Finland Gets a Very Wet Towel from OECD

Finland is a great place to live and work with good public services like schools, healthcare and public transport. It is a very safe place to live and work – almost everyone is law-abiding and most people follow recommendations set down by our government. 

But it appears that clouds have been forming for years as we have got a little too comfortable with inventing more and more rules and regulations that limit the attractiveness of the country for foreign direct investment (FDI).

Finland has been told to get its act together by the OECD in a new report if it wants to survive in the global markets after Covid-19. The news is that existing investments by foreign companies in Finland are really important:

  1. They contribute 23% of turnover,
  2. Employ 18% of the labour market, and
  3. Account for 29% of Research and Development expenditure.

FDI also spreads the use of innovative technologies, improves they skills of the Finnish workforce, and act as a gateway for the Finnish economy to integrate in global production networks, thus boosting our exports.

The following graph from the OECD for the period 2010-2019 shows that past Finnish governments have not been attentive to a significantly worsening trend of falling exports and falling FDI in relation to Finland’s GDP. Finland’s current position has gradually gone from bad to worse, and this is surprising since the same right-wing political parties have been in throughout this period:

Skilled labour is a key driver of FDI, and policy action is needed here to address the growing skills shortage. Finland has a fast ageing population with relatively fewer people in the labour market. The OECD points out that the labour market is subject to strict and rigid conditions that can worsen labour mobility. Excessive bureaucracy and regulation for recruitment of foreign talent also slows down companies’ efforts to mitigate skills shortages. Regulations need to be relaxed and foreign university students should be encouraged to stay on to work after graduating. Many reforms are coming, but they are not sufficient or they are taking too long to put in place according to the OECD. 

Streamlined processes and better regulatory transparency are needed for new business operations because it takes too long compared with peer countries to set up a business, and environmental permits require long preparation and processing times according to the report. Construction permits are also far too expensive. Over-regulation is seen by the OECD as a competitive disadvantage in the Single Market.

Reforms are needed in ICT, transport and logistics to boost competition. Finland has more restrictions than most of our neighbours in many service sectors:

Finally the report tells Finland to exploit the full potential of FDI by getting a wider distribution of foreign investments across the country rather than concentrating them in Helsinki. The OECD points out that foreign business executives feel unwelcome, and language and culture is felt to be barriers for increased collaboration. 

Given the great importance of FDI and the export sector for Finland, the present situation is not sustainable if reforms are not implemented quickly.

The group leading the preparation of the report made it quite clear at the press conference that Finland is right at the bottom of the class with regard to FDI relative to our peers and that the need for reform is urgent.  

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