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Country Commercial Guides for FY 2000: SwedenReport prepared by U.S. Embassy Stockholm, released July, 1999 Note* |
VII. INVESTMENT CLIMATE
- Openness to Foreign Investment
Until the mid-1980's Sweden's approach to direct investment from abroad was quite restrictive and governed by a complex system of laws and regulations. During the latter part of the decade, doubts were raised about the effectiveness and desirability of controlling foreign direct investment (FDI) in Sweden. Such considerations, and Sweden's present membership in the European Union (EU), have greatly improved the investment climate and attracted foreign investors to the country. According to OECD statistics, Sweden had the world's second highest rate of inflow of foreign direct investments as a percentage of GDP in 1996. The level was lower during 1997, but Sweden is still considered to be an attractive country in which to invest. The Swedish authorities have implemented reforms to improve the business regulatory environment that will benefit investment inflow. They are also seeking ways to ensure wider ownership in Swedish industry which, it is felt, will increase competition and lead to greater efficiency. Since 1980, foreign ownership in Sweden has more than doubled and foreign-owned firms employed 13 percent of the work force in the private sector, or 278,000 workers, in 1996.
The conditions for doing business in Sweden have improved significantly in the last decade. Sweden has become a member of the European Union which gives investors access to the large EU market, corporate taxes have decreased and are now among the lowest in Europe. Commercial contacts with neighboring former communist countries have expanded rapidly. Combined with the well-educated and relatively inexpensive labor force, outstanding telecommunications network, and stable political environment, Sweden has become more competitive as a choice for American companies.
U.S. investors are increasingly recognizing this new situation. Consequently there has been a substantial increase in interest and investment from U.S. firms in the Swedish market. The abolition of the law requiring foreigners to obtain permission to transact business in Sweden makes it easier for foreigners to invest in any form, including greenfield investments, which in the past were modest. Also the former corporate practice of restricting some shares from foreign acquisition has been abolished. Today, Swedes and foreigners alike may acquire all shares listed on the Stockholm Stock Exchange, though shares may still have differing voting strengths.
The regime for foreigners in financial services has been liberalized too. Now foreign banks, insurance companies, brokerage firms and cooperative mortgage institutions are permitted to establish branches in Sweden on equal terms with domestic firms.
These fundamental changes in Sweden's FDI regime have significantly improved Sweden's investment climate and opened the country to foreign mergers and takeovers. Approximately 600 U.S. companies are established in Sweden, many of which are active in computer software or hardware, general industrial goods, professional services, or health care. A 1996 survey of senior executives from more than half of the current U.S. direct investors in Sweden showed that 93 percent are satisfied with Sweden as a host country for their investment. Fully 80 percent indicated that the profitability of the Swedish investment had equaled or exceeded the average of the parent company's other European investments.
Nevertheless, a number of practical impediments to direct investment remain in Sweden. These include a fairly extensive, though non-discriminatory, system of permits and authorizations needed to engage in many activities and the dominance of a few, very large players in certain sectors, e.g., construction and food wholesaling.
Possibly the greatest changes in the general Swedish investment climate during the last few years are the result of major changes in the global political and economic picture. Since the former communist countries have opened to world markets, Sweden's geography has provided it with a strategic location at the heart of the Baltic region, in a market of over 100 million people. For emerging markets such as Russia, the Baltic countries, and Poland, Sweden has become a gateway for further eastward expansion.
In addition to these global changes, the Swedish government has pursued a macroeconomic policy that is favorable to the business sector. Inflation has been tamed and stabilized at a very low level (below 2 percent). With its conservative monetary policy, the government is preparing the country for its possible future membership in the EMU, even though it has decided that Sweden will remain outside the EMU from the start. Sweden is keeping its options open for a later entry, but then only after holding a referendum to get a mandate for EMU-entry.
The value of the Krona (SEK), interest rates, and inflation are influenced to a lesser extent than previously by the Swedish government because of the liberalized capital flow and deregulated currency restrictions. This situation has opened Sweden to global financial markets.
The Swedish Government provides many kinds of incentives to research and development programs through the National Board for Industrial and Technical Development (Swedish acronym, NUTEK). The country spends 3.6 percent of its GDP on research and development, the highest rate in the world.
The Government pursues a regional development policy in order to generate more employment in certain areas of the country. There is a wide range of regional support available, which provides incentives for investing in these areas.
- Conversion and Transfer Policies
There are no foreign exchange controls in Sweden, nor are there any restrictions on remittance of profits, of proceeds from the liquidation of an investment, or of royalty and license fee payments. A subsidiary or branch may transfer fees to a parent company outside Sweden for management services, research expenditures, and so forth. In general, yields on invested funds, such as dividends and interest receipts, may be freely transferred. A foreign-owned firm may also raise foreign currency loans both from its parent corporation and from credit institutions abroad.
- Expropriation and Compensation
Private property is expropriated only for public purposes, in a non-discriminatory manner, with reasonable compensation, and in accordance with established principles of international law.
- Dispute Settlement
There have been no major disputes over investment in Sweden in recent years. The country has written and consistently applied commercial and bankruptcy laws, and secured interests in property are recognized and enforced.
Sweden is a member of the International Center for the Settlement of Investment Disputes and is a signatory to the New York Convention on the recognition and enforcement of foreign arbitration awards. The Arbitration Institute of the Stockholm Chamber of Commerce is one of the leading arbitration centers in the world, with many of its cases originating in East-West business relations. An agreement between the American Arbitration Association and the Russian Federation Chamber of Commerce, reached in 1993, provides for arbitration to take place in Sweden under the Rules of the United Nations Commission on International Trade Law, with the Stockholm Chamber of Commerce administering the cases and acting as appointing authority if needed.
- Performance Requirements/Incentives
Sweden imposes no performance requirements on presumptive investors but offers certain incentives to set up a business in various targeted depressed areas. Loans are available on favorable terms from the National Board for Industrial and Technical Development and the Regional Development Funds and a range of regional support programs, including location and employment grants, reduced payroll taxes, low-rent industrial parks, and economic free zones are also available. Regional development support is concentrated in the lightly populated northern two-thirds of the country.
- Right to Private Ownership and Establishment
Rights of this kind are not specifically written into Swedish law, but individuals and Swedish entities are well protected by the legal system. Private enterprises enjoy as great an access to markets necessary for conducting business operations, as do public enterprises.
- Protection of Property Rights
Swedish law generally provides adequate protection of all property rights, including intellectual property. As a member of the European Union, Sweden adheres to a series of multilateral conventions on industrial, intellectual, and commercial property. On January 1, 1995, Sweden signed the 1989 Madrid Protocol on the International Registration of Trademarks.
Patents - Patents are adequately protected under the terms of the EU Agreement, in which member states have agreed to comply with the substantive provisions of the European Patent Convention of 1973, which Sweden ratified in 1980. Protection in all areas of technology may be obtained for 20 years.
Copyrights - Sweden is a signatory to various multilateral conventions on the protection of copyrights, including the Berne Convention of 1971, the Rome Convention of 1961, and the WTO's Trade Related Intellectual Property (TRIPS) convention. Swedish copyright law protects computer programs and databases. Enforcement of the law, however, has been less than ideal. A recent Supreme Administrative Court ruling also revealed a contradiction between Sweden's Constitution and its international obligations to protect unpublished, copyrighted material.
A Trademark - Sweden protects trademarks under a specific Trademark Act (1960:644) and is a signatory to the 1989 Madrid Protocol.
Trade Secrets - Proprietary information is protected under Sweden's patent and copyright laws, unless acquired by a government ministry or authority, in which case it may be made available to the public on demand.
Semiconductor Chip Layout Design - The EU Agreement's Article 4 of Protocol 28 addresses this specific question.
- Transparency of the Regulatory System
As a EU member, Sweden has altered its legislation to comply with the EU's stringent rules on competition. As described above, the country has made extensive changes in its laws and regulations to harmonize with EU practices, all with a view to avoiding distortions in or impediments to the efficient mobilization and allocation of investment.
- Efficient Capital Markets and Portfolio Investment
Credit is allocated on market terms and is made available to foreign investors in a non-discriminatory fashion. The private sector has access to a variety of credit instruments. Legal, regulatory, and accounting systems are transparent and consistent with international norms.
The Stockholm Stock Exchange is a modern, open, and active forum for domestic and foreign portfolio investment. It is an official institution and operates under specific legislation.
At the end of 1997 the balance sheet total of Sweden's banking sector was SEK 2,150 billion, the equivalent of USD 281 billion. The figure does not include affiliated housing mortgage companies, finance companies, or other firms owned by the banks. The Swedish banking system is sound, although the commercial banks suffered serious losses in the wake of the real estate and financial crisis in the late 1980's and early 1990's.
The banking crisis of the early 1990's changed the structure of the banking sector. A large number of the savings banks were converted into commercial banks. Several foreign banks have established branch offices and several niche banks have started to compete in the retail bank market. Citibank and GE Capital represent the U.S. A deposit guarantee system was introduced in 1996, whereby individuals get protection of up to SEK 250,000 (USD 31,500) of their deposit in case of bank insolvency. Sweden's modern business environment, with its large transnational corporations, has adapted itself to recent deregulatory trends and consequent growing exposure to hostile takeovers. Major firms frequently have a confusing maze of owners. Such cross-share holding arrangements have been set up not as a specific defense against foreign investment but against unwanted investment from any quarter.
- Political Violence
Sweden is politically stable and no changes are expected.
- Corruption
Sweden has comprehensive laws on corruption, which are fully implemented. It is in the process of ratifying the 1997 OECD anti-bribery convention.
- Bilateral Investment Protection Agreements
Sweden has concluded investment protection agreements with the following countries:
Cote d'Ivoire, Madagascar, Senegal, Egypt, Yugoslavia, Slovenia, Malaysia, Pakistan, China, Sri Lanka, Yemen, Tunisia, Hungary, Poland, Bolivia, Morocco, Czech Republic, Slovakia, Argentina, Latvia, Lithuania, Estonia, Indonesia, Chile, Vietnam, Bulgaria, Hong Kong, Peru, Belarus, Albania, Russian Federation, Oman, The Ukraine, Republic of Korea, Laos, Venezuela, Turkey, Zimbabwe, Uruguay, FYROM Macedonia, and South Africa.
There is a bilateral taxation agreement between the U.S. and Sweden, but no bilateral investment protection agreement.
- Labor
Sweden's labor force of 4.3 million is disciplined, well educated, and experienced in almost all-modern technologies. About 87 percent of the workforce belong to a labor union, perhaps the highest rate of unionization in the world. Swedish unions have helped to implement business rationalization and strongly favor employee education and technical progress. Management-labor cooperation is generally excellent and non-confrontational. Labor, employers, and the government all openly welcome U.S. investment and involvement in the Swedish economy.
Sweden has co-determination legislation, which provides for labor representation on the boards of corporate directors once a company has reached a certain size. This law also requires management to negotiate with the appropriate union or unions prior to implementing certain major changes in company activities. It calls for a company to furnish information on many aspects of its economic status to labor representatives. But in the end, management has the final say. Labor and management usually find this system works to the benefit of both sides.
There is no fixed minimum wage by legislation. Instead, wages are set by collective bargaining. Both labor and management prefer this. This system was recognized in a provision in Sweden's EU accession agreement before Sweden's entry into the EU in January 1995.
According to U.S. Bureau of Labor Statistics and the Swedish Employers' Federation figures, Sweden's average total hourly wage cost (including pay, benefits, social fees, taxes, etc.) for each production worker in manufacturing in 1997 at average exchange rates was USD 22.25, less than the cost in Germany, Switzerland, Belgium, Norway, and Denmark.
Almost all private and public sector collective bargaining agreements expired in March-June 1995. Despite several significant but short strikes, resulting new contracts were reached with only minimal disruption to the economy. Since agreements concluded in 1995 range from one to three years, Sweden will no longer have almost all collective bargaining agreements expiring on the same date as was the case.
According to GOS statistics, wages increased by 2.7 percent in 1995 and 6.5 percent in 1996, significantly above the rate of inflation. Wage increases were held back to around 3.5 percent in 1997, but were still on a level above Sweden's main competitors. Agreements concluded during 1998 were even more moderate, indicating an awareness that Sweden's competitive strength will be eroded by excessive wage increases. However, it is still expected that total wage increases in Sweden over the next couple of years will be slightly above those of its main competitor nations.
Sweden has ratified most ILO conventions dealing with workers, rights, freedom of association, collective bargaining, and the major working conditions and occupational safety and health conventions.
- Foreign Trade Zones/Free Ports
Sweden has foreign trade zones with bonded warehouses in the ports of Stockholm, Gothenburg, Malmo, and Jonkoping. Goods may be stored for an unlimited time in these zones without customs clearance, but they may not be consumed or sold on a retail basis. Permission may be granted to use these goods as materials for industrial operations within a free trade zone. The same tax and labor laws apply to foreign trade zones as to other workplaces in Sweden.
- Foreign Investment Statistics
Flow of Foreign Direct Investment into Sweden
A positive value indicates an inflow, where investment is larger than disinvestment. Amounts in millions of Kronor.
APPENDICES
INVESTMENT STATISTICS
Swedish Investment Abroad expressed in millions SEKA negative value indicates an outflow, where investment abroad is larger than disinvestment. A positive value is a net disinvestment, where disinvestment abroad is larger than investment.
YEAR 1997 1998 Year End Exchange Rate
SEK Per 1 US Dollar7.87 8.06 Austria -122 463 Belgium, Luxembourg -4229 2657 Canada -1255 -1222 Denmark 1399 -704 Finland -7062 -77146 France 3033 1246 Germany -4881 -3953 Great Britain -3211 -4102 Greece 36 26 Ireland 3234 -4905 Italy -520 1807 Japan 256 -179 Netherlands 1008 327 Norway 219 -4348 Portugal -50 244 Spain 76 -1121 Switzerland -1568 -3009 USA -32964 -18925 Other Countries -15170 4123 Reinvested Profits -34720 -31618 Total -96491 -178585 Total EU -11290 -85141 Total OECD -49097 -119573
SOURCE: Riksbanken (The Swedish Central Bank), Balance of Payments, March 1999
Stock of Foreign Direct Investment in Sweden, by country
Amounts in billions of Kronor
Year 1995 1996 Year end exchange rate 6.67 6.87 Netherlands 42 46 United States 37 44 Switzerland 35 37 Norway 21 26 Finland 14 19 Germany 14 16 U.K. 13 15 Denmark 13 12 France 4 8 Other countries 10 12 Total 203 235 Total OECD 194 225 Total EU 101 118 Total/GDP (Percent) 12.3 14.0 Amounts in billions of Kronor and percent, 1996.
Year-end exchange rate: 6.87.
Stock of Foreign Direct Investment in Sweden, by industry Amount Percent Manufacturing 140 59.6 Power utilities 16 6.8 Merchandise trade 38 16.2 Other Services 29 12.3 Bank and insurance 2 0.9 Other 10 4.3 Total 235 100 Source: Riksbanken (The Swedish Central Bank),&Direct investments 1996&, November 1997
- Major Foreign Investors
MAJOR U.S. investors, in terms of number of employees in Sweden, include Pharmacia & Upjohn (7000 employees), Lear Corporation (4700), IBM Corporation (2500), Philip Morris (2100), and American Express (1700).
Major foreign investments in the last two years include several acquisitions of power utilities, an industry, which was recently liberalized. Other investments are in the banking and finance sector, mail order, chemical industry, pharmaceuticals, and the transport sector. FMC Corporation, Ford, Medtronics, Goodyear, Caterpillar, Rational Software, Security Dynamics, and Intermec have made U.S. investments in the form of acquisitions in the last 3 years.
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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