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At its sitting today, the Riigikogu deliberated “How to increase productivity in the Estonian economy?” as a matter of significant national importance at the initiation of the Economic Affairs Committee. The discussion was based on the soon to be completed report of the Expert Panel on Competitiveness.

Presentations were made by member of the Economic Affairs Committee Priit Lomp, member of the Expert Panel on Competitiveness at the Economic Affairs Committee and Deputy Governor of the Bank of Estonia Ülo Kaasik, and founder and CEO of defence industry company DefSecIntel Solutions Jaanus Tamm.

Priit Lomp, member of the Economic Affairs Committee, and Chairman of the Committee until this week, explained that his motivation in convening the Expert Panel had been a concern for the wellbeing of the economy, but also his wish to enhance the role of the Riigikogu in leading the processes in real life. “On behalf of the Economic Affairs Committee, but I also hope that on behalf of all the other members of the Riigikogu, I express my gratitude to the members of the Expert Panel – Kadri Männasoo from the Tallinn University of Technology, Priit Vahter from the University of Tartu, Uku Varblane from the Foresight Centre, and Ülo Kaasik from the Bank of Estonia, and also to all their colleagues in these institutions – for having provided the input for this massive collection of materials and having helped to illustrate it with examples, statistics, and recommendations. I would also like to thank other partners and associations of entrepreneurs who have provided their input and criticism, and have asked difficult questions,” he said.

Lomp emphasised that the end goal of economic policy was not to have the best economy but to achieve a broad improvement of general wellbeing. “As policy shapers, we need to have the skills and the courage to influence the business environment, physical infrastructure, specialisation, and know-how and talents much more than before, as all these have a huge impact on the competitiveness. The question of competitiveness has been brought even more to the forefront by the fact that several components of our success over the last decades, such as cheap labour and energy, access to affordable raw materials from Russia and Belarus, are now lost to us,” he said.

Lomp also gave a brief overview of the topics analysed by the Expert Panel, which include lack of qualified labour, level of digitalisation and automation in Estonian businesses, concerns for economy and resource productivity, excessive bureaucracy and ambiguity of priorities and policies, considerable disparity in the price of capital in comparison to other EU countries, and the additional possible increase in costs with the implementation of the green transition. “The report compiled by the Panel and its partners is being polished as we speak and will hopefully be ready to go to print next month. This document, but also the initial input by researchers of the University of Tartu, should serve as the foundational material for every decision maker to make sure we are moving in the right direction,” he stressed.

Member of the Expert Panel and Deputy Governor of the Bank of Estonia Ülo Kaasik reminded the listeners that when we talked about the long-term growth of Estonian economy, we should not expect a sprint race. “In sports terms, we are dealing with quite a lengthy marathon where we should not sprint off immediately, especially in the wrong direction; instead, we need to choose the right pace and make sure it is within our abilities,” he said.

Estonia has many advantages that we should keep. “We have enjoyed an excellent business environment; studies show that our taxation system is the best in the world, we have flexible labour market, very agile and fast-growing ICT industry. ICT and the whole digital governance have definitely been an Estonian success story.” He added that our problem was the lack of transport connections to other countries – our geographical position and size being something Estonia could not change. 

Despite our innovative ICT, we continue to have problems with the low application of automation and digitalisation in business and industries on average. “We have come to realise that the level of digitalisation remains too low. Just like the application of AI is still in relatively early stages or applied in real life by relatively few people,” he stated. 

Kaasik referred to the study of the University of Tartu, which showed that increased automation in businesses has increased the productivity by an average of 22 percent. “What’s more – if this automation goes hand in hand with organisational renewal, it has been twice as effective and businesses have experienced a nearly 40 percent increase in productivity. Indeed, our suggestion when aiming to support businesses in giving more attention to the digitalisation-automation side is not to focus on whether they have implemented digitalisation or some technical application software in their manufacturing process, and instead look at the leadership quality in general: how to best use the data, implement AI, carry out innovation in the organisation more broadly,”  he explained.

The Deputy Governor of the Bank of Estonia also touched on the lack of qualified labour, costs related to the green transition, scientific innovation, need to ensure affordable power, excessive bureaucracy, and high price of funding entrepreneurship. 

The third speaker was the founder and CEO of defence industry company DefSecIntel Solutions Jaanus Tamm, who also serves on the councils of the Estonian Defence and Aerospace Industry Association and the Defence Estonia Cluster. He thanked the authors of the report on competitiveness and felt assured that it would serve as a basis for useful discussions. “Last year we were also the Defence Business of the Year, so I know a thing or two about this industry. I will share my experiences and perspectives, talk about this report and what is going on in the economy,” he began. 

“We have over 120 companies in our Association, ranging widely from manufacturing plants to food producers and other service providers for the Defence Forces. But we also have quite a large group of companies, numbering several dozens, who are working with smart solutions today. And it is solutions like these, as the report says, that are lacking in Estonia”. The builder of drones and tracking devices explained that with the deterioration of the global security situation, demand for smart solutions had increased very rapidly. “Today, we can insert ourselves into supply chains and decision-making processes because we move faster. And we have our own products. If we remain in wait for product development in large defence companies, we would probably never reach the production stage. Then we would come here and whine a bit. Instead, today we come here and share our experiences,” he said.

Tamm lingered on several topics discussed in the report, including the bureaucratic burden. If anyone wished to build plants linked to the defence industry or an industrial park, the bureaucracy would probably take three years. “However, today we need these things immediately. What we do is to produce these abroad. We are producing in Ukraine, which is okay because we make contributions there,” Tamm said, adding that it was easier to build plants both in Finland and Latvia.

Tamm highlighted that our defence industry was part of our defence capability and Estonia’s defence industry could become the next stage in our IT success story. For the industry to receive a new impetus, however, we would need to produce more here. “After all, it is a big difference whether you produce a module for builders of asphalt factories, or whether you produce a whole factory. Whether you produce a track for a tank or an engine for an airplane, or whether you produce a whole plane or a drone,” he said. “As an entrepreneur, I am optimistic and positive, or I would not be an entrepreneur, I would not be doing this. And I believe that together we would be able to launch the next chapter in the IT success story of Estonia and give a new impetus to the economy through the smart solutions of Estonia’s defence industry.”

During the debate, Maris Lauri (Reform Party), Jaak Aab (Social Democratic Party), Liisa-Ly Pakosta (Estonia 200), Urmas Reinsalu (Isamaa), and Mario Kadastik (Reform Party) took the floor.

Verbatim record of the sitting (in Estonian), presentation by Ülo Kaasik, summary of recommendations by the Expert Panel.

Photos (Author: (Erik Peinar / Chancellery of the Riigikogu)

Video recording will be available to watch later on the Riigikogu YouTube channel.

Riigikogu Press Service
Maris Meiessaar
+372 631 6353, +372 5558 3993
[email protected]
Questions: [email protected]