April 4 (Bloomberg) -- As attacks on account secrecy and the fall from grace of Switzerland’s biggest banks leave Zurich mired in crisis management, another city an hour away is quietly moving ahead.
Basel, headquarters of Europe’s two biggest drugmakers, Novartis AG and Roche Holding AG, has seen economic growth double the national average in the past two decades, according to Mayor Guy Morin. The city alone accounts for half of Swiss international trade.
Switzerland’s smallest canton by area, Basel is the kind of discreet asset that has kept the Alpine nation a bastion of prosperity. And the city’s clout may be about to increase. Basel and its suburbs will vote on merging in the next year, which would add critical mass as a pharmaceutical and cultural hub.
“Basel is in the right spot,” said Jean-Paul Clozel, who founded drugmaker Actelion Ltd. just outside the city. “What they have to do now is not make any mistakes.”
Basel’s success comes as Zurich faces setbacks. UBS AG is scaling back its ambition of competing with first-tier investment banks, a decision that follows the company’s admission in 2009 that it helped clients avoid paying U.S. taxes. Credit Suisse Group AG is reorganizing to slash 4.4 billion Swiss francs ($4.6 billion) of costs by the end of 2015.
Colors and Dyes
While the CEOs of UBS and Credit Suisse sit in Zurich and private bankers favor Geneva as an operating base, Basel wields power in banking well beyond Switzerland's borders, as it's home to the Bank for International Settlements.
The BIS, which has 589 employees from 54 countries, set stringent capital requirements to bolster banks’ solvency since the financial crisis emerged in 2008, and the regulator is planning to crack down on companies that underestimate those requirements. Meetings at the BIS draw central bankers from around the world, including Mario Draghi and Mark Carney.
Far from the turmoil in Zurich, Mayor Morin sits in his office in Basel’s 16th-century city hall, explaining how the pharmaceutical industry helped shape his town. Basel was known as a major paper-producing and printing center in the Renaissance, and was home to Erasmus of Rotterdam. Switzerland’s oldest university also is based in the city.
The roots of Basel’s drug history date back to the Reformation of the 16th century when French Huguenots fled their country and brought their knowledge of colors and dyes with them, according to Morin. Out of color production grew the chemical industry, and out of the chemicals came pharmaceuticals and life sciences.
“We had a lot of chimneys before,” said the mayor, who’s also the city’s minister of culture. “Nowadays it’s mainly an administrative and research center for life sciences.”
Nowhere is the move away from smokestacks more apparent than at the headquarters of Novartis, where former Chairman Daniel Vasella set in motion a 2.2 billion-franc construction program to transform what was once an industrial site into a tree-filled campus with buildings by Frank Gehry, Fumihiko Maki and David Chipperfield, and a 300-ton steel sculpture by Richard Serra called “Dirk’s Pod.”
“The idea is that we don’t have any more smoking chimneys, only smoking brains,” said Felix Raeber, a spokesman for the Novartis campus.
On the other shore of the Rhine, rival Roche is also changing Basel’s landscape. The drugmaker is constructing what should become the tallest building in Switzerland, a 41-story spire designed by local architects Herzog & de Meuron.
“We have a life-sciences cluster, which can compete with the life-sciences clusters from all over the world,” said Matthias Baltisberger, who oversees Roche’s Basel site. “That makes the city feel much bigger, much more international, much more open than other Swiss cities.”
A third of Basel’s urban residents are foreign, more than Zurich’s one-quarter international population but less than in Geneva, according to figures from the Swiss Federal Statistical Office. Basel contributes more per person to Swiss gross domestic product than either Geneva or Zurich, according to the statistics bureau.
The city has welcomed more non-Europeans since 2000, with residents from India and Sri Lanka increasing. It’s home to people from 150 different countries, a change that’s visible on the city’s restaurant tables, where choices now include cuisine from Thailand, Turkey and the Caribbean.
The atmosphere is more understated than in Zurich, where watch stores and luxury boutiques line the city’s main shopping street, the Bahnhofstrasse. Commercial space there is the fourth-most expensive in the world, according to Location Retail’s annual survey.
Even at the confectioners, Basel lacks the flash of Zurich. Lindt & Spruengli sells delicate, spun-sugar Luxemburgerli macaroons in a dozen flavors on Zurich’s Paradeplatz, across from the offices of Credit Suisse and UBS. The Luxemburgerli come with a stern note warning buyers to eat them immediately or risk diminishing returns. In Basel, the closest thing to a mascot sweet is the Basler Leckerli -- dry gingerbread bites that keep for a year.
In sports and art, pharmaceutical patronage has helped Basel punch above its weight.
Novartis last month renewed its sponsorship of the city’s soccer club until 2017. Backed by the drugmaker since 2004, the club won the Swiss Super League the past three years. Last season, the club knocked Manchester United out of the Champions League tournament with a 2-1 victory in the decisive game in Basel. While the size of the Novartis sponsorship is undisclosed, it’s the biggest in Swiss soccer, according to Geneva newspaper L’Agefi.
Roche also had a hand in the club’s success. Gigi Oeri, the wife of Swiss billionaire and Roche family shareholder pool member Andreas Oeri, was president of the Basel soccer club for 12 years before resigning last year.
The city also is regaining its Erasmus-era cultural prominence as tens of thousands of collectors, gallery owners and artists descend on the city every June for Art Basel. The fair founded in 1970 is now one of the biggest and most important in the world, with outposts in Miami Beach and, for the first time this year, Hong Kong.
“It became this magnet for the art world,” said Andreas Gegner, a London-based director for art dealers Sprueth Magers. “If collectors had to pick a single fair that they attend in a year, they’d pick Basel.”
Gegner’s gallery will be among 304 this year that send artworks to Basel, according to the event’s organizers.
Free to Focus
The fair proves its worth as a space to meet clients and curators, said Florian Berktold, director of art gallery Hauser & Wirth in Zurich. Without Paris’s shopping attractions or the distractions of London, collectors are free to focus on art.
“The strength of Basel is that people from New York, from everywhere, come to Basel just for the fair,” Berktold said.
The city’s location, where the Swiss, French and German borders meet, may help explain the success of another annual Basel gathering, the watch and jewelry fair known as Baselworld.
The event, held each spring, draws celebrities such as Leonardo DiCaprio along with the Chinese buyers who have propped up demand for Swiss watches in past years. The event typically draws so many retailers and buyers that hotels run out of rooms and attendees sign up to lodge in boats on the Rhine.
“I look out my back balcony, I see France,” said Mike Warmuth, who heads the drugs unit that Abbott Park, Illinois-based Abbott Laboratories established in Basel’s suburbs two years ago. “I look out my front balcony and see Germany, yet I live on the Rhine river in Switzerland.”
Along one side of the city council chamber, overlooking the central market square, are original stained-glass windows bearing the crests of the 11 cantons that constituted the Swiss confederation before Basel joined in 1501. In a glass frame on another wall is the charter confirming Basel’s membership.
“We are the gateway to Switzerland,” says mayor Morin, recounting the town’s history as a trade route from north to south, across the Rhine and through the Alps.
The next step in the growth of Basel is to remove a “border that makes no sense anymore,” he said. That’s the invisible line between the city canton and the surrounding suburb, called Basel-Country.
In the next year, residents from the suburbs will get to decide whether to start drafting a constitution to add political commitment to the existing economic union. The two half-cantons were separated in 1833 after a battle between farmers and city dwellers.
Paris of Pharma
Basel’s annual carnival, one of the city’s oldest traditions, took up the separation issue this year. The event’s badge pictured a young female reveller arm-in-arm with a male character from Basel-Country’s own festival, and the event’s motto roughly translated as “your place or mine?”
A previous attempt to fuse the half cantons failed after a rejection by suburban residents in 1969. The same could happen again, according to Morin.
While today’s Basel-Country is more German-speaking, younger and less international than the city, it’s no longer a farming area. Actelion and the Abbott unit are both based there. Proponents argue that a unified Basel would reflect an economic fusion that has long been complete.
“We could not have created what we have created outside Basel,” says Actelion’s Clozel. “The culture is here for pharma. Everybody knows how to build a lab. Basel is to pharma what Paris is to fashion.”
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