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| Why to enter this market? |
- Currency pegged to the Euro
- Stable political environment
- Third most substantial per capita GDP in the region
- Ranked 14th in the 2010 Economic Freedom Index
- Developed telecommunication infrastructure
- Balanced state budget
- Innovative economy
- Low level of bureaucracy
- e-government already introduced
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Business and economic environment
Estonia has a modern, market-based economy and cooperates well with western countries. It benefits most of all from strong electronics and information technology (IT) industries and is greatly influenced by developments in Finland, Sweden and Germany, its three major trading partners. The Estonian economy is growing quickly, on the one hand because of Scandinavian companies which relocate their routine operations to Estonia, and on the other because Russian oil is carried through Estonian ports. Estonia is almost energy independent and meets more than 90% of its electricity needs with locally mined oil shale. Alternative energy sources such as wood, peat and biomass account for approximately 9% of primary energy production.
The industries in Estonia which play a significant role in the economy are engineering, electronics, wood and wood products, textiles, information technology and telecommunications. Agriculture, conversely, accounts for only 3.2% of GDP. The most common agricultural items include potatoes, vegetables, fish livestock and dairy products.
Estonia has not yet adopted the euro as its currency. As part of its preparations to join the Eurozone, Estonia is a member of Exchange Rate Mechanism II (ERM II) and will join the zone once it has met the “Maastricht” convergence criteria.
Estonia followed Denmark in 2008 as the second EU country to slide into a recession, and it was the first in CEE, with real GDP falling by 5.1% that year. As credit became much less freely available, GDP declined further, by almost 14%, in 2009: this was among the world’s highest rates of contraction. Increases in exports to Sweden and Finland led a modest economic recovery in 2010, when there was a 2.4% increase in GDP. The trend is expected to continue in 2011, with a 3.6% increase expected.
Because Estonia has a tiny domestic market, it focuses on selling its products to customers abroad. Major exports include machinery and equipment (21% of all annual exports ), wood and paper (9%), textiles (4%), food products (4%), furniture (7%), and metals and chemical products (9%). On the other hand, Estonia imports machinery and equipment (22% of all annual imports), chemical products (3%), mineral fuels (18%), textiles (5%), food products (6%) and plastics (6%). Interestingly, Estonia also exports 2.943 billion kWh of electricity every year. In 2010, Estonian exports were worth EUR 8.33bn, and imports EUR 8.8bn, increases of 27% and 19.7% respectively in comparison with the previous year.
However, it must be emphasised that the economic crisis in Estonia comes after a few years of unusually strong GDP growth, which reached 8.22% per annum on average between 2000 and 2007 and 10.38% in 2006. This raises the possibility that, if wisely managed during the crisis, the Estonian economy could rebound strongly in the next 5-to-10 years.
The unemployment rates in Estonia were close to the natural rate until 2008. However, because of the current state of affairs, it was not possible to keep this capped much longer at such a low level. After 5.5% in 2008, the figure soared to 13.8 in 2009 and 17.6% in 2010, and it is expected to remain high (15.7%) in 2011.
It must be also emphasised that in 2008, Estonia saw a substantial increase in the inflation rate, which crossed the 10% threshold and reached 10.4% (in comparison with 6.6% in 2007 and 4.4% in 2006). However, as a result of the recession, inflation fell again to 0.2% in 2009 and 2.4% in 2010.
Social environment
Estonia is a multicultural country in which, according to the 2000 census, 109 languages are spoken. 83.4% of Estonian citizens speak Estonian as their mother tongue, 15.3% speak Russian, and 1% speak other languages. 83.6% of Estonian residents are Estonian citizens, 7.4% are citizens of other countries, and 9% are “people with undetermined citizenship”. Interestingly, the number of Estonians who have become citizens through the naturalization process (over 140,000 people) exceeds the number of residents with undetermined citizenship (about 120,000). Its proximity to Scandinavia and the latter’s affinity with Finland have helped Estonian success and encouraged a great deal of investment.
There is only one National Holiday in Estonia, Independence Day, which is celebrated on 24 February. This is a day off work. In all, there are 12 State Holidays celebrated in the country.
The Estonian education system is made up of state, municipal, public and private institutions. There are, at present, approximately 590 schools in Estonia, along with a fair number of public and private universities. The largest public universities are Tartu University, the Tallinn University of Technology, Tallinn University, the Estonian University of Life Sciences and the Estonian Academy of Arts. The largest private university is the Estonian Business School.
Infrastructure and technological environment
In 2008, the railway infrastructure in Estonia was only 1,196 km long, and the total length of motorways was 58,034 km. There are 19 airports, 13 of which have concrete runways. Furthermore, with a population of 1.3 million in 2009, Estonia had about 2.72 million mobile telephones, 0.5 million fixed lines and 0.97 million internet users.
According to Statistics Estonia, between 2001 and 2007 the average research and development growth rate was 8%, the second best figure among the European Union member countries.
In the terms of energy production, Estonia depends on other countries. However, there is a great deal of investment in renewable energy, and the importance of wind power has been growing in the country. The total amount of wind energy produced is Estonia is now almost 60 MW. At the same time, 399 MW projects and 2800 MW projects are in the pipeline. There are also plans to build new power stations which provide more efficient oil shale based energy production. Estonia plans to use nuclear power to supplement its oil shale production.
Political environment
Estonia is a parliamentary democracy with a single chamber Parliament. Executive power is in the hands of the President, who is elected for five years. Estonia joined both NATO and the European Union in the spring of 2004.
Estonia’s liberal foreign trade regime, which contains few tariff or non-tariff barriers, is almost unique in Europe. The country’s national currency is also freely convertible at a fixed exchange rate and follows conservative fiscal and monetary policies. Estonia has free trade regimes with the European Union, the EFTA countries and Ukraine.
General data
Area: 45,226 sq km
Population: 1.3m (2010)
Capital city: Tallinn
Language: Estonian (official), Russian, Ukrainian, Finnish, others
Ethnic groups: Estonians 68.6%, Russians 25.6%, Ukrainians 2.1%, Belarusians 1.2%, Finns 0.8%, others 1.5% (2007)
National boundaries: Latvia, Russia
Major economic indicators
| |
2007 |
2008 |
2009 |
2010 |
2011f |
| GDP (EUR bn) |
15.3 |
15.9 |
14.7 |
14.3 |
14.9 |
| Population (m) |
1.3 |
1.3 |
1.3 |
1.3 |
1.3 |
| GDP per capita (EUR) |
11379 |
11842 |
10983 |
10684 |
11132 |
| GDP (constant prices y-o-y %) |
6.3 |
-5.1 |
-13.9 |
2.4 |
3.6 |
| Exports, real, y-o-y (%) |
0 |
-1.1 |
-5.5 |
27 |
|
| Imports, real, y-o-y (%) |
4.2 |
-7.9 |
-6.7 |
19.7 |
|
| CPI (average, y-o-y %) |
6.6 |
10.4 |
0.2 |
2.4 |
2.6 |
| Monthly wage, nominal (EUR) |
725 |
819 |
803 |
807 |
829 |
| Unemployment rate (%) |
4.7 |
5.5 |
13.8 |
17.6 |
15.7 |
| Net FDI (EUR bn) |
0.8 |
0.6 |
0.3 |
0.2 |
|
| FDI % GDP |
5.2 |
3.7 |
2 |
1.4 |
|
| FX reserves (EUR bn) |
2.2 |
2.8 |
2.3 |
2 |
2.2 |
| Exchange rate to USD AVG |
11.41 |
10.64 |
12.06 |
11.9 |
11.39 |
| Exchange rate to EUR AVG |
15.65 |
15.65 |
15.65 |
15.65 |
15.65 |
Last update: Q1 2011
Useful data:
Currency: Estonian kroon (EEK)
Exchange rate: EEK 1=0.06392 EUR (2007 fixed average within ERM II)
Time zone: GMT +2
Area code: +372
If you would like to find out more on the Estonian market opportunities please do not hesitate to contact us directly:
phone: (48 12) 292 22 50
faks (48 12) 292 22 99
e-mail: info@pmrconsulting.com
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