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Estonia braces for change as Russian exports move from home
Published: 12 February, 2010, 19:38
Edited: 24 February, 2010, 15:34
TAGS: Investment, Markets, Russia and the global economy, Economy
Russia is renovating its railroads and sea ports - all part of plan to bypass transit countries when exporting energy products. That means neighbours like Estonia are looking to move from stable cashflows.
The port of Tallinn on Estonia's Baltic Sea coast is one of the country's main cash cows. It accounts for up to 8% of Estonia's budget revenues. But its days of glory may soon be over. As part of its efforts to diversify transit routes, Russia is building and renovating its own ports to compete with those of former Soviet Republics.
The construction of the Ust-Luga sea port – expected to be completed within 2 years – will do just that, according to Ain Kaljurand, Chairman of the Port of Tallinn
"It is clear that when the Masout oil terminal will be opened later this year then some of it will go to Ust-Luga. Its capacity will be about 8 million tonnes a year. This is 50% of what we shipped through our port last year. We will try to compensate this by sea to sea shipment."
Roughly 90 % of all cargo coming from Russia to the Tallinn port is delivered by rail. Those revenues will be affected as well according to Kaido Simmermann, Head of Estonian Railways.
“We will be hit – we know that we don know how to compensate.”
But Simmermann added that Estonian railroads will have the biggest budget in its history with the EU extending a helping hand.
“We have never had such a big investment plan than this year.75 percent is coming from the EU funds and 25 is our own money.”
It's not going to be business as usual – in part due to political reasons. Russia stopped sending its coal through Estonia when the Baltic nation took down a Soviet World War II memorial, the Bronze Soldier.
The controversial move sparked further talk about the need to find an alternative for oil and oil-product shipments.
Russia's commitment to developing its own sea ports as well as construction of reliable transit routes for its energy resources will inevitably affect its neighbors who used to enjoy steady transit revenues.
But at the end of the day, this looks likely to create a healthy competitive environment
12.02.2010, 18:45
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12.02.2010, 19:44
1 comment
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@ stole Where do you get your facts? First, demography. Russians have never been 44 percent of the population of Estonia. In 1934, they were 8 percent of the population. in 1959 20 percent of the population, in 1989, 30 percent of the population, in 2009, 25 percent. As in Russia, the Russian population of Estonia declines because of a number of factors including emigration and lower life expectancy due at least partially to environmental factors (pollution, poor lifestyle). Russians are also declining proportionally within Russia (where they are now less than 80 percent of the total population). It's not a trend unique to Estonia. The ethnic Estonian population is declining, too, though not at the same rate. Second, that war memorial was removed to a military cemetery in Tallinn to the benefit of some Estonian politicians, who partially won an election because of their patriotic credentials and also to the great benefit of others.The local activists were lavished with media attention. It was useful for Russia, which always needs an external enemy to prop up support for its "tandem" leadership. Putin got to give a very stirring speech that victory day to show off his patriotic credentials. I am sure his approval ratings might have gone up a few points after that affair and since he can't be voted out of office, approval ratings are all he really has. The Russian elite would have really benefited from that affair had they not demanded the Estonian government step down or had their Kremlin youth harass the Estonian and Swedish ambassadors. The Estonian government might have really had to resign thanks to that controversy, but, ironically, it was the Russians who managed to keep them in power. It's an oddly mutual beneficial relationship between the Estonian and Russian elite. One could presume that they plan these things together to stay in power :)
@ European What you should realize is that most Western investors (and probably Russia too) have stayed away from Estonia because it is, like you said, a small market. The investors who have stayed and continue to invest since 1991 are the Swedes and Finns, though, because to them, 1.3 million is not a small amount of people (Sweden is nearly 10 million people, Finland is 5 million people). It's like growing their domestic market by a fifth or a tenth. You are right about Sweden's internal troubles, but take a long-term perspective. Swedes have been Estonia's traditional investors since '91, they have been supportive of Estonia's EU integration, and, in the long term, they'll stay because, outside of Sweden, it is one of the few places on earth of which they are total masters. Estonia would benefit from being more tightly wound with that economy because, like you mention, their worker productivity is high, Estonia's is low. Swedish workers are on average better skilled, better educated, healthier, and more productive than Estonians are at the moment. If you introduced similar standards in Estonia, though, you'd see productivity go up. Relying on reselling Russian scrap, as some other poster pointed out, is not really an option because, as this article points out, Russia is interested in capturing all the money it can, as its current economy is so dependent on the sale of energy. and why wouldn't they do that? It makes sense for them.
FINALLY ! Great move Russia, isolate those Russo-phoebes completely!