Estonia

Overview

According to an Estonian motto “A little fish is supper for a large fish.” Estonia, the little fish, has been supper for much larger fish – Russia, Germany and Sweden – many times in its history. But since reclaiming its independence in 1991, this little fish has grown up, establishing itself as a high-income country with full membership of the EU and WTO. Estonia’s overall ranking on the Wake-Up 2050 Index is so-so: twenty-first out of thirty-five countries, it is below the UK but above Spain. Its main strengths are in knowledge and resilience, while it has weaknesses in demography and innovation.

Strengths

Estonian children perform very well in global comparisons of educational standards.  They now exceed the Finns, with only the Japanese doing better. This will help ensure that future workers have the skills needed to thrive in the global economy.

Estonia’s economy is very open, and as a member of the EU and Eurozone, presents itself as a convenient location for trade between Europe and the Middle East or Russia. It is ranked as having some of the fewest barriers to trade and investment among all countries studied – better than in both Finland and France. Historically strong in the production of machinery, equipment and wood, increasingly it is a location for digital businesses, such as TransferWise, attracted by the skilled workforce and excellent infrastructure. Its success as a trading nation is reflected in its levels of trade which are comparable to that in the Netherlands and twice the level of Finland.

It also offers a resilient economic environment. With an economic freedom ranking comparable with the UK, it has low direct taxes and a light regulatory burden.   A period of austerity has resulted in the lowest levels of government debt of all countries studied. Remarkably, household debt has also remained low; in relation to GDP it is half the level of Canada. This means that both the Estonian government and households are in a very strong position to cope with an adverse change in economic circumstances.

Weaknesses

Life expectancy in Estonia is relatively low: just 67 compared with 71 in the UK. Coupled with relatively high rates of obesity and a low birth rate, there may in future be an increased burden on the workforce to meet the future healthcare needs of the population.

Another area of concern is the level of productivity of its workers which is one of the lowest in Europe. On average, Estonian workers produce only half what Danish ones produce in the same time period. This is particularly concerning for a country that is heavily reliant on international trade.

Perhaps of most concern is the level of innovation which, despite the push into the digital economy, is rather low. Patent applications are running at a quarter of the rate of Ireland, while investment in research and development is just half the level in Germany. This suggests that Estonia is currently destined to be a technology follower rather than a leader, even if many of its digital businesses succeed in disrupting old business models.

Fact File

Population: 1.32 million (OECD, 2014)

GDP: $ 38 billion (OECD, 2015)

GDP per capita: $28,940 (OECD, 2015)