Estonia, as a new member of the World Trade Organization and the European Union, has transitioned effectively to a modern market economy with strong ties to the West, including the pegging of its currency to the euro. The economy benefits from strong electronics and telecommunications sectors and is greatly influenced by developments in Finland, Sweden, and Germany, three major trading partners.

Eastern European economies are growing rapidly and playing catching up with the rest of the EU. In recent years the growth in GDP of Eastern European countries has exceeded growth in developed countries. This should continue, with average growth in Estonia at 7.2% since the year 2000; the GDP was 9,8% in 2005 and is predicted to grow more this year (2006), compared to an average of 1.5% for the EU as a whole. In terms of growth, the country closest is Slovakia, which boasts a growth rate of 5.2%, while France and the United Kingdom lag far behind, with growth rates below 3%. Unemployment was 2,2% in the first quarter of 2006.

Eastern European economies are growing rapidly and playing catching up with the rest of the EU. In recent years the growth in GDP of Eastern European countries has exceeded growth in developed countries. This should continue, with average growth in Estonia at 7.2% since the year 2000; the GDP was 9,8% in 2005 and is predicted to grow more this year (2006), compared to an average of 1.5% for the EU as a whole. In terms of growth, the country closest is Slovakia, which boasts a growth rate of 5.2%, while France and the United Kingdom lag far behind, with growth rates below 3%. Unemployment was 2,2% in the first quarter of 2006.

Eastern European economies are growing rapidly and playing catching up with the rest of the EU. In recent years the growth in GDP of Eastern European countries has exceeded growth in developed countries. This should continue, with average growth in Estonia at 7.2% since the year 2000; the GDP was 9,8% in 2005 and is predicted to grow more this year (2006), compared to an average of 1.5% for the EU as a whole. In terms of growth, the country closest is Slovakia, which boasts a growth rate of 5.2%, while France and the United Kingdom lag far behind, with growth rates below 3%. Unemployment was 2,2% in the first quarter of 2006.

Eastern European economies are growing rapidly and playing catching up with the rest of the EU. In recent years the growth in GDP of Eastern European countries has exceeded growth in developed countries. This should continue, with average growth in Estonia at 7.2% since the year 2000; the GDP was 9,8% in 2005 and is predicted to grow more this year (2006), compared to an average of 1.5% for the EU as a whole. In terms of growth, the country closest is Slovakia, which boasts a growth rate of 5.2%, while France and the United Kingdom lag far behind, with growth rates below 3%. Unemployment was 2,2% in the first quarter of 2006.

Eastern European economies are growing rapidly and playing catching up with the rest of the EU. In recent years the growth in GDP of Eastern European countries has exceeded growth in developed countries. This should continue, with average growth in Estonia at 5.6% over the last 4 years, 6.1% in 2004 and is predicted to grow more this year (2005), compared to an average of 1.5% for the EU as a whole. In terms of growth, the country closest is Slovakia, which boasts a growth rate of 5.2%, while France and the United Kingdom lag far behind, with growth rates below 3%.

Eastern European economies are growing rapidly and playing catching up with the rest of the EU. In recent years the growth in GDP of Eastern European countries has exceeded growth in developed countries. This should continue, with average growth in Estonia at 5.6% over the last 4 years, 6.1% in 2004 and is predicted to grow more this year (2005), compared to an average of 1.5% for the EU as a whole. In terms of growth, the country closest is Slovakia, which boasts a growth rate of 5.2%, while France and the United Kingdom lag far behind, with growth rates below 3%.

In addition, Estonia has been ranked 20th out 101 countries in the latest Global Competitiveness Report by the World Economic Forum, the highest of the 10 new accession countries. In  2002-2003 Estonia ranked 22nd. Plus it’s been ranked 4th of 155 countries in the World Hertitage’s Economic Freedom Index, right behind Hong Kong, Singapore and Luxembourg.

The EU has pledged 42 billion Euros to the Accession countries as part of the Accession process. This will be used mainly for developing infrastructure and increasing the competitiveness of the local economies as they become part of the EU market. These changes are leading to increases in tourism, foreign investment, and productivity. The influx of foreigners buying at the top end of the property market and the establishment of a middle class of mainly young professionals is combining to drive economic growth and sustainable rises in property demand and prices.

Annual tourist numbers in Tallinn are now over 4 times greater than the country’s population. Tourists lead to hotels, holiday homes, apartment rentals, and new businesses. Foreign tourism is already up 26% in 2004 compared to 2003 (Estonian Tourist Board).

In 2004, the number of foreign tourists staying in the Estonian Capital (at least 1 overnight) increased substatnially. Some 957 000 of them spent at least 1 night in Tallinn’s hotels, which is 31% more than the year before. To compare, the number of foreign tourists:

in Tallinn   957 000
in Stockholm  899 000
in Helsinki  767 000
in Riga    620 000

The Open Sky Agreement, which is part of EU Accession, will lead to budget carriers like Ryanair entering the markets. This will happen in Estonia as soon as the treaties are ratified, which is set to happen in the next 2-3 years. Cheap, direct flights will have a clear impact on property in tourism areas. There are also an increasing number of cheap local airlines emerging around Eastern Europe. In fact, Easyjet have already announced direct flights to Tallinn from 15 euros one way.

In the long term, Accession should lead to economic development, increased foreign investment, and higher wages. Foreigner investment tends to affect the top-end of the market, with foreign businesses looking to accommodate their employees, while their local employees gain greater wages, job security, and accessibility to loans and can become first time buyers.

The increase in private lending is crucial in driving up property prices. As wages rise, and people are able to borrow more at more realistic rates, demand increases. This ultimately leads to a need to build new properties, as this market never existed before.

In Estonia lending interest rates have fallen from 13% in 1997 to as low as 3.1% in 2005.

Equally important, banks have become willing to lend a larger share of the value of the property and to extend the period of the loans to 20 years. It is now possible to borrow between 67%-95% of property value in Estonia. Thus the market now largely resembles markets in Western Europe, and interest rates are set to come down marginally to meet EU levels.

This has resulted in a very rapid increase in housing loans in each country, both in absolute terms and as a percentage of GDP. In Estonia the volume of loans has nearly quadrupled since 1997, and is predicted to increase by 25% in the coming year.

IT Sector

NEW YORK - "If the Internet was reborn as a country, it would be Estonia," United Nations Development Program administrator, Mark Malloch Brown, has said.

There are only 1.4 million Estonians in a country a little larger than Holland, and half of the nation is covered in forest. But, beneath the trees, Estonia hums. With virtually no outmoded infrastructure to weigh them down, resourceful Estonians have constructed a kind of e-republic that has already outpaced many of its new, much wealthier, European neighbors.

The very highly developed IT Sector in Estonia has given a strong boost to the economic growth: e-government, e-tax office, internet bank services, digital signature, electronical ID-card, e-shopping are all part of estonian everyday life. Even free call service Skype, and file exchange programme Kazaa are inventions of Estonians. It is also stated that 80% of  payments are made via internet banking in Estonian companies.  On top of all, the Estonia’s capital Tallinn is the richest European capital by the number of free wireless internet access points.

Some Estonians will be able to vote online next year, as Tallinn plans trials with electronic voting software that is the first step toward a nationwide e-voting system.  If the tests are successful, the e-voting system will also be used in parliamentary elections. Estonians are already frequent users of their official electronic ID cards, which were launched in 2002. The ID cards include small microchips and offer secure logons and e-signing through a reader attached to their their computers. The cards are used to access online bank accounts, and an increasing number of Estonian government institutions, such as the national tax office, allow citizens to log in and file official documents through e-signing. It is estimated that nearly half of the population of Estonia has an electronic ID card.

Internet and mobile phone use per capita, for instance, is higher in Estonia than in France, and over half of all Estonians now pay for their street parking spaces automatically, using their mobile phones. The government (see: e-government) runs its Thursday-morning cabinet meetings via computer, and is close to doing away with paper altogether. Sessions that used to take most of a day now take half an hour, as ministers politely type their comments, instead of grandstanding. And in 2005, the official record of government business will no longer be printed on paper, except for a single copy for the archives. Instead, it will exist solely on the Web.

Estonia is often lumped together with two other new republics, Latvia and Lithuania, as the so-called "Baltic tigers." All three nations joined the European Union (E.U.). in May of 2004. All three have thrived since independence, and their improved standing has marked a distinct contrast to those of other former Soviet republics. These three new E.U. members have been recognized for their speed and agility in adapting to the hard realities of capitalism. Gross domestic product (GDP) growth in all three countries is moving briskly along, with increases of 6% a year. (Read further in Forbes Magazine..)