The Swiss economy and the war in Ukraine – economic and humanitarian perspectives

Russia’s large-scale war of aggression against Ukraine since February 24, 2022, marks a historical turning point in Europe and beyond. The dramatic developments in the war in Ukraine over the past several months also have far-reaching consequences for Switzerland – from a humanitarian perspective as well as in terms of security and the economy. The Swiss business community strongly condemns the war of aggression against Ukraine. Russia's blatant breach of international law is totally unacceptable.

This position paper details the direct and indirect economic impacts of the Ukraine war on the Swiss economy and shows the extent of the Swiss private sector involvement in humanitarian activities in connection with the war in Ukraine. economiesuisse recently conducted comprehensive member surveys on both issues.

economiesuisse firmly believes that the private sector in particular can significantly contribute to alleviating the immediate suffering of the victims of war in Ukraine. All Swiss companies are hereby called upon to pitch in as best they can. Such support is likely to become even more crucial as the war drags on.

Russia’s large-scale war of aggression against Ukraine since February 24, 2022, marks a historical turning point in Europe and beyond. The dramatic developments in the war in Ukraine over the past several months also have far-reaching consequences for Switzerland – from a humanitarian perspective as well as in terms of security and the economy. Swiss business leaders strongly condemn the war of aggression against Ukraine. Russia's blatant breach of international law is totally unacceptable.

On February 28, 2022, based on Article 1 of the Embargo Act, the Federal Council consequently decided to fully adopt the sanctions of the European Union (EU) against Russia (five sanctions packages to date). These also include measures against Belarus. The Swiss business community fully supports this decision. There is no question that Swiss companies comply with all the corresponding legal requirements. Independent sanctions by Switzerland, on the other hand, are not considered expedient.

In response, Russia has taken various countermeasures against Western companies. These measures greatly increase the risks and uncertainties for Swiss companies doing business and investing in Russia.

Irrespective of the sanctions, Swiss companies have substantially reduced or completely suspended their economic activities in Russia and Belarus. The reaction of the business community thus in many cases goes well beyond what is required by the sanctions. Financial losses are of minor importance for the companies. For security reasons, they were also forced to reduce or temporarily suspend their activities in Ukraine. The safety of employees, the support of the suffering local population and sending a clear signal against the Russian war of aggression are the primary focus. As a result, many companies have been involved in the humanitarian sector since the very beginning of the war. They have been helping their employees, refugees, and the suffering population in the war zones.

Switzerland had long-standing bilateral economic relations with Russia and Ukraine before the war. But Russia’s annexation of Crimea in 2014 and the invasion of Ukraine in 2022 countered by measures taken by the Swiss authorities and sanctions imposed by the international community have severely affected Switzerland's economic relations with the two countries. Figures compiled by SECO, by the Federal Office for Customs and Border Security (FOCBS) and the Swiss National Bank bear this out.

Before the war, Russia was the eleventh largest economy in the world. About two-thirds of its exports consist of oil, petroleum products and natural gas. The large share of commodities in its exports makes the Russian economy vulnerable to price fluctuations on the commodity markets. For the Swiss export industry, Russia is of limited importance. Total bilateral trade with Russia was CHF 4.7 billion in 2021 (export and import, total 2), with Swiss exports accounting for CHF 3.4 billion and imports for CHF 1.3 billion. Russia ranked 23rd among Switzerland's most important trading partners in terms of goods for 2021. Exports to Russia include mostly chemical and pharmaceutical products, precision instruments/watches and machinery while Switzerland mainly imports precious metals from Russia.

Compared to the bilateral trade in goods, the volume of services traded is significantly lower. In 2020, Switzerland exported services worth CHF 2.3 billion to Russia and imported services worth CHF 0.9 billion in return. Swiss service exports to Russia in 2020 primarily comprised transport services, licenses, and financial services. On the import side, transport services also account for the largest share. Swiss direct investments in Russia totalled CHF 27.8 billion at the end of 2020. Swiss companies employed more than 39,000 people in Russia in the same year.

Starting in 2014, the Swiss government took steps to prevent the circumvention of international sanctions related to the annexation of Crimea. Negotiations for a possible free trade agreement between the states of the European Free Trade Association EFTA (Switzerland, Norway, Iceland, and Liechtenstein) and the then customs union between Russia, Belarus and Kazakhstan were also suspended.

After the Maidan Revolution of 2014, Ukraine increasingly turned towards the EU both politically and economically. This reorientation of the Ukrainian economy also had consequences for the bilateral economic relations with Switzerland. Although still relatively small, they have developed very positively in recent years. In 2020, Ukraine ranked 64th among Switzerland’s trading partners. In 2021, trade between the two countries reached a new high of CHF 831 million, an increase of 12.9 percent over the previous year. Switzerland exports mainly chemical and pharmaceutical products, precious metals, and precision instruments/watches, while Ukraine exports textiles, agricultural and forestry products, and precision instruments/watches to Switzerland.

Different as with Russia, trade in services from Ukraine to Switzerland is more important in comparison to trade in goods. According to the latest figures available, Switzerland is the third most important importer of Ukrainian services. Switzerland, on the other hand, is the fourth biggest investor in Ukraine (USD 2.7 billion, International Monetary Fund) and was present in the country before the war with numerous different projects for SECO's economic development cooperation. Certain of these projects are being continued, albeit adapted to current needs.

The war has severely impacted bilateral economic relations between Switzerland and Ukraine. Companies have had to limit or completely stop local production. Imports and exports are no longer possible in some cases due to the war and logistical problems. The specific impacts vary from company to company. The long-term consequences cannot yet be precisely assessed. Clearly, the war and the large-scale destruction of infrastructure will continue to affect the economic development of the country for years to come.

As Switzerland has also tightened its sanctions on Belarus, the economic relations between the two countries are obviously affected by the current situation, albeit to a significantly lesser extent. Economic ties between Switzerland and Belarus were not close even before the war. According to FOCBS statistics, bilateral trade in goods totalled a mere CHF 158 million in 2021 (total 2) with Swiss exports of just under CHF 109 million and Belarusian exports to Switzerland of almost CHF 50 million. Economic framework conditions deteriorated in 2020 due to unrest and political instability in the wake of the presidential election. This trend is likely to continue under the current circumstances.

The direct impact of sanctions on bilateral trade relations is rather small for the Swiss export industry and the financial centre.

Indirectly, however, the war poses major challenges to both the Swiss and global economy. The war is exacerbating existing supply chain bottlenecks. This makes the procurement and production of certain products such as chips, cars or building materials more difficult and expensive. Both Russia and Ukraine are important energy and food exporters, and their industries produce important industrial factor inputs. For example, a large part of the world's nickel and palladium production comes from Russia. Ukraine is the world's largest producer of neon. Likewise, metals relevant to industry such as iron, steel, aluminium, copper, platinum, or titanium are produced in the two countries. Due to the volatility of the prices for these raw materials, many industrial companies are facing great planning uncertainty. Various countries have also reduced imports of Russian crude oil and natural gas or are discussing such steps. Energy supply is also a challenge for Switzerland in connection with the war in Ukraine.

According to a survey conducted by economiesuisse at the beginning of March this year, every second Swiss company participating in the survey is affected by the economic impact of the war. In addition to the war-related difficulties with the procurement of raw materials, Western sanctions such as restricted payment transactions with Russian banks or export bans, and the distortions on the energy markets are also burdening companies.

The tragedy of the war in Ukraine shows the fundamental importance of peace to everyone. At the same time, it underlines the urgent necessity of humanitarian relief in the affected areas and along refugee routes. Unfortunately, such aid and support will very likely continue to be needed in the medium and long term.

A first qualitative survey of member companies conducted by economiesuisse in March 2022 confirms: In addition to the Swiss government, aid organisations and private individuals, many Swiss businesses are also directly involved. 28 companies from all relevant sectors gave their views on their humanitarian engagement in the context of the war in Ukraine. The vast majority of them - medium-sized companies and global corporations – have subsidiaries in Ukraine or in neighbouring countries.

The willingness to help is immense, not only among companies but also among their employees. In Switzerland, companies provide support for refugees arriving from the war zone. According to data from the State Secretariat for Migration SEM of May 10, 2022, 47,980 people were registered in Switzerland. The labour market integration of the refugees is progressing well. But companies are also providing direct support for employees and the suffering population in Ukraine and the border areas nearby.

Companies, employees, and customers provide substantial financial donations. These donations are made either directly to those affected in Ukraine or through aid organisations, foundations, or refugee aid. Companies also often participate in fundraising campaigns launched by their employees. One frequently used model is the so-called matching fund: donations from employees, customers or the public are doubled or tripled by contributing companies – often through their company foundations. As a result, sums in the millions are raised quite often. A short survey by economiesuisse found that participating companies have donated over CHF 27 million so far but reliable estimates of the total volume of donations from the entire Swiss economy are not available. On average, companies participating in the survey donated more than one million francs.

In addition to their financial support, companies from a wide range of industries are also continuously delivering large quantities of relief supplies to the affected areas. 44 percent of companies surveyed also donate goods. The value of these donations exceeds the amount of financial donations many times over. In-kind donations include several million packages of medicines and diagnostics, hundreds of tonnes of food, clothing, blankets, torches and more. The goods are distributed partly by the companies’ own employees at their facilities or through relief organisations and the local civilian population.

Several companies also encourage their employees to volunteer. This includes, for example, welcoming refugees into their homes during paid working hours or granting extra holidays for humanitarian engagement. Several companies also stated that they make unused company buildings and guest flats available as accommodations for refugees. Moreover, there are newly created or currently planned projects that support people seeking protection in their job search, training, and childcare. There were also reports of spontaneous actions by individual employees who volunteered, e.g. to transport refugees in company vehicles from the border regions to safe places in neighbouring countries.

For security reasons, branch offices and production facilities of numerous companies in Ukraine had to be temporarily closed. However, the surveyed companies are making efforts to help employees and their families wishing to leave the country to do so. They are in constant contact with employees who have to or want to stay on site. Wage payments are maintained, and the companies provide material and financial support.

Some companies provide housing for employees who have fled to neighbouring countries or to Switzerland and provide support to those who want to continue working while abroad. Ukrainian employees who were already living outside Ukraine before the outbreak of the war are also assisted. They receive donations in kind and financial resources from staff and supervisors when they take in family members or friends who have fled. In Switzerland, as well as in border areas and in Ukraine, services like support centres and hotlines have been set up to provide psychological assistance.

Many other Swiss companies are making humanitarian commitments in connection with the war in Ukraine. For example, numerous companies have responded to Swiss Solidarity's appeal for donations, as can be seen on its website.

While the course of the war in Ukraine is difficult to predict, it seems clear that the needs and challenges of the affected population will change – and likely increase – as the fighting continues. Humanitarian relief efforts need to prepare for the long haul.

The direct impact of the sanctions on bilateral trade relations with Russia and Belarus in the context of the war in Ukraine is minor. Nevertheless, individual companies with a strong presence in these markets are likely to be significantly affected. Overall, the indirect effects of the war in Ukraine are potentially more serious for the economy as a whole. These include logistical problems, supply chain disruptions (e.g., industrial input materials, raw materials, food, and energy sources) and increasing prices.

Economic impacts, however, have taken a back seat in view of the humanitarian catastrophe in the war zone. Many Swiss companies have responded to the war in Ukraine with a major humanitarian commitment which is playing out in Ukraine itself, in Switzerland and along the refugee routes to Western Europe. Specifically, the support includes in-kind contributions such as medicines, food, clothing or living space for refugees. Considerable financial donations are also made to aid organisations and foundations. Various companies also allow their employees to volunteer during working hours.

The brief survey by economiesuisse on the humanitarian engagement of Swiss companies in connection with the war in Ukraine shows that the private sector, in particular, can make a valuable contribution to alleviating the immediate hardship of the people affected in the war zones and on the run. Many companies are proactively engaged in alleviating the suffering of victims and take their social responsibility beyond pure business interests. It is to be hoped that the findings from the survey will also motivate other companies to get involved – not least because the need for support is likely to increase as the war drags on.

Despite the great importance of humanitarian support, it is essential to create sustainable prospects for local companies and employees as soon as possible. In the long term, foreign direct investment in Ukraine is also an important prerequisite to strengthening the local reconstruction and economic integration into global production, logistics and development networks after the dramatic collapse of economic activity because of the Russian invasion. This would also support the rapid economic recovery of the affected regions. It is to be hoped that Switzerland's bilateral economic relations with Ukraine can also continue their positive trend that existed until the war began.

In view of the global economic disruptions, the great uncertainties in foreign policy and the dramatic humanitarian situation in Ukraine, politicians are called upon to do everything in their power to bring about a swift end to the war.