The competitiveness of Estonian companies will decide the ability to stay on the path of growth
Economist at Eesti Pank
The latest Competitiveness Report from Eesti Pank concludes that the the key factor in keeping the Estonian economy on its path of growth is the competitiveness of Estonian companies in Europe and in the global market. Estonia’s market share increased substantially as the pandemic ended, but the growth in the market share of Estonian exports stopped last year. This caused a general rise in prices and costs throughout the economy. Estonian exporters were less able last year to set their sales prices, and uncertainty and a lack of demand meant that companies could not pass the higher prices for commodities on into the end prices of their products. This was expressed in weaker exports of goods last year. The assessment by manufacturing companies of their own competitiveness in foreign markets fell by the end of 2022 to a lower level than that seen in 2008 during the global financial crisis. Exports of services remained strong last year though.
Higher energy prices have affected the performance of Estonian exporters more than they affected businesses in other European Union countries on average. The Estonian economy is very energy intensive and so higher prices for fuels have a broader impact and affect the competitiveness of the whole economy. Estonia is one of the countries where the support measures for businesses taken to ease the impact of the energy crisis were modest, even though the rise in the producer prices of domestic energy producers and in the consumer prices of electricity, gas and other fuels started notably earlier in Estonia than in other European Union countries, and was notably larger.
Estonia’s competitive position still remained quite stable last year in international comparison. Comparative indexes for various aspects of competitiveness generally put Estonia in a high position against other European Union countries from Eastern Europe. The biggest climbs in the indexes were made a couple of decades ago, while Estonia’s position has generally held steady in recent years. Estonia holds a high position in the Human Freedom Index, but the innovation indexes place it within the group of moderate innovators and there is room to advance higher up the ranking. Estonia has lower levels of deployment of environment-related technologies, resource productivity, and capacity for business and product development than comparaative countries, while government support for business research and development and business expenditures on R&D are low.
Environmental innovation by Estonian companies has mainly been driven by the desire to improve the reputation of the company, by high costs for energy, water and materials, and by obligations under environmental legislation. One in ten companies in Estonia was involved in environmental innovation either to improve their reputation or to manage their costs, as was found by the Eesti Pank analysis of competitiveness. Companies consider that environmental regulation that makes them work harder at increasing environmental innovation is also important. Policy and costs are the most important drivers of environmental innovation in other countries in the European Union as well. Environmental innovation is also supported by voluntary activities and pressure from demand, which often go hand in hand with official regulation, especially in services.
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