Why is Switzerland considered an investment haven in 2024? To answer this question, we can observe how the country’s economic growth has compared against the other top 9 European countries by gross domestic product (GDP) in Graph 1 and 2.
While Switzerland was the seventh-largest economy in Europe by GDP, according to the most recent data available in 2023, it also experienced the third-largest compound annual growth rate (CAGR) in its yearly nominal GDP from 2017 to 2023.
This growth is impressive, but to further understand the key drivers behind it, we can compare which of Switzerland’s various sectors and industries were the most important contributors to economic growth by the total value of their output.
Graph 3 above displays the average of the total gross value added (GVA) contributed by each economic sector over the period. For a broad overview, it is evident that the Swiss economy was largely driven by the tertiary services sector, which on average contributed more than two-thirds of Switzerland’s total GVA per year.
Zooming further into the tertiary sector in Graph 4, the most significant industries in terms of average contribution to Switzerland’s total GVA per year over the same timeframe have been Government Services, Wholesale, Real Estate, Financial Services, and Healthcare, respectively.
Since our interest primarily lies in commercial industries, and with Wholesale being the most significant in terms of yearly contribution to total economic growth within the tertiary sector, further examination into Switzerland’s foreign trade environment is needed to understand what factors drive this industry.
In Graph 5, it is visible how Switzerland in recent years has been a net exporter, with imports trailing closely, representing only a marginally lower share of total foreign trade flows per year in CHF on average. If we segment Switzerland’s total exports and imports by product groups, as in Graph 6, then next after chemical and pharmaceutical products, the second most widely traded commercial products were Machines, appliances, and electronics.
From an investor’s perspective, one might assume that operating costs would be significantly higher for companies engaging in the production or sale of commercial goods with operations headquartered domestically in Switzerland rather than elsewhere. This is especially evident when comparing Switzerland’s annual wages to the other top 9 European countries by GDP, as seen in Graph 7 below. Switzerland’s average annual wages have been the highest among these countries in recent years, increasing at the second fastest CAGR of approximately 0.5% over the same period.
From this data, we can infer that exporting consumer goods to Swiss customers while having operations headquartered abroad could yield greater operating margins due to lower costs, such as full-time employee (FTE) salaries, and higher prices on product sales. This would be more advantageous than having operations headquartered domestically in Switzerland, which would result in significantly higher staff costs, especially for manufacturers with substantial infrastructure and FTEs.
However, the exception would be distributor companies, which need less infrastructure to conduct operations. For them, the most important factor is having all their customers based in Switzerland and selling their products at higher prices, not necessarily their operations. Although, ideally, they should be headquartered abroad too.
These insights on foreign trade and average annual wages in Switzerland outline an essential part of our investment rationale: our current focus on consolidating Swiss distributors of medical equipment and devices, as well as medical service providers, into our Buy & Build platform, Healthcare Holding Schweiz AG.
The Swiss medical services sector, which earlier in Graph 4 was the 5th most significant industry in terms of average contribution to Switzerland’s total GVA per year, is of equal interest to us for integration into our Buy & Build platform in the foreseeable future. Specifically, our focus remains on the testing and inspection of medical equipment.
“We are excited about the positive direction of the Swiss economy and look forward to realizing operational synergies from our current holdings," explained Fabian Kroeher, Partner and Co-Founder of Winterberg Group. “Expanding into the medical services industry with testing and inspection certification will broaden our range of offerings and enable product cross-sells, enhancing our overall value proposition.”
Alternatively, a current setback in the Swiss economy is the difficulty local businesses in all sectors and of all sizes face in successfully recruiting staff with higher professional education.
From the graph above, it is visible how within the tertiary sector, most difficulties related to recruiting staff with higher professional education were in the healthcare and social services industry—approximately 28% of full-time employees in that industry were found with difficulty per quarter on average.
An interesting offering by many medical equipment distributors based in Switzerland, including those we integrated into our Buy & Build platform, is that they provide complementary training to their customers' staff on the usage and best practices for the equipment they sell. We plan to capitalize on this opportunity by capturing the professional training services market, specializing in the usage of medical equipment, to cross-sell more products and services offered by our holdings and realize further synergies.
In summary, Switzerland's strong economic growth, largely fueled by the tertiary sector, highlights its appeal as an investment haven. By integrating Swiss medical distributors and service providers into our platform, we enhance efficiency and capitalize on operational synergies. Additionally, integrating professional training services will solidify the position of Healthcare Holding Schweiz AG as a market leader in the Swiss medical industry.