The Riigikogu discussed competitiveness as a matter of significant national importance

On the initiative of the Economic Affairs Committee, the Riigikogu held the deliberation of the matter of significant national importance “How to increase productivity in the Estonian economy?”.

The discussion was prompted by the recently completed annual report “The Situation and Perspectives of the Estonian Economy” drafted by the Expert Panel on Competitiveness operating at the Economic Affairs Committee. In his presentation, Chairman of the Committee Marek Reinaas pointed out that, generally speaking, the Expert Panel had brought us moderately good news about the past year. “The economic situation is improving. However, new clouds are gathering in the form of President Trump’s tariff policy,” he said.

Reinaas explained that our exporting companies had been doing well in recent years and had been actively seeking new target markets. When the Nordic economies were struggling, our exporters redirected their goods to Central and Western Europe, as well as to the United States. “In 2024, export to the US grew the fastest. Great Britain, France, Poland and Germany followed. But as the saying goes: out of the frying pan into the fire. And after all that effort, our businesses are now threatened by President Trump’s tariffs.”

The Chairman of the Economic Affairs Committee stressed that Estonia had to be active and resourceful in order to help its companies in this situation. “We must use economic diplomacy to open new markets both by ourselves, and within the framework of the European Union’s new free trade agreements. First and foremost, we need to give a new boost to the development of the European Union’s single internal market. According to the IMF’s assessment, the trade and market barriers that are still in place there are comparable to 44 per cent customs tariffs for goods and 110 per cent tariffs in the case of services,” he said.

Reinaas also spoke about the growing role of the services sector in the Estonian economy, compared the economies of Estonia and Lithuania, acknowledged the long-term activities the Estonian state had been carrying out to improve the availability of equity capital, and admitted that the population was decreasing, and, as a result, so was the share of people of working age. At the end of his speech, the Chairman thanked the Expert Panel for its work. “In this hall, our task is not to merely react, but to use the mandate we have been given to shape the future of Estonia. I hope this report will direct us and give us courage for the next steps,” he said.

The second presenter was Urmas Varblane, member of the Expert Panel on Competitiveness, Professor of International Business at the School of Economics and Business Administration of the University of Tartu and member of the Estonian Academy of Sciences. He gave an overview of the report’s compilation process and thanked all the participants and experts involved.

Speaking about the global economy, the professor noted that in responding to the recent moves of the US president, it was necessary to follow the rules, act thoughtfully and without haste. “The entire tariff policy that Trump is currently pursuing would have fit in the beginning of the last century, that’s where it would have worked. In today’s value chain-based economy, where one company’s output is another’s input and with many intermediate steps in between, there is no chance for anyone to be smart enough to foresee how these connections will turn out over time.”

Varblane pointed out that 85 per cent of world trade took place outside the United States. “I fundamentally disagree with the article published the other day, according to which the European Union had no power in negotiations with America. This is not true. The European Union has significant negotiating power. For instance, you may not realise that the largest category of products the European Union exports to America is pharmaceuticals. A huge amount of pharmaceuticals. It is very difficult to replace them overnight,” he explained.

Commenting on the functioning of the local energy system and the transition to renewable energy, the professor noted that as regards renewable energy production, it was very important to pay attention to what others were doing. “What are Latvia, Lithuania, and Finland doing? What kinds of connections do they have? And what would be a reasonable share of renewable electricity in the total consumption of the Baltic States that would help us reduce our overall electricity costs? In fact, we should pursue our energy policy in very close cooperation with our neighbouring countries, not in isolation from them,” he said, referring to a recommendation contained in the report.

Varblane noted that the lowest overall electricity cost could be achieved if we kept the share of non-directed renewable electricity consumption between 60 and 80 per cent. The greater the share of non-directed renewable energy, the lower the final electricity price for consumers. The professor also pointed out that, for example, in Germany, the impact of geographical conditions on the wind patterns had been extensively studied and electricity production had been balanced out on the basis of this knowledge. This had not been done in Estonia. “In fact, we should do it, as it turns out that Estonia is also a region situated on the boundary between maritime and continental climate zones, where it is important,” he said.

Speaking about issues in electronic communications, Varblane highlighted, among other things, the excessively strict requirements for cable installation. For example, in Sweden fiber optic cables are allowed to be installed along the edge of the road, and this is done using agricultural tractors. There is no need to bury cables deep underground and use complex techniques for this. Such savings could be reasonable for us too,” the professor said. In his speech, Varblane also addressed the issues related to price comparisons in Latvia, Lithuania, and Estonia; value chains and productivity in agriculture, as well as food security.

Raivo Vasnu, Member of the Management Board of Viru Chemistry Group Ltd, emphasised in his presentation that a smart economy was not defined by technological gadgets, digitalisation, or the use of AI, but by making decisions leading to a stable and competitive economy for decades to come. “Of course, it is great if we can export I something from the service economy, but as has been said here repeatedly, we will not get rich by cutting each other’s hair. How sustainable is it? There has to be a part that still produces something, that sells something tangible to the outside world,” he stressed, adding that we should also not take the current defence industry boom for granted. “So what do we have left? Long-term investments. These need to focus primarily on the processing industry, manufacturing, and agriculture. These are the sectors that will still be here in 10, 15, 25, and even 30 years.”

Vasnu underlined that that in terms of natural resources, we relied primarily on forests and oil shale, and that processing them locally would be inevitable in the coming decades. He also outlined the hurdles to overcome. According to Vasnu, climate goals set by law were commendable, but without a clear plan, they often impeded the economy. “We often forget what we are actually fighting against. We have embarked on a fight against oil shale, forgetting that what we are really up against is CO2. When we started this fight, we stopped all research into the more rational use of this Estonian natural resource. No university or Estonian research institution is doing this, because that decision has been made. Was it the correct decision? Definitely, at that moment. However, life has changed. Today, we are talking about our energy security. Estonia is a fuel producer. Will it remain one? Life will tell,” he said.

Vasnu also noted that excessive bureaucracy in industry impeded circular economy. “I had to shut down a hydrometallurgical plant because it produced 25.5 cubic meters of acidic water that could have been effectively neutralised by using ash. They neutralise ash next door at Eesti Energia, yet this cannot be done in Estonia. The permit in question is comprehensive. One company is not allowed to accept residual materials or waste from another. You can’t go beyond what the permit allows. There was nothing more we could do. 100 people found new jobs, Europe lost an industry. So, a circular economy between companies in Estonia is not an option at the moment,” he said.

In addition, Vasnu highlighted the complex planning and permitting policies, too stringent restrictions on hiring foreign labour, and the shortage of engineers. He also suggested, among other things, that the shortage of science teachers could be addressed by teaching pedagogy to all science students, thereby giving them the opportunity to become school teachers. “If we look at the starting salary of a university graduate in industry and compare it to the salary of a teacher today – say, in Ida-Viru County – the teacher will definitely win.”

During the debate, Urmas Reinsalu (Isamaa), Stig Rästa (Estonia 200), Lauri Laats (Centre Party), Jaak Aab (Social Democratic Party) and Mario Kadastik (Reform Party) took the floor on behalf of their parliamentary groups.

Verbatim record of the sitting (in Estonian)

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

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

Riigikogu Press Service
Maris Meiessaar
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