How Diversification Helped Switzerland During the Pandemic


How Diversification Helped Switzerland During the Pandemic

Seedstars Global

JUNE 4, 2021

It is well known that Switzerland has one of the strongest economies in the world. With the OECD grouping them into the high-income countries and the second highest GDP in the world, even economy newbies know that this small central-European country is synonymous with stability and prosperity.

The business environment is an interesting mix of world-famous companies, top-notch universities and research facilities, SMEs and startups working in a relatively small geographical area. Ranging from medicine, precious metals and gemstones, heavy machinery, to tobacco, chocolate and luxury perfumes and cosmetics, the 310 billion USD exports can compete with countries with more resources and population.

The Swiss economy is based on a highly qualified labour force working in specialized industries, with the main economic activities being pharmaceuticals, machinery, food and financial services. The “land of watches” can boast its high-class motors, generators, turbines and a whole range of other deep tech products. Continuous investments in research and development (about 3 percent of total GDP) has not only diversified the existing industries, but made it one one of the best places to do business.

A fast recovery from the pandemic

However, even the strongest economies were hit by the COVID-19 pandemic. It is estimated that GDP growth was -3 percent in 2020 and unemployment has risen to 3.1 percent as well. Due to lockdown, manufacturing output was down by around 25 percent, and tourism was hit hard by various travel restrictions so accommodation and food services recorded a 54.2 percent drop last year. Nevertheless, financial institutions worldwide are already predicting a rise in activity and consequently GDP in 2021, and stabilization in 2022.

How was Switzerland able to jump back relatively effortlessly? Centuries of building various industries and brands, as well as a stable government offering several economic packages to help out companies during the pandemic. This was especially important for small and medium-sized enterprises, because they make out for 99 percent of enterprises in the country and employ around 63 percent of people. Switzerland further encourages new companies by providing ample opportunities to gain federal funding and low taxation rates, which is an excellent opportunity for tech startups wanting to establish their presence in Europe. Seedstars has been founded, and in a way incubated in Switzerland. One of our core values is “Keep it Swiss” meaning whatever we do, we do it well. We have been working on building a global brand that people will equate with professionalism, quality, and getting things done.

What does the deal with Indonesia mean?

The recent referendum vote on the trade deal with Indonesia aims to significantly reduce tariffs for Swiss exports and save 25 million CHF for Switzerland. The deal also includes duty-free market access for industrial products to the Swiss market and grants concessions on certain agricultural products to Indonesia, which might signify a shift in Swiss trades towards emerging markets. In light of the failure to agree on bilateral treaties with the EU that has been going on since 2014, it is clear that western economies are recognizing the potential gains of opening up to developing countries.

The trade negotiations with Indonesia started over a decade ago, and opened a big market that has been largely driven by domestic economic activities and exports to Asian countries. At the same time, Indonesia was working on new partnerships with Australia and the United States.

The main opponents of the free trade agreement were worried about the sustainability and environmental impacts that some Indonesian exports have. Mainly the palm oil industry, of which Indonesia is the largest producer and exporter in the world, but which is said to be a big cause of deforestation. The Swiss government assured that importers of palm oil will have to meet certain environmental and societal standards. It is also worth noting that rates on palm oil will be reduced to 20 percent, but not completely removed. This is to help protect the Swiss grape seed and sunflower oil production. The narrow voting margin, as well as resistance in certain cantons where a lot of food and commodity companies are located (Geneva, Vaud, Fribourg) suggest that voters are not so sure of those claims.

Potential markets across the globe

As a part of EFTA (European Free Trade Association) Switzerland has also been negotiating a similar agreement with another strong Asian market- Malaysia. They are the fourth most important Swiss partner among the ASEAN member countries, with main exports being precious stones and metals, machinery, pharmaceuticals and chemical products. The negotiations started in 2014 and are still ongoing. However, negotiations with a partner on the other side of the world were successfully concluded two years ago.

The Mercosur block (Argentina, Brazil, Paraguay, Uruguay) is a huge market, with over 260 million potential consumers. This agreement covers trade in goods, services, investment, intellectual property rights, government procurement, competition, trade and sustainable development, legal and horizontal issues including dispute settlement. According to the latest data, EFTA exported goods worth over 3,7 billion EUR of goods, of which Switzerland is the main exporter with 2,65 billion EUR. Due to the agreement Swiss companies have gained from tariff cuts that ensures a level playing field with competitors present in this big market.

Although it is unlikely that Switzerland will completely focus its trade deals on non-European markets, recent economic activities suggest a shift towards different economies. It would be fascinating to watch how the Swiss ecosystem unfolds with all of these developments.

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