The Estonian Economy and Foreign Direct Investments

Tallinn 19 April, 2007

Stefan Andersson

Enterprise Estonia

Estonia at a Glance

PopulationAreaLanguageCurrencyGDP per CapitaGDP GrowthExport

1.34 million45,000 km2

EstonianEUR 1 = EEK 15.6466 9 800 EUR11.4 % (2006)58 % of GDP (2006)

                                                                        

                                                                        

                                                                        

Population in the Baltic Sea Region

Denmark 5.4 million

Sweden 9.1

Finland 5.3

Norway 4.7

Germany* 6.3

Poland** 38.1

Estonia 1.3

Latvia 2.3

Lithuania 3.4

Russia*** 7.2

TOTAL 80-85 million

*Schlesw.-Hol, Meckl-VP, Hamburg

** Entire Poland

***St Petersburg, Kaliningrad, Len. oblast

Flight Connections flights/week flight hours

Helsinki 49 0.5Stockholm 32 1.0Vilnius 21 1.5Copenhagen 19 1.5Oslo 18 1.5Riga 16 1.0Prague 14 2.0Amsterdam 14 2.5London 13 3.0Frankfurt 12 2.5Berlin 9 2.0Warsaw 7 1.5Brussels 7 2.5Göteborg 61.5Palanga 5 1.0Hamburg 42.0Paris 4 3.0Vienna 4 1.5Moscow 3 1.5Barcelona 34.0Milan 3 3.0Kiev 3 2.0Dublin 2 3.5Dubrovnik 2 3.0Simferopol 2 3.0

Source: Tallinn Airport,Summer 2007 timetable

Map of Estonia

Stable Business Environment

EU and NATO Membership.

Low Tax Level.

Flexible Labour Market.

EURO-pegged Currency.

Balanced State Budget.

Equal Treatment of all Investors. Low State

Intervention.

GDP Growth Q4 2006

3,2

3,5

4,4

4,5

5,8

6,9

7

10,9

11,7

0 2 4 6 8 10 12 14

Hungary

Germany

Sweden

Finland

Czech Republic

Lithuania

Poland

ESTONIA

Latvia

%

Source: EUROSTAT

4,4

11,1

4,4

0,3

7,9

6,57,2

6,77,8

9,8

11,4

-5,0

0,0

5,0

10,0

15,0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

-10

-5

0

5

10

15

20

25

30gdp growth

inflation

GDP Growth and Inflation 1996-2006

Source: Statistical Office of Estonia

Natural Resources

Timber: 2 mln ha, 48% of Estonia covered by forest Wood-processing industry closely connected to the

Scandinavian forestry companies

Energy Oil shale reserves 1,8 bln tons. Annual

production 14 mln tons. 80% for electricity production.

Average Gross Salary in Estonia, (EUR/Month)

0

200

400

600

800

1000

1200

2000 2001 2002 2003 2004 2005 2006f

All Industries

ManufacturingIndustry

FinancialIndustry

Source: Statistical Office of Estonia

Knowledge Intensive Jobs(% of all jobs)

24%

22.2%

22.8%

23.9%

24.7%

24.7%

26.4%

30.9%

0% 5% 10% 15% 20% 25% 30% 35%

Bulgaria

Slovenia

Czech Republic

Slovak Republic

Latvia

Lithuania

Hungary

ESTONIA

Source: European Commission

Taxes in Estonia

22%

22%

20%

18%

13%

0%

0% 5% 10% 15% 20% 25%

individual income tax

tax on dividends

social insurance

vat

health insurance

corporate income tax *

unemployment insurance 0.3 (employer) 0.6 (employee)

* no corporate income tax on reinvested earnings

Source: Enterprise Estonia

Corporate Income Tax Rates in Eastern Europe, 2007

0%

15%

15%

16%

16%

19%

19%

24%

24%

25%

0% 5% 10% 15% 20% 25% 30%

ESTONIA

Lithuania

Latvia

Romania

Hungary

Poland

Slovak Republic

Russia

Czech Republic

Slovenia

Source: Enterprise Estonia (www.worldwide-tax.com)

Corporate Income Tax Rates in Europe 2007

0%

24%

25%

26%

28%

33%

33%

38%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

ESTONIA

Denmark

Austria

Finland

Sweden

France

Italy

Germany

* no tax on reinvested profits

Source: Enterprise Estonia; WIR 2005

IT development in Estonia

• e-elections (local 2005, national 2007)• e-government project (august 2000)• e-tax board - income tax statements can be filled out via internet (spring 2001) • digital signature act came into force (december 2000)• 90% electronic transactions, 80% of the population using internet banking (end 2005)• e-billing (july 2000)• world´s first MPS project for society (may 3, 2000)• mobile parking (july 1, 2000)

Networked Readiness Index 2006 - 2007

1. Denmark

2. Sweden

3. Singapore

4. Finland

5. Switzerland

6. Netherlands

7. USA

8. Iceland

9. United Kingdom

10. Norway

16. Germany

20. Estonia

23. France

28. Portugal

30. Slovenia

32. Spain

39. Lithuania

42. Latvia

Source: World Economic Forum

internet users per 100 inhabitants 2005

15,19

25,95

29,71

35,67

38,97

44,65

45,35

49,97

51,92

52,55

62,88

63

75,46

0 10 20 30 40 50 60 70 80

Russia

Poland

Hungary

Lithuania

Norway

Latvia

Germany

Czech Republic

ESTONIA

Denmark

UK

Finland

Sweden

Source: International Telecommunication Union

mobile phone subscribers per 100 inhabitants 2005

75,7

81,13

83,62

92,3

93,31

95,78

99,66

100,71

102,16

102,9

108,75

115,22

127,1

0 20 40 60 80 100 120 140

Poland

Latvia

Russia

Hungary

Sweden

Germany

Finland

Denmark

UK

Norway

ESTONIA

Czech Republic

Lithuania

Source: International Telecommunication Union

Index of Economic Freedom

Rankings 20071. Hong Kong2. Singapore3. Australia4. United States5. New Zealand6. United Kingdom7. Ireland8. Luxembourg9. Switzerland10. Canada

11. Chile12. Estonia13. Denmark16. Finland21. Sweden22. Lithuania30. Norway31. Czech republic41. Latvia45. France60. Italy

Source: Wall Street Journal; The Heritage Foundation

Ease of Doing Business Ranking 2006

1. Singapore

2. New Zealand

3. USA

6. UK

7. Denmark

10. Ireland

11. Japan

13. Sweden

14. Finland

16. Lithuania

17. ESTONIA

21. Germany

24. Latvia

35. France

36. Slovakia

52. Czech Republic

61. Slovenia

66. Hungary

75. Poland

96. Russia

Source: World Bank Group

Growth Competitiveness Rankings 2006-2007

1. Switzerland2. Finland3. Sweden4. Denmark5. Singapore6. USA7. Japan8. Germany9. Netherlands

10. United Kingdom12. Norway18. France25. Estonia28. Spain29. Czech republic36. Latvia40. Lithuania41. Hungary48. Poland

Source: World Economic Forum

Corruption Perception Index 2006

1. Finland

1. Iceland

1. New Zealand

4. Denmark

5. Singapore

6. Sweden

7. Switzerland

8. Norway

16. German

18. France

20. USA

24. ESTONIA

28. Slovenia

41. Hungary

45. Italy

46. Czech Republic

46. Lithuania

49. Latvia

61. Poland

163. Haiti

Source: Transparency International

Capital Hospitality Index 2006

1. Denmark

2 - 3. Finland

2 - 3. Iceland

4. USA

5. UK

6. Singapore

7 - 8. Australia

7 - 8. ESTONIA

9. Ireland

14. Norway

16. Germany

18. Sweden

21. Japan

22. Latvia

29. Lithuania

31. Slovenia

32. Slovakia

33. Czech Republic

35. Poland

37. Hungary

Source: Forbes

Foreign Direct Investments (FDI)

Equal Rights with Local Businesses

Right to Purchase and Own Land*

Unrestricted Profit Repatriation

* Approval needed when acquiring more than

10 ha of land

FDI into Estonia 1997–2006

495,5

2348.5

838822.2

306.8

602.7424.7

284.3

515.9

236.1

0

500

1000

1500

2000

2500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

EUR million

reinvested earnings

Source: Bank of Estonia

FDI Stock in Estonia, by country, as of 31 December 2006

Russia2,3%

Latvia1,9%

Netherlands2,7%

Denmark1,5%

Norway2,5%

Germany1,3%

UK3,1%

others12,1%

Finland21,2%

Sweden51,4%

total stock 12.39 billion EUR

Source: Bank of Estonia

FDI Stock in Estonia, by Activity, as of 31 December 2006

others3,8%

electricity, gas and water supply

2,0%

other community, social and personal

services8,3%

wholesale and retail trade8,0%

manufacturing14,0%

transport, storage and communication

5,2%

real estate, renting and business

activities13,2%

finance45,5%

total stock 12.39 billion EUR

Source: Bank of Estonia

regional distribution of fdi, end 2005

Tartu1,2%

Pärnu0,7%

Narva0,4%

Ida-Viru county0,4%

Lääne-Viru county1,2%

Harju county1,9%

others15,3%

Tallinn78,9%

Source: Bank of Estonia

fdi per capita, (stock, USD)

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1995 2000 2001 2002 2003 2004

Sweden

Finland

Estonia

Hungary

Czech Republic

Latvia

Lithuania

Poland

Russia

Source: UNCTAD

Estonian Exports and Imports 1997 – 2006

Source: Statistical Office of Estonia,special trade method

2.6

3.9

2.9

4.3

2.8

3.93.4

4.63.7

4.8

3.6

5.04.0

5.7

4.7

6.2

8.27.6

10.3

0123456789

1011

EUR billion

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

exports imports

Estonian Exports by Country, 2006 January-June

Source: Statistical Office of Estonia,special trade method

Germany5,1%

Gibraltar4,6%

Lithuania4,8%

USA6,7%

Russia7,9%

China2,8%

Norway2,7%

Others26,1%

Latvia8,8%

Sweden12,0%

Finland18,5%

total: 7.6 bln EUR

Estonian Exports by Commodity Groups, 2006

textile products 5,0%

chermical products 4,0%

prepared foodstuffs 3,0%

plastics and plastic parts 3,0%

others 12,0%

agricultural products and food preparations

6,4%

micsellaneous manufactured articles

8,0%

metals and articles of metal 8,1%

wood and articles of wood 9,8%

mineral fuels 16,0%

machinery and appliances 23,6%

Source: Statistical Office of Estonia,special trade method

total: 7.6 bln EUR

Estonian Imports by Country, 2006

The Netherlands3,6%

Poland3,8%

Latvia5,6% Lithuania

6,2%

Sweden8,6%

Germany12,4%

Italy2,6%

Denamrk2,3% Others

23,2%

Russia13,4%

Finland18,3%

Source: Statistical Office of Estonia,special trade method

total: 10.3 mio EUR

Estonian Imports by Commodity Groups, 2006

articles of rubber and plastic4,9%

textile products5,3%

chemical products6,7%

agricultural products and food preparations

7,3%metals and articles of

metal9,7%

wood and articles of wood3,3%

others10,1%

transport equipment12,2%

mineral fuels14,9%

machinery and appliances

25,6%

Source: Statistical Office of Estonia,special trade method

total: 10.3 mio EUR

Industrial Structure

publishing, printing4,7%

non-metallic mineral products

5,2%

chemicals and chemical products

4,4%

rubber and plastic products

4,3%

others24,0%

textiles6,6%

furniture7,7%

metals and fabricated metal products

9,0%

wood and wood products16,4%

food products and beverages

17,7%

Source: Statistical Office of Estonia

Major Foreign Investors

Swedbank

SEB

TeliaSonera

Tele2

Elisa

Stora Enso

Hallberg-Sekrom

Autoliv

HK-Ruokatalo

Atria

Larvik Cell/Heinzel

Maersk

Borås Wäfveri

Tolaram Grupp

Severstaltrans

Citycon

Major Foreign Investors

– general and industry specific information about Estonia and its investment and business (subcontracting and trade) opportunities

– useful contacts with the public and private sector (utilities, law firms, consultants, recruitment, industrial real estate, …)

– legal matters (how to establish a company, visa and residence permit questions, etc)

– arrangement of company visits– assistance in finding industrial property