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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)

Books on Estonia

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: 300 - (01/01/06)

The laboratory that seems to work
If you want to turn people off something, the way to do it is to stuff it down their throats. That is exactly what the Russians did to the Estonians with Communism. There is now no more anti-communist place on Earth. 
It has now introduced the most radical measures imaginable. Professor Friedman, the Economic guru of the Chicago school, advocated a flat tax - everybody pays the same, rich or poor. The Estonians adopted it over ten years ago and it seems to be working, although it is early days yet.
Yeltsin was asked his opinion of Lenin and replied:" A political genius. But it is a pity he didn't try his ideas out in a smaller country first." Premier Matt Larr did in Estonia in 1992 and they are working.
Both Finland and Estonia face tough challenges in the future - not least from each other.
If you want to understand the perspective, it helps to think of a suitable contrary. For Estonia it is undoubtedly Finland, undoubtedly European and a victim and eternal foe of Russia, with its apparently eternal imperialist ways. 
A curious thing is that before the Second World War Estonia was a more prosperous country than Finland, which is now a rich nation, famed for high taxes and its generous welfare state. But for the Finns only 30 miles across the Baltic Sea lies Estonia. This small country, an unwilling part of the Soviet Union until 1991, is now not nearly as wealthy as its Finnish neighbour. 
The average annual salary is 6,000 euros (£4,100; US$8,000), but some of its company taxes are as low as 0% to lure foreign investment. 

Attracting business 
Nevertheless, apart from the threat from cheaper competition from the Far East, Finland's newest and potentially most damaging rival is just across the Baltic. It only takes 15 minutes and 75 euros to take a helicopter ride from Helsinki to the Estonian capital, Tallinn, and many Finnish business people are making the journey.
Estonia is one of the EU's newest members and has caused a stir amongst the older members, which have complained about its low tax regime. It initiated the flat tax in the early 1990s, with great success.
Germany's former chancellor, Gerhard Schroeder, said that Estonia's 0% company taxes were driving jobs away from his country. But former Estonian Prime Minister, Juhan Parts, defends his policies thus: "We are trying to encourage business to come to Estonia, and motivate entrepreneurs both domestic and foreign," he says. "The tax system is very effective and it is trying to create jobs here. If you are talking about certain needs of harmonisation of the tax systems in the EU - for developing the better function of an internal market - I think the Estonian model is quite suitable."
His successor Premier Ansip is carrying on the good work. But even though Estonia has made great strides, it still has a long way to go to reach the same high standards of living as its western European neighbours.
Meanwhile, Finland has some of the highest standards in the world but faces tough competition from cheaper countries - and not just in Europe but also from the Far East, and especially China. 
But both Finland and Estonia are widely seen as following the right track - Finland by investing heavily in research and development and its own people, and Estonia through its aggressive tax policies. 

Interview: Estonia is on course for currency integration
Estonia is the most successful of all the former Soviet states. It was the first to set up an independent currency in June 1992, under the tutelage of the Bundersbank.
It is now on track to adopt the euro as its official currency in January 2007, Prime Minister, Andrus Ansip, said in an interview with the Japanese daily Sekai Nippo. He expressed concern, however, that joining the euro-zone may make it more difficult for his country to introduce a flat tax system for individuals. 
The Estonian prime minister also voiced hope that the process to ratify the European Union Constitution would be revived, and emphasized the need for the EU to have common policies in the areas of foreign relations, security and energy. 
He spoke with Sekai Nippo during a visit to London to attend the annual conference of the Confederation of British Industry (CBI). 

Q: What is the most important challenge Estonia faces after joining the EU in May 2004? 

A: The most important challenge is the question of joining the euro zone as a single currency system. We want to join it on January 1, 2007. We have begun preparations for that. Our fiscal policy has always been robust and it continues to be so. We have a well-balanced budgetary policy. We have a surplus budget and our national debt is less than 5 percent of GDP [gross domestic product]. Among the criteria for the euro group membership, the inflation rate is the only obstacle right now. 

Q: If Estonia joins the euro group, won't it present a problem for you in that the European Central Bank (ECB) will take over control of your country's interest rate policy? 

A: Estonia's currency, the kroon, was previously linked to the German Mark and is currently linked to the euro. Interest policy is only a technical problem. 

What may become a real problem for us is a matter concerning the tax system. We will have to increase the consumption tax for gasoline, tobacco and alcohol. However, we would actually like to lower the corporate tax by 1 per cent a year over 4 years, and lower individual tax rates. We are thinking about adopting an across-the-board 20 per cent individual income tax rate. 

Q: Which of the EU member countries can be a model for Estonia? 

A: We are not using any country in the EU as a model. There is always something to learn from any country. For example, France is the best in child care, and Denmark is the best in insuring its own security by promoting foreign trade. Each country has had some good experience, and it is possible to learn from them. 

Q: Does political integration into the EU present any problem to Estonia? 

A: We need to adopt the EU constitution as a part of the political integration process of EU. I am convinced that the ratification process will move forward. We need common foreign and security policies and a common energy policy. 

Q: You mentioned in one of your speeches that security concerns were the biggest reason for Estonia to join the EU. What is your country's relationship with your neighbouring country, Russia? 

A: A country naturally desires to maintain a good relationship with a neighbouring country, and this is true with Estonia. We would like to build a good relationship with Russia. Our business relationship with Russia is good. On the high level, we have issues including commitment to a border agreement. I am looking forward to future cooperation. 

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ENERGY

Estonia halts expansion of windmills


Estonia's Economy Ministry decided to limit its support to wind-power producers and will give preference to other forms of renewable energy. Einari Kisel, head of the ministry of economy and communications' energy department said, "We do not want to have too many windmills.
The price of wind energy is expensive. The unstable production causes additional costs to other producers."
With its long coast-line, Estonia has an advantage for generating wind power and can do it at a favourable cost compared to many European countries, Hannu Lamp, managing director of Tuulepargid, Estonia's largest wind power producer, said. The average payoff period of a windmill investment depends on the site wind conditions, wind power purchase tariff, the cost of capital and share of "carbon financing," New Europe reported.

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SHIPPING

Tallink seeks to raise 200m Euro in IPO

Tallink Group, the largest Baltic shipping company, plans to raise 200m Euro (US$236m) in an initial public offering to finance buying three new vessels. Tallink was listed on the Tallinn Stock Exchange in an effort to boost capital, New Europe reported.
Tallink will offer as many as 34.09m shares to investors at between 4.70 and 5.88 Euro apiece, the Tallinn, Estonia-based Company said in a stock exchange statement.
The company's ferries and cargo ships handled more than 3.2m passengers and about 130,000 cars, buses and trucks in the 12 months up until August 31st. It's adding new ships to its fleet, which currently offers mini-cruises, passenger transport and vehicle shipments on routes between Finland and Estonia and between Sweden and Estonia. The passenger shipping line, Viking Line and the shipbuilder, Aker Finnyards have signed a letter of intent for the construction of a new large passenger vessel. The ship is to be ready for delivery in January 2008. Viking Line says that the agreement also contains options for two more vessels. The order is worth between EUR 110 and 130m.
The company said, "The ongoing investment and fleet renewal program is set to continue with the delivery of the new cruise ferry, scheduled for the spring of 2006, and the introduction of the two recently ordered high-speed ro-pax ferries, scheduled for delivery in 2007 and 2008." The shares will be offered on the Tallinn stock exchange, 26.5m will be new and 7.59m will be sold on behalf of existing shareholders.

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