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Address by the President of the Republic at the Small Enterprise Forum "Entrepreneur, Local Government and State - is Cooperation possible?" on 7 November 2003 at the Village Hall of Haljala07.11.2003
Distinguished Businessmen, Organisers and Guests of the Forum,
Honourable Mr Minister, Honourable Acting County Governor,
The Enterprise Year is drawing to its close and it is time to summarize and draw conclusions. First, I would like to thank the Estonian Association of Small and Medium-Sized Enterprises and their partners for having organized the Enterprise Year 2002-2003. I am sure that the information accumulated and distributed in the course of this undertaking helps small businessmen improve their business environment.
Second, I would invite you to recollect the last year in Estonian economy and enterprise in order to think together how to move forward.
The last economic year for many exporters was volatile but it was favourable for making investments: the interest rates remained low, banks were eager to grant loans to new target groups. EU financial assistance was a great help to quite a number of businessmen and farmers.
The living standards of Estonian residents have improved. Over the two last years, thousands of new jobs have been created. The earnings of the working population have grown at least as quickly as the GDP and the incidence of poverty has declined: while one in three Estonian residents was living below poverty line five years ago, then, at the end of 2002, one quarter of the population was that poor.
However, we are living and advancing on tick, supported largely by foreign savings. By the end of this year, the Estonian foreign debt will amount to 78 billion kroons - that makes 130 thousand kroons per each working Estonian. On the one hand, continuing influx of foreign investments mirrors trustworthiness and development potential of our economy but, on the other hand, the need to meet investors' expectations lays a heavy burden on our shoulders. And as we all know, already an Estonian proverb says that borrowed money lasts not long. Therefore, we must use each borrowed kroon wisely.
The Estonian economy, due to domestic demand and high competitiveness of export sector, grew at a rapid pace comparable to that of previous years. In 2002, our real GDP increased 6 percent; for this year, an increase of 4,5 percent is predicted.
The reasons behind Estonia's economic success are entrepreneurs' investments in technology, human capital and product quality, and also, no doubt, identification of new markets. The role of enterprise in creating added value can hardly be overestimated. And once we want to forge ahead, enterprise as a lifestyle, honest work and coping with life must be held in honour.
According to the Commercial Register, on 1 October there were nearly 62,5 thousand enterprises in Estonia. That's nearly 10 percent more than a year ago. Approximately a half of them are actually operating. We can add to that figure around 45 thousand active self-employed persons.
At the same time, just small and medium-sized enterprises play the most important role in the development of our economy. The percentage of large enterprises in our small country is less than 0,5 whereas three quarters of enterprises have less than 10 workers.
The part of small and medium-sized enterprises in employment and creating added value has increased. Their contribution is particularly essential in rural areas. Yet we all know that to set up and develop business is, unfortunately, particularly difficult in the countryside, where infrastructure insufficiencies - be it lack of satisfactory roads, power lines or water supply, workforce shortage or remoteness of markets - constitute serious impediments to that. Considering this, is it any wonder that almost half of Estonian enterprises are located in Tallinn?
There are over 40 enterprises per 1,000 inhabitants in Tallinn. That is nearly twice as much as in other bigger centres or counties. In Estonia, compared with other Central and East European countries, concentration of business in the capital city is significantly higher. In 2002, 57% of our active enterprises operated in Tallinn and only 43% in other regions. The average of CEE countries was 18% in the capital cities and 82% in other regions.
The high concentration of enterprise in cities has accelerated the increase of operating costs there and enhanced attraction of rural regions. Growth in the number of businesses in many smaller counties can be compared with that of the County of Harjumaa. This trend is worth welcoming and being supported by solving the abovementioned problems.
Local government's benevolent and active approach and participation of businessmen in making decisions on local life play a very essential role in creating good business climate. Visiting counties during the last year, I became increasingly convinced that life of people is better in the regions where there are more enterprises: employment and wages are higher, the number of those in need smaller. This is impressively exemplified by statistics. For instance, in the County of Jõgevamaa, where the number of enterprises per 1,000 inhabitants is only 12-13, the employment rate in 2002 was the lowest in the country, the average pay one of the lowest, and four families in ten were living below poverty line. Therefore, I would propose to acknowledge in future business-friendly local governments too, in order to animate the others by their example.
Enterprises in rural areas are more stable than those in towns. A rural entrepreneur is conservative-minded and invests the profits he has made. I would even say that in the countryside prevails entrepreneurship as a lifestyle. The activities once launched are pursued steadily for many years. At the same time, rural enterprises are capable of dynamic development. As an example, I would use here Balteco operating in the County of Raplamaa that I had a chance to visit at the beginning of the year. Then, already 140 individuals worked at the factory, almost all of them locals, only some engineers and specialists were from farther away. They have reached such a high technological level, which makes Balteco one of the leading manufacturers of massage baths and bathroom equipment not only in Estonia but also in the whole of Northern Europe.
One of the advantages of SMEs is flexibility of production, but their development is hampered by scarcity of funds. One possible solution to that would be cooperation in marketing and management of haulage. Completion of the Via Baltica, development of container transport and building of a north-south railway line in farther future will definitely help small enterprises expand the choice of their markets. A pertinent example is Malta I recently paid a state visit to. Owing to its geographical location, Malta has become an important centre of transit, in the first place, container transport in Europe. Freight coming from Far East is repacked and forwarded to Europe. This is also an example of how well container transport, in Estonia still at its first development stage, is developed elsewhere in the world. Cooperation is often important also for the sake of more productive use of EU funds. These prerequisites for development deserve a much deeper analysis in future.
Dear Friends,
This year's keyword is the question: how should we move forward? It derives from the understanding that we are running out of our present development resources. This question was asked before our spring elections and EU referendum and was reflected in drawing up the programme "Sustainable Estonia 21", concluding our National Agreement and in several other processes.
For instance, the problem of how to retain Estonia's competitiveness, considering rather rapidly growing manufacturing costs, has become an increasingly important topic of discussion. An Emor-study conducted in spring showed that one quarter of entrepreneurs were not capable of identifying the competitive advantage of their business. Has the development of these enterprises really been left to a chance? Taking a look at the results of a 2001 export study, we can see that four exporters in ten regarded as their main advantage low manufacturing costs. At the same time we can see that production is becoming more and more capital-intensive. To create a connection like that may be premature but, in the light of the investment boom of last years, it is encouraging to see the exports, for example, of mechanical engineering and metalworking industries speeding up.
Yet, we must gradually create preconditions for the emergence of knowledge-based economy. The parties to the National Agreement also noted this necessity. We have identified our main problems - shortages in education system, weak link between research and production, insufficient product development and innovation. I hope decision makers to be farsighted enough, to have political will and capacity for collaboration in order to solve these problems.
Knowledge-based development and innovation should not be interpreted narrowly as preferential promotion of high and information technology only. Product development, renewal of technology and innovation are crucial for all levels and the flexibility of small enterprises gives them a vital edge.
Best solutions are born when the wider public is involved. While making decisions that shape the business environment, the viewpoints of businessmen, more than so far especially those of small businessmen, are worth taking heed of. A successful businessman certainly has down-to-earth viewpoints since his activities are based on calculations and analysis. A successful businessman knows his strengths and weaknesses. He knows which goals are realistic and which risks are worth taking.
To pursue and meet these goals, I wish you luck and enduring spirit of enterprise and cooperation. Have a successful conference rich in analysis!
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