RIGA - “We’re a nation of traders. We have no raw materials, so we live from commerce. The more globalized the economy becomes, the better we do,” says Per Christensen, regional coordinator of Baltic trade at the Danish Embassy in Riga, and the scale of Denmark’s presence in the Baltics confirms his words.
After the Baltics, Denmark is the smallest country on the Baltic Sea in terms of both land and population. In the words of Nikolaj Harris, first secretary at the Danish Embassy in Vilnius, “It’s remarkable that such a small country should have such a large presence here.”
At the end of 2004, Denmark was the ...........
.......... largest single investor in Lithuania and the third largest in Latvia. As Christensen points out, “One of the biggest recent investments in Latvia was Lithuanian operator Bite GSM’s purchase of the state’s third mobile-phone licence. Bite itself is Danish-owned. If you add that to the numbers, Denmark would be the biggest investor in Latvia as well.”
Only in Estonia, where Swedish and Finnish capital holds an overwhelming position, does Denmark not fall among the top three investors.
This remarkable presence stems in part from Denmark’s traditionally strong political relationship with the Baltics. “Even before the renewal of independence, Denmark was strongly focused on calls for freedom. We knew that it was only a coincidence that we hadn’t suffered a similar fate at the end of World War II,” says Denmark’s ambassador to Latvia, Arnold Skibsted.
“After the renewal of independence, Denmark was the first country to re-establish concrete diplomatic ties with the Baltics, and the single biggest donor of bilateral aid,” continues Skibsted. “Denmark strongly supported the Baltics’ bids for EU and NATO membership, and the fact that their accession to the EU was agreed upon in Copenhagen in 2002 was a triumph for Danish foreign policy.”
As Christensen puts it, “The political situation created the foundations for commercial and trade relations.”
Value for now
In trade, however, the situation seems less outstanding. Denmark enjoys respectable volumes of trade with all three Baltic states, but in no case is it among the top five export partners, and even in Lithuania, where it is the leading investor, it is no more than the sixth-largest provider of import goods, and the tenth-largest export market. Much of the flow of goods comes from part-finished products being shipped between Danish firms and Baltic subsidiaries.
According to an official report published by the Danish Embassy in Riga, “Denmark’s exports to Latvia consist in a high degree of deliveries to Danish subsidiaries in Latvia, who after finishing re-export a significant part of production, while only a small amount is sold in Latvia.” In other words, Danish investors in Latvia are largely using their facilities for added value: to produce goods for other markets, and the trade figures reflect this.
The same production-oriented pattern holds true for Estonia and Lithuania. In the words of Kjeld Frandsen of the Danish Embassy in Tallinn, “Much of the trade between Estonia and Denmark is in part-finished goods being sent to Estonia for finishing and machinery and furniture components being sent to Denmark for incorporation into finished products.”
In Lithuania, according to Harris, “The traditional focus has been on textile production, with Danish factories in Kaunas assembling clothing for re-export. There is a similar pattern in metal and furniture products.”
In all three Baltic states, the Danish presence is largely felt in production partnerships. “The logistical location, so close to Denmark, is perfect. Labor costs are a tenth of what they are in Denmark, productivity is increasing, and the workforce is well-educated,” says Christensen.
It is no wonder Denmark’s presence in production is so strong.
Follow the leader
Indeed, one curious feature of the Danish presence in the Baltics is that it is now so strong that other countries are taking advantage of it: “Denmark has always had a liberal investment policy and close relations with the Baltics, and several U.S. and German companies have actually used their Danish subsidiaries to trade into the Baltics, rather than moving in themselves,” says Christensen.
The same holds true of the communications company Tilts SIA, the single largest foreign investor in Latvia: its ownership is Finnish, but it is registered in Denmark.
However, as the trade figures show, in the retail sector the Danes are far less evident. This is particularly true in Estonia, where Finnish and Swedish firms form the overwhelming majority of foreign presence: “In the retail sector, there are too many reasons not to come here, especially the size of the market and the amount of competition from Finnish companies, most particularly in the food sector,” explains Frandsen.
In Latvia and Lithuania, Danish brewing conglomerates hold a strong position in the drinks market; otherwise, the Danish retail presence is relatively weak. “Denmark has nothing in the Baltics to compare with the presence of Stockman or Rimi,” Christensen admits. “We are small in banking and insurance, and Danish fashion houses tried and failed to set up business.” Danish traders may be very good at producing goods in the Baltics, but they are not yet selling much here.
However, that situation looks set to change. As Christensen points out, “It seems hard, but the Baltics are competing for investment with India and China, and their aim is to reach EU wage levels in the next 20 years. At that stage, labor-intensive production will look elsewhere. On the other hand, as purchasing power increases, we should see much more Danish interest in the retail sector here.”
In Tallinn, Frandsen sees the same phenomenon. “Danish business has not yet realized the opportunity created by rising local wages and consumer sophistication, and we may well come to see many more Danish high-street designer brands in the next few years,” he says. “And at the same time, there will probably be a tendency to move away from the manufacture of components to making the whole product.”
Harris, in Vilnius, agrees, “There is a tendency to move the most labor-intensive businesses further east, where labor is even cheaper. But at the same time, Lithuania still has the advantages of safety, proximity and EU membership. We can expect the more high-end production to stay.”
Thus the Danish relationship with the Baltics is beginning to change. If its leading characteristic over the last decade has been a concentration on production partnerships, future trends point to a much greater diversification of, and growth in, trade. As wages in the Baltics rise, some production will no doubt move elsewhere, but at the same time, retail investment and higher-value-added production will move in to take advantage of the Baltics’ increasing purchasing power. Danish interest in the Baltics is diversifying. It is certainly not diminishing.