The Canton of Ticino, the only canton south of the Alps, carries increasing weight at Swiss and international level for commodity traders attracted primarily by Lugano, the city and leading financial centre, and its “tailor-made context”.
The second GTR Global Commodity Trade Finance Conference, held on September 29 in the Canton of Ticino, Switzerland, was a real opportunity, one that was seized by more than 200 professionals from all over the world, to stay in touch with the latest developments and (for many of them) to discover an “evolving” location. This is partly thanks to local institutions, which have underlined the success story currently taking place in the canton, located in the most southerly part of Switzerland, on the border of Italy. Over a short timescale, it has seen the development of commodity trading create thousands of jobs – 15% nationwide – with several giants in the sector establishing a presence there, specifically in Lugano. In this city “on a human scale”, some 100 businesses have already found an ideal location for commodity trading.
To gain a better understanding of the positive trends at work in Ticino and Lugano, we spoke to Franco Citterio, Chairman of Ticino for Finance, and Marco Passalia, General Secretary of the Lugano Commodity Trading Association, who provided some food for thought.
Mr Passalia, it is certainly no accident that the Global Commodity Trade Finance Conference has taken place in Lugano for the past two years. As the chairman of the conference and the Mayor of Lugano emphasised, the city is growing in importance in the commodity trading sector. What kind of growth are we talking about, and how long has it been going on?
Passalia: I think a few words are needed first to set the scene. Switzerland as a whole has traditionally been a world hub for commodity trading, developing strongly from the 1950s onwards. Back then too, a favourable setting in terms of general conditions was essential for this line of business, and these conditions made a substantial contribution to Switzerland, establishing a reputation as a financial centre well suited to commodity trading. The financial centre is split into different centres of concentrated know-how. As is well known, Geneva now handles the trade of around one third of world oil and more, having built a reputation over the decades. Lugano’s growth, however, is more recent, but it’s undoubtedly significant, in terms of both the number of businesses that have decided to base their operations in the city – an increase of 50% in the last five years – and their importance on the international scene. Just consider that, based on the last tax year, trading/shipping accounts for 20% of revenue (legal entities) in Lugano already.
New trends indicate that assets are relocating from Europe to Dubai and Asia. Will Switzerland continue to grow and remain a hub par excellence?
Passalia: It’s true that Hong Kong, Singapore and Dubai have a growing role. I would however say that, in this context, Switzerland in general continues to be a global player in trading and shipping alike. Just consider that 22% of global shipping is currently run from Switzerland, a country which does not even have access to the sea, but plays a key role in its financing. In relation to Ticino, of the many companies that have decided to move here from abroad, some have come from Russia and Italy, because the canton has strong links with these countries, but others have come from the UK, Eastern Europe, and more recently Turkey as well. This is a result of international connections and further confirmation of the fact that the framework conditions here in our canton are attractive, even if there is always
scope for improvement, something that we are committed to on an ongoing basis at the Lugano Commodity Trading Association.
A commodity trading community has formed in Ticino numbering thousands of professionals, but what potential is there in terms of skills and know-how? Looking at Switzerland more broadly, does Ticino have differentiating features or a particular focus?
Passalia: Alongside other commodities, Switzerland is the leader in coffee, cocoa and other soft commodities, including for the Swiss food industry itself. In terms of Ticino, thanks to these “new arrivals” who are reaching critical mass in numerical terms and bringing new professional skills, Lugano has carved out an important market share in metals, as well as gas, cement and coal. With the arrival of large companies trading in ferrous and non-ferrous metals, the city is now one of the sector’s main hubs. For example, approximately 40% of the steel used in Europe is now traded in the canton. These companies are however joining an established historic core of companies working in the precious metals sector, which has allowed the financial centre to specialise in the sector of gold refining and trade, since three of the sector’s world-leading companies have been based in Ticino for years and refine a big share of the world’s gold.
Mr Citterio, while the trend for Ticino to make its mark in commodity trading in the national context and beyond is clear, what is driving foreign companies to set up business in Switzerland and in Lugano?
Citterio: The Swiss financial centre, of which Lugano is one of the key centres along with Zurich and Geneva, is integrated at a global level. Switzerland has its own “system”, made up of highly specialised personnel, efficient banking and support services, advanced technology, framework conditions that are not heavily regulated, and access to liquidity, which provides a guarantee for companies operating in the sector. Just consider that commodity trade finance managed from Switzerland is worth some CHF1.5tn. In addition to the favourable framework conditions, geographical positioning is an advantage for the financial operators based in Ticino: it is
an internationally focused setting that forms a natural bridge between north and south Europe and can be reached easily from all over the world. Last but not least,
I would add that these factors are enriched by a high quality of life, where an excellent healthcare system, a high level of security and a Swiss-quality education system combine with Ticino’s Mediterranean climate and Italian lifestyle to make the canton a truly pleasant place to live.
I would say it has everything.
In the wake of this growth, how do you see the financial centre developing in the next few years, including in relation to the emerging markets, which could present a new challenge for Ticino in the trading sector?
Citterio: The financial sector is a historic area of economic activity for the Canton of Ticino, having experienced its greatest period of development in the 1960s and 1970s, with growth closely linked to private banking services, which will probably remain strong in the financial centre in future. However, trading will be an area to watch, potentially providing a new focus for the financial centre as a whole (given that it brings in banks, trustees, law firms and insurance companies alike) in a further field of development and specialisation for Lugano. Obviously emerging markets are involved in this area, but Switzerland’s political and economic stability, or “Central European Time”, is an advantage that effectively offsets proximity to the activity of the market wherever it may be. Moreover, in a sector which is set to be regulated at global level, and in which factors like traceability and sustainability will be increasingly important, it will be all the more critical to have the support of the institutions.
What kind of support for growth are the institutions providing in light of this new direction for the financial centre, and what exactly do the Lugano Commodity Trading Association and Ticino for Finance, the associations that you respectively represent, do?
Passalia: Switzerland is working constantly to ensure favourable business conditions for commodity traders, in the case of Ticino for example, thanks to the Lugano Commodity Trading Association, by adopting a pragmatic approach based on dialogue with industry to promote a level playing field, to support companies in the area and at the same time to start a virtuous circle of attracting new arrivals. In tangible terms, we also work to improve personnel training, expand the knowledge base within the sector, and exchange opinions and viewpoints by developing a 360° platform like ours, which brings together all the stakeholders in commodity trading.
Citterio: At Ticino for Finance – the association for the promotion of the financial centre, which aims to encourage financial businesses with high added value to base their operations in the Canton of Ticino – personal relationships, consensus and seeking suitable solutions for the specific needs of our contacts are also the key elements of our approach. It’s a strategy consistent with the strengths of the financial centre. The limited size of Lugano and the Canton of Ticino plays its part in creating a flexible context, where proximity to the institutions makes it possible to establish a personal dialogue and rapidly find a tailored solution. It’s not for nothing that Ticino Swiss Tailor Made Finance is the identity chosen by the association to put across what it has to offer.