TALLINN-RIGA - While Estonia placed relatively high in the recent world competitiveness ranking report at No. 22, Latvia made an impressive leap from No. 45 last year to No. 29.
The study, released Oct. 30 by the World Economic Forum, included 102 countries - up from 75 last year - that account for 98 percent of the world's GDP. Rankings are based on statistical analysis and the opinions of 7,741 business executives and entrepreneurs in those countries.
Andrus Viirg, senior consultant of Enterprise Estonia, said that Estonia, which moved up five places from the previous year's report, did well in terms of budgetary and monetary policy and free trade.
"However, Latvia is making major progress and is catching up with Estonia," said Viirg.
The consultant gave a twofold explanation for Latvia's leap. First, the Latvian government was giving "considerable support to the country's enterprises," and second, it had set up "a favorable tax regime in which corporate income tax has been cut from 24 percent to 15 percent in a year."
As far as Estonia, Viirg said that its ranking showed the Baltic state in a good light and would help boost its image in the eyes of potential investors. "It shows that we are equals among European countries," he said.
Because Estonia does not tax reinvested profits made by companies, the country's corporate income tax rate is effectively nil.
Meanwhile, Estonia's neighbor and largest investor, Finland, was named the world's most competitive economy by the report.
"Finland is in the top place because the state supports technological development. Unless Estonia starts doing the same thing, it will be very difficult for us to catch up with them," he said, adding that it would take at least 20 years for Estonia to reach its neighbor's competitiveness level.
Viirg explained that while at present Estonia spends less than 1 percent of GDP on research and development, the level should increase to 1.5 percent by 2006.
"In Finland, the current rate is over 3 percent," he added.
Worldwide, the best-performing countries according to the World Economic Forum were Scandinavian. Along with Finland, Sweden, Denmark and Norway placed in the top 10 at third, fourth and ninth, respectively. Iceland was eighth.
All five countries have high levels of technology usage, stable finances and low corruption, the report said.
