Kirde-Eesti, Estonia: Patterns of Socio-Economic Development Case Study Report
Dmitry Zimin
Karelian Institute, University of Eastern Finland WP 6 Task 3 January 2014
The research leading to these results has received funding from the European Union's Seventh Framework Programme (FP7/2007-2013) under grant agreement “Growth-Innovation- Competitiveness: Fostering Cohesion in Central and Eastern Europe” (GRNCOH)
Kirde-Eesti, Estonia: Patterns of Socio-Economic Development
1. Introduction 1.1. History and location Kirde-Eesti is an Estonian NUTS3 region occupying the northeast of this country. Territorially, it coincides with the administrative district (maakond, uezd or county) known by its historical name as Ida-Virumaa. On the east this region borders on Russia. The borderline goes along river Narova and the Narva Reservoir. In the south it is limited by the northern shore of Lake Peipsi (Chudskoe). In the west and southwest, Kirde-Eesti borders on two other Estonian counties: Lääne-Virumaa and Jõgevamaa. And in the north the region is washed by waters of the Gulf of Finland. Narva is the largest town in this region, with a population of 57,7 thousand.1 It was founded in the 12th century. In the Middle Ages Narva was an important centre of Hanseatic trade between Western Europe and Russian cities, especially Novgorod-the-Great and Pskov. Over centuries this land saw several rulers: the Danes, the Livonian Order, and Sweden. In 1704 this area was captured by Russian Tsar Peter the Great and until the revolution of 1917 it remained part of the Russian Empire. In 1918 Estonia became independent. But already in 1940 the country was turned into one of Republics of the Soviet Union. After the collapse of the USSR in 1991, Estonia has regained her independence, and the state border has been established along river Narova. In 2004 Estonia joined NATO and the European Union. In late 2007 the country became part of the Schengen Area, and at the beginning of 2011 it joined the Euro Zone. Spatial structure of the north of Kirde-Eesti is dominated by the St. Petersburg – Tallinn motorway, which goes along the southern shore of the Gulf of Finland. The main towns – Narva, Kohtla-Järve and Sillamäe – are situated on this motorway, which serves as the main transport connection to this region. In addition, there is the St. Petersburg – Tallinn railway, a growing seaport in Sillamäe, and a small inactive airfield near Narva. The southern part of this region is rural where small villages and farmsteads dominate in the local landscape. One can also find two natural reserves here: Muraka and Puhatu. Administratively, the region is divided into 20 municipalities (see Map 1). Until recently there were 22 of them, but in summer 2013 three municipalities (Lüganuse, Maidla and Püssi) merged.2 The administrative centre of Kirde-Eesti is the town of Jõhvi, where the seat of County Government is situated. Jõhvi is conveniently located in the northern part of the region, near the Tallinn – Narva motorway. It should be noted that Kirde-Eesti is a polycentric region: although Narva is its largest city, it does not play a dominant role neither in a political sense nor in terms of labour commuting and economic significance. Kohtla-Järve, Sillamäe and Jõhvi have been quite independent centres of socio-economic gravitation.
1.2. Basic socio-economic characteristics
1 This figure is based on results of the last population census, which was carried out in 2011 (Statistics Estonia, 2013). However, Estonia’s Population Register gives a much larger figure – 62,1 thousand inhabitants as of 1 December 2013 (“Registr narodonaselenya. Nemnogo statistiki,” 21 December 2013, Narvskaya Gazeta, http://www.gazeta.ee/?p=35349). All internet links mentioned in this Report were last accessed on 10 January 2014. 2 “Rastopivshie lednikovyi period,” 2 January 2014, Põhjarannik, http://sp.pohjarannik.ee/archives/18137.
1
During the last two decades this region experienced a notable demographic decline, which was much more pronounced here than in Estonia as a whole (see Table 1). In 1989-2012 Kirde-Eesti lost 33,8 percent of its inhabitants because of negative natural growth of the population and massive outmigration to other regions of Estonia and abroad. The fall in the number of inhabitants has been particularly deep in the industrial municipalities of Kiviõli, Püssi and Kohtla-Järve. In addition, Kirde- Eesti experienced the problem of ageing (see Table 2), exacerbated by strong outmigration of young people. On the whole, in 1989-2012 Kirde-Eesti lost 25,6 thousand inhabitants because of negative natural growth of the population and additional 49,3 thousand (of which 30,1 thousand were lost in 1989-1999) because of the region’s negative migration balance.3 Kirde-Eesti’s population density has been somewhat higher than the Estonian average (43,5 inhabitants per square kilometre versus 29,6 as of 1 January 2013, Statistics Estonia, 2013b). This can be explained by this region’s higher-than-average rate of urbanization, which was stimulated by intensive industrialization of Kirde-Eesti during the Soviet period.
Figure 1. Administrative division of Kirde-Eesti, as of 1 January 2013
Source: Wikimedia.org, http://upload.wikimedia.org/wikipedia/commons/4/4e/Ida-Viru_municipalities.png
Table 1. Population dynamics in Estonia and in Kirde-Eesti in 1989-2013
3 Author’s calculations on the basis of Statistics Estonia, 2013b
2
Population, total, as of 1 January Population change, %
1989 2000 2013 1989- 2000- 1989- 1999 2012 2012 Estonia as a whole 1565662 1372438 1286479 -12,3 -6,3 -17,8
Kirde-Eesti 221111 180233 146283 -18,5 -18,8 -33,8 including: - Jõhvi 17623 13921 12550 -21,0 -9,8 -28,8 - Kiviõli 10390 7435 5485 -28,4 -26,2 -47,2 - Kohtla-Järve 62059 47838 36377 -22,9 -24,0 -41,4 - Narva 81221 68843 57650 -15,2 -16,3 -29,0 - Narva-Jõesuu 3754 3003 2569 -20,0 -14,5 -31,6 - Püssi 2532 1876 1007 -25,9 -46,3 -60,2 - Sillamäe 20561 17237 13942 -16,2 -19,1 -32,2 Source: Statistics Estonia, 2013b
Table 2. Age structure of the population, as of 1 January
Age, years Age structure, %
0-19 20-64 64+ 0-19 20-64 64+
Estonia as a whole - 1990 459853 929141 181605 29,3 59,2 11,6 - 2000 353885 812556 205189 25,8 59,2 15,0 - 2013 264135 789803 232541 20,5 61,4 18,1 Kirde-Eesti - 1990 62646 137945 21216 28,2 62,2 9,6 - 2000 43288 108487 28322 24,0 60,2 15,7 - 2013 26343 90590 29350 18,0 61,9 20,1 Source: Statistics Estonia, 2013b
It should be noted that Kirde-Eesti differs significantly in terms of its ethnic structure from the rest of Estonia (see Tables 3 and 4). Ethnic Estonians make up just 20 percent of the total population, while the share of ethnic Russians is almost 73 percent. The dominance of Russians is particularly strong in the largest cities of this region (Narva, Sillamäe and Kohtla-Järve), where non-Estonians make up 85- 95 percent of all inhabitants. Ethnic Estonians dominate only in small rural municipalities, where their share is approximately 70 percent on the average (Statistics Estonia, 2013b). This ethnic peculiarity has become a source of serious tensions between Russian-speaking residents of Kirde-Eesti and the Estonian state, which has pursued a strategy of Estonianization. For instance, according to the Citizenship Laws of 1992 and 1995 an overwhelming majority of Russian speakers, who came to live in Estonia after WWII and their descendants, could not receive Estonian citizenship without passing a language test. Since most of them did not know Estonian, they became stateless. Likewise, the Language Law of 1995 has prescribed that only Estonian can be used in public administration, and fluent Estonian has become a compulsory requirement for employees working in the public sector. These policies have made it very difficult for Russian speakers to compete with ethnic Estonians on the labour market and in business life. Not surprisingly, this state of affairs has created deep-grounded discontent and disappointment towards Estonia on part of its Russian- speakers inhabitants, especially those residing in the cities where Russians constitute an overwhelming majority (Herrschel, 2011, p. 140). During the 2000s these feelings have been further
3 aggravated by the forced introduction of Estonian as a language of instruction in Russian-language secondary schools, as well as by events of the “Bronze Night” in April 2007, when the right-wing Government of Estonia decided to remove a Soviet WWII memorial in Tallinn despite mass protests of Russian speaking residents.4 Not surprisingly, an OECD review of tolerance of minorities named Estonia the least tolerant among OECD countries in 2010 (26 points in Estonia against 61 points in OECD on the average). Furthermore, in 2007-2010 this country’s tolerance index fell by six points (OECD, 2011, p. 99).
Table 3. Ethnic structure of the population in 1990-2013, as of 1 January
Population Ethnic structure, %
Total Estonians Non- Total Estonians Non- Estonians Estonians Estonia as a whole - 1990 1570599 965564 605035 100 61,5 38,5 - 2000 1372071 935884 436187 100 68,2 31,8 - 2013 1286479 898845 387634 100 69,9 30,1 Kirde-Eesti - 1990 221807 40242 181565 100 18,1 81,9 - 2000 180143 36365 143778 100 20,2 79,8 - 2013 146283 28488 117795 100 19,5 80,5 Source: Statistics Estonia, 2013b
Table 4. Ethnic structure of the population in Kirde-Eesti in 2000-2013, as of 1 January
Population Change, % Structure in 2013, % 2000 2013
Total 180143 146283 -18,8 100,0 Estonians 36365 28488 -21,7 19,5 Russians 126478 106508 -15,8 72,8 Ukrainians 4879 3312 -32,1 2,3 Belorussians 5322 3284 -38,3 2,2 Finns 2627 1338 -49,1 0,9 Other 4472 3353 -25,0 2,3 Source: Statistics Estonia, 2013b
In this context it is interesting to note that in 2000-2012, despite the Estonianization strategy, the number of Russian-speaking residents in Kirde-Eesti shrank less significantly than the number of representatives of other ethnic groups, including Estonians (see Table 4). This fact may mean that this region has remained “a Russian stronghold” within Estonia, and ethnic Estonians failed to strengthen their positions in Kirde-Eesti, even despite the supportive policies of the state.
4 “Language inquisition: Estonia gets tough on Russian speakers,” 1 December 2011, Russia Today, http://rt.com/news/estonia-russian-language-ban-635 and ”Bronze Night” http://en.wikipedia.org/wiki/Bronze_Night.
4
The Russian Federation has also been an active player in this field. In response to violations of rights of non-Estonian residents, Russia doubled its customs duties on Estonian exports to Russia in 1995,5 minimized transit cargo shipments through Estonian territory, granted Russian citizenship to those Russian-speaking residents of Estonia who applied for it, and allowed visa-free entrance to Russia to Estonian “non-citizen passport holders” (whereas Estonian citizens still needed a visa). As a result, Estonia has experienced a steady decline in transit cargo turnover, while in terms of citizenship, Kirde-Eesti’s population has become split into three major groups: Estonian citizens, Russian citizens, and non-citizen passport holders. Statistical data suggest that during 2000-2011 the number of non-citizens fell sharply in both Kirde- Eesti and in Estonia as a whole. However, the number of inhabitants with Russian citizenship grew much faster than those with Estonian citizenship (see Table 5). This means that, firstly, a significant part of non-citizens have decided to prefer Russian citizenship, and, secondly, Estonian citizens have had a higher propensity to emigrate from Estonia, and Estonia’s membership in the EU has only facilitated their choice.
Table 5. Citizenship of inhabitants
2000 2011 Change 2000-2011, % Estonian Russian Non- Estonian Russian Non- Estonian Russian Non- citizens citizens citizens Estonia as a whole 1095743 86067 170349 1102618 90510 85961 0.6 5.2 -49.5 Kirde-Eesti 80504 34577 61921 80470 42135 24994 0.0 21.9 -59.6 including: - Jõhvi 6622 1609 3642 6945 2016 1692 4.9 25.3 -53.5 - Kiviõli 5369 797 1109 4224 792 522 -21.3 -0.6 -52.9 - Kohtla-Järve 19939 6363 20366 19416 8937 8379 -2.6 40.5 -58.9 - Narva 24974 19836 23093 27259 21771 9129 9.1 9.8 -60.5 - Narva-Jõesuu 1409 651 774 1428 759 411 1.3 16.6 -46.9 - Püssi 1210 295 351 780 216 78 -35.5 -26.8 -77.8 - Sillamäe 3663 3995 9304 4842 6204 3021 32.2 55.3 -67.5 Source: Statistics Estonia, 2013b
During the last two decades the educational structure of the population of Kirde-Eesti has generally improved. However, if in 1997 it was still very similar to the educational structure of Estonian population as a whole, by 2012 the share of residents with tertiary education became notably smaller in Kirde-Eesti than the national average. This is not surprising, given that highly skilled inhabitants tended to leave Kirde-Eesti, while the introduction of Estonian as the language of instruction in Estonian universities has made tertiary education less attainable for Russian speaking residents. At the same time, it is noteworthy that the share of people, who have not completed upper secondary education, has dropped significantly (see Table 6).
5 The double duties were abolished only in 2004, as a result of Estonia’s accession to the EU (“Dvoinye tamozhennye poshliny na eksport iz Estonii v Rossiyu budut otmeneny,” http://rus.delfi.ee/archive/print.php?id=7549031).
5
Table 6. Educational level of the population aged 15-74
Kirde-Eesti Estonia as a whole
1997 2012 1997 2012
Below upper secondary education 27,2 18,7 26,5 18,2 Upper secondary education and post-secondary non- tertiary education 50,3 56,7 49,6 50,5 Tertiary education 22,5 24,6 24,0 31,3 Total 100,0 100,0 100,0 100,0 Source: Statistics Estonia, 2013b
Throughout the last twenty years personal incomes in Kirde-Eesti were lower than the Estonian average. They grew substantially in 2003-2008, but this growth was halted by the global economic crisis, and in 2011 personal incomes were still smaller than in 2008 (see Figure 2). It should be noted that municipalities within Kirde-Eesti differ significantly in terms of personal incomes. Surprisingly, the lowest incomes are in Narva (662 euro per month in 2012), the largest regional city, while the highest incomes are in Toila (902 euro per month in 2012), a small municipality depending on tourism (Statistics Estonia, 2013b).
Figure 2. Equalized nominal yearly disposable income, euro
9000 8000 7000 6000 5000 4000 3000 2000 1000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Estonia as a whole Kirde-Eesti
Source: Statistics Estonia, 2013b
Given the relatively low incomes, it is quite expectable that Kirde-Eesti has been among the poorest regions of Estonia. In 2011 it was the poorest region, where the poverty rate was 29.4 percent against the Estonian average of 17.0 percent (Statistics Estonia, 2013a: 98). Within Kirde-Eesti the highest poverty rate was in the city of Narva (33.3 percent in 2011, ibid.: 103). Paradoxically, the poverty rate fell down in 2009, at the height of the global crisis, but then it rose again (see Figure 3). In terms of income distribution, the situation has been rather stable and inequality remained at a relatively modest level (see Table 7), comparing to, say, neighbouring Russian regions, despite the fact that Estonia has introduced a flat-rate income tax, which could theoretically lead to an increase in income inequality.
6
Figure 3. Share of the population “at risk of poverty”, percent
35
30
25
20
15
10
5
0 2003 2004 2005 2006 2007 2008 2009 2010 2011
Estonia as a whole Kirde-Eesti
Source: Statistics Estonia, 2013b
Table 7. Income distribution in Kirde-Eesti in 2003-2011, %
Year Lowest Second Third Fourth Highest Total quintile quintile quintile quintile quintile 2003 29,4 26,0 23,9 14,7 6,0 100 2004 27,9 28,6 23,7 13,6 6,2 100 2005 30,2 25,8 27,7 10,2 6,1 100 2006 34,1 23,5 22,8 16,0 3,6 100 2007 32,2 26,7 20,3 13,7 7,1 100 2008 31,1 27,6 19,7 13,2 8,4 100 2009 29,7 25,2 21,0 17,7 6,4 100 2010 32,4 24,6 19,9 15,4 7,7 100 2011 33,4 25,2 21,5 13,4 6,5 100 Source: Statistics Estonia, 2013b
Unfortunately, statistical data on regional GDP were not calculated before 1995. That is why it is impossible to assess regional economic performance during the period from 1989 till 1995. However, given the fact that Estonian GDP fell by some 36 percent during 1990-1994 comparing to 1989, it can be assumed that probably Kirde-Eesti lost at least the same share of its GDP over these years. In the end of the 1990s Kirde-Eesti was highly industrialized, and the shock of economic transformation affected this region more severely than less industrialized regions of Estonia. As a result, already in 1996 Kirde-Eesti’s GDP per capita was smaller than the Estonian average by 21.6 percent. Then, the gap started to grow wider and by 2006 it reached 41.3 percent, even despite the fact that the size of population fell faster in Kirde-Eesti than in Estonia on the average. However, during the years after the global economic crisis this gap narrowed, and in 2012 it was 28.3 percent (Statistics Estonia, 2013b) (see Figure 4). In terms of growth rates of GDP, Kirde-Eesti has also lagged far behind the Estonian average (see Figure 5). During the period of strong growth in 1996-2007, the Estonian average annual growth rate was 7.3 percent, while in Kirde-Eesti it was just 4.3 percent. Likewise, during the global economic
7 crisis of 2008-2009 GDP shrank deeper in Kirde-Esti (by 25.2 percent over these two years comparing to 2007) than in Estonia as a whole (by 14.9 percent over the same period). It can be also noted than in the pre-crisis years after Estonia joined the EU, the rates of GDP growth were somewhat higher in Kirde-Eesti than in the preceding period. Thus, in 2005-2007 they were 8.7 percent per year on the average, against just 3.3 percent in 2002-2004 (Statistics Estonia, 2013b). Probably, this increase in growth rates can be at least partially attributed to Estonia’s EU membership (e.g. increased EU investments in local infrastructure and the aforementioned abolition of Russia’s double customs duties on imports from Estonia).
Figure 4. Dynamics of Gross Domestic Product per capita in current prices, euro
16000
14000
12000
10000
8000
6000
4000
2000
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Estonia as a whole Kirde-Eesti
Source: Statistics Estonia, 2013b
Figure 5. Dynamics of Gross Domestic Product, 1995=100
250
200
150
100
50
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Estonia as a whole Kirde-Eesti
Source: Statistics Estonia, 2013b
8
Among the most important industries in Kirde-Eesti it is possible to name the following:
generation of electricity: two Narva shale-fired electric power plants generate 95 percent of Estonia’s electricity;6
shale mining and the production of shale oil in Narva, Kohtla-Järve and Kiviõli; most of shale oil is exported;
transport and logistics: the growing Sillamäe seaport and cargo transportation on the route St. Petersburg – Tallinn; production of chemicals and rare earth metals in Sillamäe and Kohtla-Järve;
metal-working: production of metal parts and constructions, mostly by firms with Finnish investments in Narva;
retail trade in Narva, oriented on Russian visitors;
tourist services, especially new spas in two resort towns of Toila and Narva-Jõesuu; Pühtitsa Orthodox monastery (in the Illuka municipality) is a major pilgrimage destination;
fishing and fish-processing are the main economic branches in the municipalities bordering on Lake Peipsi;
provision of services to the local population (i.e. education, healthcare, housing stock maintenance, urban utilities, public administration, etc.); shadow cross-border trade and smuggling of petrol, cigarettes and alcohol, though stricter customs regulations, in force since 1 December 2013, will likely diminish this activity. Several formerly important economic branches, such as the wood-working and textile industries and the production of mineral fertilisers, do no longer play a noticeable role in the regional economy. Tables 8 and 9 present the structure of Kirde-Eesti’s economy in terms of its gross value added and employment respectively.
Table 8. Structure of GDP in Kirde-Eesti in 2012
Million Structure, euro % Agriculture, forestry and fishing 29,2 2,0 Mining and quarrying; manufacturing 436,4 30,5 Electricity and water supply 215,2 15,0 Construction 55,2 3,9 Services of the business economy 349,4 24,4 Public administration, education, healthcare, other services 159,8 11,2 Total gross value added 1245,2 87,1 Net taxes 185,2 12,9 GDP at market prices 1430,4 100,0 Source: Statistics Estonia, 2013b
6 It should be noted that the shale-firing power plants are twice more polluting, in terms of CO2 emissions, than coal plants. The Kirde-Eesti’s two shale-firing power plants are responsible for about 80 percent of Estonia’s CO2 emissions, as well as nealy all of the country’s sulphur emissions. Moreover, shale quarries, mines and landfills have spoiled around 15 percent of Kirde-Eesti’s territory, as 150 square kilometres of land have sunk or became unstable (“Report: oil shale continues to take heavy toll on environment,” 5 April 2013, http://news.err.ee/economy/e46212bf-adee-457c-b098-6964847999be).
9
Table 9. Employment structure in Kirde-Eesti, as of 31 December 2011*
Employed persons Structure, %
TOTAL 54484 100 Agriculture, forestry and fishing 846 1,6 Mining and quarrying 3196 5,9 Manufacturing 12375 22,7 Electricity, gas and water supply 2837 5,2 Construction 4352 8,0 Wholesale and retail trade; repair of motor vehicles 6133 11,3 Hotels and restaurants 1295 2,4 Transport, storage and communications 3862 7,1 Financial intermediation 403 0,7 Real estate activities 1160 2,1 Computer and related activities 147 0,3 Public administration; defence; compulsory social security 3424 6,3 Education 5632 10,3 Healthcare and social work 3704 6,8 Other 5118 9,4 * - According to data of the population census of 2011. For more detailed data see Annex 1. Source: Statistics Estonia, 2013b
1.3. Administrative and governance context Administratively, Estonia is divided into 15 counties. Each county has a government, which is headed by County Elder (maavanem), who represents the Central Government. The Elders are appointed by the Central Government for a term of five years. The counties are subdivided into municipalities belonging to one of the two types: urban and rural. At present, Estonia has 32 urban municipalities and 173 rural ones. All the municipalities have equal rights. Each municipality has a municipal council (volikogu), headed by a Chairman (volikogu esimees), and municipal government, headed by a Mayor (linnapea). Functions of county governors and county governments According to Article 84 of the Government of the Republic Act, adopted on 13 December 1995, the County Elders: represent the interests of the state in the county and take care for comprehensive and balanced development of the county; direct the work of county government; co-ordinate cooperation of regional offices of ministries and other agencies of executive power and local governments in the county; give their opinion on the appointment to and release from office of heads of regional offices of ministries and other agencies of executive power located in the county; make proposals in respect of operations of state agencies located in the county; manage state assets; monitor activities of local governments and perform functions of supervisory control over them; make proposals concerning draft annual budget of the county government and control implementation of the budget; and
10
perform some other functions, assigned to them by this Law and by decisions of the Government of the Republic. The purpose of county governments is “to provide services” to the County Elders (Article 88 of the same Law). County governments: provide support services to the Elder; prepare draft documents of the Elder; execute orders of the Elder; prepare draft budgets of the county government; manage relations of the County Elder with state agencies, municipal authorities, and with other legal and physical persons; perform some other functions, assigned to them by this Law and by decisions of the Government of the Republic and of the County Elder. Functions of municipalities7 According to the Local Government Organization Act, adopted on 16 June 1993, Estonian municipalities are responsible for the provision of primary and secondary education, cultural and sport services, social welfare services, primary public healthcare, housing and utilities, waste management, maintenance of local infrastructure, local development planning, management of municipal properties, licensing of some business activities, and for some other tasks. Education In the field of education, local governments are responsible for functioning of primary and secondary municipal schools, by covering their operational expenses. Teachers’ salaries are paid from local budgets, while the money for this purpose is allocated from the state budget. Local governments are also responsible for the provision of school bus services.
Culture and sports Local governments are responsible for functioning of municipal libraries, community centres, museums, sports facilities and other similar organizations. They should also organize and finance local sport events. Public healthcare Public healthcare is funded from the Estonian Health Insurance Fund, which has its own budget. However, Estonian local governments are responsible for the provision of primary healthcare services (i.e. family physicians) and for functioning of municipal healthcare centres.
Social welfare services In the field of social welfare, local governments are responsible for operations of municipal shelters, care homes and other social welfare institutions. Municipalities are also responsible for organizing social assistance and welfare services for elderly, disabled and other persons in need of assistance.
Housing stock and utilities Local governments are responsible for the use and maintenance of municipal housing stock and utilities, such as heating, water supply and sewerage. Typically, local governments delegate these functions to private or non-profit organizations. Environmental protection and waste management
7 This section is based on information from the Estonian Ministry for Internal Affairs: https://www.siseministeerium.ee/the-functions-of-local-government.
11
Local governments are responsible for the management of local natural resources, including forests, land and water bodies, as well as for organizing waste management. Spatial planning and construction activities Local governments are obliged to prepare comprehensive spatial development plans, to issue building permits, and to control implementation of construction works. Municipal associations In order to better fulfil their functions, local governments may join their efforts and resources through the creation of county associations of municipalities. A county association might be founded by not less than a half of municipalities in the given county. Such associations are non-profit and may have some administrative functions, delegated by constituent municipalities and by the state. Municipal budgets8 For municipal budgets the main sources of incomes are taxes, fees, charges, proceeds from municipal properties, financial transfers from the state budget and loans. Personal income tax is the largest source of income. Proceeds from this tax are shared between municipal and state budgets. Municipalities are entitled to receive 11.6 percent of personal incomes of local residents. The land tax rate is 0.1-2.5 percent of the estimated value of land. All proceeds from this tax go to municipal budgets. There are also other taxes, such as sales tax, boat tax, advertisement tax, road tax, motor vehicle tax, animal tax, entertainment tax, as well as some fees (e.g. the fee for natural resource use). The Government of the Republic determines the rates of these taxes and fees, and how the proceeds are distributed between the state and municipal budgets. The second largest source of income for municipal budgets is financial transfers from the Equalization Fund, financed on account of the state budget. Equalization formula takes into account the calculated municipal expenditure need and an assessment of expected own revenues of the municipal budget. If the expected own revenues are not sufficient to cover the expenditure need, the deficit is covered by financial transfers from the Equalization Fund. The goal is to balance excessive differences among income bases of different municipalities and to enable financially weak municipalities of providing adequate public services to their residents. It should be noted that very few Estonian municipalities are self-sufficient financially. The situation has particularly worsened after the beginning of the global economic crisis, when municipal sources of revenues have been cut down, while financial transfers from the Equalization Fund have been not sufficient to fully compensate the losses. According to Raagmaa et al. (2013, p. 13): “…the current administrative structure is a major obstacle to regional development – on the one hand, highly centralized and disintegrated central government ministries/agencies and, on the other hand, a diverse system of local governments that are too small to act as partners in the implementation of regional policy. The ability to apply for funds is determined by local budgets, which are financially dependent on the state: development projects can hardly be co-financed beyond any necessary operational costs. The inter-governmental system in Estonia confers de jure autonomy to local governments but is de facto financially constrained.”9 Likewise, Estonian Regional Affairs Minister Siim Kiisler has recently noted: “In many self-governments in Estonia now only the ‘self’ remains and
8 This section is based on information from the Estonian Ministry of Internal Affairs: https://www.siseministeerium.ee/local-government-finances/ 9 Other pundits share these observations, e.g. Kriz, 2008, p. 180 and Tatar, 2010, p. 214.
12 no ‘governing’ is effectively taking place any more as the capabilities for it are lacking.”10 As a solution, the Minister has proposed an administrative reform, which could decrease the number of municipalities from the present 215 to just 30-50 ones, which would supposedly become much stronger financially. Each new municipality should have at least 5000 inhabitants.11 At present the municipalities may merge voluntarily, as did three municipalities in Kirde-Eesti in summer 2013 (Lüganuse, Maidla and Püssi).12 It is expected that a special law on administrative reform will be adopted in spring 2014. This law will enable the Ministry of the Interior to decide which municipalities should be merged. The mergers should be completed by 2017. The Ministry has already started consultations on this matter with county administrations and municipalities. According to current plans, Narva, Kohtla-Järve and Sillamäe will not merge with other municipalities, while the administrative reform will affect only smaller municipalities in Kirde-Eesti.13 Additionally, the administrative reform may affect counties, which could also be merged. For instance, the idea of merging Kirde-Eesti with its western neighbour Lääne-Virumaa has been discussed.14 Likewise, it is also under discussion whether to give some new powers and responsibilities to associations of municipalities, thus strengthening the regional level of public administration.15
Viability of municipalities There are two rankings of Estonian municipalities measuring their relative viability. The first ranking takes into account 29 statistical indicators and is called “municipal capacity ranking” (see Annex 3). For each municipality this ranking provides an integral assessment of its population, economic situation, level of personal incomes, municipal financial resources, quality of municipal services, and efficiency of municipal administration.16 Private company Geomedia calculates the ranking on behalf of the Ministry of the Interior. It is noteworthy that, according to this ranking, only two municipalities in Kirde-Eesti belong to top 50 municipalities. These are Jõhvi, the regional administrative centre, and Toila, a relatively prosperous resort destination. It is also much telling that Estonia’s large cities (Tallinn, Tartu and Pärnu) occupy top places in the ranking, while Narva, the country’s third largest city, is on the 102nd place. Other Kirde-Eesti’s municipalities score not much better. It can be also noted that in 2009- 2012 the positions of Narva and two other major cities – Kohtla-Järve and Sillamäe – worsened in comparison to 2005-2008 (Noorkõiv and Loodla, 2013).
10 “Minister says admin reform to leave 30-50 municipalities in Estonia,” 6 March 2013, Postimees, http://news.postimees.ee/1160834/minister-says-admin-reform-to-leave-30-50-municipalities-in-estonia/. 11 Ibid. 12 The new municipality has the name Lüganuse. 13 “V sleduyushchem godu budem reshat’, s kem ob’edinyat’sya,” 1 November 2013, Viru Prospekt, http://www.prospekt.ee/index.php?option=com_content&view=article&id=9042:2013-11-01-08-27- 35&catid=36:. 14 “Ida- i Lääne-Virumaa vzveshivali vozmozhnost’ ob’edineniya,” 4 June 2011, Põhjarannik, http://sp.pohjarannik.ee/archives/2686. 15 Interview with Andres Noormägi, 26 September 2013, for the full list of interviewees see Annex 2. 16 More detailed information about this raking is available at: http://geomedia.ee/eng/definition-of-local- government-index.
13
The second ranking of Estonian municipalities, the so-called “viability index”, is published by Statistics Estonia (see Annex 4). It is based on nine statistical indicators including population dynamics, age structure and educational level of the population, unemployment rate, municipal revenues per capita, and the number of registered firms per 1000 inhabitants (Statistics Estonia, 2013a: 84-85). This viability index generally confirms the conclusions drawn on the basis of the municipal capacity ranking. But in addition it also shows that Narva’s, Sillamäe’s and Kohtla-Järve’s poor scores can at least partially be explained by the fact that financial resources of these municipalities are much smaller than municipal incomes in the leading cities of Estonia. At the same time, the municipal viability ranking suggests that availability of financial resources does not correlate with the overall position in the ranking. In other words, availability of money in municipal coffers does not capable of solving the problems with declining and ageing population, high unemployment and low personal incomes. Thus, the five Kirde-Eesti’s municipalities occupying top places in Estonia in terms of municipal revenues per capita (Illuka, Mäetaguse, Kohtla-Nõmme, Vaivara and Maidla)17 do not score high in the overall ranking (see Annex 4). In terms of the dynamics of municipal incomes, it can be said during 2003-2012 Kirde-Eesti remained behind the national average in terms of municipal incomes per capita, and the gap has not narrowed over these years. At the same time, the gap between municipalities within Kirde-Eesti in terms of municipal incomes per capita grew. For instance, two municipalities, which were most financially prosperous in 2003 (Illuka and Mäetaguse), had the highest budgetary income growth rates in 2003- 2012, while a large number of financially weaker municipalities showed very modest rates of growth (see Annex 5). It should be noted that without subsidies from the Government of Estonia financial situation could be much worse in a majority of Kirde-Eesti’s municipalities (see Annex 6). Financial subsidies accounted for 45-55 percent of total municipal incomes in Narva, Kohtla-Järve and Sillamäe, thus underlining the fact that either the cities’ economic basis is insufficient to sustain financially independent existence of these municipalities or, more probably, that Estonian tax-sharing arrangements do not leave enough revenues in the municipal coffers and the Government has to subsidize them heavily. However, the dynamics of change in 2003-2012 also suggest that the dependence on financial subsidies shrank somewhat in Kohtla-Järve and Sillamäe, while in Narva it remained almost at the level of 2003.
Other institutions supporting local and regional development Apart from state and municipal authorities there are a number of governmental and non- governmental organizations, which are devoted to promoting regional development. These are the Enterprise Estonia (http://www.eas.ee),18 Ida-Viru Enterprise Centre (http://www.ivek.ee), Ida-Viru’s logistics and business parks (http://www.ivia.ee), Estonian Chamber of Commerce and Industry (http://www.koda.ee), Estonian Investment and Trade Agency (http://www.investinestonia.com), Estonian Credit and Export Guarantee Fund (http://www.kredex.ee) and Narva Business Centre (http://www.nbas.ee). Local and regional development is also promoted by the following educational
17 Financial prosperity of these sparsely populated rural municipalities rests on the fact that they receive compensations from companies mining shale on their territories. 18 This is a state agency, subordinated to the Ministry of Economy. Its prime task is to support regional development through allocation of grants and subsidies from national and EU sources (interview with Tanel Rebane, 24 September 2013).
14 establishments: the Narva College of the University of Tartu, Viru College of the Tallinn University of Technology, the Kohtla-Järve Branch of the Tallinn School of Medicine, as well as three vocational schools.19
2. Trajectories of economic development and structural change, social cohesion 2.1. How economic performance of the region can be assessed? Economic development trajectory of Kirde-Eesti can be divided into five periods, each of which is characterised by its own dynamics and patterns of change. The first period, from 1989 till 1991, can be called the pre-independence downturn, when Estonia was still part of the Soviet Union. It was the time, when the Gorbachev administration tried to resolve economic problems of the USSR through allowing its constituent republics to become more independent economically from Moscow. In line with this strategy, Estonia was allowed to implement her own programme of semi-autonomous economic development in 1988, which was entitled “Isemajandav Eesti” (also known as “republican self-accounting” or, in Russian, “regional’nyi khozraschet”). At this time the economy experienced a gradual decline, which was exacerbated by increasing inflation and the rupture of economic ties between enterprises within the framework of the socialist planning economy. Directive planning was abolished, while institutions of free market were still at an embryonic stage of their development. As a result, enterprises could not easily adapt to this situation and were forced to cut down their output. Although statistical data on Kirde-Eesti’s GDP for these years are not available, some other indicators depict this economic downturn quite clearly (see Figure 6 and Table 10).
Figure 6. Total number of employed persons in Kirde-Eesti, thousand
140
120
100
80
60
40
20
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1989 Source: Statistics Estonia, 2013b
19 The fourth university, Russian-language ECOMEN, which focussed on economics and business studies, lost its licence in summer 2013 (“Studenty Ecomen smogut prodolzhit’ obuchenie v vysshei shkole Mainor,” 20 June, 2013, Postimees, http://rus.postimees.ee/1275766/studenty-ecomen-smogut-prodolzhit-obuchenie-v-vysshej- shkole-mainor).
15
Table 10. Production of selected industrial goods in Estonia*
1985 1990 1995 2000 2005 2009 2010 2011
Electricity, GWh 17685 17181 8725 8510 10201 8777 12962 12892 Oil shale, million tonnes 26,4 22,5 13,3 11,7 14,6 14,9 17,9 18,7 Shale oil, thousand tonnes n/a n/a n/a 238,0 367,4 489,3 524,3 559,9 Mineral fertilizers, thousand tonnes 243,5 215,5 56,1 38,0 53,9 0,0 0,0 0,0 Fabrics, million square metres 237,8 213,4 93,8 126,4 83,5 16,2 10.4 0.5 * - These goods are mostly produced in Kirde-Eesti. Source: Statistics Estonia, 2013b
The second period started in 1991, when the Soviet Union collapsed and Estonia regained her independence, and lasted till 1995. In 1992 Estonia introduced her own currency, the kroon, which was initially pegged to the Deutsche mark, and started to implement a neoliberal economic strategy in accordance with the Washington consensus. This strategy had four pillars: economic liberalization, financial stabilization, privatization, and structural and institutional reforms. During this period Estonia has laid down the foundations of a free market economy. But at the same time the economy experienced a steep decline. For instance, the number of employed persons in Kirde-Eesti fell from 118.1 thousand in 1991 to 86.0 thousand in 1995, i.e. it shrank by 27.2 percent in just four years (Statistics Estonia, 2013b). The main branches of the regional economy – the chemical and textile industries, shale mining and generation of electricity – downscaled their output and drastically cut their personnel. This led to a sharp rise in the unemployment rate, which reached 14.6 percent in 1995 (see Figure 7). The strategy of Estonianization forcing Russian-speaking residents either to leave the country or to assimilate was met with strong resistance in Kirde-Eesti. In 1993 Narva and Sillamäe held a referendum demanding a certain degree of autonomy for these two cities. A majority of voters supported this demand, but shortly afterwards a state court declared this referendum illegal.20
Figure 7. Unemployment rate in 1993-2012
30
25
20
15
10
5
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Estonia as a whole Kirde-Eesti
Source: Statistics Estonia, 2013b
20 “My khoteli zhit’ kak vse v Estonii, no chut’-chut’ luchshe,” 18 July 2013, http://rus.delfi.ee/archive/print.php?id=66462936.
16
By 1996 the liberal economic strategy of Estonian Government started to bring about some positive results. The macroeconomic situation has been stabilized, most enterprises were privatized, strategic investors were attracted, the economy was gradually internationalized, and, as a result, economic growth was resumed (Erixon, 2008). The third period, spanning from 1996 till 2004, can be named the period of pre-accession growth. Negotiations about Estonia’s accession to the EU were started in 1998. Since then, the logic of economic reforms and policies was dictated by the need to meet the requirements for the accession. Correspondingly, Estonia continued her liberal economic course, coupled with strict austerity in the field of public finance. In Kirde-Eesti, however, economic recovery was rather modest. For instance, during 1996-2004 the average annual GDP growth rate was 2.8 percent in Kirde-Eesti against 6.8 percent in Estonia as a whole. Moreover, economic growth did not alleviate the problem of unemployment. On the contrary, the unemployment rate continued to grow and reached 21.1 percent in the year 2000. Then, it stabilized approximately at 18 percent, which was still notably higher than the national average (Statistics Estonia, 2013b). In 2004 Estonia joined the EU, and the fourth period – the period of faster post-accession growth – was started. Estonia received substantial financial assistance from the EU, which speeded up her economic growth. The country also attracted major foreign investments and started to implement large infrastructure projects. One of such projects was the construction of a new seaport in Sillamäe. However, again, the rates of GDP growth in Kirde-Eesti were smaller than the national average. For instance, the average GDP growth rate was 6.9 percent in 2004-2007 in Kirde-Eesti, while the national average was 8.2 percent per annum. The unemployment rate shrank to 9 percent in Kirde- Eesti, which was its lowest level since 1993 (Statistics Estonia, 2013b). The last, fifth, period started in 2008, when economic growth was halted with the beginning of the global economic crisis. In 2008-2009 Estonian GDP fell by 17.6 percent. In Kirde-Eesti it dropped by 25.2 percent over the same period. Since 2010 the economy has started to grow, but in 2012 the regional GDP was still smaller than in 2007. The unemployment rate grew again and reached its maximum level of 25.8 percent in 2010. Then it subsided, but it 2012 it was still two times higher than its pre-crisis level (Statistics Estonia, 2013b). It should be also mentioned that in 2010-2012 Kirde-Eesti received large investments in its power plants and in the production of shale oil (see Table 11).21 As a result, this region has become a leader in terms of growth of investments in fixed assets among Estonian regions.
21 By 2009 the oil price reached 70 US dollars per barrel – the level at which shale oil production has become profitable in Estonia, and major investments have started to flow into this industry, thus improving this region’s economic performance and boosting its export capability (“Oil gives energy independence, jobs and prosperity,” 10 June 2013, https://www.energia.ee/en/blogi/-/blogs/2013/06/10/oli-toob-energiasoltumatuse- tookohad-ja-oitsengu).
17
Table 11. Investment in fixed assets (including financial leasing) of enterprises with 20 or more persons employed
2005 2006 2007 2008 2009 2010 2011 Growth, 2005- 2011, % Million euro: Estonia as a whole 1510 1896 2279 2082 1383 1247 1891 25,2 Kirde-Eesti 145 185 263 226 170 220 411 183.8 As percentage of GDP: Estonia as a whole 13,5 14,2 14,2 12,8 10,0 8,7 11,7 - Kirde-Eesti 16,6 18,4 21,5 17,1 16,3 18,6 31,0 - Per employee, thousand euro: Estonia as a whole 5,4 6,4 7,5 6,9 5,4 5,3 7,7 - Kirde-Eesti 5,0 6,4 9,2 8,5 8,0 11,9 21,8 - Share of Kirde-Eesti in Estonian total investment in fixed assets, % 9,6 9,8 11,5 10,9 12,3 17,7 21,8 - Source: author’s calculations on the basis of data from Statistics Estonia, 2013b
Kirde-Eesti has also benefited greatly from investments on account of EU structural funds and Estonian national funds. Table 12 shows that Kirde-Eesti’s share in investment funding from EU and national sources was relatively low until 2009. But since 2009 these investments have tripled and remained at this level in subsequent years. Probably, this was a response to the fact that in 2008- 2009 Kirde-Eesti’s economic decline was deeper than in Estonia as a whole, and Estonian Government wanted to stimulate the regional economy by increasing investments on account of EU and national funds. It is also important that only as late as since 2010 the Government has begun to support such economic policy measures as the development of greenfield industrial parks in Kirde- Eesti (see Annex 7). Nonetheless, this region has not fully utilized the opportunities to attract more investments on account of national and EU structural funds. Thus, Narva has rejected a proposal to build, mainly on account of EU funds, a much-needed viaduct connecting two parts of the city.22 Likewise, Narva has rejected the project of establishing a new “technical park” in this city (on the territory of the former Baltiets plant), despite the fact that the Government of Estonia was ready to contribute one million euro to this project, while the city’s contribution would be 1.3 million euro.23 It should be noted that Table 12 does not include the substantial money, which Kirde-Eesti has received from the EU Cohesion Fund, the ENPI CBC EstLatRus Programme, the pre-accession Phare
22 “Peeter Tambu: Ya ne gotov terpet’ i dal’she, kogda na tebya orut gde ugodno i kto ugodno,” 13 November 2013, Viru Prospekt, http://www.prospekt.ee/index.php?option=com_content&view=article&id=9131:2013- 11-13-12-38-54&catid=37:. 23 “Narvskaya oppozitsiya ne progolosovala za dopolnitel’nyi byudzhet,” 24 July 2013, Viru Prospekt, http://www.prospekt.ee/index.php?option=com_content&view=article&id=8285:2013-07-24-06-28- 19&catid=: and “Narva teryaet neispol’zovannye vozmozhnosti,” 26 September 2013, Narvskaya Gazeta, http://www.gazeta.ee/?p=33879. Reportedly, this project has failed because municipal officials, responsible for its implementation, demanded kickbacks from the enterprises, which have already operated on the territory of this would-be technical park. But the enterprises were reluctant to pay the bribes (“O chem umalchivaet tsentristskoe pravlenie Narvy,” 1 October 2013, http://www.stena.ee/blog/o-chem-umalchivaet-tsentristskoe- pravlenie-narvy). Although this story has become public, the police have not launched an investigation of this case, which suggests that they could not find sufficient evidence. It was also much telling that this story was leaked to the press less than three weeks before municipal elections, obviously with political purposes.
18
Programme and from sales of Estonia’s CO2 quotas. For instance, the Cohesion Fund has invested some 41,3 million euro in reconstruction of Narva’s water treatment and supply systems.24 Similar projects have been implemented in other municipalities of Kirde-Eesti, e.g. in Sillamäe and Narva- Jõesuu. The money earned by selling Estonia’s CO2 quotas has been invested in renovation of several schools and kindergartens. The ENPI CBC EstLatRus Programme has invested substantial financial resources in tourism promotion in Narva and in the neighbouring Ivangorod (see Annex 7). The Phare Programme has contributed to the remediation of the Sillamäe’s radioactive tailings pond.25 Needless to say, that all these projects have stimulated construction activity and the production of construction materials in Kirde-Eesti.
Table 12. Allocation of investments to Kirde-Eesti from the European Regional Development Fund (ERDF), European Social Fund (ESF) and from Estonian national programmes
2004 2005 2006 2007 2008 2009 2010 2011 2012
Contribution from ERDF, ESF and Estonian national sources, million euro 2,3 3,9 4,5 1,1 5,0 15,9 15,2 18,0 14,7 Total cost of approved investment projects, million euro 4,5 5,5 8,3 1,6 10,1 26,5 24,0 28,7 18,2 Number of approved projects 173 179 234 99 76 108 119 86 62 Share of Kirde-Eesti in Estonian total (%): - Contribution from ERDF, ESF and Estonian national sources 8,7 7,3 7,0 3,1 4,8 6,5 9,8 14,6 15,5 -Total cost of approved projects 9,8 6,6 8,2 3,0 5,9 6,8 9,0 14,5 12,5 - Number of approved projects 11,9 9,2 11,2 8,3 7,1 4,9 3,8 4,4 4,0 - Population 12,9 12,9 12,8 12,8 12,7 12,7 12,6 12,5 12,4 - GDP 7,7 7,8 7,5 7,6 8,1 7,5 8,2 8,2 8,2 Source: author’s calculations on the basis of Enterprise Estonia, 2013
2.2. Are there any significant remnants of former socialist system? Estonian legislation and institutions have been thoroughly reformed in order to meet the requirements of a liberal market economy, as well as norms and standards of the EU. As a result, it is hardly possible to find any institutional vestiges of the socialist economic system in Kirde-Eesti. At the same time, the regional economic structure with its emphasis on the energy and shale mining, which was developed during the Soviet period, continues to dominate the regional economy today. The so- called “Soviet mentality” (i.e. exaggerated expectations in respect of the state, which “must provide”
24 “Interv’yu s A. Voronovym. Bolee odnogo milliarda kron – v Narvu,” 13 September 2013, Narva Leht, http://www.narvaleht.eu/narva/society/milliard-v-narvu.html. Reportedly, the Government of Estonia did not support this project initially. The Narva Administration hired a leading firm of lawyers, Glickman & Partners, and only their lobbying efforts have helped the city to get funding for this project (interview with Mikhail Stalnukhin, 24 September 2013 and “Glikman & Partnerid nõustas Narva Vee suurprojekti,” 15 June 2009, http://www.blslawfirm.com/et/bls-estonia/uudised/325). 25 “Remediation of Sillamäe’s radioactive tailings pond completed,” 28 October 2008, Press release, Estonian Ministry of the Environment, http://www.envir.ee/1083729.
19 everything, together with almost absolute absence of “entrepreneurial spirit”) can be also mentioned here. According to some sources, this type of mentality is particularly widespread in Kirde-Eesti.26
2.3. What is the direction of structural changes in the region? Shale mining, generation of electricity at shale-fired power plants and production of shale oil have remained the backbone of the regional economy, while such previously important industries as the production of fabrics, furniture and mineral fertilisers have disappeared almost completely. For instance, the Kreenholm Manufaktura, the largest Estonian textile factory, which employed some 12 thousand workers in the late 1980s, was acquired by a Swedish investor, but went bankrupt in 2010. Now only a few small firms continue to work in this industry. The Baltiets plant produced electronic equipment for military and civil purposes. In 1985 it became the first enterprise in the USSR, which started to produce personal computers.27 At that time this company employed 7 thousand people. But with the collapse of the Soviet Union it went bankrupt quickly, was reorganized in 1993 and then turned into a smaller metal-working enterprise with Finnish investments. Nitrofert, the only Estonian producer of mineral fertilisers, has been bought by an Ukrainian investor, but its production activity was stopped in 2009. In late 2012 Nitrofert started to work, but after a few months it was stopped again, because of its negative profitability.28 The main sectors demonstrating positive development dynamics during the last years have been the following: Generation of electricity: a new power plant is under construction now and one more is at a planning stage;29
Production of shale oil: several new factories have been built and more are expected to be put into operation in near future;
Construction: large EU-funded projects led to strong growth in construction and reconstruction of public buildings, roads and urban utilities (especially water supply and treatment facilities); Transport and logistics: the Sillamäe seaport has grown steadily since its opening in 2005, and new warehouses near Narva have been built by several Russian logistic companies; Tourism and retailing have demonstrated strong growth: a number of new spa-hotels and major shopping centres were opened in 2009-2012. However, although these economic branches have demonstrated positive dynamics in terms of value added (see Table 13), many of them have reduced the number of their employees. Between 2000 and 2011 the labour force was cut dramatically in such sectors as shale mining, generation of
26 Interview with Andres Noormägi, 26 September 2013. 27 “Valerii Ivanovich Chetvergov,” 10 December 2013, http://www.baltija.eu/content/8745. 28 “Nitrofert prodolzhaet stoyat’ bez dela,” 18 November 2013, Põhjarannik, http://sp.pohjarannik.ee/archives/17605. 29 However, Estonia’s State Audit Office has recognied the decision to build the new power plant a mistake. According to Tarmo Olgo, the Chief Auditor, this plant ”would not make electricity price cheaper and won’t give Estonia higher electric energy security. It is not economically feasible, it certainly needs subsidizing; the electricity produced there will reach the free market only when the demand is very high... Most of the time it might stay idle.” (“Eesti Energia’s major investment was based on inadequate information,” 10 October 2012, http://www.baltic-course.com/eng/energy/?doc=64239).
20 electricity and manufacturing. The public sector has decreased the number of employees in public administration, education and healthcare, though less sharply (see Annex 1). This has been done in line with decreasing demand on part of the shrinking population of Kirde-Eesti. Given this dynamics, it is not surprising that despite economic growth, the problem of unemployment has remained very acute for this region. It should be noted that industrial parks have played a notable role in economic restructuring of Kirde- Eesti, especially in the cities of Narva and Sillamäe. Some industrial parks have emerged on the basis of premises of old industrial enterprises: Kreenholm Manufaktura, Baltiets, the Narova furniture factory, the Nakro tannery, and Narva Bark, a major producer of concrete constructions, all situated in Narva. Although today the total amount of their combined output does not match the amount of output their predecessors produced in the late 1980s, these industrial parks operate as convenient and flexible environments for the development of small and medium-sized industrial firms. For instance, the Intec-Nakro industrial park has been established on the basis of a tannery, which has downscaled its production activity and started to rent out unused premises. Now this park accommodates 42 firms with the annual combined turnover of 66 million euro and the total labour force of 1200 employees. These firms operate in different economic branches. Apart from the tannery, still remaining one of the largest tanneries in the Nordic countries, there are an Estonian- Swedish company making plastic boats, a Swedish company producing electronic components, an Estonian firm assembling motorcycles and restoring vintage cars, an Estonian-Swedish company manufacturing textile goods under the Kreenholm brand name, a Russian company producing industrial welding robots, a Russian enterprise making blood transfusion equipment, a Finnish company producing work clothes, and others.30
Table 13. Dynamics of gross domestic product in Kirde-Eesti, million euro
1995 2000 2005 2010 2012 Nominal
growth in 2000-2012, % Agriculture, forestry and fishing 10,7 11,1 13,4 16,5 29,2 164,1 Industry and construction 137,6 223,7 401,6 556,9 706,7 216,0 - mining and quarrying; manufacturing 99,6 145,0 225,8 300,4 436,4 200,9 - electricity and water supply 25,3 61,5 136,7 223,6 215,2 250,1 - construction 12,8 17,2 39,1 32,9 55,2 220,9 Services 123,4 240,7 358,4 455,5 509,2 111,5 - services of the business economy 80,8 166,7 235,3 300,0 349,4 109,5 - public administration, education, health; other services 42,6 74,0 123,1 155,6 159,8 116,0 Gross value added, in current prices 271,7 475,5 773,4 1028,9 1245,2 161,9 Net taxes on product 36,7 56,6 100,5 150,7 185,2 227,4 GDP at market prices 308,4 532,0 873,9 1179,7 1430,4 168,9 Real growth of GDP, 1995 = 100 100,0 100,8 127,0 122,9 139,9 - Source: Statistics Estonia, 2013b
30 “Narvskii prompark: ot rybatskikh lodok do aviatsii,” No. 14, 2011, Infopress, http://www.inforing.net/publications/infopress/newsnarva.php?ELEMENT_ID=32466, and “Sshitaya v Narve rubashka rodom s Russkogo severa,” 30 April 2013, Postimees, http://rus.postimees.ee/1219926/sshitaja-v- narve-rubashka-rodom-s-russkogo-severa.
21
The former Kreenholm Manufaktura houses US-owned Amphenol ConneXus OÜ producing cables and employing 400 workers.31 It also accommodates Swedish-owned company SKS Estonia Textile OÜ manufacturing industrial cords.32 Estonian company Waldchnep OÜ is also based here. It produces stators for electric engines, as a subcontractor of Finnish company Konecranes. The Waldchnep’s factory has been relocated to Narva from Tallinn, because of lower production costs in Narva.33 The Swedish owner of the premises of the former Kreenholm Manufaktura harbours grandiose plans of turning this area into a major residential and commercial district (the Narva Gate project).34 But at present they look rather unrealistic.35 The premises of former Baltiets are occupied by a number of metal-working firms, of which the largest are Finnish Metalliset and Fortaco, as well as producers of electronic goods and components and an enterprise with German investments making high-precision medical instruments, implants and car parts.36 The former furniture factory Narova accommodates some 30 firms employing approximately 500 workers. Among them it is possible to name NTT, one of the largest European producers of tennis rackets and MMN, a large producer of mattresses for furniture.37 Lastly, there is an industrial zone evolving on the territory of the Narva Bark factory producing concrete blocks for construction purposes. This zone accommodates 22 firms, which altogether employ approximately 300 workers. Among these firms the largest one is a branch of APL Production, a company from Tallinn manufacturing complex metal constructions.38 Additionally, three industrial parks have been established on greenfield sites: the Sillamäe seaport and a free zone, a private industrial park near Narva and, more recently, a municipal park also near Narva. The Sillamäe seaport has been founded by Tiit Vähi, who was twice Estonian Prime-Minister in the 1990s, but then retired from his political career and devoted all his energy to the development of the seaport and Silmet, a nearby plant producing rare earth metals from imported ores. Vähi has established the seaport together with two Russian investors, Andrei Malov and Evgenii Katkov, who now own 50 percent of its shares.39 In order to speed up the port’s development, Vähi has managed to persuade Estonian Government to establish a Free Customs Zone in the port.40 From the very beginning the port has been surprisingly successful. Its turnover grew steadily at the time when other Estonian ports experienced a decline because of significant cuts in shipments of Russian transit cargo and despite the global economic crisis and strong competition on part of new
31 It also employes some 200 workers in Tallinn (“Narvskii ‘Amfenol’ – ot meditsyny do aviatsii,” 12 November 2012, http://www.stena.ee/blog/narvskij-%C2%ABamfenol%C2%BB-ot-meditsiny-do-aviatsii). 32 “Narvskoe predpriyatie proizvodit tekhnicheskie niti,” 25 September 2012, http://rus.delfi.ee/archive/print.php?id=65012216. 33 “Pryzhok narvskoi gazeli,” 11 June 2012, Den’ za Dnem, http://www.dzd.ee/872308/pryzhok-narvskoj-gazeli 34 “Narva mozhet stat’ Gonkongom,” 19 September 2012, Postimees, http://rus.postimees.ee/977198/narva- mozhet-stat-gonkongom. 35 Interviews with Mikhail Stalnukhin (24.9.2013) and Rein Aidma (25.9.2013). 36 “Rabota Miroslava Pen’kovski v Narve mozhet povliyat’ na vsyu Estoniyu,” 17 December 2011, Narvskaya Gazeta, http://www.gazeta.ee/?p=23301. 37 “Narva kuet promparki,” 10 February 2009, Delovye Vedomosti, http://www.dv.ee/?PublicationId=71e5d1ce- edd3-4c8a-9136-98145d6c7414. 38 “Prochnyi fundament dlya zavoda Narva Bark i arendatorov,” No. 49, 2012, Infopress, http://www.inforing.net/publications/infopress/newsnarva.php?ELEMENT_ID=34316. 39 “Londonskii sud o Gennadii Timchenko,” 23 December 2010, Forbes (Russian edition), http://www.forbes.ru/print/node/61453. 40 “Free Zone”, no date, http://www.silport.ee/154eng.html.
22
Russian Baltic seaports.41 Moreover, the Sillamäe seaport has managed to attract two major Russian chemical companies, Eurochem and Akron, which have erected their terminals here.42 The port specializes on handling chemicals, mineral ores, and Ro-Ro cargo. Soon, a container terminal should be put into operation. The port also plans to build a terminal for handling liquefied natural gas.43 Thanks to this seaport, Kirde-Eesti’s foreign trade turnover has increased dramatically (this is discussed in more details in section 3.3). Tiit Vähi has also managed to revive Silmet, which has been turned into a successful enterprise currently employing 550 workers. In 2011 he sold Silmet to US firm Molycorp, which continued its modernization and expansion.44 In addition, an industrial zone has been set up nearby, and a number of industrial companies have been attracted to it, including the Russian producer of water filters Aquaphor and Estonian AS Ecometal recycling electric batteries and accumulators. In summer 2013 three Russian investors also proposed to build an oil refinery in this zone at a cost of 75-80 million euro.45 The second private greenfield industrial park, called the Narva Business Park, has been established in the Vaivara municipality on the border with the city of Narva. This project was supported by Enterprise Estonia, which invested 1.9 million euro in its infrastructure, on account of money from the ERDF.46 The owner of the park expected that Narva Vesi, the Narva’s municipal water company, would supply the park with water. But Narva Vesi refused.47 Probably this decision was motivated by the fact that at the same time the city of Narva started to develop its own greenfield industrial zone (see below) and did not want to help a potential competitor. As a result, the owner had to find a more expensive solution. So far this park has not managed to attract any tenants because of its relatively high prices.48 The third greenfield industrial park has been recently established on the outskirts of Narva. The Narva City Administration proposed to set up the park in the mid-2000s. But initially the Government of Estonia rejected Narva’s request to donate a plot of unused state land to this park. Reportedly, government officials consulted an owner of an already existing industrial park, who spoke out against the idea of a new park, which could become a competitor for him.49 After that, negotiations lasted several years, and only in 2009 it was decided to set up the Ida-Virumaa Industrial Areas Development Foundation (known as SAIVTA), which would organize the creation and development of
41 “SILPORT Presentation,” no date, http://www.silport.ee/780eng.ppt. 42 Initially, Akron tried to build its terminal in Ust-Luga, a nearby new seaport on the Russian side. But it quickly lost confidence in the port development company and decided to invest in Sillamäe instead, see: “Ekspert o pereorientatsii gruzov na rossiiskie porty: Estoniya vystupila katalizatorom,” 23 May 2007, http://belarus.regnum.ru/news/latvia/832193.html. 43 “LNG terminal planned in Sillamäe,” 11 March 2013, http://news.err.ee/economy/dd32ae02-d395-4292- ae1f-6eb566bf57eb. 44 In 2011 Molycorp-Silment became the largest producer of niobium in the world (“Molycorp-Silmet expands, becoming largest producer of niobium,” 27 January 2012, http://news.err.ee/Economy/d3d75492-899d-4af7- a7fd-da9e1c2c813a). 45 “Sozdateli sillamyaeskogo neftezavoda delali gorozhanam zamanchivye predlozheniya,” Infopress, No. 36, 2013, http://www.inforing.net/publications/infopress/newssilla.php?ELEMENT_ID=39491. 46 “Narva Business Park,” no date, http://www.narvapark.ee/en. 47 “Otnosheniya vlastei Narvy i novogo promparka isportil vodnyi vopros,” 25 July 2010, http://www.seti.ee/modules/news/article.php?storyid=38522. 48 Interview with Tarmo Tammisto, 23 September 2013. 49 Interview with Mikhail Stalnukhin, 24 September, 2013.
23 industrial parks not only in Narva, but also in Jõhvi, Kiviõli and Kohtla-Järve.50 A plot of land has been allocated to the Narva Industrial and Logistic Park, and Enterprise Estonia has given a grant, on account of EU structural funds, to equip the park with all types of required infrastructure. By 2012 this work was completed and SAIVTA began to sell the land to prospective investors. Among the first of them it is possible to name two Russian logistic companies, whose warehouses were put into operation in 2013. The Russian producer of water filters Aquaphor has also decided to build its second Estonian factory in this industrial park. As expected, this factory will soon employ more than 300 workers.51 One more noticeable factor contributing to Kirde-Eesti’s economic restructuring has been the growing interest towards this region on part of tourists, particularly those from Russia. For instance, the number of nights spent by Russians in hotels in Kirde-Eesti grew steadily from 17.5 thousand in 2007 to 99.2 thousand in 2012 (see Figure 8). In 2012 the share of Russians in the total number of nights spent in hotels by tourists in this region reached almost 30 percent. This growth could be stronger, but, thanks to Russian mass media and their own first-hand negative experiences, a lot of Russians consider Estonia an unfriendly country and abstain from visiting it.52 Nevertheless, Enterprise Estonia estimates that the number of Russian tourists will continue to grow and be 2.2 times greater in 2020 than it was in 2012, while Russia is regarded as the main target market for Estonian tourism marketing efforts in 2014-2020.53
Figure 8. Nights spent in hotel-type accommodation in Kirde-Eesti in 2004-2012
400000 350000 300000 250000 200000 150000 100000 50000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012
Estonians Finns Russians* Other
* - This includes not only Russians residing in Russia, but also Russians residing in Estonia and in other countries. Source: Statistics Estonia, 2013b
50 “Industry lives in Ida-Virumaa,” http://ivia.ee/index_eng.php?nid=74&pid=2 51 “V Narve letom otkoyut novyi zavod Akvafora,” 28 November 2013, Põhjarannik, http://sp.pohjarannik.ee/archives/17693. 52 “Predprinimatel’: iz-za plokhogo otnosheniya k russkim mnogie rossiyane ne khotyat priezzhat’ v Estoniyu,” 26 November 2013, http://baltija.eu/news/read/34781. 53 “Marketing Estonii natselivayut tochno,” 12 November 2013, Põhjarannik, http://sp.pohjarannik.ee/archives/17525.
24
The tourists can be divided into five groups, according to the purpose of their visit to this region: (1) shopping tourists, who are interested in tax-free goods, (2) clients of spas, situated along the Estonian shore of the Baltic sea, (3) tourists attending major cultural events, such as the annual Narva Bike Festival, the costumed re-enactment of the Narva Battle of the year 1700, Cultural Festival “Creative Pot of Ethnic Cultures” or Bi-Annual International Shopin Competition of Young Pianists, (4) Christian pilgrims visiting the Pühtitsa Orthodox monastery54 and Old Believer settlements on the shore of Lake Peipsi, and (5) temporary workers, mostly from Estonia and other countries of the EU, who are employed at major construction projects in Kirde-Eesti, such as construction of the new power plant. Furthermore, it can be said that Kirde-Eesti has been quite innovative in creating new tourist attractions. Three examples can be mentioned. First, a former open cast Aidu shale mine, situated in the Maidla municipality, has been converted into a major rowing centre, where world-class competitions can take place.55 Second, near the town of Kiviõli a high shale slagheap has been converted into a downhill skiing centre, partly on account of money from EU structural funds. Third, Eesti Energia has developed the Kohtla-Nõmme mining adventure park, a major tourist object showcasing the history, present and future of the oil shale industry.56 These three centres were put into operation in 2012-2013, and it is too early to evaluate their economic impact, which promises to be significant. One more project envisages the creation of a tourist-oriented “park of pyramids” by 2030. One of the pyramids will be the highest in the world – 152 metres. The pyramids will be made of shale ash, vast quantities of which have been accumulated in this region. The project will be funded by Viru Keemia Grupp on account of the money, which this company would otherwise have to pay as fees for environmental damage.57 The increase in tourist demand has stimulated investments in regional tourism infrastructure. Estonian companies with the help of EU support (mainly through the EFRD and ENPI CBC EstLatRus Programme) have played a leading role in tourist infrastructure development. Russian investor Andrei Katkov, a co-owner of the Sillamäe seaport, has invested in construction of a major spa-hotel Noorus.58 Russians have also become active buyers of real estate in Kirde-Eesti’s resort town of Narva-Jõesuu. As a result, this small town has experienced a boom in the field of property development, while property prices here have matched or even exceeded those in Tallinn.59 Growth in tourist arrivals has also stimulated the development of retail shopping centres, and Kirde-Eesti has by far outstripped Tallinn in terms of duty-free sales. For example, in 2012 the share of Narva in total
54 Two years ago this monastery started to organize annual international conferences on Christian pedagogy, which substantially increased the number of visitors to the monastery (“V Kyuremyaeskom monastyre otkrylis’ Vtorye Pyukhtitskie chtenya,” 11 December 2013, http://rus.delfi.ee/archive/print.php?id=67421376). 55 “Aiduskii tsentr vodnogo sporta obrel real’nye cherty,” 16 April 2012, Põhjarannik, http://sp.pohjarannik.ee/archives/11337. 56 Eesti Energia, 2013, Local community development, https://www.enefit.com/local-community-development. 57 “V Ida-Virumaa postroyat samuyu bol’shuyu v mire piramidu,” 18 December 2013, Narva Leht, http://www.narvaleht.eu/idavirumaa/society/samaja-bolshaja-piramida-v-ida-virumaa.html. 58 “V kurortnom gorode ozhivilis’ investory,” 12 February 2013, Postimees, http://rus.postimees.ee/1134606/v- kurortnom-gorode-ozhivilis-investory. 59 It should be noted, however, that foreigners and the “non-citizens” of Estonia are not allowed to buy land in border municipalities. This restriction hinders their investments in property development in this region (“Ekonomii ot administrativnoi reform ne budet. Skoree, vyidet naoborot,” No. 44, 2013, Infopress, http://www.inforing.net/publications/infopress/newyezd.php?ELEMENT_ID=39799.
25 duty-free sales in Estonia was 61 percent or 13.4 million euro, which was much more than in Tallinn.60 The tourism industry could grow much stronger, but several factors have hindered its more rapid development. Firstly, Kirde-Eesti has suffered from a negative image within Estonia. According to several sources,61 throughout the last two decades Estonian mass media cultivated the image of Kirde-Eesti as a criminalized, corrupted, poor and alien for ethnic Estonians region.62 Secondly, during the same period Russian mass media presented Estonia as an unfriendly country, which has continued to violate rights of ethnic Russians. And thirdly, the capacity of the Narva-Ivangorod border-crossing point has been utterly insufficient to satisfy the growing demand, which has led to a situation when travellers by car have to book time for their border crossing in both directions several days in advance. Absence of a border treaty between Russia and Estonia and other problems in their relations have been the reason why this border crossing has not been expanded earlier. Only as late as in September 2013 was it decided to reconstruct and expand it on account of funding from the ENPI CBC EstLatRus Programme providing some 7.4 million euro for this purpose.63 Lastly, it should be noted that in response to high unemployment and low incomes, many inhabitants of Kirde-Eesti have found a source of supplementary income in bringing, both legally and illegally, petrol, cigarettes and alcohol from Russia to Estonia for re-sale, without paying Estonian excise tax. The scope of this activity is difficult to estimate precisely. But according to local sources, a thousand Estonian residents commute to Russia daily for this purpose64 and approximately 450 cars cross the border daily with the sole purpose of bringing cheap Russian petrol back to Estonia for re-sale.65 Most probably, this “business” is controlled by some criminal organization(s), which accumulate the contraband and distribute it through their networks in Estonia and other countries of the EU. They also bribe border officials and find new ways of delivering the goods through the border. Thus, in October 2013 a Senior Constable of the Border Guard Service was arrested and charged with taking bribes and assisting organized smugglers.66 In 2012 the police uncovered an organized network of smugglers, who delivered petrol in trucks across the border for re-sale in Estonia.67 Another case took place in 2004: smugglers built a two-kilometre-long underwater pipeline across river Narova in
60 “Rossiyane pered novym godom otovarivalis’ bol’she v Narve, chem. v Tallinne,” 4 February, 2013, Põhjarannik, http://sp.pohjarannik.ee/archives/14321. 61 Interviews with Tarmo Tammiste (23.9.2013), Vyacheslav Konovalov (23.9.2013), Mikhail Stalnukhin (24.9.2013) and Alexander Efimov (27.9.2013). 62 As a recent example it is possible to name the documentary “Russkie s Voron’ego ostrova” (2012) depicting a number of Russian-speaking residents of Narva beloning to marginalized social groups (i.e. drug addicts and former criminals). According to a review, this film suggests that “Russians have no future in Narva” (“Kinofil’m obidel Krengol’mtsev,” 9 April 2012, Postimees, http://rus.postimees.ee/801336/kinofilm-obidel-krengolmcev). 63 “Pogranpunkt Narva-Ivangorod nakonets smozhet propuskat’ bol’she mashin,” 20 September 2013, Postimees, http://rus.postimees.ee/2058690/pogranpunkt-narva-ivangorod-nakonec-smozhet-propuskat- bolshe-mashin. 64 “Rossiya pomogaet Narve umen’shit’ bezrabotitsu,” 28 June 2012, http://rus.delfi.ee/archive/print.php?id=64604188. 65 “Benzin, tabak, alkogol’ – sposob prigranich’yu vyzhit’?” 25 June 2012, http://rus.delfi.ee/archive/print.php?id=64589506. 66 “Za posobnichestvo kontrabandistam arestovali pogranichnika iz Narva-Jõesuu,” 3 October 2013, http://rus.err.ee/virumaa/92e9210b-fa69-4f39-be6a-a665334b0e0d. 67 “V Ida-Virumaa tamozhenniki presekli nezakonnuyu torgovlyu toplivom,” 13 August 2012, http://rus.delfi.ee/archive/print.php?id=64814436.
26 order to deliver alcohol from Russia to Estonia. This pipeline was discovered pretty soon, and 11 smugglers were put on trial. But on the Russian side none was charged in connection with this case.68 Finally, in 2013 “thousands” of cars were illegally exported to Russia without paying Russian customs duties. The organizers of this scheme hired Kirde-Eesti’s residents, for a very small sum of money, to drive the cars to Russia and pass them over to their accomplices on the Russian side, while pretending at the customs that the cars will be taken back to Estonia. This scheme was uncovered only in October 2013, and none of its organizers has so far been identified.69 Recognizing the problem of smuggling, the Parliament of Estonia adopted amendments in customs regulations, which came into force on 1 December 2013. According to them, now an Estonian resident can bring very small quantities of petrol and alcohol from Russia to Estonia without paying the excise tax only once in a calendar month, not daily as was allowed previously. Tax-free cigarettes can now be brought to Estonia only twice in a calendar month.70
2.4. What external factors have had the most significant impact on regional development? Since 1989 the main external factors, which have exerted the most significant influence on socio- economic development of Kirde-Eesti have been the following:
Gorbachev’s perestroika, the collapse of the USSR and Estonia’s regained independence have dramatically altered the setting in which the development of Kirde-Eesti has taken place.
Neoliberal economic strategy of the newly independent Estonia has led to a sharp contraction in regional employment and output and to profound economic restructuring. Estonia’s citizenship policy has turned a large number of ethnic Russians living in this region into stateless persons, thus depriving them of economic opportunities and some civil rights. Russia’s economic sanctions against Estonia (e.g. double duties on imports from Estonia in 1995- 2004, higher railway tariffs on cargo exported to Estonia, construction of new Russian ports as competitors for Estonian ports) have had a negative impact on the Estonian economy. The process of Estonia’s accession to the EU and post-accession adjustment have made it necessary for enterprises to adapt to EU’s norms and standards, particularly in such fields as environmental safety and production quality. EU membership has facilitated emigration from Kirde-Eesti to other member states of the EU.
68 “Organizatory spirtoprovoda poidut pod sud,” 16 September 2008, http://rus.delfi.ee/archive/print.php?id=19887131. 69 “V Ida-Virumaa organizovali ‘biznes’ po podazhe avtomobilei v Rossiyu,” 31 October 2013, Vedomosti, http://online.vedomosti.ee/article/2013/10/31/v-ida-virumaa-organizovali-biznes-po-prodazhe-avtomobilej-v- rossiju. 70 Interestingly, the idea to introduce these restrictions was voiced by Alexander Tsvinev, Deputy Mayor of Russian Ivangorod as early as in 2010. He noted that sales of alcohol beverages grew twice in Ivangorod in 2008-2009, and suggested that it were Estonians who bought up the beverages for smuggling and illegal resale in Estonia. He was also against the decision of the Federal Government of Russia to grant visa-free entry to Russia for holders of Estonian ”non-citizen” passport holders (“Narvityane skupayut v Ivangorode vodku,” 20 October 2010, Postimees, http://rus.postimees.ee/329193/narvitjane-skupajut-v-ivangorode-vodku).
27
EU’s energy and environmental policies have both discouraged and encouraged the development of shale-based industries.71
Relatively high global oil prices have stimulated the production of shale oil.
The global economic crisis, which began in 2008, has led to a dramatic fall in regional economic output and to a new rise in unemployment.
2.5. How the situation on regional labour market does affect social cohesion? Kirde-Eesti has had one of the highest unemployment rates among Estonian regions. The dramatic fall in the number of industrial and public sector jobs in the 1990s was only partially compensated by creation of new jobs during the subsequent decade. As a result, a lot of the unemployed have migrated to other regions of Estonia and abroad (especially to Russia and Finland). Others have started to commute to work in Tallinn and in the nearby Russian towns. Thus, some of them work at the Ericsson’s factory in Tallinn, which actively recruits workers in this region.72 Likewise, some 200 residents of Kirde-Eesti with Russian citizenship have found a job at the factory of South Korean Yura Corporation producing car parts in Ivangorod, on the Russian side.73 Additionally, a lot of Russian- speaking students, mainly from Narva, study at Ivangorod’s branches of St. Petersburg’s universities.74 Quite recently, Russia has also begun to offer jobs in St. Petersburg and in the Leningrad region to Russian “non-citizens” residing in Estonia.75 At the same time a lot of the unemployed have simply preferred to rely on very modest welfare subsidies and informal incomes they earned through shuttle trade and smuggling. Availability of relatively easy sources of informal incomes has stimulated long-term unemployment: a half of the unemployed had no job for more than a year in Kirde-Eesti, and a half of them were living in Narva.76 Paradoxically, but now new enterprises experience a shortage of labour resources in Narva: it has become increasingly difficult to find suitably qualified and experienced industrial workers in the city.77 Young people prefer to study for a university degree, while older industrial workers have
71 On the one hand, the European Commission has allowed Estonia to use her shale-fired power plants after 2016 and to finance the construction of the new shale-fired power plant near Narva on account of sales of Estonia’s CO2 quotas. On the other hand, Eesti Energia and Viru Keemia Grupp have been forced to postpone realization of their plans to begin the production diesel fuel from shale oil because of the uncertainty concerning requirements of EU’s forthcoming directive on fuel quality. Likewise, the decision to build a second new power plant near Narva has been postponed because of “the continued unclarity as to the future of the European energy and climate policy” (“Decision on second new power plant to be taken in 2014,” 24 January 2013, Postimees, http://news.postimees.ee/1114422/decision-on-second-new-power-plant-to-be-taken-in- 2014). 72 “Tallinnskii zavod Ericsson nabiraet lyudei v Ida-Virumaa,” 4 August 2011, http://rus.err.ee/v/virumaa/a0decbb9-063e-45c9-aaa1-73e96f7bb176. 73 “Rossiya pomogaet Narve umen’shit’ bezrabotitsu,” 28 June 2012, http://rus.delfi.ee/archive/print.php?id=64604188. 74 “Vesennii podarok sootechestvennikam: pridetsya chasto menyat’ pasporta,” 9 February 2013, http://rus.delfi.ee/archive/print.php?id=65653054. 75 “Russkikh negrazhdan iz Pribaltiki pozovut na rabotu v Sankt-Peterburg i Lenoblast,” 8 November 2013, http://baltija.eu/news/read/34438. 76 “Trudoustroistvo lyudei starshe 50 let stalo aktual’noi problemoi v Narve,” 23 December 2013, Postimees, http://rus.postimees.ee/2640638/trudoustrojstvo-ljudej-starshe-50-let-stalo-aktualnoj-problemoj-v-narve. 77 Interview with Anne Veevo, 23 September 2013.
28 either already left the labour market or found a job elsewhere. The level of wages is not high enough to attract workers from other EU countries, while the procedures to invite workers from other countries are too complicated. Even highly skilled specialists are often denied residence permits.78 In terms of the level of personal incomes, Kirde-Eesti has been among the poorest regions of Estonia and a relatively high proportion of the population lives here “at the risk of poverty”. Although personal incomes grew during the last two decades, the gap between the national average and Kirde- Eesti’s personal income has widened. This situation is well known to the general public, thanks to Kirde-Eesti’s mass media, which do not miss an opportunity to stress this difference. The local Russian-speaking mass media also often attract public attention to the fact that in Estonia only ethnic Estonians are allowed to occupy top positions in state ministries and public companies: there is the so-called “glass ceiling” above which ethnic Russians cannot rise in their careers.79 Indeed, statistical data confirm that there is a significant gap in personal incomes of ethnic Estonians and non-Estonians (see Figure 9). This situation breeds inter-ethnic alienation undermining social cohesion.
Figure 9. Disposable income of ethnic non-Estonians as percentage of disposable income of ethnic Estonians
120
100
80
60
40
20
0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Estonia as a whole Kirde-Eesti
Source: Statistics Estonia, 2013b
It can be also noted that there is a certain “mental gap” in attitudes of ethnic Estonians and Russians living in Kirde-Eesti toward economic development. It seems that Estonians, who are concentrated mainly in rural areas, tend to emphasize the values of clean environment, traditional rural life and
78 Reportedly, in Narva a Chinese restaurant has had to close down because it could not get a residence permit for its Chinese chef (interview with Vyacheslav Konovalov, 23.9. 2013). Likewise, a Russian-owned company producing industrial robots in Narva could not get a work permit for its chief specialist (“Narvskomu proizvoditelyu robototekhniki trebuyutsya inzhenery,” 28 March 2013, http://rus.err.ee/virumaa/dfc2e14c- 460e-4fdf-8090-2948115356b3). 79 Indeed, in 1991-2009 Estonia had 128 ministers of which only one was a non-Estonian (“Chto u Palo, to propalo,” 15 May 2010, Den’ za Dnem, http://www.dzd.ee/263135/chto-u-palo-to-propalo), see also: “Steklyannyi potolok dlya russkikh: kak ego razbit’,” 28 August 2013, http://rus.delfi.ee/archive/print.php?id=66646667.
29 the development of agriculture and the food industry.80 In contrast, Russians seem to prefer to develop all economic branches, including such environmentally hazardous industries as shale mining, production of shale oil and chemicals, and the development of mass tourism.81 Sometimes this difference in approaches poses a challenge for economic development. This can be illustrated with a couple of examples. The city of Narva proposed to the neighbouring rural Vaivara municipality to participate in construction of a pier on river Narova, on the territory of Vaivara. This pier could be used as a convenient stop for tourist ships sailing between Narva and Narva-Jõesuu, and present a good opportunity for Vaivara to develop tourism. But Vaivara has declined this offer, and not because of lack of money, but rather because of their reluctance to deal with problems, which an inflow of tourists could potentially create.82 Likewise, Vaivara has blocked attempts of Narva’s entrepreneurs to develop the Narva airfield, which is situated on the territory of Vaivara.83 Apparently, the Vaivara municipal administration is satisfied with the level of well-being of its inhabitants and with the generous financial compensations it receives from shale mining companies. As a result, it does not hesitate to block Narva’s developmental initiatives.
2.6. How accessibility of different public services can be assessed? During the last two decades the population of Kirde-Eesti shrank dramatically: from 221.1 thousand in 1989 to 155.9 thousand in 2011. This demographic trend necessitated a downscaling of public services, especially in such fields as healthcare and education. For instance, the number of physicians working in Kirde-Eesti fell from 527 in 1999 to 437 in 2007, while the number of medium-level medical personnel fell from 1321 to 1058 over the same period. The number of hospital beds shrank from 1270 in 1999 to 849 in 2007, and the number of inpatients fell from 39.1 thousand in 1999 to 29.1 thousand in 2007 (Statistics Estonia, 2013b). On the whole, however, in terms of accessibility the situation has improved in recent years: relatively fewer patients did not get medical help in 2012 comparing to 2004. It is also noteworthy that the gap between Kirde-Eesti and Estonia as a whole in terms of accessibility of medical services has narrowed during this period (see Annex 8). The most acute problem remains the shortage of specialized doctors and medium- and low-level medical personnel.84 In the field of education the situation has been quite similar to that in public healthcare. Given the fact that since 1990 the number of young people has shrunk by a half (from 62.6 thousand in 1990 to 43.3 thousand in 2000 and then to 31.4 thousand in 2011), it is not surprising that social services for them have been also scaled down. Thus, the number of kindergartens fell from 69 in 2000 to 63 in 2011, while the number of schools shrank from 55 in 2000 to 44 in 2011 (Statistics Estonia, 2013b).
80 Interviews with Rein Aidma (25.9.2013) and Andres Noormägi (26.9.2013). 81 However, this does not mean that there are no influential environmental organizations among local Russian speakers. On the contrary, quite often such organizations create problems for new industrial projects, see for example “Kohtlajervestsy protiv tsementnogo zavoda,” 17 August 2008, http://rus.delfi.ee/archive/print.php?id=19627635. 82 Interview with Alexander Efimov, 27 September 2013. 83 “Stareishine sosednei Vaivaraskoi volosti ob’yavili votum nedoveriya,” 8 March 2012, o’Gorod, http://genadiafanassjev.blogspot.ru/2012/03/10-8.html. 84 “Vrachi i medsestry stremyatsya ostanovit’ degradatsiyu sistemy zdravookhraneniya,” 14 September 2012, Den’ za Dnem, http://www.dzd.ee/973238/vrachi-i-medsestry-stremjatsja-ostanovit-degradaciju-sistemy- zdravoohranenija.
30
At the same time, accessibility of schools and kindergartens has not worsened. In 2011 it was even slightly better than the Estonian average (see Table 14).
Table 14. Accessibility of child care and secondary education in 2011
Children per preschool Pupils per teaching post Share of education teaching post expenditure in total expenditure, % Estonia as a whole 8.3 12.0 43.1 Kirde-Eesti 6.8 11.7 41.9 including: - Narva 6.9 13.0 45.7 - Kohtla-Järve 7.3 12.5 38.9 - Sillamäe 5.9 11.0 39.3 Source: Statistics Estonia, 2013b
However, Kirde-Eesti’s settlements differ dramatically in terms of availability of social services, which are concentrated in the cities and municipal centres. According to a study, social infrastructure is either “problematic” or “critical” in 45 rural settlements. Absence of vital social services stimulates outmigration from these places.85 It should be also noted that Kirde-Eesti experiences an acute shortage of policemen. According to state regulations, all policemen must possess an excellent command of the Estonian language (“category C1”). But not many among local residents possess this level of language proficiency. As a result, the regional police have some 30 vacancies.86 Moreover, an inspection of the Language Inspectorate revealed recently that among 145 Kirde-Eesti’s policemen only 16 met the requirements of category C1, and 67 policemen were fined for not improving their language proficiency in line with earlier decisions of the Inspectorate.87 At the same time, duly qualified policemen from other Estonian regions are unwilling to relocate to Kirde-Eesti because of this region’s rather negative image in Estonian mass media. Thus, when in 2012 the Government decided to relocate the Department of Prisons from Tallinn to Jõhvi, only one third of its staff agreed to relocate to Kirde- Eesti, even despite the promise of a 40-percent rise in wages.88 Likewise, in 2013 it was proposed to move the Estonian State Security Academy to Narva. However, because of strong unwillingness of the staff and students to relocate to this city, this plan has been postponed.89
85 “V Ida-Virumaa nedostaet sotsial’nykh uslug,” 7 July 2008, http://rus.delfi.ee/archive/print.php?id=19297288. 86 “Ministrov trevozhit prestupnost’ v Ida-Virumaa,” 21 February 2012, Põhjarannik, http://sp.pohjarannik.ee/archives/10242. 87 “Politseiskikh oshtrafovali za slaboe znanie gosyazyka,” 21 January 2013, http://rapsinews.ru/international_news/20130129/266220953.html. 88 “Dazhe 40-protsentnyi rost zarplaty ne privlekaet chinovnikov v Ida-Virumaa,” 31 December 2012, http://rus.delfi.ee/archive/print.php?id=65471170. 89 Interview with Andres Noormägi, 26 September 2013 and “Vnimanie k Ida-Virumaa, veroyatno uvelichitsya: v region budut napravlyat’ den’gi,” 25 May 2013, Viru Prospekt, http://www.prospekt.ee/index.php?option=com_content&view=article&id=7738:2013-05-24-10-14- 19&catid=:
31
2.7. What are the scale and sources of social problems? Among the most acute social problems in Kirde-Eesti it is possible to name unemployment, poverty, crime, demographic collapse, and poor health. Thus, in 2010-2011 Kirde-Eesti had the highest unemployment rate, the largest share of residents feeling that they do not cope economically, the largest share of residents “at risk of poverty”, the highest crime rate and the smallest share of residents reporting good or very good health status among all regions of Estonia, except the Põlva county. Furthermore, by 2011 in comparison to 2005-2006 the situation has only worsened (see Annex 9). There are many causes of these social problems. The most important of them are the following:
Inability of the regional economy to adapt successfully to a free market model. Old markets in Russia and other former Soviet Republics have been lost, while new ones have not been acquired. Only approximately a half of the regional economy has in the end survived the post- socialist transition.
Estonian citizenship policy, which has denied citizenship to a majority of permanent residents of Kirde-Eesti in the 1990s, thus depriving them of some of their civil and economic rights.
Problematic relations between Estonia and Russia: Russian economic sanctions on Estonia have prevented more intensive cross-border economic cooperation, which could benefit this border region.
Disadvantages of peripheral geographic location: in the absence of economic opportunities at home a lot of Kirde-Eesti’s residents migrated to more economically attractive places.
Global economic crisis has further undermined the regional economy. A number of major enterprises and their smaller subcontractors have been forced to reduce their production activities or close down completely.
3. Development factors 3.1. What factors have played key role in development of the region in recent years? In recent years the main factor shaping the development of Kirde-Eesti was Estonia’s accession to the EU in 2004. Since that time Estonia has been a net recipient of funds form EU coffers, and some share of this money was spent on promoting economic development of Kirde-Eesti. In particular, EU money was invested in the reconstruction of the Tallinn – Narva motorway, in upgrading border crossing point in Narva, in renovation or construction of public buildings (especially kindergartens and schools), in improving water treatment facilities in several municipalities of this region, as well as in cross-border cooperation projects with Russia, which have been mainly related to tourism. Estonia’s membership in the EU has also forced Russia to abolish the double customs duties on imports from Estonia, which Russia introduced in 1995.90 As a result, Estonia’s exports to Russia grew from 267 million euro in 2004 to 1.5 billion in 2012 (Statistics Estonia, 2013b). Although statistical data on Kirde-Eesti’s exports to Russia are not available, it is highly probable that this border region has also benefited from the increase in Estonia’s trade with Russia.
90 “Dvoinye tamozhennye poshliny na eksport iz Estonii v Rossiyu budut otmeneny,” http://rus.delfi.ee/archive/print.php?id=7549031.
32
Another important force contributing to the development of this region can be called “the Vähi factor”. The decision of Tiit Vähi, a former Prime Minister of Estonia, to acquire Silmet and to create the Sillamäe seaport has given a strong boost to the development of Kirde-Eesti’s economy. His entrepreneurial talent and political connections have become an invaluable asset for this region. The substantial growth in global oil prices has also positively affected the region’s development. It has made it more commercially attractive to invest in the production of shale oil. As a result, two major companies, Viru Keemia Grupp (VKG) and Eesti Energia, have begun to expand their production of shale oil, which has also boosted local shale mining industry. Kirde-Eesti has also received multi-million investments in the construction of the new shale-fired power plant, thanks to a decision of Estonian Government and an approval of this project by the European Commission. It is also important to note that, thanks to its global lead in shale mining and processing technologies, Eesti Energia has begun to expand its operations to other countries. This company has already entered the markets of the United States, Jordan, Ukraine and Serbia.91 The strong growth in real personal incomes in neighbouring Russia has had a positive impact on Kirde-Eesti in terms of a notable increase in the number of Russians visiting this region and their investments in local real estate and tourist infrastructure. It has also boosted the development of retail trade in Kirde-Eesti. Finally, until December 2013, Estonia’s customs regulations allowed the existence of a sizeable “grey sector” within Kirde-Eesti’s economy, which flourished on account of informal imports of petrol, alcohol and cigarettes from Russia. The price difference has been so significant that smuggling of even small amounts of such goods has been commercially sensible, particularly for unemployed persons. Undoubtedly, a large number of residents of Kirde-Eesti have earned their living in this sector. New customs regulations, which came into force on 1 December 2013, will likely minimize this form of cross-border trade, which may have negative social consequences.
3.2. What are the main obstacles that hinder the development process in the region? Among the main obstacles hindering Kirde-Eesti’s development it is possible to name the following: Estonia’s membership in the EU has increased international mobility of Estonians in general and of Kirde-Eesti’s residents in particular. As a result, a lot of most talented and skilled residents have left this region; EU’s environmental policies, especially the forthcoming Fuel Quality Directive, have introduced a degree of uncertainty concerning the future of Kirde-Eesti’s shale fuel industry and its shale-fired power plants. Because of this uncertainty Eesti Energia and Viru Keemia Grupp have postponed their plans to begin the production of diesel fuels from shale oil;92
Over-concentration of Estonia’s economic opportunities and public institutions in Tallinn has stimulated migration of Kirde-Eesti’s residents to the capital of Estonia;
91 Speech by Minister Juhan Parts at the International Oil Shale Symposium, 10 June 2013, http://www.mkm.ee/speech-by-minister-juhan-parts-at-the-international-oil-shale-symposium/?tpl=1120. 92 “Eesti Energia to postpone diesel production plans,” 27 May 2013, http://news.err.ee/economy/2e5a6fe9- 2228-4371-bfbc-d69f16e39575 and “V Kohtla-Järve nachinaetsya stroitel’stvo novogo zavoda Petroter,” 18 October 2013, Põhjarannik, http://sp.pohjarannik.ee/archives/17140.
33
Estonia’s problematic relations with Russia have prevented the development of more intensive cross-border business contacts, which could greatly benefit Kirde-Eesti;
Russia has effectively prevented more intensive development of Estonian seaports (including one in Sillamäe) by charging lower railway tariffs for cargo delivered to Russian Baltic seaports, thus making Estonian seaports less attractive for Russian companies;
Estonia’s language policy has hindered entrepreneurial activity of the country’s Russian-speaking residents, worsened their position on the labour market, and on the whole threatened social cohesion of the state;
Kirde-Eesti’s poor image in Estonian mass media has become an obstacle for attracting skilled workers, entrepreneurs and tourists to this region;
Lack of entrepreneurial spirit and initiative, as well as the so-called “Soviet mentality” have prevented more active development of small enterprises; Difficulties in obtaining Estonian residence permits even for highly-skilled specialists from non-EU countries have worsened prospects for attracting more FDI. Additionally, the development of this region is hindered by unwillingness of municipalities to cooperate with each other. The main causes are their political differences and conflicting business interests. In addition, ethnic and language differences play a disuniting role. The forthcoming administrative reform also adds some tension: smaller municipalities dislike the perspective of being merged with larger ones and therefore abstain from cooperating with them. But usually small municipalities lack sufficiently competent staff and financial resources to submit applications for external funding. As a result, smaller municipalities have rarely received external funding for their development projects.93 One more major problem is intra-corporate problems, especially disagreements among company owners and corruption and fraud on part of top executives. For instance, it has been suggested that the bankruptcies of Kreenholm Manufaktura and of the Kirde-Eesti’s plant of Uralvagonzavod have been caused not by their low competitiveness, but rather by fraudulent actions of their top managers, who allegedly siphoned off financial resources of these enterprises through controlled subcontractors.94 Likewise, a conflict of co-owners almost led the third largest producer of shale oil (Kiviõli Chemical Company) to bankruptcy in 2011, and it remained unclear what actually helped this company to survive.95 The question of corruption in the public sector also deserves special attention. Estonian mass media and political opponents of the Centrist Party, which has been the dominant political force in Kirde- Eesti’s main cities for more than a decade, have claimed that the city administrations, particularly one in Narva, have been deeply corrupted: a narrow clique of leading activists of the Centrist Party has supposedly profiteered through illegal privatization of municipal properties, through allocating municipal contracts to controlled firms and through appropriating municipal money with the help of such municipal enterprises as Narva Vesi (a water treatment and supply company), Narva Bussiveod (a municipal bus company) and Narva Linna Arendus (a municipal property development firm).
93 Interview with Andres Noormägi, 26 September 2013 and Raagmaa et al. (2013), p. 13. 94 Interview with Mikhail Stalnukhin, 24 September 2013. 95 “Byvshii pod ugrozoi zakrytiya slantsepererabatyvayushchii zavod prines superpribyl,” 1 August 2011, Põhjarannik, http://sp.pohjarannik.ee/archives/4257.
34
The police have investigated many such allegations, but in most cases they have led nowhere. For instance, the Mayor of Narva, Tarmo Tammiste,96 was under police investigation two times. In the first case the allegations were dismissed in the course of the investigation. In the second case he was acquitted in a court.97 During the last decade only three cases have led to convictions: (1) a Deputy Mayor was fined for creating obstacles to police investigation; (2) a member of the Narva City Council was fined for bribing a police official in order to prevent an information leak from his dossier to the press; and (3) a Chief of Narva’s Economic Department got a jail sentence for taking bribes.98 Currently, a court hears a case against a former Deputy Mayor of Narva and a member of the City Council. They are accused of manipulating municipal construction tenders and gave municipal contracts to firms, which have supposedly paid kickbacks. A verdict is expected in 2014. Very similar charges are also advanced against Evgenii Soloviev, the present Mayor of Kohtla-Järve, Yuri Kollo, the city’s former Mayor, and a number of local entrepreneurs.99 This situation may be interpreted quite differently. One may say, as does Peeter Tambu, the Narva Chief Architect, that Estonian criminal legislation is not perfect enough to effectively prosecute corrupted officials, and almost each time they manage to get away.100 In contrast, others, such as Mikhail Stalnukhin, the former Chairman of the Narva City Council and presently a Member of the Estonian Parliament, argue that the police fulfil the will of the ruling right-wing parties wishing to use criminal investigations against their political rivals. But every time they fail, because their accusations are usually groundless.101 However, when the police investigate real cases of corruption, they succeed in prosecuting corrupted officials, as happened with the cases of the aforementioned Chief of Narva’s Economic Department and officials from the Fire Department, the Car Registration Department, as well as from the ranks of the police itself.102 Given the fact that so far only in rare cases the allegations have led to convictions, it can be said that the level of corruption in Kirde-Eesti is not any higher than elsewhere in Estonia. It exists, but it hardly represents a major obstacle for regional development. It is much telling that neither the mass media nor political opponents of the Centrist Party have reported such cases when entrepreneurs would complain that municipal officials are inefficient and that they create problems or expect bribes. On the contrary, one can find a lot of articles in independent newspapers, in which investors commend municipal administrations for being helpful and efficient in supporting their investment projects.103
96 After municipal elections in October 2013 he has become the Chairman of the Narva City Council. 97 Interview with Mikhail Stalnukhin, 24 September 2013. 98 “Byvshii krupnyi chinovnik Narvy Arkadii Nikolaev poluchil god uslovno,” 15 December 2011, http://rus.err.ee/virumaa/a522fab3-6663-4eef-b15f-67b7361b1af8. 99 “Sudebnyi protsess po delu Solov’eva nachnetsya tol’ko v 2015 gody,” 11 April 2013, Põhjarannik, http://sp.pohjarannik.ee/archives/15245). Despite the charges, Evgenii Soloviev was re-elected to the position of the Mayor in October 2013 (“Tsentristskaya partiya vnov’ vybrala Solov’eva merom Kohtla-Järve,” 8 November 2013, Põhjarannik, http://sp.pohjarannik.ee/archives/17500). 100 “Glavnyi arkhitektor Narvy obdumyvaet ukhod s dolzhnosti,” 19 November 2013, Põhjarannik, http://sp.pohjarannik.ee/archives/17609. 101 Interview with Mikhail Stalnukhin, 24 September 2013. 102 Thus, a former Head of Narva Police Department has got a jail sentence for fraud, see: “Osuzhdennyi eks- nachal’nik narvskoi politsii vinovnym sebya ne priznaet,” 29 February 2012, Põhjarannik, http://sp.pohjarannik.ee/archives/10371. 103 For example, see the very favourable comments of Finnish investors in respect of the Narva City Administration: “Ida-Virumaa khorosh dlya investitsii,” 6 February 2010, http://stalnuhhin.ee/?p=2005.
35
Finally, there is the opinion that the development of Kirde-Eesti’s main cities is hindered by politically motivated tensions between the Centrists occupying dominant positions in their municipal administrations and city councils and representatives of a coalition of two right-wing parties: the Reform Party and the Union of Pro Patria and Res Publica (RP-UPR), which form the Government of Estonia.104 Allegedly, the RP-UPR coalition does not want to promote the development of Kirde-Eesti because, firstly, this way they stimulate purposefully outmigration of ethnic Russians thus “purifying” Estonia from “the occupants”, and secondly, by helping Kirde-Eesti they do not want to help their political opponents, the Centrists, to strengthen their positions in this region and in Estonia as a whole.105 Some pundits call this situation “a cold war within the country,”106 while others liken it to “an invisible wall separating Narva from the rest of Estonia.”107 Indeed, political motives do play a role, though usually politicians prefer to keep this fact secret. But one much-telling story leaked to the press in spring 2012. A member of the Toila Municipal Council informed the press about a telephone call he received from Marko Pomerants, a Member of the Estonian Parliament from the UPR and former Minister of the Interior.108 Pomerants threatened him that if the Municipal Council would dismiss a member of the UPR party from the position of the Chairman of the Council, then the municipality would not receive money for the development of Toila’s port and its coastal zone. Later Pomerants confirmed correctness of this story, said that he saw no ethic problem in it and added: “…the party’s policy is simple: to give more money to our people than to others.”109 Other sources also confirm that political affiliation plays a very strong role in allocation of public-sector investments in Estonia (Tatar, 2010, p. 213; Raagmaa, et al. 2013, p. 13). Given this situation, it has to be concluded that probably, for political reasons, Narva, Kohtla-Järve and Sillamäe received much less money for their development from national and EU sources than they potentially could. The political rivalry has also led to the problem of communication between municipal administrations of the largest cities of Kirde-Eesti and Estonian Ministries. Some very popular Russian-speaking politicians have been extremely critical in respect of the Estonian state establishment, including the President and Prime Minister. Their criticism has been instrumental in gathering political support among Russian voters in Kirde-Eesti, who largely shared the negative attitude towards policies of the right-wing Government. Not surprisingly, that some top governmental officials have been offended by such criticisms and de facto minimized their
104 This opinion is shared by Member of the European Parliament Kristiina Ojuland (“Narva dolzhna bol’she obshchat’sya s drugimi chastyami Estonii i Evropoi,” 26 November 2013, http://rus.err.ee/virumaa/cdaa7b7b- 7f9d-45f2-a36a-d657086137d6) and by Priit Rohumaa, Executive Director of Viru Keemnia Grupp (21 December 2011, http://genadiafanassjev.blogspot.ru/2011/12/vkg.html). 105 Interview with Mikhail Stalnukhin, 24 September 2013. The rivalry between the PR-UPR coalition and the Centrists has been particularly fierce in Tallinn, where Edgar Savisaar, the Head of the Centrist Party, has been the City Mayor for many years, partly thanks to the support of Russian-speaking voters. In October 2013 the Centrists von the municipal elections in Tallinn again. 106 “Eric Gamzeev: Vybor Ida-Virumaa uzhe predreshen,” 11 October 2013, o’Gorod, http://genadiafanassjev.blogspot.fi/2013/10/41.html. 107 “Laine Randjarv: Narva mogla stat’ nashim Gonkongom,” 11 November 2011, http://rus.delfi.ee/archive/print.php?id=61439066. 108 In 2003-2005 he served as the Minister of Social Affairs, and in 2009-2011 he was the Minister of the Interior. 109 “Parlamentarii vmeshalsya v bor’bu za vlast’ v Toila,” 12 March 2012, Põhjarannik, http://sp.pohjarannik.ee/archives/10634.
36 communication with Kirde-Eesti’s Russian-speaking municipalities. At the same time, according to Peeter Tambu, Narva’s municipal officials “are simply afraid of talking to governmental officials.”110 Only very formal communication – through official channels and on official occasions – has remained intact, while informal communication and networking between municipal and governmental officials have been missing. Furthermore, the members of Estonian Parliament representing Kirde-Eesti belong to different political camps and cannot join their efforts in defending the interests of their region at the national level. As a result, Kirde-Eesti has no political lobby in Tallinn, in contrast to some other Estonian regions. Obviously, this situation makes Kirde-Eesti less politically competitive and thus reduces the support it could potentially receive from Tallinn.111 However, if the Centrist Party would win the next Parliamentary elections to be held in 2015 (and there is a chance of this outcome, given this party’s success at municipal elections in October 2013),112 then Kirde-Eesti would surely improve its lobbying positions in Tallinn.
3a. External context of development: trade and FDI 3.3. Whether the regional economy is export-oriented and how this is related to overall productivity and innovativeness? Being a small country, Estonia has an export-oriented economy. Kirde-Eesti is also increasingly export-oriented. In recent years the relative importance of exports grew: the ratio of regional exports to GDP increased from 0,40 in 2004 to 0,69 in 2012.113 There are several major export- oriented enterprises: the Sillamäe seaport, which specializes on handling transit cargo, the Molycorp- Silmet company processing imported ores and exporting rare earth metals, a few metal-working enterprises with Finnish investments, which operate as sub-contractors for major Finnish companies, Eesti Energia’s two power plants exporting approximately a third of their electricity, and three enterprises (Viru Keemia Grupp, Eesti Energia, and Kiviõli Chemical Company) producing altogether some 600 thousand tonnes of shale oil per year of which only 100 thousand tonnes are consumed within Estonia.114 It should be noted that these export-oriented enterprises are among the most productive in terms of labour and capital productivity. They make a significant contribution to overall productivity of the regional economy. In recent years Kirde-Eesti’s exports grew dramatically, though the global economic crisis slowed down this growth in 2009. Since transit cargo is included in figures of Kirde-Eesti’s exports, the successfully expanding Sillamäe seaport has become a major driver of this growth (compare Figures 10 and 11). However, even without Sillamäe, Kirde-Eesti’s foreign trade grew more rapidly in 2004-2008 than in 2000-2003 (see Figure 12). This means that the new seaport has not been the only factor driving this
110 “V Narve obsudili, kak effektivnee rasskazyvat’ russkoyazychnym o korruptsii,” 1 April 2013, http://rus.delfi.ee/archive/print.php?id=65904520. 111 Interviews with Rein Aidma (25.9.2013) and Andres Noormägi (26.9.2013). 112 “Na munitsipal’nykh vyborakh v Estonii pobedila tsentristskaya partiya,” 21 October 2013, http://www.rosbalt.ru/exussr/2013/10/21/1190171.html. 113 But still it was smaller than the national average – 0,72 – in 2012 (author’s calculations on the basis of Statistics Estonia, 2013b). 114 “V Estonii pervymi v mire na avtomobile ispytali dizel’noe toplivo, vyrabotannoe iz mestnogo minerala,” 24 April 2013, http://rus.delfi.ee/archive/print.php?id=66021252.
37 growth. Unfortunately, statistical data on foreign trade of Estonian regions are not sufficiently detailed, and it is impossible to say whether, for instance, Kirde-Eesti’s exports to Russia grew as a result of the abolition of Russia’s double customs duties on imports from Estonia in 2004, which was a consequence of Estonia’s accession to the EU. But it is certain that Kirde-Eesti’s exports grew on account of a notable increase in the exports of shale oil from Kohtla-Järve and Kiviõli, which was coupled with a rise in global oil prices beginning from 2004.
Figure 10. Exports and imports of Kirde-Eesti, million euro
1200
1000
800
600
400
200
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Exports Imports
Source: Statistics Estonia, 2013b
Figure 11. Exports and imports of Sillamäe, million euro
900 800 700 600 500 400 300 200 100 0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Exports Imports
Source: Statistics Estonia, 2013b
38
Figure 12. Exports and imports of Kirde-Eesti without Sillamäe, million euro
500 450 400 350 300 250 200 150 100 50 0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Exports Imports
Source: Statistics Estonia, 2013b
In the field of innovativeness, the connection with foreign trade is less clear. All the key enterprises depend on imported technologies, while local research institutions, which existed during the Soviet period, have been downscaled or liquidated. For instance, before 1991 Kirde-Eesti had the Shale Research Institute in Kohtla-Järve, the only research institute in the world focussing exclusively on shale studies. In the 1990s this Institute was reorganized, downscaled (by 2008 only 13 employees were left) and transferred to the Tallinn University of Technology. Just a small laboratory remained in the Kohtla-Järve.115 Only as late as in 2011 it was decided to develop shale-related research and education in this city, and a Centre of Competence in Shale Studies was established on the basis of this laboratory. The Centre’s new building is under construction now. It should be completed by March 2014. The Centre will house scientific laboratories and offer premises to accommodate innovative start-ups operating in the shale and energy sectors. The University has received three million euro from the ERDF for implementation of this project.116 At the same time some companies prefer to carry out shale-related research abroad. Thus, in 2009 Eesti Energia set up a joint venture – Enefit Outotec Technology (EOT) – together with the Finnish firm Outotec. EOT is based in Germany, where main part of research activity takes place. EOT focuses on developing new technologies for the production of shale oil and shale diesel fuel. Thanks to this joint venture, in 2013 Eesti Energia introduced new shale oil production technology Enefit280 at the company’s recently built plant near Narva, which has become the largest shale oil plant in the world.117 It should be noted that Estonia pays considerable attention to shale-related research. The country spends 2.4 percent of its GDP on research and development, of which some 30 percent are spent on
115 “Brosaite vashi opyty, gidrid i angidrid,” 28 January 2008, http://rus.delfi.ee/archive/print.php?id=18050088. 116 “V zdanii tsentra kompetentsii budet budet rabotat’ biznes-inkubator,” No. 45, 2013, Infopress, http://www.inforing.net/publications/infopress/newskj.php?ELEMENT_ID=39833. 117 “V Estonii pervymi v mire na avtomobile ispytali dizel’noe toplivo, vyrabotannoe iz mestnogo minerala,” 24 April, 2013, http://rus.delfi.ee/archive/print.php?id=66021252.
39 shale-related topics.118 But Kirde-Eesti receives a relatively small share of this money. Thus, since 2007 till March 2013 this region received just 2.1 percent (8 million euro) of Estonian spending on R&D and innovation purposes on account of the ERDF and ESF, whereas the shares of Tallinn and Tartu were 33.5 and 30.2 percent respectively (Estonian, 2013, p. 41).
3.4. Is the region attractive for foreign direct investments and what was the impact of these investments on regional economy? Thanks to the combination of good business climate, EU membership, availability of cheap bank loans, and relatively low operational costs, Estonia has been rather attractive for foreign investors. In particular, Russian investors have found it attractive because of the sharp contrast between business environment in Russia and that in Estonia (see Table 15). At the same time, Estonia’s ruling elite has been very cautious in respect of Russia’s big business, which has often been regarded as a “hand of Moscow,” which could pursue not only private economic interests, but also serve Russia’s neo- imperialist geopolitical designs.119 Needless to say that as a result of this attitude a lot of Russian companies, which could potentially do business in Estonia, have preferred to find other places for their investments.
Table 15. Business climate in Estonia and in the neighbouring countries in 2012
Global rank on the ease of Total tax rate, % Global rank on corruption doing business perception Estonia 22 49,4 28 Russia 92 50,7 127 Finland 12 39,8 3 Sweden 14 52,0 3 Latvia 24 35,9 49 Sources: World Bank, 2013, PricewaterhouseCoopers, 2013 and Transparency International, 2013.
Although statistical data on FDI at the regional level are not available in Estonia, it can be estimated that a lion’s share of foreign money has been invested in the Tallinn region playing the role of the locomotive of the Estonian economy. However, in comparison to Tallinn, Kirde-Eesti has had a number of advantages: lower electricity and water costs, much cheaper land and labour force with industrial background, availability of cheaper industrial premises, widespread proficiency in the Russian language and closer distance to St. Petersburg. Not surprisingly, that Kirde-Eesti has also been attractive for foreign investors. Among most important cases of FDI it is possible to name the Sillamäe Seaport (50% in Russian ownership), Molycorp-Silmet (100% in American ownership), the branch of US firm Amphenol producing electric cables, the acquisition of Repo Vabrikud, a major Estonian producer of melamine-faced chipboard, by the Swiss Sorbes Group, and investments of Finnish Fortaco, Metalliset and Makron in factories producing metal parts and equipment.120 There
118 “Estonian Premier Interviewed on Regional LNG Terminal, EU Fuel Quality Directive,” 24 May, 2013, http://www.accessmylibrary.com/article-1G1-331162144/estonian-premier-interviewed-regional.html. 119 Annual Reviews of Estonia’s Security Police (KaPo) give the impression that spying for representatives of Russian major companies operating in Estonia has been one of their prime tasks, see, for example, Security Police, 2006, p. 10. 120 Until February 2012 the Narva’s Fortaco plant was owned by Finnish Cargotec (Cargotec, 2013, Annual Report 2012, p. 39).
40 are also a number of small and medium-sized companies, established by Russian investors, mostly from St. Petersburg. These ventures produce catamarans, water filters, paints, industrial robots and blood transfusion equipment.121 There are also two Russian warehouses, built recently in the Narva Industrial and Logistic Park. Altogether these enterprises have so far created some 400 new jobs.122 Some of them carry out applied R&D projects. Thus, Vepamon OŨ develops new fuel control systems,123 ASG Robotics OŨ works on producing new types of industrial robots,124 while New Flight OŨ begins to produce own models of catamarans.125 All these companies have been created on account of Russian investments. However, there have also been cases of unsuccessful FDI. Thus, the Swedish Borås Wäfveri Group acquired the largest Estonian textile producer Kreenholm Manufaktura in 1994. The company underwent profound restructuring and its labour force was cut from 12 thousand in 1989 to 500 employees in 2009. But after the beginning of the global economic crisis it became unprofitable and was declared bankrupt in November 2010. Among other unsuccessful cases of FDI it is possible to name the attempt to sell Eesti Energia to American company NRG in the late 1990s. A preliminary deal was concluded. But later NRG failed to commence renovation of two Narva-based power plants, and the Estonian Government cancelled the deal in early 2002.126 Since then Eesti Energia has remained a 100-percent state-owned company. Equally unsuccessful has been the acquisition of Nitrofert, the only Estonian producer of mineral fertilisers, by Ukraininan Group DF. Since 2009 Nitrofert has been kept idle, while its employees have continued to receive their wages. In late 2012 the factory recommenced its production activity, but was stopped again a few months later because of its still negative profitability.127 Finally, the Russian company Uralvagonzavod, together with an Estonian partner, built a plant assembling railway cisterns in 2003 in Ahtme (Kohtla-Järve). But by 2006 the partners realized that “it was impossible to sell Estonia-made cisterns in Russia.”128 Additionally, the demand within the EU was below their expectations. As a result, the plant has been sold and reorganized into a small metal-working factory, which went bankrupt in November 2013.129
121 “Rabochie mesta zhdut narvityan,” 13 September 2013, Narva Leht, http://www.narvaleht.eu/narva/society/rabochije-mesta-zdut-narvitjan.html. 122 “Narvskii tsentr logistiki soedinil Evropu i Rossiyu,” 28 July, 2013, http://rus.delfi.ee/archive/print.php?id=66507720. 123 “Iz Narvy – i v sorok stran mira,” 30 December 2009, Viru Prospekt, http://www.prospekt.ee/index.php?option=com_content&view=article&id=267:2009-12-30-09-48- 47&catid=37:ekonomika&Itemid=54. 124 “Narvskomu proizvoditelyu robototekhniki trebuyutsya inzhenery,” 28 March 2012, http://rus.err.ee/virumaa/dfc2e14c-460e-4fdf-8090-2948115356b3. 125 “Rabochie mesta zhdut narvityan,” 13 September 2013, Narva Leht, http://www.narvaleht.eu/narva/society/rabochije-mesta-zdut-narvitjan.html. 126 “Estonia cancels privatisation of power stations to NRG,” 7 January 2002, Estonian Review, http://www.vm.ee/?q=en/node/3714. 127 “Nitrofert prodolzhaet stoyat’ bez dela,” 18 November 2013, Põhjarannik, http://sp.pohjarannik.ee/archives/17605. Until 2009 Nitrofert was the largest consumer of Russian natural gas in Estonia. It consumed approximately a quarter of Estonia’s imports of natural gas, “Krupneishii potrebitel’ rossiiskogo gaza v Estonii vozobnovil rabotu,” 20 December 2012, http://www.regnum.ru/news/1607008.html. 128 “Akhtmeskii vagonosborochnyi zavod zaklyuchil krupnyi kontrakt,” 3 November, 2007, Põhjarannik, http://rus.pohjarannik.ee/modules.php?name=News&file=article&sid=5591. 129 “Bolee sotni chelovek poteryali rabotu iz-za bankrotstva zavoda Viru Metallelement,” 28 November 2013, http://rus.err.ee/virumaa/ccd1e00a-6bab-4da0-83c3-1fc37d0eba04.
41
On the whole, it can be said that in a few cases FDI has had a positive impact on the regional economy in the form of creating new jobs and added value. However, it is noteworthy that two most important economic sectors – the shale industry and generation of electricity – have remained without FDI. This can be partly explained not only by the unsuccessful experiences with some foreign investors, but also by the desire of Estonian ruling elite to preserve Estonia’s energy security, which could supposedly be compromised by foreign investors, especially those from Russia.130 Nonetheless, it is also noticeable that Russian investors have been quite active in Kirde-Eesti, even despite the strained inter-state Estonian-Russian relations.
3b. Endogenous growth factors: innovation and entrepreneurship 3.5. How innovative is the regional economy and how this is related to educational and training system and its scientific base? As it was said in section 3.3, research organizations which existed in Kirde-Eesti during the Soviet period were de facto liquidated in the 1990s, while new ones have not been established ever since, except the aforementioned Centre of Competence in Shale Studies in Kohtla-Järve. Large companies operating in the shale industry (Eesti Energia and Viru Keemia Grupp) do carry out some in-house research, but it is not possible to estimate what part of it is done in Kirde-Eesti, in Tallinn and abroad. As for endogenous innovations in other economic sectors, they hardly exist. The problem of low innovativeness is exacerbated by the continuous outflow of talented young people to Tallinn and other places where they receive higher education. Recently, one such case has attracted public attention. Vladimir Funtikov, now 26 years old, has left Narva after matriculation from a secondary school in order to study software engineering at the Tallinn University of Technology. Upon graduation he has founded a company, which started to produce games for mobile phones. One of his games, Drag Racing, has become popular (36 million users), and in 2013 Funtikov was listed among top 100 richest Estonians.131 In this respect Narva’s municipal officials like to boast that the city has preserved its system of school education and extra-curricular activities for school children, which stimulates their early development. But after school, the youngsters tend to leave Narva and usually they never return. As a result, Narva “subsidizes” the rest of Estonia, the EU and Russia with the city’s talented youths.132 This problem was also commented by Kristiina Ojuland, a member of the European Parliament from Kirde-Eesti, who said that Narva, and particularly the Narva College of the University of Tartu, should reduce the outflow of young people by focussing more on ICT studies and innovations.133 Christina Kallas, a researcher from the University of Tartu, sees its future as a major Estonian centre of foreign language learning and multicultural studies, whose mission could be to facilitate Estonian-Russian interaction.134 At present the Narva College offers degrees only in pedagogy, youth work, municipal
130 “Politsiya bezopasnosti: o roli informatsii, o ‘privatizatsii’ sootechestvennikov, o svoei elitarnosti,” 25 May 2013, http://rus.delfi.ee/archive/print.php?id=66185264. 131 “26-letnii russkii – samyi molodoi sredi sta samykh bogatykh lyudei Estonii,” 30 September 2013, http://rus.delfi.ee/archive/print.php?id=66814839. 132 Interviews with Mikhail Stalnukhin (25.9.2013) and Alexander Efimov (27.9.2013). 133 “Eksklyuzivnoe interview Kristiiny Ojuland o budushchem Narvy,” 28 November 2013, http://www.narvaleht.eu/idavirumaa/politics/ojuland-o-budushem-narvy.html. 134 “Na Narvu vzglyanuli iz Evroparlamenta,” 30 November 2013, Narvskaya Gazeta, http://www.gazeta.ee/?p=34957.
42 administration and entrepreneurship.135 But in the nearest future it also plans to offer courses in information technologies and tourism and to establish a Centre for EU-Russia relations.136
3.6. How important is the sector of SMEs in the regional economy and what are the main linkages of firms? Comparing to all other regions of Estonia, the sector of SME is notably less developed in Kirde-Eesti. For instance, on 1 January 2013 the number of registered sole proprietors per 1000 inhabitants was 19 in Kirde-Eesti against 26 in Estonia on the average. Likewise, the number of registered private limited companies in Kirde-Eesti was 41 against the national average of 100 (Statistics Estonia, 2013b). This is apparently a consequence of the dominance of Russian-speaking inhabitants in this region, whose entrepreneurial activity has been significantly hampered by the requirement to use the Estonian language when dealing with company registration, reporting and accounting matters. Furthermore, the region’s weak economic performance and swift demographic decline have also been not conducive for SME development. High taxes are also regarded as a major obstacle for SME development in Estonia in general and in Kirde-Eesti in particular.137 Indeed, Estonia’s total tax rate is almost at the same level as in Russia, whereas the total tax rates are much lower in such neighbouring countries as Finland and Latvia (see Table 15).
3.7. Are there any clusters within the region and if yes, what are their main specializations? It is possible to name two economic clusters in Kirde-Eesti. The first one is represented by shale-fired power plants, shale mining companies and firms producing shale oil, together with associated construction companies and the aforementioned Centre of Competence and the Virumaa College offering shale-related academic courses. The second cluster is developing in the field of transit transport and logistics: the Sillamäe seaport and its free zone, as well as new warehouses in the region’s industrial parks and transportation services on the route Tallinn – Narva – St. Petersburg.
4. Governance and local/regional development policies 4.1. What was the outcome of regional development strategy implementation? In Estonia the regional (county) level of public administration does not play a major role in formulating and implementing regional development strategies. A regional strategy does exist in Kirde-Eesti. However, its main purpose is not to guide regional development, but rather to justify and strengthen applications for EU funding by demonstrating that the applications are in line with this “regional strategy.”138
135 “Academic programmes of the Narva Coolege of the University of Tartu,” 5 December 2013, http://www.narva.ut.ee/ru/695580/696376. 136 “Katri Raik: Novyi kolledzh – nasha obshchaya pobeda,” 28 November 2013, Narvskaya Gazeta, http://www.gazeta.ee/?p=34919 and “Uezdnyi stareishina Ida-Virumaa: predstoit bogatyi na vyzovy god,” 31 December 2013, Põhjarannik, http://sp.pohjarannik.ee/archives/18134. 137 “Narvskie predprinimateli: nalogi takovy, chto v razvitie vkladyvat’ nechego,” 1 February, 2012, Viru Prospekt, http://www.prospekt.ee/index.php?option=com_content&view=article&id=3928:2012-02-01-09-15- 22&catid=37:ekonomika&Itemid=103. 138 Interview with Andres Noormägi, 26 September 2013 and Raagmaa, et al. 2013, p. 13.
43
4.2. Has the existing governance model in the region been effective and efficient? The existing governance model is characterized by one serious weakness: too much power and financial resources are concentrated at the level of the Government of Estonia, in Tallinn. At the same time the regional (i.e. county) administration is merely a representative of the Government (as described in section 1.3), while municipalities are too financially weak to act as independent development actors (Kriz, 2008, p. 180; Tatar, 2010, pp. 213-214; Raagmaa, et al. 2013, p. 13). As a result, local initiatives cannot be implemented without support from the Government of Estonia, and often it takes far too long to obtain such support (as it happened with the idea to establish the Narva Logistic and Industrial Park). There is also the problem of insufficient communication between the Government of Estonia, where all top positions are occupied by ethnic Estonians, and municipal administrations of the predominantly Russian-speaking cities, which is likely a result of ethnic and political differences between them (i.e. the “pro-Russian” Centrists in the main cities of Kirde-Eesti versus the right-wing “anti-Russian” coalition in the Government of Estonia). In particular, the municipalities have been strongly against the Government’s language policy demanding a high level of proficiency in Estonian from all public-sector employees and the introduction of Estonian as a language of instruction in Russian-language schools, where most teachers still do not know Estonian properly, which leads to a significant loss in the quality of education.139 There are also tensions within this region – disagreements among its municipalities on development goals. For instance, some developmental initiatives of the city of Narva (in tourism and transportation) have been blocked by the surrounding Vaivara rural municipality. Unfortunately, the forthcoming administrative reform would not resolve this problem, because the merger of Narva and Vaivara is not planned.140 Yet, some Narva’s politicians still try to promote the idea of the merger in order to create what they call “Greater Narva”. They propose to merge Narva not only with Vaivara, but also with neighbouring Narva-Jõesuu, which was part of Narva until 1993.141
4.3. What was the outcome of local/regional policies in different fields? Municipal administrations of Kirde-Eesti’s largest cities have succeeded in maintaining and developing urban infrastructure and services (i.e. renovation of public buildings, reconstruction of water systems, improved roads and public spaces, modernization of public bus services), thus improving the quality of life, what might have slowed down outmigration. They have also partially succeeded in retaining and creating jobs by applying such measures as promotion of inward investments through organizing place-marketing events, swift decisions on allocation of land plots
139 This problem is noted in the Resolution CM/ResCMN(2012)9 on the implementation of the Framework Convention for the Protection of National Minorities by Estonia, adopted by the Committee of Ministers of the Council of Europe on 13 June 2012. 140 “V sleduyushchem godu budem reshat’, s kem ob’edinyat’sya,” 1 November 2013, Viru Prospekt, http://www.prospekt.ee/index.php?option=com_content&view=article&id=9042:2013-11-01-08-27- 35&catid=36:. 141 “O reorganizatsii samoupravlenii v raione Narvy,” 30 August 2013, Põhjarannik, http://sp.pohjarannik.ee/archives/16608.
44 for development purposes and through the creation of industrial parks and participation in cross- border cooperation projects.142 All these achievements would not be possible without securing substantial financial support from European structural funds, which have been channelled through Enterprise Estonia. However, it should be noted, firstly, that investments in industrial parks have been rather belated because of the initial reluctance of the Government of Estonia to support this project. Secondly, the investment promotion activity has been focussed on St. Petersburg and the Leningrad region of Russia, while largely ignoring Moscow, other major cities of Russia, as well as Tallinn and the neighbouring countries – Finland, Sweden and Latvia. A wider geography of marketing events would probably lead to better results in terms of attracting new investors. Among less successful policies it is possible to mention the introduction of local tax benefits for investors creating at least 10 new jobs in Narva. This policy was launched in 2010, but since then only two companies have actually received these tax benefits. It seems the amount of the benefits was too small to become a motivational factor for investors.143 Likewise, Narva’s financial assistance to SMEs has also been not very successful. In 2003-2012 the city spent some 252 thousand euro as grants to 114 projects of SMEs, which supposedly led to the creation of 486 jobs. However, it is recognized that a lot of these SMEs ceased to exist as a result of the economic crisis of 2008-2010.144 Municipalities of Kirde-Eesti have also faced the problem of derelict objects of real estate, which could neither be renovated nor demolished. In the 1990s many buildings were acquired by investors, who abandoned them for various reasons, while the buildings gradually became derelict. In some cases they represent cultural or historical value, like the former Gerasimov Palace of Culture in Narva.145 At present every city of Kirde-Eesti is dotted with such eyesores, which instil the sense of hopelessness and abandonment among local inhabitants. Unfortunately, Estonian municipal administrations can do nothing to persuade the owners to do something about these buildings. Thus, the Narva Administration has tried to persuade the owner of the Gerasimov Palace, who lives in Russia, to renovate or demolish this building. Knowing that the owner is a devote church-goer, the Administration even asked the Orthodox Bishop of Narva to visit him and discuss this matter. This visit took place, but the owner remained reluctant to do anything about the Palace. He just proposed to sell it for two million euro.146 Another story concerns the former Narva’s School Number 7. This building occupies a prime position on the high bank of river Narova with a breath-taking view over the Narva and Ivangorod medieval castles. In 2007 a Russian investor was found, who intended to convert the school into a hotel. But as a result of the events of the “Bronze Night” in April 2007, the investor has decided to abandon this
142 This observation is based on numerous testimonies of foreign investors, see, for example, “Rabochie mesta zhdut narvityan,” 13 September 2013, Narva Leht, http://www.narvaleht.eu/narva/society/rabochije-mesta- zdut-narvitjan.html. 143 Interview with Anne Veevo, 23 September 2013, and “Narvskaya programma po bor’be s bezrabotitsei buksuet,” 22 November 2011, Põhjarannik, http://sp.pohjarannik.ee/archives/7775. 144 “Perspektivy razitiya Narvy,” 3 July 2013, Narva Leht, http://www.narvaleht.eu/2009-04-17-11-25- 11/perspektivy-razvitija-narva.html. 145 “O potukhshem narvskom ochage kul’tury ili pamyati DK Gerasimova,” 1 November 2012, http://www.stena.ee/blog/stena_news/o-potuhshem-narvskom-ochage-kultury-ili-pamyati-dk-imeni- gerasimova-foto. 146 Interview with Alexander Efimov, 27 September 2013.
45 project. Since then, the Narva Administration has tried to sell this building, but nobody has been interested in buying it.147
5. External interventions: national policies and EU cohesion policy 5.1. Which type of policies (regional, sectoral, horizontal policies) have had the most significant impact on regional development in recent years? An Ida-Virumaa (Kirde-Eesti) Development Programme was prepared by Estonian Ministry for the Interior in October 2010. However, this programme has never got funding and remained unimplemented. Moreover, it was heavily criticized in Kirde-Eesti for its emphasis not on promoting economic development per se, but rather on integration of its Russian-speaking inhabitants into Estonian society.148 At present, there is the expectation that the Government of Estonia will adopt a new Ida-Virumaa Development Programme in 2014.149 Estonia’s foreign policy has probably had the most serious negative impact upon Kirde-Eesti. In particular, Estonia’s problematic relations with Russia (i.e. violations of rights of Russian-speaking residents, territorial claims in the 1990s, the denial to register the Estonian branch of the Russian Orthodox Church, the scandal with non-ratification of the Border Treaty with Russia in 2005, events of the “Bronze Night” in April 2007, the denial to grant a permission for construction of the Russian- German gas pipeline Nord Stream in September 2007, frequent criticisms in respect of Russian internal and foreign policies, etc.) have hampered the development of economic cooperation of this border region with Russia and scared off potential Russian investors, who could otherwise invest in Kirde-Eesti. For instance, after the Bronze Night Russia has dramatically reduced transit cargo shipped through Estonia and speeded up the development of the Ust-Luga seaport, which has become a prime competitor for the Sillamäe seaport.150 As a direct result of the “Bronze Night” Russian investors have cancelled seven projects in Narva only.151 Similarly, they have cancelled or postponed their projects in other parts of Estonia.152 Estonia’s language and citizenship policies have also created problems for Kirde-Eesti, where the Russian-speaking majority has found it difficult to adapt to requirements of Estonian legislation. For instance, it is difficult to find teachers and medical personnel speaking good Estonian, which is a mandatory requirement. The situation is further exacerbated by the fact that the courses of Estonian are rarely available free of charge, while not many people in Kirde-Eesti are ready to pay for them.153 Estonia’s energy policy has also been very important for Kirde-Eesti – the region producing some 95 percent of all electricity in the country. As the sole owner of Eesti Energia, the Government of Estonia has encouraged investments in the company’s shale-fired power plants. Likewise, it has encouraged
147 Interview with Mikhail Stalnukhin, 24 September 2013. 148 “Pravitel’stvo polozhilo pod sukno programmu po Ida-Virumaa,” 23 December 2011, Postimees, http://rus.postimees.ee/679276/pravitelstvo-polozhilo-pod-sukno-programmu-po-ida-virumaa. 149 Interview with Rein Aidma, 25 September, 2013. 150 “Nesmotrya na politichekuyu retoriku, transit ostaetsya vazhnym,” 20 November 2013, Delovye Vedomosti, http://dv.ee/article/2013/11/20/vare-nesmotrja-na-politicheskuju-ritoriku-tranzit-ostaetsja-vazhnim. 151 Interview with Mikhail Stalnukhin, 24 September 2013. 152 “Rossiiskii biznes ukhodit iz Estonii,” 28 May 2007, http://stringer- news.com/publication.mhtml?Part=50&PubID=7566. 153 “Nikoliai Stelmakh: Obuchenie estonskomu yazyku dolzhno byt’ besplatnym dlya vsekh zhelayushchikh. I budet!” no date, http://www.veneportaal.ee/politika/01090501.htm.
46 large-scale investments in the production of shale oil (two “Enefit” plants of Eesti Energia near Narva, three “Petroter” plans of Viru Keemia Grupp near Kohtla-Järve and a plant of Kiviõli Keemiatööstuse in Kiviõli). The Government has also defended the interests of the shale industry at the EU level. Thus, according to EU’s legislation on industrial emissions Estonia could be forced to close down the power plants by 2016. But, thanks to successful lobbying, this deadline has been extended to 2024.154 Moreover, the EU has allowed Estonia to use free CO2 quotas to finance construction of the new shale-fired power plant. Its total estimated cost is 600 million euro.155 There is also an intention to build a second new power plant, also in Kirde-Eesti.156 Currently Estonia is trying to influence the text of a forthcoming EU Fuel Quality Directive, so that Estonia’s shale industry would be exempted from its strict requirements on CO2 emissions. If this Directive is adopted in its present form, Estonia will be forced to stop the production of shale oil and abandon plans to produce diesel from it.157 In the meantime, the situation with this Directive remains unclear, and this uncertainty affects negatively investment plans of Estonian energy companies. For instance, immediately after negotiations on this matter between Estonian Prime-Minister Andrus Ansip and European Commission President Jose Barroso, Eesti Energia and Viru Keemia Grupp have decided to postpone their multimillion investments in new plants, which would produce diesel from shale oil.158 Finally, it can be said that the Government of Estonia has allocated a substantial, though not sufficient, share of national and EU funding to promote the development of Kirde-Eesti (see Table 11 above). The money was invested in environmental protection, transport and communications, social infrastructure, tourism, and in the development of industrial zones. Undoubtedly, without such investments Kirde-Eesti’s economic situation would be much worse.
5.2. Does the structure of external intervention (national/EU) address regional needs? As it is described above, some external interventions have slowed down or even turned backwards the development of Kirde-Eesti (e.g. Estonia’s citizenship and language policies, Estonia’s policy towards Russia, EU’s environmental policy, de facto absence of a regional programme), while other interventions have promoted regional development (e.g. encouragement of investments in the power and shale industries, defence of the interests of these industries at the EU level, and good business climate). Investments on account of EU structural and Estonian national funds have also had a positive impact and matched regional needs, although in some cases the money has arrived somewhat belatedly (e.g. investments in greenfield industrial parks or in the expansion of the Narva – Ivangorod border-crossing point) and could be spent with higher efficiency. As a result, Kirde-Eesti
154 “Estonian power plants can cover demand until 2020, Elering says” 14 June 2011, http://www.bloomberg.com/news/2011-06-14/estonian-power-plants-can-cover-demand-until-2020-elering- says.html. 155 “Za slantsevoi energetikoi budushchee,” 26 September 2013, Narvskaya Gazeta, http://www.gazeta.ee/?p=33882. 156 “Decision on second new power plant to be taken in 2014,” 24 January 2013, Postimees, http://news.postimees.ee/1114422/decision-on-second-new-power-plant-to-be-taken-in-2014. 157 “New EU energy directive threatens Estonia’s fuel industry,” 23 May 2013, http://news.err.ee/politics/e719631c-7cda-4b48-8eb8-16130c2e9d05. 158 “Eesti Energia to postpone diesel production plans,” 27 May 2013, http://news.err.ee/economy/2e5a6fe9- 2228-4371-bfbc-d69f16e39575 and “V Kohtla-Järve nachinaetsya stroitel’stvo novogo zavoda Petroter,” 18 October 2013, Põhjarannik, http://sp.pohjarannik.ee/archives/17140.
47 has achieved modest progress in some fields (e.g. in the production of shale oil and in the development of tourism), but at the same time the region has missed a lot of development opportunities and failed to fully utilize its economic potential.
5.3. Has the cohesion policy resulted more strongly in the improvement of economic potential or competitiveness, or has it rather affected social well-being? Social well-being is closely linked to economic potential and competitiveness. If the quality of life does not meet public expectations, people “vote with their feet” (as it happens in Kirde-Eesti), thus reducing locally available human capital, which is the most important component of economic potential and competitiveness. In this light it is hardly possible to juxtapose “social well-being” and “economic potential.” In Kirde-Eesti relatively more money has been spent on improving social well-being than on direct economic development measures. In almost all cases the investments in social infrastructure have been perfectly justified: this region has indeed needed better water supply systems, better roads, better environmental conditions, and better public buildings. In some cases the money could probably be spent with higher efficiency (e.g. a new transport junction with two viaducts in Jõhvi at a cost exceeding 10 million euro or renovation of some kindergartens at the time when the number of children has fallen down dramatically).159 But on the whole, these investments in social infrastructure have played a positive role in improving the quality of life in Kirde-Eesti, in reducing the speed of outmigration, and in creating and retaining jobs in construction and auxiliary economic branches.
6. Future prospects 6.1. What are the main opportunities and threats for the development of Kirde-Eesti? The greatest opportunity for this region rests in the fact that this is the only Russian-speaking region within the EU. Russian entrepreneurs do not encounter the language barrier in Kirde-Eesti, which is a strong pull factor for them. In addition, business costs (e.g. labour costs, electricity tariffs and land prices) are among the lowest in Estonia. At the same time, Estonia has a much better business climate than Russia, and is part of the EU, which makes Russian investors here eligible for EU financial assistance and gives them unrestricted access to markets of other countries of the EU.160 Therefore, Kirde-Eesti can become a test-zone for Russian companies seeking access to the European market. Potentially, this may lead to the creation of thousands of new jobs and an inflow of skilled workers and entrepreneurs. Unfortunately, so far this scenario has not materialized, mainly because of serious problems in Estonian-Russian relations. However, some changes have recently become visible. Thus, the Government of Estonia has begun to more actively invite Russian investors to Kirde-Eesti and to Estonia as a whole.161 The Estonian-
159 Interview with Andres Noormägi, 26 September 2013; Raagmaa et al. 2013, p. 14. 160 Nonetheless, there is still the problem of the lack of trust on part of West European consumers towards new producers from Eastern Europe, as sugests the experience of the Russian company Saros EST operating in Narva (“Krizis stal startom novoi firmy,” 12 October 2011, Postimees, http://rus.postimees.ee/594780/krizis- stal-startom-narvskoj-firmy). 161 Estonian Minister of Economy Juhan Parts visited St. Petersburg for this purpose in November 2013 (“Parts pozval rossiiskikh biznesmenov v Ida-Virumaa,” 26 November 2013, Delovye Vedomosti, http://dv.ee/article/2013/11/26/parts-pozval-rossijskih-predprinimatelej-v-promishlennie-parki-ida-virumaa).
48
Russian Intergovernmental Transport Commission has been reanimated and talks to improve transport connections between these two countries have begun (i.e. faster border formalities for train passengers, two new bridges across river Narova, expansion of the Narva border crossing). Juhan Parts, Estonian Minister of Economy and Communications, has set up a Commission on Cross- Border Cooperation with Russia. Its prime purpose is to facilitate and shorten border-crossing procedures.162 It is also expected that a Border Treaty with Russia will be at last concluded in 2014. This Treaty should facilitate the development of border infrastructure and help improve transport connections. In particular, it is expected that the Sillamäe – Kotka ferry line, which existed in 2006-2007 will be restored.163 At the same time, Estonia remains rather reluctant to introduce a visa-free regime for residents of border areas, despite the fact that Russia has such a regime with Norway, Poland and Latvia.164 Moreover, there are influential voices among Estonian ruling elite claiming that the Treaty does not meet Estonian national interests. Thus, although the Government of Estonia approved the text of the Treaty on 23 May 2013, Helir-Valdor Seeder, the Minister of Agriculture, argued that it should not be concluded. He believes that Russia is inherently an unstable country, which can disintegrate just like the USSR. In this case Estonia could easily return the territories, which have been ceded to Russia after the WWII (i.e. the Pechory district in the Pskov region and the town of Ivangorod in the Leningrad region). But the Border Treaty would make this task more complicated.165 Probably, there are also some opponents of the Treaty on the Russian side. Another major opportunity lies in the field of the shale-processing industry. According to one scenario, the development of Kirde-Eesti can be boosted by the beginning of large-scale production of diesel fuel from shale oil and by export of this technology to other countries around the world. In addition, Kirde-Eesti may benefit from an increase in productive capacity of its shale-fired power plants. However, given the negative environmental impact of contemporary shale-processing technologies, it is also well possible that the EU may eventually impose restrictions on this industry, which may result in its rapid decline. Equally, further liberalization and internationalization of the electricity market (e.g. more liberal regulations concerning imports of electricity from Russia to the EU) may render Kirde-Eesti’s power plants non-competitive, thus leading to their closure. Recognizing this threat, Eesti Energia, the owner of the Narva power plants, has started to experiment with fuel by mixing oil shale with Russian coal, which is cheaper than local shale. These tests are expected to end by March 2014. If successful, Eesti Energia will be able to reduce the usage of shale dramatically, while its imports of coal may grow proportionally.166 In parallel, this company
162 “V Estonii sozdana komissiya po uproshcheniyu peresecheniya granitsy s Rossiei,” 5 September 2013, http://www.interfax.ru/tourism/tourisminf.asp?id=327197&sec=1466. 163 It was closed down because of its low profitability. The main problem was that the ferries were not allowed to cross Russian sea border, which was situated to the North from Sillamäe, and had to take a much longer indirect route. The Border Treaty should allow the ferries to sail straight across the border (“Finns wish to restore Sillamäe-Kotka ferry service,” 23 October 2007, http://www.balticbusinessnews.com/?PublicationId=123287b2-852e-47d2-abd0-ed22271eef5e). 164 “Urmas Paet otvetil na voprosy ob uproshchennom poryadke peresecheniya granitsy,” 9 October 2013, Narva Leht, http://www.narvaleht.eu/eesti/society/voprosy-o-upashennom-porjadke-peresenija-granicy.html. 165 “Zaklyuchenie dogovora o granitse v ego nyneshnem vide ne otvechaet interesam Estonii,” 11 April 2013, Postimees, http://www.inosmi.ru/sngbaltia/20130412/207988673.html. 166 “Estonskii slanets dolzhen otstupit’ pered rossiiskim uglem,” 19 November 2013, Viru Prospekt, http://www.prospekt.ee/index.php?option=com_content&view=article&id=9172:2013-11-19-08-48- 57&catid=37:.
49 develops green energy solutions: it has built four wind power parks in Estonia, one of which has been constructed near Narva, at a cost of 59 million euro.167 At present the Government of Estonia drafts a new oil shale development plan for 2016-2030, with the priority being the reduction of negative environmental impact. The Ministry of Economy argues that new technologies have already made this industry more environmentally friendly, and it is possible to increase the maximum quantity of allowed annual shale extraction (which is currently set at 20 million tonnes per annum). However, the Ministry of the Environment disagrees strongly. According to them, there has been actually no progress in reducing the amount of environmental waste produced by the oil shale industry in recent years. And any increase in the quantity of shale extraction would have a devastating effect on the environment.168 As a possible future alternative to the shale-fired power plants some pundits propose to construct a nuclear power plant, which could be placed in Sillamäe.169 The forthcoming administrative reform presents both opportunities and challenges. Mergers of Kirde-Eesti’s municipalities may strengthen them and thus turn them into more capable development actors. The reform may also give more powers to the regional level, which could also be quite beneficial for regional economic development. However, it looks non-logical that the Government does not want to stimulate mergers of Kirde-Eesti’s smaller municipalities with the largest cities of this region. This way the right-wing Government probably wants to prevent the enlargement of the predominantly Russian speaking municipalities, which remain under firm control of the opposition Centrist Party. This means that in this case political considerations prevail over the interests of economic development. Finally, this region has good prospects for the development of tourism, especially in the still untouched areas along the sandy shores of the Gulf of Finland and Lake Peipus. A high-speed Tallinn – St. Petersburg railway connection may make this region more accessible and eventually turn Narva into a suburb of St. Petersburg,170 which would further stimulate tourism and Russian investments in local real estate. In recent years Kirde-Eesti has already experienced steady growth in the numbers of tourists, but in the future this inflow can be easily multiplied, especially if the EU and Russia would eventually reach an agreement on visa-free trips.
6.2. How would you specify recommended future objectives (spheres) of national development policy? In order to achieve progress in terms of socio-economic development in Kirde-Eesti it is first of all necessary to abandon the present course aimed at cultural assimilation of the Russian-speaking majority. The fact that the inhabitants use the Russian language should be regarded not as a threat, but as a social asset, which should be energetically employed in order to attract capital, technologies and talents from Russia and other countries of the former Soviet Union, where Russian is still lingua
167 “Slantsevaya energetika: na puti k bolee chistomu proizvodstvu,” No. 36, 2013, Infopress, http://www.inforing.net/publications/infopress/newsnarva.php?ELEMENT_ID=39493. 168 “Oil shale symposium attracts international experts,” 10 June 2013, http://news.err.ee/economy/8c572e8a- fc35-491c-a248-c38a95069ffa. 169 “Ekspert: Estoniya nuzhdaetsya v atomnoi elektrostantsii,” 22 November 2013, http://rus.delfi.ee/archive/print.php?id=67138898. 170 This may happen already in 2015 (“Skorostnoi poezd svyazhet Sankt-Peterburg i Tallinn,” 13 July 2012, http://press.rzd.ru/smi/public/ru?STRUCTURE_ID=2&layer_id=5050&log=INFO&id=266276).
50 franca. As a first step in this direction it would be advisable to allow entrepreneurs to keep their accounts and fill-in business-related papers in the Russian language in Kirde-Eesti. The restrictions concerning work and residence permits for skilled specialists from countries of the former Soviet Union should be relaxed. It would be also helpful to allow foreigners and the “non-citizens” to buy land in Estonian border municipalities. In order to promote tourism it is advisable to allow local self- governments and private establishments to put signs not only in Estonian, but also in Russian and English. Secondly, it is advisable to pursue a policy of spatial de-concentration of governmental functions and R&D activities, some of which could be transferred to Kirde-Eesti. It would also be beneficial to provide more funding to local R&D activities at the existing institutions of higher learning and to establish new research and academic centres, particularly in such fields as ICT and multicultural studies. The decision to establish the Centre of Competence in Shale Studies has been a move in the right direction. Thirdly, it is necessary to revise the system of regional governance. The regional (county) level of public administration should be strengthened and become financially stronger and administratively less dependent on the Central Government. Regional administrations or associations of municipalities should become responsible for drafting and implementing regional development strategies and for coordinating development policies with the European Commission, the Government of Estonia and local self-governments. A successful implementation of the administrative reform, which would strengthen municipalities, is also of vital importance.
6.3. Recommended future objectives (spheres) of EU cohesion policy On the basis of the Kirde-Eesti experience, it is possible to say that the regions situating on external borders of the EU depend very much on the quality of relations between EU member states and the neighbouring countries. Kirde-Eesti could be much more developed now on account of Russian FDI and tourists if Estonian-Russian relations would be as friendly as, for instance, Finnish-Russian or German-Russian relations. Therefore, normalization of Estonian-Russian relations is in the interests of EU’s cohesion policy. It would be also helpful to improve visibility of already existing EU financial support schemes (e.g. business support grants and export promotion mechanisms) to prospective foreign investors in their home countries, especially in Russia and in other countries of the former Soviet Union. This information can be spread through specialized marketing events promoting FDI to the less developed regions of the EU. Likewise, it is advisable to strengthen municipal and regional-level capacity of engaging in international place promotion campaigns. At present they focus on the geographically closest cities on the other side of the border (i.e. St. Petersburg in the case of Kirde-Eesti). But it seems rational to expand this geography and organize place-promotion marketing events in more distant places (e.g. in Moscow, in other major cities of Russia and in other countries of the former USSR). It can be also advised to exclude the most developed region of Estonia (the Harju county, where the city of Tallinn is situated) from the list of territories eligible for EU assistance. This measure would
51 make more resources available for less developed regions of Estonia, which need them much more than the capital city. This suggestion is widely shared in Kirde-Eesti.171 Finally, EU cohesion policy should take into consideration local peculiarities, such as the fact that Kirde-Eesti depends on oil shale. EU’s environmental directives prohibiting or suppressing the usage of shale should be accompanied with compensatory measures helping the affected regions to find new economic niches.
7. Conclusions 7.1. What are the main trends in restructuring of the regional economy? Since the mid-2000s the main directions of Kirde-Eesti’s economic development have been the following: the growing production of shale oil and construction of the new shale-fired electric power plant;
transport and logistics (Sillamäe seaport and new warehouses); construction and reconstruction of urban infrastructure and public buildings;
Russia-oriented retail trade and tourism (several major shopping malls, new hotels, a new skiing resort). Nonetheless, these positive developments have so far not reversed such negative trends as outmigration, high unemployment, relatively low level of incomes and associated social problems.
7.2. What factors of regional development were the most important (exogenous, endogenous, structural, socio-political, other)? The key factors affecting the development of Kirde-Eesti have been the following: Problematic relations between Estonia and Russia have precluded more intensive cross-border economic interaction;
Estonia’s language and citizenship policies have made Russian-speaking inhabitants less competitive than Estonian-speaking citizens on the labour market and in business life;
EU’s environmental policies have introduced the sense of uncertainty about the future of Kirde- Eesti shale energy industry, which has slowed down the development of this industry;
EU’s and Estonia’s funding has stimulated the development of several economic sectors, especially the construction and reconstruction of urban infrastructure, construction of the new power plant, and the development of manufacturing companies in industrial parks;
High oil price has stimulated the development of the production of shale oil;
171 Interviews with Mikhail Stalnukhin (24.9.2013), Rein Aidma (25.9.2013) and Alexander Efimov (27.9.2013), see also “Narvskie razbitye dorogi vdokhnovili evrodeputatov,” 27 November 2013, Viru Prospekt, http://www.prospekt.ee/index.php?option=com_content&view=article&id=9222:2013-11-27-09-46- 40&catid=:.
52
Long-lasting political rivalry (Centrist Party in Kirde-Eesti versus the right-wing coalition in the Government of Estonia) has led to certain “alienation” of several important municipalities in Kirde-Eesti from the Central Government;
Estonian mass media create an unfavourable image of Kirde-Eesti, which serves as an additional factor hindering its development.
7.3. Has the productivity growth been related to the increase of the innovative capacity of the region? No, it has not. The productivity growth has been achieved on account of job cuts and the introduction of new technologies and equipment, mostly imported from elsewhere.
7.4. Are social disparities and economic growth within the region interlinked? And how? (lower level of inequalities and exclusion / higher growth? Or?) On the basis of official statistical data, it is possible to say that there is a direct relationship between social disparities and economic growth in Kirde-Eesti. Thus, during the period of relatively fast economic growth in 2003-2006 income inequality grew. Then, during the economic crisis of 2008- 2009 the inequality fell down. And when economic growth resumed in 2010, income inequality started to grow again.
7.5. What were the most successful regional/local policies? Estonian regional and municipal administrations are very constrained in terms of their policy-making capacity. As a result, only two economic policies can be considered successful in Kirde-Eesti: (1) attraction of EU investments in local projects and (2) investment promotion through the creation of industrial parks/zones, through swift decision-making on construction and business permits, and through place-marketing events, especially those organized in St. Petersburg.
7.6. Has the external intervention been important for development of the region? Yes, external interventions have played a decisive role in defining regional economic trends. The influence of investments on account of EU structural funds, EC’s tolerance towards Estonian’s shale- fired power plants, the high level of oil prices, and the impact of Estonian-Russian relations can hardly be overestimated.
53
Bibliography
Enterprise Estonia, 2013, Database of projects, http://www.eas.ee/et/eas/sihtasutusest/toetatud- projektid/toetatud-projektid-alates-2004a-aprill. Erixon, Fredrik, 2008, The Baltic Tiger. The Political Economy of Estonia’s Transition from Plan to Market, European Centre for International Political Economy, Brussels. Estonian Research and Development and Innovation Strategy 2007-2013 “Knowledge-Based Estonia,” Report on achieving the objectives and implementing the strategy in 2012, Approved by the Government of the Republic on 21 March 2013, Tartu, Estonia. Herrschel, Tassilo, 2011, Borders in Post-Socialist Europe: Territory, Scale, Society, Ashgate, Farnham. Kriz, K. A., 2008, “Local government finance in Estonia,” in Sevic, Z. (Ed.) Local Government Finance Reform in Central and Eastern Euroope, Edward Elgar, London, pp. 161-183. Noorkõiv, R. and Loodla, K., 2013, Kohaliku omavalitsuse üksuste võimekuse indeks 2012, Geomedia, Tartu, Estonia, https://www.siseministeerium.ee/public/KOVindeks_pohiraport.pdf. OECD, 2011, Society at glance: 2011 OECD social indicators, OECD, Paris. PricewaterhouseCoopers, 2013, Paying Taxes 2014, http://www.pwc.com/gx/paying- taxes/assets/pwc-paying-taxes-2014.pdf. Security Police, 2006, Security Police Annual Review 2005, Tallinn, https://www.kapo.ee/cms- data/_text/138/124/files/aastaraamat-2005-eng.pdf. Statistics Estonia, 2011, Regional Development in Estonia 2011. Statistics Estonia, Tallinn, Estonia. Statistics Estonia, 2012, Regional Development in Estonia 2012. Statistics Estonia, Tallinn, Estonia. Statistics Estonia, 2013a, Regional Development in Estonia 2013. Statistics Estonia, Tallinn, Estonia. Statistics Estonia, 2013b, Statistical Database, http://pub.stat.ee/px-web.2001/dialog/statfile1.asp. Raagmaa, Garri, Tarmo Kalvet and Ragne Kasesalu, 2013, “Europeanization and de-Europeanization of Estonian regional policy,” European Planning Studies, pp. 1-21. Tatar, M., 2010, “Estonian local government absorption capacity of European Union structural funds,” Halduskultuur – Administrative Culture, 11 (2), pp. 202-226. Transparency International, 2013, Corruption Perceptions Index 2013, http://files.transparency.org/content/download/700/3007/file/2013_CPIBrochure_EN.pdf. World Bank, 2013, Doing Business 2014, World Bank, Washington, DC., http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual- Reports/English/DB14-Full-Report.pdf.
54
Annex 1. Employed persons in Kirde-Eesti, according to data of population censuses
31.3.2000 31.12.2011 Growth, % TOTAL 64514 54484 -15,5
Agriculture, forestry and fishing 1402 846 -39,7 Mining and quarrying 4889 3196 -34,6 Manufacturing 18607 12375 -33,5 including manufacturing of: - foodstuffs and beverages 2342 1153 -50,8 - textiles 3710 256 -93,1 - wearing apparel 2332 1591 -31,8 - leather and related products 312 114 -63,5 - wood products, except furniture 1462 767 -47,5 - furniture 995* 610 n/a - coke and refined petroleum products 1019 1416 39,0 - chemicals and chemical products 1864 1194 -35,9 - rubber and plastic products 285 147 -48,4 - non-metallic mineral products 432 328 -24,1 - basic metals 24 145 504,2 - fabricated metal products, except machinery and equipment 512 2358 360,5 - transport equipment 159 218 37,1 - electric, electronic and optic products 1992 619 -68,9 - machinery and equipment n.e.c. 813 416 -48,8 - other 1349* 1043 n/a Electricity, gas and water supply 4456 2837 -36,3 including: - electricity, gas, steam and air conditioning supply 3942 2332 -40,8 - water supply, sewerage and waste management 514 505 -1,8 Construction 3376 4352 28,9 Wholesale and retail trade; repair of motor vehicles 6625 6133 -7,4 including: - wholesale trade, except motor vehicles 1579 1098 -30,5 - retail trade, except motor vehicles; repair of household goods 4246 4420 4,1 - wholesale and retail trade and repair of motor vehicles 711 661 -7,0 Hotels and restaurants 1159 1295 11,7 Transport, storage and communications 3890 3862 -0,7 including: - land transport, transport via pipelines 2667 2566 -3,8 - water transport 104 94 -9,6 - post and telecommunications 744 470 -36,8 - warehousing and support activities for transportation 373 718 92,5 Financial intermediation 407 403 -1,0 Real estate activities 1296 1160 -10,5 Computer and related activities 106 147 38,7 Public administration; defence; compulsory social security 3823 3424 -10,4 Education 5908 5632 -4,7 Healthcare and social work 3969 3704 -6,7 Other 4601 5118 11,2 * - This figure is not compatible with the corresponding figure for 2011. Source: Statistics Estonia, 2013b
55
Annex 2. List of interviewees
Tarmo Tamiste Mayor of Narva (currently Chairman of the Narva City Council) 23.9.2013 Vyacheslav Konovalov Chief of Department for International Relations, Narva Municipal Administration 23.9.2013 Anne Veevo Chief of Project Department, Narva Municipal Administration 23.9.2013 Mikhail Stalnukhin Member of the Parliament of Estonia (and former Chairman of the Narva City Council) 24.9.2013 Tanel Rebane Head of Analytical Department, Enterprise Estonia 24.9.2013 Priidu Ristkok Head of Regional Development Department, Ministry of the Interior 24.9.2013 Liis Palumets Head of Regional Policy Bureau, Ministry of the Interior 24.9.2013 Rein Aidma Member of the Parliament of Estonia (and former County Elder of Ida-Virumaa) 25.9.2013 Andres Noormägi County Elder of Ida-Virumaa (and former Mayor of Narva-Jõesuu) 26.9.2013 Alexander Efimov Chairman of the Narva City Council (currently Deputy Chairman of the City Council) 27.9.2013
56
Annex 3. Municipal capacity ranking
Rank in Score in Rank in Score in 2009-2012 2009-2012 2005-2008 2005-2008 Estonian major cities: - Tallinn 4 79,6 2 82,6 - Tartu 9 75,6 5 79,7 - Pärnu 23 66,8 9 76,4 Municipalities in Kirde-Eesti: - Jõhvi 16 68,2 24 66,5 - Toila 33 63,8 32 63,7 - Kohtla-Järve 79 55,2 72 56,6 - Sillamäe 85 54,9 78 55,8 - Mäetaguse 92 53,7 128 48,3 - Vaivara 101 53,1 74 56,1 - Narva 102 52,9 77 55,9 - Kiviõli 104 52,6 116 50,2 - Maidla 112 50,9 91 53,9 - Iisaku 129 49,1 142 46,2 - Lüganuse 130 48,9 161 44,3 - Illuka 132 48,5 165 43,3 - Avinurme 147 45,9 146 45,9 - Kohtla-Nõmme 150 45,4 186 39,4 - Püssi 169 43,1 198 37,3 - Tudulinna 176 42,6 212 33,0 - Kohtla 178 42,5 173 42,0 - Narva-Jõesuu 179 42,5 187 39,4 - Sonda 191 40,3 196 37,9 - Aseri 192 39,5 145 45,9 - Lohusuu 217 29,2 224 25,9 - Alajõe 223 25,8 226 23,8 Source: Noorkõiv and Loodla, 2013, pp. 28-32.
57
Annex 4. Municipal viability ranking in 2011
Overall rank Population Rank of Rank of dynamics and employment municipal age structure and personal financial rank incomes resources Estonian major cities: - Tallinn 9 34 49 82 - Tartu 11 32 25 111 - Pärnu 34 99 159 128 Municipalities in Kirde-Eesti: - Toila 37 39 87 24 - Jõhvi 44 81 188 202 - Illuka 51 202 156 1 - Mäetaguse 65 84 203 2 - Sillamäe 76 96 207 192 - Iisaku 106 178 98 90 - Tudulinna 111 203 114 88 - Kohtla 117 49 152 140 - Kohtla-Järve 118 82 218 168 - Alajõe 132 219 168 67 - Lüganuse 139 138 90 178 - Avinurme 143 197 66 80 - Narva 145 73 226 212 - Narva-Jõesuu 146 151 212 173 - Maidla 152 74 185 14 - Vaivara 164 57 223 8 - Kohtla-Nõmme 171 146 177 7 - Lohusuu 188 208 160 127 - Sonda 193 192 130 42 - Püssi 208 183 169 39 - Kiviõli 217 199 225 120 - Aseri 223 209 219 113 Source: Statistics Estonia, 2013a, pp. 71-84.
58
Annex 5. Total municipal budgetary incomes per capita, euro
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Growth in 2003- 2012, % Estonia as a whole 551 608 695 860 959 1084 964 948 988 1090 97,8 Kirde-Eesti 468 498 574 659 781 892 774 788 832 982 109,9 - Kiviõli city 435 488 583 642 806 875 776 750 859 1168 168,7 - Kohtla-Järve 426 449 526 617 708 822 685 685 761 878 106,1 - Narva 408 431 491 573 684 785 652 643 685 858 110,5 - Narva-Jõesuu 518 618 606 680 846 949 822 779 907 1028 98,6 - Püssi 538 531 780 725 766 765 759 805 788 869 61,4 - Sillamäe 434 452 530 580 679 770 668 662 755 891 105,4 - Alajõe 419 620 560 840 941 1123 966 1386 1241 1201 186,8 - Aseri 471 555 638 669 768 818 705 724 870 781 65,6 - Avinurme 678 689 747 844 1371 1204 1012 961 977 1074 58,4 - Iisaku 581 659 933 1174 986 1226 1592 1027 907 1241 113,7 - Illuka 1339 1132 1498 1908 2535 3200 3541 4000 4150 4045 202,0 - Jõhvi 464 519 626 659 810 930 784 935 825 906 95,3 - Kohtla 375 426 492 583 709 910 1064 1021 902 1025 173,4 - Kohtla-Nõmme 868 943 1079 1146 1167 1580 1517 1507 2121 1461 68,3 - Lohusuu 606 609 637 811 906 1031 836 869 868 1077 77,8 - Lüganuse 580 665 906 1006 1224 1309 1274 1080 1146 900 55,0 - Maidla 1195 1654 1225 1397 1594 1987 2094 1956 1674 2436 103,9 - Mäetaguse 1576 1579 1532 2315 2973 3338 3277 3786 4025 4561 189,4 - Sonda 1053 772 836 1123 1165 1164 1113 1149 1056 1284 22,0 - Toila 696 812 1038 980 1179 1378 1273 1435 1323 1386 99,1 - Tudulinna 479 624 640 740 726 988 761 1591 813 1100 129,7 - Vaivara 1215 1254 1322 1471 1849 1821 1648 1791 1818 2138 75,9 Source: author’s calculations on the basis of Statistics Estonia, 2013b
59
Annex 6. Share of financial subsidies in total municipal budgetary incomes, %
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Estonia as a whole 39,8 35,6 35,2 33,2 33,2 32,3 32,3 34,0 33,3 34,3 Kirde-Eesti 53,6 47,7 48,4 48,0 43,8 40,9 40,8 44,6 44,3 44,0 - Kiviõli city 60,5 52,2 55,5 52,2 49,6 46,7 45,8 49,3 54,4 58,7 - Kohtla-Järve 58,9 53,1 54,1 53,9 48,2 46,0 42,9 48,7 49,8 44,5 - Narva 56,3 49,2 50,6 52,4 47,8 44,2 47,5 51,6 52,0 55,4 - Narva-Jõesuu 69,6 57,4 55,9 49,1 48,7 44,4 36,5 37,2 36,0 36,6 - Püssi 27,8 26,4 33,2 34,7 18,9 18,2 46,5 53,4 52,3 23,6 - Sillamäe 59,7 54,0 54,2 52,0 47,5 45,1 44,2 47,2 47,7 45,4 - Alajõe 45,0 28,1 29,8 33,1 28,0 23,2 23,9 27,7 16,7 20,4 - Aseri 51,6 56,6 52,4 47,5 44,4 43,6 46,3 55,1 61,7 48,9 - Avinurme 60,2 48,5 51,9 51,7 63,1 48,8 44,4 43,2 44,4 43,6 - Iisaku 58,8 53,2 60,6 64,0 47,9 43,2 58,0 47,4 36,3 37,0 - Illuka 31,7 14,1 12,3 11,7 9,6 6,9 5,8 4,9 5,3 5,5 - Jõhvi 48,8 44,0 41,8 46,0 44,4 39,0 34,8 48,0 37,4 38,5 - Kohtla 34,9 25,8 23,2 11,7 14,5 11,4 37,9 39,7 18,2 19,9 - Kohtla-Nõmme 77,4 73,6 73,4 66,1 59,0 62,8 64,3 64,9 73,4 59,0 - Lohusuu 67,5 60,0 59,7 53,5 52,4 53,9 48,3 47,7 46,1 43,6 - Lüganuse 64,0 50,5 54,5 46,1 46,6 44,0 49,7 40,2 42,6 41,1 - Maidla 26,0 50,0 21,6 18,5 17,1 16,4 27,6 20,3 15,9 35,0 - Mäetaguse 9,1 11,2 12,2 10,2 8,3 12,5 11,1 9,0 6,8 8,4 - Sonda 67,9 33,9 27,2 33,1 25,9 21,7 13,8 17,3 19,9 18,9 - Toila 39,0 38,1 39,1 32,1 25,4 26,1 21,7 30,3 26,6 20,6 - Tudulinna 44,5 52,7 45,2 39,2 36,6 47,5 42,0 70,1 41,4 39,3 - Vaivara 13,5 10,1 15,3 13,5 22,3 15,2 12,8 9,4 12,2 12,8 Source: author’s calculations on the basis of Statistics Estonia, 2013b
60
Annex 7. Largest investment projects supported from European Regional Development Fund (ERDF) and European Neighbourhood and Partnership Instrument Cross-Border Cooperation (ENPI CBC) Programme in 2009-2012
Recipient Project Amount of Total cost, Source of subsidy Year subsidy, thousand euro thousand euro Kohtla-Järve Renovation of municipality central park and an alley 3749 4410 ERDF 2009 Narva municipality Development of the city’s river port 1157 1618 ERDF 2009 Iisaku municipality Renovation of a school 1002 1179 ERDF 2009 Stako Diler OŰ Development of (Kohtla-Järve) the firm’s investment programme 820 2050 ERDF 2009 Sillamäe municipality Reconstruction of the city’s Centre of Culture 1042 1240 ERDF 2009 Viru Keemia Grupp Applied research AS (Kohtla-Järve) on shale fuel refining technologies 517 1193 ERDF 2009 Jõhvi municipality Construction of a new kindergarten 2070 2435 ERDF 2010 Kiviõli Introduction of Keemiatööstuse OŰ new shale (Kiviõli) recycling technologies 502 2510 ERDF 2010 Kiviõli municipality Reconstruction of a school 1553 1827 ERDF 2010 Kohtla-Järve Reconstruction of municipality access roads to the city’s industrial area 1533 1804 EDRF 2010 Metalliset AS Introduction of (Narva) new technologies and equipment 324 1619 EDRF 2010 Narva municipality Reconstruction of access roads to the Narva industrial area and installation of street lighting (Kadastiku, 39) 1688 1986 ERDF 2010 Virumaa Tööstuspark Construction of MTŰ the Virumaa Industrial Park, 1st stage 1938 2280 ERDF 2010 Ida-Virumaa Construction of Tööstusalade infrastructure at Arendus SA the Narva Logistics and Industrial Park 2122 2497 ERDF 2011 Jõhvi municipality Construction of pedestrian promenade 2188 2574 ERDF 2011
61
MP & Partners Acquisition of new Engineering OŰ metal-working (Narva) equipment 3200 10320 ERDF 2011 Narva municipality Reconstruction of a kindergarten 1715 2024 ERDF 2011 Narva municipality Development of Narva and Ivangorod fortresses as a ENPI CBC single tourist EstLatRus 2007- product, Stage I 1642 1823 2013 2011 Narva municipality Development of ENPI CBC historical riverside EstLatRus 2007- protection area 1568 1741 2013 2011 Narva-Jõesuu Development of municipality sea-beach infrastructure 2489 2929 ERDF 2011 Sihtasutus Kiviõli Kiviõli Skiing Seiklusturismi Keskus Adventure Centre (Kiviõli) Development 3004 3548 ERDF 2011 Kohtla-Nõmme Development of municipality the Kohtla Park- Museum of Mining 2602 3061 ERDF 2012 Narva municipality Construction of a riverside promenade 4269 5023 ERDF 2012 Narva municipality Development of the Joaoru recreational area 3028 3562 ERDF 2012 Technical University Creation of the of Tallinn Centre of Competence in Shale Studies 3032 3567 ERDF 2012 Jõhvi municipality Awareness rising ENPI CBC and investments in EstLatRus 2007- energy efficiency 822 982 2013 2012 Narva municipality Development of Narva and Ivangorod fortresses as a ENPI CBC single tourist EstLatRus 2007- product, Stage II 6184 6871 2013 2012 Sources: ENPI CBC EstLatRus Programme 2007-2013, http://www.estlatrus.eu; and Enterprise Estonia (2013).
62
Annex 8. Accessibility of medical services
Share of patients, aged 16 and older, who did not get help or consultation of a family physician, percent
9 8 7 6 5 4 3 2 1 0 2004 2005 2006 2007 2008 2009 2010 2011 2012
Estonia as a whole Kirde-Eesti
Source: Statistics Estonia, 2013b
Share of patients, aged 16 and older, who did not get help or consultation of a specialized doctor, percent
14
12
10
8
6
4
2
0 2004 2005 2006 2007 2008 2009 2010 2011 2012
Estonia as a whole Kirde-Eesti
Source: Statistics Estonia, 2013b
63
Share of patients, aged 16 and older, who did not get help or consultation of a dentist, percent
35
30
25
20
15
10
5
0 2004 2005 2006 2007 2008 2009 2010 2011 2012
Estonia as a whole Kirde-Eesti
Source: Statistics Estonia, 2013b
64
Annex 9. Social problems of Kirde-Eesti (Ida-Viru): a comparison with other Estonian counties Share of people coping economically by county
Source: Statistics Estonia, 2012, p. 28.
At-risk-of-poverty rate by county
Source: Statistics Estonia, 2012, p. 29.
65
Number of offences per 10,000 inhabitants by county
Source: Statistics Estonia, 2012, p. 32.
Share of people reporting very good or good health status by county
Source: Statistics Estonia, 2011, p. 67.
66