Europe’s slowdown forces Finland to turn to Russia again – by Jussi Rosendahl (Reuters India – August 12, 2013)

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HELSINKI, Aug 11 (Reuters) – 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 neighbour and former ruler with suspicion, expectations of only a slow European recovery mean more businesses are likely to embrace closer ties with Russia, signalling 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 European Union fell 4 percent year-on-year in the first five months of 2013, 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 capitalises 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 told Reuters.

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.

Tyre 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 tyres.

“Finland and Finnish products have an excellent reputation in the country. Culturally, we are considered honest, almost naive,” the tyre maker’s chief executive Kim Gran said. “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 in 2013 for the second year in a row.

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