The reasons for a trading company to settle in Geneva International Trade. François Apotheker Jérôme Danner Francis Héritier Mélanie Wyss

Transcription

1 The reasons for a trading company to settle in Geneva International Trade François Apotheker Jérôme Danner Francis Héritier Mélanie Wyss 2007

2 Content 1 Introduction History of Geneva s Platform Trade of raw materials in the Lemanic arc Macroeconomic aspects International Geneva Location Population Universities Quality of life Overview of the economic situation Political Aspects Fiscal Aspects Present Players Financial aspect The importance of Geneva s banks Geneva s financing place Bank s products Hedging risk Conclusion Appendix Sources

3 1 Introduction International Trade 2007 Geneva is currently in competition with a few other cities, among them London and Singapore, to become the top location for all trading businesses. Every one of these cities has its advantages; in this essay we will emphasize Geneva s attractiveness in the macroeconomic, platform and financial aspects. They are Geneva s main advantages compared to its competitors. For any given city, trading has the particularity of not needing any sea or trading roads connection; in other words, the physical location is not much of a factor for a trading company that would like to settle, but rather its attractiveness in terms of network, financial place or education pool for instance. In this essay we will demonstrate that Geneva can easily compete with the above mentioned cities and even surpass them. 2 History of Geneva s Platform During the 15th century, Geneva became one of the major European trade fair capitals. In the 17th century, Geneva developed a commercial network, which extended around the world. The city's banks financed the royal bank of England among other very big a powerful clients. 2.1 Trade of raw materials in the Lemanic arc During the 20's, Lausanne was the home of the first family businesses and cereal traders like Andre & Cie and Panchaud brothers. Towards the 50's many expelled Egyptians Jews found refuge near Geneva s Lake. In Geneva, they found the banks with which they would establish a special relationship. At that time, cereal trader Cargill also moved to Geneva. The proximity of Nestle, a major buyer of coffee and cocoa, strengthened the weight of trading in the region. Geneva, which was one of the few countries not to apply control changes, had become the hub of international trade. From the 60's, American multinationals, active in the metals trade, settled in the region. The oil trading rapidly grew due in part to the oil shock of In 89, the fall of the Iron curtain led to the liberation of trade of oil in Russia, causing even greater oil trade. The boom of the square also owes much too some large banks, such as Paribas SA, who took risks and supported financially small trading enterprises, contributing that way to the financing of raw material and growth of Geneva s economy. Trading in Geneva created a dynamic environment. It is the second largest trading place in Europe and the first in raw materials trade funding. The trading and chartering association of Geneva (GTSA) was created last fall to protect their interests. 3 Macroeconomic aspects 3.1 International Geneva Today, many businesses have chosen Geneva to get installed after studying the advantages and disadvantages of different recognized business places. Geneva is, by its international, multilingual (english being the official language of most international enterprises), tolerant and multicultural environment, the proper city to receive foreign companies and to allow societies to develop international activities. 3

4 As host city to many international organisations, Geneva has become known as "International Geneva" and a real pool of knowledge. It is home to a very wide range of international organisations active in areas as varied as we can think: banks, trading, accounting, informatics, etc foreign States and 117 multinational enterprises are represented in Geneva. Today, they are more than 35,000 employees, not including the 2,400 of the various non-governmental organisations based in the city. The international community has therefore become a very substantial entity. Geneva is already well known as the second trading location in Europe after London and the first for international trade financing in petrol. This is no coincidence. Geneva is able to offer the key elements for this sector: stable and excellent financial services, a central location in Europe, high quality of life, a highly competitive employment market among other. One of Geneva s main advantages is that it is easy to convince foreign talent to come here said Cargill s Vice-President and CFO, Hans Rueedi. 3.2 Location Geneva is located in a very interesting geographical situation, considering worldwide markets; European, African and Middle East market can be followed at present time. Moreover, the closing of the Asian markets as well as opening or closing of the US market can be seen during working hours in Switzerland. Time zone speaking, Switzerland is a perfect place to get real time information of worldwide markets. Located in the middle of Europe, Switzerland is quickly and easily accessible by airplane from anywhere. Well approached by many flight companies, Geneva s airport offers easy access to the place. 3.3 Population Geneva hosts 184 different foreign nationalities, which account for 38.1% of the Canton s total population 1. Most of the foreigners working in Geneva have a high added value work. Geneva s experience in foreign workers proves itself very attractive for foreign firms. They know that Geneva can and know how to accept foreign workers. Geneva s population is highly educated (7); 30% of the people from age 25 and above have a university or HES diploma. This means that any firm who wants to implant itself in Geneva can count on the great brain resources offered by the city. 3.4 Universities Many universities are located near Geneva; the Swiss French part counts many universities giving highly potential workforce. Among them is the University of Lausanne (UNIL) and University of Geneva (UNIGE) which are reputed, in part, for their economics classes. Switzerland is said to have a very competent school system and state-of-the-art grad schools. Many other firms have chosen the Lemanic arc to establish themselves thank to the high education people get; among them Serono (chemistry), Logitech (engineering), etc. 4 1 Office Fédéral de la Statistique Recensement général de la population 2000

5 3.5 Quality of life Having a great level of life, Geneva is not a place where it s hard to convince people with high life standards to work and live. Geneva is the second best city in the world as far as quality of live is concerned, says Mercer Consulting in a survey published in April According to the Human Development Life Index, Switzerland is ranked 9 th (out of 175) of the countries on a quality of life basis 2. This index is based upon life expectancy, literacy, education, and standards of living for countries worldwide. United Kingdom, with London being Geneva s main competitor, is only ranked 18 th. 3.6 Overview of the economic situation Switzerland, more precisely Geneva is doing well from the economic point of view. This good situation comes from the strength of fundamentals of the economy: Inflation remains under control at 1.3% (1), interest rates are moving cautiously (2), the job market sees significant improvement +1.9% (3), foreign trade remains dynamic with exportations of 3.2 billion which progressed of 4% since last year (4) and importations exceeding 2.4 billion, + 9% since last year (5). Monthly gross average income per household is of CHF which assumes a good purchasing power. The consumption index has faced some troubles since the beginning of the year but remains at a high level (6). Unemployment recorded a further decline with a rate of 6.1% compared to 2.6% in Switzerland. Simultaneously, the number of nights spent in hotels Geneva continues to grow and Restaurants predicts in a clearly positive future. As the growth continues, some indicators tend towards stability. The current correction and standardization across financial markets could augur a continued growth at a reduced rate. This is confirmed by the economic indicator LEA-PICTET-OCSTAT of Geneva s economy for the next nine months to come and they also state that there is no announcement of downturn. 3.7 Political Aspects Switzerland as a country in the middle of Europe is known for its political stability on which business can build on. Since June 2002 the first set of bilateral treaties between Switzerland and the EU, mainly on trade, labour and transport issues, entered in force. It allows EU citizens to access freely to the Swiss labour market, among many other advantages. All companies already settled in Geneva are already taking out profit by hiring their employees from all over Europe. Besides good infrastructure and good life quality, the fact that Switzerland and neutrality are synonyms attracts trading companies. Especially Russian companies prefer the Geneva platform than any other in Europe. Geneva s Minister of Economy and Health points it out: Geneva has always been a city of symbols: the City of Refuge, during the Reformation; the City of Peace, through the League of Nations, the Red Cross and the UN. 3 Working hard to attract new companies, the Office of Economic Development, promotes the advantages of Geneva s platform all over the world in collaboration with the federal offices. Moreover, the authorities offer a universal counter for every kind of problems a company could face, starting with the work permit up to fiscal holidays. This underlines that Geneva s authorities participate actively in welcoming newcomers. 5 2 List of countries by Human Development Index Documentation from the Government of Geneva Why Geneva, Spring 2006

6 3.8 Fiscal Aspects The Swiss tax system is simple and strict; the general prediction of jurisprudence undermines it. The system offers convenient advantages to foreign companies whose commercial activities remain outside of Switzerland. It is easy to open offshore companies or holdings in Switzerland and the VAT (Value Added Tax) only considers final consumption and therefore excludes all trading transactions. Due to this fiscal regime, taxes are between 3,5% and 14,1% compared to those of London of about 30% 4. The cantons are free to offer some additional tax discount (tax holiday) during the first 10 years to new companies settling down in order to support job creation or other economical impulse in the region. For Geneva s interest, tax policy will remain an important factor in the future, as the competitor cities like Dubai or Singapore will tackle. We have already had two visits of the Singapore Tax Authority, Marco Dunand, cofounder of Mercuria, said. 3.9 Present Players The trading network of Geneva includes approximately 350 companies, working not only in trading but in finance, insurance, shipping, consultancy, inspection and other linked services. This means that approximately 5000 employees are working in this steadily growing trading sector. Nearly 70% of them work for the major players in Geneva like Cargill, Bunge, Addax, Mercuria, Gunvor, Gill&Dufus, Dunavant, MSC and SGS, to pick out only a few of them. Cargill & Co Cargill is Switzerland s ninth largest company with annual sales of over 16 billion Swiss francs and one of Geneva s largest employers. Ten years ago, they occupied 300 people and now their team reaches a number of 550 people. Cargill is an international marketer, processor and distributor of agricultural products, food and financial services. There are plenty more trading companies present in the city which founds a good base for the trading sector. Shipping sector Most of the world s leading shipping lines have their headquarters in Geneva as for example the Mediterranean Shipping Company (MSC). Approximately 2500 cargo shipments are negotiated in Geneva every month. Major finance banks The major banks in Geneva offer crucial banking facilities and play therefore a major role in trading. BNP Paribas is generally recognized as finance leader in commodity trade on the Geneva Platform, you will find more information in the next paragraph. Security/Inspection sector The verification of different aspects during loading and discharging is a crucial part of trading. Société Générale de Surveillance (SGS) is one of the two huge security companies which certify if weight, volume and quality, are in conformity with the contracts. Having the presence of companies covering the whole process from buying until selling and delivering is a major attract for all these companies to operate from Geneva. 6 4 Source : Bilan No 225, «L arc lémanique, champion des matières premières»

7 4 Financial aspect 4.1 The importance of Geneva s banks First of all, we can say that in the commodities world that the amounts in money are particularly big due to all costs and details involved in a transaction from the producer to the consumers. All this money represents different kind of risks, especially for the trading company which takes the decision to buy or sell the commodities in a particular time. 4.2 Geneva s financing place Historically, the Rotterdam oil market was financing by the Geneva s banks; that was the beginning of this activity. Then, with the liberalised oil prices, the banks in Geneva continued to provide some services in this sector. Today, there are approximately fifteen financial companies in Geneva which are specialized in the trade sector; almost 400 managers work in the credit departments for a global turnover of $ 170 billion. BNP Paribas, Credit Suisse, UBS, Lloyds Bank, BCG, Crédit Agricole, ING Bank and ABN Amro are the most active banks in this sector; having the leadership, BNP Paribas is seen as the number 1 bank for commodities trade. 4.3 Bank s products To hedge his position and guarantee his revenue, the trader uses the banks funding to buy the physical raw materials but also the refined ones. The bank has to diversify their risks therefore they use structured trade finance products to plan projects on the long term. Those banks are well known because they have a long experience in this market and a good representation in many sectors. Credit management The credit management needs to estimate at all times the associated risk in a trade. He also needs to know perfectly the commodities company, the markets where the deal, the network used in the contract and the financial structure with all the financial products such as futures, swaps and derivate options. Credoc Credoc or documentary credit desk is typical of Geneva s financial place; it is known in this activity because there are many techniques that are used by the specialists with suppleness and rigor. This kind of departments are typically Made in Geneva, which gives also this leadership for this place in the commodities funding. 4.4 Hedging risk First, those banks propose different products, such as derivatives contracts, futures and options but also guarantees. Secondly, they are very important because they give the credit to allow the producer to do his trade. In fact, most of the time, producers and distributors need credits and funding to do their trades because they don t have enough liquidity. 7

8 The Banks generally propose for this kind of problematic some solutions to hedge the risk against big exposition in the market. Geneva is the place for this kind of typical procedure in the very large and diversified commodities world. 5 Conclusion Geneva is one of the world s most important trading and financing locations for commodities and has developed into one of the most important trade centres for oil after London, Singapore and New York. That is a fact; Geneva is the place where many commodities activities are financed; although the global activity tends to be located in London, things may change in the future. For all the activities such as shipping, finance and credit management, the position of Geneva is clearly the best. Switzerland quiet reputation combined with Geneva s international notoriety makes the city a really attractive location in the trading world. Proximity with other important actors of the commodities trade process, especially its worldwide famous bank system, attracts even more companies. Geneva is definitely a location where any company in the trade industry would want to settle; everything it needs is already there! 8

9 6 Appendix (1) Inflation en Suisse: indice de prix à la consommation, octobre 2007 (2) Taux d intérêts pour diverses durées, état fin septembre 2007 (3) Variation annuelle du nombre d emplois 1 9

10 (4) Exportations du Canton de Genève selon la destination, en valeur (5) Importations du canton de Genève, en valeur 10

11 (6) Indice du climat de consommation en Suisse (7) Plus haut niveau d étude atteint en Suisse, par âge Sources of the Appendix 1 Centre d accueil Genève internationale Banque Nationale Suisse Office de la statistique du canton de Genève

12 7 Sources 7.1 Magazines Bilan Juin Gazprom bientôt à Genève Bilan Avril L'arc Lémanique, champion des matières premières Bilan Juin 2007 L'or noir de Poutine inonde Genève Bilan Mai 2007 Genève offre les premiers cours sur le négoce en pétrole Le négoce international à Genève, Genève Place Financière Conférence de Presse du 16 octobre 2007, Revue de presse, Genève place financière 7.2 Websites