The energy crisis: A threat to domestic industry
The energy crisis has raised concerns about the competitiveness of the industrial sector in Europe. Gas and electricity prices have soared dramatically in some cases. As a result, production costs have also increased, especially in comparison to other locations such as the US. This not only has the potential to lead to short-term challenges for companies, but could also result in long-term structural changes for Europe and Switzerland as an industrial location. It is conceivable, for instance, that certain production steps could be relocated abroad.
However, energy prices are not the only reason we may see changes in the industrial sector, given that the cost of gas has recently fallen again thanks to the relatively mild winter so far, energy-saving measures, and increased deliveries of liquefied gas. The uncertainty surrounding energy supply also plays an important role, as it is crucial for our international competitiveness.
Swiss industrial sector well positioned to withstand the energy crisis
The Swiss industrial sector is likely to be less affected by the uncertainties surrounding energy supply than other European countries. There are various reasons for this: First, production involves a lower energy intensity, meaning that value creation in Switzerland uses less energy. This is due in part to energy-efficiency improvements made by the individual sectors, but also to the change in the composition of the sectors.
In addition, the proportion of value created by energy-intensive industrial sectors has fallen from 34% to 24% over the last 20 years. This is due in particular to the growth of the pharmaceutical industry, which requires comparatively less energy and now accounts for 27% of the domestic value created in the industrial sector.
Comparison of energy intensity in Switzerland and other European countries
Gas and electricity costs not as relevant
Although the gas and electricity costs involved in production for a given sector are of relevance in the current energy crisis, there are considerable differences between the various sectors because the increase in energy costs does not affect each of them to the same degree. At 6.7%, the paper sector has the highest proportion of energy costs in Switzerland, but for the majority of sectors, including those that are important for Swiss value creation, the proportion of costs is less than 1%.
In addition to these direct costs, the effect of a shortage or increased prices can also indirectly filter through to the supply chains. This is especially the case when manufacturers of inputs pass on their costs.
Proportion of electricity and gas costs is lower in key industrial sectors
Switzerland has relatively high dependence on foreign energy
It's not only the energy costs that play a role for companies, however, but also the availability of energy and the stability of supply. Switzerland obtains around 70% of its energy from foreign sources, thus making it more dependent on energy imports from abroad than Germany or France, for example.
This energy dependence is mainly attributable to fossil energy sources and nuclear fuels; in the case of electricity, by contrast, Switzerland is a net exporter. Relying too heavily on foreign energy can affect energy stability and make an economy more fragile. However, it is difficult to avoid such dependence on imports since Switzerland has hardly any raw materials.
Some 70% of energy in Switzerland is imported
Energy crisis has altered energy trading structures
In the course of the Russia-Ukraine war, Europe's gas import structures have changed significantly. As a result, Swiss energy imports have also diversified indirectly. In Europe, large proportions of Russian natural gas are now being replaced by imports of liquefied natural gas, mostly originating from the US. The United States has become the main supplier of the raw material, pushing Qatar down into second place.
Low energy intensity and diversification: Switzerland's recipe for success?
Analysis of the various factors shows that the Swiss industrial sector is better positioned than its European counterparts thanks to its lower energy intensity. The domestic industrial sector is feeling the effects of the rise in gas and electricity prices to a lesser extent. As a small and open economy, however, Switzerland's dependence on imports does cause indirect vulnerabilities both in its value chain and in its energy supply.