Getting back on track

Up and down, now gently on the rise again, the world economy has beena roller coaster like an Alpine range.In the midst of it all, however, foran export-orientated country, Switzerlandhas held up remarkably well consideringthe collapse in world trade last year.

In the years leading up to the economic crisis, it had been performing comfortably ahead of its EU neighbours. Between 2004 and 2008,Swiss GDP growth averaged 2.8 per cent,as against 2.3 per cent of the EU as a whole. Last year, with sharp contractions in GDP recorded around Europe — Germany 5 per cent, the UK 4.9 per cent and France 2.6 per cent — Switzerland, on the other hand, showeda more modest retreat of 1.5 per cent.

Notwithstanding its landlocked situation, Switzerland's place as one of the world'sleading exporting nations is clearly seen in World Trade Organisation (WTO) data, which ranks it as the 20th largest exporter of goods and the 15th of commercial services, withtrade per capita value of $65,059 (Dh238,925), as against the venerable Germany's $34,993, and, incidentally, China's $1,796.

Overall, Swiss exports fell by 14.7 per cent last year, the sharpest decline since 1944. The casualties included the traditional categories, with the exception of one. Watch shipments plunged 22 per cent to a three-year low ofSwiss francs 13.2 billion, chocolate exports fell 9.9 per cent to 832 million Swiss francs. The one bright spot was a 1.6 per cent increase in Swiss cheese exports, with the best year ever in that segment, namely sales of 62,146 tonnes of Gruyère, Emmental, and Appenzell (to mentionbut a few), to buyers in 73 countries, according to its marketing board. It was the nation's third-biggest food export behind coffee and chocolate.

Banking episode

Sadly, the rise of cheese sales has not been the story hitting the headlines. Rather it has been the banking breakdown, as UBS, the country's largest bank, lurched from one trauma to the next — from announcing sub-prime losses of $50 billion, to an accusation of tax evasion in the United States, to having Germany, France and Italy ganging up to challenge Switzerland's banking-secrecy laws. Losses were such that it took the Swiss government to step in to stabilise the bank.

Such was the scale of the UBS dramathat it overshadowed the fact that — apart from the minor matter at Credit Suisse of a loss of 12 billion Swiss francs in 2008 — the Swiss banks as a whole had stood up to the global crisis pretty well, having restrained themselves from so much cross-border, risky business.

UBS apart, Switzerland's other globalgiants in the corporate sector, fortunately,have had a far less eventful time. It is testament to the industriousness and aptitude of the country's human resources that a countrywith a population of only 7.6 million hasthree names in the top 20 of the Financial Times list of top 500 European companies.

These three companies — Nestlé, Roche, and Novartis — operate in more-or-less recession-proof sectors. They have providedthe stability and security more commonly associated with the Swiss business environment.

Nestlé, the world's largest food producer, >achieved sales in 2009 of 107 billion Swiss francs, while profitability continued its upward trend to record an operating profit of 15.7 billion Swiss francs (Dh49 billion), achieving an impressive operating margin of 14.6 per cent, thanks to strict disciplining of costs and working capital. Further improvement is forecast as the company — whose products include some of the best-known food brands (such as Nescafé, Perrier and Häagen-Dazs) — has the funds in the bank for expansion.

Novartis and Roche, both global leaders in the pharmaceutical sector, also reported strong sales and earnings, as well as increasing research and development (R&D) as a percentage of sales. Swiss companies as a whole spent almost 12 billion Swiss francs on R&D activities in 2008, enabling Switzerland to remain at the top of the benchmark world ranking.

With such world-class entities performing well, it's no wonder that Switzerland achieved the number one slot, having overtaken the United States in the World Economic Forum's 2009 Global Competitiveness ranking, scoring particularly highly on innovation and business sophistication factors. So, does that mean the future is well-set; will stability reign?

Recovery is the watchword

One of Switzerland's traditional businesses, the watch industry, is showing the way. After five consecutive years of strong growth, the contraction that began in the fourth quarter of 2008 took hold in the first months of 2009, as exports fell to a level last recorded a quarter of a century ago. Yet the bounce back has been just as dramatic. Swiss watch exports registered a sparkling start to this year, with an increase in exports of nearly 16 per cent on the first three months of last year.

The recovery is therefore clearly confirmed, with the main markets surging ahead. Hong Kong, which accounts for nearly 20 per cent of Swiss exports, saw sales surge ahead by nearly 34 per cent, while China, which accounts for just over 6 per cent of Swiss watch exports, jumped 79 per cent.

Emerging trends

The optimism is actually replicated across industrial sectors. A survey by the Swiss Economic Institute published last month related that "positive signals are increasingly emanating". The survey went on to say that most sectors reported that their activities had increased over the past three months and that, for the first time since 2007 export-oriented manufacturers are viewing their business situation more optimistically than thosewhich focus on the domestic market.

Encouraging findings, then, but risks remain. The strength of the Swiss franc against the Euro, after the events in Greece and threat of similar problems erupting elsewhere, will impact some exporters. In addition, the ongoing pressure on the secrecy issue overhangs the Swiss banking sector, and could permanently reduce its contribution to the economy.

But given the momentous events around them in Europe, the Swiss, having survived the global downturn better than their neighbours have, must be content with their ongoing independence — even if exports have to be sold, and it's better that your customers are doing well.