Monday, 28 Oct 2013
Overseas Business Risk - Switzerland
Political and Economic
Switzerland has the world’s most competitive economy according to the World Economic Forum’s (WEF) Global Competitiveness Index in 2013. It has weathered the economic storm in Europe better than most, despite upward pressure on the Swiss franc.
Switzerland’s economy benefits from a highly skilled labour force of 4.8 million, a stable political environment, liquid and sophisticated financial markets, low taxes, strong domestic purchasing power, a well-developed infrastructure, a stable macroeconomic environment and a strong service sector. It is expected to grow 1.8% in 2013.
Swiss core inflation is historically low and the Swiss National Bank (SNB) expects average inflation rates of -0.2% for 2013, 0.3% for 2014 and 0.7% for 2015. For the foreseeable future, inflation is not expected to adversely affect the Swiss economy. Unemployment is also expected to remain low, at around 3%.
The Swiss National Bank intends to keep its interest rate target of 0.25%; this is expected to stay on hold well into the near future. The SNB will continue to enforce the minimum exchange rate of CHF 1.20 to the Euro. It considers that the Swiss franc is still overvalued, and is concerned that further appreciation would compromise price stability and have serious consequences for the Swiss economy, particularly exports.
Switzerland is home to a number of multinationals, and exports are significant contributors to GDP. Its most important trading partners are the industrialised countries. The EU is Switzerland's main trading partner followed by USA, China and Japan. Switzerland is the fourth main trading partner of the EU. Switzerland recently agreed signed a Free Trade Agreement with China, the first country in Europe to do so.
Switzerland is not a member of the European Union (EU), and is not likely to join in the foreseeable future. It has extensive access to the Single Market through a series of bilateral agreements, including free movement. Switzerland has brought much of its regulation and practices into line with EU standards. However, protectionist measures remain in some areas - agriculture and recruitment services are instances which have recently affected British companies.
The future of Switzerland’s relationship with the European Union is currently under discussion. The EU is seeking to ensure that all Single Market participants respect the rules on the same basis. Switzerland is considering how best to reconcile this with the preservation of Swiss sovereignty. Whilst this is being worked out, further Swiss access to the Single Market is likely to remain on hold.
Twenty three percent of the 8 million population is non-Swiss. Popular initiatives to curb immigration could be voted on in referenda in 2014; if any pass it could complicate relations with the EU.
Financial services constitute just over 10% of Swiss GDP. Swiss financial institutions are adapting to the new international regulatory environment.
Economic relations UK - Switzerland
In 2012, total bilateral trade was worth £28bn. It is the UK’s sixth largest export market after the USA, Germany, Netherlands, France and Ireland. It is also the second largest non-EU export market after the USA. The export market is particularly favourable for British companies. Unlike other markets which have seen stability or decline, UK goods exports grew by 28% in 2012 to £6.8bn. This is more than Britain exports to India, Canada, Japan or Russia. In 2012, the Swiss also bought £9.1bn UK services. This is more than Australasia, Saudi Arabia, the African continent or all BRIC states together.
The exchange rate makes the Swiss market favourable for British exporters and Swiss purchasing power is one of the worlds highest. Switzerland offers major export opportunities in the areas of pharmaceuticals, financial and business services, energy, ICT and large research centres.
Aid-funded business also offers prime export opportunities. The United Nations Office in Geneva (UNOG) is the UN’s largest duty station outside of its HQ in New York, with 46 organisations represented there, of which 22 are headquarter offices. Geneva is a significant centre for UN procurement of products and services, particularly for health, emergency relief and rehabilitation after a crisis - procurement by UN offices worldwide was worth US$ 15.4bn in 2012.
Globally, Switzerland is the eigth largest foreign direct investor in the UK, with a total stock value in 2012 of GBP 34bn, which accounts for 3.7% of all FDI into the UK. Swiss companies provide close to 200,000 jobs in the UK. Overall, some 2,000 Swiss companies are estimated to operate in the UK.
Opportunities in Switzerland
Key factors identified by UK Trade & Investment in Switzerland include:
Strong demand for high quality products and services with competitive prices
Highly automated and efficient manufacturing sector
Strong Swiss Franc and weak Pound Sterling make UK products highly competitive.
Switzerland is a springboard for 3rd country business
Specific information (Sector briefings) can be downloaded from the UKTI web website
Political and Historical situation
Founded in 1848, the Swiss Federal State now comprises 26 cantons, with extensive political powers. Berne is the federal and administrative capital although Zurich is considered the financial and commercial centre. Other major cities include Geneva, Basel and Lausanne.
Swiss politics are characterised by consensus and stability, and voters have a large say in the political and administrative life of their country, through a long-standing tradition of referenda on a wide range of issues. The government has since 1959 been a “grand coalition” of the main parties, all represented in the Federal Council (cabinet). National elections are held every four years, next scheduled for autumn 2015.
People meeting on street
Largely because of its strong commitment to neutrality, Switzerland is not a member of the EU, EEA or NATO, although it participates in some of NATO’s activities, but it is a member of EFTA. A series of bilateral agreements between Switzerland and the EU currently govern the relationship, for example, land and air transport and free movement of persons, which came into force on 1 June 2002. A second package of accords was signed in October 2004 which includes measures to combat tax evasion within the EU. Switzerland and the EU are currently discussing the institutional relationship in order to find a more acceptable and fair way to manage the relationship and ensure Switzerland’s access to the single market.
In 2009, Switzerland became a member of Schengen. It had earlier voted in favour of the extension of Freedom of Movement to nationals from the ten new EU Accession States, and passed a referendum on extending Freedom of Movement to nationals of Romania and Bulgaria. In 2014, the Swiss people will be asked to approve in a referendum the extension of FMOP to the latest EU member, Croatia.
Switzerland has been a member of the European Free Trade Association (EFTA) since 1959 and a member of the World Trade Organisation (WTO) since 1995. Switzerland joined the UN in September 2002 after a narrow vote in favour, but remains keen to steer a neutral course. The United Nations Office in Geneva is the UN’s largest outside of its HQ in New York. Switzerland has just signed tax agreements with the UK Germany and many other States.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case, it does not matter whether the acts or omissions, which form part of the offence, take place in the UK or elsewhere.
Switzerland and Liechtenstein have extremely low levels of corruption. According to the (CPI), for 2012, Switzerland ranked 6th out of 176 countries. The construction-led economy sector has increased the public awareness of corruption in the last few years. Strict application of the WTO’s procurement standards in Switzerland has had a positive impact.
Swiss cities regularly feature amongst the best places in the world for expatriates to live, largely due to political stability, low crime rate and good medical facilities. And in January 2013, the Economist Intelligence Unit ranked Switzerland as the best place in the world to be born, citing stability (economic and political) in uncertain times.
Human Rights are comprehensively guaranteed in Switzerland and it is often at or near the top in international civil liberties and political rights rankings. The rule of law and strength of democracy are strong, as are respect for human rights and tolerance. Promoting respect for human rights is a constitutional objective of Swiss foreign policy and a permanent feature of political discussions. Freedom of speech is respected and recognised and there is a free, albeit small press.
Switzerland is signatory to all relevant international human rights instruments. It is also the depositary state for the Geneva Conventions and the place of domicile for several human rights-related, including the Red Cross. Switzerland currently has a seat on the United Nations Human Rights Council.
In April 1999, the government published its list of ‘Fundamental Rights, Civil Rights and Socials Goals’ which are now enshrined in the Constitution. They contain a comprehensive bill of rights as well as a set of social goals which the state is obliged to aspire to. A few rights, notably political ones, are explicitly reserved to Swiss citizens, while all others apply to all persons in Switzerland, including legal entities such as corporations.
Fundamental economic rights are also enshrined in the Swiss constitution. This includes; the right to property, free choice of profession and private enterprise. Employers and employees have the right to form a union and can operate freely without interference. Strikes are permitted but only when they are proportionate, relate to labour disputes, are organised by Unions and do not violate collective agreements.
Women, who were only given the right to vote at the Federal level in 1971, are well represented at senior levels in government, business and civil society although salary equality is not yet prevalent. The Swiss system of direct democracy ensures that the people can force a vote on any issue if sufficient signatures are collected. On 29 November 2009, voters supported a constitutional amendment to ban the construction of minarets. A recent extension of the Safeguard Clause capping the quota of migrants from the EU - 27 States was also widely criticised.
Following the peer review process by the United Nations Human Rights Council in October 2012, Switzerland has agreed to work towards reducing wage inequality between men and women as well as improving the fight against human trafficking, sexual exploitation and domestic violence.
There is a low threat from terrorism in Switzerland. However, there is a global risk of indiscriminate terrorist attacks which could be in public areas, including those frequented by expatriates and foreign travellers.
The Swiss authorities take measures to protect visitors and a high level of alert is maintained, but business travellers should be vigilant. You are advised to follow the instructions of the local police and other authorities in case of disruption.
Protective Security Advice
Most visits to Switzerland and Liechtenstein are trouble-free. There is generally a low rate of serious crime in both countries compared with other European countries. However, crime does occur and you should be aware that petty theft is on the increase. Be particularly alert to pickpockets, confidence tricksters and thieves in city centres, airports, railway stations and other public places. If travelling overnight by train, you should take precautions against being burgled while you sleep by opportunist thieves. You should not become involved with drugs of any kind.
Switzerland has Federal (national), Cantonal (regional) and Community (local) Police. There is no requirement to provide proof of your identity if requested by a Police Officer. However, the Police authorities have the right to hold you at a police station until your identity is confirmed.
IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, they you should consider registering your IP rights in your export markets.
To file a patent of your invention, register a trademark, or protect a design with IGE: the institute examines national applications, grants protective rights and maintains the official Swiss register of IP titles.
A patent is a protective right granted by the federal government for a technical invention. Invention, in the legal sense, is a solution to a technical problem. Inventions include products (e.g. heatable ski boots, or chemical compounds such as aspirin) and processes (e.g., a process for freeze-drying coffee). If an invention is novel, non-obvious to a person skilled in the art and can be commercially applied (useful) it is patentable.
Foreign visitors and residents can be targeted by scam artists. These scams can pose great financial loss to victims. If you receive an e-mail purporting to be from HMRC (Her Majesty's Revenue and Customs) offering a tax refund on provision of your bank details you should make absolutely sure that it is not part of a scam.
As in many other European countries, international organised criminal activity takes place in parts of Switzerland, in particular linked to drugs and people trafficking. There has been government action to tackle these issues (INTERPOL) and the UK and Switzerland work closely together in this area.