Estonia’s economic linkages with Russia

Russia’s share in Estonia’s foreign trade is below 10%
Russia’s share in Estonia’s foreign trade is rather small, only 9% in 2013. However, Russia’s market is more relevant for certain sectors, like food industry and agriculture, as well as chemical and textile industries. As a source of raw materials, Russia is important for timber, furniture, chemical, and metal industries. Russia’s market is also significant for Estonia’s exports of transport and travel services.

Russia’s share in foreign investments remains small
The stock of Estonia’s investment in Russia and Russia’s investment in Estonia remains modest. At the end of 2013, the stock of Estonia’s investments in Russia amounted to 4% in Estonia’s total investment abroad, and the stock of Russia’s investment in Estonia was also 4% of all foreign investment in Estonia.

The crisis in Ukraine will affect trade and investment flows
Exports to Russia are affected not only by the decreasing purchasing power of Russians, but also by possible trade barriers. Investment flows will be smaller because investing in Eastern Europe is considered more risky and will be less profitable when economic growth in the region will be slower. If the conflict in Ukraine does not escalate and sanctions remain targeted with a modest impact, the Baltic economies are still expected to grow, albeit slower than anticipated before. Should the conflict escalate and broader trade sanctions be introduced, Estonia and the other Baltic economies will probably be hit harder – in which case a recession should not be ruled out.

Read more from Swedbank Macro Research

O’Neal invests in Estonian company

Shaquille O'Neal

Shaquille O’Neal

The former NBA superstar Shaquille O’Neal and his multi-billionaire business partner Vivek Ranadive have recently made an investment in the Estonian company Pipedrive.
The investment is estimated to total several hundred thousand dollars, the weekly Eesti Ekspress said.

Managers at Pipedrive refused to be specific about the sum.

“They made a phone call to us searching for a cooperation partner to service a couple of clients. We had a meeting, there was good understanding between us, the proposal to invest came from Vivek. We understood that we have a lot to learn from him,” Urmas Purde told Eesti Ekspress.

Pipedrive, an on-demand software provider to help small to medium size companies manage and increase sales, was established by Estonians Timo Reini, Urmas Purde, Ragnar Sass, Martin Henk and Martin Tajur in 2010 with money from Estonian marketing guru Peep Vain.

The company is estimated to have 10,000 clients in more than a hundred countries and it has offices in Tallinn and Palo Alto offices — the former for the product development team, and the latter in marketing and business development.

Source: Baltic News Service via Estonian Review

Estonia was net lender for fifth straight year in 2013

The outflow of financial investments from Estonia surpassed inflow by 534 million euros in 2013, which is almost double the figure for 2012, the Bank of Estonia said on March 11, 2014, adding that Estonia has been a net lender for the past five years.

Although net inflow of direct investments was approximately on a par with 2012, both outflow and inflow lagged behind 2012 in absolute terms. Of investments placed abroad equity investments accounted for the lion’s share, the central bank said.

In investments made in Estonia, equity investments declined partially as a result of Estonian owners buying back companies from foreign investors.

Of institutional sectors, credit institutions financed the outside world with 482 million euros, the business sector with 307 million euros and the central bank with 59 million euros. The general government saw a capital inflow of 314 million euros.

Source: Baltic News Service via Estonian Review

Russia could nationalize Estonian assets

 

Estonian economist Maris Lauri writes that EU and US are likely to impose extensive trade sanctions in Russia in the light of Ukraine events. Russia is likely to respond with its own means which may include that the assets of foreign companies in Russia could be nationalized.

Lauri says that although such retaliation would be mainly targeted against US and British enterprises, one should not forget that Russia likes to attack weaker ones which means that this is something that also Estonian entrepreneurs must be prepared for.

Since Estonia is fully dependent on supplies of Russian natural gas, the Estonian government must quickly look at alternative possibilities to reduce Estonia’s energy dependency on Russia.

Read more from BBN

Ekspress Grupp pulls out of Ukraine

The listed Estonian media holding AS Ekspress Grupp has decided to terminate the activity of its Delfi subsidiary in Ukraine from March 1, 2014.

Read more from BBN

Increased investment is required on top of consumption

Initial data from Statistics Estonia show that the Estonian economy did not grow year-on-year in the fourth quarter of 2013, and shrank 0.1% quarter-on-quarter. In 2013 as a whole, the economy grew by 0.7%, which is less than Eesti Pank had forecast.

A major role in the slow growth of the fourth quarter was played by the energy sector. Heat production volumes were one sixth smaller than a year earlier due to the unusually warm weather. Although this brings down growth in the GDP calculation, lower heating costs eased the pressure on the budgets of households and companies in the short term. At the same time, households were bolder in their consumption decisions and they not only made unavoidable purchases at the end of last year, but also bought increasing amounts of durable goods.

However, faster economic growth needs to be accompanied by investment, as sustainable growth should be based on capital growth. Investment in new production capacity is not likely to have increased significantly in the fourth quarter. Imports of capital goods declined in the fourth quarter if transport vehicles are excluded, imports of which increased due to investment by state companies. Utilisation of production capacity is now close to its average level of before the crisis, meaning that the need for new investment is increasing.

Although preliminary assessments show that economic growth was lower than was forecast, demand in the external environment is gradually recovering. The output of manufacturing industries increased by notably more than GDP did in the fourth quarter, growing by a seasonally adjusted 2% in the quarter, while value added increased by 10% over the year according to initial estimates. Sales growth in the manufacturing sector was supported in the fourth quarter by increased exports towards the euro area, though exports of manufactured goods away from the euro area declined. While there is optimism in Europe about the economy recovering, the risks to growth in developing economies have increased somewhat recently.

Source: Bank of Estonia

Author: Kaspar Oja, Economist at Eesti Pank

Krimelte acquires Spanish rival

An Estonian-owned construction material manufacturer, Krimelte, has acquired a majority holding in a Spanish firm, Olivè Qukmica, a move characterized as a breakthrough into a blue chip, Old World market.

Krimelte’s plants in Estonia, Russia and Brazil produce foams, sealants and adhesives.

Read more from ERR

Google pays USD 400m for a company linked to Jaan Tallinn

Google announced this week that it has paid USD 400m for a London-based artificial intelligence company DeepMind, writes Äripäev.

The deal is relevant to Estonia because one of the investors and advisers of the company is Jaan Tallinn who is better known as one of the Estonian developers of Skype and Kazaa.

Read more from BBN

Viking Line CEO: reflagging to Estonia will save us millions

Mikael Backman, CEO of Viking Line explains that the ferry line decided to move its Viking XPRS ferry which services the Tallinn-Helsinki route from the Swedish registry to the Estonian one because of cost savings, writes Äripäev.

In an interview to Äripäev, Backman says that the move will create 200 jobs.

Read more from BBN

Swedish investment fund close to selling Klick Eesti

Estonian businessmen Armin Kõomägi, Indrek Prants and Sven Mansberg who own half of Estonian electronics retailer Klick Eesti are interested to buy the rest of the company from Swedish investment firm Askembla Growth Fund, writes Äripäev.

Read more from BBN

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