Corporate Research
14 November 2016
Contents
Migration to the Nordics – Crisis or opportunity?
1
An unprecedented refugee flow into Europe
2
Causes of the crisis – How did it come to this?
6
Europe struggling to digest refugee flows
11
Stemming the refugee tide – What next?
14
Interview – Migration and the Nordic economies
17
How migration affects the economy
21
Migration impact on industries and companies
26
Interview – Migration, housing and construction
31
A financial angle – Sustainability bonds
33
Interview: Rikshem – Demographics in housing
34
Disclaimer and legal disclosures
37
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Corporate Research
14 November 2016
Equity Research
Migration to the Nordics – Crisis or opportunity?
A tidal wave of refugees almost overwhelmed Europe in 2015
Europe is facing an unprecedented wave of refugees seeking shelter in the region, driven by conflicts and unrest in
Europe's neighbouring regions. People are seeking to escape the key hotspots of Syria, Afghanistan and Iraq, which
together accounted for half of the record 1.4 million refugees seeking asylum in Europe in 2015. This was twice as many
refugees as at the last peak, during the Balkan Wars in 1992.
Tighter border controls and asylum policies have contained the situation – for now
Masses of refugees have travelled on from their arrival destinations in southern Europe to the countries with the most
favourable asylum policies, such as Germany and the Nordic countries. The EU and various member countries have
responded by tightening asylum policies and introducing stricter border controls, preventing irregular asylum seekers
from exploiting passport-free travel within the Schengen area to enter their desired destination countries. This has sharply
reduced refugee flows from the late 2015 peak down to more normal levels. We argue that these reduced levels may not
be sustainable indefinitely. Border control and asylum policy revisions are temporary and would require political
initiatives (in the face of recently strengthened populist political forces) to make them permanent. There are no current
indications that the major hotspots are about to normalise and allow the refugees to return safely, and there are potential
new trouble spots closer to home, such as Ukraine, where the armed conflict is flaring up again.
Short-term impact on the economy: major cost (and GDP boost)
The Nordic countries are among Europe's biggest receivers of refugees. There are substantial costs for this, especially in
Sweden. Swedish government projections are SEK 60bn in 2016, corresponding to 50% of annual corporate taxes paid,
or 25% more than Sweden spends on defence. But the increased public spending is also, according to Nordea forecasts,
boosting GDP growth by 0.5 percentage points in Sweden, and 0.1-0.2 percentage points in the other Nordic countries.
Long-term impact on the economy: demographic boost, if integration is successful
The Nordic countries are all facing a major challenge from ageing populations. The share of populations aged 15-64 has
fallen notably in the past five years, and immigration represented 100% of Swedish net population growth in the period.
Immigration could be the solution to the challenge from a shrinking part of incumbent populations having to fund welfare
systems supporting the elderly. But this requires successful integration of migrants into Nordic societies and labour
markets. Whatever the outcome, it will show in economic growth and employment data beyond 2018E.
Migration "plays" in Real Estate, Public Services and Telecoms
How could migration and refugee flows impact various industries and companies in the Nordic economies? We review
and highlight selected areas where migration could have a dynamic business impact. Construction & Real Estate stands
out as a sector with specific potential business opportunities, notably real estate groups with public services tenants
among the listed companies, including Hemfosa and Hemsö. Among non-listed real estate groups, Rikshem is among
those with exposure, as described in our interview with acting CEO Sven-Göran Svensson in this report. Within Public
Services, we offer a sample of private operators – both publicly and privately owned – that could have commercial roles
to play in helping to meet the great current needs related to immigration. In Telecoms, we highlight Tele2 as a company
with an offering particularly geared to refugees and immigrants. When considering financial products and solutions
influenced by migration, we note that Hemsö pioneered the issuing of a sustainability bond in the Nordic region this year.
The bond is to fund projects relating to social sustainability, in addition to energy and environmental aspects, and it fully
aligns with Green Bond Principles. One of the projects specifically relates to migration.
Markets
IMPORTANT INFORMATION AND DISCLOSURES AT THE END OF THIS REPORT
Corporate Research
14 November 2016
An unprecedented refugee flow into Europe
The number of asylum seekers to
Europe doubled from the previous
peak in 1992 to an all-time-high of
1.4 million in 2015
For the past few years, Europe has been facing a sharply rising tide of
refugees seeking asylum in EU countries. A quick look at hard data on
annual asylum seekers to the EU (plus Norway and Switzerland) from
Eurostat helps shed some light on the magnitude of the challenge that
Europe is facing from refugee flows. From a 30-year annual average of
390,000 asylum seekers, the number has grown more than threefold to a
record level of 1.4 million in 2015.
The previous peak of just under 700,000 asylum seekers in 1992 was
caused by the Balkan Wars at the time. But it quickly returned to more
normal levels in the following years, whereas 2015 saw twice the number
of refugees seeking asylum compared with 1992.
Asylum seekers to the EU in 1985-2016
1,600,000
1,392,145
1,400,000
1,200,000
1,000,000
800,000
697,070
661,935
600,000
458,345
400,000
250,895
212,050
200,000
160,010
0
Source: Eurostat
The refugee flow gained momentum in 2013-14, reaching a crescendo at
unheard of levels in late 2015, and forcing several European countries to
review and sharpen their border controls and asylum policies. Even when
there was political will to embrace the enormous flow of fugitives, the
system showed signs of collapse, as the existing infrastructure and
resources for receiving and processing asylum applicants were woefully
insufficient. There were simply no resources to provide provisions, shelter
and security for such numbers of refugees.
All of the Nordic countries saw
massive refugee inflows in 2014-15,
but Sweden stands out, receiving
5-8x as many as its Nordic
neighbours
Nordea Markets
The Nordic countries have seen similar trends for refugee flows as
elsewhere in Europe. Denmark, Norway and Finland all saw a sharp surge
in refugees seeking asylum in 2015. So did Sweden, but far beyond what
its Nordic neighbours experienced. The number of asylum seekers to
Sweden doubled to 160,000 in 2015 – in a league of its own compared
with (the still historically high) 20,000-30,000 received by Denmark,
Norway and Finland that same year. Swedish asylum policies remained
comparatively generous until the inflow of refugees started to overwhelm
the system. This triggered the introduction of stricter immigration controls,
controversial within the Green Party currently in the coalition government
with the Social Democrats, which ultimately led to the resignation of
Sweden's deputy prime minister, Green Party minister Åsa Romson, in
May 2016.
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Asylum seekers to the Nordic countries in 1985-2015
180,000
160,000
140,000
120,000
100,000
Denmark
Finland
80,000
Sweden
Norway
60,000
40,000
20,000
0
Source: Eurostat
Refugees typically flee from a
conflict to a neighbouring country
Sadly, there have been, and still are, many conflicts around the world,
forcing people to flee their homes. Most of these conflicts occur in
emerging, non-industrialised regions. As a consequence, a review of where
fugitives seek refuge reveals that most typically may their way to the
neighbouring countries of their homeland. It is no coincidence that the top
host countries for refugees are neighbours to the scenes of major conflict.
The top five countries housing refugees in 2015, measured by the number
of refugees they shelter, were Turkey, Pakistan, Lebanon, Iran and
Ethiopia.
Number of refugees by host nation in 2015
7,000,000
6,288,277
6,000,000
# of refugees
5,000,000
4,000,000
3,000,000
2,541,352
2,000,000
1,561,162
1,070,854
1,000,000
979,437
736,086
664,118
553,912
383,095
369,540
Congo
(Dem.
Rep. of)
Chad
342,973
316,115
314,506
0
Turkey
Pakistan
Lebanon
Iran
Ethiopia
Jordan
Kenya
Cameroon Germany
Russia
Others
Source: UNHCR, The United Nations Refugee Agency
Turkey, Pakistan, Lebanon, Iran and
Jordan – neighbours to Syria, ISIS
and Taliban-held provinces – host
far more refugees than European
countries
Nordea Markets
While it is evident that the countries receiving the most refugees are those
nearest the conflicts, this does not mean the refugee flow is a marginal
issue in developed countries, or indeed in Europe.
As we have highlighted, Europe has received twice as many refugees in
2015 as at any time in the past 30 years. And there are major differences
between how receptive different European countries have been to asylum
seekers.
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Germany received three times as
many refugees as the US or Russia in
2015 and Sweden received on a par
with them, despite being far smaller
14 November 2016
Germany leads the pack by far in Europe, having maintained generous
asylum policies for longer than any other major European country, making
it top of the list of industrialised countries in receiving refugees last year.
Germany's 477,000 refugees admitted is three times the level of the
following four countries in the top five. We also find it striking that those
following four each took in roughly similar numbers of refugees last year
(150,000-180,000) as each other, despite two being world powers and the
other two being small European countries. Sweden and Hungary both have
populations of about ten million and have received similar numbers of
refugees to the US and Russia, nations with populations of around 320
million and 145 million, respectively.
Top destinations among developed countries for asylum seekers in 2015
1,000,000
900,000
858,705
# of Asylum Seekers 2015
800,000
700,000
600,000
500,000
476,510
400,000
300,000
200,000
177,135
172,700
162,450
152,500
Hungary
United States
Sweden
Russia
100,000
0
Germany
Others
Source: UNHCR, The United Nations Refugee Agency
Refugee inflows to Sweden
corresponded to nearly 2% of the
population in 2015
Nordea Markets
To get a better sense for the level of ambition in receiving refugees among
the Nordic countries, we look at annual numbers of registered asylum
seekers as a percentage of the existing population. On this measure, it is
striking both how dramatically refugee flows into the Nordic region have
increased, and how many more asylum seekers Sweden has admitted
compared with its Nordic neighbours. Refugees seeking asylum in 2015
alone corresponded to nearly 2% of the Swedish population. This helps put
in perspective the amount of media coverage, state budget revisions and
political tension seen in Sweden over the past year. It has been a challenge
to absorb such an inflow of refugees and this has stretched the immigration
system.
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Asylum seekers as % of the Nordic populations in 2008-15
1.80%
1.60%
1.40%
1.20%
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%
2008
2009
Sweden
2010
2011
Finland
2012
2013
Denmark
2014
2015
Norway
Source: Eurostat
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14 November 2016
Causes of the crisis – How did it come to this?
53% of the world's refugees in 2015
were from Syria, Afghanistan and
Somalia
So what has caused the unprecedented surge in refugees seeking asylum in
Europe in the past few years? The simplistic answer: major conflicts
flaring up, with resulting war or unrest driving people from their homes.
According to UNHCR, the United Nations Refugee Agency, there were
just over 16 million refugees, registered and classified as such, in the
world by year-end 2015. A look at countries of origin of these refugees is
revealing. Almost a third of current refugees are from Syria, and Syria and
Afghanistan together account for nearly half of the world's current
refugees.
Global refugees by country of origin, as of 2015
Syria
30%
Others
38%
Sudan
4%
South Sudan
5%
Afghanistan
16%
Somalia
7%
Source: UNHCR
Surge of refugees into Europe in
2014-15 driven by conflicts in Syria,
Afghanistan and Iraq, which
together represented 50% of asylum
seekers in 2015
Nordea Markets
Close to home, to understand the changes causing the virtual avalanche of
refugees into Europe in recent years, we can look at the breakdown by
country of origin for asylum seekers to the EU plus Norway and
Switzerland.
Even a quick glance makes it abundantly clear that the surge in refugees
comes largely from three countries: Syria, Afghanistan and Iraq. There has
been notable growth in refugees from other countries as well, but growth
from these three has been explosive. They accounted for half of all asylum
seekers to the EU in 2015.
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New asylum seekers to EU by country of origin in 2013-15
1,600,000
# of Asylum seekers to EU countries
1,400,000
1,200,000
Others
1,000,000
800,000
Iraq
600,000
Afghanistan
Others
400,000
Others
200,000
0
Iraq
Afghanistan
Iraq
Afghanistan
Syria
Syria
2013
2014
Syria
2015
Source: Eurostat
Why so many refugees from Syria, Afghanistan and Iraq? Again, the
answer lies in conflicts. We will look at each of the three countries in turn.
Civil unrest in Syria turned into fullblown proxy war, with major foreign
powers supporting different sides
Syria: Full-blown civil war with no apparent winner
Unrest in Syria started in the Arab Spring series of popular revolts in the
spring of 2011. Attempts by President Bashar al-Assad's regime to end to
public protests against his regime by use of force led to violent clashes
between protesters and security forces. Opposition groups started taking
up arms, first to defend themselves against security forces, and later to
drive Assad's forces out of their local areas.
Unrest started locally in the southern city of Deraa in 2011, but evolved
into full-scale fighting between rebels and government forces, reaching
Syria's two biggest cities, Damascus and Aleppo, by 2012.
What started as an uprising against the Assad regime – established and in
power since 1970 – quickly became a conflict with sectarian
characteristics. The regime has a ruling clique of Alawites, a branch of
Shia Islam, which represented only 11% of Syria's pre-war population. The
core of the rebellion consisted of Sunni Muslims, who made up 74% of the
population.
The sectarian battles attracted the attention of Syria's neighbours and led to
outside involvement in the Syrian conflict. Since 2013, the Iran-backed
Shia Islamist Hezbollah movement has supported Assad's government
forces in the fighting, with further direct financial and arms support from
Iran. Since its formation in 2014, the Islamic State (IS) has been part of the
conflict, fighting various other involved parties, including government
forces, rebels, Kurdish forces in northern Syria and its rival jihadists of the
Al-Nusra front in the west of the country.
As if the involvement of various factions from neighbouring countries
were not bad enough, there has been direct military involvement from
major powers as well. Since September 2014, the US and a coalition of its
allies have carried out air strikes to support Syrian rebels, followed in
2015 by Russia sending air force units into regime-controlled areas of
Syria, launching air strikes in support of Assad's government forces.
To put it bluntly: Syria is a mess. What started as a popular revolt against
an autocratic regime five years ago has devolved into a full-scale proxy
war with direct involvement from both regional and world powers on
different sides in the conflict. And no clear winner has emerged in the civil
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war yet. Syria is currently split into many different areas across the
country, each controlled by one of the warring factions, or contested by
more than one faction.
This has led to a humanitarian disaster. The UN estimates about 400,000
people have been killed in the conflict so far. Of a pre-war population of
22 million, nearly five million Syrians have fled the country. And another
6.5 million have been displaced from their homes but within Syria. The
UN believes some 13.5 million Syrian civilians, six million of them
children, will need humanitarian aid during 2016. 70% of the population
does not have access to adequate drinking water, one-third is unable to
meet basic food needs, and 80% live in poverty.
It is the scale of the conflict in Syria that has triggered such a massive flow
of asylum-seeking Syrians into Europe. Nearly 25% of the country's
population has – so far – fled abroad as refugees.
Afghan regime struggling to
maintain basic security in the face of
Taliban insurgency following
NATO's military withdrawal in 2014
Afghanistan: Chaos after withdrawal of NATO troops
Afghanistan has a troubled recent history. The Soviet Union's invasion in
1979 to prop up a communist regime ended ten years later in Soviet
withdrawal from the country. The ensuing civil war between several
Afghan factions saw the fundamentalist Islamic Taliban movement seize
power in 1996.
When the US government identified Osama Bin Ladin as the prime
suspect behind the 9/11 terrorist attacks soon after they had taken place, it
demanded that the Taliban regime of Afghanistan – which was harbouring
Bin Ladin at the time – hand him over to US authorities. When the regime
refused, US and UK military forces were sent into Afghanistan, toppling
the Taliban regime in December 2001.
A new government was formed, supported by the International Security
Assistance Force (ISAF) established by the United Nations Security
Council to provide basic security. In 2003, NATO took command of the
ISAF, and the force grew, peaking at more than 130,000 troops. After
growing public opinion in NATO countries (particularly the US) against
military involvement in far-off countries, there was a gradual retrenchment
of military support to the new non-fundamentalist regime in Afghanistan.
This culminated in the termination of the UN-backed ISAF mission to the
country at the end of 2014. It was replaced by NATO's much more limited
Resolute Support Mission (RSM), with some 12,000 personnel – a noncombat mission to train, advise and assist Afghan security forces.
The withdrawal of military support has drastically weakened the Afghan
government, which is facing both the existing Taliban insurgency and a
new local branch of IS. Civilian casualties from fighting and terrorism
reached more than 10,000 during 2015, making it the bloodiest year for
Afghanistan since 2001. Most foreign aid organisations and media have
left the country, and last year one in three soldiers in the Afghan army
deserted.
The deterioration in security has caused an exodus from the country, with
some 2.7 million Afghans registered as refugees. This is nearly 10% of an
original population of around 30 million. According to the European
Council on Foreign Relations, Afghanistan lacks the capacity to control its
borders, target migrant smugglers, support internal refugees and resettle
those who return. Another critical challenge is that many of the Afghan
refugees are from the middle classes, whose skills are needed for any
effort to build up and redevelop the country. But those who have the drive
and means are often those looking to escape the mayhem.
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Iraq has been unable to contain IS,
which was formed after the US
military withdrawal in 2011
14 November 2016
Iraq: Struggling with IS
Two-thirds of Iraq's population of 37 million is made up of Shia Muslims,
but it was a regime from the country's Sunni minority that ruled the
country under Saddam Hussein. Following the 2003 invasion of Iraq, the
US military presence in the country peaked at 170,000 troops in 2007.
Two years later, the US committed to a phased military withdrawal,
completed in 2011, after which responsibility for security was handed over
to Iraqi military and security forces.
The Arab Spring series of uprisings across the Middle East in 2011 spread
to Iraq, but protests there did not topple the regime. And to be fair, the
Iraqi government in place was established after the US-led invasion that
had ended Saddam Hussein's rule. It was not as autocratic or repressive as
some other regimes in the Middle East had been before the Arab Spring.
There has been, and remains, sectarian tension between the Sunni and Shia
populations, but the real surge in refugees leaving Iraq came in 2015 after
the establishment of IS in northern Iraq, causing members of local
populations to flee the terror imposed by IS militants on citizens perceived
as not fully complying with Sharia law.
At a total of some 278,000 registered refugees, according to UNHCR,
Iraq's refugee exodus in nowhere near the scale seen in Syria or
Afghanistan, either in absolute numbers or in the share of the total
population on the run. But the surge in refugees seen last year is dramatic.
Of the 278,000 refugees, 127,000 were added in 2015 alone. And this was
up from a run rate of 15,000 the year before. The almost ten-fold increase
is a clear illustration of the frenzy with which Iraqis have sought to escape
the grasp of IS.
Western powers have eliminated
problems of costs and casualties
from military presence in unstable
countries...
"Not our problem", or is it...?
Refugee flows from countries other than Syria, Afghanistan and Iraq
should not be dismissed; they are up 80% over the past three years. But by
contrast, the flow of refugees from these three countries is up by 750% in
the same period.
There is a common denominator for these three countries. Western, or
developed, nations have more recently opted to stay out of major tensions
and conflicts these countries are undergoing. In Afghanistan and Iraq, US,
European and international military presence has been terminated. It is
easy to understand the strong pressure on home fronts to put an end to the
massive costs and own military casualties from patrolling these troubled
nations. Newly elected leaders have built political platforms on getting
soldiers back home from far off, hostile and ungrateful territories.
In the case of Syria, the US and European nations (including Russia)
initially opted not to intervene in the domestic conflict. As the uprising
turned into civil war, took on sectarian dimensions and led to numerous
atrocities, various nations were gradually drawn in, supporting different
factions with funds, arms and training. When IS was formed and became
another major player in the Syrian war in 2014, two different major
powers became involved with air strikes in support of opposing sides: the
US with its allies UK and France supporting moderate rebels and targeting
IS and other jihadists; and Russia offering air support to the Assad regime.
...but are instead facing new
problems, such as massive refugee
flows from escalating conflicts and
potential involuntary military
involvement in said conflicts
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The current proxy war in Syria is almost an everyone-fighting-everyoneelse situation, with foreign powers offering direct military support to
opposing sides. It is not an obvious alternative for any foreign power or
coalition to intervene decisively in the conflict and bring it to an end
through the use of force. Or to put it another way: the world standing by
and watching from the sidelines for so long has allowed the conflict in
Syria to escalate out of control.
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Without trying to argue the merits of outside military involvement in
various individual countries, we simply note that withdrawal of military
support in Afghanistan and Iraq has been fairly immediately followed by
rapidly deteriorating security environments, giving rise to terrorism,
conflict and massive flows of citizens seeking to escape from their home
country. The reasons for Western countries pulling out may have been both
sound and thoroughly evaluated, but it can hardly be argued that either
Afghanistan or Iraq was ready to take full responsibility for maintaining
security and stability on its own.
In Syria, a wish to stay out has turned into an involuntary military "semiinvolvement" by several countries: no troops on the ground for garrisoning
or patrolling, but projection of air power. And this air power is not being
used in a co-ordinated effort to bring an end to the Syrian conflict but is
instead being used for their respective agendas. The Russians have helped
the Assad regime to avoid a collapse. The US and its allies are trying to
strike and weaken IS and other jihadists. Meanwhile, Syria is being torn
apart by the ongoing civil war, with no apparent winner in the conflict
emerging. This war could drag on for years.
Regardless of blame being placed at the door of the UN, Western powers
such as NATO, the EU or individual member countries, or Russia, the
unfortunate state of affairs is that Syria has become a melting pot of
conflict with plenty of vested interests. It will arguably require a
gargantuan effort to bring lasting peace to the country. And until that
happens, the outside world will have to deal with the current diaspora of
some five million Syrian refugees.
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Europe struggling to digest refugee flows
The EU has faced multiple challenges in responding to the snowballing
refugee flows into Europe in late 2015. We highlight the two most obvious
ones.
Imbalances in the EU immigration
system – Greece and Italy receive the
most refugees, but many refugees
have moved on to seek asylum in
countries with perceived better
terms, like Germany and Sweden
Passport-free travel between
Schengen countries in Europe has
given opportunities for ''asylum
shopping"' and caused security
concerns after recent terrorist
attacks
The EU commission introduced
measures to relocate 160,000
refugees within Europe in September
2015
 Uneven burden for receiving asylum seekers among EU countries:
The burden of processing refugees arriving in the EU has been
extremely uneven, with just two countries – Italy and Greece –
receiving the great majority of asylum seekers, particularly from Syria.
According to the EU's Dublin System, asylum seekers cannot choose
which EU country will process their asylum application. It will
normally be the EU country they first arrive in. There are, however,
discretionary provisions under EU legislation as well as a lack of full
implementation of the Dublin System. This has led to some EU
countries offering more attractive reception and asylum systems than
others, which has in turn led to "asylum shopping" in the EU by
refugees. Some countries, notably Germany and Sweden, have been
practically flooded by asylum seekers compared to the rest of the EU.
 Secondary refugee flows within the EU and Europe: The Schengen
agreement allows passport-free travel between all signatory countries in
the EU. This freedom is in practical terms a lack of border controls. It
has given refugees the possibility to move on to their most-favoured
asylum seeking destination rather than remaining in the country where
they first arrived. This has allowed the uneven pressures from the
particularly big refugee flows mentioned above to build up. It is also a
major potential security issue in the EU. The terrorist atrocities in
France and Belgium in 2015-16 highlighted how jihadist terrorists
could exploit refugee flows both to enter Europe and to hide their travel
within the EU. The ability of refugees to avoid registration and
fingerprinting in their EU country of first arrival has been a significant
concern.
In September 2015, the EU Commission presented a legislative package in
response to the first challenge above. This package included a targeted
relocation of some 160,000 refugees, from particularly Greece, Italy and
Hungary to other EU countries. Member states that refuse to receive
relocating asylum seekers would face financial penalties. Despite this, the
EU Commission reported in July 2016 that only some 3,000 refugees had
by then been relocated under the scheme.
In December 2015, Sweden was given a one-year suspension from
obligations to receive relocated refugees, owing to the country's
immigration system being overwhelmed by the inflow of asylum seekers.
Six Schengen countries in the EU reintroduced border checks in 2015
Towards the end of 2015, the flow of refugees threatened to overwhelm
the migration apparatus of several European countries. Irrespective of
desires and ambitions by governments to receive refugees, extraordinary
measures were desperately needed in order to be able to meet even basic
needs like safety, shelter and sustenance to those who were admitted. Six
Schengen countries - Austria, Germany, France, Sweden, Denmark and
non-EU member Norway – re-introduced border checks and started to
refuse entry to illegal immigrants.
In conjunction with re-introducing border checks, Sweden (which had,
alongside Germany, been one of the EUR's biggest destinations for
refugees) flagged a tightening of its asylum rules, conforming to minimum
levels for granting asylum within the EU. Legislation to this effect was
subsequently passed in Sweden in July 2016, to last for three years.
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The EU deal with Turkey 2016:
return of all new irregular migrants
in exchange for financial support
14 November 2016
In March 2016, the EU struck a deal with Turkey, allowing Greece to
return to Turkey all new "irregular" migrants. In exchange, the EU offered
financial support for Turkey's huge refugee population, accelerated visa
liberalisation for Turkish citizens, and increased resettlement of Syrian
refugees living in Turkey.
The EU Commission proposed further tightened asylum rule in July 2016
to crack down on unfounded asylum claims. In essence, these proposed
new rules would mean that those asylum seekers who refuse to give
fingerprints or who move between countries in Europe would have their
claims automatically rejected and face deportation.
The flood of refugees has boosted
support for Nordic populist parties
Nordic political landscape: Surge for the populists
The tidal wave of refugees flooding Europe in the past few years has given
fuel to the agendas of populist parties across the Nordics. The degree to
which each country's local populist party's platform is based on
xenophobia and an anti-migration stance varies, but there have been
opportunities for all of them to capitalise on the extreme migration flows
in recent years.
Share of parliamentary votes for Nordic populist parties, 1990-2016
25%
20%
15%
10%
5%
0%
1990-1993
1994-1998
1999-2002
Sweden Democrats
2003-2006
Progress Party
2007-2010
2011-2014
Danish People's Party
2015
2016
Finns Party
Source: Demoskop, Norfakta, Gallup, Taloustutkimu
Populists are the second biggest
political party in Denmark
The Danish People's Party (Dansk Folkeparti) has been a major force in
politics since its inception in 1995, but it has not yet been in cabinet in a
government coalition, despite winning 21% of the votes in the 2015
general election (making it the second biggest political party in Denmark).
It began as a breakout group from the Progress Party, which was initially
founded as an anti-tax protest movement in 1972.
Populists are a government coalition
partner in Norway...
The Norwegian Progress Party (Fremskrittspartiet) began as a sister antitax protest movement to the Danish Progress Party in 1973 and has been a
significant force on the Norwegian political scene for decades. The most
vocal anti-immigration proponents were marginalised or forced out during
internal party struggles in 2000-2001, making the Progress Party
respectable enough to be represented in the Norwegian cabinet in coalition
with the Conservative Party after an election victory in 2013. Progress
Party leader Siv Jensen is currently Norway's finance minister.
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...and in Finland
The Finns Party was formed after the dissolution of the Finnish Rural
Party in 1995. It spent its first 20 years in opposition until forming a
government with two coalition partners in 2015. Finns Party leader Timo
Soini is currently foreign minister and deputy prime minister, and the
Finns Party also hold several other key ministerial posts, including justice,
defence and health. The popularity of the Finns Party has plunged in polls
after its move from opposition into government.
The main Swedish populist party is
arguably the most explicitly antiimmigration within the Nordics
The Sweden Democrats party was founded in 1988, with roots in Swedish
white supremacy and fascist movements. Unlike its Nordic populist peers,
it has, since its inception, had a clearly anti-immigration stance, which
continues to dominate the party agenda. It took until 2010 until the
Sweden Democrats gathered more than the 4% threshold of general
election votes required to get seats in parliament. Before this, the party
was a relatively peripheral force in Swedish politics. In the 2014 general
election, The Sweden Democrats more than doubled their share of the
votes, to nearly 13%. Although the party holds a balance of power position
in a hung parliament between the socialist and conservative blocks of
parties, both sides have continued to refuse to co-operate with the Sweden
Democrats. This has kept the party out of government, and unable to force
its own policies through parliament. Its influence has been limited to an
ability to veto undesired legislation.
Overall, these Nordic nationalist and populist parties have been able to
ride a wave of public discontent and alarm. It was of a more general nature
during the global financial crisis of 2008, often EU-centric during the
Greek turmoil of 2011 and thereafter, and in the past few years has been
related to overwhelming refugee flows. This has taken the antiimmigration parties into government coalitions in two out of four countries
and given these parties a tangible influence over immigration and other
policy across the Nordics.
The Swedish populists have a
parliamentary balance of power
position between the two major
political blocks
Nordea Markets
So far, the surge of the populist parties has not caused a parliamentary
crisis in any of the Nordic countries. The most sensitive political situation
is possibly in Sweden, where a hung parliament in the 2014 general
election almost led to a re-election; both major political blocs refused to
rely on the Sweden Democrats for forming a government. A red-green
government was formed in the end and has been in power for two years.
But it remains dependent on passive support from the Sweden Democrats,
and has very little political room to pursue a reform agenda. The Nordic
region has so far managed to retain reasonable political stability, despite
the increasing influence of populist political movements.
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Stemming the refugee tide – What next?
The onslaught of refugees into Europe, culminating in late 2015, made the
EU as well as individual countries hit the emergency brakes. Reintroduced border controls within the EU, between Schengen countries,
created an effective obstacle for irregular immigrants entering the EU and
trying to move on to destinations perceived as most favourable for asylum
processing, like Sweden and Germany.
In addition, several countries with generous asylum policies scaled down
toward EU minimum level policies, making it less worthwhile for asylum
seekers trying to illegally cross Europe in search of a likely haven.
Refugee flows into Europe have
fallen back to normal levels...
These responses have had a marked effect on the inflow of asylum seekers
into the Nordic countries, with monthly numbers since the beginning of
2016 running far below elevated 2015 levels.
Monthly asylum seekers to Nordic countries, 2015-2016
45,000
40,000
39,055
36,585
35,000
30,000
25,000
24,260
20,000
15,000
13,830
11,725
10,815
8,060
10,000
5,000
4,890
4,105
5,375
8,155
5,030
4,165
0
Sweden
Denmark
Norway
2,245
2,110 2,180
Finland
Source: Eurostat
...following tightened border controls
and asylum policies from late 2015
For the Nordic region, the number of asylum seekers year-to-date has
almost halved from 2015. Sweden and Norway have seen declines in
excess of 50% from exceptionally high levels last year, while Denmark
and Finland saw slightly less radical spikes in 2015 and are now down
around 10%.
Problem solved?
Does this mean Europe has now put a lid on the refugee inflow, is keeping
pressures outside its borders, and can focus on digesting the asylum
seekers already admitted? For the time being, yes.
We argue it would be naïve to assume that this situation will persist
indefinitely. We would highlight three major factors that could potentially
trigger new, major refugee flows seeking asylum in Europe and the
Nordics.
We see several reasons why refugee
flows could potentially surge again
in the future
Nordea Markets
1) Extraordinary border control and asylum policy measures are
temporary. Political and practical realities change, and governments act in
response. Nordic populist political movements and parties have surged
from the wave of refugees in recent years, and have impacted the political
agenda. But populist parties do not represent more than 10-20% of the
votes, and the political mainstream is showing commitment to
humanitarian migration. Measures taken by European countries in the past
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12 months to stem the flow of asylum seekers are typically time-limited.
Upon expiry, they will revert to normal rules and policies – unless the
extraordinary measures are renewed.
The example of Sweden serves as an illustration:
 In late 2015, Sweden was given an exemption by the EU commission
from having to receive its share of relocated refugees from within the
EU. The exemption was justified by Sweden's immigration system
being overwhelmed by large numbers, and was to last for 12 months.
 ID checks at the border to other Schengen countries were introduced in
late 2015. At the time of this writing, they are due to expire in
November 2016.
 Sweden's asylum policies for refugees were tightened to minimum EU
levels at the start of 2016. The legislation passed to this effect by
parliament is for a specific three-year duration. Unless new legislation
is passed, Sweden would revert to its pre-crisis asylum policies in early
2019.
2) Trouble is still brewing in the world, potentially creating more
refugees. Making entry into EU countries more difficult may greatly help
the immediate short term problem of receiving, processing and caring for
large numbers of refugees. But as long as conflict and war makes people in
the outside world unsafe and homeless, there will be pressure from such
people seeking refuge in the relative safety of Europe. There is little reason
to expect any imminent reversal of refugee flows from the biggest current
hotspots, and there are new potential areas of trouble in Europe's vicinity:
 Civil war in Syria has become a proxy war, with gridlock between
conflicting interests of major players like the United States and Russia.
At the time of this writing, there is no promising or credible peace
process in place.
 Afghanistan has a poor internal security situation, with its regime
incapable of keeping the Taliban insurgency (or indeed the Afghan
faction of IS) in check. NATO has pulled out, leaving no direct local
support.
 Iraq is struggling to contain or expel IS in its northern provinces. US
direct military support has been withdrawn, leaving the local regime
incapable of maintaining sufficient levels of security or protect the
country's territorial integrity.
 In Africa, ongoing conflicts in Ethiopia/Eritrea and Sudan/South Sudan
have no obvious end currently in sight. These regions are #4 and #5 on
the list of top origins for refugees to the EU, after Syria, Afghanistan
and Iraq.
 New trouble spots could flare up. An obvious risk may be the Ukraine,
where resumption of full scale conflict between government forces and
Russian-backed insurgents could lead to war and refugee flows. Turkey
might be less likely to see any form of blow-up, but almost saw a coup
d'état by its military this summer and has major internal tension
between secular and fundamentalist Muslim factions. On top of this,
there is ethnic-based friction with the country's Kurdish minority.
With all this current and potential future unrest outside, but near, Europe,
demand for asylum is accumulating even as the doors are closing. The
question then becomes what happens if pressures need to be vented in
order to avoid too much strain on the systems in those countries bordering
the EU.
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3) If the EU closes its doors, neighbours and refugee "stopovers"
further away could get overwhelmed. In practice, Europe will not be
able to ignore refugee flows outside its borders. To put things in
perspective, Germany is the biggest European refugee host, harbouring
some 316,000 people. But it is #11 globally. As refugees won't flee to Iraq/
IS, Syria's non-war-torn neighbours Turkey, Lebanon, Iran and Jordan
together host nearly 5.3 million refugees – almost 17 times as many as
Germany. If such numbers keep growing, tensions will grow. This could
lead to systemic collapse, putting host countries under great strain, and
lead to disorderly flows of irregular refugees seeking to enter the EU in
covert ways. It could be argued that the last thing Europe needs is for the
biggest current host countries for refugees to start stumbling under the
pressures of refugee flows. If they do, it is bound to have consequences for
Europe.
It ain't over yet?
Given these three factors – and surely others which we have not brought
up here – we believe Europe and the EU should be prepared for significant
refugee flows into the region in the future.
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Interview – Migration and the Nordic economies
Below is an interview with Annika Winsth. Annika is Chief Economist and Head of Macro Research,
Sweden at Nordea Markets.
JT: 2015 was an extraordinary year, filled with news headlines of
refugees flooding Europe, the Nordics and Sweden. What has
happened since then?
AW: The refugee flow into Europe last year was unique, and even more so
in the Nordic countries. Sweden in particular stood out by receiving far
larger numbers than its Nordic neighbours, and way more than at any
previous time. Last year was also unique in that Sweden, Denmark and a
few other European countries re-introduced border controls for citizens
from other Schengen countries. Sweden followed up by changing its
asylum rules to minimum EU levels. These measures have led to a sharp
decline for refugee inflows to the Nordic countries, to below the 2014 and
even below the 2013 levels.
JT: Refugee flows can impact economies in several ways – how do you
expect costs for receiving and processing asylum seekers to affect
Nordic economies?
AW: As the flow of refugees has dropped so dramatically, the impact on
Nordic public finances should be limited and mainly be dealt with in 2016.
When comparing public expenditure related to migration between
countries, I would argue it makes more sense to look at costs as a
percentage of GDP. Costs are rising because of the massive refugee
inflows last year, but the increase should ease next year owing to sharply
reduced refugee flows. The Nordic countries have chosen to fund the surge
in migration-related costs in different ways. In Denmark, the costs have
been balanced by a reduction in foreign aid, resulting in a marginal
increase of net expenditure.
Sweden stands out with the largest cost increase, of SEK30-40bn, in 2015.
This is substantial, just under 1% of GDP, but still a limited number in
context of the whole Swedish economy. To put this in perspective, it is the
same amount that Swedish households have increased their debts every
2-3 months over the past few years. Of more concern is that Swedish
municipalities will have to bear most of the cost burden in the future. State
support has so far not covered the cost peak, and if they are forced to raise
municipal taxes, it could dampen private consumption and growth. From a
macroeconomic perspective, state support covering refugee-related costs
would be preferable.
JT: In what ways can migration give a positive contribution to
economic growth? How much, and how sustainably?
AW: Receiving refugees affects public consumption directly and creates
jobs related to refugee processing and integration. Longer term, there
should be additional job creation in areas like health care, social services
and education. In Denmark, Finland and Norway, this brings a small
positive contribution to GDP growth in 2016 and 2017. In Sweden the
effect is larger, boosting GDP growth by around half a percentage point.
With the current, reduced, refugee flows, there is no notable growth boost
from 2018 and beyond anywhere in the Nordics.
I think it is also important to mention the GDP per capita measure, a
typical gauge of a country's level of wealth. It should be pointed out that
Sweden has managed well since the financial crisis. Nevertheless, there is
some concern, particularly in Sweden, that GDP per capita would decline
due to migration. But a lower GDP per capita is not the same as the
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Swedish population getting poorer. True, arriving refugees start on a much
lower level, but will typically be much better off than before, and they are
able to progress. As they do, their contribution to GDP growth will in the
short run make the Swedes better off as well. In a longer perspective it is
critical that integration into the Swedish labour market is successful.
JT: What is needed for success with integration of migrants in the
Nordics?
AW: I see two scenarios. The first one, which I think is quite possible, is
where we open up the labour market and get a successful integration. In
this scenario we will in the future look back on refugee migration as a
successfully exploited opportunity to add migrants to our Nordic labour
force, particularly in the service sector. One example is elderly care, where
there are significant labour shortages. The migrants help counterbalance
the ageing Nordic population.
The negative scenario is failed integration, which would lead to major
costs for the society and a deeply polarised society. This is a scenario that
very few people really want. The key to integrating immigrants is to help
them enter the labour market. The biggest challenge is that many of the
large number of refugees who recently arrived in the Nordic countries do
not have qualifications or skills adapted to local labour markets. Education
should be used primarily. Not everyone can be trained to necessary levels,
however, and not quickly enough. The solution would be to give room in
Nordic labour markets for new, less qualified jobs. We should be prepared
to pay others to help us with tasks we currently do ourselves. This would
create demand for services such as laundry, lawn mowing, dog walking
and car washing, to give just a few examples. But it will require a change
of attitudes.
JT: Does the political establishment agree with this view?
AW: Several politicians have started to look into this, but many are not
there yet. The official view is typically that refugees should be educated to
at least upper secondary school level, which could make them qualified for
many jobs that are currently available. I think anyone can sympathise with
such an ambition, but it may not always be realistic. Can society and the
refugees themselves afford the time and effort it may take until such an
education is completed? Will it be possible to train every arriving refugee
to that level? Including older people, who have virtually no basic
education to build on? This is a sensitive topic, where politicians must
balance core humanistic values with what they believe is actually
achievable.
JT: Are there any historical examples of how an economy has coped
with sudden major population inflows from migration?
AW: Sweden's latest surge of refugees, and hence immigrants, was in
1992, during the Balkan wars. This was an example of successful
integration. Sweden enjoyed a period of strong growth from 1994 and
onwards, and many of those immigrants found employment in the
manufacturing sector. Many of those jobs have since disappeared, and
today we expect – or hope – that migrants will find jobs in the service
sector. This means we can't turn to history for guidance. We need to think
in new ways: There is a need for new, less qualified jobs, and they will
mainly be found in the service sector.
JT: Has there been any evidence of investors or the corporate sector
showing concerns over how migration might affect public finances in
Nordic countries? Or any worries over border control and asylum
rule changes actually being temporary measures?
AW: At the peak of the refugee inflow in 2015, there were notable
concerns among investors that the situation might get out of control. This
was in focus for global media and made the politicians act. This faded
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after Sweden and Denmark re-introduced border controls towards the end
of the year, effectively preventing unauthorised refugees from entering the
countries. Once refugee flows fell down to a trickle from peak levels, the
issue disappeared from the investors’ agenda. The impact of migration
costs on public finances is currently not seen as a major issue by investors.
But this is a major political challenge – particularly in Sweden, which has
received by far most refugees of all the Nordic countries.
JT: Why does Sweden stand out so much in receiving far more
refugees than other EU countries or its Nordic neighbours?
AW: Sweden has a history of political consensus being more proimmigration. Compared with other Nordic countries, it took much longer
for the Swedish mainstream political establishment to face populist
pressures of similar magnitude as in other countries. It was not until 2014
that a populist party actually won seats in the Swedish parliament, whereas
Norway now has a coalition government including such a party. In late
2015, the political desire among mainstream Swedish parties to embrace
the soaring flows of refugees had to succumb to practical realities of not
being able to ensure shelter, security and sustenance for such large
numbers arriving. On top of this came a strained ability to integrate so
many into society in the years ahead.
JT: Do the refugee inflows create investment needs for the public
sector, like housing and office buildings?
AW: There are large needs, for housing and for schools and healthcare,
which have been augmented by the arrival of the refugees. Sweden stands
out. The huge number of refugees has forced many municipalities to use
expensive temporary accommodation solutions, which is unsustainable.
There has been a general problem with expensive housing construction
since long before the crisis, and especially regarding more simple housing.
This has to do with regulations for how landlords can charge rents,
minimum standard requirements for new housing, and often complicated
and slow processes for building permits. Pressure will mount for
developers to be allowed to build housing of a lower standard, with less
room for obstructions and appeals to building permit processes. The high
cost of land in the major cities is also a challenge for low-cost housing.
JT: Are there related needs for public services, like schools, health
care and social services?
AW: There are great needs in these areas as well. Not all refugee children
have been offered admission to schools due to a lack of capacity. There are
potential opportunities for private operators to help meet the needs, but
they are facing political risk as there is a political debate on private profits
in the welfare sector. When the borders were closed, the need for refugee
housing declined, which affected the private entrepreneurs.
JT: Refugee flows into Europe have slowed since last year, but from
tighter border controls and asylum policy, rather than from any lack
of refugees. There are many question marks on the horizon: Brexit,
global trade after the US presidential election, pressures on Angela
Merkel ahead of German elections next year. Do you see any major
risks for refugee trends in Europe in the coming years?
AW: There are obvious risks related to current, and potentially new, areas
of conflict in the world. In Europe's vicinity, the Turkish economy has
prospered for many years, but was the victim of an attempted coup d'état
earlier this year. Any turmoil there could set things in motion, both for the
Turks and for the over 2.5 million refugees who are currently in the
country. Another example is Russia. Any escalation of hostilities in
Ukraine could trigger refugee flows. We cannot know what will happen.
But both governments and corporate management can consider the
potential risks and prepare for them.
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From an economic point of view, I would argue a key risk is Europe and
the Nordic countries closing their borders even more tightly to migration.
There are strong political winds blowing against global trade, as proven by
both US presidential candidates' attitudes to trade agreements and by
Brexit. There is little remembrance, or acknowledgement, that growth in
global trade is behind much of the increased prosperity the world has
experienced in the past two decades. People have migrated for
humanitarian and economic reasons throughout human history, and I doubt
that this will stop now, in the digital information age. A more pressing long
term issue is the sustainability of tax-funded welfare systems in developed
nations. We can clearly see that excessive inequality and polarisation can
wear down societies, with Brexit and Donald Trump's candidacy for US
president arguably being examples of this. Welfare may hence be critical,
but how to fund it if citizens are no longer confined within their borders?
They will pay taxes as long as they feel they get something in return. But
if they don't, both corporate and human citizens could opt to leave.
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How migration affects the economy
The long game: Potential demographic boost
We will return to how migration, especially refugee inflows, affects Nordic
economies in the short- to medium- term, and start by looking at the much
more critical potential long-term impact on economies.
Migration could, in the long term,
help offset the economic burden of
ageing Nordic populations
The Nordic economies are facing a major long-term challenge in the form
of ageing populations. The share of the population of working age, 15-64,
has started to plunge in recent years. This trend means that the working
part of the population will carry an ever-increasing burden to support the
children and the elderly. Putting it simply, the only options for dealing
with that are arguably to either cut benefits for the elderly or to increase
taxation to pay for benefits. Both options are naturally very challenging
politically for any government.
Share of population aged 15-64, Nordic countries, 1960-2015
World Bank, world development Indivators, Health, Popula on, Structure, Ages 15‐64
69
68
Percent
67
66
65
64
63
62
1960
1966
1972
Sweden
1978
1984
Denmark
1990
1996
Norway
2002
2008
2014
Finland
Source: Macrobond and Nordea Markets
Enter the migrants. In theory, migration could be a solution to the
demographic problem in mature economies like in the Nordics. Adding
new citizens, at or near working age, could give an injection of new
capacity into the national workforces. This could make up for insignificant
net domestic population growth and longer life expectancy increasingly
the elderly, non-working, share of populations.
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Sweden: Change in population and labour force, 2005-20E
Change since april 2005, Ages 15‐74
Thousands of people
1000
800
600
400
200
0
2005
2007
2009
2011
2013
2015
2017E
2019E
Labour force, naƟve born
PopulaƟon, naƟve born
Source: Macrobond and Nordea Markets
Using Sweden (which has been by far the biggest host nation for refugees
and migrants in the Nordics) as an example, we note that in the past 10
years, immigrants have represented two-thirds of the growth in population
and the workforce. The share is forecast to be even higher in 2016E-20E,
even if the growth in workforce falls below the growth in population. The
latter reflects the great numbers of refugees arriving in the past few years
facing challenges in entering the Swedish labour market.
Example: Immigration accounts for
80% of Swedish population growth
in 2008-20E
Nonetheless, without immigration, Swedish population growth had been
miniscule in 2005-14 and is expected to be negative thereafter. Including
the forecast years, migration is predicted to have accounted for over 80%
of population growth and workforce growth.
Sweden: Change in no. of employed in workforce, 2008-20E
500
Number of employed people, Ages 15‐74, change since Jan 2008 Thousands of people
400
300
200
100
0
‐100
‐200
2008
2010
2012
Foreign born
2014
2016
2018E
2020E
NaƟve born
Source: Macrobond and Nordea Markets
While migration gives a vital ingredient in the form of population growth,
it is critical for arriving migrants to be successfully integrated into society
in order for the ingredient to have the desired positive effect.
The demographic immigration boost
to economies requires successful
integration and entry into labour
market
Nordea Markets
If migrants only add to population, but not to workforce growth and
employment, they risk becoming a net economic burden. Not only would
they not then generate taxable income, but they would typically also
require support and benefits from the (tax-funded) welfare system. This
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would add to the demographic headwind for the economy rather than ease
the burden.
Sweden: Employment rate, 2006-20E
Employment rate, Ages 15‐74
75
% of popula on
70
65
60
55
50
2005
2007
2009
NaƟve born
2011
2013
2015
Foreign born
2017E
2019E
Total
Source: Macrobond and Nordea Markets
The employment rate in the working age population in Sweden is
substantially lower for immigrants than for the incumbent population,
although it has grown faster for immigrants. The forecast decline in the
employment rate for the foreign-born in 2017E-20E is related to the huge
inflow of refugees requiring time and effort for training and entry into the
Swedish labour market. Linguistic, educational and other qualification
barriers prevent most newcomers from being able to seek and find
employment in the beginning.
The long-term dream scenario would be successful integration of the bulk
of the numerous refugees admitted during the past few years. This would
give a direct boost to GDP growth and help avoid the negative spiral for
public finances associated with an ageing population.
This type of long-term demographic benefit would be beyond the time
horizon for medium-term macroeconomic forecasts, and hence not be a
material factor in, for example, current consensus GDP forecasts for
Sweden.
Short- to medium-term: Rising public spending and growth
Sticking to the next few years, migration – refugee inflows – leads to
immediately rising public consumption. Governments and local
authorities, typically municipalities, have to arrange accommodation,
security and food for refugees. And they will need to hire staff and find
premises for processing all asylum applications. The stage after that is
typically education and training, for both children and adults.
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Fiscal cost of migration as % of GDP by EU country, 2014-16E (ranked by 2016E)
1.2%
1.0%
1.0%
0.8%
0.6%
0.6%
2016
2015
0.4% 0.4%
0.4%
2014
0.3%
0.2% 0.2%
0.2%
0.1% 0.1% 0.1% 0.1%
0.1% 0.1%
0.0% 0.0% 0.0%
0.0% 0.0% 0.0%
0.0%
Source: IMF
How much are the Nordic countries spending on migration and reception
of refugees? They are spending plenty.
The Nordic countries are taking the
greatest costs in Europe for
migration as a % of GDP
A study by the IMF lists Sweden, Denmark and Finland as the top three
countries measured by 2016E public expenditure on migration as a
percentage of GDP. And the Nordic countries do not spend just a bit more,
they outspend most other European countries by a factor of 4-10x.
Exactly how increased costs for migration are taken, and what their net
impact on government budgets will be, varies by country. In Denmark,
higher costs for refugee processing have been balanced by reduced
expenditure on foreign aid, which has kept the net effect on public
spending from the refugee flood at close to zero. Sweden has done this
partially, also covering the raised migration expenditure by increased
borrowing and some raised taxes.
Public consumption as % of GDP by Nordic country, 1996-2018E
General Government, expenditure (ESA2010), Final
Consumption Ependiture, DG ECOFIN AMECO, Estimate,
% of GDP, Market Prices
30
Percent
28
26
24
22
20
18
1995
1997
1999
2001
Sweden
2003
2005
Norway
2007
2009
2011
Finland
2013
2015 2017E
Denmark
Source: Macrobond and Nordea Markets
To get an overview of public spending historically, and the outlook for the
next few years, we look at government spending as a percentage of GDP
for the Nordic countries. There is only a discernible increase in Sweden,
and that, in turn, is no more than half a percentage point or so. Based on
current forecasts for public spending (including spending on migration)
and GDP, the net impact on public finances from migration costs is not a
major issue in the Nordics in the short term. It is notable in Sweden, but
clearly not a major issue in an overall macroeconomic context.
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Neither is it a major issue from a funding or national debt point of view.
We note that government debt as a percentage of GDP is forecast to rise
for all four Nordic countries in 2016E-18E, but only very modestly in
Sweden and Denmark. Debt to GDP looks set to rise more sharply in
Finland and Norway, but this is not driven by migration costs. It is owing
to the general macroeconomic environment, with a low oil price hurting
the Norwegian economy, and the Finnish economy continuing to suffer its
multi-year trend of pressure from weak paper and metal industries as well
as weak trade with Russia.
Nordic countries government debt as % of GDP, 1970-2018E
General Government, Gross Financial Liabili es, % of GDP, OECD Economic outllok, Es mate, Calendar Adjusted, SA
100
Percent
80
60
40
20
0
1970
1976
1982
Denmark
1988
Sweden
1994
2000
2006
Norway
2012
Finland
Source: Macrobond and Nordea Markets
So how big an impact on GDP could the refugee inflows have in the
Nordics in the short-to-medium term?
Short-term immigration impact is a
GDP boost from higher public
consumption in 2016E-17E...
We forecast that increased public consumption and resulting effects on
employment will boost GDP growth very marginally, 0.1-0.2 percentage
points, in Denmark, Norway and Finland in 2016E-17E. In Sweden, the
corresponding boost is higher, some 0.5 percentage points.
GDP Growth, Nordic countries 2014-18E
Real GDP, % y/y
Sweden
Denmark
Norway
Finland
2014
2.3
1.3
1.9
-0.7
2015
4.2
1.0
1.6
0.2
2016E
3.3
1.0
0.7
1.0
2017E
1.7
1.5
1.5
0.8
2018E
1.9
1.7
1.6
0.6
Source: Nordea Markets
...petering out thereafter if refugee
flows stay at resumed normal levels
Nordea Markets
In all four countries, we see the effects tapering off, with no significant
further impact from 2018E. This is based on refugee flows into the
Nordics slowing down dramatically after the refugee and asylum policy
tightening in late 2015. Any demographically driven long-term benefits for
the Nordic economies from migration and recent major refugee inflows
would take place well beyond 2018E.
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Migration impact on industries and companies
Great needs have to be met
We know that the major refugee inflows are boosting public consumption,
and thus also GDP growth, on the national level in the Nordic economies
(especially in Sweden), but how does it work within the economy? Are
there different implications for different industries and companies within
those industries?
Inflow of migrants drives demand for
accommodation, welfare services.
Very much so. But let's begin with the basics. Migration and big refugee
inflows increase the population. The new arrivals may not have much
spending power, or contribute to employment and hours worked and taxes
paid – at least not in the beginning – but there is a surge in demand for
services related to caring for them and processing their asylum
applications.
In the short term, there is not a proportional boost to private consumption,
or new demand for retailers, from the migrant contribution to the
population. But there is a potential boost for urgent or critical private
services, which migrants have some willingness and ability to pay for. One
example is telecom services.
And there is a more than proportionate surge in demand for social services
and care related to refugees as the newest members of the population.
Many have experienced trauma and need health and support services as a
result. Many are children arriving without their families, and needing care
and support from society. There are also great immediate requirements for
shelter and accommodation, as the migrant population has by far outgrown
the reception capacity of the Nordic immigration authorities. Interestingly,
there are quite a few private operators within the public services sectors in
the Nordic countries.
The second wave: infrastructure for
reception, processing and integration
of migrants boosts public services
and real estate
Perhaps most significantly, there is the potential "second wave" of needs:
the infrastructure necessary for receiving, processing and integrating
greater numbers of migrants going forward. Even if the spike in refugee
flows in 2015 has now normalised, there is a massive, recently added
population of extra refugees that needs to be worked through and
assimilated. And, as we argue in the section on the outlook for future
refugee flows, there could be new surges in the years ahead.
This second wave relates both to general needs linked to increased
population growth and to needs specifically related to actual immigration.
Both are strongly oriented towards construction and real estate.
General needs would include an obvious need for schools, preschools,
hospitals, affordable housing and community services premises. In the
end, the needs also include general infrastructure such as roads and utility
systems to link new developments to existing grids and areas. Some of
these needs have become particularly apparent in countries or areas where
there was already a shortage of housing.
Specific needs related to the population boost from migration would
typically be affordable housing. There are shortages of housing of a
standard and cost suitable for the spending power of migrants. There are
many obstacles to a quick fix, but construction and real estate companies
with a major presence in this segment may have a role to fill and might
also find commercial opportunities in it. The same applies to public
services real estate. The capacity catch-up need is greater for real estate
with public use such as immigration processing and accommodation,
schools, health centres, prisons, police and fire stations, courts, etc.
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We will review this further below, and in greater detail in our interview
with Nordea Markets' Construction & Real Estate analyst Niclas Höglund
in the next section.
To shed some light on potential industries and companies that might be
particularly affected by refugee flows and migration, and which could
offer potential opportunities for investors and stakeholders with exposure
to them, we find three possible hotspots: public services; telecoms; and
construction and real estate.
Potential real estate hot spots:
affordable housing and public
services office buildings
These three are not meant to be a comprehensive sample of where
exposure could be found; rather, we consider them to be obvious areas,
worthy of being reviewed. This is based on a qualitative approach using
input from equity analysts and other Nordea Markets colleagues, and also
on a very simple screening for geographical relevance: which of the public
equities covered by Nordea Markets derive a majority or all of their
revenue from the Nordic countries?
There are many Nordic private
operators in social services, health
care and schools
Highlight 1: Social services, healthcare and schools
This highlight area may seem counterintuitive at a first glance. Surely the
public sector takes care of this? Broadly speaking, yes, but the Nordic
countries have, to varying degrees, been pioneers in deregulation, allowing
private operators to enter the markets for social services and related
healthcare, including elderly care, disability assistance, healthcare staffing
and private medical services. Another important area with private
operators is schools.
To give a taste of the Nordic universe of private social, health and
educational service providers, we list a sample below, including publicly
listed and privately owned companies, the latter both with private equity
and family owners.
Sample of Nordic private operators in public services
Company
Country Business
Capio
Attendo
Aleris
Humana
Ambea
Norlandia
Forenede A/S
Frösunda Omsorg
Pihlajalinna
Internationella Engelska Skolan
Kunskapsskolan
Sweden
Sweden
Sweden
Sweden
Sweden
Norway
Denmark
Sweden
Finland
Sweden
Sweden
Ownership
Health care
Social services, health care, staffing
Social services, health care
Social services
Social services, staffing
Social services, patient hotels, preschools
Social services, facility services
Social services
Social services, health care
Schools
Schools
Listed
Listed
Investor AB
Listed
Triton & KKR
Private/Family
Private/Family
HG Capital
Listed
Listed
Private/Family
Revenues
2015 EURm
1,442
1,055
913
604
465
333
328
306
213
193
110
Nordic
Market Cap
share of
Time of IPO
EURm
revenues
54%
700
Jun-15
100%
1,379
Nov-15
100%
100%
436
Mar-16
100%
100%
100%
100%
100%
332
Jun-15
97%
291
Sep-16
100%
-
Source: Company data and Nordea Markets
Of the companies in this sample, only Capio does not offer pure (or almost
pure) Nordic business and revenue exposure, since it has private
healthcare activities on mainland Europe as well.
All of the others have businesses with major exposure to public-servicerelated needs that are likely to be significantly affected by the recent surge
in the immigrant population in the Nordic region. In that respect, they are
potential plays on refugee and immigration trends, both during the shortand medium-term assimilation of the refugee flood of 2014-15, and in the
longer term, for any future major refugee flows.
Of the 11 companies in our sample, five are listed and have investable
equity, while the others are private and may or may not go public at some
point. We nevertheless believe it is worthwhile to include them in our
sample to give a fuller illustration of a significant universe of private
operators.
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Corporate Research
Despite political risks regarding
private players in public services,
five in our sample have carried out
IPOs in the past 18 months
14 November 2016
We note with interest that all five public companies in the sample have
been stock exchange listed within the past 18 months, in spite of some
investor concerns regarding political risk. In the past few years, there has
been some bad publicity surrounding private operators in the welfare
sector, owing to financial or operational mismanagement. There have been
stories of mistreatment of residents in elderly care homes, and a chain of
private schools went bankrupt, leaving students without a school to attend
at the start of term. This has brought political attention to the issue of
running welfare sector businesses for profit, leading to some political calls
for regulation and restrictions for such operators. There is currently no
significant new legislation in the pipeline, but the political debate
continues.
All five IPOs were successful despite any political question marks,
suggesting that equity investors considered these businesses to have
interesting prospects regardless of any political risks, at least at the
valuations at which they were offered to the market.
Highlight 2: Telecoms
This is a sector that appears in the spotlight for potential impact from
migration and has a strong local bias. Most, but not all, Nordic telecom
operators derive the bulk of their revenue from their Nordic home markets.
Nordic telecom operators ranked by their Nordic share of revenue
Company
Country
TDC
ComHem
Elisa
Telia
Tele2
Telenor
Denmark
Sweden
Finland
Sweden
Sweden
Norway
Revenues
2015 EURm
3,265
545
1,570
9,430
2,928
13,352
Nordic
Market Cap
share of
EURm
revenues
100%
4,299
100%
1,584
91%
5,432
75%
17,481
47%
3,521
34%
23,263
Source: Company data and Nordea Markets
Even a slight boost to organic
growth can make a big difference for
a telecom operator
Nordea Markets
We would not point to any immediate impact from migrants on Nordic
telecom operators, at least not of a magnitude that would halve or double
earnings per share. This is not the point. However, the business model of
these operators has significant operating leverage. There are arguably
significant margin improvement opportunities for them from working with
their cost bases. Digitisation and optimising use of capacity in networks
can offer great benefits. On top of this, top-line growth inevitably has a
very major impact on profitability. The difference between an organic
growth rate of a mere 1% and -1% can be huge in terms of impact on
profitability.
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14 November 2016
Mobile subscriber net intake in Sweden (thousands) by operator for 2012 to Q2 2016
Source: Company data and Nordea Markets
For that reason alone, we consider it worthwhile to highlight mobile
subscriber intake trends for Nordic operators. We focus on the example of
Sweden, where the refugee inflow in 2014-15 has been by far the greatest,
both in absolute numbers of refugees and as a share of the incumbent
population.
Tele2 seems to have a (pre-paid)
subscription offering and
distribution suited for migrants
We can see in the chart above that there was a notable spike in new mobile
subscribers for Tele2 in late 2015, when refugee flows into Sweden
peaked. We believe this relates to Tele2 having the most suitable
subscription offer for refugees, thus capturing the lion's share of new
(immigrant) subscribers.
Tele2 offers prepaid subscriptions under its Comviq brand. These have
several key advantages for newly arrived migrants and refugees:
 Low prices, especially for traffic to Syria, Afghanistan, Eritrea and
Sudan.
 Wide availability of prepaid subscription packages through Pressbyrån,
7-Eleven and other kiosk chains.
 No need for a Swedish national insurance/ID numbers to subscribe.
In our view, Tele2 still holds pole position in this space. Other Nordic
operators have not introduced any matching offering that would be equally
compelling for migrants. There are virtual operators and other discount
brands of competing Nordic operators that offer even lower prices to key
destinations than Tele2's Comviq, but these all lack the distribution of
subscriptions through kiosks. Such distribution is time consuming and
costly to build up.
We leave the reader with the thought that Nordic telecom operators have
potential positive exposure to immigration-driven population growth, and
that Tele2 is the operator that stands out as having the most obvious
potential benefit because its offering is geared to that growing subscriber
category. That Tele2 derives only half its revenue from the Nordic region
is outweighed by its actual Nordic revenue exposure being more tilted
towards this particular growing segment.
For a closer look, we refer to our Telecoms analyst Stefan Gauffin's Tele2
research report Winner on immigration published on 11 December 2015.
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14 November 2016
Highlight 3: Construction and real estate
In 2015, the top 50 real estate companies in Sweden (where migration has
had by far the biggest impact in recent years) represented a total property
value of nearly SEK 1,400bn and total space to let of close to 70 million
m2, according to Swedish industry magazine Fastighetsvärlden.
Listed companies represent one-third of these companies, at more than
SEK 439bn in total property value.
The top companies with a strong focus on community service properties
are Hemfosa, Hemsö and Rikshem, although we argue that all real estate
companies with office or residential space could see a positively impact
from migration through increased public spending (more space) and
indirect effects from demand for new residential space.
The key differences between listed and non-listed companies are linked to
more residential exposure among the non-listed, mainly municipally
owned, companies. Residential space represents 37% of all real estate
companies, versus only 15% among the listed ones. We present the top 20
companies (including listed Hemfosa and Hemsö) and their statistics
below.
The biggest Swedish real estate companies in 2015 (Rikshem, Hemfosa and Hemsö are
particularly exposed to migration)
Reported Property Value 2015
Rank Company
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Vasakronan
Akademiska Hus
Castellum (incl Norrp.)
AMF Fastigheter
Skandia Fastigheter
Svenska Bostäder
Stockholmshem
Fabege
Balder
Rikshem
Wallenstam
Akelius
Poseidon
Hufvudstaden
Atrium Ljungberg
Fortifikationsverket
Wihlborgs
Familjebostäder
Hemfosa
Klövern
Hemsö
Alecta
Top 50
Listed
Not Listed
% space
Type
Residen.
Office
Retail
Other
103.0
Not listed
Not listed
66.6
62.6
Listed
Not listed
46.0
Not listed
43.3
Not listed
42.9
38.5
Not listed
38.1
Listed
37.6
Listed
33.1 Not listed
32.1
Listed
Not listed
31.7
31.7
Not listed
31.7
Listed
30.8
Listed
Not listed
30.0
28.6
Listed
28.6
Not listed
26.0
Listed
25.0
Listed
23.6 Not listed
23.5
Not listed
1371.3
439.2
2%
0%
1%
0%
27%
77%
89%
1%
56%
69%
44%
93%
94%
0%
0%
0%
0%
88%
0%
0%
0%
6%
37%
15%
48%
75%
14%
49%
79%
25%
5%
3%
71%
21%
5%
21%
3%
0%
45%
54%
0%
43%
5%
38%
46%
0%
51%
24%
40%
16%
13%
0%
11%
15%
27%
3%
2%
7%
7%
0%
11%
4%
0%
26%
44%
0%
8%
3%
6%
9%
0%
35%
7%
13%
4%
10%
86%
40%
7%
20%
16%
6%
21%
16%
25%
23%
1%
6%
29%
3%
100%
48%
4%
56%
45%
100%
8%
32%
33%
32%
SEK bn
Source: Fastighetsvärlden and Nordea Markets
See our interview with Nordea Equity & Credit Research Construction &
Real Estate analyst Niclas Höglund in the following section.
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14 November 2016
Interview – Migration, housing and construction
Below is an interview with Niclas Höglund, Senior Analyst in Construction & Real Estate at Nordea Equity &
Credit Research.
JT: In very simple terms, how would you describe the Nordic real
estate markets today – weak or strong? Are there major differences
between commercial and residential real estate, or between individual
countries?
NH: There is no doubt that the Nordic real estate markets, in particular
Sweden and Norway, are very strong, helped by low interest rates that
have gradually supported earnings and strong growth, particularly in
Sweden. Altogether this supports higher asset values. Both commercial
and residential markets are supported by these factors. Residential rental
properties have also benefited from rising rents during the past couple of
years, linked to rental increases in the regulated market, renovation
investments and development. Commercial properties are more mixed,
with strong demand for central business district rentals, in particular for
major cities such as Stockholm and Gothenburg. Together with lower
property yield assumptions, this has boosted asset values. The key risk for
both asset classes lies in rising costs – for residential rentals linked to
property management and for commercial rentals linked to vacancies.
JT: Similarly, how would you describe the current Nordic
construction markets? Any specific strong or weak spots?
NH: Demand remains very favourable for construction in general, driven
by delayed investments in residential development and pending demand
for infrastructure investments. The obvious weak spots relate to project
profitability, low entry barriers in the industry and the lack of purchasing
power despite strong demand. We still fear loss-making projects in this
favourable market. Cost inflation is capped by the availability of foreign
blue collar workers, which should enable continued solid growth in the
coming years. Development remains the strongest spot, helped by solid
asset pricing growth over the past few years, supporting strong gains and
enabling further project starts.
JT: Before the massive surge in refugee flows into the Nordic region in
2015, was there a shortage of residential housing in the Nordic
countries?
NH: Vacancies were not a major issue for residential rental properties in
Sweden even before 2015, partly helped by a low supply of residential
starts over the past ten years. Production has been stable at a higher level
in Finland, Norway and previously Denmark, which has created pockets of
vacancies and pressure on rents.
JT: How could the big refugee inflow affect the Nordic residential
housing sector? Could it raise demand? Could developers and
contractors benefit from this?
NH: Activity levels for both construction and real estate companies are
strongly linked to the general GDP and, more importantly, growth in
employment. Increased pressure on the authorities, particularly the
Swedish Migration Agency, has created pockets of growth opportunities
linked to temporary housing and refugee camps. Costs for these temporary
solutions are high, however, and lead times in Sweden are very long
because of detail-planning permits. Therefore, the sector will likely benefit
from higher demand over the next years. The most obvious demand stems
from affordable housing rental properties, but the main challenge will
likely be linked to the speed and magnitude at which people can find a job
and thus support general employment growth.
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JT: Apart from actual demand for housing, are there any other
potentially increased needs which might affect the real estate and
construction sectors, such as in commercial real estate or
infrastructure?
NH: I come back to employment growth again; in the short term, growth
within governmental agencies will support general growth and demand for
more space. We see these agencies moving into more modern and central
locations to attract and keep employees, which acts as positive catalyst
linked to renovation and newbuild investments.
JT: Which Nordic construction and real estate companies have
significant exposure to potential business opportunities related to
migration and the refugee spike of the past few years?
NH: I see growth opportunities linked to governmental agencies and
temporary housing investments, ie companies focused on community
service properties. Hemfosa's properties are focused on many of these
agencies and have them as tenants, as do several other listed real estate
companies, such as Wihlborgs and Castellum. All of the companies benefit
in the short term from higher general activity supporting GDP. In the
medium term, companies exposed to growth regions with employment
opportunities for refugees could potentially see an acceleration of demand
and production of housing developments, especially condominiums and
rental housing.
JT: Are there companies in the sector seeking to position themselves
for migration-related opportunities? Do they communicate this to
investors? How do you see the views and expectations of investors
today?
NH: Most of the sector focuses on longer-term opportunities and growth
factors, and I would say most companies are less interested in the
temporary boost to demand from migration spikes. Community-service
property owners such as Hemfosa, among other listed companies that we
cover, expect the outsourcing trend in education and care facilities to boost
growth, which in a sense will gain further indirect support from migration
in the medium term.
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14 November 2016
A financial angle – Sustainability bonds
Challenging times can make great catalysts for change. We have reviewed
how the recent tidal wave of refugees into Europe and the Nordic region
could affect the economy, different industries and various companies
within those industries.
We have already seen that recent migration trends give rise to great needs
in Nordic societies, and meeting them will require major investments.
In the short term, increased government spending on receiving, processing
and caring for refugees needs to be funded. This can be through a
combination of reallocating government expenses, cutting back in other
areas to compensate for expenditure on refugees, or by raising taxes. And
it can be taken straightforwardly through state budgets, funded by
increased state borrowing. The exact mix varies for each Nordic country.
But what about corporates? Does the migration phenomenon give rise to
any special considerations for funding for companies that are significantly
affected? Potentially, yes. Not only would potential migration-driven
growth opportunities typically mean new funding needs, but potential, new
funding solutions are even being tried out.
Swedish real estate group Hemsö has
set an example in issuing a
Sustainability Bond
We think it suitable to highlight one specific example here: Hemsö, a listed
real estate peer of Rikshem (whose acting CEO Sven-Göran Svensson is
interviewed at the end of this report), pioneered the issuing of a
sustainability bond in May 2016. This was a SEK 1bn five-year bond,
issued under Hemsö's existing MTN programme and earmarked to fund
three specific sustainability projects:
 Renovation of a school and nursing home property, and completion of a
new life science property, all with a Swedish "Silver" environmental
classification
 Creation of an experimental low-stress outdoor environment for said
school and nursing property, with optimal learning characteristics
 Conversion of selected existing Hemsö properties into refugee housing.
The bond was earmarked for three
sustainability projects, and aligned
with Green Bond principles
including social sustainability in
addition to environmental aspects
Hemsö chose a broader approach with this bond, also including social
sustainability in addition to environmental and energy aspects. An
independent research and analytical institute vouched that Hemsö’s
Sustainability Bond framework fully aligns with the Green Bond
Principles and demonstrates several aspects of market best practice with
regards to transparency and disclosure, such as impact reporting and
management of funds.
What does this tell us? For one thing, corporates with business exposure to
migration and refugees could potentially use this to drive an existing or
new agenda to diversify into green and sustainability funding, with support
from their banks.
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14 November 2016
Interview: Rikshem – Demographics in housing
Below is an interview with Sven-Göran Svensson from Rikshem. Mr Svensson is the current Head of
Property Management and was acting CEO from March to October 2016.
JT: Could you describe Rikshem's origins and profile?
SGS: Rikshem is a privately held Swedish real estate group, jointly owned
by AMF Pension and the Fourth National Pension Fund. The company was
formed through an acquisition of the residential real estate portfolio of
Vasakronan, Sweden's largest real estate group, in 2010. We are a
commercial landlord and property developer with a clear commitment to
society and the communities in which we operate. We aim to be a reliable,
responsible and solid long-term partner to Swedish municipalities and
government agencies.
JT: What does your business look like today?
SGS: We have a nationwide real estate portfolio with a current reported
value of SEK ~35bn, split 64% residential and 36% public use properties.
Residential includes student housing. Our public-use property portfolio is
mostly nursing homes, but also some schools. In total, our portfolio
represents ~26,000 homes. We are not a listed company, but we are active
in both short- and long-term capital markets funding, with a SEK 10bn
certificate programme and a SEK 15bn MTN programme. The company
has grown rapidly, with the real estate portfolio nearly trebling from SEK
12.8bn in 2011. In 2014, we commenced new housing development
activities. This should add almost 700 homes by the end of this year, with
close to another 1,000 planned for 2017-18.
JT: How does your profile translate into a strategy and how does it
affect your business model?
SGS: Rikshem started off as a pure residential real estate company. When
demographic analysis showed the potential in public-use properties – like
nursing homes – we were an early mover in acquisitions of both housing
and public-use properties from municipal owners. Our strategy is to have a
strong, local presence in selected municipalities nationwide, which have
both economic growth and a broad political aim to develop housing and
public-use properties with long-term private partners. We have identified
60 out of Sweden's 290 municipalities where we see this. Our owners have
set a required rate of return of 5% for us. This is somewhat lower than for
peers, but reflects the long-term and stable focus of our business model.
We have many long rental contracts in our portfolio, often ten to 20 years.
JT: Would you say that Rikshem started with these new developments
fairly late in its life as a company, only two years ago?
SGS: We have been quite active in generating development rights from
existing land in our current real estate portfolio. We sometimes say that we
could develop "half another Rikshem" with our development rights. Lead
times for projects are long in Sweden, however, with the process for
development project permits starting now, having typically been granted
up to two parliamentary elections ago.
JT: Has the surge in migration to Sweden in the past few years
affected your business?
SGS: In the short term, soaring demand for accommodation has led to
higher utilisation of housing in our properties. Existing tenants have taken
in freshly arrived compatriots. This has increased wear and tear and in
some cases made it necessary for us to increase resources, eg for waste
collection. But it has also in some cases made tenant associations accept
rent increases to compensate for greater maintenance burdens. We are
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14 November 2016
trying to assist municipalities by making any additional housing, that we
can find and utilise, available for the temporary accommodation of
refugees. There is some short-term positive impact on the utilisation of our
existing properties from the great migration-related needs for housing.
JT: Are there long-term effects as well?
SGS: There could be long-term effects. Our business aims to cater for a
growing and ageing population; migration has boosted population growth,
particularly in recent years. Our real estate portfolio includes areas where
many migrants live, so we could benefit from that part of the population
growing the fastest. But project lead times are long, so housing needs
driven by migration should translate into housing demand and occupancy
gradually over time. It is not only about adding capacity, it is also about
how we use existing housing. There are some regulations and incentive
structures standing in the way of making room for more tenants in the
same buildings.
JT: Is Rikshem's profile of being a responsible, long-term partner and
landlord a necessity or a competitive advantage?
SGS: It is a core part of our identity and it defines how we do business.
We have a specific policy of being a very locally visible landlord, with
decentralised regional property management organisations. We have a
range of initiatives aiming to support underprivileged tenants in our areas,
particularly youths. These initiatives include summer work and
internships, mentor schemes and homework assistance – the latter through
supporting a charitable foundation financially. We like to create role
models and success stories for individuals. We sense that all this gives us
an advantage because we are seen as a trusted and preferred partner in
negotiations and tenders. But there are challenges as well. We can be at a
disadvantage to competitors in rent negotiations, where peers with a more
"strictly commercial" corporate image can be more ruthless. They may
have less image or reputational risk than us.
JT: Are there any indications that migration-related urgent housing
needs could speed up the processing of building permits or
development project lead times?
SGS: We are seeing that the political will is typically there. Municipalities
see the needs and are keen to find solutions. But processes are slowed
down by civil servants, or sometimes by a lack of sufficient numbers of
civil servants to process applications and projects. Various control
functions follow procedure and have their say. The political leadership
cannot bypass them. There are appeals processes for potentially affected
residents and neighbours, who have opinions on new developments. This
can all surely be improved, but not through a quick fix.
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14 November 2016
Rikshem's real estate portfolio by location, % of portfolio
Source: Rikshem
Nordea Markets
36
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provided that the relevant company/issuer is treated anew in such later versions of the publication or report.
Validity of the publication or report
All opinions and estimates in this publication or report are, regardless of source, given in good faith, and may only be valid as of the stated date of this publication or
report and are subject to change without notice.
No individual investment or tax advice
The publication or report is intended only to provide general and preliminary information to investors and shall not be construed as the basis for any investment
decision. This publication or report has been prepared by Nordea Markets as general information for private use of investors to whom the publication or report has
been distributed, but it is not intended as a personal recommendation of particular financial instruments or strategies and thus it does not provide individually tailored
investment advice, and does not take into account the individual investor’s particular financial situation, existing holdings or liabilities, investment knowledge and
experience, investment objective and horizon or risk profile and preferences. The investor must particularly ensure the suitability of an investment as regards his/her
financial and fiscal situation and investment objectives. The investor bears the risk of losses in connection with an investment.
Before acting on any information in this publication or report, it is recommendable to consult one’s financial advisor.
The information contained in this publication or report does not constitute advice on the tax consequences of making any particular investment decision. Each
investor shall make his/her own appraisal of the tax and other financial merits of his/her investment.
Sources
This publication or report may be based on or contain information, such as opinions, recommendations, estimates, price targets and valuations which emanate from:
Nordea Markets’ analysts or representatives, publicly available information, information from other units of the Group Companies or other companies in the Nordea
Group, or other named sources.
To the extent this publication or report is based on or contain information emanating from other sources (“Other Sources”) than Nordea Markets (“External
Information”), Nordea Markets has deemed the Other Sources to be reliable but neither the companies in the Nordea Group, others associated or affiliated with said
companies nor any other person, do guarantee the accuracy, adequacy or completeness of the External Information.
The perception of opinions or recommendations such as Buy or Sell or similar expressions may vary and the definition is therefore shown in the research material or
on the website of each named source.
Limitation of liability
Nordea Group or other associated and affiliated companies assume no liability as regards to any investment, divestment or retention decision taken by the investor
on the basis of this publication or report. In no event will entities of the Nordea Group or other associated and affiliated companies be liable for direct, indirect or
incidental, special or consequential damages resulting from the information in this publication or report.
Risk information
The risk of investing in certain financial instruments, including those mentioned in this document, is generally high, as their market value is exposed to a lot of
different factors such as the operational and financial conditions of the relevant company, growth prospects, change in interest rates, the economic and political
environment, foreign exchange rates, shifts in market sentiments etc. Where an investment or security is denominated in a different currency to the investor’s
currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. Past
performance is not a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. When investing in individual
shares, the investor may lose all or part of the investments.
Conflicts of interest
Companies in the Nordea Group, affiliates or staff of companies in the Nordea Group, may perform services for, solicit business from, hold long or short positions in,
or otherwise be interested in the investments (including derivatives) of any company mentioned in the publication or report.
To limit possible conflicts of interest and counter the abuse of inside knowledge, the analysts of Nordea Markets are subject to internal rules on sound ethical
conduct, the management of inside information, handling of unpublished research material, contact with other units of the Group Companies and personal account
dealing. The internal rules have been prepared in accordance with applicable legislation and relevant industry standards. The object of the internal rules is for
example to ensure that no analyst will abuse or cause others to abuse confidential information. It is the policy of Nordea Markets that no link exists between revenues
from capital markets activities and individual analyst remuneration. The Group Companies are members of national stockbrokers’ associations in each of the
countries in which the Group Companies have their head offices. Internal rules have been developed in accordance with recommendations issued by the
stockbrokers associations. This material has been prepared following the Nordea Conflict of Interest Policy, which may be viewed at www.nordea.com/mifid.
Distribution restriction
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Equity recommendation structure (absolute ratings)
Potential to target price (X)
Buy
Hold
Sell
X > 10%
0%< X < 10%
X < 0%
Our target price is the price at which we believe the shares should trade
if fundamentally fairly valued on the recommendation publication date.
We calculate our target price by weighting DCF, DDM, SOTP, asset
based and other standard valuation methods, and applying appropriate
premiums/discounts and/or other relevant adjustments. Our target
prices are sensitive to changes in valuation assumptions, of which
growth, margins, tax rates, working capital ratios, investment-to-sales
ratios and cost of capital are typically the most sensitive. It should be
noted that our target prices would change by a disproportionate factor if
changes are made to any or all valuation assumptions – this is due to
the non-linear nature of the standard valuation models applied
(mentioned above). As a consequence of the standard valuation
models we apply, changes of 1-2 percentage points in any single
valuation assumption can change the derived target price by as much
as 30% or more.
All research is produced on an ad hoc basis and will be updated when
the circumstances require it.
Previous equity rating changes in the past 12 months
See individual company reports for information on the most recent
changes in recommendations.
Underperform:
Over the next three months, the fixed income instrument's total return is
expected to be below the total return of the relevant benchmark.
All research is produced on an ad hoc basis and will be updated when
the circumstances require it.
Distribution of bond recommendations
Recommendation
Outperform
Market perform
Underperform
Total
Count
120
256
39
415
% distribution
29%
62%
9%
100%
Distribution of bond recommendations (transactions)*
Recommendation
Outperform
Market perform
Underperform
Total
Count
37
106
16
159
% distribution
23%
67%
10%
100%
As of 1 October 2016
Distribution of equity recommendations
% distribution
49%
29%
22%
As of 1 October 2016
Distribution of equity recommendations (transactions*)
Recommendation
Buy
Hold
Sell
Market perform: Over the next three months, the fixed income
instrument's total return is expected to be in line with the total return of
the relevant benchmark.
As of 1 October 2016
Dividend payouts are included in the target price.
Recommendation
Buy
Hold
Sell
Bond recommendation definitions
Outperform: Over the next three months, the fixed income instrument's
total return is expected to exceed the total return of the relevant
benchmark.
% distribution
69%
18%
13%
As of 1 October 2016
* Companies under coverage with which Nordea has ongoing or
completed public investment banking transactions
Equity risk rating
As a measure of the company’s operational risk, we apply a risk rating
scale of 1-5 where 1 is the lowest risk and 5 is the highest. The risk
rating is calculated using a weighted average of earnings/cash flow
predictability, earnings quality and backward-looking asset beta. For the
most illiquid stocks, the risk rating is also adjusted for liquidity risk. The
risk rating is then converted to asset beta and used to calculate the cost
of capital. It is thus implicitly included in our fair value calculations.
Market-making obligations in shares or derivatives and
* Companies under coverage with which Nordea has ongoing or
completed public investment banking transactions
Investment banking transactions
Nordea has over the previous 12 months been lead or co-lead manager
in a public disclosed offer of financial instruments issued by: A.P. Møller
- Mærsk, ABB, AcadeMedia, Ahlstrom, Aker BP, Arla, Atria, Attendo,
Avance Gas, Avanza, B2Holding, BKK, BW Offshore Ltd, Bavarian
Nordic, Bilia AB, CGG, Citycon, Com Hem, DNA, DOF, DONG Energy,
DSV, Danske Bank, Detection Technology, Eidsiva Energi, Elisa, Fortum
Värme, GasLog LTD, Gjensidige Forsikring, Golden Ocean, Hoist
Finance, Hypoteekkiyhdistys, ISS, Klarna AB, Konecranes, Kungsleden,
LKAB, Landshypotek, Lindorff, Lyse, Millicom, NKT Holding, Nets,
Nortura SA, OBOS BBL, Ocean Yield, Odfjell SE, Olav Thon
Eiendomsselskap, Oma Säästöpankki Oyj, Oriola-KD, Orkla,
Outokumpu, Outotec, Petroleum Geo-Services (PGS), Polygon, Posten
Norge, Prosafe SE, Protector Forsikring, Pöyry, Rikshem, SCA, SSAB,
Sagax, Sampo, Sandvik, Sanoma, Scandinavian Tobacco Group,
Seadrill, Skandiabanken ASA, Sparebank 1 Nord-Norge, Sparebank 1
SMN, Sparebank 1 SR-Bank, Sparebanken Vest, Sparebanken Øst,
Steen & Strøm, Stolt-Nielsen Ltd, Stora Enso, Swedish Match, TVO,
Technopolis, Teekay LNG Partners LP, Teekay Offshore Partners LP,
Tele2, Tokmanni, Topdanmark, Tryg, TrønderEnergi, VVO Group, Vapo,
Vasakronan, Verisure Holding, Verkkokauppa.com, Vestas Wind
Systems and Volvo.
Analyst shareholdings
Nordea Markets equity and credit analysts do not hold shares in the
companies that they cover.
No holdings or other affiliations by analysts or associates.
other significant financial interest
Nordea Markets has market-making obligations in Aspo, Assa Abloy,
Boliden, DNB, DSV, Danske Bank, Elekta, Gjensidige Forsikring,
Kinnevik, Munksjö, Norsk Hydro, Novo Nordisk, Rapala, Skanska,
Statoil, Storebrand, Telenor and Vestas Wind Systems.
Nordea Markets has no market-making obligations in other companies
in the coverage universe.
Material interest held by the issuer in shares issued by
Nordea
Sampo owns 21.3% in Nordea (as of 1 October 2016).
Completion date
11 November 2016, 09:28 CET
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