ECONOMY
Estonia is considered one of the most liberal economies in the world, ranking 12th in the Heritage Foundation's 2008 Economic Freedom Index. Hallmarks of Estonia's free, market-based economy include a balanced budget, a flat-rate income tax system (the first in the world), a fully convertible currency pegged to the Euro, a competitive commercial banking sector, and a hospitable environment for foreign investment, including no tax on reinvested corporate profits (tax is not levied unless a distribution is made).
Estonia's liberal economic policies and macroeconomic stability have fostered
exceptionally strong growth and better living standards than those of most new
EU member states. The economy benefits from strong electronics and
telecommunications sectors; the country is so wired that it is nicknamed
E-stonia. Many bars and cafes across the country are equipped with wireless
connections. Skype, designed by Estonian developers, offers free calls over the
Internet to millions of people worldwide. Tourism has also driven Estonia's
economic growth, with beautifully restored Tallinn already a Baltic tourist
landmark.
By the late 1990s, Estonia's trade regime was so liberal that adoption of EU and
World Trade Organization (WTO) norms actually forced Estonia to impose tariffs
in certain sectors, such as agriculture, which had previously been tariff-free.
Openness to trade, rapid growth in investment, and an appreciating real exchange
rate have resulted in large trade deficits in recent years. Estonia supplies
more than 90% of its electricity needs with locally mined oil shale; however, it
imports all of its natural gas and petroleum (roughly 30% of total energy
consumption) from Russia. Alternative energy sources such as wood, peat, and
biomass make up about 9% of primary energy production. An undersea electricity
cable inaugurated in December 2006 allows Estonia to export electricity to
Finland.
Notwithstanding these many achievements, the economy of Estonia still faces
challenges. The income differential between Tallinn and the rest of the country
has widened in recent years as the cost of living differential has narrowed. The
formerly industrial northeast section of Estonia suffered from economic
depression as a result of plant closings in the early 1990s, although even this
region has experienced strong growth in the last two years. The labor force is
shrinking due to low birth rates and emigration. This tight labor market and the
government's restrictive labor and immigration policies have led to wage
pressure and challenges to future competitiveness. Inflation above 6% has forced
the government to push back adoption of the Euro from its original target of
2007.
After enjoying double digit growth in recent years, 2007 GDP growth slowed to
7.1% and is expected to be around 2% for 2008 (Bank of Estonia estimate from
April 2008). Prices are decreasing in the real estate sector, and there are
signs of a slowdown in private consumption growth. Rising prices of non-domestic
goods, especially food, both from the EU and imported from third countries, have
pushed inflation to 6.6%.
Foreign
Trade
Estonia is part of the European Union, and its trade policy is conducted in Brussels.
Estonia's business attitude toward the United States is positive, and business
relations between the two countries are increasing. The primary competition for
American companies in the Estonian marketplace is European suppliers, especially
Finnish and Swedish companies.
Total U.S. exports to Estonia in 2007 were $242 million, forming 1.2% of total
Estonian imports. In 2007 the principal imports from the United States were
boilers, machinery, vehicles, chemicals, mineral fuels, oils and electronics.
Estonian exports to the United States were around $296 million in 2007, making
the U.S. Estonia's fourth-largest export market outside of the EU. U.S. imports
from Estonia are primarily mineral fuels and oils, electronic machinery, games
and sports equipment, and fertilizers.
Estonia's economy benefits from its location at the crossroads of East and West.
Estonia lies just south of Finland and across the Baltic Sea from Sweden, both
EU members. To the east are the huge potential markets of northwest Russia.
Estonia's modern transportation and communication links provide a safe and
reliable bridge for trade with former Soviet Union and Nordic countries. Many
observers also see a potential role for Estonia as a future link in the supply
chain from the Far East into the EU.
Country Commercial Guides are available for U.S. exporters from the National Trade Data Bank's CD-ROM or via the Internet. Please contact STAT-USA at 1-800-STAT-USA for more information. Country Commercial Guides can be accessed via the World Wide Web at the U.S. Department of Commerce's site and at the U.S. Embassy in Tallinn's website at http://estonia.usembassy.gov/commguide.php. They also can be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS. U.S. exporters seeking general export information/assistance and country-specific commercial information should contact the U.S. Department of Commerce, Trade Information Center by phone at 1-800-USA-TRAD(E) or by fax at 1-202-482-4473.
GDP (2007): $21.3 billion.
Real GDP growth rate (2007): 7.1%.
Per capita GDP (2007): $15,868.
Inflation (2007): 6.6%.
Unemployment (2007): 4.7%.
Natural resources: Oil shale, phosphorus, limestone, blue clay.
Agriculture (3% of 2007 GDP): Products--livestock production (milk, meat, eggs) and crop production (cereals and legumes, potatoes, forage crops). Arable land--433,100 hectares.
Industry (21% of 2007 GDP): Types--engineering, electronics, wood and wood products, and textiles.
Services (60% of 2007 GDP): Transit, information technology (IT), telecommunications, business services, retail, construction, real estate.
Public sector (16% of 2007 GDP): Public services, education, healthcare, social services.
Trade: Exports (2007)--$11 billion. Partners--Finland 18%, Sweden 13%, Latvia 11%, Russia 8.8%, Germany 5.2%, Lithuania 5.7%, U.S. 4%. Imports (2007)--$15.5 billion. Partners--Finland 16%, Germany 12.8%, Russia 10%, Sweden 10%, Latvia 7.6%, Lithuania 6.8%.
Exchange rate (2007): 11.4 kroon (EEK)=U.S.$1.
Foreign direct investment (2007): Sweden 39.7%, Finland 24.6%, Netherlands 5.7%, Denmark 4.4%, Russia 2.6%, Norway 2.5%, Germany 2.4%, Cyprus 2.3%, Luxembourg 2%, U.K. 2%, U.S. 1.6%.
