2019 OECD ECONOMIC SURVEY OF ESTONIA Tallinn, December 17th 2019
Seizing the digital dividend
http://www.oecd.org/economy/estonia-economic-snapshot/
@OECDeconomy @OECD
Estonia is doing well • • • • •
Growth is strong. Social and environmental conditions have improved. Public debt is the lowest in the OECD. PISA results are the highest in the OECD. Estonia is a champion of e-government.
2
Strong growth boosts incomes Solid growth boosts incomes Real GDP per capita, Thousand USD, 2015 PPPs 50 45 40 35 30 25 20 15 10
EST
FIN
2009
2011
LTU
LVA
OECD
5 0
2005
2007
Source: OECD Economic Outlook database.
2013
2015
2017
2019 3
Employment has reached new records Employment rate
% of population aged 15-64
80
EST
FIN
LTU
OECD
LVA
75 70 65 60 55 2005
2007
Source: OECD Economic Outlook database.
2009
2011
2013
2015
2017
2019 4
Skills of 15-year olds are high % 40
Share of low- achieving 15-year olds in science, reading and mathematics
% 40 35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
COL MEX CRI TUR CHL GRC ISR SVK HUN LUX LTU FRA CZE USA AUT ISL OECD BEL ITA SWE AUS NLD PRT NZL LVA ESP CHE GBR DEU NOR POL SVN RUS KOR DNK IRL FIN CAN JPN EST
35
Source: OECD, PISA 2018 Database.
5
Key messages • Fiscal policy support should focus on growth-enhancing measures. • Inequalities of incomes, health and skills across genders and socio-economic groups need further attention. • Further advancing digitalisation in the non-ICT private sectors is key to boost productivity growth.
6
MACROECONOMIC POLICIES
7
Growth remains strong, but will ease somewhat (annual growth rate unless specified)
2018
2019
2020
GDP at market prices
4.8
3.2
2.2
Private consumption
4.4
2.7
3.2
Government consumption
0.8
2.4
1.5
Gross fixed capital formation
0.9
14.1
1.7
Exports of goods and services
4.3
4
1.1
Imports of goods and services
5.7
3.8
2.2
Unemployment rate (% of labour force)
5.4
5
5.1
Harmonised index of consumer prices
3.4
2.4
2.3
Current account balance (% of GDP)
2
1.4
0.9
-0.6
-0.3
-0.4
General government financial balance (% of GDP)
Source: OECD Economic Outlook 106 database.
8
High wage growth needs to be matched by productivity growth Y-o-y 3m moving avg 20
Real wage rate EST
FIN
LTU
OECD
15 10 5 0 -5 -10 -15 2005
2007
Source: OECD Economic Outlook database.
2009
2011
2013
2015
2017
2019 9
Public finances are in excellent shape General government debt as a percentage of GDP %
120
% 120
100
100
80
80
60
60
40
40
20
20
0 2009
2011 EST
Source: OECD Economic Outlook database.
2013 FIN
LTU
2015 LVA
2017
2019
0
OECD 10
Borrowing increased more than warranted by the fiscal rule Government net lending as a percentage of GDP % 8
8
7
Structural fiscal balance
6
%
7
Fiscal balance
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
2010
2011
2012
Source: OECD Economic Outlook database.
2013
2014
2015
2016
2017
2018
2019
2020
11
Recommendations on macroeconomic policy • Avoid pro-cyclical fiscal policy and allow the free play of automatic stabilisers. • In case of a strong downturn, fully use the exemption clause built in the existing fiscal rule. • Increase spending on measures boosting the long-term growth potential and inclusiveness such as infrastructure connectivity, innovation and education. • Introduce a recurrent tax on the ownership of residential real estate. Reduce labour and consumption taxes. 12
REDUCING INEQUALITIES
13
Income inequality is around the OECD average Gini coefficient for the population aged 18-65, 2017 or latest year available Points 0.6 0.5 0.4 0.3 0.2
Gini (market income, before taxes and transfers) Gini (disposable income, post taxes and transfers)
0
MEX CHL TUR USA LTU GBR GRC ESP KOR LVA JPN ITA PRT ISR OECD CAN AUS IRL LUX DEU EST FRA POL NLD CHE AUT HUN FIN NOR SWE BEL DNK ISL CZE SVN SVK
0.1
Source: OECD Income Distribution Database (IDD).
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The wage gap between women and men is high
% 40 35 30 25 20 15 10 5 0
KOR EST JPN ISR LVA CAN USA FIN GBR DEU AUT CZE SVK PRT CHE NLD MEX OECD CHL LTU AUS ISL ESP FRA POL HUN NZL SWE NOR TUR IRL ITA DNK SVN GRC BEL LUX
Unadjusted gender wage gap for full-time employees, 2018 or latest available % 40 35 30 25 20 15 10 5 0
Note: The gender wage gap is unadjusted and defined as the difference between median wages of men and women relative to the median wages of men. For Estonia, latest available data are as of 2014. Source: OECD Labour Force Statistics database.
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Perceived health status differs by income
Lowest income quintile Highest income quintile
KOR LVA LTU JPN EST PRT CZE HUN POL DEU SVN CHL FIN BEL SVK AUT FRA NLD GBR TUR DNK LUX SWE CHE NOR ISL ESP IRL USA ITA GRC ISR CAN AUS NZL
% of population 100 90 80 70 60 50 40 30 20 10 0
Health status by income quintile % of population reporting good/very good health, 2018 or latest
Source: OECD Health database.
16
Ageing will create challenges Ratio of population aged 65 and above to the working-age population aged 15-64 %
65 60
%
Slovenia
Slovenia
Lithuania
Estonia
Latvia
Finland
65 60
55
55
50
50
45
45
40
40
35
35
30
30
25
25
20 2010
2020
2030
2040
2050
Note: Medium fertility variant (instant-replacement-fertility, constant-mortality and zero-migration). Source: United Nations World Population Prospects 2019 database.
20 2060 17
Recommendations to reduce inequalities • Do not allow withdrawal from the second pillar of the pension system before retirement. • Extend health insurance coverage for the entire population. • Relax eligibility conditions for unemployment insurance. • Continue to scale up and improve access to active labour market policies. • Require the reporting of the gender wage gap and action plans to reduce it, including in private firms.
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TACKLING ENVIRONMENTAL CHALLENGES
19
High CO2 emissions and rising amounts of landfilled waste contrast an overall clean environment kg/USD, 2010
A. CO2 intensity CO2 per GDP
B. Municipal waste treatment 2017 or latest available
kg/capita
600
0.8
500
0.6
400
0.4
300 200
0
100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0.2
Estonia (demand-based) OECD (demand-based) Estonia (production-based) OECD (production-based)
0
Estonia OECD Recycling and composting Landfill Incineration Total municipal waste in 2000
Note to Panel A: Included are CO2 emissions from combustion of coal, oil, natural gas and other fuels. Gross Domestic Product (GDP) is expressed at constant 2010 USD using PPP. Source: OECD Green Growth Indicators database.
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Recommendations for a greener Estonia • Review taxes and charges on oil shale mining and use to reflect costs and externalities, while addressing social welfare and energy security concerns. • Improve waste collection infrastructure and raise fees on domestic mixed waste going to incineration or landfills to incentivise recycling and waste prevention.
21
FURTHER STRENGTHENING TRANSPARENCY AND ANTI-MONEY LAUNDERING
22
Control of corruption is steadily improving A. Control of Corruption (2018) Scale: -2.5 (worst) to 2.5 (best) 2.5
B. Evolution of "Control of Corruption", WGI
lower corruption 2.5
EST
2.0
OECD average
2.0
1.5
1.5
1.0 0.5
1.0
0.0
0.5
-1.0
0.0
RUS BRA CHN IDN IND CZE ESP ISR CHL FRA USA EST BEL AUT AUS ISL CAN DEU CHE NOR FIN
-0.5
Source: World Bank Worldwide Governance Indicators (WGI).
higher corruption 23
Banks are well-capitalised, and anti-money laundering efforts are being strengthened % 18 16 14 12 10 8 6 4 2 0
Source: BIS.
CAN SWE NLD CZE FRA ITA DEU DNK AUS BEL PRT ESP ISR AUT CHL LUX FIN OECDยน LTU TUR BRA RUS POL SVK MEX GRC USA EST LVA IRL ISL
Capital to assets, 2018Q3
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Recommendations to further strengthen transparency and anti-money laundering efforts • Continue strengthening regulations and allow the freezing of assets by the regulator in the case of suspected money laundering and increase fines to deterring levels. • Continue to strengthen Baltic-Nordic coordination in the fields of financial sector supervision and anti-money laundering.
25
SEIZING THE PRODUCTIVE POTENTIAL OF DIGITAL CHANGE
26
Productivity growth has slowed considerably across the OECD, including in Estonia Labour productivity growth 1998-07
2008-17
GRC LUX MEX ITA GBR FIN NOR BEL CHE NZL NLD SWE FRA SVN PRT AUT DEU JPN DNK CAN ISR USA CZE CHL ESP AUS ISL EST HUN LVA SVK TUR LTU POL KOR IRL
% annual average 8 7 6 5 4 3 2 1 0 -1 -2
Source: OECD Economic Outlook 105.
27
Speeding up digitalisation can boost productivity Percentage points annual productivity growth premium associated with digital adoption % 3.5 3 2.5
Direct effect from adopting firms Sector spill-overs
2 1.5 1 0.5 0
High-speed broadband
ERP software
CRM software
Computer use share
ICT training
Note: Regression coefficients are re-scaled to represent a 10 percentage point higher adoption rate at the sector level for illustration. Source: Pareliussen and Mosiashvili (2020).
E-government is advanced 100
Online availability of government services
90 80 70 60 50 40 30
SVN
EU28
LVA
FIN
LTU
EST
Note: Panel A: Indicates if a service is online. Ranging from offline (0%), only information online (50%), fully online (100%). Source: European Commission eGovernment Benchmark 2018 and European Commission 2018 PREDICT Dataset .
29
Estonian enterprises lag behind in digital adoption A. Businesses using ERP % (Enterprise Resource Planning) software
% 70
% 45 40
60
35
50
30
40
25
30
20 15
20
10
10 0
B. Businesses using CRM (Customer Relationship Management) software
5 FIN
LTU
OECD
SVN
EST
LVA
0
FIN
LTU
OECD
SVN
EST
LVA
Source: OECD ICT Use by Business database. 30
Policies affect digital diffusion Productivity growth potential from policy factors boosting digital technology adoption Higher use of e-government Estonia
Reducing barriers to digital trade
OECD average
Easier financing for young innovative firms Reducing regulatory barriers to competition and reallocation Upgrading skills (technical and managerial) Higher use of high-speed broadband 0.0
1.0
2.0
3.0
4.0
Effect on MFP after 3 years in % 31
Source: Sorbe et al. (2019), “Digital Dividend: Policies to harness the potential of digital technologies�, OECD Economic Policy Papers, No. 26.
Non-ICT firms lag behind in digitalisation Share of enterprises that employ ICT specialists (2018) % 35
% 40
30
35 30
25
25
20
20
15
15
10
10
Source: Eurostat Digital economy and society database (accessed 25 July 2019).
TUR
POL
EST
LVA
ITA
LTU
FRA
NOR
SVK
ESP
SWE
PRT
CZE
SVN
AUT
DEU
EU28
GRC
GBR
LUX
FIN
HUN
NLD
0
DNK
0
BEL
5 IRL
5
32
Digital user skills are improving for younger generations Digital problem-solving skills by age PIAAC score points
320 310 300 290 280 270 260 250 240 230 220
16-24
Note: % of individuals aged 16-74 in employment (2012). Source: OECD Survey of Adult skills (2012 and 2015).
Estonia
25-34
PIAAC average
35-44
45-54
55-65 33
The use of work practices boosting skill use and innovation is around the OECD average
Source: OECD Employment Outlook 2016 fig 2.10A, calculations based on the OECD Survey of Adult Skills (PIAAC) 2012 and 2015.
GRC
TUR
ITA
SVK
KOR
FRA
CHL
GBR-NIR
IRL
SVN
POL
ESP
DEU
JPN
EST
OECD
AUS
NOR
CZE
CAN
GBR-ENG
USA
ISR
NZL
NLD
AUT
BEL
SWE
FIN
Percentage of jobs with high high-performing work practices
DNK
% 45 40 35 30 25 20 15 10 5 0
% 45 40 35 30 25 20 15 10 5 0
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Few firms provide ICT training to staff Percentage of businesses providing ICT training to their employees by size class (2015) % 90 80 70 60 50 40 30 20 10 0
Small firms
Medium firms
Large firms
% 90 80 70 60 50 40 30 20 10 0
Note: Businesses with 10 or more employees that provided any type of training to develop the ICT related skills of their employees within the last 12 months. Businesses with 10-49, 50-249 and 250 or more employees are defined as small, medium and large, respectively. Source: OECD (2017) ICT Access and Usage by Businesses Database.
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Recommendations to seize the productivity potential from digitalisation - skills • Implement a programme to improve managerial practices and organisational performance of firms with a strong element of network-building. • Strengthen cooperation between the public sector, labour unions and employers in skill supply and training. • Strengthen the quality and relevance of teachers’ training and professional development in teaching digital skills. • Tailor ICT classes and voluntary ICT hobby activities to better match the interests of both girls and boys. 36
Streamlining regulations further can boost digitalisation and productivity Regulatory barriers to competition and reallocation (EPL, PMR, insolvency regimes) Effect on productivity (through digital adoption) of closing half the gap to best-performing country % 4.0
3.5
effect after 3 years
effect after 1 year
% 4.0 3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
Note: Estimated effect on multi-factor productivity (MFP) of the average firm from reducing employment protection legislation (EPL) on regular contracts, reducing administrative burdens on start-ups and streamlining the insolvency regime. Source: Sorbe et al., 2019, “Digital Dividend: Policies to harness the potential of digital technologies�, OECD Economic Policy Papers, No. 26.
37
Availability of finance is an obstacle to SME’s longterm investment Share of firms reporting availability of finance as a major obstacle to long-term investment, 2017
% 60
SME
% 60
Micro
50
50
40
40
30
30
20
20
10
10
0
0
SVN
Source: EIB Survey.
FIN
CZE
HUN
EST
SVK
LTU
EU28
PRT
GRC
LVA
38
Recommendations to seize the productivity potential from digitalisation – planning and financing • Formulate policies for industry digitalisation in a holistic way as a means of productivity catch-up and reflect those in government planning documents. Monitor implementation. • Promote alternative financing to fill the funding gap for SMEs.
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For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Pareliussen, J. and N. Mosiashvili (2020), “Digital technology adoption, productivity gains in adopting firms and sectoral spill-overs – Firm-level evidence from Estonia”, OECD Economics Department Working Papers, OECD Publishing, Paris, forthcoming.
http://www.oecd.org/economy/estonia-economic-snapshot/
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