Why Iran Could Be the Answer to Finland’s Stuttering Economy

Finland enjoys a high level of income, but it looks to be struggling to thaw its economy, which has been dragged down by a global downturn, the Russian recession, and a steep decline in the paper and electronics industries. And that’s not all of the country’s problems, even though the social safety nets are managing to keep income inequality from rising, unemployment is still on the rise. According to reports, the government deficit is around 3% of the GDP, while the gross debt has risen above 60% of GDB as of 2015. This has left Finland between a rock and a hard place with little or no wiggle room. In other words, the country’s situation is “grave.”

Finland first ran into trouble after the financial crisis of 2007 when the country’s output plunged down to 8%. And although the country’s GDB made some progress in 2010 and 2011, it declined again for the next three years. New data suggests that the country’s economy will remain flat this year as well.

A part of this story is due to the failure of major Finnish companies increasing their exports. One company that comes to mind is that of Nokia. Back in 2000, Nokia was responsible for around 4% of the country’s GDP, fast forward to 2016, and the contribution of this major exporting company has come to a screeching halt, and in 2013, Nokia accounted for just 0.4% of the country’s output. The impact of this can already be seen in the fact that the rate of unemployment is going to remain at 9% throughout 2016. But, this is just one company, and the deeper problem is the composition of the country’s export market. Almost half of Finland’s export sector is made up of production supplies and raw materials used for manufacturing, while a third is of investment goods.

Still Kicking

Productivity has fallen drastically in manufacturing and the rising labor costs and a loss of non-cost advantages have almost eroded Finland’s international competitiveness. But, be that as it may, Finland is still well placed to find new opportunities for growth. The government has already put in place ambitious programs that are aimed to restore both the country’s fiscal sustainability and its competitiveness through various structural reforms. Also, the government program to streamline regulations and promote competition while encouraging entrepreneurship is also aimed at supporting growth.

So, Where Does Iran Fit Here?

Despite the global media painting a grim picture of a country such as Iran, it is generally considered to be a safe country for entrepreneurship, especially after the lifting of the sanctions. In trading with Iran, a country like Finland has a lot to gain, considering they will be entering a 4000 million strong market. Iran also offering investors and entrepreneurs with the safety and security they need, which is a big plus for a country that is in such a turbulent region of the world.

Reasons to Invest In Iran

Iran is the 18th largest economy in the world: Apart from being the world’s 18th largest economy, Iran is also home to the second largest natural gas reserves in the world and the fourth largest oil reserves in the world. Apart from that, it is also one of the world’s top producers of miners and is also considered an agricultural powerhouse.

Low production and utility costs: Public utilities, transportation, energy and telecommunication are easily accessible at low prices as compared to other countries in the MENA region. While it is not an easy market, foreign investments and partnerships can boost its domestic industries and turn out to be great investments for countries such as Finland which needs to build partnerships with strong economies that show growth potential. Iran's GDP is estimated to average 5.3 % annually for the next four years.

Iran’s 415 billion USD economy: Now that the sanctions have been lifted, Iran’s 415 billion USD that were frozen and out of reach is going to return to Iran’s economy. Iran already has a diversified industrial base and a dynamic consumer market as well, the additional investment makes Iran quite attractive to countries who want to invest here because of its unique geographical location that connects the Middle East with countries in Europe and Asia.

The clean-tech sector: Energy efficiency, waste water management, IT, medicines and food products, ICT, healthcare technologies and infrastructure projects, agriculture, logistics, and even consumer goods, all of these industries offer very promising opportunities for foreign investments. A Finnish delegation is scheduled to attend the International Environment Exhibition (Enviro 2016) in Tehran, and will be looking to increase Finnish food industry, agrotechnology, and cleantech exports to Iran.

Free Trade Zones: A Free Trade Zone follows special trade regulations with other countries where trade barriers are usually eliminated to encourage foreign investment. Free Trade Zones usually offer lowered tariffs and taxes and less bureaucratic requirements.

When expanding a business, subsidiary or joint venture a free trade zone would be an excellent way for a Finnish company or group of smaller companies who want to do business in a country like Iran. Besides that, companies which operate in free trade zones are also protected against arbitrariness of financial inspections. Iran has declared around 21 locations as Free or Special Trade Zones. Although each of these zones have their own regulations, all of them are offer exceptional opportunities to foreign investors, especially from countries such as Finland.

Ending Note

The good news here is that there is light at the end of the tunnel for Finland’s dwindling economy. According to reports on the country’s competitiveness, the World Economic Forum has ranked Finland second in a list of innovative startups in the world. Startups seem to be engrained in the ideology of Finns, which is why as much as $1.8 billion has been granted by the government to encourage startups over the next three years, and chances are, many of these young startups will be also looking to expand beyond their borders.

First published on LinkedIn on 2 May 2016. Read the original