Switzerland's status as an international centre for jobs at commodities-trading companies is under threat from Singapore, a country whose low tax rates may give it a competitive edge in attracting commodities talent.
A new Swiss Federal Government report on the commodities sector stresses the importance of Switzerland remaining a global leader in commodities trading, and argues that the sector, which contributes about 3.5% of the country's gross domestic product, should not be overburdened by regulations.
The report points out that Switzerland boasts some 500 commodities companies employing more than 10,000 people, mainly based in Geneva (8,000 employees), Zug, and to a lesser extent Lugano. Many large global commodities firms – including Vitol, Trafigura, Glencore International, Mercuria, Gunvor, Litasco, Cargill and Louis Dreyfus, which last week announced record net profits of $1.1 billion for 2012 – all have operations in Switzerland.
This Swiss success story is, however, now threatened by international competition, in particular from Singapore. According to a survey of commodities professionals published in the Swiss government report, Singapore still ranks second behind Switzerland as a location for commodities trading. Swiss professionals believe, however, that over the next five years Switzerland will lose some of its appeal in favour of Singapore, consigning the country to second place as a commodities centre, says the report.
Other financial centers, such as Dubai and Hong Kong, are also increasingly threatening the Swiss commodities industry. Switzerland needs to keep its regulatory regime and tax rates attractive to make sure commodities traders stay within its shores, says the report. But it is struggling to compete with other countries when it comes to tax.
Highly qualified employees are taxed at least twice as much in Switzerland as they are in Singapore and Hong Kong. For example, a single professional earning €100k a year is taxed at 11.3% in Singapore, 16.1% in Hong Kong and 36.4% in Switzerland, according to the 2011 BAK Taxation Index from consultancy BAK Basel Economics, which is quoted in the Swiss report.
While the report said that offshoring of commodities jobs out of Switzerland isn’t inevitable, the threat from Asia shouldn’t be taken lightly either. The latest Global Financial Centres Index ranks Geneva in seventh place – up two from 2012, but still behind Hong Kong and Singapore, which are ranked third and fourth respectively.
The Swiss government report also said that Switzerland is losing out to Asian markets in oil trading, a field it previously dominated. As Cyprus battles its financial crisis, Mercuria, Gunvor, Vitol, Island Oil and Trafigura are considering shifting some of their Cyprus teams to Asia, according to the Financial Times.
It would be bad news for banks in Geneva, such as UBS, Credit Suisse, BNP Paribas and Credit Agricole, if Switzerland were to lose some of its clout as a centre for commodities trading companies. In Switzerland, banks finance up to 70% to 80% of the trading companies’ activities, providing a boon for the country’s banking sector at a time when Swiss private banking is being destabilised by a regulatory push for greater transparency.
The political and media pressure that private banking has endured recently in Switzerland is now being felt in commodities trading. And the reputation of the sector has been damaged by a perceived lack of openness and the high salaries of traders.
The reaction of the Swiss government, however, to the various threats to commodities trading is rather muted. Of the 17 recommendations made in the report, no binding measures have been proposed.