Abstract
Both Estonia’s transport and utilities sectors have seen a great deal of
activity over 2008, with a notable
number of projects also underway in the
commercial construction sector. The transport sector was
boosted by the EU
Cohesion Fund and a number of regional transport projects, which have
benefited from
the EU’s Trans-European Transport Network funds.
Activity in the utilities sector has been fuelled in part
by growth in the
renewables market.
The global economic downturn is expected to have an
impact on the construction industry, and we have
consequently revised down
our 2009 growth rates for Estonia. However, the activity seen in 2008 will
roll
over into 2009, preventing negative growth rates. In BMI’s 2009
Estonia Infrastructure Report we
forecast that the construction industry
will grow by 0.43%, reaching a value of EEK24.08bn
(US$2.19bn).
Transport projects in Estonia have been largely funded by the EU, with some
help from the government.
Domestically, the reconstruction of the road
linking Tartu and Tallinn, Estonia’s two biggest cities, is
underway
and an upgrade of the rail link between the two cities to high-speed track is
also in the pipeline.
Estonia’s transport network is also getting a
boost via regional projects. Both the Rail Baltica project and
the Via
Baltica road corridor projects are underway. In addition, proposals for a
sub-sea rail tunnel to link
Estonia to Helsinki were also unveiled in
2008.
The utilities sector has seen perhaps the most activity. Wind power
has been growing and international
companies have been taking advantage of
the opportunities in the sector, including Sweden’s Winwind
OY,
Canada’s Greta Energy and Skanska. Estonia is part of the plan to
construct a new nuclear power
plant at the site of the existing Ignalina
plant in Lithuania; the project has been subject to delays, and is
not
expected to be completed until 2020. As the country is not a net power
importer, the issue is not as
imminent for Estonia. Furthermore, Estonia
is drawing up plans to construct its own nuclear power plant;
however,
with legislation not having been passed, this project is also far from
realisation.
Activity in the construction sector has been mainly focused
on the commercial segment. Malls have seen
perhaps the most activity;
however, considering the global downturn in consumer driven growth, we are
wary of the possibility of current projects being suspended, as some companies
have already experienced
problems leasing retail units.
A downside
risk to our forecasts is posed through the general deterioration of the
business environment in
the region. Although Estonia appears to be holding
on for now, we believe that in the near future the
country may need to
turn to a multi-lateral institution for financial help. Real GDP growth is
estimated to
have been -2.3% year-on-year (y-o-y) in 2008, and this is
projected to worsen in 2009, with -6.4%
predicted. Positive growth should
return from 2010 until the end of our forecast period in 2013, when it is
expected growth will reach 4%.
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