SWISS COMMODITIES HUB
the financing of commodity trade is backed by real assets. These assets are generally priced efficiently – even though not everyone might like the result. “Since commodities are very diverse, there will always be a need for specifically tailored OTC derivatives. For these reasons, we are aware that the specificity of the commodity trading sector has to be taken into consideration when discussing financial market regulation,” says Karrer. A second challenge he notes arises from the fact that commodities often originate from countries or regions where the risks of political instability are substantial. This raises social, ecological and integrity issues related to commodity business. “Switzerland participates in international initiatives to improve the sustainable production and trade of raw materials. For example, we support the Guiding Principles on Business and Human Rights of the United Nations, the Guidelines for Multinational Enterprises of the OECD, as well as the Extractive Industries Transparency Initiative,” Karrer confirms. More specifically, the authorities assist Swiss multinational
companies in assuming responsibilities in those countries in which they are active – including commodity trading companies. And on money laundering, Switzerland is fully supportive of the international standards of the Financial Action Task Force. While Switzerland has no commodities other than
in this industry where transactions often take on a political dimension. Some industry experts believe that the
shift towards more openness by the Swiss authorities could be a double-edged sword. On the one hand, secrecy in some deal- making remains sacrosanct. On the other, the desire for the industry to open itself up (helped in large part by the flotation of Glencore) is being driven by NGOs and others. The industry is attempting to respond ... to
a degree. The highly physical aspect of this business needs to be better communicated by firms in order to establish their reputational standing. In the end, however, the often ruthless competitiveness endemic in this part of the industry is unlikely to deliver a dramatic change in practice, at least in the near term.
The highly physical aspect of this business needs to be better communicated by firms in order to establish their reputational standing
“water and some grey cells” as Karrer muses, it does have long traditions in the industry. But competition from other trading centres is rising, perhaps most notably from Singapore. Nevertheless, as well as its highly developed financial sector and stable and predictable economic, political and legal framework, Swiss authorities will continue to provide the ‘appropriate’ regulatory environment for commodity business, while at the same time minimizing the risks to market integrity. That much the Swiss government is committed to. This competence is reflected in the World Competitiveness
Index, where Switzerland ranks first in Europe (and third overall behind Hong Kong and the USA). To retain is leading position in commodity business it will need to continue to reform along international agreed standards and strive to ensure that domiciled industries respect ethical business practices. The financialisation and greater interconnectedness of commodities markets – as well as greater investor participation – has added to trading volumes (and to volatility in some sectors) creating new demands for support services like IT, legal and operational consultancy services. This makes it all the more important, some say, for a concentration of services – the ‘cluster effect’. However, this concentration has already started to raise concerns from Swiss nationals as prices and rents have escalated. Another threat to the continued success of Switzerland’s dominance is likely to come from regulation and pressures on secrecy. Transparency, after all, is not a good thing for deal-makers
Footnotes 1. Commodities: Switzerland’s Most Dangerous Business; Berne Declaration, 2012.
2. The FT Global Commodities Summit was held at the Beau Rivage Palace in Lausanne, Switzerland, 23-25 April 2012. Next year’s event will be held on 15-17 April 2013.
The NGO Revenue Watch has been especially scathing about commodity business in Switzerland, pointing the finger at how resource-rich developing countries remain poor while Swiss trading companies make billions. Much of their discussion misses the point as to the way these markets operate and has avoided a response by most incumbents But continued ‘no comment from the sector could backfire. Companies must – and will probably be forced in any event – be more transparent in their business practices and overseas dealings. If they the more zealous NGOs get their
way, commodity producers and their customers could be forced to publish (at trade time?) price, volume, grades etc. for every commodity cargo, bringing full visibility to this largely hidden part of the world’s commodity industry. It is important that the firms responds
to accusations made by NGOs, putting in place further disclosure mechanisms that support transparency and corporate responsibility without damaging the key deal-making anonymity they want to protect. The alternative, or course, will be to move elsewhere. •
Guy Isherwood is Publisher and Editor of Commodities Now.
www.Commodities-Now.com June 2012 79
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