Estonia's number one challenge for the next decade is to stop our competitive ability from crumbling. Without it, Estonia's recent success story will be reduced to stagnation crowned by national parochialism.
Every schoolchild can point to a map of Europe the far corner of which is home to the lone sentinels Finland, Estonia, Latvia and Lithuania. It is inevitable that ideas, people, jobs and opportunities are more plentiful in larger regions and cities.
The Baltics and Finland's even faster peripheralization is a long-term side-effect of isolating predatory Russia. The Baltic countries slowly becoming wealthier does nothing to alter the fact that the eastern shore of the Baltic Sea remains isolated periphery next to a belligerent and threatening neighbor. And that neighbor is not going anywhere.
Our region has long since stopped being a hub between the east and west. We are not even a whistle stop but a tiny cul-de-sac station few have any businesses visiting, and fewer still in the future it seems.
Most passengers have gotten off in Berlin, Warsaw, Copenhagen or at most Stockholm as the lands further east are empty, sport aging populations and poor links to the outside world. Their chances of making it in international competition are worse from one year to the next. Finland is also falling behind the other Nordics, the gap between it and Denmark and Sweden growing with each passing year.
Of course, our national park-like countries and surviving wilderness holds much that is admirable. And we have done well, all things considered. Let us take the example of Estonia's tiny and village-like capital where it takes under 20 minutes to bike from the city center to places where coming across a hare is more likely than meeting another human. I'm sure many foreigners who have settled in Estonia can appreciate our quiet way of life. However, at times surprising and enchanting emotions simply aren't enough to cut it in international competition.
What can the representatives of the new Enterprise Estonia and KredEx joint agency (EISA – ed.) offer compared to their colleagues in, let's say, Denmark? Yes, we have a simpler tax system, less bureaucracy and perhaps somewhat cheaper labor compared to countries further west.
But what else? Do we have enough skilled labor? Not really. Do we have sufficient and convenient links to the rest of the world? They are not enough if we're being honest. Are there attractive markets nearby. The truth is that there are none. What is more, our relative isolation has already left us with considerably higher energy prices compared to our wealthier neighbors. Why should a foreign company do business in Estonia?
Estonia also has a more specific problem. For decades, our economy was fed by investments from Finland and Sweden as we had cheap labor to offer. Cheaper prices also brought tourists. That model has stopped working now. Salary advance has stalled, our ties to Russia are lost and replaced by fear of the war spilling over. All of it is directly reflected in our credit rating, cost of loan money and a thousand other details which are more expensive and harder to come by in an out-of-the-way small country.
We have poked fun at Eesti 200's promise of a long-term plan, and likely tainted the term in the process, but we absolutely need a longer perspective. Estonia's number one challenge for the next decade is to stop our competitive ability from crumbling. Without it, Estonia's recent success story will be reduced to stagnation crowned by national parochialism.
What should be the concrete steps?
We cannot change our geographical location. What we can do is promote ties to the rest of the world through better links.
Road infrastructure between the Baltic countries resembles South America, with bridges in disrepair and new road construction projects shelved even before they are finished. Over the last 30 years, we have managed to construct the Pärnu bypass and a handful of dangerous 2+1 road sections in Estonia. My hat off to all the truck drivers who can find their way from Tallinn to the Polish border in this mishmash of different roads.
Micro companies will continue to dominate the landscape in our region for which flexible road transport is the best available option. But why would one launch a manufacturing operation in Paide or Viljandi if between them and the Polish border lie 800 kilometers of dangerous roads? After all, it is possible to set up in Poland or at worst Kaunas or Vilnius. From there, decent roads lead to other parts of Europe.
Air links that matter to business travelers are offered by airBaltic that sports a dubious business model and might ground unprofitable direct flights from Tallinn at any moment. While the airport reports rising passenger figures at the gate, many are holiday travelers headed for the beaches in Turkey, Greece or Italy.
Having such links is a nice bonus for the locals, while it does nothing to cater to business people from Germany, USA or South Korea looking to open a branch office in Tallinn. It is still easier to run things in Estonia from Stockholm across the Baltic Sea.
We have been denied an answer to the question of funding necessary to finish the Rail Baltica railroad. We are talking about hundreds of millions in additional funding as construction has become hugely expensive, while we can probably only dream about the railroad being completed on time. No one is naive enough today to believe they can take a train from Tallinn to Warsaw in 2030.
Shipping is also struggling as the war has slashed freight volumes, which has in turn hiked transport prices for both exports and imports.
Unfortunately, our government has made no serious pledge to improve these links. The silence is deafening as it is once more simpler to push these matters far into the future as today's decisions would benefit a different set of politicians five and ten years down the line. And so, we are told that we'll have to wait and see, that perhaps the fiscal situation will be better in the coming years. This continues from one year to the next.
Alas, indecisiveness tends to bear bitter fruit. I very much expect those in charge of the state budget to face unpleasant facts that have remained unresolved for decades. It is always more effective to attract investment and create a favorable business environment than it is to simply reshuffle taxes. We need tangible ways to pay for Rail Baltica, the Via Baltica highway and air links from Tallinn. And we need them today, not the day after tomorrow.
It is not always about someone's business or money. Closer ties with the rest of the Western world would also help reduce our rate of national encapsulation, for which we are increasingly criticized.
Editor: Marcus Turovski