Switzerland: A Well Built Economy
Switzerland, a country known for its neutrality, is one of the few countries that fascinated me. Not only for the fact that it was featured in one of my favorite Korean drama, entitled “Crash Landing on You”, but also because of its beautiful and calming sceneries as I’ve seen on the pictures. This is why I have decided to choose this country as my subject for this blog. We’re not only going to talk about how beautiful this country is, but we will also tackle its economic system.
Switzerland has a prosperous and modern market economy. They are known for their strong Swiss economy, which comprises of low unemployment, a highly skilled labor force, and second-highest gross domestic product (GDP) per capita in the world. It was stated that Swiss GDP per capita at the end of 2015 stood at CHF 77, 943, which is 81,000 in US dollars.
Switzerland's economy profits from an exceptionally advanced service sector, ushered by financial services, and a manufacturing industry that specializes in advanced technology.
In the world of business and trade, Switzerland’s main trading partner is The European Union (EU). It was estimated that 78% of Swiss imports are from the EU, while the estimated 43% of Swiss exports are bound to EU countries, such as Germany, France, and Italy. One of their famous exports is their watch and clock products, with an estimated value of CHF 19.4 billion exports worldwide in the year of 2016. Additionally, Switzerland is known to export more coffee than chocolates, exactly CHF 2 billion worth of coffee was exported also in the year of 2016.
Moreover, almost all the firms in Switzerland are small and medium-sized enterprises which only composes of 250 employees or fewer. Their public debt-to-GDP ratio in Switzerland is falling considerably in recent years, from 54.6% to 34.7%, in the year 1998 to 2014 respectively. Not only that, but they also have the lowest value-added tax in the whole of Europe, and invests over CHF 16 billion in research and development yearly. The rate of investment equals that of the 3% of their gross domestic product (GDP), making Switzerland the sixth-highest financier on research and development worldwide.
These are one of the many reasons why it was declared that the Swiss Economy is stable and strong.
Now, even when their economy was renowned strong and stable, there were still inevitable challenges in their economy that they had to face over the years.
One of the challenges I mentioned above would be the Swiss’ government’s intention to open additional markets way back in 2013. In the past years, the free trade path has taken over the multilateral one. Free Trade Agreements (FTAs) have become very comprehensive and complex, with allocations both in trading goods and services, as well as on intellectual property rights, investment security, government acquisition, and competition. The Swiss’ government then noticed that the larger the partner, the more difficult the negotiations would be. Processes commenced with studies, accompanied by exploration talks and negotiations, may take several years. By that time, the Swiss government stand at nine with the customs union between Russia, Belarus, and Kazakhstan, and at eleven with India. They have also signed FTAs with China, although it took six years altogether to get to that point. Effective negotiations took two years and four months with China, as was stated. It will be to their advantage since China is the second-largest economy at the time, and has a huge potential for their investors and exporters. Furthermore, the Swiss’ network of FTAs was very broad then, covers 82% of their imports and 72% of their exports.
The important groups and countries still missing at that time in their list of targets to have FTAs were Mercosur – a Southern American trade bloc – particularly Brazil and Argentina in Latin America, the US in North America, Indonesia, the Philippines, and India in Asia, Australia and New Zealand in Oceania. With most of these partners, negotiations will face the big hurdle of their agriculture. Suppose the European Union (EU) conclude a Free Trade Agreements (FTAs) with Mercosur and with the United States, firms in Switzerland would face serious competitive disadvantages on these markets.
Therefore, as my recommendation, they must continue in improving their domestic framework conditions which will most likely be essential to gaining more international competitiveness. With this purpose in mind, it is also wise to put more attention into innovation thus procuring possible competitive advantages along the way.
