Estonian politicians are doing everything possible to make doing business almost impossible

The domestic market is small – all the country’s inhabitants are smaller than the population of the average European capital alone. Moreover, 20% of the population is below the poverty line. The country’s entire economy accounts for 0.03% of the world economy. It is worth adding that Estonia has also found itself in the trap of middle-income countries: to put it simply, our labor force is too expensive to sew panties, but too unskilled to produce and export high-tech products. If there was a big market nearby, Russia, then the fascistization of the country and its attack on Ukraine made this factor rather negative.

But this is where the restrictions beyond our control end. Next we will have to tell investors how Estonian politicians and authorities are doing everything possible to make doing business even more difficult, if not impossible. Here are some examples:

Electricity price

I don’t know what strategic ideas and goals occupy the minds of those who shape Estonian energy policy, but I do know that on November 14, electricity on the stock exchange in Estonia was 57 times more expensive than in Finland. And I can imagine that it is difficult to explain to an investor why they should locate their energy-intensive servers or production in Estonia, and not in Finland. Moreover, the problem of electricity prices is by no means a week ago. There is a problem, but no action. Business will swallow it. Households too. But not everyone is bad: the state-owned company Eesti Energia received a net profit of 109 million euros in the second quarter of 2024 on sales of 415 million euros. With such prices, being profitable is probably not an easy task?..

Labor force

She’s almost gone. Investors don’t need just anyone – they need qualified and motivated people. In November 2024, unemployment in Estonia is 6.9% of the economically active population (47,624 people). The highest unemployment rate is still in Ida-Viru County, where it is 12.2% (7013 people). But, please note, in private conversations with representatives of growing enterprises in Ida-Virumaa, I have heard more than once that “there are no employees among former power engineers: they have a lack of qualifications and motivation combined with unreasonably high expectations.” Then who will work in the future factories and businesses that investors should invest in?

Moreover, in recent years, the Estonian government has been actively funding retraining and advanced training programs. Significant sums have been allocated for their implementation, but there is no system that clearly understands its KPIs – not the number of courses, participants and initiatives, but the number of people actually employed as a result of training. And there are few of them!

In addition, the Language Department is also actively participating in the already small labor force market. After all, he has his own KPIs and, in his opinion, food delivery people and many others cannot so easily ride their bicycles without knowing the Estonian language.

What about other, more qualified specialties? After all, all of Europe is aging, and we all need workers. It’s not easy there either. Employers in Estonia often express dissatisfaction with the difficulty of obtaining a work permit for foreign workers. The main complaints relate to bureaucratic burdens, protracted processes and restrictions that do not allow companies the flexibility to hire foreigners on a temporary or project basis.

Banking services

Let’s say our investor was not afraid of electricity prices and somehow found employees. He is ready to overpay for electricity and pay for Estonian language courses – such an additional burden is nothing compared to the privilege of entering such a large and significant market! But you also need to open bank accounts, and there is some invisible and significant problem.

Banks, having washed a considerable amount of billions, are now, at the behest of the regulator (where was he while the washing was going on?) afraid and very, very reluctant to open bank accounts of companies whose ownership structure includes foreigners, even if they are from EU countries. And if they are also immigrants from Russia or the Republic of Belarus (and almost 2 million people left these countries for political reasons, many of whom are entrepreneurs), then the chances are almost zero. Moreover, this is done implicitly and with bureaucratic arguments that cannot be faulted.

Add inflation and taxes

Even if inflation fell to 4.08% in October, it is still very high compared to the EU. We can recommend our future employees to go to the supermarket in Helsinki: it will be cheaper for them there. In recent years, the tax burden on entrepreneurs in Estonia has also increased. Turnover tax increased from 20% to 22%. The minimum social tax obligations for employers have also increased – the rate for calculating social tax has increased from 654 euros to 725 euros per month. Some tax benefits, such as income deductions for children and spouses, have also been cancelled.

As a result, it seems that at the moment the image of a “small, open economy” is only true in its first part. It is not very easy to do business in Estonia in 2024, and this is largely due to the decisions of Estonian politicians.

To amuse yourself with thoughts that things are even worse in Germany or Finland and/or to cling to the faded laurels of e-government is unproductive and even ridiculous. Germany, despite all its problems, is both a huge market and a huge exporter. Little Finland gives the world every third ship engine, every second paper-making machine, every fifth elevator, almost 20% of the world market of telecommunications equipment for fixed and mobile operators belongs to the Finnish NSN. And this is just the tip of the iceberg. Oh, and yes – e-government in Finland may not trumpet its successes so much, but it works just as well.