Lithuania used EU funds to launch an industrial equipment updating programme of about €1bn. Meanwhile, corresponding Estonian measures as established under previous coalition, amount to €0.
Estonian enterprises lose out to Baltic competitors by faulty policy
16th March 2015, 17:30
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«Our company loses one tender after another, to Lithuanians, as due to state aid the competitors are able to produce with much better quality and cheaper,» admitted Tarmo Noop, member of council at Estiko Plastar, a producer of food packaging film.
Defeated in competitiveness
To enhance competitiveness of functioning industrial companies, Lithuanian state in 2014–2020 will be investing as much as €331m of EU support money, to which entrepreneurs in turn will have to add €700m.
«Personally, I do not favour state support at all, as this distorts free competition,» explained Mr Noop.
«Inevitably, we share the same economic space on the Baltics and need to consider what the neighbours are doing, and the state should see to it that we would not lose out in this war of varying conditions; rather, they should see to it that we win out.»
The competition-crippling policy of Estonia surfaced as Chamber of Commerce and Industry ordered from economy ministry a comparison of business measures in the three Baltic.
«Wage level in Lithuania and Latvia is below Estonia and with other conditions relative similar, investment support may be decisive in whether a factory is brought to Estonia or elsewhere,» said Chamber of Commerce and Industry director-general Mait Palts.
«When opting for finance mechanisms instead of direct support, Estonia has not done outright bad; but the neighbours, who chose otherwise, have done better.»
Economy ministry data shows that in 2014–2020 Estonia uses all other possible economy-supporting measures equally or even better than the neighbours. Estonians are focussing on support of loans and venture capital investments, as well as in PR-campaigns to boost exports. These, though, are not sufficient to stay in the competition.
«In Estonia, large sums are placed into high-flying so-called high-tech projects without real economic potential but allowing us to shine at foreign forums,» admitted Marina Kaas, vice president of Estonian Association of SMEs.
«In reality, the financial instruments favoured by the state are obtainable for such successful large industrial enterprises who have no problems obtaining money from open market as well. The scarce support money, however, is channelled into PR-campaigns feeding innumerable non-profit associations, but to no avail for producers.»
But when it comes to support distributed to industrial enterprises, Ms Kaas says these have also been altered so as to remain without SME reach. «When the state announced it tripled start-up support for entrepreneurs, it actually made the conditions stricter so that those in need cannot apply at all,» said Ms Kaas.
As the deepest fault with financial measures, Ms Kaas pointed to these distributed via financial market enterprises which aim at personal profit and not the needs of industrial enterprises.
«By financial measures, they promise to support manufacturing enterprises, but in reality they channel the money directly into financial enterprises which will be the real beneficiaries,» added Ms Kaas.
The politicians who developed the current business measures and on whom also may hang the altering of the conditions were convinced that the path chosen by them is correct and is based on agreements earlier achieved with entrepreneurs.
«I deem other advantages of our business environment as much more important than the size of the support,» said Jürgen Ligi, a leader among Reform Party and former finance minister. «To my knowledge, however, it is not true that Estonia is not paying investment support.»
Narrow circle, large circle
As investment support for enterprises, Mr Ligi listed the following activities: the state supports IT-applications by a total of €218.9m, enterprise development activities by a total of €250m, scientific research activities by a total of €13.3m, and technology development centred by a total of €80m.
«We did not want enterprises to take investment support that would roil the market,» said Juhan Parts, a leader in IRL and former economy minister. «In my vision, investment support would only be attainable for a narrow circle of entrepreneurs, but financial measures for a large circle. Also, financial measures help improve business environment as a whole.»
The official stands of parties in coalition talks regarding investment support proved impossible to obtain by the time the article went to print, due to their busyness.