John P Beevor
UK’s honorory consul to EstoniaDouglas Clark
director of Tenon techlocateMarcus Exall
client services director of Blue BarracudaJames Oates
CEO of Cicero CapitalJohn Phillips
managing director of Continental Wood ProductsGert Stahl
director for investment and trade development at Enterprise EstoniaCourtney Fingar
moderator of the panel and editor of fDi
Like everywhere, Estonia has been suffering from the worldwide global recession. In fact, James Oates, CEO of Cicero Capital, describes the recession as putting “an absolute stop” to many corporate expansion and development plans.
However, the storm has created a silver lining. Economic imbalances that had emerged over the past two to three years in Estonia are now being corrected. “People have access to liquidity,” says Mr Oates. “They are now beginning to take advantage of restructuring and are looking to complete the programmes of consolidation.”
He, like others, views Estonia’s response to the economic crisis as indicative of how extraordinarily flexible and non-restrictive the country’s government is. “I don’t think there’s a single economy that has seen such a dramatic transformation,” says Mr Oates. “That’s an amazing achievement and reflects Estonia’s primary offering: quality people in an exceptionally business-minded environment.”
As Estonia pulls out of these trying times, experts observe a new focus on investment. Douglas Clark, director of Tenon techlocate, emphasises that for companies with the financial wherewithal, Estonia offers high value, particularly for hiring skilled workers and acquiring real estate at a low cost. “It is a buyer’s market,” he says.
While Estonia is often linked with Latvia and Lithuania as a Baltic country, it is more Scandinavian in nature. Also, unlike its Baltic neighbours, Estonia has benefited from its cash reserves. “A government that acts quickly and performs well is good for inward investors. Estonia is definitely doing all the right things,” says Mr Clark.
Estonia’s traditional industrial sectors have been impacted by the economic fallout. Forestry was hit by a slump in demand from Western markets for timber and wood pulp.
“Pulp markets were very weak – virtually collapsing. A lot of key saw mills closed,” says John Phillips, managing director of Continental Wood Products.
Other mills have withdrawn operations in Estonia entirely.
Niche player Continental Wood Products, however, refocused its production and began supplying the Dutch and European markets rather than UK markets. The reason, says Mr Phillips, was largely due to the stability of the euro. As a result, Continental Wood has managed to keep its mill going. “We’re more optimistic now,” says Mr Phillips. “Prices are recovering.”
Meanwhile, London-based digital services company Blue Barracuda is considering expanding its operations in Estonia. The company has invested in Estonia over the past three to four years, largely because an Estonian employee in London wanted to move home and suggested the company set up an office in Tallinn, which it did.
“For us, the initial days were more about skills than cost,” says Marcus Exall, client services director at Blue Barracuda. Talent was already tapped out in London.
Company executives found the Estonian government committed to developing a digital sector. Consequently, it opened a facility in the country where it now employs a team of 12 people. Next year it plans to move into a new office and expand to 20 people or more.
Mr Exall describes Blue Barracuda’s experience in Estonia as “extremely positive”. “The people are extremely passionate, focused and skilled,” he says.
Blue Barracuda has also been able to acquire property at prices not deemed possible before. Now the company is considering Tallinn as a springboard to the rest of Europe, particularly Scandinavia.
Electronics manufacturing remains huge for Estonia and is the nation’s second biggest export sector. As well as multinational Erickson, a number of small companies with innovative products and considerable product development capability operate in the country.
Metal-working is Estonia’s biggest sector for industrial machinery, accounting for about 43% of Estonia’s exports. The country has a long history in competitive niches, such as ship-building and tool-making. “This is an area that will continue to be a target for big FDI across the world,” says Gert Stahl, director of the for investment and trade development at Enterprise Estonia.
Other opportunities in Estonia include clean tech, with ABB currently making wind generators in the country. Estonians also lead in the field of data security, with the NATO cyber defence centre headquartered in Tallinn.
Without a doubt, Estonia provides high value. Not only is its workforce skilled, but Estonia has established itself as a centre for innovative technologies in biotechnology and software design, with links to Silicon Valley and Finland. Estonia is particularly noted for the development of the internet video call application Skype, and for being a global leader in the human genome.
“What’s emerging is that high-value-added elements are coming through in innovation as well as in established industries, such as forestry and finance,” says Mr Oates.
Adding to that value is the population’s high proficiency in multiple languages. “Rarely do Estonians think of putting the four or five fluent languages they speak on their CVs,” says John P Beevor, UK honorary consul to Estonia. “It is taken for granted that they speak English, Finnish, Swedish, maybe German, as well as Russian and Estonian.”
In fact, the 2006 census found that among Estonia’s 1.3 million people, 109 languages were spoken.
In addition, Estonians have a strong focus on accuracy. “In terms of basic engineering and fundamental talents, they really are very strong,” says Mr Beevor.
Entrepreneurialism is particularly prevalent, especially among people in their early and mid-20s. “Many of the CEOs of the most innovative companies are people with technical backgrounds who studied entrepreneurialism because it was so popular and well regarded in Estonia,” says Mr Stahl.
Once successful, many of these entrepreneurs go on to create new companies. Skype’s four founders have spawned more than 40 new companies. Online casino developer Playtech is another example. “[These entrepreneurs] have a commitment to keep investing and expanding their businesses within Estonia instead of looking elsewhere,” says Mr Stahl. “That tells me Estonia really is the future in that area for the whole world.”
Lack of corruption and a transparent tax system are incentives for companies to invest in Estonia. Companies can reinvest profits at 0% and benefit from Estonia’s flat tax system. The government’s use of technology also makes the country highly efficient.
Estonia continues to see an increase in productivity and a year-on-year growth in R&D expenditures – the highest in Europe.
With the improving economy, infrastructure investment has also increased. This includes investment in Tallinn’s international airport and the expansion of the ports of Paldiski and Tallinn. The development of container terminals is also being discussed. “That’s potentially very significant,” says Mr Phillips. “Estonia is a kind of mode node point for technology. It is also a logistics and a transit node point.”
With all of its advantages, Estonia today is often compared with the Irish model of economic development. “If you go back 12 years and look at the Irish model, you see an influx of headquarters into Ireland for tax, labour skills and communications – all the things that turn the buttons and switch the switches,” says Mr Beevor. “Today, Estonia is in that position and offers a very similar environment.”