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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)

Books on Estonia

REPUBLICAN REFERENCE

Area (sq.km) 
45,227 

Population
1,408,556

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: 277 - (01/02/04)

The German heritage 
The Estonians are warming to the idea of belonging to the EU, after the success of a referendum on September 14th, in which the majority was two to one in favour. 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 eight centuries ago 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 last September 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.
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 fully professional armed forces, capable of just such specialist missions as the current bomb-disposed effort in Afghanistan. The country's security cannot be guaranteed by a larger national 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.

Foreign help forthcoming
The Estonians are doing well and receiving a lot of help from abroad to do so. Their GDP is growing by 5% this year, which is exactly the average rate of growth that they have sustained since independence twelve years ago in 1991.
Business school graduates are making a big contribution to the success of the economy. This is with a lot of help from abroad. 
The Estonian Business School (EBS) started with US and Canadian partners. Its graduates are transforming the Estonian business elite. The President of the Norwegian School of Management, Torger Reve, notes "Integration of management education is the most important force in bringing the Baltics up to speed with their European Union neighbours."
Estonians are on the top of the latest business trends. For Mari Kooskora, Director of the Centre for Ethics at the EBS in Tallinn, post-Enron social responsibility is just as great in Estonia as in the West. "For years, the main value has been success and earning money," she says. "But today, people realise that's not enough. They want more human trends in business."

Bridge to the Russian bear
Ms Kooskora strikes another note when she points out: Foreign businesses are interested in us because of our geographical position and historical relations with Russia. We are a bridge to the big market."
Indeed, Estonia has also been called the Hong Kong of the North. It is an excellent gateway to Russia. The centre she directs could give good advice on the 'ethical' aspects of doing business with Russians. Russian mafia abound in the Baltic states. Tallinn has a predominantly Russian population.
The flavour of business there is, nevertheless, set by the West, one very good reason to prefer it to entering Russia itself. Not for nothing will Estonia be part of the EU by June 2004. Estonia offers an EU office right next to the huge Russian marketplace. A steady stream of Scandinavian and Western European money is flowing into the service industries, real estate, shopping malls and retail chains. Statoil, Carlsberg and Finnish and Swedish telecom and banking firms are present. MacDonald's, Coca-Cola and Philip Morris are in town. The Russians appreciate the cosmopolitan atmosphere themselves and are establishing their own joint ventures.
The process is still in its early stages. There is great scope for catching up. But there is every reason to suppose that in a generation or two Estonia will become a prosperous nation unmistakably of the West.

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CREDIT RATINGS

S&P revises Estonia outlook to positive

Standard & Poor's Ratings Services said at the end of 2003 that it had revised the outlook on the Republic of Estonia to positive from stable following a review. At the same time, Standard & Poor's affirmed the A-/A-2 long and short-term sovereign credit ratings on the republic, New Europe has reported.
According to the ratings agency the ratings on the Republic of Estonia are supported by a track record of fiscal prudence. Estonia's general government debt will rise moderately over the coming years but remain low at about 5 per cent of GDP at year-end 2004. There is robust growth, owing to the successful use of market-oriented policies since independence. Among EU accession countries, Estonia has been at the forefront in reforming its markets and institutions. There have been predictable and prudent economic policies, despite a tendency for governments to be unstable. Fiscal and monetary policy has remained prudent since independence and grown in credibility. 
On the other hand, the agency added that the ratings on the state are restrained by significant external imbalances. Estonia has a tendency to run persistent current account deficits. Although the peak in the deficit in 2003 and weakness in foreign direct investment (FDI) inflows since 2002 are expected to improve over the short term, external liquidity will remain weak and the gross external liabilities position (including net FDI) is forecast to rise to 150 per cent of current account receipts by 2004. There are challenges of achieving real economic convergence with higher-rated sovereigns.
Although Estonia has made substantial progress towards adopting EU rules and regulations, it will need to ensure that this new body of law filters down to the real economy.
"The positive outlook reflects the upward ratings potential EMU accession will have for Estonia given that it will protect the country against one of its key weaknesses, its external vulnerability," said Standard & Poor's credit analyst, Mary Nnachi.
Given EU accession in 2004 and Estonia's currency board arrangement, the country is expected to enter the European Exchange Rate Mechanism in the first wave of accession countries. "The path to EMU entry, however, will coincide with continued current account deficits that could pose potential risks," Nnachi added.
"The positive outlook assumes that moderate fiscal deficits during the coming years will be contained in order to prevent further worsening of the current account deficit.
"The outlook also assumes that any pressures on the capital account of the balance of payments that may arise will be effectively managed without threatening growth prospects or weakening public finances."

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TRANSPORT

Estonia to re-establish Tallin-Riga-Vilnius-St Petersburg train

The Estonian Ministry of Economics and Communications intends to re-establish rail service linking Tallinn, Riga, Vilnius and St Petersburg, Estonian Radio reported recently. 
In order to achieve this there are plans to increase the speed of trains to 100-120 kilometres an hour and to re-establish passenger trains from Tallinn to other European cities including Riga and Vilnius. The ministry is also hoping that a daily rail service to St Petersburg will also become available once more and this could become an international commercial project.

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