Estonia offering competitive edge

  • 2003-01-16
  • Kairi Kurm

The Estonian Investment Agency said that even though it expects a couple of major projects in 2003, total foreign direct investment will probably not exceed the record 9 billion kroons (570 million euros) achieved in 2001.

"The results of last year were very weak. It is difficult to say what 2003 would bring," said Andrus Viirg, head of the Estonian Investment Agency. "A lot of investments will be made in the transit and heavy industry sector this year," he added.

By September 2002 Estonia had received 3 billion kroons in foreign direct investments. This year, considering that Finland's Stora Enso Timber agreed to buy Sylvester, Estonia's largest sawmill, at the end of 2002, total foreign direct investments could reach 6 billion kroons by year's end.

However, this is far from the 8 billion kroons that the agency foresaw in its optimistic forecasts, said Viirg.

Viirg believes that the forthcoming accession to the European Union would attract more investments, but the current slack economic situation in Europe could slow it down.

He said that one of the biggest investments in 2003 is being planned by a Norwegian company preparing to build a cellulose plant in Kunda. The plant will cost about 2 billion kroons and create up to 200 jobs.

Russia's second biggest coal conglomerate, Kuzbassrazrezugol, is planning a coal terminal in the Port of Tallinn which will handle 5 million tons of coal a year. The investment will create 100 jobs, according to Viirg. The project will be completed by 2006 and be co-financed by the Port of Tallinn.

A third major project scheduled for the year is also transit-related. The Silmet Group, one of northeastern Estonia's heavyweight industrial players, is planning to open a cargo port in the coastal town of Sillamae. With an annual turnover of 10 million tons, the Sillamae port could become a competitor to the transit corridors of the neighboring countries and significantly raise living standards in northeastern Estonia.

The total cost of the project is about 600 million kroons, one-third of which will be state financed.

According to Viirg, Swedes have been the biggest investors in the last 10 years, comprising 42 percent of total investments, followed by Finns (26 percent) and Americans (9 percent).

Norwegians, however, have started to play an increasingly important role.

Besides the cellulose plant, the Norwegians are planning to build a $35 milling shopping mall - the biggest in the Baltics - near Tallinn Airport this year.

The massive project is to be carried out by the Norway-based developer Linstow International, which also owns a hotel chain in the Baltic countries.

Viirg said more emphasis this year would be put on introducing Estonia to Norwegians and Danes.

Tiina Link-Vain, head of the Norwegian Trade Council's Tallinn office, said that Norwegians had invested mainly in Estonia's retail and real estate markets.

"Estonians may think that Norwegians - as a Scandinavian nation - are generally aware of developments in Estonia, but this is actually not true," said Link-Vain.

She said that many Norwegians visiting Estonia were surprised in finding not a Soviet backwater but a fast-developed modern country with a very favorable cost level.

A number of Norway-based manufacturers are considering outsourcing their production activities to the Baltic countries as the Norwegian workforce has become too expensive.

According to Link-Vain, it does not matter to Norwegians who they are dealing with in the Baltics, and in this sense it is important that Estonia have a competitive advantage over Latvia and Lithuania, such as corporate taxation.

Also, publicly financed programs for cofinancing on capital improvements and employee training were also important factors for potential foreign investors.

Madis Rausi, business councilor at the Danish Embassy in Estonia, said that Danes had mainly invested in logistics through the Danish Maersk Group and in the wood and furniture industries.

He added that Danish companies were planning to open more warehouses and create logistics companies in Estonia in order to do business with the lucrative Russian market.

He also said that, like in Norway, Estonia was not known enough in Denmark.

To win over more foreign investors, Rausi said that Estonia should guarantee a stable economic environment and decrease bureaucracy and crime.

According to Viirg, there are no serious obstacles for foreign investors in Estonia, the main problem being the requirement of having at least one Estonian resident on the board of a company.

So far the most attractive sectors for foreign investors have been banking (27 percent), transport and communication (22 percent) and manufacturing (20 percent).