We hear more about the competitiveness of our economy lately. Relevant efforts usually come in the form of fluent legalese. You know all the words, and the sentences are structured logically, but the meaning of what is being said still dissipates somehow. That things are not going great was recently pointed out in an IMF report.

Efforts to improve competitiveness need to start with concrete indicators. For example, having the same electricity price and loan interest rates as the Finns.

Why does it make sense to compare ourselves to Finland and not the European average? We have cold climate and have to spend more on heating than other places in Europe. Both Estonia and Finland are out of the way of markets and have to spend more also on transport than, let's say, Slovenia or Poland. We also share the same eastern neighbor. Not to mention that Finland has served as an example for Estonia for a long time, which is one of the reasons the countries sport similar business cultures. In other words, an entirely fitting example.

Price of electricity

I'm a small shareholder at Fortum, which is active mainly in Finland and Sweden, as well as in our Enefit Green. While Fortum tells its investors that the price of futures for 2027-2031 is €40 per megawatt-hour (MWh), Enefit Green says that it's €78/MWh. A price difference of almost two times.

Talk of attracting energy-intensive manufacturing is moot in a situation where electricity is half the price in Finland and Sweden. Imagine a company spending 5 percent of sales revenue on electricity in Finland and 10 percent in Estonia. This would amount to a few percent of missed revenue every year.

Modern manufacturing is not labor intensive, and the difference cannot be made up in salaries. That is why it makes sense that no one is investing in energy-intensive manufacturing in Estonia. Rather, it makes sense for our business to move to Finland.

If €40/MWh is considered a normal wholesale price for energy in Finland, that is where we should aim our prices. While I understand it is practically impossible in the coming years, it is what we should be aiming for.

If we set the goal of having similar prices to Finland, but no more than €50/MWh, those wishing to sell electricity at more expensive prices would not get past the ministry's door, not to mention a meeting with the minister. If someone wants to build an offshore wind farm and sell electricity for €110/MWh, they are welcome to do it, but with no guarantees. The minister should not be giving press conferences singing the praises of offshore wind parks, but should instead come up with ways of achieving more favorable electricity prices.

Our goal needs to be to match Finland's electricity price and our actions need to reflect it.

Loan interest

We've been in the EU for 20 years. We've had the euro for over a decade. And yet, our loan interest rates are 1-1.5 percentage points more expensive than in Finland. Both as concerns housing and corporate loans. In a situation where our rates are at 7 percent, they're 5.5-6 percent in Finland.

It is also very difficult to compare exact figures as loans have different maturities and risk levels. But our average loan portfolio is clearly more expensive, whereas higher interest rates are not caused by problematic loans. The relative importance of bad loans (in arrears for over 60 days) is minute at 0.2-0.3 percent.

Another piece of proof in terms of Estonia having expensive loans is that while Finland's largest bank OP made 0.98 percent return on assets last year, this was 3.25 percent for Estonia's biggest bank, whereas return on equity of Estonian market leaders Swedbank and LHV was three time OP's 10.6 percent. In other words, the total profits of banks in Estonia would have been smaller by over half a billion euros at Finnish conditions.

Loan interest rates are an important part of competitiveness. If a manufacturing company's loan burden is in the ballpark of annual turnover, interest rates make sure profit falls short of turnover by 1-1.5 percent here.

More expensive loans also mean fewer capital-intensive businesses are willing to come to Estonia.

What could the government do? Exposure would be a good start. A quarterly overview of loan interests that is then compared to the situation in Finland would go a long way in popularizing the topic. Customers would have a better position for negotiating with banks, while public pressure on the latter would increase. It would surely result in lower interest rates. Having more competition on the banking market wouldn't hurt either.

More expensive electricity and capital are keeping companies that need one or the other from coming to Estonia. It is something the people at the Estonian Enterprise and Innovation Foundation (EISA) would do well to keep in mind to refocus their recent efforts.

In summary, principles of competitiveness should be simply and clearly phrased. For example, matching the price of electricity and loan interest rates of Finland would serve as effective targets. Next time, we'll talk about things that aren't quite as easy to write down.

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