Luxembourg lags behind other advanced economies with respect to gender parity in science and research. Just 24% of the researchers in Luxembourg are women, one of the lowest levels in the OECD countries. In the business sector, the share of female researchers is the lowest within the comparator group of countries – down from 14.2% in 2003 to 11.4% in 2011 – compared with a share of over 25% in countries such as Singapore, Iceland, Sweden, Slovenia, Denmark and Belgium. The situation is better in the Public Research Organisations (36%) and the University of Luxembourg (39%). Luxembourg’s industrial and research specialisation partly explains the low levels of female researchers: many of the industries and research fields that are prominent in Luxembourg tend to have low numbers of female researchers in all countries. The scope for redressing the gender balance might therefore be limited, though Luxembourg could still do better than it currently does.

Policy Response: 

The law dated 27 August 2014 amending the law dated 31 May 1999 creating a National Research Fund for the public sector and the law dated 3 December 2014 to organise public research centres stipulate that proportions of administrative and scientific board members of each gender may not be lower than 40%.

Policy assessment: 

Except for the requirement that boards include at least 40% of the under-represented sex by 2017, the government has no measures to redress the gender imbalance. While the NRF “encourages” proposal submitters to take gender into consideration, the results indicate the request is toothless. Note that the AFR PhD programme is gender-balanced. Performance contract targets are one obvious means of addressing this issue, as noted in the 2015 OECD review.

Promoting culture of entrepreneurship
Challenge description: 

Identified also previously as a challenge, the culture of entrepreneurship still needs promoting in Luxembourg.

While the creation of spin-offs using IP from research activities are included in several PRO performance contracts, the number achieved in the period 2011-2013 was four, with a goal set for the same period of six. The target for the period 2014-2017 is ten spin-offs. It should also be noted that although the law of 5 June 2009 has special provisions for SMEs, there are no specific policies, laws or incentives for entrepreneurs or start-ups.

Insolvency regulations in Luxemburg are draconian: an entrepreneur whose company fails cannot start a new business for eight years, effectively neutering any learning from the failure and stifling “serial entrepreneurship.” In addition, bankruptcy proceedings can be lengthy. In certain circumstances, the entrepreneur may be personally liable for the company’s debts. Insolvency regulations are one of the few areas of the Small Business Act that Luxembourg fails to address.

In 2012, the European Commission carried out a survey on attitudes to entrepreneurship. Respondents from all EU Member States were polled, as well as individuals from 12 countries outside of the EU, including Brazil, Russia, the US and China. The study shows changes from 2009 to 2012, although the work does not explore the impact the financial crisis might have had on attitudes. When asked to indicate the two risks of which they would be most afraid if they started a business, Luxembourg respondents indicated that fear of bankruptcy and loss of property were their biggest fears.

In the same survey a factor explored was preference for working as an employee or self-employed. 61% of Luxembourg respondents preferred employment, while 38% preferred self-employment. When queried as to whether self-employment would be feasible within five years, 62% of Luxembourgers said it would not be feasible, while 36% said it would be feasible. Reasons for why self-employment was not feasible were lack of capital or financial resources (16%), the economic climate (6%), lack of skills (20%), lack of a business idea (17%), family commitments (15%), consequences of failure (5%) and red tape (1%). However, the most common reason given was an unspecified “other” (50%). 65% of Luxembourg respondents said that self-employment would be undesirable in the next five years. In response to the question “Have you ever started a business, taken over a business or are you taking steps to start one?” only 17% of Luxembourgers responded in the positive, with 83% responding “No.”  This makes Luxembourg the third least entrepreneurial country in the EU except for France (16%) and Belgium (15%) and on a par with Japan, the least entrepreneurial third country polled.

Policy Response: 

There are a number of structures in place to support entrepreneurship which include a Master in Entrepreneurship and Innovation; Innovation Master Classes, Luxinnovation, business incubators (Technoport, FutureLab, Nyuko), the Chamber of Commerce’s Espace Entreprises, the IP Law of 2008, performance contracts that mandate spin-offs and an active business angel network.
In the direction of supporting young innovative Small and Medium Enterprises (SMEs), the 'Société Nationale de Crédit et d’Investissement' (SNCI) introduced in October 2014 three new types of loan facilities to businesses including two schemes designed to support young innovative SMEs.

Policy assessment: 

Despite a range of measures that offer support for entrepreneurs, company start-up costs are high and funding and capital are scarce, especially for non-high tech ventures. There are no indirect funding measures such as tax incentives or credits. According to the promoters of the “111 company” initiative—“One person, one day, one euro” —the rigidity of the existing system hinders those willing to combine creativity, innovation, hard work, risk taking and optimism to create their “own job, their own revenue and their own contribution to society.” The project aspires to create a new, simplified, fast to set up and low cost type of companies that can help in fostering the entrepreneurship spirit and in making Luxembourg ‘the place to be’ for start-ups and entrepreneurs.

1. Overview of the R&I system

Luxembourg’s national research system is small and very young – the oldest public research institutions were established in the late 1980’s and the only university was launched as recently as 2003. Consequently, the national research system is still developing absorptive capacity and the preponderance of research has historically been undertaken by the private sector. Also because of its small size—Luxembourg is its own NUTS2 region—the research system is centralised. It is characterised by multi-annual planning and thematic research funding. Luxembourg benefits from large inflows of foreign researchers. In the area of public R&D, 82% of researchers are non-nationals, hailing predominantly from neighbouring countries.

2. Recent developments in research and innovation policy and systems

Key developments in the R&I system in 2015 included:
• Merger of PRCs Gabriel Lippmann and Henri Tudor to form the Luxembourg Institute of Science and Technology (LIST);
• Re-branding of PRC Santé to the Luxembourg Institute of Health (LIH) and CEPS/Instead to Luxembourg Institute for Socio-Economic Research (LISER);
• New research funding programme KITS (Knowledge and Innovation Transfer Support) as part of emphasis on valorisation of research projects;
• NASA-ARC (earmarked AFR PhD and postdoc grants for research undertaken at NASA-ARC) and PRIDE (Research-Intensive Doctoral Education) Reform of the AFR PhD funding programme under law of 27 August 2014;
• Relocation of the NRF, Luxinnovation and LIST to the City of Sciences in Esch Belval.

3. Public and private funding of R&I and expenditure

In the last several years GERD and BERD have declined in Luxembourg. The decline is of special concern as it impacts Luxembourg’s chances of meeting its 2020 R&D intensity target of 2.3%-2.6% of GDP. At 1.24% of GDP in 2014, Luxembourg is far below the EU average of 2.09%. Public R&D funding in Luxembourg is well-defined for both public and private sector research performers. Programmes are multi annual and targeted, and policies are consistent. Performance contracts for public research performers provide targets for project funding as the basis for receiving institutional block funding. In Luxembourg, 45% of the private investment in R&D is made in the manufacturing sector, compared to 23% in financial services and about 30% in other services.

4. Quality of science base and priorities of the European Research Area

Luxembourg’s public research system is highly autonomous in terms of hiring qualified researchers. In January 2015, the merger of PRCs Henri Tudor and Gabriel Lippmann decreased system fragmentation by harmonizing certain overlaps in research areas. The resulting Luxembourg Institute for Science and Technology (LIST) has been reorganised into three research domains named straightforwardly the Environment, IT and Materials. Another system simplification was the incorporation of the International Biobank of Luxembourg (IBBL) into the Luxembourg institute of Health (LIH). For a small country, Luxembourg exceeds the EU average for scientific publications.

5. Framework conditions for R&I and science-business cooperation

Luxembourg has put in place framework conditions very conducive to business investment in R&D. In the World Economic Forum Global Competitiveness Index, Luxembourg ranks 19th out of 148 nations (in 2014 it was 22nd). In Luxembourg, 20.5% of innovative companies engaged in some type of cooperation (31.3% for EU-28). Yet, only one third of them (i.e., 7% of total sample of innovative companies) cooperate with universities and higher education institutions. A bit more – 7.7% cooperate with government or public or private research institutes.

6. Conclusions

The chapter provides an assessment of the performance of the national research and innovation system and summarises the main structural challenges faced by the national innovation system.

Geo coverage
Report year
Country Report file
Official publication date
Wednesday, 18 May, 2016
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