Estonia looks for Ukraine to replace Russia

  • 1998-10-01
  • Urmas Maranik
TALLINN - Continuing economic hardship in Russia, Estonia's third largest export partner, could force Estonian businesses to look toward Ukraine as a possible substitute for the Russian market.

Estonia and Ukraine signed a free trade agreement in 1995, and with the latter's population of 50 million, experts say it could prove a boon to ailing Estonian exporters.

"The Russian markets have always looked unstable, and we have been emphasizing the fact that total orientation to the East could become consequential," said Jaanus Hiiemae, head foreign trade specialist at the Ministry of Economics.

Still, Hiiemae has said most local producers have been slow to look to Kiev for help.

"We have done quite a lot of preparation work to open up the markets of the Ukraine for the local companies, but they have been slow to react," Hiiemae said. "And besides the Ukraine, Estonia has recently made free trade agreements with Poland, the Czech Republic, Slovakia, Slovenia and Belarus."

Hiiemae may not have to wait much longer for producers to catch on. According to government figures, trade volume between Estonia and Ukraine has more than tripled over the past four years, though the balance has remained positive for Estonia. Estonia's economy is also more developed, which gives Estonian products a competitive edge both in terms of quality and production expenditure.

In 1997, exports to Ukraine accounted for 4.93 percent of all Estonian exports, the sixth largest export partner for Estonia. In the first half of 1998, the large former Soviet country has become Estonia's fifth largest export partner.

"The exports have increased by 52 percent in the first six months of this year compared to the same period in 1997," Hiiemae said . "The imports have meanwhile taken an even bigger jump of 67 percent upwards during the same period."

But Ukrainia's imports have never been that significant for Estonia. In 1997, these products accounted for only 1.02 percent of all imports into Estonia. The Ukraine ranked only 20th on Estonia's import partner list.

Estonian-Ukrainian Investments

Ukraine was the 25th largest foreign direct investor in Estonia in first quarter 1998, which places the country third among central and Eastern European countries, according to information from Bank of Estonia.

As of March 31, total Ukrainian direct investments since 1992, which do not include stock and portfolio investments, had amounted to 42.8 million kroons ($3.4 million).

Estonian companies have invested 4.3 million kroons in Ukraine, which makes up 1.5 percent of Estonia's total direct investments abroad. Companies investing in Ukraine have been aluminum profiles manufacturer Rannila Profiil, industrial glass producer Lasita, bathroom interiors producer Balteco and the Uhinenud Meiereid.

According to the Ministry of Economics, Estonia and Ukraine are planning to establish trade organizations in October.

Rough sailing

Unfortunately, Hiiemae also acknowledged that a souring of relations between the two nations could be an impediment to further trade.

"The size of Ukrainian markets would be sufficient for Estonian companies to find customers to replace those lost in Russia," he said. "But recently, Ukraine has seriously breached the free trade agreement and interfered in the movement of goods."

The major problem is Ukraine's import taxes on Estonian goods, which the Ukrainian government began slapping on this year, Hiiemae said.

To solve these disagreements, the two countries have planned a meeting in October or November.

"Estonia is about to become a member of the World Trade Organization, as well as the European Union. Ukraine is keen to become a member of these two structures as well," Hiiemae said. "And if the upcoming talks in October or November will bring no results, we can use these two aspects to exert political pressure on them, because WTO consensus is required to accept new members."