A4 cheat sheet for the Estonian economy 2024
127,000 company employees (totaling nearly 510,000 people involved in business; in addition to approximately 135,000 government officials and civil servants) go to work every morning to create added value. Collectively, they generate annual revenues of €80 billion across the country (which is smaller, for example, than Tesla Inc., founded about 20 years ago, with an annual turnover of €100 billion and 48,000 employees). On average, one company in Estonia has about 4 employees, and for every 4-employee company, there is one government official or civil servant.
Of the aforementioned 127,000 companies, 94% (120,000) have fewer than 10 employees, 7,000 companies have 10-100 employees, and only 540 companies have more than 100 employees. Each of these three different types generates approximately one-third of the total revenue. Therefore – it doesn’t matter how large the company is – all are necessary.
On average, they market two-thirds of their products in Estonia and export one-third, respectively worth €55 billion and €25 billion. The export of services showed an 8% increase in 2023 (compared to +25% the year before), while goods exports decreased by 10% (compared to +6.6% the previous year). Of the exported products, only 10% are innovative.
Estonia’s economy is closely linked to these companies’ ability to grow their brand identity and develop strong creative strategies to succeed both domestically and internationally.
State expenses exceed revenues by about €1 billion. Simplified, if there were no teachers (who cost about a billion), there would be no deficit. But they exist, and it’s good that they do. Education is a currency.
State budget expenditures break down as follows: social protection 33%; healthcare 16%; education 14%, and only then comes defense with 5%, etc. Our people are old and sick; they need care and support – that’s where much of our hard-earned money goes. This cannot be refused. The only way to remedy this situation is through massive strategic prevention work that serves the future.
State budget revenues are structured as follows: 35% social tax; 25% income tax; 25% VAT, and others. Companies create jobs, operate, and pay wages to employees, who then pay taxes on their salaries. People earn income, consume, and pay VAT – this is the cyclical dynamic of the economy.
We have a problem. Our costs in relation to revenues are too high. Estonia’s productivity amounts to 82% of the EU average. In other words – our productivity is low. In terms of GDP per capita, measured in purchasing power standards, Estonia lags nearly three times behind the EU leaders, Luxembourg and Ireland(!). Or, looking at it another way – we have a problem – our revenues in relation to costs are too low.
Would new rules and regulations help? New taxes? Higher taxes? Would this motivate entrepreneurs to invest more, create new jobs? Probably not. No. It’s inherently inhibitive. Less money in hand stifles consumption and doesn’t return to the system through new taxes. Instead, counter-cyclical fiscal policy suggests raising taxes during times of economic growth when tax willingness is higher. In tougher times, the state should rather support the economy through orders and by creating a better business environment and conditions.
What if we could raise our productivity to the EU average? Of course, who would oppose that – that’s where the missing billions come from. Let’s start. But… how?
The best prospect is to find a strategy – design, creative ideas, and branding – that will open the path for Estonian companies to foreign markets.
Our domestic market is limited, especially today when domestic consumption is declining. Therefore – we must be able to sell outside. Outside of Estonia. So why aren’t we selling, we ask without concluding the declaration? The added value of our products and services is not high enough. Complaining that input costs are high won’t help us. If we can raise the added value of our products and services to achieve export success, we’re on the winning recipe.
No, this doesn’t mean simply raising prices and assuming that foreign buyers will automatically perceive higher value and agree to pay a higher price for the same product or service. No-no. It requires a complex approach – a vision based on strategy for the market, a unique value proposition, a product or service with strong potential, an appealing brand, thoughtful design, etc. Like during Soviet times, remember the value (perception) of goods brought from abroad? Now we need to do the same thing, but the other way around – with a direction out of Estonia.