Alari Purju
Visiting Professor
Estonian Business School
Estonia
alari.purju@ebs.ee
Recently the Minister of Defense of the Republic of Estonia announced a plan to provide annually 0.25% of the GDP of countries supporting Ukraine for that purpose. During 2022 and 2023, Estonia has provided 500 million EUR support to Ukraine, which is approximately 1.3% of the annual GDP of Estonia. In terms per capita, Estonia is the strongest supporter of Ukraine in the EU. Support to Ukraine raises broad questions of economic relationships between these two countries.
Estonia has exported goods to Ukraine between 130 and 180 million euros and imported goods from Ukraine between 80 and 110 million euros during the last five years, which is between 0.5-0.8% and 0.4-0.5% of Estonia´s total exports and imports respectively. In Estonia´s exports of goods to Ukraine, machinery and transport equipment with 43% contributed the largest share in 2022, the largest items being electrical equipment and road vehicles. Food products (mainly fish and products thereof) with 14% of the total exports was the second largest product group in 2022. In Estonia´s imports from Ukraine in 2022, machinery and transport equipment contributed 16%, steel and iron and products thereof 13% and food products (most important article being beverages and tobacco, animal and vegetable oils and vegetables and fruits) 10%. Foreign trade of services between Estonia and Ukraine was even more intensive. The value of Estonia´s exports to Ukraine was 146 million euros (1.5% of total exports of services) and imports from Ukraine 239.7 million euros (2.9% of Estonia´s total imports of services) in 2022. Imports of services was rapidly growing especially in 2021 and 2022. In Estonia´s exports of services the leading item was travel with 42% of the total services exports in 2022. In the context of Russia´s invasion into Ukraine, that item of services is first of all connected with migration of people from Ukraine and in some cases also returning of people to Ukraine. The second most important group of services exports from Estonia is other business services, which consists R&D, professional and management consulting services, technical and trade related services. The leading group of Estonia´s imports of services from Ukraine was telecommunication, computer and information services with 56% of the total of Estonia´s imports of services from. The other more important groups of services in Estonia´s imports were business services and transport.
Statistical figures on economic ties between Ukraine and Estonia demonstrate that the volumes of traded goods and services have been relatively limited. Under existing conditions these flows have been related first of all to provision of necessary services for people in the highly extreme and dangerous situation due to military actions. On the other hand the existing trade of goods and services flows demonstrate that there is already a substantial potential for much closer economic ties in future. From Estonia´s point of view, that concerns first of all trade of services. There is already a potential for providing R&D, professional and management consulting, technical and trade related services in private and public sectors, telecommunication, computer and information services. Presently these economic ties are in one or another way connected primarily to military actions in Ukraine
Estonia´s support to Ukraine is part of wider development, which is related to the Russia´s military invasion to Ukraine. We do not know currently what would be the solution in Ukraine during the next years, but it is quite likely that Russia will be a military threat for the Baltic Sea Region during a longer time period. That makes it to do substantial expenditures to create military potential necessary for deterring Russia from invading into the area. That deterrence would be provided first of all through the collective defense system of NATO, but that does not decrease the need for efforts by the countries in the region to provide economic resources for that. A positive solution for Ukraine in this military conflict would provide a basis for much larger cooperation between the two countries.