The impact of the COVID-19 crisis has been far from uniform. Many nations witnessed a sharp decline in their economies, particularly FDI inflows. Finland defied this downward trend. In 2020 Finland welcomed nearly 300 new foreign companies and recorded a net increase in FDI compared to 2019. Here is a closer look at what made this remarkable achievement possible, and the learning that lies therein.
FDI flows to Finland
Before COVID-19 the FDI inflows to Finland were mainly in manufacturing, IT, communication, real estate, financial and insurance businesses, wholesale, and retail trade. In 2020 this changed. Most of the new foreign investments were made in business services and Information Communication Technology (ICT), which includes companies like Aiven and Enfuce. Demands for digital products soared as people stayed home. Digital customer services and ICT became a lot more important.
According to Business Finland, 34 companies invested more than EUR 574 million in Finland in 2020. Among these were Garmin (US) consumer electronics, Schibsted (Norway) media group, Visma (Norway) software service company, Boels (Netherlands) construction machinery rental, Mitsubishi Logisnext (Japan), and Equinix (US) data center and internet connection service. Firms like Bayer (Germany) multinational pharmaceutical and life sciences, invest EUR 80 million in Finland annually. Bayer invested an additional EUR 35 million, which will enhance its production supply center in Turku. Foreign-owned companies in Finland made 130 expansion investments. These include IKEA and Google. The largest number of new FDIs came from Sweden, Norway, and the UK.
Investor confidence in Finland
There are many reasons for FDI investors to feel secure and confident about Finland.
- Strategic geographic location: Finland’s location next to Scandinavia, Russia, and the expanding Northern European markets is perfect for investors.
- Multilingual: According to Statistics Finland, 93% of of the country’s residents aged 18-64 can speak more than one language. The lingual and cultural diversity of the workforce is an asset for employers.
- Among the least corrupt countries: The corruptions index ranks 180 countries and territories on perceived levels of public sector corruption. Finland ranked as the third least corrupt country in 2020.
- Expertise in green technology, manufacturing, health, and ICT
- An extremely industrialized economy, with free markets and high productivity
- Research focus: In 2018 the gross domestic expenditure on research and development accounted for 2.76% of Finland’s GDP.
- Lower taxes: To attract investments, the Government of Finland has cut the corporate tax rate from 24.5% in 2014 to 20% in 2020.
- Easy access: Finland simplified its residence permit procedures for foreign specialists. It also created a one-stop-shop for foreign investors called Business Finland.
- Gender inequality in Finland is low. It ranks third in the 2020 World Economic Forum Global Gender Gap Index.
The quality and availability of labor is an important consideration for investors. Finland’s Government enacted a ‘Competitiveness Pact’ which aims to reduce labor costs, introduce more flexibility into the wage bargaining system, and increase employable hours. The World Economic Forum’s (WEF) 2020 Global Competitiveness report awarded Finland the highest score among 140 nations. The report evaluates factors that have helped countries manage the impact of the pandemic. Finland updates its education curricula frequently and invests in the skills needed for the job markets of tomorrow. Bayer CEO said that Finland is a great place to invest in and do business, because the workers are well-educated and skilled.
In 2019 the labor cost index (LCI) in the private sector in Finland was at 101.4, better than Germany (106) and the US (111). The LCI shows the short-term development of the cost of employing labor on an hourly basis. In 2021 Salary Explorer reported that salaries in Finland range from EUR 1,190-20,900 per month. This compares favorably with bigger economies such as Germany where salaries range from EUR 960-17,000 per month. Finland is home to substantial numbers of foreign migrants. These expat professionals regularly send remittances to support their families back home via the Ria Money Transfer App and other channels. The employment gap in Finland between men and women aged 15-64 is the third lowest in OECD. Finland is currently among the top-ranked countries on gender parity in educational attainment.
Importance of FDI
FDIs stimulate the recipient country’s economic development. A direct positive outcome of FDI in Finland is better tax revenue. This is a function of better productivity and profits for private sector firms. According to Invest Finland, foreign investments play an important role in promoting Finland’s global competitiveness. They create jobs and bring investment capital. FDI also increases exports and innovation. Only about 1% of companies in Finland are foreign-owned. They generate more than EUR 1.4 billion in corporate tax and EUR 15 billion in VAT revenue for Finland annually. 44% of the foreign-owned firms in Finland plan to hire more personnel in 2020-21. 30% intend to invest more in research.
About the author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.