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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)

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: 276 - (01/01/04)

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.

Foreign help forthcoming
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 Western nation.

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 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. 

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CREDIT RATINGS

Fitch upgrades Hansapank short-term rating to F1

Fitch Ratings has upgraded the Estonian banking group Hansapank's short-term rating to F1 from F2, Interfax News Agency reported.
Fitch also changed the support rating assigned to the bank in July from two to one and the outlook on the long-term rating to positive from stable. The long-term rating was affirmed at A- as it is constrained by the sovereign's Long-term foreign currency rating of A-. The rating action followed the recent change in outlook to positive from stable for Estonia's long-term foreign currency rating. It also reflects Fitch's opinion that there is a very high probability that Hansapank's majority shareholder, ForeningsSparBanken, would provide support for its Estonian subsidiary should this ever be required.

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ENERGY

Ventspils nafta terminal handles 9.6m tonne of oil

Latvia's Ventspils nafta oil terminal handled 9.6m tonnes of crude oil and oil products in January-October, 23.2% less than in the same period of 2002, Interfax News Agency reported. The terminal received oil by rail only last year; in 2002 it received crude mostly by pipeline. Consequently, the volume of oil products shipped by rail grew 78% to 4.2m tonnes. 

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ENVIRONMENT

International Water backs out of Tallinn

International Water has sold its holding in Tallinna Vesi, Tallinn's main water company, to its strategic partner United Utilities, Baltic Business News has reported. The deal, which was reportedly financed by the European Bank for Reconstruction and Development, was signed recently. The amount of the deal was not disclosed. 

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TOURISM

Tourist complex to be built on Russian-Estonian border

Ivangorod in the Leningrad region and Narva, Estonia plan to build a recreation centre, Narovia, in the border zone on the river Narva. The government of Ivangorod is conducting market and legal research for the project, Interfax News Agency quoted the Leningrad regional economics and investment committee as saying.
The project must be checked for compliance with the laws of Russia and Estonia, with due account taken of the fact that the Narva will soon mark Russia's border with the European Union, the committee said. 
The feasibility study is being funded by the European Union's TACIS programme. "A tourist complex is expected to give a strong impetus to the tourist business in the Leningrad region and in the Ida Virumaa district of Estonia, create jobs in the towns located on both banks of the Narrva, and finally, provide an example of effective border cooperation in using natural resources," it said.
The European Commission welcomes the project as an example of cooperation on the border territories linking Europe and Russia, the committee said.

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