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Wednesday, July 28, 2010

Estonia liberal economies

Estonia is considered one of the most liberal economies in the world, ranking 13th in the Heritage Foundation's 2009 Economic Freedom Index. Hallmarks of Estonia's market-based economy have included 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. After enjoying 8% average annual GDP growth since 2000, the economy started to show signs of cooling in 2007 when GDP growth slowed to 6.3%. In the current economic crisis, GDP fell by 3.6% in 2008 and is shrinking further in 2009.

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 a major 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. Early estimates for 2009 indicate Estonia's economy may decline more than 12%, and unemployment is rising (17% in June 2009). As the result of sharply declining revenues, Estonia's fiscal deficit could exceed 3% of GDP in 2009, although the government has cut expenditures in an attempt to qualify for joining the Euro zone. Adoption of the Euro is a key government priority.

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 2008 were $225.5 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 $392 million in 2008, making the U.S. Estonia's third--largest export market after the EU and Russia. 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 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 (2008): $23.2 billion.
Real GDP growth rate (2008): -3.6%.
Per capita GDP (2008): $17,300.
Inflation (July 2009): -0.7%.
Unemployment rate (June 2009): 17%.
Natural resources: Oil shale, phosphorus, limestone, blue clay.
Agriculture (2.6% % of 2008 GDP): Products--livestock production (milk, meat, eggs) and crop production (cereals and legumes, potatoes, forage crops). Arable land--433,100 hectares.
Industry (17.9% of 2008 GDP): Types--engineering, electronics, wood and wood products, and textiles.
Services (60.9% of 2008 GDP): Transit, information technology (IT), telecommunications, business services, retail, construction, real estate.
Public sector (18.6% of 2008 GDP): Public services, education, healthcare, social services.
Trade: Exports (2008)--$12.4 billion. Partners--Finland 18%, Sweden 14%, Latvia 10%, Russia 10%, Lithuania 5.7%, Germany 5%, U.S. 5%. Imports (2008)--$16 billion. Partners--Finland 14%, Germany 13%, Sweden 10%, Latvia 9%, Lithuania 9%, Russia 8%.
Exchange rate (2008): 10.7 kroon (EEK)=U.S.$1.
Foreign direct investment (March 2009): Sweden 39.9%, Finland 22.3%, Netherlands 7.3%, Denmark 3.7%, Russia 3.5%, Norway 3.3%, Germany 1.9%, Cyprus 2.1%, Luxembourg 1.7%, U.K. 2.2%, France 1.5%, U.S. 1.4%.

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