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.


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2016: a perfect year for investing

Entrepreneur and investor Veikko Maripuu says it would be a good idea for both companies and private individuals to energetically invest this freshly started year
The economic development of Estonia in 2015 was characterised by cranes towering in larger cities and increasingly crowded shopping malls. The mood is especially joyful in the real estate sector, but also the confidence of consumers and their optimism in general have risen to recent years’ highs. When compared to Finland or Russia, for example, Estonia’s situation is in quite striking contrast in this regard, and this to Estonia’s advantage. Nevertheless, Russia’s economy and the causes of its miserable state are a phenomenon in itself at the moment.

The reasons for high consumer confidence are easy to see

In recent years, individual incomes have been steadily increasing. The continuing decrease in interest rates of mortgage loans and the fall in fuel prices gaining speed have left consumers more cash to spend, which in turn has enlivened consumption in the domestic economy. It is likely that consumption numbers to be reported in Estonia for last year’s Christmas’ and New Year’s time will represent all-time highs, which will first and foremost be a happy news for those involved in commerce, but also for service providers, restaurant owners and representatives of similar branches of the economy.

Unfortunately, Estonia is so small that our economy, unlike that of large countries, cannot uphold itself only on Christmas folly. The situation of the economy as a whole is far from being as positive as the sectors oriented towards domestic consumption might indicate.

For exporting companies, energy sector, and especially transit business, the year 2015 has been rather complicated. Wage pressures continue to be high, as pay rise expectations are fuelled not only by stronger consumer confidence, but also by the public sector. However, the decreasing profitability of industrial enterprises, which is due to growth of wages being much higher than labour productivity, has a direct influence on investor confidence and thereby also to the longer-term growth potential of the economy. Therefore, there is a contradiction between the seemingly good situation that can be seen when walking in the streets or shopping centres, and the much less favourable one seen when taking a closer look at the economy. Neither is Estonian economy doing well enough compared to its neighbours (leaving Finland, which was already discussed above, or Russia aside).

What can each and every one of us do?

It is fine to spend today, or support companies oriented towards domestic consumption that directly profit from people spending today, because this nurtures at least some part of the economy. However, prospects for the future might be brighter if you look a bit more ahead, and therefore set some of today’s spending aside for longer-term investments.

Real estate prices have risen fast; therefore, alternatives will be sought to investing in real estate. There are not that many such possibilities yet, although some signs give reasons for hope. Possibilities for investing in companies through different facilities, direct investment platforms etc. are becoming better. One of the possibilities for allocating money is to start your own company. Start-up sector is undergoing changes, moving from its current status as a niche branch of the economy into being more and more broad-based, and it is likely that in the nearest future, better financing possibilities will become available for launching ideas, projects and companies.
Fostering entrepreneurial spirit and providing it a more secure framework is clearly positive, because given the small size of Estonia’s economy, it gives a better export outlook for the country in the future.

For that reason, it is important to foster entrepreneurial spirit also on the national level and in the society as a whole, so that the prospective creators of new ideas could come up with fresh and bold ideas and good projects could get well thought-through and professional acceleration for conquering the world.

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