Innovation nation – investing in Switzerland

10 June 2014

Switzerland is well known as an international centre for research and development, but maintaining such expertise requires investment, economic stability and top-class education. Federal Councillor Johann N Schneider-Ammann, head of the Federal Department of Economic Affairs, Education and Research (EAER) in Switzerland, tells Finance Director Europe how the Swiss Government strives to get the balance just right.

Michael Wood: Tell us a little about the Federal Department of EAER and your role within it.

Federal Councillor Schneider-Ammann: Despite my title of federal councillor, my role is the same as most ministers in other governments. The major difference is that I am at the same time the minister of economic affairs, of science and research, higher education and agriculture. So I wear many hats. There is also a logic to having these different areas in the same department, as you need good education to have good research, which leads to innovation, which in turn fuels the economy, supports the agricultural industry and encourages trade. And I am very well supported by two state secretaries.

I understand that the Federal Department of EAER is responsible for driving Switzerland's approach to research, education and innovation. What are some of the latest developments in each of these areas?

Switzerland is highly competitive in the fields of research and innovation. It is also, however, among the countries with the highest spending on R&D as a percentage of GDP. The private sector funds more than two thirds of Swiss R&D expenditure, which currently amounts to nearly 3% of GDP or about CHF16 billion. Public research funding relies primarily on the researchers' initiative, on the principle of competition and on international cooperation.

The higher education landscape in Switzerland offers a wide range of comprehensive options, including universities and federal institutes of technology, universities of applied sciences and universities of teacher education. The course of study is based on the international three-stage model of higher education studies, with a bachelor's, a master's and a doctoral level (PhD, limited to tertiary level A higher education institutions). The one thing that all Swiss universities have in common is that in addition to delivering teaching, they are also active in research. They also offer a broad selection of continuing education and provide services to third parties. The tertiary level of the Swiss education system also includes professional education and training, which allow people working in a wide range of fields to obtain higher professional qualifications tailored to the needs of the labour market. Professional education and training thereby indirectly strengthen the research-oriented academic system, and help the economy by providing an ideal mix of qualified professionals.

Give us an overview of the Swiss economy and how it compares with the rest of Europe today.

In recent years the Swiss economy has performed well. Compared with other European countries, Switzerland's economy sustained a 2% growth rate throughout 2013. This positive development is due in particular to Switzerland's robust domestic economy. We also expect a recovery in the export industry in the coming months. In terms of employment, Switzerland has recorded stable development in comparison with its European neighbours. There was, however, a slight increase in unemployment until the end of last year. The average unemployment rate was 3.2% in 2013 (2.9% in 2012), and we expect an unemployment rate of 3.1% for 2014.

How has your leadership of the Ammann Group enabled you to be successful in your current role?

Politics and business are quite different worlds. But still, my long experience at the head of a medium-sized industrial group, heavy on technology and with international activities, helped me to find my way. I have a keen understanding of what businesses need to thrive. But politics requires other skills like coalition building, managing projects through complex procedures and keeping them alive in the long run.

In a previous edition of Finance Director Europe we interviewed Daniel Kung from Switzerland Global Enterprise (S-GE, formerly OSEC) - how does the EAER collaborate with Daniel's organisation to promote trade and investment?

The EAER and S-GE have a client relationship. This means that the private association S-GE is commissioned by the federal government to facilitate export, location and import promotion. Funding required for these performance mandates amounts to around CHF40 million a year, 80% of which comes from the federal government and the cantons.

What countries is Switzerland currently forging closer ties with and what sort of agreements have recently been put in place?

By concluding free-trade agreements (FTAs), Switzerland aims to enable Swiss companies to access important foreign markets. This market access should be at least comparable to the market access enjoyed by Switzerland's most important foreign competitors (in particular the EU, the US and Japan), which may have concluded or intend to conclude FTAs with the same states. FTAs are therefore an important means of maintaining and strengthening Switzerland's competitiveness as a location for business. Last year, Switzerland signed an FTA with China. Switzerland is currently negotiating FTAs with India, Vietnam, Indonesia, Malaysia and other countries.

How important is foreign direct investment (FDI) for the Swiss economy and what are you doing to encourage it?

According to the Organisation for Economic Co-operation and Development (OECD), Switzerland is among those countries with the highest FDI stock in relation to its size. In some rankings, Switzerland is considered to be one of the most globalised countries in the world. Switzerland ranks tenth in the KOF Globalization Index, for example. Switzerland's appeal as a location for business seems to be particularly high for company headquarters, but also for R&D and innovation, trade, all financial services and merchandising. Due to its business-friendly legislation and excellent infrastructure, Switzerland attracts many kinds of investment. The upcoming corporate tax reform should help to ensure that the country remains highly attractive.

Tell us about the value of Swiss human capital and how this gives employers competitive advantage.

The Swiss economy is extremely competitive on an international level. There is a high degree of specialisation and the tertiary sector has an important place as it employs over 70% of the country's working population. Around 25% of the working population is employed in the secondary sector, and 5% in the primary sector.

The high level of permeability in the education and training system, in which academic and vocational education training are considered equal, raises the training qualifications of the population to a very high level. A highly qualified workforce at every level fosters the innovative capacity of the economy and helps to ensure that unemployment in Switzerland rarely exceeds 4%, even when the global economy is faring badly.

What were the main findings of your recently published commodities sector report? Tell us about Switzerland's increasing role in this sector.

Switzerland is traditionally regarded as an important trading centre worldwide for commodities. The importance of the commodities industry in Switzerland has increased considerably in recent years. An estimated 500 companies with around 10,000 employees are active in this industry, which, in addition to trading, also covers cargo shipping, commercial financing, inspection and product testing. With net earnings from merchant trading amounting to nearly CHF20 billion, the commodities industry accounted for around 3.5% of Switzerland's GDP in 2011. According to the latest figures from the Swiss National Bank (SNB), earnings from the commodities industry decreased by 5% between the third quarter of 2012 and the third quarter of 2013. This appeared to be the continuation of a trend that had already been observed in 2012. In 2012, earnings from the merchant trading transactions amounted to CHF19 billion, and were 3% below the amount for 2010 and 2011 (around CHF20 billion for each year). According to the SNB, this decrease is mainly due to low prices for commodities. According to the latest figures on merchant trading, the strong growth in the Swiss commodities sector has, at least temporarily, come to a halt.

At the same time, competition from other countries continues to be significant. That is why, in March of last year, the Swiss Government approved a background report on this topic. The report shows that Switzerland has done a great deal to ensure that it is a competitive, reliable location for business.

Putting business aside, tell us a bit about Switzerland from a quality of life standpoint.

Compared with many other countries in the world, Switzerland is in a very privileged situation. I know of no other country in Europe today with such low unemployment, such a thriving economy, and such a beautiful and well-preserved environment. We shouldn't take any of this for granted. It takes a lot of work to maintain a reasonable balance: to protect nature without stifling the economy and destroying jobs, and to maintain growth without sacrificing our beautiful countryside. Our political system and our culture of dialogue and consensus seeking help solve the problems we encounter in an orderly and successful way.

References available upon request.

Johann N Schneider-Ammann became head of the Federal Department of Economic Affairs, Education and Research (EAER) in Switzerland on 1 November 2010. Prior to this, he was a member of the National Council for 11 years and was president of the Ammann Group until 2010. Born in 1952, he is an electrical engineer by profession.