For the Nordic countries to flourish once again, like they have done for many decades, they will need to boost their productivity growth by 1.6% per annum until 2030, research by BCG shows. According to the consulting firm, the region must increase its workforce by an additional 1.7 million people and stimulate its most productive industries, with a focus on digitalisation, to achieve the desired growth.
The Boston Consulting Group (BCG) recently released a follow-up on its 2014 ‘Nordic Agenda’ report, which aimed at providing the Nordic region with advice on how to rekindle growth. In the 2015 edition of the agenda, titled ‘Bringing Growth Back To Focus’, the consulting firm re-examines Nordic growth and identifies the major challenges the Nordics (Denmark, Finland, Norway and Sweden) are facing, while highlighting key areas of focus for bringing back Nordic growth.
BCG’s analysis shows that the region, just like last year, is increasingly facing challenges concerning its competitiveness and innovation. Whereas Finland, Sweden and Denmark were all three found in the first quartile of the global competitiveness index in 2006/2007, Finland and Sweden have dropped to the second quartile, to #6 and #7 respectively, and Denmark fell even further to the third quartile. The region’s innovation rankings also declined considerably. Sweden, the most innovative Nordic country, in 2009/2010 found on #1, slipped to #3, while Norway, the least innovative country of the four dropped from #6 to #13.
For many years, the majority of the Nordic countries’ growth came from productivity improvement, which grew with an average of 2.3% between 1980 and 2007. However, since the financial crisis, this growth in productivity has decreased to 0.1% per annum between 2007 and 2014. The research shows that since 1980, the size of the labour market only grew by 0.4% per annum, adding a total of 1.6 million workers.
The Nordic countries need to focus on these two key developments, and address the workforce gap caused by the aging population and stimulate the most productive industries to regain their competiveness. According to the researchers, continued prosperity and wellbeing will require an annual productivity growth of 1.6% until 2030, up from the 0.1% experienced between 2007 and 2015. In addition, to cope with the foreseen workforce gap by 2030, the labour force will need to be increased by 1.7 million new workers, of which only 0.5 million will come from population growth.
The analysis also stresses the need to stimulate the region’s most productive sectors and drive productivity improvement through innovation and radical digitisation. Currently, the Nordic countries’ service sectors are growing in size, but not in productivity, while the more productive manufacturing sectors are actually decreasing in size. In addition, the highly productive digital and financial business sectors remain comparably small.
The firm identifies four actions to be taken by the Nordics to drive growth:
- Catalysing demand for domestic services; this is the largest contributor to the Nordic GDP after the public sector.
- Driving growth in the vibrant digital sector; the Nordics are well-positioned to capture a large proportion of the share of growth in the digital industry. Investing in digital can also spark growth in other industries.
- Investing to bring manufacturing back to the Nordics; in recent years many manufacturers moved abroad. The Nordics need to invest in manufacturing and boost productivity by using industry 4.0.
- Revitalising the public sector to become more productive; the Nordics have much larger share of their labour force working in the public sector. In Norway the share is 33% compared to the 19% OECD average.