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Inflation, interest rates and war affected direct investments in 2022

review | Foreign direct investments 31.12.2022

After the coronavirus years, turbulence on international investment markets continued as high inflation, rapidly rising interest rates and the Russian war of aggression affected the development of investments in many ways. According to Statistics Finland, the net effect of direct investments on the primary income account of the current account was on a record level of EUR 6.9 billion.

Net returns on investments record high

Returns generated by foreign owners on direct investments to Finland totalled EUR 7.9 billion. Dividends paid abroad amounted to EUR 6.3 billion and interests to EUR 0.7 billion. The share of reinvested earnings was EUR 0.9 billion. Examined by country, most returns from Finland were generated by investors from Sweden (EUR 3.8 billion), the Netherlands (EUR 1.4 billion) and Luxembourg (EUR 0.5 billion).

Returns generated by foreign owners came mostly from manufacturing (EUR 3.6 billion, industry category C) and financial and insurance activities (EUR 1.5 billion, K). The industry is recorded based on the industry of the first Finnish enterprise in the chain of ownership. Thus, a foreign investment directed to manufacturing may in the statistics be recorded in financial activities if the industry of the Finnish sub-group's top parent company is activities of holding companies (K642). Outward FDI is recorded in the statistics according to the industry of the Finnish owner.

An interesting aspect of the data is the higher level of interest income in investments from abroad to Finland: Although total returns were just over one-half of the level of Finland's outward FDI (EUR 7.9 / 14.8 billion), investors were paid about double the amount (EUR 660 / 331 million) as interests. This seems to be at least partly explained by foreign investors financing the Finnish companies they own and receiving interest income in return, which increases the financing expenses of the target company and reduces the returns recorded as income from shares for the accounting period.

This does not of course concern all foreign investors, but it is that much more common in inward FDI than in outward FDI that the effect is visible in aggregate figures. In 2019–2022 the share of interest income has varied between 6 and 8 per cent of total inward FDI income, whereas on the outward side it has been around 2–3 per cent.

During 2022, Finnish investors’ returns from foreign direct investments (FDI) totalled EUR 14.8 billion. Of total returns, dividends paid to Finland amounted to EUR 8.2 billion and interests to EUR 0.3 billion. The share of reinvested earnings was EUR 6.2 billion. Examined by country, Finnish investors generated most returns on their investments in companies in Sweden (EUR 6.3 billion), the Netherlands (EUR 2.1 billion) and Norway (EUR 1.0 billion).

Among the industries, the biggest returns were generated in manufacturing (EUR 6.0 billion) and financial and insurance activities (EUR 5.4 billion). Many large Finnish groups benefited more from the risen world market prices of the commodities they produce than they suffered from cost inflation, which was visible as an increase in returns generated by Finnish investors. In particular, the producers of wood and paper and paper products (C16 to 18) had a good year: returns more than doubled from EUR 1.0 billion in 2021 to EUR 2.2 billion.

In recent years, Finnish investors have generated clearly more returns on their investments abroad than foreign investors on their investments in Finland. This is mainly explained by the bigger investment stock, and returns on investments in both directions relative to the stock value have been very close to each other in recent years, with the range being around 9 to 11 per cent. However, a majority of the returns on direct investments are paid as dividends abroad in the form of portfolio investments, because Finnish listed companies have many foreign owners. A more detailed description of this can be found in the review for 2021.

Statistics Finland calculates the return figures according to international practice using the current operating performance concept, which means that the effect of extraordinary items is subtracted from the result for the accounting period. Extraordinary items include gains and losses from sales of fixed assets, impairments and revaluations of asset items recorded in the profit and loss, and other considerable gains and losses outside the scope of actual activities. This is one reason why the return data recorded in the statistics do not always describe profits and losses in the same way as the data reported in the media.

In database table 12gu dividends and reinvested earnings are bundled under the same variable. Section 1.3 of the FDI review for 2020 has a calculation formula that helps those interested in the country or industry-specific levels of dividends and reinvested earnings calculate them themselves. The data on interest income can be accessed by selecting “Debt instruments (FDI)” as the “Instrument” variable.

Investment stocks from abroad to Finland and from Finland abroad grew

The value of the stock of inward FDI grew by EUR 1.7 billion during 2022 and was EUR 77.8 billion at the end of the year. Of this, the value of equity investments was EUR 66.5 billion and that of debt-based capital EUR 11.3 billion.

According to the immediate counterparty country, 91 per cent of the investments came from Europe and 42 per cent from the euro area. The data in database table 12pi are presented according to the ultimate investor country and the corresponding shares were 63 and 25 per cent. Thus, investments from farther away are often managed through a holding company close to the target country. Differences between the statistics by the ultimate and immediate target country are described in more detail in the review for 2020.

Examined by the immediate counterparty country, most investments were directed to Finland from Sweden (EUR 22.3 billion), the Netherlands (EUR 11.1 billion) and Luxembourg (EUR 10.2 billion). According to the ultimate investing country, the top three were Sweden (EUR 16.4 billion), the United States (EUR 14.2 billion) and Germany (EUR 6.3 billion).

At the end of 2022, the investment stock from Finland abroad totalled EUR 130.4 billion, of which equity investments accounted for EUR 130.6 billion and the value of debt-based capital for EUR -0.2 billion. A negative sign of debt assets means that Finnish companies' liabilities to foreign subsidiaries exceeded the value of assets. Measured by the value of the investment stock, the biggest immediate counterparty countries were Sweden (EUR 33.3 billion), the Netherlands (EUR 24.3 billion) and Ireland (EUR 13.4 billion). The data could also be presented according to the ultimate host country, but for the time being Statistics Finland publishes data on outward FDI only according to the immediate counterparty country.

The investment stock grew by EUR 5.6 billion during the year. The stock was boosted by reinvested earnings of EUR 6.2 billion and financial transactions of EUR 6.4 billion. During 2019 to 2022, reinvested earnings have increased the investment stock from Finland abroad clearly more than the stock from abroad to Finland. In other words, foreign investors repatriate the returns on their investments as dividends and interests clearly more than Finnish investors.

The investment stock was, in turn, depressed by exchange rate changes and other price changes. For example, if the Swedish subsidiary's value in Swedish crowns stays unchanged, its value in euros decreases as the crown weakens against the euro. Impairments and revaluations in asset items are recorded in other price changes.

Investments from Russia to Finland and from Finland to Russia

The investment stock from Russia to Finland (EUR 2.0 billion) grew slightly during 2022, which was mainly caused by an increase in the value of debt-based liabilities: Russian-owned Finnish companies became more indebted to their parents. No new investments were made from Russia to Finland.

The value of investments made from Finland to Russia decreased from EUR 1.9 billion to EUR 1.4 billion and for the first time in the history of the current statistics (2013–), the value of the investment stock from Russia to Finland exceeded the value of investments from Finland to Russia.

Perhaps one could have imagined that investments to Russia had declined more after several Finnish companies have spectacularly declared their departure from the country as a result of Russia's attack on Ukraine. The modest fall is explained by the difficulty of departing from the country: smaller operators have found it relatively easy to give up their business in Russia, even for free and suffering a one-off loss, but the situation of major asset holders was less favourable, and there were still a significant amount of assets stuck there at the end of 2022.

The positive net figure of capital flows from Finland to Russia visible in the table below is explained by the fact that Finnish investors' liabilities to Russian subsidiaries decreased more than their assets from Russian subsidiaries. Thus, the net effect was positive even though no new investments were in practice made.

The departure of Finnish companies from Russia is not much visible as negative capital flows. Normally, sales of international asset items cause a capital flow the size of the purchase price in the statistics. Now that most of the assets have been sold without significant compensations, the decrease in the stock of investments due to the reduction in value is recorded as a price change, which is included in the variable “Other changes in positions” in database table 12gu.

Net capital flows positive

According to the directional principle, net capital inflow in the form of direct investments amounted to EUR 4.6 billion and net capital outflow to EUR 6.4 billion. Examined by country, net inward FDI flow was biggest from the Cayman Islands (EUR 3.9 billion) and the United States (EUR 2.9 billion). Most was invested from Finland to the Netherlands (EUR 1.9 billion) and Sweden (EUR 1.7 billion). In this review, the term “flow” refers to the variable “Transactions excl. reinvested earnings” found in the database tables of the statistics.

The effect of intra-group equity management on statistics is visible for the Cayman Islands and Hong Kong. It is thus not a question of a surprising boom of investments from the Cayman Islands to Finland, nor of a massive outflow of Hong Kong investors from the Finnish market. In other respects, there was no distinctive factor in the background, such as corporate acquisitions or greenfield investments, but the flows consisted evenly of a variety of transactions.


See key statistical data in the figures.

Returns on FDI in 2022

Foreign direct investments in 2013-2022

Net flows of FDI by directional principle in 2022

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Database tables with background information relevant to the publication
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