Changing perceptions herald business growth

  • 2005-05-18
  • By Ben Nimmo
RIGA - The most striking feature of Norwegian business in the Baltics is how relatively underdeveloped it is. That, however, is about to change.

The figures are unequivocal. At the end of 2004, Norwegian investments in Lithuania amounted to 460 million litas (133 million euros), while the figure for Latvia was 105 million lats (149 million euros). This makes Norway the ninth-largest investor in Latvia and the 11th-largest in Lithuania. Compared with Finland (fifth in Lithuania, sixth in Latvia, with more than double Norway's investments), Denmark (first in Lithuania, third in Latvia, over three times Norway's investments) and Sweden (second in Latvia and Lithuania, almost four times Norway's investments), Norway looks like Scandinavia's poor relative.

The situation in Estonia looks slightly more favorable. Here, after a recent burst of activity, Norway's stock stands at 3 billion crowns (196 million euros), the fourth-largest investment, comfortably more than seventh-placed Denmark (153 million euros), but small change compared with Finland's 1.7 billion euros and Sweden's almost 3.2 billion euros.

A similar pattern is visible in trade. In 2004, Norway was Estonia's 10th-biggest export partner, Latvia's 13th and Lithuania's 16th, while in imports it was Estonia's 19th-biggest supplier, and Lithuania's and Latvia's 21st. This puts it far behind its neighbors. Moreover, Norway has a trade deficit with all three Baltic states, most notably Estonia, from which it imports 198 percent more than it exports.

Given that the worst deficit among the other Scandinavian states is Sweden's 13 percent deficit with Lithuania, it is worth asking why Norway seems to fare so poorly.

One reason is, of course, geography. Norway is furthest from the Baltics among the Scandinavian nations, and, in the words of Jon Hanssen, Baltic coordinator of the Norwegian state trade organisation Innovation Norway, "Sweden and Denmark have traditional links with the Baltics, which are practically a domestic market. Norway's trade has always been more oriented to the UK and Western Europe."

However, this does not explain the situation where the difference between Copenhagen and Oslo is measured in hours of sailing time and minutes of flight time. In the modern business environment, if the Baltics do not count as a domestic market for Norway, it is not because of logistics.

One possible reason is cost. "One of the main reasons for the trade figures is the cost level of goods produced in Norway," admits Tiina Link, Innovation Norway's Tallinn operative. Estonia's per capita GDP is barely a seventh of Norway's, its average wage a fifth, and this glaring imbalance has an impact on trade. However, this too fails to explain the full situation: the other Scandinavian countries have comparable per capita GDPs and average wages.

Information is far more vital. According to Link, "In a survey carried out by the Estonian investment agency in 2001, 80 percent of Norwegian businesses said they needed more information about the Baltics. Only 20 percent of Swedes and Danes felt the same."

Ivo Urbanovics, leader of the Latvian Investment and Development Agency's representative office in Norway, says, "In 70 percent of cases, they cannot distinguish between the Baltic capitals, and I am often asked if we have the same language and writing as the Russians."

Daina Ciudariene of Innovation Norway's Vilnius office, says "First-time Norwegian investors here see the Baltics as one market."

To which Hanssen adds: "Until a few years ago, Norwegians didn't know much about the Baltics. They still think of the region as being more or less all one country, and where they decide to invest largely depends on personal contacts and the condition of individual companies."

Personal contacts are another factor. "Sweden hosted a whole generation of Baltic ex-pats. Norway has traditionally had far fewer personal contacts in the region, and that makes it harder to set up business," says Link.

A further factor is the character of Norwegian business. As Hanssen explains, "Norwegian business is more characterized by small and medium enterprises than by large ones, and these find it harder to expand overseas."

If Norwegian investment in Lithuania is less than a fifth of Swedish, the number of companies registered is almost identical: 160 Norwegian, 174 Swedish. In Estonia, Swedish investments outweigh Norwegian by over 15 to 1, but the ratio of companies is only 4 to 1. The same small-scale character is shown in Latvia: according to the Lursoft information system, only seven of the 200 Norwegian companies present in Latvia count among the top 300 investors.

However, Norway's information deficit is rapidly being filled. "The Baltics are becoming better known in Norway," says Hanssen. "In the last two years, relatively cheap flights to all three Baltic capitals have become available. The EU accession process meant increased press attention, and there is an increasing amount of cooperation in municipal and educational affairs."

Estonia has been the first to benefit, as the recent jump in investments shows (Norway was the country's seventh-largest investor in 2003, fourth in 2005). Says Link, "Tallinn is one of the top 10 tourist destinations for Norwegians at the moment. At the same time, business interest is increasing by around 50 percent per year."

Estonia is not the only beneficiary. As Urbanovics in Latvia says, "Since we joined the EU, there has been the image that we are developing, and very rapidly."

In Hanssen's words, "Norwegian visitors tend to be impressed with what they find here, whichever country they're in. The bureaucracy is no worse than anywhere in Western Europe, most people under the age of 35 can speak English and the culture feels similar to Norway. All in all, the Baltics have a favorable image for Norwegian business." Link confirms this view: "Sometimes Estonia seems even more business-friendly than Norway."

Norwegian perceptions of the Baltics are changing fast. "At the moment, Norwegians are heavily involved in real estate. They are now aware that Latvia offers comparatively low costs for a highly-educated work-force, raw materials and EU membership, so we expect to see more manufacturing companies moving to Latvia," says Urbanovics.

Hanssen sums it up by saying, "The Baltics are more than just a cheap-labor pool. The workforce is well-educated, especially in terms of IT development, and purchasing power here is growing rapidly. Furthermore, the Baltics can serve as a production base for access to the EU and Russia. We are coming to a time when the Baltics will be seen as a market in their own right."

The Baltics are now firmly on the Norwegian map. Information is flowing, interest in production and supply is increasing, and there is a growing perception that rising incomes in the region make it a healthy potential market for consumer goods. The small-scale nature of many Norwegian companies suggests that they are unlikely to dominate the Baltic markets, but as Link says, "It would be fair to expect Norway's share of investment to rise." Norway may not be about to overtake the neighbours, but it is already catching up.