Switzerland is the biggest foreign direct investor in the USA! But there are some serious clouds in the sky
Switzerland’s importance for the United States of America has reached an entirely new level: In 2010, Switzerland was the biggest foreign direct investor in the USA! What an achievement for this small country in the Alps: In 2010, Switzerland outshone them all. Ahead of the UK and Japan, Switzerland was the biggest foreign direct investor in the USA with USD 35.6 billion. Behind the top three followed France, Germany, Luxemburg, and the Netherlands. In general, the Swiss-US trade figures for last year look very healthy. Swiss exports to the USA increased just over 10% and reached CHF 19.5 bn, the same record level seen before the crisis. Measured in USD, 2010 would even set a clear new record level. With this result, the US has solidified its position as second largest export market behind Germany (growth in 2010: +6.5%), but way ahead of Italy (growth +0.6%) and France (growth -0.6%).
The large Swiss foreign direct investments also had a very positive effect on the US job market. Measuring the “job surplus” (jobs offered by Swiss companies in the USA less jobs offered by US companies in Switzerland) results in a net job surplus of 320,000 in favor of the USA. Again, the little country in the Alps ranks first compared with any other country worldwide.
The strong Swiss Franc – a blessing for Swiss companies acquiring US companies – has some serious negative downsides. The Swiss export industry, also suffering from the strong Swiss Franc compared to the Euro, is facing serious pricing and profit issues. The Swiss tourism industry is suffering from missing tourists avoiding expensive Switzerland and Swiss tourists looking for bargains in nearby European destinations.
The strong Swiss Franc also increases operating costs in Switzerland, causing multinational companies (Swiss and foreign) to re-evaluate their organizational setup, pondering how they can reduce costs by moving certain functions out of Switzerland. A large-scale exodus is not likely, but continued down-sizing of resources in Switzerland and a growing reluctance on the part of foreign companies to move new operations to Switzerland seems certain. This challenges the Swiss economy to increasingly promote high value-added functions and innovation.
In general it can be said that the future looks rather challenging. With continued uncertainty about the financial solidity of many European countries and the USA, a continued strengthening of the Swiss Franc is a very real scenario and the total effect on the Swiss economy is unclear. Also, as far as the economic relation between Switzerland and the US is concerned, there are many issues that might hinder the future development between the two countries. Although these issues are mostly multilateral in character, defining the relationship of the USA with all its trading partners, Switzerland will always be more exposed to such developments, as it is over-proportionally linked to the US economy as shown above.
The main issues currently on the radar are investigations by the IRS against certain Swiss banks and FATCA (Foreign Account Tax Compliance Act). Other issues include the increasing complexity with which business transactions are made with US companies, especially for small and medium-sized companies, and overly complex reporting mechanisms.
In summary: The underlying economic figures between Switzerland and the USA are strong, with a positive outlook. But some monetary, fiscal, and legal issues have the potential to derail this great development. Let’s hope for some positive developments and level-headed personalities on both sides of the Atlantic.