WASHINGTON, D.C., May 31 -- The International Finance Corporation (IFC) has just approved two loans to Finnish companies promoting investment in the Baltic States. The loans together amount to US$13.7 million and are being announced today in Helsinki by the IFC's Executive Vice President, Mr. Jannik Lindbaek, and the CEOs of the two Finnish partners, Mr. Antti Piippo, CEO and Chairman of the Board of Elcoteq Network Oy, and Mr. L. J. Jouhki, President and CEO of Thomesto Trading Companies Ltd.
In the electronics sphere, the IFC will provide a loan of up to US$7.7 million to AS Elcoteq Tallinn, Estonia, a subsidiary of Elcoteq Network Oy of Finland. The $40 million expansion project will triple the capacity of electronics contract manufacturing and provide the equipment capability to manufacture more value added products in Tallinn. The project includes substantial employee training.
In the wood industry, the IFC will provide a loan of up to US$2 million to AS Toftan Ltd to build and operate a US$12 million sawmill near the city of Voru in Estonia, and a loan of up to US$4 million to Vika Wood Ltd to build and operate a US$19 million sawmill near the city of Talsi in Latvia. A joint-venture to carry out the project has been established between Hebeda Tra AB (Sweden), a group of three Swedish sawmilling companies, and Thomesto Sverige AB, a subsidiary of Thomesto Trading Companies Ltd., a Finnish trading house, focusing on forestry, forestry products and East-West trading. In the Latvian project, the Baltic Investment Fund (BIF), a US$30 million equity fund targeting medium and large private sector companies in the Baltic and managed by a group of Nordic sponsors, will also be a shareholder.
"IFC has had a long and successful partnership with Finnish industry. We are pleased to announce two noteworthy examples of such cooperation today. With our Finnish partners, IFC is helping to develop sectors critical to economic growth in the Baltic States," said IFC's EVP Jannik Lindbaek. "In Estonia, the project with Elcoteq will assist in creating significant employment opportunities in the electronics industry in Estonia. In the wood industry projects, together with Thomesto, IFC is making a long-term strategic contribution to developing the forestry industry from the ground up in both Estonia and Latvia. The forestry industry is one of the few natural-resource-based, export-oriented activities in Latvia and Estonia. We are thus supporting a crucial export sector."
Background - Elcoteq/Estonia
Elcoteq Tallinn has 880 employees and is already currently responsible for about one tenth of Estonia's total exports. The new project will significantly expand the company's capacity to manufacture electronics under contract, generating substantial export earnings for Estonia. At the same time, it will increase private sector employment opportunities in Estonia, increasing the number of employees to close to 2,000.
Elcoteq Network Oy is one of the European market leaders in the rapidly emerging contract electronic manufacturing (CEM) business. The focus of the CEM industry is to assemble printed circuit boards (PCBs) using various mounting technologies for original equipment manufacturers (OEMs) at significant cost savings compared to their own production. The global industry has for the past decade grown at twice the rate of the electronics industry as a whole. Estonia is well suited for this type of operation as it has an inexpensive but well educated labor force compared to its Nordic neighbors, a language similar to Finnish, making communication easy at all levels, a customs treaty with the European Union (EU) and convenient connections to Finland and Sweden.
The Tallinn operation will thus enhance the competitiveness of Elcoteq's European operations. The new expansion project, which underlines the success of Elcoteq Tallinn A.S.'s current operation, is expected to act as a catalyst to further development of the electronics industry in Estonia. It also creates a receptive environment for subcontracting such as plastic and metal parts, as well as design services.
Thomesto/Latvia and Estonia
The project aims to produce Scandinavian-standard sawnwood for the export market. Sawnwood production is expected to match the domestic and export production standards of the Scandinavian sawmills, i.e. even-finished, kiln-dried with 18% moisture content, adequately graded according to Scandinavian standards, and reliable deliveries and distribution. The projects will increase the value-added content of the logs, benefit from a competitive cost structure, and reduce the transportation costs for the end consumers.
Both plants will have a nominal capacity of 50,000 m3 of kiln-dried sawnwood for the export market. The Latvian project will also have an additional capacity of 10,000 m3 of green (undried) sawnwood. Both projects are conveniently located both in terms of proximity to raw material supply, and easy access to the European market.
The project is IFC's first step in developing the forestry sectors in the Baltic region, which initially requires investments in primary wood processing, expanding to other mechanical wood processing and, possibly, to wood panel and\or pulp at a later stage. The primary development contribution of the project is to establish a competitive business in a sector which currently lacks the elements necessary for long-term viability and growth.
To date, IFC has made 4 direct investments in Estonia and multiple small investments through investment funds. IFC's first investment was the rehabilitation and environmental clean-up of the Kunda Cement factory. IFC has also made its first investment in the financial sector by becoming a minority partner in the first foreign leasing company in Estonia. In Latvia, IFC has also invested in telecommunications and capital markets projects.
IFC is a member of the World Bank Group and is the largest multilateral source of equity and loan financing for private sector projects in developing countries.
