Finland struggling to find way in post-Nokia world

Walk around the Finnish capital and you see shops and customers are as cool as Stockholm, if less showy. Yet the atmosphere on the streets of Helsinki feels more like Dublin in 2010.

The iconic department store Stockmann is facing an existential crisis. Sales signs in April are common, restaurants quiet. The 5.5 million Finns aren’t spending.

This Nordic country isn't grappling with a burst property bubble and banking crisis – that came in the early 1990s. Instead, it is struggling to find its way in the post-Nokia world.

Exactly a year ago US giant Microsoft completed its takeover of Nokia's mobile phone division. Finns knew their iconic company had lost its way in the smartphone market, still the deal was like your parents selling a sibling to pay the bills.

Finland is not quite a one-firm economy – it has big steel, mining and paper-pulp players, too – but Nokia was the most profitable and its tax revenue paid for a large share of Finland's generous social model.

A finance ministry graph shows that, at its peak in 2000, Nokia alone contributed four percentage points of GDP annually to the Finnish economy. Taking the peak years from 1998 to 2007, when the iPhone-led decline set in, Nokia contributed about a quarter of Finnish growth, according to one local research institute.

The loss of such an economic pillar has left Finland counting the cost on another front: the Nokia-driven tech boom that drove up prices and salaries at the expense of competitiveness. Recent years of pay restraint have yet to correct a 20-point gap with Sweden and Germany.

The spring economic survey of Finland’s finance ministry makes the gravity of the situation clear. After three successive years of economic retrenchment, there is no sign of a quick or significant turnaround in 2015 with a growth forecast of just 0.5 per cent.

Last year Helsinki exceeded the 3 per cent cap imposed by the EU stability and growth pact, with a repeat performance likely this year. The Finns are also on track to shatter a second fiscal ceiling this year: the 60 per cent debt-to-GDP limit.

With low exports and weak domestic demand, the finance ministry says economic growth will remain too subdued over the coming years to correct the public finance imbalance alone.

Add its lost AAA-status into the mix, and Finland is facing a perfect economic storm.

“It is imperative that action is taken immediately to prevent the threat of a vicious circle of escalating date,” the finance ministry warns the incoming government in its April report. “The growth of debt can be slowed through the frontloaded reduction of central government deficits.”

It urges “credible steps” to improve the economic framework to lessen the need for “immediate adjustment that will hamper short-term economic growth”.

The message to the incoming finance minister is clear: seize the initiative now while you still have flexibility over your approach, or wait until the terms of a fix are dictated over your shoulder from Brussels.

This has been the main point of debate ahead of Sunday’s general election: how much austerity Finland can take, and how much stimulus Finland needs.

Given Finland’s strident demands of euro crisis countries, when it was sometimes more German than the Germans themselves, the irony of their situation is not lost on people in Helsinki.

"Most Finns realise that the numbers simply don't add up," said James Whelan, an Irish businessman who's lived in Finland almost continuously since the 1980s. The loss of Nokia hurt national pride, he said, but the subsequent blow to national finances compounded and exposed existing problems in other sectors.

Finland’s forestry business is struggling as its paper pulp products are undermined by cheaper competition from Asia.

The global slowdown can still be felt in Finland’s steel and mining industries. With government holdings in these key sectors, the new Helsinki administration faces an awkward dilemma.

“Rather than bring income these companies are costing the government a fortune to bailout,” said Mr Whelan. “But these factories are often the biggest employers in the regions: close them down and you might as well close down the towns.”

The bleak outlook explains the hope, with a shot of desperation, that greeted this week's news from Nokia. A year after it jettisoned its mobile handset division the company now hopes to expand its remaining mobile network business by acquiring Alcatel-Lucent in a €15.6 billion share swap.

This is the largest transaction in Finnish corporate history, dwarfing the €4.9 billion value of last year's sale to Microsoft. After Nokia's share price slumped on the news, the Helsinin Sanomat daily conceded that the deal is an all-or-nothing gamble – for the Finnish company and the Finnish economy.

“Nokia is making history again,” noted Petri Sajari, the newspaper’s business analyst yesterday.

“Nokia will acquire new skills and a stronger market position. But the takeover includes big risks. Merging two companies is often difficult.”

Bouncing back: Jolla’s Sailfish aims to prove there’s life after Nokia

The sailfish is a blue-grey creature with two distinctive characteristics: it grows quickly and uses its large fin to clock up some of the fastest speeds in the sea. Finnish mobile phone company Jolla hopes its Sailfish operating system can replicate some of these attributes as it launches into the narrow channel between Apple’s iOS and Android from Google.

The company has produced its first mobile phones and tablets running its custom-built, open-source operating system. Jolla’s lofty ambition: to prove that Finland’s mobile phone prowess didn’t die with Nokia.

Success would taste particularly sweet for Jolla’s engineers, many of whom began their Sailfish project inside Nokia’s mobile division.

The year was 2011 and the Finnish mobile giant stood at a crossroads. Late out of the smartphone gate, it had two options. The first: the Windows mobile platform and the embrace of Microsoft. The second: the Linux-based MeeGo platform developed by a team of engineers for the N9 phone. The phone was a winner but Nokia decided for Windows, Microsoft and last year’s takeover.

“It was a two-horse race between Apple and Google and they decided on a different horse with more backing than to push a new system,” said Stefan Mosconi, who worked on the MeeGo/N9 project. “I think the N9 was the best phone Nokia had ever done.”

Anyone interested in what might have been should look closer at Jolla and Sailfish. The engineers designed a new interface around the open-source components, launching first a smartphone then, last November, a highly-praised tablet. The devices have attracted warm reviews for their all-new operating system, both open-source yet compatible with the Google Play store as a source of Apps.

Today Jolla employs 130 in Finland, Hong Kong and around the world. After its first devices, the company is now focused on winning market share in less-saturated mobile markets such as India, and on the next iteration of its operating system.

One potential partner in Europe is the Dutch company Fairfone. It has produced what it calls the first sustainably-sourced smartphone but runs Android on its devices, something it is interested in changing.

A Fairfone running Sailfish could have a compelling sales pitch: a smartphone that brings European-designed hardware and software together with European privacy and environmental sensibilities.

“We are talking to these guys, we know them and I think there is quite a good match,” said Mr Mosconi. “I don’t know if anything will happen but we are talking.”