General

Estonia is the northernmost of the three Baltic states, and lies at the heart of the rapidly developing Northern European business area, which has a population of around 70 million. The country lies just south of Finland and across the Baltic Sea from Sweden, the European Union's newest members. The potential markets of north-west Russia are situated to the east.

Estonians have lived in their present lands for around 5,000 years. They have always been at a vital cross-roads for international trade, with Estonian cities being important members of the Hanseatic League in the Middle Ages. The countryside is mostly low-lying and heavily forested. The total area is 45,000 km², about the same as Denmark or the Netherlands. The population is about 1.5 million, one third of whom live in the capital, Tallinn. With its excellent location and links to both Western and Eastern European markets, plus a winning combination of low costs, low risks and low taxes, Estonia's attractiveness as an investment location is certain to continue.

Before the Soviet occupation, Estonia enjoyed living standards on a par with Finland and Sweden. It may take time, but Estonians are determined to catch up once more with their Scandinavian neighbours. They are already well on the way; with steady growth of four to six per cent a year, Estonia has the fastest growing economy in Northern Europe. The country has a diverse range of industries exporting high quality wood products and foodstuffs, electronic goods, textiles and chemicals. Sizeable energy reserves include shale oil. The services sector is thriving, especially finance and tourism.

After the break-up of the Soviet Union, Estonia was the first country to introduce its own national currency, the Kroon. It has also led the way in privatisation - 65 per cent of GDP now comes from the private sector, which is one of the highest levels in Central and Eastern Europe.

Following the rapid and relatively pain-free transition to a free market, the Estonian economy is now going from strength to strength. Inflation has fallen dramatically, while trade with the West has grown by more than 500 per cent since 1992. The new company code, effective from September 1995, is based on EU company law and practice, as part of a progressive harmonisation process.

Estonia is an easy place to do business, an assessment confirmed by many independent studies. The Heritage Foundation's 'Index of Economic Freedom' places Estonia on a par with Canada, Germany, France and Japan. Estonia's greatest natural asset is its location at the cross-roads of East and West. The country boasts modern transport and communications links, providing a safe and reliable bridge for trade with the former Soviet Union and the Nordic countries.

The deepest port on the eastern coast of the Baltic Sea is just 12 km from Tallinn. The port of Muuga is one of the most advanced in Eastern Europe, with impressive facilities for grain and perishables, ro-ro traffic and oil products. Muuga can serve Russia and other CIS markets in the same way as Rotterdam serves markets in Western Europe. Estonia also has ferry links to Finland, Sweden and Germany. Regular air connections with Scandinavia and the rest of Europe are well-developed, and after reconstruction in 1995, Tallinn Airport is the best-equipped in the Baltic countries.

Major investments are being made into Estonia's road and rail networks. The largest project is the reconstruction of the Via Baltica highway, which will link Finland and the Baltic countries directly with Western Europe.

Companies from more than 100 countries have already invested in Estonia, with over 8,700 Estonian firms wholly or partly based on foreign capital. Among the well-known names to have established production or distribution bases in Estonia are ABB, Coca-Cola, Nokia, Siemens, Electrolux, Shell and Toyota. Initially, most investments came from Estonia's Nordic neighbours in Finland and Sweden, as Scandinavian firms sought to garner regional sales and protect their domestic markets from nearby competition. Increasingly, however, firms from further afield, such as other parts of Europe, North America and East Asia, have been attracted to Estonia by its geographical location, high skills and low costs. Many use Estonia as a well-positioned base for exports to Europe and beyond, such as Finland's Elcoteq, whose Tallinn electronics plant is now the country's biggest exporter, with sub-contracting orders from all over the world.

The signing of free trade and European (associate membership) agreements between Estonia and the European Union countries has been particularly significant for companies from outside the EU. Other free trade agreements also give Estonian-based companies unhindered access to significant regional markets, such as the free trade treaty with the other Baltic states and with the Ukraine, a market of 52 million people.

Many foreign investments have gone into Estonia's infrastructure - a joint Swedish/Finnish venture which owns 49 per cent of Eesti Telefon - is one of the country's biggest foreign investments to date.

Finance

Contemporary Estonian banking dates back to 1988, when the Tartu Commercial Bank started as the first of its kind on the territory of the former Soviet Union. Only the best have survived among the banks established since that time, leading to the recent success of Estonian banks on the Baltic markets. All currently operating banks are based on private funding, meaning that no relics remain from the previous times.

As far as IT is concerned, the banks started from scratch, without the burden of legacy systems. The IT departments of new banks have been able to use the latest technology, not having to worry about compatibility with existing systems. For years now, banks have stressed the importance of developing their IT systems in their strategies. As a result, customers today have access to several ways of electronic banking: credit cards, debit cards, ATMs, POS terminals, telebanking (dial-up and internet), and phone services.

To facilitate a further increase in cashless transactions, Estonian banks have already agreed on several standards and the process will continue. The most innovative banks in IT terms, which also happen to be the largest, have connected their branch offices in a national online network. This has turned IT into a vital asset for the banks, resulting in even more attention to information security and IT auditing.

Payment cards

Implementation of local payment cards was started seperately at each bank, using proprietary service networks and communications' channels. Extensive initial investments secured a jump start, but soon the inability of individual banks to maintain such redundancy became evident. The Card Centre of the Banks was established in 1993 to mediate transations between the ATM networks of different banks. At present, the Card Centre unites eight banks, and is altogether responsible for more than 99 per cent of the plastic cards issued in Estonia. On 1st May 1997, the total number of cards was 507,769.

The joint network offers the customer more than 250 ATMs all over Estonia. One has to bear in mind that the first ATMs were installed in Estonia in the summer of 1994, and by 1st December 1995, about 95,000 cards had been issued. The ATMs of the common network also recognise Visa and Eurocards, which enables foreigners to benefit from the extensive network as well.

The era of cards limited to local use will soon be over, as the largest banks are about to start issuing cards like Cirrus and EDC/Maestro, useable in Estonia and elsewhere, and competitively priced. The Card Centre also manages a joint network of about 1,500 POS terminals installed at retailers and service providers. Future developments include a network of payment terminals that lets customers conduct their banking at any time.

Dial-up telebanking

The option of using a computer and a modem to carry out bank transactions directly from the customer's home or office is provided by a vast majority of banks. Dial-up banking enjoys a constant increase in popularity, not only among corporate customers. Hansabank, for instance, having been the first to implement such a service, has in four years reached the level of 60 per cent domestic and 40 per cent international payments being conducted using telebanking. The customer base of dial-up telebanking mainly consists of corporate customers who are able to integrate the banking software in their accounting package, thus greatly increasing accountant efficiency.

Internet banking

This segment of telebanking has been especially popular with private customers. The banks swiftly reacted to the expansion of possibilities associated with the widely spreading internet, and Forexbank was the first to open a virtual branch office in Spring 1996. They, together with Savings Bank, who implemented their internet banking service six months later, were among the first in Europe (see demo: http://www.esb.ee/hpdocs/PangaNet/pn-demo.html) to do so.

Several other banks have released or are planning to release similiar products. These virtual offices may be used to transfer funds, trade stock, obtain a statement of account and convert currencies. Security is enhanced by multilevel passwords, some of which are unique for each communications session.

Phone services

For customers not having access to a computer, the banks are offering the option of conducting basic transactions over the phone.

Hardware industry

The development of local information technology industry and telecommunications infrastructure with high-level services has played a significant role in the stabilisation and rapid growth of the Estonian economy.

Over 250 small or medium-sized and some large companies have been established in the electronics industry, with a total turnorver estimated at about US$24.4 million in 1994, over $60 million in 1995, and over $78 million in 1996, indicating a rapid increase in activity during the last few years.

In 1992, several newly established small companies started to assemble computers, using parts and components imported from the USA, Germany, and the countries of South-East Asia. In fact, most of these new companies started their activities by reselling imported computers, and only later on gradually switched to their own manufacturing. Starting as resellers of imported computers was very useful, because in this way they established contacts with customers, collected knowledge about the needs of the market, and obtained preliminary experience in providing warranties and maintenance services.

Another task was to carry on the development and modernisation of production. During the last few years, due to new processors, architectures, graphic cards and peripheral equipment, PCs have changed drastically. New software systems and packages, with their ever growing hunger for computer resources, demand the quick and flexible development of new types of more powerful computers.

It was also very important to establish direct relations with the main vendors in the IT field, such as the Intel Corporation, Microsoft and others, and to receive OEM licenses from them. This made it possible to develop new computer models no later than large and well-known computer companies. As a result, Estonian-made computers are now in the top league of technical development. Nowadays, most producers make an effort to get ISO 9000 and CE quality certificates, and they all offer three year warranties on their products.

Furthermore, the presence of technical experience and skill in the new companies has made it possible to offer high-quality maintenance and service to the customer. This way, compared to the large foreign companies which have mainly sales personnel in Estonia, local producers have a sharp competitive edge.

Today, local computer producers dominate the domestic market with approximately 80 per cent of sales. Three of them, Micro Link Ltd, Pennu Computer Technologies Ltd, and Astrodata Ltd, are supplying 70 per cent of the computers sold in Estonia. Osborne Computers Ltd is manufacturing custom computers, mostly for computer networks. About ten per cent of the market belongs to smaller domestic producers, and 20 per cent of computers are imported. The Estonian market is a small one, and producers are now making an effort to penetrate the markets of neighbouring countries.

There are many other information technology products besides computers, including industrial control systems, telecommunications equipment, various kinds of security systems and so on, for which there is a demand in the local market and which can be exported. For example, in Estonia, as in all other former socialist countries, there is a remarkable need to save energy and improve environmental protection and monitoring. Despite hard foreign competition, several new Estonian enterprises are developing and producing products in these fields.

Software industry

The main areas of activity of the Estonian software companies which develop their own software applications are the following: accounting and economic management; finances; transport and travel; public administration, including health care, state registers, municipalities etc; software services and consulting.

The accounting and economic management market is divided among a few leading companies, with the overall market share exceeding 50 per cent. Companies such as Ratioma-R AS, Systec AS, Gaiasoft AS, RV-soft AS, Eurotec AS, and Merit AS have developed Windows platform applications and offer flexible support for a wide range of businesses.

The companies AS Skriining and AS Medisoft are the main players in the market for medical software. Their applications are oriented towards serving public hospitals and ambulances, billing, revenue collection and accounting in health care centres and health administration. They also take care of document exchange, transactions etc, between these organisations. The main weakness of software solutions development in the medical area is a lack of general rules and standards for database structure and interfaces for the connections between each other and with other public registers. Also, all applications of this kind need the highest security level.

Stores from large department stores to mid-range shops use retail systems to collect sales information and to manage their business. The leaders in this area are AS Reiw-Elecktroonika and AS ID-Systems. In competition with foreign systems, domestic products have become very flexible to meet the needs and speciality of the shops. For example, client cards, credit cards and band debit cards can be used online.

Research and development

The Institute of Cybernetics of the Estonian Academy of Science is still the main research centre and source for new developments and solutions. Some recent development by the institute may find a quick way to the market. The 'hottest' products are the internet firewall Barrikaad, encryption software and a chip that may be used in safe e-business and information services' solutions.

The research activities of the Laboratory of Phonetics and Speech Technology cover the following areas: basic research into Estonian phonetics, applied research on algorithms and methods for speech signal processing (text-to-speech synthesis, speech analysis, speaker recognition) and development of reusable spoken language resources. All three areas are closely linked with each other and will serve as a necessary basis for the development of various speech technology products and services in the Estonian language.

Telecommunications

During the period of the country's newly gained independence, it is the telecommunication's sector that has undergone the most radical progress, of all sectors of Estonian industry. This has helped to create favourable circumstances for the general development of the Estonian economy, as telecommunication represent one of the most important parts of a country's infrastructure.

The development of Estonian telecommunications has, up to now, mostly occurred on the basis of companies belonging to the Estonian Telecom group.

Fixed voice telephony

The Estonian Telephone Company has invested EEK1,587 million (about $30 million) during the last few years, being one of the largest investors in Estonia. In the sector of international communications, five international fibre-optic cables connecting the Estonian telecommunications network with Finland, Sweden, Russia and Latvia have been constructed using the latest SDH transmission technology.

Another priority is the construction of an all-Estonian trunk network, making it possible to build digital exchanges and sub-exchanges (concentrators) all over the country. As of today, the first transmission ring - based on fibre-optics - has been completed, making use of 2.5Gbps SDH technology. During 1997, the second similar ring will be finished.

It is understandable that a trunk network covering all the territory of the country creates favourable conditions for the development of other networks and services (mobile telephony, data communications, cable TV, paging), and telecommunications' operators have been quick to use these advantages.

In just four years, the Estonian Telephone Company has installed more than 120,000 digital telephone lines for both the business and private sectors. In connection with the increase of investments in 1997, this volume will further increase by 45,000 to 50,000 extensions a year. The density of telephone coverage per 100 residents has risen from 22 at the end of 1992 to 29 at the end of 1996.

Technology from Siemens, Ericsson and Nokia has been used in the digital telephone exchanges. As of today, the Estonian Telephone Company offers the ISDN service to its clients. In 1997, a broadband ATM ring connecting Riga, Helsinki and Tallinn will be opened.

Mobile communications

The Estonian Mobile Telephone Company (EMT) began the construction of its NMT-450 network in 1991, and as of today, 90 per cent of Estonia is covered by the service, while the roaming service is operative with all the Scandinavian NMT-450 networks and the Russian network. Parallel to the analogue network, EMT is also constructing a digital GSM network. Today all the major highways and larger cities are covered by the GSM cellular network. EMT has entered into roaming contracts to offer GSM services with 47 GSM operators in 31 countries. EMT has 65,000 clients operating in both networks.

The second GSM operator company, Radiolinja Eesti Ltd has approximately 15,000 clients in Estonia today, its network covering all major highways and larger cities. Ritabell Ltd, the third GSM operator in the country, started its activities in 1997.

Paging

There are three companies offering paging services in Estonia today, but only two of them are constructing an all-Estonian network: Estonian Paging Ltd and Baltcom Ltd. Estonian Paging Ltd has 95 per cent of the country covered by its service and has 4,000 clients. Baltcom Ltd has approximately 10,000 clients, but its services cover only 70 per cent of the territory. Both networks use the POCSAC standard, and calls are dispatched both in numbers and text.

Cable TV

Cable TV also has its share of new movers on the market. Several cable TV companies operate in every town in the country, and the bigger cities are served by a range of different cable operators. The largest of those, the Levicom Group, has built cable TV networks in ten Estonian towns, with a total of 21,000 clients. Levicom has also branched off to Lithuania, with 5,000 customers there. Levicom has announced that it is planning to offer telephone services over the cable TV network. In Tallinn, other companies such as Starman Kaabeltelevisiooni AS, STV AS, Televes AS, Telset AS etc, are also offering their services.

In conclusion, it may be said that during the last five to six years, Estonian telecommunications have become diverse. Networks are rapidly developing in both quantity and quality. The preconditions for this were created by the liberalisation of the market. Today all the services are developing in free market conditions, except for trunk and international calls, as the Estonian Telephone Company has exclusive rights to those up to the year 2000.

Data Communications

The internet is growing everywhere, and Estonia is no exception. Rapid growth patterns in the most recent past have led to more than 8,000 internet-connected registered hosts and an estimated 25,000 to 30,000 users in the country. While educational networks were pioneers in the use of the internet in Estonia (as everywhere), the last year has seen remarkable development of commercial and governmental networks.

There has also been considerable growth in the content side of the WWW over the last year. Many media agencies and computer companies have begun to offer WWW services. While the quality of these services is highly varied, and it seems that the market is close to saturation, the need for WWW services is still growing. One of the Estonian internet directories, Estonia-Wide Web (http://www.ee/www) lists more than 1,700 resources from more than 370 WWW servers. All major newspapers, magazines and news agencies in Estonia have a presence on the net. More and more companies from a variety of fields have gone to the expense of getting on to the internet. There are also some very useful databases that have been made publicly available via the WWW. The database of Estonian legislation is one good example. Funding from the UNDP and the Soros Foundation has helped to encourage the creation of various WWW resources.

Few companies provide internet training courses, but a lot of work is going on in Estonian schools. Tartu University has devoted much effort to educating schoolteachers about the internet. As a result, more than 200 schools have modem connections to the internet, complete with email capability. Estonia's ambitious 'Tiger Leap' project (http://www.tiigrihype.ee/overview.html) aims to provide computer equipment and internet connections to schools.

Four major companies offer leased-line connections: Estpak Data, EsData, Unineti Andmeside AS and EUNet Estonia (Data Telecom AS). Generally speaking, each of these providers has its own international connection.

Serious competition is taking place in the field of offering dial-up access to the internet. Nearly all ISPs provide access through the PSTN and ISDN networks. As a result, these services have become relatively cheap, and they are accessible for home users as well.

A new and growing business seems to be internet content development using the WWW technology. Many ISPs, computer companies and design agencies are providing WWW services as a secondary service. Few companies specialise purely in the WWW business. The Estonian market leader in providing WWW services is Meediamaa Ltd (http://www.ee).

Organisations

The main organisations promoting and supporting the development of information society in Estonia - as well as integration to the global information infrastructure - are the Estonian Computer Association and the Estonian Informatics Centre.

The Estonian Computer Association is a non-profit organisation formed in 1992 on the initiative of local IT companies. It plays a consultative role in the development of Estonian IT policy, legislation and standards, and also organises and supports fairs, seminars, conferences, research and other activities promoting the application of information technology and telecommunications in Estonia.

The Estonian Informatics Centre is a government-established organisation for the development and finance of state information systems, IT standardisation and public procurement. The Estonian Informatics Centre has published several books and various information technology publications, including the Estonian-language monthly computer magazine 'Arvutimaailm'.

For more information, contact:

The Estonian Computer Association
Tonismagi Str. 2-2120, EE0001, Tallinn, Estonia
phone: +372-6307464
fax: + 372-6311323
email: eaa-info@eaa.ee
URL: http://www.eaa.ee

The Estonian Informatics Centre
Tonismagi Str. 8A, EE0001, Tallinn, Estonia
phone: +372-6270500
fax: +372-6270501
email: eif@eif.ee
URL: http://www.eif.ee