What can Estonia offer to an international corporation? This is the most important question when assessing Estonia's competitiveness, and if it is not answered, we have a problem, says DPD Estonia Director Remo Kirss. :format(webp)/nginx/o/2022/10/17/14904180t1h2b59.jpg)
Photo: DPD Eesti rus.postimees.ee August 26, 2024, 11:12
What can Estonia offer to an international corporation? This is the most important question when assessing Estonia's competitiveness, and if it is not answered, we have a problem, says DPD Estonia Director Remo Kirss.
Another reduction in the Euribor rate is expected in the autumn, which should reduce uncertainty and increase purchasing power somewhat. However, in the context of Estonia, this will not have a broad impact on all consumers, as the tax changes planned for the next year and the following years will further complicate the situation.
For consumers and entrepreneurs, the limit of price growth has, in a sense, almost been reached. Instead of the expected economic growth, we see continued stagnation and an extension of this period compared to other competitors, especially neighboring countries at the same level as us.
Tax cuts and increases have a short-term effect. To increase our competitiveness, we need to look for new directions: industry, innovation. Estonia is too small to follow the traditional path. We need to find additional ways to attract foreign investment and new jobs.
Lithuania has made significant progress compared to Estonia
Estonia has long been known for its successful startup culture and e-residency program, which have attracted foreign investors and entrepreneurs. Estonia has been a flagship for innovation and digital development, and has given birth to globally successful companies such as Skype, Wise, and Bolt.
However, Lithuania has made impressive strides to take this place in recent years. For example, Lithuania is home to Europe's largest fintech platform, and Vilnius has created a favorable environment for companies to grow. The legislation there is more flexible, and the costs of starting a business are lower.
In addition, the Lithuanian government has initiated a project called the “Green Corridor for Large Investments” aimed at attracting investments with a large economic impact to the country.
The main objective of this project is to offer investors favourable conditions and accelerated procedures in order to attract large investments to Lithuania, especially in those sectors that are strategically important for the country's economy and development.
The Green Corridor initiative includes tax incentives, faster administrative processes (permitting, speed of review) and government support for large projects, as well as a focus on sustainable development, which will help Lithuania achieve its long-term climate and economic goals.
Estonia's advantages are disappearing
The corporate income tax planned for 2026 could indeed affect Estonia's attractiveness to foreign investors. Foreign capital is constantly looking for countries with a lower tax burden and a stable business environment.
Latvia, and especially Lithuania, have made decisions in recent years that make their economic environment more attractive for investment. Lithuania, for example, has introduced tax incentives for research and development activities, which has helped attract international technology companies.
Estonia's geographical location, which has long been our advantage in connecting the Baltic Sea region with Scandinavia, is also losing its significance. Latvia and Lithuania are successfully using their location to Western and Central Europe, including in the context of the Rail Baltica project. A railway connecting the Baltic States will give Lithuania and Latvia a certain competitive advantage in the transit sector in the future – this is inevitable geography and logistics.
Estonia's uniqueness requires better application
Another problem for Estonia is rising labor costs and an ageing population. This is a worrying trend. Estonia already has labor shortages in several sectors, especially in IT and technology.
In comparison, Lithuania actively attracts its citizens working abroad and offers favorable conditions for young professionals to return home. Such measures help the country maintain competitiveness in the labor market and ensure sustainable economic growth.
Estonia should focus on its unique strengths, such as the IT sector, cybersecurity and digital innovation. The country should invest more in education and research to remain attractive to foreign investors and entrepreneurs.
It is also important to conduct careful impact analyses before making major economic decisions to avoid unexpected setbacks. The current plan to raise taxes, spread over several years, takes us further from these goals.
Estonia must preserve its competitive advantages, not destroy them. We must at all costs avoid unnecessary bureaucracy and, of course, the tax burden, which could lead to an outflow of investors and companies.
Estonia is small, but our strength has always been flexibility and innovation. To remain competitive with our neighbors and to be in a better position, the Estonian government needs to pursue a long-term strategy that will ensure a strong economic environment and sustainable development.
