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Economy of Estonia

Estonia is considered one of the most liberal economies in the world, ranking 14th in the Heritage Foundation's 2011 Economic Freedom Index. Its 2011 score was 0.5 points higher than in 2010 due to significant improvements in Estonia’s monetary and labor freedoms. 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 (until 2011, when Estonia adopted 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, followed by a sharp drop in GDP during the global recession. Estonia's economy began growing again in the fourth quarter of 2009 and saw modest growth through 2010. Although unemployment is currently 14.4%, the Estonian Government kept budget deficits low and successfully joined the euro zone on January 1, 2011. Estonia became the 17th member of the euro zone. The economy benefits from strong electronics and telecommunications sectors; the country is so wired that it is nicknamed E-stonia. Bars and cafes across the country are typically 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 Tallinn’s beautifully restored old town a major European tourist destination. Estonia is a net exporter of electricity, using locally mined oil shale to fire its power plants. However, it imports all of its natural gas and most 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, and Estonia is developing wind farms for clean, renewable energy. An undersea electricity cable inaugurated in December 2006 allows Estonia to export electricity to Finland. Estonia and Finland plan to complete a second undersea cable in 2014. Foreign Trade Estonia is part of the European Union, and its trade policy is conducted in Brussels. By the late 1990s, Estonia's trade regime was so liberal that adoption of EU and World Trade Organization (WTO) norms required 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 resulted in large trade deficits from 2000 to 2008. 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 the 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. 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 2009 were $123 million, forming 1% of total Estonian imports. Principal imports from the United States were machinery; photo, medical, or surgical instruments; electronic equipment; and aircraft parts. Estonian exports to the United States were around $439 million in 2009 (3.9% of total exports), 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 photo, medical, or surgical instruments. 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 at the U.S. Department of Commerce's website and at the U.S. Embassy in Tallinn's website at http://estonia.usembassy.gov/cominfo.html . 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 (2010): $19.2 billion.
Real GDP growth rate (2010): 3.1%.
Per capita GDP (2010): $14,344.
Inflation (2010): 3%.
Unemployment rate (2010): 16.9%.
Natural resources: Oil shale, phosphorus, limestone, blue clay.
Agriculture (2.5% of 2010 GDP): Products--livestock production (milk, meat, eggs) and crop production (cereals and legumes, potatoes, forage crops). Arable land--433,100 hectares.
Industry (28.7% of 2010 GDP): Types--engineering, electronics, wood and wood products, and textiles.
Services (68.8% of 2010 GDP): Transit, information technology (IT), telecommunications, business services, retail, construction, real estate.
Public sector (20.6% of 2010 GDP): Public services, education, healthcare, social services.
Trade: Exports (2010)--$11.6 billion. Partners--Finland 17%, Sweden 15.6%, Latvia 9%, Russia 9.7%, Germany 5.2%, Lithuania 4.9%, U.S. 3.8%. Imports (2010)--$12.3 billion. Partners--Finland 14.9%, Germany 11.3%, Sweden 10.9%, Lithuania 7.7%, Latvia 10.9%, Russia 8.3%.
Currency: Estonia adopted the euro in January 2011.
Foreign direct investment (March 2011): Sweden 34.7%, Finland 22.9%, Netherlands 9.6%, Norway 2.5%, Russia 3.8%, U.K. 1.8%, Cyprus 2.9%, Denmark 1.8%, Germany 2.3%, Luxembourg 1.9%, France 1.9%, U.S. 1.9%.

Geography of Estonia

Between 57.3 and 59.5 latitude and 21.5 and 28.1 longitude, Estonia lies on the eastern shores of the Baltic Sea on the level northwestern part of the rising east European platform. Average elevation reaches only 50m (160 ft.). The climate resembles New England's. Oil shale and limestone deposits, along with forests which cover 47% of the land, play key economic roles in this generally resource-poor country. Estonia boasts over 1,500 lakes, numerous bogs, and 3,794 kilometers of coastline marked by numerous bays, straits, and inlets. Tallinn's Muuga port offers one of Europe's finest warm-water harbor facilities. Estonia's strategic location has precipitated many wars that were fought on its territory between other rival powers at its expense. In 1944 the U.S.S.R. granted Russia the trans-Narva and Petseri regions on Estonia's eastern frontier, which still remain contested bilaterally.
Official Name: Republic of Estonia Area: 45,226 sq. km. (17,462 sq. mi.); about the size of New Hampshire and Vermont. Cities: Capital--Tallinn (pop. 399,850). Other cities--Tartu (101,240); Narva (68,538); Kohtla-Jarve (47,484); Parnu (44,978); Viljandi (20,718). Terrain: Flat, average elevation 50m. Elevation is slightly higher in the east and southeast. Steep limestone banks and 1,520 islands mark the coastline. Land use--9.5% arable land, 47.4% forest and woodland, 22% swamps and bogs, 21.5% other. Coastal waters are somewhat polluted. Climate: Temperate, with four seasons of near-equal length. Annual precipitation averages 50-75 cm.

Government of Estonia

Estonia is a parliamentary democracy, with a 101-member parliament (the Riigikogu) and a president who is elected indirectly by parliament or, if no candidate wins a two-thirds majority in parliament, by an electoral college composed of members of parliament and of local councils’ representatives. Estonia holds presidential elections every 5 years. The next presidential election will be in late August 2011. The president serves a maximum of two terms. Parliamentary elections take place every 4 years; members are elected by direct ballot in local districts and by proportional representation. A party must gather at least 5% of the votes to take a seat in parliament. Citizens 18 years of age or older may vote in parliamentary elections and be members of political parties. EU citizens who are 18 years of age or older and registered in the population register may vote in European Parliament elections and if they are registered in a local district population register, they may also vote in local elections. In addition, non-citizen long-term residents may vote in local elections, although they may not run for office. After parliamentary elections, the president traditionally asks the party with the most votes to form a new government. The president chooses the prime minister--usually the leader of the largest party or coalition in the parliament--with the consent of the parliament to supervise the work of the government. The Estonian Government has a total of 13 ministers. At the local level, Estonians elect government councils by proportional representation. The individual councils vary in size, but election laws stipulate minimum size requirements depending on the population of the municipality. Estonia's Supreme Court, the Riigikohus, has 19 justices, all of whom receive lifetime tenure appointments. The parliament appoints the chief justice on nomination by the president. Estonians may vote via the Internet in local, Estonian parliamentary elections, and European Parliament elections. The most recent parliamentary election took place on March 6, 2011. Prime Minister Andrus Ansip’s center-right coalition remained in power after a strong victory in the polls. POLITICAL CONDITIONS The Reform Party and the Pro Patria and Res Publica Union form the current majority government with 33 and 23 seats in parliament, respectively. Other parties in the parliament include the Center Party and the Social Democrat Party. Reform Party Chairman Andrus Ansip is the current Prime Minister of the coalition government. Toomas Hendrik Ilves is the President of Estonia. He was a member of the Social Democrat Party, a former Ambassador to the United States, two-time Minister of Foreign Affairs, a member of the Estonian parliament, and a former member of the European Parliament. President Ilves narrowly defeated incumbent Arnold Ruutel in an electoral-college vote in September 2006, and he took office on October 9, 2006. Ilves is seeking reelection in August 2011. Principal Government Officials President--Toomas Hendrik Ilves Prime Minister--Andrus Ansip (Reform) Foreign Affairs--Urmas Paet (Reform) Interior--Ken-Marti Vaher (Pro Patria and Res Publica Union) Social Affairs--Hanno Pevkur (Reform) Education--Jaak Aaviksoo (Pro Patria and Res Publica Union) Economy and Communications--Juhan Parts (Pro Patria and Res Publica Union) Justice--Kristen Michal (Reform) Defense--Mart Laar (Pro Patria and Res Publica Union) Environment--Keit Pentus (Reform) Agriculture--Helir-Valdor Seeder (Pro Patria and Res Publica Union) Finance--Jurgen Ligi (Reform) Culture--Rein Lang (Reform) Minister of Regional Affairs--Siim-Valmar Kiisler (Pro Patria and Res Publica Union) Riigikogu Chairman--Ene Ergma (Pro Patria and Res Publica Union) Estonia maintains an embassy in the United States at 2131 Massachusetts Avenue, NW, Washington DC 20008 (tel: [1] (202) 588-0101; fax: [1] (202) 588-0108). It operates a consulate at 600 Third Avenue, 26th Floor, New York, NY 10016-2001 (tel: [1[ (212) 883-0636; fax: [1] (212) 883-0648). Type: Parliamentary democracy. Constitution: On June 28, 1992 Estonians ratified a constitution based on the 1938 model, offering legal continuity to the Republic of Estonia prior to Soviet occupation. Branches: Executive--president (chief of state), elected by Parliament every 5 years; prime minister (head of government). Legislative--Riigikogu (Parliament--101 members, 4-year term). Judicial--Supreme Court. Administrative regions: 15 counties, 42 towns, and 205 municipalities. Political parties/coalitions: Estonian Center Party--Chairman, Edgar Savisaar; Estonian Reform Party--Chairman, Siim Kallas/Coalition; Pro Patria Union--Chairman, Mart Laar; Estonian People's Union--Chairman, Villu Reiljan/Coalition; Moderates--Chairman, Ivari Padar; Estonian United People's Party--Chairman, Jevgeni Tomberg; Estonian Social Democratic Labor Party--Chairman, Tiit Toomsalu; Estonian Independence Party--Chairman, Vello Leit; Res Publica--Chairman, Juhan Parts/Coalition; Estonian Christian People's Party--Chairman, Aldo Vinkel; Russian Party in Estonia--Chairman, Stanislav Cherepanov; Estonian Democratic Party--Chairman, Jaan Laas; Republican Party--Chairman, Kristjan-Olari Leping. Suffrage: Universal at 18 years of age; noncitizen residents may vote in municipal elections. Government budget: $2.3 billion. Defense: 2% of GDP. National holidays: Jan. 1 (New Year's Day), Feb. 24 (Independence Day), Good Friday, Easter Sunday, May 1 (May Day), Whitsunday, June 23 (Victory Day--anniversary of Battle of Vonnu in 1919), June 24 (Midsummer Day), Aug. 20 (Day of Restoration of Independence), Dec. 25 (Christmas Day), Dec. 26 (Boxing Day). Government of Estonia Web site: http://www.riik.ee/en/

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History of Estonia

Ancient Estonians are one of the longest-settled European peoples and have lived along the Baltic Sea for over 5,000 years. The Estonians were an independent nation until the 13th century A.D. The country was then subsequently conquered by Denmark, Germany, Poland, Sweden, and finally Russia, whose defeat of Sweden in 1721 resulted in the Uusikaupunki Peace Treaty, granting Russia rule over what became modern Estonia.
First Period of Independence Independence remained out of reach for Estonia until the collapse of the Russian empire during World War I. Estonia declared itself an independent democratic republic in November 1918. In 1920, by the Peace Treaty of Tartu, Soviet Russia recognized Estonia's independence and renounced in perpetuity all rights to its territory. The first constitution of the Republic of Estonia was adopted in 1920 and established a parliamentary form of government. Estonia's independence would last for 22 years, during which time Estonia guaranteed cultural autonomy to all minorities, including its small Jewish population, an act that was unique in Western Europe at the time. Soviet Period Leading up to World War II (WWII), Estonia pursued a policy of neutrality. However, the Soviet Union forcibly incorporated Estonia as a result of the Molotov-Ribbentrop Pact of 1939, in which Nazi Germany gave control of Estonia, Latvia, and Lithuania to the Soviet Union in return for control of much of Poland. In August 1940, the U.S.S.R proclaimed Estonia a part of the Soviet Union as the Estonian Soviet Socialist Republic (E.S.S.R.). The United States never recognized Soviet sovereignty over Estonia, Latvia, or Lithuania. During World War II, between 1939 and 1945, through both the Nazi and Soviet occupations, Estonia's direct human losses reached 180,000 residents, which amounted to 17% of its total population. During the Nazi occupation from 1941 to 1944, 7,800 citizens of the Republic of Estonia (70% ethnic Estonians, 15% ethnic Russians, 12.8% Estonian Jews, and 2.2% representing other nationalities) were executed in Nazi prison camps. Of the total number executed during the period of Nazi occupation, an estimated 1,000 were Estonian Jews--or roughly 25% of the pre-war Jewish population of Estonia. Additionally, an estimated 10,000 Jews were transported to Estonia from elsewhere in eastern Europe and killed there. Re-establishing Independence In the late 1980s, looser controls on freedom of expression under Soviet leader Mikhail Gorbachev reignited the Estonians' call for self-determination. By 1988, hundreds of thousands of people were gathering across Estonia to sing previously banned national songs in what became known as the "Singing Revolution." In November 1988, Estonia's Supreme Soviet passed a declaration of sovereignty; in 1990, the name of the Republic of Estonia was restored, and during the August 1991 coup in the U.S.S.R, Estonia declared full independence. The U.S.S.R Supreme Soviet recognized independent Estonia on September 6, 1991. Unlike the experiences of Latvia and Lithuania, Estonia's revolution ended without blood spilled. Estonia became a member of the United Nations on September 17, 1991 and is a signatory to a number of UN organizations and other international agreements, including IAEA, ICAO, UNCTAD, WHO, WIPO, UNESCO, ILO, IMF, and WB/EBRD. It is also a member of the Organization for Security and Cooperation in Europe (OSCE). After more than 3 years of negotiations, on August 31, 1994, the armed forces of the Russian Federation withdrew from Estonia. Modern Period: 1990s - Today In 1992, a constitutional assembly introduced amendments to the 1938 constitution. After the draft constitution was approved by popular referendum, it came into effect July 3, 1992. Presidential elections were held on September 20, 1992, with Lennart Meri as victor. Lennart Meri served two terms as president, implementing many reforms during his tenure. Meri was constitutionally barred from a third term. Arnold Rüütel became president in 2001, Toomas Hendrick Ilves in 2006. Since fully regaining independence, Estonia has had 13 governments with 7 different prime ministers elected: Mart Laar, Andres Tarand, Tiit Vähi, Mart Siimann, Siim Kallas, Juhan Parts, and Andrus Ansip. Estonia began to adopt free-market policies even before it declared independence in mid-1991 and has continued to pursue reform aggressively ever since. For example, the government set privatization as an early priority and has now completed the process of putting most major industries in private hands. After independence the Government of Estonia took steps to simplify the tax system. Tax evasion is now relatively low by regional standards. Income tax is levied at a flat rate, a principle supported by all the major parties except the Center Party, for which a progressive tax system remains a keystone policy. Budget performance is exceptionally strong; the IMF projected a surplus of 3.4% of GDP in 2006. An integral part of Estonia's transition to a market economy during the early 1990s involved reorienting foreign trade to the West and attracting foreign investment to upgrade the country's industry and commerce. In 1990, only 5% of Estonia's foreign trade was with the developed West; only 21% of this trade represented exports. About 87% of Estonia's trade was with the Soviet Union, and of that, 61% was with Russia. Estonia's main foreign trading partners today are Sweden, Finland, Germany and others in the West. Russia's share of Estonia's trade is less than 10%. The introduction of the Estonian kroon in June 1992, with only U.S.$120 million in gold reserves and no internationally backed stabilization fund, proved decisive in stabilizing foreign trade. For stability, the kroon was pegged by special agreement to the deutsche mark (DM) at EKR8 = DM1 and later to the Euro. The new Estonian currency became the foundation for rational development of the economy. Money began to have clear value; the currency supply could be controlled from Tallinn, not Moscow; and long-term investment decisions could be made with greater confidence by both the state and private enterprise. The central bank is independent of the government but subordinate to the parliament. In addition to its president, the bank is managed by a board of directors, whose chair is also appointed by parliament. The fall of the Soviet Union and the rapid contraction of Estonia's market to the East during the early 1990s caused Estonia's economy to shrink 36% from 1990 to 1994. But economic reforms in Estonia and the ability of its economy to reorient toward the West allowed Estonia's economy to pick up in 1995 with 4.6% growth and 4.0% growth in 1996. Russia's financial crisis in 1999 led to the only year of decline in Estonia's GDP since 1994--but the 0.7% decline was relatively small. The 1994-2004 period was mainly dominated by the Estonian EU and NATO accession processes. Estonia was the first Baltic country to start direct accession talks with the EU. Estonia applied to join the EU in November 1995 and, while participating in accession negotiations, continued its program of major economic and social reforms. This gave Estonia a good opportunity to take into account EU objectives and to exploit the experience of existing EU member states when carrying out reforms. Examples of reform in the social area included the launch of unemployment insurance in 2002 and the 1999 implementation of the Occupational Safety and Health Act, which regulates safety and health requirements in the work place as well as the organizational aspects of the occupational health system. In 1999, Estonia joined the World Trade Organization, adding to its previous membership of the IMF, World Bank and the European Bank for Reconstruction and Development. In November 2002, Estonia was one of seven Central and East European countries to be invited to join NATO; it officially became a member of NATO on March 29, 2004. In just fifteen years since re-establishing independence, Estonia has proven itself to be an excellent Ally, having built a military capable of participating in ever more complex and distant military operations. EU accession negotiations proceeded rapidly, and Estonia joined the EU in May 2004, along with nine other countries, including its Baltic neighbors. The final decision was conditional on the outcome of a national referendum which was held in September 2003 and returned a large majority in favor of membership. Estonia has developed into a strong international actor, through its membership in the EU and NATO; it is a capable advocate and promoter of stability and democracy in the former Soviet Union and beyond. Estonian troops have been in Afghanistan since 2002 and Iraq since 2003. It participates in the NATO training mission in Iraq. Estonia also provides peacekeepers for international missions in both Bosnia and Kosovo and contributes to EU battlegroups and NATO Response Force rotations. It supports democratic developments in key countries of the former Soviet Union and beyond by providing training to government and law enforcement officials as well as non-governmental organizations. It has valuable experience to offer new democracies from its own recent history, and it works hard to promote democracy, freedom, and stability worldwide.

People of Estonia

Estonians belong to the Finno-Ugric peoples, as do the Finns and the Hungarians. Archaeological research confirms the existence of human activity in the region as early as 8000 BC; by 3500 BC the principal ancestors of the Estonians had arrived from the east. Estonians have strong ties to the Nordic countries today stemming from deep cultural and religious influences gained over centuries during Scandinavian colonization and settlement. This highly literate society places great emphasis upon education, which is free and compulsory until age 17. About 20% of the population belongs to the following churches registered in Estonia: Estonian Evangelical Lutheran Church, Estonian Apostolic Orthodox Church, Estonian Orthodox Church subordinated to the Moscow Patriarchate, Baptist Church, Roman Catholic Church, and others. As of January 1, 2011, 84.2% of Estonia's population held Estonian citizenship, 8.7% were citizens of other countries (primarily Russia), and 7.1% were of undetermined citizenship. Written with the Latin alphabet, Estonian is the language of the Estonian people and the official language of the country. Estonian is one of the world's most difficult languages to learn for English-speakers: it has 14 cases, which can be a challenge even for skilled linguists. During the Soviet era, the Russian language was imposed for official use. Nationality: Noun and adjective --Estonian(s). Population (2010): 1.340 million. Annual population growth rate (2010): 0.003%. Birth rate (2010)--11.81/1,000. Death rate (2010)--11.78/1,000. Net migration (2010)--minus 2.6/1,000. Density --31/sq. km. Urban dwellers --70%. Ethnic groups: Estonians 68.8%, Russians 25.5%, Ukrainians 2.1%, Belarusians 1.2%, Finns 0.8%, other 1.6%. Religions: Evangelical Lutheran; the Estonian Apostolic Orthodox, subordinated to Constantinople; the Estonian Orthodox, subordinated to the Moscow Patriarchate; Roman Catholic; Baptist; and other. Languages (2000 census): Estonian (official) 67.3%, Russian 29.7%, other 2.3%, unknown 0.7%. Education: Years compulsory --9. Attendance --173,900 students at 596 schools and vocational schools, plus 69,100 university students. Literacy --99.8%. Health: Infant mortality rate (2010)--3.3 deaths/1,000 live births. Life expectancy (2009)--69.84 yrs. men, 80.07 yrs. women. Work force (2010): 687,000.