Business praises Löfven’s visit to Saudi Arabia

On Saturday prime minister Stefan Löfven travels to Saudi Arabia. In addition to meeting representatives of the Saudi royal family and the country’s foreign minister the prime minister will meet business representatives, including a reception at the Swedish embassy.

Although the visit has been criticised by politicians the business world is praising the visit. Marcus Wallenberg, chair of the Swedish Saudi Business Council, considers the visit an opportunity to anchor the council’s work at the highest political level. Dag Andersson, CEO of the dialysis company Diaverum is also pleased the visit has materialised.

Ali Shakir, trade secretary and country director for Business Sweden, says that the country has previously had unlimited funding but is now working on becoming less oil dependent and is searching for smarter solutions and turning to countries such as Sweden.

Expert warns of corporate relocation

Under planned new international tax rules, or the so-called base erosion and profit shifting (BEPS) project, corporate taxes should be paid in the country where the value is created. The OECD and G20 countries agreed on BEPS last year and now member countries and the EU are working to implement the rules into national legislation. On Tuesday the Swedish government presented its bill on the exchange of tax information.

Stafan Bohman, chair of the Confederation of Swedish Enterprise’s tax delegation, now warns that there is a real risk that Swedish corporations will move parts of their business from Sweden to countries with low corporate taxes.

Meanwhile, Magdalena Andersson, the finance minister, says BEPS will generate more tax revenue for Sweden, but refuses to say how she has arrived at this conclusion.

Maria Malmer Stenergard, the Moderate spokeswoman on tax policy, says no other party shares Andersson’s belief, and accuses the government of sloppiness.

Ericsson facing new losses

During their years at Ericsson Hans Vestberg and Carl-Henric Svanberg spent more than SKr 65 billion on company acquisitions, many of which were a disappointment. For example, the acquisition of US internet router maker Redback, which Ericsson bought in 2007 for SKr 13 billion was a disaster. Analysts now forecast that the telecoms giant may be forced to book a SKr 20 billion asset write down in its Q3 report, which will be published on Friday.

Sweden’s shortage of skills

Sweden has a greater imbalance on its labour market than any other country, according to the 2016 Hays Global Skills Index. The USA is in second place.

Sweden’s education system is poorly adapted to companies’ needs, particularly in terms of front-edge competence. There are not enough well educated people for the hi-tech companies to recruit, according to Johan Alsén, MD of Hays’ Swedish arm.

The imbalance has fuelled wage inflation in a number of industries and there are now concerns that many companies are approaching a pain threshold in terms of costs. The consequence of this may well be that highly qualified jobs, in R&D for example, will be transferred to other parts of the world, where it is possible to find the right skills at a lower cost.

Weak krona impoverishing Sweden

The Swedish krona has weakened markedly in recent years; it traded at 8.30 against the euro in 2011, compared to today’s 9.70, all the while the euro has weakened against the US dollar. With the exception of a couple of banana republics, no other country has become so poor so quickly. No one seems to care, apart from Riksbank governor Stefan Ingves who is actually celebrating. Why? Well, the weaker the krona, the more expensive imports become, which means the rate of inflation will rise, and this is exactly what the head of the central bank wants. The fact that Sweden is becoming poorer by the day does not seem to matter to the fundamentalists, writes business daily Dagens Industri. Everything is being sacrificed at the altar of monetary policy.

Damberg pleased with SAS deal

The Swedish and Norwegian states have together sold 23 million shares in airline SAS (see SPR 13/10 Early Ed.).

Enterprise Minister Mikael Damberg says he is satisfied with the timing of the deal despite SAS shares falling by over 30% this year.

DN reports that the government wants to sell more SAS shares, and ideally wants the whole group to be taken over by another airline. “Our message is that we are not a long term owner of SAS,” he says.

Ericsson sheds 20.2% after profit warning

Yesterday Ericsson issued a profit warning resulting in its biggest plunge on the stock market in nine years as the company shed 20.2% and a share value of SKr 40 billion went up in smoke.

According to preliminary figures Ericsson’s operating results for Q3 were SKr 0.3 billion. Growth in turnover was 14% as network income fell by 19-30% during the quarter. Organic growth has fallen eight quarters in a row. The gross margin shrank from 32.2% to 28.4%. It has not looked this bad for Ericsson since just after the IT bubble burst.

Acting CEO Jan Frykhammar blames poorer Brazilians, Russians and Arabs in the Middle East after the fall in oil prices and a stronger dollar. European operators are also putting their purchases of Ericsson’s software on hold.

Enterprise minister Mikael Damberg did not want to comment on the stock fall but predicts a few tough years ahead for the company while Moderate leader Anna Kinberg Batra says it is a reminder of the pressure on Swedish industry.

Top economist predicts worse times

Handelsbanken’s head economist Ann Öberg has predicted an economic downturn just around the corner. In Sweden growth has already hit its peak and unemployment has reached its lowest level, predicts the bank.

Across the entire western world central bank interest rates remain minus or around zero. In combination with record high state, corporate and household debt, this makes an imminent downturn extra frightening, she warns. “Neither the central banks nor fiscal policy have any ammunition for a shrinking economy.”

She also expects unemployment to rise from its current 7% to 7.3% in 2018.

Inquiry goes ahead with lower profit cap

Recently researcher Joachim Landström warned the inquiry examining profits in welfare-service companies that a profit cap of 8% plus inflation of invested capital would mean welfare companies would need to issue millions of kronor worth of new shares. He said that in the long term this could risk putting many companies into liquidation.

Nevertheless the inquiry is going ahead making calculations on the same model. It is also carrying out comparisons of caps at 5%, 7% and 9%. Illmar Reepalu, who is leading the inquiry, does not agree that it puts any companies at risk. “I do not understand how Landström is thinking. We have not been able to seen any of that,” he says.

However Per Strömberg, professor in finance at the Stockholm School of Economics says the risk of liquidation is obvious.

Trump worries minister

In an interview with DI at the World Bank’s annual meeting in Washington DC, finance minister Magdalena Andersson says she is concerned about protectionist tendencies across the globe. “The big discussions are about what happens to global trade. There are signs that it is slowing. This could be due to the economic cycle but there are other reasons, such as the many countries undertaking more protectionist measures just now.”

She points out that this is not great from a Swedish perspective as it is a small, open economy. “Our welfare is based on there being the potential to trade,” she says.

She continues, “Not all individuals benefit from the world as a whole growing richer and we therefore must have policies that can compensate for that. Politics has failed there, especially here in the USA.” She considers this to be one of the reasons there is strong support for Donald Trump in the coming presidential election.

She is concerned about economic development if Donald Trump becomes president and points out that there is a huge difference between a leader in the USA with political experience and one without political experience who is, furthermore, extremely impulsive.