22.05.2017

How would you assess the current economic situation in Estonia?

Estonian economy is small but open and flexible. International organizations like World Bank, World Economic Forum, The Heritage Foundation and others have acknowledged Estonian economy as very open and competitive. The structure of Estonian economy is diverse – industry and transport, as well as commerce and different branches of services are all equally important. Due to the available natural resources Estonian economy largely relies on the branches related to the forest and the Estonian energy sector is based on oil shale, a resource quite rare elsewhere in the world. More than 71% of the Estonian GDP is derived from the service sectors, industrial sectors yield 25% and primary branches (including agriculture) approximately 4% of the overall output. In comparison to the previous year the GDP increased in 2016 by 1.6%, amounting to 20.9 billion Euros. The GDP has grown mainly thanks to the IT-sector. In 2016 the inflation rate was low; in 2016 the consumer price index grew by 0.1%. The unemployment rate in Estonia is stable; at the end of 2016 the unemployment rate was 6.8%.

Estonia has some of the highest international credit ratings in the region: 

  • Standard & Poor: AA-
  • Moody's: A1
  • Fitch IBCA: A+, with a prospect for stability.

How would you assess the atmosphere regarding investment in Estonia at the moment? Which fields have the greatest potential?

Estonia has liberal economic policy with investment friendly tax system and a transparent and functioning legislation, which is in compliance with the EU legislation. There is no tax on retained profits, no taxation of interest and dividends. There are 56 applicable double taxation treaties, which facilitate efficient processes and long-term planning.

According to the Corruption Perceptions Index Estonia is with 70 points the most transparent and the least corrupt country in the CEE region. Estonia shares with France, Chile and the UAE the 23rd-26th place from 168 places (2016 - Transparency International). Estonia’s budgetary position with a budget surplus and an insignificant national debt remains strong. Estonia’s national debt is under 10 percent of the GDP.

Estonia is foreign investor friendly, and does not differentiate between local and foreign investor. EU structural funds are equally available for both foreign and domestic companies. Foreign investments are protected by the law and international agreements. Estonia has concluded treaties for the protection of investments with several countries, including Germany and Switzerland.

Moreover, Estonia has a very progressive business climate with an efficient and compatible infrastructure to offer. Estonia has high Internet penetration rate and widespread e-commerce and e-government services. As of 01.12.2014 Estonia started to provide an e-residency service, a unique solution that is only available in Estonia, which gives foreigners the possibility to use Estonian e-services from anywhere in the world. When it comes to new technologies, the Estonians are highly adaptable and are really glad to use these.

Estonia possesses a skilled workforce with strong competences in languages, finance and IT. Estonian workers are also recognized for their commitment.

Following industries have great potential: 

  • Information and communication technology,
  • Shared services,
  • Electronics,
  • Mechanical engineering,
  • Small craft building,
  • Smart mobility,
  • Logistics,
  • Wood,
  • Gaming industry.

What challenges does a German enterprise face in its undertakings in Estonia?

In Estonia the main language to conduct business is English. Although Estonians have strong competence in languages, it may be challenging to find German speaking workforce.  E-mail communication and signing documents digitally is accepted norm in Estonian business environment.

As a small country Estonia is not suitable for labour-intensive undertakings.

What impact do Germany and the EU have on Estonia?

The development of the German economy has direct impacts on Estonia’s economy, since Germany is one of Estonia’s most important trading partners. In 2016 Germany made after Finland, Sweden and Latvia the 4th place as Estonia’s trading partner.

In comparison to 2015 the exports to Germany increased in 2016 by 16 percent, the import grew by 3 percent. Total turnover of external trade between Estonia and Germany totalled in 2015 more than 2 billion Euros.

The largest direct investments made by Germany include financial and insurance services, wholesale and retail sectors, real estate and processing industry. In terms of the percentage Germany as a foreign investor takes the 16th place (1.3 percent of all foreign investments in Estonia).

In Estonia there are more than 500 companies registered with German capital participation.

The extent of Estonia’s investments made in Germany is more moderate and amounts to 46.2 million Euros as at June 30th 2016 (0.8 percent of all the foreign investments). The investments were mostly made in real estate, wholesale and retail and processing industry.

Which direction is the development in Estonia heading in?

The business climate continues to be strong and Estonia will continue to have stable economic growth. The low national debt enables the country to promote economic development through stimulation of domestic demand in the period where the foreign demand should decrease.

Source: Rödl & Partner