Swiss growth beats trends

Old reliables like Nestle - now the biggest food company in the world - are helping the Swiss economy grow at twice the rate of the European Union

WHEN PHARMACY assistant Heinrich Nestlé left Frankfurt in the 1830s to set up shop in Switzerland, his native country lost a future corporate tycoon.

Nestlé now ranks as the world’s biggest food company, helping the Swiss economy grow at twice the rate of the European Union. On a per capita basis, Switzerland hosts about eight times more of the world’s 500 largest publicly traded companies than Germany, according to data compiled by Bloomberg.

“Switzerland’s many listed companies are a major asset to the country,” said Claude Maurer, an economist at Zurich-based Credit Suisse Group.

“They stabilise the economy by boosting exports, thus creating jobs and spurring consumption” in the Alpine nation of 7.8 million, he said.

The 30 largest Swiss companies reported earnings growth of 38 per cent during the past four years, buoyed by exports from watchmaker Swatch Group, Nestlé and the pharmaceutical giant Novartis. However, profits at Germany’s biggest companies fell 50 per cent in the same period amid the worst global recession since the second World War, according to the same data.

About half of Switzerland’s gross domestic product will come from exports in 2010, compared with 38 per cent in the EU, according to the bloc’s statistics office. Worldwide demand for drugs, Swatch watches and Nespresso coffee capsules limited the country’s economic contraction to 1.9 per cent last year, while the EU slumped 4.2 per cent.

Switzerland’s GDP will grow 2 per cent this year, according to the country’s central bank – that’s double the European Commission’s estimated rate for the EU.

In an index compiled by the Geneva-based World Economic Forum, Switzerland ranks as the world’s most competitive economy because of its innovation and business culture. The US was placed fourth and Germany was fifth. Ireland came 29th.

Global corporations “generate work from suppliers down to the smallest companies that run the staff canteen at Nestlé,” said Michael Grampp, head of research at the Swiss branch of accounting firm Deloitte.

The Swiss central bank has fought to defend exports against this year’s 15 per cent increase in the Swiss franc relative to the euro by selling the currency. The effort has failed to stem the appreciation of the franc, which now stands close to parity with the dollar for the first time since the end of 2009.

Seventeen of the world’s 500 biggest companies are Swiss, amounting to about one for every 500,000 residents, compared with one for every 4 million people in Germany.

The country’s economic success and political stability began in the mid-1800s, said Silvan Lipp, a researcher at the Swiss business lobby group Economiesuisse. While most of Europe faced power struggles with monarchs, Switzerland’s democracy allowed companies to focus on exporting goods and expanding in international markets, he said.

“From 1848, Switzerland was an island of freedom in Europe, and that’s why companies could flourish,” he continued.

Nestlé, who changed his name to the French Henri in Switzerland, probably left Germany as an “anti-monarchist and liberal spirit” who wanted “to escape the repressions in his hometown” Albert Pfiffner wrote in a biography published in 1993. He also sought to complement his German education as a pharmacy assistant, Pfiffner wrote.

The company he founded today derives about 78 per cent of sales from outside Europe. By contrast, Kraft Foods of the US generates about 41 per cent of revenue from outside its home market.

Based in Vevey, a town on Lake Geneva with about 18,000 inhabitants, Nestlé makes Nespresso capsules in the towns of Avenches and Orbe, and plans to double production in Avenches to 9 billion units a year by 2012.

The company’s earnings probably will increase about 7 per cent this year, according to analysts.

Switzerland benefits from low taxes and flexible labour laws, said Patrick De Maeseneire, chief executive officer of Adecco, the world’s largest supplier of temporary workers based in Glattbrugg near Zurich.

Companies can eliminate staff with as little as a one-month notice period without giving a specific reason. Corporate tax rates in Switzerland were 19 per cent in 2008, lower than the 23 per cent average in the EU, according to a study by KPMG International. “It’s mainly big companies that are thinking about moving their headquarters to Switzerland,” De Maeseneire said.

– Bloomberg