Challenges and Opportunities in Baltic Economies

1. Challenges and Opportunities in Baltic Economies, Tech Industry 2016, Riga Heldi Kell, Head of Manufacturing Sector , DNB

2. EXPORT – is (and will be) the main driver of Baltic economic growth 0 5 000 10 000 15 000 20 000 25 000 30 000 2010 2011 2012 2013 2014 2015 Estonia Latvia Lithuania Total exports ( goods + services, mEUR ) Good recovery after crises , however , stagnation over last few years Difference in main export partners, but also in goods and services Manufacturing makes up nearly 60% of Estonian goods exports (40% of total exports )

3. Growth in gross salaries – faster than GDP growth for the last 3 years * Forecast from Ministy of Finance, September 2016 Estonian economy faces a number of challenges : Declining population – over the past decades 1260000 1320000 1380000 1440000 2013 2014 2015 2016F 2017F 2018F GDP real growth, % 1.6 2.7 1.5 1.3 2.5 3.0 Gross salary growth, % 7.0 5.9 6.0 6.7 5.5 5.5 Relatively low levels of productivity – in combination with high levels of empolyment limits investments to the region 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 6 6,5 7 7,5 8 8,5 9 9,5 Sales income and employment costs ratio Net profit and employment costs ratio (right-hand scale) Geopolitical situation – the influence of the Russian markets ? Economic situation of main export partners

4. Source : Eurostat

5. Source : Eurostat 2011 2012 2013 2014 2015 2016F 2017F 2018F GDP real growth, % 7,5 4,3 1,6 2,7 1,5 1,3 2,5 3,0 Consumer Price Index, % 5,0 3,9 2,8 – 0,1 – 0,5 0,2 2,7 2,7 Gross salary growth, % 5,9 5,7 7,0 5,9 6,0 6,7 5,5 5,5 Unemployment rate, % 12,4 10,1 8,7 7,4 6,2 6,2 7,2 8,4 * Ministry of Finance forecasts , September 2016

6. Source : Eurostat

7. European Commission Digital Economy & Society Index (DESI) Estonian overall score 0.59 7th place among 28 EU states

8. To overcome these challenges and grow export , we need cooperation Estonia, Latvia and Lithuania are to remain small open economies where sustainable economic growth must come from export The preliminary promising signs in 2016 should be viewed cautiously . Structural changes take place gradually and need time Industries in all 3 countries need scale for new investments and export opportunities – vertical, horizontal and geographical co – operation S marter investments – automation and digitalization (Industry 4.0), investments into education system and labour qualification My governing thoughts

9. DNB BALTIC STRATEGY: – To achieve scale , DNB and Nordea have decided to combine their Baltic activities

NORDMETALL at TechIndustry 2016

1. northern germany NORDMETALL is the employers‘ association for the metal and electric industry all over the northern part of Germany. Hans Manzke, NORDMETALL; Riga 2016 – 12 – 01

2. association 250 manufacturing companies 110.000 employees

3. association We support being efficient in the present We advise becoming fit for the future We speak up representing interests towards trade unions and politics

4. staff More than 60 experts in law, management, engineering, Economy, Education and communications

5. Our members Who are our members? And: What are they doing?

6. Chart No. 6 our members

7. www.agvnord.de www.nordmetall.de Economic Surveys autumn 2016 Die Arbeitgeber im Norden

8. 8 1

9. business situation Recovery from the downturn in summer ” Wellblack business” for 4 years 9 Änderung zum Frühjahr: – 4,1% +11,3% – 3,8% – 3,4% 1 . We assess our business as a … good satisfactory unsatisfactory bad

10. Referent Site 10

11. SURVEY about real situation in our companies ( two times per year ; April / October ) Forcast Capacity utilization Turnover Prices and costs main export countries Employment Staff planning Labour Market Location G (Germany ) Hans Manzke, NORDMETALL; Riga 2016 – 12 – 01

12. Prognosis / forcast Stable business 12 8 . Our business is developing in the next six months Better Equal worse

13. Capacity utilization Demand is not enough to fill machines 13 4 . ? Capacity utilization

14. turnover 2/3 of the enterprises without perspective on sales increases The golden years are over. 14 9 . Estimated revenue change in the next six months

15. Prices and costs 94% of the farms remain at their expense . 15 7 . Have you been able to compensate for cost increases with price increases? Yes, in full exte nt yes , in part No no cost increase

16. main export countries Export structure remains unchanged 16 74 % 32 % 34 % 16 % Sonst. Europa Sonst. Amerika Mittlerer Osten Ferner Osten Andere 10 % 35 % 23 % 20 % 10 % 6 . Region Frühjahr 2015 Herbst 2015 Frühjahr 2016 EU 68,4% 70,3% 79,5% USA 26,2% 33,0% 39,7% Sonst. Europa 28,9% 31,6% 37,7% China 24,9% 23,9% 33,8% Russland 14,2% 14,4% 22,5% Ferner Osten 16,9% 13,9% 25,2% Mittlerer Osten 13,3% 17,7% 23,2% Sonst. Amerika 9,8% 9,1% 19,9% Andere 4,4% 6,7% 13,2% Region Herbst 2015 Frühjahr 2016 Herbst 2016 EU 70,3% 79,5% 73,5% USA 33,0% 39,7% 34,2% Sonst. Europa 31,6% 37,7% 34,8% China 23,9% 33,8% 32,3% Russland 14,4% 22,5% 15,5% Ferner Osten 13,9% 25,2% 20,0% Mittlerer Osten 17,7% 23,2% 23,2% Sonst. Amerika 9,1% 19,9% 10,3% Andere 6,7% 13,2% 9,7%

17. employment Further high level of employment 17 10. We will increase the number of our employees in the next 3 months … increase not change reduce

18. Staff planning Number of planned settings End of the adjustment boom? Referent Seite 18 Total planned personnel changes More employees to reduce

19. Labour Market Experts …skills shortage remains a persistent problem 19 11. How well are skilled workers on the labor market available? bad unsatisfactory satisfactory good

20. Every 3rd company complains about lack of trainee Biggest problems in Mecklenburg – Vorpommern Labour Market Referent Seite 20 How well are suitable applicants for training places available

21. Location G (Germany) Increased displacement pressure is confirmed 21 14. We plan to relocate production abroad

22. Location G (Germany) Costs drive companies abroad. Statutory regulations frighten off. 22 14b. Reasons for relocations abroad Costs market other legal regulations

23. Final evaluation / rating Erholung von der Sommerflaute Unterdurchschnittliche Auftragslage und Kapazitätsauslastung Angespanntes Preisniveau und wenig Spielraum für Umsatzsteigerungen Beschäftigungsaufbau schwächt sich ab Verlagerungsdruck dauert an Arbeitskosten bleiben maßgebliche Belastung der Betriebe Jeder 3. Betrieb bemängelt neue Gesetze 23 Recovery from the summer flaute Sub – average order situation and capacity utilization Tense price level and little scope for sales growth Employment development is weakening Displacement pressure continues Labor costs remain a significant burden on farms Every third company complains about new laws

24. Activities Projects together in the Baltics ERASMUS+ Lithuania / LPK: New social co – operation model: Raising employees’ involvement in the companies’ financial management and economic performance Partnership short term project in the Ukraine and Moldova Partnership in VET / Bildungswerek in South Caucasus region INDUSTRY4EU

25. Digitalisation … Industry 4.0

26. The 3rd German Round Best practices sharing and Policy implications January 17, 2017 Hosted by NORDBILDUNG Venue : Kapstadtring 10 Hamburg – Germany Participants selected members, educational institutions, trade unions, Special guests from IG Metall ; Partner assoziations AGV NORD, NORDWINDaktiv , VUMV, UV NORD; Project partner Italy, Slovenia, CEEMET. Participants from NORDMETALL

27. Thanks for attention ! Hans Manzke NORDETALL – International relations Referent