The growth in the business sector has slowed

According to Statistics Estonia, in the 1st quarter of 2012, the net sales, costs and total profit of the business sector increased compared to the previous quarter as well as to the same quarter of the previous year. At the same time, the high comparison basis makes the growth rate slower.

In the 1st quarter of 2012, enterprises sold goods and services for 10.6 billion euros at current prices, which is 12% more than in the same period a year ago. The net sales of wholesale and retail trade, manufacturing and transportation and storage enterprises, which have the biggest share in the gross net sales of the business sector, increased 14%, 3% and 11%, respectively.

According to the seasonally adjusted data, the net sales of enterprises increased by 4% in the 1st quarter of 2012 compared to the previous quarter. In the 1st quarter of 2011 the growth compared to the previous quarter was 7%.

Compared to the 1st quarter of 2011, the enterprises’ total costs increased 12%, including a 13% increase in personnel expenses. The number of persons employed and the number of hours worked increased 5% and 6%, respectively. The share of labour costs in value added is increasing, which has also evened out the increase in productivity indicators. The per-hour productivity (total productivity / number of hours worked) of the business sector increased 8% and the average hourly labour costs increased 6%. A year ago the increase in these indicators was 20% and 4%, respectively.

In the 1st quarter of 2012, the total profit of enterprises amounted to 627 million euros, which was 17% more than in the 1st quarter of the previous year and, according to the seasonally adjusted data, stayed on the same level as in the 4th quarter of 2011. The biggest contribution to the increase in total profit was made by enterprises engaged in construction, real estate and retail trade. The total profit of manufacturing, which held the biggest share in the total profit of the business sector, decreased 12% compared to the same quarter of the previous year. The changes in manufacturing profit were mainly caused by the decreased profit of the manufacture of electronic equipment.

According to the Estonian Institute of Economic Research, the economic sentiment indicator, which reflects the confidence of Estonia’s entrepreneurs and consumers, has also shown a positive trend in the first quarter of the year. At the same time, the confidence has significantly declined compared to the 1st quarter of 2011, when the indicator was on the highest level of recent years.

The investment activity of enterprises remains high. In the 1st quarter of 2012, enterprises invested 506 million euros, which is 1% more than in the 1st quarter of 2011. Investments were mainly made in equipment and machinery. The major investors were energy, manufacturing and trade enterprises with about a half of the total investments of enterprises. Compared to the 1st quarter of 2011, only investments in vehicles and computers decreased.

Net sales, personnel expenses and total profit of the business sector,
1st quarter 2003 – 1st quarter 2012
(average of the quarters of 2005 = 100)

Diagram: Net sales, personnel expenses and total profit of the business sector, 1st quarter 2003 – 1st quarter 2012

Source: Statistics Estonia

Estonian pension system to be 18 bEUR short by 2040

SEB, the second largest bank in Estonia, has estimated that the current working-age generation will have to save 30 billion euros  in their employer-matched and investment retirement funds if they expect to draw a pension that will meet their needs in 2040.

This is about 18 billion euros more than what is likely to be saved because over the last decade only a billion has accrued in the second and third-pillar funds and if the current rate is maintained, total pension assets will reach 12 billion euros in 2040.

That will not be enough to pay a decent pension for everyone, warns SEB.

Source: BBN

Labor productivity grew 7 pct in Q1

Labour productivity per employee in Estonia, calculated on the basis of net sales, grew 7% year-on-year to 26 950 euros in the first quarter, data of Statistics Estonia show.

The annual growth was the highest in construction, 30%. In arts, entertainment and recreation productivity increased by 27%. In manufacturing no change occurred and in mining productivity declined by 12%.

Productivity is relatively the highest in energy, where it amounted to 118 990 euros per person employed.

Source: Estonian Review

Estonian parliament passed law on opening of electricity market

The Estonian parliament on Wednesday passed amendments to the electricity market law that will fully open the market to competition from 1 January 2013.

The bill was adopted with 54 votes for, 27 against and two abstentions.

When the law takes effect consumers will be able to freely choose their electricity seller regardless of which grid company’s clients they are. They will also be able to change their electricity seller once a month.

The full opening of the market concerns purchasing of electricity while the fee for the network service will remain under the regulation of the Competition Authority. The price of electricity currently makes up around one third of the total price of the power supply service.

The deregulation of the electricity market and amendment of the electricity market law arise from Estonia’s accession agreement with the European Union and EU energy directives.

Source: Estonian Review

Change of governor of the central bank

Today is the last day of office for Andres Lipstok who has served as Governor of Eesti Pank since 2005. Ardo Hansson will take the office as governor of the central bank on Thursday. The governor is appointed for a term of seven years, not for more than one consecutive term.

“The last seven years have been very exciting for me, especially considering the wide range of activities pursued by the central bank. Various daily services used by the Estonian people – e.g. settlements and currency circulation – require smooth operation of the central bank. I would first like to thank the bank’s staff who continue to strive towards the smooth operation of the central bank and maintain the reliability of Estonia on the international arena,” Andres Lipstok said.

“I would also like to thank Eesti Pank’s partners, whom I have had the honour of cooperating with over the last seven years, serving the best interests of Estonia. The changeover project demonstrated the ability of the Estonian people to combine the forces of the public and the private sector. This is quite an achievement; we have all the reasons to be proud of our nation,” Lipstok said.

Albeit the sovereign debt crisis is exerting great pressure on the euro area central banks, Lipstok believes that the Eurosystem has succeeded in preventing the spill-over of inter-bank mistrust into corporate financing and job creation. “There is great pressure on the governments of euro area countries to implement the required reforms and restore confidence in public finance,” Andres Lipstok said.

“The Governor of Eesti Pank is now more powerful than ever. As a member of the Governing Council of the European Central Bank, Ardo will participate in decisions affecting inflation in the entire euro area with a population of more than 330 million people. Indeed, my last working day is also spent in Frankfurt, passing the euro area interest decision together with other governors of central banks. I am convinced that Ardo’s education and professional experience has well prepared him for the demanding work,” Andres Lipstok said.

“I will pass the torch to Ardo with all confidence. The Estonian banking sector stands strong; there is no need to use taxpayer money to save banks; our people and companies have savings, and our inter-bank payments are quicker than anywhere else in Europe. Eesti Pank is well able to perform its tasks. I would like to see it keep its course in the future,” Andres Lipstok said.

In the summer, Andres Lipstok plans to take a holiday – the first in years – and will then decide which challenges to take thereafter.

Prior to being appointed the Governor of Eesti Pank, Andres Lipstok served as a member of the Riigikogu (1995-2005) and as the first Vice-President of the Riigikogu (2005). Lipstok served as the Minister of Finance in 1994-1996, Deputy Minister of Finance in 1989 and the Minister of Economic Affairs in 1995-1996. Lipstok served as the Lääne County Governor in 1989-1994 and worked for the financial department and planning committee of Haapsalu District in 1980-1989. Andres Lipstok has graduated from the University of Tartu, majoring in finance and credit.

Ardo Hansson previously worked for the World Bank, serving as the Chief of the World Bank’s Economics Unit in China since 2008. In addition to China, Hansson has also worked with various Eastern European and Balkan countries. Hansson served as a member of the Supervisory Board of Eesti Pank in 1993-1998, economics adviser to the Estonian Prime Minister in 1992-1995 and in 1997, and adviser with the Minister of Foreign Affairs in 1991-1992. Hansson was also a member of the Estonian Monetary Reform Committee. Having obtained a PhD degree in economics from Harvard University, Hansson has previously worked for severable reputable universities and published numerous articles on economic policy.

Ardo Hansson’s photo is available on the website of Eesti Pank.

On February 21, President Toomas Hendrik Ilves signed the resolution on the appointment of Ardo Hansson as Governor of Eesti Pank in accordance with the proposal of the Supervisory Board of Eesti Pank dated February 1.

Pursuant to the Constitution of the Republic of Estonia, the Governor of Eesti Pank shall be appointed to office by the President of the Republic on the proposal of the Supervisory Board of the central bank. The proposal requires the votes-in-favour of at least five members of the Supervisory Board. By law, the governor of the central bank is appointed to office for a term of seven years, not for more than one consecutive term.

 Source: Bank of Estonia

Estonia to boost its stake in IMF

Riigikogu approved the 175-million-euro increase in Estonia’s participation in the International Monetary Fund (IMF) today. The Riigikogu also ratified the proposals for amendment of the IMF’s Articles of Agreement, aimed at enhancing the flexibility of the IMF’s management framework and increasing the voting power of developing countries.

The Estonian participation or quota will be raised by nearly 150 million SDRs or 175 million euros to a total of 244 million SDRs or approximately 285 million euros, i.e. 0.051% of the total volume of IMF quotas.

The SDR (Special Drawing Right) is used by the International Monetary Fund as an accounting unit which is based on the basket of currencies comprising the US dollar, the euro, Japanese yen and the British pound sterling.

Under the decision of the Riigikogu, Estonia is represented in the International Monetary Fund by Eesti Pank. Eesti Pank will make the downpayment for the increase of the Estonian quota, paying 25% or approximately 44 million euros in SDRs or other foreign currency, and 75% or approximately 131 million euros in the local currency (i.e. the euro). The quota payment will not affect the state budget.

In order for the quota increase to take effect, the increase must be approved by the countries whose participation amounts to 70% of the total volume of IMF quotas. Furthermore, the amendments to the IMF’s Articles of Agreement must have taken effect in 60% of the member states representing 85% of the total voting power in order for the quota increase to be implemented. To participate in the quota increase, the member states must submit to the IMF their consent to the quota increase by 30 June 2012 at the latest.

The decision of the Riigikogu allows Estonia to grant consent to the increase of the Estonian quota and amendment of the IMF’s Articles of Agreement. The new Estonian quota will take effect upon fulfilment of the above conditions and the effecting of the downpayment by Estonia.

The total volume of IMF quotas will be raised twice, from 238 billion SDRs to 477 billion SDRs. The IMF’s proposal to raise the quotas was prompted, above all, by the need to double the IMF’s resources in the conditions of a global financial crisis, by considering the changed position of quickly developing member states (including Estonia) in the global economy. The IMF reviews the quotas of its member states on a regular basis – at least once every five years.

The quota determines the maximum participation of the member state in the IMF. The size of the quota is calculated based on the established formula by taking account of the GDP, trade openness, economic volatility (capital flows, current account) and the currency reserves. The quota also determines the member state’s chances to apply for an IMF loan, with access to the IMF’s credit lines usually linked to the country’s participation.

Source: Bank  of Estonia