The Estonian industrial sector suffered more than other sectors during the country's transition to a market economy. Most of Estonia's heavy industry had been developed and managed by central planners in Moscow with imported labor from Russia. In 1990 only sixty-one of 265 industrial enterprises were under direct Estonian control. Forty enterprises, which accounted for 12 percent of Estonia's industrial production, were controlled directly from Moscow. Because many of these were defense related, even Estonian authorities had limited access to them. After independence was regained in 1991, Estonia acquired all of the industrial enterprises on its territory and faced the challenge of finding them a place in a market economy.
In 1990 industry accounted for about 40 percent of GDP (42.5 percent in 1992) and 33 percent of employment. Within the sector, food processing was the largest subsector, accounting for 30.4 percent of production in 1992 (up from 24.5 percent in 1990). It was followed by light industry at 17.9 percent (down from 26.3 percent in 1990) (see table 12, Appendix).
Industrial production began to fall drastically as supplies of raw materials from the Soviet Union dwindled. The World Bank reported that in the first nine months of 1991, industrial activity decreased by 10 percent over the previous year's corresponding period. According to the Estonian State Statistics Board, during 1992 total production fell another 39 percent from 1991. In 1993, as enterprises began slowly buying raw materials on the world market, production in some areas began to increase. Although overall output was still down in 1993, it increased by an estimated 7 percent in 1994. Estonia's best hope lay with its lighter industries: food processing, textiles, furniture, paper, and glass. Many of these relied on domestic raw materials and hence were able to continue producing during the transition. Estonia's metallurgical and chemical industries showed the greatest decline, and their future was in doubt without new technology and markets.
Like the rest of the economy, Estonian agriculture has been in great flux since the degeneration of the collective and state farm systems. In 1991 roughly 12 percent of the labor force was employed in agriculture, producing 15.4 percent of Estonia's GDP. Estonia has some 1.3 million hectares of agricultural land, nearly 1 million hectares of which are arable. During the Soviet era, arable land decreased by nearly 405,000 hectares, much becoming forest. Collectivization in the late 1940s and 1950s brought great hardship to Estonian agriculture, which during the first independence period had been the mainstay of Estonian society. Still, Estonian agriculture remained more productive than the Soviet average. In 1990 there were 221 collective and 117 state farms with an average of 350 to 400 workers each. The average livestock herd per farm included 1,900 cattle and 2,500 pigs. Estonia was a net exporter of meat and milk to the other republics. Agriculture also served as the basis for the republic's strong food-processing industry (see table 13, Appendix). For its meat production, however, Estonia relied heavily on feed grain from Russia. When the republic sought to cut back on meat exports in the late 1980s, Russia retaliated by slowing the provision of feed grain, which cut Estonian production even further. Increases in fuel prices and a general fuel crisis in early 1992 also hit agricultural production very hard. Although the total area of field crops grew in the early 1990s, total production and average yields fell markedly (see table 14, Appendix).
Reform of Estonia's agricultural system began in December 1989 with adoption of the Law on Private Farming. The law allowed individuals to take up to fifty hectares of land for private planting and for growing crops. The land was heritable but could not be bought or sold. The goal of the reform was to stimulate production and return the spirit of private farming to a countryside worn down by decades of central planning. Six months after implementation, nearly 2,000 farms were set up, with several thousand waiting for approval. A year later, more than 3,500 private farms were operating. Starting in October 1991, farmers were allowed to own their land. This boosted the number of farms to 7,200 by early 1992. As of the first half of 1993, a total of 8,781 farms had been created, covering approximately 225,000 hectares, or a quarter of Estonia's arable land.
In May 1993, the Estonian parliament passed a law on property taxes, which had been a major concern for many farmers before getting into business. The law mandated a 0.5 percent tax on property values to be paid to the state and a 0.3 to 0.7 percent share to be paid to local governments. More than property taxes, the costs of commodities such as fuel and new equipment were considered most likely to prove burdensome to many new farmers.
With the introduction of private agriculture, many collective farms began to disintegrate. Corruption and "spontaneous privatization" of farm equipment by farm directors grew. A number of Estonia's more successful farms were reorganized into cooperatives. Over the long term, the government predicted that 40,000 to 60,000 private farms averaging fifty hectares would be optimal. At the same time, Estonians were likely to maintain a very high rate of consumption of home-grown fruits and vegetables. A 1993 survey by the Estonian State Statistics Board indicated that nearly 80 percent of all potatoes consumed by Estonians either were privately grown or were received from friends or relatives. Thirty percent of eggs were received outside the market as well as 71.5 percent of all juice. Overall, Estonians reported getting over 20 percent of their food from private production or from friends or relatives.
Estonia has 1.8 million hectares of forest with approximately 274 million cubic meters of timber. Accounting for about 9 percent of industrial production in 1992, forest-related industries seem likely to grow further in the 1990s, thanks to expanding furniture and timber exports.
The fishing industry, once entirely under Soviet control, also has the potential to contribute to the country's economy. With 230 ships, including ninety oceangoing vessels, this profitable industry operated widely in international waters. A large share of Estonia's food-industry exports consists of fish and fish products. In 1992 about 131,000 tons of live fish were caught.
Energy and Natural Resources
Estonia is an exporter of electrical energy, but it is wholly dependent on the outside market for oil fuels and natural gas. Oil shale deposits estimated at 5 billion tons in the country's northeast help to fuel two large thermal power plants near the town of Narva (see fig. 5). Roughly 23 million tons of oil shale were mined per year up to the early 1990s. In 1990 Estonia produced about 17.2 billion kilowatt-hours of electricity, of which about 8.5 billion were exported to Russia and Latvia. By 1992, however, export production of electricity had dropped by more than one-half because of falling demand in Russia. These cutbacks in turn forced a slowdown in oil-shale mining, although no exact figures were available. In many mines, miners were employed only three or four days per week. The decline in tonnage also increased relative production costs. In order to start bringing Estonian oil shale closer to world prices and to cover costs, mining officials called in 1993 for an increase in the state price per ton from EKR36 to EKR50. The government resisted at first, fearing a corresponding rise in electricity prices and a new wave of inflation throughout the economy but eventually allowed oil shale producers to raise the price of their products to EKR45 per ton.
After independence, Estonia endeavored to sign barter agreements with Russia to exchange Estonian electricity and food for Russian oil and gas. Transportation problems in Russia caused this arrangement to break down in early 1992. The ensuing fuel shortages forced Estonia to venture onto the open market for the first time. In the interim, Russian oil prices began to approach the world price, meaning Estonia would find it just as competitive to begin buying fuel from other countries. In March 1993, two new oil terminals were opened near Tallinn, which will facilitate imports in the future. Foreign companies, such as Finland's Neste and Norway's Statoil, also began entering the Estonian gasoline market, building several modern filling stations in Tallinn and the surrounding areas. Meanwhile, the Estonian state oil company, Eesti Kütus, was forced to sell off many of its holdings and drastically scale back its operations in mid-1993 in order to pay an estimated EKR250 million in debts and back taxes. The company's market share was expected to drop from 70 percent to 30 percent.
Dependence on Russia for natural gas continued, with Estonia consuming about 1.3 billion cubic meters of Russian natural gas in 1990. Energy was in fact often used as a political weapon during the early 1990s. Estonia's two thermal power plants, for example, were staffed mostly by Russian workers who, to protest Estonian government policies, repeatedly threatened to shut down the plants. Although any disruption in production would also affect neighboring Russia, the possibility of problems persisted. Russia in turn threatened Estonia with a cutoff of gas supplies in June 1993 during the crisis surrounding Estonia's Law on Aliens (see Government and Politics, this ch.). The Russian gas company Lentransgas once shut down its pipelines to Estonia for a single day, ostensibly because of Estonia's US$10 million in unpaid bills. Also, Russian leaders often threatened economic sanctions for what they called discrimination against Estonia's Russian minority.
Transportation and Telecommunications
Estonia had a total of 30,300 kilometers of public roads (29,200 kilometers hard-surfaced and 1,100 kilometers un-paved) in the early 1990s. These was little traffic congestion, thanks to the relatively low number of automobiles per person--140 per 1,000 inhabitants. Estonia's major roads include Highway M11 to St. Petersburg and Highway M12 to Riga. In 1990 the roads carried 214 million tons of freight, or 85 percent of the total freight for that year. Estonian officials, for their part, were seeking to increase international truck transport through the country by encouraging the development of an international highway project, Via Baltica, from Tallinn to Warsaw (see fig. 6).
Bus transportation was widely developed during the Soviet period, totaling 4.5 billion passenger-kilometers in 1990. By 1993 the removal of state subsidies had forced an increase in ticket prices, a decline in ridership, and a contraction of service. New international routes, however, were opened to Germany and Denmark.
With a total of 1,126 kilometers of track, railroads in Estonia carried 30 million tons of freight and 16 million passengers in 1993. Estonia's main rail lines link Tallinn with Narva and St. Petersburg, Tartu with the Russian city of Pskov, and Pärnu with Riga. More than 130 kilometers of rail line are electrified.
The country's main airport, located in Tallinn, can serve medium-sized jets and accommodate up to 2 million passengers per year. Airports are also located in Tartu and Pärnu at former Russian air force bases. Domestic air service is provided only to Estonia's islands. In September 1991, the country inherited a fleet of about fifteen airplanes from the Soviet airline Aeroflot. It had a fleet of sixteen aircraft in 1992. A state airline, Estonian Air, was launched in December. In 1992 it served twelve international destinations--Amsterdam, Copenhagen, Frankfurt, Helsinki, Kiev, Minsk, Moscow, Riga, St. Petersburg, Sochi (Russia), Stockholm, and Vilnius--and carried nearly 175,000 passengers. Service is also provided by other airlines, including Aeroflot, Drakk Air Lines, Finnair, Lithuanian Airlines, SAS (Scandinavian Airlines), and Lufthansa.
International shipping was a major source of foreign currency for Estonia under the Soviet regime. In the early 1990s, the state-owned Estonian Shipping Company operated a fleet of eighty-two vessels with a carrying capacity of 500,000 tons. Narva is the main inland port. Five hundred kilometers of inland waterways are navigable year round. Estonia's three main commercial ports are all located around Tallinn; together they handled about 10 million tons of cargo in 1991. The Tallinn port continued to be a transit point for trade shipments to Russia, particularly grain. Ferry traffic out of Tallinn grew exponentially in the early 1990s. In 1992 an estimated 1.3 million people crossed between Tallinn and Helsinki, while traffic was said to be still growing at 50 to 60 percent a year. In 1990 overnight ferry service was started to Stockholm; freight service to Germany followed later. Disaster struck on September 28, 1994, however, when a ferry owned by Estline, a Swedish-Estonian joint venture, sank in the Baltic Sea, killing more than 900 passengers.
Telecommunications required much modernization in Estonia after independence. Poor-quality telephone connections and outmoded equipment were among the major problems. The number of international lines was increased during the early 1990s, and beginning in 1993 new digital switchboards were being installed to replace old mechanical ones. The country's first mobile telephone networks were set up in 1990. Esttelecom, the state telecommunications company, had approx-imately 341,000 subscribers in 1992. However, unmet demand because of a shortage of lines indicated the existence of another 150,000 potential customers. Only two-thirds of telephone customers had long-distance access within Estonia and to the former Soviet Union. To improve service, Esttelecom was negotiating with Swedtel of Sweden for outside investment and the creation of a joint telecommunications venture. In 1993 there were approximately 600,000 television receivers in use, or one television per 2.6 persons. There was one radio per 1.7 persons and one telephone per 3.9 persons.
Tourism was a major area of growth for Estonia in the late 1980s and even more so after independence. With the expansion of ferry and air links, Estonia began to receive a growing number of visitors from Western countries as the number of tourists from the former Soviet Union dropped off. In 1990 the number of tourists was estimated at 500,000; by the mid-1990s, that figure was expected to top 1 million. New accommodations were being built, and several of Tallinn's major hotels were being privatized. Estonia established visa requirements for visitors after independence but soon rescinded them for many European countries, the United States, and Canada. The Baltic states also signed agreements allowing foreigners to travel with one country's visa in all three states. Tallinn's medieval old town, although in need of repairs, is Estonia's main tourist attraction. Many visitors also tour Tartu and the island of Saaremaa. The greatest number of visitors come from Finland and Sweden. Net tourism receipts totaled about EKR26 million in 1992.
Data as of January 1995