Yearbook: Estonia continues to improve international competitiveness

High-rises in Central Tallinn.
High-rises in Central Tallinn. Source: Siim Lõvi/ERR

Estonia has once again improved its position in global rankings of international competitiveness, rising to 26th overall in 2021, and now 22nd according to the latest data issued by Switzerland's International Institute for Management Development (IMD).

Commissioned by the Estonian Business and Innovation Agency and drawn up by the Estonian Institute of Economic Research (EKI), the latest Competitiveness Yearbook is based on the data from the 2021 results of IMD's World Competitiveness Ranking, according to a press release.

The World Competitiveness Ranking illustrates how countries create and maintain a competitive economic environment.

"Estonia stands out positively in the categories of prices (14th) and business legislation (17th), and our high-ranking education system rose three spots in the index and is now in 14th place," said Sigrid Harjo, member of the board at the Estonian Business and Innovation Agency.

Contributing to the country's high education ranking were strong Program for International Student Assessment (PISA) test results (4th), high public sector spending on education as a percentage of GDP (9th), the compliance of primary and secondary education with the requirements of a competitive economy (15th) as well as many Estonian students acquiring an education abroad (15th).

The country's business legislation ranking was positively impacted by factors including ease of establishing a business (3rd), number of newly founded companies (2nd), conducting the process of establishing a business in three steps (6th) and median company establishment time standing at 3.5 days (6th).

Estonia also ranked 18th for efficiency of the government's work, a category that takes the balance of the state budget, tax levels, the level of development of state institutions, business legislation as well as social framework into account.

The biggest leap was seen in the category of Estonia's domestic economy, where highlighted strengths included a relatively small drop in GDP of 2.9 percent in the first year of the COVID-19 crisis (14th), the acceleration of capital investment growth to 19 percent (1st) as well as an increase in the share of capital investment to 31 percent of GDP (5th).

Weaknesses in investments, research and labor

Estonia's lowest rankings were in the categories of foreign investments (45th), research infrastructure (42nd) and labor market (40th).

"When it comes to foreign investments, Estonia's weaknesses are above all the absolute indicators, in terms of which Estonia is among the last due to our country's small size," Harjo commented.

The low position of Estonia's labor market factor was due to the insufficient availability of qualified labor (62nd), the shortage of labor (61st) as well as the lack of both competent top managers as well as financial specialists (both 57th).

Weaknesses of the country's research infrastructure include the lack of published research articles (58th), the small volume of research and development costs (55th), the lack of patent applications (55th) as well as the low number of research and development employees at commercial companies (53rd).

The most competitive country in 2021 was Switzerland (up from 3rd in 2020), followed by Sweden (up from 6th), Denmark (down from 2nd), the Netherlands (down from 4th) and Singapore (down from 1st). Among Estonia's neighboring countries, Finland rose two spots in the rankings to 11th place, Lithuania one spot to 30th place and Latvia three spots to 38th place overall.

According to economic experts at EKI, the lack of skilled labor has been the biggest obstacle to Estonia's development in recent decades, which was also confirmed by the latest IMD survey as well. The Estonian Business and Innovation Agency is helping companies alleviate this problem via its Work in Estonia program, the agency noted.

Other key issues facing Estonia last year cited by experts were a lack of innovation as well as a lack of international competitiveness. Confidence in the government's economic policy has increased significantly, however as inflation increases and various occupations see very different wage growth, increasing income inequality has become a problem.

Commenting on the newly published 2021 yearbook, EKI director Marje Josing said that Estonia's competitiveness is especially important in internationally complex and difficult times for the global economy.

"In 2020, the world was hit by the COVID-19 pandemic, which has shaken countries' economies and supply chains," Josing said. "In such circumstances, those countries are more successful where the entire economic environment — including legislation, infrastructure and government activities — allows companies to be flexible and innovative and to compete with entrepreneurs from other countries. It's very important for a small country to be able to continue and develop the export of goods and services even in difficult economic conditions."

More than 250 criteria factored into rankings

The methodology developed by IMD for assessing countries' international competitiveness has found broad international recognition, the Estonian Business and Innovation Agency said.

A total of 255 criteria are taken into account in calculating countries' competitiveness ratings, 163 of which were statistical, i.e. quantitative, and 92 of which were data collected from company managers via a survey, i.e. evaluative.

Click here (PDF in Estonian) to read Estonia's newly published 2021 Competitiveness Yearbook.

Click here to read IMD's latest full World Competitiveness Ranking report for Estonia.


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Editor: Aili Vahtla

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