Estonia poised to export itself out of the crisis

We are now doing better and that is mainly thanks to the recovery of the demand of the foreign markets. But that does not mean that we are doing well.
A person also remains a person in the crisis and he wants to do well. However, our path from doing better to doing well is full of all kinds of obstacles, and when we do not see them, we will not reach our goal. The first issue in exporting ourselves out of the crisis is the dynamics and structure of the global market, primarily of our main trading partners. The following questions concern our competitiveness and increase thereof as well as the inflow of new foreign investments and everything they depend on.
As the 4-5% economic decrease of the European Union in 2009 was this year replaced by a one-two per cent economic increase, it was only natural that our manufacturers’ export to Europe began to recover quite fast. It is also natural that in the conditions of increased competition some productions of a very high wage level have been transferred here from the Scandinavian countries. However, we cannot take the beautiful export increase figures exactly one to one when assessing our success, because we lack information about the extent of the value that has been added to our new export production in Estonia when compared to the amount that has disappeared. What is important is not the export growth in itself, but the amount of value that has been added to our export products.
The information is very important when assessing the current state of our economy and the future perspectives, as by tallies and even within one and the same tally, the added value – that is the work made in Estonia – can considerably vary. This way, the same export volume of fuels could constitute a mere mixing of imported products and, therefore, have a considerably less value added than our own crude shale oil. Unfortunately, oil is not our only such export article. Another example could be the means of transportation. It equally includes those vehicles where only the registration plate has been changed here together with the trailers that have been made here from scratch. But with the same volume, the difference in the meaning of those two for our economy is enormous.
What is even more complicated is assessing the impact of export increases both on GDP and employment when significant changes occur in the export structure, such us now. This year, we have begun to export electricity, timber sector products, electronics, and food. Electricity, timber and food is ours, but additional electricity is not very labour intensive, and timber sector products vary from very simple to complicated ones; in electronics, however, it is largely based on imported materials and components like in the sewing industry and other subcontracting. But the knowledge is only sufficient for asking questions that cannot be answered right now. Despite the fact that highlighting the value added to exports is not an easy task and it can only be done precisely over an extended period, it would still be possible to give some working indications.
With a stable export structure, such assessments would not be required, because no big differences between the pace of export growth and the added values thereof would occur. But in the case of steep changes in export structures, one should remain cautious when assessing the meaning of export growth. A simple parallel could lead to misleading conclusions. Let us recall the initial arrival of Elcoteq, which was accompanied by the all-time fastest growth in Estonian exports, though the company never employed more than two to three per cent of the labour employed in our industrial production, and besides they performed relatively straightforward work. Naturally, it did not increase the fact that at that time the value added in Estonia remained fairly frivolous when compared to the cost of the imported components, the value of four thousand jobs, but that considerably distorted our perception of the increase in our export capacity.
But in spite of all our local calculation difficulties, it is obvious that the general economic background in the world has become fairly favourable for us and it will probably stay like that for quite some time. Although, when writing this story on 1st November 2010, we did not know yet whether the new American stimulus package would be a billion US dollars or just a half a billion, it is completely certain that the world’s central banks will not let any significant economies fall back into recession and that means foreign demand will not disappear in the near future. The rest depends on us, however.
Therefore, we should concentrate our attention on other factors from now on – primarily on new ideas and productive investments and, what is most important, on the existence of the required labour and preparation thereof. Unless the number of productive investments and jobs begins to increase fast, there is no reason for us to talk about success.
Besides, we need to understand and admit that the crisis in Estonia was not just a financial or cyclical one. We suffered and still suffer much more due to several structural inconsistencies waiting to be solved. For example, there must be something very wrong when we have to talk about labour scarcity now that the number of jobs has decreased by more than one hundred thousand compared to the time before the crisis, exactly as we did a few years ago in the condition of almost complete employment; when the beginning of our cyclical recovery remained later than in most of the countries and in spite of the billions allocated for enterprise development, the appearance of ambitious growth companies is hardly perceptible.
It seems that the disappearance of domestic jobs has now put us in front of a very complicated problem. Although Estonians have been going abroad to work in the past few decades, it has never been as massive as today. Neither have Estonians ever been such world citizens in speaking foreign languages as the young people who enter the labour market do today. And if a few years ago the steady increase in the minimum wage kept people from going to work abroad, then now we cannot rely on the fast increase of income any longer. Therefore, the scarcity of regular jobs and a multiple difference in wages keeps taking the labour away from us, just like it was predicted at the peak of the crisis. It should not surprise anyone that those who have stayed here waiting for work are largely unqualified or are qualified in fields that seized to exist during the crisis and would probably never return to Estonia. But what is the point in investing into such an environment?
Also, we should not forget that it is not enough for us to merely restore the pre-crisis export level, because then we would not have developed at the expense of the money earned by export, but by spending foreign loans in the internal market. If we want to reach the pre-crisis level with our economy, with the help of exports we have to earn the sum of money that equals to the growth of foreign loans before the crisis. True, a part of that required money comes to us itself – in the form of investments from Scandinavian countries. But considering current experience and the existence of skilled labour, we should not make any illusions. The average wage level in those companies cannot be higher than the average of the existing foreign companies. But anyway everything is OK here.
The situation is much more complicated in another part, and that is our own contribution. Firstly, not many of our own entrepreneurs have orientated their production towards the export market. The export of our domestic undertakings constitutes only a third of Estonia’s total exports. It is only natural. Entering foreign markets requires ideas, contacts, experience, and resources. When one has a good idea, it is usually possible to find financial backing, but it is much more complicated with the last two areas. Contacts are not just exchanging business cards or being present at the same reception. It involves learning in the right school, long-time belonging to the right clubs, etc. Experience is gained when working with the right men or paying for such schooling yourself.
Estonian companies with an average of nine people are not capable for that, of course. Unfortunately, it is a habit here to unfairly comfort ourselves: the size of the average company in most of the countries throughout the world is about nine employees. But the statistical average is still an average and does not say anything on which companies the competition position of one or another country relies.
When talking about Estonian export capacity, however, we must also consider such information that is never reflected in the statistics: who are the owners of the company and what is their strategy. Therefore, you should not be surprised when it appeared in the survey by the Faculty of Economics of the University of Tartu that the main obstacle for companies in foreign ownership not entering foreign markets is the will of the owner.
But in spite of all hardships, we have no other choice than to export ourselves out of the crisis and overcome all the obstacles. It would be wise for us, however, to firstly take a look in the mirror without wearing rose-tinted glasses.