International groups pull out of Estonia

Photo: SCANPIX

International groups keep pulling out of Estonia, frustrated by the smallness of our market.

While the pain of large internationals leaving was acutest at the beginning of the recession, layers involved in mergers and acquisitions say the trend is again on the increase these last couple of years.

«The first wave of austerity hit the world in 2007-2008, reaching us a year later,» said Sven Papp, partner of law firm  Raidla Lejins & Norcous. «For a while, afterwards, lawyers had fewer tasks like that. However, in 2012 it started picking up again and it feels like the trend is set to continue this year. It looks like a second wave of optimisation.»

Last year, for instance, much media coverage was attracted by the departure of Veolia Propreté, subsidiary of the French corporation Veolia Environnement. At the start of this year, the Italian bank UniCredit closed its Estonian branches. And in February, Scandic, the largest Nordic hotel chain, packed its bags in Estonia.

Veolia Environnement’s vice president Jérôme Le Conte said last July, when commenting on Veolia’s departure, that pulling out of Estonian and Lithuanian markets is part of the parent company’s strategy of discontinuing various lines of business – this being the final stage of leaving the Baltic waste treatment market.

According to Mr Papp, law firm Raidla Lejins & Norcous managed about a dozen such operations last year, with a couple like that already being processed in 2013. «These are well-known companies and their products will not disappear from the market. But, sadly, their branches or companied will be wound up or closed down,» he explained.

According to Mr Papp, the trend is not yet felt in tax revenues, as they do pay taxes on sales income, as well as labour taxes on sales forces left in Estonia.

Henrik Igasta, board member of investments bank Superia, also confirms that, these last years, quite many international groups have decided to leave Estonian market, selling their companies to locals or other foreigners. «This is all part and parcel of capitalism, nothing surprising here,» said he.

It is not that these companies would do badly in Estonia. Rather the opposite – these are profitable operations. However, as the situation in global economy requires optimisation, they first cut the peripheral subsidiaries with comparatively low profits.

«We are all doing nice and good, but the few million euros earned here don’t look important to corporate leaders far away,» said Mr Papp.

According to Mr Igasta it is often decided that maintaining operations in Estonia, a nanomarket in every aspect, is not a priority. First and foremost, this refers to business directed to local consumers.

«Also, many entrepreneurs have evidently realised by now that the Baltics is not a single market, nor are these states closely integrated, economically. Doing good pan-Baltic business is difficult, as one has do operate in three culturally differing yet small environments,» explained Superia’s board member.

Mr Igasta believes, however, that Estonia is still a competitive place when it comes to production of lower and medium margin products and support services.

«In longer perspective it still does feel troublesome, as economically the added value is small, us being heavily dependent on economic decisions made in Scandinavia. Costs rise rapidly, young talented Estonians are in no hurry to return from abroad. And sooner or later, probably, tax policy will take a turn for the worse,» said he.