A geopolitical perspective on Swedish economic exposure
An English translation of the previously published report ”What’s at stake? A geopolitical perspective on the Swedish economic exposure in Northeast Europe” is now available for download: What’s at stake?
Countries included in the analysis, besides Sweden, are Russia and all common neighbouring countries: Finland, Denmark, Norway, Poland and the Baltic states. The aim of the report is to stimulate discussion about the impact of security on economic growth prospects.
The report consist of three parts. The first describes Swedish companies’ trade and investment exposure in the area, which provides a factual base concerning the economic activity at stake. The second part is an outline of the geopolitical realities and risks based on the evolving regional security environment. The third part presents three scenarios concerning the geopolitical developments and their possible consequences.
The overall conclusion is that Sweden’s economic exposure is significant, despite the more limited direct exposure to Russia. The report shows that:
1. The region is of great, and increasing, importance for the Swedish economy
Trade with countries in the region has increased faster than with the rest of the world, and amounts to 475 billion SEK in exports annually. Direct investment in the region amounts to more than 800 billion SEK, which is 31 percent of total Swedish foreign direct investment.
2. The Baltic states and Poland should be considered a “fourth Nordic neighbour”
The economic exchange with the Baltic States and Poland has grown rapidly, especially in terms of direct investments and imports. Collectively these countries are as large a trading partner as each of Sweden’s Nordic neighbours. They are also growing in importance. Given their proximity and higher exposure to Russian markets, geopolitical uncertainty can have bigger economic consequences than ever before.
3. The geopolitical risk has escalated considerably since Russia’s intervention in Crimea
The Russian propensity to use military force to achieve political goals has profoundly upset the regional security environment. Despite Russia’s economic difficulties, military expenditure continues apace through a redistribution of resources which further undermines stability in the region.
4. Further deterioration of the security environment should not be ruled out
We describe three risk scenarios: Disintegration, where the Russian centre is unable to maintain control of its periphery, and where the EU becomes similarly fractured; Ultra-nationalism, with an increasingly belligerent Russia that seeks to expand it’s territory to include Russian speaking enclaves in other countries, as in east Ukraine; and a Test of strength, an attempt to shatter NATO’s credibility as an alliance through an incursion into the Baltic states.
5. Heightened uncertainty requires companies to revise planning
If the tensions in the region continues to rise, many companies will be affected. They need to prepare for compliance with further sanctions, review supplies of strategic goods and components, and ensure adequate security arrangements, particularly for IT security.