Mon, Aug 12, 2013 - Page 15 News List

Finland dependent on Russia again instead of Europe

Reuters, HELSINKI

After decades of pursuing trade with western Europe, Finland is becoming dependent on Russia again as that country’s burgeoning middle class and wealthy investors provide opportunities for growth lacking in recession-hit Europe.

While some Finns still view their eastern neighbor and former ruler with suspicion, expectations of only a slow European recovery mean more businesses are likely to embrace closer ties with Russia, signaling a readjustment after two decades of close commercial relations with Europe.

Recent trade data show a shift has already begun. Finnish exports to the rest of the EU fell 4 percent year-on-year in the first five months of this year, while those to Russia rose 4 percent.

Judging from second-quarter corporate results, which showed a wide range of companies hit by uncertainty in Europe, Finland may become even more dependent on Russia.

Top companies such as retailer Kesko and department store chain Stockmann have cited Russia as their strongest card. Kesko, which controls about 35 percent of Finland’s grocery and hardware trade, opened its second Russian food store in May and plans eight more in the next three years.

The expansion, which capitalizes on strong consumer trends as well as Finland’s high reputation for food safety and product quality, comes as Kesko has cut hundreds of jobs in Finland and lowered its profit forecasts.

“The growth potential that the Russian markets offer to Finland is truly remarkable in the longer term,” chief financial officer Jukka Erlund said.

Stockmann on Friday reported a surprise rise in quarterly operating profit, saying strong earnings in Russia, particularly at its department store in St Petersburg, offset weak spending in Finland.

Tire maker Nokian Renkaat started production in Russia in 2005, and has since been boosting capacity at its Vsevolozhsk factory near St Petersburg, enough to make it Russia’s market leader in passenger vehicle tires.

“Finland and Finnish products have an excellent reputation in the country. Culturally, we are considered honest, almost naive,” said Kim Gran, the tire maker’s chief executive. “Finland’s small businesses should make a stronger effort to establish operation in Russia.”

Exports to Russia have almost tripled since 2000, led by growing demand for a range of goods including mining machinery, wood products and chemicals in addition to gadgets such as Nokia’s mobile phones.

While Russia’s growth has recently shown signs of slowing down amid falling oil and gas prices, economists say it still provides much-needed support for the small Finnish economy that is running a current account deficit and is expected to contract this year for the second year in a row.

While official relations with Russia are now mostly cordial, there is still a feeling of mistrust, particularly among older generations who experienced the 1939-1940 Winter War and subsequent Continuation War against the Soviet Union.

However, businesses are putting aside such historic grudges as roubles make up for a lack of domestic and European funds.

Russia’s Rosatom recently emerged as the primary candidate to supply a reactor for Finland’s nuclear consortium Fennovoima. Rosatom has said it may invest in the project, estimated to cost around 4 billion to 6 billion euros (US$5.34 billion to US$8 billion), which would put to rest funding concerns after German utility E.ON announced its exit from the consortium.

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