Switzerland: Our biggest economic rival is now.... Singapore

Singapore, who just triumphed over rival Hong Kong, has a new and more prosperous target: Switzerland

Crisis in Europe sees more and more offshore funds moving into Singapore

Recent strings of economic successes gave Singapore the confident to challenge a wealthy European state known for its organizational efficiency and macroeconomic stability. Switzerland, despite being a country with very limited natural resources, and a disadvantage of being landlocked, is one of the world’s most advanced and prosperous nations.

Even though the nation is 70% covered by mountains, and only possess a population of 7.9 million, Swiss industries manage to score big globally, among them;

  • Nestle, the world’s largest food company;
  • Novartis, the world’s second biggest pharmaceutical company after Pfizer;
  • Adecco, the world’s largest human resources company;
  • ABB Ltd., the world’s largest maker of power-distribution equipment;
  • Givaudan, the world’s largest manufacturer of flavorings and fragrances;
  • Holcim, the world’s biggest cement producer;
  • Roche, the world’s largest medical biotech company;
  • Swatch, the world’s biggest watch maker;
  • Glencore, the world’s largest commodity trading company;
  • Kuehne + Nagel International, the world’s biggest shipping forwarding company;
  • Richemont, the world’s second largest luxury company after LVMH;
  • Syngenta, the world’s largest agrochemicals company;
  • Synthes, the world’s largest medical implants maker;
  • Transocean Ltd., the world’s largest offshore drilling contractor

Geneva, Switzerland

Not to mention the robust Swiss financial industries, so much so villains in movies are regularly portrayed to hold Swiss banking accounts. All these are exceptional achievements from a relatively small country. Switzerland today has a GDP 2.5 times that of Singapore, pretty much similar in 2001 when Hong Kong GDP was approximately 2 times Singapore’s. While it seems to be an uphill climb for catch-up, Singapore nevertheless believe it has all the recipes to get the job done.

Singapore now a direct economic threat to Switzerland

Switzerland’s pre-eminent world’s no.1 position in commodities trading is under threat from Singapore, just when it needed them most after a series of blows to its banking industry.

In one of the highest-profile moves, the world’s no. 3 commodities trader Trafigura said in May it is shifting its trading centre and a key executive to Singapore.

One of Singapore’s attractions is that unlike land-locked Switzerland, it sits at the centre of Asia’s booming demand for raw materials, close to many key physical markets. But Singapore is also beating Switzerland at its own game - on taxes.

Switzerland is known for its beautiful, unpolluted landscape

“Singapore has become more attractive than Switzerland on tax. There’s no doubt about it,” said Benjamin Knowles, a London-based partner advising commodities firms for Clyde & Co. Official corporate tax rates for the highest-end companies in Singapore is now 17 percent, compared to 21 percent in Switzerland, according to accountancy firm KPMG.

What really matters for global traders is the rate they can negotiate, however. Industry sources say it is now tough for new firms to negotiate tax rates in Switzerland below the official 10-12 percent rate usually granted to “holding companies”, whereas traders in Singapore can get a 5-10 percent rate via the Global Trader Programme.

The Singapore scheme has been in place since 2001 and has been regularly broadened, for example in 2011 when income from derivatives was added, considered a key factor in the Trafigura move.

Swiss-based Glencore, the world’s no.1 commodities trader, at its headquarter in Baar, Switzerland. Commodities trading competition is heating up between Switzerland and Singapore

Geneva is currently the worlds # 1 center for Crude Oil trading with around 35% of global volume vs 25% in London, 20% in New York and Houston and 15% in Singapore, according to Genevas Trading and Shipping Association. Geneva also holds the top spot in grains trading with 35% global volume, while Singapore is in second place with 20%.

Location, living costs, the Swiss franc and lifestyle all also work to Switzerland’s disadvantage for some commodities traders. Last year the Swiss franc soared some 20% in a few months because of alarm over euro zone debt, and is still under pressure despite a cap placed last September.

Clyde & Co.'s Knowles said Singapore’s position as a shipping hub means “it has warehouses and storage. It is very different from somewhere like Geneva which has no real reason, beyond tax advantages, from being a trading center.” Larry Sim, a tax partner at KPMG in Singapore, agreed. “Companies want to be closer to where their customers are,” he said. “If all the action is in Asia, it makes sense to be here.”

Singapore Dollar and Swiss Franc, ranked among the world’s most stable currencies

Expensive housing and long waiting lists at schools are issues in both countries, but advantages such as cheap domestic help can make Singapore attractive for families. “If you are ready to live far away from your relatives, Singapore is heaven,” said Frederic, an oil trader who transferred from Europe to Singapore in 2011 with his family and asked to be identified by his first name only.

“Everybody in my company wants to move to Singapore - it’s the most popular place,” he added.

Singapore also has an army of qualified, educated locals for trading and support positions, thanks to its liberal foreign talents programme absorbing skilled workforce from neighboring countries, whereas Switzerland faces inadequately educated workforce as listed in one of World Economic Forums problematic factors to doing business in Switzerland.

The loss of revenues and jobs from commodities trading houses is hitting Switzerland particularly hard at a time when it is seeking alternatives to make up for banking losses caused by a global campaign against tax evasion. Switzerland’s oldest private bank Wegelin was indicted by the U.S. Justice Department in February for enabling wealthy Americans to evade taxes, prompting some rich foreigners to withdraw funds from secret accounts.

Switzerland’s largest bank UBS, Singapore’s largest bank DBS, sharing the same BS

In 2009, Swiss largest bank UBS paid $780 million and admitted to criminal wrongdoing to resolve U.S. criminal charges over its tax evasion services, handling account details to the U.S. authorities.

Indeed, emerging competition from Singapore has alarmed the Swiss. A new lobby group, the Zug Commodity Association, will meet this month to forge a common position on what it considers key dangers to the Swiss industry, such as tax reform.

The factors that make Switzerland competitive, like confidentiality and favorable taxation, must be defended, a new interest group called Swiss Respect said in a letter to the Swiss government.

Switzerland is losing its assets one by one. We refuse to follow this destruction of value… Nothing can give back to Switzerland that which it has lost over these past three years. However, it is not too late to raise our heads and fight back strongly, it said.

Battle between Switzerland and Singapore spread to offshore finance

Analysts are already making predicting on offshore wealth management, another of Switzerland’s prized industry. “By 2015, Singapore is expected to have gained significant ground on, and could even surpass, Switzerland as the world’s largest offshore wealth management centre,” said Andrew Amoils from financial consultant firm Wealth Insights.


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