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Cablegate: Ambassador's Meeting with Leif Fagernas, Dg

VZCZCXRO4184
RR RUEHAG RUEHDF RUEHIK RUEHLZ
DE RUEHHE #0824/01 2301019
ZNR UUUUU ZZH
R 181019Z AUG 06
FM AMEMBASSY HELSINKI
TO RUEHC/SECSTATE WASHDC 2325
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 HELSINKI 000824

SIPDIS

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON BEXP TNGD TSPL ELAB FI
SUBJECT: AMBASSADOR'S MEETING WITH LEIF FAGERNAS, DG
CONFEDERATION OF FINNISH INDUSTRIES (EK)

REF: HELSINKI 00787

1. (U) Summary: Ambassador met with Leif Fagernas, Director
General of the Confederation of Finnish Industries (EK) on
August 9. They discussed Finland's efforts to remain
competitive in the face of a rapidly aging population, the
significant strains on its social programs, and increasing
global competition. Fagernas stated that an alarming 50
percent of the current Finnish workforce would retire over
the next 15 years. (Note: Post believes the figure is
closer to 40 percent.) Fagernas cited opposition by the
GOF Finance Ministry to increased R&D funding as a missed
opportunity for Finland to become more competitive through
innovation. The Ambassador offered her assistance to
further dialogue between innovative American and Finnish
companies. End Summary.

2. (U) Background: The Confederation of Finnish Industries
(EK) has nearly 15,000 member companies representing
900,000 employees. EK member companies represent more than
70 percent of Finland's gross domestic product (GDP), and
over 95 percent of Finland's exports. Leif Fagernas,
previously Finnish Ambassador to Germany, has been Director
General of the Confederation of Finnish Industries (EK)
since January 1, 2005. End background.

-------------------- -------------------------------
Aging Workforce, Need for Immigration
-------------------- -------------------------------

3. (U) Fagernas addressed the growing pressure Finnish
companies were facing as many low-skill industry jobs leave
Finland for Asia. Though Finnish investment in R&D is
quite high, (the second highest in Europe behind Sweden at
3% of GDP), it still trails U.S. and Asian levels.
Fagernas noted the difficulties of convincing many of EK's
trade unions that they needed to adapt to a rapidly
changing world.

4. (SBU) Fagernas pointed to the rapidly aging Finnish
domestic workforce, stating that an alarming 50 percent of
the Finnish workforce would retire over the next 15 years.
By the year 2030 the dependency ratio (workers to retirees
over 65) is expected to more than double, from 24 percent
to 45 percent - the highest level in the EU. Fagernas said
this would create a significant strain on Finland's social
security system as retirees are not adequately replaced by
new workers. One solution to this dilemma is attracting
worker from other countries, though this solution continues
to be viewed unfavorably by much of the Finnish population
and especially EK members. This resistance has roots in
traditionally high levels of unemployment (8.1 percent as
of June 2006) and distrust of foreigners, particularly from
Russia.

5. (U) Annually about 30,000 foreign workers come to
Finland to work on at least a seasonal basis. Some
estimates predict that as many as 300,000 foreign workers
will be needed by 2030 to overcome the deficit in the
projected workforce due to retirees.

6. (U) Fagernas mentioned two recent GOF reports that state
that more foreign labor is needed in the Finnish labor
market, and that this labor will serve to complement the
Finnish labor force rather than replace it. Fagernas was
concerned that he had heard nothing further about
implementing the findings of the reports.

7. (U) Fagernas was skeptical that the recently proposed
GOF work relocation program would help improve the
employment situation in Finland. He said the proposal is
purely political and that 500 Euros to offset relocation
expenses is simply not enough to encourage workers to
relocate for employment. EK is working on its own proposal
to improve employment in Finland which they hope to present
to the GOF during the next week. The EK proposal will
include a mix of retraining and basic education, as well as
assisting workers in finding new employment.

------------- -----------------------
Finnish Focus on R&D
--------------- ---------------------
8. (SBU) The Trade and Industry Ministry previously
announced a comprehensive program to increase R&D to 4
percent by the end of the decade. This proposal has thus
far been opposed by GOF Finance Minister Heinaluoma due to
budgetary concerns. Given that 70% of R&D spending in
Finland is by private companies, with another 15-20% coming
from universities (also state-funded, but from another pot
of money), Fagernas observed that the government need only

HELSINKI 00000824 002 OF 002


supply a "marginal increase" (his words). Fagernas thought
it was unfortunate that the Finance Ministry was not
budgeting for this increase in the current budget.

------------------------- --------------------
---------------------
Dialogue between American and Finnish Companies
-------------------------- ---------------------
--------------------
9. (U) Fagernas was concerned about the lack of significant
new foreign investment in Finnish industries, citing one
survey that didn't even rank Finland as one of the top 35
economies in which to invest. The Ambassador offered to
pursue further avenues to open a better dialogue between
innovative American companies and Finnish companies. The
focus of this dialogue would be to demonstrate how R&D
efforts can profitably exist within a company's business
model.

10. (SBU) Comment: Since Finland will realize a slight
budgetary surplus this year (as it has for the last 5-6
years), there is money, but apparently no political will,
to fund an increase in R&D. The Finns have exercised
budgetary restraint in recent years in an effort to build
reserves for the future when they expect to have increased
social spending to serve their aging population. End
Comment.

HYATT

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