June 11 (Bloomberg) -- Ivan Pictet, senior partner of Geneva’s biggest private bank until 2010, is concerned the city where his family has lived for more than 600 years may be losing its appeal for multinational companies.
“There may be a lot of red lights appearing,” said Pictet, citing a housing shortage and transport bottlenecks. As president of a foundation promoting the city, Pictet, 68, commissioned a study to identify obstacles to economic growth in the Lake Geneva region.
Geneva, less than a two-hour drive from the ski resorts of Chamonix and Verbier, has used political stability, low taxes and quality of life to lure more than 900 multinationals, including Procter & Gamble Co. and Caterpillar Inc. That attraction is threatened as a lack of housing combines with the strength of the Swiss franc to boost costs and as Switzerland faces pressure to scrap a tax benefitting foreign companies.
“There is a concern that we have limited resources in Geneva, and if we don’t manage them correctly, it may lead to some enterprises or organizations leaving,” said Cedric Dupont, a professor at the city’s Graduate Institute who is overseeing part of the research for Pictet. “Space is limited, labor supply is limited, schools are limited, and due to that prices are going up and Geneva may become less attractive.”
Geneva’s population growth is outpacing the expansion of its property market, leading to a vacancy rate for all types of accommodation of just 0.25 percent as of last June, according to figures from the canton’s statistic office. That compares with 2.2 percent in London.
“We’re in a housing crisis here and everyone has to address it,” said Remy Pagani, a member of Geneva’s ruling council who takes over as mayor this month.
Pictet’s study also will examine transport issues following a 54 percent increase since 2004 in passenger traffic on the railway between Geneva and Lausanne, the lake region’s second biggest city.
“We’re lacking a third ‘piste’ on the highway and a third rail on the railroad system,” said Pictet, adding that researchers will also analyze the capacity of the Mont Blanc road bridge and access to Geneva’s airport.
Those bottlenecks and shortages helped make Geneva the world’s third-most expensive city behind Oslo and Zurich, according to a UBS AG survey published last August. The position was cemented by Europe’s debt crisis, which pushed up the franc by more than 15 percent against the dollar and the euro over the past two years.
“With the international crisis, the Swiss currency and the factors associated with housing, we will attract fewer companies,” said Daniel Loeffler, director of Geneva’s Economic Development Office.
The pressure on costs comes as the European Union pushes Switzerland to abandon a so-called auxiliary regime that allows multinationals to pay less tax on income from outside the country.
The regulations permit more than 70 commodity trading companies in the city to pay an average tax of 12 percent, said Jacques-Olivier Thomann, president of the Geneva Trading and Shipping Association. EU pressure to replace that system with a single rate for all companies may deter investment, he said.
“When I’m talking to my clients, who are here for tax reasons mainly, they are very concerned about what’s going to happen in the next few years,” said Thierry Boitelle, a partner at Geneva law firm Bonnard Lawson. “They may have to consider leaving Geneva for tax reasons.”
The EU expects progress this month on tax reform talks, said Emer Traynor, a Brussels-based spokeswoman for Taxation Commissioner Algirdas Semeta.
David Hiler, Geneva’s finance minister, has said the city may follow the neighboring canton of Neuchatel in lowering its standard corporate tax rate to about 15 percent from 24.2 percent to offset a potential phase out of the auxiliary regime.
“The problem is the canton can’t reduce the rate too much without hurting the economy,” said Denis Berdoz, a partner at Baker & McKenzie in Geneva, who specializes in tax and corporate law. “About 15 percent seems to be a target rate, which may be competitive compared with other European jurisdictions, but it’s above the rate many companies pay now.”
In addition to EU pressure, Geneva’s Socialist Party has the 10,000 signatures needed to prompt a vote on whether to keep so-called tax holidays, which allow some foreign companies arriving in the city to pay no cantonal tax for as long as 10 years, said Arnaud Moreillon, the party’s secretary general.
Merck to RWE
Companies such as Germany’s Merck KGaA aren’t waiting for the outcome of the study or the vote.
Merck announced plans last month to close the Serono unit it bought from billionaire Ernesto Bertarelli in 2007, resulting in the loss of 1,250 jobs in Geneva. It was “unsustainable” to have two centers for research and development in Europe, said Phyllis Carter, a spokeswoman for the Darmstadt, Germany-based company. Merck expects the decision to help save about 300 million euros by 2014.
RWE Supply & Trading GmbH, a unit of Germany’s second-biggest utility, said in January it will eliminate as many as 100 of 160 jobs in Geneva to reduce costs, said Barbara Minderjahn, a spokeswoman for the Essen, Germany-based company.
Procter & Gamble, the biggest multinational employer in Geneva with 3,000 people, declined to say how many jobs will be lost in the city as part of a global plan to cut 5,700 non-manufacturing positions by next June.
By contrast, Trafigura Beheer BV, which trades oil, minerals and metals, has shifted staff from London and Lucerne, Switzerland, in the past two years to make Geneva its main hub with about 400 employees.
While the findings of Pictet’s study are set for release later this year, he said signs are everywhere that times have changed.
“Two years ago when a new multinational was establishing itself in the Lake Geneva region, you would have headlines in the local newspaper saying ‘wonderful, hooray, we’ve made 300 jobs,’” Pictet said. “Today there’s been a little bit of a change of attitude: ‘Gosh, we’ve got another one coming.’”