Subcontracting and own production

As economic changes had only started, Estonian enterprises engaged in subcontracting for foreign companies. Subcontracting was especially widespread in the light industry, where local companies worked for Finnish and Swedish enterprises. Subcontracting was popular also in timber, metalwork, engineering and chemical industries. The rapid development of the electronics industry began in subcontracting as well.

The reason why subcontracting was so widespread was local relatively cheap and qualified workforce, transport costs that were significantly lower compared, for ecample, to South-Eastern Asia. The importance of subcontracting in Estonian economy has gradually decreased — it has fallen to less than three fourths even in the electronics sector where the level of subcontracting is generally very high (in 2000 it was about 87% of the export). The main reason is the rapid rise in salaries in Estonia. The second reason is the development of the skills and quality of the employees. As for accumulating experience and knowledge as well as establishing business contacts the prominent position of subcontracting in the economy of the 1990s was highly useful for the Estonian economic development.

Transit and transport
A widespread preconception, especially in Russia, holds that the Estonian economy depends largely on Russian transit. The reality is different — freight traffic between Russia and the rest of the world is an important source of profit for Estonian ports but the role of transit in the Estonian economy has been consistently decreasing.

Slightly more than 70% of the freight flow of the ports and 57% of the rail freight is connected with transit. Such shares are constantly diminishing as Russian oil flow goes through her own ports on an increasing scale. Presently about one third of the freight flow may be related to transit. The principal part thereof is constituted by the export of petroleum products from Russia — first by rail, then by sea with tankers. Other Russian goods that have been transported through Estonia are grain and fertilizers, sometimes other goods as well. The transit from the West to Russia has gradually grown, mostly in the form of containerised freight.

Another important area is passenger shipping which is directly linked to tourism. The return transport of the 3.2 million passengers a year in the ca 80 km route between Tallinn and Helsinki is profitable for Estonian and Scandinavian companies and the competition between companies is really tough. During the summer season a ferry or hovercraft departs practically every hour from Tallinn to Helsinki and back. Estonia has a regular boat connection with Sweden, in summer also with Germany. Local shipping means primarily the routing of ferries between the mainland and the isles.

The Estonian national air company Estonian Air has also proven successful as it has managed to increase both cargo volumes and the number of passengers in spite of the hard times in the world's aviation business. In 2004 the number of passengers in Estonia grew almost 35%, considerably enhanced by new routes, including those opened by the cheap airlines .

A large part of freight transport is still done by road, this applies especially to internal freight transport as the distances are relatively short. Passenger transport is organised with buses for the most part, there are international lines to St Petersburg, Latvia, Lithuania, Poland, Germany and Scandinavia.

48% of the Estonian roads are unpaved, the main reasons being sparse population and lack of money. During the recent years a lot of roads have been repaired and new ones have been constructed, but a considerable number of roads are still in a fairly poor condition.

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