11 June 2013

Graham Bishop: 48 Hours in the Tallinn City-State

Leave a cold London and step off the plane in Tallinn into warmth, blue sky and sunshine; cheerful English-speaking taxi driver; ten minute taxi journey into the city centre; easy payment in euros…. Good omens for a speech to the Finance Estonia First International Forum!

When the invitation had pinged into my inbox, after a quick check of the map to confirm it really was the place with the medieval red roofs just across the channel from Helsinki, I accepted immediately. It seemed too good an opportunity to miss to find out how a small society had coped with a 15% drop in GDP in 2009, a rapid bounce-back to the fastest growth rate in the euro area and the lowest public debt ratio - of just 10%. How are they doing it? Are there any lessons for other EU states struggling with long and deep recessions? What is it that made 'Europe' and its currency so attractive to the country – in such sharp contrast to the doomsayers of London? A lot to pack in to 48 hours – and can only be a superficial glimpse at best.

The tragedies of past occupations by all their neighbours has left many scars, both cultural and physical, but it is now seen as a strength because of the understanding of the languages and business cultures of them all. Remarkably, Tallinn is a major sea route for trade from China into Russia. However, the giant eastern neighbour may be a massive business opportunity but is still tinged with menace – underlined by stories in the beer cellar of winter military training in the forests bordering Russia!

Into a hectic round of meetings (and even the doorkeepers speak English so no need for any nervousness about getting to the meeting in the first place!) The sheer energy of the meetings immediately impressed: these are people who know they have to strive for their own personal success, but equally for the future of their country. Finance Estonia had already stated their priority sectors for developing their niche in the European financial market place:

• Corporate Treasury & Shared Service Centres;
• Financial Technology;
• Fund Services;
• International Private Banking.

Reading round these topics beforehand is simple but cannot give the flavour of the enthusiasm of the participants and presenters at the Forum. Nonetheless, after hearing about the desire for an Estonian capital market, it still came as a shock to be told 99% of Estonian companies would fall within the EU definition of a Small/Medium-sized Enterprise (SME).

So the idea of an active market in Tallinn in Estonian equities looks a little fanciful as the key problem for SMEs is always that investors cannot easily sell their shares because potential buyers cannot become sufficiently familiar with the company unless they are willing to do substantial 'due diligence'. But that is exactly the hallmark of the private equity industry so it was fascinating to hear about the steps already taken to encourage that industry – including a legal framework for a fund of funds. Moreover, the iconic example of Skype's development through venture capital is still ringing in everyone's ears! Perhaps another Estonian innovation – highly secure biometric recognition of bank clients via an app on their mobile phone (BIOMETRY) - has the capability of shifting a large part of smaller consumer payments away from banks to telecoms companies.

These factors underline the wisdom of Finance Estonia’s decision to focus on utilising the nation’s 'wired' status to encourage development of support services to the euro-denominated financial industry just as that industry is about to undergo profound change.

Read on for: Economic earthquakes – current and future: Implications for Estonia - click on link for full article

© Graham Bishop