Economy of Estonia

By | April 29, 2022

According to cheeroutdoor, Estonia is a state with an industrial-agrarian economy. Industry employs 33% of the economically active population. The main industries are oil shale mining and processing, light industry, food processing, woodworking, metalworking, mechanical engineering and production of building materials. Industrial enterprises in the country are concentrated in large cities. Metalworking, machine-building and instrument-making plants, light industry enterprises are located in Tallinn. In Narva there is a well-known large cotton combine (Krenholm Manufactory), in Sillamäe there is a plant for the production of rare metals (Silmet). The cities of Kohtla-Järve, Sillamäe and Narva have the main fuel and energy complexes. Small enterprises in the food and woodworking industries are evenly distributed throughout the country.

In agriculture, St. 12% of the economically active population, the area of agricultural land is 2.57 million hectares. The main directions are meat and dairy farming, bacon production. They grow potatoes, vegetables, cereals and fruit crops. Agriculture remains the most backward sector of the economy, despite the measures taken. Estonia has lost the market for agricultural products in the east, and the export of products to the west is limited by various quotas. Only 1/3 of livestock and pig products are exported. The slow pace of privatization also had a negative impact on the state of the industry. In the last decade, the area of arable land has been declining, arable land occupies 25% of the country’s territory, pastures – 11%.

Industry in 2002 accounted for 19.7% of GDP (including manufacturing – 18.6%), transport and communications – 15.9, trade – 14.6, services – 12.6, construction – 6.4, other areas of activity – 30.8%.

There is a fairly developed and extensive transport network. The total length of the broad-gauge railway is 1,018 km (it was privatized in 2001), roads – 49,480 km (10,935 km coated, 38,545 km unpaved), navigable waterways – 320 km, gas pipeline – 420 km. There is year-round sea (ports and harbors: Haapsalu, Kunda, Muuga, Tallinn) and air traffic (5 airports, the largest one is in Tallinn).

Estonia has consistently pursued economic reforms coordinated by the IMF and the World Bank and is a market economy country seeking to join the EU to strengthen economic security. One of the main conditions for joining the EU is WTO membership (Estonia joined this organization in 1999). Another important condition is macroeconomic stability.

Over the years of sovereign existence, the country has experienced a fairly long (5 years) and deep economic recession. In 2000, GDP in Estonia amounted to 85% of the 1990 level, the volume of industrial production decreased by 35%. The Russian monetary and financial crisis of 1998 had a negative impact on the development of the Estonian economy. The reorientation of foreign economic relations to the West to some extent mitigated its consequences, but could not completely replace the vast Russian market. Every sixth firm, exporting primarily food, chemical products, building materials, computers, suffered. Many Estonian enterprises were forced to almost halve production volumes (in the processing industry – by 40%, in the electronics industry – by 55%). The volume of exports to the Russian Federation decreased by 59%, and to the EU countries increased by 10%. The sharp decline in food exports to the Russian Federation has led to the development of a food overproduction crisis in Estonia. Unemployment has increased. Slow growth in industrial and agricultural production began in 2000.

GDP dynamics in Estonia in the 1990s had a trend inherent in all transition economies: a strong decline gave way to unstable growth. At the same time, exports and foreign investment remained the main sources of growth in the face of limited domestic demand.

The volume of GDP (in constant prices) in 2002 amounted to 96.9 billion kroons, an increase compared to 2001 – 5.8%. Industrial output increased by 4.5%. The volume of production in the mining and processing industries amounted to 939.7 million kroons (an increase of 10.6%), in the manufacturing sector – 16,746.4 million kroons (9.8%). The largest growth was observed in the production of computers, office equipment (24.7%), electrical machines (20%), paper (20.3%) and textile (14.7%) industries.

The volume of work in construction increased by 14.7% and amounted to 5,551 million kroons, while the volume of retail and wholesale trade increased by 10.1% (12,896 million kroons). Income from the service sector increased (restaurant and hotel services – by 12.7%, financial activities – by 8.5%).

In agriculture and hunting, in 2002, a decrease in production by 4.7% was recorded. In the livestock industry, 92 thousand tons of meat were produced, 1% more, eggs (247.3 million units) – 11% less, milk (620.7 thousand tons) – 9% less. In crop production: 543.7 thousand tons were harvested (a decrease of 2.7%), potatoes – 285.7 thousand tons (6.7% less).

The volume of foreign trade turnover of Estonia in 2002 compared to 2001 increased by 3%, amounting to 136.4 billion kroons, exports accounted for 42% (56.9 billion kroons), imports – 58% (79.8 billion kroons). Exports of Estonian goods decreased by 2.1%, while imports increased by 6%. Estonia’s foreign trade deficit amounted to 39.7% of exports (in 2001 – 33%). The EU countries accounted for 68% of exports and 58% of imports, the CIS countries – 5 and 10%, respectively. The main export partners were: Finland (24.8%), Sweden (15.3%), Germany (9.9%), Latvia (7.4%), Great Britain (4.8%), Denmark (4, 4%), and for imports – Finland (17.2%), Germany (11.2%), Sweden (9.5%), Russia (7.4%), China (5.2%), Italy ( 4.6%). The negative balance in trade with the EU countries amounted to 5.6 billion kroons, the CIS – 5.1 billion kroons.

The unstable dynamics of the world economy and the negative trends in the development of the EU countries (economic slowdown) have had an impact on the Estonian economy in recent years. This is directly related to the shrinking export opportunities and the constant growth of imports. Estonia managed to partially compensate for losses in the EU markets by entering the markets of the CIS countries, mainly in the Russian Federation. In 2002, exports to the Russian Federation increased by 39.5% compared to 2001. Mechanical engineering products (about 60%) and foodstuffs are a major export item. Almost 50% of imports from the Russian Federation are mineral products (oil, oil products, gas, mineral fertilizers). Large import positions are metals (mainly ferrous and aluminum) and products from them, as well as chemical products, timber products,

There are no large investments from the Russian Federation in Estonia, shareholders from legal entities and individuals are registered in 266 Estonian companies. Relatively large investments were made by RAO “Gazprom” in the petrochemical enterprise “Nitrofert” in Kohtla-Jarve. On the basis of the Nitrofert gas processing enterprise, with the participation of large Western companies and banks, work is underway on a project to create a modern high-tech chemical production. The products of this enterprise (fertilizers, methanol, etc.) will be exported to the markets of Western countries.

The transit of Russian cargo remains an important element of the Estonian national economy. The volume of these services significantly exceeds commodity exports to the Russian Federation in value terms. The Russian Federation is provided with services for the transportation and transshipment of oil and oil products, fertilizers, metals and a number of other goods. Income from the transit of these goods is up to 25% of the Estonian budget.

The reduction in demand in foreign markets had a downward effect on the dynamics of consumer prices. The trade deficit increased markedly. The increase in the balance of payments deficit was counteracted by a very tangible influx of investments from abroad. The volume of accumulated at the beginning. 2002 foreign direct investment (FDI) was $2.7 billion, or $1.8 thousand per capita. The largest foreign investors – Finland and Sweden – invested St. 2/3 of all foreign investments, Germany – 10%.

The economic development of Estonia in 2003 will continue to be determined by the dynamics of demand in the domestic market. Some growth in consumption will be possible due to an increase in wages, expanding opportunities for obtaining loans from commercial banks.

The Estonian banking system consists of the Bank of Estonia and a network of commercial banks (7), whose assets amounted to USD 3.78 billion (September 2002). Hansapank is one of the largest banks in the country. According to the Bank of Estonia, the deficit of the country’s balance of payments in 2002 amounted to 13.3 billion kroons (930 million dollars), or 12.5% of GDP, 2 times more than in 2001. The increase in the deficit is caused by the ever-increasing import of services, indicating for active investment activities. Estonian external debt at stake. 2002 amounted to 12.3 billion kroons, or 11.6% of GDP (in 2001, respectively, 9.2 billion kroons, or 10% of GDP).

In 2002, GDP per capita reached 5,000 euros, which is 37% of the EU average. The average monthly wage was $337, the minimum wage was $103, the average pension was $92, and the average family income per person was $131. Food accounted for 32% of all expenses.

The number of employed in 2002 amounted to 586 thousand people, which increased by 1.4% compared to 2001. 67.2 thousand unemployed were registered (in 2001 – 83.1 thousand). The unemployment rate remains quite high, but there is a downward trend from 13.6% in 2000 to 10.6% in 2001 and 10.3% in 2002.

Economy of Estonia