OVERVIEW OF ECONOMY 2019

Tallinn 2020

Contents

Foreign trade ...... 9 The manufacturing industry ...... 16 Food and beverage production ...... 20 Textile production ...... 26 Clothing production ...... 29 Wood processing ...... 32 Manufacture of paper pulp, paper and paper products ...... 36 The chemical industry ...... 39 Manufacture of rubber and plastic products ...... 43 Manufacture of metal and metal products ...... 46 Manufacture of machinery and equipment ...... 49 Manufacture of electronic and electrical appliances ...... 52 Manufacture of means of transport ...... 57 Manufacture of furniture ...... 61 The construction sector ...... 64 Domestic trade ...... 70 Tourism ...... 74 Information and communications ...... 82 Transport ...... 89 Annexes ...... 96

Abbreviations in text: *- preliminary, short term statistics y-o-y – year-over-year no – number l.s. – left scale r.s – right scale 3 Economic review 2019

The macroeconomic situation

In recent years, the Estonian economy has been in a strong position in terms of employment, income and export capacity. Economic growth has surprised positively, averaging almost 5% over the last three years. Despite the rapid growth, there should be no significant internal imbalances in the Estonian economy.

Real economic growth slowed to 4.3% in 2019 and to 7.7% at current prices. The indicators of corporate confidence weakened in the middle of the year both in Estonia and in the partner countries. This was due to a slowdown in the growth of international trade and heightened economic and political uncertainty, which will inevitably reach our economy. As a result of the Economic growth has weakening of external demand, export increase started to decline in the last surprised positively, quarter. The main components of domestic demand incremented more averaging almost 5% over slowly in the second half of the year than in the first half. In the fourth the last three years. quarter, economic growth was strong at 3.9% owing to an increase in net taxes on products, while value added in the total economy increased by only 2.3%. Throughout the year, the value added was driven mainly by activities

focused on domestic consumption, in particular information and

communication technologies, trade, professional and technical activities, contributing a total of 2.6 points. Manufacturing still had a strong impact, although its growth of the value added declined in the last quarter as exports Throughout the year, the diminished. Economic growth was also supported by a sharp increase in the value added was driven value added of the agricultural sector. The most dramatic negative impact mainly by activities was in the energy sector on account of the decreasing competitiveness of oil focused on domestic shale energy. consumption. % y-o-y Economic growth 15 10 5 0

-5

-10 -15 -20 2003 2005 2007 2009 2011 2013 2015 2017 2019

European Union Estonia

The most dramatic Source: Statistics Estonia negative impact was in the % y-o-y Domestic demand energy sector on account 60 of the decreasing competitiveness of oil 40 shale energy. 20

0 -20

-40 2003 2005 2007 2009 2011 2013 2015 2017 2019 Private demand Investments Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 4 Economic review 2019

Domestic demand grew in 2019 at the fastest pace in the last seven years, 5.2%, and the share of domestic demand in GDP rose to 97.6%.

In 2019, consumer The growth of private consumption has been rapid for the last eight years, confidence remained almost 4% per year. Parallelly, the purchasing power of wages and salaries relatively strong, and fast has surged even faster, by more than 6%. Favourable economic conditions wage growth continued have enabled not only a speedy rise in living standards but also the caused by labour accumulation of savings. In 2019, consumer confidence remained relatively shortages. strong, and fast wage growth continued caused by labour shortages. Nevertheless, private consumption growth slowed to 3.1% in 2019. During the year, increase in consumption of durable goods and services slowed down. Purchases of interior decoration products, recreational goods and vehicles increased to a greater extent. Among the services, an increased consumption of accommodation and communication services may be highlighted. According to the latest data for 2018, Estonian households saved 12% of their disposable income, corresponding to that of the eurozone's average, being significantly more than our level of prosperity would allow to assume. At the same time, a high savings rate indicates good preparedness for a possible future economic crisis.

The growth rate of investments has been volatile in recent years. After marginal investment growth in 2018, the increase accelerated to 13% in 2019. The increment of investment activity was driven by companies and households, where the growth rate reached 17%. General government investment declined slightly, primarily as a result of lower spending on defense fixed assets. Capital allocation in buildings and structures with the largest share has remained stable over the last two years.

Despite the cooling external environment and uncertainty about the future, corporate investment growth was broad-based, with strong increases in means of transport and real estate in particular. Nevertheless, the order portfolio started to deteriorate in 2019, while the available production capacity was sufficient. Against this background, the acceleration of corporate investment may have been temporary. Household investment was kept high by strong confidence and the labour market, which favoured Regardless of the the purchase of new real estate. The share of investments in GDP was the slowdown in the growth of highest in the last six years in 2019 (26%), but it will probably not rise to pre- foreign demand in 2019, crisis heights (35%). This is because of the lower additional need of the growth of Estonian companies for capital-intensive buildings. exports of goods and services advanced. In the light of a significant stoppage in the increase of world trade and the low level of the purchasing manager’s index of the industrial sector in recent years, the export developments of Estonia and our important trading

partners remained relatively strong. Regardless of the slowdown in the

growth of foreign demand in 2019 (2.2%), the growth of Estonian exports

of goods and services advanced (4.9%). Thus, is spite of cost pressures

attributable to wage growth, the export market share in foreign markets

continued to increase. Both goods and services contributed to the growth of

exports. The growth of the services sector was principally based on the rapid

boost of the export turnover of information and communication sector and

business services. The success of the field of IT in foreign markets has

enabled the sector's exports to double in the last four years.

Of the goods of Estonian origin, the advancement was driven by the increase

in the export volumes of food products, mechanical machinery and optical

equipment thanks to good yields. The weakening of demand in foreign

markets led to a halt in the export development of traditional activities such

as timber construction and a decline in the production of timber products in

the second half of the year. The speedy rise in the price of the CO2 permit

made electricity generation economically impractical, which means that its

exports in 2019 were almost non-existent. Among the most important Ministry of Economic Affairs and Communications • Ministry of Finance 2020 5 Economic review 2019

markets, exports to the USA, Denmark and Spain expanded more. While exports to the United States were surged by a number of activities, then in case of Denmark and Spain it was predominantly about fuels.

Imports of goods and services increased by 3.7%, due to increased foreign travel of the population, growth in outsourced construction services and stronger level of import of consumer goods and means of transport.

In recent years, the current account surplus has been close to 2% of GDP. Notwithstanding the intensified investment activity, the surplus increased to 2.2% of GDP in 2019. Progress in merchandise exports accelerated, By virtue of more volatile offsetting stronger domestic demand and leading to a narrowing of the trade developments in the deficit. By reason of strong import level of services, the services surplus global economy, the continued to decline somewhat. contribution of external factors decreased in 2019 By virtue of more volatile developments in the global economy, the and inflation decelerated contribution of external factors decreased in 2019 and inflation decelerated to 2.3% in Estonia. to 2.3% in Estonia and 1.2% in the eurozone. The rise in service prices accelerated during the year, while the rise in energy prices tapered off, while alcohol prices fell in the second half of the year due to the reduction of excise duties.

The peak of inflation (3.2%) was in the spring, when oil prices rose to the highest level of the year and air ticket prices were boosted by the shift in school holidays. Although growth expectations deteriorated in some economic sectors, this did not materialise in the labour market yet. The continuing labour shortage was accompanied by the persistence of an active wage growth and the lowest unemployment rate of the decade, which in turn was reflected in higher service prices. The price increase of services advanced to 4% in 2019, the prices of recreational, housing and health care services showed a faster growth. The cooling of the global economy and trade tensions were reflected in lower oil prices in the second half of the year, causing a slight decline in fuel prices in the domestic market as well. To boot, the price of electricity stabilised at a high level a year earlier by cause of unfavourable weather conditions.

Food prices rose by 3% in 2019, which is comparable to the long-term average increase in food prices. Local food prices were raised mainly by higher prices of horticultural and bread products, and in the autumn the rise in meat prices began to accelerate, owing to increased Chinese imports. As traders sold stocks accumulated at a higher rate of excise duty, the 25% reduction in excise duty on spirits, beer and cider on 1 July affected the prices gradually. As a result, spirits became cheaper by almost 12% and beer by 8%.

% y-o-y Consumer price index 14 12 10 8 6 4 2 0 -2 -4 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Consumer price index: Estonia Consumer price index: Euro zone (MUICP)

Source: Statistics Estonia, Eurostat

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 6 Economic review 2019

thousand Employment and unemployment % 60 25 40 20 20 0 15 -20 10 -40 5 -60

-80 0

2003 2005 2007 2009 2011 2013 2015 2017 2019

Change of number of employed Unemployment rate (r.s) Source: Statistics Estonia

The situation on the labour According to the labour survey, the number of employed increased by 1% market was excellent, but on a year-on-year basis and unemployment fell to 4.4%. The situation on the at the end of the year the labour market was excellent, but at the end of the year the growth of the growth of the number of number of employed wound down and registered unemployment increased employed wound down slightly as the economic situation cooled down. Although unemployment and registered was at an all-time low, it was significantly affected by the decline in the unemployment increased working-age population by nearly 60,000 over the past decade. Estimates of slightly as the economic Estonia's balanced unemployment have fallen from 8% a decade ago to situation cooled down. between 5 and 6%, which means that the unemployment gap and the overheating of the labour market were significantly smaller in 2019 than during the previous boom.

According to the Tax and Customs Board, the number of employed people increased by approximately 1.8% in 2019, but the growth stopped in December. Pursuant to the Tax Board, the faster employment growth is Short-term employment partly explained by the large number of people coming to work here from has increased materially, outside the European Union, who are not included in the labour survey which incremented by sample and are therefore not reflected in Statistics Estonia's data. In 12,000, compared to 2018. compliance with the statements of the Police and Border Guard Board, in 2019 approximately 32,000 cases of short-term employment were registered and somewhat more than 3,000 temporary residence permits for employment were issued. Short-term employment has increased materially, which incremented by 12,000, compared to 2018. The data of the Tax Board showed a decrease in the number of employees in both industry and construction from the middle of 2019. In the field of trade, confidence weakened, whereas the number of employees in both wholesale and retail sales continued to increase moderately by 1-2% until the end of the year, based on strong income growth and high consumer confidence. At the end of the year, the situation was best in services, where expectations for increasing the number of employees had not decreased substantially.

Pursuant to Statistics Estonia, the average gross monthly wage increased by 7.5% in 2019, but in the last quarter the growth rate slowed down to 6.4%. Due to a moderate price increase, the purchasing power of wages, i.e. real wages, increased by 5.1% in 2019, which was the fastest in the last three years - the last time real wage growth exceeded 5% in 2016. The slowdown in year-end wage increase may have been partly driven by one-off factors, such as the shift in premiums from December to January, while wage growth slowed in most sectors of the economy. Of the larger activities, wage growth hastened in construction and also slightly in transport and storage. IT and domestic demand-driven trade and financial and insurance companies also performed well, where wage growth remained more active than the economic average. The growth rate of the average salary has consistently exceeded expectations in recent years, and this has been accompanied by an anticipatory increase in wage costs over value added. To date, this has

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 7 Economic review 2019

not led to a relevant loss of competitiveness in foreign markets and the growth of the export footprint has continued.

In 2019, there was general government1 budget deficit, which according to the preliminary data of Statistics Estonia amounted to 90 million euros or 0.3% of GDP. Those who were in deficit, were the general government and local governments (0.5% and 0.1% of GDP, respectively), which was partially offset by the surplus of social security funds (0.3% of GDP). The general government deficit was for the state budget, the consolidated position of other central government agencies was in surplus. The revenues of the state budget exceeded the expectations of the forecast for the summer, where the receipt of chiefly fuel excise duty and corporate income tax was higher than expected. Expenditure was increased for the most part by social costs and EU taxes. The consolidated position of local governments was somewhat more negative than expected, predominantly in December, when increased expenditures induced a deficit in the budget position. The position of social security funds exceeded expectations due to the good receipt of social tax, which led to a higher surplus of the Estonian Health Insurance Fund (EHIF) than planned. The budget position of the Unemployment Insurance Fund met expectations.

Compared to 2018, the position of the general government sector improved by 0.24% of GDP, i.e. 56 million euros. The position of the central government was 140 million euros better than a year earlier as a result of higher tax income and increased CO2 revenues by 100 million euros. The position of the central government was also improved by other central The structural budget government agencies headed by State Real Estate Company and the position of the general University of Tartu. The position of social security funds was also 5 million government sector was euros better than in 2018 as a result of the increase in social tax revenues 1.9% of GDP in deficit in that affected the EHIF. On the other hand, the consolidated position of local 2019. governments was 90 million euros worse, the main reason for which was the increased investment volume. The structural budget position of the general government sector was 1.9% of GDP in deficit in 2019.

The nominal budget deficit for the year 2020 amounts to 10.1% of GDP,

according to the forecast and the additional budget.

The tax burden for the year 2019 amounted to 33.2% of GDP, which was

0.4% higher than the year before. The tax burden was increased, in

particular, by labour and consumption taxes. Persisting fast wage growth

increased the payment of social tax by 288 million euros and a natural

person's income tax of local government authority 115 mln euros. The

income tax of a natural person increased by 5 mln euros, as income tax

returns increased by nearly 90 million due to the deferred use of the

90 million euros of revenue. Value added tax grew by 152 million, fuel excise due to its supply of 95 million euros and the revenue of allowances, which is reflected in the tax burden by an annual offset of 101 million. The emergency situation established due to COVID- The tax burden of 2020 is estimated to be 32.4% of GDP in the spring forecast 19 affects both the and additional budget, which is 0.8% lower than the expected level of the payment (– 9.8%) than budget. The emergency situation established due to COVID-19 affects both GDP (-7.6%). the payment (-9.8%) and GDP (-7.6%). Compared to 2019, consumption taxes will decrease most in the year, including fuel excise duty of 246 million euros (which was affected by stockpiling at the end of 2019 and the reduction in excise duty on diesel from 1 May 2020) and VAT tax of 225 million euros. The income of social tax will decrease by 298 million

1 The government sector comprises the central government (recognised in the state budget), public institutions, public foundations (such as hospitals), public companies (e.g. State Real Estate Company), local governments, health insurance fund, unemployment insurance fund. Ministry of Economic Affairs and Communications • Ministry of Finance 2020 8 Economic review 2019

euros, the tax on natural persons (state budget and local governments in total) by 118 million euros and legal person's income tax by 117 million euros. The suspension of pension's II pillar payments as of 1 July will increase the tax burden by 143 million. In 2021, tax revenues grow faster than nominal GDP and the tax burden rises to 32.6% of GDP.

The general government's debt burden remained on 8.4% of GDP at the end of the year 2019, making up to 6.8% of GDP, without being affected by the European Financial Stability Fund (EFSF). In 2020, the government sector's debt burden is projected to increase to 21.9% of GDP. The debt is increasing both at central and local government's level, compared to the year 2019. The debt burden is projected to continue to increase also in the future and will represent 23.4% of GDP at the end of the year 2021.

% 2018 2019* 2020* 2021*

4.8 4.3 –8.0 8.0 Growth of real GDP 9.5 7.7 –7.6 10.5 Growth of nominal GDP 26.0 28.0 25.9 28.6 GDP in current prices (bln €) 3.4 2.3 0.6 2.1 Change of consumer price index 664.7 671.3 616.1 633.2 Employment (15–74-year-old, thousands) 0.9 1.0 –8.2 2.8 Growth of employment 5.4 4.4 12.5 9.5 Unemployment rate 1,310 1,407 1,416 1,487 Average monthly wage (€) 4.0 5.1 0.0 2.8 Real growth of average monthly wage 7.6 7.5 0.6 5.0 Nominal growth of average monthly wage 2.0 2.2 4.0 3.6 Current account (% of GDP) 4.2 3.1 –11.8 9.1 Change in private consumption expenditure 1.7 13.1 –5.7 5.6 Change in gross fixed capital formation 3.8 5.2 –9.6 7.9 Change of domestic demand 4.3 4.9 –12.3 12.0 Change of exports of goods and services 5.7 3.7 –14.4 12.8 Change of imports of goods and services

*The economic forecast for the spring of the Ministry of Finance is based on the assessment of the situation as of 31 March 2020. The estimate does not include the positive effect of state aid measures adopted by the additional budget.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 9 Economic review 2019

Foreign trade

In 2019, the export and import of Estonian goods decreased for several years. Compared to the previous year, exports fell by 0.3% and imports by 0.7%. The large increase in trade in the first half of the year was wiped away by the decline in the second half of the year. Imports of goods from Estonia's major trading partners, i.e. their demand, declined in the second half of 2019 and world trade also decreased. The foreign trade balance was still negative, but the deficit decreased by 5% compared to the previous year. In the second half of 2019, export and import prices also declined, leading to even lower levels of trade. Export prices fell more than import The large increase in trade prices, worsening the ability of companies to increase their profits. The in the first half of the year depreciation of the price of imported products also contributed to the was wiped away by the companies' aim to save costs. decline in the second half of the year. % y-o-y Export and import growth 40 30 20 10 0 -10 -20 -30 -40

Nominal export growth Nominal import growth

Source: Statistics Estonia billion € Trade dynamics 20 15 10 5 0 -5 -10 -15 -20

Exports Imports Balance Source: Statistics Estonia At the beginning of 2019, the volume of trade Due to the small size and openness of the Estonian economy, foreign trade decreased. and especially exports play a decisive role in economic development. While the development of foreign trade has been positive in recent years, at the beginning of 2019, the volume of trade decreased. The total trade turnover in Estonia decreased by 0.5% in 2019, reaching 30.5 billion euros. The volume of exports was 14.4 billion euros and the volume of imports was 16.1 billion euros. In 2019, the trade deficit was 1.7 billion euros. The decline in exports was mainly due to a decrease in exports of shale oil products and mobile communication equipment. The decrease in imports was influenced by the decrease in imports of production inputs. In 2019, the share of goods of Estonian origin in total exports of goods was 71%. Compared to the previous year, exports of domestic goods decreased by 1% and re-exports increased by 3%.

Goods were exported from Estonia to 183 countries and imported from 145 countries. However, Estonia's foreign trade is relatively concentrated, as trade with 10–12 main partner countries accounts for more than 70% of

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 10 Economic review 2019

foreign trade. Among the largest foreign trade partners, the turnover with Germany and Russia decreased by 2% and 5%, respectively. In 2019, trade with Finland remained at the same level as in the previous year, with Sweden Trade with 10–12 main and Latvia growing by 1% and with Lithuania by 7%. Estonia's main trading partner countries accounts partners are EU countries, with which trade accounts for a third of total for more than 70% of foreign trade. In 2019, trade with EU countries increased by 2% and with foreign trade non-EU countries decreased by 7%. Nevertheless, among non-EU countries, trade with the United States, one of the most important (4%) partners, grew by 7%.

The trade deficit was 1.7 billion euros in 2019, and its decrease compared to 2018 was mostly influenced by the increase in exports of agricultural and food products. Exports of these commodity groups grew faster than imports during the year, by 20% and 5%, respectively. The largest deficit was in trade in transport equipment (-0.79 billion euros) and raw materials and products of the chemical industry (-0.69 billion euros). The decline in chemical products was owing to the very strong boost of exports of shale oil products in 2018, which raised the benchmark of these goods to a very high level. Although the growth of exports of means of transport was faster than that of imports, the imports of this commodity group have always been higher than exports. The largest surplus was traded in timber and timber products (0.97 billion euros) and miscellaneous manufactured articles (0.78 billion euros). In cross-country comparisons, trade with Germany, Lithuania and Poland led to larger deficits. Of the most important partner countries, Estonia had the largest surplus with the United States, which had a positive balance of 0.75 billion euros.

The dynamics of trade are closely related to changes in the price index. In As imported products 2019, the import price index increased by 0.2% and the export price index became slightly more decreased by 0.5%. The export price index was affected by the decline in the expensive and the prices prices of the most important electronic products, in addition to changes in of exported products fell, the prices of oil products and electricity. Energetics was most impacted by this had a negative effect the increase in the price of carbon dioxide, which made the price of on the competitiveness of electricity produced from our oil shale uncompetitive. As imported products Estonian companies. became slightly more expensive and the prices of exported products fell, this had a negative effect on the competitiveness of Estonian companies. In the long run, successful exports require an increase in the role of non-price determinants, such as innovation, uniqueness, design and other qualitative characteristics.

The devastating COVID-19 outbreak in the world at the beginning of 2020 and the emergency situation put in place to fight it have led to a decline in all economic forecasts. The economic impact of the virus has spread via supply chains across borders, reducing international trade. Regardless of that, the assessments of the decline in Estonia's foreign trade of the experts of the Estonian Institute of Economic Research were still quite optimistic The economic impact of based on the forecast of March 2020, as the full economic impact of the the virus has spread via coronavirus was not yet felt in mid-March. 37% of the experts forecasted supply chains across that the volume of exports would remain the same for the next 6 months borders, reducing and that the volume of imports for 40%. The remaining experts predicted a international trade. decrease in foreign trade volumes. At the beginning of 2020, the economies of Estonia's main trading partners were on a downward trend and exacerbated by the corona crisis. Pursuant to the spring forecasts of the European Commission and the IMF, the economic downturn in Estonia's neighbouring countries in 2020 will be between 6 and 8.6%, which is in the middle of the scale of the European countries. The corona crisis is reducing the foreign trade activity of neighbouring countries, which was already on a downward trend.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 11 Economic review 2019

Exports

In 2019, goods were exported from Estonia at current prices in the value of 14.4 billion euros. Exports of goods produced in Estonia decreased by 1% over the year. In the first half of the year, exports were still growing moderately, but in the second half they started to decline (only in December did exports increase). However, the reason for the decline in exports was not yet a broad-based decline in demand for Estonian goods, but mainly the slump in exports of energy products. What is more, the sale of electrical equipment also had an impact, mainly due to the slowdown in the export of a certain company's telecommunication equipment.

Exports by commodity groups

Machinery and equipment

Mineral products

Wood and wood products

Furniture, log houses

Metals and metal products A significant part of the decrease in export Means of transportation turnover came from the decrease in exports of 0 5 10 15 20 25 30 % shale oil products and 2019 2018 mobile communication Source: Statistics Estonia equipment. A significant part of the decrease in export turnover came from the decrease in exports of shale oil products and mobile communication equipment. Compared to 2018, exports of mineral products decreased by more than 20% and exports of electrical equipment by more than 8%. The decline in exports of shale oil products was due to very strong export growth in 2018, which raised the benchmark of these goods to a high level. In addition to oil and oil products, the end of the export of electricity produced in Estonia due to increased environmental charges also had a strong impact on energy trade. Mobile device statistics are greatly influenced by a certain company and its production and sales plan. The decline in exports of these products was mainly because of the decrease in exports to Sweden, whereas the larger decline was prevented by an increase in export volumes to the USA. In 2019, the exports of the wood industry, which is very important for the Estonian economy, also decreased, strongly affected by the fall in raw material prices. For instance, the price of pulpwood in the third quarter was almost a quarter cheaper than at the same time last year. Most of the exports of wood products were wood joinery and carpentry products, sawn timber and firewood, which were mostly shipped to the Nordic countries. Among these product groups, only the export of sawn timber decreased by 6%. Exports of other manufactured goods, metals and metal products as well as means of transport grew out of commodity groups with a share of less than 10% but with a turnover more than a billion euros. Exports of miscellaneous manufactured goods increased by 2% year-on-year. The goods with the largest share in this group were prefabricated buildings, of which exports increased by 4% in 2019. The most important target markets for various manufactured goods are Finland, Sweden, Norway and Germany. The increase of exports of metals and metal products was mostly influenced by the growth of exports of iron or steel metal structures by 13%. The other most important commodity group, cast iron and steel scrap, was on a 23% downward trend. The largest target markets for metals and metal products are Finland, Sweden, Latvia, Germany and Turkey. Exports of means of Ministry of Economic Affairs and Communications • Ministry of Finance 2020 12 Economic review 2019

transport were 16% higher than in the previous year. The main commodity group of means of transport is means of land transport, the export of which increased by more than 30% during the year. Anyhow, exports of vehicles The main destination and other means of transport are mostly transit trade. countries for goods of Estonian origin are The share of goods of Estonian origin in total export of goods was 71%. Finland, Sweden and the Compared to 2018, the export of domestic goods decreased by 1%. Exports USA. of mineral products and electrical equipment of Estonian origin decreased significantly. Exports of agricultural and food products increased the most. The main destination countries for goods of Estonian origin are Finland, Sweden and the USA.

The largest increase in export turnover in 2019 was in the group of precious metals (49%) and plant products (48%). In October, the growth of plant products was affected by the export of cereals worth almost 40 million euros, which is practically 10 times higher than at the same time last year. Exports of coins of precious metals increased. In addition, higher growth was in exports of animal products by 15% and in exports of medical and measuring equipment by 11%.

Overall, exports of only a few commodity groups were in decline, but among them were the commodity groups which had the largest share of total Overall, exports of only a exports. The decline in exports of mineral products, which accounted for few commodity groups 12% of total exports, had the most negative impact. To boot, machinery and were in decline, but equipment, the largest commodity group with a 24% share, was also in among them were the decline. The most significant positive changes were an increase of commodity groups which 226 million euros in agricultural and food products and an increase of had the largest share of 142 million euros in exports of means of transport. total exports. Exports target countries

Finland

Sweden

Latvia

USA

Germany

Russia

0 3 6 9 12 15 18 % 2019 2018 Source: Statistics Estonia

The share of the European Union, including Great Britain, accounted for 70% of Estonia's total exports, which was 2 percentage points more than a year In 2019, the exports of earlier. In trade with the EU countries, the volume of exports increased by Estonian companies to the 3%, which was mostly affected by the increase of exports to Denmark by EU domestic market 127 million euros and to Spain by 86 million euros. The volume of exports exceeded 10 billion euros. increased principally in the group of mineral products. In 2019, the exports of Estonian companies to the EU domestic market exceeded 10 billion euros.

Exports to the CIS countries were growing in 2016 and 2017, but in 2018 they

started to decline. In 2019, the downward trend continued, when export

turnover fell by 2% compared to the previous year. Exports to Russia had the

greatest impact, accounting for almost 90% of all exports to the CIS

countries. Exports to Russia fell by 5%. The decrease in export volumes was

chiefly influenced by the decline in exports of machinery and equipment and

chemical products (sealing compounds and other mastics). Moreover,

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 13 Economic review 2019

exports to Belarus, Armenia, Kazakhstan and Uzbekistan were in decline, but they have a marginal share in the total exports of the CIS countries.

In the markets of the NAFTA countries, there was a slight increase again in 2019, the export volume grew by almost 2%. The most important country of destination amongst the NAFTA countries, the USA is the only one that was also growing. Exports to the USA increased by 5%, for the most part put down to an increase in exports of electrical equipment (mobile communications equipment). An important contribution was also made by the surge in exports of shale oil products, wood products and measuring and precision equipment. Export volumes to Canada and Mexico were down 13% and 25% respectively. The main reason for this was the decrease in exports of mobile communication equipment.

In 2019, Finland was still the Estonia's largest export partner with 16%, and its trade volume increased by 2%, compared to the previous year. The largest In 2019, Finland was still share was accounted for by electrical machinery and equipment, of which the Estonia's largest export exports fell by 2%. At the same time, various manufactured products, metals partner with 16%, and its and metal products were also important export groups, both growing by 8%. trade volume increased by However, Sweden was the second largest export partner in the list of 2%, compared to the destination countries for a long time. In 2019, exports to Sweden fell by 4%. previous year. Sweden's share of total exports dropped by 1 percentage point over the year, remaining at 10%. Behind the decline of exports, the largest commodity group, mobile devices, export changes that previously moved through Sweden, but now more and more are going to be done directly to the country of destination. In 2019, Latvia remained in the third place with a share on a similar level, or just over 9% as in 2018 . However, exports dropped by 5%. The main influences were mineral products, which accounted for 15% of total exports and decreased by around 60% during the year. In addition, wood and wooden products – 8% and beverages – dropped by 13% among major commodity groups. In the ranking of Estonian export target markets, the USA ranked fourth, accounting for 7% of total exports. Exports increased by 5%, which was primarily affected by the export of mobile communication devices due to the development of 5G technology. In 2019, Germany was the fifth largest export target country, which has lost its place chiefly due to the rapid growth of US exports in the last two years. Germany's export turnover was at the same level as in 2018.

In the first quarter of 2020, the decline in exports that began at the end of the previous year continued. In addition, export prices decreased by almost 6%. In March, the general decline in external demand was compounded by Initially, the corona crisis the impact of restrictions on the spread of the virus. Initially, the corona crisis had a greater impact on had a greater impact on imports, but as goods are used to produce a lot of imports, but as goods are imported inputs, the impact soon reached exports. Due to the economic used to produce a lot of crisis caused by the corona pandemic, international trade has suffered imported inputs, the particularly extensively, and if the decline in trade and movement caused by impact soon reached the crisis should persist, the export sector, which is material for the Estonian exports. economy, will suffer. According to the forecast of the Bank of Estonia, the demand for exports will decrease by about 14% in 2020 and will not return to the pre-crisis level in 2022.

Imports

Like exports, imports also declined in 2019. Goods were imported to Estonia at current prices for 16.1 billion euros, which was 0.7% less than a year earlier. The monthly changes in import turnover were quite volatile. While at the beginning of the year all months were up to May, in the second half of the year there was both growth and decline. The largest decline was at the end of the year in November, when import turnover was more than 10% lower than in 2018.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 14 Economic review 2019

Imports by commodity groups

Machinery and equipment

Mineral products

Means of transport

Metal and metal products

Chemical products

Prepared foodstuffs and beverages

0 5 10 15 20 25 30 % 2019 2018 Source: Statistics Estonia

The decline in imports was mostly due to imports of production inputs, i.e. The decline in imports was intermediate goods. Imports of mineral products (-15%) and electrical mostly due to imports of equipment (-9%) decreased the most during the year. Like exports, the main production inputs, i.e. decline in electrical equipment came from declining imports of mobile intermediate goods. communications equipment. To boot, an important part of the import of electrical equipment is integrated circuits, the import of which was 17% lower compared to 2018. Among the most important goods, the import of electrical switching equipment and the import of cables were also in decline, both by -5%. In the case of mineral products, there was a decrease in the import turnover of petroleum oils and other crude oils. At the same time, electricity imports increased by almost 60%, mainly due to the increase in At the same time, Estonian electricity prices due to higher environmental fees. Of the electricity imports important commodity groups, mechanical machinery and equipment, wood increased by almost 60%, and wood products were also in decline, both by 3%. The main goods of mainly due to the increase mechanical machinery were computers and similar data processing in Estonian electricity equipment (decrease -2%), self-propelled mechanical shovels, excavators prices due to higher and shovel loaders (down -20%) and hand tools (down -24%). environmental fees. As in exports, imports had the largest increase in imports of means of transport. Imports of means of transport increased by 9% year-on-year and

were also the third largest commodity group in terms of the share of

imported products with 11%. The reason for the increase can be considered

the requirement for stricter CO2 emissions for cars, which came into force in 2020, leading to an increase in the prices of some passenger cars and forced

car dealers to buy more cars in stock. In addition, growth may be driven by

rapid real wage growth and low interest rates, which gave consumers strong confidence. Among imported goods, various manufactured products (+11%),

paper and paper products (+8%), chemical products (+6%) and agricultural

and food products (+5%) also grew.

Of all imports, Finland, Lithuania and Germany accounted for the largest

imports. Estonia's largest import partner with a 13% share is Finland, from

which 2% less goods were imported in 2019. The largest groups of goods are machinery and equipment, mineral products and metals and metal products. Lithuania rose to the second place in terms of the share of imports, from

which imports increased by 5%. Germany fell third, with imports declining

by 3% year-on-year. Imports of goods from Belarus and the Netherlands decreased the most during the year. Less fuel was imported from Belarus

and electrical equipment from the Netherlands. Imports from Sweden,

Latvia and Lithuania increased the most. More passenger cars were imported from Sweden, fuels from Latvia and electrical equipment from Lithuania.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 15 Economic review 2019

Imports by country of consigner

Finland

Lithuania

Germany

Sweden

Latvia

Russia

0 4 8 12 16 % 2019 2018 Source: Statistics Estonia

As in exports, Estonia's main import partners are EU countries. The EU's The EU's share of total share of total imports was almost 80% in 2019, two percentage points more imports was almost 80% in than in 2018. The turnover of imports from EU countries increased by 1% 2019. during the year. However, imports from non-EU countries fell by 7%.

The volume of imports from the CIS countries decreased by 16% in 2019 which was mainly due to the decrease in imports from Russia, being the CIS country with the largest volume of imports, falling by 7% year-on-year and having a significant impact on the indicator. This was mainly due to the decline in imports of mineral fuels. Another important sending country among the CIS countries is Belarus, of which import volume fell by almost half a year. The volume of imports from Belarus was also mostly affected by mineral products and also by the high base level of the previous year.

However, imports from NAFTA countries increased in 2019. This was supported by imports from the USA, which increased by 17% and accounted for almost 90% of all NAFTA imports. The most important groups of goods imported from the USA were precious metals (coins), mechanical machinery and equipment, and electrical equipment. The volume of imports from Canada increased by 26% in 2019 and imports from Mexico decreased by 13% during the year.

In the first quarter of 2020, According to forecasts, similarly to exports, a decline in imports can be import turnover was expected in 2020. In the first quarter of 2020, import turnover was already already declining, but then declining, but then the effects of the corona crisis had not yet been fully felt. the effects of the corona The impact of the restrictions imposed to prevent the spread of the virus crisis had not yet been initially affected imports the most, due to supply restrictions in Asia. fully felt. Nevertheless, production stoppages in China and supply chain disruptions that began there quickly spread around the world as a domino effect. As Chinese companies gradually began to recover and return to normal, the escalation of the coronavirus in other parts of the world led to supply problems. Estonian production depends very much on imported production inputs, which is why supply chain disruptions affect us a lot.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 16 Economic review 2019

The manufacturing industry There are about 7,500 companies operating in the manufacturing industry in Estonia, most of them small and medium-sized. There are more than 200 companies with at least 100 employees, but they employ almost half of the employees in the industrial sector. The largest companies include, for example, Ericsson Eesti AS, which manufactures mobile communications network equipment, the electrical appliance manufacturer ABB AS, the shipbuilding and metal processing group BLRT Grupp AS, the wood processor Stora Enso Eesti AS; the comforter, pillow, bed and mattress manufacturer AS Wendre, the car safety systems (safety belt) manufacturer AS Norma, and the meat products manufacturer AS HKScan Estonia. In Estonia, the share of the industrial sector in the economy on the basis of value added is slightly smaller than the EU average (approximately 15%). However, the share of people employed in manufacturing in Estonia is one of the highest among the EU countries (almost one-fifth), which shows that elsewhere it is possible to create more value added with the same number of employees. The manufacturing industry as a whole is the largest employer in Estonia - almost every fifth employed person works in this field. The share of people employed in industry in the total economic circle has gradually decreased, while the number of people employed has not changed significantly in recent years. Jobs have been created in the production of electrical equipment and in the repair and installation of machinery and equipment, and the wood industry has grown the most in terms of production volume. The largest industries in terms of number of employees are the wood industry, food production and the metal industry. The economic crisis of 2008 led to job losses, but the manufacturing industry was also one of the first to improve and re-create jobs. Exports played an important role in the recovery. The sector is heavily dependent on foreign markets, where more than 60% of production is sold. The main export markets are Finland and Sweden, which also account for the largest share (more than 60%) of foreign direct investment in Estonian manufacturing. The number of employees in the manufacturing industry is not expected to change remarkably in the coming years (excluding fluctuations due to the economic situation), but employment in the more labour-intensive sectors is expected to continue declining. Jobs are expected to be created in higher value-added sectors (electronics), but the wood industry based on local raw materials also sees growth potential. However, competitiveness remains based on increasing productivity, which requires continued investment in machinery and equipment, digital technologies and people, as well as product development and improved work organisation.

In manufacturing, the production volume increased by a few percent in 2019, but at the end of the year production started to decline. The number of employed decreased slightly. At the beginning of 2020, production was still on the positive side, but the spread of the coronavirus has taken a toll on almost all industries, and the negative impact of the virus may be seen in the year as a whole.

% Share of sector in economy % 100 100

80 80 65,4 95,2 60 60

40 40

18,0 20 14,8 20 0 0 Share in value Share of exports Share in Ratio to average added in sales employment wage

In the year as a whole, Source: Statistics Estonia Estonia was again among the strongest in the EU in In the European Union, the production volume of the manufacturing terms of industrial industry started to decrease from the end of 2018, and also in 2019, the production developments. production decreased by almost 1%. In Estonia, the manufacturing industry remained on a growth rate until the second half of the year. In the year as a whole, Estonia was again among the strongest in the EU in terms of industrial

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 17 Economic review 2019

production developments, the growth of production volume was similar to Latvia and Finland.

According to short-term statistics, the Estonian manufacturing industry

produced more than 2% more output in 2019 than a year earlier. In the

fourth quarter, however, production decreased in more than half of the

branches of industry. In the year as a whole, production grew faster in the

oil industry, in the manufacture of other transport equipment, and in the

repair and installation of machinery and equipment. However, clothing

production decreased the most.

Modest demand also affected prices. Producer prices in the manufacturing industry fell by an average of 0.6% over the year. By branches of industry, the changes were mostly small. Prices increased by more than a few percent in the clothing, textile, leather and machinery industries. Prices in the paper industry fell by the same amount.

Relatively small production growth and falling prices meant that sales of Exports increased by more industrial products remained the same as in 2018. Exports increased by more than 3%, but less than 3%, but less production was sold to the domestic market. production was sold to the domestic market. million € Sales and exports % y-o-y 14 000 8 12 000 7 6 10 000 5

8 000 4 3 6 000 2 4 000 1 0 2 000 -1 0 -2 2014 2015 2016 2017 2018 2019*

Sales Exports Change in sales Change in exports Source: Statistics Estonia

Share of sub-sectors in sales of manufacturing industry Other sub-sectors

Wood industry

Equipment industry

Food industry

Metal industry Chemical industry

Furniture industry

Building materials industry

Textile and clothing industry

Rubber and plastic industry % 0 5 10 15 20 25

Source: Statistics Estonia

In manufacturing, wages rose by 7.2% year-on-year, which is almost the same as the Estonian average. The number of employed and working hours decreased slightly, the largest decline was in the metal industry and clothing Ministry of Economic Affairs and Communications • Ministry of Finance 2020 18 Economic review 2019

production. Manufacturing sales revenue (which also includes sales of industrial products) increased by 4% year-on-year, but due to slightly faster cost growth, total profit in manufacturing fell by more than a tenth in 2019, while value added increased slightly. In manufacturing, wages rose by 7.2% year-on-year, thousand Number of employed people % y-o-y which is almost the same 130 7 as the Estonian average. 6 125 5 120 4 3 115 2 110 1 0 105 -1 100 -2 -3 95 -4 2014 2015 2016 2017 2018 2019* Number of employed people (labour survey data) Number of employed people (business statistics) Change in number of employed people (r.s.) Change in number of employed people in companies (r.s.) Source: Statistics Estonia Average gross wages % y-o-y 1 500 8

6 1 000 4 500 The number of employed 2 and working hours decreased slightly, the 0 0 largest decline was in the 2014 2015 2016 2017 2018 2019 metal industry and Average wages (in euros) Change (r.s.) clothing production. Source: Statistics Estonia Value added, labour costs and productivity million € % y-o-y 3 500 5 3 000 4 3 2 500 2

2 000 1 0 1 500 -1 1 000 -2 -3 500 -4 0 -5 2014 2015 2016 2017 2018 2019* Value added Labour cost Change in total productivity (r.s.) Change in labour costs productivity (r.s.)

Source: Statistics Estonia

Manufacturing companies invested notably more in 2019 than a year earlier. Pursuant to short-term statistics, investment increased by a quarter, but Manufacturing companies final statistics are likely to show a lower growth. Investment increased in invested notably more in most branches of industry. Capital investments were made more than a year 2019 than a year earlier. earlier in all types of assets, most of them (over 60%) usually went to machinery and equipment.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 19 Economic review 2019

million € Investments of companies % y-o-y

720 30

700 25

680 20

660 15

640 10

620 5

600 0

580 -5

560 -10

2014 2015 2016 2017 2018 2019* Investments in fixed assets Change in investments (r.s.) Source: Statistics Estonia

The progress of industrial companies was also reflected in their assessments of the economic situation. In the middle of 2019, according to a survey by the Estonian Institute of Economic Research, the confidence indicator of entrepreneurs began to decline - orders and production volumes decreased, there was pressure to lower the prices; over several years, more companies At the beginning of 2020, had predicted redundancies as creators of additional jobs. according to entrepreneurs, the At the beginning of 2020, according to entrepreneurs, the situation situation deteriorated deteriorated further, but the manufacturing industry as a whole remained further, but the on the rise. Despite that, with the spread of the coronavirus, there was a manufacturing industry as bigger setback. In April-May, more than half of the respondents had fewer a whole remained on the orders than usual, more than 70% of entrepreneurs pointed out insufficient rise. Despite that, with the demand as a problem. Other issues also occurred, such as lack of materials / spread of the coronavirus, equipment. While in the last few years 20-30% of industry representatives there was a bigger cited labour shortages as a barrier to production, in April 2020 only a few setback. percent of respondents mentioned it. Overall, the confidence indicator fell to the level last seen during the 2008/2009 economic crisis. Industrial production fell in almost all branches of economy. The exceptions were the chemical and pharmaceutical industries, where demand and production increased during the corona crisis. Production of some foods, such as canned food, also increased.

In May 2020, restrictions on the virus began to be eased in many parts of Europe, and as a result, normal economic activity should begin to recover. Parallelly, companies did not forecast an outstanding increase in demand in the coming months. In some branches of industry, such as those more dependent on construction, the effects of the crisis may be delayed. At the end of the year, however, industrial production will fall strikingly, and the number of employed is also expected to decline. Due to extraordinary circumstances and costs, the financial indicators of companies are also expected to deteriorate.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 20 Economic review 2019

Food and beverage production The food industry is one of the largest ones in Estonia in terms of production volume and it is the main activity of more than 700 companies. Although most of the sales revenue comes from the domestic market, the volume of exports has also been growing steadily. In total, more than 16,000 people are employed in the production of food and beverages.

Food and beverage companies may be found all over Estonia, and the food industry is an important employer in several rural areas. The largest company in this industry among the meat industries is AS HKScan Estonia in Lääne-Viru county. Another large meat industry is the Atria Group, located in Southern Estonia. The largest bakery companies are AS Eesti Pagar in Paide and AS Leibur in Tallinn. The largest companies in the food industry also include the beverage producers Saku Õlletehase AS in Harju County and AS A. Le Coq in Tartu County, the dairy industries Valio Eesti AS and the Maag Group which includes AS Farmi Piimatööstus and Tere AS. The largest fish processors are AS MVWool located in Harju county and AS Paljassaare kalatööstus belonging to the Vičiūnai group, AS Japs M.V.M. located in Pärnu county and OÜ Vettel operating in Saare county. The largest confectionery producer is the Kalev production unit belonging to the Orkla Eesti AS group. The largest producers of ready meals are Lunden Food OÜ and Kulinaaria OÜ, which belongs to the Tallinna Kaubamaja group. Oil is produced by AS Scanola Baltic and yeast is produced by AS Salutaguse pärmitehas.

There is intense competition and rather difficult export opportunities in the food industry. Foreign markets expect large quantities, which Estonia, as a small producer in European terms, has difficulties to offer. In order to increase sales, one must look for different niche opportunities and invest in product development.

The year 2019 turned out to be diverse for the production of food and beverages. On the one hand, the fisheries sector was hit by a listeria scandal, but on the other, the reduction in excise duties led to a decrease in cross-border trade, which in turn boosted the beverage industry. Thus, the year included both positive and negative developments.

% Share of sector in economy 100

80 90,4 60 The year 2019 turned out to be diverse. The fisheries 40 32,0 7,2 sector was hit by a listeria 20 12,4 scandal, the reduction in 1,8 0 excise duties boosted the Share in value Share in man. Share of Share in Ratio to beverage industry. added industry exports in employment average wage exports sales of man. industry Source: Statistics Estonia

The food industry consists of two major sectors: food and beverage production. 2019 was a bit more successful for food producers, sales in beverage production fell by a few percent over the year.

In 2019, raw material prices moved in different directions. The purchase price of milk increased by 1% during the year. To boot, the price of pork increased by a tenth and the price of mutton by as much as 14%. The purchase price of beef decreased by 6 percent. The largest increase was in the purchase volume of pork, which increased by more than a tenth over the year. Beef was bought 2% less and mutton 19% less than a year ago. In the production of beverages, producer prices fell by 1.4% over the year. Labour continued to rise in price, competition was intense and export sales declined. In 2019, the grain harvest in Estonia was the largest in history, and world market prices were higher than in previous years, because the conditions for grain growth were less favourable in other parts of the world. Therefore, the growth of producer prices in the production of bakery and pasta products was also faster than average, reaching 10%. Ministry of Economic Affairs and Communications • Ministry of Finance 2020 21 Economic review 2019

Share of sub-sectors in sales Processing and Other preserving of fruit 27% and vegetables Labour continued to rise in 4% price, also raw material Production of beverages prices increased. 10% Meat processing industry Production of bakery and 20% pasta products

10% Fish Dairy industry processing 22% industry Source: Statistics Estonia 7%

Export growth accelerated in 2019. In total, 12% more products were sold to foreign markets than in the previous year. Finland was still the largest trading In total, 12% more partner, selling 22% of all output. At the same time, the volume of exports products were sold to to Finland increased by only 3.8%. Sweden and Denmark, the largest foreign markets than in partners, showed rapid growth, selling 21% and 39% more products, the previous year. respectively, than a year earlier. In both cases, the main contributors to growth were fish products. The same product group more than doubled its exports to Iceland to 17 million euros. Of the high-potential markets, rapid growth continued in China, where exports increased by 45% to 13 million euros. Here, too, most of the growth came from almost doubling sales of fish products. Exports to Russia increased by 4 million euros or 24%. The increase came primarily from cereal products, of which exports increased by 1.1 million euros. In terms of commodity groups, growth was driven by frozen fish and shrimp, of which exports increased by 27 million euros or a third over the year. Having said that, the export of the largest commodity group, i.e. raw milk, decreased by 1% year-on-year to 70 million euros. Of the smaller commodity groups, exports of baby food grew rapidly, increasing by a third year-on-year to 9.4 million euros.

million € Sales and exports % y-o-y 2 000 10

1 500 5

1 000 0

500 -5

0 -10 2014 2015 2016 2017 2018 2019*

Sales Exports Change in sales (r.s.) Change in exports (r.s.)

Source: Statistics Estonia

2019 was rather uneventful for the dairy industry, which had the largest share in the food industry. The purchase price of milk increased slightly, despite the fact that the supply of milk on the domestic market increased and the amount of milk purchased set a record for the last 16 years. The export volume of dairy products also increased, but sales of raw milk decreased. The purchase price of milk, which has remained above € 300 per tonne for the third year in a row, has been a sufficient motivator for farmers to increase production. Thus, both productivity per cow and the total number of dairy cows increased. A larger increase in the price of milk is expected in 2021, when Paide E-Piima's new dairy factory, which costs

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 22 Economic review 2019

100 million euros and is capable of processing 1,000 tonnes of milk per day, will be completed. That is more than we currently export as raw milk. At the beginning of the year 2020, the construction of the plant was still on schedule, but it is not known how the pandemic could affect it. Should other industries also plan to increase volumes, this could, at least in the short term, lead to a market deficit in milk and raise prices. In terms of tonnes, the production of drinking milk increased by 1% and or 6%. Cheese production increased by 2%. Exports of cheese and curd increased by 13% over the year. Of the larger commodity groups, ice cream exports were weaker, decreasing by 2% year-on-year. In 2019, the main export partners for the dairy industry were still neighbouring countries.

In 2019 , the productivity indicators of the dairy industry deteriorated for the second year in a row. Although the volumes were planned, the value added per employee decreased and even made a loss in the fourth quarter.

2019 turned out to be quite successful for the meat industry. Total sales increased by 7%, which was a good result compared to the rest of the food industry. The meat industry in Estonia is quite concentrated. Although there are more than 50 companies, HKScan Estonia, Estonia's largest food industry, accounts for more than half of the sector's turnover. It has both pork and poultry production companies, as well as processing complexes. In 2019, the expansion continued and a new frying products department was opened, which increased the area of the factory by about 5%. The second largest meat industry, Atria, already has five times less turnover, but in terms of this, almost 300 products are produced under 3 brands. Like HKScan, Atria is owned by the Finns.

Rising raw material prices reduced the profitability of the sector, with short- term statistics showing a loss year-on-year. Productivity per employee also decreased. The main export partners were Latvia, Finland and Lithuania.

For the beverage industry, 2019 was stable. As a result of the change in excise policy, exports decreased, but this was offset by a slightly increased As a result of the change in domestic market. The number of Finns visiting Estonia continued to decline, excise policy, exports decreasing by 4% year-on-year, and this also left its mark on the sale of decreased, but this was alcohol in the port. Sales on the Latvian border were strong in the first half offset by a slightly of the year, but the reduction in excise duty on beer and spirits, which came increased domestic into force on 1 July, reduced the motivation to bring alcohol from a market. neighbouring country in the second half of the year. The study "Estonia's alcohol market, consumption and policy in 2019" showed an increase in alcohol consumption of Estonian citizens. Nevertheless, the sector's profit grew by 14% year-on-year and net value added by 9%. Productivity per employee also decreased. The fall of exports was largely due to a 9% decline in beer exports. While the total exports of the beverage industry decreased by 3.3 million euros, beer exports alone decreased by 3 million euros. On the positive side, the quantity decreased faster than the total value, i.e. the cost per litre of the product continued to grow. Apparently, the continued growth of artisanal beer production also plays a role here. In recent years, a number of small producers have run co-financing campaigns and by doing this, have raised capital to expand. In addition, the tax system was made more favourable to small producers by raising the production ceiling at a reduced rate to 15,000 hectolitres. A total of 68 million euros was exported in the beverage industry. The largest target market continued to be Latvia, where sales decreased by 12% during the year. The second target market was Finland, where sales decreased by 7%. At the same time, Lithuania and Sweden showed good growth.

For bakery and pasta manufacturers, 2019 turned out to be rather successful. Exports grew slightly slower than sales to the domestic market, with total sales in the sector growing by 8.8%. More expensive raw materials Ministry of Economic Affairs and Communications • Ministry of Finance 2020 23 Economic review 2019

and more expensive labour increased producer prices in the sector by 10%. Parallelly, profits increased by more than a tenth and productivity by 6%. The growth in exports of bakery products was facilitated by a noteworthy increase in exports of frozen products.

The sales of the fishing industry increased slightly in 2019. Although business statistics showed a decline in exports, foreign trade statistics tended to grow. In total, sales in foreign markets accounted for slightly more than half of the sector's sales, but the share of exports has been on a downward trend in recent years. Five years ago, the share of exports reached almost 80%. The key word of the year was definitely the listeria scandal, which could have significantly affected sales in the second half of the year. One of the largest companies in the sector, M.W.Wool, had to shut down its plants for several months. When they were able to open the Vihterpalu factory at the end of 2019, the Harku factory was closed until the beginning of 2020. People's fear of the bacteria also inhibited the sales of other companies. In 2016, the construction of a fish components factory in Paldiski was started, which was completed in the autumn of 2018. 2019 was largely spent setting up the plant, but in the future 5,000-6,000 tons of fishmeal and 2,500 tons of fish oil per year should be produced there. This means that inferior fish species and waste can also be valued. The increase in exports was largely due to the sale of frozen fish and shrimps. Be that as may, there is room for growth in the domestic market. In 2019, a study conducted by the Institute of Economic Research was completed, which showed that Estonians eat only 17 kg of fish a year, while the average European eats 25 kg. Exports by main target countries

Finland

Latvia

Lithuania

Sweden

Denmark

Italy

% 0 5 10 15 20 25 30 2019 2018 Source: Statistics Estonia Main export product groups

Meat products 11%

Other Fish products 39% 12%

Dairy products 20%

Beverages Bakery and pasta products 10% 8% Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 24 Economic review 2019

Employment in food and beverage production decreased by 0.3% in 2019. The growth of the average wage in the food industry was slightly slower than the Estonian average and the wage remained lower than the Estonian The growth of the average average. The average wage is lowered by food producers, where the average wage in the food industry wage is about 80% of that of the Estonian average. In the production of was slightly slower than beverages, wages were 1.2 times higher than these of the Estonian average. the Estonian average and the wage remained lower Number of employed people and wages % y-o-y than the Estonian average. 18 000 10 16 000 8 14 000 12 000 6 10 000 4 8 000 2 6 000 0 4 000 2 000 -2 0 -4 2014 2015 2016 2017 2018 2019* Number of employed people Average wages (in Euros) Change in the number of employed people (r.s.) Change in wages (r.s.)

Source: Statistics Estonia

Value added, labour costs and productivity million € % y-o-y 450 15 400 350 10 300 250 5 The advantageous 200 0 investment environment 150 and cheap capital facilitate 100 -5 50 the automatization of the 0 -10 sector and the increase of 2014 2015 2016 2017 2018 2019* productivity. Value added Labour costs Change in total productivity (r.s.) Change in labour costs productivity (r.s.) Source: Statistics Estonia

Investments in the food and beverage industry in 2019 remained at the same level as in the previous year. Two thirds of investments were made in machinery and equipment, where 7% more funds were invested than a year earlier. Besides fixed assets, it is important to invest in development Investments remained on activities to ensure competition in the sector. In 2018, there were only 7 full- a relatively high level, but time scientists or engineers in the production of food and beverages, which investments into R&D do was one more than a year earlier, but still few to make a bigger leap in not increase. development. A total of 1.8 million euros was spent on research and development, which was slightly less than a year earlier.

million € Investments of companies % y-o-y

120 30

100 20 80 10 60 0 40 20 -10 0 -20 2014 2015 2016 2017 2018 2019* Investments in fixed assets Change in investments (r.s.)

Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 25 Economic review 2019

A survey of industrial enterprises conducted by the Estonian Institute of Economic Research in the spring of 2020 revealed that the confidence indicator, which summarises the production forecast, general demand and stocks of finished products of the enterprises, was more negative in both In the spring of 2020, the food and beverage production than a year earlier. Of the beverage orders of the beverage producers, all companies replied that their orders were lower than usual. producers were lower than There were almost half of such companies in food production. Restrictions usual. on movement due to the virus and the stagnation of the tourism sector primarily affect the beverage sector. At the same time, food is necessary at all times, so the long-term crisis will probably not affect food production.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 26 Economic review 2019

Textile production The Estonian textile industry is mainly an export-oriented industry, which includes 300 companies, including 7 companies with more than 100 employees. The number of both companies and employees has been declining in recent years. Companies in the sector produce a wide range of textile products, from carpets and pillows to cords and life jackets.

There are large textile industry companies in many parts of Estonia. The largest producer of finished textile products is AS Wendre in Pärnu county. The largest home textile producers are AS Mivar-Viva and AS Toom Tekstiil in Viljandi county and Hilding Anders Baltic AS in Harju county. Carpets and rugs are produced by AS Mistra-Autex in Harju county. The largest textile finisher is AS Qualitex in Pärnu county and the largest producer of twine, rope and net linen is Saare Frydendahl OÜ in Saare county. The largest textile fiber producer is OÜ SKS Estonia Textile in Narva.

There is intense competition in the textile industry from Asia and also from other countries with cheaper labour. Therefore, we must constantly look for new competitive advantages and invest more in development work.

The production volume of the textile industry decreased by one tenth in 2019. Due to higher prices, the decrease in sales was slightly smaller. Weaknesses were shown by both exports and the domestic market.

% Share of sector in economy 100

80

60 78,2 74,4 40 3,2 20 3,1 0,4 0 Share in value Share in man. Share of Share in Relation to added industry exports in employment average wages exports sales of man. industry The sales volume in the Source: Statistics Estonia textile industry decreased. 2019 was the second year in a row that the sales volume in the textile industry decreased. In total, it was 3.6% lower than a year earlier. At the same time, the sales of all three largest companies in the sector have decreased in the last two years. The fall took place both in exports and on the domestic market.

In 2019, textile companies exported a total of 239 million euros, which was 2.4% less than a year earlier. In terms of major partners, exports increased only to Finland, increasing by 3%. Sales to Sweden decreased by 1.1%. The largest drop for the second year in a row was the USA, where 42% or 7 million euros less production was sold than a year earlier. Sales to Germany decreased by 15%. Of the commodity groups, the sales of blankets and pillows decreased by 10% over the year, making a significant contribution to the decline in total exports, as this commodity group accounts for almost two thirds of the sector's total exports. Furthermore, sales of wool yarn continued to decrease, with exports falling by 23%. At the same time, non-woven exports showed rapid growth, increasing three times over the year to 14 million euros. It is somewhat worrying that the sector's exports, measured in tonnes, increased slightly. Thus, it can be concluded that the unit price of goods decreased, i.e. more cheaper products were exported than a year earlier.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 27 Economic review 2019

million € Sales and exports % y-o-y 350 25 300 20 250 15 200 10 150 5 100 0 50 -5 0 -10 In 2019, textile companies 2014 2015 2016 2017 2018 2019* exported a total of 239 illion euros, which Sales Exports Change in sales (r.s.) Change in exports (r.s.) was 2.4% less than a year earlier. Source: Statistics Estonia Exports by main target countries

Sweden

Finland

Germany

Denmark

UK

Poland % 0 5 10 15 20 25 30 2019 2018 Source: Statistics Estonia

Main export commodity groups

Other textile products 7%

Other ready- made textile Blankets and products pillows 14% 56% Wool 7% Carpets and other textile floor covering 4% Wadding, felt and nonwovens, cordage, ropes 12% Source: Statistics Estonia

The number of employees in the textile industry also decreased in 2019. The rapid wage growth of the previous year did not continue, and in the year wages in the sector increased by 5%, which is significantly less than the The wage growth slowed Estonian average. The increase in labour costs, together with the decrease down, profits decreased in profits by more than a third, led to a decrease in productivity. Still and all, by more than a third. the sector's profit was the lowest in the last decade.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 28 Economic review 2019

Number of employed people and wages % y-o-y 5 000 15 4 500 4 000 10 3 500 5 3 000 2 500 0 2 000 -5 1 500 1 000 -10 500 0 -15 2014 2015 2016 2017 2018 2019* Number of employed people Average wages (in euros) Change in the number of employed people (r.s.) Change in wages (r.s.)

Source: Statistics Estonia

Value added, labour costs and productivity million € % y-o-y 100 4 90 3 80 70 2 60 1 50 0 40 -1 30 20 -2 10 -3 0 -4 2014 2015 2016 2017 2018 2019* Value added Labour costs Change in total productivity (r.s.) Change in labour costs productivity (r.s.) Source: Statistics Estonia

It is difficult to estimate investment in the textile industry according to short- term statistics, as the final figure is often significantly different from the initial one. Due to the small size of the sector, even a single investment may affect volumes. In 2019, most investments were made in machinery and equipment, where volumes increased by a quarter over the year.

million € Investments of companies % y-o-y 20 100 80 15 60 40 10 20

5 0 -20 0 -40 2014 2015 2016 2017 2018 2019* Investments in fixed assets Change in investments (r.s.) Source: Statistics Estonia Half of the responding companies planned to The overall assessment of textile companies in the spring of 2020 was reduce the number of surprisingly better than a year earlier. Nevertheless, half of the responding employees. companies planned to reduce the number of employees. Two thirds of the respondents had fewer export orders than usual.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 29 Economic review 2019

Clothing industry There are more than 500 companies operating in the clothing industry in Estonia, and this sector employs more than 5,000 people. In the last decade, subcontracting has moved out of Estonia and the volumes of the sector have shrunk.

The largest companies in the clothing industry are the manufacturers of workwear AS Triest-Val and AS Svarmil in Ida-Viru county, the manufacturers of outerwear AS Protex Balti, Nurme Production OÜ, the manufacturer of children's clothing OÜ Lenne and the manufacturer of underwear Miss Mary Production OÜ in Tallinn.

The changes that have already begun earlier in the Estonian clothing industry will continue in the coming years. In 2019, a stage in the Estonian sewing industry ended and Baltika closed down its production. This trend is inevitable if our labour costs continue to rise as fast as they do so far. In the future, more specialised and more expensive product-oriented production will remain in Estonia.

2019 was the second consecutive year of decline for the clothing industry. Domestic sales fell and exports remained at the same level as a year earlier.

% Share of sector in economy 100 80

60 66,7 54,3 40 1,4 20 3,9 0,4 0 Share in value Share in man. Share of Share in Ratio to added industry exports in employment average wage exports sales of man. industry Source: Statistics Estonia

In 2019, several shaking events took place in the clothing industry. Baltika Baltika and Sangar and Sangar stopped production in Estonia and laid off staff. The last of them stopped production in moved its production to Ukraine, where the average wage is four to five Estonia. times lower than in Estonia, providing significant savings in labour costs.

Although the trend is declining, exports still account for two thirds of the Estonian clothing industry's sales. Now that two major producers have ceased production, exports are expected to continue to decline. Of the six largest target markets, sales decreased in five of them in 2019. Sales to Norway only increased by 300 thousand euros. The most important factors were the Finnish and Russian markets, where the decline was 14% and 19%, respectively. Among product groups, sales of men's clothing decreased in Finland and sales of women's clothing in Russia. Growth in Norway came primarily from the segment of various laundry products.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 30 Economic review 2019

million € Sales and exports % y-o-y 180 25 160 20 140 15 120 10 100 5 80 60 0 40 -5 20 -10 0 -15 Of the six largest target 2014 2015 2016 2017 2018 2019* markets, sales decreased Sales Exports Change in sales (r.s.) Change in exports (r.s.) in five of them in 2019. Source: Statistics Estonia Exports by main target countries Sweden

Finland

Norway

Russia

Germany

Latvia % 0 10 20 30 40 2019 2018 Source: Statistics Estonia Main export commodity groups

Bra's Women's clothing 13% 21%

Sports- and workwear 12%

Babies clothes 3%

Men's clothing 34% Other products 17%

Source: Statistics Estonia

In the clothing industry, wages grew at a slower pace than the Estonian average for the second year in a row in 2019, which is why the gap with the Although the production average wage continued to increase. In total, the sector's average gross volume decreased, total monthly salary amounted to 817 euros, which exceeds the minimum wage profit almost doubled. by only 277 euros. Low wages do not attract people to the sector and competitive production is becoming increasingly difficult. Although there was a lot of negative news during the year, the economic indicators were rather positive. Total profit almost doubled and value added by almost a tenth.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 31 Economic review 2019

Number of employed people and wages % y-o-y 7 000 10 6 000 5 5 000 4 000 0 3 000 -5 2 000 -10 1 000 0 -15 2014 2015 2016 2017 2018 2019* Number of employed people

Average wages (in euros) Change in the number of employed people (r.s.)

Source: Statistics Estonia Work productivity per Value added, labour costs and productivity million € % y-o-y employed person dropped 90 20 to 12.3 thousand euros, 80 15 which was less than half of 70 10 60 5 the Estonian average. 50 40 0 30 -5 20 -10 10 -15 0 -20 2014 2015 2016 2017 2018 2019* Value added Labour cost Change in total productivity (r.s.) Change in labour costs productivity (r.s.) Source: Statistics Estonia

According to preliminary data, investments in fixed assets in the clothing industry increased by almost 50% over the year. At the same time, the total volume of investments in this sector is small and short-term statistics are usually adjusted to a large extent, which means that the data for 2019 may still change significantly.

million € Investments of companies % y-o-y 8 80 7 60 6 40 5 20 4 3 0 2 -20 1 -40 0 -60 2014 2015 2016 2017 2018 2019* Investments in fixed assets In the spring of 2020, 40% Change in investments (r.s.) Source: Statistics Estonia of the companies planned to reduce the number of employees. In the spring of 2020, the assessments of companies in the clothing industry surveyed by the Estonian Institute of Economic Research were particularly negative for the near future. All respondents said that their production volume has decreased and that 40% plan to reduce the number of employees. As clothing stores were generally closed during the spread of the virus, this also affected the sector. Although online sales increased, this did not compensate for the turnover of regular stores. Estonians probably ordered more clothes from foreign shops and by foreign manufacturers. Although the sector already performed poorly in 2019, in 2020 the decline deepened and the number of companies is likely to decrease.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 32 Economic review 2019

Wood processing More than half of Estonia's area is covered with forest, which is why we have good preconditions for the development of the forest and wood industry. In total, the wood industry in Estonia employs 18,000 people in 1,000 companies. The sector generates exports for more than a billion euros a year and helps keep Estonia's current account positive.

The range of products for the wood industry is wide, starting with the production and processing of sawn timber and ending with the production of wooden houses, windows and doors. More employed are in Jeld- Wen Eesti AS, which produces wooden doors and windows, Stora Enso Eesti AS, which produces sawn and planed material and glue-laminated beams, and AS Technomar & Adrem, which produces parquet, packaging and cable drum pallets. Other large companies include AS Viljandi Aken ja Uks, which manufactures wooden doors, windows, shutters and their frames, and veneer and plywood producers UPM-Kymmene Otepää OÜ and OÜ Balti Spoon. Particleboard is produced by AS Repo Vabrikud and fibreboard by Nordic Fibreboard AS. Thermory AS has become one of the largest sawmill industries. In terms of turnover, AS Toftan, which produces sawn timber in Võru county, and AS Palmako and OÜ Harmet, which produce garden houses, may also be highlighted.

The wood industry has developed rapidly in recent years. Along with the foreign investments involved, knowledge has also come to Estonia, and often the value added of Estonian production units per employee does not lag behind Finland and Sweden.

In 2019, according to preliminary data, the sales of the timber industry remained in deficit for a long time due to the weakness of the internal market.

% Share of sector in economy 100 80 61,4 93,9 60

40 16,8 20 14,5 2,7 0 Share in value Share in man. Share of Share in Ratio to added industry exports in employment average wage exports sales of man. industry Source: Statistics Estonia

In 2019, the rise in timber prices of previous years stopped and was replaced by a decline in the second half of the year. Wood damaged in Central Europe In 2019, the rise in timber dropped prices in several segments and also affected Estonian prices. prices of previous years Demand also began to weaken. The pulpwood segments made the biggest stopped and was replaced drop, but the price of spruce logs also fell by 7% in RMK's interim warehouse. by a decline in the second All in all, this led to a 0.2% decrease in producer prices. Lower prices also led half of the year, also to lower felling volumes, which, according to preliminary data, decreased by producer prices decreased. 1.4 million cubic metres during the year.

Exports have always played an important role in the Estonian wood industry, accounting for almost two thirds of sales, reaching 1.6 billion euros. The main export partners in 2019 were Sweden, Norway and Finland, where

almost 40% of the products were exported. Just after the top three, Denmark was ranking fourth, where sales increased by 26% during the year. The sales growth of the largest partners was also considerable. Exports to Finland increased by 20% and to Sweden by 3%. The export towards Norway was on a negative trend of 2%. Both the Swedish and Norwegian currencies continued to depreciate against the euro in 2019, which made Estonian goods more expensive on that market. For the second year in a row, most of the growth in Finland came from the segment of wooden houses, which Ministry of Economic Affairs and Communications • Ministry of Finance 2020 33 Economic review 2019

were sold 25% more than a year earlier, i.e. for 46 million euros. Of the large markets, the United Kingdom showed weakness, with exports falling by 18%. The weakness of the pound, combined with the uncertainty arising from Brexit, may continue to affect sales there. The results in the Asian direction varied from country to country. Chinese exports increased by 10%, but the exports towards Korea decreased by the same amount. The Japanese market

was stable. At the same time, sales of glulam increased exports to the United States by 42% to 44 million euros.

Of the larger commodity groups, plywood sales continued to grow strongly, increasing by 26% year-on-year to 100 million euros. The sales of wooden houses, which had grown rapidly so far, also increased by a few percent. Norway, the main target market for this product group, decreased by 4.5%. Demand was apparently decreased by both the movement of the Norwegian krone and the uncertainty in the Norwegian economy due to low oil prices. Exports have always Sales of pellets continued to perform well, with exports growing by 6% year- played an important role on-year to 163 million euros. in the Estonian wood industry, accounting for million € Sales and exports % y-o-y almost two thirds of sales. 2 500 14 12 2 000 10 8 1 500 6 1 000 4 2 500 0 -2 0 -4 2014 2015 2016 2017 2018 2019*

Sales Exports Change in sales (r.s.) Change in exports (r.s.)

Source: Statistics Estonia

Exports by main target countries

Sweden

Norway

Finland The sales of plywood and wooden houses supported Denmark exports. Germany

The Netherlands % 0 10 20 2019 2018 Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 34 Economic review 2019

Main export commodity groups Other products 21%

Building components Profiled timber (incl. windows, doors) 10% 19%

Log houses 25% Sawn timber 17% Veneer Plywood 2% 6% Source: Statistics Estonia

In 2019, wages in the wood industry grew more slowly than a year earlier, and the sector average was slightly more than the Estonian average. According to preliminary data, the number of employed in the sector increased by a few percent, but value added decreased. This meant that productivity per employee also decreased. At the same time, the indicators of the sector have been significantly adjusted later when the final data arrive.

Number of employed people and wages % y-o-y 20 000 10 8 15 000 6 4 10 000 2 5 000 0 -2 0 -4 2014 2015 2016 2017 2018 2019* Number of employed people Average wages (in euros) Change in the number of employed people (r.s.) Change in wages (r.s.) Source: Statistics Estonia

Value added, labour costs and productivity million € % y-o-y 600 8 6 500 4 400 2 0 300 -2 200 -4 -6 100 -8 0 -10 2014 2015 2016 2017 2018 2019* Value added Labour costs Change in total productivity (r.s.) Change in labour costs productivity (r.s.)

Source: Statistics Estonia

Pursuant to preliminary data, investments in the wood industry increased by 38% in 2019. Parallelly, the volume of investments in this sector has been notably adjusted in several cases upon receipt of the final data, which is why the final data may differ remarkably from those presented here. For example, the final amount of investments in 2018 was more than twice as

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 35 Economic review 2019

high as the initial one. In compliance with the preliminary data, investments in machinery and equipment increased by 48% and in computer systems by as much as 1.5 times. In the coming years, investment activity will depend on crisis developments and market recovery. It is possible that some expansion plans will be put on the shelf for a while.

Investments of companies million € % y-o-y 250 80

60 200 40 150 20 100 0

50 -20

0 -40 2014 2015 2016 2017 2018 2019* Investments in fixed assets Change in investments (r.s.) Source: Statistics Estonia Although industrial enterprises were initially The expectations of entrepreneurs surveyed by the Estonian Institute of little affected by the crisis, Economic Research were somewhat more modest in the spring of 2020 the long-term impact on compared to the previous year. 59% of the surveyed companies had orders demand could still be below the normal level. Nor did any company expect an increase in the sales significant. price of its production. The lack of demand was pointed out as the main factor limiting the growth of production. Although industrial enterprises were initially little affected by the crisis, the long-term impact on demand could still be significant.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 36 Economic review 2019

Manufacture of paper pulp, paper and paper products The paper industry is a long-established and relatively highly concentrated industry in the Estonian economy. There are more than 60 companies engaged in the production of paper, pulp or paper products in Estonia, which employ about 1,300 people. Wages and value added in this sector exceed the Estonian average.

The largest companies in the sector are two companies: AS Estonian Cell, producer of aspen pulpwood, and Horizon Tselluloosi ja Paberi AS, slightly smaller paper and board producer. Together, they account for more than two-thirds of the sector's sales revenue. AS Räpina Paberivabrik recycles wastepaper. The largest manufacturer of paper stationery is Victor Stationery OÜ. There are a total of 9 companies in the sector with a turnover exceeding 10 million euros. Four of them are engaged in the production of cardboard containers. At the moment, the biggest question for Estonia is whether and when chemical treatment of wood will be carried out, which would make it possible to reduce the export of unprocessed wood.

2019 was a difficult year for the paper industry. The price of wood pulp on the world market fell and it also reduced the sales of Estonian producers.

% Share of sector in economy % 100 150 77,0 80 120

60 90 102,1 40 60 2,3 20 30 Demand on the world 1,4 0,4 market was rather weak 0 0 and sales prices were low. Share in value Share in man. Share of Share in Ratio to added industry exports in employment average wage exports sales of man. (r.s.) Industry Source: Statistics Estonia

2019 was a difficult year for the paper industry. Both of the largest companies in the sector lost turnover and exports. Demand for their products on the world market was rather weak and sales prices were low. Although the pandemic increased online sales, it was probably not enough

to cover the shortcomings occurred elsewhere, which could also prove difficult for the sector of 2020.

In recent years, both of the largest companies in the sector have Although the pandemic implemented large-scale investment programmes and started using more increased online sales, it renewable energy. In the middle of 2019, Estonian Cell opened an aerobic was probably not enough wastewater treatment plant that cost 20 million euros, which ensures to cover the shortcomings cleaner wastewater and reduces energy consumption. The investment was occurred elsewhere, which prompted by the excise duty schedule of energy-intensive companies, which could also prove difficult came into force a little earlier, which lowered the price of energy and for the sector of 2020. increased the company's competitiveness.

77% of the paper industry's production was exported, which was the lowest

level in recent years. The larger export destinations are largely due to the operations of Estonian Cell and Horizon, as the companies' exports account for more than two thirds of the total branch's exports. India remained the largest export partner in 2019, accounting for 10% of the sector's total exports. At the same time, exports to India decreased by 19% year-on-year. Other large markets also experienced a sharp decline - sales to Italy decreased by 12% and to Finland by 10%. The largest growth was in Turkey and China, where volumes more than quadrupled, but overall volumes are still modest. If world market prices for pulp recover, growth in the sector's exports is also expected. In total, exports of wood pulp in monetary terms decreased by 18% and exports of kraft paper by 26% during the year. Ministry of Economic Affairs and Communications • Ministry of Finance 2020 37 Economic review 2019

million € Sales and exports % y-o-y 300 15 250 10 200 5 150 0 100 -5 50 -10 0 -15 2014 2015 2016 2017 2018 2019*

Sales Exports Change in sales (r.s.) Change in exports (r.s.)

Source: Statistics Estonia

Exports by main target countries

India

Italy

Finland

Sweden Three main export markets experienced decline. UK The Netherlands % 0 10 20

Source: Statistics Estonia 2019 2018

Main export commodity groups Other products 30%

Uncoated kraft paper and cardboard 22%

Pulp 36% Boxes, crates, bags and other packaging 12%

Source: Statistics Estonia

In 2019, wages in the paper industry grew slower than the Estonian average, but the sector maintained a somewhat higher wage level than the Estonian average. At the same time, the difference with the Estonian average has been decreasing all the time. The largest and highly automated plants in the sector have a small number of employees and, despite their high wages, do not have a significant impact on the sector average. According to preliminary data, the number of employed in the sector decreased by 3% according to business statistics. However, employment statistics in the sector are very volatile due to the small number of enterprises. The sector's performance indicators fell sharply. Total profit decreased by 64% and net value added by

31%. Labour costs increased by a total of 4%. Although the results were not good, wages had to be raised to keep employees, as other sectors saw rapid wage increases.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 38 Economic review 2019

Number of employed people and wages % y-o-y 1 800 10 1 600 8 1 400 6 1 200 4 1 000 2 800 600 0 The sector maintained a 400 -2 200 -4 somewhat higher wage 0 -6 level than the Estonian 2014 2015 2016 2017 2018 2019* average, but the Number of employed people difference has been Average wage (in euros) decreasing all the time. Change in the number of employed people (r.s.) Change in wages (r.s.) Source: Statistics Estonia Value added, labour costs and productivity million € % y-o-y 90 20 80 10 70 60 0 50 -10 40 30 -20 20 -30 10 0 -40 2014 2015 2016 2017 2018 2019* Value added Labour costs Change in total productivity (r.s.) The sector's performance Change in labour costs productivity (r.s.) Source: Statistics Estonia indicators fell sharply.

Investments in the paper industry depend to a large extent on the activities of the two largest companies in the sector. Therefore, a single major investment can have a significant impact on the overall numbers. The information is also affected by the time the data is received. According to preliminary data, the sector's investments in 2019 were slightly more than

twice as high as a year earlier. This was mainly due to machinery and equipment, in which there was invested 82% more than a year earlier.

million € Investments of companies % y-o-y 40 400

30 300 200 20 100 According to preliminary 10 0 data, the sector's 0 -100 investments in 2019 were 2014 2015 2016 2017 2018 2019* slightly more than twice as Investments in fixed assets high as a year earlier. Change in investments (r.s.) Source: Statistics Estonia

In the spring of 2020, the paper industry companies surveyed by the Estonian Institute of Economic Research had a similar attitude towards the future as a year earlier. One-fifth of the responding companies had fewer export orders than usual, but no one planned to reduce the number of employees. It is possible that this crisis will open up new opportunities for the company in the sector, as online trade increased and the demand for wrapping paper is growing.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 39 Economic review 2019

The chemical industry A unique part of the Estonian chemical industry is the oil shale-based industry, although the majority of the sector is still made up of other sub-sectors, such as the construction or consumer chemical industry. The smallest sub-sector (with a few hundred employees) is the pharmaceutical industry. The chemical industry is a capital-intensive activity, the growth of production volume has not led to a significant increase in the number of jobs. Despite productivity growth, the gap with developed countries is still significant. There are more than a hundred chemical companies operating in Estonia. About half of the chemical industry is located in Ida-Viru county, a third of the employees work in Tallinn and Harju county. The largest chemical companies are VKG Oil AS and KKT Oil OÜ (shale oil production; Enefit Energiatootmine AS is engaged in oil production in addition to energy production), Akzo Nobel Baltics AS, AS Tikkurila and AS Eskaro (paints and varnishes), NPM Silmet OÜ (rare metals), OÜ Eurobio Lab (manufacture of cosmetics), AS Novotrade Invest (refining of petroleum products), OÜ Krimelte and Henkel Balti Operations OÜ (assembly foams), Eastman Specialties OÜ (benzoic acid, sodium benzoate, plasticisers), Orica Eesti OÜ (explosives), Takeda Pharma AS (pharmaceuticals) and Interchemie Werken De Adelaar Eesti AS (veterinary medicines and products). Large investments in the oil industry create new jobs, but the industry is highly dependent on world oil prices and climate policy, and it is therefore difficult to assess whether or not plans to construct new oil plants and refineries are being met. No major employment increase is expected in the sector as an entirety in the coming years. The boost of production volumes will continue to be based on increasing productivity. The need to improve efficiency stems from the increase in the cost of production inputs, and the chemical industry is also largely affected by the surge of environmental costs.

Within the chemical industry 2 , production increased in the oil and the pharmaceutical industry, yet the financial results were rather modest in all sub-sectors of the chemical industry. The number of employed remained stable, value added did not increase. With the spread of the coronavirus, the demand for cleaning and disinfection products soared, while the consumption of fuels, including shale oil, decreased.

% Share of sector in economy % 100 150 97,3 80 120 In the chemical industry as 60 101,9 90 a whole, the production 40 60 volume became greater by 5,9 a few percent in 2019, but 20 3,6 30 1,0 the developments by sub- 0 0 sectors were different. Share in value Share in man. Share of Share in Ratio to added industry exports in employment average wage exports sales of man. (r.s.)* industry *Manufacture of chemical products

Source: Statistics Estonia

In the chemical industry as a whole, the production volume became greater by a few percent in 2019, but the developments by sub-sectors were different. While both the oil industry and the pharmaceutical industry produced almost a fifth more than in the previous year, the production of chemical products was in deficit by a few percent. For all that, the economic indicators of companies in growing areas remained rather poor.

Although the production of fuel oil reached a record volume, the sales index of industrial production was nevertheless lower than a year earlier. Production and sales do not always coincide in time, and price fixing is also used to offset the effects of fluctuations in world fuel prices. Howbeit, the total sales revenue of companies increased by a fifth. In 2019, the average

2 In addition to the production of chemicals and chemical products (EMTAK 20), this sector also includes the production of fuel oils (EMTAK 19) and the production of basic pharmaceutical products and pharmaceutical preparations (EMTAK 21). Ministry of Economic Affairs and Communications • Ministry of Finance 2020 40 Economic review 2019

export price of petroleum products was almost as high as a year earlier, but by months the changes compared to the previous year amounted to 15% in both directions. Producer prices of chemical products did not change Exports increased strongly significantly during the year, which is why the decline in production was also in the chemical industry as reflected in sales revenue. Sales of pharmaceutical products increased by a whole, with fewer sales about 15% compared to the previous year. to the domestic market. Exports increased strongly in the chemical industry as a whole, with fewer Parallelly, it primarily sales to the domestic market. Parallelly, it primarily reflects the changes in reflects the changes in the the sales of shale oil, where instead of domestic intermediaries, production sales of shale oil, where moves directly to foreign markets. instead of domestic intermediaries, production million € Sales and exports % y-o-y moves directly to foreign 900 40 markets. 800 30 700 600 20 500 10 400 300 0 200 -10 100 0 -20 2014 2015 2016 2017 2018 2019* Sales Exports Change in sales (r.s.) Change in exports (r.s.)

Source: Statistics Estonia

Pursuant to foreign trade data, exports of chemical products of Estonian

origin decreased primarily due to a decrease in sales of various petroleum

products. Also included are products related to the processing or blending

of fuels, the export of which increased significantly a year earlier.

Nevertheless, the export of shale oil was also declining and several other

important export products - construction mastic joint sealants, paints and

varnishes, earth metals, fertilisers, yarn from synthetic fibers. On the

positive side, benzoic acid, detergents and cleaning products may be mentioned. The sharp decline in exports of petroleum products and changes in supply The sharp decline in chains significantly affected sales by country. While in 2018 Singapore exports of petroleum became the main destination country, in 2019 sales of petroleum products products and changes in fell there several times. Exports to Latvia also decreased due to lower oil supply chains significantly sales. Developments were more positive for other major export partners, affected sales by country. but various fuels and oils also played a key role. Sales to Denmark and Spain were supported by exports of shale oil in addition to petroleum products.

Exports by main target countries

The Netherlands Denmark

USA Spain

Latvia

Belgium Singapour

Finland

Sweden % 0 5 10 15 20 25 30

2019 2018 Source: Statistics Estonia Ministry of Economic Affairs and Communications • Ministry of Finance 2020 41 Economic review 2019

Main export commodity groups

Inorganic chemicals 4% Organic Mineral fuels and oils chemicals 70% 3% Pharmacy products 3% Fertilizers 1% Paints, varnishes, mastics 9%

Cosmetic or toilet preparations, essential oils

Other 2%

8% Source: Statistics Estonia

The number of employees in the sector remained at the previous year's level. By sub-sectors, the changes were limited to a few percent. In the production of chemical products, wages increased by an average of 5% over the year (in companies with 50 or more employees), while labour costs in Preliminary statistics the entire chemical industry increased by the same amount, and total costs showed that in all even more. Preliminary statistics showed that in all branches of the chemical branches of the chemical industry either profits decreased or remained at the level of the previous industry either profits year (in the production of chemical products). Productivity indicators were decreased or remained at worse than a year earlier. the level of the previous year. Number of employed people and wages % y-o-y 5 000 10 4 500 8 4 000 6 3 500 4 3 000 2 2 500 0 2 000 -2 1 500 -4 1 000 -6 500 -8 0 -10 2014 2015 2016 2017 2018 2019* Number of employed people Average wage: manufacture of chemical products (euros) Change in the number of employed people (r.s.) Change in wages (r.s.) Source: Statistics Estonia Value added, labour costs and productivity

million € % y-o-y

250 30 25 200 20 15

150 10 5 0 100 -5 -10 50 -15 -20 0 -25 2014 2015 2016 2017 2018 2019* Value added Labour costs Change in total productivity (r.s.) Change in labour costs productivity (r.s.) Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 42 Economic review 2019

Chemical companies continued to invest actively. Pursuant to short-term statistics, investments increased by more than a tenth in 2019. In the other subsectors, the preliminary statistics are patchy and cover only a small part Chemical companies of the expected value of the final indicator. continued to invest actively. In the production of chemical products, the increase in investments was due to the acquisition of machinery and equipment, which accounted for more than 80% of capital investments in tangible fixed assets. Nevertheless, construction and reconstruction of buildings decreased.

Investments of companies million € % y-o-y 140 80 120 60 100 40 20 80 0 60 -20 40 -40 20 -60 0 -80 2014 2015 2016 2017 2018 2019* Investments in fixed assets Change in investments (r.s.)

* Data of 2018 and 2019 on oil industry and pharmaceutical industry investments are incomplete, the change is reflecting only the production of chemicals and chemical products Source: Statistics Estonia

Similar to the general trends in the manufacturing industry, in the middle of 2019 the assessment of the economic situation of chemical companies Unlike many other sectors, started to deteriorate. According to a study by the Estonian Institute of the production volume of Economic Research, production volume forecasts degenerated. As of the chemical products started beginning of 2020, business confidence improved and production statistics to increase faster in March also showed growth. Unlike many other sectors, the production volume of and April. chemical products started to increase faster in March and April, but not all sectors may be behind it. The spread of the coronavirus increased the demand for cleaning and disinfecting products. Pharmaceutical production also picked up during the crisis. On the other hand, shale oil production decreased as the drastic decline in transport demand reduced the demand for fuels and led to a sharp decline in the world market price of fuels. The whole year is also likely to be more successful for (part of) the production of chemical products and the pharmaceutical industry than the previous one, while in oil production no rapid recovery in demand and price levels can be expected.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 43 Economic review 2019

Manufacture of rubber and plastic products Products of the rubber and plastics industry are used in many fields, from the food industry (packaging) to the automotive and building materials industries. The Estonian rubber and plastics industry consists of about 200 mainly small and medium-sized enterprises. The largest companies are Pipelife Eesti AS (plastic pipes), AS Estiko-Plastar (film and film packaging), OÜ Plasto Aknad.Uksed (plastic windows and doors), Promens AS, Talent Plastics Tallinn AS (plastic products for the automotive industry), Plastone OÜ (plastic products for various industries), AS Reideni plaat (insulation boards), OÜ Westaqua-Invest (water filters), AS Dagöplast (film products), Greiner Packaging AS (plastic packaging), Cipax Eesti AS (plastic containers), Trelleborg Industrial Products Estonia OÜ (rubber and metal parts for automotive and machinery industry), OÜ Merinvest (rubber o-rings, membranes) and AS Balteco (plastic baths and cast marble basins). Larger companies are situated in Tallinn and Harju county (almost half of the workforce), Saare county and Tartu county (about 15% of the workforce), but there are also quite a lot of employees in Ida-Viru county and Hiiu county. The number of people employed in the rubber and plastics industry will rather shrink in the future. Production becomes more complex and more labour-intensive tasks will be replaced by machines. Mass production has already partially moved out of Estonia and companies with a flexible focus on smaller batches have better prospects.

In the rubber and plastics industry, production and sales grew modestly in 2019. The number of employed remained stable. At the same time, companies invested heavily. Entrepreneurs' assessments of the future prospects were rather negative at the beginning of 2020, but this was not yet reflected in production.

% Share of sector in economy 100

80 58,9 88,2 In 2019, the rubber and 60 plastics industry produced 40 a few percent more 3,7 production than a year 20 3,7 earlier. 0,6 0 Share in value Share in man. Share of Share in Ratio to added industry exports in employment average wage exports sales of man. industry Source: Statistics Estonia

In 2019, the rubber and plastics industry produced a few percent more production than a year earlier. Sales grew slightly faster, mainly due to the domestic market. Exports also increased, but more moderately. Producer prices did not change significantly, growth was limited to one percent.

Sales grew slightly faster, Of the main export markets, exports to Lithuania (due to lower sales of mainly due to the plastic pipes and hoses) and Norway (pipes and hoses, packaging) reduced, domestic market. while sales increased chiefly to foreign markets. Exports to Latvia grew the most financially, mainly from plastic boxes and packaging, and to Sweden, which was also supported by various plastic products (not specified), plastic caps, lids and closures, and furniture or vehicle fittings.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 44 Economic review 2019

million € Sales and exports % y-o-y 500 12 10 400 8 300 6 4

200 2 100 0 -2 0 -4 Of the main export 2014 2015 2016 2017 2018 2019* markets, exports to Sales Exports Change in sales (r.s.) Change in exports (r.s.) Lithuania (due to lower sales of plastic pipes and Source: Statistics Estonia hoses) and Norway (pipes and hoses, packaging) Exports by main target countries reduced, while sales Finland increased chiefly to foreign markets. Sweden Latvia

Germany Lithuania Norway

Denmark The Netherlands

Poland

0 5 10 15 20 25 30 % 2019 2018 Source: Statistics Estonia Main export commodity groups Value added and Plastic sheets productivity indicators also and films improved. Boxes, bottles, etc. 16% 22% Pneumatic tyres Vulcanized rubber 1% products (seals etc.) 7%

Plastic pipes and hoses Fittings for furniture, 11%

coachwork or

the like Plastic baths,

32% sinks etc Other building components 2% Other of plastics products 3% 6% Source: Statistics Estonia

According to business statistics, the number of employed was almost the same as a year earlier, while the number of working hours dropped by almost 7%. However, as a result of the elevation of the average wage (less than 7%), labour costs swelled, but total costs diminished slightly and profits increased by a fifth. Value added and productivity indicators also improved.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 45 Economic review 2019

Number of employed people and wages % y-o-y 4 500 8 4 000 7 3 500 6 3 000 5 2 500 4 3 2 000 2 1 500 1 1 000 0 500 -1 0 -2

2014 2015 2016 2017 2018 2019* Number of employed people Average wage (in euros) Change in the number of employed people (r.s.) Change in wages (r.s.)

Source: Statistics Estonia

million € Value added, labour costs and productivity 140 % y-12o-y 120 10 8 In 2019, large investments 100 6 were made in the rubber 80 4 and plastics industry. 60 2 40 0 -2 20 -4 0 -6 2014 2015 2016 2017 2018 2019* Value added Labour cost

Change of total productivity (r.s.) Change of labour costs productivity (r.s.) Source: Statistics Estonia In 2019, large investments were made in the rubber and plastics industry. Although the final statistics may lead to corrections, the level of the previous year is likely to have been significantly exceeded. Capital formation in property, plant and equipment was increased across all asset classes. Investments in land and buildings increased dramatically. Machinery and equipment were also purchased more than in the previous year, but their share was less than a half, i.e. lower than usual.

million € Investments of companies % y-o-y

45 100 40 80 35 30 60 25 40 20 20 15 0 10 5 -20 0 -40 2014 2015 2016 2017 2018 2019* Investments in fixed assets Changes in investments (r.s.) Source: Statistics Estonia

At the beginning of 2020, The confidence indicator of the Estonian Institute of Economic Research's the assessments remained industrial barometer in the rubber and plastics industry was worse in 2019 negative and the situation than in the previous few years. The main problem was a low demand. At the deteriorated rather within beginning of 2020, the assessments remained negative and the situation reasonable limits in the deteriorated rather within reasonable limits in the wake of the corona crisis. wake of the corona crisis. There was more of a decline in forward-looking expectations (declining orders, prices and the number of employees in the coming months), while the indicators characterising the current situation did not change much. Production volume also remained at the level of previous months in April.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 46 Economic review 2019

Manufacture of metal and metal products The metal industry is involved in several areas, such as the manufacture and construction of machinery and equipment. Metal industry companies employ more than 14,000 people in Estonia, thus being one of the largest industry after the wood industry and next to the food industry. The branch has more than 1,300 companies. The metal industry is concentrated in Tallinn and its vicinity (60% of the workforce) and in Ida-Viru, Pärnu and Tartu county (approximately one tenth of the workforce). The largest companies are Ruukki Products AS (metal products, building structures), AS Saku Metall Allhanke Tehas (thin sheet metal products, lifts), Fortaco Estonia OÜ, OÜ Marketex Offshore Constructions, AS AXIS Tech Estonia (metal structures), Tammer OÜ (metal doors), AS Estanc (containers), AS Metaprint (metal packaging production), Hanza Mechanics Narva AS, AS Favor, AQ Lasertool OÜ (metal processing) and ETS Nord AS (ventilation equipment). In the long run, the metal industry may be expected to continue to grow, mainly driven by exports. However, the number of the employed may rather decrease, the growth of production must be ensured by the increase of productivity.

In the metal industry, both sales and production died down slightly in 2019. The number of employed dwindled significantly, while according to the preliminary data, more was invested in machinery and equipment. The beginning of 2020 was difficult for businesses, and the impact of the coronavirus could exacerbate the situation with a delay.

% Share of sector in economy

100 120 80 100 48,3 106,4 80 In the metal industry, 60 60 production started to 40 decrease from the second 7,6 40 11,4 half of the year, and the 20 20 1,9 whole year ended with 0 0 one percent decline in Share in value Share in man. Share of Share in Ratio to production. added industry exports in employment average wage exports sales of man. (r.s.)* industry * Production of metal products

Source: Statistics Estonia

In the metal industry, production started to decrease from the second half of the year, and the whole year ended with one percent decline in production. The sales index of industrial production also decreased. Producer prices changed relatively little, growth was close to 1%. Although exports of industrial products increased slightly, domestic sales also led to a decline in total sales. Metal constructions, hooks and clamps, etc., tanks, pipe fittings contributed Although exports of more to the growth of exports. Sales of caravans fell the most. In 2019, the industrial products Russian market showed strong growth, with half of the increase coming from increased slightly, the sales of tantalum. Sweden (metal structures, tanks), Germany (metal domestic sales also led to structures) and the Netherlands (ferro-alloys, flat-rolled products) also a decline in total sales. accounted for a large share of the increase in exports. Sales to the largest export market, Finland, remained at the previous year's level.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 47 Economic review 2019

million € Sales and exports % y-o-y 1 400 15 1 200 10 1 000 800 5 600 0 400 -5 200 0 -10 2014 2015 2016 2017 2018 2019*

Sales Exports Change in sales (r.s.) Change in exports (r.s.)

Source: Statistics Estonia

Exports of goods of Estonian origin by main target countries

Finland

Sweden

Germany Norway

Poland Russia USA

The… % 0 10 20 30 40

2019 2018 Source: Statistics Estonia Main export commodity groups

Iron and steel 8%

Other products Iron and steel products 60% 21%

Copper and copper products 2%

Aluminium and aluminium products

9% Source: Statistics Estonia

According to the preliminary data, the number of people employed in the metal industry fell by a tenth, but this estimate may change somewhat due As labour rental costs have to later adjustments. As labour rental costs have increased in recent years, increased in recent years, this may be partly a result of a decline in the number of employed, while this may be partly a result their share compared with labour costs is still small. Owing to the fall in the of a decline in the number number of employees, labour costs also decreased despite the increase in of employed. wages (in the sub-sectors 5-9% and companies with 50 and more employees). Sales revenue, which includes income other than industrial production, increased by approximately 5%, but total expenses also incremented at the same pace and corporate profits remained at the previous year's level. Value added decreased slightly, but productivity indicators per employee and per hours worked improved, arising from a large decrease in the number of employees. Ministry of Economic Affairs and Communications • Ministry of Finance 2020 48 Economic review 2019

thousand Number of employed people and wages % y-o-y 16 000 15 14 000 10 12 000 10 000 5 8 000 0 Value added decreased 6 000 -5 4 000 slightly, but productivity 2 000 -10 indicators per employee 0 -15 and per hours worked 2014 2015 2016 2017 2018 2019* improved, arising from a Number of employed people Average wage: production of metal products (euros) large decrease in the Change in the number of employed people (r.s.) number of employees. Change in wages (r.s.) Source: Statistics Estonia million € Value added, labour costs and productivity % y-o-y 450 10 400 350 5 300 250 0 200 -5 150 100 -10 50 0 -15 2014 2015 2016 2017 2018 2019* Value added Labour costs Change in total productivity (r.s.) Change in labour costs productivity (r.s.) Source: Statistics Estonia

According to short-term According to short-term statistics, investments by metal industry companies statistics, investments by increased by half in 2019, but final statistics are likely to show more modest metal industry companies developments. Capital investment in fixed assets was increased across all increased by half in 2019, asset classes, with a higher growth in machinery and equipment (half of all but final statistics are likely investments) and buildings. to show more modest developments. million € Investments of companies % y-o-y 75 60 70 40 65 20

60 0 55 -20 2014 2015 2016 2017 2018 2019* Investments in fixed assets Change in investments (r.s.)

Source: Statistics Estonia

Pursuant to a survey held by the Estonian Institute of Economic Research, the confidence of the metal industry remained relatively strong until the last months of 2019, but then orders fell, future forecasts deteriorated and While in 2019 one in five production began to decline. At the beginning of 2020, the situation became respondents mentioned even more complicated. Thus, even prior to the corona crisis, production labour shortages, in early was declining and the March and April statistics were not significantly 2020 it was overshadowed different from those of the previous months. It is likely that a bigger blow by other issues. will hit the sector through construction with some delay. While in 2019 one in five respondents mentioned labour shortages, in early 2020 it was overshadowed by other issues. In addition to insufficient demand, entrepreneurs also pointed out other, so-called unusual problems when the crisis broke out. Ministry of Economic Affairs and Communications • Ministry of Finance 2020 49 Economic review 2019

Manufacture of machinery and equipment Production output in the machinery industry grew rapidly before the global economic crisis, but as a result of the crisis, manufacturers of capital goods, including mechanical engineering, suffered severely in 2009. In terms of production volume, the industry recovered from the crisis, but growth was achieved with a smaller number of employees. The development of the machinery industry is primarily influenced by foreign markets, most of the production is exported. There are almost 200 mostly small and medium-sized manufacturers of machinery and equipment in Estonia with a total of approximately 4,000 employees. The largest companies in the machine industry are AS Hekotek (wood processing equipment), OÜ Palmse Mehaanikakoda, Oniar OÜ (forest trailers, log lifts), AS Sami (construction lifts, forest machines), AS Tech Group (production automation equipment, production lines), OÜ Technobalt Eesti (conveyor systems), JTK Power Finmec Estonia AS, AS Rauameister (handling and lifting equipment and their parts), Interconnect Product Assembly AS (industrial equipment, industrial electronics), OÜ PMT (various equipment for the machine industry), Sveba-Dahlen Baltic OÜ (food industry equipment), AS Pesmel Eesti (conveyor systems) and Metos AS (catering equipment). However, the sector is dominated by rather small companies. Large companies are located in Tallinn and Harju County, but the machinery industry is represented in almost every region of Estonia. In compliance with the forecasts, both machinery industry exports and sales to the domestic market will increase in the long run. Due to the higher value added of the sector and the example of developed countries, additional jobs could be created in the machinery industry, but according to the representatives of the sector, production will be greatly affected in the future by automation, which reduces the need for labour.

In the machinery industry, production started to decrease in the second half of 2019. In the year as a whole, sales increased at a fairly fast pace, while in 2020 worse results are expected.

% Share of sector in economy 100 140 80 120 100 60 78,8 115,0 80 40 60 While at the beginning of 5,0 40 2019 the production 20 3,7 20 volume of the machinery 0,7 0 0 industry remained on a Share in value Share in man. Share of Share in Ratio to strong growth line, the added industry exports in employment average wage second half of the year led exports sales of man. (r.s.) to a decline. industry Source: Statistics Estonia

While at the beginning of 2019 the production volume of the machinery industry remained on a strong growth line, the second half of the year led to a decline. Industrial production grew by only a few percent over the year. Nevertheless, as a result of the increment of producer prices (2.7%), sales increased by almost 8%. The increase in sales was predominantly supported by exports, sales to the domestic market increased by a few percent.

The product range of the portfolio of the machinery industry is very wide, the largest part of exports is made up of various parts of equipment. Exports increased in 2019 to almost all major countries. Most of the export growth was towards Russia (more affected by lifting and handling equipment, conveyors), Finland (parts for various equipment, but behind the growth was a wide range of products), the USA (parcel machines, their parts) and Vietnam (wood processing equipment). Sales decreased somewhat due to lower sales of parts for lifting and handling equipment in Poland.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 50 Economic review 2019

million € Sales and exports % y-o-y 600 20 500 15 Exports increased in 2019 400 10 to almost all major 300 5 countries. 200 0 100 -5

0 -10 2014 2015 2016 2017 2018 2019*

Sales Exports Change in sales (r.s.) Change in exports (r.s.)

Source: Statistics Estonia

Exports by main target countries

Finland

Russia USA

Sweden Germany

Poland

Norway

China

0 5 10 15 20 25 30 35 % 2019 2018 Source: Statistics Estonia thousand Number of employed people and wages % y-o-y 4 500 8 The number of employed 4 000 7 remained at the level of 3 500 6 5 the previous year, labour 3 000 2 500 4 3 costs increased by the 2 000 section on wage growth 2 1 500 1 (6%). 1 000 0 500 -1 0 -2 2014 2015 2016 2017 2018 2019* Number of employed people Average wage (in euros) Change in the number of employed people (r.s.)

Change in wages (r.s.)

Source: Statistics Estonia

According to financial statistics, the sales revenue of enterprises (incl. other than industrial production) increased by more than a tenth, while profit increased by a fifth. The number of employed remained at the level of the previous year, labour costs increased by the section on wage growth (6%). Value added also increased, but at a somewhat slower pace than expenditure, while value added per labour cost and employed improved.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 51 Economic review 2019

Value added, labour costs and productivity million € % y-o-y 160 12 140 10 8 120 6 100 4 80 2 60 0 -2 40 -4 20 -6 0 -8 2014 2015 2016 2017 2018 2019* Value added Labour costs Change in total productivity (r.s.) Change in labour costs productivity (r.s.) Source: Statistics Estonia Pursuant to the preliminary data, Pursuant to the preliminary data, investment in the machinery industry investment in the increased strongly in 2019, but final statistics in this sector have not machinery industry confirmed preliminary estimates. More than half of the investments were increased strongly in 2019, made in machinery and equipment, a third in buildings. but final statistics in this sector have not confirmed million € Investments of companies % y-o-y preliminary estimates. 30 80 25 60 20 40 15 20 10 0

5 -20 0 -40 2014 2015 2016 2017 2018 2019* Investments in fixed assets Change in investments (r.s.) Source: Statistics Estonia

Similar to the general situation in the machinery and the manufacturing industry, the business climate assessments of entrepreneurs started to Due to the expected deteriorate in 2019. A survey by the Estonian Institute of Economic Research decline in investment in highlighted a decrease in orders and a decline in production towards the end 2020, it may be expected of the year. Nevertheless, labour shortages remained the biggest problem that the year will also be for the sector. At the beginning of 2020, however, the sector was mainly worse than usual for the affected by a lack of orders, which was further exacerbated by the spread of machinery industry. the coronavirus. In April, almost 30% of the respondents also pointed out other problems, including the lack of materials or equipment. Like many other industries, production began to decline even before the virus

restrictions were imposed. Due to the expected decline in investment in

2020, it may be expected that the year will also be worse than usual for the

machinery industry.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 52 Economic review 2019

Manufacture of electronic and electrical appliances The Estonian electronics and electrical equipment manufacturing sector is developing rapidly and is actively investing in production buildings, equipment, automation and also product development. This sector is characterised by a high share of production services, which means outsourcing the production of products and related functions. However, many Estonian companies no longer offer simple outsourcing, but a production partnership, where everyone develops their key skills. Several electronics manufacturing service companies have also developed product development capabilities both within the company and through a network of partners. Many companies are able to provide product software, testing, component purchasing, logistics services, after-sales service, and more, covering much of the product life cycle. The electronic and electrical equipment produced has a high value added and sales are largely focused on exports. The growth potential of the sector can be assessed as high, as the demand for smart products and digital solutions, all of which use electronics to operate, continues. In addition, the spread of 5G around the world supports the demand for both network equipment and IoT equipment.

There are more than 250 companies operating in the electronic and electrical equipment manufacturing sector. Most of the large companies are production units or production service providers with international capital. Many companies are located in and around Tallinn, but factories further away from the capital also make a significant contribution to the sector's exports. For example, electronics companies operating in Saare county, Pärnu, Elva and Ida-Viru county form one of the most important areas of activity in their region.

The manufacture of electronic and electrical equipment is divided into two sub-sectors - manufacture of computer, electronic and optical products and manufacture of electrical equipment. The largest companies in the production of computers, electronic and optical equipment are Ericsson Eesti AS (mobile network equipment), Enics Eesti AS (electronic parts for industrial and medical equipment) and AS Eolane Tallinn (communication equipment), and the largest computer manufacturer, Ordi AS. Contrary to the general trend in this industry, computer sales are mainly focused on the domestic market. The largest company in the field of electrical equipment production is ABB AS, whose main activity is the production of electricity distribution equipment and power generators. Other large companies are Ensto Ensek AS (electricity distribution equipment and control equipment), AS Konesko (electric motors and equipment), AS Glamox (production of electric lighting equipment) and AS Harju Elekter Elektrotehnika (electrical distribution equipment).

In 2019, according to preliminary statistics, the sales revenue of the electronics industry decreased by 3%. Exports also decreased, but this was also affected by the high level of the previous year. To boot, exports were affected to some extent by the turmoil over the trade wars and Brexit. At the same time, however, the sector's value added and total productivity increased.

% Share of sector in economy % 100 120 80 100 93,0 According to preliminary 60 107,0 80 statistics, the sales 60 40 revenue of the electronics 22,7 40 industry decreased by 3%. 20 11,7 20 1,5 0 0 Share in value Share in man. Share of Share in Ratio to added industry exports in employment average wage exports sales of man. (r.s.) industry Source: Statistics Estonia

Almost 70% of the sector's total sales come from the production of computers, electronic and optical equipment. Most of the production of both industries is exported. Exports accounted for 98% of sales of computers, electronic and optical equipment and 84% of sales of electrical equipment. The share of the sector's exports in total manufacturing exports (23%) remained at the same level as in the previous year. Ministry of Economic Affairs and Communications • Ministry of Finance 2020 53 Economic review 2019

million € Sales and exports % y-o-y 3 000 10 2 500 5 2 000 0 1 500 -5 1 000 500 -10 0 -15 2014 2015 2016 2017 2018 2019*

Sales Exports Change in sales (r.s.) Change in exports (r.s.)

Source: Statistics Estonia

% Change in sales by sub-sectors 15 10 5 0 -5 -10 -15 -20 -25 2014 2015 2016 2017 2018 2019* Manufacture of computers, electronic and optical devices The unstable economic Manufacture of electrical equipment situation and the resulting Source: Statistics Estonia decline in export prices had a negative effect on The production volume of the electronic and electrical equipment sector external demand and, increased by 6% in constant prices in 2019, but at current prices the ultimately, on companies' production volume was lower than in the previous year. The unstable export volumes. economic situation and the resulting decline in export prices had a negative effect on external demand and, ultimately, on companies' export volumes. In addition, the industrial production sold on the domestic market also decreased, which is why the sales revenue of both activities was lower compared to 2018.

Exports of computers, electronic and optical equipment decreased by 4% compared to the previous year. This was largely due to the high comparison base a year ago and a weakened external demand. Mobile communications equipment continued to account for the largest share of exports in this sub- sector. Exports of other electronic equipment also declined. The export volumes of larger companies in this industry decreased significantly, which affected the exports of the entire sector. However, exports of electrical equipment increased by almost 2% over the year. The growth was helped by the positive development of export prices of electrical equipment in most months. The main exports of the branch were power distribution equipment, transformers, insulated electric wires, cables and static converters.

Exports to several major Exports of electronic and electrical equipment to several major export export markets declined. markets declined. In 2019, as in the previous year, the largest target market was the USA, of which share in total exports already exceeded 25%. Mobile devices accounted for 81% of exports to the United States, with exports

growing by 9% year-on-year. The US telecommunications companies are building new 5G networks, enabling high-speed data communication, for which the equipment is manufactured at the Ericsson plant in Lasnamäe, Tallinn, Estonia. In addition, years ago, mobile devices moved to a large extent to Sweden, from where they were diverted to other countries, but

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 54 Economic review 2019

now these goods are increasingly moving directly to the destination country. The share of Swedish exports of electronic and electrical equipment fell to 14% in 2019, remaining in third place in the ranking of destination countries. During the year, the volume of exports to Sweden fell by more than 20%. More is sold than Sweden to Finland, where export volumes remained at a similar level compared to 2018. The portfolio of Finnish export groups was The US more broad-based, accounting for 21% of the sector's total exports. The telecommunications largest commodity groups were transformers (21%), power distribution companies are building equipment (15%), parts for electric motors and generators (14%) and cables new 5G networks, (8%). Among important trading partners, exports of electronic and electrical enabling high-speed data equipment to Germany and China decreased. This was largely due to communication, for which declining exports of mobile communications equipment and transformers the equipment is and converters. Exports to the Netherlands, Italy, the United Arab Emirates, manufactured in Estonia. Russia, Poland and Latvia showed growth, but their share of total exports remained at a few percent.

Due to the decrease in export and production volumes, in 2019 the number of employees in the electronic and electrical equipment manufacturing sector also decreased by 6% according to the labour survey. Negative changes took place in the manufacture of computer, electronics and optical equipment. One of the reasons for the decrease in the number of employees can also be considered the increase in the level of wages, which forced companies to look again for ways to increase efficiency, including through automation and digitalisation. Nevertheless, the number of employees in

the electrical equipment manufacturing sub-sector increased by 3%.

In 2019, wage growth in the sector continued, but the increase rate slowed down compared to the previous year. The average gross monthly salary of the sector increased by 5.9% over the year. This was 3.5 percentage points less than in the previous year. The average gross monthly salary in the electronics and electrical equipment manufacturing sector was 1,434 euros, which was 95 euros higher than the average salary in manufacturing (1,339 euros). In the sub-sectors, salary increased by 5-7%. In 2019, the average gross monthly salary in the manufacture of computers, electronic and optical equipment was 1,394 euros, which was 94 euros more than in

the previous year. The average monthly salary of the electrical equipment manufacturing branch was 1,473 euros, increasing by 66 euros during the year.

thousand Number of employed people % y-o-y 18 30 16 20 14 The average gross monthly 12 10 10 salary in the electronics 0 8 and electrical equipment 6 -10 manufacturing sector was 4 -20 higher than the average 2 salary in manufacturing. 0 -30 2014 2015 2016 2017 2018 2019* Number of employed people (labour survey data) Number of employed people (business statistics) Change in number of employed people (r.s.) Change in number of employed people in companies (r.s.)

Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 55 Economic review 2019

Average gross monthly wages % y-o-y 1 600 10 1 400 8 1 200 1 000 6 800

600 4

400 2 200 0 0 2014 2015 2016 2017 2018 2019 Average wages (in euros) Change (r.s.) Source: Statistics Estonia

Productivity indicators based on value added followed a positive trend. The total productivity of the sector increased by 16% and the productivity of labour costs by 4% compared to the previous year. Similarly to the total productivity, the sector also managed to increase productivity per person Productivity indicators employed, which grew by 4% in the manufacture of computer, electronic based on value added and optical equipment and by 19% in the manufacture of electrical followed a positive trend. equipment.

Value added, labour costs and productivity million € % y-o-y 400 25 350 20 300 15 250 10 200 5

150 0 100 -5 50 -10 0 -15 2014 2015 2016 2017 2018 2019* Value added Labour costs Change in total productivity (r.s.) Change in labour costs productivity (r.s.) Source: Statistics Estonia

In 2019, companies invested significantly more in property, plant and equipment than in the previous year. The companies invested in production buildings, equipment and automation. Investments in the whole sector increased by 40%. Most of the sector's investments are made by the Investments in the whole computer, electronics and optical equipment manufacturing sub-sector, sector increased by 40%. which increased investments by 50% in 2019. Investments in tangible fixed assets of electrical equipment manufacturing companies increased by 10% in 2019. The majority of investments went to machinery and equipment. The volume of investments may be even higher, as a scheme is common where,

for example, a new production building is owned by a real estate company and the electronics industry rents premises. There is a similar trend in investments in machinery and equipment and software, where companies do not buy them out but purchase them under a lease agreement.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 56 Economic review 2019

million € Investments of companies % y-o-y 100 50

90 40 80 70 30

60 20 50 10 40 30 0 20 10 -10 0 -20 2014 2015 2016 2017 2018 2019* Investments in fixed assets Change in investments (r.s.) Source: Statistics Estonia

2019 was still a good year for the electronics sector, and according to a survey conducted by the Estonian Institute of Economic Research in March 2020, production volume expectations remained positive. The number of employees was also forecast to increase or remain the same. However, the demand for However, the following months brought a decline in optimism in the light of smart products and digital the COVID-19 crisis. According to the Industrial Barometer of May, the solutions will remain or forecasts of computer, electronic and optical equipment companies were even grow, which also that production volumes and also export orders would decrease in the next means an increase in 3 months. The confidence indicator became negative. For the next 3 months, demand in the electronics 60% of electrical equipment manufacturing companies forecast a decrease sector. in production volume and a decrease in export orders was forecast by 78% of companies. 40% of employers reported the plan to reduce the number of employees. However, the demand for smart products and digital solutions will remain or even grow, which also means an increase in demand in the electronics sector. In addition to demand, the functioning of the supply chain also plays an important role for the electronics sector, as many different components are used for products and if even one is missing, it cannot be produced. During the coronavirus, however, supply chain failures became the largest problem in the sector. In the long run, the corona crisis may offer new development opportunities for Estonia and Estonian companies due to the return of production from China and the localisation of supply chains.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 57 Economic review 2019

Manufacture of transport equipment The production of means of transport depends primarily on foreign demand, most of the sector's sales are exports. As a result of the economic crisis, both domestic sales and exports fell sharply in 2009, but this was followed by a rapid recovery. There are more than 150 companies manufacturing transport equipment in Estonia. The largest of them are AS Norma (car safety systems, seat belts), Stoneridge Electronics AS (electronic equipment for the car industry), AS Fors MW (forest trailers and hoists), AS Respo Trailers, OÜ Birger and AS Bestnet (trailers), OÜ Tarmetec (car accessories), PKC Eesti AS (cable ties for the automotive industry), Universal Industries OÜ (silencers), Baltic Workboats AS (aluminum ships) and AS Luksusjaht (plastic yachts and scooters). Many shipbuilding or repair companies are reflected in the repair of machinery and equipment, for example several subsidiaries of BLRT Grupp AS. Larger companies are mainly concentrated in Tallinn and Harju county (two thirds of the sector's employees), Tartu county and Saare county also stand out. According to long-term forecasts, export volumes will increase sales in the future, and the role of the domestic market is modest. The increase in production volume is due to the increase in productivity, as the shortage of skilled labour and the boost of labour costs force us to focus on more expensive products.

In the manufacture of transport equipment, 2019, unlike in the previous year, was better than the production of other transport equipment, the production of motor vehicles and their parts decreased. In 2020, however, both activities suffered in the corona crisis.

% Share of sector in economy % 100

80 88,7 95,4 60

The growth rate of 40 transport equipment 5,9 production slowed down 20 3,4 in 2019, at the end of the 0,6 0 year the production Share in value Share in man. Share of Share of Ratio to volume fell by more than a added industry exports in employment inaverage wage* tenth compared to the exports sales man. industry previous year. * Production of motor vehicles and trailers Source: Statistics Estonia

The growth rate of transport equipment production slowed down in 2019, at the end of the year the production volume fell by more than a tenth compared to the previous year. The worse situation was characterised by the production of motor vehicles, their parts and trailers, where production decreased by 6% during the year. The production volume of other means of transport was more than a fifth higher in 2019 than a year earlier, but in the last quarter, the growth of production also stopped in this sub-sector. In the year as a whole, sales in the manufacture of motor vehicles also decreased, while sales of other means of transport increased. The situation was slightly better in the export direction, but less production was sold to the domestic market in both areas. Exports of motor vehicle parts decreased by more than a tenth in 2019, and trailers were also sold in foreign markets less than a year earlier. On the other hand, the growth in the production of other means of transport was also reflected positively on the export side, sales of ships and boats increased strongly. Sales to the Netherlands grew the most, but were driven by vehicle sales, which may rather indicate brokerage. Exports to Sweden and Germany increased due to the sale of ships, yachts and boats, the main groups of goods (motor vehicle parts, trailers) were also in deficit in these countries. As ship sales are linked to specific orders, this is reflected in jumpy national Ministry of Economic Affairs and Communications • Ministry of Finance 2020 58 Economic review 2019

data. Due to transactions a year earlier, exports to Denmark and Norway fell, mainly due to lower ship sales. Norway's result was also affected by the decline in exports of floating structures. million € Sales and exports % y-o-y

600 25 500 20

400 15

300 10 200 5 100 0

0 -5 2014 2015 2016 2017 2018 2019* Sales Exports Change in sales (r.s.) Change in exports (r.s.)

Source: Statistics Estonia

Exports by main target countries

Sweden Finland

Norway

Germany On the other hand, the growth in the production Czech Republic of other means of UK transport was also reflected positively on the The Netherlands export side. Latvia

% 0 5 10 15 20 25 30 2019 2018 Source: Statistics Estonia

Main export commodity groups

Trailers and semi-trailers

21% Yachts and boats Parts and accessories 6% of motor vehicles 29% Floating structures 6%

Other boats 5%

Other 33% Source: Statistics Estonia

The number of persons employed in the manufacture of motor vehicles, their parts and trailers remained at the level of the previous year, the number of working hours decreased slightly. In the production of other means of transport, the number of employed also increased along with the

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 59 Economic review 2019

volume of work (almost 6%). Similar to the change in production volume, the financial indicators of companies also behaved differently by sub-sectors. In the production of motor vehicles, revenues, costs and profits were almost the same as a year earlier, but labour costs increased slightly. In the manufacture of other transport equipment, revenues increased more than expenses and profits increased significantly and productivity indicators improved, while the final statistics have previously differed somewhat from the initial estimates. Wage growth was slower than average in both sectors (2–5%, companies with 50 and more employees).

Number of employed people and wages % y-o-y 4 500 15 4 000 3 500 10 Wage growth was slower 3 000 than average in both 2 500 5 sectors. 2 000 0 1 500 1 000 -5 500 0 -10 2014 2015 2016 2017 2018 2019* Number of employed people Average wage: production of motor vehicles (in euros) Change in the number of employed people (r.s.) Change in wages (r.s.)

Source: Statistics Estonia

Value added, labour costs and productivity

million € % y-o-y 160 10

140 5 120 100 0 80 -5

60 -10 40 20 -15 0 -20 2014 2015 2016 2017 2018 2019* Value added Labour costs Change in total productivity (r.s.) Change in labour costs productivity (r.s.) Source: Statistics Estonia

Pursuant to the available In 2018, vehicle manufacturers invested a record amount. In 2019, data, more than half was investments were more modest (30% according to the preliminary data), but invested in machinery and still higher than usual. Data on the production of other means of transport equipment, almost a third are incomplete and short-term statistics generally reflect a small part of the in buildings - in both cases overall picture. Pursuant to the available data, more than half was invested the short-term statistics in machinery and equipment, almost a third in buildings - in both cases the showed a decrease short-term statistics showed a decrease compared to the previous year. compared to the previous year.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 60 Economic review 2019

million € Investments of companies % y-o-y

25 50 40 20 30 20 15 10 10 0 -10 5 -20 -30 0 -40 2014 2015 2016 2017 2018 2019* Investments in fixed assets

Change in investments (r.s.) * Investment in production of other means of transport is partly covered by short-term statistics in the reference period, so growth is rather underestimated Source: Statistics Estonia

2020 will be a difficult year 2020 will be a difficult year for the production of means of transport. The for the production of transport sector was one of the hardest hit during the corona crisis, which in means of transport. turn affected the related areas. During the restrictions related to the virus, several car manufacturers closed down factories, and shipyards were also suspended. In April 2020, the production of motor vehicles, their parts and trailers, as well as other means of transport, fell by half compared to the same period last year. Along with the economic recovery, the situation in these activities is also expected to improve, but the industry as a whole can be expected to perform worse than the average.

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Manufacture of furniture More than 700 companies are engaged in furniture manufacturing in Estonia, employing almost 8,000 people. Many companies are very large in Estonian terms, as many as six companies employ more than 200 people. In Estonia, the furniture industry is a sector with a long tradition, which is an important employer in rural areas, helping to add value to the domestic raw materials.

The largest furniture manufacturing companies in terms of the number of employees are located chiefly in Northern and South-Eastern Estonia. The largest furniture manufacturers in 2019 were OÜ Fleming, upholstered furniture manufacturer, OÜ Bellus Furniture and AS Antsla Inno, AS Standard, office furniture manufacturer, Flexa Eesti AS, furniture component manufacturer, Gomab OÜ, wooden furniture manufacturer and Delux Production OÜ, manufacturer producing mainly bedroom furniture.

The furniture industry is increasingly oriented towards the internal market. If some time ago 80% of production went for export, now the share of foreign markets has fallen below 60%. Due to the shortage of cheap labour, competition with producers in Poland and Lithuania, for example, has become increasingly difficult.

Weakness in foreign markets did not allow the sales numbers of the furniture industry to increase in 2019 and the volume remained at the same level as a year earlier.

% Share of sector in economy 100 80 59,3 80,6 60 40 4,3 20 6,5 0,6 0 Share in value Share in man. Share of Share in Ratio to added industry exports in employment average wage exports sales of man. industry The decline in furniture Source: Statistics Estonia exports is a trend across the European Union that has been noticeable for The decline in furniture exports is a trend across the European Union that years. Countries with has been noticeable for years. China, Vietnam, as well as Ukraine and other cheap labour are gaining neighbouring countries with cheap labour, are gaining market share and EU market share and EU producers find it difficult to compete with them. In 2020, the Covid-19 crisis producers find it difficult also had a rather strong impact on the furniture industry. On the one hand, to compete with them. these are not basic commodities, and on the other, many furniture stores were closed at the height of the crisis. All this brought down sales numbers and reduced consumption. The advantage was given to these companies that had previously put more emphasis on e-commerce.

The most important markets for furniture production are the Nordic countries, where the market is known and people are able to recognise the

design. What is more, several Finnish and Swedish furniture manufacturers have production located in Estonia. The share of these two countries in exports is 57%. If Denmark and Norway are added, the share of the Nordic countries in exports reaches 86%. Of the larger partners, exports to Finland increased by 6% and Norway by 18%. Sweden and Denmark were down 6%. Out of the major commodity groups, exports of spring mattresses increased by 15% and that of metal furniture by 17%. Sales of wooden bedroom furniture decreased by 5% in foreign markets.

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million € Sales and exports % y-o-y 600 14 12 500 10 400 8 6 300 4 2 200 0 100 -2 -4 0 -6 2014 2015 2016 2017 2018 2019* Sales Exports Change in sales (r.s.) Change in exports (r.s.)

Source: Statistics Estonia The share of the Nordic countries in exports Exports by main target countries reaches 86% Finland

Sweden

Denmark

Norway

Germany

The Netherlands % 0 10 20 30 40 2019 2018 Source: Statistics Estonia

Main export commodity groups

Parts of Living and dining room furniture furniture 16% 12%

Wooden kitchen furniture 3%

Wooden Seats bedroom 30% furniture 17%

Other furntiture 22% Source: Statistics Estonia

Pursuant to preliminary data, the number of employed in the sector The average wage grew decreased by a few percent in 2019. The average wage grew slightly slower slightly slower than the than the national average and the gap with the Estonian average wage national average and the worsened. The larger the wage gap in the sector with the national average, gap with the Estonian the more difficult it will be to find skilled workforce. Although net profit average wage worsened. decreased by a quarter during the year, value added remained almost unchanged. Nevertheless, labour costs increased and productivity indicators calculated on the basis of them decreased.

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Number of employed people and wages % y-o-y 10 000 10

8 8 000 6 6 000 4 4 000 2 0 2 000 -2 0 -4 2014 2015 2016 2017 2018 2019* Number of employed people Average wage (in euros) Change in the number of employed people (r.s.) Change in wages (r.s.)

Source: Statistics Estonia

Value added, labour costs and productivity million € % y-o-y 200 12 180 10 160 8 Productivity indicators 140 6 decreased. 120 4 100 2 80 0 60 -2 40 -4 20 -6 0 -8 2014 2015 2016 2017 2018 2019* Value added Labour costs Change in total productivity (r.s.) Change in labour costs productivity (r.s.) Source: Statistics Estonia

In conformity with the preliminary data, investment activity in the furniture industry increased by 34% in 2019. However, investment statistics in the sector are rather volatile and may be considerably revised later. Investment

in machinery and equipment increased, where a third more funds were invested than a year earlier.

million € Investments of companies % y-o-y 30 50 25 40 30 20 20 15 10

10 0 -10 5 -20 0 -30 2014 2015 2016 2017 2018 2019* Investments in fixed assets Change in investments (r.s.) Source: Statistics Estonia In the spring of 2020, furniture industry The results of a survey by the Estonian Institute of Economic Research companies were fairly suggested that in the spring of 2020, furniture industry companies were more negative than a year fairly more negative than a year earlier. The production volume of most earlier. companies had decreased in recent months, and 82% of the respondents had export orders below the normal level. Withal, more than a half of the companies planned to reduce the number of employees. The furniture industry is probably one of the manufacturing sectors most affected by the crisis, and 2020 is predicted to be a difficult year.

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Construction sector 2019 was a year of rapid advance for the Estonian construction sector, the issues were the increase in costs (incl. labour costs) and the skilled labour shortage. The labour shortage was alleviated by hiring or using temporary workers who came to Estonia principally from Ukraine on the basis of short-term work permits. As the domestic market has been evolving moderately, the Estonian construction sector has focused on the local market and the share of the foreign market has increased moderately in terms of the sector as a whole. Exports in the construction sector became more active, especially during the recession, while the share of exports has changed little in recent years. Nevertheless, in 2019 there was a slight increase in export volumes. Many construction companies have optimised their operations to better meet the demand of the domestic market. In order to enter foreign markets and to overcome market failures, a subsidiary or an associated company is established in the country of destination, the activities and construction volumes of which are not fully reflected in the statistics on the construction export. The construction sector responds to changes in the economy with inertia, both in the recession and in the upswing. The recovery of confidence and the sector is slower than the contraction of the construction market or changes in other sectors of the economy. This may be explained by the fact that investments in real estate are large, the planning process is long and the start of projects depends on the possibilities of project financing. The private sector is postponing large-scale construction projects in times of uncertainty, but it is also desired to complete the projects that have been started during the economic plunge. If the situation in the economy as a whole is good, construction volumes and prices will soar swiftly. The economic situation of the country thus has a very direct impact on the economic results of the construction sector and related areas (construction consulting services, real estate services, building materials industry, etc.). The effect is reciprocal - the situation of other industries, especially the real estate sector and the production of building materials, also depends on the situation in the construction sector.

There are about 12,000 construction companies in Estonia, 91% of which are micro-enterprises with less than ten employees. The large share of micro-enterprises is characteristic of the entire European construction sector, with the average rate in the European Union being almost 94%. The largest construction companies in Estonia are AS Merko Ehitus Eesti, Nordecon AS, AS TREV-2 Grupp, AS YIT Eesti, OÜ Astlanda Ehitus, OÜ Mapri Ehitus, AS Ehitusfirma Rand and Tuulberg, Empower AS, OÜ Fund Ehitus.

In 2019, the volumes of the construction sector increased, which contributed to the growth of the total economy. After the economic crisis, the share of the construction sector in GDP has remained at the level of 6- 8% (in 2019 6.9%). Construction volumes, value added, employment and construction prices continued to rise. Pursuant to Statistics Estonia, investments in tangible fixed assets increased by 61% compared to the

previous period . Profits and productivity indicators of companies in the

sector started to rise again after a small decline in 2018. The share of construction work performed abroad increased by 2 percentage points, accounting for 6% of construction work performed. While in the coming years the difference between the average wage of the sector and of the state has widened, then in 2019 the salary of the construction sector increased at a faster pace than the average state salary.

Share of sector in economy % 100 Construction volumes, 80 value added, employment 96,4 and construction prices 60 continued to rise. 40 20 6,9 8,7 0 Share in GDP Share in employment Ratio to average wage

Source: Statistics Estonia

Volumes in the construction sector recovered in 2012 after the economic crisis that began in 2008, when stable growth began. The growth period Ministry of Economic Affairs and Communications • Ministry of Finance 2020 65 Economic review 2019

accelerated in 2016, when the structural funds of the new period were opened and the state investments in infrastructure development projects incremented. As the majority of construction investments are made in the private sector, the acceleration of growth was certainly influenced by the completion of plans and projects for large objects started after the crisis and the general improvement in economic confidence. Pursuant to the statistics

on construction volumes and use permits, construction volumes continued to increase quickly in 2019, the volume of construction permits for residential buildings increased by 14.8% over the year and for non- residential buildings by 12.8%. However, a construction barometer survey prepared by the Estonian Institute of Economic Research shows a decline in the orders from the third quarter of 2019, which was exacerbated in the first quarter of 2020 by the impact of the coronavirus pandemic on the economy. Based on this, it may be predicted by now that the peak of construction volumes in the almost 10-year economic cycle was in the period of 2017- 2019.

Together with the real estate sector, the construction sector remains in third place in terms of employment, lagging behind the manufacturing industry and wholesale and retail trade. The share of employment in the construction sector alone was 8.7% of all employees, while together with the real estate sector it was 10.4%. According to the Labour Force Survey, the construction sector employed a total of 58,400 people and, according to business statistics, the number was 45,918 people (flash estimate). According to the Estonian Tax and Customs Bard, in the last quarter of 2019, some 55,543 workers were employed in the construction sector, from whose Given the modest change wages labour tax was paid. Based on these data, it can be stated that in 2019 in construction labour the construction sector employed almost 60,000 people. Pursuant to the relative to construction Labour Force Survey, the number of employed persons increased by 0.2%, volumes, it can be but according to business statistics instead, it was 3.6%. assumed that the share of temporary labour has also The assessment of the Labour Force Survey includes Estonian labour force increased. operating abroad, which is why employment is also affected by the construction markets of the destination countries of labour migration. Employment data do not include the wages and salaries of companies providing labour leases. According to statistics compiled by the Police and Border Guard Board, in 2019 372 residence permits were issued for work in the field of construction and 10,888 short-term jobs were registered. There are no statistics on how much of the foreign labour is employed directly by construction companies and how much through temporary labour companies, but given the modest change in construction labour relative to construction volumes, it can be assumed that the share of temporary labour has also increased. The number of people employed in the sector is also directly affected by the industrial sector, including in particular the production of construction products. For example, the production of factory-

produced building elements increasingly employs a workforce with competencies developed in the construction sector. There is also a constant labour migration between the construction and the real estate services sector.

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Number of employed people % y-o-y 70 000 6

60 000 4 50 000 2 40 000 0 30 000 -2 20 000 -4 10 000 -6 0 -8 2014 2015 2016 2017 2018 2019* Number of employed people (labour force survey) Number of employed people (business statistics) Change in no of employed people (labour force survey, r.s.) Change in no of employed people (business statistics, r.s.) Source: Statistics Estonia

Given the labour shortage and the associated wage pressures, it can be The average wage of the assumed that construction companies will increase their interest in construction sector has increasing productivity and thus reducing employment, even in the face of remained below the rising construction volumes. Rising labour costs and increased national average wage and competitiveness of average wages suggest that labour shortages have the gap is increasing. exerted strong wage pressures in the sector. At the peak of the economic cycle, labour shortages are also occurring in other sectors, as indicated by the growth of average gross wages. The increment of labour costs in the construction sector, which started in 2017 and reached more than 10%, continued in 2019, increasing by 11.4% year-on-year, decreasing approximately by 3 percentage points compared to the increase of the previous two years. When analysing labour costs, it is necessary to take into account the fact that the increasing share of labour rent reduces the labour cost rate of construction enterprises in statistics, because when using temporary labour, the rental service is paid for and labour costs, including labour taxes, are borne by the rental companies.

Since the economic crisis, wage developments in the construction sector have been on the rise. In 2019, the difference between the average salary in Estonia and the average salary in the construction sector somewhat The actual income is likely decreased, the gross monthly salary in the construction sector increased to to be higher in the field of 1,356 euros (growth of 8.6%), while the Estonian average increased to construction, as envelope 1,407 euros (growth of 7.4%). Since 2015, the average salary in the wages are also common in construction sector has been lower than the national average, but in 2019 the sector. the difference narrowed moderately. Given the very low level of confidence of construction companies in the availability of free labour and low productivity in the sector, the weak increase in the average wage may only be explained by the employment of temporary workers and the persistence of envelope wages.

EUR Monthly wages % y-o-y 1 600 18 1 400 16 1 200 14 1 000 12 10 800 8 600 6 400 4 200 2 0 0 2014 2015 2016 2017 2018 2019* Average wage (Estonian avg) Average wage (construction) Change in wages(avg, r.s.) Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 67 Economic review 2019

In 2019, construction work was performed in Estonia on the basis of Statistics Estonia's quick estimate in the total amount of current prices of 4.73 billion euros. The volume of self-performed work in Estonia was Decreasing export and a 3.19 billion euros, increasing by 2.1% year-on-year. According to a rapid safe domestic market pose estimate, the share of construction work performed abroad accounted for a risk of decreasing the 6% of all construction volumes, increasing by 2 percentage points year-on- international year. While in 2018 the volume of construction work performed abroad competitiveness of local decreased by as much as 18%, in 2019 it increased by a significant 58.5%. companies. There have been important differences in annual and short-term statistics on construction volumes performed abroad, so no comprehensive conclusions can be drawn about the competitiveness of companies. Pursuant to annual statistics, foreign construction volumes increased in 2016 as well as in 2017 and decreased in 2018, but the share of construction volumes in the local market has been steadily declining in proportion to some years of absolute growth.

Construction works performed by own resources million € % y-o-y 3 500 25 3 000 20

2 500 15 2 000 10 1 500 1 000 5 500 0 0 -5 2014 2015 2016 2017 2018 2019* Construction in foreign countries Construction in Estonia (at current prices) Change in construction in Estonia (r.s.) For the second year in a Source: Statistics Estonia row, all price components increased, including labor, The construction price index increased by 1.9% in 2019, which is in the same construction machinery order of magnitude as in 2017 and 2018. For the second year in a row, all and construction price components increased, including labour by 4.3%, construction materials. machinery by 2.0% and construction materials by 0.7%. The rise in the labour price index can be paralleled with an increase in the average wage, but given the general economic situation, a fast fall of labour costs can be expected in 2020.

Developments in the construction sector % y-o-y % y-o-y 2,5 35 2,0 30 25 1,5 20 1,0 15 10 0,5 5 0,0 0 -5 -0,5 -10 -1,0 -15 2014 2015 2016 2017 2018 2019* Construction price index (left scale) Construction volume index of buildings (r.s.) Construction volume index of facilities (r.s.)

Source: Statistics Estonia

Construction companies earned a profit of 114.7 million euros in 2019, which shows a strong increase of approximately 45% compared to 2018. The net value added of the construction sector in 2015 was 980.7 million euros,

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 68 Economic review 2019

which was 14.6% higher compared to 2018. The construction sector accounted for approximately 6.9% of the value added of the total economy.

The average value added Productivity in the construction sector, both in terms of labour costs and per employee in the employment, returned to growth after a small decline in 2018. Labour European Union countries productivity, i.e. the value added per employee, was 26,800 euros, which was about twice as much showed an annual increase of 12.1%. The average value added per employee in comparison with of the European Union countries in 2017 (latest EU comparison data) was Estonia. 44,000 euros, i.e. the level of productivity in Estonia is 61% compared to the EU average. In the Nordic countries, the corresponding productivity indicator per employee is about 56,000–81,000 euros, i.e. 2-3 times higher than the productivity of the Estonian construction sector.

thousand € Labour productivity % y-o-y 30 15

25 10 20 15 5 10 0 5 0 -5 2013 2014 2015 2016 2017 2018 Labour productivity on the basis of value added Change in labour productivity (r.s.) Source: Statistics Estonia

Compared to the period prior to the economic crisis, the investment activity of construction companies was significantly lower in recent years, but in 2018 the activity increased sharply and the volume of investments continued Opportunities for making to increase in 2019 as well. Pursuant to short-term statistics, 61.4% more investments are found was invested in tangible fixed assets in 2019. It can be estimated that the especially in favourable near-term peak period of construction companies' investments in fixed conditions, if the workflow assets is in 2017-2019. Opportunities for making investments are found ensures security and the especially in favourable conditions, if the workflow ensures security and the expectation of profit. expectation of profit. Investment may also be stimulated by rising labour costs, which threatens profitability.

million € Investments of companies % y-o-y 200 80 150 60 40 100 20

50 0 0 -20 2014 2015 2016 2017 2018 2019* Investments in fixed assets Change in investments (r.s.)

Source: Statistics Estonia

In 2019, building permits were issued for 8,025 (in 2018 - 6,990) new dwellings and 2,233 (in 2018 - 1,979) non-residential buildings. Permits for use were granted for 7,014 (in 2018 - 6,472) dwellings and 1,410 (in 2018 - 1,000) non-residential buildings, respectively. The total closed net area in residential buildings that received a building permit was 694,800 (in 2018 - 620,200) square metres and in approved residential buildings 658,300 (in 2018 - 584,800) square metres. The total closed net area in non-residential

buildings that received a building permit was 947,800 (in 2018 - 1,060,000) square metres and in non-residential buildings approved for use 679,800 (in

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 69 Economic review 2019

2018 - 1,078,900) square metres. The number of building permits issued for the construction of dwellings increased by an impressive 14.81% and the number of building permits by 8.4%. In the case of non-residential premises, the growth was 12.83% in the case of building permits and as much as 41% in the case of permits for use. In the case of dwellings, both the number of permits and the closed net area have increased, in the case of non-

residential construction the number of permits has increased, but the net closed area has decreased. The number of use permits in the housing lags behind the issued building permits, thus it can be concluded that in housing construction a construction project is being prepared for realisation, but the Uncertainties of the global commencement of construction activities is delayed due to financing or economy, including the extended sales period of apartments. The large number of building permits Estonian export markets, issued may also be due to the tightening of minimum energy performance are likely to stabilize or requirements as of 1 January 2020. decrease applications for construction permits Although the emergency situation imposed in the first quarter of 2020 on further in upcoming years. account of the spread of the coronavirus had a negative effect on economic growth, the number of applications for building permits and issued building permits continued to multiply in the first quarter of 2020. This can be a manifestation of the inertia of the construction sector, the preparation and design of plans being a very time-consuming and resource-intensive activity, and the issuance of building permits is a stopover goal in a long process that the developers wish to obtain. How many of the building permits issued will be applied in 2020 will depend on the impact of the coronavirus on the

economy. Uncertainty in the global economy, including the Estonian export markets, is likely to make it more difficult to launch new construction projects and focus on completing ongoing projects.

Granted building permits and completed dwellings 2 % area (new construction) thousand m 40 800 30 700 600 20 500 10 400 0 300 200 -10 100 -20 0 2014 2015 2016 2017 2018 2019 The area of completed dwellings (r.s.) The area of dwellings in construction (r.s.) Change in completed dwellings (l.s.) Change in dwellings in construction (l.s.) Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 70 Economic review 2019

Domestic trade The trade sector includes retail and wholesale trade enterprises, including companies engaged in the sale of motor vehicles and their spare parts, i.e. motor vehicle dealers. Trade generates 11.7% of the value added of the entire economy and employs 86,000 people in 17,000 companies.

The major retail companies in Estonia are Coop (which includes Maksimarket, Konsum, A&O), Maxima Eesti OÜ, Tallinna Kaubamaja AS (Selver, Comarket, Delice), AS Prisma Peremarket, Rimi Eesti Food AS (Rimi) and AS OG Elektra. There is intense competition between the companies and profit margins are rather small.

Domestic trade has been growing rapidly for several years in a row and there has been little reason for consolidation. There are also few new sellers entering the market.

In 2019, domestic trade continued to grow as in previous years. Revenues of retail trade enterprises increased by 7% and those of wholesale and motor vehicle dealers by 5%.

Share of trade sector in Estonian economy In 2019, domestic trade % continued to grow as in 100 previous years. 80 93,5 60 40 12,8 20 11,7 3,5 0 Share in value Share in Share in exports Ratio to average added employment of services wage Source: Statistics Estonia

Estonian retail trade is substantially concentrated in five store chains. This is

a lot compared to neighbouring countries, as 2-3 larger chains often dominate. In recent years, Estonian chains have decided to expand organically by opening new stores, rather than buying some competitors. The largest transaction took place only in 2020, when Tallinna Kaubamaja acquired the Comarket and Delice stores. Although at first glance it seems that the Estonian market is already saturated, there is still no discounter type chain common elsewhere. Lidl wishes to fill this gap, as it has started building several stores and should open the first one in 2020. In many places, its development has been hampered by competitors as well as local residents, trying to stop the planning processes and the granting of various permits. However, Lidl has not given up and it seems that entering the Estonian

market is certain. The second largest entrant was IKEA, which opened its delivery point in Estonia in 2019. Furthermore, a plot of land was acquired in Rae municipality, where a full-size store should be built in a few years. IKEA opened its delivery point in Estonia in 2019, In terms of the number of stores, Coop is the largest store chain in Estonia, Lidl should open the first with 340 stores and 6,000 employees as of 2019. The chain's turnover store in 2020. amounted to over 663 million euros, which gave it a 23% market share in Estonia. In terms of turnover, the largest retail company is Tallinna Kaubamaja Grupp, of which sales in 2019 amounted to 717 million euros. The group includes the Selver chain, several car sales companies in Estonia and other Baltic countries, and department stores in the city centre of Tallinn and Tartu. 4,200 employees work there. The Maxima chain, which also employs more than 4,000 people and has a turnover exceeding 600 million euros, is not far behind. In addition to the well-known OG Elektra, Prisma and Rimi, there is also a retail chain in the market, for example, owned by RRLektus, using the "Meie" ("Our") brand with more than 60 stores.

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Large shopping centres were no longer opened in 2019. Moreover, it turned out that the T1, opened a year earlier, was still in difficulty and several tenants had left the shopping centre. In other centres, however, the rental space was rather filled and there were no major problems. The Porto Franco centre is still under construction in the city centre, and the Rocca al Mare centre has announced plans for the expansion. However, the unexpected The T1 was still in difficulty crisis may confuse plans. and several tenants had left the shopping centre. In other centres, however, billion € Sales revenue at current prices % y-o-y the rental space was 16 20 rather filled and there were no major problems. 14 15 12 10 10 8 5 6 0 4 -5 2 0 -10 2013 2014 2015 2016 2017 2018* Trade in vehicles Wholesale trade Retail trade Change in turnover, companies trading in vehicles (r.s.) Change in turnover, wholesale companies (r.s.) Change in turnover, retail companies (r.s.)

Source: Statistics Estonia

Share of retail trade by commodity groups Food products 26% Alcoholic beverages, tobacco products 9%

Clothing, fabrics, footwear 8% Other goods 37% Motor vehicles, spare parts, motor fuel Source: Statistics Estonia 20%

In 2019, wage growth in the trade sector was at the same level as the Estonian average. In total, wages in the trade sector increased by 7.4%. According to business statistics, the number of employed persons increased In 2019, wage growth in by 2%, but pursuant to the Labour Force Survey, the number did not change. the trade sector was at the Whereas, the number of hours worked increased by 2.2%, which indicates same level as the Estonian an increase in the workload of employees. Of the subsectors, employment average. in retail and wholesale trade increased by 1.7% in both, while growth in motor vehicle trade reached 4%. Based on productivity indicators, the year was average for the sector. The increase in labour costs by almost a tenth led to a decrease in total profits of the same magnitude.

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Number of people employed in trade million € % y-o-y 100 5 90 4 80 70 3 60 2 50 1 40 30 0 20 10 -1 0 -2 2014 2015 2016 2017 2018 2019* Number of employed people (labour survey) Number of employed people (business statistics) Change in no of employed people (labour survey, r.s.) Change in no of employed people (business statistics, r.s.) Source: Statistics Estonia

Monthly wages in trade sector % y-o-y 1 400 12

1 200 10 1 000 8 800 6 600 4 400 200 2 0 0 2014 2015 2016 2017 2018 2019* Average wage (in euros) Change in wages (r.s.) Source: Statistics Estonia Value added, labour costs and productivity million € % y-o-y 3 000 15 2 500 10 2 000 5 1 500 0 1 000

500 -5

0 -10 2014 2015 2016 2017 2018 2019* Value added Labour costs Change in labour productivity (r.s.) Change in labour costs productivity (r.s.) Source: Statistics Estonia

In 2019, the sales period of inventories increased by 0.6 days compared to the previous year to 39.7 days. At the same time, the trade mark-up decreased from 19.7% to 19.4%. Investments increased.

Pursuant to the preliminary data, investments in the trade sector increased by 43% in 2019. However, short-term investment statistics in the sector are very volatile. For instance, the final figure for 2018 was approximately 120 million euros higher than the short-term statistics. Thus, there is a

possibility that this number will also be adjusted upwards. One third of investments were made in machinery and equipment, and the volume of these investments increased by 32%.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 73 Economic review 2019

million € Investments of companies % y-o-y 450 50 400 40 350 30 300 250 20 200 10 150 0 100 50 -10 0 -20 2014 2015 2016 2017 2018 2019* Investments in fixed assets Change in investments (r.s.) Source: Statistics Estonia

Retail trade

For retail companies, 2019 was more successful than 2018. In total, the sales

revenue of enterprises increased by 7%, although the growth rate decreased slightly in the second half of the year.

In 2018, the total retail turnover in Estonia was 7.2 billion euros, of which vehicle trade accounted for 0.7 billion euros. The growth was faster in the vehicle trade, where the turnover increased by 17% year-on-year. Retail sales of household goods, household appliances, hardware and construction materials increased by 8% year-on-year and sales of textile products by 10%. All larger retail chains now The increase of retail sales of pharmaceutical and medical goods, cosmetics have their own online and toiletries slowed down notably, increasing by 4% year-on-year. Instead, store and people use the e-commerce fell. Sales by mail or via the Internet decreased by 3% during opportunity increasingly the year. This may be a result of a change in measurement methodology often. rather than a change in people's behavior. 2020 is likely to be a real success story for e-commerce, as for a few months it was almost the only way for some commodity groups to buy or sell products.

Efficiency indicators in retail trade did not change remarkably in 2019. Total sales revenue and expenses grew at exactly the same pace. As the higher increase in costs came from labour costs, value added increased and total productivity calculated on this basis increased by 3%. Labour productivity remained unchanged.

The year 2019 was very successful for retail. The beginning of 2020 was likely

to continue at the same pace, but a sudden crisis broke out and most stores had to close their doors for a while. Although the government has launched significant stimulus measures, it is likely that growth in previous years will not be able to continue and that, in the end, it will be a rather difficult year.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 74 Economic review 2019

Tourism The share of the tourism economy in Estonia's GDP and employment is approximately 7–8%, considering the indirect effect, tourism makes a powerful contribution to export revenue. The Estonian tourism industry largely relies on foreign visitors, who account for more than 60% of all overnight stays in accommodation establishments. A huge part of foreign visitors (15%) are Finnish one-day visitors, while the number of visitors from other countries has increased at a faster pace and the dependence on the Finnish market has decreased. The main tourist magnet is Tallinn, where a large part of tourism companies are concentrated. Year by year, interest in other regions has also grown - this has been facilitated by the addition of rehabilitation centres, accommodation and other service companies. There are more than 900 accommodation establishments in Estonia (in addition to a large number of self- employed persons and enterprises whose main activity is another, as well as private accommodation providers), there are more than 2,000 catering establishments and about 300 travel agencies and tour operators. The largest accommodation companies are OÜ TLG Hotell (Tallink), AS Sokotel (Hotell Viru), Hotell Olümpia AS, Meriton Hotels AS, OÜ Swissotel Estonia and OÜ SPA Tours. The biggest catering companies are Premier Restaurants Eesti OÜ (McDonald's), AS Hesburger and Baltic Restaurants Estonia AS. Major travel agencies and tour operators include AS Estravel, Novatours OÜ, Reisieksperdi AS, OÜ TEZ Tour and CWT Estonia AS. Hurtigruten Estonia OÜ has the largest number of employees, which offers travel reservations and other support services to its group. Approximately 60% of the employees in the tourism sector work in Tallinn companies, other regions include Tartu and Pärnu, but the tourism industry is represented all over Estonia. The spread of the coronavirus has severely affected the tourism industry and such setbacks can be expected in the future. Nevertheless, in the long run, travel growth is expected, which will also bring benefits to Estonian companies. Demand is expected to increase in both domestic and foreign tourism, and therefore the supply of services will also increase (new accommodation and catering facilities will be established). However, long-term growth will be slower than before. In the accommodation sector, the shared economy offers competition to traditional businesses, which means renting out their living space. In particular, the number of foreign tourists is expected to increase in the future and, as a result, export revenues will increase. The increase in supply means a greater need for additional labour in the tourism sector. As incomes rise, both domestic tourism and the number of foreign trips will increase in the long run. Tourism policy seeks to extend the duration of travel in Estonia and to diversify demand both on a seasonal and geographical basis.

In 2019, domestic demand in tourism continued to grow, but as the year progressed, foreign tourism also increased. The financial results of Estonian tourism companies improved, but 2020 will be a very difficult year for the sector due to the coronavirus.

% Share of sector in economy % 100 100

80 75 60 64,3 50 40 10,1 20 4,4 25 1,9 0 0 Share in value Share of tourism Share in Ratio to average added* in exports employment* wage*

* indicators characterise the accommodation and catering companies not the whole tourism sector In the first half of the year, Source: Statistics Estonia the number of arrivals of foreign visitors continued In 2019, foreign tourism was on the rise in the world. In compliance with the to decline, but in the World Tourism Organization, the number of foreign trips worldwide, in second half of the year the Europe and in Eastern Europe, increased by almost 4% compared to the growth resumed. previous year. Estonia's developments were more modest. In the first half of the year, the number of arrivals of foreign visitors continued to decline, but

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 75 Economic review 2019

in the second half of the year the growth resumed. At the beginning of the year, the foreign travel activity of Estonian residents was also lower than a year earlier, the subsequent growth was limited to a few percent. Regardless of that, Estonian residents continued to spend more nights in Estonian accommodation establishments. Although more value added was created in the accommodation and catering service activities than a year earlier, it decreased by more than 2% at As in the previous year, constant prices. As in the previous year, the prices of accommodation the prices of services increased relatively little, but the increase in the prices of catering accommodation services was one of the largest among the EU countries (over 4%). increased relatively little, but the increase in the Both exports and imports of tourism services reached a new record level in prices of catering was one 2019. Both passenger costs and passenger transport costs increased, but for of the largest among the the second year in a row, imports grew faster. The positive balance of EU countries (over 4%). tourism services was the lowest in recent years.

mln EUR Tourism services

2 500 2 000 1 500 1 000 500 0 -500

-1 000

-1 500

-2 000 2014 2015 2016 2017 2018 2019

Exports Imports Balance of tourism services While in 2018 domestic Source: Bank of Estonia tourists employed more jobs in Estonian accommodation While in 2018 domestic tourists employed more jobs in Estonian establishments, in 2019 accommodation establishments, in 2019 the number of overnight stays of the number of overnight foreign tourists also increased by almost 5%. The number of holiday trips stays of foreign tourists increased (7%), while the growth was more modest in business trips. also increased by almost Compared to the previous year, there were fewer overnight stays in 5%. connection with participation in a conference or training, as well as in other trips, where a significant part is rehabilitation treatment. The number of accommodation places opened in 2019 was 2.5% more than a year earlier, and the number of beds offered also increased by the same amount. As demand grew faster, accommodation occupancy improved. The average occupancy rate was 37%, while the occupancy rate was 47%, both of which were the best in the last ten years. Accommodation prices remained fairly stable, with an increase in the average daily cost of less than 1%. However, there were differences by counties, in several lower-priced As demand grew faster, areas (Viljandi, Valga, Järva and Hiiu counties) prices rose by a tenth or more. accommodation According to short-term statistics, the number of persons employed in both occupancy improved. The accommodation and catering increased, but decreased in travel agencies average occupancy rate (data include reservation and other activities). It should be borne in mind was 37%, while the that the final figures may indicate different developments. Similarly, occupancy rate was 47%, according to the Labour Force Survey, the number of persons employed in both of which were the accommodation and food service activities increased by a few per cent. best in the last ten years. Wage growth in accommodation and catering was again slightly slower than the Estonian average. In recent years, the relatively low level of wages in the sector has lagged even further behind the average. The use of temporary

staff has increased in accommodation and catering in recent years.

Nevertheless, labour costs grew faster than other costs, but the increase in

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 76 Economic review 2019

costs was in line with revenues and profits increased. Productivity also improved. The same developments were shown in the field of tour operators and reservations. According to preliminary statistics, profitability somewhat improved, but there have been quite large gaps between final and short- term statistics in the past.

thousand Number of employed people % y-o-y 35 15 30 10 25 5 20 0 15 10 -5 5 -10 0 -15 2014 2015 2016 2017 2018 2019* Number of employed people according to labour survey No of employed people according to business statistics Change in the number of employed people (r.s.) Change in no of employed people in companies (r.s.) * Labour survey: accommodation and catering companies; business statistics: plus travel agencies and tour operators Source: Statistics Estonia Monthly wages % y-o-y 1 000 12 In recent years, the 10 relatively low level of 800 8 wages in the sector has 600 lagged even further behind 6 400 the average. 4 200 2 0 0 2014 2015 2016 2017 2018 2019 Average wage (in euros) Change in wages (r.s.) * accommodation and catering Source: Statistics Estonia

Value added, labour costs and productivity million € % y-o-y 450 20 400 15 350 300 10 250 5 200 150 0 100 -5 50 0 -10 2014 2015 2016 2017 2018 2019* Value added Labour costs Change in total productivity (r.s.) Change in labour costs productivity (r.s.) Pursuant to the Source: Statistics Estonia preliminary data, investments in Pursuant to the preliminary data, investments in accommodation and accommodation and catering service activities increased compared to 2018, while reservation catering service activities activities of travel agencies and tour operators decreased. As the initial increased compared to statistics cover a relatively small part of the whole picture, these results may 2018, while reservation change. According to the short-term statistics, capital formation in activities of travel agencies machinery, equipment and inventory increased, accounting for a half of all and tour operators investment. The second most important area was buildings (almost 40%), to decreased. which the same amount of funds was directed as a year earlier. More was invested in computers and computer systems. Ministry of Economic Affairs and Communications • Ministry of Finance 2020 77 Economic review 2019

million € Investments of companies % y-o-y

80 50 70 40 60 30 50 20 40 30 10 20 0 10 -10 0 -20 2014 2015 2016 2017 2018 2019* Investments in fixed assets Change in investments (r.s.) * accommodation, catering, travel agencies and tour operators Source: Statistics Estonia

Although 2019 was a good year for the tourism sector, entrepreneurs assessed the situation as worse than in the last few years. According to a survey conducted by the Estonian Institute of Economic Research, the confidence indicator of hotels, restaurants and tourism companies was slightly lower than a year earlier. Hotels rated sales more strongly than in the previous year, but expectations for the future were lower. Anyhow, restaurants and tourism companies were more modest in their assessments in all areas. The tense labour market led to difficulties in finding labour for most respondents.

As of the beginning of 2020, the assessments and expectations of entrepreneurs were as good or better than a year earlier, but then the situation changed radically. The spread of the coronavirus hit the tourism sector hard - virtually all economic activity stopped for a couple of months. Restrictions on movement and closures took place in the spring, which is not The spread of the the peak of demand, but the recovery will be burdensome and will leave a coronavirus hit the mark for the whole year. All the scenarios published by the World Tourism tourism sector hard - Organization in May 2020 addressed a drop in international arrivals by at virtually all economic least half over the year as a whole. According to tourism experts, domestic activity stopped for a tourism is recovering sooner than foreign tourism. couple of months.

Inbound tourism

The second half of 2019 was more positive for inbound tourism, mainly due to the increase in the number of overnight foreign visitors. In the year as a whole, the number of overnight foreign tourists arriving in Estonia increased by more than 3%, the number of one-day visitors decreased by more than 1%.

The second half of 2019 thousand Inbound travel to Estonia was more positive for % y-o-y inbound tourism, mainly 7 000 8 due to the increase in the 6 000 6 4 number of overnight 5 000 4 000 2 foreign visitors. 0 3 000 -2 2 000 -4 1 000 -6 0 -8 2014 2015 2016 2017 2018 2019 Total number of visits Number of overnight visits Change in the number of visits (r.s.) Change in the number of overnight visits (r.s.)

Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 78 Economic review 2019

One-day visits were mostly influenced by the lower interest of Finnish residents in Estonia. The number of one-day visits to Finland has decreased for four years in a row. Residents of Russia, the USA, Great Britain, Japan, At the same time, it may the Republic of Korea and Canada also made fewer short trips to Estonia. On be highlighted that in case the other hand, the number of cruise passengers visiting the Port of Tallinn of almost all countries, reached a new record (660,000). trips were shorter than a The number of arrivals from Finland also decreased in the case of overnight year earlier. stays, and several distant markets, such as Japan, Canada and the Republic of Korea, decreased. In spite of that, the tourism sector was supported more than in the previous year by visitors from Germany, Latvia, Lithuania,

Sweden and several other countries. At the same time, it may be highlighted

that in case of almost all countries, trips were shorter than a year earlier. On

average, 3.3 nights were spent in Estonia, while in 2017, visitors spent here more than four nights. As a result, the duration of multi-day visits decreased by more than 8% in 2019. More than half of the Compared to 2018, the expenses of foreign visitors in Estonia increased by growth came from almost 3%. More than half of the growth came from business travel, business travel, essentially essentially through cross-border and short-term staff costs. The increase in through cross-border and private travel expenditure was less than 2%, which was affected by a sharp short-term staff costs. drop in health-related expenditure. Expenditure on studying in Estonia has steadily increased. The so-called traditional private travel expenses (for example, in connection with holiday trips) increased by a few percent during the year.

However, the export revenues of Estonian transport companies from passenger transport increased by one tenth over the year. This was because of the air transport, i.e. the expansion of the service provision of Nordica/Xfly. As a large part of their activities take place outside Estonia, it does not directly reflect developments related to Estonian tourism. In the case of other modes of transport, the changes in export revenues were rather modest, while exports in road transport (bus transport) decreased.

Number of foreign tourists and overnight stays in thousand accomodation establishments % y-o-y 5 000 8 4 500 6 4 000 3 500 4 3 000 2 2 500 0 2 000 1 500 -2 1 000 500 -4 0 -6 2014 2015 2016 2017 2018 2019 Number of accommodated foreign visitors Number of overnight stays Change in the number of foreign visitors (r.s.) Change in the number of overnight stays (r.s.) Source: Statistics Estonia

The rise of the arrival of overnight visitors in 2019 supported Estonian

accommodation establishments. The number of foreign visitors and their overnight stays in accommodation establishments increased by about 5% compared to the previous year. Accommodation was also affected by the decrease in the number of Finnish tourists, especially in Tallinn. Their number of accommodation establishments diminished by more than 3%, the decrease in overnight stays was smaller, i.e. the average length of stay increased slightly. Nonetheless, the decline in the number of Finnish tourists was offset by other countries. Demand increased by one tenth or more from several major destination countries - Latvia, Lithuania, Germany, Sweden. The number of accommodation customers from Ukraine (almost

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 79 Economic review 2019

everywhere in Estonia) and China (primarily in Tallinn) rocketed up even faster. In the case of Russia, the relative growth was more modest, but the number of accommodated and overnight stays increased quite a lot. The The increase in the increase in the number of Russian tourists had the greatest impact on number of foreign tourists accommodation in Ida-Viru county and Tallinn, but their demand increased was most pronounced in in several counties across Estonia. Tallinn, but elsewhere in The increase in the number of foreign tourists was most pronounced in Estonia the relative growth Tallinn, but elsewhere in Estonia the relative growth of their overnight stays of their overnight stays was faster. The number of overnight stays of foreign visitors increased by was faster. almost a tenth or more in Ida-Viru, Lääne-Viru, Jõgeva, Hiiu, Võru and Viljandi counties. Compared to the previous year, the number of overnight stays decreased only in Järva County, primarily at the expense of Latvian and

Finnish tourists.

Overnight stays by foreign tourists by countries

Finland Other countries Russia

Germany Latvia Sweden UK Lithuania USA France Spain Ukraine Norway Italy % 0 10 20 30 40 Source: Statistics Estonia

2020 started with quite a strong progress of foreign tourism, but the coronavirus turned the situation upside down. In March 2020, the number of nights spent by foreign tourists in accommodation establishments was over 60% less than a year ago, but in April the decline reached 97%. Restrictions on travel were lifted in June and ship, air and bus routes were gradually reopened, but recovery is expected to be problematic.

Domestic tourism

Travel of Estonian residents in Estonia and more active use of accommodation services remained at the growth rate in 2019 as well. The number of accommodated persons increased by almost 6% during the year, the number of overnight stays slightly less. For the first time, the number of accommodated people exceeded one and a half million.

Almost all regions in Estonia won from domestic tourism, but in Rapla county

and Hiiu county the number of overnight stays fell by about a tenth, in Võru

county by a few percent (there were also fewer beds on offer). However, the

number of overnight stays increased strongly in Valga and Põlva counties (by

a quarter), in Pärnu, Lääne county and Saare county (by a tenth). Elsewhere

in Estonia, developments were also quite positive.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 80 Economic review 2019

Estonian tourist in accomodation establishments thousand % y-o-y 3 000 12 2 500 10 Travel of Estonian 2 000 8 residents in Estonia and more active use of 1 500 6 accommodation services 1 000 4 remained at the growth 500 2 rate in 2019 as well. 0 0 2014 2015 2016 2017 2018 2019 Number of accommodated people Number of overnight stays Change in the number of accommodated people (r.s.) Change in the number of overnight stays (r.s.) Source: Statistics Estonia

Due to the coronavirus and related constraints, domestic tourism is Due to the coronavirus expected to suffer somewhat less than foreign tourism in 2020, but the and related constraints, negative impact will still be considerable. In March, the number of overnight domestic tourism is stays of domestic tourists in accommodation establishments was twice less expected to suffer than at the same time a year earlier, whereas in April the number of somewhat less than overnight stays fell five times. As a result of the easing or removal of foreign tourism in 2020, restrictions, demand is also expected to increase in the summer. As foreign but the negative impact travel is hampered (fewer transport connections, restrictions on travel in will still be considerable. some countries), more attention may be paid to travelling in Estonia, but last year's level is unlikely to be reached. Domestic tourism is negatively affected by the general decline in confidence and the rise in unemployment.

Outbound tourism

For the second consecutive year, the number of foreign trips of Estonian residents remained almost unchanged. In conformity with the data of the Bank of Estonia, nearly 1% more trips were conducted abroad than in 2018. A similar pattern characterised both one-day and multi-day visits. In the case of one-day visits, Latvia stands out, where almost 15% more In the case of one-day trips were made than a year earlier. The stabilisation of cross-border trade visits, Latvia stands out, could be seen at the end of the year. In July, excise duty on alcohol was where almost 15% more lowered in Estonia in the hope of reducing border trade, but Latvia trips were made than a responded with its own reduction. There were also about 15% more short year earlier. trips to Sweden, the other main target markets were rather declining. Compared to the previous year, fewer day trips were made to Finland, Russia and Lithuania.

thousand Foreign trips of Estonian residents % y-o-y 4 000 8 3 500 6 3 000 4 2 500 2 2 000 1 500 0 1 000 -2 -4 500 0 -6

2014 2015 2016 2017 2018 2019 Total number of visits Number of overnight visits Change in the number of visits (r.s.) Change in the number of overnight visits (r.s.) Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 81 Economic review 2019

Although the number of multi-day visits increased by only 1%, similarly to the previous year, the trips were longer - the number of overnight stays grew by more than 4%. In most countries, the average duration of visits was extended, and more trips were made to areas where, for instance, holidays are spent for a longer period of time. The largest increase in overnight trips and stays was in Turkey, Ukraine, Great Britain, Spain, Egypt, plus more trips were made to Russia. However, neighbouring markets, such as Finland, Latvia, Lithuania and Poland, declined. From the outermost regions, the number of trips to Greece fell sharply.

Expenditures of Estonian residents on foreign trips increased by one tenth in

2019, while imports of transport services increased by more than half. In the

past, the data have been adjusted quite significantly later, so the increases

may be specified. The growth in imports of travel services was chiefly

supported by private trips, in connection with which expenditures made abroad grew by one tenth over the year. Expenses related to business travel also augmented. The increase in imports of transport services was essentially related to air transport. Nordica gave up direct flights from Tallinn Restrictions related to the and focused on outsourcing services, therefore passengers used the services coronavirus completely of others, foreign companies more. disrupted travel (for tourism purposes), but In 2020, travel abroad will decrease pointedly. Restrictions related to the even if they were lifted, a coronavirus completely disrupted travel (for tourism purposes), but even if rapid return to normalcy is they were lifted, a rapid return to normalcy is not expected. It will take time not expected. to open transport connections, and travel will be hampered by uncertainty and the deteriorating economic situation. While in May 2020 Estonian hotels and restaurants forecast a slight recovery in demand in the coming months, or at least remained unchanged, the expectations of tourism companies, which are more focused on serving outbound tourism, remained low in the coming months.

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Information and communications Information and communication activities embrace publishing, including software publishing, production of motion pictures and sound recordings, production and distribution of radio and television programmes, as well as compilation and provision of on-demand programme catalogues for audiovisual media services, electronic communications, information technology and other information service activities. In addition to the aforementioned service areas, the information and communication technology (ICT) sector also includes the wholesale of ICT and the repair of computers and communication equipment, as well as electronic components and printed circuit boards belonging to the manufacturing industry, companies manufacturing computers and computer peripherals, communications equipment, consumer electronics, and magnetic and optical media. The main developments in the sector are described below on the basis of companies in the information and communication sector. The manufacturing share of the ICT sector is covered by an overview of the electronics industry.

Globally, ICT is one of the key technologies in most other leading sectors, the implementation of which aids to increase the efficiency of a company's business processes. The trend in the ICT sector is characterised by a boost in the use of smart devices and the opportunities offered by the Internet, and in this context by the development of technologies (sensors, Internet of Things, smart devices and networks, embedded systems, 5G, etc.) and innovation. Products and services in the information and communication sector are steadily linked to developments in other sectors of the economy, such as education, medicine, manufacturing, transport and construction.

In 2019, more than 6,000 companies operated in the information and communication sector. These are for the most part micro-enterprises in the field of information technology (programming, consulting, etc.) with less than ten employees. More than half of information and communication companies are engaged in programming. About 15% of the companies in the sector are both involved in the production of cinematographic, video and sound recordings and information activities. A small number of companies belong to the field of telecommunications, publishing and broadcasting.

The largest providers of mobile communication services and other telecommunications services are Telia Eesti AS, Tele2 Eesti AS and Elisa Eesti AS. To boot, the leading companies in the field of telecommunications are AS STV, wired telecommunication services provider, Nord Connect OÜ and OÜ Top Connect, telecommunication services providers, and AS TV Play Baltics, satellite communication services provider. The most important companies in the software industry are OÜ Playtech Estonia, AS Helmes, Nortal AS and Pipedrive OÜ. The largest newspaper publishing companies are AS Postimees Grupp and AS Ekspress Meedia. The largest companies in the field of television programmes and radio broadcasting and information activities (data processing, web portals, hosting services) are Raadiotehnika OÜ, Adcash OÜ, MYJAR IT OÜ and Genius Sports Services Eesti OÜ, but their turnover is much smaller than that of large companies in the sector.

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Over the last decade, the main driver of Estonia's economic growth has been the information and communication sector, providing approx. 30% of the growth of value added created in the entire economy. The information and communication sector is one of the most competitive areas, increasing The information and its share in the economy year by year. The value added of the information communication sector is and communication sector per employee exceeds that of the Estonian one of the most average by almost a half. In 2019, sales revenue, value added and the competitive areas, number of employees in the information and communication sector increasing its share in the increased. economy year by year. Share of sector in economy % %

100 200

80 160 166,5 60 120 40 80 16,7 7,4 4,8 20 40 0 0 Share in value Share of ICT in Share in Ratio to average added exports* employment wage (r.s.)

* based on Balance of Payments statistics

Source: Statistics Estonia, Bank of Estonia

In 2019, the total sales revenue of companies in the sector was already over 2.5 billion euros. More than a half of the sales revenue of the entire sector was earned by programming companies. Telecommunications companies also accounted for a significant share of sales in the information and communication sector, accounting for 27% of total sales revenue. The same situation has been characteristic of previous years. The share of other sub- sectors (publishing, information service activities, production of motion pictures and sound recordings, broadcasting) was several times smaller. The share of sales revenue of companies in the information activities was 9%, Compared to 2018, the publishing 7%, cinematographic films 5% and broadcasting only 1%. sales revenue in all Compared to 2018, the sales revenue in all subsectors was on an upward subsectors was on an trend. upward trend. bln EUR Sales revenue % y-o-y 3,0 30

2,5 25 2,0 20

1,5 15

1,0 10 0,5 5

0,0 0 2014 2015 2016 2017 2018 2019*

Sales revenue Change in sales revenue (r.s.)

Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 84 Economic review 2019

Information and communication sector based on sales revenue

Publishing 7% Information activities 9% Programming Production of films and 51% audio recordings 5%

Broadcasting 1%

Telecommunication

Source: Statistics Estonia 27%

The total productivity of the information and communication sector on the basis of value added decreased by 7% compared to the previous year, and it was first and foremost affected by two major areas - programming and telecommunications. The aggregate productivity of the remaining subsectors showed an increase. Furthermore, labour cost productivity based on value added increased by 1%. The value added of the sector also continued to grow. The value added increased by 18% compared to the previous year, reaching 911 million euros. The largest growth was shown by information technology companies (82% growth) and motion picture and sound recording companies (28% growth). The value added decreased exlusively in the field of telecommunications.

Value added, labour costs and productivity

million € % y-o-y 1 200 10 8 1 000 6 800 4 2 600 0 400 -2 -4 200 -6 0 -8 2014 2015 2016 2017 2018 2019* Value added Labour costs Change in total productivity (r.s.) Change in labour costs productivity (r.s.) Source: Statistics Estonia

The increase in labour costs in the sector was influenced by both the increase in the salaries of existing employees and the recruitment of new employees. In 2019, labour costs increased by 17%. The largest growth took place in motion picture and sound recording production and within the activities of The average gross monthly programming companies, where labour costs increased by 25% and 22%, salary in the information respectively, compared to the previous year. Labour costs increased in all and communication sector subsectors. Regardless of the high level of wages and labour shortages, the was 2,342 euros, which number of persons employed in the information and communication sector was 1.7 times higher than increased by 14% in 2019, already exceeding 26,000. The number of the average salary in employees grew the fastest in programming, which also has the highest Estonia. salaries in the sector. The average gross monthly salary in the information and communication sector was 2,342 euros, which was 1.7 times higher than the average salary in Estonia. In 2019, the gross monthly salary of the

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 85 Economic review 2019

information and communication sector increased by 8% compared to the previous year. Stable wage growth has been visible in this area since 2010.

thousand Number of employed people % y-o-y 35 25

30 20

25 15

20 10

15 5 10 0 5 -5 0 -10 2014 2015 2016 2017 2018 2019*

Number of employed people according to labour survey

No of employed people according to business statistics Change in the number of employed people (r.s.) Change in no of employed people in companies (r.s.)

Source: Statistics Estonia Monthly wages % y-o-y 2 500 12 Stable wage growth has 2 000 10 been visible in this area 8 since 2010. 1 500 6 1 000 4

500 2 0 0 2014 2015 2016 2017 2018 2019 Average wage (in euros) Change in wages (r.s.) Source: Statistics Estonia

In 2019, according to preliminary data, investments in tangible fixed assets of information and communication enterprises decreased, but lower-than- actual numbers are usual for quarterly statistics and the volumes of

investments in some subsectors are still being specified. The decline in investment may also be due to the fact that, in addition to tangible fixed assets, investment in research and development has become increasingly important, and renting is also widely used. The largest investments were made in telecommunications companies, which accounted for more than a half of all investments made by information and communication companies in 2019. Investments in machinery and equipment still accounted for the largest share of the total sector, accounting for more than half of the total sector's investments. Computers and computer systems accounted for more than a quarter of the total investment. Owing to the development of 5G networks, the volume of investments of telecommunications companies

should increase in the coming years.

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million € Investments of companies % y-o-y 250 50 40 200 30 The decline in investment 20 may also be due to the 150 10 fact that, in addition to 0 tangible fixed assets, 100 -10 investment in research 50 -20 and development has -30 become increasingly 0 -40 important, and renting is 2014 2015 2016 2017 2018 2019* also widely used. Investments in fixed assets Change in investments (r.s.) Source: Statistics Estonia Investments in fixed assets in the information and communication sector Programming 27%

Information activities 7% Telecommunication 60% Owing to the development Production of films and of 5G networks, the audio recordings volume of investments of 6% telecommunications Publishing 0% companies should increase Source: Statistics Estonia in the coming years. Today, the use of IT equipment in Estonia has become an indispensable part of everyday life both on a personal and company level. The use of information technology equipment has changed over time. Whereas in the past the share of home computer use increased, today the mobile telephone has become an important means of information and communication. The Internet is available anywhere, anytime - at home, at work or on the go. Using the Internet offers us more and more diverse opportunities, being helpful in any field. In 2019, 90% of all households had a home Internet connection and 81% a mobile Internet connection. The possibilities of using the Internet are very wide, from a simple search for information to artificial

intelligence. In 2019, Estonian residents still used the Internet the most for e-mailing. This was followed by using the Internet banking services and searching for information about products / services. E-commerce is also The Internet is available gaining more and more popularity. In 2019, more than 75% of Internet users anywhere, anytime - at aged 16–74 already made purchases online. Travel and accommodation home, at work or on the services (70% of e-commerce users), insurance policies (66%), tickets for go. concert, cinema, theater and other events (61%) and clothing, footwear and sports equipment (50%) were purchased the most.

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Share of 16-74 years old internet and e-commerce % users 100

80

60 40 20 0 2014 2015 2016 2017 2018 2019

Internet E-commerce

Source: Statistics Estonia

Share of households with internet connection at % home

100

80 60

40 20

0 2014 2015 2016 2017 2018 2019

Source: Statistics Estonia

In 2019, almost 100% of the companies in Estonia used computers and the Internet daily. The uses of ICT may vary considerably. For example, companies own websites, e-shops, use social media, send and receive e- invoices, communicate with the public sector via e-services, use cloud services, analyse big data, etc. One of the most common benefits of the Internet is having a company's website, which is owned by more than three- Among new trends, the quarters of the Estonian companies. The website is mainly used to present use of artificial product catalogs and price lists, to refer to a social media profile and to make intelligence, virtual reality, online orders or bookings. In addition to the website, the use of social media automation and is gaining popularity, which provides an opportunity to shape the company's digitalisation in business is image, market products and services, communicate with customers, search certainly growing. for employees, cooperate with business partners and involve customers in product and service development. 47% of companies used social networks. Among new trends, the use of artificial intelligence, virtual reality, automation and digitalisation in business is certainly growing.

Share of enterprises having website and using e- % commerce %

100 25 80 20 60 15 40 10

20 5

0 0 2014 2015 2016 2017 2018 2019

Website E-commerce (r.s.)

Source: Statistics Estonia

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The information and communication sector is developing speedily, companies in the sector create high value added and raise wages steadily. However, the COVID-19 crisis that hit the world in 2020 also had a negative impact on the ICT sector. According to the barometers of the Estonian Institute of Economic Research in May, the confidence indicator of IT companies decreased, as almost half of the companies experienced a decrease in demand during the emergency. Sales of services decreased in However, the COVID-19 recent months by 38% in enterprises, which is less than in most other fields crisis that hit the world in of activity. IT companies anticipate a further decrease in demand in the next 2020 also had a negative three months, which was forecast by 59% of companies. 22% of them impact on the ICT sector. assumed that demand would not change and 19% forecast a demand growth. The telecommunications confidence indicator was higher in May than in other sectors, but lower than in April. Demand remained at the same level in previous months, but sales of services decreased by 30% in companies. Also for the next three months, 30% of companies forecast a decline in demand. However, the corona crisis also brings new opportunities - shortage of labour is freed up and there are products / services that are favoured by the crisis. The main business opportunities related to the coronavirus have emerged in healthcare, e-commerce, streaming services and smart applications.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 89 Economic review 2019

Transport Parts of the Estonian transport system are rail, road, sea, inland waterway and air transport, electricity transport in cities and pipeline transport. 7.5% of all employed persons, i.e. approximately 50,000 people, are employed in transport and warehousing. Transport services make a large contribution to the receipt of export revenue and balance Estonia's foreign trade balance. Many inputs in the transport sector (expenditure on the purchase of vehicles, their maintenance and fuel) are quite large imported products. In addition, the transport sector makes a significant contribution to greenhouse gas emissions. Given the European Union's climate targets for reducing greenhouse gas emissions in the transport sector by 23-38% by 2035 compared to 2018, more attention must be paid to increasing energy efficiency in the further development of the sector.

About 5,700 companies operate in the field of transport and warehousing. Tallinna Linnatranspordi AS, which provides bus, tram and trolley bus traffic services with the largest transport volume in Tallinn, has the biggest land transport capacity. Domestic passenger transport by rail is organised by AS Eesti Liinirongid (Elron), goods are transported by rail mainly by AS Operail. The leading logistics companies AS Schenker, DSV Estonia AS and DHL Express Estonia AS are in operating in freight transport. The largest company in the entire transport sector is AS Tallink Grupp, which is engaged in the maritime transport of passengers and goods. The most important provider of port services is AS Tallinna Sadam, which manages five ports: Old City Harbour (incl. Old Port Yacht Harbour), Muuga Harbour, Paldiski South Harbour, Paljassaare Harbour and Saaremaa Harbour. The largest company in the field of air transport is AS Nordic Aviation Group, which is engaged in international passenger and freight transport. The largest company in the postal and courier service is AS Eesti Post (Omniva).

Although in 2018 the transport volumes (in tonnes) of Estonian companies showed an increase over several years, in 2019 the fall was relatively large - 10%. The largest decrease in transport volumes, 23%, was in rail transport. Freight turnover (in tonne-kilometers) also decreased in 2019 by 12.5%. While the number of passengers increased by 6% in 2019 compared to the previous year, the passenger turnover (passenger-kilometers) decreased by 0.2%. The total number of public transport users increased by 6.3%. The number of rail, sea and land transport users also increased (7.9%, 1% and 6.7% respectively). Only the number of air transport users Although in 2018 the decreased sharply (-41%). transport volumes of Estonian companies % Share of sector in economy showed an increase over 100 several years, in 2019 the fall was relatively large - 80 10%. 60 95,7 40 7,5 20 7,0 0 Share in value added Share in employment Ratio to average wage

Source: Statistics Estonia

billion € Sales revenue % y-o-y 7 15 6 10

5 5 4 0 3 2 -5 1 -10 0 -15 2014 2015 2016 2017 2018 2019*

Sales revenue Change in sales revenue (r.s.)

Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 90 Economic review 2019

Estonian transport sector based on sales revenue

Road 32%

Railway 47% Water 13% Air 5% Postal and courier service 3% Source: Statistics Estonia

The total cargo volume of goods decreased by 10% in 2019, to 49.8 million The total cargo volume of tons. The trade volume of oil shale decreased the most, the volume of goods decreased by 10% in chemicals, chemical products and man-made fibers, rubber and plastic 2019, to 49.8 million tons. products, and wood and paper products increased.

Transport of goods by Estonian companies million t % y-o-y 80 2 0 60 -2 -4 -6 40 -8 -10 20 -12 -14 0 -16 2014 2015 2016 2017 2018 2019 Transported cargo Change (r.s.)

Source: Statistics Estonia Cargo transport of Estonian companies by modes of transport (th tons)

Railway; 21 341

Water; 37 690

Road; 28 369

Source: Statistics Estonia

The volume of goods The volume of container transport increased in 2019 to 242,060 TEU or 0.4%. transported in containers The volume of goods transported in containers decreased by 1.5% to decreased by 1.5% to 1.97 million tons. 1.97 million tons.

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Container transport through Estonian ports TEU

300 000

200 000

100 000

0 2014 2015 2016 2017 2018 2019

Source: Statistics Estonia

In 2019, 37.7 million tonnes of goods passed through Estonian ports, which was 4.9% more than in the previous year. 6% more goods arrived in Estonia In 2019, 37.7 million from foreign ports, i.e. 6.6 million tonnes, 10.7 million tonnes of goods were tonnes of goods passed sent abroad from our ports, which was 1.4% more than in 2018. Unloading through Estonian ports, or discharging of goods from the ship amounted to 12.3 million tonnes of which was 4.9% more than the cargo volume of the ports in 2019 and loading or arranging cargo of in the previous year. goods to the ship amounted to 25.3 million tonnes. Compared to the previous year, unloading increased by 7.7% and loading by 3.1%.

In 2019, the most were unloaded refined oil products in Estonian ports.

Refined petroleum products and chemicals, rubber and plastic products were also the most loaded goods. In 2019, the ports served approx. 62% of the cargo flows sent by sea and for the rest, trade flows arriving by the sea.

million t Cargo transport through Estonian ports % y-o-y 50 10

In 2019, the most were 40 0 unloaded refined oil 30 -10 products in Estonian ports. 20 -20 10 -30 0 -40 2014 2015 2016 2017 2018 2019

Total cargo Transit

Change in cargo volume (r.s.) Change in transit volume (r.s.)

Source: Statistics Estonia

Compared to 2018, the number of sea passengers changed minimally. In 2019, Estonian maritime transport companies carried almost 1% more

passengers than a year earlier, i.e. 9.5 million passengers. The number of passengers abroad from the Estonian ports decreased faintly (0.14%), remaining at 5.1 million passengers. We received 5.7 million passengers or The number of passengers 0.7% more than a year earlier. The largest increase (3.6%) was achieved by of Estonian maritime the number of cruise tourists visiting Estonia, reaching 676,384 people. The transport companies on number of passengers of Estonian maritime transport companies on domestic routes also domestic routes also increased by 4.2% to 2.59 million, while the number of increased by 4.2% to 2.59 passengers on international routes decreased by 0.6% to 6.9 million. The million. passenger turnover of maritime transport companies was cut to 1.3 billion passenger-kilometers, which was 1.8% less than last year.

The general decline in rail freight is due to the sanctions imposed on Russia by the European Union in 2014. The fact that Russia is increasingly using its

ports instead of rail to send goods abroad also has a significant impact.

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 92 Economic review 2019

Freight transport by Estonian railways decreased in 2019 from 27.8 million tonnes to 21.3 million tonnes or 23%.

Although the volume of domestic public rail freight transport also decreased Although the volume of in 2019 (-2.5%), the reason for the overall large decline in rail freight domestic public rail freight transport was the diminishment of oil shale transport on domestic non- transport also decreased public railways, where volumes decreased by 6 million tonnes or 43% in 2019, the reason for the compared to the previous year. overall large decline in rail freight transport was the The volume of international rail transport has enlarged unwaveringly in the diminishment of oil shale last few years, being 3.2% higher in 2019 (11.1 million tons) than a year transport on domestic earlier. The volume of transit goods transported by rail also increased in non-public railways. 2019, to 9.4 million tons, which was 3% more than a year earlier. In 2019, imports amounted to 1.45 million tons or 7.2% more and exports to 0.26 million tons or 9.4% less than in 2018.

Domestic railway transport carried the most oil shale, but compared to 2018,

it decreased by 46% to 7.6 million tonnes. The main goods in transit were chemicals, chemical products and man-made fibers, rubber and plastic products. Freight transport by public rail decreased by 2.6% to 13.2 million

tonnes. In 2019, transit goods accounted for 44% of all goods. In 2019, the freight turnover of rail transport increased by 16.7% to 2.16 billion tonne- kilometers. The volume of goods transported by rail was 21.3 million tonnes, being 23.3% lower than in 2018 and only 32% of the maximum level (66 million tonnes) in 2007.

Passenger transport by rail has grown undeviatingly since 2014, when major reconstruction works were completed and new trains were acquired. In 2019, the growth was 7.9% compared to the previous year, i.e. a total of In 2019, passenger almost 8.4 million passengers. International passenger traffic also increased transport by rail grew by to 112,000 passengers, which was 4.6% more than a year earlier. The 7.9%, i.e. a total of almost passenger turnover of railway transport decreased by 6% to 391.7 million 8.4 million passengers. passenger-kilometers.

In 2019, Estonian air transport companies carried 0.6 million passengers, which was 41% less than a year earlier. Passenger turnover of air transport companies fell by 18% to 1.27 billion passenger-kilometers. The sharp decrease was related to the closure of Nordica's unprofitable routes as of the end of 2018 and the beginning of 2019. The size of Nordica's fleet remained the same as in 2018 - a total of 19 aircraft. The largest airport in In 2019, Estonian air Estonia - Tallinn Airport - was used by 3.3 million people in 2019 (an increase transport companies of 8.8%), and most of the goods transported by air were also transported carried 0.6 million through it. passengers, which was

41% less than a year In 2019, road transport companies transported 28.4 million tons of goods, earlier. The sharp decrease which was 0.4% less than a year earlier. The volume of international freight was related to the closure transport decreased by 5.3%, reaching 5 million tons. The volume of of Nordica's unprofitable domestic freight transport increased by 0.7% to 23.4 million tonnes. routes as of the end of

2018 and the beginning of Road transport passenger transport increased by 6.7% in 2019 compared to 2019. the previous year, i.e. to 203.3 million passengers, of which 167.7 million or 2.4% more travelled on city routes (incl. tram and trolley). In November 2019, the Reidi road project was completed in Tallinn, which improved the comfort of car and light traffic users (including walking and cycling) in the direction of Pirita.

On county routes, the number of passengers increased by 33.7% to 35.6 million passengers. The large increase is probably due to the launch of free county public transport in many municipalities. Domestic occasional services carried 4.8 million passengers (an increase of 44.6%). The number of passengers on domestic long-distance routes decreased by 2.8%, reaching Ministry of Economic Affairs and Communications • Ministry of Finance 2020 93 Economic review 2019

3.9 million passengers, on international routes there were 1.6 million

passengers (an increase of 14.4%). Road passenger traffic increased by 10.8% to 3.24 billion passenger-kilometers. Passenger turnover increased by 13.2% in international transport and by 9.6% in domestic transport.

Passenger transport by Estonian companies by mode of transport (million passengers)

10 250 8 200 6 150 4 100

2 50 0 0 2014 2015 2016 2017 2018 2019 Railway (l.s.) Water (l.s.) Air (l.s.) Road (r.s.)

Source: Statistics Estonia

In 2019, the number of employees in transport and storage companies Wage growth in the sector increased by 1.7%. Wage growth in the sector was higher than the Estonian was higher than the average (7.4%), i.e. 8.5%, which means that the gap with the Estonian Estonian average. average wage decreased.

Number of employed people 42 000 8,0 41 000 6,0

40 000 4,0 39 000 2,0 38 000 37 000 0,0

36 000 -2,0 2014 2015 2016 2017 2018 2019 Number of employed people Change in the number of employed people (r.s.) Source: Statistics Estonia

Monthly wages % y-o-y 1 600 9 1 400 8 1 200 7 1 000 6 5 800 4 600 3 400 2 200 1 0 0 2014 2015 2016 2017 2018 2019 Average wage (in euros) Change in wages (r.s) Source: Statistics Estonia

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Value added, labour costs and productivity million € % y-o-y 1 400 12 1 200 8

1 000 4 800 0 600 400 -4 200 -8 0 -12 2014 2015 2016 2017 2018 2019 Value added

Labour costs Change in total productivity (r.s.) Change in labour costs productivity (r.s.) Source: Statistics Estonia

Pursuant to preliminary data, investments in transport and storage fell by

8.3% in 2019, but the final statistics may show a different picture. It must also be taken into account that data in the fields of rail, other land, water and air transport are confidential, which means that information is The drop was primarily incomplete. due to a decrease in acquisition of means of million € Investments of companies % y-o-y transport, but other 600 50 investments were also 40 500 mainly in a decline. 30 400 20 10 300 0 200 -10 -20 100 -30 0 -40 2014 2015 2016 2017 2018 2019* Investments in fixed assets

Change in investments (r.s.) Source: Statistics Estonia Investments in fixed assets in the transportation sector

Others 10%

Road transport 51%

The COVID-19 global Warehousing and pandemic and restrictions support activities for on movement have a transportation significant impact on the 39% transport sector, and major declines are Source: Statistics Estonia

expected in 2020, Due to the COVID-19 global pandemic and the resulting emergency situation, especially in passenger the closure of national borders and the imposition of internal movement transport. restrictions, a major economic downturn is expected in 20203. Economic crises always have a negative impact on the labour market, and this time the

3 According to the forecasts of Bank of Estonia, the volume of the economy will decrease by 10% compared to last year if the spread of the virus is delayed and no restrictions are imposed again. Source: https://www.eestipank.ee/press/prognoos -first-crisis-crisis-must-move-to-a-longer-term-plan-10062020 Ministry of Economic Affairs and Communications • Ministry of Finance 2020 95 Economic review 2019

service sector has suffered the most. Restrictions on movement also have a

significant impact on the transport sector, and major declines are expected in 2020, especially in passenger transport. Pursuant to the closure of state borders, passenger transport in the aviation and maritime sectors is declining the most. Due to domestic movement restrictions, the impact of the pandemic will also affect domestic transport (public transport).

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 96 Economic review 2019

Annexes

Annex 1. Trade with associations of countries

Association Volume (million €) Share (%) Change (y-o-y) of countries Imports Exports Imports Imports Exports Imports 2018 2019 2018 2019 2018 2019 2018 2019 2019 2019 9,757.20 10,079.80 12,616.60 12,750.70 67.7 70.1 77.8 79.2 3.3 1.1 EU 1,002.80 981.20 1,871.00 1,572.30 7.0 6.8 11.5 9.8 -2.1 -16 CIS 680.60 689.20 222.80 240.80 4.7 4.8 1.4 1.5 1.3 8.1 EFTA 1,107.70 1,124.40 221.60 256.40 7.7 7.8 1.4 1.6 1.5 15.7 NAFTA 12,548.30 12,874.60 14,932.00 14,820.20 87.0 89.5 92.1 92.1 0.0 0.0 Associations in total 14,421.30 14,385.70 16,217.60 16,096.30 100 100 100 100 -0.3 -0.7 Estonia total Source: Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 97 Economic review 2019

Annex 2. Export commodity groups by main target countries in 2019 (%)

Commodity group Sweden Finland Russia Latvia Lithuania Germany Norway USA The Denmark Total

Netherlands share

0.9 3.0 0.1 6.9 7.8 1.8 0.8 0.2 2.6 3.1 3.1 Live animals and animal products 1.3 1.3 0.8 2.0 1.7 1.4 1.5 0.0 1.1 0.3 2.2 Vegetable products 0.1 0.4 0.2 1.0 2.0 0.3 0.1 0.0 0.0 0.5 0.4 Animal and vegetable fats and oils 3.7 6.6 4.9 9.0 6.4 0.8 2.5 0.1 0.5 3.4 3.8 Prepared foodstuffs; beverages; tobacco 0.3 3.0 0.7 15.2 1.4 1.4 0.4 21.3 40.4 31.4 11.9 Mineral products 3.4 3.2 11.2 6.1 9.0 4.2 0.4 3.9 6.1 1.6 5.2 Chemical products 4.5 3.7 5.4 5.1 5.1 3.7 2.3 0.4 2.4 1.5 3.1 Plastics and articles thereof, rubber products 0.1 0.4 0.4 0.3 0.3 0.1 0.0 0.0 0.0 0.1 0.2 Leather, fur skins and articles thereof 16.5 9.1 0.3 6.2 2.4 12.0 19.7 4.9 11.6 28.4 10.5 Wood and articles of wood 2.9 2.2 1.0 1.2 0.9 1.8 2.9 0.1 4.0 1.3 2.3 Pulp and articles thereof 5.3 2.8 3.5 3.2 4.2 1.9 4.2 0.5 0.9 3.7 2.7 Textiles and textile articles 0.3 0.4 0.6 0.9 0.7 0.1 1.1 0.0 0.0 0.0 0.3 Footwear, headgear, umbrellas 2.4 3.5 1.0 2.2 1.1 0.8 2.3 0.2 0.1 0.5 1.7 Articles of stone; ceramic products and glassware 0.9 0.4 0.0 0.9 0.8 1.3 1.1 0.0 2.1 1.4 1.5 Precious stones, precious metals, jewellery 8.8 13.7 9.6 7.1 8.2 10.6 8.4 2.3 5.3 3.0 8.1 Metals and metal products 23.3 27.5 46.0 11.3 10.7 30.0 14.6 57.2 6.2 4.5 23.7 Machinery and equipment 6.6 4.1 5.3 18.3 33.5 5.8 6.4 0.2 4.0 1.2 7.2 Means of transport 2.5 2.8 5.7 0.7 0.8 7.3 0.4 5.4 4.0 3.7 3.3 Measuring and medical devices 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Arms and ammunition 16.2 11.8 3.1 2.2 3.1 14.7 30.9 3.1 8.7 10.4 8.5 Other industrial goods 0.0 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Works of art, antiques Source: Eesti Statistics Estonia

Ministry of Economic Affairs and Communications • Ministry of Finance 2020 98 Economic review 2019

Annex 3. Import commodity groups by main countries of consignment in 2019 (%)

Commodity group Finland Germany Lithuania Sweden Russia Latvia Poland The China UK Total share Netherlands Live animals and animal products 2.5 1.4 2.5 1.7 0.3 3.5 4.1 3.1 0.1 2.1 2.1 Vegetable products 1.7 0.8 2.5 0.7 0.4 6.3 1.7 11.7 0.2 0.7 2.3 Animal and vegetable fats and oils 0.2 0.1 0.5 0.1 0.1 0.3 0.2 0.3 0.0 0.0 0.2 Prepared foodstuffs; beverages; tobacco 4.4 4.2 8.2 2.0 0.8 9.4 7.9 7.7 0.5 4.4 5.5 Mineral products 17.4 0.7 35.3 2.0 50.7 11.3 1.4 1.0 0.1 2.9 13.0 Chemical products 5.4 8.9 14.0 4.2 13.7 7.5 14.5 15.1 3.4 10.9 8.9 Plastic and articles thereof, rubber products 5.5 7.2 4.0 4.4 1.1 6.2 8.4 7.8 5.7 5.1 5.3 Leather, fur skins and articles thereof 0.4 0.4 0.3 0.2 0.0 0.2 0.3 0.8 0.9 0.4 0.4 Wood and articles of wood 5.6 0.9 1.5 1.1 12.4 6.6 2.5 0.4 0.7 0.1 3.4 Pulp and articles thereof 4.6 1.2 1.4 2.4 1.2 2.2 1.9 0.6 0.4 1.6 1.8 Textiles and textile articles 2.9 4.9 2.9 2.5 0.6 3.9 5.8 5.9 9.4 4.6 4.2 Footwear; headgear; umbrellas 0.5 1.4 0.5 0.3 0.1 1.3 1.3 1.0 1.1 0.6 0.8 Articles of stone; ceramic products and glassware 2.0 1.6 1.7 0.6 1.9 1.7 3.1 0.6 1.6 0.5 1.6 Precious stones, precious metals, jewellery 0.4 1.4 0.1 0.6 0.1 0.5 0.8 0.2 0.1 0.4 1.3 Metals and metal products 12.6 9.2 5.1 8.9 9.1 7.8 13.4 6.1 11.1 3.5 9.3 Machinery and equipment 21.7 29.2 13.9 32.5 4.5 19.2 14.9 27.6 51.9 48.7 22.7 Means of transport 6.4 19.8 2.0 31.3 2.3 7.8 12.6 3.7 2.2 6.4 11.4 Measuring and medical devices 1.8 4.2 0.7 2.2 0.2 1.2 1.2 3.6 1.9 5.5 2.4 Arms and ammunition 0.0 0.2 0.0 1.1 0.0 0.0 0.0 0.0 0.0 0.1 0.5 Other industrial goods 3.6 2.1 3.0 1.3 0.6 3.0 3.9 2.7 8.4 1.6 2.7 Works of art, antiques 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.0 0.1 0.0 Source: Statistics Estonia

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Annex 4. Accommodation by country in Estonia Number of people Number of overnight stays 2019 Change, Share, % 2019 Change, Share, % % y-o-y % y-o-y Total 3,789,955 5.5% 100.0% 6,967,047 5.1% 100.0% Estonia 1,536,526 5.9% 40.5% 2,591,410 5.5% 37.2% Finland 804,645 -3.6% 21.2% 1,512,487 -1.8% 21.7% Russia 260,036 5.2% 6.9% 521,158 4.2% 7.5% Latvia 182,860 12.3% 4.8% 279,961 13.7% 4.0% Germany 162,036 12.9% 4.3% 312,716 11.3% 4.5% Sweden 78,131 9.9% 2.1% 162,185 9.1% 2.3% Lithuania 80,034 19.5% 2.1% 132,033 24.4% 1.9% UK 70,290 12.8% 1.9% 161,186 12.0% 2.3% USA 50,307 8.3% 1.3% 108,170 0.3% 1.6% Spain 37,996 -4.7% 1.0% 84,988 -6.2% 1.2% France 41,279 13.7% 1.1% 88,445 4.2% 1.3% Italy 37,177 5.7% 1.0% 80,492 -13.0% 1.2% Norway 35,247 7.5% 0.9% 80,640 6.6% 1.2% Poland 36,334 14.8% 1.0% 69,667 13.3% 1.0% Japan 30,256 -4.8% 0.8% 52,222 -1.0% 0.8% The Netherlands 28,612 12.8% 0.8% 58,117 11.4% 0.8% China 26,506 30.1% 0.7% 41,264 27.2% 0.6% Ukraine 24,519 40.1% 0.7% 84,104 63.4% 1.2% Denmark 20,270 26.2% 0.5% 39,779 28.9% 0.6% Switzerland 15,290 0.1% 0.4% 29,618 -3.8% 0.4% South-Korea 13,549 -9.7% 0.4% 18,523 -8.4% 0.3% Belgium 13,356 27.0% 0.4% 26,600 21.9% 0.4% Austria 11,548 -3.9% 0.3% 24,370 -5.3% 0.4% Czech Republic 9,557 15.8% 0.3% 25,300 36.7% 0.4% Australia 9,973 27.5% 0.3% 21,792 28.5% 0.3% Canada 7,385 -3.5% 0.2% 17,141 6.0% 0.3% Turkey 6,495 -1.6% 0.2% 15,130 -22.0% 0.2% Hungary 6,521 7.5% 0.2% 14,230 -9.8% 0.2% Ireland 6,126 20.7% 0.2% 13,708 21.6% 0.2% Greece 5,962 24.2% 0.2% 12,534 6.5% 0.2% Portugal 5,025 -1.6% 0.1% 10,780 -8.8% 0.2% Romania 5,190 17.3% 0.1% 11,558 -13.1% 0.2% Brasil 3,910 39.5% 0.1% 8,718 48.4% 0.1% Slovakia 3,619 23.1% 0.1% 8,222 -10.1% 0.1% Bulgaria 3,550 52.8% 0.1% 6,953 -8.8% 0.1% Slovenia 2,835 10.2% 0.1% 6,377 17.4% 0.1% Croatia 2,152 28.7% 0.1% 5,112 37.1% 0.1% Island 1,984 7.9% 0.1% 4,744 -12.0% 0.1% Cyprus 1,772 35.4% 0.1% 4,653 38.3% 0.1% Luxembourg 1,542 3.1% 0.0% 3,143 9.5% 0.1% Malta 1,032 -7.6% 0.0% 2,725 9.7% 0.0% South Africa 886 34.0% 0.0% 2,537 43.0% 0.0% Albania 556 20.6% 0.0% 1,511 8.9% 0.0% Other 107,079 18.4% 2.8% 210,044 9.1% 3.0% Source: Statistics Estonia

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Authors Editor-in chief Mario Lambing 625 6387 [email protected] Macroeconomic situation Irina Bõtškova (Ministry of Finance) [email protected] Madis Aben (Ministry of Finance) [email protected] Kristjan Pungas (Ministry of Finance) [email protected] Margus Täht (Ministry of Finance) [email protected] Erki Lõhmuste (Ministry of Finance) [email protected] Foreign trade Manufacture of electronic and electrical equipment Information and communication Maris Paumets 625 6401 [email protected] Manufacture of food and beverages Textile industry Manufacture of wearing apparel Wood processing Manufacture of pulp, paper and paper products Furniture industry Domestic trade Karel Lember 625 6402 [email protected]

Manufacturing industry Manufacture of chemicals and chemical products Manufacture of rubber and plastic products Manufacture of metal and metal products Manufacture of machinery and equipment Manufacture of transport equipment Tourism Mario Lambing 625 6387 [email protected]

Construction sector Teet Kukk 625 6399 [email protected]

Transport Triin Orav 625 6459 [email protected]

Ministry of Economic Affairs and Communications • Ministry of Finance 2020