Investors considering Estonia are put off by its lack of long-term vision.
Foreign investors think it problematic that Estonia lacks a long-term vision. According to them, the brand Estonia is absolutely unknown outside of Europe, as revealed by research done for Ministry of Economic Affairs and Communication.
According to study by consultation group Technopolis Group Tallinn OÜ, there are 30,000 positions and employees lacking in Estonia, especially in fields creating bigger added value. The report also revealed other problem areas which, if solved, would improve the country’s competitiveness as destination of direct foreign investments.
The fresh Enterprise Estonia chief Taavi Laur said the state had taken notable steps to attract foreign investors: special clusters have been created, actively involved in international cooperation, with Tallinn University of Technology soon to open an innovation centre; every strategy created involving cooperation of major universities and businesses.
«10–15 years back, Estonia was exporting unprocessed logs. Today, we are turning the logs into products with added value to be exported. Attracting headquarters of large companies will take time,» said Mr Laur.
Investments from neighbours
While the typical investor comes from neighbouring Finland or Sweden, Enterprise Estonia aims at attracting those from afar – Germany, Holland, China etc. Before major players from such places move in with their headquarters, Estonia must lure their production units, thinks Mr Laur. «To establish an industry with a thousand workers, in Estonia, is quite hard, as the workers are not to be found here. However, Estonia could be an ideal midway post for some 200 workers; a logistics centre, say,» explained he. As Enterprise Estonia’s recent victories, Mr Laur listed the local IT-centre of Kühne+Nagel, a world leading logistics company.
«On the positive side, the trend is towards jobs of higher added value; creating ever smarter and more sophisticated jobs being our main goal,» underlined Mr Laur.
IT skills sought
Estonia’s strengths, in the eyes of investors, include the excellent IT-reputation, language skills, economical and political stability. Even so, a Scandinavian IT-firm with a global grasp, when interviewed by the researchers, said that Estonia’s information and communication sector’s human capital quality is lower than in Finland and Sweden, having an adverse effect on price advantage.
At the same time, Estonia has an advantage in tax policy and technological infrastructure; investors also saying that, as compared to other Baltic States, Estonia has a much better legal environment – and less red tape. Also, we are praised for our ability to make fast decisions.
The research says Estonia’s top challenge is how to sell the state’s business environment to international companies, servicing foreign markets via us. For that, Estonia’s business environment must become fully international – starting with business tourism (preparing ground for arrival of more sophisticated business) all the way to regional headquarters.
Business tourism is an area where, as compared to countries close by, Estonia falls sadly short. While in Helsinki visitors include 53 per cent of leisure tourists and 45 of business tourists, Stockholm’s figures being 54 and 46, respectively, Tallinn shows a vast majority of leisure tourists – 73 per cent. Tallinn’s business tourism percentage, less than 25 per cent, is a mere half of the two Scandinavian capitals.
Enterprise Estonia agrees that, in Estonia, business tourism percentage is very low: «No investor pours money into a country unknown to him. Before making investments, investors pay numerous visits to countries considered. Often, the initial visit will be a business trip, an international conference.»
Authors of the study claim that a major problem with attracting business tourists is the lack of conference centres – there being no place to hold exhibitions of conferences with a couple of hundred participants.
In Mr Laur’s opinion, the lack of space is not the main issue – rather Estonia’s poor accessibility. He hopes that international cooperation by clusters and a bolder approach to organising conferences and exhibitions will bring in the business tourists. «We will not bring them here by merely building conference centres,» he stressed.
According to Mr Laur, Estonia has not performed poorly with foreign investments; the issue rather being how to diversify the foreign investors’ portfolio.
The study was financed by Government Office «fund of wise decisions» and European Social Fund.
Heido Vitsur, economy expert at LHV Bank
In product value chain, from design to retail sales, Estonia falls among those doing the simplest of jobs. On world scene, the need for machine-like manual labour in decreasing; and in this area, competition is the heaviest. Should the moment arrive when entrepreneurs find our wage levels too high, it will not be costly or complicated for companies like Wendre to move their production to Poland or Bulgaria. All emerging markets abound with women who can be trained to sew quickly and cheap. In the field of cheap labour force and mass production we are competing with developing countries and Asia, where wage levels are considerably lower and labour markets many times larger.
We would need investments requiring smarter workers. We would be able to produce small shipments for demanding customers, fast; that, however, would require investments into technology and organisation of production. What matters most with hi-tech production is trust with consumers. «Made in Estonia», however, means nothing to anybody. Estonia and Bosnia sounding quite alike.
Our greatest mistake has been expecting investments just to fall into our lap. We think that everybody should just love us for who we are, bringing us their sophisticated work... which we Estonians have never ever done. Estonia’s economy must add integration and compactness, meaning that an endeavour should be supported by other production around it. With the clusters recently set up, capabilities of this sort should be enhanced; even so, their activities have little to do with the real economy and the larger areas of the economy. Companies are not prepared to cooperate; and, even if they do, it will be on the lowest level possible.
Attracting foreign investments is a lengthy process. However, Singapore became a world leading business centre – in 25 years.