Digitalisation has made the country a hub for tech unicorns, Sandra Särav, Estonia's deputy minister for Economy and Innovation, explains how they did it.
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00:00We don't like to be called tiny, we like to be called compact.
00:02It's the most competitive tax environment in the OECD countries.
00:06There's only one thing you cannot do digitally.
00:14Welcome to The Big Question.
00:16I'm Angela Barnes and today I'm joined by Sandra Saarev,
00:20Estonia's Deputy Minister for Economy and Innovation.
00:24It's a pleasure to have you with us on The Big Question,
00:26Sandra, thank you very much for joining us.
00:29Now, Estonia is really interesting to talk about
00:32when it comes to the digitalisation of public services.
00:35It was ranked ninth in the EU as well on the European Commission's
00:392022 Digital Economy and Society Index.
00:43But it's been quite the journey since 1991
00:47when Estonia became fully independent again.
00:50So first of all, can you just talk me through, Sandra,
00:52the economy and infrastructure back in 1991
00:56and how the country got to where it is now?
00:59So just a little remark there, ninth we rank overall,
01:02but when it comes to offering public digital services,
01:05Estonia always ranks in top three,
01:07as Estonia has 99% of all public services available digitally.
01:11There's only one thing you cannot do digitally,
01:13but we'll talk about this later.
01:15So first, I'll speak a bit about the infrastructure
01:18and where Estonia was at in 1991.
01:21So yes, I cannot remember it, of course,
01:24firsthand as I was two years old at the time,
01:26but Estonia regained its independence
01:29and we had been illegally occupied by the Soviet Union for half a century.
01:33So for five decades, there was virtually zero economic growth.
01:381938, prior to the Soviet occupation,
01:41Estonia's economy was roughly the same as Finland's,
01:44which is another neighbour.
01:46Of course, we didn't estimate the GDP per capita at the time
01:50with the same accuracy as we do now,
01:53but roughly you could say that both Finland and Estonia
01:55had 2,500 international dollars GDP per capita.
02:00And then came the Soviet occupation.
02:021991, Estonia's GDP per capita was even lower than half a century earlier,
02:09so roughly 2,000 euros per capita.
02:12So you can imagine half a century of virtually no economic development
02:16compared to Finland, for instance,
02:18who had had half a century to have economic focus and support
02:23and their GDP per capita by 1991 was the same as Estonia's is today.
02:28So around 28,000 euros per capita GDP.
02:33So yes, this half a century didn't bring us any new developments.
02:37Our infrastructure was outdated.
02:38There was virtually no free economy.
02:40You know, it was a communist era in our history.
02:44So we had to have a fully fresh restart back in 1991.
02:48And luckily, we had very young, fresh, new politicians at the time
02:54who thought that Estonia is going to need to do something different.
02:57And we did.
03:04Was it necessary to build public infrastructure the way that you have done?
03:08And how do you think it has put Estonia ahead?
03:11So half jokingly, we say that we were too poor to afford anything else,
03:15which is in the same time, it's also a correct thing to say.
03:19So we skipped a lot of the steps that people were doing
03:21in the second half of the 20th century.
03:24So we went virtually from 1940 to the new era of technologies.
03:30We realized that we need to be efficient,
03:32which is one of the keys why Estonia is so digitalized in the first place.
03:36I don't believe in digitalizing for the sake of digitalization.
03:38Digitalization brings you actually efficiency
03:41because you can do the same things with less resources, with less workforce.
03:45Estonia is only a country of 1.3 million people.
03:47You imagine we're not so big, but we don't like to be called tiny.
03:50We like being called compact.
03:52So we had to adopt digital systems in order to offer services in a more efficient way.
03:58The very first digital service that we had back in the year 2000
04:00was actually tax declarations.
04:02So instead of queuing in line, doing some things on paper,
04:05bothering actual people with filling in the documents,
04:09we digitalized the service.
04:10And nowadays, it takes less than five minutes to declare your taxes.
04:14So efficiency.
04:16You said there is one thing that's not digitalized in public services.
04:19What is that?
04:20So you can't get a divorce.
04:23As of end of last year, you can also propose to someone online.
04:26So for the physical act of getting married, you have to show up in person.
04:30However, the filing of the documents or giving in the proposal,
04:36this can be now done digitally as well.
04:37But the private sector hasn't subscribed in the same way, has it?
04:42Why do you think that is?
04:43Is it to do with the trust and digitalization or something else?
04:47No, not at all.
04:47I mean, still, all of the companies are set up online.
04:50You cannot even set up a company physically on paper somewhere.
04:53And still, all the taxes are declared online.
04:55But the use of digital technologies, I think,
04:58has to do with the fact that we have so many companies.
05:0084% are micro companies.
05:02I mean, if you set up your ice cream booth somewhere for the summer,
05:06perhaps there's not so much to digitalize.
05:08So I think this is where the secret lays.
05:11Why we're not so digitalized in the business sector
05:15is because we have so many companies,
05:16and a large sum of them are small companies.
05:25What do you think other EU member states could learn from how you have progressed
05:29and how you've digitalized completely your public services
05:32apart from the divorce course?
05:33E-residency card is similar to Estonia's national ID card.
05:37So national ID card in Estonia is mandatory.
05:39So what's E-residency is, we figured we can give access
05:43to Estonia's business environment with a similar type of digital ID.
05:47It's not your personal identity document.
05:49You cannot travel with it.
05:50However, you can access those Estonian digital services.
05:54You can open up a company online wherever you're based in the world.
05:58And you can open up a company in Estonia in 15 minutes and 33 seconds,
06:02which is a world record.
06:04So of course, this is only if you do it regularly.
06:06If you're a newbie, it would take you a couple of hours.
06:09But still, it's very efficient.
06:10You can fully declare your taxes online.
06:12You can provide digital signatures for documents.
06:15You can acquire property.
06:16You can acquire new companies without ever having to show up physically.
06:19And currently, we have globally over 100,000 E-residents
06:23who have opened around 30,000 companies in Estonia.
06:26And they not only bring us economic benefit by paying some taxes in Estonia,
06:30but they employ locally.
06:32They bring new innovation to Estonia.
06:34So we're really happy with the E-residency project.
06:36So great for startups indeed.
06:38And tell us more about what else is great for startups in Estonia.
06:42Well, in general, the business environment is very startup
06:45and company-oriented in the first place.
06:48There's this E-Estonia trademark.
06:51And initially, it meant Electronic Estonia.
06:53But for me, it means Entrepreneurial Estonia.
06:55Being the deputy minister for economy, I have to say it.
06:58But you can open up a company fast.
07:00You can declare your taxes fast.
07:01It's the most competitive tax environment in the OECD countries
07:05for six or seven years in a row already.
07:07We have 0% corporate tax on reinvested profits.
07:10So unless you take out dividends, as long as you reinvest,
07:14there's no corporate tax in Estonia, which is a competitive advantage.
07:18Estonia attracts a lot of capital per capita again.
07:22So we say per capita, Estonia always wins.
07:25In the year 2022 alone, Estonian startups attracted 1.3 billion euros.
07:31And this was on average six, seven times more than in Europe per capita.
07:35It sounds like a very appealing place then for startups to do business.
07:39And what does Estonia have to offer as well,
07:42a foreign corporation wanting to set up a company in Estonia?
07:46I know you've given rise to globally successful companies like Bolt, Skype and Wise,
07:52to name a few.
07:53Well, I don't know if I'm allowed to say this on air,
07:55but Estonia has something called the Skype Mafia.
07:58So Skype was set up initially in Estonia.
08:00And nobody uses Skype anymore.
08:01But it was very popular, you know, let's say 10 years ago, seven years ago.
08:06So Skype was set up in Estonia.
08:07And those guys and girls who were the early employees at Skype,
08:12they went on and they built their own startups and companies.
08:14And along with the ones you've mentioned already,
08:17Estonia has 10 tech unicorns, which per capita is the most in Europe.
08:21And those people who built Skype then went to build on their own companies.
08:25And those companies of the first gen then went on and built their second gen companies.
08:29And now we are the third gen Skype companies.
08:32And this community is very, very tight.
08:34Estonia is a compact country, if you remember.
08:36So people talk to one another and they give advice.
08:38And this is a breeding ground for startups, if I may say so.
08:42That's really impressive.
08:4310 unicorns in Estonia.
08:45And that is impressive per capita.
08:47And Sanja, do you think that I was reading about the planned 2% increase
08:51in Estonia's corporate income tax rate that's set to take effect in 2026.
08:58Do you think that could impact Estonia's attractiveness in the eyes of foreign investors?
09:02Well, still, if it's going to be 0% or 2%,
09:05it's still more competitive than in most countries where it's your regular tax rate,
09:10which is 20-22%.
09:12Firstly, this tax is going to be only short term.
09:14So it's going to be set up not permanently, but temporarily for two years.
09:19Our companies have themselves voiced that this is so-called security tax,
09:25that they're happy to contribute to the safety of Estonia via the security tax.
09:30And we're still figuring out internally how we're going to present this.
09:33Is this going to be presented as a corporate tax on profits?
09:37Or if it's going to be paid from your social tax, the employment fund, so-called.
09:42So we still haven't figured out the details.
09:44But the companies have said that this is crucial that the companies
09:47who are based in Estonia actually also contribute to our security.
09:51It's quite interesting because I read in Sweden that there were
10:01more entrepreneurs per capita for those under 30.
10:04This is this was a few years ago now.
10:06But the belief, well, what was behind that they said was that
10:11they, you know, offer free education to students that the first loan,
10:16they believed to for youngsters should be a loan to start a business
10:20rather than to sort of pay off student debt.
10:22It was an interesting philosophy,
10:24which has obviously done very well for Sweden.
10:26And what do you think about that?
10:28Couldn't agree more.
10:29I mean, student loans, they make banks wealthier or richer, right?
10:34But if students or people at a very young age start investing in their own companies,
10:39they become to have a more entrepreneurial mindset
10:42than this is useful for the country as a whole.
10:44And Estonia, actually, higher education is also for free.
10:46As long as you study an Estonian language,
10:48anything you choose to study is free.
10:50And as a first time company owner,
10:53you also get all sorts of subsidies or support from the government
10:56or even from the unemployment office if you have been unemployed before.
11:00So I think it makes more sense to boost actually the economy
11:04with young people opening up their companies
11:06as opposed to making the banks wealthier with the student loans.
11:10And it has been successful.
11:12Currently, roughly every 10th Estonian has their own company.
11:15So we have a lot of companies, of course,
11:1894% of them are micro companies, 1 to 10 people.
11:21But it gives you perhaps the first job experience
11:24or it gives you the freedom not to be dependent on your employer.
11:28Or Estonia has 2,222 islands
11:31and people on the smaller islands actually have the most companies per capita.
11:35Every third person has their own company
11:37because they are not dependent on having the possibilities of employment on this island.
11:41They can just simply set up their own companies.
11:49Digital Agenda 2030.
11:52And you're aiming to become the greenest digital government in the world.
11:55Can you tell us how you're aiming to achieve that?
11:58So firstly, I will tell you why.
12:00I mean, when we look at new technologies,
12:04they come with a large economic footprint, actually.
12:06You would figure that just doing things online
12:09has a much lower footprint than having piles of paper.
12:12But actually, all the data warehouses,
12:16securing the data, it comes with a footprint, right?
12:19If everything is online in Estonia, we also need to figure out how to reduce electronic waste.
12:23Electronic waste is one of the biggest segments of waste globally right now.
12:27How we can have more greener data, warehouses and so forth.
12:32So we have been teaching courses amongst the public sector
12:37how to procure in a more greener and innovative way,
12:41how to reduce waste that's not necessary anymore,
12:44how we can secure this data with much less use of energy and so forth.
12:48So it's a long agenda.
12:50We're still hampering in the details.
12:52But the goal is just to become the greenest ICT country.
12:56And who's your competitor in that field?
12:58Is there any other member state or neighbor that you think is doing that particularly well?
13:01I think Canada is doing well and Singapore.
13:05So globally, two countries we look at.
13:07Okay, interesting.
13:08And Estonia is relatively small, as we've said.
13:11Do you think that's made it easier to create
13:13digital services?
13:15So both yes and no.
13:16It's made it easier because obviously you have only 1.3 million people.
13:21However, it's more difficult because as we started in 1991,
13:24we didn't have a lot of resources, meaning capital.
13:26So if you are a larger country, if you have more capital,
13:30it's easier to build the best systems possible.
13:33So we've always had to innovate and be more inspired
13:37with what we can do with the resources that we have.
13:39That's great to get your insights on all of that.
13:42Sandra Saraf, thank you ever so much for talking to us on The Big Question.
13:45It's been a pleasure to have you on the show.
13:47Thank you so much for having me.
13:49And thank you very much for watching this episode of The Big Question.
13:52Do keep across Euronews Business on the Euronews.com website for more episodes of the show.
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