The Financial Sector of the Canton Schwyz

Transcription

1 The Financial Sector of the Canton Schwyz Structure, economic importance and economic-political framework requirements A study on behalf of the Office of Economy of the Canton Schwyz 2011 Executive Summary

2 Copyright 2011 by BAK Basel Economics AG All rights reserved with BAK Basel Economics AG. No part of this publication may be reproduced or copied. Further distribution of this publication or parts thereof to a third party is excluded.

3 Executive Summary The financial sector of the Canton Schwyz plays an important role for the economic progress and development of the region. During the past few years this sector was one of the most important drivers for growth, thereby allowing for an above-average general economic growth in the Canton Schwyz. However, the high specialization in the financial sector in some areas of the Canton means that the financial crisis - which in the meantime has been overcome - had a big impact on the economy of the region. Regional concentration of the financial sector of Schwyz, (value added, 2010) >= 0.0% >= 2.5% >= 5.0% >= 20.0% >= 35.0% Note: The depth of the coloring indicates the share of the financial sector in the respective community in relation to the whole added value of the financial sector of the Canton Schwyz. Source: BAKBASEL Since the region is dependent for its economic development on the well-being of the financial sector to an above-average degree, it is necessary to address the structural consequences of the financial and economic crisis. The main focus of the study was on the following questions: How does the financial sector Schwyz position itself in a competitive environment? How attractive is the financial center for producers and clients of financial services? In order to support politics in answering such questions as well as analyzing a strategic positioning for the Canton Schwyz, BAKBASEL conducted a study based on a systematic and fact-based analysis of the financial sector of the Canton Schwyz. The subsequent summary constitutes the main findings and conclusions thereof. BAKBASEL 1

4 Strengths and Weaknesses of the financial sector of the Canton Schwyz On the one hand, the strengths and weaknesses may be identified in accordance with the economic performance of the industry. On the other hand, strengths and weaknesses manifest themselves in accordance with the locational and legal conditions in comparison to the international framework requirements. Strengths During the last decade, the financial sector of Schwyz was able to increase the gross added value by 6.1% annually. As such, compared to the national average rate (0.6%), the financial sector of the Canton Schwyz clearly developed much stronger. Also in comparison to the other five relevant Cantons (Zurich Zug, Geneva, Ticino, Basel) with respect to the financial sector, the financial sector of Schwyz is top. Thanks to the excellent growth performance the financial sector of the Canton Schwyz was able to participate significantly to the increase of the Gross Domestic Product and employment. The above-average growth of the financial sector in Schwyz came about mainly through the rapid development in the Fund industry. The industry other financial services, to which the Funds belong, was able to grow annually by 20% between 2000 and 2010 (economic achievement being measured with respect to the gross added value). Also with regard to the number of employed persons the financial sector of Schwyz developed better than in the financial sector of the whole of Switzerland. The number of employed persons in the financial sector of Schwyz increased on average by 6.3 % between 2000 and 2010, whilst the national average of the industry increased by 1.5%. Especially Fund management strongly expanded employment during the last 10 years. Fund management with strong growth average growth % 25% 20% 15% Holding companies Security and comodity Other activities auxiliary to financial services Activities auxiliary to insurance Fund management 10% Other financial service Cantonal banks 5% activities 0% Insurance Other monetary Big banks intermediation -5% 0% 5% 10% 15% 20% 25% share in total employment of the finance industry % 1.0% Contribution to growth Source: BFS, BAKBASEL 2 BAKBASEL

5 The high productivity of the financial sector of Schwyz also shows itself in a high labour productivity, respectively. Indeed, due to the structural differences in the banking and insurance industry productivity is lower in these segments than in Zurich, Geneva or Basel. Due to a focus on the Funds business, however, in the other financial services the Canton Schwyz is top with an added value of CHF per employed person in The national average lies at CHF per employed person. The strength of the finance industry of Schwyz lays partially in the especially good locational factors: First of all the financial sector of Schwyz profits from its geographical position: Switzerland in general is looked upon as a country with a very high locational quality. Due to its core values, such as political and macro-economic stability, Switzerland enjoys a high reputation. Furthermore, due to its proximity to Zurich, Schwyz is part of the international financial center. There are many spill-over effects due to the proximity of the financial center of Zurich from which Schwyz may profit. Important networking effects are emerging through the financial clusters. Also, the financial center of Zurich offers a modern financial infrastructure and makes sure to a large degree that sufficient highly qualified financial experts are available in the region. The Canton Schwyz offers an attractive tax environment. Both with respect to corporate taxation and to highly qualified employees with high income the Canton Schwyz is top comparing effective tax rates to the relevant competitive locations. Corporate Taxation, 2010 (locations abroad: 2009) 45% 40% 35% 30% Municipality with the lowest taxation % 20% 15% 10% 5% 0% Schwyz Zug Zurich Ticino Basel Geneva Dublin Vienna Stockholm Amsterdam Brussels Luxembourg Milano London Frankfurt Paris Madrid New York Effective average tax rate in percent Source: BAKBASEL BAKBASEL 3

6 The communities of the financial clusters of Schwyz all show good accessibility. As such, Zurich is accessible from Pfäffikon within 20 minutes by local train. Via the Zurich airport also international accessibility from Schwyz is at a high level. For an international industry such as the Fund business, this is an advantage not to be under-estimated. With respect to the industry specific regulatory framework requirements the liberal legislation for the Swiss Fund Market may be named as an advantage. Both in terms of regulation of the product Hedge Fund and its sales and marketing as well as in terms of regulation and controlling of the Hedge-Fund-Managers, Switzerland has comparatively liberal rules and regulations. However, the AIFM-guidelines of the EU will also influence the regulatory environment for Funds in Schwyz (Keyword:«EU-Pass»). Advantageous labour market conditions: Besides a good regional availability of human capital, the Swiss labour market is characterized by above-average liberal rules and regulations as compared to the international labour market. Besides a monetary attractiveness, which is due mainly to the advantageous tax framework environment, the Canton Schwyz with respect to its standard of living is also competitive on an international scale. Here too the proximity to Zurich is advantageous. Zurich is considered one of the most attractive cities in Europe. Furthermore, there is a scenic quality inherent to the Canton Schwyz. BAKBASEL Quality of Life Index environmental conditions social environment economic environment Zurich Geneva Copenhagen Munich Barcelona Vienna Basel London Helsinki Amsterdam Paris Madrid Stockholm Brussels Berlin Milano Weighted Rankpoints Source: BAKBASEL Weaknesses Currently, there are not many weaknesses to be detected, at best maybe structural disadvantages. From a performance point of view it could be criticized that the share of the financial sector in relation to the whole economy is below national industry average for Canton Schwyz - both in respect to added value as well as in respect to employment. The reason 4 BAKBASEL

7 is that the Fund business - the most important part of the financial sector of Schwyz - has only begun to play a role since the mid-90s. Meanwhile the classic services of the financial sector (especially banking services) in Schwyz have shown a rather more belowaverage importance as demand has been serviced directly from the big banks in Zurich respectively. A further structural factor can be observed in the area of Fund Management: Whilst the number of Funds of Hedge-Funds in Schwyz has increased dramatically during the last 15 years and has become the driving force in the financial sector, Canton Schwyz is inconsequential as location for Single-Hedge-Funds. On the one hand, this structural difference may be traced back to historical facts. Switzerland is regarded the birth place for Funds of Hedge-Funds and developed itself in this segment from an early point on respectively. On the other hand the regulatory framework environment in Switzerland has for a long time disabled a growth of the Single-Hedge-Fund-business. However, with the implementation of the new collective investment law (KAG) in 2007 the legal structures for Single- Hedge-Funds have markedly improved. The subsequent financial crisis may also explain, why the Single-Hedge-Fund-business did not develop in a more dynamic way after the implementation of the KAG. Conclusions: Opportunities and risks in the financial sector of Schwyz From the identification of the strengths and weaknesses arise important indications to existing opportunities and risks. For the locational advantages of the financial sector of Schwyz, and which played an important role in the past for the development of the financial sector, may be challenged anytime. The exodus of many Fund companies from Great Britain shows clearly how quickly a change in the framework requirements may impact the Fund business. Opportunities Location Switzerland: Switzerland remains a brand name for stability, attractive framework requirements and economic prosperity. The whole financial sector in general profits from this brand name. Finance center Zurich: The mid-to long-term development of the financial sector of Schwyz is strongly dependent upon the international success of the financial center Zurich. And the forecast for the financial center Zurich is more optimistic than the development of the last ten years may indicate. After a decline in added value during the years 2008 and 2009 the financial sector was able to produce a clear growth rate of 4 percent - thanks to an over shooting recovery of the global economy, low interest rates and increasing stock markets. Also with respect to a mid-term development, it can be said that due to its international competitiveness the finance center Zurich may be regarded optimistically with respect to its future. Funds of Hedge-Funds: Exploit the potential of being a leading location Already today Schwyz has an important position in the area of Funds of Hedge-Funds. Due to attractive framework requirements (and a worsening of such at other international locations such as London or Dublin) the financial sector Schwyz has a high growth potential in this segment. BAKBASEL 5

8 Single-Hedge-Fund: Exploitation of existing potentials with Single-Hedge-Funds In the area of Single-Hedge-Funds the financial sector Schwyz is relatively inconsequential. Regulatory obstacles, that in the past obstructed a stronger growth rate in this segment, are obsolete since the implementation of the KAG in With the overcoming of the financial crisis and the regulatory upheavals there is a great opportunity to establish one-self stronger in this segment. Speaking of framework requirements: Location requirements are always to be judged in relation to that location in the relevant competitive location. Against this background the location Schwyz currently can experience a strong (relative) improvement of the location requirements. With the reform of income taxation of above pounds («Super- Tax») the location Great Britain has strongly lost attractiveness for Hedge-Funds. The location Schwyz could profit from an exodus of Fund companies. Tax increases are to be expected mid-term in some countries due to the debt crisis. As such, the tax environment in further international locations will tend to worsen compared to Switzerland. In the inter-cantonal competition an abolishment of the flat rate taxation in other cantons (Zurich 2009 or impending voting in St. Gallen, Basel-Stadt, Luzern, Thurgau, Glarus) could lead to a dislocation of wealthy potential Hedge Fund clients to the Canton Schwyz. However, with regards to the tax returns in the Canton Schwyz the impact of such dislocations will probably be small. With regards to an expansion of the Fund clusters in Schwyz there remains sufficient free space capacity. Via increasing gains in confidence, the new AIFM guidelines may generate a sustainable growth of the specialized finance industry for Hedge Funds. Risks The strengths of today are equally the risks of tomorrow: Only if the framework requirements remain attractive the financial sector Schwyz can remain strong and seize its opportunities. Attractive tax environment: The attractive tax environment is regarded as one of the most important factors for the local growth of the Fund industry during the past 15 years. The exodus of Fund companies from Great Britain as a reaction to the increase of the taxation on top income has shown how strong the impact can be due to a worsening of the international tax competitiveness. In spite of the tax initiative rejection by the people on November 28, 2010 there is nevertheless a mid-term risk for the Canton Schwyz that the conditions for top income earners may worsen. For one, it is to be expected that further political pressure is exercised on the small cantons with low-tax-policies by the cantons with big cities and respective additional financial burdens. For another, it is to be expected that the EU will increase its efforts to undermine the tax heaven Switzerland. Mobility of the Fund companies: The experience of Great Britain has clearly shown that the Fund companies are extremely mobile. Accordingly, the barrier is low by which a change in the framework requirements leads to an exodus and which accordingly is carried out quickly. This means for the Canton Schwyz that location requirements should have a high priority. 6 BAKBASEL

9 Financial market regulation: From today s point of view the Swiss Fund industry doesn t see its access to the EU-Market challenged by the AIFM-guidelines. However, there is the risk that in the actual implementation of the rules Fund suppliers from Switzerland may be treated at a disadvantage. Trend to onshore wealth management: In future the growth of global wealth will take place more and more in Asia. Against this background the expected trend to increased onshore wealth management also in the Funds business may lead to alternative locations outside of Europe and the USA gaining in importance. Increasing risk aversion: Should the risk aversion of the investor have increased due to the financial crisis, there will tend to be less investing in Hedge Funds, as these show a higher risk structure than normal Funds. Volatility of the industry: The financial sector in general and the Fund sector especially show higher volatility over time in the economic performance. Via indirect effects this volatility impacts also other areas of the economy. Cluster risk: The scant 9% share of added value of the financial sector in 2010 does not immediately indicate a cluster risk. However. There is some indication, that the dependence on the financial sector with respect to tax revenue (of individuals as well as legal persons) is considerably higher. From a fiscal point of view one probably can talk about a cluster risk. An exodus of the Fund industry would mean a significant cut in the financing of its tasks. However, in this regard it must also be mentioned that the strong immigration in some municipalities during the past years not only led to higher tax revenues but also to increasing costs in infrastructure. BAKBASEL 7

10 Financial Sector Analysis by BAKBASEL MONITORING FINANCIAL CENTERS In many metropolises of Europe the financial sector (banks, insurance companies and other financial service providers) has emerged to an important pillar of added value and prosperity. In the project «Monitoring Financial Centers» various competitve financial centers are described and compared with one another. Thereby the financial services industry is subdivided in (a) Banks, (b) Insurance companies and (c) other financial service providers with a detailed description of performance and its analysis. Besides Added Value and Employment further customary key data of the finance industry is also collected, such as Assets under Management, Bank Asset Sums, Emission Volume, Turnover of Stocks or Premium Volumes of insurance companies. With the exception of the performance indicators also the market potential and the framework requirements are surveyed as well as their influence analyzed on the performance (level and dynamics). Against the background of worsening locational competition the supply is concentrated more and more also on the regional perspective: BAK Basel Economics disposes of an extensive database which is one of its kind with respect to regional and industry specific differentiation as well as actuality. This database is geared to the quantitative rating of the economic performance capacity and its framework requirements; it provides the basis for the analysis of regional location comparisons. With the collaboration of renowned scientific partner institutes from various countries the database is continuously maintained and extended by BAK Basel Economics in geographical as well as in topical aspects. Contact persons Prof. Dr. Urs Müller Chief Economist & Director T urs.mueller@bakbasel.com Marc Bros de Puechredon Executive Board, Marketing & Sales T marc.puechredon@bakbasel.com 8 BAKBASEL

11 IMPRINT Editor BAKBASEL Project Director Prof. Dr. Urs Müller Chief Economist & Director Tel Editorial Staff Michael Grass T michael.grass@bakbasel.com Christoph Strüby T Christoph.strueby@bakbasel.com Postal address BAK Basel Economics AG Güterstrasse 82 CH-4053 Basel T F info@bakbasel.com BAKBASEL 9

12 As an independent economic research institute BAKBASEL stands for a combination of scientifically established empirical analysis and its practical implementation since more than 30 years.