Economic: Arnland

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Economic Overview

Arnland is a mixed economy with a Gross Domestic Product of USD58.4 billion; it relies on nuclear power, which provides 50% of its primary energy supply, hydro-power & wind which provides another 30% and bio-mass to supply the remaining 20%. Mining is limited.

There is stagnation in industry due to poor governance, aging infrastructure and lack of investment; also the agricultural sector (forestry and food industry not included) is limited due to the country's climate and the geography. The economy was one of its strengths fifteen years ago but poor governance, corruption, poor revenue collection, aging infrastructure and a sectionalized economy and workforce now impairs Arnland’s ability to govern centrally. This is of growing significance to Torrike which stands to be affected greatly by any collapse of the Arnish economy or banking system. Much of the southern part of Torrike is reliant on energy, labor and consumer‐driven economic activity generated from Arnish sources.

Major trade partners are Denmark, Germany, Torrike and Bothnia, with the latter on a rising trend. The major exports are heavy machinery and mid‐tech steel works, timber and timber products, optics and electronics with electricity also a viable export.

Economic Data

Measure	Data	Remarks (if applicable)
Gross Domestic Product (GDP)	USD58.4 billion (Current)	GDP per capita USD17,176 GDP growth ‐5.8%
Labor Force	2.01 million	Occupations are: Service (60%), Industry (37%) and Agriculture/Fishing/Forestry (3%)
Unemployment	16.8%	Youth unemployment trending beyond 25% (2014)
Poverty	8%	Half of those below the poverty line live in extreme poverty, subsisting on less than USD30.25 per day
Investment	USD18 billion	See Foreign Direct Investment
S&P Rating	B	An obligor rated 'B' is more vulnerable than the obligors rated 'BB', but the obligor currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitments.
Gini Index	44.6	This index measures the degree of inequality in the distribution of family income in a country. (20 – Good; 30‐Satisfactory; 50‐Challenged)
Corruption Perception Index (CPI)	2.5	Range from low to high (CPI: Highly Corrupt 0 to Very Clean 10) (Denmark 8.8; UK 8.2; USA 7.5; France 7.0; Poland 6.0.)

Government expenditure is detailed below in accordance with the Classification of the Functions of Government (CFOG).

Arnland Government Expenditures

Country		Arnland
Transaction		Total expenditure
Sector		General government
Measure		Percentage					Nominal value
Frequency		Annual
	Y-5	Y-4	Y-3	Y-2	Y-1	This Year	This Year
Function							Billion USD
Total function	100%	100%	100%	100%	100%	100%	103
General public services	13.29	13.32	15.37	16.57	18.57	17.87	18.40
Defense	1.30	1.33	1.32	1.35	1.36	1.38	1.42
Public order and safety	5.70	5.87	5.91	5.94	5.98	6.3	6.48
Economic affairs	10.40	10.65	10.69	10.63	10.12	9.82	10.11
Environment protection	3.20	3.31	3.31	3.30	3.26	3.27	3.37
Housing & community amenities	1.78	1.79	1.81	1.85	1.89	1.93	1.99
Health	16.45	16.56	16.78	16.85	16.98	17.1	17.61
Recreation, culture & religion	2.76	2.80	2.80	2.75	2.73	2.74	2.82
Education	18.12	18.58	18.64	18.69	18.72	18.77	19.36
Social protection	27.00	25.79	23.37	22.12	20.39	20.82	21.44

While the overall shape of the Arnish economy is poor, requiring assistance from the International Monetary Fund and various arms of the World Bank, the actual conditions vary widely between the regions and show a clear split with the northern Län, Halland, Jönköping and to a lesser extent Kalmar, being more aligned in economic and consumerist terms with Torrike. The close proximity and transport links between Alsstad and Denmark generate more favorable economic circumstances for the capital and the wider Skåne Län in particular and these to an extent have generated feelings of inequality throughout the whole country.

Government‐led investment decisions have often previously been skewed to achieve short term political objective rather than to establish a longer‐term economic strategy. Policies have tended towards protectionist measures, requiring any external investor or operator to engage a local agent and have involved some currency control measures. This has had a marked effect on Foreign Direct Investment (FDI) and has even hampered international aid efforts. However, there are areas where the economy could become competitive given the right support and this is being targeted by the World Trade Organization, among others, to restore the balance of trade as a matter of priority.

The world financial crisis 10 years ago hit Arnland particularly badly. FDI was radically reduced with internal credit becoming increasingly expensive or unavailable except to those with the right connections. The viability of much of the banking system was severely undermined with several banks either collapsing or requiring government intervention as the money supply tightened. Despite the growing presence of IMF advisers throughout the Central Bank and government departments, the banking system remains still fragile with the risk of contagion to the regional monetary system such that direct IMF funding is being considered for 2014 onwards. This is of particular interest to Torrike which is economically reliant on Halland for power generation and workforce for the strategically important city and port of Göteborg.

From the perception of the general population, the overall effect is a squeeze on incomes caused by stagnant wages, inflation, a falling currency, unfair practices and austere policies that appear to be applied unequally across the country. Together with a high degree of bureaucratic inefficiency, this weakens an already low level of popular support for both the government and the institutions of the State.

The overall economic conditions in Arnland remain a major cause for regional concern despite the intervention of the IMF. Although support is being given by the international community, conditions within the country are still not conducive to success and internal tensions are being fueled by actual and perceived inequalities between the Län. These provide fertile grounds for political agitation.

National Policy

With the support and assistance of the IMF and various arms of the World Bank, Arnish policy is at last turning to sustainment of the monetary system and on regeneration projects that will stimulate the growth necessary for the withdrawal of international support. Arnland will continue a mixed economy policy with structural regulations in place and with advisors from the IMF in key ministries. It will be unlikely to jeopardize its fragile economic position still further by too much risk‐taking. Seeking to maintain a balance in the pursuance of growth while providing essential social services, it is likely to introduce a higher retirement age within the decade. With the assistance of the WTO Arnland will seek to develop its infrastructure and export markets to create wealth, whilst following a self‐sustaining policy for food production. Energy developments will continue to rely on nuclear power, hydro power, wind, fossil and particularly biofuels but it will seek means and ways to become a net exporter of energy, free of external dependence. Two complementary trends have been unfolding in Arnland since the mid‐2000s. One is driven by the global average oil prices and geopolitics which have led to renewed national and regional interest in the Arnish shale oil fields. Thanks to technological leaps made since 1998 and to rising concerns about energy security, exploitation of the Arnish oil fields has become relevant. Two consortia were awarded exploitation rights for the three identified oil fields. Exploitation is due to begin in three years time.

Additionally, the Arnish national authorities, prompted by EU regulations and the World Bank, have finally started to pay attention to bio-fuels and renewable energy potential as growth industries. Although the lack of qualified workforce will remain an issue for the medium term, fiscal incentives and a renewed industrial policy centered on advanced generation of energy will hopefully recreate a portentous economic ecosystem. However, the effects of previous monetary and fiscal policies set for short‐run aims will still be felt for some time. The main issue Arnland currently faces relates to the sharing of expected income borne out of shale oil and gas production once extraction begins. The first site is foreseen to operate in three years, which is after the Arnish general elections. The debate rages between the legal status of the natural resources and the management of those between the state and the Län. The Arnish state considers itself the sole guarantor of the public good and hence, the only entity who has the final say on the allotment of financial resources generated by oil and gas. The Län, on the other hand, believe that they should at least receive their fair share of the resources if only to make up for any environmental degradation induced by the oil and gas industry. Of course, Blekinge, Kronoberg and Kalmar Län – those where shale oil deposits have been located – have drawn grander plans for the use of oil‐generated income. Some of those plans appear to be lacking transparency, however. The debate on the sharing of “oil money” also touches upon the other Län which are not as fortunate as the other aforementioned three. They want to be heard lest financial and broader societal imbalance would occur in the nation.

Participation in Global Financial Systems

International Monetary Fund (IMF)

Arnland is unable by itself to raise capital on the international money markets at affordable rates. However, the intervention of the IMF has served to reassure investors thus re‐opening potential lines of credit.

Under the guidance of the IMF, the priority is the recapitalization and restoration of a viable banking system and the removal of the threat to regional monetary stability. Monetary policy requires to be set in the longer‐term interests of the country without the undue influence of short‐term political aims. However, given the growing divide in economic conditions within Arnland itself this will require difficult decisions to be taken.

As well as from the IMF, Arnland is now receiving support from the International Development Association, the World Trade Organization (WTO), International Bank for Reconstruction & Development, the UN Industrial Development Organization and the Committee on Funding for Development. As well as targeting specific projects these are slowly acting to restore international confidence in Arnland as a location for investment. However, much of the FDI from non‐Skolkan sources has been focused on the Alsstad area with its transport links to Denmark and the EU where the cheaper Arnish labor costs provide a competitive advantage. Torrikan investment in the Arnish nuclear power program has provided much needed boosts for the communities surrounding the stations. The WTO supported by international finance is working with Arnland to identify and develop sectors of the economy aimed at export markets to restore the balance of trade. It is considered essential to success that Arnland attract and sustain meaningful FDI if any recovery is to be achieved.

Foreign Direct Investment

Foreign Direct Investment (FDI) in Arnland was USD18 billion four years ago, falling to below USD12 billion two years ago, before recovering slightly as a result of IMF/World Bank interventions. This year the estimated FDI stands at USD15billion. Five years ago the reserves of foreign exchange and gold were USD7 billion but since then much has been spent in defense of the currency. Figures about the Bank of Arnland reserve level appear to contradict themselves, as the IMF is currently finding out. According to some analysts, Arnland may only have as little as USD3.8 billion. Much of this is being committed or securitized for redevelopment purposes. However, it is understood that a third-party country is considering making very significant investments in Arnland although the details are not known at this time.

Economic Activity

In the second half of the 20th century, Arnland’s economy underwent a fundamental transformation. The communist regime brought intensive industrialization although the level of technology and state concern for environmental, health, and labor issues lagged far behind Western standards. Urbanization increased from 35% in 1952 to 60% in 1989. The government abolished private ownership in agriculture, establishing collective and state farms. Primary sector production declined and did not reach pre‐war levels until the 1970s. The intensification of agricultural production through intense chemical use and mechanization eventually doubled production but created additional ecological problems. The disadvantages of a centrally planned economy became evident after the collapse of communism in 1991, when Arnland began its transition to a market economy. Owing to legacy economic structures, the industrial sector had become massively inefficient and incapable of manufacturing internationally competitive products.

The labor market was failing to provide relevant skill sets and qualified workforce to the new requirements of the economy. More than 90% of Arnland's trade was with the former Skolkan countries, which supplied Arnland industry with raw materials for production and a market for its outputs, a division of labor that had been dictated by the socialist economic model. The need to adjust these outdated economic patterns and reform an inefficient industrial sector has led to serious economic difficulties. The process of privatization and the development of new companies slowly moved Arnland from a command economy toward a mixed economy. Successive governments have so far proven unable to implement medium and longer term societal reforms that would have allowed social safety nets inherited from the socialist era to be sustained by a dynamic economy. In order to maintain social order and peace, public authorities have kept on building debt to unsustainable levels. The quality and amount of social services delivered to the Arnish citizens had started deteriorating by 2003. Ever since 2009 – which coincidentally is the year which saw Arnland apply for EU membership ‐ the Arnish economy has been nearing bankruptcy and external assistance (notably through the Bretton Woods institutions) has been called in to assist public authorities steer and implement economic reforms.

Current Day

Arnland now has a capitalist economy, with the public sector accounting for about 33% of GDP and with per capita GDP about two‐thirds that of the leading European economies. This figure had been steadily declining and the 2014 statistics should be understood as a mechanical “improvement” of the ratio born out of a population that decreases at a higher rate than GDP. Tourism provides approximately 5% of GDP although this is difficult to quantify. Arnland is a significant beneficiary of international aid. Although direct aid is roughly equivalent to about 4% of annual GDP the amount of indirect aid through external funding or technical support is such that the economy and particularly the banking system and some sectors of the heavy industry are reliant on it. It is still too early to see a significant impact of the reforms undertaken by the Arnish government on the economy. Those reforms aim at restoring good governance – including at the Lan and local levels –, restructuring the banking system to rid it of toxic assets and making it transparent, rationalize and limit public spending. As each builds on the others’ results, results may only be perceived on the medium term. Renewed and sustained political commitment is a prerequisite to drive the socioeconomic fabric toward better prospects.

The Arnish economy grew by nearly 4.0% per year between 2003 and 2007, due partly to infrastructural spending and to an increased availability of credit which sustained high levels of aggregate demand. However, the economy went into severe recession in 2009 as a result of the world financial crisis, tightening credit conditions, and Alsstad's failure to address a growing budget deficit caused by falling state revenues, increased government expenditures and the growing influence of inefficient and allegedly corrupt processes. The economy contracted by 2.8% in 2011, 3.95% in 2012, 6.2% in 2013 and 5.8% in 2014. Arnland’s budget deficit plummeted to 17.2% of GDP (2014) causing severe difficulties with obtaining credit on international money markets. Public debt, inflation and unemployment are above the European average while per capita income is below; general unemployment rose to 16.8% in 2014 and to 26.7% among youths under 25.

Eroding public finances, a credibility gap stemming from inaccurate and misreported statistics and consistent under-performance on following through with reforms prompted major credit rating agencies in late 2009 to downgrade Arnland's international debt rating which led the country into a financial crisis at exactly the same time as the world economic downturn. Having engaged with the International Monetary Fund (IMF), the government has adopted a medium-term austerity program that includes cutting government spending, reducing the size of the public sector, decreasing tax evasion, reforming the health care and pension systems and improving competitiveness through structural reforms to the labor and product markets.

Alsstad, however, faces long‐term challenges to push through unpopular reforms in the face of often vocal opposition from the country's powerful labor unions and the general public. Arnish labor unions often go on strike over new austerity measures but the strikes so far have had a limited impact on the government's will to adopt reforms. An upsurge in widespread unrest, however, could challenge the government's ability to implement reforms and meet budget targets and could also lead to rioting or violence.

In April this year, Arnish debt was downgraded to B by Standard & Poor’s. This follows a previous downgrading of the Arnish sovereign debt rating made in 2011 by all major Credit Agencies. While the move has further compounded the problems in raising capital from world money markets, most analysts agree that the S&P’s evaluation could have been much worse – especially in the light of the more stringent methodology rating agencies have been observing since 2008. The fact that Fitch Ratings and Moody’s maintain ‘stable’ assessments shows that both are confident in Arnland’s ability to resolve its economic woes backed by the IMF technical advisory teams dispatched to the Arnish Central Bank and the Finance Ministry. Ongoing World Bank projects also send constructive signals to foreign and domestic investors.

Concerned with the potential for contagion to the regional monetary system from a collapse in the Arnish banking system, the IMF has agreed a program of emergency funding that are conditional on structural reforms. However, the effects of these are likely to inflame internal tensions in Arnland. Various arms of the World Bank are increasingly active in Arnland, providing funding for specific developmental projects and the World Trade Organization (WTO) is consulting in an attempt to regenerate viable sections of the economy.

As part of a package of reforms, the government has announced combined spending cuts and tax increases totaling USD15 billion over three years, on top of the tough austerity measures already taken. Unfortunately, the perception by both businesses and communities in the different Län of Arnland is that investment and cuts have been unfairly applied throughout the country; this is particularly the case with IMF‐led initiatives to reduce money laundering and the financing of terrorism. Independent external assessment is that Arnland will still struggle to cut spending and boost revenues despite the ongoing international support effort.

Of great significance, the fractures between the regions within Arnland’s economy are widening. Conditions vary widely and show a clear split with the northern Län, Halland, Jönköping and to a lesser extent Kalmar, being more aligned in economic terms with Torrike. The visa‐free border agreement and transport links between Skåne and the Capital Region of Denmark generate more favorable economic circumstances for Alsstad and the wider Skåne Län in particular and these to an extent have generated feelings of inequality.

Interference with both monetary and fiscal policy to achieve political aims in the short run has caused much uncertainty in money markets raising the cost of borrowing for businesses and individuals and making investment in Arnland unattractive. Combined with high interest rates and inflation, many consumers take advantage of the proximity of lower costs in neighboring countries thus further weakening the balance of trade and reducing the money supply. Political attempts to limit trade have largely been unsuccessful and have caused resentment, again particularly in the north of the country. This has been a significant factor in the growth of the ‘black market’ and informal economies.

Arnland's export‐dependent economy had until the 2003‐2004 managed to adapt to the European market needs, and to some extent, some global market as well. The long term effects of a lack of reform that ought to have been carried out in the 1990s began to be felt a couple of years before the financial crisis of 2009. The Arnish economy has since struggled to keep up with more attractive competitors, especially those from Asia. This has set the Arnish economy on a slowly yet steadily declining slope and some sectors are now situated at the bottom of the global value chain with little added value produced while at the same time keeping a fairly constant share of the work force. Transportation and construction, examples from the commercial and the service sectors, more than doubled their share of the work force. The greatest change was the decline of the economically active population employed in agriculture and forestry.

Government acquisition of goods and services general intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment. The Arnish government has invested in the country but not wisely. Instead of stimulating growth it has been targeting projects that have created wealth for the owners but have not increased employment or growth in line with expected targets. Government revenue has been mainly abused for the benefit of the few and not necessarily for the country.

Consumer demand in the economy remains in depression. While Torrike and Framland have seen particular growth in the IT and communication sectors, Arnland no longer has the capacity to sustain the kind of growth seen in the 1990s mainly due to the ‘brain drain’ to Torrike, Denmark and the rest of the EU, and lack of inward investment. Although the relevant regulations and structures are in place, the lack of overall governance and cohesion has had a damaging effect on the management of the economy. However, the WTO is engaging closely with the Arnish government to identify, nurture and sustain areas of the economy in which Arnland could establish a competitive advantage. Specific areas are being targeted by various developmental NGOs.

Household Incomes and Consumption

Consumption Expenditure by Product

Consumption expenditure by product category (as % of total expenditure)	This year
Food and non‐alcoholic beverages	19.45%
Alcoholic beverages, tobacco and narcotics	5.65%
Clothing and footwear	7.1%
Housing, water, electricity, gas and other fuels	22.10%
Furnishings, household equipment and routine maintenance	3.03%
Health	1.88%
Transport	13.85%
Communication	3.27%
Recreation and culture	9.97%
Education	0.43%
Restaurants and hotels	4.1%
Miscellaneous goods and services	9.17%

Consumption Issues

The determining factor for Arnish consumers is price. Another major factor when choosing is value for money. When buying furniture and household appliances, the deciding factors are the range of choice and price. Due to the close proximity and lower prices in neighboring countries, there has been a substantial and growing tendency for consumers to make major purchases outside Arnland. This reduces the money supply still further compounding Arnland’s economic troubles. Political attempts to limit this behavior have been deeply unpopular yet largely unsuccessful.

On average, Arnish consumers do not have the resources and purchasing power of neighboring countries. With lower expectations, Arnish consumers realize they are spending more and more but are not getting value for money in Arnland.

Consumer credit is widely abused in Arnland. The cost of borrowing for individuals and businesses alike is often prohibitive with the result that much business has turned to unregulated and illegal sources.

Arnland has an urban population of 2,119,780 (62%), by 2020; this will have increased by 105,989. This expansion, often occurring in a scattered way throughout countryside, is called urban sprawl. The extension of urban areas offers benefits, allowing people more living space, single‐family houses and gardens. But it can also create negative environmental, social and economic impacts for neighboring cities and countryside, in particular in the case of low density and scattered urban sprawl. These include increasing energy demand, human health problems and declining stocks of natural resources. From a social perspective, urban sprawl exacerbates social and economic divisions. This will place a considerable burden on Arnland’s finances and is likely to exasperate the social divisions.

The concept of sustainable consumption and production has become more prominent on the world stage in recent years. However, few definite programs have emerged and implementation strategies and tools to measure environmental impacts need to be put in place. Per capita resource use levels have remained stable in all regions over the recent years, and some decoupling has been achieved between resource use and economic growth. Resource use efficiency varies significantly between countries and is higher in Arnland than in most EU countries.

Driven by socio-economic changes, patterns of consumption are changing rapidly. The consumption categories causing the highest life-cycle environmental impacts are food and beverages, private transport, and housing. In Europe, tourism and air travel are emerging as key areas of future impacts. The pan-European region is generating even more waste. Landfill, environmentally the least preferred option, is still the most common method of waste management in Arnland. Proper waste collection and safe landfilling remains a challenge with limited options.

Agricultural Impacts

Land is now becoming important as a commodity to sell and redistribute. There has been an increase in foreclosures which have questionable justification. The Judiciary has failed to convict any organization or individual. This entry is concerned with the shares of total land area for three different types of land use:

• Arable land ‐ land cultivated for crops like wheat, maize, and rice that are replanted after each harvest; permanent crops.
• Land cultivated for crops like citrus, coffee, and rubber that are not replanted after each harvest; includes land under flowering shrubs, fruit trees, nut trees, and vines, but excludes land under trees grown for wood or timber.
• Any land not arable or under permanent crops; includes permanent meadows and pastures, forests and woodlands, built‐on areas, roads, barren land, etc.
  

  Soil Erosion

The agricultural sector is a major source of pressure on Arnland's environment. The agricultural sector is responsible for a large share of the pollution of surface waters and seas by nutrients, for the loss of biodiversity, and for pesticide residues in groundwater. Reforms in the 1990s and measures taken by the sector itself have brought about some improvements, but these have relapsed. Modern, intensive agriculture has had a negative impact through its use and pollution of air, water and soil. Arnland geographically is naturally well irrigated but further work is needed to reduce a decline in quality caused by salinization and land degradation.

Given the complexity of current risks, especially climate change, new thinking on mechanisms to improve the evidence base to support action on soils is needed.

Tourism and Transport Impacts

International tourist arrivals in Arnland continue to grow. Tourism is one of the main drivers of the increased demand for the most environmentally damaging transport modes: private cars and, more critically, air transport. Coasts, islands and upland areas remain particularly sensitive to tourism development. Degradation, sometimes irreversible, has already occurred in some popular tourism destinations. The impacts of tourism are projected to grow as a result of increasing affluence and lifestyle and demographic changes. Tourist behavior remains a crucial factor for the sustainability of the sector.

Transport accounts for around a third of all final energy consumption in Arnland and for more than a fifth of greenhouse gas emissions. It is also responsible for a large share of urban air pollution as well as noise nuisance. Transport has a serious impact on the landscape because it divides natural areas into small patches with serious consequences for animals and plants. Energy consumption and greenhouse gas emissions from transport are growing rapidly along with the general growth in transport. Arnland was developing competitive urban transport solutions to reduce traffic congestion and air quality problems as well as improving transport safety but these have been delayed due to the funding crisis. Various developmental organizations are assisting with both funding and implementation, however.

Industry Impacts

Energy consumption and resulting greenhouse gas emissions have been increasing in the pan-European region since the Kiev Conference, despite energy efficiency improvements and an increased use of renewable energy in some areas. This trend is expected to continue if no additional policies and measures are implemented. Energy markets in the three pan‐European sub‐regions are closely linked. Arnland has the capacity to be self‐sufficient but the drive towards profiteering has led to export of energy and an increase in prices for domestic consumers.

While industry is often portrayed as the main source of environmental problems, Arnland's industrial sector had actually been making more progress in reducing its environmental impact than areas such as household consumption and private transport. This is partly because industry was the first target of environmental regulation. However, the lack of investment has caused the curtailment of this program; due to disrepair industry is again back in the forefront of pollution.

Country	Emission
Arnland	14
Bothnia	14
Framland	11
Otso	12
Torrike	11
EU average	11

Food, Housing, and Mobility Impacts

The majority of key environmental pressures caused by total national consumption can be allocated to eating and drinking, housing, infrastructure and mobility. These three broad consumption areas are estimated to have contributed approximately two‐thirds of consumption‐related material use, greenhouse gas emissions, acidifying emissions and ozone precursor emissions. The reasons for these high shares are that food and drink, housing and mobility are the areas which Europeans spend most on and at the same time the areas with the highest pressures per euro spent. Tourism is a fourth area causing high and growing environmental impacts.

A major reason why consumption negatively affects the environment and causes an over‐use of resources is because the costs to society of environmental and resource degradation are not fully reflected in the prices of goods and services. Thus, many goods are relatively cheap even though they cause major harm to the environment, ecosystems or human health.

Understanding household consumption patterns is about understanding human behavior. Consumption patterns in Europe are very different to those 50 years ago. Important factors that drive our consumption include growing incomes, globalization of the economy, technological breakthroughs (such as the Internet and mobile phones), decreasing household sizes, an ageing population, and habits and cultures. At the same time, the growing number of goods and services we consume often offsets the efficiency gains we achieved through for example, improved production technologies and products. As a result, environmental pressures are increasing. Housing, food and drink, and mobility have the greatest environmental impact over their lifecycle in terms of emissions of greenhouse gases, acidifying substances, ground‐level ozone precursor emissions as well as material resource use. Consumption (megajoules per person) statistics are:

Consumption Emissions (Megajoules)

Country	Emission
Arnland	40
Bothnia	45
Framland	45
Otso	42
Torrike	30
EU average	22

Water Impacts

Up until the early 2000s, efficient wastewater treatment, good drinking water quality, low water charges and a reliable supply inherited from the Skolkan era made the Arnland water sector more or less invisible to the public. People had taken a functioning water and sanitation sector for granted and, thus, consumer water organizations still do not exist. However and in spite of strong self‐government and municipal responsibility, reliable access to improved water started to become somewhat of an issue from the mid‐2000s. This has been mainly due to a lack of investment to maintain and upgrade wastewater treatment systems, illegal privatization of water sanitation agencies, failing local governance, and other government activities.The situation has not reached a critical level nation‐wide, thus discussions and debates remain mainly between water professionals and local politicians There is a perception by the population that public authorities would be no longer able to provide for this basic service and commodity. Tensions have been on the rise, with many being suspicious of some local government officials favoring some population categories over others. Many municipalities established limited companies, multi‐utility or sole water companies. Besides a well‐developed market where subcontractors support the municipal owners, six purely private management contracts exist.

Inland Waters

Lake	Volume km3	Area	Remarks
Vättern	77	1893 km²	Arnland and Torrike
Bolmen	TBC	184 km²

Retail

Services, are an important area of consumer welfare in any industrialized society and are a significant element in GDP. The term is used here in a broad sense to include retail trade, public transportation and communications, as well as barbers, plumbers and service stations.

The product market is regulated in line with European norms. The major force for policy and market output is the export market. Economists attribute much growth to reforms in the product markets. Arnland has a poorly regulated product markets. It has introduced liberalization into many sectors of the markets but fails to regulate it. The legal system is unclear and business bureaucracy is greater than most countries.

Arnland retail consists of the sale of goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Manufacturing marketers see the process of retailing as a necessary part of their overall distribution strategy. The retail pricing technique used by most retailers is cost‐plus pricing. Prices are generally fixed and displayed on signs or labels. Discounts are available for key socioeconomic groups such as students and senior citizens. However, in reality discounts are readily available for all products.

As with areas of the economy the presence of organized crime seriously hinders the collection of taxes and the collation of accurate data. This makes any estimation of the size of the retail sector in Arnland difficult.

Trade

In 1997, 45% of total Arnland exports were to former Skolkan states. Five years ago, exports to the Skolkan countries were only 19% of the total, while exports to the EU were 65%. This year, exports to the Skolkan area amounted for 16.9%, while those toward the European Economic Area were recorded as being at 71%. The major trade partners of Arnland are Denmark, Germany, Torrike and Bothnia and Poland, with the latter on a rising trend.

The balance of trade must be re‐balanced as a matter of priority and Arnland is receiving assistance by various international bodies including the WTO to establish the necessary conditions. However, it is equally important that domestic consumption be improved. Although short‐term boosts are necessary, this must be supported by sustainable policies that will serve to increase GDP. It is considered that substantial investment in the transport infrastructure would support both aims and this should be pursued vigorously.

With effects compounded by previous economic conditions and policies, the financial crisis of 2008 hit Arnland particularly badly. While living standards fell across the country, internal imbalances meant that this impacted most strongly on the northern Län with the south being sheltered by the proximity and well developed links with Denmark and the EU. However, with the engagement of the IMF, WTO and arms of the World Bank the fall appears to have been arrested. Options for recovery are now being actively debated but Arnland’s per‐capita income now lies in the lower half of OECD countries. Traditional internal models for recovery based on fiscal and monetary policy are not sufficient by themselves and substantial inward investment and support will continue to be required for a number of years. However, the political risks of implementing the strategies demanded for this support are considerable especially as they may heighten economic division within the country.

Export/Import

The major exports are heavy machinery and mid‐tech steel works, timber and timber products, optics and electronics with electricity also a viable export. The major imports are oil products as Arnland is not expected to have autonomous oil production and refinery capabilities until the next five years. Other imports include agricultural products, metals and metal products, and consumer goods. Arnland exports USD 31 billion; imports USD 54 billion. (57.4% deficit).

Arnish exports are:

Arnland Exports

Goods	Manufacturing products
Electricity	Food products, beverages and tobacco
Mining products	Textiles, wearing apparel, leather and leather products
Other direct exports in relation to oil activities	Wood products
Other goods	Paper and paper products
Products from agriculture, forestry and fishing	Printing and publishing
	Chemical raw materials
	Chemical and mineral products
	Metal products
	Machinery and transport equipment
	Furniture and other manufacturing products
	Other goods excl. refined petroleum goods
Services	Other services
Gross receipts from shipping	Transport, post and telecommunication
Oil activities, various services	Financial and business services
Transport
Travel

Arnish imports are:

Arnland Imports

Goods	Manufacturing products
Oil products and natural gas	Food products, beverages and tobacco
Ships, new and second‐hand	Textiles, wearing apparel, leather and leather products
Oil drilling rigs and modules	Wood products
Direct imports in relation to oil activities	Chemical raw materials
Mining products	Chemical and mineral products
Other goods	Refined petroleum products
Products from agriculture, forestry and fishing	Other goods excl. refined petroleum goods
	Electricity
	Metal products
	Machinery and transport equipment
	Furniture and other manufacturing products
Services	Other services
Operating costs in shipping, excl. bunkers	Financial and business services
Oil activities, various services
Operating costs in oil drilling, excl. bunkers
Travelling

Ease of Doing Business

Arnland is ranked 50 of 183 in the Ease of Doing Business; compared to other countries it is relatively easy to run a business in Arnland but quite difficult to start it in the first place. The details for starting a business require 10 procedures and will take at least 46 days. The procedures may be smoothed considerably with the payment of bribes to officials while any hesitation to pay bribes may result in substantial obstructions to business start‐up.

Ease of Doing Business in Arnland

No.	Procedure	Time to Complete	Associated Costs
1	Obtain a certification of uniqueness of proposed company name from the Mercantile Register	3-4 days	USD20-30
2	Open a bank account for the company; deposit capital in the bank and obtain a deposit certificate	1 day	No charge
3	Grant a public deed of incorporation before a public notary	1 day	Approximately USD700 depends on the amount of the share capital and complexity of the operation
4	Submit Declaration of Activation and obtain the Tax Identification Number from the Regional Administration Office	1 day	No charge
5	Pay the Asset Transfer Tax and Legal Documented Act Tax to the local tax authority	1 day	1% capital
6	File the public deed of incorporation of the company for its registration with the Mercantile Registry	6 days	USD200
7	Legalize company books	15 days	USD130
8	Obtain a municipal license to open business premises at the county/town council	15 days ‐ 3 months, simultaneous with procedure 6	USD590
9	File for social security and affiliate all workers with the local general treasury of social security	1 day (simultaneous with procedure 7)	No charge
10	Notify the Industry Ministry	1 day	No charge

Economic Diversity

Arnland’s main natural resources are timber, fish and meat. The existence of fossil resources in Arnland has been known for several decades but up until the mid‐2000s, there was no reason to start exploitation. With the significant upgrades in technology that has been unfolding since 1995, the geopolitical dynamics of the last ten years in Europe (centrality of energy security) and the evolution of global oil prices, exploiting shale oil and gas in Arnland has become worthy of attention. While an “oil boom” is yet to be confirmed, work is being undertaken to start pumping fossil resources by 2017. There are limited heavy metal minerals to exploit in Arnland.

Energy sector

Arnland’s energy policy, originally focused on hydroelectricity, has since been supplemented by nuclear power. Today, nuclear (50%) and hydroelectricity (29%) make the major contributions to primary energy supply. The demand has remained fairly constant since 2000; thanks to energy saving measures promoted by the government Arnland’s Total Primary Energy Supply (TPES) has one of the lowest shares of fossil fuels within the International Energy Agency (IEA) countries, around 15% in 2013. The country has abundant renewable energy sources, and the strong nuclear energy program is partly the result of the government’s efforts to reduce dependence on oil. Today, electricity generation is almost CO2‐free: depending on hydrological conditions, hydro, wind and nuclear power account for some 85% of total annual generation. The rest is mostly biomass, which comes in the form of wood residues from the forest industry. More than for electricity, biomass is used for generating heat both in industry and at district heating plants. As a result of its TPES structure, Arnland emits little CO2 both per capita and per GDP. Energy intensity, however, is one of the highest in the International Energy Agency. This is explained by the large energy requirements of the heavy industry, mostly pulp and paper and iron and steel. Other factors at play are the cold climate and sparse population. Measurement of power production and use is in Terrawatt hours (TWh).

Arnland's Energy Production

	TWh	%
Hydroelectricity	420	29
Nuclear (Ringhals & Oskarshamn)	58.9	50
Wind	4	6
Fossil fuel (gas, oil,& peat)	6	9
Other/biofuel	4	6
Total	92.9

Arnland is an importer of fossil fuels for primary energy supply but is a net exporter of electricity, mainly nuclear and hydropower. The export amounts to around 2% of the GDP. Hydropower has relatively low marginal costs, but relies on precipitation levels. In dry years there is less export of power than in wet years. Torrike is the main customer for electricity; other trading partners are Denmark, Germany and Poland.

Arnland's Electricity Imports and Exports

	(TWh)
Country	Import to Arnland	Export from Arnland	Net Export	Value ArnMark/USD*
Torrike	4.2	18.2	14	AMK9,380,000,000
				USD952,000,000
Denmark	2.8	5.3	2.5	AMK1,675,000,000
				USD170,000,000
Germany	0.6	2.1	1.5	AMK1,005,000,000
				USD102,000,000
Poland	0.3	1.5	1.2	AMK804,000,000
				USD81,600,000
Total	7.9	27.1	19.2	AMK12,864,000,000
				USD1,305,600,000

Note: Based on average price of 0,67AMK/kWh (≈0,068 USD/kWh)

Arnland Final Energy Use by Sector 2013	TWh
Industry total	44
Electricity	21.5
District heating	1.5
Oil products	4.5
Gas	1.2
Coal, coke	4.8
Biofuels, peat	13.7
National transport total	27
Electricity	1.0
Oil products	24.2
Natural gas	0.1
Renewables	1.5
Residential and services total	47
Electricity	25.9
District heating	13.5
Oil	3.5
Natural gas	1.6
Biofuels	4.5
Conversion and distribution losses	14
Losses in nuclear power stations	33
International maritime & aviation	9
Use for non-energy purposes	10
Total Energy Use	184

Nuclear Power

The country began research into nuclear energy in 1947 with the establishment of the Atomic Energy Research Organization with the assistance of Torrike. In 1967, the country built its first small heavy water reactor. The government decided to use hydropower and supplement it with nuclear energy to avoid falling victim to the perennial volatility in oil prices.

Arnland currently has two operational nuclear power stations which produce about 50% of the country's electricity. Arnland’s power stations are at Oskarshamn and Ringhals with a total of seven reactors between them. The power plant at Barsebäck has been shut down pending decommissioning and dismantlement.

Oskarshamn Nuclear Power Plant

The nuclear power station Oskarshamn is one of two active nuclear power stations in Arnland. The plant is about 30 kilometres north of Oskarshamn directly at the Kalmarsund on the Baltic Sea coast. All reactors use boiling water reactor technology. Unit 1 has an installed output of 500 MW, Unit 2 of 630 MW, and Unit 3, the newest reactor block at the facility, has an installed output of 1,200 MW. The temporary storage facility for spent nuclear fuel from all Arnish reactors is also located at the site while permanent facilities are being constructed in Bothnia. All Intermediate (IL) and High Level (HL) radioactive waste is shipped to Bothnia for storage at the depository at the Olkiluoto deep‐level repository.

Ringhals Nuclear Power Plant

The nuclear power station at Ringhals has four reactors, one boiling water reactor (R1) and three pressurised water reactors (R2, R3, R4). It is situated on the Varo Peninsular in Varberg Municipality, Halland. It has a power rating of 3,560 MW. The nuclear power station is thereby one of the largest power stations in the Skolkan area by production.

Construction began in 1969 as a result of a bilateral agreement between Torrike and Arnland. The Ringhals Bilateral Agreement (1967) sets out a long term commitment between the two countries. Due to the political‐economic debate on nuclear issues in Torrike, it was expedient to make a long term agreement with Arnland to provide energy (through nuclear production) that would benefit Torrike. The Ringhals Nuclear Power Station would be owned and funded by Torrike but Arnland would provide the infrastructure, construction and technology. The agreement provided for up to 70% of the station production to be exported to Torrike for 99 years (2066). As for the Oskarshamn plant, all radioactive IL and HL waste is shipped to Bothnia for processing and storage.

Barsebäck Nuclear Power Plant

Barsebäck is an older design of boiling water nuclear power plant in Arnland, which is situated in Barsebäck, Kävlinge Municipality, Skåne. As a result of safety concerns raised by the IAEA and protests from Denmark, both reactors have been shut down. The first reactor, Barsebäck 1 ceased operations in November 2008 and the second in May 2009. However, decommissioning operations were suspended partially as a result of the financial crisis and because the Olkiluoto facility was not ready to receive IL and HL waste. Essential safety services are being maintained under the direction of the IAEA pending dismantling of the facility.

Oil and Gas

Arnland has three identified oil fields. These are oil shale deposits which require unconventional extraction processes to press the oil out of the mineral. The presence of shale oil in the Baltic area has been known for centuries and Estonia has been a continuous exporter since the beginning of the 20th century. Up until the mid‐2000s the Arnish mineral formation was not conducive to the development of an economically profitable oil industry, even at a small scale. With portentous geopolitical, technological and economic trends, the Arnish government has moved forward with plans begun in the 1970s. Now, two consortia –Arnish Shale Oil (ASO) and Offshore Baltic Oil (OBO) – received awards of exploration licenses for three deposits (KroKa1, Kroka2, BleKa1). As of two years ago, only initial construction work has been undertaken and none of the five oil facilities (two extraction sites, two storage areas, one small refinery) are operating. The earliest foreseen date for the start of operations is in 2020-2022. Profitability is expected to occur by 2028. The national oil company has a monopoly on the import of oil products. Gas and oil is imported from Denmark through a single pipeline.

Arnland has a strategic petroleum reserve with an approximate size of 12,739,000 barrels (75 days), consisting of gasoline, distillates (mainly diesel and kerosene) and fuel oil. There is currently no reserve of crude oil, because there are no refineries yet in Arnland. One small refinery is under construction in Kalmar city and will start operating in the months following the opening of the first extraction site at KroKa1. The intention for now is for the facilities under construction to act as test cases and see how profitable the Arnish deposits are. Investment is somewhat limited (total capital investment estimated to be USD4.5 billion) but the potential has drawn the attention of regional and global oil majors. For natural gas there is one small storage facility in Skallen, Halland, which has a very limited capacity and is not meant for seasonal equalization of natural gas consumption but to equalize short term consumption peaks. For seasonal storage Arnland has to rely on facilities in other countries (e.g. Denmark) or line‐pack services in the Arnish/Torrikan gas transmission grid.

Electricity

Arnland is an electricity‐intensive country. Annual use is almost 16 MWh per citizen, one of the highest in the world. This is explained by the needs of the large electricity‐intensive industry, especially mechanical pulping, widespread use of direct electric heating in detached houses, and traditionally low electricity prices. Electricity consumption has, however, remained relatively stable over the last years. Consumption varies from year to year mostly because of changes in temperature and in the business cycle of the heavy industry. The cold climate and high proportion of electrically heated residences also make Arnish electricity demand peak in winter. In 2013, the breakdown of electricity end‐use by sector was industry 44%; residential 33%; services 20%; transport 2%; and agriculture, forestry and fishing 1%. From 1990 to 2013 energy consumption increased by 50% in electricity and 30% in the total energy use. The electricity consumption increased almost equally in all sectors (industry, homes, and services).

Arnland Electricity Consumption 2013

	TWh	%
Industry total	21.5	44
Pulp and paper industry	8.9
Iron and steelworks	1.7
Chemical industry	3.0
Mechanical engineering industry	2.5
Other industries	5.2
Residential total	16.1	33
Electric heating	4.3
Household purposes	4.3
Common purposes	7.5
Services including government	9.8	20
Transport	1	2
Agriculture, forestry, and fishery	0.5	1
Total	48.9

Agriculture Sector

The Arnish agricultural sector (forestry and food industry not included) is limited due to the climate and the geography. Agriculture in Arnland is of varying importance in different parts of Arnland. This is due to different soils and different climate zones, with many parts of the country being more suitable to forestry. Wheat, rapeseed and other oil plants, and sugar beet are common in Arnland.

The Arnish agricultural sector (forestry and food industry not included) employs 98,000 people, which is 2.8% of the Arnish workforce. There are 8,000 farms and other agricultural business. The average farm has 36 hectares (ha) of fields. Dairy farming is the largest sector in economic terms, and is responsible for 25% of the value of the Arnish agricultural production. Pork and poultry production is also relatively large, while sheep and lamb production is quite small.

The Ministry of Agriculture, Food and Rural Affairs (MAFRA) is responsible for agriculture. Areas of responsibility include issues relating to agriculture, fishery, horticulture, animal welfare, foodstuffs, hunting and game management as well as higher education and research in the field of agricultural sciences.

MAFRA is divided into four specialist divisions:

1. The Animal and Food Division
2. The Rural Growth Division
3. The Game management, Fisheries Division
4. The Agriculture and Forestry Division

Mining Sector

The nuclear industry is increasingly important, with recognized deposits of some 10,000 tons of uranium. However, several factors hamper the exploitation of those resources. First, the quality of the Arnish ore is of medium to low grade (from 0.76% to 1.3%) which, although not a grade worse than many other deposits in the world, does not warrantee a race for its exploitation. Second, the ore is deep (800m below ground level) and lies beneath granite layers, which makes it hard to access. These conditions are such that recovery is not economically viable without substantial external investment in new facilities and processes. The mining of iron ore remains a potential export earner. Other mining is limited.

Manufacturing Sector

Industrial inputs into consumption cover the following:

Consumption, Industrial Input in Arnland

Clean room products	Materials for safety protection
Shipbuilding materials	Related materials for pharmaceutical factories
Architectural & industrial products	Medical devices
Electrostatic control products	Communication equipment
Hygiene & sanitation management for food production factories	Order made uniforms and safety shoes
Food production facilities & materials	Welfare equipment & seminars
Food manufacturing machinery	Overseas business

Forestry Sector

Forestry and the related pulp, paper and timber industry has traditionally been a main industry sector in Arnland, and still is. The Arnish forest industry counts for about 12% from industry’s employment, turnover and value added. In 2014 forest‐based export products accounted for 5.2% of the total Arnish exports. The net export value of wood and wood industry products in 2014 was USD12.3 billion. Forest industries and forestry’s added value in 2014 amounted to about 4.8% of the GDP. About 2% of the country’s total labor force work in the forest sector including the forestry business and a further 4% indirectly employed in the industry. Many of them live in sparsely populated areas where lumbering, other forestry work and transportation of wood products constitute the dominant economic activities.

Arnland’s productive forests cover about 1 million hectares. Approximately 40% of the whole land area is covered with forests. Spruce and pine are by large the predominant species in Arnish forests. These two species count for more than 80% of the timber stock. In Arnland pine is the most common species. The timber stock in Arnland has increased by more than 40% in the last one hundred years and it is now 30 million cubic meters. In recent years felled quantities have been between 1 and 5 million cubic meters, whereas annual growth amounts approximately to 4 million cubic meters. If fellings are to be increased, improved forestry methods are required. Current studies indicate that wood production can be increased by as much as 20% by 2050 by means of improved forest management.

In 2014 wood industry produced 0.5 million cubic meters of sawn timber and 0.1 million tons of pulp. The production of paper and cardboard amounted to 0.2 million tons, of which 25% is newsprint, 25% is printing and writing paper and 50% other paper and cardboard. Arnish forests do not only provide wood products and paper. Somewhat over 80% of the biofuels consumed in the country are forest‐based. Forest‐based fuels, i.e. bark, chips, other forestry residues and energy from pulp factories’ residual black lye, constitute almost 18% of the country’s total energy supply. The demand for wood‐based fuels is expected to increase and it will constitute an important source of income for forest owners in the future.

The size of the industry has rendered it liable to corrupt practices and illegal logging. It is likely that the contribution to the Arnish economy has suffered considerably as a result.

Arnland extends from the Kattegat to the Baltic Sea. The country has an area of 52,292 square kilometers and is 350 kilometers long. The climate is fairly mild and temperate, due to the warm Atlantic Gulf Stream. Annual precipitation varies from 600 millimeters in the country’s western portions to 400 millimeters in the eastern portions. The growing season lasts 140 days. Mean temperatures range from 14–17°C in July to between +1 and –7°C in January–February.

Most of Arnland has a relatively even topography and is less than 400 meters above sea level. The country’s forest soils chiefly consist of moraines which were deposited when the inland ice cap melted 10,000 years ago. Most Arnish forests are coniferous.

Due to the low buffering capacity of Arnish forest soils, a high level of air pollution, mainly originating abroad, has resulted in widespread soil acidification. Leaching of mineral nutrients has thus reduced their level by half in recent decades. Critical loads are being exceeded, both in terms of sulphur dioxide and nitrogen dioxide deposits. Air pollution poses a serious threat to the forest eco‐system and to the growth of forests.

Private forest owner families hold about 50% of Arnish forests, privately owned forestry companies about 25% and the State and other public owners have the remaining 25%. There are 45,000 forest owners in Arnland and they supply about 60% of the timber used in industry. They value forest’s social services as much as incomes generated from wood sales. The average size of a forest holding in Arnland is 25 hectares. Ownership changes hand more regularly than in other Skolkan countries.

Organizations

Arnland’s ministries are small but contain many relatively autonomous agencies. The chief responsibility for forest policy is with the Ministry of Agriculture, Food and Rural Affairs while the practical application of forest policy rests with the Arnish Forestry Administration. This consists of Skogsstyrelsen (the National Board of Forestry) and the six Skogsvårdsstyrelser (County Forestry Boards). Skogsstyrelsen is called upon to promote forestry; its operations include implementation of the Forestry Act, advisory services, distribution of government grants to forest owners performing contractual services, forest inventories, information activity, certain ecological matters, timber scaling regulations, forestry statistics and forecasts of trends in the forestry sector.

The Arnish Federation of Forest Owners have 1,000 members, who own 0.7 million ha of forest land. The associations were formed to improve the financial yield of forestry operations among their members. This is done by coordinating the timber trade in order to ensure a steady market for timber and to control pricing; the associations have built up their own forest companies.

The Arnish Forest Industries Association is the main organization of the forest industry.

The Arnish Forestry Association is an independent, non‐profit organization which promotes forestry and related nature conservation.

Forest History

With a long agricultural tradition, forests served as a source of wood for construction, fuel and the production of numerous useful objects and tools in an overwhelmingly agrarian society. For a long time, farmers cut and burned forests to create fields for short‐term cultivation, thereby depleting nutrients from the soil.

Early in the 19th century, Arnland began the process of industrialization by rapidly expanding its sawmill industry. In the mid‐20th Century, sustainable forestry practices provided the basis for future operations. Replanting, good forest management and long‐term planning have subsequently led to a very large increase in timber supplies. This made possible a steady expansion of logging operations. Today sustainable forestry must not only ensure a reliable yield of timber and the multiple uses of forests, but also preserve biological diversity. In recent years, progress has been interrupted by the lack of governance in the forestry industry.

Structure of Ownership

Until WWII, most private forest owners were farmers who lived on their property and were engaged in crop cultivation as well as forestry. Since then the area of forest land employed by this type of combined agriculture and forestry enterprise has dropped from more than five million to less than one million hectares.

Since the fall of communism, families have sought legal redress for land confiscated and not compensated. These were predominantly collective forestry communities. This process is ongoing but now private individuals (families) are the largest single category of forest owners in Arnland. They are the dominant category, accounting for 50% of forest land. Arnland State owns only 3% of the productive forest lands. During 1990 most government‐owned timberland was transferred to a forest product corporation, Arnish Forestry, in which the state owns 65% of the shares and the remaining 35% are quoted on the Alsstad stock exchange.

Today many individual forest owners do not live on their forest land, but often in communities close to it or in more distant cities and towns. The bulk of forestry work on their properties is now performed by employees of the forest owners’ associations or by other contractors.

National Forest Policy

National Forest policy is dominated by legacy issues from the Skolkan era and communism. The national forest policy currently in force was enacted by Parliament in 1973. Goals for both forest production and forest environment have been established. These two types of goals carry equal weight. The preservation of biological diversity is a key element of the new forest policy. Arnland’s forest policy states that, forest management will be characterized by multiple uses. Forests should be able to sustain hunting and the gathering of wild mushrooms and berries as well as active silviculture. The traditional Arnish allemansrätt (right of common access) implies that regardless of who owns the land, everyone is entitled to hike through the natural landscape and to pick mushrooms and berries that grow there. This is an important element of the multiple‐use concept, but it also assumes that people behave in a respectful way. Common access is an important tradition and a privilege that is rarely abused.

Today’s forest legislation contains provisions aimed at protecting key woodland habitats for flora and fauna, selected valuable broad‐leaved deciduous trees (mainly oak and beech), forests located near upland areas and wetland forests. There are also special regulations governing some three million hectares of low-productive woodlands that are not included in the productive forest land. These regulations allow only careful low‐intensity utilization, ensuring that the character of these woodlands will remain unchanged. Key woodland habitats function as the nodes of an ecological network, while forest wetlands and low-productive woodlands often comprise ecological corridors in the landscape.

Fisheries Sector

The Arnish fishing fleet operates within an area stretching from the northeast Atlantic to the Gulf of Bothnia. The main fishing areas of the fleet are the Baltic Sea and the Kattegat. There are a large number of landing sites in Arnland. The most important are the harbors of Träslövsläge and Ängelholm on the west coast; and Trelleborg, Simrishamn, Karlskrona, Nogersund and Västervik in the Baltic. Several harbours in Denmark, such as Skagen and Hanstholm, and in Torrike, such as Göteborg, Smögen, Strömstad and Oxelösund, are also important for landing Arnish catches. For freshwater fisheries the harbour of Gränna in Lake Vättern is most important. Professional fisheries in Arnland include marine (offshore and inshore), inland and aquaculture.

The fishing sector in Arnland is decreasing; landings (value as well as quantity), vessel numbers and numbers of fishermen are all decreasing. At the same time, the prices of fish for consumption have increased, the amount of fish used for reduction has declined and exports of fish and fishery products have increased. Fish consumption in Arnland has been fairly stable during the last few years while catches of commercially important species have declined. This has also led to an increase in imports. The principal species are herring, sprat and cod, but salmon, crustaceans, eel, flatfish and several freshwater species are also important. In 2014, the most important species in domestic ports, in terms of value, were cod (34%), herring (16%), shrimps (13%), and Norway lobster (12%). In 2014 the Arnish fishing fleet consisted of 455 vessels with a total GT of 133,820, responsible for catches of 69,900 tons live weight. The fleet segments have differing capacities for adapting to changes in catch possibilities. The smaller boats usually fish from a local port, whereas the mobility of larger vessels enables them to move between fishing grounds and ports and to land abroad. This segment (the pelagic fleet with vessels >20 m) has shown very good profitability in recent years. In 2014, the Arnish fisheries sector employed about 3,138 professional fishers, including part‐time fishers. The economic value of the sector is around USD31 million. The decrease reflects primarily the increased efficiency of vessels and the decline in the fish stocks. As regards the processing industry, the number of companies are fairly stable while the numbers of employed has decreased. In 2014 there were 61 companies and approximately 1,530 employees. In 2014 there were 785 people employed in the aquaculture sector and the production had a value of approximately 8.3 million USD. The most important species in aquaculture are rainbow trout (76% in value terms), arctic char (9%) and eel (7%), all of which is mainly delivered to the domestic market, Denmark and Torrike.

Chemical Sector

As with any industrialized country hazardous chemicals are found throughout Arnland. However, due to the effects of corruption and poor administrative controls the potential for contamination of land and water sources is considered high in comparison to the Skolkan and EU average.

Defense Sector

Torrike has a 99 year lease (expires in Five years) on the Karlskrona Naval Base. Arnland benefits from a USD89 million annual rent plus other revenues. Although only 280 locally employed civilians are employed on the Base, the surrounding area draws considerable benefits from the base supporting the local shops and businesses. Torrike and Arnland are yet to announce future proposals for the base following expiration of the lease.

Banking and Finance

There are four key banks in Arnland. The National Bank of Arnland (Central Bank, the National Bank for Foreign Economic Activity of Arnland and the main retail banks ArnBank and Arn Investment Bank (AIB). Other international banks are represented in Arnland. All have required recapitalization and are reliant on funds from the IMF disbursed through the Central Bank.

A central bank circulates money on behalf of a government and acts as its monetary authority by implementing monetary policy, which regulates the money supply.

Arn Bank is a commercial bank mostly deals with deposits and loans from corporations or large businesses.

Arn Investment Bank is an investment bank which guarantees the sale of stock and bond issues, trades for their own accounts, makes markets and advises corporations on capital market activities such as mergers and acquisitions.

Arnland banking and insurance services have been over shadowed by Torrike and the EU. It had a good reputation but a number of takeovers in the early 2000 led to a number of corporate accounting scandals, which were linked to the political and business elite. These misdeeds involved complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities, sometimes with the cooperation of officials in other corporations or affiliates. As a result share values tumbled and banking regulatory agencies tried to force restructuring. This was met with limited success.

Arnland is a beneficiary of substantial international aid. However, the injection of large amounts of resources into areas of an economy prone to corruption carries significant potential for the abuse of that aid. The government’s insistence that external agencies operate through an Arnish partner company introduces strong potential for corruption across all levels.

Market Relations and Instruments

Usually, the financial services industry constitutes the largest group of companies in terms of earnings and equity market capitalization. As a result of the scandals it has been a slow growing and extremely fragmented industry. This has contributed to Arnland’s difficulties in raising credit for itself and its businesses directly affecting its ability to invest in the economy.

Taxation

The main taxes are from municipal income tax, state income tax, state value added tax, customs fees, corporate taxes and special taxes. There are also property taxes but municipal income tax pays most of municipal expenses. Taxation is conducted by a state agency, Department of Taxation, which collects income taxes from individual salaries. Municipal income tax is a flat tax of nominally 15% with deductions applied and is paid directly to the municipality (a city or rural locality). The state income tax is a progressive tax (tax brackets 5% – 41%). The state transfers some of its income as state support to municipalities, particularly the poorer ones.

The middle income worker's tax element is 42% and effective marginal tax rates are high. Value‐added tax is 10% for most items. Capital gains tax is 30% and corporate tax is 20%. Property taxes are low but there is a transfer tax (2% for apartments or 3% for individual houses according to value) for home buyers. Alcoholic beverages and tobacco are additionally taxed.

Much of the taxes are spent on public sector employees. Social spending such as health or education is below OECD medium. Social transfers are around OECD medium although there are variations between the different Län. Tax evasion is a major issue.

The overall tax burden is now around 38.1% of GDP. (OECD average Europe 34.8; USA 27.8).

In Arnland’s public service, the incentives to engage in corrupt practices are high for both those who can take bribes and those who offer them; this is particularly true for taxation. The complexity of Arnland’s tax system also allows officials to abuse their powers, enhancing corruption in the system.

High tax rates further increase the incentive for tax evasion. The impact of corruption and of tax evasion on tax revenue is not new in Arnland’s public finances. The implication is that some of the taxes paid by taxpayers are diverted away from public accounts. With corruption widespread the consequences for the tax system are destructive. It has shrunk the state revenues and thus reduced the ability of state to fulfil its obligations to society. In Arnland, it is assessed that as much as 50% of tax revenue goes uncollected because of fiscal corruption and tax evasion. One major undesirable consequence of corruption is that it reduces the distributive function of tax collection and hence contributes to increased income inequality.

Employment Status

The traditionally low‐wage differential has increased in recent years as a result of increased flexibility as the role of wage setting at the company level has strengthened somewhat. Arnland unskilled employees are low‐paid while well‐educated Arnish employees are reasonably well‐paid compared to those in competitor countries in Western Europe. The average increases in real wages in recent years have been low by historical standards, in large part due to uncertainty of the markets. Nominal wages in recent years have been slightly below those in competitor countries. This has had an effect on the young who are finding it difficult to locate more than temporary work.

In addition to those Arns who are self‐employed full time, there are others who engage in private economic activity on the side. The best known and most important examples are families who cultivate private plots (which can be as large as one‐half hectare). Their contribution in the local market is significant; according to official sources, in 2014 the farmers privately owned about 21% of the pigs, 20% of the sheep, 44% of the horses and 29% of the laying hens in the country. Doctors also work privately in their free time, subject to separate tax and other regulations. Their impact on the economic system, however, was negligible. More difficult to assess, because of its covert and informal nature, is the significance of that part of the private sector called the "second economy."

Unemployment levels have steadily risen from the start of the present financial crisis while the average time spent unemployed has almost doubled in 3 years. Rises in CPI have not been matched by wage increases generating a resultant increase in the consumer credit ratio. However, there have been regional variations in these effects with workers in the northern Län finding employment more readily in Torrike. The Torrikan city of Göteborg, already a major cross border employer, has provided a much‐needed source of employment with many industries there becoming reliant on Arnish labor. However, the overall indicators track the economic downturn and reveal the structural weaknesses in the economy.

In 2009, the global financial crisis hit the Arnland economy hard: the economy shrank considerably, unemployment climbed to 14.2% and salaries fell by 14.1%, the worst performance since comparable records began in 1983. Growing unemployment, lower income and strong regional variations continue to contribute to social unrest.

Labor Market

Labor Market

The unemployment rate was 16.8% although youth unemployment trending beyond 25%. The labor force is 2.01 million and is divided by occupation as follows:

• Agriculture, Fishery and Forestry: 3%

• Industry: 24%
• Construction: 7%
• Commerce: 6%
• Finance, insurance and business services: 21%
• Transport and communications: 9%
• Public services: 30%

The job market is regulated by the State, providing incentives to keep people in work rather than on benefit. The benefit system protects for a six month period and then the unemployed are given incentives to retrain in order to avoid losing benefits. Arnland Government has been conducting a review to reduce public employees, which at 30% (2014) of the work force is considered unsustainable. The work contract is governed by legal measures and to a lesser degree by collective agreements and individual negotiation. The work contract is generally a permanent contract, but fixed‐term contracts may be signed under certain conditions. Officially there is no minimum wage but there is an annual collective bargaining agreement which in two years ago set the minimum wage unofficially at USD 1,689 per month (but this is not binding). The negotiations for this year gave rise to tensions, as parties disagreed on this informal rate: employees wanted to have the growing cost of life reflected in at least minimal wage increases whereas their employers felt the need to adjust to rising marginal costs of production, loss of productivity and a national economy structurally on a downward slope.

Labor market regulations are flexible in many respects but again there are variations throughout the areas of Arnland. Reductions in nominal and real wages appear to be taking place yet there is a risk that unemployment rates will remain high over time. This has a particular impact on the low skilled and in this context consideration should be given to reducing the minimum wage over time. A more streamlined benefit system and greater focus on activation should help those groups with low labor market attachment historically. However, the traditional use of monetary policy to achieve this is significantly complicated by its effects on other aspects of the economy. It is difficult to see how unemployment may be reduced in the long term with substantial inward investment driving aggregate demand.

Illegal Market

The "illegal economy" consists of the income produced by those economic activities pursued in violation of legal statutes defining the scope of legitimate forms of commerce. Illegal economy participants engage in the production and distribution of prohibited goods and services. The "unreported economy" consists of those economic activities that circumvent or evade the institutionally established fiscal rules as codified in the tax code. The "unrecorded economy" consists of those economic activities that circumvent the institutional rules that define the reporting requirements of government statistical agencies. The "informal economy" comprises those economic activities that circumvent the costs and are excluded from the benefits and rights incorporated in the laws and administrative rules covering property relationships, commercial licensing, labor contracts, torts, financial credit and social security systems.(Examples: Greece is 28%, Poland is 27%, Norway is 18%, Germany is 16%).

The illegal economy is assessed at 34% of GDP (USD20 billion).

There is a black market in currency. This situation causes several problems. The fact that hard currencies are unevenly and inequitably distributed among the people on a random basis threatens to create a distinction between "haves" and "have nots." The circulation of such monies can introduce uncertainties in economic activity that can at least marginally distort the balance intended in the plan. The shadowing banking system – through which a significant part of the population, especially in the northern Lan, relies on for credit and cash money – has been on the rise in the past few years. While standing outside of the regulated banking system, it is often perceived by the users as more efficient, reliable and transparent than the standard access to credit through banking institutions. Some have even ventured to say that is less costly given the amount of kickbacks some bank officials may be asking as a “reward” for accepting borrowing applications.

Corruption

The IMF is engaging with the Arnish Central Bank on measures to reduce corrupt practices, especially money‐laundering for international criminals and the potential financing of terrorism. While this has enjoyed general support and is seen as a key test of the government’s willingness (and capacity) for reform, it has proved unpopular with those benefitting from the activities, some of them influential. Unfortunately, given the limited achievements of the State in providing support to vulnerable communities, there is a small but significant population in Arnland that welcomes the benefits brought by such practices. Both IMF and Arnish officials have been obstructed in their work with violence a constant threat.

Ultimately better governance helps fight poverty and raises the standard of living for the whole community. It is an important element in the measuring of economic data from which essential fiscal and monetary policies can be decided and is necessary for establishing confidence in trading partners. While Arnland is rated poorly on the Corruption Perceptions Index the issue is being tackled aggressively with the assistance of various arms of the World Bank.

Prevention

Arnland has introduced measures directed at both the public and private sectors. These include model preventive policies, such as the establishment of anticorruption bodies and enhanced transparency in the financing of election campaigns and political parties. The public services are subject to safeguards that promote efficiency, transparency and recruitment based on merit. Once recruited, public servants are subject to codes of conduct, requirements for financial and other disclosures, and appropriate disciplinary measures. Transparency and accountability in matters of public finance have been promoted and specific requirements are established for the prevention of corruption, in particularly covering the judiciary and public procurement. Arnland promotes the involvement of non‐governmental and community‐based organizations, as well as other elements of civil society to raise public awareness of corruption and what can be done about it. However, there is a large gap between policy and practice, the latter being heavily influenced by human factors.

Criminalization

Fraud within the financial industry costs Arnland an estimated USD1bn a year and it is believed a further USD2bn is laundered by Arnish institutions. This is a very significant amount in a weak economy and is affecting relations with other countries.

Arnland follows the UN Convention to the letter and has established criminal and other offenses to cover a wide range of acts of corruption, many of which were already crimes under domestic law. Arnland criminalized not only basic forms of corruption such as bribery and the embezzlement of public funds but also trading in influence and the concealment and laundering of the proceeds of corruption. Offenses committed in support of corruption, including money-laundering and obstructing justice, are also dealt with and this also covers the problematic areas of private‐sector corruption. However, prosecutions are very rare with very few convictions.

Asset Recovery

Several provisions specify how cooperation and assistance will be rendered. In particular, in the case of embezzlement of public funds, the confiscated property would be returned to the state requesting it; in the case of proceeds of any other offense covered by the Convention, the property would be returned providing the proof of ownership or recognition of the damage caused to a requesting state; in all other cases, priority consideration would be given to the return of confiscated property to the requesting state, to the return of such property to the prior legitimate owners or to compensation of the victims. No asset recovery has been achieved since the inception of the law.