Fact Sheet January 2009 Today A DYNAMIC ECONOMY

Owing to Estonia’s rapid economic development, a liberal GDP taxation system and a favourable location, the country is at the heart of Europe’s fastest growing market – the Baltic GDP growth of 6.3 per cent in 2007 places Estonia among Sea Region, which has a population of over 90 million. the fastest growing economies in the region. The economy has grown by an average of almost 9 per cent a year since Successive governments have adhered to the principles of 2000. The continued growth of exports to western Estonia’s economic success: a balanced state budget, a markets, integration with Nordic countries, institutional and stable convertible currency pegged to the (before 1 regulatory reforms have laid a strong foundation for January 1999 to the Deutschmark) and liberal trade and sustainable economic growth. investment laws. According to the forecast (The Ministry of Finance) in 2008 Estonian economy will have negative growth by 2.2%, and International ratings in 2009 negative growth by 3,5%.

In 2010 Estonian economy is expected to grow by 2,6%. International Credit Ratings: Money • Moody's: A1, outlook negative Estonia’s national currency is the kroon (EEK). • Standard & Poor’s: A, outlook negative equals 100 sents. The is pegged to the • Fitch: A-, outlook negative Euro. Estonia joined Europe’s Exchange Rate Mechanism II (ERM II) on 27 June 2004. Entry to the ERM II leaves

The Wall Street Journal and Heritage Foundation’s Index of the exchange rate of Estonian kroon unchanged. Also in Economic Freedom 2009 ranks Estonia as one of the freest coming years Estonia will run the currency board economies in the World – 13th out of 183 countries. arrangement with a fixed exchange rate, one euro corresponding 15.6466 Estonian kroons. Estonia ranks 11th of 141 countries in the Economic The Estonian monetary system is based on the currency Freedom of the World 2008. The annual report was board regulation. The currency board and currency peg composed by the CATO Institute, Canada’s Fraser Institute have been fixed by law since June 1992. Estonian and more than 50 other institutes. Among the EU countries, currency and gold reserves are stable. Estonia is third after the UK and Ireland.

World Economic Forum’s Current Competitiveness Index Taxes nd 2008-2009 ranks Estonia 32 among 134 countries. With Estonia’s long-serving system of low, flat rate taxes, in this ranking Estonia is the most competitive of the Central particular, the 21 per cent income tax, is simple with no and Eastern European countries. The survey among “hidden extras”. To encourage companies to expand their business leaders measures economic competitiveness business all reinvested profits have been exempted of based on a combination of technology, the quality of public corporate income tax. However, any redistributed profits, institutions and the macroeconomic environment. for example profits paid for dividends, are taxed at 21%.

According to the World Competitiveness Yearbook 2008, The system of VAT (set at 18 per cent) is in harmony with published by the International Institute for Management EU requirements. Employers pay a social and health Development, Estonia ranks 23rd among 55 countries and insurance tax, which is 33 per cent of the gross wage. regional economies covered by the WCY.

Transparency International ranks Estonia 27th out of 180 Banking countries in 2008. Among members of the , th The Scandinavian-connected banking system of Estonia is Estonia places 13 . modern and efficient, encompassing the strongest and

nd best-regulated banks in the region. These provide both The World Bank ranks Estonia 22 in its Doing Business in domestic and international services (including Internet and 2009 report, which covers 183 countries. telephone banking) at very competitive rates. Both local

and international firms provide a full range of financial, Bertelsmann Transformation Index in 2008 ranks Estonia insurance, accounting and legal services. Estonia has a among the most successful of 125 transformation countries highly advanced Internet banking system: the majority of in the world. In status index, Estonia is third after the Czech Internet uses make their everyday transactions via Internet Republic and Slovenia, in management index, Estonia is banking. Some banks are developing mobile banking, second after Chile. offering banking services via WAP.

Press and Information Department, Estonian Ministry of Foreign Affairs Islandi väljak 1, 15049, Estonia Tel. +372 637 7600, Fax +372 637 7617, E-mail: [email protected] http://www.vm.ee Fact Sheet January 2009

Communications The advanced use of information technology demonstrates Estonia's commitment to global competitiveness. 69 per Estonia’s open economy, excellent transportation links and cent of the population are Internet users. (EMOR, 2008). central location make it an ideal base for production and distribution. Estonia has captured a considerable share of 58 per cent of households have access to the Internet at the rapidly growing transit trade through the Baltic Sea. The home (2008, Statistics Estonia). deepwater port and free zone of Muuga is one of the most advanced in the region. It serves as an entrepot for Baltic Labour and CIS markets. The new multifunctional port and free zone in the North-East of Estonia, Sillamäe, is the most The availability of highly skilled, reasonably priced labour eastern port of the EU, capable to handle all cargo groups has been one of the cornerstones of Estonia’s rapid from oil-products and dry bulk to containerised cargo. economic development. The adaptability and flexibility of the labour market (the average monthly salary in 2007 was Passenger and freight links provide fast sea crossings 723 ) has contributed greatly to changes in the across the Baltic Sea, while direct air connections give structure of the economy. easy access to Tallinn from major European capitals. Foreign Trade Estonian railways use the same gauge as throughout Russia and the CIS, making Estonia an attractive European More than 75 per cent of Estonia’s total trade was with EU hub for bulk shipment of goods from the Far East: 90 per member countries in 2007. Estonia’s main trade partners cent of rail freight is transit traffic. are Finland, Russia and Sweden. Estonia’s major exports are machinery and equipment, mineral products and wood Foreign investors, mostly Nordic, have made considerable and wood products. Estonia’s main imports are machinery investments into high technology and communication and appliances, mineral products and transport networks in order to modernise the IT Communications equipment. infrastructure in Estonia. As a result, the Estonian telecommunications sector is one of the most developed in As of May 1, 2004 external trade relations of Estonia with Central and Eastern Europe. third countries are based on the EU Common Commercial policy. All bilateral free trade agreements between Estonia and third countries were denunciated. As of the same date 12/ 12/ 12/ 12/

2004 2005 2006 2007 Estonia implements the conditions set out in the trade agreements between EU and third countries and applies Telephone main (fixed) with the EU commitments taken in the WTO. lines per 100 32.9 32.8 33.7 35.7 inhabitants Share of digital lines (%) 83 83 85 86 Investment climate

Number of mobile phone Foreign investors are guaranteed a level playing field with subscribers per 93 107 123 147.6 local firms, which include unrestricted repatriation of profits 100 inhabitants and capital along with the right to own land. There is a Broadband connections 10 13 17 21 rapidly expanding supply of high quality commercial and per 100 inhabitants (%) office property, including a growing number of industrial Number of households parks. The establishment of free zones at Muuga Port and connected to broadband 19 28 36 44 in Sillamäe has further enhanced Estonia's attractiveness per 100 homes to foreign investors.

Sources: Estonian Competition Authority Many costs such as energy, labour, transport services, International analysts consider Estonia to be the leader in telecommunications and property expenses are Eastern Europe for broadband DSL access. In terms of considerably lower than in other parts of the Baltic Sea DSL penetration per telephone lines, Estonia ranks Region. Nevertheless, Estonia has acquired a well- presently among the top ten in the world. deserved reputation for the high quality of its products. Covering a wide range of industries, investors find they In addition to the physical Internet access points, there are can achieve Scandinavian quality levels at lower costs. over 1174 free wireless Internet (wifi) zones around the country (www.wifi.ee). Estonia is one of the leaders in Central and Eastern Europe in terms of foreign direct investments (FDI) per In recent years the number of fixed phone lines has capita. The stock of total FDI peaked at 11 314 EUR per decreased, as many consumers switched from fixed capita as of 31 December 2007. Estonian companies have phones to mobile phones. All of Estonia is covered with made significant foreign investments of its own, mainly in digital mobile phone networks. There are more mobile Latvia and Lithuania. phone contracts than residents - 147 per 100 people (Estonian Competition Authority, 2008). More about Estonia's economy

The main task of Estonia’s telecommunications policy is to Bank of Estonia: www.bankofestonia.info ensure competition and openness in the sector. The main Statistical Office of Estonia: www.stat.ee bodies in charge of telecommunications regulatory issues Ministry of Finance: www.fin.ee are the Ministry of Economic Affairs and Communications Ministry of Economic Affairs and Communications: (www.mkm.ee) Technical Surveillance Authority www.mkm.ee (www.tja.ee) and Estonian Competition Authority Invest in Estonia: www.investinestonia.com (www.konkurentsiamet.ee). Tallinn Stock Exchange: www.baltic.omxnordicexchange.com The telecommunications sector has been completely Enterprise Estonia: www.eas.ee liberalised since January 2001, when the special monopoly rights of the Estonian Telephone Company ended.