Enterprises want export guarantees and more dialogue between the government and banks

  • 2009-11-25
  • By Liina Lelmi

Indrek Nuume, member of the Board, LHV Bank. LHV Bank has a 10% market share in Estonia.

TALLINN - Businessmen say that banks have started to increase slightly their lending to companies. Estonian exporters are facing difficulties, since international credit institutions address the three Baltic countries as a whole, and do not differentiate between individual states for guarantees. The Estonian government has therefore thrown out an anchor to exporters in the form of guaranteeing export activities through Kredex, the Credit and Export Guarantee Fund.

“The government has done a good job with Kredex and the Rural Development Foundation MESA,” says Indrek Nuume, Member of the Board of LHV Bank, as he lists the efforts of the Estonian government to boost bank lending. “Today’s liquidity of European banks is definitely better than a year ago. But the financial crisis has made banks more prudent,” Nuume adds.
“We as an exporting company will fulfill the criteria for being viable [to receive] Kredex guarantees starting from next year,” says Raivo Holm, CEO of AS Year, a men’s design and quality clothing producer. “Some time ago banks were an obstacle for entrepreneurs, [providing] too little lending. Now that banks have some more money to lend, it is the international credit institutions that exacerbate the situation with no guarantees,” he says, expressing an insider’s view of the industry. AS Year exports 80 percent of its production; 20 percent of sales count for domestic sales in Estonia, Latvia and Lithuania. During the boom years, on the other hand, the biggest problem for exporters was the flow of the workforce moving towards the booming sectors of the economy – real estate and retail, mainly, where the salaries grew at a rate of 10 – 15 percent per year.

Holm sees entry into the euro area as one of the solutions for businesses. One cannot blame only banks for the boom, he says, since banks are for-profit organizations by definition. “What the government can do to ease the situation is to keep an active dialogue with banks,” he suggests. Holm is more worried about the agriculture industry, where farmers have to face strong competition from a heavily subsidized European market and he fears that if action is not taken by the government, the next unemployment wave will come from this sector, causing a chain reaction in other sectors in the countryside.
Tauno Vanaselja, head of the corporate finance division at Swedbank, confirms that entry to the euro area would have a positive impact on the country’s reputation and would positively influence investors. “We would like to see more interest from entrepreneurs in applying for loans for their sustainable projects,” he continues. The first half of 2009 witnessed a small rise in giving out loans to enterprises, according to Swedbank.  

Toivo Ninnas, chairman of the AS Tallink Grupp supervisory board, one of the largest passenger and cargo shipping companies in the Baltic sea region, sees a future in creating a more favorable tax environment for entrepreneurs. No country can survive without its entrepreneurs, and their work must be appreciated. He strongly supports working steadily for euro area entry and finds it the right path for the Estonian economy. “Nonetheless, we should not sacrifice any of our enterprises,” he says. Raising VAT during crisis times is like helping troubled enterprises “drown” faster, he says. Many countries have recently lowered their taxes; Estonia should not “swim against the current.”

The times when the world economy was booming on cheap money and of Asian-Indian rapid economic growth are over. The only thing the Estonian government had left undone was to cool down the booming economy. Now Estonia looks towards Scandinavia for signs of a recovery, and to Finland most of all, as its first trading partner.
The third quarters’ economic slowdown was 15.3 percent in Estonia, slightly less than in the second quarter. The president of the Bank of Estonia, Andres Lipstok, was probably right when he claimed in August the economy had already, most likely, been through the bottom of the economic U-shaped downturn.

Leev Kuum, the leading scientist at the Estonian Institute of Economic Research, sees 1 – 3 percent economic growth for the next year. “The recovery will take 3 - 4 years, probably, in order to return to the standard of living of 2007,” he forecasts. The Estonian economy will follow the trends of its main trading and export partners, Finland and Sweden. Estonia has strong economic and cultural ties with Finland most of all, and when Finland’s economy will stabilize the Estonian economy will also undertake the path of more sustainable growth again, expects Kuum.

According to Statistics Estonia, the main exporting partners in 2008 were Finland, Sweden, Russia and Latvia. “It is a fact that the world economy is recovering,” says Kuum, sounding more optimistic towards the future.

"
"