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ESTONIA


 



In-depth Business Intelligence 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 8,383 6,413 5,500 95
         
GNI per capita
 US $ 3,870 4,130 3,870 72
Ranking is given out of 208 nations - (data from the World Bank)

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REPUBLICAN REFERENCE

Area (sq.km) 
45,226 

Population
1,341,664

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

Capital 
Tallinn

Currency 
Kroon

President 
Arnold Rüütel


Update No: 308 - (29/08/06)

Ilves, Ruutel Top Choices for Estonians
Estonia is holding elections for the presidency in late August and early September. The post is more important than might be thought. There have been innumerable governments in Estonia since independence, fourteen to date, but only one has lasted more than two years, and they usually dissolved much sooner, whereas there have been only two presidents, both elder statesmen, Lennart Meri, who died in March, and Arnold Ruutel, the incumbent. They were the axle of a turning world. 
Adults in Estonia place two politicians as their preferred candidates for the presidency, according to a poll by TNS Emor published in Postimees. 38 per cent of respondents select Toomas Hendrik Ilves of the Social Democratic Party (SDE), while 35 per cent pick Ruutel of the Estonian People's Union (ERL) for the position.
Support is lower for deputy parliamentary speaker Ene Ergma of the Union for the Republic - Res Publica (RP), Tartu University rector Jaak Aaviksoo and businessman Jaan Manitski.
Ruutel's term is set to expire in October. Ilves currently serves as one of Estonia's representatives in the European Parliament.
Since April 2005, Estonian Reform Party (ER) leader Andrus Ansip has served as prime minister. The governing coalition also includes the Estonian Centre Party (KESK) and the ERL. 
The Estonian president is elected to a five-year term by the 101-member Parliament. If no contender receives two-thirds of the votes in the legislative branch after three rounds, an electoral body-which includes the Parliament and representatives from local government councils-has four weeks to choose a head of state.
Estonian parties, with the exception of Ruutel's ERL, have discussed presenting a single presidential candidate to Parliament for the first round of the election, which were scheduled for August 28th. On July 20th, the group announced that only Ilves and Ergma remain in contention.

Euroland beckons
Estonia joined the European Union (EU) in May 2004. The next entity to join is the euro.
Joaquin Almunia, the European Union's economic and monetary affairs commissioner, met with top Estonian officials in mid-July to discuss the country's economy and its plans to adopt the euro as its national currency.
Almunia met with Prime Minister Ansip and Finance Minister Aivar Soerd to talk about Estonia's preparations to adopt the EU's common currency, which it hopes to do in 2008, and the development of the Baltic country's economy.
Euro entry is not so likely to happen sooner in 2007, because neither Lithuania nor Latvia are ready for it. Brussels likes to deal with the Baltic states as a bloc, which rather irritates them all, as they differ from each other in many ways.

The Queen is coming in October
It is not only Brussels that adopts this approach, but Buckingham Palace too. The Queen is visiting all three Baltic states in October, visiting Tallinn last on October 19-20.
This is a more important event than at first sight might appear. The British monarchy has an enormous reputation as the repository of eons of history. It symbolizes British constitutional governance, the mother of parliaments and the Western world no less.
The visit, which has already been widely discussed by the Baltic media, is seen locally as a compliment to the three states and a recognition of their achievements since independence, which have, indeed, been phenomenal.

Estonia needs to raise productivity; report by Hansabank Markets
Nevertheless, a lot still remains to be done. Estonia, which was richer than Finland before the Second World War, had a dismal time of it under the Soviets and ended up by 1991 with a GDP per head one-fifth of that of Finland. Much has been done since of course.
To maintain rapid economic growth, Estonian businesses still need to make significantly larger investments to raise productivity, starting this year, Hansabank Markets said in its latest Baltic macroeconomic survey. Modernization of production and growth of productivity would ensure the competitiveness of the Estonian economy and keep the economy growing at a rate of 6-6.5 per cent annually in the coming years, the report said. 
Large investments would allow for the creation of more value-added production with a smaller number of workers, which in turn would mean a significant structural change in the economy. Such development would, in the bank's estimate, entail inflation of 3-4 per cent in forthcoming years. 
Under a negative development scenario, investment in the economy would remain modest, as a result of which growth will slow down to 5-6 per cent, and inflation will climb to the same level, the bank added. 
Hansabank's forecast at present is more in keeping with a positive scenario, but over the past month the likelihood of a positive scenario materializing has diminished rapidly. 
Due to fast economic growth and shortage of labour, the two development scenarios could also become topical in neighbouring Latvia and Lithuania in coming years, Hansabank noted.
Regarding labour shortages, the Statistical Office confirmed last week that problems are due to arise due to the shrinking pool of workers - the number of employed 15 - 64 year-olds will drop by 50,000 to 550,000 by 2015, the office said - and that people should be brought in from outside or productivity should be raised. 
"Our productivity currently makes up about 50 per cent of the EU average," said Mihkel Servinski, chief analyst at the statistics office. "That doesn't mean that Estonians don't know how to work, it's rather a problem of management or obsolete technologies."

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BUDGET SURPLUS

Estonia's budget surplus continues to rise


Estonia's budget surplus - one of only several in the EU and a source of much debate at home - continues to mount, thanks to a booming economy. The Finance Ministry announced that, as of the end of July, budget revenues surpassed expenditures by 3 billion kroons (192 million euros), The Baltic Times reported. 
Compared with the first seven months of 2005, budget revenues are 17.2 per cent higher this year. Only two months ago, the figure was 2 billion kroons, ministry officials said. 
In all, the ministry said 37.3 billion kroons were paid into the state budget over the January-July period, 60.8 per cent of the annual 2006 target. Expenditures for the period amounted to 34.3 billion kroons, or 55.9 per cent of the target. 
Estonia continues to adhere to a surplus-based fiscal policy, with the additional revenues going to a reserve fund. Recently the government endorsed the size of the 2005 budget surplus - 1.8 billion kroons (115 million euros) - and decided to place the full sum into a pension reserve. 
Earlier this year, the Statistical Office reported that the size of the surplus was 1.6 per cent of GDP, the fourth highest in the EU. According to Eurostat, in 2005 Denmark had the biggest budgetary surplus of 4.9 per cent in 2005. Inevitably, political parties are at odds how to use the surplus, with Villu Reiljan, the leader of the populist People's Union, one of the three parties in the ruling coalition, proposing that the funds be used to boost the social sphere. 
However, Finance Minister, Aivar Soerd, also a member of the People's Union, has repeatedly stated that additional revenues should be used to bolster the pension fund. 
Despite the surplus, Estonia's economic leadership has been unable to rein in inflation, which is currently over 4 per cent and showing no signs of slacking. Growth of GDP amounted to a staggering 11.4 per cent in the first quarter of the year, pointing to an economy that is under risk of overheating. The high rise in consumer prices prevented the country from being allowed to adopt the euro in January next year, which it had been hoping to do. 
Meanwhile, the European Bank for Reconstruction and Development has adopted its new strategy for Estonia, which focuses on building a more effective energy sector. 
EBRD officials said that the current effectiveness of the energy sphere is not fully congruent with EU regulations and that existing regulations concerning renewable energy must be strengthened. What's more, the development of the industrial sector has to be stimulated in poorer areas, the bank said. 
To ensure dynamic development, small and medium size companies need a wider choice of financing opportunities, the EBRD said. 
The bank has decided it would support renewable energy projects and local companies, offering to the latter long-term risk capital particularly for the financing of cross-border projects. 
In addition, the EBRD is planning to support small and medium size enterprises and local governments as well as higher effectiveness of the energy sector. 
The EBRD pointed out Estonia's success in turning the economy into a modern market economy and described Estonia as one of the most open and competitive economies in the world.

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FOREIGN RELATIONS

Russia, Estonia to build new border bridge 

Russia and its European Union neighbor Estonia signed a preliminary protocol on cooperation in building a new border bridge across the Narva River, the Estonian Economics Ministry said, RIA Novosti reported.
The project will receive joint funding from the two countries and the EU.
Russian Transportation Minister, Igor Levitin, and Estonian Economic Affairs and Communications Minister, Edgar Savisaar, signed the document during Levitin's two-day visit to Estonia, during which a preliminary intergovernmental agreement on bilateral rail cooperation was also signed.
The new bridge, linking Russia's Ivangorod with Estonia's Narva, will add speed and efficiency to passenger and goods transit between Russia and the EU, an Estonian ministry official said. It will increase border checkpoint capacity by several times, ensure safety for cross-border transport, and pose a minimal threat to the environment, the official said.
Due to a rapid rise in the number of vehicles crossing the border in recent years, the existing bridge from Narva to Ivangorod has become overloaded, the ministry said.

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