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21 September, 2022updated 29 Sep 2022 15:07

How does Finland punch above its weight when it comes to attracting FDI?

Finland attracts a lot of FDI for a relatively small country. Investment Monitor looks at how it manages this.

By Cara Lyttle and Deepti Aggarwal

Finland puts in an impressive performance in Investment Monitor’s 2022 Inward FDI Performance Index, which measures a country’s inward investment levels against its gross domestic product (GDP) using GlobalData’s FDI Projects Database, which tracks greenfield projects. This means that Finland, with a score of 3.7, received more than three times its fair share of inward greenfield foreign direct investment (FDI) compared with what could be expected given its level of GDP. In that regard, Finland is punching well above its weight in FDI terms.

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The Invest in Finland Factbook

The Invest in Finland Factbook is created for companies that seek sustainable growth. It explores the ways Finland can contribute to business success, including incentives for foreign-owned companies. As you might have already noticed, Finland often ranks among the leaders in various international comparisons. The information in this booklet is backed by facts and statistics from reliable third parties. We also highlight some comments from international business leaders with experience in doing business in Finland. We know that each business is unique, and that every investment requires careful analysis and planning. Tell us about your business needs – and let’s discuss what Finland could offer you.
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Finland places second for FDI into western Europe based on the aforementioned index, attracting 194 projects in 2021. Malta ranks first with 12 projects and an index score of 4.

The country has shown just how resilient it is, particularly in the face of the Covid-19 pandemic, with project numbers increasing slightly between 2019 and 2020 from 143 projects to 147 projects. Inward FDI experienced a significant 30.4% rise between 2020 to 2021, with project numbers increasing from 148 to 193, a stark increase when compared with the global average of 18.1%.

Two-thirds of the country’s investment in 2021 went to the Uusimaa region in southern Finland, which is home to capital Helsinki and other major cities including Espoo and Hyvinkää. North Ostrobothnia, located in northern Finland and bordering the Russian republic of Karelia, ranked second, attracting 33 projects. Kymenlaakso, Pirkanmaa and Lapland ranked joint-third regionally for inward FDI, attracting four projects in 2021.

As would be expected, Helsinki attracted the majority of Finland's FDI projects, winning 97 (when a city destination was specified) in 2021, equating to a market share of 52%. Oulu, the most populous city in northern Finland, ranked second with 33 projects and Espoo and Vantaa ranked joint third with 11 projects each.

Finland looks to Sweden for FDI

Western European countries and the US were the dominate source markets for FDI in Finland in 2021. Sweden maintained its leading position as the largest global outbound FDI investor, investing in 51 projects, representing 26.4% of the total.

Telia, a Stockholm-based multinational telecommunications company, was the top Swedish investing company in Finland in 2021 by number of projects, followed by the Stockholm-based construction company Skanska and Gothenburg-based real estate management company Fastighets AB Balder. The US was the second-largest investor in Finland in 2021, investing in 35 projects, followed by Germany, the Netherlands, Estonia and China, which invested in 11 projects each. China registered the largest project percentage increase at a country level with its outbound project numbers increasing from two in 2020 to 11 in 2021.

From a regional perspective, western Europe was by far the leading source market in Finland in 2021, responsible for 60.1% of the country's inward FDI. North America ranked second with an 18.7% market share, with its outbound projects increasing from 12 in 2021 to 36 in 2021, while Asia-Pacific was Finland’s third-largest regional investor with a 10.7% market share.

Communications and automotives drive Finland's FDI growth

Finland specialises in attracting companies in sectors based around communications, media, software, IT services and business and professional services. According to GlobalData’s FDI Projects database, in 2021, 44% of Finland’s total inbound greenfield FDI came from these sectors.

FDI in the communications sector witnessed a significant rise between 2020 and 2021, with project numbers increasing from 11 to 43. This was led by investments from Telia Finland, (a subsidiary of Sweden-based telecommunications giant Telia), which launched 5G commercial services in Oulu and created 31 projects. The company launched its 5G commercial network in the Nordics and Baltic region in joint ownership with Finland-based telecom operator DNA. Software and IT services ranked second with 23 projects while business and professional services placed third with 19 projects.

Other sectors to experience a notable increase in FDI in 2021 were tourism, which increased from three projects in 2020 to six in 2021, construction and real estate, which increased from 11 to 16 projects, and the automotive industry, which saw project numbers rise from six to 17.

Finland also received a mega-investment in the automotive sector in 2021, when China-based lithium battery producer CNGR Advanced Material announced it would invest $1.35bn (9.52bn yuan) to establish a battery material plant in Hamina. The plant will have an annual production capacity of 120,000 tonnes with its first phase scheduled for completion in 2024.

So why does Finland do so well at attracting FDI?

Finland has a strong reputation for a having a stable economy and a business-friendly environment, two enticing attributes when it comes to attracting FDI. The country has also carved a name for itself as a sought-after destination for research, development and innovation. In 2021, the Global Innovation Index, which ranks the most innovative countries in the world, ranked Finland seventh globally and fifth in Europe out of 126 economies.

Finland recovered exceptionally well from the effects of the Covid-19 pandemic and as a result ranked first in the Covid Economic Recovery Index (an index which assessed how 122 countries were positioned to weather the economic impact of the pandemic and recover from the crisis). The Finnish government’s successful Covid mitigation strategy, coupled with tax measures taken to attract foreign businesses, only seems to have had a further positive impact on its image as an investor-friendly location.

In 2022, the country's government announced unprecedented tax incentives for foreign investors to conduct research and development (R&D) activities in Finland. Its corporation tax rate of 20% is the lowest in the Nordic region and the new law offers a 150% tax deduction on joint R&D projects conducted between 2021 and 2025. Moreover, Business Finland had introduced the Smart Life Finland programme, which aims to provide funding and network support to businesses operating in the healthcare and well-being industries. Such incentives, coupled with the ease of doing business in Finland, look set to continue to attract significant levels of FDI in the coming years.

Methodology

The Inward FDI Performance Index examines the number of inbound FDI projects into each country as a proportion of the world total. The result is then divided by the country’s GDP as a proportion of world GDP. If the resulting value is a number greater than one, that means the country is receiving a higher proportion of inbound greenfield FDI than one may expect given its economic contributions to the global economy. A score of less than one means the country is a smaller player in FDI terms compared with its levels of GDP. The FDI project information is sourced from our FDI Projects database and GDP data is sourced from the International Monetary Fund.

(State and city-level analysis is used when such information is provided. Country-level only data has been excluded from such analysis.) 

Download the full Global FDI Annual Report 2022 here.

Free Factbook
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The Invest in Finland Factbook

The Invest in Finland Factbook is created for companies that seek sustainable growth. It explores the ways Finland can contribute to business success, including incentives for foreign-owned companies. As you might have already noticed, Finland often ranks among the leaders in various international comparisons. The information in this booklet is backed by facts and statistics from reliable third parties. We also highlight some comments from international business leaders with experience in doing business in Finland. We know that each business is unique, and that every investment requires careful analysis and planning. Tell us about your business needs – and let’s discuss what Finland could offer you.
by Invest in Finland
Enter your details here to receive your free Factbook.

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