The (Not So) Sweet Spot
The Swiss Insider - 11 March 2023
Dear Insider,
As you probably know, Switzerland has a special “spot” in the heart of Europe. ❤
Its geographical location, its above-average prosperity - and its wide web of international connections (not to mention beautiful Alpine landscapes) make it truly unique…in many ways.
Special “sweet” spots inside Switzerland are both highly desireable - and difficult to come by.
Skyrocketing housing prices have made owning your own home much harder. A closed market and rocky relations with the EU create challenges for business expansion.
In both cases the “besondere” situation of Switzerland presents both great challenges - and yes, special opportunities.
Let’s explore what it means for those who want to make money in Switzerland… 💡
Quick hits:
🏡Home and away - Switzerland’s current housing crunch
Swiss society has been a-twitter (no, not about Elon) since a recent report was published showing that there is a widening hole in the number of available homes in Switzerland. At the same time, the percentage of unoccupied residences hovers just over 1%. Now political figures have waded in, pointing fingers… Refugees and cheap(er) labor coming from the EU face special (new) hostility for taking up extra space. Meanwhile the rental reference rate is expected to jump dramatically in the next months.
Nothing very sweet about all that…
🌹Guns and (golden) roses - The market for weapons
One of Switzerland’s “sweet spots” has always been manufacturing, especially for sophisticated equipment that is needed by advanced economies around the world.
Hardly anything is more sophisticated than weapons - where Switzerland is a leading producer, exporting roughly CHF 1bn worth according to a 2020 estimate.
(Sweet…oder…?)
But strict neutrality laws forbid arms from being exported to conflict zones - and that does not sit well with the international community as the war in Ukraine enters its 2nd year.
The tensions between sympathy for Ukraine (and financial interests) and traditional values of neutrality have come to a head (again) recently. So far parliament and the Federal Council have stood firm in forbidding the re-export of Swiss-made weapons…
Not so rosy for arms producers…
🐼Cozy China - Helping Chinese firms go public…
Despite sitting in the heart of Europe, Switzerland is increasingly looking eastward. 🔭China (as everyone knows) is a huge market and especially attractive for sophisticated machinery manufacturers…like Switzerland.
Lately, however, Switzerland has another deal going with Xi Jingping’s country - IPOs. The SIX Swiss Exchange has made a point of courting Chinese firms who want to list abroad - while other (US and UK) marketplaces remain more skeptical.
With much of the world turning (slowly) away from China, Switzerland and the Swiss financial sector seems to have found a “new sweet spot”.
💡The Point:
👉Investment in Swiss real estate remains an attractive option. Pension funds have a strong interest to bolster their portfolios with cash-flow positive investments like rental homes. But slow moving bureaucracy and reluctant surrounding homeowners make building more quite difficult.
With limited supply and (still) increasing demand, the real estate investment landscape looks to be attractive for years to come…
👉While Switzerland has a free-market economy, its “crucible-like” political atmosphere and dedication to direct democracy mean that taking advantage of economic opportunities can be difficult. Even if there is currently great economic opportunity in weapons exports - traditions trump everything.
The bottom line is one thing - political will is another…
👉While the EU has tried to put the screws to the Swiss equitiy markets as part of its stalled negotiations about economic relations, SIX CEO Jose Dijsselhof is leading the charge for inventive international expansion plans. And it is bearing fruit - with a group net profit of CHF 185mn.
No barrier is too big - nor (potential) partner too scary…
📈The Insider Advantage:
Part of Switzerland’s “sweet spot” derives from its independence. In the face of pressure from western Europe and the US, it has managed to preserve a strong tie to China - with all the economic advantages that it brings. In many ways, Swiss business is a contrarian play. Where others dare not tread, Switzerland finds an advantage.
The cloke of neutrality has its business benefits.
But the “sweet spot” also has its limits. Tough zoning regulations have so far limited house building. A highly devolved political system makes (some) restrictive laws hard to overcome. This makes finding a “business sweet spot”.
On the international stage, Swiss business opportunities may abound by swimming against the current. Domestically, it is much more difficult.
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➕The Bonus:
💲Big bad bankers - UBS boss Ralph Hamers cashed in with a bonus of CHF 8.5mn - bringing his total compensation to over CHF 12mn. Meanwhile, most UBS bankers saw their bonuses cut. (Link)
👨🎓 Growing, growing…gone? - The Lucerne University of Applied Sciences has published the latest edition of its FinTech Study. The numbers show more growth - but more complicated conditions for fundraising. …and a moderate increase in sustainability. (Link)
📕Beautiful books (for business) - Swiss bookshop icon Orell Füssli noted a 9% increase in revenue in 2022, bucking (or booking) the trend of online, digital reading. (Link)