Economy of Estonia: Wikis


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Economy of Estonia
Currency 1 Estonian kroon = 100 sent
Fiscal year Calendar year
Trade organizations EU and WTO
Statistics [1]
GDP (PPP) ranking 56th (2007) [2]
GDP (PPP) $29.35bn (2007 est.)
GDP growth −15.3% (Q3 2009 est.)[1]
GDP per capita $21,800 (2007 est.)
GDP by sector agriculture (3%), industry (29%), services (68%) (2007 est.)
Inflation 10.4% (2008)[2]
Pop below poverty line 5% (2003)
Labour force 688,000 (2007 est.)
Labour force by occupation services (69%), industry (20%), agriculture (11%) (1999 est.)
Unemployment 14,6 % (Q3 2009)[3]
Main industries engineering, electronics, wood and wood products, textiles; information technology, telecommunications
Trading partners [3]
Exports $11.31 billion (2007)
Main partners Finland 18.2%, Sweden 12.2%, Latvia 9.1%, Russia 7.9%, United States 6.6%, Germany 5%, Lithuania 4.8%, Gibraltar 4.5% (2006)
Imports $14.71 billion (2007)
Main partners Finland 18.4%, Russia 12.9%, Germany 12.3%, Sweden 9.2%, Lithuania 6.4%, Latvia 5.8% (2006)
Public finances [4]
Public debt 3.8% of GDP (2007)
Revenues $7.671bn (2007 est.)
Expenses $7.015bn (2007 est.)
Economic aid recipient: $135 million (2004)

Estonia is a member of the European Union and a developed market economy.

Before the Second World War Estonia's economy was based on agriculture, but there was a significant knowledge sector (with Tartu known for scientific contributions) and growing industrial sector, similar to Finland. Products such as butter, milk and cheese were widely known on the western European markets. Main markets were Germany and United Kingdom, and only 3% of all commerce was with the neighbouring USSR. The USSR'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 USSR's centrally planned structure. Estonia and Finland had about the same GDP per capita before Estonia became a socialist economy. By 1987, the capitalist Finland's GDP per capita was 14,370 USD and the socialist Estonia's GDP per capita was around 2,000 USD.[4]

After Estonia moved away from socialism in the late 1980s and became an independent capitalist economy in 1991, Estonia emerged as a pioneer in global economy. In 1994, Estonia became one of the first countries in the world to adopt a flat tax, with a uniform rate of 26% regardless of personal income. In January 2005 the personal income tax rate was reduced to 24%. A subsequent reduction to 23% followed in January 2006. In 2007 the tax rate was lowered to 22% and in 2008 to 21%. The rate was frozen in 2009. Estonia received more foreign investment per capita in the second half of the 1990s than any other country in Central and Eastern Europe.[4] Estonia has been fast catching up with the EU-15, having grown GDP per capita from 34.8% of the EU-15 average in 1996 to 65% in 2007, similar to Central Europe.[4] Estonia is already rated a high income country by the World Bank. The Estonian economic miracle has been termed a Baltic Tiger.

Estonia is ranked 12th of 162 countries in the Index of Economic Freedom 2008, the best of any ex-communist country. Estonia is on bottom of Europe by labour market freedom, but the government is drafting improvements.[5] Estonia is 17th on the Ease of Doing Business Index 2007 by World Bank Group. The Government of Estonia finalized the design of Estonia's euro coins in late 2004, and is now intending to adopt the euro as the country's currency between 2011 and 2013, later than planned due to continued high inflation. The Estonian kroon is pegged to the Euro at rate 1 EUR = 15.64664 EEK.


Early history

Until the early 13th century, the territory that is now known as Estonia was independent. The economy was largely an agricultural one, but Estonia being a country with a long coastline, there were also many maritime activities. Autonomous development was brought to an end by the Northern Crusades undertaken by the King of Denmark, the German Livonian and the Teutonic military orders. The Estonian world was transformed by military conquest. The war against the invaders lasted from 1208–1227. The last Estonian county to fall was the island of Saaremaa in 1261.

Thereafter, through many 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 created a rather large industrial sector dominated by the world's largest cotton mill. The new Estonian state inherited 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. It is issued by the Bank of Estonia, the country's central bank. 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 and by the end of Soviet times in 1990 was only slightly behind Russia in quality of life according to Human Development Index estimates.

Modernization and liberalization

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, almost non-existent public debt, flat-rate income tax, free trade regime, fully convertible currency backed by currency board and a strong peg to the euro, competitive commercial banking sector, hospitable environment for foreign investment, innovative e-Services and even mobile-based services are all hallmarks of Estonia's free-market-based economy. Estonia also has made excellent progress in regard to structural adjustment.

In June 1992, Estonia replaced the ruble with its own freely convertible currency, the Kroon (EEK). A currency board was created and the new currency was pegged to the German Mark at the rate at 8 EEK for 1 DEM. When Germany introduced the Euro the peg was changed to 15.6466 Kroon for 1 Euro. Estonia was set to adopt the Euro in 2008 but due to high inflation rates the date was set on January 2010.

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.

The economy today

Real GDP growth in Estonia 1996–2006.

Estonian economy was one of the fastest growing in the world until 2006 with growth rates even exceeding 10% annually. Despite some concerns both in and outside of the country, the Estonian economy and its currency remained highly resilient and solvent.

Until recent years the Estonian economy continued to grow with admirable rates. Estonian GDP grew by 6.4% in the year 2000 and with double speeds after accession to the EU in 2004. The GDP grew by 7.9% in 2007 alone. Increases in labor costs, rise of taxation on tobacco, alcohol, electricity, fuel, and gas, and also external pressures (growing prices of oil and food on the global market) are expected to raise inflation just above the 10% mark in the first months of 2009.

In the first quarter 2008 GDP grew only 0.1%. The government made a supplementary negative budget, which was passed by Riigikogu. The revenue of the budget was decreased for 2008 by EEK 6.1 billion and the expenditure by EEK 3.2 billion.[6]

Estonia joined the World Trade Organization in 1999. A sizable current account deficits remains, but started to shrink in the last months of 2008 and is expected to do so in the near future.

In the fourth quarter of 2008, the average monthly gross wage in Estonia was 13,117 kroons (€838, US$1,066.5).[7]

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 serves as a conduit between the West, Russia, and other points to the East.

After a long period of very high growth of GDP, the GDP of Estonia decreased by a little over 3% on a yearly basis in the 3rd quarter of 2008. In the 4th quarter of 2008 the negative growth was already −9,4%. Some international experts and journalists, who like to view the three Baltic states as a single economic identity, have failed to notice that Estonia has constantly performed better than Lithuania and Latvia on many fundamental indicators. The current account deficit and inflation is lower than in Latvia, the GDP higher than in Latvia and Lithuania, Estonia's public debt is a very low 3.8% of GDP and government reserves are close to 10% of GDP. The difference is exemplified by the fact that in December 2008 Estonia became one of the donor countries to the IMF lead rescue package for Latvia.

The central bank uses a currency board system and has independent reserves, which are big enough to buy back all the currency in circulation.

Estonia today is mainly influenced by developments in Germany, Finland and Sweden – the three main trade partners. The government recently greatly increased its spending on innovation. The prime minister from the Estonian Reform Party has stated its goal of bringing Estonian GDP per capita into the top 5 of the EU by 2022. Ireland is sometimes seen as a model for Estonia's economic future. However, the GDP of Estonia decreased by 1.4% in the 2nd quarter of 2008, over 3% in the 3rd quarter of 2008, and over 9% in the 4th quarter of 2008. The Estonian economy further contracted by 15.1% in the first quarter of 2009. [8][9 ] Low domestic and foreign demand have depressed the economy's overall output.[9 ] The Estonian economy's 33.7% industrial production drop was the sharpest decrease in industrial production in the entire European Union.[10]

2009 Financial crisis impact

Starting from July 2009 Estonian VAT will increase from 18% to 20%.[11]


Unemployment rate as a percentage of the labor force in Estonia according to the Statistics Estonia.[12]
People unemployed in Estonia according to the Statistics Estonia.[12]


The 20 most valuable companies based on 2007 profit estimates by GILD are: Hansapank, Eesti Energia, SEB Eesti Ühispank, Eesti Telekom, Tallink Grupp, Olympic Entertainment Group, Tallinna Sadam, Tele2 Eesti, Sampo Pank, Tallinna Kaubamaja, Merko Grupp, BLRT Grupp, Elisa, Tallinna Vesi, Transgroup Invest, Eesti Raudtee, Kunda Nordic Tsement, Viru Keemia Grupp, Falck Baltics, and Pro Kapital Grupp.[13] In terms of 2003 sales, the 20 largest companies included Kesko Food, Stora Enso Timbe, EMT, Elion Ettevõtted, Eesti Põlevkivi, Silberauto, Toyota Baltic, Eesti Statoil, Rakvere Lihakombinaat, Lukoil Eesti, Kreenholmi Valduse, and Eesti Gaas.[14] Estonian Institute of Economic Research publishes top company awards in various categories, where Estonian small and medium size companies take many top positions.[15]

Tallinn has emerged as a financial center. According to Invest in Estonia, advantages of Estonian financial sector are low taxes, unbureaucratic cooperation between companies and authorities, and educated people. The largest banks are Hansabank, SEB, Nordea, and Sampo Bank. Several IPOs have been made recently on the Tallinn Stock Exchange, a member OMX system. Estonia is ranked 21st of 121 countries in the Capital Access Index 2005 by Milken Institute, outperforming Austria and Italy among others.[16] The rent levels of new office spaces in Tallinn starts at 15 euros per square meter or 2000 euro sale price, with demand exceeding supply.[16]

Estonian service sector employs over 60% of workforce. Estonia has a strong information technology (IT) sector, partly due to the Tiigrihüpe project undertaken in mid 1990s, and has been mentioned as the most "wired" and advanced country in Europe in the terms of e-government.[17]

Farming, collectivized until 20 year ago, has become privatized, more efficient, and the farming area has increased recently.[18] The share of agriculture in the gross domestic product decreased from 15% to 3.3% during 1991–2000, while employment in agriculture decreased from 15% to 5.2%.[19] Mining industry makes 1% of the GDP. Mined commodities include oil shale, peat, and industrial minerals, such as clays, limestone, sand and gravel.[20] Soviets created badly polluting industry in the early 1950s, concentrated in North East Estonia. Socialist economy and military areas left Estonia highly polluted, and mainly because of oil shale industry in East-Virumaa, sulphur dioxide emissions per person is almost as high as in Czech Republic. The coastal seawater is polluted in certain locations, mainly in East-Estonia. The government is looking for ways to reduce pollution further.[21] In 2000 the emissions were 80% smaller than in 1980 and the amount of unpurified wastewater discharged to water bodies was one twentieth the level of 1980.[22]

Estonia has around 600,000 employees. Estonian productivity is growing fast, and consequently wages are rising fast, with around 8% rise in private consumption in 2005. According to Estonian Institute of Economic Research, the largest contributors to GDP growth in 2005 were processing industry, financial intermediation, retailing and wholesale trade, transport and communications.[15] Estonia has a shortage of skilled labor and, since skill shortages are experienced everywhere in Europe, the government has increased working visa quota for non-EEA citizens, although still criticized for being inadequate to address skill shortage challenges.


Railway transport dominates the cargo sector, comprising 70% of all carried goods, domestic and international. Road transport is the one that prevails in the passenger sector, accounting for over 90% of all transported passengers. 5 major cargo ports offer easy navigational access, deep waters, and good ice conditions. There are 12 airports and 1 heliport in Estonia. Tallinn International Airport is the largest airport in Estonia, with 1,73 million passengers and 22,764 tons of cargo (annual cargo growth 119,7%) in 2007. International flight companies such as SAS, Finnair, Lufthansa, EasyJet, and Estonian Air provide direct flights to 27 destinations.[23]

Approximately 7.5% of the country’s workforce is employed in transportation and the sector contributes over 10% of GDP. Estonia is getting much business from traffic between Europe and Russia, especially oil cargo through Estonian ports. Transit trade's share of GDP is disputed, but many agree that Russia's increased hostility is decreasing the share.[24][25]

Instead of coal, companies are encouraged to burn oil shale, with stations mainly in Narva making around 75% of the country's energy. Other energy sources are natural gas imported from Russia, wood, motor fuels, and fuel oils.[26] Wind power in Estonia amounts to 58.1 megawatts, whilst roughly 399 megawatts worth of projects are currently being developed. Estonian energy liberalization is lagging far behind the Nordic energy market. During the accession negotiations with the EU, Estonia agreed that at least 35% of the market are opened before 2009 and all of non-household market, which totals around 77% of consumption, before 2013. Estonia is concerned that Russia could use energy markets to bully it.[27] The government is considering granting permits to nuclear power companies and there are plans for a shared nuclear facility with Latvia and Lithuania.[28]

Internet connections are available throughout most of the country and Estonia has a high Internet penetration.


Estonia Export Import
Finland 18.4% 18.2%
Sweden 12.4% 9%
Latvia 8.9% 5.7%
Russia 8.1% 13.1%
Germany 5.1% 12.4%
Lithuania 4.8% 6.4%

Estonia exports machinery and equipment (33% of all exports annually), wood and paper (15% of all exports annually), textiles (14% of all exports annually), food products (8% of all exports annually), furniture (7% of all exports annually), and metals and chemical products.[29] Estonia also exports 1.562 billion kilowatt hours of electricity annually.[29] Estonia imports machinery and equipment (33.5% of all imports annually), chemical products (11.6% of all imports annually), textiles (10.3'% of all imports annually), food products (9.4% of all imports annually), and transportation equipment (8.9% of all imports annually).[29] Estonia imports 200 million kilowatt hours of electricity annually.[29]

Natural resources

Resource Location Reservs
Oil-shale north-east 1,137,700,000 mln t
Sea mud (medical) south 1,356,400,000 mln t
Construction sand across the country 166,700,000 mln m³
Construction gravel north 32,800,000 mln m³
Lake mud (medical) across the country 1,133,300 mln t
Lake mud (fertilizer) east 170,900 t
Ceramic clay across the country 10,600,000 mln m³
Ceramsid clay (for gravel) across the country 2,600,000 mln m³
Technological dolomite west 16,600,000 mln m³
Technological limestone north 13,800,000 mln m³
Decoration dolomite west 2,900,000 mln m³
Construction dolomite west 32,900,000 mln m³
Blue clay across the country 2,044,000 mln t
Granite across the country 1,245,100,000 mln m³
Peat across the country 230,300,000 mln t
Construction limestone north 110,300,000 mln m³
Limestone cement north 9,400,000 mln m³
Clay cement north 15,6000,000 mln m³
Dictyonema flabelliforme[30] north 64,000,000,000 mln t
Wood across the country 15,6000,000 mln m³
Technological sand north 3,300,000 mln m³
Lake lime north and south 808,000 t
Phosphorite north over 350,000,000 mln t (estimated)
Subsoil across the country 21,1 km³

See also


  1. ^
  2. ^
  3. ^
  4. ^ a b c The Estonian Economic Miracle, by Mart Laar. August 7, 2007.
  5. ^ Estonia on bottom of Europe by labour market freedom, Baltic Business News. May 20th 2008.
  6. ^ Ministry of Finance
  7. ^ Statistics Estonia
  8. ^ Tubalkain-Trell, Marge. "Estonian Economy Fell 15.1 pct in Q1". Baltic Business News. 9 June 2009. Retrieved 13 June 2009.
  9. ^ a b "Estonian Economy Contracts Sharply in First Quarter". The Guardian. 9 June 2009. Reuters. Retrieved 13 June 2009.
  10. ^ Tubalkain-Trell, Marge. "Estonian Industrial Production Fell Most in EU". Baltic Business News. 12 June 2009. Retrieved 13 June 2009.
  11. ^ MPs approve plan to increase VAT rate to 20 pct, Baltic Business News, 18.06.2009
  12. ^ a b Statistics Estonia
  13. ^ GILD TOP 100 – The most valuable Estonian companies, GILD, 2007
  14. ^ Largest Estonian companies in terms of 2003 sales, Baltic Business News
  15. ^ a b Top Estonian Enterprises 2006, Estonian Institute of Economic Research
  16. ^ a b A Financial Center in Northern Europe, Invest in Estonia
  17. ^ Hackers Take Down the Most Wired Country in Europe, August 2007
  18. ^ The rural economy in Estonia
  19. ^ The biggest share of the gross domestic product of Estonia is continuously created in Harju county, Statistics Estonia
  20. ^ The mineral industries of Estonia, Latvia and Lithuania. By Chin S. Kuo
  21. ^ State Environment in Estonia: Pollution load
  22. ^ Environment – current issues in Estonia. CIA Factbook(English)
  23. ^ TRANSPORTATION, Invest in Estonia
  24. ^ Transit trade through Estonia: problems and developments By Alari Purju
  25. ^ Estonian businessman: Estonian transit will struggle another 10 years, Baltic Business News
  26. ^ Countries: Estonia – Wind energy in the Baltic Sea Region
  27. ^ The context of the energy policy of the European Union
  28. ^ AFP | Latvia, Estonia push for Baltic nuclear plant
  29. ^ a b c d CIA World Factbook: Estonia
  30. ^ Uranium production at Sillamäe



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