Research Paper
on Finland Economy
General
The economy of Finland in general is an excellent example of hard work,
commitment and involvement. When it is war “economy is degraded, imagination
denied, war governs the nations” (Edwin, 433), but here case was different.
Finland since 1917 (After its independence) developed its economy at accelerated
pace. Finland was originally an agricultural country but it had in last 50 years
or so, developed into an industrial country and became the member of European
Union. A country, which during world war became the graveyard of Russians, today
it, is a main gateway to Russia and Baltic countries. It has an extensive base
of population of 250 million in the region. Its industry is largely forest based
and also has an advanced metal industry and pioneering electronic industry,
cellular phones, information technology, telecommunication equipment,
biotechnology alongwith energy production. It today competes with the rest of
the world in high tech.
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Growth Structure
The growth rate soon after the world war experienced positive change. In last
five years, it has grown at an average rate of 4.5 percent a year. Finland
economy as against other European countries enjoys low inflation rate
unemployment and high growth rate. Economic growth rate of Finland, in next few
years may not be as high as 405 but might fall down, mainly because of 11
September event when the economy of entire world is receding. Finland might
experience, slight fall till 2003, but that will not be as low as that of 1990
levels when Finland export growth suffered slight set back.
In coming days due to strong domestic demands, economy in terms of household
income is expected to grow by an average of 4 – 5 percent and about 3 percent in
real terms. Growth in investment has been fast. Investor companies have been
investing more abroad and less within the country. Large number of unemployees
exists in the country and is expected to suffer more due to event of 11
September 2001. The unemployment rate was earlier expected to fall below 9%,
which may now remain at one level for some time. Domestic cost development
however remains at risk due to prevailing condition of economic growth giving
rise to inflation. Medium term period might also see, some unemployment, as the
efforts of the government to improve its central Government finance conditions
have deteriorated due to recess experienced in 1990s and is again, suffering
adversely due to hazard of terrorist activities round the globe.
Post-War Economy Leading to Today’s Modern Economy
Finland economy has been fortunate to survive in post war scenario, which can be
owed largely to introduction of new technology. It also survived, the political
turmoil after World War when Churchill urged Finland “Russia must have permanent
bases in Finland and control the approaches” (Harold. 852). The volume of R & D
development, investment in Finish Industry has grown rapidly in last decade or
so. The growth rate has been to the tune of 10 percent. So Finland will be at
the top of its level in terms of small industrial countries. Finland exports are
based on technology; they rely mostly on their own country made equipments and
have reduced the role of foreign companies. The ICT sector is the only
exception, where large amount of foreign investment is flowing in from abroad.
It has increased in late 1950s and 60s till 1990 due to rapid economic growth in
housing investment and extensive internal migration. The housing has been one
fifth of total investment that is 5 percent higher than average industrial
country. As compared to other countries, investment rate in 1970 remained higher
despite overall depletion in other countries economies. In late 1980s service
sector however, expanded excessively as compared to industrial sector. The early
90s however saw great recession but beyond this period, money was spent on
knowledge and research and development etc. Post 11 September scenario, affected
the economy of whole World but Finland has again been fortunate to have least
impact.
Budget
Latest figure on budget are as following: -
Revenue s: $ 36 1 billion.
Expenditures: $ 31 billion which include capital expenditure of $ NA (2000
estimate) but now in August 2002 Government has reached to a point where it
could ease its taxes on labour income and increase on energy and environment
etc. The Government proposed budget of EVR 32.2 billion is 3.4% more than the
budget of 2001. Dev aid will grow by 6% and interest expenditure by EUR 3.6
billion. The Finland economy has since experienced it for the 1st time that its
exports and industrial production has decreased in last 10 years or so. The GDP
growth will rise to 2.8% next year. The budget proposals finally agreed to bring
total appropriation for 2002 to 35.2 billion Euros without paying the debits
owed to government as per the press release issued on 15 October 2002 by
Ministry of Finance of Finland.
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Inflation Rates
The inflation rate as per 2001 estimate is 2.6% in terms of consumer price.
According to latest economic summery, the consumer prices have rose by 1.5
percent in year 2002. The prices of food and coffee have also increased which
have caused inflation to grow by 0.2% points. On contrary the abolition of stamp
duty lowered inflation by 0.2% points. The main contenders of Finland in terms
of economy growth surpassed the figures of consumer price index of Finland by a
renewed margin of 0.1 percent in the month of April 2002. The slowest inflation
rate in the EU in Germany and France can be quoted in this regard. As far as the
past history of private consumption per capita of Finland economy between 1960
and 1996 is concerned, it has increased 100% standard of living. Food and
clothing spending on recreation fund cultural activities have increased
according to Finish National Account. Finland, which has traditionally been a
high inflation country till 1980 but beyond that its inflation rate has come low
to as low as other EU countries.
Foreign Aid/Investment
Main economic aid donors to Finland, contribute to the tune of $ 379 million as
per 1997 estimates. The figure of foreign investment keeps increasing due to
investment friendly atmosphere created in Finland by the Government. Prior to
1993, there was restriction on foreigners to own any property in Finland. The
liberalization policy helped this country achieve access to Russian and Baltic
regions. The openness for non-European Economic resident that operates in
Finland has however still to get license for starting of his business here. An
area like this land is still close to foreigners.
Foreign Investors
Foreign companies can in most of the field participate freely in all business
activities and are openheartedly welcomed, except for National security. Private
investors are given due importance. Real state purchases can be made after
obtaining necessary permission.
Protection of Purchased Property
Finland provides adequate security / profession to the purchaser of private
property and respects the international commitments i.e. copyright agreement
etc, which indirectly supports and protects software programs.
Helsinki and Hanko Ports
Both the ports are free and have Railways ferry link with Turku. It has about 21
other storage points in the country. The duty free storage points are
facilitating private investors to expand their business.
Restrictions/Incentives
Residency requirements are the only restrictions imposed on foreigners that the
owner having a base in the Finland should be the resident of EEA. Company’s act
of 1997 was tailored to meet the requirement of local investor. It also allowed
companies to purchase their own shares. The Government however doesn’t offer any
incentive on direct investment.
Trade Act
Specific legislation and trade act provides more detailed information according
to which any individual applying for business has to register himself with
National Board of Patents and Registrations.
Other Areas of Interest for Foreign Investment
Finland is the second least corrupt country in the World. There have been only
25 cases of bribery in the country in seven years i.e. 1985 – 1992. Finish labor
is similarly educated and responsible. Labour cost has however increased beyond
1995. Finland stock Exchange is another attraction for the foreigners and the
value of shares purchased by foreigners increased by 30 billion.
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Imports and Exports
Latest export figures are to the tune of $ 40 billion as per 2001 estimate while
main export commodities are machinery, equipments, chemicals, metals, timber
paper and pulp. Main export partners of Finland are Germany (12.5%), Sweden
(9.3%), UK (9.1%), France (5.2%) Italy (4.4%) as per the estimate taken in 2000.
As for as imports are concerned, their turn over is about $ 31.2 billion (f.o.b.
2001), while dealing in commodities like foodstuffs, petroleum products,
chemicals, transport equipment, iron and steel, machinery, textile, yarn fabric
and grain etc. Import partners being Germany (14.2%), Sweden (10.3%), Russia
(9.4%) US (7.1%), UK (6.4%), Japan (5.3%) as per the estimates of 2000. Here
import of waste will be especially referred to, which is almost identical in
1998 and 1999: 85 percent of the waste imported is glass, paper, card board,
plastic, ferrous, metals, as well as organic waste (statistics 1999). This waste
is imported for re-cycling purpose and use with energy recovery systems. The
remaining 15% of waste imported is other than green waste. As far as exports are
concerned, in 1999, about 1.1 million of tones of waste were exported.
Industry
After the inception of Finland in 1917, the country has made outstanding
development/progress in industrial field. The Finland today has become the World
largest industrial society of the World due to quantum leap achieved by its
economy in World markets in terms of its dominance in higher and sophisticated
electronic markets. Although the country is industrial based but still itself
sufficient in its agricultural products. Industry including construction,
manufacturing mining and utilities make 35 percent of GDP. Metalworking has been
at number one place in terms of its expansion. Its yield/output has equaled the
wood processing of 1970. The industrialists are however now looking forward to
high tech outputs for further exploration. The industry of Finland flourished
due to its proximity of USSR and a broad base of population including the region
of Baltic States. The country abounded with scores of streams and lakes grew
into an industrial tiger due to good governance political stability and
involvement of the country.
Forestry Agriculture
By the late 80s, the forestry and agriculture had reduced to 10 percent of GDP
although it was not a good omen for the economy of Finland. The country rich in
its soil and water and wide network of lakes and thick forest should not have
ignored its formers who during world war made Russian bleed and thereafter
contributed a great deal in making the base of their country’s agricultural
base. The forest covers 76 percent of the country. It is self sufficient in its
food products. The 9 percent of the country is covered with its rivers and
lakes. The Ministry of Agriculture and Forestry takes care of its both the
industries Forest and Agriculture, as these are closely interlined and have an
interdependency on each other.
Agriculture
The climate and geography of the country, since doesn’t support the crops to
grow so easily, due to severe cold and thick vegetation. Finland however
contains about 50 percent of world, arable land. Rainfall during winter is very
excessive, whereas during summer, there is almost negligible precipitation.
Farmers have however adopted modern techniques of quick ripening and frost
resist an varieties of crops. Until the 19th century, Finland however, remained
isolated in terms of agriculture.
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Miscellaneous Sectors
In 1950, domestic sources had supplied 70 percent of food grain. In 1970s
formers utilized local energy sources and in mid 1980s half of cropland needed
better drainage works. Beyond this period, over one million hectare are of
Finland had established underground drainage system. This development brought
the revolution in the agriculture field and took Finland much ahead of other
European countries.
Metal Industry
The metal industry of the Finland had been very weak before World War II but
thereafter, i.e. 1944 and beyond, breakthrough was achieved. Finland started
building ships and meeting the requirements of its neighbor Russia. In 1960, the
metal working outputs started reaching the Western markets. By 1970s the sector
grew by 6 percent and its exports compensated its losses in energy sector. The
sector is largely divided into four branches including machine building,
transport equipment, basic metals and electrical equipments. The orderly
development, processing and export to foreign countries has revolutionized the
industry.
Miscellaneous
Mineral The country had limited deposits but by 1980, these were thoroughly
exploited. Now once these sources are drying up, the country is trying to
integrate its resources with other countries.
Energy The country has now a nuclear power plant at Lovisa (Lovisa) on the
Southern coast, East of Helsinki. The country however, will not be self
sufficient in energy sector in coming days.
Farm Production. In late 1980, about 40 percent of farm income was obtained
through Milk, 30 percent from grain and 16 percent from other products.
An Analysis / Overview
In short, Finland has a per capita income approximately equal to any leading
European country i.e. Germany, England France etc. It manufactures the wood,
metal, electronics, telecommunication, and engineering equipments. The exports
of Finland equal one third of GDP. It has to import most of the raw material
except the timber and several minerals. The agriculture due to severe climate is
just bare- sufficient to meet their domestic requirement. The rural population
has forest related occupations due to excessive wood. Finland was one of the
first few countries to have joined Euro Monetary system (EMU) on 1 January 1999.
Growth in 2001 as compared to 1999, was benefited by strong private consumption
2000 however can be considered best for the Finland economy in this respect. To
summarize the latest trends of Finland economy, can be expressed in the light of
IMF report (IMF Report 2002, concluding Remarks) states that Finland’s recovery
from the crisis of early 1990s is one of Europe’s success story as its GDP
growth averaged to 5 percent and inflation reduced to 1 – 3 percent. In the face
of worsening external environment, the pace of economic activity slowed sharply
in 2001. Certain structural rigidities are likely to hamper Finland’s future
economic well being, if left unattended. As per IMF, period ahead is critical
which will have to be kept in mind in making future policies. Additional tax
cuts on labor and rapid population aging is likely to complicate the financial
matters. IMF has predicted that economic growth may remain somewhat lackluster
in 2002 and may pick up again in 2003.
Works Cited
Finland Economy – Flags, Maps, Economy Grogs, Climates Overview economy, 2nd
November 2002
http://www.photius.com/wfb2000/countries/finland/finland_economy.html
FVCA, The Finland Economy, November 2, 2002,http://www.publiscan.fi/wtf06e.htm
Harold, The Second World War volume 5 p-323
IMF 2002 Finland – 2002 Article IV consultation Helsinki June 10, 2002,
Waste Statistics 1999, Circular No 94 of June 1995 and 1999.
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