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ESTONIA IN TRANSITIONMuslimin (1006793990)
Haensri Jemy (
Located on the Baltic Sea, and offering a gateway to Russia
Where is Estonia?
Estonian History
Soviet Era (prior to 1989)• Poorest citizens in
Europe (did not improve after WW II)
• Economic decisions centralized in Moscow.
• No R&D, no Sales & Marketing functions
Perestroika (1989-1990)•Few manufacturing industries privatized
•However, sold only to ethnic Russians
Transition to Independence (1991)•Political turmoil and uncertainty
•Visible demonstrations against Russia’s military
Free country in 1991
Lack of constitution, democratic institutions, and a legal system;Obsolete and bad infrastructures;Below-western-standard banking sector;Economy crisis:
high inflation declining GDP, export halted, domestic demand feel, companies went bankrupt, unemployed skilled & unskilled people
Estonia as a free country in 1991
How has Estonia substantially improved its competitiveness, and performed so well compared to most other transition countries? How was Estonia able to advance so rapidly?
Question 1
Post-Independence Political & Economy Decisions
Open for trades and investments•Memberships of WTO and later the EU•Council of the Baltic Sea States (CBSS) in 1992•No exchange controls or restrictions on foreign investment
Transformations•Communist-led planned economy to western market economy•Pegged currency to German Mark (1992) and the Euro (2002)
Structural Reformations•Privatization of state-owned firms (incl. utilities)•Building modern infrastructures.•Simple tax system
Post-Independence Political & Economy Decisions (cont’d)
Business Environment
•100% literacy rate in Estonia•A state system offering good education for all in 9 + 3 year education system.
Education
•The Estonia Information Technology College was established in Tallinn in September 1999
Technology
•Modernized infrastructure.•Privatized utilities.
Infrastructure
Post-Independence Political & Economy Decisions (cont’d)
Business Environmen
t (cont’d)
•Banks played the dominant role in Estonia’s financial markets
Financial Markets
•Strong Exports.•Tax-free/customs-free zoneTrade•Foreign MNC significant contributed to exports
Foreign Direct
Investment
•develop a number of emerging clusters
Economy
Post-Independence Political & Economy Decisions (cont’d)
Clusters
Develop emerging clusters, typically built around the country’s traditional industrial sectors.
Integrate with some of the stronger clusters in the Nordic region, such as:
Food processing. Logistics. Forest products. Textiles and apparel. Automotive components. Telecommunications.
Compare Estonia’s success with that of Chile. What are the similarities? What are the differences?
Question 2
Estonia vs Chile
Similarities Econom
y crisis due to political turmoil
Free-trade market and bilateral trade agreement
Conduct structural reforms, liberalization in domestic market, and sharp reduction in trade barriers
Estonia vs Chile (cont’d)
Differences
Estonia•No significant energy and mineral reserves
Chile•Mineral-rich•world’s largest copper reserve•Second largest lithium reserves
•Medium income country
Estonia vs Chile (cont’d)
Differences (cont’d)
Estonia•Has a long history in IT and telecommunication
Chile•Agriculture•Has a long success history in wine making industry
Estonia vs Chile (cont’d)
Differences
(cont’d)
Estonia•After the civil demonstration against Russia’s military, the civil society governs Estonia.•No military approach.
Chile•The military government to stabilize the political situation (Pinochet declared a state of emergency that gave government draconian powers).
What are the issues facing Estonia in 2002?
Question 3
• The country was sometimes used as a test market for new
technologies by companies such as Erickson and Nokia. The IT and telco clusters grow faster among the Baltic Countries.
What recommendations would you make to Estonia’s leaders?
Question 4
Recommendations to Estonian Leaders
Balancing development
between bank & other financial
institution.
Defending competitive advance or
high technology in all sectors.
Vasten the export area to get more powerful
trade.
Increasing FDI to create
jobs.