INTERVIEW: Parts says Estonia economy is souped up to rebound from recession

By bne IntelliNews September 2, 2008

Mike Collier in Tallinn -

The Swissotel, a gleaming tower of black glass and steel, stands in Tallinn's business district as a monument to Estonia's economic resurgence since 1991. It was here that experts met on August 21 for the umpteenth conference this year about the Baltic region's energy concerns. But even though several of the presentations were reassuringly familiar and delegates could enjoy the same excellent consomme as usual during the lunch break, the mood was decidedly nervy.

First, there was the background of war in Georgia. Parallels with the Baltic states' situation have been over-inflated - not least by President Mikheil Saakashvili - but the conference seemed split between people who couldn't decide if it was relevant and those barely able to contain their excitement at the return of good old Cold War certainty.

But there was another reason for nervousness. Despite the five-star surroundings, Estonia has just become the first country in the central and Eastern Europe to fall into recession. Could the country be swapping its classy consomme for a bit of a stew? "At the end of the day, you can't cook a better soup in one part of the pot than the other," Minister of the Economy and Communications Juhan Parts told bne when asked about the Estonian economy's prospects for recovery.

For a man in charge of a recession, he was remarkably relaxed, perhaps because of his belief that the fundamentals that Estonia has in place set it up nicely to exit recession quickly. His proverbial soup is a typically Estonian way of explaining how interconnected all European economies are these days, from French onion to Spanish gazpacho. "This recession is showing that in the short term we have a problem, but I think in the long term the Estonian economical basis is very strong," Parts said. "We create a good environment for doing business."

"On the micro level, several things are possible, and the recession could even be viewed as positive. We have to use this momentum as, certainly, there was a bubble in the real estate sector. Now we see there are the same problems in different European markets such as Denmark and Ireland - and I'm not even talking about big economies like Britain and Spain. There is nothing catastrophic. It is giving good opportunities to find a fresh start for the Estonian economy."

Flexible workers

Increased competition in the labour market is key to those new opportunities, Parts believes. "There have been a lot of claims for the last two or three years that there is not enough labour. Now it is becoming available. If there will be a certain flexibility from the private sector, there will be new opportunities for business," he says, while insisting, "We need quality investments, we are not like a kind of factory country for Swedish and Finnish companies."

Indeed, the theme of Estonia being far more than a Nordic makeweight is one he picks up again when asked about the ownership of state airline Estonian Air. Scandinavian airline SAS, which recently announced it was divesting itself of shares in Latvian airline airBaltic because it could not take a majority stake, owns 49% of Estonian Air, so bne asked if the state-owned portion 34% might be sold to give SAS majority control (Investment group Cresco owns the remaining 17%). "Our interest in government is that there are more interconnections from Tallinn. They [Estonian Air] have to have their own business strategy, not to just be a back office flying to Stockholm and Copenhagen. That is crucial."

Parts acknowledges that the domestic market is not huge, but is insistent that citizens, tourists and businesses have to fly "so they don't have to wait six hours in Stockholm or Copenhagen to fly to Bucharest" - sounding very like a man who has had to wait six hours in Stockholm for a flight to Bucharest.

To up the ante, Parts then suggested a radical new scheme: "I have another offer - let's give 20% of SAS shares to the Estonian government. Let's do it in the same way that the Swedish, Danish and Norwegian governments are involved in SAS."

As if such issues weren't enough for your average economy minister to be getting on with, his ministry has also commissioned an intriguing document that is just landing on his desk. It's essentially a feasibility study looking at the potential to privatise various state-owned companies including gas, ports and the postal service. But, understandably, Parts is keen to clamp down on talk about a grand sell-off any time soon. "I just want to correct this version of it as 'privatization'," he explains. "What we are talking about is that these companies have to have their own very clear growth strategies - these are very infrastructural types of things. We are going to open the energy market so we need new investments. Why should energy production be owned 100 percent by the state?"

"If the market is good and there is enough political support, I think we can make decisions on the business level. That is the main thing. But if there is no need from the business point of view then we are not going to privatise just in order to privatise."

As for the borsch-eaters to the east, Parts says Estonia shouldn't lose too much sleep about the economic consequences of offering such staunch support to Georgia. "Of course, we saw a certain economic impact from the Russian side a year ago [following the 'bronze soldier' riots in Tallinn]. We always look at economic relations as a big opportunity for our businesses. Despite the political rhetoric, these economic connections are developing. That is the reality. We are very constructive and in any case the biggest loser is the Russian economy and Russian citizens."

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INTERVIEW: Parts says Estonia economy is souped up to rebound from recession

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