Once synonymous with financial robustness, Finland has been suffering from economic stagnation due to heavy public spending and a loss of export competitiveness. Sofia Lotto Persio reports on the state of the country from the sidelines of the GTR Nordic Region Trade and Export Finance Conference.


Battling for the title of worst-performing economy in the eurozone is, in one corner, veteran title holder Greece. In the other corner, looking as though it knew it had it coming, is Finland. Dubbed the new “sick man of Europe” by its own finance minister and former prime minister Alexander Stubb, the Finnish economy is struggling to get out of a three-year recession, with growth forecasts for 2015 just above the 0% mark.

According to Heidi Schauman, chief economist at Finnish bank Aktia Bank, the domestic market will not be a driver for economic growth, but a rise in international trade might just revive the economy, albeit modestly, as exports have also been suffering. “The problems of cost-competitiveness and the low demand for investment goods in the global markets did slow down export growth,” she writes in a note on the bank’s economic outlook for the country.

Delivering the keynote address at the GTR Nordic Region Trade and Export Finance Conference, Nordea chief economist Annika Winsth highlighted the different economic performances of the four Scandinavian countries: Sweden and Norway are poised for solid growth, Denmark is on the road to recovery, but Finland is struggling. The country, she said, “is producing the wrong things, exporting to the wrong countries”.

Speaking to GTR after the conference, Winsth highlighted the importance of Russia as a commercial partner. In 2014, it accounted for 8.3% of Finnish exports, third only to Germany and Sweden. “The sanctions have impacted exports substantially, but even with sanctions, Russia remains a very important export country,” she said. Trade difficulties with Russia are only one of the reasons why exports have fallen. Echoing Schauman’s analysis, Pasi Sorjonen, chief analyst at Nordea, tells GTR that the lack of competitiveness and the structure of the export sector are other elements affecting the decline in exports.

Finland’s largest single export is chemical industry products (accounting for 23% of total exports), and it has been hit, like all petroleum products, by the fall in oil prices. Forest industry products account for 20% of exports. This sector too has been affected by lower demand, particularly in the pulp and paper industry, the production capacity of which has decreased by almost a fifth compared to 2008 levels. Production levels in September last year were heavily affected by a workers’ strike – the country’s biggest since 1991 – protesting against government austerity plans to reduce labour costs. According to the Finnish Forest Industries Federation, the strike cost forestry companies approximately €42mn. Still, the federation is hopeful for the future of the industry given a surge of investments worth about €1.5bn in total.

Metals and metal products, machinery and equipment, and electric and electronic industry products (respectively 14.4%, 12.9% and 8.15% of overseas sales) are other industries leading the export sectors. These are what Nordea analysts call “products from the old industrial era”, meaning manufacturing-heavy exports that struggle to compete with emerging exporting countries that can offer lower labour costs. “The demand for these products is not getting much stronger, because the current global upswing is driven by consumption rather than manufacturing or investment,” explains Nordea’s Sorjonen. “The demand will pick up later on along with a recovery in global manufacturing, but that can still take a while. It is difficult to do much about this, except all the efforts imaginable to improve competitiveness.”


Finnvera’s rise

Somewhat surprisingly given this picture, Finland’s export credit agency Finnvera has seen an increase in coverage volumes, becoming the 10th-largest agency in the world. “That trend has been driven by cruise ships, but also by the telecoms sector and by the forestry industry,” says Jussi Haarasilta, Finnvera’s executive vice-president, head of large corporates. According to him, ECAs’ services are in demand for those longer tenors that Western banks, despite their good liquidity, are hesitant to support. Speaking at GTR’s event, Pauli Heikkilä, Finnvera’s president and chief financial officer, pointed out that ECAs have to do more in terms of financing the export credit rather than just guaranteeing it, and finding new ways to get banks to take risks.

Wärtsilä Corporation, a manufacturer of power sources and other equipment for the marine and energy markets, is one Finnish corporate that has benefited from the agency’s support. Andreas Back, the firm’s financial services manager, says they have a good dialogue with the agency, and are constantly trying to improve co-operation. “There are always areas to improve. As we export to a lot of developing countries where there is a lot of risk involved, we would appreciate an ECA that would absorb political risk and, to an even larger extent, support us in these countries,” he tells GTR. Matti Malminen, director of trade and export finance at Konekranes, agrees that taking more risks in emerging markets would help exporters. “Finnvera has a key role to play in supporting the Finnish economy,” he says.


Don’t blame the euro

Others within Finland have pointed the finger at the country’s eurozone membership as a factor hindering the commercial potential of its exports. The argument goes that Finnish exports could be more competitive if the currency could be devalued. Riding a wave of anti-European sentiment, a Finnish member of the European Parliament collected more than 50,000 signatures in a petition calling for the country to leave the eurozone. The matter will now have to be officially discussed in the Finnish parliament, although a referendum on a Finnish exit (a “Fixit”, as some have dubbed it) remains unlikely. “The exit is not in the cards and it is not a topic of public discussion in Finland. [It] is an idea of a very small minority,” says Nordea’s Sorjonen, adding that the low interest rates have actually benefited the country.

Just like other Finnish corporates GTR surveyed at the event, Back agrees. “We have benefited from [the eurozone membership], we are stronger now than we were before. Of course, there is a political movement working against a common Europe and a common currency, but from an economic perspective there is only harm in doing something about that. Co-operation should be deeper and wider going forward,” he says.


SME support

A bigger factor that could have a positive impact on the revival of Finnish exports is support towards small and medium enterprises (SMEs). “Exports are mostly concentrated between a few big corporates,” says Jari Hanninen, head of structured finance at Nokia. While Nokia has changed business focus, having sold its mobile handset business to Microsoft in 2013 to specialise in technologies and mobile network infrastructure software and services, the company retains a global presence.

This is what SMEs should aim for, too. “SMEs need to be encouraged to grow internationally,” says Finnvera’s Haarasilta. “What we’d like to see is a wider spectrum of exporters,” he explains, adding that the ECA has established a team focusing on growing SMEs, both to raise their awareness on how to use customer financing to close their deals, and to understand how to improve their product offerings.

The start-up and gaming sector may offer Finland a new player in its exporting game. The popularity of gaming app Angry Birds and its parent company, Rovio, shows that the Finland tech scene has more success stories to offer than just Nokia’s. The country’s gaming industry has doubled its turnover in the past two years to €1.8bn, according to figures from Neogames, a Finnish non-profit games industry organisation. Neogames also claims that the gaming industry has become “a key component in Finland’s exports and economy, with more than 90% of production exported”.

More companies are looking to follow Rovio’s path of expansion from gaming to one of the top 10 entertainment companies in the world. Whether they can help reboot the country’s economy and exports sector remains to be seen, but it isn’t game over yet.


Nokia’s rollercoaster

Few companies have been involved in the fate of their country’s economy as much as Nokia. Mostly known for mobile phones, Nokia’s roots are in the paper and pulp industry, starting out as a pulp mill in 1865.

Nokia’s rise and fall in the mobile technology industry was exemplified in a straw poll proposed by Pauli Heikkilä, Finnvera’s president and CFO, at the GTR Nordic Trade and Export Finance Conference. When asked who in the audience had ever owned a Nokia phone, almost all hands went up. When asked who in the audience still used a Nokia phone, almost all hands stayed down.

“My take is that Nokia managed to choose the correct path for itself at a correct time. They abandoned the production of cables, rubber boots and car tires, etc, and decided to concentrate on consumer electronics, and especially mobile phones when no one really knew how important these products would eventually become globally,” says Pasi Sorjonen, chief analyst at Nordea. “They were highly efficient in what they did and were able to maintain high profitability in challenging conditions. They were able to more than offset the falling trend in mobile phone prices by boosting productivity even more. This is why Nokia, and the electronics sector in general, was a key driver of economic growth in Finland at the time.”

Nokia eventually sold its mobile handset business to Microsoft in 2013 for €5.4bn, a small amount considering that, at its peak, Nokia controlled 40% of global market shares in mobile phone sales. The fall of Nokia’s business and its consequent sales affected many layers of the country’s economy, from employment to export volumes and sales.
Nokia has since focused on technologies and mobile network infrastructure software, and remains a global company. “We are looking at what we can do in the Asian market. Europe, as we know, is in stagnation. There are good opportunities in North America: Latin America has not progressed as much as we were expecting,” says Jari Hanninen, Nokia’s head of structured finance, describing the company’s global footprint.