«Keeping people in Estonia paramount»

Businessman Raul Kirjanen. Photo: Sander Ilvest

One of Estonia’s wealthiest businessmen, CEO and owner of Graanul Invest Raul Kirjanen finds that while the Estonian government has done a good job containing the coronavirus crisis, a foolish decision was also made.

To what extent does the virtual unavailability of air travel affect your life?

I love it on a personal level. I used to leave the country twice a week, with flights leaving at 5 a.m. I don’t know how long this glorious isolation will last, but I’m enjoying it for the time being.

On the other hand, our largest investment object, the wood fractionation demo plant in Imavere is suffering. It is unique in the world and has all new fittings, which is why we need foreign specialists to get it going. We are stuck waiting on them because of travel restrictions.

How have your companies fared in the crisis?

All things considered, I’d say we’ve done well. There’s pressure on power and heat generation, as well as sale of forest and timber. But our main business is wood pellets that we manufacture and sell years in advance. Those contracts remain in place.

Have you laid people off or cut salaries?

Graanul Invest employs around 700 people that is rather a modest number considering out business volumes and turnover (over €400 million in 2019 – ed.). This means that every employee is key for us. Going after their salaries is the last resort for me as the manager. We haven’t even considered it.

Do hard times provide stimuli for doing things differently, boosting effectiveness? Have you any acquisition plans at this time?

We have been working on digitizing the company, rendering processes paper-free for years. Mistakes cannot be allowed here, which is why it cannot be done headlong. Our pellet factories and power plants are almost completely automated. All major factories can make do with just three or four operators per shift.

Naturally, we are keeping our eyes open. If we find something exciting, we will buy it. We completed a few interesting takeovers during the previous crisis. Today, we are still in the early days of the crisis. Takeovers will be more attractive once it hits the financial sector.

You acquired U.S. pellet manufacturer Texas Pellets for €80 million last year. How are things?

The plant is operational and we have sales, while we did not turn a profit last year. We are still learning the peculiarities of American business culture. We never expected things to be easy there.

In Estonia and the Baltics, we are used to qualified and professional workforce. It takes a lot more time in the States. Labor turnover is insane, especially among unskilled workers.

How has the government managed in terms of containing the crisis in Estonia?

There are two crises in Estonia. One is the medical crisis that the government has been on top of, I believe. We chose the right path at the right time. I believe the healthcare crisis could not have been handled much better.

The second, economic crisis is only looming. Many sectors are yet to feel great hardship. The Unemployment Insurance Fund’s idea for a salary benefit instrument was a good one. Even though it could have been made available in reduced volume to more companies and for longer, it has helped a lot of enterprises weather the initial shock and impulse to go down the path of layoffs.

You have no fundamental criticism for the government?

They have managed to avoid making a mess of it. Only the oil plant investment was foolish. Those €125 million that will be given to Eesti Energia could have been put to better use.

I believe it is a major warning sign when the private sector, banks are not willing to finance the project because they believe it to be unfeasible.

Will we see a short crisis or will it linger for years?

If the virus ends in two weeks’ time and life returns to normal, no one will remember we had a crisis 18 months from now. But that is rather unlikely. Restrictions might return. People being able to travel again will be a major touchstone.

Uncertainty is the biggest problem for entrepreneurs. Industrial supply chains stretch into months and it is very difficult to make plans if you don’t know what will happen in September or December.

Personally, I believe that the most important thing is for Estonian companies to maintain production even if prices are down and they cannot charge what they used to. The important thing is to keep the plants running and give people work.

The most painful lesson of the previous crisis was Estonia losing 70,000 people because there was no work. Our goal today should be to try and avoid that at any cost! Should we lose another 70,000 people, recovery will be very long and arduous.

How to keep people from leaving the country?

I’m a firm believer in retraining. There will likely be massive structural unemployment in Tallinn as many tourism, catering and transport sector workers are set to lose their jobs.

One option is to pay them from the Unemployment Insurance Fund for a while before telling them they’re on their own. The other is to look up fields where we need workers and retrain them in case the tourism sector does not bounce back. It is far cheaper and more useful to keep people in Estonia than it is to lure them back home later or bring in foreign labor.

Should the Estonian government bail out companies it deems too big to fail?

I don’t think Estonia has a single company that’s too big to fail. There are no companies the disappearance of which would result in a collapse. Perhaps only major banks.

The coalition finds Tallink is one such company.

I take my hat off to Tallink. They are a major company and have done well. But they are not too big to fail, even in the Estonian context.

You’ve said that state aid should be very expensive and inconvenient, a kind of last resort. Please elaborate.

While it might seem that capital is infinite as one can always borrow more, people need to realize money is a limited resource. Loans need to be repaid.

This means that state financing should be made available to those who cannot find it on the market. I believe it was not really a problem for a company the size of Tallink. How inconvenient or expensive it was is another matter.

The ones really in trouble are small and medium businesses that cannot find capital on the market or from banks. More help should be made available there.

They say that KredEx loans and guarantees are too expensive.

I must admit I’m not up to speed in detail on KredEx conditions as our company has not needed help. But a rough estimate puts the price of their loans and guarantees at 10 percent a year. That is not cheap.

Should something be completely reorganized in Estonian life or society during the crisis?

The path of major societal change is a dangerous one – waking up one morning and running off in an entirely different heading. The risk of that heading being the wrong one is too great. However, I would point out two problems in need of solutions.

Estonia has file cabinets full of pointless legislation and regulation collecting dust and holding back the economy and enterprise. We should get rid of them.

The other thing is borrowing. If the government cannot maintain fiscal balance when the economy is growing 4 percent a year, something is systematically wrong. Our financial literacy is poor. We might have to cut the budget by a billion euros next year should the crisis deepen. It is an inconvenient topic, especially for politicians who are rather used to handing out money.

You are one of Estonia’s biggest forest owners. Do we have too little or too much felling?

Unfortunately, forestry has become an extremely polarizing subject in society. Allow me to illustrate by saying that if someone has a bad knee, they could go to a clairvoyant or a soothsayer, while the sensible thing to do would be to go and see a doctor.

There is suddenly an army of experts in forestry who often talk complete nonsense but are given a platform by the media. True specialists can rather be heard seldom. This has created the notion that there is something wrong with Estonian forests. There is not.