Estonian-based Finish investment banker Joakim Helenius says that Estonia will exit the economic crisis in much better shape than many other developed countries courtesy of its modest loan burden.
He hopes that politicians have come to understand that you only borrow in a crisis. The entrepreneur believes the Estonian economy could start growing faster than previously forecasts after the crisis because supply chains will be moved from developing countries to the European Union and USA.
The world we knew before the pandemic will likely not return. Which fields will change the most and how once the virus is brought under control?
The epidemic was likely caused by activity on China’s so-called wet markets where wild animals are killed in front of clients and then sold to them. It is an example of how extremely dangerous epidemics start in less developed regions of the world and how quickly they can spread all over the planet.
Developed countries will be looking for ways to protect themselves from future epidemics caused by such activities that will likely take a toll on trade ties and slow growth in developing countries in Asia, Africa and elsewhere.
Estonian companies, when planning for expansion and export, should concentrate more on Europe and America because global supply trends suggest production and services will be brought back to the EU and USA, which could offer opportunities for our companies. Developed countries will learn the importance of independent food production and stockpiles. The next epidemic might be worse and a starving population is every country’s worst nightmare.
Recovery of international business and recreational travel to pre-crisis levels will take a very long time if it happens at all.
What, besides stopping the virus, is required for investors to have certainty and for the global economy to start its recovery? When could that happen?
The behavior of global stock markets suggests that once the acute phase of the crisis is over, liquidity pumped into the system by central banks and government-sector spending will culminate in inflation of assets.
It is possible that share and real estate prices will soar over the next two or three years as investors find themselves in the conditions of seemingly endless zero-interest liquidity. This in a situation where bonds offer very modest yields when adjusted for risk and lose value as interest rates recover, while cash offers no return whatsoever.
All manner of alternative products so to speak, including crowdfunding platforms will turn into very risky investments after the crisis.
My advice is to invest in shares and real estate that does not have an excessive loan burden! I hope that Europe and America at least will have overcome the worst of the crisis by midsummer.
Recovery will take longer in regions where the crisis is only just beginning – such as Africa and India – and could prove far deadlier, while they are not crucial in terms of the European and U.S. economies.
Is the government’s signal that public expenses will not be cut in the near future fair in a situation where Estonia might have 70,000 unemployed by the end of summer and the private sector as the lifeblood of the state is forced to lay off people and cut salaries?
The state should not cut costs in the short term because the economy cannot afford to lose any more in the way of domestic demand at a time when restrictions are being relaxed and recovery is just beginning. Government sector spending and deficit is acceptable in the short term. That said, the state will have to cut costs in the long run so as not to put too much pressure on the already struggling private sector during its recovery.
As painful as it is politically, the most sensible thing to do would be to freeze pensions and social expenses and cut state and local government workers’ salaries so they would match private sector pay.
Estonia and Finland have adopted a similar approach to the virus, while Sweden and Belarus have not introduced extensive restrictions. Which approach has proven more effective?
Sweden is already changing its approach and laying down additional restrictions. I believe the relatively higher number of coronavirus deaths in Sweden is making it impossible for the government to continue following the herd immunity strategy that is based on recommendations to alter behavior as opposed to coercion. I am surprised and saddened by the Swedish government’s approach and suspect they will pay a high political price.
What should Estonia do to exit the crisis with as modest a recession as possible – in addition to trying to maintain private sector liquidity.
Most jobs will disappear in the service sector: restaurants, bars, hotels, shops, hair salons etc. Many owners of such businesses will go bankrupt or won’t have enough money to start again after the crisis.
The state should have a program for helping people get their businesses up and running again. The cost of such a program would be modest when adjusted to the positive effect of reduced unemployment.
How satisfied are you with how Estonia has reacted to the crisis? Have we been successful or could some things have been handled better?
I have been impressed by the strong and confident leadership of PM Jüri Ratas and Minister of Social Affairs Tanel Kiik! [Minister of Foreign Affairs] Urmas Reinsalu has also demonstrated true leadership, being among those who realized the seriousness of the crisis early on. I’m disappointed to see Mart Helme (minister of internal affairs, chairman of the national conservative EKRE party – ed.) going for political points by trying to implement populist ideas during the crisis and endangering Estonian agriculture and food security in the process.
How has Trigon Capital fared in the first weeks of the crisis?
Luckily, Trigon Capital that only invests in shares has offered world-class rate of return in our investment region for over a decade. Clients have remained loyal to us and we have not had to deal with an exodus of cash. Of course, we have suffered like everyone else, while we still manage over half a billion euros in assets.
Despite his great opposition to foreign labor, the interior minister decided that agricultural workers who are already in Estonia can stay for two months after the emergency situation ends. What is the foreign labor situation at Trigon farms?
We employ a total of 131 people in our Väätsa and Kaiu farms. Nineteen of them are from Ukraine. Perhaps Helme wants to force people to move to the countryside and produce food – much like was done by Mao Zedong in communist China. Luckily, we are living in a democratic country. I hope the people of Estonia will want to move to the country and pursue agriculture voluntarily in the future.
This crisis is the last warning we are going to get. If we do not want to ensure sufficient local food production, we might encounter a crisis that would leave us with not enough to eat. The consequence of this could be famine the likes of which has not been seen here for a very long time. Should a future crisis cause food shortages, Estonia will not be among countries to receive relief first.
Finnish agencies have considered using charter flights to bring in Ukrainian labor. Could Estonia do something similar?
The Finnish government understands the importance of food security. Even the populist Finns Party gets it! A politician who in the midst of this crisis fails to realize the importance of food security and what is necessary to ensure it in both the short and long term should not be a member of the government!
What strategic decisions should Estonia make to be more competitive and successful in the future?
It is likely Estonia will exit the crisis in much better form than most other countries – largely because it has managed to fight off the temptation to borrow large sums to finance political projects in the past. Estonia has remained the country with the smallest public debt by far in the European Union.
Because of that, the country can now offer financial support necessary for kickstarting the economy. I very much hope that all responsible politicians understand the importance of only borrowing during a national crisis! We can hope that politicians who were promoting all manner of expenses to be financed using state loans will now concentrate their efforts on maintaining a strong balance.
There are a lot of countries in the EU where the recovery will be much slower and unemployment will remain high for longer due to extensive public debt. This will allow rapidly growing Estonian enterprises to attract highly educated specialists from other European countries.
It is possible that while the crisis will take a great toll on the global economy, it will present Estonia with the chance of growing even faster than previously forecast.