Economy of Estonia
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| Economy of Estonia | ||
|---|---|---|
| Currency | 1 Estonian kroon = 100 sent | |
| Fiscal year | Calendar year | |
| Trade organizations | EU and WTO | |
| Statistics [1] | ||
| GDP (PPP) ranking | 56th (2007) [2] | |
| GDP (PPP) | $29.35bn (2007 est.) | |
| GDP growth | 7.1% (2007) [3] | |
| GDP per capita | $21,800 (2007 est.) | |
| GDP by sector | agriculture (3%), industry (29%), services (68%) (2007 est.) | |
| Inflation | 6.6% (2007) [4] | |
| Pop below poverty line | 5% (2003) | |
| Labour force | 688,000 (2007 est.) | |
| Labour force by occupation | services (69%), industry (20%), agriculture (11%) (1999 est.) | |
| Unemployment | 4.7% (2007) [5] | |
| Main industries | engineering, electronics, wood and wood products, textiles; information technology, telecommunications | |
| Trading partners [6] | ||
| Exports | $11.31 billion (2007) | |
| Main partners | Finland 18.2%, Sweden 12.2%, Latvia 9.1%, Russia 7.9%, USA 6.6%, Germany 5%, Lithuania 4.8%, Gibraltar 4.5% (2006) | |
| Imports | $14.71 billion (2007) | |
| Main partners | Finland 18.4%, Russia 12.9%, Germany 12.3%, Sweden 9.2%, Lithuania 6.4%, Latvia 5.8% (2006) | |
| Public finances [7] | ||
| Public debt | 3.8% of GDP (2007) | |
| Revenues | $7.671bn (2007 est.) | |
| Expenses | $7.015bn (2007 est.) | |
| Economic aid | recipient: $135 million (2004) | |
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Estonia, a new member of the WTO, has a high-income[1], modern market economy with increasing ties to the West, including the pegging of its currency to the euro. It acceded to the European Union in 2004. There is a great degree of economic mobility and technological advancement. The state of the economy is greatly influenced by developments in Finland, Sweden, and Germany, three major trading partners. The high current account deficit remains a concern, it was caused by inflows of capital, including foreign direct investment. The economy has had high GDP growth in recent years (around 10% per annum).
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[edit] Early history
For centuries until 1920, Estonian agriculture consisted of native peasants working large feudal-type estates held by ethnic German landlords. In the decades prior to independence, centralized Czarist rule had contributed a rather large industrial sector dominated by the world's largest cotton mill, a ruined post-war economy, and an inflated ruble currency. In years 1920 to 1930, Estonia entirely transformed its economy, despite considerable hardship, dislocation, and unemployment. Compensating the German landowners for their holdings, the government confiscated the estates and divided them into small farms which subsequently formed the basis of Estonian prosperity.
By 1929, a stable currency, the Kroon (or crown), was established. It is issued by the Bank of Estonia, the country's central bank. Trade focused on the local market and the West, particularly Germany and the United Kingdom. Only 3% of all commerce was with the U.S.S.R.
The U.S.S.R.'s forcible annexation of Estonia in 1940 and the ensuing Nazi and Soviet destruction during World War II crippled the Estonian economy. Post-war Sovietization of life continued with the integration of Estonia's economy and industry into the U.S.S.R.'s centrally planned structure. More than 56% of Estonian farms were collectivized in the month of April 1949 alone. Moscow expanded on those Estonian industries which had locally available raw materials, such as oil shale mining and phosphorites. As a laboratory for economic experiments, especially in industrial management techniques, Estonia enjoyed more success and greater prosperity than other regions under Soviet rule and by the end of Soviet times in 1990 was only slightly behind Russia in quality of life according to Human Development Index estimates.
[edit] Modernization and liberalization
Since reestablishing independence, Estonia has styled itself as the gateway between East and West and aggressively pursued economic reform and integration with the West. Estonia's market reforms put it among the economic leaders in the former COMECON area. A balanced budget, almost non-existent public debt, flat-rate income tax, free trade regime, fully convertible currency backed by currency board and a strong peg to the euro, competitive commercial banking sector, hospitable environment for foreign investment, innovative e-Services and even mobile-based services are all hallmarks of Estonia's free-market-based economy. Estonia also has made excellent progress in regard to structural adjustment.
In June 1992, Estonia replaced the ruble with its own freely convertible currency, the Kroon (EEK). A currency board was created and the new currency was pegged to the German Mark at the rate at 8 EEK for 1 DEM. When Germany introduced the Euro the peg was changed to 15.6466 Kroon for 1 Euro. Estonia was set to adopt the Euro in 2008 but due to high inflation rates the date was set on January 2010.
The privatization of state-owned firms is virtually complete, with only the port and the main power plants remaining in government hands. The constitution requires a balanced budget, and the protection afforded by Estonia's intellectual property laws is on a par of that of Europe's. In early 1992 both liquidity problems and structural weakness stemming from the communist era precipitated a banking crisis. As a result, effective bankruptcy legislation was enacted and privately owned, well-managed banks emerged as market leaders. Today, near-ideal conditions for the banking sector exist. Foreigners are not restricted from buying bank shares or acquiring majority holdings.
Tallinn's fully electronic stock exchange opened in early 1996 and was bought out by Finland's Helsinki Stock Exchange in 2001. It is estimated that the unregistered economy provides almost 12% of annual GDP.
[edit] The economy today
Estonian economy is one of the fastest growing in the world with growth rates even exceeding 10% annually. Despite some concerns both in and outside of the country, the Estonian economy and its currency remain highly resilient and solvent.
Estonia has recently overcome many of its past challenges. Problems with exporting to Russia in 1990s caused severe problems, especially for farmers. Since the accession to the EU the living standards in rural areas have increased greatly. The formerly industrial northeast section of Estonia is undergoing severe restructuring. It is hoped that the low cost of labor will attract foreign investors to their regions. Since 2001, when unemployment was 12.6%, it has now fallen to 4.2% in July 2006[2]) and is thus one of the lowest in EU.
During recent years the Estonian economy has continued to grow with admirable rates. Estonian GDP grew by 6.4% in the year 2000 and with double speeds after accession to the EU in 2004. The GDP grew by 7.9% in 2007 alone. Increases in labor costs, rise of taxation on tobacco, alcohol, electricity, fuel, and gas, and also external pressures (growing prices of oil and food on the global market) are expected to raise inflation just above the 10% mark in the first months of 2009. The government is trying to lower inflation by sizable 1.5% of GDP budget surplus and the inflation is expected to start lowering the second half of 2009.
Estonia joined the World Trade Organization in 1999. A sizable current account deficits remains, but started to shrink in the last months of 2008 and is expected to do so in the near future.
In the first quarter of 2007, the average monthly gross wage in Estonia was 10,322 kroons (€660, US$888).[3]
Estonia is nearly energy independent supplying over 90% of its electricity needs with locally mined oil shale. Alternative energy sources such as wood, peat, and biomass make up approximately 9% of primary energy production. Estonia imports needed petroleum products from western Europe and Russia. Oil shale energy, telecommunications, textiles, chemical products, banking, services, food and fishing, timber, shipbuilding, electronics, and transportation are key sectors of the economy. The ice-free port of Muuga, near Tallinn, is a modern facility featuring good transshipment capability, a high-capacity grain elevator, chill/frozen storage, and brand-new oil tanker off-loading capabilities. The railroad serves as a conduit between the West, Russia, and other points to the East.
Some international experts and journalists, who like to view the three Baltic states as a single economic identity, have failed to notice that Estonia has constantly performed better than Latvia and Lithuania. Estonia today is mainly influenced by developments in Germany, Finland and Sweden - the three main trade partners. The government recently increased greatly its spending on innovation. The prime ministers Estonian Reform Party has stated its goal of bringing Estonian GDP per capita into the TOP 5 of EU by 2022. Ireland is sometimes seen as a model for Estonian economic future.
[edit] Foreign trade
Estonia's liberal foreign trade regime prior to accession to the European Union, contained few tariff or nontariff barriers. Estonia also boasts a national currency which is freely convertible at a fixed exchange rate and conservative fiscal and monetary policies. As a member of the EU Estonia is a member of the EU customs union.
Estonia, being a small country of 1.4 million people, relies on its greatest natural asset--its location at the crossroads of East and West. Estonia lies across the Baltic Sea just South of Finland and East from Sweden. To the East are the huge potential markets of northwest Russia. Having been a member of former Soviet Union, Estonians have a great deal of experience doing business in Russia and in other former Soviet countries. Estonia's modern transportation and communication links provide a safe and reliable bridge for trade with former Soviet Union and Nordic countries. According to the RIPE Network Coordination Centre (at http://www.ripe.net), Estonia has the highest Internet connected hosts/population ratio in central and eastern Europe and also is ahead of most of the EU countries. Latest surveys indicate that sixty percent of the Estonian population are Internet users, while eighty percent of the population conducts its everyday banking via the Internet. [4]
[edit] Resources
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Oil shale (or kukersite) and limestone deposits, along with forests which cover 47% of the land, play key economic roles in this generally resource-poor country. In 1994, Estonia became one of the first countries in the world to adopt a flat tax, with a uniform rate of 26% regardless of personal income. In January 2005 the personal income tax rate was reduced to 24%. A subsequent reduction to 23% followed in January 2006. The income tax rate will be decreased by 1% annually to reach 18% by January 2010. The Government of Estonia finalized the design of Estonia's euro coins in late 2004, and is now intending to adopt the euro as the country's currency between 2011 and 2013, later than planned due to continued high inflation. In 1999, Estonia experienced its worst year economically since it regained independence in 1991, largely because of the impact of the August 1998 Russian financial crisis. Estonia joined the WTO in November 1999. With assistance from the European Union, the World Bank and the Nordic Investment Bank, Estonia completed most of its preparations for European Union membership by the end of 2002 and now has one of the strongest economies of the new member states of the European Union.
[edit] Oil shale
Although the amount of pollutants emitted to the air have fallen steadily the air is polluted with sulphur dioxide from oil-shale burning power plants in northeast Estonia due the mining industry which was created by the Soviets in early 1950s. In 2000 the emissions were 80% smaller than in 1980 and the amount of unpurified wastewater discharged to water bodies was one twentieth the level of 1980. With the start-up of new water purification plants the pollution load of wastewater has decreased. Estonia has more than 1,400 natural and man-made lakes. The coastal seawater is polluted in certain locations, mainly in East-Estonia.[6] One of the main goals of long-term national development programme of fuel and energy management and goal programme of energy saving is the reduction of environmental impacts. The main tasks in the area are to raise the efficiency of energy production and transport and to use more environment-friendly fuels and reduce special consumption of energy in all branches of economy and households. There are plans to establish new power stations and to provide higher efficiency in oil shale based energy production with the concurrent and significant reduction of the harmful environmental impact via the renovation of combustion technology.[7] [edit] See also[edit] Notes
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