FinanceEstonia International Forum 2014 was held in Tallinn

As Chairman of FinanceEstonia (a public-private cluster initiative with the aim of establishing Estonia as a vibrant and innovative location for financial services), Redgate Capital’s Senior Partner Mr. Aare Tammemäe was chairing and moderating a high level conference FinanceEstonia International Forum 2014, which was held in Tallinn on June 17-18. Conference focused on improving the long-term financing possibilities for Estonian corporates and financial sector export possibilities.

Here you can find more detailed information about the conference.

Conference was well covered by media, here is the brief overview.

Foreign Trade minister says government helping to finance startups

Estonia’s government wants to ensure that variety of financial instruments is available to companies in order to overcome the weaknesses of current macro-economic situation, Anne Sulling, minister of Foreign Trade and Entrepreneurship of Estonia said.

Sulling said at the opening speech of the Finance Estonia International Forum held in Tallinn today that the government has been busy working on implementing new initiatives to boost for growth in the bank-loan dominated economy.

For example, 145 million euros of European structural funds will be directed into a variety of financial instruments. Furthermore, a 100 million euros Baltic Innovation Fund was set up by Baltic governments and European Investment Fund to support growth stage investments.

Sulling said that Estonia is internationally known as a start-up nation, where everybody is developing something. To cater for start-ups, the government has set aside 60 million euros to the Estonian Fund of Funds. This will be dedicated to invest in early and very early stage companies—the ones that have the most difficult time attracting investments.

According to Sulling, one of the most notable recent achievements of attracting foreign capital to Estonia has been the attraction of back-office operations of different international companies. The minister quoted one back-office company in Estonia who said that Estonia is an open economy with relatively low costs and a cutting-edge ICT infrastructure that make Estonia an ideal base for business process outsourcing.

Government bonds to create liquid capital market in Estonia, EBRD director says
Liquid and versatile capital markets will boost the economy and government should take the lead by issuing government bonds, André Küüsvek, Director of Local Currency and Capital Markets Development at EBRD said.

We just celebrated the 10th anniversary of EU enlargement, the first part of which saw a massive convergence growth for new countries. After 2008 the situation changed and today the GDP index in real terms for the most new member countries is smaller than in 2007, Küüsvek said at the Finance Estonia International Forum held today in Tallinn.

Küüsvek said that each of those countries were financing growth on imported capital through foreign banks. The FDI was at 5-7% of GDP in average with strong portfolio investments. Today, FDI is still positive at 2-3%, but portfolio investors are now leaving and the flow negative. The bank lending that used to grow 35% annually, is now flat.

“My bottom line is that we need to find new ways of finances, for example developing bond market,” Küüsvek said. For example Poland has been a success story that came through the banking crises with 20% higher GDP index because of well-developed domestic capital market including pension funds, stock market etc.

The government in Estonia has currently a government debt of 10% which should be increased to 15-20% by issuing bonds, Küüsvek said. That would create liquidity in the market and create needed benchmarks. Large state-owned companies could then follow which can bring new breathing to the stock exchange with minority stakes listed, he added.

At the same time it is important to keep attracting new capital from abroad. The question is how to do it: take for example Romania, which benefitted from the momentum of capital markets by presenting its fast growth story to the world, Küüsvek, who has been with the EBRD for 18 years, added.

John Moran: Alternatives to bank financing will benefit the economy

At FEIF2014 plenary session: How are the markets important to Estonia developing and how is the cooperation between Estonian and those markets evolving?

European economy is too bank dependent and there must be more alternatives to soften the impact of future banking crises as well as assist smaller companies to finance their growth, John Moran, Secretary General of Department of Finance of the Republic of Ireland said.

Moran said at the Finance Estonia International Forum held in Tallinn today that being a small country, such as Ireland and Estonia, can be an advantage as it allows for higher flexibility. There is notable international investor money seeking home and especially smaller countries need to attract these investors, he added. Make yourself attractive for other countries investors and start with simple things, such as providing information on infrastructure projects online, the Irish added.

Moran said that the European economy is too bank dependent – approximately 80% of the economy is tied to bank loans compared to only 20% in the U.S. The recent experience of banking crises in Ireland forces us to think how to become less banking dependent, he said.

Getting capital might not be a problem for bigger companies, but there must be alternatives available for the early stage companies to grow. For example in Ireland, investment vehicles into real estate that bypass traditional banks have been introduced, Moran added.