The first Estonia-Latvia cross-border projects were started

The first six projects within the value of more than 75 million kroons have been financed from the programme of the cross-border cooperation of Estonia-Latvia. The programme co-financed from the European Regional Development Fund supports the cooperation raising the competitiveness of the economy of the region. Its budget for the years 2007 -2013 is slightly over 562 million kroons and the support can be applied for by both the companies and the public and third sector.

The following projects will be started with the support of the programme:

•  Saulkrasti city government in cooperation with the rural municipality governments of Audru, Carnikava, Häädemeeste, Jūrmala, Liepupe and Salacgrīva carry out the project “Beach Hopping” to improve the attractiveness, environment and security of the beaches of the Gulf of Liivi.
• Valga and Valka city governments plan to make the twin city more interesting for the tourists, companies as well as for the local Estonian and Latvian communities who could soon enjoy the common cultural events and services for spending the leisure time. Among other things, the tourist centre of Valga-Valka will be planned, the bicycle tracks will be built close to River Pedeli and the reconstruction plans of the underground military bunkers are prepared.
•  The local governments of Alūksne and Haanja strengthen their connections with the help of the winter sport between the Latvians and Estonians, the sporting and training possibilities are improved.
•  The local governments of Ape and Rõuge and the sports association Taevatäht start with the project “Sportborder”, to improve the infrastructure of the training locations located on both sides of the border.
•  Estonian University of Life Sciences, Pūre National Gardening Research Centre, Kandava Partnership Association, the companies “Rūķīši”, „Lāses” and Berry Farming LLC jointly raise the competitiveness of the fruit and berry cultivation companies.
•  The rural municipality governments of Haanja, Rõuge, Veclaicene, Mārkalne and Ziemer organise the cultural events connecting the Estonian and Latvian communities, also the opportunities of the local cultural events are increased to visit the higher number of cultural events in the future.

The project financing decisions are made by the monitoring committee of the Estonian – Latvian programme consisting of the national, regional and local level representatives and the social-economic partners. The assistance is directed to the region involving the South and West Estonia and the regions of Kurzeme, Pierīga, Riga and Vidzeme. The information of support programme is provided on the website www.estlat.eu.

Source: Enterprise Estonia

680 MEEK provided for technology investments

In a week, on 15 September, Enterprise Estonia will start accepting applications of industrial enterprises for technology investment support. The budget of the aid until the year 2013 is MEEK 680, of which MEEK 110 will be allocated for the first round of applications.

“The objective of the support is to promote investments that help increase the productivity and export potential of industrial enterprises, the added value of products, find new ways for marketing and establish job positions with greater added value,“ said Pille-Liis Kello, Director of the Enterprise Capability Division of Enterprise Estonia. “Such support is given for the first time and in addition to the measures developing export and knowledge and skills, this will strengthen companies on a long-term scale,” she added.

The technology investment support can be applied for by the industrial enterprises registered in the Estonian commercial register, which have been active in the processing industry for at least 2 years. Support can be applied for implementing an investment project related to the main field of business of an industrial enterprise: acquisition of machines and equipment and intangible assets required for the implementation of these machines and equipment.
The minimum cost of a project is MEEK 1; in case of joint applicants, MEEK 2. In case of large industrial enterprises, up to 20% of eligible costs will be compensated, and in case of small and medium-sized industrial enterprises, up to 40%.

The first round of applications will be opened on 15 September 2008 and closed on 30 October 2008. 

The technology investments support for industrial enterprises is co-funded from the European Regional Development Fund.

See more about the support at www.eas.ee/tehnoloogiatoetus.

Source: Enterprise Estonia

In August the industrial production was smaller than a year ago

According to Statistics Estonia, in August 2008 the industrial production decreased 3% compared to August of the previous year.

In manufacturing, the production fell 2%. The main reason for this was the decrease in orders, both on the external and internal markets. The information of the Estonian Institute of Economic Research affirms the decrease in orders. The decrease in the production of manufacturing was mainly influenced by the production of food, wood and building materials. The decrease in the manufacturing of food is continually affected by price increase and by the decrease in consumption resulting from it. Compared to August of the previous year, 20% less beer, 15% less soft drinks and 10% less meat products were produced. Although the price increase has drawn back during last months, the prices in the production of food increased 17% compared to August of the previous year. The downward trend continued in the wood manufacturing, which is endangered by a serious shortage of materials. The supply of domestic wood was hindered by weather conditions, the imports of wood from Russia — by high customs tariffs. The largest fall (26%) was in the production of building materials, which is directly connected to the decrease in construction volumes.

Similarly to the previous months, in August the production increased primarily in the export-oriented branches of industry — in the manufacture of metal products, chemical products, electrical machinery. The production grew also in the manufacture of machinery, precision instruments and motor vehicles, where the share of exports was the biggest. The share of exports was 89% in the manufacture of motor vehicles and 93% in the manufacture of precision instruments.

Compared to August of the previous year, the production of electricity decreased 4%, the production of heat increased 2%. When since March till July 2008 on an average 30% of the consumed electricity was imported, then in August this share was only 1%.

In August compared to July, the seasonally adjusted industrial production of Estonia increased 2%.

The volume index and trend of production in manufacturing, January 1998 – August 2008
(2000 = 100)

 

Change in volume index of industrial production, August 2008
(percentage)

Economic activity	Change compared to previous month according to seasonally adjusted dataa	Change compared to corresponding month of previous year
		according to unadjusted data	according to working-day adjusted datab
TOTAL	1.6	-7.5	-2.6
Energy production	14.0	-3.0	-3.0
Mining	10.0	-24.2	-20.3
Manufacturing	-1.5	-7.1	-1.8
manufacture of food products and beverages	-2.0	-13.6	-10.1
manufacture of wood and wood products	5.9	-20.5	-16.2
manufacture of fabricated metal products	8.2	16.1	24.7
manufacture of electrical machinery	0.8	25.3	34.7
manufacture of building materials	-0.3	-28.6	-25.5
manufacture of chemicals and chemical products	-12.7	4.6	10.1
manufacture of furniture; manufacturing not elsewhere classified	-4.3	-15.9	-9.5
manufacture of radio, television and communication equipment and apparatus	-7.9	-9.0	-4.8
manufacture of textiles	-5.3	-9.9	-3.2

^a In case of the seasonally adjusted volume index, the impact of the differing numbers of working days in a month and seasonally recurring factors has been eliminated. It is calculated only in comparison with the previous period.
^b In case of the working-day adjusted volume index, the impact of the differing number of working days in a month has been eliminated. It is calculated only in comparison with the corresponding period of the previous year.

Source: Statistics Estonia

Eesti Pank’s explanations regarding the global financial crisis

How does the global financial market crisis affect the European economy and Estonia?

The financial crisis, which originated in the USA in 2007 and has also spread to Europe, is affecting the general economic growth in the EU. The recent forecasts of the European Commission expect this year’s euro-area growth rate to be 1.3%, which is 0.4 pp less than stated in the spring forecast. Economic growth is likely to remain below expectations in 2009 as well. The scope and duration of the financial crisis is largely dependent on the recovery of inter-bank trust and the write-off of possible losses.

Due to the financial crisis, interbank lending in international markets has become more expensive and complicated with interest rates (incl the EURIBOR) on the rise in the entire world. As a result, the interest rates of Estonian bank customers are likely to increase as well, since the price of the funds borrowed from the market is growing also for the Scandinavian and European banks operating in Estonia, and a majority of the loans issued in Estonia are tied to the EURIBOR. Moreover, growing insecurities may cause the lending policy of the banks operating here to become more cautious, which means the credit growth rate would decline faster than expected both this year and in 2009. However, there is no threat of a sharp decline in lending – good business projects will find financing. Another by-effect of the more sluggish global economic growth is that demand will drop and our exporters will face stiffer competition.

Are the Estonian financial system and banks sound and reliable?

Yes, they are. The financial position of the Estonian banking system is strong; the equity capital of banks is substantial and their profitability good. Compared to many other banks in the world, the functioning of the Scandinavian banks has been affected by the financial crisis to a less serious extent. The capital adequacy (which is an indicator of solvency) of Estonian banks is 18%, which exceeds the mandatory minimum value of the EU by more than twice. The rate of the reserve requirement (i.e., the size of the banks’ obligatory reserve) applied in Estonia is 15% of the total liabilities of a bank. This is considerably higher than the respective euro area indicator (2%).

Eesti Pank’s analyses confirm that the capital and liquidity reserve of banks is sufficient to cope with market risks and slowing economic growth. The analyses of Riksbank, the Swedish central bank, affirmed on its behalf the strong financial standing of the Swedish banks having their subsidiaries and branches in Estonia.

What is happening on the stock exchange? Why are they no longer as effective as before?

The events in the financial markets affect investors’ opinions of one or another listed company, including the banks’ revenue forecast and the company’s general development. This is why investors have become very insecure regarding the near future and share prices are fickle throughout the world. There is no doubt it takes some time for the markets to settle and no company is able to control the daily development of its share prices. However, the short-time fluctuation of share prices should not be over-dramatised, since this may not have a substantial impact on the general share price changes in the long run.

Which measures has Eesti Pank taken to maintain the reliability of the banking system?

Together with the government and the Financial Supervision Authority, Eesti Pank watches over the smooth functioning of the financial intermediation system, i.e., financial stability, and ensures the soundness and reliability of the Estonian banking and financial system. In addition, Eesti Pank, the Ministry of Finance and the Financial Supervision Authority have signed a specific cooperation memorandum to manage financial crises and laid down the basis for joint action in the event of financial crises.

Eesti Pank took a number of measures to increase the capital and liquidity buffers of banks already in 2006, when the central bank raised the banks’ reserve requirement, i.e., their mandatory liquidity buffer, to 15% of all their liabilities. Eesti Pank also increased the risk weights attributed to housing loans when calculating capital adequacy, due to which in 2007 the amount of banks’ mandatory minimum capital rose by approximately a tenth. The average capital adequacy of the banking system is currently 18%.

The cooperation of Estonia and Eesti Pank with other EU Member States and especially our neighbouring countries plays a very important role. EU Member States have agreed on a framework for the supervision of cross-border financial institutions and on general principles of guaranteeing financial stability. In the Nordic-Baltic region, where the same banking groups operate in several countries, there is strong cooperation in place between the governments and supervisory authorities and it is considered one of the most advanced in Europe.

The steps taken by several EU Member States in recent months have proved that the existing framework allows for a rapid and relevant reaction to complications surfacing in the banking system. Inter-bank cooperation in ensuring the liquidity of banks and supporting financial stability deserves a special mention. The governments and central banks of the Member States are prepared to ensure the smooth functioning and reliability of the financial system.

How are deposits guaranteed? Are all deposits guaranteed?

Depositors do not need to worry. According to Eesti Pank’s analyses, the financial standing of the Estonian banking sector is strong and banks have sufficient buffers. The central bank of Sweden has provided a similar positive assessment to the financial position of the larger Swedish banks having subsidiaries or branches in Estonia.

According to the Guarantee Fund Act, the deposits of private persons and non-financial companies are guaranteed, irrespective of the deposit type (incl. demand, saving, time and other deposits). Deposits as well as investments are compensated for to the extent of 90% but not more than in the amount of 313,000 kroons per depositor in any one credit institution. The limit applies to credit institutions operating in Estonia, including foreign-owned subsidiaries, and complies with the respective EU directive.

The deposits of depositors of foreign-owned bank branches in Estonia are guaranteed according to the guarantee scheme of the credit institution’s home country at least to the same extent than the deposits in credit institutions registered in Estonia. For further information, see the home page of the Guarantee Fund www.tf.ee.

How has the financial crisis affected Swedish banks?

Like many households, banks need to borrow money in different ways and for different durations in order to make necessary payments and ensure they would be able to meet the credit demand of households and enterprises.

Similarly to other banks in the world, banks in Sweden have also been affected by the fact that it has become more difficult to borrow from international markets. Financial institutions and investors who normally lend money in the international markets have become more insecure and therefore prefer to invest in secured securities. This has made it more expensive for banks to borrow money, since the number of those who are willing to lend is diminishing throughout the world. But none of the Swedish banks have had such liquidity problems as banks in other countries have encountered.

Source: press release of central bank of Estonia as of Oct.2, 2008