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Locational quality: Basel-City temporarily takes over top spot

The fight over the best locational quality among the cantons of Switzerland is heating up, and tax cuts could soon make the locational rankings even more competitive. Credit Suisse's locational quality indicator shows where the best locational factors are found.

Basel-Stadt in the lead for locational quality

The cantons of Switzerland are in an intense competition to attract investments from companies to their location, since this would bring new jobs and prosperity. The long-term economic potential of the cantons is thus largely determined by the framework conditions for companies. Credit Suisse's locational quality indicator (LQI) has been released annually since 1997. It assesses the locational attractiveness of the cantons based on seven qualitative sub-indicators in the areas of tax burden, availability of skilled and highly qualified staff, and accessibility.

For the first time, there was a new leader in 2019. The Canton of Zug has been in first place ever since the ranking started. Due to a substantial corporate tax cut, however, Basel-Stadt has now jumped from fourth place to narrowly claim the top spot. Zug is close at its heels, with Zurich slightly further behind.

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Comparison of locational quality in the cantons of Switzerland

Locational quality indicator (LQI), synthetic index, CH = 0

Source: Credit Suisse

Major cities have an advantage in locational ranking

Large hubs such as Zurich, Basel, and Bern have an advantage over more remote areas primarily when it comes to the availability of highly qualified staff. The largest pools of people with a university degree or a higher technical college qualification are in such cities and their associated metropolitan areas. The city of Zurich is the front-runner here, with 55 percent highly qualified employees.

Urban areas also have advantages in terms of transport accessibility, which is difficult for the peripheral regions to offset. This indicator can only be improved through long-term, costly investments in roads and rail. And even then, the impact on locational quality is limited. Even with a project worth billions like the New Railway Link through the Alps (NRLA) and its 57 kilometer Gotthard Base Tunnel, the Gotthard region would only be slightly more accessible since travel times to urban centers are still considerable despite the time saved.

Locational quality higher in cities thanks to highly qualified staff

Percentage of working age population with tertiary education, 2013–2017

Source: Swiss Federal Statistical Office, Credit Suisse, Geostat

Zug expected to reclaim the lead in the locational ranking soon

The changes to corporate taxes are likely to have the biggest impact on the future development of location quality in Switzerland, however. With the Federal Act on Tax Reform and AHV Financing (TRAF) approved by Swiss voters in May 2019, the cantons now have different options for enhancing their appeal using taxes. Corporate taxes are likely to come down overall in many regions.

This means that by 2025, the locational ranking will be a whole new ballgame for the cantons. If it implements the resolved cut to corporate income tax, the Canton of Zug would knock Basel-Stadt back into second place by the start of 2020. At the other end of the spectrum, the canton of Bern would fall five spots to twenty-third place in the hypothetical 2025 locational quality ranking now that its voters rejected a law revision in late 2018. Bern's Cantonal Council is currently proposing another minor break for legal entities, meaning that the competition for companies is still active.

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Locational quality 2025: Zug back in the lead

Locational quality indicator (LQI), synthetic index, CH = 0, 2019 and after recalculation of sub-indicators for accessibility and tax burden for legal entities

Source: Credit Suisse

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