Economy of Estonia

Economy - overview: 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 - the second Baltic state to join - and continued its EU accession talks. GDP is forecast to grow 4% in 2000. Privatization of energy, telecommunications, railways, and other state-owned companies will continue in 2000. Estonia expects to complete its preparations for EU membership by the end of 2002.

Economy - in further detail:
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. 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.

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, flat-rate income tax, free trade regime, fully convertible currency, competitive commercial banking sector, and hospitable environment for foreign investment are hallmarks of Estonia's free-market-based economy. Estonia also has made excellent progress in regard to structural adjustment.

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.

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, privatized by an international consortium in 2000, serves as a conduit between the West, Russia, and other points to the East.

Estonia still faces challenges. Agricultural privatization has caused severe problems for farmers needing collateral to be eligible for loans. The income differential between Tallinn and the rest of the country is widening. Standards of living have eroded for the large portion of the population on fixed pensions. The formerly industrial northeast section of Estonia is undergoing a severe economic depression as a result of plant closings.

During recent years the Estonian economy has continued to grow. Estonian GDP grew by 6.4% in the year 2000 and by 5.4% in 2001. Inflation declined modestly to 5.0% in the year 2000 (the estimate for 2001 is 4.8%). The unemployment rate in 2001 was 12,6%. Estonia joined the World Trade Organization in 1999 and continues its European Union (EU) accession talks. In negotiations with the EU, Estonia has closed 27 out of 31 chapters. It hopes to join the EU during the next round of enlargement tentatively set for 2004.

Foreign Trade
Estonia's liberal foreign trade regime, which contains few tariff or nontariff barriers, is nearly unique in Europe. Estonia also boasts a national currency which is freely convertible at a fixed exchange rate and conservative fiscal and monetary policies. Estonia has free trade regimes with European Union and EFTA countries and also with Latvia, Lithuania, Ukraine, Slovakia, Poland, Hungary, Turkey, the Faro Islands[?], Slovenia, and the Czech Republic.

Estonia's business attitude toward the United States is positive, and business relations between the U.S. and Estonia are increasing significantly. The primary competition for American companies in the Estonian marketplace are European suppliers, especially Finnish and Swedish companies.

Total U.S. exports to Estonia in 2000 were $121 million, forming 2.4% of total Estonian imports. In 2000 the principal imports from the United States were meat and edible meat offal, poultry, boilers and other electrical machinery and transmission/recording apparatus for radio/TV. Estonia's future membership in the EU is not expected to have major bilateral trade implications for the United States. However, this membership will be disadvantageous for certain U.S. imports. For example, since January 2000 Estonia has imposed import tariffs on certain agricultural products from third countries, including the United States, in accordance with EU rules and regulations.

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 just South of Finland and across the Baltic Sea from Sweden--the European Union's newest members. To the East are the huge potential markets of northwest Russia. Having been a member of former Soviet Union, Estonians know how to do 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 39% of the Estonian population regard themselves as Internet users. Twenty-five percent of the Estonian population conducts its everyday banking via Internet.

GDP: purchasing power parity - $7.9 billion (1999 est.)

GDP - real growth rate: -0.5% (1999 est.)

GDP - per capita: purchasing power parity - $5,600 (1999 est.)

GDP - composition by sector:
agriculture: 3.6%
industry: 30.7%
services: 65.7% (1999)

Population below poverty line: 6.3% (1994 est.)

Household income or consumption by percentage share:
lowest 10%: 3.2%
highest 10%: 28.5% (1996)

Inflation rate (consumer prices): 3.7% (1999 est.)

Labor force: 785,500 (1999 est.)

Labor force - by occupation: industry 20%, agriculture and forestry 11%, services 69% (1999 est.)

Unemployment rate: 11.7% (1999 est.)

Budget:
revenues: $1.37 billion
expenditures: $1.37 billion, including capital expenditures of $NA (1997 est.)

Industries: oil shale, shipbuilding, phosphates, electric motors, excavators, cement, furniture, clothing, textiles, paper, shoes, apparel

Industrial production growth rate: 3% (1996 est.)

Electricity - production: 8.742 billion kWh (1998)

Electricity - production by source:
fossil fuel: 99.98%
hydro: 0.02%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 7.58 billion kWh (1998)

Electricity - exports: 700 million kWh (1998)

Electricity - imports: 150 million kWh (1998)

Agriculture - products: potatoes, fruits, vegetables; livestock and dairy products; fish

Exports: $2.5 billion (f.o.b., 1999)

Exports - commodities: machinery and appliances 19%, wood products 15%, textiles 13%, food products 12%, metals 10%, chemical products 8% (1999)

Exports - partners: Sweden 19.3%, Finland 18.8%, Russia 8.8%, Latvia 8.8%, Germany 7.3%, US 2.5% (1999)

Imports: $3.4 billion (f.o.b., 1999)

Imports - commodities: machinery and appliances 26%, foodstuffs 15%, chemical products 10%, metal products 9%, textiles 8% (1999)

Imports - partners: Finland 23%, Russia 13.2%, Sweden 10%, Germany 9.1%, US 4.7 (1999)

Debt - external: $270 million (January 1996)

Economic aid - recipient: $137.3 million (1995)

Currency: 1 Estonian kroon (EEK) = 100 senti

Exchange rates: krooni (EEK) per US$1 - 15.417 (January 2000), 4.678 (1999), 14.075 (1998), 13.882 (1997), 12.034 (1996), 11.465 (1995); note - krooni is fixed to euro as EUR 1 = EEK 15.6646.

Fiscal year: calendar year

See also : Estonia