Column: Uncertainty holds investments back – but we need them more than ever

Column  18.09.2019

Finland’s economy faces uncertainty from multiple directions. Trade wars, Brexit and the negative economic forecasts in Europe are taking Finland’s economy to a dark direction. Uncertainty has weakened companies’ willingness to invest, despite the fact that investments are needed urgently to meet future challenges. If only someone could find the philosophers’ stone to boost investments.

However, Finnish companies’ unwillingness to invest can’t be blamed solely on uncertainty. Even though economic uncertainty is a global problem, Finland has fallen behind in investments when compared to the development of other countries. In Sweden, for example, both industrial and R&D investments are at a much higher level than in Finland.

In the long term, the decline in Finnish investments can be explained by Nokia’s decreased production and Finland’s economic structure becoming more service-focused. However, this doesn’t explain why Finnish investments constantly remain at a lower level than in competing countries. At the moment, the financing costs for investments are extremely low, and the profitability of companies is at a good level in Finland – in short, there is potential for investments.

There is also an urgent need for investments if we want to be able to solve future challenges.  Our fight against climate change requires investments in technology that reduces emissions. At their best, these kinds of investments offer a double advantage: companies can achieve both savings and emissions reductions.

In addition to climate change, the ageing population also creates a need for investments that generate productivity. It looks like Finland’s future economic development will depend on the growth of productivity, as the working-age population started turning down in 2009, and people older than 75 are the only age group growing in population forecasts. If we want to maintain the financial base for the Finnish welfare state, we also need higher productivity, in addition to a higher employment rate.

Finland is not alone with its challenges. Even though Finland will be among the first European countries to experience a radical change in its population’s age structure, the challenges are similar in all Western countries. However, this also creates opportunities. There is a massive global demand for solutions that help mitigate climate change and respond to the ageing of the population. Companies are in the front line in solving these challenges, and countries have the opportunity to reach a significant competitive advantage.

The Finnish government has also become aware of the increasing need to accelerate investments. Indeed, the government put their best people on the case when it appointed the Permanent Secretary of the Ministry of Finance, Martti Hetemäki, to seek ways to boost investments. The Minister of Finance, Mika Lintilä, has stated that we need a ‘turbo button’. Many have tried to find this button in the past and the task will not be any easier for Hetemäki.

Investments seem to be in a self-feeding negative spiral. Uncertainty decreases companies’ willingness to invest, but at the same time, we need investments to be able to react to future challenges and reduce uncertainty. As for the government’s economic policy, we can hope for incentives to spur investments, but the final decisions are made in individual companies. Do we have the courage to invest in the face of uncertainty? Without them, we won’t be able to solve our problems.

Olli Kärkkäinen
Economist at Nordea