Veikko Maripuu: Estonia needs courage to take risks

Will the rise in oil prices save the economies of East-Virumaa and Estonia as a whole? That’s far from being true. Only courageous decisions can do that, which is to say that Estonia needs a renewed courage to take risks

The owners and managers of large industrial enterprises in East-Virumaa are gathering more frequently than usual for discussions laden with worry, as some factories have partly suspended operations and hundreds of people have been made redundant. The closing down of plants has been thought to be the consequence of fallen oil prices. This, however, is clearly too simplified a view, and also one that seems to have a decreasing influence.

Oil prices have started to recover somewhat from the free fall they experienced in the beginning of February, but taken into consideration the Climate Accord phrased in Paris in December and its context, even a crude oil price that is remarkably higher than at present would not mean a prosperous outlook for oil shale industry, and more broadly to the energy industry of Estonia today. The goals of the Climate Accord are ambitious enough to push the world in the direction of considerably cleaner energy in order to prevent the consequences of global warming. As a result, restrictions will be increasingly imposed on the use of fossil raw materials and fuels in the future.

Given Estonia’s background, the problems lie in the very core of the matter – oil shale causes more pollution than many other fossil fuels, and on top of that, its cost is also higher both for producing energy and fuels. Kiviter-type factories have low efficiency and in their present unmodernised form VKG might never reopen them, even if oil prices were to rise a bit higher.

In the landscape of our energy industry, it is necessary to move towards entirely new solutions, and in a longer perspective Estonia’s energy sector needs to be profoundly reorganised. It would be necessary to encourage both present and new companies to move towards cleaner energy production and more innovative solutions. It can be done in a way from which the entire Estonian economy would benefit.

 

Estonian economy needs changes for way forward

Crises are good incentives for change. The developments in the industry and labour market of East-Virumaa cannot be considered a fully-formed crisis yet, but there is no time for staying idle either. Even more so because during the last three years Estonia has been moving out of its former status as a cheap work force region. By now, this situation is clearly visible also for those who are not directly involved in doing business, and worsened when the wire factory PKC announced making 600 people redundant in its factory in Keila.

Not only are enterprises leaving Estonia, but due to wage pressures, the courage to make investments is decreasing as well. East-Virumaa, and actually the whole country, desperately needs measures to improve investment climate and tools to develop an economy that could bring along a positive change in the future. However, what is needed most is something that people in Estonia have become reluctant to do – setting objectives that would change the future, systematically developing an environment that is conductive to attaining far-reaching aims, encouraging innovation and experimenting and fostering private sector investments. That is to say, rediscovering our courage to accept risks.

In order to achieve a larger impact, grants for innovation must to be directed towards innovative projects that involve more risk and a strategic view, where private sector would not invest without additional guarantees. One of the largest obstacles here is the tendency that Estonia’s public sector and especially politicians have become risk averse. In paying out European funds and other grants, the policy is to choose projects that represent safe solutions and applicants who are ’winners of the past’. Such selection process enables to show that people in charge of the selection process make successful decisions, but it has only a marginal impact from the perspective of fostering innovation.

In his Independence Day’s speech this year, the President spoke of reaching a threshold of big changes. However, he did not speak of it in the context of the economy, but only noted with concern that a lot of energy is wasted in Estonia on organising the private lives of adult couples and on shunning away refugees. The disappointment is well justified – at a time when pointless battles are fought over populist matters, Estonia has developed a dire need for actual changes in the economy.

A great opportunity for the Estonian economy – being a pioneer in the energy sector on global scale

Actually, the developments in the world give Estonia, despite its limited possibilities and resources, excellent perspectives in the economy. The direction taken in the Climate Accord towards taking up the use of cleaner types of energy opens huge opportunities, which Estonia should smartly and timely take advantage of.

European Union is one of the strongest advocates of the new Climate Accord. Estonia could take a frontline position in the European Union in developing new types of energy, and apply immodestly and energetically for research and development grants, and much more from the EU in this area. Development of new technologies and the creation of respective development centres could become part of Estonia’s smart energy policy. Also in the global scale, it is one of the most important future areas ever. Estonia has long-term experience in the energy sector and it might become one of the key spheres of Estonia’s smart economy, which would not only bring Estonia new growth but also attract professionals from all over the world and create new jobs. Also the e-residency programme, which is currently struggling to find more meaning for its existence, would gain greater impetus.

There is a wide range of areas within the energy sector that can be chosen for specialisation:

  • biofuels and bioenergy. Estonia has, among else, vast quantities of local biomass (in addition to timber, it would also be possible to use other plant waste, even of water plants). The development of this area would result in decreasing dependency of oil shale and oil;
  • fuel cells: increasing their efficiency, improving their endurance and decreasing their development cost;
  • hydraulic energy, which is one of the most developed area of renewable energy, together with wind energy, where Estonia has an abundant potential;
  • geothermal technologies;

The cornerstone of the innovation strategy must undoubtedly be interrelatedness with business, private sector and private investors – information coming from entrepreneurs is of utmost importance.

The projects in the energy sector are of widely varying size and impact, and in their different stages both small and large businesses have a role to play. The number and diversity of projects mean a lot of planning and building, also enabling to create lots of indirect jobs.

Finally, let’s go back to the impact of oil prices discussed in the beginning of this article. If you were an investor and could freely decide where to invest (notwithstanding the movement of oil prices), would you invest in reprocessing oil shale or production of energy from it based on the old technology? Or would you rather invest in new and cleaner technologies? The answer gives a simple clue of what needs to be done in the economic policy making in Estonia.

 

Also published at: http://www.aripaev.ee/arvamused/2016/03/09/veikko-maripuu-eesti-vajab-riskijulgust
(o9.03.2016)