The prospects of the global economy at the beginning of this year have been contradictory. The main question regarding the global price increases of the past few months is whether it is a temporary or a long-term trend. Will the supply chain issues and lack of production inputs resulting from the pandemic improve or not? How successful will humankind be in limiting global warming?
We are also seeing a trend in the reversal of globalism – both the West and China are reducing their strategic economic dependency on each other. The overall security situation is the worst that it has been in the last decade and COVID-19 is still around. Despite all of this, it is predicted that the global economy will have a positive year – OECD estimates a growth of 4.5%. We hope that this will happen, as the global economy also frames Estonia’s prospects
A Clear Message about Openness
Last year, Estonia’s GDP passed 30 billion dollars for the first time. The economic growth was broad and export is strong. The ICT sector positioning as the third by its share in the economic sector is also a landmark and supports the digitalisation and innovation of companies in the upcoming years.
Growth has been limited by workforce and supply chain disruptions, not political instability, or untrustworthy economic policy. But the situation does not look as bright everywhere – the tourism and hospitality sector has yet to recover from the COVID-19 crisis as domestic consumers have not been able to make up for the lack of tourists.
Surprisingly, the driver for economic growth was the private sector, which demonstrates the perseverance of our entrepreneurs. It was also helped by the political decision to keep society as open as possible, dependant on the spread of COVID-19, thanks to vaccination passes as well as the clear message to the business world: investments and talents are welcome in Estonia.
According to the forecast by the Bank of Estonia, our GDP will have an annual growth of 3% this year and the following two years. This is a great result but not enough to achieve 110% of the EU’s average level of profitability by 2035. For this, Estonia’s GDP should grow at an average of 2.5 percentage points more than the EU’s GDP as a whole. Otherwise, we will remain below the European average.
Ready for Innovation
At the end of last year, universities completed a valuable task of mapping the sectoral capacities and laboratory competencies to offer applied research services to entrepreneurs. If we add the applied research programme initiated by the new organisation that arose from the merge of Enterprise Estonia and KredEx to the universities’ competences, we will be taking an important step towards the convergence of entrepreneurship and research. This is exactly what we need to increase the volume of innovation in our economy.
I am optimistic that the list of companies that have joined the Estonian Employers’ Confederation 2% Club, meaning they invest at least 2% of their revenue or a million euros into research and development per year, will grow significantly this year.
Green Turn: Our Opportunity
The Green Turn is more than just energetics and since contracting partners are interested in carbon footprints, every exporting company will have to start measuring theirs sooner rather than later. New generations of knowledgeable consumers will also be asking more and more about companies’ environmental impacts. These changes will not happen overnight, but the process has begun and will increasingly impact the competitiveness of companies during the next five to ten years.
The high electricity prices this winter have significantly increased both companies’ as well as individuals’ interests in investments in renewable energy. Banks are also offering favourable conditions for financing – the margin of home energy efficiency loans for individuals remains at 2%. In the upcoming months, this will be supplemented by the Ministry of Economic Affairs and Communications’ support measures for installing solar panels. But the network companies’ capacity to allow new subscriptions will become the bottleneck of this change.
Elering, Elektrilevi, and other network companies have the financial capacities as regulated entities to increase their investments into developing these networks so that the establishment of renewable energy production capacities is not restricted – and this capacity must be used now. It is particularly important that we move fast with the development of offshore wind farm parks. This will also enhance our security of supply.
Estonia: A Hotbed for Talents
We are developing our strengths to be the best home for companies in the world. The Estonian start-up ecosystem has created seven unicorns – companies that were valued at a billion dollars before entering the stock market. Their founders are aiming to increase the volume of the sector tenfold within the next ten years. My goal is for us to have 25 unicorns by 2025.
Why is this important? The start-up field has increased Estonia’s national capital the fastest and stimulated the emergence of many new companies with a global reach. Capital has a nationality because decisions and the innovation of products and services happen where the owners of the companies are.
COVID-19 has shifted the paradigm – the development centres and head offices of rapidly growing companies are progressively being brought to where the talents are. However, talents value the quality and safety of the living environment. This is something we can offer in Estonia. In many countries, it is unthinkable to send elementary school children to school by themselves in the morning. Here, we can also market Estonia and Finland together as the FinEstBay region.
Estonia has already been noticed and a few global companies such as Microsoft, Volkswagen, ABB, and Ericsson are already here. There are global names that are considering working together in various forms with our start-up ecosystem. My aim is to create more opportunities for companies like that in Estonia.
If we are determined and successful on all three fronts, the long-term aim to rise higher than the European average will be feasible for us.
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