Photographer: Kristian Helgesen/Bloomberg

Sweden Wants More Steel Over App Wizards to Fuel Export Rebirth

  • Says service sector, creative industry not compensating
  • Government is working on review of corporate tax rates

The land of music streaming and Candy Crush wants to give good old heavy industry some steel.

After nourishing fast-growing tech and gaming companies like Spotify and King, Sweden plans to boost exports by helping its manufacturing sector regain some of its former shine, says Enterprise Minister Mikael Damberg.

"The only parts of exports that are growing are the creative industries and the service sector, which is good, but it hasn’t compensated for the drop we’ve had in regular exports,” Damberg said in an interview last week. “Total exports need to rise and industrial production is very important."

Home to industrial stalwarts such as SKF AB, Atlas Copco AB and Sandvik AB, Sweden has seen its exports as a share of total output drop from 50 percent to 45 percent since 2008, according to the Swedish Association of Industrial Employers. Germany and the U.S., by contrast, have raised their share of goods and services sold abroad as a proportion of gross domestic product.

Graph of Swedish trade balance over past 10 years.
Graph of Swedish trade balance over past 10 years.

As Asia witnesses rising labor costs and continued political instability, there are signs that European companies are following the American example by "reshoring" production back home. Could Sweden join the trend?

Team Sweden

The country’s previous administration emphasized consumer spending through tax cuts as it oversaw the development of a strong startup scene in the tech sector. Klarna AB, the fast growing online-payments software, was founded in Stockholm in 2005, while Spotify started streaming music in 2008.

Whereas service exports have grown fairly steadily at an annualized rate of 3 percent over the last 10 years, the sale of goods has been far more volatile and anemic, rising at an equivalent rate of 0.8 percent. Despite all this, goods are still double in volume. Industry employs about 1 million people, or 20 percent of the labor force.

Yet industry is also struggling. SKF, the world’s biggest maker of bearings, has been cutting jobs as it sees slower demand from China, while Sandvik is looking at divesting a unit as a commodity plunge reduces spending on mining equipment.

The change of focus to manufacturing under the leadership of Stefan Loefven is not entirely surprising. The current prime minister used to work as a welder and metalworkers’ union boss before taking over the helm of the Social Democrats, in 2012.

Since its inception a year ago, his government has kicked off a strategy to increase exports to Asia and other emerging markets. It’s opening new embassies and increasing collaboration between export authorities, government and industry.

Improving education is also important, as well as overcoming a lack of “investments in infrastructure and housing construction, which today inhibit growth,” Damberg said. 

There are signs that the strategy may be beginning to bear fruit. After years of shifting production abroad, drugs maker Astrazeneca announced in May that it would create around 200 jobs by building a factory in the industrial city of Soedertaelje, near Stockholm.

The Association of Swedish Engineering Industries, meanwhile, has welcomed the government’s efforts to reach new markets under a program called Team Sweden.

Aake Svensson, its head, notes that the international competitiveness of Swedish businesses is not being helped by the government’s decision to increase marginal tax rates and payroll taxes for young people.

"The tax increases risk having an effect much sooner" than any results Team Sweden might achieve, Svensson said.

Restrictive labor regulations and high taxes are not new to Sweden.

Building on a national review that a year ago suggested lowering corporate taxes, the government is now working on plans to make Swedish companies "feel that we’re part of an open economy and taxes should be competitive with the rest of the world,” Damberg said.

A final proposal is not expected before January 2017 at the earliest, however. 

Unions and employers, meanwhile, are about to enter a new round of wage negotiations as three-year agreements for 3 million workers run out next year.

With the economy having hovered near deflation since 2012, employers complain that they are struggling to deal with excessively high real wage increases.

According to Svensson, one way that companies are dealing with the rise in labor costs is by doing the exact opposite of what the government is trying to achieve: by growing their businesses abroad.

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