Cash Management in the Nordic and Baltic Regions

Exploring the Nordic and Baltic regions

Published: Aug 2015

Good value creates high demand, and value is something the Nordic and Baltic regions certainly boast. Before setting up operations in a new market, however, it is beneficial to research the country or region’s culture and attitude towards international business. In this introductory Section, we look at the business landscape across the region and discover the history of co-operation between the countries. We also examine the role that both competitiveness and innovation play in driving the Nordic and Baltic economies forward.

Defining the region

The natural starting point for this Best Practice Handbook was the requirement to define the Nordic and Baltic regions. According to information published by the Nordic Council, the Nordic region consists of the five welfare states of Norway, Sweden, Finland, Denmark and Iceland, together with the three autonomous territories of Greenland, the Faroe Islands and Åland. Treasury Today references all five Nordic countries in this Handbook.

Located in the northern part of central Europe, the three Baltic states, Estonia, Latvia and Lithuania, have been part of the European Union (EU) and North Atlantic Treaty Organisation (NATO) since 2004. Although there are a total of nine countries in the Baltic Sea region, it is these three states that we consider in this Handbook to constitute the ‘Baltic region’. These nations’ ties with the other Baltic Sea countries (such as Denmark, Sweden, Finland, Germany, Poland and Russia1) go a long way to explaining the connection between the Nordic and Baltic regions. Estonia exemplifies this fact, as the most northerly Baltic state, the country is considered to be far closer to Finland, linguistically and culturally, than to its Baltic cousins.

Nordic co-operation

Over a history that dates back more than 1,000 years, the Nordic countries’ past has alternated between times of collaboration and confrontation. Under the Nordic Council since 1962, today the region boasts the world’s longest formal political co-operation agreement and countries share strong geographical and cultural links. Governmental co-operation came to the region in 1971 when the Nordic Council of Ministers was formed.

“The purpose of Nordic co-operation is, on the one hand, to make it attractive to live, work and do business in the Nordic region, and on the other hand, to strengthen the Nordic countries internationally,” says the Nordic Council. This co-operation takes place in several areas, such as: research, the environment, welfare and culture, as well as the economy, business and working life. Cross-border freedom of movement is also being encouraged in the region to ensure that it operates as one market.

Nordic highlights

In terms of the attractiveness of living and working in the Nordics, the region is well known for its welfare regimes and high standards of living. These affluent societies have some of the lowest unemployment levels globally and offer excellent working conditions; they are also leaders in the response to climate change with ambitious goals – including Denmark’s aim to bring the amount of carbon released into the atmosphere to zero by 2050. The Nordic region is a leading innovator in green growth with many of the region’s banks keen promoters of corporate social responsibility and sustainable investment. Low levels of state sector corruption (notably Finland and Denmark) and leading equality figures – Iceland, for example, employs 864 female employees for every 1,000 male workers – also mean the region frequently stands out.

Moreover, the region’s economies are among the most competitive in the world, according to the World Economic Forum’s Global Competitiveness Index. Sweden, Finland, Denmark and Norway all appeared within the top 15 economies back in the 2010-2011 Global Competitiveness Report (GCR), when Treasury Today released the last edition of this Handbook, and all have remained within the top 15 in the 2014-2015 rankings.

Whilst the 2010-2011 edition of the GCR highlighted Sweden as a particular success (moving up two places within a year and overtaking the United States), Denmark receives mention in the 2014-2015 report for moving up from 15 to 13 “on the back of a slight rebound in the assessment of its institutions and financial markets as well as more favourable macroeconomic conditions.” Despite a comparatively difficult macroeconomic climate, Iceland’s first class education system, well-developed infrastructure and innovative business sector are also recognised in the 2014-2015 report.

Innovation is innate

In addition to being renowned for equality and welfare, transparency, and competiveness, the Nordic region is well known for its innovation. In the 2014 country rankings for the Global Innovation Index, Sweden was placed third, Finland was placed fourth and Denmark eighth. Other Nordic countries, such as Norway and Iceland, weren’t far behind – placed 14th and 19th respectively.

Predicted European market penetration 2015 (electronic share of total invoice/bill volume)

Source: Bruno Koch, Billentis

Innovation is not only a driver of economic growth. For treasurers, it translates into cutting-edge solutions and early adoption of best practice. For example, the Nordic banks have led the way in the adoption of ISO 20022 XML. And Finland famously completed the vast majority of its SEPA migration by the end of 2011, before many countries had even made any headway.

E-invoicing is also extremely advanced in the Nordic countries, in the business-to-business (B2B), business-to-government (B2G) and business-to-consumer (B2C) spaces.

Baltic solidarity

Consisting of Estonia, Latvia and Lithuania, the Baltic states are considered to be closely linked due to their geographical proximity and the fact that they were all once under Soviet occupation. Despite these shared characteristics, the Baltic states are culturally varied, with Estonia in particular keen to identify itself as a Nordic country. In fact, numerous Estonian financial institutions are Nordic-owned.

Whether culturally part of Northern or Central Europe, however, the Baltic states have attracted much international interest over the past 20 years. Since the countries regained their independence from the former USSR in the early 1990s, a large amount of foreign direct investment (FDI) has flowed into the region. Spectacular growth followed, until the recent global recession when the Baltic states experienced double-digit declines in GDP (please see individual country overviews in Section 4 for more details).

Nevertheless, the Baltic states have made a promising recovery and outside interest in the countries is growing again. The region is in fact quickly becoming a hub for international business, as companies reach out into new markets and establish shared service centres (SSCs) in the Baltics. Recent examples of well-known corporates leveraging the Baltic region in this way include Statoil, the insurance giant AIG, and Cabot Corp.

Many Nordic and European banks also have fairly established SSCs in the Baltic countries, among them SEB, Danske Bank and Barclays.

In terms of innovation, Estonia is singled out from its Baltic cousins by its focus on technology. Not only is the country the birthplace of Skype, but it is the only country in the world that relies to a significant extent on internet voting for national parliamentary elections. It is said that up to 25% of Estonian voters now cast their votes online, and have been able to do so since 2007. In the 2014 Global Innovation Index, Estonia ranked 24th out of 143 countries, while Latvia and Lithuania ranked 34th and 39th respectively.

Two markets in tandem

When Estonia gained independence from the USSR in the early 1990s, the Nordic Council of Ministers (representing the five Nordic countries and the three autonomous territories) opened an office in the country. This bold move signalled the beginning of co-operation between the Nordics and their neighbouring countries in the Baltics.

“Initially, co-operation with the three Baltic countries took the form of development aid but this epoch ended in May 2004 when Estonia, Latvia and Lithuania joined the European Union. Nowadays Nordic-Baltic cooperation is a mutually beneficial and equal partnership,” says the Nordic Council.

“This foremost political partnership is based on common values like democracy, good governing, equality, freedom of speech, tolerance and gender equality. Among others, close cultural contacts and co-operation between non-governmental organisations is strengthening the Nordic-Baltic cohesion and better understanding of each other.”

According to the Ministry of Foreign Affairs for the Republic of Latvia, “a regular political dialogue and practical co-operation has been established between the Baltic and Nordic countries, with a potential for further development. The Baltic-Nordic co-operation for the most part takes place within NB-8 and NB-6 formats; an active dialogue is also sustained with the Nordic Council of Ministers.”

In addition to this, there is co-operation between the regions under the European Union’s Baltic Sea Region Programme 2014-2020. The Programme is funded by the European Union and involves the EU member states of Denmark, Estonia, Finland, Latvia, Lithuania, Poland, Sweden and northern parts of Germany, as well as the partner countries of Norway, Belarus and the north-west regions of Russia.

The strategic objective of this programme is to “support integrated territorial development and co-operation for a more innovative, better accessible and sustainable Baltic Sea region. Partners from countries around the Baltic Sea work together in transnational projects on common key challenges and opportunities.”

Co-operation is a recurring theme in the Nordic and Baltic markets. This attitude is reflected in the pro-business environment that the countries embrace. According to the Doing Business 2015 ranking compiled by the World Bank, all the countries of the Nordic-Baltic region are ranked in the top 25 globally.

In short, the Nordic and Baltic countries are linked by common cultural, historical, political and economic ties, together with common interests to ensure stability, security and welfare in the region – and further afield.

In Section 2, we take a look at the cash management landscape in the Nordic-Baltic region.

  1. While Norway is a member of the Baltic Sea Council, it does not border the Baltic Sea, but is in the drainage basin.

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