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Successfully investing in Estonia

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​​​​​ last updated on 7 June 2024 | reading time approx. 5 minutes

 

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How do you assess the current economic situation in Estonia?

After two years of recession in 2022 and 2023, conditions have improved for Estonia's economy to return to growth: energy and other raw material prices have declined, price increases have slowed and people's purchasing power is improving. For the next two years, the central bank forecasts economic growth of around 3 percent: 3.2 percent in 2025, and 3.1 percent a year later. According to the forecast, Estonian companies are actively engaged in improving their competitiveness. Prices are projected to rise by 3.2 percent in 2024 and 2.4 percent the following year, while the average gross wage will rise to 2049 euros by then. In 2026, prices will rise by 1.9 percent and the average wage will reach 2147 euros, according to the Estonian central bank Eesti Pank.

The rise in economic activity is expected to be fuelled by a fall in raw material and energy prices from their previous highs, a decline in supply constraints, a more favourable euro exchange rate, slower price increases and an expected reduction in interest rates by the European Central Bank. People's purchasing power will also continue to improve, boosting consumer spending and economic growth. The strong resilience of the labour market to past difficulties is a good basis for economic growth because, with high employment and low unemployment, the increase in purchasing power and consumption ability will be distributed more evenly in society. According to the forecast of Eesti Pank, economic activity is slowly increasing. The receding effects of the energy crisis and the slowdown in inflation are boosting people's purchasing power in Estonia. The same factors are also improving the purchasing power of consumers in external markets, which is an important contribution to improving export opportunities, which have been hit hard. Export opportunities are boosted by entry into new markets – and increasing focus area for companies – but it will take time for these opportunities to open up. According to Eesti Pank, the country has cushioned the economic recession, but this has led to an increase in the budget deficit at the same time. By increasing the budget deficit, the public sector has injected additional money into the economy, part of which has stimulated demand and limited the extent of the recession.

While insecurity and uncertainty about the future remain relatively high across the region, notably due to geopolitical challenges, there are increasing signs of the stabilisation of economic fundamentals, providing a basis for further increases in economic activity.​[1]​
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How would you describe the investment climate in Estonia? Which sectors offer the largest potential?

Estonia's investment climate is favourable to foreign investors and there is no discrimination between domestic and foreign investors. European Structural Funds are equally accessible to domestic and foreign companies. Foreign investment is protected by law and international treaties, and Estonia has agreements with many countries, including Germany and Switzerland, to ensure investment protection. Estonia has a skilled workforce with good language, financial and IT skills. Estonians are also known as dedicated employees. In 2022, Estonia received 351 million euros worth of foreign investments, an all-time record. In 2023, foreign investments in Estonia amounted to 336 million euros. Almost 1,600 high-paying jobs were created thanks to the foreign investments attracted. Estonia's strengths are an educated workforce capable of creating high added value, a simple and clear tax system, and flexibility in both the regulatory environment and experimenting with new technologies. In addition, the main prerequisites for attracting foreign investments to Estonia include the good availability and price of green energy, the number of skilled workers and the speedy processing of planning and permits. ​[2]
  

What challenges do German companies face during their business ventures into Estonia?

English is the main business language in Estonia. This means that it can be difficult to find workers who speak German. Most official procedures in Estonia are handled electronically. If you do not have an Estonian ID code or card, you are not able to sign documents digitally. For handling matters in the Estonian/e-Estonian digital environment, the e-resident number issued under the e-residency platform provides foreigners not living in Estonia with the same access to Estonian services. So, you don't have to live in Estonia to do business in Estonia – e-residency is enough. As Estonia is a small country, it is not suitable for labour-intensive businesses. Estonia is known for its digital innovation, which can bring both opportunities and challenges to German companies, especially when implementing technology-based solutions.
 

Estonia has a pioneering role in the Baltic States in terms of digitisation. How does this affect the economy?

Estonia has long been known for its leading role in digitalisation. The country offers its citizens and companies hundreds of electronic services. The processing of a wide range of services via the Internet with the help of IT solutions is a commonplace practice. Internet is widely available and free in Estonia, and the country has a wide range of e-commerce and e-government services, including e-residency, making it one of the leading nations in the world in this field. Internet access is considered a fundamental human right. Thanks to e-services, you can save time, money and energy. All you need is an Estonian ID card, a card reader and Internet access. The Estonian ID card provides access to all national electronic applications.
  
Email communication and the digital signing of documents are commonplace in everyday business life. In such a paperless society, many transactions can be processed quickly. Estonia is known for being one of the countries with the most newly founded companies per capita. A company can be founded and entered in the e-register within 10 minutes, and since 2011 it has been possible to register a company online. The e-residency programme also offers non-residents access to the register and digital services.

Estonia offers e-government, e-health, e-school, e-election and many other services. E-tax is an electronic submission system through which 95 percent of all tax returns are submitted. The Estonian banking system is based on IT solutions and offers speed and flexibility. In Estonia, 99 percent of banking transactions are processed electronically.

Digital transformation drives economic growth by boosting productivity, creating new business opportunities and innovation, and attracting investments and foreign companies.
  
In conclusion, Estonia's role in the digitalisation of the Baltic states has a positive impact on the economy, contributing to increased competitiveness, innovation and sustainable economic growth.
  

In your opinion, how will Estonia develop?

Estonia is one of the fastest growing economies in the European Union, with a strong focus on technology and innovation. The country has a highly qualified workforce, a favourable business environment and a relatively low level of debt. Estonia has also been successful in attracting foreign investment, particularly in the technology sector.
   
Estonia is likely to step up its efforts to increase environmental sustainability and develop a green economy. Investments in renewable energy, energy efficiency and sustainable transport solutions will reduce the environmental footprint and increase resilience to climate change.
  
Overall, Estonia has the potential to continue its economic development and remain a competitive and innovative country in the global economy, although this will depend on various factors such as effective governance, continued investment in technology and innovation and the ability to adapt to changing global economic conditions.​

[1] Source: Eesti Pank​
[2] Source​: EAS & Kredex​

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