Mundus Brief – October 2019 in review

Perhaps running a little against expectations, October passed without any momentous events. Two big issues loomed at the start of the month. “Brexit – the never ending saga” , which was deferred again, and the dramatic economic slide caused by the trade wars bottomed out at a better level than many feared, as US-China tensions easing a little. The absence of crises means that Mundus has the space to look at three important strategic issues.

Politics: The rise and rise of the Sweden Democrats

The Sweden Democrats (SD) have been ascendant for several years now. However, with the other political parties ring-fencing their influence, politics seems somehow to inhabit a twilight zone. But, public sentiment entered a new phase in October, which could end up changing Sweden dramatically. Opinion polls show the SD neck and neck with the Social Democrats (S). Given the margin for error, and the fact that the SD’s momentum is up, while S and the Moderates (M) are down, SD could soon be the most popular party in Sweden. That is, if it isn’t already there. A party that was seen as a pariah, with roots in the Nazi movement, and wasn’t even in the Riksdag a decade ago, is now potentially in the position of forming the next government. Jimmie Åkesson is talking openly of his ambition to become Prime Minister. Has it really come to that? That is the topic for our lead story in this month’s edition of the Monthly Policy Review

This shifting of tectonic plates is naturally having a big effect on domestic politics. The Social Democrats, who traditionally see themselves as good people who do the right things, are repositioning their rhetoric as anti-immigration and tough on crime. PM Löfven says his goal is to cut refugee reception by half, and Sweden refused to participate in the latest EU refugee sharing efforts. SÄPO, the security police, are deporting high-risk individuals who pose a terror threat, and with the Syrian civil war over, Sweden is looking forward to deporting Syrians back home. In this new world, Sweden is experiencing drug gangs, hand grenade explosions and closed borders. Bizarrely, Denmark has introduced border controls to stop Swedish criminals indulging in crime-tourism across the bridge. But, the problem for S is that while its rhetoric might sound tough, government policies, are fixed by the January Agreement, and are actually quite liberal and which feeds the SD vote.

Meanwhile, M and KD, who ruled Sweden only five years ago as part of the liberal Alliance government, have repositioned themselves as old-fashioned conservatives. But that ground is highly competed. With SD repositioning itself as a more moderate, i.e. electable, version of itself and KD (and to a lesser extent M) moving to the right, several groups are attempting to clothe themselves in the SD-lite cape. That made the party leader debates on TV and in the Riksdag an interesting spectacle, with the leaders trying to adjust to their own new outfits, while complaining about what their opponents were wearing.

The other domestic political issue worth noting is what is going on at municipal level. Mundus News have covered a steady drum beat of reports that highlight the struggles that confront local level of governments in Sweden, whose budgets are unable to keep up with rising costs and the pressures of an ever ageing demographic. 

Foreign policy

Fortunately for the government, the agenda was a little easier to control in international affairs. During October, Sweden hosted a summit between the USA and North Korea, which, according to reports, went well. Sweden responded with outrage at Turkey’s invasion of Kurdish-held territory in Syria, slapping a ban on the export of Swedish weapons to Turkey. And in Brussels, Löfven got his lady up, with Johansson appointed as European Commissioner of Home Affairs. 

Less commented on, but probably more important in the long-term, was the release of Sweden’s new China strategy, a first attempt to define how to benefit from the upsides and deal with the challenges of China’s rise to superpower status. Whereas just a few years ago, China was seen as a largely positive story, full of opportunity, hardly a day goes by now in Sweden, without the challenges being apparent. Much of this is of course at a political level, as various politicians try to debate issues, or simply to profile their policies on China. But, it is also evident in policy formation, from the role of Huawei in Sweden’s 5G network, to more banal business such as a China construction firm being awarded a large tunneling contract. And Chinese firms seem to be omnipresent in Swedish business, from Tencent acquiring a number of Swedish game developers to Geely’s investments in Saab and even a Chinese bid to buy Ving, the Swedish tour operator previously owned by the bankrupt Thomas Cook.

Managing China challenges within a fragmenting global order requires a solid strategy, and excellent political management. How Sweden intends to respond is our second article in the Monthly Policy Review this month.

The economy: bumping along on the bottom

The economy appeared to stabilise in October, or at least the rising sense of fear that was apparent in September did not immediately seem to flow through to the real economy. That is not to say that the data was good, various indicators from corporate sentiment (PMI), GDP growth, inflation, unemployment, the exchange rate and bankruptcies are all worsening. But, to counter that, many corporates are still reporting healthy profits and the stock market is booming, rising continuously over a near two-week period to an all time high. The government and the Riksbank are putting out the message that while the boom is over, there will still be growth. And, for the time being, the market seems to buy that message.

But the banking industry has clearly past its peak. Both Handelsbanken and Nordea announced large restructuring packages for their workforce. Handelsbanken is to downsize by 800, and Nordea is to let go thousands. Swedbank has problems of an altogether different nature, and fired several more executives embroiled in the money laundering scandal. 

For many other companies the times are not at all bad. Spotify surprised the market with an unexpected profit, and its shares lifted 25% in response (albeit in New York, rather than on the Stockholm exchange). H&M also seems to be recovering. A year ago the firm appeared to be in poor shape, with its leadership under fire. Now it is announcing large revenue gains and its shares are up about 50% this year. Perhaps most remarkable of all is Volvo Cars, part of Geely, the Chinese group. It keeps on hitting sales records for the number of vehicles sold and its profits are up 90% on last year. Backed by Geely, Volvo is now continuing to invest in its business, further committing itself to electric vehicles and also announcing a new venture which will develop engines for hybrid vehicles. 

Our final Monthly Policy Review report looks at the innovative capability and competitiveness of Sweden. As the previous paragraph indicates, Sweden remains an innovative powerhouse, especially in the vehicle industry. A couple of years ago, Stockholm appointed itself the title of the Unicorn Factory. But, with many other countries also looking to attract tech start-ups, we revisit our previous work to take the pulse of the Swedish start-up scene in 2019. A word of caution to the Stockholm cheer squad, our view is somewhat sceptical. 

Sean is responsible for Mundus’ strategy and commercial activities. He began his career in the oil industry Australia. After working internationally in commercial roles with BP in South Africa, the UK and Singapore he moved to Sweden with his family in 2009. He worked in business development and then as the Strategy and Growth Director for NASDAQ Commodities from 2009 to 2015. Sean holds an engineering degree from Adelaide University and an MBA from the Darden Business School at the University of Virginia.