Russia now a growing market for Finnish companies
When Finns remember the Cold War, images of trade with the Soviet Union come readily to mind. Every Finn over the age of thirty can remember TV news coverage showing Finnish and Soviet trade delegations dressed in thick overcoats and big fur hats shaking hands.
The Soviet Union was the cornerstone of Finland’s foreign trade for decades. Industrial machinery and equipment were exported over the eastern border and energy and raw materials were imported from the Soviet side. As late as the 1980s trade with the Soviet Union still accounted for a quarter of Finnish exports.
Then the Soviet Union underwent political breakdown and Finland’s trade with it collapsed. The fact that the bottom fell out of Soviet trade partly explains the recession that struck Finland in the early 1990s and was far deeper than in any other industrialised country.
Finland did rise out of the ruins of the recession to achieve new economic success but the engines of the boom that started in the new millennium were not the traditional manufacturing sectors that had benefited from trade with the Soviet Union in the past. The front runner was the IT sector led by Nokia.
Close to 800 million mobile phones were sold around the world last year and one in three were manufactured by Nokia. In western countries mobile phones have become status symbols that display fashion consciousness and style. Over the next few years, however, the biggest growth in the mobile phone market is set to occur outside Europe and North America. Developing economies such as China and India are in the forefront of this predicted growth, which also includes Russia, the former flagship market for Finnish exports.
“We underestimated market development in Russia as growth there has been ten times what we predicted. The number of mobile phones in Russia has doubled each year for the past 3-4 years,” explained Stefan Widomski, Nokia's director of international trade, speaking at a seminar on Russia in Helsinki in January this year.
Widomski is not the only company director who is optimistic about Russia. A survey by the Finnish stock market journal Arvopaperi last year showed that the directors of Finnish listed companies now have a more positive attitude to the business opportunities offered by their neighbour to the east than they did a few years ago. Company directors have commended Russia for its successful economic development and growing purchasing power and the development of its legislation and business climate.
Exports growing, investments soon to follow
The change in the climate is also reflected in export statistics. Russia is fast reclaiming its position as Finland’s most important trade partner. Approximately the same volume of Finnish exports went to Russia last year as went to two other major markets, Sweden and Germany. It is worth noting that exports to Russia increased by 30% while exports to Sweden grew by 8% and to Germany by only 4%.
Russia’s attraction has been welcome for the Finnish economy as economic growth in the European Union has been weak over the past few years. The growth of GDP has fluctuated between 0.7% and 2.0% in the euro zone during the past four years while growth figures for the Russian economy have been from 4.7% to 7.3%.
Pekka Sutela, Head of the Bank of Finland Institute for Economies in Transition (BOFIT), points out that Russia’s potential is far greater than the figures for economicgrowth suggest. And development in Moscow and St Petersburg, Finland’s most important market areas, is notably more vigorous than in the rest of the country on average.
“The Finnish perception is that the Russian market will continue to grow at a rate of over 20% per annum,” explains Sutela in an article entitled Will growth in Russia continue?
Even though export statistics clearly demonstrate the appeal of the Russian economy, investments by Finnish companies have yet to match the pace. Despite this, business leaders and economists alike clearly feel that Finnish money will start to flow more copiously across the eastern border over the next few years.
Many Finnish companies have already started focusing on production and business in Russia. Stockmann has department stores in St Petersburg and Moscow, Nokian Tyres manufactures car tyres in the Leningrad region, Elcoteq carries out electronics assembly in St Petersburg and PKC Group in Kostamus. Tiivi manufactures windows in Murmansk and Fazer bakes bread in St Petersburg.
The most recent successes in Russia have been by Finnish construction companies YIT Group only derives 3% of its turnover from the neighbour to the east but management expects marked growth from Russia over the next few years. In the wake of YIT Group, Ramirent is entering the Russian construction machinery hire market, which is still in its infancy in Russia.
Investors have rewarded the Russian projects of Finnish listed companies with a growth in stock-market value. Shares of YIT Group and Ramirent have risen over 100% during the past year. The share value of meat processing company Atria has increased by 65% and that retailer Stockmann has grown by 50% which shows that investors expect intense growth from the companies' eastern operations.
Private individuals in Finland have also grown enthusiastic about Russia. Some 50,000 Finns have bought fund units from Russia. And half a dozen fund management companies investing only in Russian shares have been set up in Finland. Investors can be satisfied with last year's results. The best fund, Seligson Prosperity Russia, yielded 136% and even the worst, FIM Russia, gave 69%.
Eljas Repo and Tommi Melender