Economy of Estonia: a brief description

The economy of Estonia is one of the most successful examples of the development of small economies. During the crisis, the state experienced a moderate decline in comparison with other former Soviet republics, and then quickly recovered. Today, Estonia is considered one of the most prosperous, not developing countries.

A Brief History of the Estonian Economy until the Twentieth Century

For a long time, the economy of the territories where modern Estonia is located was based on trade. Through Tallinn (then the city was called Revel) and Narva passed important trade routes connecting Russia and Western Europe. The Narva River provided communication with Novgorod, Moscow and Pskov. In addition, in the Middle Ages, Estonia was a major supplier of cereals to the northern countries. The industrialization of some industries (especially wood processing and extractive industries) began even before Estonia joined the Russian Empire.

The economy of Estonia and Russia has developed together since the moment when interesting to the Russian Empire in the Baltic met with the interests of Sweden. The accession of the territories of modern Estonia to the Russian Empire, which formed the Reval and Livonia provinces, and the emergence of a new capital (St. Petersburg) reduced the commercial importance of Tallinn and Narva. Positive impact on the economy of the country was provided by the Agrarian Reform of 1849, after which it was allowed to sell and lease land to peasants. By the end of the XIX century, the owners or tenants of the land were about 50% of the peasants in the northern part of the country and 80% in the south and in the center of modern Estonia.

In 1897, more than half of the population (65%) was employed in the agricultural sector, 14% worked in the industrial sector and as many traders or worked in the service sector. Intellectual, economic and political elite of Estonian society remained Baltic Germans and Russians, although the proportion of Estonians in the national composition reached 90%.

The first independent steps in the economy

The Estonian economy passed the first test for the possibility of regulation by internal state forces in the 1920s-1930s. The independence of the state caused the need to look for new markets, carry out reforms (and there were enough problems in the economy at that time), decide how natural resources will be used. The new economic policy, initiated by the then Minister of Economy Otto Strandman of Estonia, was aimed at the development of an industry oriented towards the domestic market and agriculture aimed at export.

The independent development of the state economy was promoted by such factors:

• Advantageous territorial location;
• The structure of production that developed under the Russian Empire;
• A developed network of railways that unite the domestic market;
• Monetary aid from Soviet Russia in the amount of 15 million rubles in gold equivalent.

However, there were many problems:

• Virtually all equipment from factories and factories was exported during the First World War;
• Violated the existing economic ties, the country lost its market in the east;
• The United States stopped supplying Estonia with food because of the conclusion of the Tartu Peace Treaty;
• More than 37,000 citizens returned to Estonia, who needed housing and jobs.

Economy of the Estonian Soviet Socialist Republic

A brief description of the Estonian economy in the USSR begins with the calculation of damage caused by military operations during the Second World War. During the German occupation, 50% of home homes and 45% of industrial enterprises were destroyed in the republic. The total damage is estimated at 16 billion rubles in pre-war prices.

After the Second World War, Estonia was in the first place in terms of investment per capita among all the Soviet republics. The Estonian economy in those years was represented by:

1. Industrial complex. Developed as a mining (mining of oil shale, phosphorite and peat), and the manufacturing industry. The branches of the latter included machine building, metalworking, chemical, textile and food industries.
2. Power. It was in Estonia that the first gas and oil smelter in the world was built, and in the future the world's largest hydroelectric power plants on slates. The energy complex fully provided for the needs of the republic and allowed the transfer of part of the energy to the northwest of the USSR.
3. The agrarian sector. Agriculture in Estonia during the years of the Soviet Union specialized in dairy and beef cattle breeding and pig production. Fur fur farming, beekeeping, poultry farming developed. Cultivated technical, fodder and grain crops.
4. The transport system. Since the times of the Russian Empire, the republic has developed a well-developed railway network. In addition, motor and sea transport developed.

Restoration of independence and economic reforms

In the period of restoration of independence, Estonia's economy is briefly characterized by reforms. The latter can be divided into four groups: liberalization, structural and institutional reforms, the return of nationalized property to legitimate owners, stabilization. The first stage of the transformation was characterized by a transition to regulation of pricing only for electricity, heating and public housing.

A serious problem was high inflation. In 1991, the figure was 200%, and by 1992 it had risen to 1076%. Savings, which were kept in rubles, rapidly depreciated. In the framework of the new economic policy, the return of once-nationalized property to owners was also carried out. Already by the mid-1990s, the privatization process was almost completely completed. At the same time, Estonia became one of the first countries in the world to adopt a flat system of income tax.

Workplaces and loading of Estonian transport routes were ensured by trade and transit of goods from the Russian Federation. Transit transport services accounted for 14% of the gross domestic product. Most of the Estonian state budget (about 60%) was formed at the expense of Russian transit.

Economic growth after Estonia's accession to the EU

The economy of Estonia after the accession to the EU has developed in a positive way. Significant volumes of foreign investments were attracted to the country. By 2007, Estonia ranked first among the former union republics in terms of GDP per capita. At the same time, the signs of "overheating" began to appear in the economy: the stabilized inflation indicators again spread, the foreign trade deficit grew by 11%, and the so-called price bubble arose on the housing market. In this regard, the pace of economic growth began to decline.

The economic recession amid the global financial crisis

Negative trends related to the financial crisis have also manifested itself in the Estonian economy. Industrial production fell in 2008, the budget was first received with a deficit, and GDP fell by three and a half percent. At the same time, the volume of rail transportation decreased by 43%, inflation increased to 8.3%, domestic demand decreased and imports decreased.

Studies carried out by the working group of the University of Tartu showed that the Estonian economy is developing according to the Greek scenario. The country was dominated by hotel services and trade, as well as small construction, rather than industry, financial intermediation and high-performance commercial services. The crisis had a great impact on the Estonian economy, which led to the collapse of the existing development model.

Today's structure of the Estonian economy

The economy of Estonia is briefly represented by the following sectors:

1. Industry (29%). Chemical, processing, pulp and paper, fuel industry, power engineering, and machine building are actively developing. A significant share of GDP is made up of construction and real estate.
2. Agriculture (3%). The main branches of the agrarian sector are meat and dairy cattle breeding, pig production. Agriculture is mainly engaged in the cultivation of fodder and industrial crops. Fisheries are also developing.
3. Services sector (69%). Tourism is booming, especially medical tourism. Recently, the number of offshore IT companies has grown significantly. An important component of the economy is transit through the state territory - this is the reason for Estonia's role in the world economy. For example, transit accounts for 75% of the volume of rail traffic.

Regional features of the economy

The economy of Estonia is now dispersed geographically. So, in the north-eastern part of the state the industrial sector is developed, in this region three-fourths of industrial goods are produced. The main industrial centers of the country are Tallinn with its environs, Narva, Maardu, Kohtla-Jarve, Kunda. In southern Estonia, agriculture developed more, and the western part of the country is characterized by developed fishing, livestock and tourism are also developed.

Finance, banks and the external debt of the state

The official currency of Estonia is the euro, the transition to the European currency from Estonian koruna was finally completed by the beginning of 2011. The functions of the central bank in the country are performed by the European Central Bank, and the national supervising authority is the Bank of Estonia. The functions of the latter are to satisfy the demand of the population for cash, as well as to ensure the reliability and stability of the entire banking system.

About ten commercial banks operate in Estonia. At the same time, more than two-thirds of financial assets are regulated by the two largest players in the financial market - Swedish banks Swedbank and SEB. Stable economic development of the country allows expanding the scope of bank lending.

The state external debt of Estonia remains the lowest among the countries of the European Union, amounting to 10% of the gross domestic product as of 2012. In the mid-nineties the indicator was approximately half of GDP, and by 2010 it reached 120% of the gross domestic product. More than half of the debt is financial liabilities of credit institutions.

Structure of foreign trade of the state by industry

The main trading partners of Estonia are the northern neighbors, as well as Russia and the European Union. The main groups of foreign trade are mineral fertilizers, fuels and lubricants, manufactured goods, machinery and equipment, and various finished products.

Population incomes, employment and labor resources

The largest share of the population of Estonia (67%) is made up of able-bodied citizens - modern Estonia does not suffer from a shortage of labor. The economy is provided with manpower, but the average unemployment rate is 6%, which corresponds to the world average. For one hour (when working with hourly pay), a doctor can receive a little more than nine euros, junior medical personnel - five euros, nurses, nannies and orderlies - three euros. The average salary before tax is 1105 euros. The minimum wage is 470 euros per month.