Estonia Infrastructure Report 2008

Despite being a small nation in terms of size, Estonia boasts a thriving infrastructure sector. With growth of more than 12% in 2006, the Estonian construction industry has been an important contributor to the country's overall gross domestic product (GDP). BMI forecasts the industry to log average growth of about 6.5% during 2008-2012.

The country's entry into the European Union (EU) is likely to open up new opportunities for the construction industry. Estonian firms are among the most competitive in the Baltic region. At present, most projects revolve around energy, as well as residential and industrial construction. The year 2007 has also augured well for the construction industry; total domestic and foreign output of Estonia's construction enterprises increased 7% year-on-year (y-o-y) in Q207. The country also boasts a fastgrowing residential construction market. Low taxes, sound infrastructure and very little risk of political instability have made the country's business environment highly attractive. On the economic front, access to credit has improved, but inflationary pressures have been mounting. The economy is also exposed to high levels of external risk.

More than 3,000 companies operate in the Estonian construction space, but around 25% of the business is held by a handful of companies. The exodus of local players to foreign countries in search of better opportunities - given the limited scope for expansion within the country - is not a healthy sign. This may adversely affect local infrastructure development.

BMI forecasts moderately high long-term growth for the Estonian infrastructure sector. The industry is forecast to be worth EEK25.19bn (US$1.97bn) in 2012, contributing 7.39% of the total GDP. The industry's contribution to the country's national income is forecast to average about 6.8% during the forecast period. Future growth in the industry will depend on public sector investment on infrastructure development.