ESTONIA IN TRANSITIONMuslimin (1006793990)

Haensri Jemy (

Located on the Baltic Sea, and offering a gateway to Russia

Where is Estonia?

Estonian History

Soviet Era (prior to 1989)• Poorest citizens in

Europe (did not improve after WW II)

• Economic decisions centralized in Moscow.

• No R&D, no Sales & Marketing functions

Perestroika (1989-1990)•Few manufacturing industries privatized

•However, sold only to ethnic Russians

Transition to Independence (1991)•Political turmoil and uncertainty

•Visible demonstrations against Russia’s military

Free country in 1991

Lack of constitution, democratic institutions, and a legal system;Obsolete and bad infrastructures;Below-western-standard banking sector;Economy crisis:

high inflation declining GDP, export halted, domestic demand feel, companies went bankrupt, unemployed skilled & unskilled people

Estonia as a free country in 1991

How has Estonia substantially improved its competitiveness, and performed so well compared to most other transition countries? How was Estonia able to advance so rapidly?

Question 1

Post-Independence Political & Economy Decisions

Open for trades and investments•Memberships of WTO and later the EU•Council of the Baltic Sea States (CBSS) in 1992•No exchange controls or restrictions on foreign investment

Transformations•Communist-led planned economy to western market economy•Pegged currency to German Mark (1992) and the Euro (2002)

Structural Reformations•Privatization of state-owned firms (incl. utilities)•Building modern infrastructures.•Simple tax system

Post-Independence Political & Economy Decisions (cont’d)

Business Environment

•100% literacy rate in Estonia•A state system offering good education for all in 9 + 3 year education system.

Education

•The Estonia Information Technology College was established in Tallinn in September 1999

Technology

•Modernized infrastructure.•Privatized utilities.

Infrastructure

Post-Independence Political & Economy Decisions (cont’d)

Business Environmen

t (cont’d)

•Banks played the dominant role in Estonia’s financial markets

Financial Markets

•Strong Exports.•Tax-free/customs-free zoneTrade•Foreign MNC significant contributed to exports

Foreign Direct

Investment

•develop a number of emerging clusters

Economy

Post-Independence Political & Economy Decisions (cont’d)

Clusters

Develop emerging clusters, typically built around the country’s traditional industrial sectors.

Integrate with some of the stronger clusters in the Nordic region, such as:

Food processing. Logistics. Forest products. Textiles and apparel. Automotive components. Telecommunications.

Compare Estonia’s success with that of Chile. What are the similarities? What are the differences?

Question 2

Estonia vs Chile

Similarities Econom

y crisis due to political turmoil

Free-trade market and bilateral trade agreement

Conduct structural reforms, liberalization in domestic market, and sharp reduction in trade barriers

Estonia vs Chile (cont’d)

Differences

Estonia•No significant energy and mineral reserves

Chile•Mineral-rich•world’s largest copper reserve•Second largest lithium reserves

•Medium income country

Estonia vs Chile (cont’d)

Differences (cont’d)

Estonia•Has a long history in IT and telecommunication

Chile•Agriculture•Has a long success history in wine making industry

Estonia vs Chile (cont’d)

Differences

(cont’d)

Estonia•After the civil demonstration against Russia’s military, the civil society governs Estonia.•No military approach.

Chile•The military government to stabilize the political situation (Pinochet declared a state of emergency that gave government draconian powers).

What are the issues facing Estonia in 2002?

Question 3

• The country was sometimes used as a test market for new

technologies by companies such as Erickson and Nokia. The IT and telco clusters grow faster among the Baltic Countries.

What recommendations would you make to Estonia’s leaders?

Question 4

Recommendations to Estonian Leaders

Balancing development

between bank & other financial

institution.

Defending competitive advance or

high technology in all sectors.

Vasten the export area to get more powerful

trade.

Increasing FDI to create

jobs.