Investing in Estonia

November 24th, 2022
6 minutes read

Investing in Estonia

Estonia sits right on the Baltic Sea, with a uniquely rich cultural backdrop from its neighbours Russia and Latvia, with Finland just over the water to the North. Although somewhat dwarfed in presence geographically, Estonia’s strong, progressive backbone speaks volumes for its economy and global impact. Developing a strong global identity as leaders in IT infrastructure, digital acceleration has cast a warm light on the Estonian fintech environment.

The country has a strong hold on software development and cybersecurity in particular,[1] with a legislative environment favouring digital innovation. With a centralised European location, Estonia consistently serves as a pan-continental base for commercial and industrial activity, earning its number 18 ranking in Ease of Doing Business 2019 by The World Bank.[2]

Want to know the ins and outs of investing in Estonia? Learn about ETFs, real estate investing and peer-to-peer lending in Estonia.

Estonia’s Economy

The rapid development of the Estonian economy quickly attracted leading global conglomerates, including Ericsson, Symantec, ABB and more. As far as domestic innovation goes, the tech frontier makes the environment a thriving hub for start-ups; Skype and Bolt are just two global examples of Estonian home-grown innovation, thanks to the booming cyberspace. Estonia’s digital ecosystem hasn’t gone unnoticed. The country ranked 2nd in the Freedom on the Net 2022 index by Freedom House[3] and 3rd on the Global Cybersecurity Index 2020.[4] Adding to the tally, in the 2022 Digital Economy and Society Index, Estonia ranked 7th.[5]

Foreign investment is gaining traction in Estonia, fostered by the EIA (Estonian Investment Agency); tailoring insights and ushering in capital from foreign investors. In 2021, 30% of all FDI activity revolved around financial and insurance activities, followed by 18% in wholesale and retail trade.[6] Domestically though, Estonia is becoming known for its start-ups as mentioned above. By the end of Q3 2022, turnover from Estonian start-ups reached €1.5 billion, a nearly 65% increase from the previous year. 

The key market for investors looking at Estonian companies is the Nasdaq Tallinn; the only regulated secondary securities market in the whole of Estonia, with a total of 31 listed companies and a domestic market cap of $5,72 billion.[7] The stock market provides access to the OMX Tallinn, the main tradeable indice available, tracking the best-performing companies in Estonia.

Investing In Estonia with ETFs

The Estonian financial sphere is still evolving. Whilst many European countries have a diverse list of tradeable markets and indexes, Estonia has a limited repertoire regarding its financial instruments. The Nasdaq Tallinn, a branch of the Nasdaq Baltic offers global insight into economic performance, but the sparse ETF (exchange-traded fund) scene makes it difficult for investors to track the OMX Tallinn, the main vein of the Estonian stock market. Individual shares can be bought and sold via the main exchange or local brokers, but there is a stark lack of international ETFs directly covering the OMX Tallinn. 

The MSCI Estonia Index is designed to track the performance of the large and mid-cap segments of the Estonian market. Currently, a total of two constituents covers roughly 85% of Estonia’s entire equity landscape, consisting entirely of LHV Group and Enefit Green. Unfortunately for investors looking to tap directly into the Estonian economy, there isn’t currently a broker offering an ETF covering the MSCI Index. Keen international investors will have to broaden their horizons when it comes to an ETF covering Estonia. 

iShares offer an MSCI Frontier and Select EM ETF, focusing on emerging markets and providing investors access to otherwise neglected opportunities. Right now Estonia makes up just 0.65% of the total exposure. 

Forgetting the more traditional investment routes, Estonia’s alternative investment market thrives alongside its booming digital infrastructure. Key Estonian players are forging a new wave of alternative investment hubs, so let’s explore the options.

Alternative Investing In Estonia

The opportunity for alternative investments supersedes the somewhat limited options available through the stock market. Quickly realising the market potential, Estonia boasts some of the strongest and longest-standing alternative investment platforms across Europe. The country holds a large share of fintech companies and a healthy start-up scene.

Property Crowdfunding

Property or real estate crowdfunding is the term used for raising capital through ‘crowds’ or individual investors/lenders, rather than looking to traditional institutions. By cutting out a financial intermediary, platforms connect investors with property projects requiring capital, often offering higher interest rates, quicker returns, and a lack of long-winded paperwork.

While the market is still unregulated in Estonia, certain guidelines were set out by the crowdfunding branch of FinanceEstonia. Platforms following guidelines have helped foster a more transparent, safer investment environment without stringent regulations.

There are currently a handful of real estate crowdfunding platforms in Estonia, offering global and domestic real estate investment options from as low as €50. Estateguru and Crowdestate stand as two of the largest and longest-standing platforms in Europe. Both launched back in 2014, Estateguru has funded over €665 million in projects, with Crowdestate funding nearly €130 million.

Peer-to-Peer Lending in Estonia

The Estonian digital space is becoming a thriving hub for global connectivity. Stanislav Klevtsov, business development manager at EstateGuru has previously described the country’s endeavour to maintain “leadership as an e-country”.

If you’re not looking to invest in property or land, the Estonian peer-to-peer lending market offers a wider breadth of capital growth, from business loans to shorter-term personal loans. There is a broad selection of peer-to-peer lending platforms in Estonia, many of which offer investments from all over the world.

The Bottom Line

Estonia is a serious hub for investment, just not necessarily the traditional makeup of stocks and shares that dictates the wider portion of the investment world. For domestic investors, OMX Tallinn is the benchmark for Estonian shares, currently listing a total of 31 companies. However, there isn’t currently an ETF that solely focuses on the index. It’s the alternative market that’s booming. With one of the strongest e-spaces in the world, Estonia’s digital frontier has created a thriving environment for property crowdfunding and P2P lending marketplaces.

Article Sources

  1. Invest in Estonia: “Software Development
  2. The World Bank: “Ease of doing Business Rank
  3. Freedom House: “Freedom on the net 2022
  4. E-Estonia: “Estonia outranks most of the world in Global Cybersecurity Index
  5. European Commission: “The Digital Economy and Society Index (DESI)
  6. Invest in Estonia: “Estonian Economy
  7. Sustainable Stock Exchanges Initiative: “Nasdaq Tallinn