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The following OECD assessment and recommendations summarise chapter 5 of the Economic Survey of Estonia published on 20 April 2009.
Estonia already has a very open and business-friendly environment, but needs to do more
Since regaining independence in 1991, Estonia has progressed swiftly to establish a modern market economy. Today, the country is considered to have one of the most open and competitive economies in the world. The dynamism of the business environment is reflected in high rates of firm and job creation, also relative to other European emerging market economies, as well as by large inflows of FDI. Estonia is particularly highly regarded in the area of network readiness, and also scores relatively highly (for its level of development) on measures of corporate governance and transparency. Estonia’s good business environment is further supported by e-government, which is considered as the most outstanding example in central Europe, and in several aspects (such as e-governance or delivering e-services for businesses) even exceeds the standards of the OECD countries on average.
However, the share of production in high tech sectors and knowledge-intensive services is still relatively low, and the share of high technology products in exports has slowed. To become a knowledge-based economy, production will need to shift towards knowledge-intensive sectors and productivity gains from innovation will need to drive growth in the future. Moreover, application of the OECD product market regulation (PMR) methodology indicated that the overall product market policies in Estonia were only slightly less restrictive than on average in the OECD countries, signalling room for further reforms to catch-up with best performers.
Several key challenges remain to improve the business environment
While acknowledging the significant achievements of past regulatory reform for a business and investment friendly environment, a few specific challenges still need to be tackled:
Barriers to competition in the electricity sector should be removed. Unbundling of Eesti Energia remains a challenge. Increasing the share of the retail markets open to consumers and creating a liberalised wholesale market should be a priority.
The impact of limiting the corporate tax liability to distributed profits should be carefully monitored and this tax regulation reconsidered if it is established that serious distortions arise.
The cost effectiveness of the different programmes supporting business and innovation activities needs to be enhanced. Results of evaluation studies should be more rigorously implemented, including at Enterprise Estonia.
Private-sector activities in less-developed areas of the country as a driver of growth and poverty reduction should be encouraged, in particular through facilitating a better access to credit for small and medium-sized enterprises.
How to obtain this publication
The complete edition of the Economic survey of Estonia is available from:
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.
For further information please contact the Estonia Desk at the OECD Economics Department at email@example.com.
The OECD Secretariat's report was prepared by Zuzana Brixiova and Laura Vartia under the supervision of Andreas Wörgötter. Research assistance was provided by Margaret Morgan.