TALLINN - Having emerged from the "equal-membership era" in the Soviet Union's industrial landscape, when each had to compete for a finite number of industrial projects, the Baltic states understand that much of their manufacturing success in the future lies in the high-tech sector. But despite the recent development of knowledge-based companies and university spin-offs, the Baltics' manufacturing sector continues to be dominated by the traditional wood processing industry.
Researchers from Tallinn's Techinical University are already warning that investments in the low-tech sector may cost Estonia the high price of facing an economic crisis. Professor Jaak Leimann has said that despite firm macroeconomic indicators, Estonia could suffer in the near future if it remains a country producing cheap and simple products with a relatively low-qualified labor force. One of the most alarming indicators named by TTU researchers: salaries have grown faster than local companies' productivity.
Experts from the Ministry of Economic Affairs and Communications point out that Estonia maintains a strong territorial concentration of industry 's in Tallinn, neighboring Harju County, and the northeastern Ida-Viru county. A number of recent projects 's the electronics assembly unit planned by a local branch of Swedish Pharmadule AB and the huge Estonian Cell cellulose plant planned in Laane-Viru county 's have bucked the trend. Both projects utilize cheap land and available human resources found in the countryside.
In general, the manufacturing sector has been the largest contributor to Estonia's GDP since 2001, when it overcame the real estate, renting and business service sectors, according to the statistical office. Manufacturing activity amounted to 17.7 percent of Estonia's 8 billion euro GDP in 2003, with real estate and business services coming in second with 16.7 percent, and transport, storage and communications third with 15 percent.
By comparison, in 1989, when the large industrial enterprises were still servicing the Soviet economy, the share of manufacturing in GDP was as high as 35 percent.
Like in Latvia and Lithuania, the forestry and wood-processing industries 's accompanied in less extent by the machinery industry 's is the driving force behind Estonian exports. Analysts have noted that profitability in the first quarter of 2004 increased thanks to higher prices for wood. While forestry sector output depends upon government-issued forest cut quotas, both the forestry and wood processing industries remain a lucrative business.
In Latvia the situation is similar, with forestry and wood processing accounting for 17 percent of GDP, followed by machinery and electronics (12 percent), metal processing (11 percent), textile (11 percent), paper, publishing and printing (8 percent) and chemicals and pharmaceuticals (5 percent). What's more, the government's new export development program for the next five years is likely to encourage more wood-based value-added manufacturing projects. (See story on next page.)
Lithuania's Ministry of Economy has noted a slowdown of investment rates in the manufacturing industry so far this year. This, in turn, could have a negative impact on the competitiveness of textiles and chemical products, say ministry officials.
For now, however, the production lines are busy. From January to May 2004, industrial output in Lithuania grew 13.4 percent, while in Estonia and Latvia the growth was 7.9 percent and 8.1 percent respectively. Comparatively, wood products and furniture are the fastest growing segment in the sector.
Dalius Jarmalavicius, financial director of Klaipedos Baldai, one of the country's leading furniture producers, said that the wood processing and furniture industry would most likely keep growing in Lithuania.
Klaipedos Baldai creates original design furniture for the domestic market and can offer the same service in case of outsourcing. However, the company's major partners, such as IKEA, set their own design requirements.
In Jarmalavicius' opinion, the reason for the demand of Baltic wood products and furniture comes in its balance of price and quality. About 90 percent of Klaipedos Baldai's production is exported, and a majority of Lithuanian furniture producers work the same pattern.
"Of course it is not Nokia, but we have a wide model range. We must employ many people, and the use of machinery is limited in our business," Jarmalavicius says.
"We grow and thus the Lithuanian economy grows," he adds.
