Geneva becomes global commodities trading hub

A small Swiss city best known as a centre of diplomacy and banking has quietly transformed itself into a global commodities hub.

Low tax rates have compelled many trading houses to move to Geneva, the home of the UN European headquarters, the World Trade Organisation, the International Red Cross and 140 banks catering to some of the world's wealthiest people.

The Geneva branches of BNP Paribas, Credit Suisse, ING, Credit Agricole, UBS and other banks have also created a niche by offering transactional financing tools for physical commodities markets.

"That has attracted many traders from London, from Paris, and from elsewhere who are seeking to get their operations financed," said Geert Descheemaeker, head of the Geneva Trading and Shipping Association (GTSA).

His organisation, set up in September 2006, represents companies including Cargill, Louis Dreyfus Commodities Switzerland, Bunge Europe, Vitol and SGS.

The GTSA estimates there are 6,000 people working in commodities trading, shipping and related services in Geneva, compared to the city's 8,500 UN staff and 19,000 bankers.

Most are involved in physical commodities trading, not futures or hedging. All the major traders of grains, oil seeds and related products are in Geneva, which is the world's top hub for this activity, Mr Descheemaeker said.

Geneva's long-standing ties to Russian business have also built up its oil trading activity, which Mr Descheemaeker described as on par in influence with London and Singapore.

More than 70 per cent of oil from Russia and former Soviet bloc countries now trades through Geneva, he said. Coffee, cotton, rice and metals are also bought and sold by the Swiss city's fast-multiplying trading houses.

"There are constantly new companies coming in," he told Reuters in an interview. "Once you get a certain critical mass, the presence of your competitors or counterparts becomes a draw in itself. It starts to be the place where you should be."

Mr Descheemaeker said the prosperous lifestyle of the lakeside city, which has only 185,000 downtown residents and a regional population of 450,000, has served as another magnet that has bolstered the commodities sector.

Many traders are interested in Geneva's proximity to the Alps, its luxury goods, and its easy-to-access airport, he said.

The ability to meet and do business easily with bankers and other commodities specialists is also seen to give those based in Geneva an advantage.

To settle the details of certain complicated financing deals, he said: "It is much better if you can just pick up the phone and say: 'Why don't we have lunch?'."

Geneva was the original seat of the League of Nations, and retains a reputation as "the city of peace" for its role hosting negotiations over conflicts in Bosnia, Sri Lanka and elsewhere.

Steve Bernard, managing director of the Geneva Financial Centre, said the recent commodities influx had helped reshape Geneva's image from that of a staid diplomatic centre to a serious player in international trading.

"It is bewildering from the perspective of such a small city," he said.