Successfully investing in Switzerland

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last updated on 19 May 2021 | reading time approx. 4 minutes

 

 

 

How do you assess the current economic situation in Switzerland?

In the last quarter of 2020, GDP im­proved by 0.3 per cent com­pared to the pre­vi­ous quarter, which was in line with eco­nom­ists' fore­casts. Over the whole of 2020, GDP in Switzer­land fell by 2.9 per cent year-on-year from 726.92 bil­lion to 722.22 bil­lion Swiss franc. The ad­jus­ted per cap­ita GDP for 2020 is not yet avail­able at the time of this writ­ing. In Ger­many, GDP de­clined by -4.9 per cent com­pared to the pre­vi­ous year (price-ad­jus­ted). Fur­ther com­par­at­ive val­ues from neigh­bour­ing coun­tries: GDP France -8.3 per cent, GDP Aus­tria -7.3 per cent.

For Switzer­land, however, this de­cline of 2.9 per cent rep­res­ents a his­tor­ic slump and is the sharpest since the oil crisis in the 1970s. The ser­vice sec­tor was the most af­fected in 2020. The en­vir­on­ment was par­tic­u­larly dif­fi­cult for sec­tors such as hos­pit­al­ity, trans­port and so­cial and health care, as they suffered the most from the vir­us con­tain­ment meas­ures. In the health sec­tor, the im­ple­ment­a­tion of non-ur­gent treat­ments pre­ven­ted a pos­it­ive out­come.

There was a strong down­ward trend in for­eign trade in ser­vices as well as in do­mest­ic con­sumer spend­ing. Private con­sump­tion fell by -4.4 per cent, and there was a shift in spend­ing between the dif­fer­ent con­sump­tion sec­tors. Do­mest­ic re­tail trade be­nefited, as did the area of elec­tron­ic devices.

In 2020, ex­ports fell by 7.1 per cent to 225.1 bil­lion Swiss francs and im­ports by 11.2 per cent to 182.1 bil­lion Swiss francs. Ex­pressed in fig­ures: ex­ports fell by 17.3 bil­lion Swiss franc and im­ports by 23.1 bil­lion Swiss franc. For­eign trade has thus reached the same level as three years ago. The sur­plus in the trade bal­ance set a re­cord at 43 bil­lion Swiss franc.

Among the sec­tors that ex­por­ted sig­ni­fic­antly less in 2020 were watch­mak­ing, ma­chinery and elec­tron­ics. The chem­ic­al and phar­ma­ceut­ic­al in­dus­tries re­cor­ded growth of 1.6 per cent, which cor­res­ponds to around 1.8 bil­lion Swiss franc.

De­liv­er­ies to European coun­tries de­creased by -6.2 per cent, which in terms of fig­ures amounts to around 8.1 bil­lion Swiss francs. Ex­ports to the USA were also down sharply by -6.1 per cent.

Due to the pan­dem­ic, there is still a great deal of un­cer­tainty as far as eco­nom­ic fore­casts are con­cerned. In the view of the State Sec­ret­ari­at for Eco­nom­ic Af­fairs SECO, there are sev­er­al pos­sible scen­ari­os for 2021. Based on these scen­ari­os, GDP growth for Switzer­land could range from 1.1 per cent to 5.4 per cent. For the fol­low­ing year, the scen­ari­os en­vis­age GDP growth of between 2.1 per cent and a max­im­um of 4.3 per cent.

The av­er­age un­em­ploy­ment rate has in­creased by 36.3 per cent com­pared to 2019 and the un­em­ploy­ment rate is 3.1 per cent (an­nu­al av­er­age). Com­pared to Feb­ru­ary 2020, around 70,000 more people were look­ing for a job at the end of 2020. Cur­rent eco­nom­ic in­dic­at­ors point to a fur­ther de­crease in em­ploy­ment for 2021.
 

How would you describe the investment climate in Switzerland?  Which sectors offer the largest potential?

Health, so­cial and edu­ca­tion­al ser­vices, con­struc­tion and busi­ness-re­lated ser­vices have suffered in the Corona year, but have also proved to be ro­bust. This is also true for busi­ness-re­lated ser­vices.

It can be as­sumed that these sec­tors will grow and prob­ably even make up for a large part of the losses. The pan­dem­ic has also un­der­lined the im­port­ance of cer­tain sec­tors, which makes them in­ter­est­ing for in­vest­ment, e.g. to pro­mote di­git­al­isa­tion. In­sur­ance, IT and com­mu­nic­a­tions as well as pub­lic ad­min­is­tra­tion stood out for their re­si­li­ence to crises. In the in­dus­tri­al sec­tor, value ad­ded at the end of the year was only about 3 per cent be­low the value of 2019. Due to the eas­ing of meas­ures, an up­ward trend can be ex­pec­ted in the in­dus­tri­al sec­tor.
 

What challenges do German companies face during their business ventures into Switzerland?

The re­cruit­ment of skilled work­ers con­tin­ues to be an is­sue. Due to the pop­u­la­tion struc­ture and the res­ult­ing im­min­ent re­tire­ment of a large num­ber of skilled work­ers, re­cruit­ment rep­res­ents a ma­jor chal­lenge for Switzer­land in or­der to re­main com­pet­it­ive. Ne­go­ti­ations with the EU on the com­mon frame­work agree­ment are still un­der­way and are some­what cloud­ing re­la­tions with the EU. It is dif­fi­cult to es­tim­ate when a solu­tion can be ex­pec­ted. In ad­di­tion to the re­cruit­ment of skilled work­ers, the strong Swiss franc may pose a chal­lenge.

We are stick­ing to our earli­er re­com­mend­a­tion to cla­ri­fy is­sues re­lated to cross-bor­der activ­it­ies – both with the very re­strict­ive re­port­ing ob­lig­a­tions and min­im­um wage re­quire­ments – as well as the dif­fer­ences in turnover tax between the EU and the Swiss cus­toms ter­rit­ory (which also in­cludes Liecht­en­stein, for ex­ample) at an early stage and in depth.

Des­pite the pan­dem­ic, Switzer­land re­mains a coun­try with a stable eco­nomy and in­ter­est­ing op­por­tun­it­ies for en­tre­pren­eurs who want to get in­volved in Switzer­land.
 

Switzerland voted in favour of a free trade agreement between the EFTA states and Indonesia at the beginning of March? Does this give Switzerland a competitive advantage over the EU?

For Switzer­land, as a coun­try poor in raw ma­ter­i­als, ex­ports are one of the most im­port­ant pil­lars of the eco­nomy. The ex­port ra­tio was 63.2 per cent of GDP in 2020.

The in­ter­na­tion­al trade en­vir­on­ment has changed sig­ni­fic­antly over the last 15 years. Pro­tec­tion­ism in the form of pun­it­ive and pro­tect­ive tar­iffs, ex­port re­stric­tions and oth­er trade bar­ri­ers is stead­ily in­creas­ing. For Switzer­land, as a small ex­port-ori­ented coun­try, it is be­com­ing in­creas­ingly dif­fi­cult to re­main com­pet­it­ive. Swiss com­pan­ies are still strug­gling on the mar­ket due to the strength of the Swiss franc.

Switzer­land is there­fore de­pend­ent on free trade agree­ments such as the one with In­done­sia. With the con­clu­sion of the agree­ment, dis­ad­vant­ages that cur­rently ex­ist vis-à-vis oth­er coun­tries that already have an agree­ment with In­done­sia (e.g. Aus­tralia or Ja­pan) will be elim­in­ated.

In­done­sia was already an im­port­ant ex­port and im­port part­ner be­fore the agree­ment was con­cluded. The free trade agree­ment between EFTA and In­done­sia there­fore of­fers Switzer­land im­proved frame­work con­di­tions. The elim­in­a­tion of cus­toms bar­ri­ers some­what off­sets the dis­ad­vant­age of the high franc, mak­ing Switzer­land and its products more at­tract­ive and com­pet­it­ive again.

The EU began ne­go­ti­ations with In­done­sia in 2016. As a non-EU mem­ber, Switzer­land would be at a clear dis­ad­vant­age com­pared to its ma­jor com­pet­it­or, the EU, without this agree­ment between EFTA and In­done­sia. We do not know the cur­rent status of the ne­go­ti­ations. It can be as­sumed that soon­er or later an agree­ment will be signed and the EU can also be­ne­fit from im­proved frame­work con­di­tions.
    

In your opinion, how will Switzerland develop?

The past year has shown that Switzer­land has not lost its in­nov­at­ive strength even in times of Corona. Nev­er­the­less, the fur­ther de­vel­op­ment of the Swiss eco­nomy nat­ur­ally also de­pends on the fur­ther course of the pan­dem­ic and the as­so­ci­ated meas­ures. Cer­tain un­cer­tain­ties also ex­ist due to the pending frame­work agree­ment between Switzer­land and the EU as well as pos­sible stronger cor­rec­tions in the Swiss real es­tate sec­tor.

Over­all, however, Switzer­land will re­main an in­ter­est­ing busi­ness loc­a­tion. It is geo­graph­ic­ally loc­ated in the centre of Europe, of­fers good in­fra­struc­tures, at­tract­ive tax sys­tems and stable polit­ic­al frame­work con­di­tions for com­pan­ies, and has a high stand­ard of liv­ing.

Lastly, the eco­nom­ic de­vel­op­ment of Switzer­land as a busi­ness loc­a­tion is also de­pend­ent on its most im­port­ant trad­ing part­ner, the European Uni­on. 52 per cent of Swiss ex­ports go to the EU, 18 per cent of these ex­ports go to Ger­many.

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Sebastian Repetz

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