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Swiss climb back up ladder of competitiveness

The IMD says Switzerland is making greater strides. Lonza

Switzerland’s competitiveness has made a marked improvement, with its ranking rising from 14th last year to eighth in an annual study.

The IMD’s World Competitiveness Yearbook 2005 says the “remarkable performance” is due to the increasing dynamism of the international sector of the economy, adding that the domestic sector remains “disappointing”.

Topping the annual survey from the Lausanne school is once again the United States, followed by Hong Kong, Singapore, Iceland and Canada.

“When we look at the performances of the large Swiss companies, they have been extremely good. Finally restructuring is showing some results,” Professor Stéphane Garelli, director of the IMD’s World Competitiveness Center, told swissinfo.

“The small- and medium-sized enterprises that direct their activities towards exports have also had a very good year, despite the fact that the Swiss franc is a little bit strong compared with the dollar,” he added.

Assets abroad

Foreign direct investments also continue to grow, the Yearbook finds.

“Annualized estimates show that Switzerland invested about SFr28 billion ($23.2 billion) in assets abroad: this is the fourth highest level of investment worldwide as a proportion of gross domestic product (GDP),” commented Garelli.

“In total, Switzerland owns almost SFr510 billion in assets abroad… almost as much as Japan!” he added.

The most important change over the previous 12 months is “Switzerland’s renewed attractiveness”, the IMD study says.

Based on annualised estimates Switzerland attracted more than SFr14 billion in foreign investments in 2004, placing it in 12th position just ahead of Russia and Spain.

“This trend that began in 2003 shows that Switzerland managed to sell itself better in international markets,” Garelli explained.

“It probably also means that investors are looking for something other than low cost… They are for example looking for security, a new parameter in international investments, for a motivated, skilled workforce.”

“They are also looking for quality of life because if you want to attract high-level expatriates to a country it is very important. There is no doubt Switzerland has it,” he added.

Better image

Switzerland’s image, which had lost ground over the past few years, is back up to 11th place.

But Switzerland suffers from the stagnation of its domestic economy. GDP growth of only 1.9 per cent means there is room for improvement, the IMD says.

“Out of the 60 economies analysed in the 2005 report, 40 had growth rates above three per cent in 2004,” Garelli noted.

Private consumption went up by only just over one per cent. In addition, since the federal and cantonal authorities are applying austerity policies, government expenditure is frozen.

“A 2.26 per cent growth in overall investments is not enough to maintain an acceptable level of economic revenues for a country where social expenditures are constantly increasing,” he added.

He called on Swiss authorities to cut down on red tape to help make business more efficient.

Simplify laws

“I would ask parliament for example not to produce any more legislation unless they simplify what already exists. Maybe we should have a permanent commission on the simplification of laws,” he told swissinfo.

Another negative factor is that many companies prefer to gain immediate advantages in relocating activities abroad rather than conducting “long, painful and costly reforms” in Switzerland.

“As a consequence, not only are jobs lost but the capacity of the domestic economy to adapt is impaired,” Garelli noted.

Many political and economic leaders consider that tax policy may be one way to boost the Swiss economy. The IMD is far from convinced, although it says that a direct link can be established between corporate taxation and competitiveness.

“Tax levels may influence economic activity but it is no substitute for Swiss competitiveness,” Garelli argued.

The IMD reports show that the “true engines” of competitiveness remain science, technology, management, finance, logistics, price efficiency and education.

“We need to have a kind of love story with technology, and about price efficiency which we don’t have in Switzerland,” Garelli said.

swissinfo, Robert Brookes

Top Ten in IMD competitiveness rankings:
United States, Hong Kong, Singapore, Iceland, Canada, Finland, Denmark, Switzerland (14th in 2004), Australia and Luxembourg.
The World Competitiveness Yearbook looks at the economies of 60 countries, using 314 criteria.
It focuses mainly on hard data (2/3) from international, regional and national sources. The remaining data comes from the WCY’s executive opinion survey 2005.

Findings of the 2005 Yearbook:

“It is a strange fact that the most competitive nation in the world (US) has one of the weakest currencies in the world.”

“Madonna was right! It is indeed a material world… The world is now all about raw materials and commodities.”

“Competition on corporate taxes is ever more a key weapon in world competitiveness, both in developing and developed economies.”

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SWI - a branch of Swiss Broadcasting Corporation SRG SSR