As part of the interrelated Soviet economy, Estonia was basically an industrial region, with agriculture also making a contribution. Industry and agriculture remain important components of the economy of independent Estonia, but their portion of GDP and the labour force are declining while those of commerce and the service industry are growing. The Estonian economy experienced a downturn during its transition to a market economy (characterised by declining production, inflation, and unemployment), but by the mid-1990s it was rebounding.
The most important mineral is oil shale, of which Estonia is an important world producer. Reserves and production of peat also are substantial, and large deposits of high-quality phosphorites, limestone, dolomites, marl, and clay exist.
Fuel and power
Electric-power generation has great significance both for the economy of Estonia and for the surrounding region. Estonia supplies much of the power requirement of Latvia and parts of north-western Russia. Most of the electricity produced in the country is generated by thermal power plants fired with oil shale. Two of those plants, located near Narva, account for much of the electricity produced for the Baltic states.
There are other smaller power stations and another major power station, the peat-fired plant at Ellamaa. Like the power industry, the large shale-processing industry is also a major employer in Estonia. It produces great quantities of fuel gas, much of which is transported to Russia by pipelines extending from Kohtla-Jarve to St. Petersburg. There is, however, growing concern about the environmental impact of both groundwater pollution from oil shale mining and sulfur dioxide emissions from the Narva power plants. Similarly, the phosphorite-mining industry also has become the focus of environmental concerns.
Agriculture and forestry
During the country's period as a Soviet republic, Estonia's agriculture was collectivised. Instead of some 120,000 small peasant farms that existed in 1945, there were by the 1990s more than 190 collectivised farms and more than 120 state farms. Decollectivisation became a government goal in the post-Soviet period. Privatisation proceeded quickly. Within the first year Estonia had twice the number of private farmers as either Latvia or Lithuania. Agriculture is the foundation of Estonia's significant food-processing industry. Principal crops include potatoes, barley, and hay. Livestock farming, notably of cattle and pigs, is also important.
Timber and woodworking make up one of the oldest industries of Estonia. Poorly regulated exploitation of woodlands has decreased the total wooded area substantially. Although thousands of acres of new trees were planted during its Soviet republic period, Estonia was obliged to import about one-fifth of its requirements from the north-western regions of Russia. Paper, pulp, plywood, matches, and furniture are among the nation's wood products. The main production centres are Tallinn, Tartu, Narva, Parnu, Kehra, Kuressaare (Kingissepa), and Viljandi.
Like agriculture, industry in Estonia is undergoing a period of adjustment during the transition to a market economy. Raw materials, previously inexpensive during the Soviet period, now must be acquired at world market prices. Industry uses both local resources and imported raw materials. Much of the industrial labour force is engaged in engineering and metalworking activities that provide oil-refining equipment, agricultural implements, mining machinery, gas pipes, and excavators. Technical and scientific instruments and electronic apparatus also are produced by the country's manufacturing industries.
Shale processing underlies the chemical industry centred in Tallinn and Kohtla-Jarve. Such products as benzene, adhesives, tanning agents, resins, formaldehyde, and detergents are made.
Estonia's natural resources provide a base for the production of building materials, including cement, mural blocks, and panels made from either shale ash or reinforced concrete. The main centres of this industry are Tallinn, Kunda, Tartu, and Aseri.
Among consumer goods industries, textiles are the most developed. Most of the cotton cloth produced in the Baltic states is manufactured in Estonia. The country also produces wool, silk, linen, knitted and woven garments, and shoes.
Finance and trade
Immediately after attaining independence, Estonia continued to use the Russian ruble as its currency. In June 1992, however, the republic introduced its own currency, the kroon, the value of which was tied to the German Deutsche Mark. At the centre of the republic's banking system is the Bank of Estonia (extant before the Soviet period and re-established in 1990). In addition to a number of commercial banks, there is also testate-owned Savings Bank, and the Estonian Investment Bank provides financing for private companies.
The introduction of the kroon contributed to the stabilisation of foreign trade, which is increasingly oriented toward a Western market. Russia continues to play an important though diminished role in trade with Estonia. Other major trading partners include Finland, Sweden, and Germany. Principal exports include food products, textiles, machinery, and wood products; imports include machinery, mineral fuels, and transport equipment.
Transport and communications
Major highways link Tallinn with St. Petersburg and Riga, Latvia. The majority of the republic's freight is carried by road, but freight also is transported by rail and sea. Estonia's main rail lines connect Tallinn with Tartu and Narva.
There are three commercial ports near Tallinn and another inland port at Narva. Estonia has a state-owned shipping company and a state-owned airline.
The country's major airport is at Tallinn, but there are also airports at Tartu and Parnu.
River transport is of local significance only.
Administration and social conditions