High investment income to Finland from direct investments in 2023

Investment income accumulated by foreign investors dropped

The record high net level of investment income was primarily impacted by poor returns on inward FDI: Apart from the first COVID-19 year 2020, the returns on investments were last this poor in 2016. While returns on Finland's outward FDI simultaneously decreased only slightly from the high level of 2022, the net, that is, investment income from abroad minus investment income paid abroad, rose to record levels.

Content is being loaded

The weak inward FDI profit year is due to two main reasons. Firstly, there are many companies operating in manufacturing industries in Finland that profited from the record high world market prices of their end products during 2022. In 2023, demand slowed down and prices fell as customers' stocks were filled to the brim. As a result, the returns in manufacturing (industry category C) fell by over EUR one billion from the previous year to EUR 2.9 billion. The industry is recorded based on the industry of the first Finnish enterprise in the chain of ownership (see FDI review 2022 for further information).

Investments in early-stage enterprises, which at the moment only have high expenses due to major R&D investments or strong expansion but not yet a significant income flow, can be considered the other significant reason for low returns on inward FDI. A similar phenomenon is not detectable to the same extent in investments from Finland abroad, instead investments have primarily been made in mature industries for expanding an existing activity.

Although the majority of Finland's outward FDI is also in the manufacturing industry, as a whole the returns of the industry category C even improved slightly year-on-year and totalled EUR 6.2 billion. The difference is particularly explained by the positive flow in the manufacture of computer, electronic and optical products (industry category C26) and the manufacture of machinery and equipment n.e.c. (C28). Besides manufacturing, a significant proportion (EUR 5.2 billion) of the returns was again generated from financial and insurance activities (industry category K), which has been an important source of investment income for Finnish direct investors particularly since 2019.

Corporate acquisitions and reinvested earnings increased investment stocks

The value of the stock of inward FDI grew by EUR 3.3 billion during 2023 and was EUR 81.6 billion at the end of the year. The biggest investment stocks were directed to Finland from Sweden, the Netherlands and Luxembourg. The stock was mainly boosted by corporate acquisitions: during the year, several companies were purchased on the Helsinki Stock Exchange and transferred to foreign ownership, and these transactions are recorded in the statistics as direct investments when the share of votes controlled by the foreign owner exceeds 10 per cent. A possible earlier foreign ownership, where the share of votes controlled by an individual owner has been under 10 per cent, is correspondingly taken into account in the balance of payments as a decline in portfolio investments.

Content is being loaded

The value of the stock of outward FDI grew by EUR 4.6 billion during the year and was EUR 139.2 billion at the end of the year. The main target countries were Sweden, the Netherlands and the United States. In recent years, the stock has been boosted particularly by the accrual of reinvested earnings: around EUR 25 billion during 2019 to 2023.

In addition, the net value of the investment stock has been positively impacted by the turn of the balance of debt instruments (FDI) from negative to positive: the change from EUR -3.6 billion in 2021 to EUR 5.3 billion in 2023 increases the investment stock by around EUR nine billion. This is based on a decrease in reverse investments, which is primarily related to capitalisation and structural arrangements within large corporations.

Thus, this trend-like growth in the stock cannot be interpreted simply as an ongoing massive wave of investments from Finland abroad.

At times, concerns are expressed publicly about Finland becoming a subsidiary economy when successful corporations are bought and transferred to foreign ownership. In light of the data of the statistics on foreign direct investments, the concerns seem premature to say the least: at the end of 2023, the investment stock from Finland abroad was EUR 57.6 billion higher than the investment stock from abroad to Finland.

Intra-group structural arrangements were visible in financial transactions

According to the directional principle, net capital inflow in the form of direct investments excluding reinvested earnings amounted to EUR 6.0 billion and net capital outflow to EUR 0.8 billion. Examined by country, net inward FDI flow was highest from Switzerland and Luxembourg. The biggest transactions from Finland abroad were directed at the United States and Belgium. As mentioned above, the examination on net includes reverse investments. When net = assets - liabilities, the decrease in liabilities increases the net as assets remain unchanged.

Content is being loaded