PM: Era of production with favorable input prices over for Estonia

TALLINN – The era of production with favorable input prices is over once and for all in Estonia and the only way to emerge victorious from the crises is to make society and the economy significantly more knowledge-based, Prime Minister Kaja Kallas said in her presentation on research and development in the Riigikogu on Tuesday.

The war started by Russia has caused a shock in the global economy, which has hit our region particularly hard, the prime minister said.

"We already managed to get used to the idea that our prosperity and productivity will just keep increasing. Unfortunately, when the war broke out, they dropped to the levels of a few years ago," Kallas said.

She noted that Estonia has reached the same level of costs as the wealthy countries, but productivity has decreased compared to the wealthier countries.

"The current difficulties also offer new opportunities for development and innovation," the premier said. "Our target to reach 3 percent of GDP in research and development is more important than ever in these challenging times."

Despite the exceptionally difficult fiscal situation, the government decided to increase the amount of money allocated to research and development in the state budget, with 409 million euros in the 2024 budget, 23 million euros more than last year, in order to move towards the 3 percent target.

The head of government pointed out that in Estonia, the growth in research and development investments has been driven by the private sector for several years. An increasing number of Estonian companies see opportunities in research and development to improve their competitiveness. While last year we were pleased with statistics that the private sector's investments in research hit a new all-time high of 308 million euros, the following year, despite challenging times, investments by businesses grew to 361 million euros.

The prime minister also highlighted Estonia's rise to the 16th place in the global innovation index, and Estonia being the number one in four indicators.

"In order to help companies come up with innovative products, the state will strengthen services and subsidies. The applied research program helps companies to hedge the risks associated with development activities. The Center for Applied Research provides more sustained support to the areas with the highest business potential. Various business accelerators, such as NATO's DIANA or the Creative Destruction lab, provide development support to early-stage tech companies. The innovation staircase gives entrepreneurs the opportunity to assess the current state of their development, while the state has the opportunity to understand which innovation services entrepreneurs need the most right now," the premier said.

In funding of research, the government is moving towards a cross-ministry research program with uniform rules.

"We hope that this will help support the search for solutions to major societal issues through collaboration between researchers and practitioners," Kallas said. In 2023, the Government Office initiated a public sector innovation fund, which supports innovative solutions and their testing in collaboration between the government, researchers, and businesses. For example, the Ministry of the Interior and the Emergency Response Center are developing a new generation emergency response system. Currently, assistance is provided to those in distress either through a call or a text message, but this may not be suitable in every situation, especially for individuals with special needs or victims of close relationship violence.

The prime minister emphasized the need for the public sector to have more courage to try new things.

It is also a time for new beginnings in academia, with 10 new centers of excellence to be launched. For the first time, one of the three criteria for their selection was their impact on society, which means that more businesses, public authorities and other partners will be involved in their work.

In conclusion, the premier said that Estonian science remains strong and competitive and is on course for greater societal impact.

"As a country, we have ensured the stability of research funding and innovation-enhancing services for the private sector. Growing research and development volumes suggest that a change is taking place in the thinking and business models of businesses, and this will also help the economy to emerge from the crisis stronger. The goals that we have set ourselves for 2035 have not lost their relevance, rather have become more important, which indicates good work in setting goals," she added.