Economy

After regaining independence from the Soviet Union, Estonia has been among the most advanced emerging markets in central and eastern Europe, mostly thanks to the success of its socio-economic reforms over the last fifteen years. Estonia has a liberal market-based economy. The government has pursued balanced budgets and low public debt.

Oil shale-based energy production, telecommunications and IT products, textiles, chemical products, banking, food and fishing, timber and wood products, shipbuilding, electronics, transportation and various services remain key sectors of the Estonian economy. Estonia produces nearly all of the energy needed for the country, supplying over 90% of its electricity needs with locally mined oil shale. Alternative energy sources such as wood, peat, and biomass contribute approximately 9% of primary energy production.

Key economic indicators over the period 2003-2008 are summarised in the table below:

* Based on the 2000 Population Census
** Unemployed/labour force according to ILO methodology
Source: Bank of Estonia, Statistical Office of Estonia, Ministry of Finance, Population Register

Transport and telecommunications are well developed in Estonia. An efficient road network covers the whole of Estonia, though the quality of some secondary roads remains below western standards. There is a well-developed rail connection between Estonia and Russia. In combination with the well-located ice-free ports in the northern part of the country (the Port of Muuga near Tallinn being the largest), Estonia has served as a major transit corridor between the West and East. Estonia is connected to the international flight network via its international airport in Tallinn, serving direct flights to numerous European cities.

Estonia’s economy has displayed considerable aptitude in increasing efficiency. Post-recession adjustments have laid the foundation for productivity-based growth, so productivity per employee is likely to reach a historical high in 2012. Nevertheless, since productivity growth will not fully offset the rapid fall in employment, the volume of the economy will remain below pre-crisis levels even in 2012. Some sectors have not seen considerable improvements from the standstill of the slump. Irrespective of the recovery, the economy is still displaying signs of fragility.

Estonia’s economy has exited recession on the back of increasing exports. Our main trading partners enjoyed faster-than-anticipated growth in the first half of the year of 2010, which contributed to an upturn in Estonia’s economy as well. However, the current growth impetus in foreign trade will be short-lived, since global recovery is losing momentum after a post-crisis pickup.

Estonia's role in the economic policy of the European Union will increase after becoming a member of the euro area. Estonia will also participate in making decisions on fiscal policy of the EU, including setting key interest rates in the euro area. Until now Estonia has, so to speak, automatically introduced the euro area interest rates through the fixed exchange rate of the Estonian kroon. Euro area membership also involves a rise in Estonia's credibility for foreign investors. The risk of the kroon devaluation will disappear all along, the businesses will no longer need to invest in exchange risk hedging, and travelling will be more convenient.

Cornerstones of Economic Success
• Monetary reform – since 1992 currency board arrangement (fixed exchange rate 1 Euro = 15.65 Kroons). Since January 2011 euro - Estonia becomes a member of the Economic and Monetary Union
• Privatization – completed, 5 infrastructure companies in state ownership
• Liberal foreign trade regime – market is open for competition (Up until May 1st 2004 no import taxes, quotas, tariffs)
• Modern Tax System – motivating, transparent, simple

The World Bank “Doing Business in 2011” report places Estonia on 17th rank among 183 countries, because:
–    starting a business is easy
–    taxation is simple and transparent
–    investors feel secure
–    trading across borders is active
–    communication is easy
–    flexible job regulation
but:
–    too many local government units

Starting a Business
•    Number of procedures – 5
•    Minimum starting capital of most wide-used company form (PLC) – only 2500 EUR
•    From the beginning of 2011 registering a new PLC can be done without share capital payment at the start. Share capital can be paid later on.
•    Since 2007 – electronic registering via Company Registration Portal – max 2 hours
•    Companies can be 100% foreign owned
•    Business Registers information is publicly available:  https://ariregister.rik.ee

Company registration
•    How to start a company in Estonia http://www.eesti.ee/eng/ettevotjale/ettevotte_loomine
•    Company Registration Portal  https://ettevotjaportaal.rik.ee
•    E-Business Register https://ariregister.rik.ee
•    European Business Register http://www.rik.ee/ebr

More information about Estonian economy:
Bank of Estonia: www.eestipank.info/frontpage/en/
Statistics Estonia: www.stat.ee
Ministry of Foreign Affairs: www.vm.ee
Ministry of Economic Affairs and Communications: www.mkm.ee
Ministry of Finance: www.fin.ee
Estonian Development Fund: www.arengufond.ee/eng
Tallinn Stock Exchange: www.hex.ee
Enterprise Estonia: www.eas.ee
Estonian Investments and Trade Agency: www.investinestonia.com ; www.tradewithestonia.com
Estonian Trade: www.estoniantrade.ee
Estonian Export Directory: www.estonianexport.ee



Source: PricewaterhouseCoopers - Guide to doing business and investing in Estonia