Officially known as the Principality of Liechtenstein, Liechtenstein is a landlocked microstate that is located in the Alpine region of Central Europe. The principality is bordered by Switzerland to the west and south and Austria to the north and east. It is the fourth-smallest nation in Europe with a small area of just 62 square miles and a population of a little under 40,000 people. The largest municipality is Schaan while the town of Vaduz is the capital. Estimates from 2013 place the gross domestic product (GDP) based on purchasing power parity (PPP) at only $5.3 billion. Estimates from 2010 place the nominal GDP at around $5.155 billion. This relatively small economy is driven by two major sectors namely services and industry. Agriculture is also significant although it is considerably smaller. Natural resources are limited and so play an almost negligible role in driving the economy. On the international scale, Liechtenstein is part of both the European Free Trade Association (EFTA) and the European Economic Area (EEA).
Banking and Other Financial Services
The main sector in this industry is that of banking and finance. The nation has established itself as an invaluable financial center for foreign citizens and companies. In fact, as a whole, the country has more registered companies than its number of citizens. The small principality has at least 73,000 entities, which are mainly corporations, trusts, and institutions that are mostly owned by foreigners. This well-developed sector is one of the reasons why the principality has a favorable living standard compared to other larger countries in Europe. Some of the reasons why people love the financial services of Liechtenstein include a low rate of taxation, strict confidentiality, and corporate governance regulations. Today, the sector provides employment to around 16% of the total workforce.
From an economic perceptive, the financial services account for approximately 25% of the nation’s GDP. The banks (more than 15) mainly deal with wealth management and private banking. To put into perspective just how strong the banks are, most European banks were not able to easily handle the financial crisis of 2008. By comparison, the banks in the country fared considerably better. Some of the top banks include Liechtensteinische Landesbank AG, LGT Bank, Banque Havilland (Liechtenstein) AG, and Raiffeisen Privatbank. As of 2015, all the banks had a combined asset worth of a whopping $60 billion.
In 2016, the credit rating provider company from the United States known as Standard & Poor's gave the country an impressive rating of AAA, which is the highest. The measure usually looks at the creditworthiness of an entity such as a country or an individual. Essentially, a higher rating means that the entity in question has a higher likelihood of paying back a debt. Conversely, it means that the chances of defaulting are low with a high rating. Some of the factors that contributed to the rating include the stability in economy and politics as well as a strong currency (the Swiss Franc - CHF). In addition, the banks rarely take part in investments that have high risks.
Imports and Exports
Another significant sector of services is focused on the exportation and importation of goods. Exports from the country have come a long way compared to previous years. For example, in 1988, the value of exports was around $1.21 billion while the value doubled to around $2.9 billion in 2008. Some of the exports (about 15.7%) go to their close neighbor, Switzerland, while a larger percentage (around 62.6%) is exported to the European Union. The rest of the world gets about 21.1% of the exports.
In recent years, the principality has been developing good relations with the US. Data shows that the US has been importing about $561 million of Liechtenstein’s exports while Germany is second with $479 million. A significant amount (around 32%) of the revenue goes to research and development ventures, which have been crucial in ensuring the country’s success.
Industry and Manufacturing
About 40% of the nation’s workforce works in this sector, which is highly oriented towards exports. The sector makes up about 40% of the annual GDP of the principality. The companies (which are mainly small) are highly specialized for specific markets. To remain profitable and competitive, they employ heavy use of research and development. The industries include machinery and equipment manufacturing and electronics. One of the major benefits that these small businesses have is access to the European market. Free trade agreements and qualified labor from over 100 nations are other benefits. Interestingly, about 53% of the labor force does not live in the small country. These people commute to and from Liechtenstein on a daily basis.
Agriculture used to be an important industry in the country. However, the country has undergone such significant changes in the last five decades that agriculture is now a minor industry. In fact, there is no other country in the west that has gone through such a meteoric rise in that period. However, despite employing only 0.8% of the population, the country values agriculture for a number of reasons. These reasons include cultivation of the landscape and protection of the soil. The land and the climate are mostly suited to grazing.
Forests cover about 43% (around 6865 hectares) of the nation’s area. The trees and vegetation serve several purposes such as beautification and protection against natural hazards. The trees are protected by strict laws that ensure the continuation of a healthy and structured vegetation cover.
The nation also aspires to be a leader in the tourism sector. In order to achieve this goal, the principality has a marketing organization known as Liechtenstein Marketing. This organization works in conjunction with the national tourism sector and other partners. The income generated varies depending on factors like weather and the economy. However, the economy generated is not as significant as other industries. Most visitors (about 60%) come from either Germany or Switzerland. Others (about 15%) come from nations including the United Kingdom, Belgium, Italy, and Austria. The remaining 25% is comprised of people from Europe, the United States, and other countries.