Report: Estonia could become a hub for rare earth expertise

TALLINN - Interest among foreign investors in the expertise of Estonian companies and universities in the field of rare earth processing has grown, opening up strong opportunities for Estonia to become a European center of excellence, a report by the Expert Panel on Competitiveness to the Riigikogu on the state and outlook of the Estonian economy in 2025 says.

Urmas Varblane, chairman of the supervisory board of the Bank of Estonia and member of the Expert Panel on Competitiveness, suggested that Estonia could host a European rare earth processing center of excellence, similar to the NATO Cooperative Cyber Defense Center of Excellence.

"Foreign investors are actively seeking access to strategically important technologies, and one of the most notable examples is the newly opened magnet factory in Narva by Canadian company NEO Performance Materials. Around this investment, by leveraging the expertise of local companies and universities and responding to the European Union's high demand for critical raw materials, it is possible to develop a rare earth processing cluster in Estonia," Varblane said.

The importance of the magnet factory opened in Narva has also been emphasized by European Commission President Ursula von der Leyen. At the G7 summit this summer, she noted that permanent magnets produced in Estonia from rare earth elements symbolize the cooperation between Europe and its allies in pursuit of strategic independence. The development of rare earth elements is central to the EU's Critical Raw Materials Strategy, as they are essential, for example, for ensuring energy security.

Estonian experts point out in a competitiveness report that although Estonia surpasses the other Baltic states in spending on research and development, the gap with the Nordic countries remains large.

The report also highlights the concern that Estonian companies' investments in machinery and equipment are currently lower than in the other Baltic states, while investments in real estate are higher. Overall, however, corporate sector investments as a share of GDP are nearly equal across the three Baltic countries.

"The complexity of the Estonian economy and its exports is currently at a higher level than that of Latvia and Lithuania, but the differences in the development of the three Baltic states have deepened in recent years. For example, Lithuania's economy is now more diverse compared to the economies of Estonia and Latvia," commented Uku Varblane, a member of the Expert Panel on Competitiveness and head of research at the Foresight Center.

To meet their funding needs, Estonian companies primarily rely on bank loans. However, for financing innovative yet riskier projects, the private equity market -- especially the venture and private capital markets -- would be a better fit. The expert panel recommends that the Estonian state, acting as a significant anchor investor, should promote cross-border fund-of-funds initiatives, involving Nordic countries in addition to the Baltics.

According to experts, the main risk factor for the Baltic states and the European economy lies in changes to international trade policy, characterized by tariffs imposed by President Donald Trump and the resulting global uncertainty.

The Expert Panel on Competitiveness was convened at the initiative of the Riigikogu's economic affairs committee at the end of 2023 to analyze Estonia's economic competitiveness and outlook, and to propose ideas for improvement.

The Foresight Center is a think tank at the Riigikogu that analysis socio-economic trends and builds future scenarios. The center researches a range of topics in order to anticipate emerging trends and potential disruptions.