FREE GEOPOLITICAL NEWSLETTER

 

estonia

For current reports go to EASY FINDER

ESTONIA


 

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 6,413 5,500 5,100 100
         
GNI per capita
 US $ 4,130 3,870 3,780 74
Ranking is given out of 208 nations - (data from the World Bank)

REPUBLICAN REFERENCE

Area (sq.km) 
45,227 

Population
1,423,316

Principal 
ethnic groups 
Estonians 63.9%
Russians 29%
Ukrainians 2.7%

Capital 
Tallinn

Currency 
Kroon

President 
Arnold Rüütel

  

Background:
After centuries of Swedish and Russian rule, Estonia attained independence in 1918. Forcibly incorporated into the USSR in 1940, it regained its freedom in 1991 with the collapse of the Soviet Union. Since the last Russian troops left in 1994, Estonia has been free to promote economic and political ties with Western Europe. 
The referendum on EU entry was won by the pro-EU side quite comfortably, 66.9% to 33.1% against
Nobody would dispute Estonia's excellent credentials to belong to Europe. Founded by the Teutonic Knights and the mercantile Hanseatic League in the early Middle Ages it was always looking across the sea rather than inland. Just across the Gulf of Finland, it is in all but name a Scandinavian country. It adhered to the Reformation before any other European state in the 1520s and has been a model of Nordic propriety ever since. The Protestant work-ethic is proverbial.
The very success of Estonia since independence outside not only the USSR, but also the EU, however, gave some Estonians second thoughts. The Centre Party, Estonia's largest opposition group urged the nation to vote against EU membership. They object strongly to the fact that the EU is requiring the Estonians to scrap a great deal of their free trade practices, adopted since 1991. It is as if they have to join a new USSR, which does not take account of their peculiarities.
It is arguable that the Estonians could have achieved all that they need from integration into Europe already without the drawbacks. Since independence they have done remarkably well. The Germans, their traditional allies, helped to set up the koruna, their new currency, in June 1992. They soon established a free trade regime second to none in the world. It was a question of a bonfire of controls. 
GDP leaped ahead at 5% rates of annual growth. The sagacity of the move to monetary independence was shown in 1998-99 when they were the one FSU state to survive the rouble crisis without much in the way of reverse.

Update No: 275 - (01/12/03)

The Estonians are generally successful in their transition to capitalism and democracy, the twin goals of the End of History for Francis Fukuyama, the author of the book of the same title. But they don't feel that history is quite over yet. Not so long as the Russians are restive at the idea of Baltic state independence.

The German heritage 
The Estonians are warming to the idea of belonging to the EU, which, after the success of a referendum on September 14th, in which the majority was two to one in favour, is beckoning next year. The country has been unofficially a member for over ten years since independence in 1991. Indeed, the Germans have been 'hands-on' all along with Estonia with which they have considerable historical ties, moreover of a generally pleasant nature. The Hanseatic League included Tallinn, the Estonian capital, as well as several other Estonian ports.
The Bundesbank helped set up the kroon in June 1992, the first independent currency in the former Soviet sphere. The Estonians want to join Euroland as soon as possible. Low inflation and public debt should facilitate that by 2007 or even earlier.
The head of the German Central Union of Industry (BDI), Dr Ludolf von Wartenberhead, visited Tallinn on September 30th and discussed bilateral relations with Prime Minister
Juhan Parts. The talks centred on issues of EU industrial policy and competitiveness. Wartenberhead said that the Estonians needed to attract foreign investment actively, not just wait for it to turn up.

NATO membership the security answer
The Estonians are already members of NATO, the security umbrella of their choice. Two recent decisions concern it. The air force chief, Mart Vendla, has announced that Amari Airfield, 30 kilometres southwest of Tallinn is likely to become the NATO air base needed by the organisation for its operations in Estonia. Tallinn Airport is not suitable for that role, breaching EU noise and pollution regulations.
Amari is a former Soviet army base with an airfield, which, after renovation, could serve the purpose well.
Parts has said that he does not think it necessary for Estonia to replace its team of bomb-disposal specialists in Afghanistan, serving at Bagram Air Base. Its mission is coming to an end in December. The cost is punitive and the team needs a rest.
The opposition leader, Siim Kallas, a former premier, has informed his colleagues in the Reform Party that he thinks Estonia should end compulsory conscription and move towards a fully professional armed forces, capable of just such specialist missions as the effort in Afghanistan. The country's security cannot be guaranteed by a larger force, but only by NATO. Spending should be concentrated on first-class equipment, antiaircraft defence and other high-technology weapons that can only be effectively deployed by career soldiers.

The Russian patriarch comes to town
President Arnold Ruutel welcomed the arrival in Tallinn of Patriarch of Moscow and All Russia Alexei II in late September and gave him the highest Estonian state award, the Terra Mariana Cross, First Class. The gesture is likely to mollify the local Russians, who heard the patriarch say on TV that the Orthodox churches in Estonia should have the same rights, referring to the Orthodox Church subordinate to Constantinople and the Orthodox Church subordinate to him. He consecrated a plot of land in the Lasnamae area of Tallinn for the construction of an Orthodox church there.
He discussed mutual relations with Metropolitan Stephanos of the Estonian Apostolic Orthodox Church. He stressed the need for good relations between Estonia and Russia and promised to inform Putin of his warm reception in Estonia.
Another gesture to the local Russians was made by the Estonian Supreme Court to coincide with the visit when it ruled that Soviet and Russian veterans, 7,000 in number, living in Estonia may receive permanent residency permits. They were previously eligible for only five-year permits. More than half of them are over 70 years old.

« Top

ARMAMENTS

Estonia seeks to purchase Finnish armoured vehicles

The scout battalion, the Estonian Defence Forces' elite unit, will be equipped with Finnish-made armoured vehicles worth hundreds of millions of kroons if Estonia and Finland reach agreement with regard to the purchase of military equipment, Postimees has reported.
The Ministry of Defence has decided to set up a working group to study the issue of vehicle purchase in more detail, Madis Mikko, head of the public relations at the Ministry of Defence, told the BNS News Agency.
How many vehicles Estonia might buy and what the purchase might amount to, Estonian Defence Minister, Margus Hanson, and his Finnish counterpart, Seppo Kaeaeriaeinen, did not wish to specify at a press conference given in Helsinki, according to the [Finnish] STT News Agency.
Although the Estonian Defence Forces should have two rapid-reaction units in the long term, 'Postimees' has been told that for the time being the plan is to equip the army's elite unit, the scout battalion, with the Finnish-produced armoured vehicles XA-180 PASI. This means that 40-50 vehicles would be purchased, according to the experts consulted by 'Postimees.'
At present, the Defence Forces already have 22 (BTR-80) armoured vehicles produced by Russia, which are also in use by the scout battalion. The estimated average world market price of a new wheeled armoured vehicle is between 10-12m kroons. Equipping the scout battalion with vehicles produced by the Finnish defence industry conglomerate, Patria, would thus mean an investment worth hundreds of millions of kroons.

« Top

CREDIT RATINGS

Fitch revises Estonia foreign currency rating

Fitch Ratings has revised the outlook on Estonia's Long-term foreign currency rating to positive from stable, the agency reported recently. At the same time, Fitch affirmed the long-term foreign and local currency ratings of Estonia at A- and A+, respectively. The short-term foreign currency rating was also affirmed at F1. The outlook on the local currency rating remains stable.
Estonia's ratings are supported by continuing structural reforms, as the country prepares to become a full member of the European Union in May 2004, the agency said. It is standardising business practises and legislation at Western European levels, and encouraging foreign investment. The latter has contributed to a continuing improvement in the profitability of the corporate and banking sectors. This reform drive has been underpinned by favourable tax rates - particularly on reinvested earnings - and Fitch expects the economy to record strong growth in the region of 5-7% a year, continuing to raise real per capita incomes, which on a purchasing power basis are already double the level of a decade ago.
Estonia's public finances constitute a considerable support to the ratings. The 2002 budget outcome was much stronger than expected as enhanced tax collection and strong economic activity boosted revenues and the general government sector ran a surplus for the second consecutive year. The country's history of fiscal prudence encourages optimism that the budget will remain broadly in balance, and that the government's tax cutting plans will be countered by strong underlying revenue growth and a cautionary expenditure policy. At 5.3% of GDP, general government debt is already the lowest of any sovereign currently rated in the A range by Fitch and is forecast to fall further. The low borrowing requirement should also continue to support the public sector's strong new external creditor status, which stood at 19% of current external receipts (CXR) by the end of 2002.
Estonia's economic success is reflected by a high level of gross domestic investment, which reached 32% of GDP in 2002, the agency said. This high investment rate and strong consumer demand have fuelled import growth, causing the current account deficit to more than double last year, while net FDI inflows and reinvested earnings failed to finance the gap for the first time since 1999.
Gross external debt increased by nine percentage points of external receipts last year to reach 67% of CXR by end-2002. External bank borrowing undertaken in an effort to compensate for a failure of deposit growth to match that of loans also contributed to an increase in Estonia's net external debt position. Trends over the first half of 2003 indicate that the current account deficit will widen further this year, before starting to narrow from 2004 onwards on the basis of an expected pick-up in external demand.
While the government may need to be ready to tighten fiscal policy in the absence of a narrowing of the current account deficit from next year given the limited monetary policy tools at the disposal of the Bank of Estonia, Fitch said recent trends in the current account is a reflection of the present stage of Estonia's successful economic development. External debt ratios remain in line with sovereigns rated in the A range.

« Top

ENERGY

ABB to reconstruct Estonian power plant 

International power engineering concern ABB is to reconstruct a power plant in the Estonian city of Paide at a cost of 67 mln krone (4.3 million euros), Henn Jogi, director of the Eesti Energia northern grid, told the Baltic News Service. 
He said that Eesti Energia had signed an agreement for the reconstruction of this strategic power hub in the central part of the republic with the companies ABB AS and ABB OY. 
Jogi said that the project would involve replacing and upgrading the plant's equipment. 
He said that the first stage of this project is potentially dangerous from an environmental point of view. 
It is planned to complete the reconstruction of the plant by October 15th next year and to hand it back to Eesti Energia by December 15th. The state owns 100% of Eesti Energia shares. 


Baltic, Finnish power companies lay underwater cable 

The energy companies Eesti Energia (Estonia), Latvenergo (Latvia) and Pohjolan Voima (Finland) have signed a protocol of intent to lay the Eastlink underwater power cable between Estonia and Finland Interfax News Agency has reported. 
Eesti Energia CEO Gunnar Okk told the Baltic News Service that the Finnish company Helsinkin Energia also plans to join the project. 
He said that the aim of the project is to supply electricity produced in the Baltic states to the Scandinavian market. It is planned that the cable, with a capacity of 315 megawatts, will be launched at the end of 2005. 
According to preliminary estimates, the cost of the project is estimated at EUR 110 million. It is planned that the Finnish side will provide about half of the finance for the project, with the Latvian and Estonian side providing the other half. 
"With the launch of this cable the reliability of Estonia's power supply will increase significantly," Okk said. 
He said that in the coming months management and owners from the four companies will begin to discuss investment in the Eastlink project. 

« Top

FOREIGN ECONOMIC RELATIONS

EU expects Russia to drop high trade tariffs

The European Union says it expects Russia to drop what are seen as punitively high trade tariffs on Estonian goods as soon as the Baltic state joins the EU on May 1st, 2004, though Moscow has so far given no indication that it intends to heed that call, the City Paper in Tallinn has reported. "We very much hope they will eliminate (the tariffs)," Arancha Gonzalez, spokeswoman for EU Trade Commissioner Pascal Lamy. "It would be discriminatory treatment against Estonia if they aren't." 
The tariffs, which double the standard trade duties on all Estonian products, have severely hampered Estonian access to the next-door Russian market and have been a major bilateral irritant since the Kremlin imposed them in 1995. Many Estonians said the tariffs were politically motivated, with Moscow at the time expressing displeasure with Estonia's pro-West, pro-NATO bent and with what it alleged were citizenship policies that discriminated against Estonia's large Russian minority. This Baltic Sea nation is one of just a handful of countries globally that must pay the double tariffs. Russia has granted all other ex-Soviet states, including Estonia's two Baltic neighbours, Latvia and Lithuania, most-favoured-trading status. 
Before Estonia's successful EU referendum, leaders here said Russia would have no choice but to drop the barriers when Estonia joins the bloc. The tariffs will violate a 1994 EU-Russian accord obliging Moscow to grant all EU states favoured-trade status, they argued. Gonzalez said that was also the EU's position. "We have drawn (Russia's) attention to the fact that Estonia will have to be treated like any other EU member state when it joins," she said, speaking by telephone from Brussels. "We have discussed this with Russia. If it doesn't happen, we will take it from there." 
Many Estonian business leaders say they aren't convinced Russia will abolish the tariffs, saying they expect Moscow to dig in its heels and demand negotiations on the issue. "Nothing will change," Raivo Vare, who heads Estonia's Pakterminal oil-transit company, was quoted as saying in Estonia's Paevaleht daily. "They (the Russian authorities) will find 110 ways how to avoid doing it." "Our members are very interested in Russian trade, but nobody thinks the barriers will be dropped in May (when Estonia becomes an EU member)," agreed Kairi Kurm, a spokeswoman for the non-governmental Estonian Trade Council. 
Russia hasn't declared its official stand. "It's a rather difficult question," Dmitri Ivanov, press spokesman for the Russian embassy in Estonia. "It is still under discussion." He declined to elaborate. Before the Soviet Union unravelled in 1991, a majority of Estonian exports went to Russia. Today, less than 10 percent do, with the EU by far the largest trading partner now. 
Tariffs weren't the only reason many Estonian producers gave up on Russia. Many concluded in the 1990s that Russian markets were too unstable and chose instead to forge trade links with much richer countries, like nearby Sweden and Finland; Estonian politicians after independence also wanted to reduce economic dependence on Russia, saying the close links put economic stability at the mercy of Russian reforms and also gave the Kremlin leverage should it ever hope to exert economic pressure to achieve political ends. But Estonian business associations say that even doubling Estonia's now modest trade with their giant neighbour could prove a boon to this small but already economically dynamic nation. 

« Top

 

CUSTOMISED REPORTS

 

INVESTMENT BACKGROUND REPORTS 

Our analysts and editorial staff have many years experience in analysing and reporting events in these nations. This knowledge is available in the form of geopolitical and/or economic country reports on any individual or grouping of countries. Such reports may be bespoke to the specification of clients or by access to one of our existing specialised reports. 
 
For further information email:
reports@newnations.com

Considering an investment or a trip to any newnation? First order our Investment Pack which will give you by e-mail the last three monthly newnation reports and the complete worldaudit democracy check for the low price of US$12. The print-out would be a good companion to take with you. Having read it, you might even decide not to go!
 
To order please click here:
Investment background report

« Top

« Back

 


 
Published by 
International Industrial Information Ltd.
PO Box 12 Monmouth 
United Kingdom NP25 3UW 
Fax: UK +44 (0)1600 890774
enquiries@newnations.com