Estonian Economiс and Social Development — Is Estonia Really a Business Paradise?

Jul 7, 2021 · 4 min read

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We've talked a lot about different aspects of Estonian development here in our blog but never observed its economy from a bird's-eye view. The country's growth is intriguing and a strong European competition makes it even more interesting. In this article, we would like to make a brief overview of Estonian financial and social place among the European countries. Let's dive deeper into the nice world of statistics and digits!

Introduction in the Estonian World

But firstly let's look into Estonian geography and history. As you might know, the country is located in the Baltic region in Northern Europe and is bordered by Latvia, Russia, and the Gulf of Finland. Estonia has a short history of its independence — for centuries its territory had been a part of Denmark, Sweden, Germany, Russia, and the Soviet Union until the collapse of the USSR in 1991.

Today Estonia is a multiparty democracy, a member state of the EU since 2004 and eurozone member state since 2011. This lets the country take a significant part in the European economy and have certain financial and cultural interactions with other EU countries. Now Estonia is constantly highly-ranked by authoritative sources on the matter of economic growth, digitalization of public services for the country's impressive achievements with different governmental programs. Now let's see it in detail.

Basics: Estonian Economy and Society Overview

With a population of 1.3 million people, Estonia is considered a high-income economy by the World Bank. Estonia is in the middle of the EU countries ranking by GDP per capita with a $19,705 index. And the Estonian index is growing annually from the time of regaining its independence in 1991 (except for the small decline in 2009).

Estonia also has the smallest public debt among any EU country — 6% of the country's GDP (for instance, almost half of all European countries have 50%+ of GDP public debt).
Estonian GDP ranking by WorldBank from 1993 to 2019
Doubtlessly, Estonian economical achievements have a positive influence on the country's human development and living conditions. For example, the average monthly gross wage is more than €1,310 (comparing with €825 in 2008) and is constantly growing. Estonian average wage growth rates are higher than in many other EU states.

By the Human Development Index, Estonia gets ahead of such countries as Poland, Lithuania, and Latvia and has its #21 rank. Interesting that Estonia is often located in the middle of most European countries' lists and ranks by various estimates. At the same time, the country's growth rates surpass the most European developed countries' indexes. This indicates that Estonia is on its way to future development in different areas and has great points of growth and opportunities among a bunch of different EU countries.

The significant and highly-rising role in the country's economy plays IT sector. It's clear that the Estonian level of public services digitalization requires a lot of professional IT staff and infrastructure, support from local businesses. By the way, 9% of Estonian GDP takes the information and communication sector — the target sphere for the development from the side of the government.

Estonia in the Newest Rankings

Tallinn is #4 in the list of 'The 50 best startup cities in 2021' by Valuer. It is noted that the city 'offers is the digitalization of almost everything' and 'its tax system is also entrepreneurial friendly, having competitive rates at 21% with no double taxation on dividend income'. Tallinn skips forward only San Francisco, London, and Austin.

Estonia is #8 in the 2021 Index of Economic Freedom around the globe and #4 in the EU. This indicates that Estonia is one of the freest economies in the world. Also, it is said that the Estonian economy has long benefited from openness to foreign investment, facilitated by a transparent investment regime. In 2021, the financial sector remains stable and continues to expand.

Estonia is #11 in Global Countries Ranking of Startup Ecosystem by Startup Blink. From 2019 to 2020 Estonia moved two positions up and it seems the country will keep this tendency. Even now, Estonia surpasses the strongest European jurisdictions due to its highly developed startup ecosystem. By the way, not so long ago we've told you in the article about Estonian plans for the future development of its startup ecosystem — this is a very fascinating topic to the point.
The list of leaders in the startup ecosystem development
The strongest points of Estonia by the U.S.News. In this ranking, Estonia is not among the leaders but even here we can find out strong benefits of Estonia — openness to business and social purposes. The country gained this score thanks to the small amount of bureaucracy and corruption in the business sphere, different aspects of personal freedom and equality.

Estonia is #21 of 167 on the Legatum Prosperity Index. The country is among the leaders by the economic indicators: investment environment, enterprise conditions, and economic quality. Yes, there are sore points as health care, but researchers note that the biggest improvement compared to a decade ago came exactly in the sphere of health.
The more round and wide a graph the better. As you may see, Estonia has no deep flops — a nice indicator.
Estonia exceeds the average EU index in European Social Progress Index (74 points against 67). This is one of the most inquisitive statistics about Estonia. Let's briefly explore this big amount of data.
It's highly important to note that Estonia outstrips the medium EU score by the most indicators. The biggest gaps are in environmental quality, access to advanced education, and personal freedom and choice. Estonian sore points are health and wellness, medical care, tolerance and inclusion.

How Estonia Is Coping With COVID-19 Pandemic

The coronavirus pandemic hit every country in the world that had to handle this unexpected challenge. Mostly, the governments just aimed to prevent the worst scenarios. Estonia is not an exception.

According to the Invest in Estonia article, the performance of the Estonian economy in the first half of 2020 was better than expected. Estonian GDP reduced but not as significantly as it had forecasted the spring. Also, the deceleration in growth was slower than during the crisis of 2008 — an encouraging fact.

But what exactly helped Estonia to handle the crisis relatively well? Authors say that the main benefit of the Estonian economy is its high openness and that the economic performance of other countries had a substantial impact on it. Already in last year, after several months since the beginning of the pandemic, Estonia showed the indicators of recovery: retail and export started to recover in mid-2020.
The most deplorable situation with COVID-19 hit Estonia with the pandemic's second wave from February to April 2021. But now, in July, the new cases and death rates are constantly decreasing and more than 30 times less compared to the worst days in March.

The corona crisis has also helped to develop digital services of the country even further. Estonian government tried out serious measures to reduce the economic effects of the pandemic and now is more experienced with crisis handling. And so on, and so on.

Up-and-coming Estonia

Estonia is a quite controversial country in many aspects. By several indicators, it is on the third line of European development. However, this doesn't change a fact that Estonia is one of the best jurisdictions to start a new company in the EU.

The country's authorities understand the strongest points of future growth — business and startup spheres' evolution, talents and foreign investments' attraction, education development and so much more. And it's not only words but real actions, we see constant growth in the most important sectors for the country.

Enty believes in Estonia, that's why we've started our performance in this nice jurisdiction and want everybody to know that in Estonia we trust. If you want to incorporate your company here, visit our website. Enty also provides you with business processes automatization, accounting, banking and so much more!
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