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Estonia Economy
 
 
 

As a member of the European Union, Estonia's economy is rated as high income by the World Bank. The Estonian economy Estonian economic miracle has often been described as the Baltic Tiger. By 1929, a stable currency, the kroon, was established. It is issued by the Bank of Estonia, the country's central bank. Trade focused on the local market and the West, particularly Germany and the United Kingdom. Only 3% of all commerce was with the USSR. Before the Second World War Estonia was mainly an agriculture country whose products such as butter, milk and cheese was widely known on the western European markets. The USSR's forcible annexation of Estonia in 1940 and the ensuing Nazi and Soviet destruction during World War II crippled the Estonian economy. Post-war Sovietisation of life continued with the integration of Estonia's economy and industry into the USSR's centrally planned structure.

Since re-establishing independence, Estonia has styled itself as the gateway between East and West and aggressively pursued economic reform and integration with the West. Estonia's market reforms put it among the economic leaders in the former COMECON area. In 1994, Estonia became one of the first countries in the world to adopt a flat tax, with a uniform rate of 26% regardless of personal income. In January 2005 the personal income tax rate was reduced to 24%. A subsequent reduction to 23% followed in January 2006. The income tax rate will be decreased by 1% annually to reach 18% by January 2010. The Government of Estonia finalised the design of Estonia's euro coins in late 2004, and is now intending to adopt the euro as the country's currency on 1 January 2011, later than planned due to continued high inflation. In 1999, Estonia experienced its worst year economically since it regained independence in 1991, largely because of the impact of the 1998 Russian financial crisis. Estonia joined the WTO in November 1999. With assistance from the European Union, the World Bank and the Nordic Investment Bank, Estonia completed most of its preparations for European Union membership by the end of 2002 and now has one of the strongest economies of the new member states of the European Union.

A balanced budget, almost non-existent public debt, flat-rate income tax, free trade regime, fully convertible currency backed by currency board and a strong peg to the euro, competitive commercial banking sector,innovative e-Services and even mobile-based services are all hallmarks of Estonia's free-market-based economy.

Until recent years the Estonian economy grew with admirable rates. Estonian GDP grew by 6.4% in the year 2000 and with double speeds after accession to the EU in 2004. The GDP grew by 7.9% in 2007 alone. Increases in labour costs, rise of taxation on tobacco, alcohol, electricity, fuel, and gas, and also external pressures (growing prices of oil and food on the global market) are expected to raise inflation just above the 10% mark in the first months of 2009. In the first quarter 2008 GDP grew only 0,1%. The government made a supplementary negative budget, which was passed by Riigikogu. The revenue of the budget was decreased for 2008 by EEK 6.1 billion and the expenditure by EEK 3.2 billion. A sizeable current account deficits remains, but started to shrink in the last months of 2008 and is expected to do so in the near future. In the second quarter of 2009, the average monthly gross wage in Estonia was 12,716 kroons (€812.7, US$1,196.4).

Estonia is nearly energy independent supplying over 90% of its electricity needs with locally mined oil shale. Alternative energy sources such as wood, peat, and biomass make up approximately 9% of primary energy production. Estonia imports needed petroleum products from western Europe and Russia. Oil shale energy, telecommunications, textiles, chemical products, banking, services, food and fishing, timber, shipbuilding, electronics, and transportation are key sectors of the economy. The ice-free port of Muuga, near Tallinn, is a modern facility featuring good transshipment capability, a high-capacity grain elevator, chill/frozen storage, and brand-new oil tanker off-loading capabilities. The railroad serves as a conduit between the West, Russia, and other points to the East. Estonia also has large reserves of phosphorite, pitchblende and granite which are not mined or mined extensively at the moment. In recent years a public debate has been raised in the terms of whether Estonia should build a nuclear power plant in order to secure the energy production after the closure of old units in the Narva Power Plants if they are not reconstructed by the year 2016. It has been estimated that once Estonia starts using nuclear energy then the local uranium mining could have potential in the terms of financial risks and investments.

Food, construction, and electronic industries are currently among the most important branches of Estonia's industry. In 2007, the construction industry employed more than 80,000 people which make around 12% of the entire country's workforce. Another important industrial sector is the machinery and chemical industry which is mainly located in Ida-Viru County and around Tallinn. The oil shale based mining industry, which is also concentrated in East-Estonia, produces around 90% of the entire country's electricity. The extensive oil shale usage however has caused also severe damage to the environment. Although the amount of pollutants emitted to the air have been falling since the 1980s, the air is still polluted with sulphur dioxide from the mining industry which was rapidly developed by the Soviet Union in early 1950s. In some areas the coastal seawater is polluted, mainly around the Sillamäe industrial complex.

Estonia exports mainly machinery and equipment, wood and paper, textiles, food products, furniture, and metals and chemical products. Estonia also exports 1.562 billion kilowatt hours of electricity annually. At the same time Estonia imports machinery and equipment, chemical products, textiles, food products and transportation equipment. Estonia imports 200 million kilowatt hours of electricity annually.

After a long period of very high growth of GDP, the GDP of Estonia decreased by a little over 3% on a yearly basis in the 3rd quarter of 2008. In the 4th quarter of 2008 the negative growth was already − 9,4%.


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