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Turning around Estonia’s oil shale region: first attract business, employment will follow

Ida-Virumaa, a region in Eastern Estonia, shares much in common with other regions of the world caught off-guard by recent changes in the global economy. The oil shale industry appears to be on an imminent and unstoppable decline given the technological realities of the 21st century. Furthermore, Estonia’s international commitments leave little doubt that the country will be meeting its future energy needs with alternative fuels. After years of denial, anger and bargaining, now is the time to seek realistic solutions and a way forward.

The biggest challenge in the northeast region of Estonia is attracting businesses. While there are merits to increasing the skill level of the population with more training programs, only in the presence of employment opportunities will such programs be successful. Otherwise, they merely mask the problem of idle hands rather than alleviating it.

What can be done to make the region attractive to business? Other countries facing similar challenges offer a potential answer. One option is seeking to be a leader in the alternative energy sector. Consider Scotland’s bid to become the UK’s wind energy stronghold. In a short period of time, the region built out its wind energy production capacity, generating enough electricity to power every home in Scotland twice over.

Banking on a growth sector, like renewable energy, rather than on a sector that is likely to suffer from a so-called carbon bubble is a sound governance decision. A plethora of internationally-developed studies agrees that alternative energy will be a growth sector in the coming decades. Moreover, having a power-house renewable energy sector has benefits far beyond just the jobs created directly in the electric industry. Locations with abundant renewable energy also tend to support a variety of other industries, ranging from data warehousing to crystalline silicon manufacturing, which is used in the semiconductor and solar photovoltaic (PV) industries.

It is often said that the sun is not shining in Estonia, so the PV sector does not have a future, but this could not be further from the truth when one starts to think creatively. Manufacturing solar cells and modules with 100 per cent renewable electricity has been embraced by our southern neighbour, Lithuania. Solitek, a Lithuanian PV panel maker, produces advanced-concept solar modules and delivers them to Sweden, Norway and Finland, who are also natural business partners for Estonia.

Ida-Virumaa should look closely at how such opportunities can be attracted to the region and what kind of economic framework is necessary to make the region more unapologetically business-friendly. A short answer is that Ida-Virumaa needs to overcome its current thought leadership and complacency crisis, by reforming its industrial policy. Estonia is still in the top twenty economies in the world known for ‘ease of doing business’, but its ranking has been dropping in recent years. That is a trend that need not continue with the right policy mix.

In the United States, governors have designated a number of areas as ‘Opportunity Zones’, which offer attractive tax breaks to long-term investors. Branding Ida-Virumaa as Europe’s first opportunity zone might raise the region’s profile as a place where business can be done without the expensive price tag found in Tallinn or its near vicinity.

What is known for sure is that regional development problems do not solve themselves, even with time, unless a persistent effort is dedicated to reform. Estonia has had a great ride with oil shale, sustaining the country’s relative energy independence for decades. However, now is the time to leave it in the ground and look for new economic opportunities. The problem is not unique to Estonia and has been addressed elsewhere: the EU has historically supported coal regions in transition, with the most recent initiative to focus on the Western Balkan countries and Ukraine.

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