From: MSN NicknameEagle_wng  (Original Message)    Sent: 7/9/2006 6:07 PM
EU's New President Under Moscow's Control
Publication time: 6 July 2006, 16:32
In the previous weekend Finland has received the status of the Presiding Country of the European Union. In this quality Finns consider the strengthening of relations between the EU and Russia as one of their main priorities. The similar approach in many respects has been dictated by the economic dependence of Finland itself from "the Great neighbor" in the East...

 Russia pays the bill

Within many decades the Soviet Union was one of the main trade partners of Finland. Even at the height of "the Cold War", the Soviet industry, choked in a vice of the American economic embargo, received from Finns the very necessary industrial equipment. In turn, Russians supplied Finland with oil, natural gas and coal, and also with wood-pulp. As a result, in the 1980's Finnish trade with Moscow made approximately a quarter of the country's export amount.

The situation has radically changed after the disintegration of the Soviet Union at the end of 1991: a real crisis had burst in the foreign trade of Finland. This circumstance, in many respects, explains the deep economic recession that had comprehended Finland in the beginning of the 1990's, much stronger, than in any other industrially developed country.    

  Today, one and a half decades later, the Finnish-Russian economic relations are experiencing the period of rise again. Moreover: the Russian economy has got stronger so much that Moscow hopes to completely pay Helsinki the EUR 250 million Russian debt by the end of August, 2006. It has been declared during an April meeting of the Russian Minister of Finance Alexey Kudrin and his Finnish counterpart Eero Heinaluoma in Moscow. The period of dependence of Russians from Finns is coming to an end, but the reverse dependence of the Finnish economy from the Russian deliveries -- natural gas, oil, coal, wood, chemicals, ore and metals, and also the electricity manufactured by the Russian power plants - is growing. Besides, it is worth to note the following fact, poorly known outside Finland: Russia delivers labor to that country. To date this dependence is especially felt in the eastern Finnish province of Tohmajarvi. On each thousand of local residents there are 25 permanently living Russian-speaking foreigners. Besides in the summer months there are many Russian seasonal workers in these places. The local residents admit that without the Russians the economy of the area would have come to decline.

The growth of the economic cooperation between Finland and Russia is especially felt during the last years. So, in 2004 Russia was the third on size trading partner of Finland after Germany and Sweden with the share of 10,8 %, while Finland filled the 10th place in the rating of the trade partners of Russia. The same year, Russia held the second place after Germany in the total import of Finland, with the share of 13,2 %. Hereto the raw materials, first of all oil and mineral oil, natural gas, wood-pulp, made up 88 % of the Russian export then. Only a year later, in 2005, Russia became Finland's trading partner number one. The volume of bilateral trade has almost reached EUR 10 billion (USD 12 billion). At last, already in the first quarter of 2006 Finland held the 9th place in the list of the trade partners of Russia, advancing, by the way, the United States. During this period the commodity turnover between the both countries has reached USD 3.9 billion (a parameter practically identical to the commodity turnover between Russia and the Great Britain that held the 7th place with USD 4.1 billion).

The main item of the Russian export to Finland today, as well as during the Soviet period, are energy carriers. The Finnish economy already practically completely depends on the deliveries of these products. And the volume of consumption of natural gas by Finland has been swiftly growing. In southern Finland where the Russian pipeline passes and where the Finnish industry is concentrated, the share of the power plants working on gas and the thermal plants makes about 30 %. For this reason, at the end of the 1990's the Finns had actively participated in the creation of the so-called "Northern route" of the Russian concern Gazprom that provided supplies of the Russian gas to the European countries through the Finnish territory. Even the joint venture North Transgaz was created for this purpose in 1997. In this activity the most active participation was taken by the current Minister of Foreign Affairs, Erkki Tuomioja, who held then the post of the Minister of Industry and Trade of Finland.

According to 2004 data, Russia almost by 70 % has satisfied the needs of Finland for crude oil, by a third - for coal, by 20 % - for wood and by 10 % - for the electric power. The amount of the Russian electric power supplies to the Finnish market in 2005 has made 5 billion kilowatt-hours.

Business in Russia as Rescue from Stagnation

In turn, the Russian market has been rather attractive for the Finnish exporters and the big Finnish capital. The economic relations with the eastern neighbor have for Finns not the last value as the parameters of the economic growth in the EU countries, and Finland also belongs to them, have noticeably decreased the last years. So, for instance, the growth of the gross domestic product in the eurozone, has been varying between 0.7 % and 2.0 %, while the growth of Russian economy has made between 4.7 % and 7.3 %. According to the official Finnish data, in 2005 the volume of the Finnish export of goods and services to Russia has made approximately USD 6.7 billion and turned out to be approximately equal to the volume of export to other two important for Finland markets, Sweden and Germany. Thus, parameters of export to Russia have increased by 30 %, while to Sweden by 8 %, and to Germany only by 4 %. About 80 % of the Finnish import to Russia were made up by the ready-made goods: machines and equipment (53 %), production of the chemical, wood-pulp and the food-processing industry.

Simultaneously with the export of Finnish goods and services, the extending stream of the Finnish capitals is flowing to Russia, too. The total saved-up volume of the Finnish investments in the Russian economy, as of October, 1, 2004, has made USD 1.067 billion or 1,5 % of all foreign investments saved up in Russia. From them: USD 569 million is made by direct investments, USD 19 million is the so-called "portolio" and USD 479 million more - the rest. In the volume of the saved up direct investments Finland holds the 9th place among the countries-investors in the Russian economy. Basically the Finnish investments are performed in telecommunications, wood-working, metallurgy, construction and the food-processing industry. To date more than 50,000 Finns have bought at a stock exchange the equities of the Russian companies. Recently in Finland about the half-dozen of companies engaged in the investments only in the Russian securities have been created.

The best fund, Seligson Prosperity Russia, has brought an income 136 % for the investors in 2005 and even the worst by results of, FIM Russia, has brought 69 %. Simultaneously, the growth of quotations of the Russian projects of the Finnish companies was also marked at the stock exchange. So, for example, the shares of the YIT Group (construction) and the Ramirent company (manufacture of machinery) have gained within the last year by more than 100 %, the cost of shares of the Atria company (food industry) has increased by 65 %, and the Stockmann (big department stores in St.-Petersburg and Moscow) - by 50 %.

The power utility Fortum is worth mentioning first of all among the other large Finnish players in the Russian market. Being the partner of the Russian gas concern Gazprom in construction of a gas pipeline through Finland, it has joined also the international consortium on development of the well-known Shtokman fields in the Barents Sea. Besides, Fortum, on equal shares with the Russian companies is building in the Russian republic of Komi the Inta hydroelectric power plant. This project would allow not only to remove the power problems of the north of Russia, but also to considerably increase export of the Russian electricity to Finland. In the first half of 2006 the Finnish company has continued its active expansion in the Russian power industry. So, at the end of March-the beginning of April it has declared an intention to increase its share in the Petersburg Generating Company by 12,5 %, in addition to the already available 31% package.

Such companies as Nokian Tyres (manufacturing of the tires in Leningrad area), Elcoteq (assembling of electronic equipment in St.-Petersburg), PKC Group (manufacturing of automobile cable plaits in Kostomuksha, the Karelian area), Tiivi (manufacturing of windows in Murmansk) and Fazer (batch of bread in St.-Petersburg) have also been successfully working in the Russian market The very latest success is reached in Russia by the Finnish construction companies. So, for example, the YIT Group at present receives 3 % of its commodity turnover in Russia, and the management of the company is expecting rapid growth in the Russian market within the next few years.

In this connection it is worth to mention also the turned out to be an extremely successful two-day forum "The Days of the Russian economy in Finland" this April.

The Finnish side was represented at the forum by the President Tarja Halonen, Prime Minister Matti Vanhanen, Minister of Trade and Industry Mauri Pekkarinen, and also 700 Finnish companies, wiling to work in the Russian market. There were the Prime Minister of the Russian Federation Mikhail Fradkov, Minister of Economic Development and Trade of Russia German Gref, Minister of Information Technologies and Communications of Russia Leonid Reiman, and also governors of some regions, representing Russia at the forum. Two agreements have been signed. The first, the investment agreement between the Finnish firm Ahlstrom and the administration of the Tver area providing EUR 38 million investments in the construction of a new fiber glass manufacturing factory in the Tver area. The second, the agreement between the administration of the Leningrad region and the Finnish company Containerships Oy, providing construction of the largest in Russia container terminal in the area of the city of Primorsk (the costs of the project to reach EUR 100 million).

It is remarkable that simultaneously with the holding of the Helsinki forum, the Federal Antimonopoly Service of Russia has approved the transaction on purchase of the leading Russian enterprise in the field of metallic constructions manufacturing, "Ventall", located in the Kaluga area by the Finnish company Rautaruukki. The amount of the transaction is about USD 100 million.

Only a month later, at the end of May, 2006, an intention of the Russian and Finnish sides to construct a network of technological parks for the Finnish companies in the north-western regions of Russia was declared. At the first stage, two parks would be constructed for the support of business. The project is being moved ahead by the company Northwest Russia Investment Ltd., that was created last year and belongs to the known Finnish lawyer Hannu Krogerus and to a member of the Finnish parliament from the Centrist party (Suomen Keskusta) Markku Koski.

The preparations for the realization of the project were conducted in Petrozavodsk. It was planned also to begin the construction in the Leningrad region. According to the offered schedule, the first two parks, should start operating in 2008. The third such a park will be constructed in Sortavala (Karelia), and the fourth, probably, in Murmansk. The polling of the companies working mainly in the eastern and central parts of Finland has showed that more than 50 of them are interested in the given project. The list of the companies includes the machine-building companies John Deere, Metso, Cargotec, and Nokka-Tume, as well as JMC Finance and Perlos.

In a view of the described above dynamical development of the bilateral economic ties, the Finnish and Russian sides are full of the most iridescent hopes for the near future. In three months, in the beginning of October, 2006, in the Russian city of Petrozavodsk the second Russian-Finnish economic forum is to take place with the main theme of the development of economic cooperation between Finland and the regions of the Northwest of Russia. The signing of a package of mutually beneficial contracts and the beginning of realization of a few cross-border projects is planned during the forum.

The cooperation in the sphere of innovative technologies, logistics and transport also will be discussed. The organizers of the forum are the Council of Federation of the Federal Assembly of Russia, the parliament of Finland and the provincial board of the Finnish city of Oulu. At the end of the same month, October, 29-31, the Finnish capital will receive the so-called Meeting of Mayors of the Baltic metropolises, the largest cities of the Baltic region. The forum, also called the BaltMet, would puts before itself the task to involve financial support for large infrastructural and ecological projects of the Baltic region, like the construction of Northern collector supported by Finns in St.-Petersburg.

In a view of all the above told, the growing dependence of Finland on the economic relations with Russia is absolutely clear. Even the possible introduction of Finland into the NATO, actively discussed today by the local political establishment and the press, would not change the situation radically. Similarly to Germany, one of the central figures of the North Atlantic alliance, that has renounced the alliance's collective interests for the sake of the economic gain of its own ruling elite, Finland, whose members of parliament are engaged in business in Russia, would be forced also in future to keep its "special" relations with the Kremlin.

Simon Araloff, AIA European section

http://www.kavkazcenter.net/eng/content/2006/07/06/4910.shtml