BUSINESS ENVIRONMENT IN ESTONIA

ENGLISH FOR SPECIAL PURPOSES II TSK1025

BUSINESS ENVIRONMENT IN ESTONIA

SOCIOLOGICAL FACTORS

STATISTICS 2014

Population 1.315.819

Official Languages Estonian Language

Religions Orthodox Church 16,2%; Lutheran 9,9%;

Catholics 0,4%

Demographic structure 0-14: 208.028; 15-64: 866.008; over 65: 241.783

Medium age 41,1

Rate of population growth -1,3

Relationship male/female 0,88%

Government Parliamentary Republic

Ethnic groups 69,9% Estonians; 25,2% Russians; 1,7%

Ukrainians; 1% Belarusians; 0.6% Finns; 1,6%

Others

The Estonian Educational Information System (EHIS)1

The education system is divided into the following parts:

• Pre-school (pre-primary) education (ISCED level 0);

• Basic education (ISCED level 1);

• Upper Secondary Education (ISCED level 3);

• Higher education (ISCED level 6,7,8).

The principal objective of Estonia's educational system is to develop Estonian society into

an open learning society, where every person is a lifelong learner.

The Education Act, adopted in 1992, states the following as the general goals of education:

to create favourable conditions for the development of personality, family and the Estonian

1 http://www.estonia.eu

GIANLUIGI RIVA a156775

nation; to promote the development of ethnic minorities, economic, political and cultural

life in Estonia and the preservation of nature in the global economic and cultural context; to

teach the values of citizenship; and to set up the prerequisites for creating a tradition of

lifelong learning nation-wide. The obligation to attend schools lasts until basic education is

acquired or until a student attains 17 years of age. EHIS contains information on educational

institutions, students, teaching staff, curricula etc.

The most relevant trend during the recent years has been the growth in the number of

students pursuing higher education due to the large share (over 50%) of students

paying directly for their studies.

Number of Students on different level of education2

This are some key indicators:

• The percentage of adults (25-64) with general education only (no professional or

vocational education) is 30.3% (2012);

• Early leavers from education and training (%of the population aged 18-24 with at

most lower secondary education and not in further education or training) are 10.5%

(2012);

• Employment rate of recent graduates (20-34 years old graduates; one to three years

after leaving education) is 73.9%(2012);

• Digital competences (individuals aged 16-74 with computer skills,%) is 65%.

In Estonia, 90% of adults aged 25-64 have completed upper secondary education, much

higher that the OECD3 average of 75% and among the highest rates in the OECD. This is

truer of women than men, as 87% of men have successfully completed high-school

compared with 92% of women. Estonia is a top-performing country in terms of the quality

of its educational system. The average student scored 526 in reading literacy, maths and

science in the OECD's Programme for International Student Assessment (PISA). This score

is much higher than the OECD average of 497, making Estonia one of the strongest OECD

2 Source: HaridusSILM, http://www.haridussilm.ee/

3 Organisation for Economic Cooperation and Development, is an international economic organization of 34

countries, founded in 1961 to stimulate economic progress and world trade.


countries in students' skills. On average in Estonia, girls outperformed boys by 14 points,

more than the average OECD gap of 8 points4.

The Estonian Minister of Education and Research elaborated the Estonian Lifelong

Learning Strategy 2020 with new vision, mission and goals. First of all, the overall

reduction in the average of all the key indicators reported above. Some goals are:

• Changing assessment and evaluation principles, ensuring content and volume of

studies are concordant with curricular objectives5;

• Adjusting the average salaries of teachers, evaluating the performance of teachers

and increasing the popularity of teaching profession6;

• Developing an in-service education system for the teachers and the Heads of basic

schools7;

• Creating and supporting forms of cooperation that support the implementation of the

approach to learning and developing centres of competence.8

Estonia has made progress over the last decade in terms of improving the quality of life of

its citizens. This Nation has been riding the high of many positive rating in various global

indices, from democracy to press freedom to innovation, this nation has ranked among some

of the most developed nations in the world proving itself to be a force to be reckoned with.

However , it's not all good news for the Baltic country. The OECD “Better Life Index”

shows Estonia in one of the lowest percentile for quality of life (among OECD member

countries).

In terms of health, life expectancy at birth in Estonia is 77 years, three years lower than the

OECD average of 80 years. Life expectancy for women is 82 years, compared with 71 for

men. The level of atmospheric PM10 (air pollution particles small enough to cause damage)

is 9.3 micrograms per cubic meter in large urban areas, considerably lower than the OECD

average of 20.1 micrograms per cubic meter. Cost of living in Estonia is 33.31% lower than

in United States. Rent in Estonia is 64.54% lower than in United States.

In terms of employment, some 65% of people aged 15-64 in Estonia has a paid job, very

close to the OECD employment average of 66%. Some 68% of men are in paid work,

compared with 63% of women, suggesting that women are able to successfully balance

family and career. People in Estonia work an average of 1,924 hours a year, more than the

OECD average of 1,776 hours. But with surprise, in the 3rd quarter of 2015, compared the

same quarter of the previous year, the unemployment rate decreased by 2.3 percentage

points, which means that the employment rate was 67,2% in the 3rd quarter and the number

of employed persons was approximately 661,000. This was the highest quarterly

employment rate since 2000. Actually, in the 4th quarter of 2015, the unemployment

percentage is 5,20%. The following objectives are set for 2020:

• Increasing the employment rate in the 20-64 age group until 76% for the 20209;

4 OECD.ORG

5 The Estonian Lifelong Learning Strategy 2020




9 National Reform Programme “ESTONIA 2020”


• Increasing productivity per employed person compared to the European Union

average from the current level of 65% to 80% in 202010;

• Decreasing the youth unemployment rate (age group 15-24) from 15% to 10% in

202011.

A lot of Estonians decided to go abroad in search of work in the last two decades,

influencing the labour migration statistic. Free movement of workers is the ability to work

in other EU member States without being discriminated against on the grounds of

nationality. According to Eurobarometer (2011) in Estonia, 15% of the people aged 15 or

older were currently working abroad or had an experience with working abroad. In 2012 the

total number of cross-border commuters was 24,800 people, which placed Estonia to the

European map as one of the most important countries of origin for commuting employees,

almost 16 commuting employees per 1,000 population. The reasons for working abroad are

several: Low salaries, high unemployment, wish to find job and earn higher salary, self-

development and new experience and so on. Nevertheless the reasons for returning to

Estonia are: Earn money for Estonian family, personal reasons, school started, need to

continue the studies, seasonal work, visa ended and other reasons12.

Salary examples:

Security guard = €350

Shop assistant = €350 - 500

Warehouse worker = €500

School teacher = €500 - 1000 depends on school and number of classes

Factory workers easy job = €650

Factory workers hard job / needs knowledge or education = €1000

Beginner engineer = €600

Nurse / Pharmacist = €600-700

The preferred job in Estonia and the best way of making money is the entrepreneur, but only

for those people that have the ability to live taking risks and with uncertainty, those that are

opportunistic, proactive and self-motivated, those that desire to be their own boss and

pursue their own ideas, that need independence, need for achievement and financial

rewards. In general, Estonians are less satisfied with their lives than the OECD average.

When asked to rate their general satisfaction with life on a scale from 0 to 10, Estonians

gave it a 5.6 grade, one of the lowest scores in the OECD, where average life satisfaction is

6.6.

Estonia is EU members since 2004 and from the 1st January 2011 the country has adopted

Euro. In 2014 the GDP (€19,5 billions) registered an annual increase of 2,1% (+0,5%

compared to 2013). The Estonian economic growth is sustained by value-added

development in some industrial sectors, retail commerce and tax revenue. The willingness to

pay is increased thanks to the raise of employment, major income and inflation rate trend. In

2014 the employment population, equal to 65%, compared to the working-age population is

improved above 0,9% on year. Second statistics of 2014 the monthly average gross

retribution is more than €1,000 and it has registered an increment of 5,3% on annual base. In



12 Labour Migration from Estonia in Recent Years – Ministry of Social Affairs of Estonia – Liis Reiter


2013 the medium retribution was €949. The GDP forecast about 2015-16 indicate a growth

increase between 2%-2,8%.

ECONOMIC INDICATORS

EURO 2013 2014 2015 2016 (forecasts)

GDP13 18,7 19,5 19,9 20,3

GDP- per capita14 14,19 14,47 15,53 16,4

GDP real growth15

(VAR. %)

1,6 2,1 2 2,8

Public Debt

(% GDP)

10,1 9,4 9 8,1

Unemployment 8,6 7,7 7,9 7,7

STANDARD OF LEAVING

Restaurants Average Range

Meal, Inexpensive Restaurant 7,00 € 5.00-10.00

Meal for 2 People, Mid-range Restaurant, Three-course 35,00 € 28.00-50.00

McMeal at McDonalds (or Equivalent Combo Meal) 5,00 € 4.80-6.00

Domestic Beer (0.5 litre draught) 3,00 € 3.00-4.00

Imported Beer (0.33 litre bottle) 3,00 € 1.50-3.50

Cappuccino (regular) 2,33 € 2.00-2.80

Coke/Pepsi (0.33 litre bottle) 1,11 € 0.60-2.00

Water (0.33 litre bottle) 1,04 € 0.50-1.60

Markets Avg. Range

Milk (regular), (1 litre) 0,57 € 0.45-0.70

Loaf of Fresh White Bread (500g) 0,74 € 0.50-1.00

Rice (white), (1kg) 1,11 € 1.00-1.25

Eggs (12) 1,25 € 1.00-1.55

Local Cheese (1kg) 5,32 € 4.00-6.90

Chicken Breasts (Boneless, Skinless), (1kg) 5,82 € 4.50-6.50

Beef Round (1kg) (or Equivalent Back Leg Red Meat) 10,29 € 7.45-13.00

Apples (1kg) 1,07 € 0.80-1.60

Banana (1kg) 1,07 € 0.89-1.25

Oranges (1kg) 1,22 € 1.00-2.00

Tomato (1kg) 1,61 € 0.90-2.20

Potato (1kg) 0,34 € 0.24-0.40

Onion (1kg) 0,48 € 0.30-0.60

13 Estonian Bank (December 2014)

14 The Economist Intelligence Unit Ltd. (EIU) – Country Report 1st quarter 2015

15 Estonian Bank (December 2014)


Lettuce (1 head) 1,04 € 0.95-1.19

Water (1.5 litre bottle) 0,65 € 0.40-0.99

Bottle of Wine (Mid-Range) 6,00 € 4.50-7.00

Domestic Beer (0.5 litre bottle) 0,88 € 0.70-1.00

Imported Beer (0.33 litre bottle) 1,31 € 1.20-1.50

Pack of Cigarettes (Marlboro) 3,50 € 3.20-3.55

Transportation Avg. Range

One-way Ticket (Local Transport) 1,60 € 1.10-1.60

Monthly Pass (Regular Price) 23,00 € 20.00-25.00

Taxi Start (Normal Tariff) 2,50 € 2.00-3.20

Taxi 1km (Normal Tariff) 0,55 € 0.50-0.69

Taxi 1hour Waiting (Normal Tariff) 11,00 € 10.00-16.00

Gasoline (1 litre) 1,05 € 1.00-1.16

Volkswagen Golf 1.4 90 KW Trendline (Or Equivalent New

Car)16.918,50 € 15,000.00-18,000.00

Utilities (Monthly) Avg. Range

Basic (Electricity, Heating, Water, Garbage) for 85m2

Apartment 156,57 € 100.00-218.57

1 min. of Prepaid Mobile Tariff Local (No Discounts or Plans) 0,03 € 0.02-0.05

Internet (10 Mbps, Unlimited Data, Cable/ADSL) 15,44 € 12.00-20.00

Sports And Leisure Avg. Range

Fitness Club, Monthly Fee for 1 Adult 51,60 € 45.00-60.00

Tennis Court Rent (1 Hour on Weekend) 25,50 € 20.00-30.00

Cinema, International Release, 1 Seat 6,00 € 5.40-7.50

Clothing And Shoes Avg. Range

1 Pair of Jeans (Levis 501 Or Similar) 74,21 € 50.00-85.00

1 Summer Dress in a Chain Store (Zara, H&M, ...) 29,00 € 20.00-45.00

1 Pair of Nike Running Shoes (Mid-Range) 74,93 € 55.00-90.00

1 Pair of Men Leather Business Shoes 87,13 € 70.00-125.00

Rent Per Month Avg. Range

Apartment (1 bedroom) in City Centre 454,35 € 375.00-500.00

Apartment (1 bedroom) Outside of Centre 298,04 € 220.00-350.00

Apartment (3 bedrooms) in City Centre 751,42 € 600.00-900.00

Apartment (3 bedrooms) Outside of Centre 520,56 € 400.00-600.00

Buy Apartment Price Avg. Range

Price per Square Meter to Buy Apartment in City Centre 2.385,00 € 1,960.00-3,000.00

Price per Square Meter to Buy Apartment Outside of Centre 1.510,88 € 1,274.00-1,800.00

Salaries And Financing Avg. Range

Average Monthly Disposable Salary (After Tax) 841,88 € 700.00-971.00

Mortgage Interest Rate in Percentages (%), Yearly 2.57 2.00-3.00


TECHNOLOGICAL FACTORSIs Estonia a technologically advanced country?

To answer this question in the best way I did a research about Estonia. When Estonia

regained its independence in 1991, after the collapse of the Soviet Union, less than half its

population had a telephone line. Two decades later, it is a technologically advanced country

and the Global Competitiveness Index (GCI) considers Estonia the 30th Country in the

Competitiveness Rankings, with only two positions of distance from China (28th) and better

than nations like Spain and Italy respectively 33th and 43th.16

This is possible in order to several factors:

• The Estonian Investment Agency (EIA), a part of Enterprise Estonia, is a government

agency promoting foreign investments in Estonia and assisting international

companies in finding business opportunities in Estonia. For example, HCL

Technologies, one of the eight technology companies in the world, opened its brand

new development centre in Tallinn in the beginning of December17.

• The macroeconomic environment, higher education and training, technological

readiness, and labour market efficiency are considered among the best in the

medium-high rank in Europe18;

• In 2007 Estonia became the first country to allow online voting in a general election;

• It has among the world's zippiest (quick and energetic) broadband speed and holds

the record for start-ups per person;

• Filing an annual tax return online, as 95% of Estonians do, takes about five minutes;

• According to the World Bank, over 14,000 new companies registered in Estonia in

2011;

• Today Tehnopol, a business hub in Tallinn, is the house of more than 150 tech

companies;

• High-tech industries now account for about 15% of GDP.

This and others factors such as the largest Estonian entrepreneurship competition, have

contributed the emergence of global companies like Skype and TransferWise and allow to

say not only that Estonia is a technologically advanced country but, moreover, that it is one

of the best in Europe from this point of view.

This not means that Estonia can not grow more.

When I read all this different kind of information to have a overall view about the Estonia's

situation, I focused on one data, Estonia has the record for start-ups per person. It is almost

funny, why do I need to sustain several start-ups by my own? I can create different products

or services with the same company and if the typologies of the new product or service that I

would like to finance is totally different from my actual business, I can create a spill-over of

my company or, become the “Sponsor Company” of that items or, in addiction, given that

there are so many companies (14,000 constitute only in 2011), I have probably disparate

friends with different companies and start-ups that can help me. I started to search the

answer and after zapping on internet I found it: “Estonia has one of the most liberal tax

regimes in the world, whereby companies only have to pay corporate income tax on their

dividends”.

16 Global Competitiveness Report 2015-2016 – Competitiveness Ranking (www.worldeconomicforum.org)

17 Estonian Investment Agency

18 Global Competitiveness Report 2015-2016


I realized that people prefer have several companies per each to reduce the amount of tax

that they pay to a legal minimum, in this way they can invest part of their own income in the

companies and pay less income tax (for example, I buy a car for the company but I use that

car for me). This is tax avoidance and it is a big loophole in Estonian taxation. A lot of

Estonians take advantage of this tax breaks for firms. Juhan Parts, the Minister of Economic

Affairs and Communications said: “ Encouraging entrepreneurship among the Estonian

population remains very important, we need much more innovative and successful

companies who can employ at least ten or more people and export their products and

services”19. He intended to promote the employment, increasing not only the numbers of

start-ups but the size of the companies. There are around 350 start-ups in Estonia, whereas

by 2020 the Estonian Development Fund (EDF) expects to reach 100020. This is a great goal

to achieve but increment start-ups not means develop the Nation.

On my opinion, Estonia needs to improve the fiscal policy and introduce several laws for

the regulation of the companies contributions to avoid this kind of abuse. Another point it

could be not only promote technology companies but introduce some innovations in the

government to improve infrastructures and support public sector with a proactive develop

management. Moreover, it is important to increment the international reputation of Estonia

which is connected directly with the need to attract the investment necessary for continuous

economic growth. One of the weakness of Estonian trade markets is the competitiveness, it's

better cooperation than competition to reach important national goals. Estonia for achieve its

vision in 202021 should raise productivity, increasing R&D expenditure and invest in the

young population (for example less university taxes and more concessions for the students

“best in class”) . The key issue is the conformity of the content of education with the

demands of the labour market. If Estonia would increase value-added and productivity, the

youth of the nation must be able to develop year after year a better innovative system, in this

way Estonia could see grow its position, decade after decade.

In according with mine analysis, Estonia should improve one of the best and emerging

market in the world, to contribute to the country's success today: the renewable energies

market and then invest in the Green Economy.

Green economy results are the improvement of human well-being and social equity, while

significantly reducing environmental risks and ecological scarcities. There are no specific

policy measures promoting eco-innovation in the country. Estonian economy is highly

dependent on the supply of fossil fuels, approximately 90% of electricity is produced

through the combustion of fossil fuels (oil shale). According to the Development Plan of the

Estonian Electricity Sector until 2018 and the National Development Plan of the Energy

Sector until 2020 the energy supply will be diversified and more different sources of energy

will be used22. The investment in innovations that promote the use of thermal, wind and

solar energy, with the government contributions and support is a wide market opportunity

for new companies, start-ups and for national growth strategy, even if Estonia is lagging

behind many EU countries. New jobs, less oil shale, less costs, less air pollution, more

revenues, more companies and business opportunities, this is renewable energy market. The

point is that Green economy is a business completely new and to discover, it is the feature of

the world.

19 Estonian Entrepreneurship Growth Strategy 2014-2020 peg. 2

20 EESTI ARENGUFOND

21 Estonian Entrepreneurship Growth Strategies 2014-2020

22 Eco-innovation Observatory (www.eco-innovation.eu)


I would like to remind a famous Indian proverb: “ We do not inherit the land from our

ancestors, we borrow it from our children and it is our duty to give it back”.

The more prominent innovative activities are taking place in optimisation of energy

production and energy efficiency, as well as in oil shale industry. Moreover, the main goal of

National Development Plan of the Energy Sector is to reduce the total CO2.

Finally, in the Eco-innovation Scoreboard ranking 2013 Estonia is below the EU average

and needs to invest in search&development to improve its position.

I reached the final considerations, all the key indicators illustrate what the Estonia should

focus on. The analysis carried out showed that the following areas have most growth

potential:

1. Information and communications technology (ICT) through all sectors;

2. Health technologies and services and Green Economy;

3. More efficient use of resources.

The Government should develop several cooperation networks (including international

cooperation) and fostering start-up entrepreneurship, the Estonian core-business;

in this way the results could be:

1. Emergence of innovative and fast growing enterprises, with team structure or N-form

structure23, compose of 100% students and employees with higher education, focused

on issues like: air/water pollution, ecosystem management, environmental protection,

resource efficiency, ICT, green-economy, sustainability, eco-innovation, employee

health and safety, business ethics and Corporate Social Responsibility;

2. Development of entrepreneurial knowledge: the Estonian school system support the

development of entrepreneurial knowledge, skills and attitudes better than in the rest

23 Organization structure in which each cluster of resources is linked to the others to form a network.


of Europe and must continue to do it;

3. The organisational attention on Strategic Human Resource Management that

mobilizes human capital to implement organizational strategies and consider the HR

the core-company and the best resource to achieve international competitive

advantages.

At least these points discussed in these treatise and many other are the solutions that should

be feasible in Estonia to contribute to the country's success today and in the future. Estonia

with a develop of this factors and forces will be able to attract foreign direct investment

(FDI), to improve GDP, increments salary average decrease unemployment and finally

increases National Standard of living climbing the ranking of the best European countries.


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