BABS, 1st Semester, International Political Economy

Westminster
International College
Assignment
International Political Economy
Student Name: Kapassov

Aidos

Student ID Number: 0034NENE1011 Course: BABS Semester: 1 Module Title: BSP

100 August 2012

Date of Submission: 15, Lecturers Name: Dr.

Kui Juan Tiang

BABS, 1st Semester, International Political Economy

Table of Contents:
Figure 1 ....................................................................................................................................... 3 1.0 2.0 Introduction .......................................................................................................................... 3 Analysis................................................................................................................................ 5

Figure 2 ....................................................................................................................................... 5 2.1 Economic Growth ............................................................................................................ 6

Figure 3 ....................................................................................................................................... 7 2.2 Foreign Economic Trade .................................................................................................. 7

Figure 4 ....................................................................................................................................... 9 2.2.1 Import ............................................................................................................................. 9 Figure 5 ..................................................................................................................................... 10 2.2.2 Export........................................................................................................................... 10 Figure 6 ..................................................................................................................................... 11 2.3 Foreign Direct Investments ............................................................................................ 11

Figure 7 ..................................................................................................................................... 12 Figure 8 ..................................................................................................................................... 13 3.0 Conclusion .............................................................................................................................. 13 4.0 References ............................................................................................................................... 15

BABS, 1st Semester, International Political Economy

Grand Duchy of Luxembourg

Figure 1

Source: http://www.extremalov.net/content/cat/full/zx-52304.jpg

1.0 Introduction
The great Duchy Luxembourg, the tiny state located in Western Europe. In the northwest it borders with Belgium, in the east with Germany, in the south with France. Along with Belgium and the Netherlands the country is included into the so-called Benelux countries. Climate in Luxembourg moderated, passing from sea to continental, soft and equal. The average temperature of January keeps in the area 0C, July +17C. State system of Luxembourg the constitutional hereditary monarchy, led by the Grand Duke who is allocated with large powers. Under the constitution, it has the right of a legislative initiative, signs the international contracts, argues and will publish laws. The country government also is appointed by the duke, and is responsible before the Chamber of Deputies.

BABS, 1st Semester, International Political Economy In Luxembourg two state languages German and French however tell the majority of inhabitants in the Luxembourg language (Luxembourgish) which is based on a Low German dialect, with a large number of the French words and expressions. It should be noted that inhabitants of the country don't consider themselves neither Frenchmen, nor Germans. Among believers of 98 % of the population are Catholics. Luxembourg is the advanced industrial country which basis of economy is made by large-scale metallurgical industry. In agriculture the priority is given to animal husbandry, agriculture and wine growing. In the territory of the country in a large number the woods occupying more than a third of the territory remained natural, untouched a civilization. Luxembourg is considered one of the oldest states of Europe. It is considered to be date of the basis of the state 963 year when court Francs kings count Siegfried constructed a fortress on a place of the present capital of the country. Throughout the history more than 20 times passed the Great Duchy from hand to hand. At different times it was under the power of Burgundy, Spain, Austria and France. On the Vienna congress of 1814 1815 Luxembourg was recognized as the independent state which however, owing to a personal union ruled by the Netherlands king. Final borders of the state were established by the Belgian and Netherlands contract of 1839. The most part of the territory departed Belgium, and from medieval possession of the Luxembourg ruling house there was only a quarter. The state capital, the city of Luxembourg, is considered the safest in the world. From sights it is possible to allocate a Gothic cathedral of the XVII century Notre Dame, and also the ducal palace constructed in 1572. (Advameg, 2012)

Motto: We want to remain those who we are

BABS, 1st Semester, International Political Economy

2.0 Analysis
Luxembourg is the advanced industrial country. The gross internal product in 2011 made 22 41.221 billion dollars, i.e. 80,119 thousand dollars are the share of one person a year the second indicator in the world on the average. Minimum salary is 1800 EUR. The average inhabitant eats in a year of 48 kg of bread, 6 kg of oil, 68 kg of meat, and else drinks 53 liters of milk, 121 liters of beer, and the 58 liter of wine. In itself these numbers - yet the proof of a high standard of living. But to them it is necessary to add rather small population density, short distances from the house before work, modern arrangement of dwellings, proximity of forests, and magnificent variety of a landscape, lack of big cities with all their "delights". (FactBook, 1995-2012)

Figure 2

Source: http://unitedexplanations.org/english/wp-content/uploads/2012/01/unexp_graphshot30v2_llt.jpg

BABS, 1st Semester, International Political Economy

2.1 Economic Growth

In economy of Luxembourg the important place occupies banking which together with financial services became a main type of economic activity. Great Duchy of Luxembourg is one of the European financial centers. In Luxembourg there is very large number of representations of foreign banks (more than 200) of which involved the most favorable (secrets of deposits guaranteeing preservation) in EU laws on bank activity. The real boom has for the 1980th years when mass of the German investors began to place the financial means for the purpose of avoidance of payment of national taxes. In 1999 in Luxembourg about 210 banks with the general balance assets of 672 billion euro already operated. Big distribution was received by investment funds (their assets made 817, 7 billion dollars). In financial sector about 22 thousand busy were, its contribution to gross domestic product made about 10 %. However and financial gumboil Luxembourg economy starts to experience serious difficulties. Against activity of banks the international claims are brought (charges of concealment of the income), EU insists on liberalization of their activity. Government of Luxembourg declared that the preservation principle of bank secret doesn't represent the most important basis of functioning of a financial system. Luxembourg already expressed readiness to cancel bank secret in 2010 (the number of banks in the country began reducing, in 2001 were 197 banks). (Foundation, 2012) Modern Luxembourg steelmaking production is reoriented on smelting in electric furnaces and use as scrap metal raw materials. In the 1995th cost of export made 7, 6 billion dollars, and import cost 9, 7 billion. The trading balance is reduced at the expense of the big income of financial sector. The main foreign trade partners of Luxembourg EU countries. Within a diversification of the Luxembourg economy traditional types of productions were created also, all of them arose in partnership with the foreign companies. The enterprises for production of industrial plastics and release of car tires became the most considerable. It is paid much attention to creation of telecommunication networks and production audio-and video equipment. Also in Luxembourg such industries, as tanning, cement, faience, woodworking, sewing, and food are developed also. The agriculture gives only 1 % of gross domestic product and is based on dairy and meat animal husbandry, wine growing, vegetable growing and floriculture. Grow up also wheat, barley, potatoes, a beet, oats. The services sector 6

BABS, 1st Semester, International Political Economy gives 69 % of gross domestic product. Luxembourg large international financial center, an important role plays also foreign tourism, its contribution to gross domestic product about 6 % (the highest indicator in EU). About 5000 km of foot ways are equipped. Main objects: medieval castles are redeemed by the state and equipped for tourists. A large number of the new enterprises were created by major companies of the USA. An attractive factor for them is that local workers know some languages. (Agency, 2012)

Figure 3

Source: http://www.tradingeconomics.com/luxembourg/gdp

2.2 Foreign Economic Trade

Foreign economic relations are especially important for the country as the economy is focused generally on the world markets. Main partners: EU 84, 7 %, the USA 3, 5 %. In the conditions of continuous change of specialized production niches attraction of foreign direct investments is necessary for the country. The need of large-scale capital investments for other countries arise due to the need of formation of own marketing niches in the world market. Foreign trade of Luxembourg on a straight line is connected with the Belgian foreign trade. The national bank of Belgium carries out the international operations of Luxembourg. Luxembourg very strongly depends on foreign trade. The most part of an industrial output goes on export, 30% from it make metals and finished articles. The great Duchy completely imports energy 7

BABS, 1st Semester, International Political Economy carriers for the industry coal and oil; also agricultural cars, food, cars, fabrics and cotton are imported. To the middle of the 1970th years the trading balance usually was positive, and receipts from export exceeded expenses on an import, but steel reduction in production essentially changed balance. Gross domestic product third fell on a share of steel in 1952, and in 1994 only 6 %. In 1970 in the country about 5, 7 million t of ore were extracted, but production was quickly reduced, and was finally curtailed at the beginning of 1997. On gross domestic product indicator per capita Luxembourg still takes the advanced positions in the world about 66.000 thousand dollars a year. Rates of inflation in 2010 essentially grew and on the average in 2010 made about 2 % (in 2009 they didn't exceed a mark of 0, 5 %). In 2011 it made 2, 3 %. (NationMaster.com, 2003-2012) Sharply unemployment growth increased. In 2010 it varied within 6 %. The Central Bank of VGL predicts its increase to a mark of 6, 4 % by 2012. Nevertheless, this indicator still remains in Luxembourg to one of the lowest in Europe. The public debt in 2010 exceeded a mark of 18 % of gross domestic product and made more than 6 736 million euro. On European Commission forecasts, for lack of the appropriate measures can make by 2014 of 37, 4 %. The budget the Revenues of the budget adopted by parliament for 2010 made 8, 3987 billion Euros, account 9, 7938 billion Euros. The budgetary deficiency makes about 2 %. On this indicator Luxembourg is actually unique state of EU observing established by the Pact of growth and stability of the requirement. The government reduced a mark of 1 % till the end of 2011. In medium-term prospect it is planned to leave for the balanced budget by 2014 that provides decrease in its deficiency on 1, 5 billion euro. Luxembourg remains to one of few countries which are still practicing bank secret (though under the pressure of EU partners here and were compelled to go for some concessions). Taking into account it Luxembourg keeps positions of one of ten leading financial platforms of the world. Here about 150 banks and their branches, about 100 insurance establishments are presented. (FactBook, 1995-2012)

BABS, 1st Semester, International Political Economy

Figure 4

Source: http://www.tradingeconomics.com/luxembourg/indicators 2.2.1 Import In structure of an import of country is industrial output 70, 9 % prevails, 18, 0 % is the share of mineral raw materials and the fuel and energy goods; on agricultural production - 10, 8 %. The largest suppliers of the goods to Luxembourg are: the European Union countries 80, 4 %, the United States (2, 4 %), China (1, 7 %), Japan (1, 7 %), Switzerland (0, 7 %). It is the share of other countries of the world of 13, 1 % of volume of an import of this country. In value terms an import of Luxembourg made 24, 0 billion dollars USA. Luxembourg throughout the entire period of 2000-2010 has steady negative balance of trade in the goods with the world countries. In 2010 the foreign tradff ,..e deficiency of Luxembourg made - 4, 4 billion dollars or 10, 0 % of volume of its commodity turnover. Average value of

BABS, 1st Semester, International Political Economy factor of a covering of an import of Luxembourg export during 2000-2010 made 0, 82. In 2010 factor of a covering of an import by export is equal to 0, 82. In an import of services the most part - (86,5 %) also belong to sector of other business services, on tourist services are the share 9,2 %, of transport services 4,3 %. (Labs, 2012)

Figure 5

Source: http://www.tradingeconomics.com/luxembourg/imports 2.2.2 Export National economy is widely focused on export. More than 86 % of the goods made in Luxembourg and services are exported abroad. In total exports of Luxembourg, in a cut of the main commodity groups deliveries of an industrial output 86, 4 % prevail, on production of agriculture 7, 9 %, are the share of mineral raw materials - 4, 6 % of all volume of export. To the European Union countries is delivering 81, 7 % of the Luxembourg export, to the United States 2, 7 %, Switzerland (1, 5 %), Hong Kong (1, 3 %), China (1, 3 %). 11, 5 % of export deliveries are the share of other countries of the world. In value terms export of Luxembourg made 19, 6 billion dollars USA. In trade in services with the world countries Luxembourg following the results of 2010 takes the 17th place on export volume (68,3 billion

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BABS, 1st Semester, International Political Economy dollars USA, specific weight in world export of services 1,85 %), the 26th place on import volume (38,7 billion dollars, a share - 1,10 %) and has positive balance (+29,6 billion dollars). In export of services the greatest share (89,0 %) are necessary on sector of other business services, tourist services make 6,0 %, transport services - 5,0 %. (Israel, n.d.)

Figure 6

Source: http://www.tradingeconomics.com/luxembourg/exports

2.3 Foreign Direct Investments

Luxembourg the traditional European investment center: funds and the companies of Luxembourg are widely used in the international commerce as tools through which investments are made. According to official figures, in April, 2007 under control of investment tools regulated by the state there were about 2 trillion Euros. In Luxembourg the state actively encourages foreign investments. There are not formalized legal regimes directed on foreign investments as those (except the holding companies released from taxes and collective investment funds), but on a single basis the government offers various types of the help and guarantees, including, cash, tax privileges, soft loans, the help in development of construction projects etc. Luxembourg has a wide range of individual investment incentives especially for the new enterprises. They include the offer on the earth with favorable conditions on one of municipal 11

BABS, 1st Semester, International Political Economy business parks of the country and national industrial parks which are equipped with the infrastructure necessary for support of successful business. Besides, there are incentives for investments into the order of Luxembourg and foreign investors according to laws on July 28, 1923 and on July 27, 1972. They include tax privileges at the rate to 14 % concerning fixed assets (instead of a property), discretionary reductions of taxes, and the active help from the government. (StatisticsPortal, 2011)

Figure 7

Source: http://www.indexmundi.com/facts/luxembourg/foreign-direct-investment FDI, net outflows (% of GDP) in Luxembourg was 347.12 as of 2010. Its highest value over the past 8 years was 570.40 in 2002, whereas the lowest value was 224.78 in 2008. By diagram its clear that FDI outflows from Luxembourg first increased and now going to decline. .

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BABS, 1st Semester, International Political Economy

Figure 8

Source: http://www.indexmundi.com/facts/luxembourg/foreign-direct-investment FDI, net inflows (% of GDP) in Luxembourg as of 2010 was 389.76. The utmost value over the past 40 years was 564.92 in 1999, when its lowest value was 8.85 in 1984 By diagram its clear that from 1970 to 1999 in Luxembourg were a small mount off investments, but from 1999 to current days the FDI inflow is increasing.

3.0 Conclusion
Luxembourg confirms the rank of the international financial center and shows "survivability" in the conditions of economic and financial crisis that notes the International Monetary Fund. The IMF noted also that in spite of the fact that level of investment streams in the country decreased in 2011 a little, and, generally because of instability of uniform currency, at the beginning of 2012 this sector in economy of Luxembourg was restored, and assets reached nearly 2, 5 billion US dollars. Bank assets though decreased, but the IMF assures that the banks being in Luxembourg remain profitable and liquid. Risks for the country and its financial sector

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BABS, 1st Semester, International Political Economy proceed, first of all, from lack of external demand. Economic activity will be weakened further, along with growth expected soon which on forecasts in 2012 will make 0, 5 %. Despite all debts, the credits and financial crises tiny Luxembourg continues, if not grow, but at least and not to roll down strongly down. Stability now is one of the most important advantages of any country. Almost all largest banks of the world have the representations in the duchy, emphasizing with that that they trust national economy. For the last year the Latvian bank ABLV Bank made the decision also to expand the geographical presence and leaves on a financial field of Luxembourg. And this choice isn't casual, confidentiality and security of bank deposits at the highest level. Luxembourg is one of the richest countries in Europe with the highest standard of living. In the city of Luxembourg many organizations of EU settles down. Due to favorable conditions and an offshore zone in the capital about 1000 investment funds and more than 200 banks more than in any other city of the world are placed. The county is taking the 4th place in the world on level of the income of the population. 70 % of gross domestic product of the country is formed at the expense of production of iron ore, production of iron and cast iron. How we know that in economy of Luxembourg the important place occupies banking, the considerable attention is given to creation of telecommunication networks and production of audio and video equipment. Chemical products, cars, plastic, fabrics, glass, porcelain are issued. Many new enterprises were created by major companies of the USA. For the foreign companies very attractive factor is that local workers know some languages. Along with it in Luxembourg tourism is very well developing. The historical cities, places, purity of nature and the developed culture of the population involve tourists from all over the world. With these data it is possible to confidently say that poverty for the next decades doesn't threaten Luxembourg.

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BABS, 1st Semester, International Political Economy

4.0 References
Advameg, I., 2012. Everyculture. [Online] (1.0) Available at: http://www.everyculture.com/JaMa/Luxembourg.html#b [Accessed 25 July 2012]. Agency, C.I., 2012. cia.gov. [Online] (1.0) Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/lu.html [Accessed 30 July 2012]. FACTBOOK, 2.C.W., 1995-2012. Theodora.com. [Online] (1.0) Available at: http://www.theodora.com/wfbcurrent/luxembourg/luxembourg_economy.html [Accessed 29 July 2012]. Foundation, T.H., 2012. Heritage.org. [Online] (1.0) Available at: http://www.heritage.org/index/country/luxembourg [Accessed 30 July 2012]. Israel, S.o., n.d. Moit.gov.il. [Online] (1.0) Available at: http://www.moit.gov.il/NR/exeres/7D1EDA53-EA0A-49F1-A477-FFB623A5E945.htm [Accessed 3 July 2012]. Labs, S.S., 2012. EconomyWatch.com. [Online] (1.0) Available at: http://www.economywatch.com/economic-statistics/country/Luxembourg/ [Accessed 2 June 2012]. NationMaster.com, 2003-2012. NationMaster.com. [Online] (1.0) Available at: http://www.nationmaster.com/country/lu-luxembourg/eco-economy [Accessed 2 June 2012]. StatisticsPortal, 2011. Statistiques.public.lu. [Online] (1.0) Available at: http://www.statistiques.public.lu/stat/ReportFolders/ReportFolder.aspx?IF_Language=eng&Mai nTheme=5&FldrName=4&RFPath=114 [Accessed 04 June 2012].

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