Linnahall’s €100m makeover to be completed in 2019

Reconstruction of the long-abandoned Linnahall entertainment arena in Tallinn’s port area is expected to be completed in 2019 at a total cost exceeding 100 million euros.

“During the past six months, we worked toward making sure how to proceed,” said Deputy Mayor Taavi Aas, standing in for the mayor, at a press conference on Tuesday. “I am beginning to hope that the grand house with a grand history will come to life again. We have reached an agreement with the government that we will do it together.”

The entertainment and sports arena known as Linnahall, designed by Estonian architect Raine Karp and boasting a seating capacity of 4,200, was completed in time for the sailing events of the 1980 Moscow Olympics, which were hosted in Tallinn. The four-story building has a total enclosed area of 37,000 square meters.

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Rural affairs minister resigns after less than two weeks on job

On Monday night, the leadership of the Center Party had begun discussing the matter of Minister of Rural Affairs Martin Repinski continuing in his position as minister following the surfacing of two scandals involving him. Unable to reach a final decision on the matter, they planned to continue discussing the matter on Tuesday evening. Repinski preempted the final decision, however, when he handed in his letter of resignation to Prime Minister Jüri Ratas on Tuesday.

Investigative weekly Eesti Ekspress published an article the day that Ratas’ government was sworn into office alleging that the Repinski-owned Konju Organic Farm had sold goat cheese labeled as an Estonian product despite part of it being ordered from Dutch company De Molkerei. Repinski responded to the allegations by denying any fraud, claiming that no Konju Farm products sold in Estonian stores contained cheese sourced from the Netherlands.

It was then reported on Friday that the Ida-Viru County Court had found Repinski guilty of attempted fraud as a minor. According to the court judgment to which ERR had access, on Aug. 12, 2002, the Ida-Viru County Court found Repinski guilty of attempted fraud in the course of a settlement in a simplified proceeding, sentencing him to a conditional three months in prison and one year of probation. According to Repinski, he was very sorry for what he did.

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Estonia best in Europe’s PISA rankings

Improving its results across the reading, math and science categories compared to its 2012 results and outranked only by Singapore and Japan, Estonia jumped from sixth to third place overall and first place in Europe in the OECD’s freshly released 2015 PISA rankings.

By category, Estonia’s greatest improvement, by nine points, was in the reading category. While Finland performed worse than in 2012 across all three categories, they still outranked Estonia in reading 526-519. Also notable, however, is that Finland’s science and math scores, both of which were above those of Estonia in 2012, had dropped.

The 2015 edition of PISA focused first and foremost on science, in which Estonia likewise ranked third behind Singapore and Japan, outranking Finland and Canada in turn.

According to the most recent PISA results, Estonia’s youth were top ranked in Europe and in the top three globally, and results indicated that Estonia’s schools and teachers had done a good job in helping weaker students, including those of disadvantaged backgrounds, catch up with their peers. Results indicated that the problem-solving skills of Estonian students were among the best in the world, and that student satisfaction with one’s school was at a similar level in Estonia and neighboring Finland and Latvia alike.

Over half a million students from 72 countries participated in the 2015 PISA, including all developed countries.

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Estonian economy is not as bad as it seems from GDP

  • The economy is not doing as badly as it might seem from GDP alone, and additional stimulation might cause harm rather than good
  • Various sources indicate that economic activity increased in the third quarter
  • Further economic growth may be limited by the low rate of corporate investment

The flash estimate from Statistics Estonia shows that the Estonian economy grew in the third quarter by 1.1% year-on-year and 0.2% quarter-on-quarter. The poor harvest in the agricultural sector had a strong negative impact, as the current data put grain production down by one third over the year. In assessing economic activity in the third quarter it is necessary to look at a range of indicators and not focus only on GDP. Further stimulating the economy with government borrowing could under current circumstances lead to higher wage pressures and a further reduction in corporate investment.

Various sources indicate that economic activity increased in the third quarter. VAT declarations indicate that growth in value added among companies was strong in the third quarter. The whole of the industrial sector strengthened, with support primarily from the oil shale sector boosting manufacturing, energy and mining. The oil shale sector strengthened partly because charges for resources were cut. Increased economic activity is also indicated by corporate sentiment surveys. Corporate assessments of output in the previous quarter improved sharply in autumn in both the industrial and construction sectors. Companies working in the construction of facilities were a sector that stood out in sentiment surveys. Retail sales, which have supported economic activity so far, remained strong at the same time.

September was the month when activity strengthened. The signals from the monthly statistics for July and August were mixed and did not show a particular increase in activity, but the figures for September and those that are already available for October are notably stronger. It is too early to say yet from those figures whether they represent a general strengthening in the economic climate, or a temporary phenomenon. Elsewhere in the world some strengthening in economies in the third quarter has been noted. It has come in connection with the construction industry in Europe, while in the USA the strengthening in the third quarter came partly from agricultural exports.

Further economic growth may be limited by the low rate of corporate investment. Corporate investment as a ratio to GDP was about the same in the first half of 2016 as it was in 2009. Such a level is enough to cover amortisation, but it means that notably less new economic potential is being created than before. With investment volumes small, the capacity utilisation rate for the industrial sector climbed to 75% in the fourth quarter. Corporate investment cannot entirely be replaced by general government investment. One reason for the low investment rate is the reduced profitability of companies. Stimulating the economy with money that the government has borrowed could, under current circumstances, raise wage pressures further and lead to a further reduction in profits, as stimulation would primarily affect labour-intensive sectors focused on the domestic economy, where activity is already at a high level. A fall in company profits would in turn reduce corporate investment.

Current growth, in the fourth quarter, is likely to be boosted substantially by people buying in stocks of goods subject to excise in December ahead of the rise in excise rates in January. This impact will however be reversed in the first quarter of next year.

Source: Bank of Estonia

Author: Kaspar Oja, Economist at Eesti Pank

The Estonian current account at 81 mEUR surplus in September

The flash estimate1 put the Estonian current account at 81 million euros in surplus in September 2016. The surplus on the goods and services account was 118 million euros, which was 70 million euros more than at the same time a year earlier. The growth of 10% in goods exports was notably faster than the 3% in imports, and this reduced the deficit on the goods account to 27 million euros. The surplus on the services account reached 145 million euros, with exports of services growing by a strong 7%, and imports doing likewise by 8%. Exports of services were brought down by transport services and boosted by travel services and other services, while imports of travel services were down and those of all other services were up. The net outflow on the primary and secondary income accounts totalled 37 million euros, which was 11 million euros more than at the same time a year earlier.

The sum total of the current and capital accounts was 100 million euros. This means that the Estonian economy was a net lender to the rest of the world, so the country as a whole invested more resources abroad than it received from there.

Eesti Pank publishes the flash estimate of the balance of payments monthly for the last month but one.

Eesti Pank will publish the balance of payments for the third quarter of 2016 on 9 December 2016.

1The quarterly balance of payments is compiled from a combined system of representative primary data sources, including surveys of companies, while the monthly balance of payments draws from a considerably smaller database. Although the monthly report uses as much data available for the month reported as possible, including administrative data sources and reports on international payments, it is subjective to a certain degree, which is why it is called an estimate. Once the quarterly balance of payments is released, the monthly balances of payments are adjusted accordingly.

See the graph on Bank of Estonia website

Rapid growth in loans and leases to companies continued in October

  • The portfolio of loans and leases to companies was up by 8.4% over the year in October with support from long-term loans
  • Growth in housing loans has picked up since the second quarter of this year, and was 4.9% in October
  • The volume of new housing loans was one tenth larger in October than a year earlier

The loan and lease portfolio of Estonian companies and households grew in October at a similarly fast rate to that of the preceding months. The stock of loans and leases was 6.9% bigger last month than a year before and at the end of the month it totalled 17 billion euros.

There was an increase of 8.4% over the year in the portfolio of loans and leases taken by companies from banks operating in Estonia. Growth in the domestic bank loans and leases of companies has been faster this year than last, mainly because of growth in long-term loans. There was a reduction in borrowing from abroad by companies in the first half of the year though, and so the total corporate debt has not changed in size substantially. The volume of domestic bank loans and leases to companies was affected significantly in October by individual large transactions.

Growth in housing loans has picked up since the second quarter of this year. The housing loan portfolio was 4.9% larger in October than a year earlier. The 95 million euros of new housing loans issued during the month was one tenth more than was issued a year previously. However, the number of new loan contracts signed in recent months is not notably more than a year ago, and the amount issued in new loans has mainly increased because the average value of transactions has risen. This indicates that the share of transactions with new apartments has increased. Other loans to households increased mostly because of car leases, like in previous months, and there was growth of 16% over the year in such leases.

The average interest rate for long-term loans issued to companies in October was 2.1%. The average interest rate on long-term loans to companies can fluctuate depending on the different projects that have been granted loans in each month, but the average for the year has remained close to the average for last year.

The share of loans overdue in the loan portfolio remained small. The value of loans overdue by more than 60 days at the end of October was 181 million euros. The share of long-term overdue loans was reduced a little by growth in the portfolio to stand at 1.2%.

The total deposits of companies and households continued to grow strongly in October. Total deposits increased by 163 million euros during the month to 11.4 billion euros. The volume of corporate deposits grew slightly faster, increasing by 9.5% over the year, while household deposits increased by 7.5%.

Source: Bank of Estonia

Author: Mari Tamm, economist at Bank of Estonia

Companies spent 6 pct more on research and development in 2015

According to Statistics Estonia, in 2015 the expenditure on research and development (R&D) in Estonia amounted to 302.8 million euros, which was 6% more than in 2014.

Expenditure on research and development in the period 2011–2015 experienced an escalation and decline trend. Changes were caused by one-time, large-scale investments in 2010–2012, followed by a decline in the next two years due to the absence of major new investments. It is characteristic of the economy of a small country that one-time investments, especially if these are not followed by equivalent investments in subsequent years, can significantly impact statistical indicators.

Diagram: R&D expenditure, 2005–2015

46% of R&D expenditure came from the 2015 State Budget. The government funds a substantial share of R&D spending, and this remained stable in 2013–2015. The share of R&D financing in the total general government expenditure was 1.7%. It is important to note that the funding allocated to R&D by the government also includes the European Union’s subsidies, which are included in the State Budget and are counted as government allocations.

The ratio of R&D expenditure to gross domestic product (GDP) was 1.5%, remaining on last year’s level. According to Eurostat’s preliminary data, with its R&D intensity indicator Estonia retained its intermediate position among the EU Member States.

Research and development expenditure in the business enterprise sector was 139.4 million euros, which accounted for 46% of the total R&D expenditure. Spending increased by 11% compared to the previous year, and this is mainly due to increased labour costs. The share of investments in the R&D expenditure of the business enterprise sector was at a record low, amounting to only 17% of the total expenditure, which is the lowest in the last five years. Obviously, this is influenced by the overall economic situation where investment activity started to decline already in 2013, and this downward trend continued in 2015.

The R&D expenditure in the non-profit sector (higher education, government and non-profit private sector) was 163.4 million euros, i.e. 54% of total R&D costs. Of these, 79% were funded by the government. The biggest share – 41% of the non-profit institutional sector’s R&D expenditure – was in the higher education sector. Similarly to the business enterprise sector, in the non-profit institutional sector, labour costs accounted for the greatest share of research and development expenditure – 50%.

Diagram: Ratio of R&D expenditure to GDP, 2015

The number of research and development employees calculated in full-time equivalents declined 6% compared to 2014. Calculated in full-time equivalents, the number of researchers and engineers declined slightly less – by 3%. The decrease in the number of full-time researchers and engineers was influenced the most by the business enterprise sector, where the figure fell by 9% compared to 2014; in the non-profit sector the decline was only 1%. However, labour costs in research and development grew by a total of 9%, including in the business enterprise sector by 18% and in non-profit sectors by 1%.

For the statistical activity “Research and development”, the main representative of public interest is the Ministry of Education and Research, commissioned by whom Statistics Estonia collects and analyses the data necessary for performing this statistical activity.

Source: Statsitics Estonia