The Swedish are coming

A common theme in many of the biggest business stories of 1998 in Lithuania can be summed up in four words - the Swedish are coming.

The news of last week was the announcement that Skandinaviska Enskilda Banken will become a strategic investor in Vilniaus Bankas by acquiring a 32 percent holding in newly issued shares. SEB will subscribe to a directed issue of 4.8 million shares in Vilniaus Bankas at a price of 46 litas ($11.50) per share.

Together with the joint Finnish-Swedish purchase of a controlling stake in Lietuvos Telekomas earlier in the year, this adds up to a major Scandinavian invasion of Lithuania. It has been quite a long time in coming. The influence of Finnish and Swedish investors has been of enormous significance in Estonia and in Latvia, where the Norwegians have also been highly visible. As 1998 draws to a close, Lithuania can at last genuinely claim to be a part of that as well.

Why the sudden rush of interest in Lithuania from Sweden in particular and from Scandinavia in general? Cynics would say that the Russian crisis makes the negotiating power of the foreign investor much stronger right now, due to the difficulties in quantifying the effects on the Baltic economies of the loss of Eastern markets.

However, at the time that the Telekomas deal was closed, the Russian crisis was not really a factor. A more optimistic interpretation is to point to the interest of Scandinavian companies as being essentially a strategic move. The geopolitical reasons for Scandinavian interest in the Baltic states has often been talked about, but until recently, the concept of the Baltic rim as a region has been more theoretical than actual. Most investors in the Baltics so far have been attracted by the proximity of the Russian market, not by the Baltic sea region itself.

However, it is almost certainly no coincidence that both SEB and Telia (the Swedish part of the investment in Telekomas) are on record as saying that they see the Baltic Sea region as a key market, possibly even as a home market. SEB has matched these words with action by simultaneously closing deals to buy 32 percent of Uhispank in Estonia and 36 percent of Unibanka in Latvia.

While there are no plans at present to merge the three banks, this will clearly be an option in future. Considering the role of banks as intermediaries, the emergence of a bank with a capability that stretches across the whole of the region is a sure sign that other businesses will follow. To say that a new Hanseatic League is emerging is taking things too far, but at least there is some movement in that direction.

As for the Lithuanian banking sector itself, it is to be hoped that the investment in Vilniaus Bankas will set off a domino effect of other investors buying in. It may very well be the case that 1999 will be the year of the sell off. Lithuania's other major private commercial bank, Hermis, has confirmed publicly that it is open for offers, although nothing specific has been reported. The state-owned Agricultural Bank is very publicly up for sale and may yet attract the investor it is seeking. Finally, what many would consider to be the jewel in the state's crown, the Savings Bank, is also inching towards its privatization deadline.

There is endless speculation about the identity of potential investors, but precious little hard facts at the moment. What is almost certain is that any investor who does come will, taking the lead from SEB, Telia and others, have ambitions to develop the Baltic Sea region as a market. No longer will they just view the Baltics as a gateway to Russia.