The small country with big ideas

The small country with big ideas

If you had to pick a venue for an interview with the director of the Estonian Investment Agency, you could hardly choose a more fitting spot than Fahle.

Right beside Tallinn’s bustling international airport, this former paper factory was founded by a German immigrant called Emil Fahle who arrived here in 1895, aged 20, with just five roubles in his pocket. Today the factory he built houses some of Tallinn’s smartest new offices and apartments. It’s a building that epitomises Estonia’s internationalism, its industrial history and its high tech future.

Kristi Tiivas describes how her homeland can continue to grow and prosper. If Herr Fahle was still around, I’m sure he’d be all ears.

“We’ve always been the darling of the new Europe,” says Kristi, 36, who returned here from London five years ago, after the birth of her first child. “Look at any indices – corruption, ease of doing business, competitiveness – we’ve always been top of the list.” Facts and figures bear her out: Estonia ranks above Finland, Sweden, Germany or Britain for Economic Freedom; (1) Estonia is seen as less corrupt than Poland, Latvia or Lithuania; (2) unlike any of these countries Estonia charges no tax on reinvested profits, and today it’s reaping the rewards for its tough response to the Global Financial Crisis. “When Estonia chose the route of austerity, it picked the right route,” says Kristi.

Estonia’s Nordic business culture gave the country a head start over Latvia and Lithuania after independence, but now its Baltic neighbours are catching up. “Being a local production hub for bigger companies – this is the phase we’ve been through now, and where we are losing our advantages,” says Kristi. “We’re losing our competitiveness in the low cost area, so we’re looking for smaller investments. We’re looking to be higher up in the value chain.”

From Skype to TransferWise, Estonia has developed a reputation for innovation. The next step is forging closer links between business and academia, helping them develop new ideas together. Like Germany, Estonia is heavily export-dependent. Unlike Germany, it has a small population, so focusing on manufacturing isn’t a viable long term solution. “We do have lots of land but we’re seriously short of people. Manufacturing requires lots of people who are willing to keep pay levels low, and it’s increasingly hard to play in this league.”

Estonia is bigger than Denmark or Belgium by land mass, but its population is barely 1.3 million. The service sector now comprises about two thirds of the Estonian economy, but of all the new industries, Kristi believes Information Technology is uniquely important, even though it accounts for a relatively small slice of GDP. “This is where we are going and what we are growing,” she says. “Not just IT by itself, but as a booster for productivity. It’s not about making websites. It’s about using new IT solutions to make production more efficient.”

A dynamic IT sector creates an environment in which traditional industries can prosper. Kuehne+Nagel, one of the world’s largest logistics companies, have their IT units here.

“They liked the business environment,” says Kristi. You can see why. Even half a century of a planned economy couldn’t eradicate Estonia’s entrepreneurial spirit. “We were able to retain this way of thinking for 50 years,” says Kristi, with pride “Tallinn is a very Hanseatic city [a reference to the mediaeval north European trade network the Hanseatic League]. You feel the history and the mentality.”

Still a Hanseatic Port at heart, Estonia is home from home for lots of other multinationals, such as Ericsson and ABB. In a country with so few inhabitants, foreign investment is crucial, but Kristi is keen for Estonia to expand its business base beyond its immediate neighbours. The Estonian President’s recent visit to Japan, accompanied by a business delegation, was designed to bolster Estonia’s growing trading links with Japan.

The Japanese are particularly interested in Estonia’s expertise in cybersecurity and e-government. Estonian citizens can vote, access government documents and even sign contracts online. No wonder Kristi’s homeland is often nicknamed e-stonia nowadays. The Japanese are also coming to Estonia in growing numbers – as tourists as well as business travellers – thanks in no small part to the efforts of Kristi’s colleagues in Enterprise Estonia, who’ve worked hard to shake off Tallinn’s reputation as a stag night destination, and introduce foreign visitors to the other attractions the country has to offer.

“There are cheaper locations now in Europe that attract the bachelor parties,” says Kristi. Tallinn is the biggest passenger port in the Baltic, cruise tourism is growing, and independent travellers are venturing further afield. “In the past it was just two square kilometres in the Old Town of Tallinn where we had tourism,” says Kristi.

Now Estonia’s islands and national parks are more accessible for foreigners, and spa tourism is stretching Estonia’s brief summer season. When it comes to selling Estonia abroad, brand recognition remains the biggest obstacle. Kristi wants foreigners to associate Estonia with other Nordic countries, rather than just the other Baltic States.

Ultimately, Kristi believes Estonia’s modest population can be an asset, not a liability. In such a compact country, access to legislators is much easier to arrange. If Estonia is to thrive, every Estonian has to do the same job as Kristi – spread the word about Estonia, and build bridges with the wider world. “Being one in a million – literally – every Estonian has a chance to create an image of Estonia to the people that he or she communicates with,” she says. Ultimately, Estonia’s greatest resource is its people. After all, Venice never had a massive population but that didn’t stop it becoming a major economic power of the Renaissance “We want our people to be smarter, we want them to live better, and we want them to stay here until retirement,” says Kristi.

After independence, many of Estonia’s brightest citizens, like her, went west. Now, that first post-independence generation is coming home.