Minister's crisis Plan B calls for state to pump foreign money into economy
Minister of Entrepreneurship and IT Kristjan Järvan has come up with two plans for coping with the economic recession. The first will attempt to avoid general high unemployment altogether; should the situation become more critical, Estonia will switch to Plan B and the state will have to start putting EU funding it has been allocated to use earlier than planned.
Plan A, the supporting of viable businesses so that they can manage to start increasing their value added, is already in use. Plan B will be implemented if and when the number of registered unemployed increases from the current 50,000 to 70,0000, indicating that the structure of the economy hasn't changed quickly enough and that companies will need government orders in order to stay afloat.
"Plan A is the work we do each day — we support people's retraining and employment, the changing of companies' business models, we encourage innovation, companies' research and development (R&D) and help invest in future technologies," Järvan explained.
To date, the value added of Estonian industry has equaled just 56 percent of the European average, while at the same time, competition for labor has rapidly increased wages.
"In order to remain competitive, companies' business models must adapt in order to provide higher value added," he said. "Low labor costs can no longer be a competitive advantage for our companies."
This also means that companies who want to continue as before when encountering difficulties cannot count on government assistance. "If we have companies that currently want to hire more employees, then we have no right to pay public money to companies whose business models don't work and thus holding labor back," the minister said.
The state will switch to Plan B if and when the structure of the economy cannot adapt to changes quickly enough and bring labor being freed up into the workforce and the number of registered unemployed increases rapidly.
"We're keeping a close eye on the situation — we've provided for a general implementation if and when general unemployment in Estonia reaches 70,000, but at the same time, we're monitoring the situation both by sector and by region," Järvan said.
No need for additional state budget funds for Plan B
Should Plan B prove necessary, the money needed for its implementation has already been planned, and there will be no need for any restructuring in the state budget, Järvan said.
"There will be no need for additional resources from the state budget, i.e. additional debt burdens, higher taxes, and there's no need to worry about canceled public expenditures," he emphasized. "The plan for implementing Plan B is to shift and, if necessary, move up external European instruments whose volumes we already currently know."
For example, the plan is to make funding for the renovation of public sector buildings and apartment buildings (€400 million and €330 million, respectively) available sooner, and funding previously earmarked for the renovation of small dwellings (€29 million) would likewise be redirected into general construction.
Investments in the construction of last-mile infrastructure (€20 million) would likewise be brought forward, as would those investments in companies' resource efficiency (€33 million).
In light of Järvan mentioning that there is no point in supporting companies whose business model no longer works, it appears as though the state isn't planning on placing any direct orders in road construction, whose ending up second fiddle has been discussed at length. According to the minister, however, that nonetheless doesn't mean that the state has turned its back on road builders.
"As for road construction, similarly to other construction, it's possible to bring investments forward there as well if necessary," he said. "At the same time, as we know that EU funding volumes in road construction will be significantly decreasing in the coming years precisely because they are supporting more environmentally friendly modes of transport instead, then right now we haven't brought it up."
Currently being implemented under Plan A are a support measure for changing a company's business model (€8.7 million), an applied research program (€20 million), Just Transition Fund (JTF) investments into Ida-Viru County (€153 million) and a support measure aimed at the promotion of automation and the uptake of digital technologies in manufacturing companies (€58 million).
As of the end of November, registered unemployment in Estonia stood at 7.7 percent, with 50,209 people registered as unemployed with the Estonian Unemployment Insurance Fund (Töötukassa, EUIF). Ida-Viru County (11.4 percent) and Valga County (10.6 percent) had the highest unemployment levels in the country. By sector, registered unemployment was highest in unskilled labor (20.3 percent) and service and sales workers (18.8 percent).
According to Järvan, the current economic crisis doesn't compare to the previous one, when there were, for example, more than 100,000 registered unemployed in Estonia in 2009.
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Editor: Aili Vahtla