2023 POLICY ROADMAP

Estonia’s GDP was expected1 to have contracted by just over 2% in 2023, because of declining private consumption and falling investment, but with positive growth anticipated in 2024. Inflation has also been declining over the year, although recent price increases have impacted business competitiveness, especially in international markets. Additionally, the minimum wage has increased over the last three years, and will become 40% higher in 2024 than it was in 2021. On the other hand, the unemployment rate has been increasing in the first three quarters of 2023.

Recent government policy changes in Estonia include increases in businesses taxes which may affect how local businesses compete, and increased financial support for the transition to “green” businesses for Estonia as a whole, and for transition measures in the Ida-Viru region.

2023 Framework Conditions Review2

Estonia has a high-quality entrepreneurial environment, as measured by the GEM National Entrepreneurial Context Index (NECI), scored by its own national experts at 5.9, well over sufficient and ranked sixth of the 49 economies in GEM 2023. In 2023, 11 of the 13 Entrepreneurial Framework Conditions (EFCs) were scored by Estonian national experts as sufficient (score ≥5.0), with the two that were less than sufficient (Government Policy: Support and Relevance, and Research and Development Transfers) both very close with scores of 4.9. Estonia’s highest- rated condition was Social and Cultural Norms, with Physical Infrastructure rated as excellent as well (both >7.0). Of the 45 economies having their entrepreneurial environments surveyed by national experts in 2023, Estonia ranked second for Social and Cultural Norms and for Government Policy: Taxes and Bureaucracy, with its lowest-ranked condition being Commercial and Professional Infrastructure at 16th, which was nonetheless still comfortably sufficient.

A new question asked by the national experts regarded social support for women entrepreneurs, and their access to resources relative to men. Estonia scored well for social support (score 5.4, rank ninth) but poorly for relative access to resources (3.8 and 45th). The other two Baltic states, Latvia and Lithuania, had similar scores, being well over sufficient for social support but much less than sufficient for equality of access to resources. In fact, Lithuania, Latvia and Estonia ranked 4th, 7th and 9th respectively for social support, but 36th, 39th and 45th respectively for relative access to resources.

2023 Entrepreneurial Activity Review

In the GEM Adult Population Survey (APS), nearly three in 10 adults in Estonia reported that their household income had fallen in 2023. Entrepreneurship has a good public profile in Estonia, with more than two in five adults knowing someone who has started a business recently (third highest in Level B). Around one in two adults saw good opportunities to start a business locally, with a similar proportion considering themselves to have the skills and experience to start their own business (again, third highest in Level B). However, two out of five of those seeing good opportunities would not start a business for fear it might fail, while one in six of those not already doing so expected to start their own business within the next three years.

A reasonable 13% of adults in Estonia are currently starting or running new businesses, although men are more likely to be doing so than women, with around three men starting new businesses for every two women doing the same. This may be a reflection of the unequal access to resources noted earlier.

The level of Established Business Ownership stood at just under 8%.

More than one in two new entrepreneurs agreed with the motivation to earn a living because jobs were scarce, and one in five of their enterprises were in business services. More than one in three expected to use more digital technologies in the next six months, and more than half had customers beyond Estonia, a relatively high proportion.

Very few of those starting or running a new business in Estonia expected to employ another six or more people in the next five years, not too surprising when nearly a half were solo entrepreneurs (with one owner and no current employees), the third highest level in Level B and 10th highest in GEM.

1 economy-finance.ec.europa.eu
2 A brief description of the GEM approach is given in the footnote on page 107.