Estonia no longer cheap-labour-land

Mikk Salu
, reporter
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Photo: Heiki Rebane / BNS

Yesterday, Estonia’s business growth strategy for 2014–2020 was confirmed by the government. This is an underlying document, on the basis of which the state will be supporting enterprises and business. According to economy minister Juhan Parts the state will, among other things, create a national hedge fund.

I also read the last strategy, for 2007–2013. Some topics are exactly the same. The years have passed, but nothing has changed, it seems: entrepreneurs complain they can’t find qualified labour force; SMEs say they can’t get hold of capital; and state says productivity is too low. At places, the texts of the two documents matched, almost word-for-word.

Still, meanwhile, we have reached another league quality-wise. Let us look at all indicators: added value per employee, export volumes, percentage of innovation, start-up survival rate. We have clearly made it to another class.

Are there unreached goals? It seemed to me that some goals have been filled with superabundance, such as amount of exported enterprises or percentage of exports – way above what was set as goals in 2007. But productivity, for instance...

… productivity is more-or-less.

More or less?

Yes. Our emotional desire, to become more prosperous faster, is understandable, creating a pressure in the society. Today, however, it is important – and this is a talking point at almost every meeting – that Estonia is no longer a country of cheap workforce. Therefore, in the new strategy, productivity is the utmost priority. 

Talking about foreign investments or investments of companies, then, if today’s average wage level is about €1,000 gross, in 2020 the business plan must reckon with €2,000 gross or more. In some sectors and niches, the numbers will surely vary; but to any investor this will be our message: while investing, the €2,000 plus level is what need to be considered with investments. 

What is also different, now, is that there is less money to carry out the strategy. 

A little less. The thing is that, during the crisis, we tripled the companies’ investment support. Due to this one-off thing, the previous period involved somewhat more money perhaps. Even so, I would underline that this time a financial measure, an equity capital offer program, will be added.

What will that look like?

It will be a fund of funds. It will be a national fund of venture capital funds. We are in serious talks with European Investment Fund, about to reach agreement. We want them here as partners in the fund. We do not have a definite deadline; even so, it might be legally ready by spring. That fund will not be making direct investments, but will be creating subfunds which could, in turn, target certain areas and groups of companies. While the state will have a majority holding in the fund of funds, in subfunds we will be involving private investors. For pension funds, for instance, this will open an opportunity to invest in Estonia – instead of taking money out of Estonia. The key, however, will be the precise focus of a subfund.

We might have subfunds supporting IT, for instance, and medical industry, forestry etc?

Absolutely.

Coming back to productivity and wage levels. The average salary is about €1,000; meanwhile, there are places and trades in Estonia with wages of €500 or even €400 gross. In 2020, will investors be looking in vain for €500 wage levels in Estonia?

The €400-500 salaries will still exist, too, probably. I’m firstly talking about processing industry and exporters; I’m not talking about service sector wage levels. In most fields, the floor is already in four digits; but, of course, we may find some kinds of sewing factories and the like with salaries of €500, but these have no future. 

To specify – €2,000 is no wage promise. I’m just talking about the message we will preach to the investors that come. We will not be telling them: come come, meet the €500 workers. We’ll be saying: wage levels are €2,000 and more.

I also glanced at what the ministries have thought about the business strategy. Quite many have been worried: where is regional enterprise, where are the regional companies? Verily: I also get the impression, reading the strategy, that the new one is more focussed, that any hairdresser in Türi or florist’s in Tallinn will not have hopes for support any more.

Not totally true. The issue is: how will productivity grow? Firstly, we must have a productive exporting sector, bringing money into the country. Once the money comes, domestic demand will grow, boosting the hairdresser’s income. This is our logic.

I must admit, however, that the debate is on whether we should continue the start-up assistance programme. That’s not a big support.

That’s the €5,000 distributed by Enterprise Estonia?

Yes, exactly. About that, all kinds of bad examples have abounded.

Should it continue?

I think it should. Even so, the somewhat stupid attitude needs to be altered that anybody should get it. It still should be a decision well weighed by Enterprise Estonia. Should the plan be promising, they will give. If not, no money. I think the start-up support is still needed. No matter what a person does or the kind of companies they set up, it’s still better than doing nothing at all. Mistakes have also been made. Some people say the start-up support is nonsense. I think it should continue.

Lately, we heard the news that Enterprise Estonia had granted the €5,000 support to paraphenomena-portal Telegram.

That’s classic – this is where the bad reputation comes from, with start-up support. I have not read Telegram and can’t give an assessment. These are not decisions by economy minister and economy ministry, this is sphere of Enterprise Estonia’s competence.

Were there things cut out of the business strategy, things included at certain phases?

True, not all is included. We are not interested in being involved in a yearly political theatre: should we have progressive income tax or should we re-establish income tax for companies.

Should we?

No. In tax system, stability works best.

Here you really agree with Jürgen Ligi [finance minister – edit]?

Yes, that’s right.

But the social tax ceiling?

Setting a limit on social tax would help bring in more expensive jobs. It’s no panacea, but I would not delete it as a goal. Right now, we just lack the certainty how to get it done, financially. Also, the idea is not popular politically, as it is easy to attack: see, an average Estonian gets nothing, but some rich guys pay less.

Where goes the money in 2014–2020?

•    Areas of growth, cooperation development, start-up-programmes: €77m

•    Business model, raising business awareness and capability: €54.75m

•    Development and production, sales and marketing: €75m

•    Competition position, access to capital, involvement of investments, creative industries: €175.6m

•    Total: €382.35m

Source: Estonian business growth strategy 2014–2020

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