Mike Collier in Riga -
Investors looking for a "sexy" investment opportunity could do worse than looking at Estonia's nascent cyber-security industry. According to the country's prime minister, Andrus Ansip, the Baltic minnow has become a muscular action hero in the style of Bruce Willis.
During a visit to the US at the end of last year, Ansip claimed Estonia's success in combating a massive cyber-attack in 2007 made people compare it with Bruce Willis in the "Die Hard" films. Not content with basking in the glory of being the plucky underdog that sees off the evil mastermind, Estonia is now committed to developing a cutting-edge cyber-security industry that will allow it to sell its expertise around the globe.
Ansip said that the issue of how to handle cyber-attacks has become a hot topic and US Secretary of Defense Robert Gates added that the US holds Estonia's cyber-readiness in high regard, a fact backed up by the US' willingness to establish Nato's main centre of cyber-warfare expertise in Tallinn. According to Estonian Defence Minister Jaak Aaviksoo, US officials even told him that Estonia had coped better with the April-May cyber-attacks than they would have done in similar circumstances.
Estonia's IT infrastructure was subjected to a barrage of cyber-attacks in April and May, in the wake of riots sparked by the relocation of a Soviet Red Army war memorial. The bulk of the attacks emanated from Russia and were coordinated, but the Russian government has denied any involvement.
Whoever was responsible for the cyber-attacks has ended up doing Estonia a massive favour. Quite apart from the simple fact of winning the Baltic state headlines and sympathy around the world, Estonia's ability to withstand the attack provided a perfect showcase for its credentials as "e-stonia" - a modern, technologically advanced Scandinavian-style state rather than a dour Eastern European economy playing catch-up with the West.
Evidence of a serious commitment to "e-stonia" is not hard to find. As early as 2002, the Estonian parliament approved Internet voting for local elections (to be extended to general elections) and by January 2006, over 355 governemnt agencies and 50 state databases had been joined using a secure server system called 'X-Road'. 95% of banking operations are carried out electronically, school pupils receive their exam results via SMS and Estonians commonly use their mobiles to pay for parking.
Estonia is now playing the cyber-security card at every possible opportunity. President Toomas Hendrik Ilves banged the drum when he addressed the UN General Assembly in September 2007 and Estonia has placed the issue on a par with energy security for its chairmanship of the Baltic Council during 2008 and already has eight other countries ready to participate in the Nato Centre of Excellence in Cooperative Cyber Defense - the US, Spain, Germany, Italy, Bulgaria, Lithuania, Latvia and Poland.
"Estonia has drafted two cooperation agreements, one of which will be signed between the countries that have expressed the wish to take part in the Nato Center of Excellence in Cooperative Cyber Defense and the other between Nato as an organization and the countries taking part in the center of excellence," Aaviksoo says, leaving the door open for commercial as well as military development at the centre. Partners will be asked to formally sign up in January.
Such is the lead that Estonia is opening up in cyber-security that other countries are already trying to poach some of its leading figures. Hillar Aarelaid, CEO of the national Computer Emergency Response Team (CERT) has admitted to receiving several attempts to lure him overseas already, the most exotic of which came from Singapore.
Nordea Bank senior analyst Mikka Erkilla points out that by specialising in cyber-security, Estonia is effectively creating a new financial services product. It is almost impossible to put a figure on the likely size of the sector, but with applications including such diverse areas as communications, database protetction, cost savings and remote military operations, it's potentially enormous. Some estimates put the global cost of cyber-crime at around $100bn every year.
"The problem is that there are so few listed companies on the Estonian stock market that the question becomes how to attract more companies to list," Erkilla told bne, adding that it is essential for Estonia to team up with larger international players in order to participate away from its "small and shallow" home market. "They have already shown it can be done through cooperation with OMX [the Nordic stock exchange operator]. It will be an important industry, and then comes the question of the euro, where [Estonian technology] could help with reducing transaction costs."
Erkilla forecasts a likely euro-entry date of 2011-12, by which time the Estonian cyber-security sector should be up and running and able to offer its services across the whole continent - and beyond.
Estonia's Defence Ministry (which itself shares cyber-security responsibility with the Economics Ministry) sees public-private partnerships as the way forward. A spokesperson told bne: "The efforts of a government alone are not enough. It is in the best interests of state authorities to establish closer public-private partnerships. This would result in increased security for citizens as well as companies and enable to better cope with cyber-crime."
If the consultancy Global Insight's prediction for 2008 is true, maybe Estonian IT really will display a Bruce Willis-style ability to punch above its weight. "The IT sector currently has the best attributes for an overweight position among the broad sectors that comprise the Eurozone stock markets, with improvements expected in both the fundamental metrics and risk profile," Global Insight says.
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