TALLINN - While the coronavirus crisis has significantly impacted the daily functioning of the economy, it also provides opportunities for economic development for Estonia, economic expert and entrepreneur Raivo Vare wrote in the blog of the Estonian parliament's Foresight Center.
"Estonia is not rich enough to squander post-crisis economic growth opportunities. [In order to make use of them,] we need to know or predict post-crisis development trends. Changes will take place either way, and those who are the first to see the trends and make them work for their advantage will be the winners in this process," Vare said, and listed seven recommendations on how Estonia can remain competitive in the post-coronavirus world.
Firstly, Estonia needs to improve the quality of its participation in international supply chains, according to Vare. Changes in global economy provide an opportunity to improve Estonia's position in international supply chains. Estonia needs to enhance its scale and reach as the value chains providing supplies for production in Europe are vulnerable and have taken severe blows during the crisis. This has led to increased reshoring and nearshoring in supply chains and a trend to keep larger stockpiles in nearby areas as well as to greater clusterization in regional production and the creation of a logistical buffer needed for shortening supply chains, particularly in northern Europe. The Estonian state should make use of this trend through investments in cooperation with local businesses.
Secondly, Brexit should be used to expedite economic development and attract investments to Estonia. The process provides an opportunity to attract British businesses' EU-oriented units during the first couple of years of the Brexit process when the resulting crisis and increasing bureaucracy are still being resolved. For instance, Estonia can offer convenient and easy administrative processes for operating in EU markets through its e-residency program. Outside economic cooperation and regardless of Brexit, the United Kingdom's role in ensuring security in the Baltic Sea region as part of NATO still remains crucial.
Thirdly, Vare highlights the need to enhance economic cooperation with the Regional Comprehensive Economic Partnership (RCEP) created on Nov. 20 last year. RCEP covers close to 30 percent of the world's population and the global economy and its membership consists of Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Thailand, Singapore and Vietnam. Considering the growing importance of RCEP member states, particularly during the crisis, Estonia needs to make more of an effort to foster economic relations and trade with said states.
Fourthly, Vare recommends to boost economic cooperation with Estonia's neighboring states and leading western countries. Considering all circumstances and development prognoses for Estonia's easterly neighbor Russia and little reason to predict any major changes in the two countries' relations, Estonia should focus on continuously strengthening its economic ties with its other neighbors and leading western states through multilateral formats.
As a fifth recommendation, Vare highlights the need to boost the level of digitization and automation in the economy and significantly improve the availability of workforce needed for this purpose through training and inclusion of foreign labor. Without resolving labor shortage, Estonia will have difficulties taking part in the growth of digital service markets.
Vare additionally advises to use the European Union's green transition as an engine to boost Estonia's economic development. In Estonia, the green turnaround will have a particular impact through the contraction of the oil shale sector and key issues in this regard concern how to ensure the smoothest possible transition to the new conditions and how to stimulate the investments needed for the transformation in the structure of the economy. The coming four to five years will be of key importance for Estonia in this context.
Finally, Vare underscores the need to boost current strong economic sectors, such as the timber industry, IT and finance. In the timber industry, qualitative changes could be achieved through chemical processing of timber and the use of timber-based materials in construction, recycling and production of consumer goods. In finance, online service and fintech companies of Estonian origin have already achieved a global reach. Estonia's international image as a startup nation needs to be put to an even better use towards finding investment opportunities across the world.
These seven directions are areas requiring immediate action despite the continued coronavirus crisis as an early start in these fields could give the Estonian economy a significant competitive edge, Vare concluded.