Soldiers from the Finnish Defence Forces stand in front of a M270 Multiple Launch Rocket System. AFP
Soldiers from the Finnish Defence Forces stand in front of a M270 Multiple Launch Rocket System. AFP
Soldiers from the Finnish Defence Forces stand in front of a M270 Multiple Launch Rocket System. AFP
Soldiers from the Finnish Defence Forces stand in front of a M270 Multiple Launch Rocket System. AFP


Coming in from the cold: What Sweden and Finland bring to Nato


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May 19, 2022

Far from improving security in Europe, there are worrying signs that the decision by Sweden and Finland to apply for Nato membership could exacerbate tensions on the continent.

It is widely acknowledged that one of the causes of the Ukraine conflict is the Kremlin’s resentment at what it regards as Nato’s increased threat to Russian security as a result of the alliance’s enlargement since the end of the Cold War. Russian President Vladimir Putin has, in particular, been critical of Nato’s willingness to allow countries that formerly formed the Soviet Union to be granted membership to the security umbrella. The suggestion that Ukraine, a country with close cultural and historic ties to Moscow, might be granted Nato membership was a source of genuine concern for Moscow.

The move, therefore, by Sweden and Finland – two strategically important countries that have long prided themselves on their neutral status – to formally apply for Nato membership is unlikely to improve relations with Moscow. On the contrary, the prospect has provoked a strong reaction in Moscow, with Russian Deputy Foreign Minister Sergei Ryabkov denouncing the decision as a "grave mistake". Speaking shortly after the Swedish and Finnish governments confirmed their intention, Mr Ryabkov warned that they should have “no illusions that we will simply put up with it".

“The general level of military tension will increase, predictability in this area will become less. It is a pity that common sense is being sacrificed for some phantom ideas about what should be done in the current situation,” he said.

US Secretary of Defence Lloyd Austin and Swedish Defence Minister Peter Hultqvist at the Pentagon. AFP
US Secretary of Defence Lloyd Austin and Swedish Defence Minister Peter Hultqvist at the Pentagon. AFP

The fall-out of the war is already being felt in the energy sector. For one, Russia has been insisting that, in future, so-called “unfriendly” countries pay for its gas supplies in roubles. The EU has resisted this move and called on member states not to comply with Moscow's demand. Finland is, meanwhile, concerned that Moscow will respond to its Nato application by cutting off gas supplies this month. The country imports most of its gas from neighbouring Russia, although it accounts for only about 5 per cent of its annual energy consumption. The emergency preparedness committee in Helsinki insists it is ready for the likely supply cut.

While Russia’s strong reaction is unlikely to change policy in either country, their latest decision represents a remarkable turnaround in their outlook. Sweden’s neutrality dates back to the Napoleonic Wars in the early 19th century, while Finland’s stance is an outcome of its experience during the Second World War, when it was involved in fierce fighting against Soviet forces. In what became known as "Finlandisation", Helsinki during the Cold War pursued a strict non-aligned policy in order to avoid provoking Moscow.

Even though Finland moderated its neutral stance following the collapse of the Iron Curtain, public support within the country remained lukewarm over the idea of joining Nato for the past three decades, with only 20-25 per cent of the population favouring it. Since the outbreak of the Ukraine war, however, the figure has shot up to a record high of 76 per cent, according to the latest opinion poll. In Sweden, meanwhile, 57 per cent said they were in favour of Nato membership.

The war has prompted a significant shift in the positions of the two social democratic prime ministers, Sweden’s Magdalena Andersson and Finland’s Sanna Marin, whose parties have often stressed neutrality. Both leaders have said that their parties now back Nato membership, with both countries' parliaments debating the issue at length before deciding to press ahead with the application process.

Their entry will no doubt strengthen the alliance, particularly its defensive posture in northern Europe and the Arctic region. It's no surprise, then, that Nato Secretary General Jens Stoltenberg has responded positively. “This is a good day at a critical moment for our security,” Mr Stoltenberg said upon receiving letters from the Finnish and Swedish ambassadors at the Nato headquarters in Brussels. “We all agree that we must stand together, and we all agree that this is an historic moment which we must seize. Every nation has the right to choose its own path.”

The only obstacle to the entry has emerged in the form of an objection from Turkish President Recep Tayyip Erdogan. Under the terms of the Nato charter, all 30 members must unanimously give their approval for the membership of new countries, and Mr Erdogan has chosen to use the issue to revise Ankara’s historic grievances with both Sweden and Finland.

According to Mr Erdogan, “neither of these countries have a clear, open attitude towards terrorist organisations", a reference to their attitude to the Kurdistan Workers’ Party, which Turkey views as a terrorist group – as do the US and EU. Ankara has previously criticised both Finland and Sweden for refusing to extradite suspects wanted in Turkey. Mr Erdogan is also annoyed with Sweden for imposing arms sanctions against Ankara in 2019 over its military operations in Syria.

Nevertheless, Nato officials remain confident that Turkish objections can be overcome, paving the way for what will constitute one of the biggest geopolitical shifts in Europe since the fall of the Soviet Union.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Updated: May 19, 2022, 3:32 PM