Information Technology Landscape in

ESTONIA

                                      IT Financing

In order to support the entrepreneurial spirit and successful development of new IT businesses, financial means should be readily available to provide seed capital to promising projects and continued support to research activities. In Estonia, IT undertakings can receive funding from several general sources: government, banking sector, local as well as foreign venture capital funds, and Foreign Direct Investment.

Government Sources

For IT developments in public sector, the government allocates funds from the state budget. In Estonia, the 2001 such allocation represented 1% of the state budget, which is considered to be quite not sufficient to satisfy the IT needs of the sector. In developed countries, budget allocations towards IT development in public sector usually present around 2-4% of the budget.   ( ESTONIA: PREPARING FOR THE INFORMATION AGE by Imre Siil -- the Director General of the Estonian Informatics Centre [PDF file]) 

Banking Sector

Estonia has the strongest, most developed banking system in the Baltic States. In part this has been due to the autonomy accorded to the Central Bank and its supervision over the country's commercial banks. Estonia's banking sector is closely monitored by the IMF and international risk rating agencies. The country has adopted a universal banking model that allows banks to participate in other financial activities including operating leasing, insurance, brokerage firms.

Currently the Estonian banking system is dominated by two foreign controlled banking groups: Hansapank (Swedbank) and Union Bank (Skandinaviska Enskilda Banken). In all, there are seven licensed commercial banks, including a branch of Finnish Merita Bank.

Bigger banks usually have IT departments of their own, which they finance and provide with other forms of support. New independent enterprises can obtain funding from the banks by applying for loans in a way similar to how it is done in the developed countries. 

Estonia decided to avoid protective measures on foreign trade and restriction on the movement of international capital. Virtually all import quotas and license requirements have been eliminated. Estonian Telecom was smoothly privatized which clearly accelerated foreign investments into Estonian ICT infrastructure.

Venture Capital

There are numerous local, regional, and foreign investment funds available to Estonian IT entrepreneurs. Such funds were formed with a purpose to help develop Estonian region as well as Baltic States all together. Some of the major funds are:

Private venture capital is generally available in Estonia, but it is focused on low risk-fast return projects, which does not help reach long-term progress in fundamental research and development projects. Also, projects initiated by Estonian companies tend to be too small in scope to attract big investment companies or venture capitalists. However, recently, investment funds have shifted their focus a little and now they offer seed capital for promising projects of smaller sizes. (EU special preparatory program -- Green Paper Project)

Foreign Direct Investment