ESTONIA
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Content
Estonia INTRODUCTION • Long History as Dynamic Hub on the Baltic • Estonia’s Fact file
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BUSINESS & INVESTMENT OPPORTUNITIES • Knowledge-Based Economy with Export Potential 9 • Economy Minister Says Estonia Will Focus on Quality 11 • Agriculture Sector Offers Significant Untapped Potential 12 • Dynamic Tallinn: Regional Business Hub 13
FINANCE & BANKING • Northern Europe’s Financial Services Hub • Finance Minister Discusses Long-Term Strategies • Estonia Open For Business • New Name for Leading Bank Group
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TRANSPORT & LOGISTICS • Transport Hub Linking North and South, East and West 21 • Tschudi Shipping Company 23
TRADE & INDUSTRY • Heart of a Market of 90 Million Consumers • Business Sector Matching EU Standards • Quelle
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TELECOM & UTILITIES • Telecom, IT and Utilities: Advanced Networks and Open Markets • New Fund to Support Local and Regional Development • Eesti Telekom • Tallinna Vesi
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Regional Mananger: Tudor Stamatian
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ESTONIA
Introduction
Long History as Dynamic Hub on the Baltic Old Town of Tallinn
The Republic of Estonia, with a coastline on the Baltic Sea, is part of the Baltic region, along with Denmark, Finland, Germany, Iceland, Latvia, Lithuania, Norway, Poland, Russia, and Sweden. Now an independent republic with a thriving free market economy, Estonia has a long history.
Inhabited since the Stone Age People have lived in Estonia since the Stone Age. Various tribes migrated to Estonia and settled in the country after the retreat of the continental glaciers about 11,000 years ago, and the settlement of Estonia is considered to be among the most permanent in Europe. The Estonians worshipped their own gods and were one of the last European countries to convert to Christianity. The country is named for the Ests, a tribe who lived in the region in the first century AD. The Estonian capital city of Tallinn was founded by Danish and German crusaders and merchants. In 1441, the fraternity of Tallinn’s unmarried merchants, called the Blackheads, put up a Christmas tree in the Town Hall Square, which became the first Christmas tree in the world. They drank, sang and danced with girls around the decorated spruce, and then burned the tree. Today, Tallinn is known for its Christmas fairs.
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ESTONIA
Introduction
Centuries of Swedish and Russian rule
Enhancing ties with Western Europe
In the mid 14th century, the Danes sold their possessions in North Estonia to the Livonian Order, a religious fraternity of German crusaders. In 1523, Tallinn became a member of the powerful Hanseatic League of traders, but as a result of decades of war (1558-1629) between the feudal states of Old Livonia, Russia, Sweden, Denmark and Poland, Estonia lost its independence and came under the control of Sweden.
Since regaining its independence, Estonia has pursued a policy of co-operation with Western Europe. In December 2002 Estonia took part in EU accession negotiations with nine other countries (Cyprus, the Czech Republic, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia).
Tartu University was founded in 1632 by King Gustavus Adolphus II when Estonia was under Swedish rule, beginning a long tradition in Estonia of a focus on learning. Estonia remained under the control of Sweden until the beginning of the 18th century, when Russia conquered the country in the Great Northern War (1700-1721).
Efforts to achieve independence Estonia remained under Russian rule for two centuries. After the First World War, Estonia declared its independence from Russia on February 24, 1918, and celebrates this date as its independence day, although after the declaration it still had to fight Russian Bolsheviks and local Baltic German militia for two years to retain its independence. During the war Estonia secured its borders, and Soviet Russia officially recognised Estonia’s independence on February 2, 1920. During the Second World War in 1940, Soviet troops occupied Estonia, annexing it to the Union of the Soviet Socialist Republics. When German forces defeated the Soviet army in 1941, they occupied Estonia until 1944. After the war, although Estonia tried to restore its independence, it was incorporated as a republic of the USSR.
Estonia signed an Accession Treaty with the EU in April 2003 and formally entered the EU on May 1, 2004. It also joined NATO that spring. Today, Estonia has a modern market based economy and one of the highest per capita income levels in Central Europe.
Free market economy The economy benefits from strong electronics and telecommunications sectors and well-established trade ties with Finland, Sweden, and Germany. The agricultural sector continues to employ a large percentage of the workforce but its contribution to GDP is declining. Agricultural products include potatoes, cereals, vegetables, fruit, livestock and dairy products. Major industries include engineering, timber, furniture, paper, textiles and processed food. The services sector of the economy has grown rapidly and accounts for much of Estonia’s economic activity. The tourist industry, originally catering mainly to Finns, Scandinavians and Germans, is beginning to serve a wider international market. Estonia’s liberal tax and trade policies, along with its strategic location and highly skilled, multilingual workforce, have made Estonia a favourite among foreign investors.
The “Singing Revolution” At the end of the 1980s, thousands of Estonians took part in the “Singing Revolution”, a series of non-violent mass demonstrations in favour of independence from the USSR. In 1989, to demonstrate the Baltic States’ general wish for independence, Estonians, Latvians and Lithuanians joined hands to form a chain stretching from Tallinn to Riga and to Vilnius. Estonia finally regained its independence with the break-up of the USSR at the beginning of the 1990s. It was officially declared independent again on August 20, 1991, and the last Soviet troops left the country in 1994. Lennart Meri (born 1928), an Estonian writer, film director and philosopher, became the first president of Estonia after the restoration of independence.
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ESTONIA
Introduction
Estonia’s Fact File An ancient nation with a history of international trade, Estonia
EU membership: 2004
– a member of the EU since
Population:
1.34 million
2004 – is focusing on serving
Age structure:
15 - 64 years, 67.5%
as a productive member of the
Median age:
39.6 years
Ethnic groups:
Estonian (67.9%), Russian (25.6%),
European and global economy. Prime Minister Andrus Ansip
Ukrainian (2.1%), Belarusian (1.3%),
commented recently, “Participation in shaping the future of the European Union has become an
Finn (0.9%), other (2.2%) (2000 census) Religions:
Evangelical Lutheran (13.6%), Orthodox (12.8%), other Christian (1.4%), unaffiliated (34.1%), other
integral part of the everyday work of Estonia’s government ministers and officials.”
and unspecified (32%), none (6.1%) Languages:
Estonian (official) (67.3%), Russian (29.7%), other (3%)
Literacy:
99.8%
Capital:
Tallinn
Time zone:
UTC+2 (7 hours ahead of Washington, DC during Standard Time)
Climate:
Temperate climate, with warm summers and severe winters
Average temperatures: Summer 70°F (30°C), winter 18°F (-8°C) Independence:
20 August 1991 (from Soviet Union)
National holiday: Independence Day, 24 February (1918)
Arts and Culture Famous for folk singing and dancing National epic:
Kalevipoeg (Son of Kalev), by Friedrich Reinhold Kreutzwald (1803-1882)
Top sports:
Basketball, hockey and football
Traditional Estonian cuisine: Porridge, soups, stews, casseroles, black pudding, sauerkraut(mulgikapsad), dark rye bread, preserves and pickles, dairy products, fruit and desserts, beer, kvass, tea and coffee
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ESTONIA
Introduction Economy at a glance
Government
GDP (purchasing power parity): €22.7 billion
Government type: Parliamentary republic
GDP (official exchange rate):
€16.9 billion
GDP real growth rate:
7.1% (2007)
GDP per capita (PPP):
€17,280 (2007)
GDP by sector: agriculture:
3%, industry: 28.5%, services: 68.5%
Labour force:
687,000
Labour force by occupation:
agriculture: 11%, industry: 20%, services: 69%
Unemployment rate:
4.7%
Federal budget:
revenues: €6.23 billion expenditures: €5.68 billion
Public debt:
€107.4 million (2004)
Reserves of foreign exchange and gold: €2.6 billion (end 2007 estimate) External debt:
€19.7 billion (June 2007)
Stock of direct foreign investment at home: €13.15 billion Stock of direct foreign investment abroad: €4.66 billion Currency (code):
Estonian kroon (EEK), pegged to the euro
Sectors other than services: Agriculture:
potatoes, vegetables, livestock and dairy products, fish
Industries:
Legal system: Based on civil law system; accepts compulsory ICJ jurisdiction with reservations Suffrage: Universal for all Estonian citizens age 18 and older President: Toomas Hendrik Ilves (since 9 October 2006) Head of government: Prime Minister Andrus Ansip (since 12 April 2005)
3.4% of GDP
Inflation rate (consumer prices): 6.6% Economic aid received:
Constitution: Adopted 28 June 1992
engineering, electronics, wood and wood products
Industrial production growth rate: 7.7%
Cabinet: Council of Ministers appointed by the Prime Minister, approved by Parliament Elections: President elected by Parliament for a five-year term (eligible for a second term) Legislative branch: Parliament or Riigikogu (101 seats; members are elected by popular vote to serve four-year terms); elections last held 4 March 2007 Judicial branch: National Court (chairman appointed by Parliament for life) International organisation participation: Australia Group, BA, BIS, CBSS, CE, EAPC, EBRD, EIB, EU, FAO, IAEA, IBRD, ICAO, ICCt, ICRM, IDA, IFC, IFRCS, IHO, ILO, IMF, IMO, Interpol, IOC, IOM, IPU, ISO (correspondent), ITU, ITUC, MIGA, NATO, NIB, NSG, OAS (observer), OPCW, OSCE, PCA, Schengen Convention, UN, UNCTAD, UNESCO, UNHCR, UNITAR, UNTSO, UPU, WCO, WEU (associate partner), WHO, WIPO, WMO, WTO
Geography Location: in Eastern Europe bordered by the Gulf of Finland and the Gulf of Livonia (parts of the Baltic Sea), Latvia and Russia. Over 1,500 islands in the Baltic Sea belong to Estonia, including Saaremaa, Hiiumaa, Muhu and Vormsi. Total area: 45,226 sq km (about the size of Switzerland) of which land: 43,211 sq km, water: 2,015 sq km Highest elevation: Suur Munamagi mountain (318 m above sea level), the highest point in the entire Baltic region Largest inland body of water: Lake Peipsi, Europe’s fourth largest freshwater lake. Natural resources: oil shale, peat, phosphorite, clay, limestone, sand, dolomite, arable land, sea mud
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• Knowledge-Based Economy with Export Potential • Economy Minister Says Estonia Will Focus on Qaulity • Agriculture Sector Offers Signifant Untapped Potential • Dynamic Tallinn: Regional Business Hub
Business & Investments Opportunities
“Estonia offers a number of advantages, including well-developed infrastructure, highly developed education, advanced technologies, and labour costs that are still much lower than in Sweden and Finland, for example.” Juhan Parts, Minister of Economic Affairs and Communications
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ESTONIA
Business & Investment Opportunities
Knowledge-Based Economy with Export Potential Downtown Tallinn
When Estonia became independent of the Soviet Union in 1991, it faced daunting challenges: Russia had accounted for 92% of Estonia’s foreign trade, infrastructure had been allowed to fall into disrepair, and GDP was almost non-existent. From these bleak beginnings, Estonia has forged a thriving, modern free-market economy and has been a member of the EU since 2004. Now Estonia aims to focus on high potential knowledge-based activities to ensure a bright future. In 2007, Estonia achieved GDP growth of 7.1% and per capital GDP of €16,092, but external and internal pressures have slowed growth this year. According to Statistics Estonia, GDP has declined in 2008 to around 2% thanks to decreases in domestic demand, value added services, and exports, caused mainly by a decline in petroleum exports and in exports of services for sea and railway cargo transport. Nevertheless, capital investments have been growing this year by over 5%. Inflation is also rising, however, and higher excise duties, increases in global food prices and rapid growth in wage costs are expected to push it up to an average 9.3% for 2008.
Significant advantages for investors The government is working to meet these challenges and to continue to promote foreign investment. Estonia’s strategic location on the Baltic – Europe’s fastest growing market with more than 90 million people – along with its well-established trade ties, EU membership, stable government, advantageous fiscal regime, and highly educated population are all advantages for investors. Hourly wages just a fraction of those in Western Europe are combined with an excellent business environment. The presence of young, educated and active managers, modern production facilities and infrastructure, and success in neighbouring markets are just some of the advantages Estonia has to offer.
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ESTONIA
Business & Investment Opportunities
To date, the top foreign investors in Estonia are Sweden (39.7%), Finland (24.6%), the Netherlands (5.7%) and Denmark (4.4%). Top sectors for foreign investment are financial services (31.3%); real estate, renting and business activities (24.7%), manufacturing (14.4%), and wholesale and retail trade (13.4%).
High potential sectors Sectors targeted by Enterprise Estonia as having particularly strong investment potential in the manufacturing and related sectors include wood processing, food processing, chemicals, machine building and metalworking, manufacturing of plastic components, automotive supplies, construction, construction materials, electronics, and transport and logistics. In the services sector, Estonia has significant potential in shared services centres (including call centres, taking advantage of Estonia’s multilingual workforce), tourism, and industrial real estate.
Focus on innovation Estonia is positioning itself as an excellent base for the creation and production of innovative products. As the Ministry of Economic Affairs and Communications points out, “Estonia fully acknowledges the need to make a decisive shift from cost-based competitiveness towards a knowledgebased economy. Our long-term economic development is oriented towards increasing the role of the knowledge-based economy by stimulating private investment in research and development. The fact that the EU market has become a home market for local enterprises and that both enterprises and research institutions are able to participate in European cooperation networks, will definitely contribute to the realisation of this goal.” Estonia has developed a national policy on innovation that targets biotechnology, information technology and material technology, building on its excellent educational and research institutions. The Ministry of Economic Affairs and Communications recently launched a risk capital fund to provide financing to innovative and hightechnology start ups.
International funders The government’s willingness to adopt EU criteria and its efforts to balance the budget and promote an open economy have earned Estonia the strong support of international funding organisations.
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The European Bank for Reconstruction and Development (EBRD) has invested some €493 million in Estonia since 1991, primarily in deepening capital markets through provision of equity and intermediate capital financing to the private sector, supporting the structuring of public-private partnerships (PPPs), and promoting regional cooperation between the Baltic States and neighbouring countries. In 2004, EBRD became a one-third shareholder in Estonian Cell, investing €19 million of equity and subordinated debt in the company. This Greenfield state-of-the-art aspen pulp mill is the second largest foreign direct investment (FDI) in the history of Estonia; budgeted at €165 million, it was completed in 2006. Estonia has also received support from the World Bank, but “graduated” from the bank in 2006 and is now officially a donor country. The European Investment Bank (EIB) has also been active in Estonia, targeted some €25 million to finance small and medium sized enterprises and €15 million in a project to finance small and medium projects carried out by mid-cap companies. The EIB continues to support projects in Estonia. While the global financial crisis has created new challenges, Estonia has established a strong macroeconomic foundation for further growth and remains an attractive investment target for companies interested in carving out a niche in the high potential Baltic region.
ESTONIA
Business & Investment Opportunities
Economy Minister Says Estonia Will Focus on Quality Juhan Parts, Estonia’s former Prime Minister and current Minister of Economic Affairs and Communications, discusses recent developments in Estonia’s economy and the government’s strategies for the future. ET: After a period of exceptionally strong growth, Estonia’s economy has slowed down considerably in 2008. What do you think the long-term impact of this slowdown will be? J. Parts: The economic slowdown this year was expected, since it followed a boom period that was stimulated by Estonia’s EU membership in 2004, the low-cost EU funding coming in, the opening up of the labour market as a result of EU membership, which put pressure on local companies to make their salaries more competitive, and other factors. In my mind, our current results are more positive than negative. A boom can be risky for a small economy like Estonia. I think people’s attitudes are now beginning to change in a positive way. Local companies are starting to think more about new investments in technology and innovation to boost their competitiveness. People’s expectations are changing as well. They are starting to think more about getting more education and more training. This is all very good news for Estonia in the long term. As for the government, Estonia has always had a conservative monetary
Juhan Parts, Minister of Economic Affairs and Communications
policy, and now we need to work on modernising the public sector, delegating more responsibility to local government (we have 227 local governments, a huge number), and implementing new technologies. ET: What are the current driving forces for the economy? J. Parts: We aim to target innovation, investment in technology, education, training, research and development. The future of Estonia is quality: quality of education, quality of services, and quality of products. We are going to use EU funding to develop and encourage more value-added, knowledge-based activities here. Estonia is no longer the cheap labour country it was in the 1990s. Investors looking only for cheap labour should not come here. Estonia is already very close to Scandinavia in many ways. Scandinavian countries contributed greatly to Estonia’s economic development, not only in terms of money but in knowledge, ways of doing business and economic strategies. Estonia’s business culture is closer to the Scandinavian model than to the business cultures of the other Baltic states,
although from a market perspective, the Baltic states are basically one market. Over the next ten years, I see Estonia becoming more and more like Scandinavia, but with substantially lower labour costs. Like Scandinavia we are developing our services and high technology sectors, but we offer lower labour costs for companies in these and other fields. ET: Why should investors choose Estonia over other Baltic countries? J. Parts: Estonia offers a number of advantages, including well-developed infrastructure, more European ways of doing business, highly developed education and skilled labour, advanced technologies, a growing services sector, and labour costs that are still much lower than in Sweden and Finland, for example. I don’t like the labels “old” and “new” Europe, but if we have to use them, Estonia is a modern version of old Europe. The government has never invested very much time or money in promoting Estonia internationally, but if we did, we could point to our outstanding record in education. A recent OECD study of science education in 57 countries ranked Estonia fifth in the quality of its education. An international company could base its research and development activities here in Estonia and do business all over the world from here. We target investors whose businesses we feel are essential for Estonia and we give them personalised treatment, financial support and other special incentives.
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ESTONIA
Business & Investment Opportunities
Agriculture Sector Offers Significant Untapped Potential Estonia’s agriculture sector includes thriving forestry, fisheries and food production activities, and has significant development prospects, according to HelirValdor Seeder, Minister of Agriculture. He points out that Estonia’s agriculture sector suffered as did other sectors in the period of transition to a market economy, and today it needs more capital investment to reach its full potential. “The agriculture sector has benefited from EU funding since Estonia joined the EU in 2004, and luckily there are foreign investors who have already recognised the possibilities of Estonian agriculture,” he says. Estonia’s agriculture sector offers a number of advantages for investors. “A country either has good natural conditions for agriculture or it does not. Here in Estonia, we have abundant water resources that may be lacking in other countries, and conditions are particularly good for meat and milk production,” Helir-Valdor Seeder explains. He adds that the government has also promoted education and training in agriculture, and now high quality human resources are available, also cattle breeding has long tradition in Estonia. Estonia’s tax incentives are another draw. Estonia’s agriculture sector also benefits from Estonia’s well-developed infrastructure, including advanced e-services.
Extensive undeveloped agricultural land Estonia has around 300,000 to 400,000 hectares of unused agricultural land that can be developed for food production, production of crops for bio fuels or for other agricultural projects. The choice of which type of production should be based on market demand, the minister believes. Concerning bio fuels, Estonia is working to meet the EU goal of using bio fuels for 10% of its fuel needs by 2020, and it is targeting the production of third-generation bio fuels that are made from non-food products.
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Helir-Valdor Seeder, Minister of Agriculture
At the moment, however, it is working with first-generation bio fuels in this very new field and welcomes foreign investment and technology transfer. “Bio energy has very great potential in Estonia,” Helir-Valdor Seeder believes. Estonia already produces more agricultural products than the country – with a population of only 1.3 million – can consume, and it has well-developed export activities, for example in the Russian market. “If an investor in agriculture wishes to access the Russian market, Estonia is the best choice,” Helir-Valdor Seeder says. Estonia has attracted three types of foreign investors in agriculture, according to Helir-Valdor Seeder: small farmers who wish to live and work in Estonia’s well-preserved natural environment, investors who create larger agricultural enterprises, and investors who acquire existing Estonian agricultural companies, particularly meat and milk production and processing facilities. “All have been successful here,” the minister says.
ESTONIA
Business & Investment Opportunities
Dynamic Tallinn: Regional Business Hub Tallinn, Estonia’s capital city, illustrates the country’s successful mix of old and new. Tallinn’s historic Old Town, designated a UNESCO World Heritage site, is filled with medieval buildings that reflect Tallinn’s long history as a major trading centre on the Baltic, while minutes away is the new part of the city, filled with gleaming modern office buildings, luxury hotels and cultural venues. Now with a population of more than 400,000, Tallinn has been growing rapidly, so rapidly that Mayor Edgar Savisaar says that other cities think Tallinn has been growing TOO fast. “Maybe we should hold ourselves back so that other urban centres can catch up,” he jokes. Tallinn has been among top 7 intelligent communities in the world for 2 years in a row. “I am very proud that my town is one of the role models for the world’s best practices in creating competitive local economies and vibrant societies in today’s hypercompetitive global economy,” says the Mayor.
The city reflects Estonia’s past, present and future Tallinn’s cultural life is rich and varied, featuring concerts, theatre, art galleries, fine museums, restaurants and a lively nightlife. In addition, Tallinn has developed world-class services for executive travellers, including state-of-the-art hotel and conference facilities. Tallinn’s international airport offers quick and easy connections to destinations around the world, while its modern port is the busiest on the Baltic in handling both passenger and cargo traffic.
Financial services hub Edgar Savisaar explains the city’s planners are taking a very international perspective, modelling the Tallinn of tomorrow with leading regional centres like St. Petersburg, Helsinki and Stockholm. They are also positioning Tallinn as a regional financial services centre.
Edgar Savisaar, Mayor of Tallinn
In early December this year, Enterprise Estonia, Tallinn City Enterprise Board, the British Embassy’s UKTI department and IFSL hosted a dinner in London for representatives of major international financial institutions to showcase Tallinn’s growing role as a financial services hub. In order to introduce our strengths and attract cooperation partners the City of Tallinn in cooperation with Enterprise Estonia are organising the International Financial Services Conference February 17, 2009. We are looking forward to seeing international financial institutions´representatives who are interested in working with us. Tallinn’s uniqueness in Estonia is illustrated by the fact that around 80% of all investment in Estonia is in Tallinn. In fact, according to Edgar Savisaar, Tallinn has attracted more FDI than any other city in Eastern Europe. One of the city’s priorities is to develop more facilities and services for business travellers and for international conferences as Estonia strengthens its role as a global business base. Edgar Savisaar concludes, “Tallinn’s uniqueness is linked to its history. For example, we have St. Olaf’s church, which was the tallest building in the medieval Europe. This shows that Tallinn has always dared to do what others do not. We are not afraid to take risks. Today, we have our very historic Old Town with a modern city right next to it. The modern city will eventually be filled with skyscrapers.”
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• Northern Europe’s Financial Services Hub • Finance Minister Discusses Long-Term Strategies • Estonia Open for Business • New Name for Leading Bank Group
Finance & Banking
“We will continue to ensure a very investor-friendly business environment for both local and foreign investors.” Ivari Padar, Minister of Finance
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ESTONIA
Finance & Banking
Northern Europe’s Financial Services Hub Since independence in 1991, Estonia has consistently pursued pro-business politics aiming at attracting foreign capital and creating world-class financial services, and today Tallinn is recognised as Northern Europe’s financial services hub and a key link between East and West.
Estonia’s extremely attractive tax environment, business friendly government, the presence of leading European financial services providers, and top quality human resources have combined to stimulate the continued strong growth of financial services, and there are still many opportunities for investors.
Banking sector dominated by foreign banks The liberalised Estonian banking sector is now dominated by foreign banks. The market leader is Hansabank (owned by Swedbank), which has operations in all the three Baltic states and Russia. The second largest Estonian bank is SEB, fully owned by the Swedish SEB group. Nordea and Sampo (Danske Bank) are other major players on the Estonian banking market, and Krediidipank, DnBNord, Handelsbanken, Äripank and Balti Investeeringute Grupi Pank have a strong presence as well. A number of fast growing asset management and corporate finance houses have also established
operations in Tallinn. SEB Enskilda has been handling its coverage of the Baltic markets from Tallinn since 2006, and the leading North European fund manager, East Capital, opened its Tallinn office in 2007. Several major international accounting and auditing companies, as well as law firms, are present in Tallinn, and generally these industries have grown rapidly in recent years, increasing both in the number of registered companies and in activities. Concerning office property, A-class office space is limited in Tallinn but a number of key projects in the works will make more high quality space available in the future. Rents of new office space in Tallinn start at around €15 per sq m per month and sales prices start at around €2,000 per sq m.
Strong international links, world-class infrastructure Tallinn benefits from well-established links to global business
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ESTONIA
Finance & Banking
centres. As of last year, 25 international destinations could be reached in direct flights from Tallinn, with 13 flights per week to London, 32 to Stockholm and 49 to Helsinki as of mid-2007. In addition, Tallinn’s sea port serves seven million passengers per year. Estonia also benefits from its very advanced infrastructure. In fact, according to the World Economic Forum’s Network Readiness Index, Estonia ranks 20th among European business centres surveyed, just behind Germany and ahead of France, Slovenia, Lithuania and Latvia, among others.
Regulatory environment meets EU standards As an EU member, Estonia has developed a strong legal framework for the financial services sector that meets EU standards. The sector, including the Tallinn Stock One of Estonia’s many banks
Exchange, is overseen by the Ministry of Finance and the Financial Supervision Authority. The Tallinn Stock Exchange is a member of the OMX system, and is rapidly growing thanks to foreign capital inflows and IPOs. For a number of years, the Tallinn Stock Exchange index (formerly TALSE, currently OMXT) has outperformed most other European stock exchange indices. The Central Securities Depository provides world-class services. The bonds market does not include government bonds, since the government has not needed to issue them, but does include commercial bonds and papers.
High rankings on international surveys Tallinn scores well in international rankings of financial centres. A study by the British publication “Global Financial Centres Index” (2007)
ranked Estonia one of the leading financial services centres among 121 centres surveyed in such factors as human resources, strength of the banking system and efficiency and diversity of financial markets, and the Milken Institute ranked Estonia 21st among 46 international financial centres on its Capital Access Index. In fact, the World Competitiveness Report for 2006, which judged competitiveness based on a wide range of factors, ranked Estonia an impressive 20th among countries surveyed, placing it ahead of the UK (21st) and Germany (26th), among others. In yet another positive ranking, Forbes placed Estonia seventh among global financial services centres in “capital hospitality”.
Future prospects for financial sector Moreover, Estonia’s financial services sector is in a growth phase. Hansabank increased its lending from €3.3 billion in 2002 to €14.9 billion by the end of 2006, and East Capital, the leading funds investor in the Estonian market, increased its Baltic Countries Fund from €7 million in 2002 to more than €200 million in 2006. Several IPOs have been made on the Tallinn Stock Exchange and several new banks and asset management companies have been established in the city during the last few years. The government is committed to maintaining a favourable tax regime and a simple regulatory framework as well as ensuring excellent human resources through education. Estonia welcomes new financial services providers and offers them first class opportunities. As investment promotion agency Enterprise Estonia points out, “Tallinn offers unique opportunities as a relatively newly established financial services location with high ambitions.”
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ESTONIA
Finance & Banking
Finance Minister Discusses Long-Term Strategies While Estonia’s strong GDP growth slowed considerably this year, the government’s stable long-term policies have created the solid foundations Estonia needs to cope with the global economic downturn, according to Minister of Finance Ivari Padar. He points out, “For the past three years, we have been preparing for every possible scenario. One advantage we have is that our large budget surplus from last years has boosted government reserves. Estonia has the third largest surplus of any EU country and the lowest national debt.”
In any case, the downturn in GDP growth this year must be seen in context, Ivari Padar explains. Up until this year, Estonia’s GDP had been growing at around 12%, while normal GDP growth would be around 6% to 8%. He says, “In two years, 2005 and 2006, we actually achieved the normal growth of three years. That’s why we do not view the decline in GDP as a crisis; it’s a correction that was needed. We are also seeing inflation go down, for example.”
Average GDP growth of 5% The minister adds that one positive outcome of the current downturn is that people are more aware of the necessity to curb Ivari Padar, Minister of Finance financial risk taking. He expects this year to be the slowest in GDP growth with the pace picking up again to average around 5% per year up to 2011. As for Estonia’s goal of adopting the euro, a move postponed this year, the minister says that this will depend on many factors, including oil prices, but he expects Estonia will meet the criteria by 2011. He anticipates that inflation will continue to decline to around 4.2 percent next year. He adds, “We will have to make some tough decisions and be single-minded in implementing them.” It will be crucial for Estonia, with its limited domestic market, to boost its exports, and the minister foresees exports picking up considerably by 2010. A key task for the Ministry of Finance is to contribute to Estonia’s economic restructuring. The country was formerly attractive to investors for its low-cost labour; that has changed and now Estonia is promoting itself as a base for value-added activities. “In any case, we will continue to ensure a very investor-friendly business environment for both local and foreign investors. Our tax policies are some of the most attractive in the world,” Ivari Padar says.
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Finance & Banking
Estonia Open for Business “Estonia’s current economic situation is one of the most challenging since the early 1990s,” notes Andres Lipstok, Governor of Eesti Pank (Bank of Estonia), which conducts the country’s national monetary policy. “Estonia’s economy entered the recession already at the very beginning of 2008. The initial triggers were related to the adjustment in the real estate sector and the declining sentiment of households. But now we have to acknowledge that the negative impact stemming from the global financial crisis and the easing of external demand has turned out to be more serious than expected and the growth outlook has deteriorated even further.”
and the improvement of the external balance. By the end of 2008 the consumer price index had decreased to 7%, nominal wage growth to 10 and the current account deficit to GDP ratio is not double-digit any more. These developments indicate that market forces are functioning smoothly and Estonia is in a good position to successfully pass the stress test of recession years. Hopefully, market participants will appreciate the resilience of Estonia’s economy and it will be a new “branding” for the country.
Andres Lipstok, Governor of Eesti Pank
As a result, Estonia is listed among the countries severely hit by the recession. Nevertheless, the Governor sees no need for strategic policy revisions. “Our approach has always been to present Estonia as a very open and transparent economy with a non-intervening government,” continues Andres Lipstok, referring to the openness exhibited towards foreign trade and investment that has characterised Estonia since it returned to independence in the 1990s. Throughout the period of regained independence, Estonia has maintained the fixed exchange rate regime under the currency board arrangement, which has bolstered the credibility of the peg. Under these circumstances the fiscal policy has to play the role of a major economic policy tool. It basically means that the private sector must be flexible enough to stand cyclical fluctuations. The economic decline, which was steeper than expected, has speeded up the adjustment of prices, wage growth
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In this context it is important that the Estonian government has indeed kept the fiscal house in order and the external reserves have been increasing for 5 consecutive years. This is a real advantage in the current turbulent times. Due to the recession the budget swung into deficits in 2008 and expenditures are expected to exceed revenues in 2009-2010 as well. Andres Lipstok stresses that there is a strong commitment not to break the -3% borderline. The amount of reserves allows us not to worry about the borrowing conditions and seek for the best desired financing mix. The Governor notes that conservative fiscal policies have been accompanied by one of the lowest EU tax burdens and the postponed business profit tax (re-investment is tax-exempt) has been a key attraction for potential investors in Estonia. “We welcome more investment, especially in the exporting sector,” says Andres Lipstok. He also points out that Estonia offers the advantage of its location between eastern and western Europe, which makes it suitable for the delivery of regional transport, for example. Moreover, production costs are lower here than in old EU member states.
ESTONIA
Finance & Banking
New Name for Leading Bank Group The Hansabank Group’s history in Estonia dates back to 1991 when Hansabank started operations as a branch of Tartu Commercial Bank. Today, Hansabank Group, now a fully owned subsidiary of Swedbank Group, is both Estonia’s largest company in turnover and the biggest financial institution in the Baltic States. In Estonia the bank is a leader in retail banking, corporate banking, asset management, investment management and leasing services. It has implemented the latest technologies to offer cutting-edge online and mobile banking.
Estonia’s investment attractions To counteract the downturn, Estonia is stepping up its efforts to attract foreign investment. Erkki Raasuke, a frequent participant at international equity road shows, feels that international capital markets have always responded very well to Estonia because of its high transparency, simplicity and deserved image as a no-fuss business destination. “The best way to attract investment to Estonia is by achieving top scores in key indicators such as Transparency International’s Corruption Perception Index, in which Estonia was tied for 28th place in 2007, and the World Bank’s Ease of Doing Business Ranking, in which Estonia was 17th in 2007,” he points out. Erkki Raasuke, Chairman of the Board
New name reflects global perspective
Enhancing regional co-operation
Hansabank announced earlier this year that it will re-brand all its operations to Swedbank by autumn 2009. Erkki Raasuke, Chairman of the Board of Hansabank Group, explains that the new name reflects an increased focus on global perspectives. “We are taking on a more international approach and wish to develop further as an international company,” he says.
Along with its new focus on global perspectives, Swedbank aims to promote regional co-operation. Given the limited domestic markets of the three Baltic states, “there are more benefits to be gained from sticking together, and the Baltic-Nordic connection has great potential. We also want to be part of Europe in a good sense, as good EU citizens,” Erkki Raasuke says.
The move comes as the domestic economies in Estonia and the other Baltic States face a significant slowdown following the rapid growth of previous years. “This slowdown will give us time to check our pulse and readjust to the rapid growth of the last few years,” Erkki Raasuke explains.
As Swedbank, the bank will continue its strong programme of community service initiatives in Estonia and will continue to expand its branch and ATM networks and its portfolio of products and services to provide the best possible support for its customers.
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• Transport Hub Linking North and South, East and West
Transport & Logistics
20
Transport Hub Linking North and South, East and West Transport and logistics play a vital role in the Estonian economy. The country’s favourable geographic location combined with its well-developed infrastructure have positioned Estonia as a key international transport and logistics hub that links East and West as well as North and South. Estonia offers outstanding opportunities for investment in all transport and logistics related activities, and the government is making sure that Estonia keeps its competitive edge as an investment target.
The transport and logistics sector is a top priority for the government in its development plans. Approximately 8% of the country’s workforce is employed in transportation and road management, and transport and telecom now account for 15% of Estonia’s GDP.
Efficient rail and road links to Russia, CIS markets and Asia Railway transport dominates the cargo sector, handling 80% of all cargo, both domestic and international, while most passenger traffic (90%) is by road. Both rail and road transport and logistics services are growing rapidly and attracting increasing amounts of FDI. Concerning road transport, main routes connect Estonia with Russia (St. Petersburg and Moscow) in the east and with Latvia in the south. The Via Baltica connects Central and Northern Europe with the Baltic states. Rail transport in Estonia is increasing, with most of the traffic handled by AS Estonian Railways, which operates shuttle trains for containers on the Tallinn - St. Petersburg - Moscow - Tallinn route. Estonia’s railway system is directly connected to the Russian railway system and to the systems of other CIS countries, and with Asia via the Trans-Siberian line.
21
ESTONIA
Transport & Logistics
Air transport also increasing Estonia is also boosting its air transport activities. The country has 12 airports and one heliport, with Tallinn International, whose main terminal was recently renovated, providing services to 27 international destinations. Thanks to its recent expansion, Tallinn International can now handle 1.4 million passengers per year and will help boost Estonia’s tourism industry.
Estonia’s ports handled 44.7 million tonnes of cargo in 2007 Sea transport also offers growth potential, since Estonia is capturing a bigger share of Baltic trade. Traffic through the Port of Tallinn has doubled since 1997, and in 2006 the port handled 41.3 million tonnes of cargo and 7 million passengers. Last year, the total cargo volume handled by Estonia’s ports reached 44.7 million tonnes. All Estonia’s major cargo ports – in Tallinn, Pärnu, Kunda, and Sillamäe – offer easy navigational access, deep waters, and good ice conditions. Estonian ports provide excellent opportunities for value-added logistics services and can serve as distribution centres for companies active in markets throughout the Baltic region and beyond. The Port of Tallinn has become a top centre for the transport of goods between Russia, other CIS countries and Western Europe, and it also has great potential to expand its passenger traffic.
Transit volume 83% of total cargo turnover in Port of Tallinn Transit volume comprises 83% of total cargo turnover in the Port of Tallinn, thanks to Estonia’s well-established links with other international ports. There are daily ferry links from
22
Port of Tallinn
Tallinn to Helsinki and Stockholm, as well as frequent cargo ferries to Antwerp, Rotterdam, Copenhagen, Hamburg, Kiel, Harwich and other key ports.
Investor-friendly free zones To help boost development of sea transport and logistics activities, the government established free zones in the Port of Muuga and the Port of Sillamäe. Companies there enjoy more flexible and simplified customs procedures, easy transfer of ownership rights, and the support of other value-added operations. The free ports are designed to foster the development of distribution centres and manufacturing facilities in Estonia.
Ambitious new transport infrastructure development plan Estonia’s government continues to invest in Estonia’s transport and logistics infrastructure to help strengthen Estonia’s position as a transport and logistics hub. The Ministry of Economic Affairs and Communications has formulated an ambitious Transport
Development Plan for the period 2006 to 2013. Its mission is to guarantee that Estonia’s transport system “ensures the mobility of people and goods while being effective, safe and environmentally friendly.” The plan is being co-ordinated with Estonia’s National Road Traffic Safety Programme for 2003 to 2015 and its Road Management Plan for 2006 to 2009, and it includes a strong focus on enhancing the public transport infrastructure. These new programmes offer significant opportunities for foreign companies to get involved in Estonia’s transport and logistics sector. Thanks to its strategic location on the crossroads between East and West and North and South, Estonia is attracting an increasing number of foreign companies involved in transport and logistics. In fact, investment in these sectors accounts for 3.7% of total FDI in Estonia. Low transit costs, highly skilled labour, and good communication links add to Estonia’s advantages for investors, and make Estonia’s transport and logistics sector an investment opportunity no international company can afford to ignore.
ESTONIA
Transport & Logistics
Tschudi Shipping Company
Diverse Shipping Group Offering Optimal Solutions The Tschudi Shipping Company is a privately owned Norwegian ship owning company with roots dating back to 1883. The Tschudi Group, represented through its subsidiaries in many European countries, has a strong presence and ambitions within logistics and transportation. The Tschudi Group’s activities involve sea-borne, rail, road, and project cargo, and container transportation in the Baltic Region, Barents Sea and CIS. Other business areas where the group has major interests backing these operations are offshore and ocean going towage, ship management, ship owning, and ship operations.
Jaan Kalmus, Deputy Managing Director
In Estonia, Tschudi’s business units are active in shipping, container services, transport and logistics, ship management and related fields. Jaan Kalmus, Deputy Managing Director says, “Estonia is still developing but it has progressed very quickly. The Tschudi Group has also played a role in this positive development and
Tschudi Shipping Company AS Strandveien 50 1366 Lysaker NORWAY Tel: + 47 67119880 Fax: +47 67119881 E-mail: admin@tschudishipping.com www.tschudishipping.com
amongst others the Group is one of the biggest users of the Muuga Container Terminal playing a vital role both for export/import cargoes and for transit cargos.” The former Soviet Union is a major growth market for Tschudi. “With such a large economy still in good growth and limited port facilities, there will be a need for offering port services offloading Russian ports as these ports currently do not have the capacity for all the country’s imports. The Baltic States and Finland have played a role here and we expect them to continue to do so. Hence, Tschudi Logistics now has a presence in all these states offering solutions for all kind of goods including project cargoes. Backed by the Tschudi Group these offices can offer very interesting solutions to most logistic and transport challenges,” Jaan Kalmus explains. Tschudi welcomes international partnerships. Jaan Kalmus points out, “We need to show how successful partnerships have benefited Estonia.”
Estonian Shipping Company Ltd Sadama Str 4 15096 Tallinn ESTONIA Tel: +372 6409500 Fax: +372 6409595 E-mail: online@eml.ee www.eml.ee
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• Heart of a Market of 90 Million Consumers • Business Sector Matching EU Standards
Trade & Industry
24
ESTONIA
Trade & Industry
Heart of a Market of 90 Million Consumers Proximity to Scandinavian markets, a strategic location linking Eastern and Western Europe, competitive costs of doing business and a highly skilled labour force have spurred on the development of Estonian trade and industry since the 1990s. Ever since Estonia became a member of the EU in 2004, its advantages as a base for trade-oriented enterprises have increased dramatically. The government is making sure that Estonia positions itself as a top choice for international investors in export-oriented activities by investing extensively in infrastructure, ensuring a supply of highly skilled workers, and developing investment incentives, including free trade zones.
Heart of Europe’s fastest growing market Estonia has been a member of the World Trade Organisation since 1999 and has a very open trade policy designed to support continued economic expansion. It also benefits from being in the heart of the Baltic region, Europe’s fastest growing market with a total of more than 90 million consumers. This market includes Scandinavia, northern Germany, the Baltic States, Poland, Russia and CIS countries. Estonia is ideally located to serve as a link among these huge markets.
Estonian Foreign Trade 2000 - 2007, special trade method (billion EUR) 1210-
8,2 7,7
864- 3,4
4,6
3,7
5,1
4,8 3,6
5,7 4
11,3
10,7
Imports
Exports
6,7
8
6,2
4,8
20-
2000
2001
2002
2003
2004
2005
2006
2007
Source: Statistics Estonia (http://www.stat.ee)
Exports Country of destination
2006 %
Imports 2007 %
Country of origin
2006 %
2007 %
Finland
18.2
17.9
Finland
18.3
15.9
Sweden
12.2
13.2
Germany
12.4
12.9
Latvia
9.1
11.4
Russia
13.0
10.2
Russia
7.8
8.8
Sweden
9.1
10.1
Lithuania
4.8
5.7
Latvia
5.8
7.6
Germany
5.0
5.2
Lithuania
6.5
6.8
USA
6.6
4.2
Poland
3.8
4.5
Togo
1.0
3.4
Netherlands
3.5
3.4
Norway
2.6
3.4
UK
2.0
3.7
UK
2.6
2.8
Italy
2.5
2.8
Source: Statistics Estonia (http://www.stat.ee)
Ministry of Economic Affairs promoting entrepreneurship As the Ministry of Economic Affairs and Communications points out, Estonia’s full integration with the EU will enable Estonia to catch up with the performance of other thriving economies in the region. To
make sure this happens as quickly as possible, the ministry has devised a number of programmes to create favourable and attractive conditions for businesses and provide them with the region’s most competitive economic environment. To promote entrepreneurship, for example, the ministry has created
25
ESTONIA
Trade & Industry
a national business support system through which all enterprises engaged in business activities in Estonia can apply for state support for the creation of the infrastructure necessary for their operations, training of personnel, participation in fairs and more. Product and technology development and cooperation between businesses, research institutions and universities are the ministry’s priority areas in considering the provision of support under this scheme. The ministry assists foreign investors by providing information and assistance with finding partners in Estonia and with communicating with state and local government agencies. “The government’s aim is to ensure that investment projects can get underway with the minimum investment, in terms of both time and financing,” the ministry states.
Exports reached €8 billion last year Estonia’s foreign trade has been growing rapidly over the past few years. In 2007, Estonia achieved some €8 billion in exports, with imports of around €11.3 billion. These totals represented an increase of 4% in exports compared to 2006 and a 6% growth in imports, the smallest growth in imports in four years. In 2006, Estonia’s exports grew by a record 24% and its imports by 30%. Last year, Estonia exported goods to 131 countries and imported from 98 countries. It achieved a positive trade balance with 74 countries.
EU leading trade partner The EU is Estonia’s top trade partner by far, accounting for 70% of its exports, with CIS countries accounting for 11%. Estonia’s exports to the EU grew by 11% in 2007 while exports to CIS countries grew by 14%. Estonia’s leading export markets are Finland (18% of total exports), Sweden (13%) and Latvia (11%). The biggest increase in exports last year was to Latvia and to Togo.
Top export and import commodities Estonia’s top exports are machinery and equipment (21% of total exports), followed by mineral products, wood and wood products, and metals and metal products. Exports of agricultural products, processed foods and transport equipment saw the strongest growth in 2007, while exports of mineral products and of machinery and equipment decreased. Top imports are machinery and equipment (22% of total imports), followed by mineral products, transport equipment and metal and metal products. The biggest increases last year were in transport equipment, agricultural products, processed foods, and metals and metal products, while imports of machinery and equipment declined.
Targeted sectors for investors Enterprise Estonia, the country’s trade and investment promotion organisation, has targeted a range of export-oriented sectors as having particularly strong investment potential in Estonia. These include both manufacturing and services. The government is particularly promoting innovative activities in information and communications technologies, biotechnology and advanced materials technologies. On its website, Enterprise Estonia details specific opportunities for investors in wood processing, food processing, machinery and metalworking, construction and construction materials, chemicals, electronics, transport and logistics, biotechnology, tourism, call centres, financial services and other sectors. For trade oriented enterprises, Estonia is a top choice. Estonian Exports by Commodity Groups, 2007 Raw materials and products of 5% others 11%
The EU is also Estonia’s top source of imports, accounting for 78% of the total compared to 13% for CIS countries. Last year Estonia’s imports from the EU rose by 11% whereas its imports from CIS countries decreased by 13% compared to 2006. Top sources of imports by country last year were Finland (16% of total imports), Germany (13%) and Russia (10%). While imports from Russia and Finland decreased last year, those from Latvia and Sweden increased.
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Textiles and articles thereof 5%
Mineral products 12%
Miscellaneous manufactured 8% Transport equipment 9%
Machinery and equipment 21%
Agricultural products and food preparations 9%
Metals and products thereof 10%
Source: Statistics Estonia (http://www.stat.ee)
Wood and products thereof 10%
ESTONIA
Trade & Industry
Business Sector Matching EU Standards Significant improvements in the way many businesses in Estonia are run have closed the gap between Baltic companies and their western counterparts, according to the Estonian Chamber of Commerce. Toomas Luman, President of the Estonian Chamber of Commerce and Industry, which offers business-related services to promote entrepreneurship in the country, points to local managers who were previously amateur in their approach but are now as professional as their colleagues in the west. He adds that Estonia is matching its Western European counterparts in other ways. “Estonia has done well when you look at the penetration of mobile phones and use of the Internet on an everyday level,” he explains. Estonia’s exports have increased, and many sectors have achieved great progress, including fashion, where the business model has evolved from providing tailoring and other services to western firms, to creating Estonian labels of clothing sold abroad. For the future, the Chamber of Commerce would like to see Estonia provide the ‘psychological catalyst’ for fresh efforts by its entrepreneurs, politicians and the entire population to boost the national economy in a tough global climate.
According Toomas Luman, Estonia’s current high inflation (which hit 11.4% in 2008) and low growth are rooted in a decade in which the economy suffered the effects of its own stock market crash, as well as the financial crisis in Russia and the Far East. Another underlying factor is that Estonian firms are generally small and highly flexible, but lack the capacity to sell to huge wholesale European networks. But the current situation also provides the government with an opportunity to make some unpopular but necessary decisions that could bring significant benefits. “Estonia needs to train far more engineers and IT people,” says Toomas Luman. To provide a strong positive influence, the Chamber says the government must also reduce the number of its civil servants by around 20%. Administrative reform is also required in a country whose municipalities are simply too small to fulfil public service needs. “If people see that these changes are being made, this will provide a psychological catalyst for entrepreneurs and the population to regain their drive,” says Toomas Luman. The private sector and individuals have a key role to play in Estonia’s future, says Toomas Luman. “The government can only do so much. The taxation system is good, but the systems of administration and education need to be reformed.”
27
ESTONIA
Trade & Industry
Quelle
E-Shopping and Much More An e-shop, a fashion show and tips by customers for customers: these are just a few of the new offerings from Quelle Estonia. The Quelle group has been providing exceptional shopping services since 1927 when it was founded by Gustav Schickedanz in Fürth, Bavaria. Quelle published its first catalogue in 1928 and made its first deliveries that year by wheelbarrow. Quelle has come a long way since then.
The group now has 15 subsidiaries that bring the famous Quelle catalogues, e-shopping and other services to customers all over the world. Quelle Estonia publishes print catalogues, launched its online shopping service in 2007, organises events, and this year is offering customers a new large format catalogue and a new collection by the winner of the young-designer contest Roberta Einer. Quelle was named Estonia’s best trading company last year. Its recipe for success? Careful selection of customers to optimise print runs of the catalogues, expanded Internet services, and events which enhance the Quelle brand name.
Covering the Baltic market Quelle chose Estonia as its base in the Baltics. Mari Rahumägi, Executive Director, explains, “We registered
Quelle stands for charity – CEO Mari Rahumägi hands over a donation for a children’s hospital
28
the company in Estonia because Estonia’s legal system makes it easier to set up a company here and the tax system is very simple. We entered the Latvian market from Estonia in 2004 and we aim to enter the Lithuanian market early next year in the same way. Covering the whole Baltic region from Estonia is a very good deal for us. This regional focus means we have seven million potential customers, with 1.4 million of those in Estonia.” Quelle Estonia has been seeing a steady rise in sales. Mari Rahumägi explains that one key factor behind this success story is Quelle’s innovative e-shop, where around half of the company’s business is now done even though the service was launched only a year ago. She says, “Our business is about data, so we are investing heavily in new information technology solutions. We possess a huge amount of data,
Quelle stands for fun and free time with family – big boys (members of the Estonian Parliament) the baking pancakes for 300 guests
ESTONIA
Trade & Industry
Quelle stands for healthy lifestyle – beach-ball cup tournament in Estonia
Quelle stands for children and strong family – valus – a ginger-bred baking contest in Tallinn
and using data properly brings value to customers and generates profits for the company.” Another benefit for Quelle Estonia is that around 75% of its sales concerns textiles, a kind of product that people continue to buy even as inflation rises.
Revolving credit a popular service
Outsourcing strategy Outsourcing all but its core services is another successful strategy for Quelle Estonia. “Our core business is to serve customers, and you don’t have to do everything in the supply chain on your own to bring value to your customers,” Mari Rahumägi believes. Quelle Estonia has outsourced its logistics to Czech partners and part of its supply chain to Finnish company Itella, formerly Finnish Post. This outsourcing strategy has helped Quelle Estonia cope with Estonia’s shortage of labour and keep costs under control. While many other mail order companies are competing with Quelle, the company does not view these companies as a threat. “Our biggest competition is definitely retailers, and every new square foot of retail space they open in the Baltics,” Mari Rahumägi points out.
To cope with this kind of competition, Quelle has devised a number of consumer-friendly services that other retailers cannot match, like revolving credit, an exceptionally wide selection of goods, and excellent prices thanks to the support of the international Quelle group. The revolving credit option is particularly popular, especially since Quelle’s extensive database allows it to communicate credit decisions to customers immediately. Mari Rahumägi believes that Estonia has excellent growth potential, for example in information technology since this small country has proved to be a global leader in adopting new technologies, particularly e-services. She says, “IT solutions have made life in Estonia so much easier. For example, e-banking services here mean that I never have to visit a bank. E-school services let parents check on kids’ homework and grades. With e-elections you can be anywhere in the world and still do your citizen’s duty. Soon we will have e-health care through which patients can consult a
doctor online in complete security, not to speak of all medical history available in databases – ready to be analysed. The government should make sure that Estonia’s innovative solutions are shown to the rest of the world. Estonia should go to the next level, providing the world with new kinds of solutions.” In fact, Quelle Estonia’s e-services can be a model for other countries. “Quelle’s services are innovative and can be brought to the rest of Europe and beyond,” Mari Rahumägi believes. Quelle Estonia already has an international perspective thanks to its sister companies in other markets. She explains, “My team and I compare Quelle Estonia to other Quelle companies and can see where we are successful and what we need to work on. Our mission here at Quelle Estonia is performance with passion. Our people are young and passionate and there is never a ‘no’ answer. As in Estonia in general, people believe that there is always a solution to be found. Estonian companies have the potential to outperform their European counterparts in productivity.”
29
• Telecom, It and Utilities: Advanced Networks and Open Markets • New Fund to Support Local and Regional Development
Telecom & Utilities
30
Telecom, IT and Utilities: Advanced Networks and Open Markets Estonia is a European leader in modernising its communications and utilities networks and in opening the economy to foreign investors. As the Ministry of Economic Affairs and Communications points out, “Ten years ago telecommunications, production and distribution of electricity, and postal communications were regarded as needing to be owned or operated by the state. Today we believe that these activities should be transferred to private entrepreneurs, and service markets must be opened for competition.”
The potential of the Estonian market is illustrated by the performance of Eesti Energia, the country’s biggest power utility and its main producer of electrical power and heating. Eesti Energia recently announced that it aims to be providing energy to two million customers in the Baltic region by 2015. Eesti Energia’s main activities are the production, sale, and transmission of electric and thermal power, and it is a leading player in the wholesale electricity market. It recorded revenues of €481.6 million for the financial year ending in March 2007, an increase of 6.3% over the previous financial year. The company’s revenues grew at a CAGR (Compound Annual Growth Rate) of 8% over the period 2004 to 2007, and it plans to expand internationally.
Advanced telecom network, innovative e-services In the telecommunications and information technology sector, Estonia is known not only for having one of the most
31
ESTONIA
Telecom & Utilities
The Ministry of Economic Affairs and Communications recently instituted a new e-service, the X-Road system, which integrates state registers and information systems and allows for the provision of e-services through a common interface, while the eCitizen initiative gives citizens access to the government 24/7 through a ‘one-shop-stop’ information portal.
Telecom and IT leader Eesti Telekom, whose shares are traded on the Tallinn and London stock exchanges, is Estonia’s telecom and information technology leader and is a main reason the country’s e-initiatives have proved so successful. It achieved overall net sales of €396 million in 2007, an increase of 9% over 2006, and has maintained a 47% market share for the past four years. It offers a wide range of services for individuals and companies, from telephone and broadband connections and sales of computers to integrated business solutions and the installation and maintenance of large IT systems. Eesti Telekom’s Elion Enterprises is Estonia’s leader in fixed line voice, Internet and data communications. The group also includes NETI, Estonia’s most popular search engine, and Eesti Telekom’s broadband services include digital television (IPTV), in which Estonia has the thirdhighest penetration in the world. Another market leader in the group is EMT, Estonia’s largest mobile operator and the first to offer third generation (3G) services. Eesti company Microlink, Estonia’s biggest IT company, provided all the programs and software development for the country’s e-healthcare project. advanced networks in Europe but also for the speed with which Estonians adopt new technologies. Thanks to these factors, the government has achieved great success in implementing e-measures in both the public and private sectors. One successful example is that 78% of Estonians made use of an option to file federal income taxes electronically the first year the service was offered, in 2004. Other successful e-measures include the electronic national identification card, launched in 1998. Estonia’s ID smartcard, unlike those in other countries, does not contain any data other than that necessary for the identification of a person. More recently, Estonia launched an e-ticket for public transport, and new systems are being developed so that Estonians can use their ID smartcard to confirm health insurance coverage and driver’s licenses.
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Concerning postal services, Estonia has already reached EU standards and market openness, and the government is currently creating new legislation on postal services that will further open the sector to competition.
EU standards for water and wastewater management As for water and wastewater management, Estonia is the only country in Eastern Europe that has already attained EU standards. In 2001, the city of Tallinn opened this activity to international investors and awarded a 15-year contract for managing the city’s water and wastewater services to United Utilities, which has extensive operations in the UK and globally. United Utilities, partnering with the European Bank for Reconstruction and Development, owned a 50.4% share in local water company Tallinna Vesi (ASTV), and reduced this stake to 35.3% when Tallinna Vesi successfully listed on the Tallinn Stock Exchange in 2005. Today, ASTV is the largest provider of water and wastewater services in Estonia, providing services to over 400,000 people. Its activities include water production, wastewater treatment and the operation of a 900 km water distribution network, a more than 1,000 km sewerage network, and 160 km of storm water networks. The company has a surface water treatment plant at Ulemiste and a modern wastewater treatment plant on Paljassaare peninsula. Dynamic enterprises and a business friendly, forward thinking government have given Estonia the kinds of telecom, IT and utilities services that other countries envy.
ESTONIA
New Fund to Support Local and Regional Development
The Estonian Development Fund (Eesti Arengufond, or EDF), a €3.4 million fund for local and regional development, was launched in Tallinn in February 2008; it is mandated to support capacity building in the Estonian public sector, regional development strategies, and entrepreneurs.
Indrek Neivelt, Chairman of the Supervisory Board, served as head of Hansabank from 1999 to 2005. He says that the EDF has two main activities: doing studies of the Estonian economy and investing in projects. He explains that the EDF particularly targets strong Estonian companies with the potential to grow to medium size, but which are too small to obtain funding outside Estonia. The EDF will work with other funds to give a bigger boost to the projects it chooses to support. Indrek Neivelt points out, “We are trying to create a venture capital culture here.” Indrek Neivelt says that the EDF does not limit itself to any particular sector. He adds, “In my personal view, there are two types of projects with particularly high potential in Estonia: the creation of truly innovative new products, and projects that will improve the current business model by implementing new IT technologies.”
Niche: new business solutions Commenting on Estonia’s competencies, Indrek Neivelt explains, “Estonia does not have a well-developed industrial sector, but it is very strong in finding new business solutions. In the banking sector, for example, Internet banking is very highly developed here. A niche for Estonia is to develop advanced business services.” As for the future, Indrek Neivelt believes that Estonia needs to concentrate on maintaining a culture of hard work, innovation and stable values, and that a major challenge for the country is its declining population. In the business sector, he says, “Estonia doesn’t need more foreign direct investment as much as it needs more exports and more value added production.” For export-oriented companies, Estonia is an ideal base for accessing the St. Petersburg market with its population of six million (four times the population of Estonia) as well as Finland, Ukraine and Romania. In May this year, the EDF announced it would invest in Smartpost, a developer of self-servicing postal technology, which will open postal centres in local shopping malls. Indrek Neivelt comments, “This is a simple project, but it does involve various related projects, including IT solutions and packaging. It’s not Nokia, but Estonia doesn’t need to create another Nokia. We need more successful, innovative, medium-sized companies.”
33
ESTONIA
Telecom & Utilities
Eesti Telekom
Telecom and IT Leader Offers Services Not Found Elsewhere Eesti Telekom (Estonian Telecom) is Estonia’s telecommunications and Information technology leader. The dynamic group, whose shares are traded on the Tallinn and London stock exchanges since 1999, achieved overall net sales of 396.17 million in 2007, an increase of 9% over 2006, and has maintained a 47% market share for the past four years in the mobile sector, 80% in broadband and 60% in the IT market in Estonia. Estonian Telecom, strategically owned by Scandinavian telecommunication leader TeliaSonera, has won the Baltic Corporate Excellence Award 2008 as the best Exchange-traded company in the Baltic States. Estonian Telecom has developed a wide range of services for individuals and companies, from telephone and broadband connections and sales of computers to integrated business solutions and the installation and maintenance of large information technology systems. Explaining successful strategies, CEO Valdo Kalm says, “We have many different packages; we call it micro segmentation. While our market penetration is already very high, we are always looking at new possibilities.” One part of the group, Elion Enterprises, is Estonia’s market leader in fixed line voice, Internet and data communications. It also owns NETI,
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Long-term perspective
Valdo Kalm, CEO
the most popular search engine in Estonia, and provides broadband services that include digital television (IPTV). Valdo Kalm says, “Estonia has the third highest IPTV penetration in the world and there is tremendous potential to connect more homes to the network.”
Strong growth in mobile data services Another market leader in the Estonian Telekom Group is EMT, Estonia’s largest mobile operator and the first to offer third generation (3G) services. Valdo Kalm says that EMT is seeing particularly strong growth in mobile data services, which are now being used by 25% of the company’s customers. Third company Microlink, Estonia’s biggest information technology company, is seeing 25% annual growth. It is involved in Estonia’s ambitious e-health care project and provided all the programs and software development for the country’s e-government initiative.
As for the future, Estonian Telecom has a long-term perspective. “Growth is not the only consideration. From the beginning we have focused on steady cash flows and stable margins,” Valdo Kalm says. The main challenges Estonian Telecom faces include a need for qualified personnel, particularly engineers and information technology specialists, and a need for international partners to help Eesti bring its innovative offerings to new markets. In 2001, EMT launched a system through which people can pay their parking tickets through their mobile telephones, but, as Valdo Kalm explains, “Estonia has not been able to effectively export this system to a city like Paris, London or Oslo. You can invent something, but without a strong global partner, it can be difficult to market your invention.” Eesti has formed a partnership with Scandanavian leader TeliaSonera, which has more than 100 million customers worldwide. To remain competitive, Estonian Telecom will continue to focus on quality, reliability and transparency. “We work hard to ensure we have the best network, more services and the best quality for our customers. We have also positioned ourselves as a very reliable partner, and we will remain a clear leader in promoting and building an information society here in Estonia,” Valdo Kalm says. He adds that Estonian Telecom also takes very seriously its role as an ambassador for Estonia.
ESTONIA
Telecom & Utilities
Water Utility Achieves Stellar Environmental Record Tallinna Vesi, Estonia’s biggest water utility, provides clean, reliable drinking water and wastewater disposal services to over 400,000 consumers in Tallinn and surrounding municipalities. The company, whose shares trade on the Tallinn Stock Exchange, made a net profit of €17.7 million on sales of €52.4 million in 2007 and is especially proud of its quality and environmental record.
The company was the first in Estonia and the Baltics to receive the EU EMAS (Eco-Management and Audit Scheme) accreditation, which is issued only to companies that continually improve their environmental activities. In addition, Tallinna Vesi is certified ISO 9001, ISO 14001 and ISO 17025.
business base. “The fact that Estonia is a small country is a plus because it is able to adapt more swiftly,” he points out. He adds that Estonia’s biggest advantage is its workers, whom he describes as well-educated, committed, passionate and driven. “Estonia offers an excellent business environment,” he concludes.
The company’s customers appreciate Tallinna Vesi’s efforts. “We are in the top 10% of customer satisfaction compared with other utility companies in the world,” says Roch Chéroux, Chairman and CEO until October 2008, citing an independent survey carried out by TNS Emor. Tallinna Vesi is looking forward to strong growth as water consumption in Estonia rises; it is currently low by EU standards. “We are going to grow the company by focusing on our core competencies,” Roch Chéroux explains.
New services Tallinna Vesi aims to boost its cooperation with municipalities near Tallinn, capitalising on its spare capacity to deliver high quality, EUcompliant water to more customers. “Tallinna Vesi will be seeking to sign operating contracts outside of Tallinn and to introduce new services, including design, consulting and construction,” Roch Chéroux says. Roch Chéroux, a native of France, has been with Tallinna Vesi since 2002 and praises Estonia as a
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