OVERVIEW OF ECONOMY 2017 - MKM · Overview of economy 2017 Ministry of Economic Affairs and...

OVERVIEW OF ECONOMY 2017

Tallinn 2018

Contents Macroeconomic situation ............................................................................................................................ 3

Foreign trade ................................................................................................................................................. 8

Manufacturing industry .............................................................................................................................. 15

Manufacture of food products and beverages ......................................................................................... 18

Manufacture of textiles .............................................................................................................................. 23

Manufacture of wearing apparel ................................................................................................................ 25

Wood processing ........................................................................................................................................ 27

Manufacture of pulp, paper and paper products ...................................................................................... 30

Chemical industry ....................................................................................................................................... 33

Manufacture of rubber and plastic products ............................................................................................ 36

Manufacture of metal and metal products ............................................................................................... 38

Manufacture of machinery and equipment .............................................................................................. 40

Manufacture of electronic and electrical equipment ............................................................................... 42

Manufacture of means of transport .......................................................................................................... 45

Manufacture of furniture ............................................................................................................................ 47

The construction sector ............................................................................................................................. 49

Domestic trade ............................................................................................................................................ 53

Tourism ........................................................................................................................................................ 56

Information and communication ............................................................................................................... 62

Transport ..................................................................................................................................................... 66

Annexes ....................................................................................................................................................... 70

Abbreviations in text:

y-o-y – year-over-year

no – number

l.s. – left scale

r.s. – right scale

* – preliminary, short term statistics

Overview of economy 2017

Ministry of Economic Affairs and Communications Ministry of Finance 2018

3

Macroeconomic situation In 2017, the Estonian economic growth gave analysts a positive surprise for a change, speeding up to 4.9%. Considering the average 2% increase of GDP of the previous four years, the forecasts had assessed Estonia’s growth options as significantly lower and also curbed our growth potential. One reason was weak foreign demand, which would not be restored year after year but which was crucial for speeding up Estonia’s growth as domestic demand remained low due to the local private sector remaining cautious. In 2017, the acceleration of foreign demand1 exceeded all expectations, reaching 6% (the average of the previous five years was 2%). Estonian economic growth was rather extensive across areas of activity, the biggest contribution came from construction and several fields of service directed towards domestic consumption. Exporting processing industry also did well, manufacture of wood and metal products as well as trailer manufacture grew quickly. Growth was restored in energy industry and transport and storage. Favourable global conjuncture and the significant acceleration of growth in Finland gave good opportunities to realize the Estonian economic potential in 2017.

1 Weighted growth of import of Estonia’s primary export partners.

Domestic demand grew faster in 2017, but its proportion in the GDP remained (96.9%) in the background of the strong economic growth. The restoration of inflation steeply slowed the growth of private consumption, but the growth of investments (total capital placement) turned into a clear increase after three years in decline. The low level of domestic demand to gross production still indicates a high level of caution in the behaviour of local consumers and investors, which is the legacy of a deep and long-lasting global economic crisis.

Despite the increase of growth of residents’ income, the growth of their purchasing power slowed down in 2017, also being expressed in the growth speed of private consumption slowing to 2.1% from the 4.3% of the previous year. The sense of security of households improved over the year as the demand for employees grew over the year. However, the increase of consumer prices accelerated to 3.4%, which made it complicated to preserve

-20

-10

0

10

20

2001 2003 2005 2007 2009 2011 2013 2015 2017

% y-o-y

Source: Statistics Estonia

Economic growth

European UnionEstonia

-40-30-20-10

01020304050

2001 2003 2005 2007 2009 2011 2013 2015 2017

% y-o-y


Domestic demand

Private demand

Investments



4

the growth speed of consumption. In a favourable economic conjuncture, it would have been possible to wait until the saving rate of residents decreases in order to compensate for increasing prices more extensively, but that did not happen. Curiously, residents have even increased their rate of savings2 a little in the past five years and it has almost reached the heights of the crisis of 2009.

On the background of increasing saving, the investments of residents in new residential real estate continued at a similar speed as in the previous year. According to the Land Board, new residential space was bought approximately 15% more compared to the previous year. The growth of turnover of residential loans slightly exceeded the growth of volume of residents’ residential transactions, i.e. the proportion of loans in financing transactions increased slightly, but still remained two times lower than before the crisis. In other words, people remain conservative in their financial behaviour on the real estate market.

After three years of decrease, the investments in the entrepreneurial sector turned towards a strong growth in 2017. The greatest contribution to the growth came from buildings and facilities, but capital investments in means of transport and machinery and equipment also grew quickly. By areas of activity, the picture was influenced the most by real estate activities, the processing industry, and transport and storage. In the processing industry, investments increased the most in the field of producing wooden products, where demand has been high for several years on the domestic as well as foreign market. Hopefully, the recession of economic lethargy in the foreign environment will also promote the growth of corporate investments in other fields.

In 2017, the government sector contributed a lot particularly to investments in the field of construction, caused by the use of EU funds as

2 Here, saving rate is defined as the proportion of private consumption expenses in wage income and social transfers. This differs from

well as local elections. The growth of over 20% increased labour shortage in construction and increased supply prices, even though the quickly growing demand did not yet reflect in the construction price index. However, business indicators showed at the end of the year that the burst of demand was temporary and the role of the government will continue to be moderate on the construction market in the coming years.

The foreign environment was advantageous in 2017, characterized by the acceleration of the economic growth of the Euro zone and the primary trade partners, as well as acceleration of import demand. This allowed Estonian companies to increase export volumes and increase prices. Export of goods and services increased by 2.9% and export prices grew by 4.1%. Growth of export was lower than foreign demand, but this was caused by the decrease of foreign orders by one company of mobile communication devices. Export of this area of activity has low value added, but a significant impact on foreign trade volume. When looking at export without mobile communication devices, the growth of Estonian export was faster than foreign demand, i.e. the market share of export increased on foreign markets.

Out of Estonian-made goods, growth was spearheaded by the increase of export volumes of shale oil, wooden products and buildings, metal products, and machinery and equipment. Growth of export of goods was hindered strongly by the decrease of export turnover of mobile communication devices by a quarter. Out of the more important markets, export was most increased to the Netherlands (+44%), Germany (+25%), Latvia (+17%) and Finland. In addition, the geography of export has expanded and bigger growth numbers can be seen at many of the target markets of a previously smaller share. Due to the restoration of export of transport services and the continued successful sale of IT services to foreign markets, the growth of export of

the definition of the Statistics Board, which contains all income components, but the Statistics Board will only publish the saving rate of 2017 in September 2018.



5

services accelerated to 6.2%. The import of goods and services increased by 3.5% thanks to the stronger import of intermediate consumer goods and capital goods due to increased investing activities.

In 2017, the surplus of current accounts was the biggest of all time, reaching 3.2% of the GDP. This is due to strong export of services and an accelerated receipt of current transfers of foreign aid recorded in the balance sheet of secondary income. Even though investment activities increased, this did not result in the degeneration of trade exchange balance.

2017 was characterized by the enlivened world economy which resulted in the restoration of inflation pressure due to increased prices of raw materials here as well as in the Euro zone at large. In addition to foreign factors, our price level was also raised by additional tax measures. Due to increased economic activity, strong labour market and the transfer of increased prices of raw materials, the price growth of services was also restored. The growth of oil prices was caused by oil production limiting agreements by OPEC and the increased oil demand due to the accelerating growth of world economy. The appreciation of food products contributed the most to inflation. Food prices increased by 5.7%, mostly due to appreciation of raw produce on foreign markets. Expense pressures of manufacturers and traders as well as the increased demand of our export markets also played a part. The appreciated food formed 1.3 percentage points, or more than a third of the inflation of 2017. In line with foreign markets, the prices of dairy and oil products increased to a large degree. Inflation accelerated to 3.4% across the year. Indirect taxes increased inflation by 0.9%, nearly half of which was the increase of alcohol excise duty rate.

The number of employed people increased by 2.2% over the year and unemployment dropped to 5.8% according to the labour survey. Other sources confirm a similar, if less positive development. According to the Tax Board, the number of salaried workers increased by 1.7%. The number of registered unemployed persons increased by 0.2% compared to the year before, reaching 4.7%, but the increase was mostly caused by the increase of registering persons incapable of work as unemployed at the Unemployment Insurance Fund. The growth of employment was rather extensive and the number of employees grew in most areas of activity. According to the Tax Board, employment increased the most in the processing industry, which has recovered thanks to increased domestic demand, as well as in construction. Out of bigger areas of activity, the number of employed persons decreased in the transport sector and retail. Labour shortage has become one of the most significant factors impeding business growth, alongside insufficient demand. Despite the increasing wage pressure, the plan is to increase the number of employees further, allowing to predict the continued positive

-3

0

3

6

9

12

2001 2003 2005 2007 2009 2011 2013 2015 2017

% y-o-y

Source: Statistics Estonia, Eurostat

Consumer price index

Consumer price index: EstoniaConsumer price index: Euro zone (MUICP)

2

6

10

14

18

22

-70

-40

-10

20

50

80

2002 2004 2006 2008 2010 2012 2014 2016

%thousand


Employment and unemployment

Change of number of employedUnemployment rate (r.s.)



6

development of the labour market during upcoming quarters. In the long run, the desire of companies to hire extra help is limited by the decrease of working-age population, forcing companies to reorganize their production.

According to the Statistics Board, the average gross monthly salary grew by 6.5% in 2017, accelerating together with the increased economic activity throughout the year. The wage growth exceeded the speed of price growth by 3% in 2017, which can be considered moderate. Wages increased in all areas of activity. Across the year, wages grew faster than average in the mining industry (11.1%) and in information and communications (10.2%). In the mining industry, the wage level was restored after the difficulties of 2016 due to low oil prices, but this area of activity was also influenced by the increased activity of the construction market. The area of activity of information and communications have shown very good sales results in recent years, also expressed in the wages paid. As information and communications are very labour-heavy, the premature growth of wages before profits has not worsened their competitive status. The growth of wages was in line with the economic growth in 2017 and profit grew faster than wages in nearly all areas of activity. This is aided by increased demand and moderate price growth, which have first and foremost improved the profitability of companies. The situation only worsened in wholesale and retail, where there is a shortage of labour due to low wages and heavy competition forces wages to go up before profits.

In 2017, the budget of the government sector3 was in a deficit forming 66 m euros or 0.3% of the GDP according to the preliminary data of the Statistics Board. Lacking were the central government (0.3% of the GDP) and local governments (0.3% of the GDP), partly counterbalanced by the surplus of social insurance funds (0.3% of the GDP). The deficit of the central government as well as local governments was largely caused by quickly

3 The government sector includes: the central

government (reflected in the state budget), institutions under public law, state foundations

accelerated investment activities. The result of social insurance funds exceeded expectations in the Health Insurance Fund as well as the Unemployment Insurance Fund, caused by good collection of social and unemployment insurance taxes. The structural budgetary position of the government sector was in a deficit of 0.3% of the GDP in 2017. The budget surplus of 2018 will reach 0.2% of the GDP, taking into account the decisions concerning budget strategy, which is higher by 0.4 percentage points compared to the expectation of the state budget. The improvement can be seen in nearly all levels of the government sector – the increased forecast of labour taxes improves the consolidated position of social insurance funds and local governments. The position of the central government are improved by decreased state budget expenses on the social sector and the increased tax prognosis, where the better collection of labour taxes exceeds the decreased excise duty prognosis. The budget surplus of 2019 will increase to 0.5% of the GDP due to measures adopted in the budget strategy. In later years, the surplus will begin to decrease due to the objective of structural balance established and the economy heading towards its potential plateau.

The tax burden of 2017 turned out to be 33.6% of the GDP, which was 0.8% lower than the year before. The tax burden was decreased by the collection of excise duty, which remained below the predicted level. Tax burden was also decreased by receipt of direct taxes (mainly corporate income tax), the growth of which remained below the increase of GDP. According to the state budget strategy, the tax burden of 2018 will be 34.3% of the GDP, which is on the same level as the previous prognosis. The tax burden was decreased by the upwards adjustment of the GDP level, balanced by the increase of labour tax prognosis. In the period 2019–2022, tax collection will be reduced by the lack of increased alcohol excise duty, at the same time salary increase and several other

(e.g. hospitals), state companies (e.g. RKAS), local governments, the Health Insurance Fund, the Unemployment Insurance Fund.



7

measures of budget strategy will increase the receipt of labour taxes as well as income tax. The greater distribution of public company dividends will increase the collection of corporate income tax. On the whole, tax burden will increase to 34.6% of the GDP in 2019 and decrease to 34.2% by 2022.

The government sector debt burden fell to 9% of the GDP by the end of 2017, and without the impact of the European Financial Stability Fund, to 7% of the GDP. In 2018, the government sector debt burden will decrease to 8.5% of the GDP. However, the debt will nominally increase, due to the increased contribution of companies under public law and foundations involved in the central government, whereas the debt burden of local governments will decrease compared to 2017. According to the forecast, the debt burden is expected to decrease gradually in the upcoming years, eventually reaching 5.3% of the GDP in 2022 as the end of the forecast period.

% 2017 2018* 2019* 2020* 2021* 2022* Growth of real GDP 4,9 4,0 3,2 3,0 2,9 2,9

Growth of nominal GDP 9,0 7,6 6,3 5,8 5,4 5,4

GDP in current prices (bn €) 23,0 24,7 26,3 27,8 29,3 30,9 Change of consumer price index 3,4 2,9 2,3 2,4 2,0 2,0 Employment (15–74-year-old, thousands)

658,6 664,0 667,1 667,1 665,1 663,1

Growth of employment 2,2 0,8 0,5 0,0 –0,3 –0,3

Unemployment rate 5,8 5,8 6,2 6,3 6,5 6,8

Average monthly wage (€) 1221 1307 1381 1457 1540 1628 Real growth of average monthly wage

3,0 4,0 3,3 3,0 3,6 3,7

Nominal growth of average monthly wage

6,5 7,0 5,7 5,5 5,7 5,7

Current account (% of GDP) 3,2 3,2 3,2 2,9 2,4 2,0 Change in private consumption expenditure

2,0 4,7 3,3 3,0 2,7 2,7

Change in gross fixed capital formation

13,1 3,3 5,1 4,3 3,9 3,7

Change of domestic demand 4,2 3,9 3,1 3,0 2,9 2,8 Change of exports of goods and services

2,9 4,5 4,2 4,0 3,8 3,8

Change of imports of goods and services

3,5 4,6 4,3 4,2 4,0 3,9



8

Foreign trade In 2017, Estonian trade was at a record high. World trading became active again and economic development accelerated, resulting in an 8% growth of Estonian trade turnover. Export of goods increased also by 8% compared to the previous year, reaching 12.8 bn euros, and import value reached 14.7 bn euros, growing by 9% over the year. Foreign trade balance, however, remains in the negative. The growth of trade turnover was also influenced by export and import prices, growing respectively by 5.5% and 4.5% over the year. Despite political uncertainties, the economy of the Euro zone was on the rise in 2017. The economic growth strengthened in the Euro zone across countries as well as areas of economy. The growth of Estonian trade is largely due to positive changes in EU economy, but even more directly thanks to favourable developments in the economies of Estonia’s primary trade partners. The better outlook of global economy is also reflected in Estonian export. The growth of export demand significantly increased the growth of import because due to Estonia’s small size, a lot of raw goods and materials are imported. The trade deficit was 1.9 bn euros in 2017, increasing by 263 m euros compared to 2016.

Over a half of the total trade volume comes from trade with five of the largest partners. In 2017, the trade turnover increased with four of them. Out of the foreign trade partners with the greatest volume, turnover only decreased with Sweden. In 2017, trade with Finland grew by 13%, with Germany by 15%, with Latvia by 9% and with Lithuania by 7%. Trade with Russia, which had been in a long decline, also turned towards a rise again, growing by 22% over the year. In 2017, trade with EU countries increased the most – export grew by 18% and import by 11%. In trade with EU countries, export grew by 4% and import by 9% over the year. However, trade with EU countries continues to form over a third of the total Estonian trade.

A large part of goods imported into Estonia is manufacturing input for industries, meaning

they are used to produce exported goods. In 2016, import as well as export developments were positive. Goods were primarily imported from Finland, Germany and Lithuania, but import from the Netherlands grew the most, increasing by 18% compared to the previous year. The import of means of transport as well as textile and textile products grew the most over the year. However, electrical appliances were imported to Estonia the most, the share of which in total import was 8%. The shares of export and import in total trade did not change over the year compared to the previous year, remaining at the same level of 47% and 53%, respectively.

The negative balance of foreign trade grew together with the increased total volume of trade. In 2017, trade deficit was 16% higher than in 2016. The growth of trade deficit was most influenced by import of means of transport (incl. ships), the negative balance of which grew by 44% over the year, reaching 1 bn euros. The main reason was Tallink purchasing a new ship. Big negative balances also appeared in the trade of chemical products (–0.59 bn euros), mechanical machinery (–0.4 bn euros), rubber and plastic products (–0.38 bn euros) and pre-made food products (–0.34 bn euros). Greater surplus was in the trade of wood and wooden products (0.9 bn euros) and various industrial products such as furniture, pillows, blankets and wooden houses (0.77 bn euros). Greater deficits across countries came from trade with Poland, Germany and Lithuania. The greatest surplus was in trade with Sweden, the positive balance of which was 0.45 bn euros. Out of the main trade partners, Estonia also had a positive trade balance with Finland and Russia, but the trade surplus with those countries was only a few million euros. There is also a positive foreign trade balance with countries outside the EU.



9

Trade dynamics are closely related to changes in price indexes. In 2017, Estonian trade was characterized by foreign price pressure, increasing both the prices of export and import. As a positive development, the growth of export prices was faster than the growth of import prices, facilitating the growth of corporate export turnover, which in turn had a positive impact on the improvement of profitability and supported investments. The growth of export prices began in the second half of 2016 and continued for the entirety of 2017. Over the year, export prices grew by 5.5%. The growth of import prices began somewhat later, but the growth also remained present for the entire 2017. However, the growth of import prices remained 1% less than the growth of export prices, or 4.5%. The price growth continued thanks to increasing demand and the prices of crude oil and other raw products, which are on the increase.

As export prices grew faster than import prices, the trade prospects of companies were good, i.e. purchased goods could be bought cheaper while sale prices grew faster. Of course, the situation varied a lot across areas of activity. During 2017, export prices of oil products grew the most, and there was also a sizable rise in plant growing and animal husbandry. Oil products also saw the greatest rise in import

prices. Big growths of import prices also occurred in chemical product manufacture, metal manufacture, plant growing and animal husbandry, and food production.

According to forecasts, the growth of average import demand of Estonia’s bigger trading partners will also continue in 2018. This should offer more export opportunities to Estonian companies. The prognosis of the Estonian Institute of Economic Research as of March 2018 indicated positive development expectations for foreign trade by experts. As for the future development of the trade balance, the prevailing opinion was that the moderately negative balance may increase.

Export

In 2017, export of goods grew by 8% thanks to the growth of global economic activity. Growth occurred in every month of 2017 except April, where export volume decreased by 2%. The decline of April was largely caused by decreased export of electrical appliances. Export grew the most in May, January and March, growing by 15% and 14% in January and March respectively compared to the previous year. Export grew by 0.96 bn euros across the year.

The export of most commodity groups grew in 2017. The growth of export was most influenced by the export of mineral products, metal and metal products, means of transport, and chemical products. One circumstance supporting the growth of trade was the growth of raw material prices, increasing the export of mineral products by 36% in 2017 in comparison with 2016, and the export of chemical products by 20%. Out of goods of Estonian origin, the export of mineral products also grew the most, growing more than twice over the year. In addition, there was a significant increase in the export of metal and metal products (+22%) and wood and wooden products (+14%) of Estonian origin. The total export of goods of Estonian origin grew by 7% in 2017, but their share in total export remained on the level of 2016, i.e. at 72%. Out of the most important commodity groups, export decreased in the group of machinery and equipment (–5%). The commodity group of machinery and equipment consists of two larger parts – mechanical

-40-30-20-10

010203040% y-o-y


Export and import growth

Nominal export growth Nominal import growth

-15

-10

-5

0

5

10

15billion €


Trade dynamics

Exports Imports Balance



10

machinery and equipment, and electrical machinery and equipment. The decline of export in 2017 was caused by the decrease of export of electrical machinery and equipment. However, the export of mechanical machinery and equipment was on the increase. The export of electrical appliances was 14% less than the year before, the main cause of the decline was the decrease of volume on the Swedish market, which is the most important target market for electrical equipment. Mobile communications equipment formed the biggest share in the group, the export volume of which to Sweden dropped by 45% over the year. The total export of mobile communications equipment fell by 25% in 2017. In addition, the export of transformers as a significant part of the commodity group decreased by 11% and the export of cables decreased by 34%. In addition to Sweden, the bigger export partners for electrical equipment are Finland and Germany, where export volumes increased in 2017. Export to Finland grew by 6% over the year and export to Germany doubled.

The commodity group that saw the greatest growth in 2017 was export of mineral products. The primary target markets for export of mineral products are the Netherlands, Latvia and the USA, all of which saw a growth in 2017. Export to the Netherlands grew more than twice, Latvia by 4% and the USA by 44%. The growth was largely caused by increased export of mineral oils. The growth of export was also spearheaded by wood and wooden products (+14%), metals and metal products (+22%), means of transport (+22%) and the chemical industry (+20%). The biggest export partners for wooden products are Sweden, Denmark, Finland and Germany, all of which saw a growth in 2017. The greatest part of export of wooden products was formed by sawn materials, wooden carpentry products and firewood, which were shipped the most to Nordic countries. In addition, the growth export of wooden products was facilitated by a record amount exported to China in 2017. The biggest export partners of metal and metal products are Latvia, Lithuania, Finland, and Germany; the growth of 2017 was spearheaded by the growth of export of iron and steel scraps to Germany, and export of iron or steel structures to Russia. The main commodity group of

means of transport is means of land transport, forming over a third of total export of means of transport. However, export of vehicles and other means of transport generally constitute transit trade. In addition, the sale of two ships by the subsidiary of Tallinn had a positive impact on export of means of transport. The biggest export partners for chemical products is Russia, with whom the export volume of the commodity group grew by 11%. Foreign demand grew the most in France, Belgium and Spain. The greatest growth of export of chemical products occurred in export of fertilizers, which nearly doubled over the year. The export of the most important commodity group by share, including paints, mastics, sealants etc. was 8% higher in 2017 than the year before.

In summary, the export of only a few commodity groups was in a decline. The greatest negative changes occurred in export of precious metals, the share of which in total export forms only 0.8%. The most important positive changes occurred in export of mineral products.

In 2017, the share of the European Union in Estonian total export dropped to 71%, which was 3 percentage points less than the year before, but the export volume increased by 4%. The export of Estonian entrepreneurs to the domestic EU market was 9.2 bn euros. Out of the most important partners of the joint internal market, export grew fastest in Germany (+34%) and the Netherlands (+44%).

Export to CIS countries was in decline for a long time, but began to grow again in 2016. The growth continued in 2017 and export volumes were 20% higher than the year before. This was most impacted by export to Russia, forming over 90% of all export to CIS countries. Export volumes to Russia grew by 21%. Export to Belarus saw the same amount of growth, the share of which in total export to CIS countries was 6%. The increase of export volumes to Russia can be associated with the restoration of the currency exchange rate of the rouble from April onwards, and the increase of oil price.

There was a small decline on markets of NAFTA countries in 2017, export volumes were 3% less than in 2016. The main cause for the



11

decline was the particularly high base level of Mexico in the previous year, resulting in a 48% decline in 2017. Export volumes to Mexico in 2017 were comparable to the period 2012–2014. The USA holds the highest share of NAFTA countries, export there grew by 18% and the main cause was the increase of oil prices. In addition, export to Canada grew by 12%. This was mainly caused by increased demand for machinery and equipment.

Sweden has been Estonia’s main export partner since the economic crisis, but trade volumes with Sweden dropped so much in 2017 that Finland became Estonia’s most important trade partner. However, the share of the Finnish market remained on the same level as 2016, whereas turnover grew by 8%. Export of goods to Sweden dropped by 19% over the year, the most important part of which was the decline of export of electrical equipment. The growth on the Finnish market was led by export of machinery and equipment, which grew by 10%.

In 2017, Latvia remained in the third place, the share of which remained on the same level as in 2016, i.e. at 9%. Export grew by 7% over the year. The main influencers were means of transport, forming 14% of total export and growing by 20% over the year.

Germany rose to the fourth place of the ranking list of Estonian target markets for export, forming 7% of all export. Germany is also one of the countries were export grew the most in 2017. Export increased by 34%, influenced the most by export of electrical equipment and ships. The main cause for growth of electrical equipment was the increase of export of mobile communications equipment, which may be because products are now transported directly, whereas earlier it was done through Sweden.

The Russian market also indicated a growth, remaining on fifth place in the ranking list of target markets after Germany, with 0.1 percentage points less of a share. Export grew in all main commodity groups – mechanical machinery and equipment by 50%, electrical equipment by 23%, paints, mastics, window putty and similar products by 10%, plastics and plastic products by 23%, and medical and measuring equipment by 16%.

According to forecasts, economic growth on foreign markets will slow down in 2018, resulting in the deceleration of the growth of export in Estonia. Even though the import prospects of Estonia’s trade partners will be weakened, they will still remain strong enough and offer good opportunities to our companies to increase export. According to the experts at the Estonian Institute of Economic Research, the development of foreign trade will continue in 2018. The experts’ expectations were divided as follows: 72% expected export volumes to increase, 28% for the forecast to remain on the same level, and no expert expected volumes to decrease.

0 5 10 15 20 25 30

Means oftransportation

Metals and metalproducts

Furniture, log houses

Mineral products

Wood and woodproducts

Machinery andequipment


%

Exports by commodity groups

2017 2016

0 3 6 9 12 15 18 21

Lithuania

Russia

Germany

Latvia

Sweden

Finland


%

Exports target countries

2017 2016



12

Import

The growth of export demand also significantly increased the growth of import, because due to Estonia’s small size, a lot of raw materials and products are imported. In 2017, import grew by 9& compared to the previous year. Unlike export, import turnover grew in every month. The biggest growth occurred at the start of the year in January, but import turnover was 38% higher than in 2016. The high increase in January was caused by Tallink purchasing a new ship.

Out of important commodity groups, only the import of machinery and equipment was in decline. The import of machinery and equipment dropped by 2% over the year, caused by the 8% decrease of import of electrical equipment. However, the import of mechanical equipment, which forms 40% of all import in the group of machinery and equipment, grew by 8%. Similarly to export, the decrease of electrical equipment was mainly caused by the decrease of import of mobile communications equipment. In addition, integrated circuits form an important share of the import of electrical equipment and their import remained on the same level in 2017 as the year before. Out of the more important commodities, decline also occurred in the import of transformers, by –3%, and import of cables, by –26%. The main commodities of mechanical machinery was computers and other data processing equipment (growth +15%), self-propelled mechanical shovels, excavators and backhoe shovels (growth +81%), manual instruments (growth +38%) and printer parts and accessories (growth +29%).

The biggest growth in import trade occurred in the import of means of transport. The import of means of transport grew by 33% over the year, also forming the second biggest share of all imported products, at 13%. The primary factor behind the growth was Tallink purchasing a new cruiseferry. In addition, other commodity groups of means of transport showed a growth – vehicles by +12%, railroad or tramway rolling stock and its parts by +44% and aircraft by +7%. The primary import partners are Sweden, Finland and Germany. Import to Finland saw the biggest growth, over twice as much as in 2016.

Mineral products were on third place of imported goods with 10%. The import of mineral products grew by 23% in 2017, largely caused by oil price increase on the world market. Sending countries with the biggest share were Lithuania and Russia, together forming roughly 60% of the total import of mineral products and growing by 28% and 15% over the year, respectively.

Import of chemical products also held a big share, growing by 13% over the year. Over a third of this commodity group is formed by pharmaceuticals, the import of which grew by 4% in 2017. The other important commodity group was fertilizers, the import of which grew the most over the year – over 80%.

The fifth biggest share for imported commodity groups was metal and metal products at 8%. This commodity group was also the last to exceed an import turnover of one billion. The import of metal and metal products grew by 18% in 2017, influenced the most by the growth of import of iron and steel. The most important goods in this product group were sheet metal products and cast iron and steel scrap. In addition, a significant part of the import of metal and metal products is formed by iron and steel products, and aluminium and aluminium products, which grew by 6% and 9% respectively over the year.

0 5 10 15 20 25 30

Prepared foodstuffsand beverages

Metal and metalproducts

Chemical products

Means of transport

Mineral products

Machinery andequipment


%

Imports by commodity groups

2017 2016



13

Estonia’s primary import partners are EU countries. The share of EU in total import was 81% in 2017 and import turnover grew by 9% over the year. Import from countries outside the EU, however, grew by 11%.

Import volume from CIS countries grew by 26% in 2017, mainly caused by increased import from Russia. Over 90% of import from CIS countries is formed by Russia, the import turnover from which grew by 25% over the year. This was primarily caused by mineral fuel, and machinery and equipment. Another important country of origin among CIS countries is Belarus, the import volume of which grew over 50% over the year.

However, import from NAFTA countries was declining in 2017. Import volumes were 22% less than the year before. Import decreased from the USA as well as from Canada, by -23% and -42% respectively. Import volumes from Mexico more than doubled, but its share in all import from NAFTA countries is only 6%. The main cause for the decrease is the large volume of arms and ammunition purchased in 2016, which drove up the basis for comparison.

In 2017, Finland remained Estonia’s largest import partner with a share of 14%. Import of goods from Finland was 18% higher than the year before. This was most impacted by Tallink purchasing a new ship. In addition, the most important commodity group – electrical machinery and equipment – grew by 6%. The growth was led by the increase of purchase of mobile communications equipment and remotes, panel switchboards, etc.

In 2017, the second biggest share in import was held by Germany, who saw a 6% growth. The main commodity group was means of transport at a share of 19%, the purchase of which grew by 12% over the year. Another important commodity group was mechanical machinery and equipment, but their import decreased by 1.2%. Other commodity groups with a large share were electrical machinery and equipment, and plastics and plastic products, the import of which was also higher in 2017 than the year before.

Lithuania retained third place in the ranking of importing countries at a share of 9%. Import turnover was over 100 m euros higher than in 2016, growing by 8% over the year. The growth was largely caused by increased import of mineral products.

Sweden’s import volumes were restored in 2017, lifting it back up to fourth place in the ranking list. For the past two years, import volumes from Latvia have exceeded those from Sweden, but in 2017 import volume from Sweden grew by 14%. Thanks to that, Sweden took a higher position than Latvia in the ranking list of importing countries with a 0.2% higher share. The most important imported commodity groups from Sweden were vehicles, the volume of which grew by 26% over the year, electrical machinery and equipment, which dropped by 4% over the year, and mechanical machinery and equipment, which grew by 25%. The main causes for the decline in the group of electrical machinery and equipment were mobile communications equipment, electronic integrated circuits and cables.

Purchase volumes also grew in Latvia, which fell to fifth place in the ranking list of import countries. The growth of import was 11%, influenced the most by the doubled increase of importing mineral products, primarily fuel oils. In addition, the growth of import of wood and wooden products had a significant impact on growth, at 15% higher than in 2016.

Out of the more important import partners, Poland also showed a large growth, with a change of 9% compared to the previous year. Import volumes also grew from China and Italy, by 7% and 6% respectively. Growth was most influenced by the increase of import of machinery and equipment.

0 4 8 12 16

Poland

Lithuania

Latvia

Sweden

Germany

Finland


%

Imports by country of consigner

2017 2016



14

According to forecasts, the growth of import can be expected in 2018 similarly to export. Import will increase thanks to increase of import of inputs necessary for manufacture, acceleration of investing activity, and also the continued growth of internal demand. The assessment of experts who took part in the forecast of the Estonian Institute of Economic Research in March 2018 was somewhat lower compared to that of the year before, but nevertheless positive. The experts’ expectations were divided as follows: 67% expected import volumes to increase, 33% kept the expectations on the same level and a decrease of import volumes was not forecast.



15

Manufacturing industry Estonian manufacturing industry involves over 7,000 active companies, most of which are small and medium-sized. There are more than 200 companies which employ at least 100 people, but these employ half of all employees in the industrial sector. Large companies include, for example, the manufacturer of mobile communications equipment Ericsson Eesti AS, manufacturer of electrical appliances ABB AS, manufacturer of cable ties PKC Eesti AS, shipbuilding and metal processing group BLRT Grupp AS, wood processor Stora Enso Eesti AS, comforter, pillow, bed and mattress manufacturer AS Wendre, car safety system (seat belt) manufacturer AS Norma, and meat products manufacturer AS HKScan Estonia.

In Estonia, the share of the industrial sector in the economy is nearly as big as the EU average based on value added (approx. 15%). However, the share of persons employed in the manufacturing industry is one of the highest in EU countries (nearly a fifth), indicating that as a rule, foreign companies are able to generate more value added with the same number of employees.

The manufacturing industry as a whole is Estonia’s biggest employer – nearly every fifth employed person is working in that field. In the past ten years, however, the number and share of employees in the economy has still decreased and growth of manufacture is caused by increased productivity. Jobs have been created in manufacture of electrical equipment, the electronics industry has grown the most in terms of production volumes. Industries with the biggest number of employees are the lumber industry, food manufacture, and the metal industry. The economic crisis resulted in a decrease of jobs, but the manufacturing industry was also one of the first where the situation improved and more jobs were created again. Export played an important part in the recovery. The sector is heavily dependent on foreign markets where over 60% of the output is sold. The primary export markets are Finland and Sweden, where the majority (over 60%) of direct investments made in Estonian manufacturing industry have come from.

Forecasts do not expect the number of employees in the manufacturing industry to change significantly in upcoming years, but a continued decrease of employment is expected in more labour-intensive fields. Jobs are expected to be added in fields that create more value added (electronics) but the lumber industry, which is based on local raw material, also holds potential for growth. However, increase of productivity remains the basis for competitiveness, requiring continued investments in machinery and equipment as well as the employees, and the development of products as well as improvement of work procedures.

The situation of the manufacturing industry improved in 2017 together with the general increase of economic activity. Production volume grew at the fastest pace of recent years, manufacture increased in nearly all fields, the economic indicators of the sector improved. Enterprises expect the growth to continue in 2018.

According to preliminary data, the production volume of the manufacturing industry grew by 3.5% in 2017 (adjusted to the number of work days), which was the best indicator in the past six years. The growth was nearly twice as fast in Estonia. Latvian and Lithuanian output increased to the same extent, and the year was also successful for the Finnish and Swedish industries.

15,4

62,6

19,0

96,1

020406080100

020406080

100

Share invalue added

Share ofexports in

sales

Share inemployment

Ratio toaverage

wage

%%


Share of sector in economy

-202468

02 0004 0006 0008 000

10 00012 000

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €


Sales and exports

Sales ExportsChange in sales Change in exports



16

Preliminary data show that in 2017, Estonian manufacturing companies produced 6.5% more output than the year before. Biggest contribution to the growth came from the wood and metal industries, whereas a bigger drop in output could be seen in the electronics industry.

Similarly to the EU as a whole, producer prices also began to rise in Estonia in 2017. Producer prices grew by 4% over the year in the manufacturing industry. However, signs of deceleration of the price growth could be seen at the end of the year. Producer prices grew faster than average in the food industry and paper industry. The growth of export and import prices was even faster than that of producer prices. The prices of oil products and shale oil grew steeply, having spent several years in a decline. Nevertheless, the growth of export and import prices slowed noticeably as the year progressed.

Even though producer prices rose, the sale of the manufacturing industry increased at the same speed as manufacture. Export grew by 5%, sales to the domestic market twice as fast. The share of export dropped to the lowest point in recent years; it has only been lower during the last economic crisis. Export was first and foremost influenced by the fall of sales in the electronics industry, but at the same time several industries such as the food industry, wood industry and manufacture of construction materials received important support from increased domestic demand.

The favourable economy resulted in demand for additional employees, but the growth of employment was limited to a few percentage points in the manufacturing industry (according to a labour survey, employment increased by 3.5%). Considering the situation of fast wage growth, enterprises are looking increasingly towards automatization and increasing efficiency, and at the same time it is also difficult to find employees on the labour market. The biggest job creators in 2017 were the metal industry, electrical appliance manufacture, and the food industry. According to preliminary data, the number of employed persons dropped in the textile industry, manufacture of motor vehicles, and the oil industry.

Wage developments of the manufacturing industry have generally followed changes in Estonian average wages, which also remained the case in 2017. Average gross wages in the manufacturing industry grew by 6% over the year. Together with increased number of employees and working hours, labour costs of the sector grew by a tenth on the whole. At the same time, other expenses grew at a more modest rate and total expenses grew at a slower pace than sales revenue. Thanks to that, total profit grew by nearly a third, but the cost-effectiveness of the profit still remained below the historical average. It is likely that final statistics will not show such a large increase in profit, because the gap between ongoing statistics and final statistics has generally been quite big. According to entrepreneurial statistics, value added grew by more than a tenth, all productivity indicators also improved, except for the proportion between sales revenue and labour costs.

The investing activity of the manufacturing industry grew in 2017. According to preliminary data, investments in tangible fixed assets grew by nearly a third. The growth of investments was rather uniform across areas of activity. As a rule, two thirds were directed towards acquiring machinery and equipment, a quarter of capital investments had to do with acquiring or building and reconstructing facilities. More means were also directed to all other fields. Investments in computers and computer systems grew the fastest, doubling compared to 2016.

Food industry

14%

Textile and clothing industry

4%

Wood industry

19%

Chemical industry

7%

Rubber and plastic

industry3%

Building materials industry

4%

Metal industry

11%

Equipment industry

17%

Furniture industry

5%

Other sub-sectors

16%

Share of sub-sectors in sales of manufacturing industry




17

Strong demand and growth of production volumes were also reflected in assessments of the entrepreneurs. Representatives of the manufacturing sector questioned by the Estonian Institute of Economic Research valued all observed indicators at a higher rate, incl. demand. The indicator of confidence rose above the historical average. The importance of insufficient demand as a factor limiting production volume decreased (at the same time, roughly half of those interviewed highlighted this factor) but labour shortage increased. At the start of 2018, volume of orders, expectations to production volume for upcoming months and number of employees were valued as highly as the year before, but expectations to price increase were higher. Production volumes also indicated a growth.

In the EU, the industry confidence indicator reached the highest level of recent years in early 2018. The situation can also be considered good or very good on target markets important for Estonian industry, such as Finland, Sweden and Germany. Therefore, the economic environment can be considered advantageous for the manufacturing industry in 2018.

-4-202468

020406080

100120140

2012 2013 2014 2015 2016 2017*

% y-o-ythousand


Number of employed people

Number of employed people (labour survey data)Number of employed people (business statistics)Change in number of employed people (r.s.)Change in number of employed people in companies (r.s.)

0123456789

0200400600800

1 0001 2001 400

2012 2013 2014 2015 2016 2017

% y-o-y


Average gross wages

Average wages (in euros) Change (r.s.)

-8-6-4-2024681012

0500

1 0001 5002 0002 5003 0003 500

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €


Value added, labour costs and productivity

Value addedLabour costsChange in total productivity (r.s.)Change in labour costs productivity (r.s.)

-20

-10

0

10

20

30

40

0100200300400500600700

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €


Investments of companies

Investments in fixed assetsChange in investments (r.s.)



18

Manufacture of food products and beverages In terms of production volume, the food industry is one of Estonia’s largest industries and is the main activity for nearly 700 companies. Even though most of the sales revenue is generated on the domestic market, export volumes have also indicated a constant growth. Over 16,000 people are employed in manufacture of food products and beverages.

Food and beverage producing companies are found all over Estonia. There are food producing companies among larger companies in all regions of Estonia. The biggest company in the industry is the meat processing company AS HKScan Estonia in Lääne-Virumaa. Another large meat processing company is the Atria group, located in Southern Estonia. Major industrial bakeries are AS Eesti Pagar in Paide and AS Leibur in Tallinn. Major companies of the food industry also include the beverage manufacturers AS Saku Õlletehas in Harju County and AS A. Le Coq in Tartu County, major dairies are Valio Eesti AS and the Maag Group, including Farmi Piimatööstus and TERE AS. Major fish processing companies are AS M.V.WOOL in Harju County and AS Paljassaare kalatööstus as part of the Vičinuai group, Japs M.V.M. AS in Pärnu County and OÜ Vettel in Saare County. The largest manufacturer of sweets is AS KALEV.

In recent years, a significant problem for the food industry has been low productivity. In comparison with EU manufacturers, the productivity of Estonian food manufacture is less than a half of the EU level. This is more than in Latvia or Lithuania, but far from the level of Nordic countries. In order to ensure future competitiveness, automatization must continue and further efforts must be made towards manufacture requiring less labour.

The year 2017 turned out to be successful for manufacture of food products and beverages, quick growth was seen on the domestic market as well as in exports. Even though Russian limitations to products of Estonian companies continued, new markets have been found and production volumes have increased. Instead of poor demand, growth is limited by the labour shortage and at times, quickly growing prices of raw produce. The fast growth of the alcohol excise duty continued to trouble beverage manufacturers, increasing trade across borders and decreasing alcohol sales on the domestic market.

2,0 7,2 32,2 13,1

86,7

0

20

40

60

80

100

0

20

40

60

80

100

Share invalueadded

Share inman.

industryexports

Share ofexports in

sales

Share inemploy-ment of

man.industry

Ratio toaverage

wage

%%



-15-10-505101520

0200400600800

1 0001 2001 4001 6001 800

2010 2011 2012 2013 2014 2015 2016 2017*

% y-o-ymillion €


Sales and exports

Sales ExportsChange in sales (r.s.) Change in exports (r.s.)

Meat processing

industry19%

Fish processing

industry7%

Dairy industry

22%

Production of prepared animal

fodder2%

Production of bakery and

pasta products

10%

Production of beverages

11%Other22%

Processing and

preserving of fruit and vegetables

7%

Share of sub-sectors in sales of food and beverage production




19

The food industry consists of two larger sectors: manufacture of food products and manufacture of beverages. The year 2017 was significantly more successful for manufacturers of food products, volumes decreased in manufacture of beverages.

Appreciation of raw produce had the biggest impact on the dairy industry, where the buying-in price of milk began to rise rapidly in the autumn of 2016 and remained high throughout 2017. For the year as a whole, the price of milk remained 38% higher than the year before. The volume of bought-in milk also grew by a few percentage points. Changes in price remained much more modest in the meat industry, remaining within a few percentage points. The price of beef and pork actually grew, but the prices of goat meat and lamb went down. Producer prices grew by 1.9% over the year in manufacture of beverages, but in manufacture of food products, producer prices were 5.5% higher across the year. In addition to raw produce, producer prices were also influenced by other inputs such as energy and labour costs, which continued to rise in 2017. Out of secondary sectors, prices grew the most in the dairy industry where manufacture appreciated by 12.3% over the year.

Due to strong foreign markets, export volumes began to grow. In total, export grew by nearly 13% over the year, i.e. 60 m euros. Growth was spearheaded by the dairy industry, the export volume of which grew by 23%, largely thanks to increased prices. Milk and dairy products hold the biggest share in the export of the sector, providing nearly a quarter of the total export in the sector. The biggest export partner was Finland, receiving 25% of all goods transported to foreign markets. Latvia remained in second place, export there grew by 16% and over a fifth of exported goods was sold in total. A large decline could be seen in in Denmark; more than a fifth less produce was sold there compared to the year before. Trade with Russia, which was declining rapidly in recent years, has now stabilized, export volumes decreased only by 1% over the year. As a positive, growth continued in Norway and Germany, where 41% and 26% more production was sold, respectively, compared to the year before.

The dairy industry as the industry holding the biggest share in the food industry was impacted by quick appreciation of raw produce and increased demand on the domestic and foreign markets. Demand remained strong throughout the year, giving some room to breathe for the sector which had remained in crisis for several years. At the same time, the price of milk powder began to drop after having quickly appreciated on the world market; its price dropped by more than a third over the year. In total, the production volume of dairy products increased by 9% but their value increased by a whole 20%. Manufacture of butter decreased by 12% and manufacture of cheese by 1% over the year. While the year 2016 had been mostly difficult for the dairy industry, the situation changed drastically in 2017. The industry began turning a profit again and productivity per employed person exceeded the Estonian average. Net added value doubled. At the same time, the growth of labour costs remained controlled and below the Estonian average growth of labour costs, reaching 5.4%. Total expenses grew by 16% over the year, largely caused by growth of expenses on raw produce. While the average tonne price of milk when bought in was €237 in 2016, that price increased to €327 in 2017, accelerating in the second half of the year. As a result of removal of EU quotas regulating manufacture in April 2015, the manufacture of raw milk increased drastically, resulting in overproduction. After the sudden drop in the price of milk, production decreased as well and the price began to grow again. Export of cheese grew by 16% over the year, but amounts in tonnes decreased by 3%. Export of milk and whole cream increased by 50% in monetary value. Out of larger commodity groups, export of ice cream was weaker, decreasing by 11% over the year. In 2017, the main export partners for the dairy industry were neighbouring countries. Raw milk was mainly sold to Latvia, cheese and yoghurt to Finland.



20

The year 2017 turned out to be rather mediocre for the meat industry. Total sales as well as export increased by 2.5%, which was little in comparison with the rest of the food industry. The Estonian meat industry is rather strongly concentrated. Even though there are over 50 companies, 5 of the largest ones manufacture over 90% of the output and the sector also includes Estonia’s largest food processing company HKScan Estonia, which owns pork and poultry manufacturing companies as well as processing facilities. The year 2017 was mostly complicated for Estonia’s largest meat processing company. Heavy competition and the strike of some employees put the company’s profitability under press. At the same time, it was promised to continue investing in a new workshop of ready-made products. The sector’s growth of work productivity turned towards the negative in 2017. Value added per employed person decreased by 16%. Labour costs increased by 4.7% and profit decreased by nearly 60%. The primary export partners were Latvia, Finland and Lithuania. Latvia received mainly ready-made products and Finland mainly fresh, chilled or frozen meat.

Complicated times continued in the beverage industry in 2017. Even though the government forwent the formerly planned sugar tax, the growth of alcohol excise duty continued. For this reason, cross-border trade with Latvia increased and domestic sales suffered. Finland is also alleviating its alcohol policy, meaning that tourist purchases are also on the decline. In spite of all this, export of the sector grew by 17% over the year, even though total sales volume decreased. Production volumes in manufacture of beverages are mainly fluctuating due to national excise duty policy. Resellers have a high demand before increased excise duty in order to build up stock, thus the warehouses are filled to the brim and production volumes drop in the months after. In total, the beverage industry exported for 54 m euros and the largest target market continued to be Latvia, where sales increased by 28% over the year. The other target market was Finland where sales decreased by 2%. Export turnover of malt beer manufactured in Estonia grew by 49% in comparison with the year before, export of cider grew by 28%. A significant part of the growth was caused by Latvia. At the same time, export of vodka decreased by approximately a percentage point. Efficiency indicators did not change significantly in manufacture of beverages, profit decreased by 4% and productivity per employed person increased by 1.7%.

The year 2017 was largely successful for manufacturers of baked goods and pasta products. Export grew faster than domestic sales and total sales of the sector grew by 5.6%. Even though grain prices went up on the world market, producer prices remained largely unchanged in this sector across the year. As the increased cost base was not successfully carried over to product prices, the efficiency indicators of the sector went down. Total profit dropped by a quarter and work productivity per employed person by 3.4%. The biggest exported commodity groups were bread and white bread products, 22,500 tonnes of which were sold to foreign countries for 18.2 m euros, this indicator grew by 15% over the year. Export of pizzas and quiches reached 14 million euros.

Sales of the fish industry did not change in 2017. The 8% drop in export was balanced by faster growth on the domestic market. In total,

0% 10% 20% 30%

Italy

Denmark

Sweden

Lithuania

Latvia

Finland

Exports by main target countries

2017 2016


Meat products

9%

Fish products

13%

Dairy products

19%Bakery and pasta

products7%

Beverages9%

Other43%

Main export product groups




21

sales on foreign markets formed a bit over a half of all sales in the sector. Only 3 years ago, the share of export reached nearly 80%. Export can be expected to grow in upcoming years, because fish is caught in Estonia nearly four times more than is consumed domestically. Significant means have also been contributed in recent years to establish fishing farms. In 2016, construction of a fish components facility began in Paldiski and it will commence work in the autumn of 2018. The facility will help add value to 25,000 tonnes of low-value fish per year. At the facility, animal fodder can be produced from fish unfit for human consumption. At present, fish of poorer quality is transported to Danish fishmeal factories for reprocessing, which is not a sustainable solution. Frozen fish holds an important share in export of the fish industry, decreasing by 0.5% this year. At the same time, sales of frozen fish have turned towards a growth, increasing by 11%. Tinned fish was sold the most to Finland, Ukraine and Lithuania. The primary markets for frozen fish were Ukraine, Belarus and Denmark. Efficiency indicators improved in the fish industry. The number of employed people decreased, labour costs dropped and value added grey by a total of 45%. At the same time, productivity per employed person increased by 68%.

In 2017, employment in manufacture of food products and beverages grew by 2.3%. Employment increased in all subsectors, except for the fish industry and manufacture of beverages. The growth of the average salary was somewhat slower in the food industry than the Estonian average and the salary remained lower than average. The average salary is brought down by manufacturers of food products. In manufacture of beverages, the salary was 1.22 times higher than the Estonian average. In addition, salaries grew more slowly in the manufacture of food products than in manufacture of beverages (5% vs 8%).

Investments in the food and beverage industry began to grow in 2017. High domestic demand and recovery of world markets have added confidence in the food industry and companies dare to invest more. According to preliminary data, manufacturers of food products and beverages invested nearly a fifth more in 2017 than the year before. Two thirds of investments

were placed in machinery and equipment. The biggest growth occurred in building and renovating facilities, where 44% more was spent than the year before. The biggest investors were meat and baking companies, who each made more than a quarter of all investments in the sector. In addition to fixed assets, it is important to also invest in development activities to ensure competitiveness in the sector. There were only 6 full-time scientists or engineers in manufacture of food and beverages and 5.5 m euros in total were spent on research and development.

The survey of industrial companies, carried out by the Estonian Institute of Economic Research in early 2018, revealed that the indicator of confidence, which consolidates the assessments of forecast of company output, general demand and stock of ready-made products, was more positive in manufacture of food products than in the year before, and more negative in manufacture of beverages. 60% of manufacturers of food products had increased production volume in recent months and three quarters of the respondents also expected the volume to grow in upcoming months. A third of the companies stated that nothing is limiting the growth, which is also the best outcome of recent years. The situation was somewhat weaker in manufacture of beverages. For 70% of the respondents, production orders were below the usual level.

-4-202468

02 0004 0006 0008 000

10 00012 00014 00016 00018 000

2012 2013 2014 2015 2016 2017*

% y-o-y


Number of employed people and wages

Number of employed peopleAverage wages (in Euros)Change in the number of employed people (r.s.)Change in wages (r.s.)



22

-10

-5

0

5

10

15

050

100150200250300350400450

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €




-20-15-10-5051015202530

0

20

40

60

80

100

120

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €






23

Manufacture of textiles The Estonian textile industry is a mainly export-oriented industry, which includes 270 companies. In recent years, employment has remained stable in the sector and production volumes have been growing. Companies of the sector manufacture a large range of textile products, from carpets and pillows to string and life vests.

There are large textile companies in several places in Estonia. The largest manufacturer of finished textile products is AS Wendre in Pärnu County. Among domestic textile producers, the biggest are AS Mivar-Viva and AS Toom Tekstiil in Viljandi County and Hilding Anders Baltic AS in Harju County, rugs and carpets are produced by AS Mistra-Autex in Harju County and OÜ Valley in Pärnu County. The largest textile finisher is Qualitex AS in Pärnu County and the largest rope and netting manufacturer is Saare Frydendahl OÜ on Saaremaa.

The Estonian textile industry has steadily moved from labour-heavy production towards more automated production. The fast growth of labour costs has forced companies to become more efficient and find new fields to test.

The growth of production volumes of the textile industry decelerated in 2017 compared to the previous years. In terms of constant prices, production grew by 2.3%. Growth slowed down on the domestic as well as foreign markets. The speed of growth also remained below the average growth of the processing industry.

So far, the development of Estonian textile industry has been characterized by the expansion of existing factories, but in 2017, news got out of one considerable greenfield investment for the first time in a long time. Turkish investors began building a new non-woven fabric factory near Tallinn at the end of the year, with the expected cost of 14 m euros. The annual production of the first line at 14,000 tonnes is being completed. In addition, Wendre as the biggest company in the sector began an important expansion and will finish an extension of 13,000 square metres in Pärnu in 2018. Therefore, it can be said that if all circumstances are favourable, the Estonian textile industry has perspective. Even though labour may be more expensive compared to Asia, we are nevertheless close to large and rich European markets and at a logistically favourable location, so companies are able to use other competitive advantages.

Companies of the textile industries imported for a total of 253 m euros in 2017, which was 1.6% more than the year before. Across biggest partners, Denmark showed the fastest growth for the second year in a row, where export increased by 5.2%. Sales to Sweden increased by 1.5%. The greatest drop was in Germany,

0,4 3,7

81,7

3,6

75,9

0

20

40

60

80

100

0

20

40

60

80

100

Share invalueadded

Share inman.

industryexports

Share ofexports in

sales


man.industry

Relationto average

wages

%%



-5

0

5

10

15

20

25

050

100150200250300350

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €


Sales and exports


0% 5% 10% 15% 20%

USA

UK

Finland

Denmark

Germany

Sweden


2017 2016Source: Statistics Estonia



24

where 6.1% less production was sold than the year before. Export to Finland grew by 1.5%. Out of all commodity groups, sales of comforters and pillows decreased by 2% over the year, significantly contributing to the deceleration of total export, as this commodity group provides nearly two thirds of the total export at the sector. In addition, there was a larger drop in the segment of tufted carpets, the export of which decreased by 12%. At the same time, export of carded lamb yarn saw a quick growth, increasing by 13.5% over the year and reaching 8% of total export in the sector.

The number of employees in the textile industry dropped for the second year in a row, decreasing by 12% in 2017. At the same time, wage growth continued, remaining below the average Estonian wage growth at 6%. For this reason, the textile industry lagged behind the Estonian average wage somewhat more. Indicators of work productivity improved significantly in the textile industry and in total, value added per employed persons formed more than two thirds of the Estonian average in 2017. The number of employed persons decreasing resulted in a drop of labour expenses and also lower overhead. Due to this, total profit increased by 61% and total value added of the sector also grew.

Volume of investments dropped steeply in 2017 according to short-term statistics, dropping by 60% according to preliminary data. As this is a very preliminary assessment, it is likely that information on several investments has not yet reached the statistics, which is why those data should be observed with caution.

The general assessment of textile companies was weaker at the start of 2018 than the year before. More than half of the companies had decreased their production volume and only 66% of the production capacity was used, which was 11 percentage points less than the year before. Growth was equally inhibited by insufficient demand and labour shortage.

Other ready-made textile

products4%

Wool8%

Carpets and other textile floor

covering7%

Blankets and pillows

62%

Other textile

products19%

Main export commodity groups

Goods of Estonian originSource: Statistics Estonia

-15

-10

-5

0

5

10

15

0

1 000

2 000

3 000

4 000

5 000

2012 2013 2014 2015 2016 2017*

% y-o-y



Number of employed peopleAverage wages (in euros)Change in the number of employed people (r.s.)Change in wages (r.s.)

-15-10-50510152025

0102030405060708090

100

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €




-80-60-40-200204060

0

5

10

15

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €






25

Manufacture of wearing apparel More than 500 enterprises with more than 6,000 employees operate in the clothing industry. In recent years, employment in the sector has remained relatively stable. Growth of labour expenses has moved subcontracting out of Estonia and local companies are more focused on producing goods with higher value.

Major companies in the clothing industry are workwear manufacturers AS TTIEST-VAL and AS SVARMIL in Ida-Viru County, manufacturers of outerwear AS Protex Balti and OÜ Baltika Tailor, manufacturer of children's clothing OÜ Lenne and underwear manufacturer Miss Mary Production OÜ in Tallinn and AS Sangar in Tartu.

For future competitiveness of the Estonian clothing industry, it is important to establish new products and focus more on design. A good example is smart work clothes developed by Protex Balti, which monitor the state of the worker with built-in sensors and save dangerous situations. Another example is Galvi Linda, which produces clothes for the military sector. In the long run we cannot compete with countries with cheaper labour and the more profitable niches we can find, the better.

In 2017, the clothing industry continued a steep growth. Total sales as well as export grew faster than the average of the manufacturing industry. The faster growth of export compared to the domestic market increased the share of export to two thirds of total sales.

After the fall in 2015, the clothing industry has been growing again. Strength on foreign markets is helping a lot. Even though the Estonian clothing industry cannot compete with large Asian manufacturers, it is still possible to use the proximity of wealthy markets and focus on flexibility. The continually developing e-trading allows smaller manufacturers to also reach farther customers at a reasonable price.

Export is an important outlet for the clothing industry, forming two thirds of all sales. For this reason, the continued growth of export is good news for the sector, indicating increased competitiveness on foreign markets. In 2017, sales increased on five of the six largest target markets. The only drop occurred in Sweden, where 2.4% fewer sales occurred compared to the year before. Due to this, Finland became the largest target market of the sector, where sales increased by 13.6%. Russia took the fourth place as a new country, receiving over 10 times more output than the year before, for nearly 9 m euros. Export also did well in Norway, increasing by nearly a quarter.

Out of larger commodity groups, men’s workwear did well; its export volume grew nearly three times to 10 m euros. Export of

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26

men’s shirts grew by 3.8% to 9.5 m euros and export of bras increased by a tenth to 10.3 million. Export of T-shirts increased by a third.

In 2017, wages grew somewhat faster in the clothes industry than the Estonian average, thereby decreasing the lag behind average salary. The total average gross wages of the sector reached 744 euros, meaning the average net salary was 622 euros, which is also below the Estonian median salary. The higher income tax free minimum which entered into force in 2018 does somewhat decrease the pressure of labour cost increase for companies, but considering the current labour shortage, it is likely that the wage growth will remain faster than the Estonian average in the clothes industry. Despite the growth of labour costs, most efficiency indicators were improved. Total profit of the sector doubled and value added per employed person increased by 13%.

According to preliminary data, investments in fixed assets grew by more than two and a half times over the year in the clothes industry. Growth was led by building and reconstructing facilities as well as acquiring computer systems. At the same time, the total volume of investments is small in this sector and short-term statistics are usually adjusted to a large extent, therefore the data on 2017 may still change significantly.

The assessments of companies of the clothes industry interviewed by the Estonian Institute of Economic Research were notably more positive about prospects in the near future in the spring of 2018 than the year before. 50% of the companies who responded forecast an increase of production volumes for the following three months, and a fifth planned to recruit new employees. 94% of the production capacity was in use, which is significantly more than at the same time of the year before.

Men's clothing

33%

Women's clothing

26%

Bra's10%

Sports-and

workwear11%

Babies clothes

3%

Other products

17%



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% y-o-ymillion €



Value addedLabour costChange in total productivity (r.s.)Change in labour costs productivity (r.s.)

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Wood processing Wood is an important natural resource for the Estonian economy and a significant balancing factor in the balance sheet of foreign trade. The wood industry employs over 17,000 people in 1,100 companies. Nine of them employ over 250 workers. In total, the wood industry provides nearly a fifth of all value added in the processing industry.

The product selection of the wood industry is wide, ranging from manufacture and processing of sawn timber to manufacture of wooden houses, windows and doors. Most sector workers are employed in JELD-WEN Eesti AS manufacturing wooden doors and windows, Stora Enso AS manufacturing sawn and planed timber and laminated beams, and AS Technomar & Adrem manufacturing parquet, packaging and cable drums. The other major companies worth mentioning are AS Viljandi Aken ja Uks engaged in producing wooden doors, windows, shutters and their frames, and UPM-Kymmene Otepää AS and Balti Spoon AS producing veneer sheet and plywood. Particleboard is manufactured by Repo Vabrikud AS, and fibreboard is manufactured by Skano Group AS. In terms of turnover one should also mention AS Toftan that produces lumber in Võru County, and AS Palmako and OÜ Harmet that manufacture garden houses.

For Estonian economy, the wood industry holds much more importance than just processing wood. Due to its large volume, it is also an important procuring entity which has helped the development of manufacture of forestry equipment in Estonia and provides employment for a significantly larger number of people via related sectors.

The year 2017 was extremely successful for the wood industry. Export grew faster than the domestic market and in both cases, growth was faster than the average of the processing industry.

The wood industry is one of the most important sectors in Estonian economy. There have been sizable investments in recent years to keep up with times, and new plants have been constructed. At the same time, the Estonian wood industry is characterized by low investments in research and development in comparison with Nordic countries. In 2016, the sector employed only 3 full-time researchers and engineers, and a little over 300,000 euros was spent on research and development. Even though top-level technology can be bought in and stay in competition this way, in the long run the ability to develop new products will also contribute to success.

In 2017, raw material got more expensive for the wood industry as the prices of timber went up. This was also one of the reasons for producer prices of the sector increasing by 2.6%. Out of other inputs, labour appreciated the most, which is currently also lacking in other sectors. Out of types of wood, pine pulpwood appreciated the most according to the price statistics of the intermediate warehouse of the State Forest Management

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Centre, which has been used little so far in Estonia and is mainly exported to Nordic countries. At the same time, Toftan launched a new line for small logs in 2017, which can use logs starting from a diameter of 80 mm. If the project is a success, it can be presumed that export of unprocessed wood from Estonia will decrease further in future years. In addition, birch stumps and spruce pulpwood both appreciated by 8%.

Wage growth accelerated a little in the wood industry in 2017, exceeding the Estonian average. In total, wages grew by 8% in the sector in comparison with the year before. The fast growth of labour and other costs decreased the sector’s profit by a fifth. At the same time, efficiency indicators remained relatively stable. Value added per employed person increased by 4%.

Export has always held a significant share of the Estonian wood industry, forming nearly two thirds of all sales and reaching 1.2 bn euros. The main export partners in 2017 were Sweden, Norway and Finland, which received over 40%. The close fourth was Germany, where sales decreased by 2% over the year. Among the top 15 export partners, strong growth continued in Asia, where export grew over 10% in Japan, Korea, and China in all three cases. It is possible that cheap contained shipping to Asia is one of the enhancing factors. Out of farther countries, USA and Australia also grew quickly, receiving 21% and 37% more than the year before, respectively. The biggest drop of all large partners occurred in Norway, where export decreased by 7%.

Out of larger commodity groups, the segment of plywood continued a steady growth, where export grew by 48% or 20 m euros over the year. The main target markets were Germany and Korea. The formerly fast-growing sale of wooden houses remained on the same level as the year before. The biggest market is still Norway, even though volumes decreased a little there. The segment of sawn timber and construction details also saw a decent growth. In addition to wooden products or value added wood, we also still export a considerable amount of roundwood. In 2017 we sold 2.6 m cubic metres of roundwood at the value of 129

m euros. A third of that went to Sweden and a quarter to China.

0% 10% 20%

Denmark

UK

Germany

Finland

Norway

Sweden



Building components

(incl. windows, doors)23%

Sawn timber

10%

Veneer3%

Plywood5% Log houses

25%

Profiled timber

22%Other

products12%



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According to preliminary data, investments in the wood industry increased by 61% in 2017. At the same time, investment volumes have been adjusted significantly in several cases for this sector when final data arrive, which is why final data may differ a lot from the ones presented here. For example, in 2016 final data was 100 m euros higher than initially provided. According to preliminary data, investments in machinery and equipment grew by 79%, investments in computer systems a little over two times. In 2018-2019, the high level of investments can be expected to remain, as this period will see the completion of the new plant of the Finnish group Metsä Wood in Pärnu. The level of use of production capacity of the sector remained at 82%, which was somewhat lower than the year before, but above the long-term average of the sector. This indicates that investment activity may increase in the sector in upcoming years.

Expectations of entrepreneurs interviewed by the Estonian Institute of Economic Research were somewhat more modest in spring 2018 when compared to the year before. Only 10% of the companies stated that orders are above the usual level and 20% believed to be below it. At the same time, 70% of the companies planned on increasing their production volumes in the following three months.

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Manufacture of pulp, paper and paper products The paper industry has a long tradition in the Estonian economy and is a relatively consolidated industry. In Estonia, there are more than 60 paper, pulp or paper products enterprises, which employ around 1,400 people. The high level of automation and modern technology has made the production of pulp one of the highest-productivity sectors in Estonia

The major players in the sector in Estonia are two companies: aspen pulp producer AS Estonian Cell and the paper and cardboard producer Horizon Tselluloosi ja Paberi AS with a somewhat smaller turnover. In total, they provide more than two thirds of the sector's sales revenue. Waste paper is reprocessed by AS Räpina Paberivabrik. As the sector is very energy-heavy, the price of energy is particularly important for the companies. As that is higher in Estonia than in Finland as well as Sweden, the competitiveness of Estonian companies has suffered somewhat in recent years. At the same time, both large companies have made significant investments in measures of energy efficiency, which alleviates the situation.

In 2017, sales volumes of the paper industry increased by a tenth thanks to strong export. Growth was supported by price growth on foreign markets, production volume in constant prices increased half as fast.

Due to the large share of export, developments on foreign markets are particularly important for companies in this sector. Prices of cellulose rose in 2017, which supported the growth of the sector. Both larger companies of the sector have invested significantly in saving energy in recent years. In 2017, Estonian Cell launched its new biogas plant at full capacity, producing 7.9 m cubic metres of biogas. At the same time, Horizon began the construction of its CHP plant, which will help decrease gas expenses by more than a half. Good news for both companies is also that in late 2017, the government received the draft allowing energy-intensive companies to receive a discount on energy excise duty. A similar draft is being prepared for gas.

In addition to the above two manufacturers of mechanical cellulose, preparations also began in 2017 for the construction of an entirely new plant for producing chemical cellulose. A special national planning process has commenced for this purpose. Building the plant means a roughly 1 bn euro investment in the sector and an additional 750,000 tonnes of produced cellulose. At the same time, the process is still in initial stages and no important decisions have been made.

83% of the output of the paper industry went into export. The larger target countries of export are largely dependent on the operations

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31

of Estonian Cell and Horizon, as the export of those companies forms over two thirds of the export of the entire branch. Finland continued as the largest export market, where export of wood cellulose continued. Export of wood cellulose in tonnes actually decreased by 3%, but this was compensated by higher price and financially speaking, growth was 6%. Across countries, France and Germany showed a strong growth, export there increased by about a third. Egypt has also returned to the picture, receiving twice as much production as the year before. Kraft paper manufactured by Horizon mostly goes there.

In 2017, wages grew in the paper industry at the same pace as the Estonian average and the sector retained a somewhat higher wage level than the Estonian average. The higher wage in the sector is also caused by the fact that larger companies prefer to outsource auxiliary services to a large extent, which is why the main company only covers the most crucial functions and relatively few employees. According to preliminary data of enterprising statistics, the number of employees in the sector decreased by 4.1%. At the same time, the labour survey indicated a growth. The difference may be caused by the fact that the sector is relatively small and the sample size may not be representative enough in either survey. Efficiency indicators of the sector continued to improve quickly. Total profit grew by nearly 60% and work productivity per employed person by a fifth. As the number of work hours grew by more than a tenth, the growth of hourly productivity remained below the overall growth of work productivity.

Investments of the paper industry largely depend on the activities of the two largest companies in the sector. For this reason, a single large investment may significantly impact overall numbers. The time of receiving data also influences the information. According to preliminary data, the investments of the sector were three times higher in 2017 than the year before. This was mainly due to machinery and equipment, which received over 80% of all investments. In addition, Estonian Cell has reported a 17 million euro investment programme during upcoming years.

Companies of the paper industry interviewed by the Estonian Institute of Economic Research in spring 2018 were somewhat more positive about the future than the year before. There were more export orders and more than half of the companies intended to increase production volumes. Existing orders ensured work for 2 months, which is also the best result of recent years.

Uncoated kraft paper

and cardboard

24%

Boxes, crates,

bags and other

packaging9%Pulp

37%

Other products

30%



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Chemical industry A unique element of Estonia's chemical industry is the industry based on oil shale, but most of the sector is still formed by other subsectors, such as construction or applied chemistry. The smallest subsector (with a few hundred employees) is the pharmaceuticals industry. The chemical industry is a capital-intensive activity; output growth has not led to a significant increase in the number of jobs. Despite the growth in productivity, lagging behind the developed countries remains significant.

More than one hundred chemical companies operate in Estonia. About a half of the chemical industry is located in Ida-Viru County, a third of the workforce is in Tallinn and Harju County. The largest chemical enterprises are VKG Oil AS and KKT Oil OÜ (production of shale oil; Enefit Energiatootmine AS is also engaged in oil production, in addition to generating electricity), Akzo Nobel Baltics AS, AS Tikkurila and AS Eskaro (paints and varnishes), NMP Silmet OÜ (rare metals), OÜ EUROBIO LAB (manufacture of cosmetics), AS Novotrade Invest (recycling of petroleum products), OÜ Krimelte and Henkel Balti Operations OÜ (installation foam), Eastman Specialties AS (benzoic acid, sodium benzoate, plasticisers), Orica Eesti OÜ (explosives), AS Takeda Pharma (pharmaceuticals) and Interchemie Werken De Adelaar Eesti AS (veterinary medicines and supplies).

Big investments in the oil industry enable to create new jobs, but the field is strongly dependent on the world market prices of crude oil and therefore, long-term development plans are on hold. The sector as a whole is not expecting a significant increase in employment. The growth of production volumes will also mostly rely on increased productivity in the future. The need to increase efficiency is due to the appreciation of production inputs and the increase of expenses related to environmental protection also plays an important part in the chemical industry.

4 This sector covers, in addition to manufacture of chemicals and chemical products (EMTAK 20), also the manufacture of fuel oils (EMTAK

In 2017, the three-year decline period of the chemical industry was defeated4, manufacture decreased only in the smallest sub-sector. The sustained price of crude oil should support the oil industry in 2018. However, assessments of manufacturers of chemical products were more pessimistic at the start of the year, even though that was not reflected in production volumes.

The output of the chemical industry grew by more than a tenth in 2017. The sector was most impacted by the oil industry, where a quarter more output was produced than the year before thanks to the higher price of crude oil. Output in manufacture of chemical products increased by nearly 7%. At the same time, production volume dropped by a fifth in the manufacture of pharmaceuticals as the smallest sub-sector.

Thanks to price growth, sales revenue grew faster than production volume. Sales grew by a third in the sector as a whole, but the oil industry again reaped the most benefits from the price growth, increasing sales by three

19) and the manufacture of primary pharmaceutical products and medicinal preparations (EMTAK 21).

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quarters. The extent of the price growth is reflected by export prices of crude oil products, which grew by 30% over the year. Producer and export prices of chemical products grew by 4%, the sales revenue of the sector increased by 14%. The sales index of the pharmaceutical industry indicates that the prices may have dropped somewhat.

Domestic sales of the chemical industry grew more than export, but this is influenced by indicators of the oil industry which may not reflect the actual situation. According to preliminary statistics, export of the oil industry grew by about 40%, but domestic sales doubled (formed two thirds of total sales). It is likely that the majority of production sold by the oil industry moves to foreign markets via mediators, foreign trade statistics also support that notion. In manufacture of chemical products and the pharmaceutical industry, the share of export is over 80%, which is why export largely influenced the success of the sector. Domestic sales decreased somewhat in both sub-sectors in 2017.

According to foreign trade statistics, export of Estonian-made chemical products grew by a half in 2017. A large part of it was caused by sale of shale oil, which was in steep decline the year before. Export of shale oil was mostly caused by increased volumes, but prices also grew significantly. Growth of export was also largely impacted by petroleum oils, construction mastics, cosmetic and skin care products, and rare metals.

Export to the Netherlands doubled in 2017 thanks to the sales of shale oil, twice as many products were also sold to Latvia (growth was caused by petroleum oils) and to the USA (petroleum oils, shale oil). The sale of petroleum oils (in relation to reprocessing oil waste or mixing fuels) multiplied export to Singapore, Saudi Arabia and Switzerland. Increased export to Russia was mostly thanks to sale of construction mastics. Due to changes in sales channels of shale oil, export to Sweden and Belgium decreased.

Even though the production of shale oil grew strongly, the number of persons employed in companies of the oil industry dropped by more than a tenth according to preliminary statistics, which turned the entire chemical industry

towards a decline. The number of employed persons increased in other sub-sectors. Labour costs behaved the same way; salary increase was only limited to one per cent in manufacture of chemicals. Total costs of the chemical industry also decreased. The oil industry almost managed to break out of loss, profits decreased in other sub-sectors. Thanks to the oil industry, value added and productivity indicators based on value added also increased in the chemical industry. Similarly to other economic indicators, productivity decreased in manufacture of chemicals and pharmaceuticals.

0 5 10 15 20 25

Saudi ArabiaSwizerland

FinlandSweden

SingaporUSA

LatviaRussia

The Netherlands

Source: Statistics Estonia%


2017 2016

Mineral fuels and

oils57%

Inorganic chemicals

4% Organic chemicals

4%Pharmacy products

5%Fertilizers

2%Paints, varnishes, mastics

16%

Other12%


Goods of Estonian origin



35

Investments grew in manufacture of chemical products by 5% compared to the year 2016, but final assessments may provide different results. The data on other subsectors of the chemical industry is patchy in regards to investments. As the oil industry has not invested in increasing production capacity in recent years, it can be presumed that investment volumes were significantly more modest than a few years ago.

Manufacturers of chemical products mainly invested in machinery and equipment in 2017 (80% of all investments). Capital investments made in other fields mostly decreased compared to the year before.

According to the survey of the Estonian Institute of Economic Research, orders increased for manufacture of chemical products in 2017, but the demand still remained below the usual. More than two respondents out of three highlighted insufficient demand as a factor limiting the growth of output, this indicator has remained unchanged for more than five years.

The assessments for the first months of 2018 were somewhat poorer than at the same time of the year before. Expectations of price growth which had occurred mid-2017 remained on a relatively high level. However, industrial statistics indicated increased production volumes. The oil industry depends strongly on the developments in prices of crude oil, these prices have been favourable for the sector as of early 2018.

-6-4-20246810

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2012 2013 2014 2015 2016* 2017*

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Number of employed peopleAverage wage: manufacture of chemical products (euros)Change in the number of employed people (r.s.)Change in wages (r.s.)

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* 2016 data includes shale oil industry only partially, changes are calculated without shale oil industry



36

Manufacture of rubber and plastic products Products of the rubber and plastics industry are used in many fields - from the food industry (packaging) to the car industry and building materials. The Estonian rubber and plastics industry are made up of about 200 mostly small and medium-sized enterprises. Larger enterprises are Pipelife Eesti AS (plastic pipes), AS Estiko-Plastar (plastic film and plastic film packaging), AS Plasto (plastic windows), Promens AS, Talent Plastics Tallinn AS (plastic products for the car industry), Plastone OÜ (plastic products for different industries), AS Reideni plaat (insulation boards), OÜ Westaqua-Invest (water filters), AS Dagöplast (plastic film products), Greiner Packaging AS (plastic packaging), Cipax Eesti AS (plastic containers), Trelleborg Industrial Products Estonia OÜ (rubber and metal parts for the car and machinery industry), OÜ Merinvest (rubber o-rings, membranes) and AS Balteco (plastic tubs and cast marble sinks). Larger companies are located in Tallinn and Harju County (nearly half of the workforce), Saare County and Tartu County (about 15% of the workforce), but quite a large number of workers are also in Ida-Viru County and in Hiiu County.

The number of people employed in the rubber and plastics industry is likely to decrease in the future. Manufacturing is becoming more complicated and labour-intensive tasks are replaced with machines. Mass production has already partly moved out of Estonia, companies which are flexible and focused on smaller lots have better prospects.

The rubber and plastics industry continued a growth trend in 2017. Manufacturing grew faster than the average of the industry, economic results of the companies improved. The entrepreneurs’ expectations for the year 2018 were also positive, but the growth can be expected to slow down.

Companies of the rubber and plastics industry manufactured a tenth more than the year before. Even though producer prices grew by a few percentage points, the growth of sales remained somewhat below the increase of output according to preliminary statistics. Sales were mostly supported by export, domestic sales grew to a modest extent.

The greatest contribution to the growth of export came from furniture or vehicle fittings, plastic film and boards, pipes and hoses, seals. Export of plastic boxes and crates decreased. Sales to Sweden (fittings, cellular plastic boards, plastic table- and kitchenware, washers), Finland (plastic boards and films, packaging, pipes and hoses, various other plastic products) and Germany (various plastic products) grew the most. Export to other important partner countries generally increased, the Russian market was in decline (rubber protectors, pipes and hoses).

In 2017, the number of employed persons and work hours decreased by a few percentage points in the rubber and plastics industry, but despite this the labour costs grew by a tenth.

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Salaries in the field moved at the same pace as the Estonian average. The growth of sales revenue exceeded the increase of total expenses, hence total profit grew by a tenth, value added even more. Thanks to this, productivity indicators improved in the rubber and plastics industry.

According to short-term statistics, investments in the rubber and plastics industry decreased by a tenth compared to 2016. As a rule, volumes covered with final statistics have been approximately twice as high, which is why assessments to changes in investments have changed later. According to preliminary statistics, two thirds of capital investments went towards acquiring machinery and equipment, investments in them grew by a tenth. A greater drop could be seen in construction and reconstruction.

Entrepreneurs of the rubber and plastics industry assessed the volume of orders to be somewhat higher than in 2016. However, indicators investigated on the basis of the survey of the Estonian Institute of Economic Research did not change significantly, at the same time assessments were more positive at the start of 2018 than the year before. Expectations to production volume and prices increased. At the same time, statistics of the first months showed that output remained on the same level as last year. Nevertheless, the production volume can be expected to increase across the year, but the growth will be more modest than in 2017.

0 10 20 30

PolandDenmarkBelgiumNorway

LithuaniaGermany

LatviaSwedenFinland



2017 2016

Fittings for furniture,

coachwork or the like

31%

Boxes, bottles,

etc.22%

Plastic sheets and

films14%

Pneumatic tyres1%

Vulcanized rubber

products (seals etc.)

10%Plastic

pipes and hoses

9%

Other products

13%



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Value addedLabour costChange of total productivity (r.s.)Change of labour costs productivity (r.s.)

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Manufacture of metal and metal products The metal industry is involved in several fields, such as manufacture and construction of machinery and equipment. The metal industry employs more than 14,000 people in Estonia, making it one of the largest industries after the timber industry and next to the food industry. More than 1,300 companies operate in the industry. The metal industry is concentrated in Tallinn and its vicinity (60% of the workforce), and in Ida-Viru and Tartu Counties (about a tenth of the workforce). Larger companies are Ruukki Products AS (metal products, construction structures), AS Saku Metall Allhanke Tehas (thin sheet metal products, elevators), Fortaco Estonia AS, OÜ Marketex Offshore Constructions, AS Remeksi Keskus (metal structures), AS ESTANC (containers), AS Metaprint (manufacturing of metal packaging), HANZA Mechanics Narva AS, AS FAVOR, AQ Lasertool OÜ (metal processing) and ETS NORD AS (ventilation equipment).

The long-term expectation in the metal industry is the continued growth in production volumes, with exports as the main driver. However, the number of employees may decrease, and the increase in production must be ensured by an increase in productivity.

The year 2017 was the best in recent years for the metal industry. Output increased, the number of employed persons grew and financial results improved. The year 2018 began with the continued growth of production volumes but developments are likely to be more modest across the year than the year before.

The output of the metal industry grew by more than a tenth in 2017. Change in producer prices was modest (1%). The sector was supported by fast growth of export as well as strong domestic demand.

Export growth was mainly driven by metal structures and hooks, clamps, buckles etc. At the same time, growth was rather extensive, export of cisterns and other containers was in a decline out of primary commodity groups. Export grew on all important markets, except in Finland where sales remained on the level of 2016, and Norway (sale of aluminium structures, aluminium doors and windows dropped). Larger growth occurred in Sweden (metal structures, containers, aluminium products and profiles), Russia, Great Britain (metal structures drove the growth in both cases) and Germany (aluminium alloys, metal structures).

In 2017, the metal industry was the biggest job creator in the processing industry. According to initial data, the number of employed persons grew by nearly a tenth. However, labour costs grew twice as fast together with the wage growth, and total costs moved at the same speed. Strong demand supported the financial

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1 0001 2001 400

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €


Sales and exports


0 10 20 30 40 50

LatviaDenmark

RussiaNorwayPoland

GermanySwedenFinland


%

Exports of goods of Estonian origin by main target countries

2017 2016



39

results of companies. Total profit grew by a third, at the same time profitability remained rather modest. Productivity of the sector improved somewhat.

According to preliminary statistics, covering about a half of final assessments, investments of the metal industry decreased by nearly a tenth. Capital investments were increased by metal manufacturers, but in manufacture of metal products which forms the main part of the sector, investment activity was lower. Indicators of the metal industry were mainly influenced by decreased investments in machinery and equipment, which received two thirds of capital investments. However, acquisition of facilities increased over the year.

The confidence indicator, which relies on the assessments of entrepreneurs of the metal industry interviewed by the Estonian Institute of Economic Research, did not change significantly in 2017. Expectations increased towards price growth, labour shortage was seen as a bigger problem. Indicators grew somewhat weaker at the start of 2018 in comparison with the year before, at the same time production statistics of the first months indicated sustained growth. The general economy is favourable towards the sector, therefore its growth can be expected to continue.

Iron and steel7%

Iron and steel

products61%

Copper and copper

products2%

Aluminium and

aluminium products

10%

Other products

20%



0246810

02 0004 0006 0008 000

10 00012 00014 00016 000

2012 2013 2014 2015 2016 2017*

% y-o-y



Number of employed peopleAverage wage: production of metal products (euros)Change in the number of employed people (r.s.)Change in wages (r.s.)

-15-10-5051015

050

100150200250300350400

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €




-20

-10

0

10

20

30

0

20

40

60

80

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €






40

Manufacture of machinery and equipment Production volumes of the engineering industry increased at a fast pace before the global economic crisis, but with the crisis, investment goods producers, including mechanical engineering were strongly affected. Today, the sector has recovered from the crisis in terms of production volume, but growth has been achieved with fewer staff. The development of the engineering industry has been affected mainly by foreign markets, most of the production is exported.

There are nearly 200 small and medium-sized machinery and equipment manufacturers operating in Estonia. The largest engineering industry companies are AS Hekotek (woodworking equipment), OÜ Palmse Mehaanikakoda, Oniar OÜ (timber trailers, log lifts), AS Sami (construction lifts, forestry machinery), AS Tech Group (production automation equipment, production lines), OÜ Technobalt Eesti (conveyer systems), AS Finmec, AS Rauameister (handling and lifting equipment and parts thereof), Interconnect Product Assembly AS (industrial equipment, industrial electronics), OÜ PMT (different equipment for the engineering industry), Sveba-Dahlen Baltic OÜ (food industry equipment), AS Pesmel Eesti (assembly systems) and Metos AS (industrial kitchen equipment). However, the sector is dominated by smaller companies. Larger companies are located in Tallinn and Harju County, but the engineering industry is represented in almost every region of Estonia.

According to long-term forecasts, exports as well as domestic sales of the engineering industry will increase. Due to the ability of the sector to create higher added value, and in the example of developed countries, additional jobs can be created in the engineering industry, but the representatives of the sector estimate that automation may reduce the need for labour force.

The engineering industry was characterized by strong growth in 2017, but profits decreased according to preliminary statistics. The sector has good prospects for 2018.

Companies of the engineering industry produced a tenth more output in 2017 than the year before. Producer prices grew by a small extent (1.5%). The initial indicators of sales growth were somewhat more modest than those of production. Domestic sales grew strongly (having dropped significantly the year before) but export also supported the sector.

Out of the main export partners, sales decreased in Sweden (a significant drop in export of components of refrigeration equipment, lifting and loading equipment and the parts thereof, agricultural trailers and forestry equipment) and Latvia (wood processing equipment). Growth of export was most contributed to by Finland (lifting and loading equipment and the parts thereof), Russia (dryers, thermal processing equipment and parts, wood processing equipment), Spain (wind generators) and Germany (lifting and loading equipment and the parts thereof).

Increased demand and growth of output were also reflected in companies’ financial indicators. The number of employed persons in the engineering industry grew by about 6% over

0,7 4,0

75,8

3,4

122,6

0306090120150

020406080

100

Share invalueadded

Share inman.

industryexports

Share ofexports in

sales


man.industry

Ratio toaverage

wage(r.s.)

%%



-10

-5

0

5

10

15

0

100

200

300

400

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €


Sales and exports




41

the year, but wage increase and a larger number of working hours increased labour costs over 15% in 2017. The growth of total expenses was even faster, resulting in decreased profit. However, value added of companies still increased, but not enough compared to expenses, so the productivity of work costs and total costs on the basis of value added remained lower than the year before. As preliminary and final statistics have shown rather different results in the engineering industry, assessments may be adjusted to a large extent, also changing the conclusions.

According to preliminary data, investments of companies in the engineering industry grew steeply in 2017 (by about 70%) but final assessments are expected to be more modest. The large growth was caused by construction and reconstruction, but more means were also allocated to other types of fixed assets. The majority of investments was related to acquiring machinery and equipment, and to construction and reconstruction.

Entrepreneurs of the engineering industry assessed the situation of the sector to be better than in 2016. According to the survey of the Estonian Institute of Economic Research, there were more orders and labour shortage grew strongly. Assessments to the business climate also improved in early 2018, production volumes increased. Positive developments can also be forecast across the year.

0 2 4 6 8 10 12 14

SpainNorway

USAPoland

GermanySwedenRussia



2017 2016

-20246810

0500

1 0001 5002 0002 5003 0003 5004 0004 500

2012 2013 2014 2015 2016 2017*

% y-o-y




-15-10-5051015

020406080

100120140

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €




-100

-50

0

50

100

150

05

1015202530

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €






42

Manufacture of electronic and electrical equipment The sector of manufacturing electronic and electrical equipment is one of the largest industries in Estonia. This sector is characterized by good growth and constant development thanks to globalization of the market and quick adaptation in product development. The products of companies have a lot of value added and sales revenues have increased more than three times over the past ten years. Sales of the sector are strongly dependent on foreign markets as over 90% of sales revenue is generated in export. In addition to sales revenue, production volumes of the sector are also growing and future growth potential can be considered to be high.

The sector of manufacturing electronic and electrical equipment consists of more than 200 companies. Most large undertakings are based on foreign capital. Many companies operate in Tallinn and its vicinity, but at the same time other regions also contain important companies, thus influencing regional development. For example, the electronics industry has been one of the major creators of new jobs in Saaremaa, Pärnu, Elva and Narva.

Manufacture of electronic and electrical equipment is divided into two sub-branches. The largest enterprises in the manufacturing of computers, electronic and optical equipment are Ericsson Eesti AS (mobile communication equipment), Enics Eesti AS (electronic components for industrial and medical devices), and Scanfil OÜ (telecommunications devices), and the largest computer manufacturer is Ordi AS. Unlike the general direction of the industry, computers are sold mainly on the domestic market. In manufacture of electrical equipment, the largest company is ABB AS, whose main activity is the production of electrical distribution equipment and power generators. Other major companies are Ensto Ensek AS (electricity distribution equipment and control apparatuses), AS Konesko (electric motors and equipment), AS Draka Keila Cables (cables) and AS Harju Elekter Elektrotehnika (electricity distribution equipment).

After the good growth of 2016, the sector of electronics and electrical equipment was in a decline in 2017. The decline was caused by decrease of export, influenced by decreased demand for the output of one large company of the sector due to the development of new technologies. However, companies of the sector managed to increase domestic sales volume, number of employees, and value added.

About 70% of total sales in the sector of electronics and electrical appliances comes from the sub-sector of manufacture of computers, electronic and optical equipment, but its share has decreased compared to 2016. The share of manufacture of electrical appliances in total sales is smaller, but sales volume grew by 7% compared to 2016.

In 2017, the production volume of the sector of electronics and electrical equipment dropped in current as well as constant prices. In constant prices, manufacture dropped by 3.5%. Changes of the companies’ sales and export volumes in current prices were also negative. Sales of companies in current prices dropped by 11% and export by 12% compared to 2016.

1,6

25,0

91,5

11,4

97,1

0255075100125

020406080

100

Share invalueadded

Share inman.

industryexports

Share ofexports in

sales


man.industry

Ratio toaverage

wage(r.s.)

%%



-20020406080100

0400800

1 2001 6002 0002 400

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €


Sales and exports




43

The sector is strongly export-oriented. Over 90% of sales revenue was generated from sales on foreign markets in 2017. However, the share of export in sales revenue dropped a little in 2017 for companies in comparison with the year before. The share of export in total export of the processing industry also fell. The share of export of computers, electronic and optical equipment in sales dropped by 0.5% compared to 2016. The share of export of electrical equipment in sales dropped a bit more, by 4.6%, remaining at 82%. The decline of the share of export indicates that value chains are functioning on site and not as many semi-finished goods are shipped out.

Export of computers, electronic and optical equipment dropped by 24% since the year before, staying at 1.1 bn euros, which is the smallest export volume since 2010. However, export of electrical equipment reached the record of all time. Compared to the year before, export of electrical equipment was 8% bigger in 2017. The growth of export of electrical equipment was also facilitated by positive developments of export prices. The biggest contributor to export of electronic and electrical equipment was export of mobile communications equipment, which forms 44% of export of the sector. However, the share of mobile communications equipment is decreasing and in 2017, their export decreased by 29%. Out of larger commodity groups, the export of transformers and static transformers dropped by 8%. Out of more important commodity groups, export of controllers, panels and consoles grew by 17% and export of cables by 19%.

So far, export of electronic and electrical equipment has been strongly dependent on the Swedish market, because Sweden is the primary target country. However, Sweden is not always the final market. In 2016, the share of Sweden in total export was 44%, but in 2017 it had dropped to 31%. Export volumes decreased by 39% over the year. Other target markets are growing alongside the dropping Swedish market – Finland saw an increase of 12%, China 11%, Norway 29% and export to Germany increased nearly two times. Out of important trade partners, export of electronic and electrical equipment also decreased to Mexico, Romania and the United Kingdom. The

main reason for the decline on the Swedish market is the restructuring of one large company operating in the sector. The likely cause for the decline of export to Mexico is the extraordinarily high base level of the year before. The greatest decline in Romania and the United Kingdom was also mainly caused by export of mobile communications equipment. Export of growing markets has mainly been influenced by the good economic development of the countries.

The sector of manufacturing electronic and electrical equipment has been developing steadily since the economic crisis. Sales and production volumes have been declining in recent years, but labour and productivity indicators are positive. Even though Estonia is currently experiencing a shortage of necessary labour force, the number of employees in the sector grew by a total of 7%. Positive changes occurred in both sub-sectors. The number of employees grew by 3% in manufacture of computers, electronic and optical equipment, and by 11% in manufacture of electrical equipment.

The average gross monthly wage of the sector grew in both sub-sectors, even though the

-400

4080

120160

2010 2011 2012 2013 2014 2015 2016 2017*

Change in sales by sub-sectors

Manufacture of computers, electronic and optical devicesManufacture of electrical equipment


%

Sweden30,6%

Finland21,1%

Germany10,5%

USA4,0%

Norway3,5%

Mexico3,8%

China3,6%

Romania2,7%

Others20,2%

Exports by target countries




44

average gross monthly wage in manufacture of computers, electronic and optical equipment remains below the Estonian average. In 2017, the average gross monthly wage in manufacture of computers, electronic and optical equipment was 1,186 euros, which was 68 euros or 6% more than the year before. The average Estonian gross monthly wage was 7% above that. The average monthly wage in the sub-sector of manufacture of electrical equipment was 1,288 euros, growing by 40 euros or 3% over the year.

After three years of decreasing productivity, the sector took a remarkable leap and grew total productivity on the basis of value added by 56%. The growth was influenced by the large growth of the sub-sector of computers, electronics and optical equipment. However, the productivity of manufacturing electronic equipment decreased by 6%. Similarly to total productivity, the sector also managed to increase work productivity per employed person, which grew by 27% over the year, and productivity of work expenses, which grew by 20%. For these indicators, positive growth also only occurred in the sub-sector of manufacturing computers, electronic and optical equipment.

Thanks to the good economic situation and increased demand, companies increased investments in tangible fixed assets again in 2017. In order to retain competitiveness, they have invested in technology as well as in fields related to increasing process and production capacities. Investments of the entire sector grew by 42%. They also grew in both sub-sectors. Companies invested the most in machinery and equipment, the volume of which grew by 33%. The biggest growth occurred in investments in construction and reconstruction of facilities, with grew seven times. Several companies have expanded their facilities or built new production buildings which will be entered into service in 2018. In addition, investments grew in acquiring facilities, means of transport, and land, but their share of total investments was negligible. The only investments to decrease were in computers and computer systems, which may be because larger investments were made in 2016 or because the majority of hardware and software is acquired on lease contracts.

The year 2017 was successful for the entire Estonian economy, which was also felt in the sector of manufacturing electronic and electrical equipment. Sales of the sector may have decreased, but value added, work force, productivity, investments and wages grew. Results of the survey of March 2018 by the Estonian Institute of Economic Research indicate that the positive trend can be expected to continue. Companies forecast the growth of volume of production as well as increased foreign demand. In addition, it is believed that sales prices will grow.

-40-20020406080

0102030405060

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €




-20-15-10-5051015

02 0004 0006 0008 000

10 00012 000

2012 2013 2014 2015 2016 2017*

% y-o-y




-40-30-20-100102030

050

100150200250300350

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €






45

Manufacture of means of transport Manufacture of means of transport depends mainly on foreign demand, the majority of sales in this sector occur in the form of export. As a result of the economic crisis, both domestic sales and exports fell heavily, but this was followed by a quick recovery.

There are over 150 manufacturers of means of transport in Estonia. The largest are PKC Eesti AS (wiring harnesses for the car industry), AS Norma (car safety systems, seat belts), Stoneridge Electronics AS (electronic equipment for the car industry), AS Fors MW (timber trailers, cranes), AS Respo Haagised, OÜ Birger and AS Bestnet (trailers), OÜ Tarmetec (car accessories), Universal Industries OÜ (silencers), Baltic Workboats AS (aluminium boats), AS Luksusjaht (plastic yachts and motor boats). Many shipbuilding and repair companies are included under repair of machinery and equipment, such as several subsidiaries of BLRT Grupp AS. Larger companies are concentrated mainly in Tallinn and Harju County (two thirds of the workforce in the sector), whereas Tartu County and Saare County are also quite significant.

According to long-term forecasts, export will be pushing up sales volumes in the future, the domestic market will play a modest role. The growth of production volumes is caused by increased productivity because lack of qualified workforce and growth of labour costs forces to focus on more expensive products.

The year 2017 was the best of recent years in terms of production volumes for the manufacture of means of transport, even though in financial indicators it was only reflected in manufacture of motor vehicles and their parts. The sector is expected to have good opportunities to grow production volumes in 2018.

Manufacture of means of transport grew by about 15% in 2017. The manufacture of motor vehicle, their parts and trailers increased even a little more, but the growth of manufacturing other means of transport was also fast (over 10%). The growth of production was also reflected in sales figures, but at the same time the growth of sales of other means of transport reached about a third according to preliminary statistics (the final assessment may not indicate that much of a growth). The growth of sales was primarily caused by export, manufacture of other means of transport was also strongly supported by internal demand.

According to foreign trade statistics, the export of Estonian-made goods decreased in 2017, primarily due to decrease in sales of vehicle cable sets and vehicle parts (incl. seat belts). The decline of sales of these products was also the main reason for decreased exports to Sweden, Mexico, Belgium and Romania. Export was positively impacted by sale of boats, floating structures and trailers. Across

0,7 5,7

86,8

3,0

103,0

0255075100125

020406080

100

Share invalueadded

Share inman.

industryexports

Share ofexports in

sales

Share ofemploy-ment in

man.industry

Ratio toaveragewage*

%%

* Production of motor vehicles and trailersSource: Statistics Estonia


-10-505101520

0

100

200

300

400

500

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €


Sales and exports


0 5 10 15 20 25 30 35

Czech Republic

UK

Germany

Finland

Norway

Sweden



2017 2016



46

countries, sales to Norway grew the most (floating structures, trailers, containers).

Even though the manufacture of motor vehicles increased, the number of people employed there continued to decrease according to preliminary data (by more than a tenth). At the same time, wage growth was twice as fast as the average, therefore the decline of labour costs was modest. In manufacture of other means of transport, the number of employed persons and labour costs grew together with production volumes. Total costs moved upwards in both sub-sectors. Despite this, the manufacture of motor vehicles managed to increase profit, but the result remained significantly poorer than in 2016 in the manufacture of other means of transport, which also brought down the profits for the entire sector. Developments were also moderate for value added, which in turn influenced productivity. Here, results of manufacturing other means of transport were also poorer.

Companies of manufacturing motor vehicles, their parts and trailers invested more in 2017 (40% according to preliminary data) than the year before. Data of all quarters have not been disclosed for other means of transport and short-term statistics only cover a small part of the sector. For this reason, the assessment of drop of investments based on preliminary statistics may change later in this field of activity. The majority of investments was related to acquiring machinery and equipment. Nearly all other fields also received more investments than the year before.

Preliminary statistics indicate that production continued to increase in early 2018. The growth can be expected to be sustained across the year.

Parts and accesso-

ries of motor

vehicles34,9%

Trailers and semi-

trailers22,0%

Yachts and boats5,2%

Floating structures

8,2%

Other boats2,5%

Other27,2%



-10

-5

0

5

10

15

0500

1 0001 5002 0002 5003 0003 5004 0004 500

2012 2013 2014 2015 2016 2017*

% y-o-y



Number of employed peopleAverage wage: production of motor vehicles (in euros)Change in the number of employed people (r.s.)Change in wages (r.s.)

-20-15-10-50510

020406080

100120140

2012* 2013 2014 2015 2016 2017*

% y-o-ymillion €




-40-200204060

0

5

10

15

20

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €




* 2016 data includes production of other transport industry only partially, changes are calculated for production of motor vehicles, parts thereof and trailers



47

Manufacture of furniture More than 700 companies which employ almost 8,000 people are engaged in furniture manufacturing. The furniture industry is a sector that has a long tradition in Estonia, is an important employer in rural areas and helps to increase the value of domestic raw materials.

Major furniture industries in terms of the number of employees are located mainly in North and South-East Estonia. In 2017, larger furniture manufacturers were upholstered furniture manufacturers AS Bellus Furniture and Antsla Inno AS, office furniture manufacturer AS Standard, a manufacturer of furniture components Flexa Eesti AS, wooden furniture manufacturers Gomab OÜ and Tiksoja Puidugrupp, and OÜ Delux, which manufactures mainly bedroom fittings.

In recent years, the primary driving force behind the furniture industry has been the domestic market. For some reason or other, competitiveness has remained moderate on foreign markets. Future success will depend more on how much the sector will be able to grow its development capacity and increase the share of design in the final price of production.

Sales grew in 2017 in the furniture industry, increasing by 2.9% thanks to the strong domestic market. Even though the drop of export slowed, competitiveness on foreign markets has decreased in recent years.

The turnover growth of the furniture industry was promoted by the continued good form of the local real estate market. On one hand, general purchasing power is high, but on the other hand, people are also actively purchasing new residences which also need to be filled in. It is unlikely that the trend of the share of export continually decreasing will be able to continue for long. The Estonian market is relatively limited in size and success would require expanding abroad.

Successfully competing on foreign markets is an important part of manufacturing furniture. 60% of production is exported and the share of export has been decreasing little by little in recent years. The Nordic countries have historically been the most important markets. On one hand, companies are better acquainted with the culture and market there, on the other hand transport costs are also lower. In addition, several Finnish or Swedish furniture manufacturers have a production facility in Estonia. The share of those two countries does indeed form over 50% in export. The importance of Nordic countries increased further in 2017. The direction of Denmark and Norway both generated a growth of over 50%. At the same time, export to Germany and Great Britain decreased. Out of larger commodity groups, export of wooden bedroom furniture increased by 48% and sale of furniture parts by

0,7 4,3

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8,1

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020406080100

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industryexports

Share ofexports in

sales


man.industry

Ratio toaverage

wage

%%



-5

0

5

10

15

0100200300400500600

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €


Sales and exports


0% 10% 20% 30% 40%

UK

Germany

Norway

Denmark

Sweden

Finland


%


2017 2016



48

a fifth. At the same time, export of wooden office furniture decreased by 20%. Export of various seats (not made of wood) was also weak.

Employment did not change significantly in the furniture industry in 2017. Wage growth also remained at the Estonian average. Productivity rates related to work expenses dropped in 2017, because costs grew significantly faster than revenue. At the same time, productivity calculated purely based on value added grew 7.6% per employed person. Profit of companies remained on the same level as the year before.

According to preliminary data, investing activity in the furniture industry grew by 8% in 2017. At the same time, investment statistics of the sector are quite volatile and data may be adjusted significantly later on. For example, investments of 2016 turned out to be more than twice as big as short-term statistics indicated. Investments in acquiring facilities had the biggest growth, receiving over twice as many means as the year before.

Results of the survey of the Estonian Institute of Economic Research showed that companies of the furniture industry had a significantly more positive attitude in spring 2018 than the year before. A quarter of the companies had increased production volume in recent months and the same amount of companies planned on recruiting more employees. At the same time, 64% of production capacity was used, which was 12% less than at the same time the year before.

Seats36% Parts of

furniture16%

Living and dining room

furniture13%

Wooden kitchen

furniture3%

Wooden bedroom furniture

17%

Other furntiture

15%



-8-6-4-2024681012

020406080

100120140160180

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €Value added, labour costs and productivity


Other production includedSource: Statistics Estonia

0246810

02 0004 0006 0008 000

10 000

2012 2013 2014 2015 2016 2017*




-30-20-1001020304050

0

5

10

15

20

25

30

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €






49

The construction sector The Estonian construction sector has remained largely oriented on the domestic market and therefore developments in the construction market are closely related to general economic development. Exports in the construction sector activated in particular in recession years, while the share of export has changed little in recent years. Many companies have optimized their activities so as to respond better to the domestic market demand. The construction sector responds to the changes in the economy with inertia. The recovery of confidence and the sector take place slower than the contraction of the construction market or changes in other economic sectors. This is justified by the fact that real estate investments are large. Therefore they are often put off in uncertain times. If the situation in the economy as a whole is good, the volumes and prices of construction grow quickly. Thus the economic situation in the country has a direct impact on economic results of the construction industry and the areas dependent thereon, such as construction consulting services, real estate services, construction materials industry, etc. There is also a directly opposite impact – the situation of the construction sector dictate the fate of several other economic branches.

There are approximately 10,000 construction companies operating in Estonia, 91% of whom are micro-enterprises with fewer than ten employees. The large share of micro-enterprises is characteristic to the construction sector in all of Europe, whereas the EU average rate is nearly 94%. Larger Estonian construction companies are AS Merko Ehitus, Nordecon AS, AS TREV-2 Grupp, Lemminkäinen Eesti AS, OÜ Astlanda Ehitus, OÜ Mapri Ehitus, AS Ehitusfirma Rand ja Tuulberg, AS TREF, Kodumaja AS, OÜ Fund Ehitus.

In 2017, indicators of the construction sector were characterized by partial recovery from the fall, also contributing to growth of economy as a whole. Construction volumes, value added, employment and to a degree, construction prices increased. Productivity and investments remained on a stable level. The volume of construction work carried out in foreign countries was at a low. The average wage of the sector is continuing to remain below the national average for several years in a row and the gap keeps on widening.

Until 2014, recovery from the crisis after the economy boom was mainly supported by various state support measures, which ended or shrunk in 2013. State support could be seen again from 2016 onwards when structural means of the new period opened up. The amount of closed net area which received a construction permit in 2017 and was adopted into use as residential and non-residential premises grew by nearly 20% over the year.

In 2017, the construction sector remained in the position of the third largest economic sector by number of employed people, only remaining below the processing industry and the wholesale and retail trade. According to the labour survey, the construction sector employed a total of 57,000 people and business statistics assess that number at

6,6 10,1

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Share in GDP Share inemployment

Ratio to averagewage (r.s.)

%%



-10%0%10%20%30%40%

0

1 000

2 000

3 000

2010 2011 2012 2013 2014 2015 2016 2017

% y-o-ymillion €Construction works performed by own

resources

Construction in foreign countriesConstruction in Estonia (at current prices)Change in construction in Estonia (r.s.)


-10-50510152025

0

20 000

40 000

60 000

80 000

100 000

2012 2013 2014 2015 2016 2017*

% vea



Number of employed people (labour force survey)Number of employed people (business statistics)Change in no of employed people (labour force survey, r.s.)Change in no of employed people (business statistics, r.s.)



50

42,000 people (short-term assessment). According to the labour survey, the number of employed people has undergone a fall of 1.6%, whereas business statistics indicate that the number of employed people grew by 6%. If the more precise annual statistics confirm the growth of employment at this rate then this is even quite modest in comparison with the large growth of construction volumes.

The assessment of the labour survey includes Estonian workforce operating abroad, therefore employment is also influenced by the volatile activity of the construction markets of target countries of labour migration in recent years. Labour data do not include labour employed by companies which offer labour for hire. Considering the modest change in labour for construction companies, it can be presumed that the share of rented labour has grown significantly with the fast growth of construction volumes. The number of employed people is also directly influenced by the industrial sector, including first and foremost the manufacture of construction products. For example, manufacture of factory-made building parts is including more workforce with competence developed in the construction sector. There is also constant workforce migration between the construction sector and the sector of real estate services.

Considering the increasing labour shortage and the likely wage pressure, it can be presumed that interest in increasing productivity and thereby decreasing employment rates will grow even in the condition of increasing construction volumes. Nevertheless, it seems that the labour shortage has not yet caused a strong wage pressure.

Wage changes in the construction sector have been positive but fluctuating since the economic crisis. In 2017, the gross monthly wage of the construction sector increased to 1,168 euros. However, Estonian average wage grew faster, reaching 1,221 euros. Due to this, the average wage of the construction sector has remained below the national average since 2015 and the gap is only deepening. Considering the particularly low confidence of construction enterprises due to existence of free workforce and the practically unchanging productivity in the sector, the weak growth of the average wage can only be explained with the fact that work force with increasingly lower competence is used, who do not compete in other sectors.

In 2017, construction work was carried out in Estonia for the total amount of 3.44 bn euros according to short-term assessments. The volume of works carried out with own means was 2.31 bn euros in Estonia, indicating a growth of about 5% over a year. The volume of construction works carried out abroad decreased by 13% according to short-term assessments, which is one of the biggest drops in the history of decreasing export volume of the construction sector. This trend can also be seen in previous years – export-related risks are avoided in the case of an active domestic market and vice versa. However, decreased export and the conditions

0

3

6

9

12

0200400600800

1 0001 2001 400

2010 2011 2012 2013 2014 2015 2016 2017

% y-o-y


Wages

Average wage (Estonian avg)Average wage (construction)Change in wages (average, r.s.)Change in wages (construction, r.s.)

-20-100102030

-2-10123456

2012 2013 2014 2015 2016 2017

% y-o-y% y-o-yDevelopments in the construction sector

Construction price index (left scale)Construction volume index of buildings (r.s.)Construction volume index of facilities (r.s.)




51

of a secure domestic market provide the risk of local companies losing international competitiveness. More extensive conclusions can be drawn only after more precise data arrive in the second half of the year.

Construction price index grew by 1.5% in 2017, which is modest in comparison with the years following the economic crisis. All price components showed a uniform annual growth after a few years in decline, including labour by 2.4%, construction machinery by 1.4% and construction materials by 1%. The small growth of labour cost price index in the situation of an extensive labour shortage presumably indicates that entrepreneurs are not very willing or motivated to hire stable workforce and provide specialized training.

Construction companies earned a profit of 190 m euros in 2017, showing a growth of about 22% in short-term comparisons. Value added in the construction sector was 854 m euros in 2017, which was 16% higher in comparison with the corresponding short-term comparison with 2016. The construction sector formed about 6.6% of the total value added in the economy.

Productivity of the construction sector improved somewhat, for example the productivity of labour costs on the basis of value added grew by 1.5%. The value added per employee in the Estonian construction sector is approximately 20,000 euros per employee according to European comparative statistics. The average value added per employee in the European Union construction sector was approx. 43,000 euros, exceeding the corresponding Estonian indicator more than twice. In the Nordic countries, productivity per employee is generally in the range of 50,000–60,000 euros, i.e. 2–3 times higher than the productivity of the Estonian construction sector. International data of the productivity of the construction sector are from the year 2015.

Compared to the time before the economic crisis, investment activities were significantly lower in the construction market. Companies invested 5.5% less in tangible fixed assets in 2017 than the year before (short-term assessment, data may be significantly adjusted later). The situation has not changed markedly since 2012. Opportunities for investing are found first and foremost in favourable conditions, when the work flow has ensured confidence and an expectation of profit, which should be met in 2017 according to statistical data. Investments are also stimulated by growth of labour costs, which endangers profitability, but it is evident that the price pressure is not yet sufficient for

-20-1001020304050

0

50

100

150

200

2010 2011 2012 2013 2014 2015 2016 2017*

% y-o-ymillion €




-10-505101520

0,0

0,5

1,0

1,5

2,0

2010 2011 2012 2013 2014 2015 2016 2017*

% y-o-y


Labour costs productivity

Labour costs productivity based on value addedChange in productivity (r.s.)

0100200300400500600

0

1

2

3

4

2010 2011 2012 2013 2014 2015 2016 2017

thousand m2

%Housing loan interest rates and dwelling

completions (new construction)

Floor area of dwellingsHousing loan interest rates to households

Source: Bank of Estonia, Statistics Estonia



52

entrepreneurs to take bolder steps in the interests of increasing productivity.

The majority of investments in tangible fixed assets were directed towards updating means of transport and machinery, equipment and other supplies. Compared to 2016, companies only invested more in acquiring facilities and land in 2017, and land was purchased as much as 60% more. Other investment rates did not change significantly or decreased.

Confidence indicator of construction companies, deduced on the basis of surveys of the Estonian Institute of Economic Research, showed positive signs in 2017 following a long negative period. The confidence of construction entrepreneurs was last at such a uniformly high level 10 years ago. Companies find that the number of orders has gone up but labour shortage is having that much of a negative impact. As of the end of 2017, contracts ensured work for companies for an average of 4 months, which could also be seen in 2016.

In 2017, authorisations for use were granted to 5,890 new residential premises and 1,251 non-residential premises. Total closed net area of buildings permitted into use was 1,343,000 square metres, which exceeded the same value of 2016 by 9%. However, the number of authorisations for use issued still remains below the level of the construction boom in 2007. The share of authorisation for use in the number of building permits issued has improved significantly, which may indicate efficient supervision and awareness of the market regarding the low market value of illegal buildings. It can also be presumed that in the current favourable economic environment, works for building facilities which received a building permit start immediately.



53

Domestic trade The trade sector is comprised of retail and wholesale businesses, including motor trade enterprises engaged in the sales of motor vehicles and their spare parts. Trade creates 11.8% of value added and employs 88,000 people in 16,000 companies.

The major Estonian retail companies are COOP (it includes Maksimarket, Konsum, A&O), Maxima Eesti OÜ, Tallinna Kaubamaja AS (Selver), AS Prisma Peremarket, Rimi Eesti Food AS (Rimi) and AS OG Elektra. No company has achieved a dominating position on the market and the market share of the largest chain also remains below a quarter of the market volume as a whole.

Estonian domestic trade can recently be characterized with tumultuous growth. Floor space and sales volumes have grown fast. Companies have also invested in developing technology. Self-checkout is used increasingly often and online turnover is growing.

In 2017, domestic trade continued a growth the same way as in previous years, and growth accelerated further. Sales revenue of retail companies increased by 6.2%. Motor trade enterprises had an even better year, growing sales by 12%. In total, sales revenue of domestic trade companies grew by 8.1%.

Estonian retail is mostly consolidated into five store chains. At the same time, heterogeneity of the sector is bigger in Estonia than in neighbouring countries. Finland and Latvia only have two dominating chains on the market. In terms of number of stores, Estonia’s largest store chain is COOP, which had 403 stores and 5,500 employees as of the year 2017. The turnover of the chain reached 551 m euros. In addition to retail, COOP also entered the banking sector last year, acquiring Krediidipank. This move allows to create synergy within the group and offer a wider selection of services to clients. In terms of turnover, the biggest retail company is Tallinna Kaubamaja Grupp, which generated sales of 651 m euros in 2017. The TKM group includes the Selver chain, several car trade companies in Estonia and other Baltic States, and the shopping centres in the city centres of Tallinn and Tartu. They employ 4,200 employees.

Addition of new floor space slowed down somewhat in 2017. Building permits were issued for 27% bigger area than the year before, but only 75,000 square metres of new floor space received authorisation for use, which was 40% less than the year before. At the same time, expansion and reconstruction volumes increased. Out of larger centres, the reconstruction of the Nautica centre in port of

12,4 13,3 2,990,1

020406080

100

Share in valueadded

Share inemployment

Share inexports ofservices

Ratio toaverage wage

%


Share of trade sector in Estonian economy

-3-2-10123456

0

20

40

60

80

100

2012 2013 2014 2015 2016 2017*

% y-o-ythousandsNumber of people employed in trade

Number of employed people (labour survey)Number of employed people (business statistics)Change in no of employed people (labour survey, r.s.)Change in no of employed people (business statistics, r.s.)


012345678

0200400600800

1 0001 200

2012 2013 2014 2015 2016 2017

% y-o-y


Wages in trade sector

Average wage (in euros)Change in wages (r.s.)



54

Tallinn ended after lasting for more than a year. New floor space can be expected to be added to a large extent in 2018. The T1 Mall shopping centre is being completed on Peterburi road, with 55,000 m2 of floor space. In total, Estonian retail chains have declared an intention of opening at least 11 new super- or hypermarkets in 2018. The most active expanders are COOP and Rimi. In late 2017, Ülemiste centre in Tallinn also began a new stage of reconstruction, where space is planned to be expanded by 13,000 m2 to 82,000 m2 by the year 2019. This expansion adds a movie theatre to the centre, which has already become quite common for new shopping centres. Outside of Tallinn, the biggest expansion was the reconstruction and expansion of the old part of Tartu Lõunakeskus, which added a movie theatre, a hotel and several shops and eateries to the centre.

In 2017, wage growth in the trade sector was somewhat faster than the Estonian average and the gap decreased. In total, wages of the trade sector grew by 7.5%. The number of employed persons grew by 4.5% according to the labour survey and by 1.4% according to business statistics. At the same time, number of hours worked grew by 2.1%, still indicating the growth of employees’ workload. Out of sub-sectors, employment grew in wholesale and vehicle trade, the level remained the same in retail. Based on productivity indicators, the year was rather modest for the sector. Total profit decreased by 7%. At the same time, work productivity on the basis of value added did not change over the year. Indicators were better in wholesale, where work productivity grew by more than a quarter. The situation was poorer in vehicle trade, where work productivity decreased by 14% over the year.

Sales period of stock decreased by 1.5 days to 41.3 days in 2017. At the same time, trade-margin decreased from 21% to 20.6%. The growth of mark-up was spearheaded by wholesale and retail, whereas it dropped somewhat in vehicle trade.

According to preliminary data, investments dropped by 4.6% in the trade sector in 2017. More than a third of investments occurred in machinery and equipment, the volume of those

investments decreased by 12%. At the same time, computer systems received a third more in funding than the year before.

Retail trade

The year 2017 was markedly more successful for retail trade companies than the year 2016. The total sales revenue of companies grew by 6.2%, even though growth speed slowed somewhat in the second half of the year.

The total sales revenue of retail companies was 9.8 bn euros in 2017. 6.7 bn of this was sales of retail trade companies and the remaining was generated by vehicle trade. Growth was faster for manufactured goods, where retail sales of textile products, clothes, footwear and leather products grew by 9% over the year. The retail sales of household products, home appliances, general hardware and construction materials grew by 8.7% over the year. Retail sales by mail or internet accelerated significantly, where volumes grew by 37% over the year (the growth was 9% the year before). The only segment where sales did not grow and remained on the same level as last year was retail sales of pharmaceutical and medical goods, cosmetics and toiletries.

Even though labour costs grew, sales revenue increased faster and the profit of the sector grew by more than a third over the year. Efficiency indicators also turned towards a growth. Pure value added per employed person grew by 11.5% and productivity of labour costs by 6%.

The year 2017 was relatively successful for the retail trade sector. Fast wage growth and low labour shortage kept people’s consumption capacity up and there were enough clients for everyone. At the same time, increase of southern cross-border trade and decrease of the northern one began to make its presence increasingly known in the second half of the year. The number of alco-tourists from Finland has begun to decrease, influencing sales in shopping centres. At the same time, people of South Estonia shop more in Latvia where the price level is more favourable. The year 2018 will probably be a growth year again. Even though there is a lot of floor space on the market and centres keep needing to come up with new ways to attract visitors, the good



55

economic situation of Estonian people allows to expect the growth to continue.

-10

-5

0

5

10

15

0

500

1 000

1 500

2 000

2 500

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €



Value addedLabour costsChange in labour productivity (r.s.)Change in labour costs productivity (r.s.)

-10-50510152025

0

100

200

300

400

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €




-10-505101520

02468

10121416

2012 2013 2014 2015 2016 2017*

% y-o-ybillion €


Sales revenue at current prices

Trade in vehiclesWholesale tradeRetail tradeChange in turnover, companies trading in vehicles (r.s.)Change in turnover, wholesale companies (r.s.)Change in turnover, retail companies (r.s.)

Food products

27,7%

Alcoholic beverages,

tobacco products

10,1%Clothing, fabrics,

footwear8,4%

Motor vehicles, spare parts, motor fuel

18%

Other goods35,8%

Share of retail trade by commodity groups




56

Tourism The share of the tourism industry in the Estonian GDP and employment is approximately 7% considering indirect influences; tourism makes a significant contribution to export earnings. The Estonian tourism industry largely relies on foreign visitors, who account for about two thirds of all overnight stays in places of accommodation. A large share of foreign visitors (over 15%) is formed by single-day Finnish visitors, while the number of visits from other countries has increased at a faster pace and reduced dependence on the Finnish market.

The main tourist attraction is Tallinn, where a large part of tourism enterprises are located. Interest in other regions has also increased by the year, supported by newly built rehabilitation centres, accommodation and other service facilities.

There are more than 700 accommodation establishments operating in Estonia (along with a number of sole proprietors and companies who cite some other activity as their main activity), nearly 2,000 catering companies and nearly 300 travel agents and tour operators. Major accommodation companies are OÜ TLG Hotell (Tallink, Pirita TOP SPA Hotell), AS Sokotel (Hotel Viru), Hotell Olümpia AS, Meriton Hotels AS, OÜ Swissotel Estonia and OÜ SPA Tours. Major catering companies are Premier Restaurants Eesti AS (McDonald's), AS Hesburger and Baltic Restaurants Estonia AS. Major travel agents and tour operators include AS ESTRAVEL, Novatours OÜ, OÜ TEZ Tour and CWT Estonia AS. Hurtigruten Estonia OÜ has the greatest number of employees and provides travel booking services and other auxiliary services to its group. Approximately 60% of the employees in the tourism sector work in Tallinn, other noteworthy regions are Tartu and Pärnu, but the tourism industry is represented all over Estonia.

Future growth in travel is expected, which will also support the Estonian companies. The increase in demand is expected in both domestic and foreign tourism, but long-term growth is slower than before. In particular, growth can be expected in export revenues thanks to the increase in the number of foreign tourists staying overnight. Supply growth in the tourism sector means a growing need for additional labour. As income increases, domestic tourism as well as number of travels abroad will increase in the long run. Tourism policy seeks to increase the duration of travel in Estonia and to disperse demand seasonally and geographically.

In 2017, domestic and foreign tourism flows continued to grow. High demand allowed companies to increase prices, but at the same time it did not result in increased profit. The growth of consuming tourism services can also be expected in 2018.

The year 2017 turned out to be excellent for foreign tourism worldwide. According to the World Tourism Organization, the growth of number of travels was the fastest in recent years. Even though travels to Europe were at the top of the list, growth remained more modest in Central and Eastern Europe (5%). The growth of travels to Estonia also slowed down in comparison with the year before, but at the same time the travels of Estonian residents within the country as well as abroad picked up speed.

Value added for accommodation and catering grew by a tenth in 2017, but as prices grew faster, it remained nearly at the level of the year

2,1 10,5 3,9

66,5

020406080100

020406080

100

Share invalue

added*

Share oftourism in

exports

Share inemploy-ment*

Ratio toaveragewage*

%%



* indicators characterise the accommodation and catering companies not the whole tourism sector

-1 500-1 000

-5000

5001 0001 5002 0002 500

2012 2013* 2014 2015 2016 2017

million € Tourism services

Imports Exports Balance of tourism services

* Data was updated since 2013, earlier yearsare not adjustedSource: Bank of Estonia



57

before in terms of constant prices. In terms of price growth of accommodation and catering services, Estonia was one of the fast-growing European countries.

Export and import of tourism services reached new records. Thanks to the growth of number of passengers and increased expenses as well as activities of the local airline, export grew by a tenth. Growth of import was significantly slower (nearly 4%), thus the balance surplus of tourism services grew to more than 650 m euros.

Over 3.5 m tourists stayed overnight at accommodation facilities in 2017, which was 6.6% more than the year before. At the same time, the increment of overnight stays was more modest (4.5%), which is to say, the average time spent in Estonia (in one accommodation facility) got shorter. The second half of the year remained somewhat weaker. Foreign and domestic tourists contributed to increased demand almost equally. The number of accommodated people and overnight stays increased the most thanks to holiday travellers, who also form the biggest share of all clients, but travels for other purposes also provided more work for accommodation facilities than in the year before.

The number of accommodation facilities, rooms and beds grew by about 5% over the year. Nearly a third of additional bed spaces were created in Tallinn, but the growth was nearly as big in Tartu, where larger accommodation facilities in particular have been added to the market.

The growth of demand and supply was in balance. The average occupancy rate at accommodation facilities improved somewhat in comparison with 2016. At the same time, the average cost of a full day grew rather fast (6.7%), particularly due to the faster growth of prices in Tallinn and Tartu, which are also the most expensive areas by price range. Price growth remained below the average in other regions. The price growth is partly caused by addition of more expensive hotels, but the presidency of the EU council may have had a certain effect, particularly in Tallinn where average price level grew by a tenth over the year, even a bit more in the second half of the

year. In addition, VAT of accommodation services was supposed to be increased in 2017 but this was cancelled at the last minute, yet due to long-term contracts, this may have been a partial cause behind price growth (prices began to grow at the start of the year already).

In fields more closely related to tourism – accommodation, catering and travel agencies (together with booking and other similar fields) – the number of employed persons grew by 3–5% in comparison with the year 2016, according to preliminary data. Changes were more modest for working hours, even decreasing in accommodation. Average gross wages grew a little faster than the Estonian average in accommodation and catering. The growth of labour costs has a significant impact on accommodation and catering, forming nearly a third of total expenses. The share of labour costs is a tenth in travel agencies. In total, expenses grew by more than a tenth in those fields, even a lot more for travel agencies. Only travel agencies were able to grow sales revenue at the same pace as expenses, which is why profit remained on the same level as the year before; profitability decreased in accommodation and catering. The growth of value added was limited to a few percentage points, which is why productivity indicators based on value added generally dropped in all areas of activity related more closely to tourism.

-30-20-100102030405060

01020304050607080

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €




* accommodation, catering, travel agencies and tour operators



58

After a record height of investments of accommodation facilities in 2016, capital investments in fixed assets decreased by a half according to initial data. Final statistics may change this picture because short-term assessments cover only about a half of the overall volume. Decrease of investments of accommodation companies is mainly related to a drop in construction and reconstruction, and acquiring machinery, equipment and fittings. However, investments grew significantly in catering and travel agencies, the leading factors were the same (facilities, fittings).

The assessments of hotels, restaurants and tourism companies regarding the economic situation were better in 2017 than the year before. According to the survey of the Estonian Institute of Economic Research, all observed indicators grew – assessments on sales, demand, number of employees, and prices.

Survey indicators of the first quarter of 2018 were rather similar to the situation of the year before. Due to seasonal fluctuation, the growth of demand was expected (in the same extent

-14-12-10-8-6-4-20246

050

100150200250300350400

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €




*accommodation, catering, travel agencies and tour operators

-20-10010203040

05

1015202530

2012 2013 2014 2015 2016 2017*

% y-o-ythousand



Number of employed people according to labour surveyNo of employed people according to business statisticsChange in the number of employed people (r.s.)Change in no of employed people in companies (r.s.)

*Labour survey: accommodation and catering companies; business statistics: plus travel agencies and tour operators

024681012

0

200

400

600

800

1 000

2012 2013 2014 2015 2016 2017

% y-o-y


Wages

Average wage (in euros) Change in wages (r.s.)*accommodation and catering establishments

-30369121518

01 0002 0003 0004 0005 0006 0007 000

2012 2013 2014 2015 2016 2017

% y-o-ythousand

Source: Bank of Estonia

Inbound travel to Estonia

Total number of visitsNumber of overnight visitsChange in the number of visits (r.s.)Change in the number of overnight visits (r.s.)

-6-4-202468

01 0002 0003 0004 0005 000

2012 2013 2014 2015 2016 2017

% y-o-ythousand


Number of foreign tourists and overnight stays in accommodation establishments

Number of accommodated foreign visitorsNumber of overnight staysChange in the number of foreign visitors (r.s.)Change in the number of overnight stays (r.s.)

Finland40,8%

Russia11,6%

Germany6,3%

Latvia5,9%

Sweden3,5%

UK3,1%

Lithuania2,5%

Spain2,4%

USA2,0%

Norway2,0%

Italy1,8%

France1,7%

Poland1,4%

Other countries

15,0%

Overnight stays by foreign touristsby countries




59

as the year before). While expectations of growth of prices of services decreased somewhat in accommodation for upcoming months, representatives of restaurants were more prone to expecting an acceleration of price growth.

World Tourism Organization is expecting a 4–5% growth of foreign travels globally in the year 2018. The European forecast is again somewhat more modest. The year began quite well for Estonian accommodation facilities, the continuation of positive developments in tourism may be expected when taking the general economic situation into account.

Inbound tourism

The number of foreign visitors continued to grow, although growth was somewhat slower than the year before. According to the Bank of Estonia, 3% more foreign visitors came to Estonia in 2017 than the year before. The number of tourists staying overnight grew a bit faster, but there were also more tourists on a single-day visit. Estonia held the presidency of the EU council in the second half of the year, which did generate attention but did not show in the total number of foreign visitors; if anything, the number of passengers from certain European countries increased thanks to that.

A positive development was the increased duration of overnight stays (by a few percentage points to 2.7 days), both thanks to the larger share of visitors staying overnight and also the increased duration of travels by tourists staying overnight (average duration of stay 4.2 days). The number of cruise passengers who visited Estonia jumped up by a fifth, reaching a new record. The Port of Tallinn was visited by over 560,000 cruise passengers, port of Saaremaa by 1,500 passengers.

The number of Finnish tourists and single-day visitors dropped nearly 5% over the year. Even though Finland’s share is still large and the impact on the tourism market is important, the drop was compensated by other countries. The growth of foreign visitors was primarily thanks to Latvia, Russia, Germany, USA and Spain. The number of visitors from the USA grew mainly thanks to single-day visitors (cruise

passengers) while their number decreased for Russia.

In addition to the rise in number of foreign visitors, their average rate of spending also increased, therefore export of travel services (spending of visitors) grew by nearly 7% in 2017. Most of the growth came from private trips, but business trips, primarily cross-border spending and spending of short-term employees also grew significantly. Export of transport services grew as much as a fifth, primarily thanks to air transport. Nordica expanded its flight network, but the use of own plans and (partially) forgoing the use of foreign subcontractors also had a significant impact. In addition to air transport, road transport (bus traffic) also contributed more to increased export revenue, as export from that source doubled since 2016.

The number of foreign tourists who stayed in Estonian accommodation facilities grew by nearly 5%, the number of overnight stays grew less than that. The first half of the year was rather strong in terms of growth of demand, but the growth was limited to 2–3% in the second half of the year. The presidency may have had a certain impact, because accommodation prices grew more in that time and there were not availabilities everywhere. It is also likely that bed spaces may have been booked early due to various events and some were later cancelled.

The drop of the number of Finnish tourists also impacted accommodation facilities, where the number of their overnight stays decreased by 4% over the year. The decrease of demand could be seen even at the start of the year, but the biggest drop occurred in the second half of the year as well. For Finnish tourists, the price level has an important effect. Finnish tourists travelled to farther countries more, but Latvia, for example, was also in their close range of interest. The other Scandinavian countries, Norway and Sweden, were also in a decline. Even though all these countries are part of larger target markets, tourists from other countries compensated for the decrease. Overnight stays of Russian tourists grew the most. Despite the quick growth (by nearly a fifth), the number of accommodated people from Russia has not yet reached the record



60

level from a few years ago. The number of Latvian tourists continued a stable growth, their number in accommodation facilities grew by more than a tenth in 2017. Due to the Spanish air force arriving in Estonia, the number of their overnight stays grew steeply. Thanks to improved flight connections, the number of people from the United Kingdom who were accommodated and stayed overnight increased by a fifth. The demand of Asian tourists continued to grow. Impacts of the presidency could be seen for several European countries, which provided visitors at a steep increase particularly in the second half of the year – Belgium, Bulgaria, Greece, Slovenia, Romania, Austria and others.

Two fifths of the growth of foreign demand went to accommodation facilities in Tallinn. Even though the decrease of the number of Finnish tourists was perceptible there, the contribution of other countries (most of all from Russia, Spain, the United Kingdom) overall led to a growth of overnight stays of foreign tourists by a few percentage points. The growth of number of Russian tourists supported accommodation facilities at Ida-Virumaa. In Saaremaa, demand could be seen the most among tourists from Latvia, Lithuania and Russia. One of the few regions where the number of Finnish tourists grew over the year was the city of Tartu. Overnight stays of Finnish tourists occurred by a quarter more in accommodation facilities of Tartu than the year before; tourist flow from Latvia and Russia also grew extensively. In general, the growth of foreign demand could be seen all over Estonia, only Rapla County showed a larger decline (statistics cover fewer accommodation facilities, but at the same time the number of rooms and bed spaces also grew in Rapla County).

The number of foreign tourists accommodated and staying overnight continued to grow in early 2018. Demand can also be expected to increase across the year. New flight destinations will be opened, which will make traveling to Estonia easier. According to preliminary information from the port of Tallinn, a new record in the number of arriving cruise ships is expected, whereas the number of passengers may remain in the same range as in 2017.

Domestic tourism

The favourable economic situation promoted the continued growth of domestic travels of Estonian residents. The number of domestic tourists who stayed overnight in Estonian accommodation facilities grew by a tenth in 2017. Travels were somewhat shorter than the year before. The number of overnight stays in Tartu by Estonian residents grew by more than a third, that city has also added more means of accommodation and leisure. Major growth also occurred in accommodation facilities in Tallinn, Saaremaa and Pärnu. In comparison with 2016, there were fewer domestic tourists in Põlva and Valga County, which had a significant impact on the accommodation sector of those regions as a whole.

The good situation on the job market, wage growth and high confidence of residents will also support domestic travel in 2018, at the same time the residents’ eyes may turn more towards foreign countries. During high tourism season and events, the common limiting factor is lack of accommodation sites, which is somewhat alleviated by apartments on the market with sharing economy. The year 2018 will probably remain below the growth figures of 2017. In the first months of the year, the growth of domestic tourists who used accommodation facilities was rather modest.

Outbound tourism

The rate of Estonian residents traveling abroad grew at a relatively quick pace in 2017 (5%) according to the assessment of the Bank of Estonia. Growth was mainly caused by multiple-day travel. The number of single-day visits grew little, predominantly due to the decrease of trips undertaken to Finland. The growth of the number of travels with overnight stays characterized nearly all target countries, only the number of trips to Finland stayed still out of the more important destinations.

Both for single-day and overnight travels, travelling increased significantly to Belgium (partly due to the presidency), Poland and Germany. Holidaymakers drove up the numbers for Egypt and Turkey. Russia was visited as much as one year ago, but visiting Ukraine and Belarus increased.



61

Expenses related to private travel of Estonian residents grew by about 8% in 2017 but the amount of expenses made during business trips decreased. Import of transport services grew by 6% over the year. The majority of the growth came from using services of foreign maritime transport companies, air transport also contributed more.

In 2018, the continued growth of foreign travels of Estonian residents is expected. The number of chartered passengers to several holiday regions grew significantly in the first quarter, but expanding the flight network is also expanding travel opportunities. The economic environment is expected to stay favourable for tourism.

024681012

0500

1 0001 5002 0002 500

2012 2013 2014 2015 2016 2017

% y-o-ythousand


Estonian tourists in accommodation establishments

Number of accommodated peopleNumber of overnight staysChange in the number of accommodated people (r.s.)Change in the number of overnight stays (r.s.)

-202468

0500

1 0001 5002 0002 5003 0003 5004 000

2012 2013 2014 2015 2016 2017

% y-o-ythousand

Source: Bank of Estonia

Foreign trips of Estonian residents

Total number of visitsNumber of overnight visitsChange in the number of visits (r.s.)Change in the number of overnight visits (r.s.)



62

Information and communication Information and communication activities include publishing (including software publishing), production of cinema and video movies, television programs and sound recordings, programmes and broadcasting activities, including production and broadcasting of radio and television programmes, telecommunications, information technology and information activities. In addition to the above, the information and communications technology (ICT) sector also includes wholesale of information and communication equipment and repair of computers and communications equipment, as well as electrical components and circuit boards, computers and computer peripherals, communications equipment, consumer electronics, and magnetic and optical media corporations belonging to the processing industry. The main developments in the sector are described below based on the information and communication sector companies. The manufacturing part of the ICT sector is covered in the overview of the electronics industry.

The development of ICT has brought significant changes to the lives of people and companies in recent decades. Right now, we are impacted by megatrends such as increased mobility, the continued triumph of social media, use of cloud technology in services and software, and constant increase of information and data, all of which require constant innovations and technological developments from the ICT sector. Products and services of the information and communication sector are strongly connected to developments of other economic sectors, making this sector important for the entire economic system. The sector has grown stably and companies create a lot of value added which is comparable to the average of OECD countries. Companies of the information and communication sector invest a lot in human resources and keep their wages high, resulting in higher than average productivity indicators for the workforce of the sector.

The information and communication sector consists mostly of micro-enterprises with fewer than ten employees, engaging in information technology (programming, consultancy and related activities). More than half of the information and communications companies are engaged in programming. Nearly 14% of the companies of the sector are engaged in the production of cinema and video films and sound recording, as well as in information-related activities. A small part of the companies operate in the telecommunications area, publishing and broadcasting.

Major mobile service and other telecommunication service providers are Telia Eesti AS, Tele2 Eesti AS and Elisa Eesti AS. In addition, leading companies in the field of telecommunications are wireless communication providers AS Levira and Levikom Eesti OÜ, the mediator of communications services OÜ Top Connect and satellite service provider AS TV Play Baltics. The most important enterprises in the software industry are AS Helmes, Zeroturnaround AS, Nortal AS and OÜ Playtech Estonia, which offers software products and related solutions for the world's leading gaming operators. Larger companies in publishing newspapers are AS Ajakirjade Kirjastus and AS Äripäev. Major companies in the field of radio broadcasting and information activities (data processing, web-hosting) include Raadiotehnika OÜ and Taevaraadio OÜ, Adcash OÜ and MYJAR IT OÜ, respectively, the turnover sizes of which are still significantly lower than those of major companies of the sector.

The information and communication sector is one of the sectors that contribute the most to Estonia’s economic growth. In 2017, the information and communication sector increased sales revenue, value added as well as the number of employees. The demand for services of the information and communication sector is increasing because ICT technologies are used increasingly in various different fields. The development of ICT has a strong impact on the

6,8 11,9 5,1

171,5

0

40

80

120

160

200

0

20

40

60

80

100

Share invalue added

Share of ICTin exports*

Share inemployment

Ratio toaverage

wage (r.s.)

%%

* based on Balance of Payments statisticsSource: Statistics Estonia, Bank of Estonia




63

competitiveness of the state and welfare of the society.

Sales revenue of the information and communication sector has grown stably since the economic crisis. When the sales revenue of the sector was a little over 1.2 bn euros in 2010, the same number was already over 1.8 bn euros in 2017, i.e. the growth has been over 50%. In 2017, sales revenue of companies in the information and communication sector grew by 11.3% since the year before. The biggest growth occurred in sales turnover of cinema movies, which grew by 45% over the year, but the share of which in total sales revenue of the sector is only 6%. Programming as the most important area of activity of the sector also grew well, increasing sales revenue by 23% over the year. In addition, sales revenue increased in publishing and telecommunications. Broadcasting, which forms the smallest part of the sales revenue of the sector, fell by 33% in comparison with 2016, information-related activities dropped by 1%. Nearly three quarters of the sales revenue of the information and communication sector is generated in telecommunication and programming companies.

Total productivity of the information and communication sector on the basis of value added dropped by 5% in comparison with the year before due to increased costs. Negative impacts on total productivity included programming, information-related activities and publishing, which were in a decline in comparison with the year before. Total productivity grew the most in broadcasting, increasing by 23%. In addition, total productivity was higher in production of cinema movies and telecommunications in comparison with 2016. The productivity of work costs on the basis of value added also dropped by 5%. Growths and declines of productivity of work costs were the same across sub-sectors as for total productivity. Productivity of work costs grew in companies of cinema movie production, broadcasting and telecommunications by 36%, 16% and 5%, respectively.

Value added in the sector has been growing steadily since 2013 and value added was also higher than the year before in 2017. Value added grew by 8% since 2016, reaching 686 m euros. Value added grew the most in companies of cinema movie production, increasing by 65% over the year. In addition, value added grew in programming by 13%, in telecommunications by 9% and in publishing by 7%. However, value added was smaller than in 2016 in broadcasting companies and companies involved in information-related activities.

Even though labour with ICT competence is lacking, the average number of employees grew by 13% in the sector over the year. The sector is aided in finding employees by Estonia’s highest salaries, which have been growing annually since the economic crisis. In 2017, wage growth of the information and communication sector was over 10%. In 2017, the average gross monthly wage of the sector was 2,094 euros, which is over 70% higher than the average Estonian wage. Quick wage growth and recruiting new employees influenced labour costs of the sector, which grew by nearly 14% over the year. The biggest growth occurred in companies of manufacturing movies, where labour costs grew by 21% since the year before. This was followed by programming companies with a 19% growth

024681012

0,0

0,5

1,0

1,5

2,0

2012 2013 2014 2015 2016 2017*

% y-o-ybillion €


Sales revenue

Sales revenue Change in sales revenue (r.s.)

Tele-communi-

cation34%

Program-ming37%

Publishing7%

Infor-mation

activities15%

Production of films

and audio recordings

6%

Broad-casting

1%

Information and communication sector based on sales revenue




64

and publishing companies with a 14% growth. Labour costs decreased only in broadcasting companies, where the number of employees also dropped. The average number of employees in broadcasting decreased by 34% in 2017. The number of employees grew fastest in programming companies where over 2,000 employees were added over the year. In other sub-sectors, changes in labour were smaller in absolute figures.

In 2017, the growth of investments of companies of the information and communication sector was strong. Investments in tangible fixed assets grew by 60%, caused by general good economic condition and confidence as well as the continued growing importance of the ICT sector in all other sectors. Investments in machinery and equipment continued to hold the biggest share, forming more than a half of all investments in the sector. The volume of investments in machinery and equipment grew over 70% over the year. The biggest growth occurred in investments into land, which grew three times, but the total share of which in total investments was under 2%. Investments also

grew into computers and information systems, the volume of which grew by 31%, construction and reconstruction of facilities, the volume of which grew more than twice in comparison with 2016, and means of transport were acquired by 2% more than the year before. Over 80% of investments in the sector were made in telecommunications companies, where a lot of investments are made into developing new technologies and the digital society.

The development of information technology in recent decades has resulted in increasingly widespread internet use. As of 2017, 88% of households had domestic internet connection. The share of households with domestic internet connection grew by two percentage points since the year before. The share of households with mobile internet connection reached 82%, growing by four percentage points over the year. Nearly nine internet-connected households in ten had cable or wireless internet connection and eight out of ten have mobile internet. Internet is used most often to read newspapers or magazines, use e-mail and online banking services.

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05 000

10 00015 00020 00025 00030 00035 000

2012 2013 2014 2015 2016 2017*

% y-o-y



Number of employed people (Labour Force Survey)Average wages (in euros)Change in the number of employed people (r.s.)Change in wages (r.s.)

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2012 2013 2014 2015 2016 2017*

% y-o-ymillion €




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60

90

120

150

180

2012 2013 2014 2015 2016 2017*

% y-o-ymillion €




Tele-communi-

cation84%

Program-ming10%

Infor-mation

activities2%

Production of films

and audio recordings

3%

Publishing1%

Investments in fixed assets in the information and communication sector




65

In addition to the growing share of computer and internet users in households, companies display the same trend. Over 95% of companies use computers and have an internet connection. Companies have a lot of opportunities to use information technology, starting from corporate websites and ending with analysis of large data. Over three quarters of Estonian companies have a website and online sales are also growing. In addition, an increasing number of companies is using social media – in 2015, there were 31% of companies who used social networking, whereas in 2017 that share was 38%. Social media is used most often to develop the company image and market products, but also to interact with clients, find employees, cooperate with business partners and include clients in developing products and services.

The sector of information and communication is one of the fastest-developing sectors. Strong growth has continued mainly thanks to programming and software development. In 2017, corporate sales revenue, investments, employment rates, salaries as well as value added all increased. Companies of the sector contribute a lot to the growth of GDP and value added per employee is well above the average. Demand for information and communication services remains growing. According to the Institute of Economic Research, companies are forecasting increased demand for 2018 and they also plan to recruiting more labour.

020406080

100

2010 2011 2012 2013 2014 2015 2016 2017

%Share of 16-74 years old computer and

internet users

Internet ComputerSource: Statistics Estonia

020406080

100

2010 2011 2012 2013 2014 2015 2016 2017*

%Share of households with internet

connection at home


0

5

10

15

20

020406080

100

2010 2011 2012 2013 2014 2015 2016 2017

%Share of enterprises having website and

using e-commerce

Website E-CommerceSource: Statistics Estonia



66

Transport The Estonian transport system consists of railway, road, sea, inland waterway and air transport, urban electric transport and transport via pipelines. Transportation and warehousing employ approximately 52,000 people or about 7% of the total workforce. Transportation services contribute significantly to export revenue collection and balance Estonia's foreign trade balance. As a number of the transport sector inputs (costs of vehicle purchase, maintenance, and fuel) are relatively sizable import products, more attention should be paid to energy efficiency in the future development of the sector.

Over 5,000 companies operate in the field of transport and warehousing. The biggest transport volume in land transport of passengers belongs to Tallinna Linnatranspordi AS, which provides bus, tram and trolley services in Tallinn. Domestic passenger train traffic on railways is organized by AS Eesti Liinirongid (ELRON). Leading logistics companies for cargo transport are AS Schenker, DSV Transport AS and DHL Estonia AS. The biggest company of the transport sector is AS Tallink Grupp, involved in sea transport of passengers and cargo. The most important provider of port services is AS Tallinna Sadam, which handles five ports: the Old City Harbour (incl. the yacht harbour of the Old Harbour), Muuga Harbour, Paldiski South Harbour, Paljassaare Harbour and Saaremaa Harbour. The biggest undertaking in the field of aviation is AS Nordic Aviation Group, which is involved in international passenger and cargo transport. The biggest mail and courier service company is AS Eesti Post (Omniva). Employment grew in the transport sector in 2017. Future developments in employment depend largely on the general progress of the economy, according to the OSKA report a slight drop in employment can be expected in the long term.

In 2017, transport volumes of Estonian transport companies dropped for the fourth year in a row, remaining a quarter below the level of the year before. At the same time, passenger turnover grew by 9% in comparison with 2016. Transport volume of road transport decreased by 34%. Railway transport underwent a growth of 7.5% in 2017, but the generally low cargo volumes on railways are continually impacted by mutual sanctions established by the European Union and Russia in 2014. The total number of public transport users remained essentially the same in 2017 (growth of only about 0.4%); the number of users of air, railway and sea transport grew (by 66%, 7% and 3.3%, respectively), only the number of users of land transport decreased to a small extent (about 0.2%).

Nearly 35 m tonnes of cargo passed through Estonian ports in 2017, which is 3.5% more than the year before. 11.3 m tonnes of goods arrived in Estonia from foreign ports in 2017 (growth of about 2.5%), our ports shipped nearly 23.5 m tonnes of cargo abroad (growth of about 4.2%).

In 2017, Estonian ports loaded refined petroleum products, chemicals, and rubber and plastic products the most. Refined petroleum products were also unloaded the most, followed by mining and quarry products.

7,6 7,9

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Ratio to averagewage (r.s.)

%%



Railway3%

Road63%

Water25%

Air9%

Estonian transport sector based on sales revenue


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Sales revenue Change in sales revenue (r.s.)



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In comparison with the maximum of 2011 (about 35 m tonnes), loading of goods in ports has decreased nearly 33%. The maximum of unloading of the past 9 years was in 2014, in comparison with which the unloading volumes of cargo were about 17% lower in 2017. Similarly to previous years (starting from 2009), ports serviced about 70% of cargo flow shipped out by sea and the remaining part arriving by sea in 2017.

In 2017, total cargo volume grew by nearly 3.5% in comparison with the year before, incl. the volume of transport of wood and paper products (46%) and various goods transported together (8%) grew the most; transport of refined petroleum products decreased (3%). Before the year 2017, the last time the volume of loading and unloading grew at Estonian ports in comparison with the year before was in 2011.

The volume of container transport grew by about 13% in 2017 (from 204,368 TEU to 230,409 TEU). Amount of goods transported in containers grew from 1.79 m tonnes to 1.99 m tonnes, or 11.7%.

Estonian sea transport companies transported 9.4 m passengers in 2017, which was 3.3% more than the year before. 5.1 m passengers moved abroad from our ports and 5.7 m passengers arrived from abroad, which was about 3.4% more in comparison with 2016. The number of cruise tourists who visited Estonia grew by nearly 19% in 2017, to 592,000 people.

On domestic lines, the number of passengers for Estonian sea transport companies grew to 2.42 m or by 7% in 2017, there were about 7 million passengers on international lines, meaning 2.7% more than the year before.

Passenger turnover of sea transport companies grew by 13% in 2017, reaching 1.31 bn passenger kilometres.

Cargo transport on Estonian railways grew to 27.3 m tonnes in 2017, which is 7.5% more than in 2016. Even though about 40% less cargo was transported by railways in 2017 in comparison with ten years ago, and nearly 3 times less on public railways, the 7.5% growth of this year was the first since 2011 (when cargo transport grew by 4%).

International transport saw another decline in the volume of cargo transport in 2017 (5%) – 9.2 m tonnes of cargo was transported. One reason for the generally low volume of cargo transport is sanctions between EU and Russia, but also the fact that Russia is increasingly using its own ports instead of the services of Estonian ports for transit transport. At the same time, cargo volume reached 18.1 m tonnes for domestic transport, which is 15% more than in 2016.

Out of total cargo volume, the transport of transit goods formed 7.6 m tonnes, which was 5% less than the year before. Import formed 1.3 m tonnes or 6.6% less, and export 0.3 m tonnes or 23% more than the year before.

Domestic transport was most often for oil shale, most common transit goods were chemicals, chemical, rubber and plastic products; petroleum products were imported and mineral products were exported.

Cargo transport on public railways dropped to 12.4 m tonnes or by 1% in 2017 in comparison with the year before. Transport of transit goods formed 61% of all cargo.

In 2017, the transport turnover of railway transport dropped by 0.6% since the year before, reaching 2.32 billion tonne-kilometres.

In 2017, passenger transport increased again on the railways, to 7.4 million (growth of about 7.4%). That included the growth of both domestic and international passenger transport, the latter of which reached 107,400 passengers (growth of 4.5%). Passenger turnover of railway transport grew by 16%, reaching 366.4 m passenger kilometres.

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TEU Container transport through Estonian ports




68

In 2017, air transport companies transported 946,700 passengers, which was 66% more than the year before. Passenger turnover of airlines reached 1.3 bn passenger kilometres (growth of about 38%). Passenger numbers of Estonia’s national airline Nordica grew by 63% in 2017. Nordica’s fleet grew by 10 airplanes, the company has 16 airplanes in total. In 2018, Nordica is planning to open flights to new destinations (including Copenhagen, Ohrid and Constanta).

Estonia’s largest airport is Tallinn Airport, which was used by over 2.6 m people in 2017 (growth of 19%), as well as the majority of cargo.

In 2017, transport turnover of road transport dropped by 34%, from 8.9 m to 5.9 m.

In 2017, passengers were transported by road a bit less than the year before, i.e. 190.4 m, 165.4 m (or 87%) of whom moved in city lines (i.e. by tram and trolley). This year, the number of passengers in city lines remaining on a lower level than usual was also impacted by the continued extensive reconstruction work on Tallinn tram lines, the last of which (Kopli tram line and tram connection with the airport) were

Railway;27 265

Road;27 714

Cargo transport of Estonian companies by modes of transport (th tons)


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% y-o-ymillion

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Cargo transport through Estonian ports

Total cargoTransitChange in cargo volume (r.s.)Change in transit volume (r.s.)


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Transport of goods by Estonian companies

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Railway (l.s.) Water (l.s.) Air (l.s.) Road (r.s.)


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Wages

Average wage (in euros) Change in wages (r.s.)



69

completed in September 2017 and have been in use since.

The number of passengers on county lines dropped to 14.9 m or by 5%, random transport by bus collected 3.6 m passengers (growth of 44%), long-distance domestic lines had 4.1 m passengers (drop of 2.5%) and international lines had 1.4 m passengers (growth of 12.4%). Passenger turnover of road transport decreased to a minimal extent, to 2.9 bn passenger kilometres (drop of 2%). Passenger turnover grew by 6% on international lines and dropped by 6% on domestic lines.

According to business statistics, the number of people employed in companies of the transport sector grew by 1.5% in 2017. According to the labour survey, employment in transport grew by about 3% in 2017, but the trustworthiness margins of this survey are rather wide and the results fluctuate in time.

In the area of activity of transport and warehousing, the average gross monthly salary was 1,199 euros in 2017 (the average Estonian gross monthly salary is 1,221 euros). Wages grew by 6% over the year.

In 2017, corporate investments grew by 15% in transport and warehousing. Investments grew the most in land transport and pipeline transport, and activities assisting transport and warehousing.

Economic growth is moderate and the forecast for the year 2018 also relatively high. Due to this, some growth of demand (incl. export demand) can be expected. At the same time, the development of the transport sector is still influenced by European Union sanctions against Russia.

Some growth of domestic passenger transport can be expected for 2018, particularly on city lines, because all reconstruction projects for tram lines ended in September 2017 and reconstruction of new lines is not planned for 2018.

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Annexes

Annex 1. Trade with associations of countries

Association Volume (million €) Share (%) Change (y-o-y)

of countries Imports Exports Imports Imports Exports Imports

2016 2017 2016 2017 2016 2017 2016 2017 2016 2017

EU 8795,5 9189,9 11144,2 12113,0 73,9 71,5 82,5 82,2 4,5 8,7

CIS 858,8 1036,9 812,5 1025,1 7,2 8,1 6,0 7,0 20,7 26,2

EFTA 565,5 636,7 213,9 209,3 4,8 5,0 1,6 1,4 12,6 –2,1

NAFTA 589,6 569,3 221,5 172,6 5,0 4,4 1,6 1,2 –3,4 –22,1

Associations in total 10809,4 11432,8 12392,1 13520 100 100 100 100 5,8 9,1

Estonia total 11904,8 12861,0 13513,8 14733,7 100 100 100 100 8,0 9,0 Source: Statistics Estonia



71

Annex 2. Export commodity groups by main target countries in 2017 (%)

Commodity group Sweden Finland Russia Latvia Lithuania Germany Norway USA UK Denmark Total share Live animals and animal products 0,6 3,1 0,1 6,6 9,4 2,0 0,5 0,5 0,5 3,4 3,0 Vegetable products 0,7 2,1 0,5 1,9 2,1 1,2 1,3 0,0 0,3 0,9 2,1 Animal and vegetable fats and oils 0,0 0,2 0,2 1,2 2,2 0,0 0,0 0,0 0,0 0,0 0,3 Prepared foodstuffs; beverages; tobacco

3,0 6,6 6,5 8,9 5,6 0,7 2,6 0,6 1,3 4,1 3,8

Mineral products 0,8 2,9 0,6 16,8 2,7 1,2 0,8 35,3 5,2 0,9 9,9 Chemical products 1,6 3,1 15,0 6,0 10,5 3,6 0,3 6,9 2,5 2,5 5,3 Plastics and articles thereof, rubber products

3,7 4,0 5,6 4,7 7,0 3,1 2,3 0,6 1,3 1,5 3,2

Leather, fur skins and articles thereof

0,1 0,5 0,4 0,3 0,4 0,1 0,0 0,0 0,1 0,1 0,2

Wood and articles of wood 12,4 7,2 0,5 6,7 2,5 12,3 17,9 6,5 30,7 41,5 10,7 Pulp and articles thereof 2,3 2,7 0,8 1,3 1,5 1,5 3,7 0,3 5,5 2,2 2,7 Textiles and textile articles 4,7 3,3 5,0 3,8 4,1 2,1 4,2 1,1 2,7 7,2 3,1 Footwear, headgear, umbrellas 0,2 0,6 0,6 1,1 0,7 0,1 1,2 0,0 0,0 0,0 0,4 Articles of stone; ceramic products and glassware

2,6 2,8 0,6 2,1 1,1 0,2 2,5 0,3 0,5 0,3 1,7

Precious stones, precious metals, jewellery

0,8 0,4 0,1 1,1 1,4 0,2 1,4 0,1 0,0 2,5 0,8

Metals and metal products 6,0 14,0 6,9 7,1 9,1 8,6 5,3 6,4 4,8 5,9 8,2 Machinery and equipment 38,4 28,7 42,6 12,1 14,1 29,6 15,0 22,1 20,1 8,4 25,6 Means of transport 5,8 3,9 4,2 15,2 21,4 14,8 8,5 0,9 1,8 1,2 7,0 Measuring and medical devices 2,3 3,1 5,9 0,7 0,7 5,9 2,5 8,2 2,5 2,0 3,1 Arms and ammunition 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Other industrial goods 13,8 10,9 3,5 2,3 3,4 12,7 29,9 10,1 20,1 15,4 8,8 Works of art, antiques 0,0 0,0 0,2 0,0 0,0 0,0 0,0 0,1 0,0 0,0 0,0




72

Annex 3. Import commodity groups by main countries of consignment in 2017 (%)

Commodity group Finland Germany Sweden Latvia Lithuania Poland Russia UK China The Netherlands Total share Live animals and animal products 2,7 1,4 1,7 4,2 2,4 2,8 0,4 0,6 0,1 1,9 2,0 Vegetable products 1,8 0,9 1,1 5,9 3,6 1,7 0,3 0,2 0,3 8,1 2,4 Animal and vegetable fats and oils 0,1 0,2 0,1 0,3 0,7 0,3 0,2 0,0 0,0 0,1 0,2 Prepared foodstuffs; beverages; tobacco

4,0 6,0 2,2 9,9 8,9 6,6 0,9 4,0 0,3 5,1 5,7

Mineral products 11,8 0,6 4,2 7,1 31,3 1,4 45,6 6,1 0,1 2,9 9,8 Chemical products 5,0 8,9 4,7 7,7 14,6 14,3 13,9 9,3 2,4 8,0 8,7 Plastic and articles thereof, rubber products

4,8 8,6 4,5 6,5 4,5 7,4 1,4 3,4 5,0 4,8 5,4

Leather, fur skins and articles thereof 0,4 0,3 0,2 0,3 0,4 0,4 0,0 0,4 0,7 0,4 0,4 Wood and articles of wood 4,9 1,0 1,3 7,6 1,6 2,5 14,9 1,0 0,5 0,4 3,3 Pulp and articles thereof 3,9 1,2 2,7 2,5 1,3 1,6 2,4 1,7 0,4 0,5 1,8 Textiles and textile articles 2,4 4,7 2,9 5,6 3,6 5,5 0,3 4,8 9,9 4,1 4,5 Footwear; headgear; umbrellas 0,4 1,3 0,3 1,3 0,5 1,0 0,1 0,6 0,8 0,8 0,7 Articles of stone; ceramic products and glassware

2,0 1,8 0,7 1,9 1,4 3,3 2,2 0,6 1,5 0,4 1,7

Precious stones, precious metals, jewellery

0,3 1,1 0,3 0,7 0,1 0,2 0,2 0,5 0,1 0,2 1,1

Metals and metal products 11,8 8,2 11,0 7,9 4,1 12,1 11,6 2,2 7,2 3,9 8,8 Machinery and equipment 21,3 28,1 27,7 19,7 14,1 16,3 2,4 45,7 61,3 51,6 25,0 Means of transport 16,9 19,1 29,8 6,8 2,3 17,3 2,4 13,2 1,6 2,9 13,0 Measuring and medical devices 2,3 3,9 3,3 1,2 0,6 1,4 0,2 3,8 1,5 2,5 2,3 Arms and ammunition 0,1 0,4 0,0 0,0 0,0 0,0 0,0 0,1 0,0 0,0 0,3 Other industrial goods 3,3 2,3 1,3 2,7 3,9 3,9 0,7 1,7 6,3 1,4 2,7 Works of art, antiques 0,0 0,1 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,1 0,0




73

Annex 4. Accommodation by country in Estonia Number of people Number of overnight stays 2017 Change,

% y-o-y Share, % 2017 Change,

% y-o-y Share, %

Total 3 544 932 6,6% 100,0% 6 509 299 4,5% 100,0% Estonia 1 388 785 9,5% 39,2% 2 358 880 6,6% 36,2% Finland 916 241 –3,7% 25,8% 1 695 227 –4,0% 26,0% Russia 238 636 18,7% 6,7% 482 948 16,9% 7,4% Latvia 161 250 13,5% 4,5% 243 509 11,3% 3,7% Germany 125 660 –0,2% 3,5% 263 413 –2,3% 4,0% Sweden 73 296 –1,5% 2,1% 145 394 –4,4% 2,2% Lithuania 64 369 5,3% 1,8% 105 530 –4,7% 1,6% UK 58 402 19,8% 1,6% 128 076 19,2% 2,0% USA 38 381 1,4% 1,1% 84 341 –9,2% 1,3% Spain 36 107 12,2% 1,0% 97 688 32,0% 1,5% Norway 35 784 –5,1% 1,0% 81 062 –10,3% 1,2% Italy 34 657 3,4% 1,0% 75 480 –0,8% 1,2% France 33 767 18,0% 1,0% 71 001 17,9% 1,1% Poland 29 527 8,4% 0,8% 57 701 –0,8% 0,9% Japan 28 831 20,4% 0,8% 45 065 16,1% 0,7% The Netherlands 21 870 4,1% 0,6% 44 891 3,8% 0,7% China 19 698 39,0% 0,6% 30 210 22,8% 0,5% South-Korea 16 275 16,1% 0,5% 19 837 17,2% 0,3% Denmark 15 964 4,8% 0,5% 30 590 4,4% 0,5% Switzerland 15 355 16,8% 0,4% 29 510 15,7% 0,5% Belgium 15 216 49,2% 0,4% 35 838 31,2% 0,6% Ukraine 15 175 19,3% 0,4% 40 531 36,6% 0,6% Austria 12 059 24,8% 0,3% 26 413 20,3% 0,4% Turkey 7 492 8,2% 0,2% 18 034 11,4% 0,3% Australia 7 431 7,9% 0,2% 14 955 6,0% 0,2% Czech Republic 7 262 4,6% 0,2% 16 465 –2,0% 0,3% Canada 5 518 17,0% 0,2% 11 621 11,2% 0,2% Hungary 5 305 14,8% 0,1% 12 314 18,5% 0,2% Ireland 4 829 20,7% 0,1% 10 454 13,7% 0,2% Romania 4 459 43,2% 0,1% 12 211 4,5% 0,2% Greece 4 263 49,3% 0,1% 10 282 45,7% 0,2% Portugal 3 856 22,3% 0,1% 9 829 29,1% 0,2% Brasil 3 609 19,6% 0,1% 6 265 –12,8% 0,1% Slovenia 3 325 64,8% 0,1% 8 218 50,6% 0,1% Slovakia 3 062 20,6% 0,1% 8 033 –1,5% 0,1% Bulgaria 2 822 48,8% 0,1% 8 059 77,9% 0,1% Croatia 2 069 61,1% 0,1% 5 389 7,2% 0,1% Luxembourg 1 764 41,6% 0,0% 3 109 25,9% 0,0% Island 1 639 53,2% 0,0% 4 066 68,4% 0,1% Malta 1 443 97,9% 0,0% 2 947 93,5% 0,0% Cyprus 1 065 71,8% 0,0% 2 378 69,5% 0,0% South Africa 534 42,8% 0,0% 1 334 34,6% 0,0% Albania 392 75,0% 0,0% 845 85,3% 0,0% Other 77 488 23,4% 2,2% 149 356 20,8% 2,3%

Source: Statistics Estoni



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Authors Editor-in chief Mario Lambing 625 6387 [email protected]

Language editor

Kristiane Liivoja

625 6370

[email protected]

Macroeconomic situation Irina Bõtškova (Ministry of Finance) Madis Aben (Ministry of Finance) Kristjan Pungas (Ministry of Finance) Margus Täht (Ministry of Finance) Erki Lõhmuste (Ministry of Finance)

611 3432 611 3506 611 3284 611 3047 611 3493

[email protected] [email protected] [email protected] [email protected] [email protected]

Foreign trade Manufacture of electronic and electrical equipment Information and communication

Maris Paumets 625 6401 [email protected] Manufacture of food and beverages Textile industry Manufacture of wearing apparel Wood processing Manufacture of pulp, paper and paper products Furniture industry Domestic trade

Karel Lember 625 6402 [email protected]

Manufacturing industry Manufacture of chemicals and chemical products Manufacture of rubber and plastic products Manufacture of metal and metal products Manufacture of machinery and equipment Manufacture of transport equipment Tourism

Mario Lambing 625 6387 [email protected]

Construction sector

Ivo Jaanisoo 639 7638 [email protected]

Transport

Triin Orav 625 6459 [email protected]

OVERVIEW OF ECONOMY 2017 - MKM · Overview of economy 2017 Ministry of Economic Affairs and...

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