Largely due to climate change and the melting of Arctic permafrost, the natural resources and sea routes in the High North are becoming increasingly accessible.
As a result, economic activity geared to exploiting these resources is increasing: for instance, the short-term investment plans for the Barents Sea region now exceed EUR billion. In addition to Russia, Norway, Sweden and Finland, countries such as the USA, Canada and China have expressed interest in the area (Siuruainen
, ). In the Russian North this development creates opportunities for not only Russian but also foreign businesses. For instance, the development of hydrocarbon resources, marine industries and the accompanying general infrastructure will attract and require foreign investments in the Murmansk region.
As can be seen in Fig. ., following the crisis of , the inflow of foreign direct investments (FDI) to the Murmansk region is again reaching a billion USD
per year (MurmanskStat ). Of the industries most attractive for foreign investors, mining received one-third of the total foreign investments in the period –. Retail trade and repair services received the second largest share, 4%. The following sectors in this regard are fishing (%), operations involving real estate and ren-ting ( %), manufacturing (%), and tra-nsport and communications (%). (MurmanskStat) Clearly, natural resources play a significant role in the region’s economy, but several supporting industries and service sectors are growing apace, creating a range of business opportunities in the region by improving general economic development.
As regards the division of FDI to the Murmansk region by the country of origin, Fig. . (see next page) shows that one quarter of the total accumulated FDI in the period – came from Cyprus and the second largest share,
%, from Germany. Those countries are followed by Norway (%), Belgium (%), Sweden (%), and the Virgin Islands (4%). (Murmansk Stat , author’s calculations). Norway, Belgium and Sweden are thus actively participating in the region’s development, whereas the investments from neighbouring Finland have been rather modest. In 4, the share of Finnish investments reached approximately % of total foreign investment, but since then the country’s share has not exceeded % (Didyk et al. , MurmanskStat ).
Yet, Finland has a noticeable position in the Murmansk regional market in terms of international trade. Figures . and .4 show the development of the share of imports from Finland: in , Finland was the second largest source of imported goods to the Murmansk region, with a share of %, but in it had fallen to fifth place, with a share half that recorded for .
At the same time, however, the absolute value of total imports to Murmansk has grown from USD million in to USD million in . Thus Finnish imports to the Murmansk region have not necessarily decreased, but rather other countries, such as Norway, Ireland, Belarus and Germany, have increased their trade with Murmansk in comparison to Finland.
It has been widely recognised (e.g. Didyk et al. ; BSFE ; Siuruainen
) that Finnish companies have participated rather modestly in the current
fig. 7.1 FDI inflow to the Murmansk region (million USD) Source: MurmanskStat 2011
fig. 7.2 Total FDI by countries in the period 2006–2010 Source: MurmanskStat 2011
fig. 7.3 Imports of goods to Murmansk by source country (2006) Source: MurmanskStat 2011
development of the Murmansk region - despite the country’s geographic proximity and the project opportunities in which Finnish companies, even small ones, might have expertise to offer. It seems that contacts at the state, municipal and NGO level, as well as joint projects in education, science and culture, have developed favourably, but business cooperation with Finnish companies has been minimal. This can be attributed to the economic crises of and
as well as to the fact that St. Petersburg, the Leningrad region and Karelia are often viewed as more attractive for FDI than Murmansk (Didyk et al. ).
In Finland the situation has been acknowledged at the state level, and Finland’s Strategy for the Arctic region (FSAR ) states that developments in the Barents Sea region affect not only Northern Finland but the entire country. There is potential for utilising Finnish expertise in many sectors, such as offshore industries and shipbuilding, infrastructure construction, machinery and equipment, logistics, knowledge of Arctic conditions, and environmental know-how. However, the strategy underlines that in order to improve the
fig. 7.4 Imports of goods to Murmansk by source
country (2010) Source:
MurmanskStat 2011
opportunities of Finnish small and medium-sized enterprises (SMEs) to benefit from the large projects undertaken in the Barents Region, Finland must improve its logistical networks in the North, make the border formalities more efficient, develop its Arctic know-how, improve networking possibilities and strengthen the investment support organisations for its SMEs. For instance, Siuruainen (, ) emphasises the increasing importance of investment promotion organisations, such as Finpro, Finnvera, Tekes, VTT and MEK, in helping Finnish SMEs find their way to the Murmansk region. Also meriting mention in this regard is the Barents Strategy for the Advancement of Finnish Enterprise in the Russian Barents Region (BSFE ). The strategy assesses the business opportunities of Finnish companies in the region and presents strategic goals for the Finnish government, cities, universities and research centres, among other interested parties, that serve to support Finnish involvement in the region’s economic development.
At the moment, several large-scale projects are under way in the Murmansk region. Perhaps the best known is the Shtokman gas field project, which is to be implemented by Shtokman Development AG, a company owned by Russian Gazprom (5%), French Total (5%) and Norwegian Statoil (4%). The full development of Shtokman is envisioned in three stages at four-year intervals, with the first phase producing up to . billion cubic metres of natural gas per year. The total costs of the project are expected to reach USD billion, with USD 5 billion required already during the first phase, that is, the first
5 years of implementation. Shtokman Development AG will develop and operate the field’s infrastructure during this first phase, after which everything will be handed over to Gazprom (Shtokman ; Moe , ). With the field’s peak production of . billion cubic metres per year not expected to be reached for 5 years (Shtokman ; Moe , ), foreign investors’
source of revenue in this significant investment project still remains uncertain, at least to the public. In any event, Russia needs foreign expertise and capital to develop its Arctic natural resources, and foreign companies find these emerging opportunities attractive.
The Murmansk region also has a number of large projects in the offing outside of the oil and gas sector. For instance, developing Murmansk into a transportation hub is a part of Russia’s transport strategy and will require huge investments, particularly in the port of Murmansk and related services.
The renovation of the electricity transmission network, improvement of the
road network, and house building will also be among the most investment-intensive sectors of the economy in the near future. Finnish companies are not likely to have significant possibilities to participate in the core operations of these megaprojects, but the related subcontracting will provide numerous business opportunities for Finnish SMEs. In light of the statements in the Barents Strategy for the Advancement of Finnish Enterprise in the Russian Barents region (), Finland’s Strategy for the Arctic Region (), the report by Siuruainen (), and the range of on-going research projects in the Murmansk region, the sectors with the best economic potential include the mining industry, forest industry, metal refinement industry, energy industry, heat and electricity production, shipbuilding, port development, navigation infrastructure, environmental technology, waste treatment, general infrastructure, transportation logistics and public services, house building, information and communications technology, and tourism services.
Some Finnish companies have recognised these opportunities and succeeded in becoming involved in the economic development of the Murmansk region.
Examples of Finnish companies operating there include Aker Arctic Technology Inc (design and testing of icebreakers and other ice-going vessels as well as structures for Arctic oil and gas field operations), Eurotiivi (a window factory, currently owned by the Swedish Inwido Group), Oy SteelDone Group Ltd (steel structures for oil rigs in the Shtokman gas field), Lemcon Networks Ltd (road construction projects, member of Lemminkäinen Group), and Wärtsilä Oyj (a service centre in Murmansk for vessels in northern waters).
In an interview in spring , Managing Director of Aker Arctic Technology, Mikko Niini, emphasised the need for nationally significant pace-setting companies and competitive clusters in increasing the activity of Finnish companies in the Russian High North. He noted that Finnish companies with suitable know-how have a large number of business opportunities in the region, particularly in cases where Russia is not capable of developing its industries without international cooperation. Russia sees Finland as a favourable partner in this development, but further activity is required from the Finnish side. In this regard, Niini pointed up the price competitiveness of Finnish companies as a challenging issue: Russian business people know the world market prices and the competitiveness of Asian industries. (Taivanen )
Managing Director of Oy SteelDone Group Ltd, Martti Saarela, has underlined the importance of creating an extensive cooperation network
in the Russian market. The company has been active in that market since its establishment and has consciously invested in developing its contact base with the help of Finnvera, Finpro and Tekes. A case in point can be seen in Russian oil and gas projects, where the involvement of local companies and the transfer of technology from Western companies are increasingly stressed and joint ventures and partnerships have become the principal operation modes for foreign companies striving to enter the Barents market. According to Saarela, patient efforts have finally borne fruit and high-quality deliveries are expected to generate further business opportunities in the Murmansk region and other parts of Russia. (SDG ; SDG )
Yet, the number of Finnish success stories is rather modest in relation to the potential and proximity of the Murmansk region. The next section examines the theoretical literature in an attempt to ascertain the preconditions of success in international projects.