Tag Archives: Export

Finland: what is its competitiveness?

The Finnish economy is not doing well, regardless of the better-than-estimated growth. Politicians, business representatives and also labour unions talk about Finland having become uncompetitive, especially relative to Germany. This is commonly expressed through a comparision of the (Real) Unit Labour Cost developments. Especially the wage increases in the sectoral collective bargaining rounds of 2007-2008 are frequently blamed for Finland’s downfall.

Recently, I have read all kinds of literature related to trade diversification, export performance and such. It was also nice to discover this website, which can provide a wealth of insight. Basically my thought for this post is: If Finland is so uncompetitive, this must somehow show up in the data. Another issue is: Finland is frequently mentioned as very competitive and high-tech, such as in this article, but does this show up in Finland’s exports?

Regarding the first question:

Export destinations of Finland (1995-2012)

Export destinations of Finland (1995-2012)

The top export destinations of Finnish exports are Sweden, Germany and Russia (followed by the Netherlands, UK, USA and China). That is the ‘macro’ picture. If you look at those individual countries, you will see completely different ‘export packages’.

Finnish exports to Germany (2012)

Finnish exports to Germany (2012)

Half of what Finland exports to Germany is either paper goods or metal goods (this can be steel plates, zinc, nickel, iron pipes etc.). Machines account for nearly 18% of exports. These are typically machines for the German industry to make things (e.g. paper machines, processing machines, lifting machines, …) but it also includes telephones, electrical transformers and electrical motors.

For Finnish exports to Sweden the picture looks quite different:

Finnish exports to Sweden (2012)

Finnish exports to Sweden (2012)

Mineral products is the category code for e.g. oil-based products, like petroleum and refined petroleum. Chemical products also include medicaments.

Finally, exports to Russia look like this:

Finnish exports to Russia (2012)

Finnish exports to Russia (2012)

Again, chemical products, phones, computers and other machinery are a large part of exports, but Russia is also a significant market for Finnish dairy products.

To make the picture complete, I provide a list of the Top-40 export products from Finland (in 2012), in terms of export value (in US$), see below. What I find striking, is that in terms of the classification used by Cafiso (2009) there are only a few high-tech export products in the top-40,  and the top-6 features ‘traditional’ industry products, as in relatively low-tech. In terms of export value, the Finnish paper industry is far from being history.

When we go back to the first question – does Finnish uncompetitiveness show up in the data? – it depends what you look at!! Here are the graphs fror the top-3 products:

Kaolin Coated Paper exports

Kaolin Coated Paper exports

Refined petroleum

Refined petroleum

Stainless steel

Large Flat-rolled Stainless Steel

Strange to say maybe, but depending on the destination and the product Finnish competitiveness does not look too bad. Yes, the start of the Great Financial Crisis is visible in the data in 2008-2009 and from 2011 European demand for two of the three products here is in decline. But that doesn’t mean that Finland is uncompetitive – German exports of stainless steel and kaolin coated paper also declines, especially in Europe.

I think one of the most relevant lessons of these sketches is that in Finland the industries that produce the top-40 products are typically very capital-intensive.  It may be true that Finnish Real Unit Labour Costs are higher than in Germany, but does it matter? Storm and Naastepad (2015) conclude that for Germany (and other industrialized countries) trade is not very sensitive to changes in Real Unit Labour Costs.

This overview of some of the aspects of the Finnish export industries has implications for the labour market relations and what issues are emphasised (either by labour unions, the state or employers). I hope to write more about that in a later phase.

 

1
Refined Petroleum $7,571,937,492.43 10.06%
2 Kaolin Coated Paper $5,546,692,160.65 7.37%
3 Large Flat-Rolled Stainless Steel $3,188,856,875.23 4.24%
4 Uncoated Paper $1,896,120,674.00 2.52%
5 Sawn Wood $1,578,749,613.50 2.10%
6 Sulfate Chemical Woodpulp $1,554,623,680.00 2.07%
7 Packaged Medicaments $1,402,117,640.52 1.86%
8 Electrical Transformers $1,397,459,014.12 1.86%
9 Telephones $1,213,812,358.00 1.61%
10 Excavation Machinery $1,141,698,501.29 1.52%
11 Broadcasting Equipment $977,911,850.49 1.30%
12 Papermaking Machines $874,822,111.30 1.16%
13 Machinery Having Individual Functions $821,263,336.80 1.09%
14 Electric Generating Sets $809,612,169.02 1.08%
15 Medical Instruments $789,197,173.22 1.05%
16 Electric Motors $707,507,667.19 0.94%
17 Other Construction Vehicles $652,354,778.80 0.87%
18 Raw Nickel $648,832,883.17 0.86%
19 Raw Furskins $619,987,425.28 0.82%
20 Raw Zinc $602,721,172.66 0.80%
21 Uncoated Kraft Paper $596,906,691.21 0.79%
22 Stone Processing Machines $574,838,607.82 0.76%
23 Plywood $570,319,551.66 0.76%
24 Cellulose Fibers Paper $557,917,828.69 0.74%
25 Cars $529,368,714.55 0.70%
26 Refined Copper $526,786,902.13 0.70%
27 Rubber Tires $522,128,649.04 0.69%
28 Valves $512,834,686.85 0.68%
29 Lifting Machinery $500,867,236.02 0.67%
30 Ethylene Polymers $495,928,852.51 0.66%
31 Passenger and Cargo Ships $456,775,890.54 0.61%
32 Other Uncoated Paper $430,972,171.17 0.57%
33 Electric Motor Parts $428,195,865.56 0.57%
34 Low-voltage Protection Equipment $423,857,644.83 0.56%
35 Flat Flat-Rolled Steel $421,897,577.90 0.56%
36 Coated Flat-Rolled Iron $415,547,511.74 0.55%
37 Special Pharmaceuticals $415,278,848.27 0.55%
38 Computers $411,008,464.22 0.55%
39 X-Ray Equipment $404,066,790.60 0.54%
40 Tractors $401,011,453.94 0.53%

‘Commission approves amendments to Finnish scheme supporting investment in cleaner ships’

This is a positive development – state aid is a tricky thing, even when the competitiveness of the own industry is only a secondary effect of the state aid.

The European Commission has found amendments to an existing Finnish scheme supporting investment in cleaner ships to be in line with EU state aid rules. In particular, the amendments aim at giving ship-owners incentives to use less polluting fuel, ahead of the entry into force of EU standards to that effect.

Obviously, this scheme is to mediate the impact of the Sulphur Directive, and as such is to be applauded. The fact that the EC approves this scheme is an important moment in the Finnish debate on the impact of the Sulphur Directive, as the industry still insists that the Finnish state should do more to diminish the impacts.  From the original decision on this scheme (from 2011) we can see that this investment support is not quite negligible:

2.3.5. Aid intensity
14. In line with the provision of the Environmental guidelines, aid granted by virtue of the
present scheme may total a maximum of 50 per cent to large enterprises, 60 per cent to
medium-sized enterprises and 70 per cent to small enterprises of extra investments
included in the vessel project6. The maximum aid rate may be increased if the project
meets the definition of eco-innovation as defined by the above said guidelines.

Furthermore:

41. The Commission notes furthermore that the scheme is open to all operators in a nondiscriminatory
way.

In other words, it is not only open to Finnish operators, but to all operators. This is an obvious requirement, because otherwise it would be totally discriminatory. And, as said, this state aid can be used either for new vessels or upgrading old vessels. Thus, this can be seen as an important incentive to invest in new technology – whether through new ships or updated technology.

I expect, nonetheless, that the Finnish industry will not be satisfied with this. I assume that transport of the industry’s products is not done by the companies themselves but by specialized transport companies. So for the Finnish industry, this means they have to consider whether they change contracts now to companies which invest in clean ships, with the aid of this state aid scheme or whether they will pay much more for transport starting from 2015, when the Sulphur Directive enters into force.

The Sulphur Directive, Sauna and Finland’s Competitive Position

Last weekend was Midsummer. In Finland this is celebrated extensively, either as the start of the Summer or the start of the countdown to the shortest day of the year (21 December). One obvious important part of the celebration, no matter what the weather looks like, is to go to sauna, preferably near a lake or the sea.

So it went this Midsummer as well. The weather was quite cold and rainy in the end, but the sauna was nice. One interesting aspect was a discussion in the sauna on the merits of the EU’s Sulphur Directive, which should be implemented by the end of 2015, in particular regarding the effects on Finland’s competitive position. The Sulphur Directive is explicitly aimed at sulphur emissions of the the shipping industry, in the context of the environmental fragility of the Baltic Sea.

My point of view, which I also recently advanced in an op-ed in the Finnish daily newspaper Helsingin Sanomat, is that the Finnish forest industries’ developing biofuel industry is the perfect answer to the punishment of the Sulphur Directive. As biofuel does not contain sulphur, it would create an advantage for shipping companies to use it relative to those who use traditional fuel (i.e. diesel or something). Furthermore, the enormous demand for fuel due to the geographical position of Finland and hence the great reliance on shipping for exports, would be a huge stimulus for this industry, which is still in its infancy, A CEO I spoke with mentioned that with the currently planned biofuel-plants, 2 (!!) ships could be provided with biofuel for a year. This obviously means there is not yet nearly enough capacity. But there is a prospect for growth.

I don’t know how biofuel would compare with normal fuel in terms of price, taking into account the Sulphur Directive. But my companion in the sauna advanced the opinion, that nonetheless Finland (and hereby taxpayers) would pay a large price through the Sulphur Directive. He mentioned two arguments: 1) biofuel would be much more expensive and 2) other Baltic Sea countries have not ratified the Sulphur Directive (either). 1) is hard to assess, but 2) is easily checked.

Actually – I take that back. I found a document, that listed most of the EU states and Norway regarding the implementation of the Directive, but countries like Estonia and Latvia were not included. But in any case, I will get back on this issue, in relation to the direct effect of Directives and the implementation of the Directive in all Baltic Sea countries.

So, as it is, it cannot be said that only Finland would pay a price for the implementation of the Sulphur Directive. Obviously, there is likely a huge effect in the short term, because so many products can only be exported by ship. But also on this issue, I hope to return to those aspects in a later post featuring statistics on trade, transport and the like.

Blogging will be somewhat slow, as I am on holiday.