In the topsy-turvy geopolitical times in which we find ourselves plenty of smaller countries around the world have — thanks to U.S. President Donald Trump’s tariff announcements — good reason to be nervous about both their economic futures. But for those in eastern Europe, and especially the region known as “the Baltics,” there is also great concern about their very survival. Countries that were able to reassert themselves in the wake of the collapse of the Soviet Union in the early 1990s have every reason to watch the situation in Ukraine with some nervousness.
Having embraced the opportunities presented once they were free of Soviet control, they clearly have no wish to become part of President Putin’s Russia. And yet, even with Europe bolstering its defences, they feel vulnerable. Estonia, which was swallowed up in the Second World War first by the Soviet Union and then by Nazi Germany before once again becoming part of the Soviet Union, is particularly determined to have its voice heard.
A member of the European Union and of the North Atlantic Treaty Organisation (Nato) since 2004, this tiny nation of fewer than 1.4 million people is keen to present itself as a modern, high-tech economy capable of competing with much larger countries. Certainly, its record of raising “unicorns” — billion-dollar tech start-ups — is the envy of many. The 10 such businesses either started in Estonia or with the input of Estonians include Skype and Wise (formerly Transferwise) and put it towards the top of the world league table for the number of such businesses per head of population.
But perhaps more important in establishing the country’s credentials as a hot-spot for technology businesses is the initiative known as e-Residency. Launched in December 2014, it enables people from anywhere (except since the invasion of Ukraine those from Russia or Belarus) to apply online to do business in Estonia. Although it has fallen somewhat short of achieving the initial possibly tongue-in-cheek target of 10 million e-residents by this year, it has still attracted more than 120,000 applicants from 185 countries and contributed to the creation of 34,000 companies. Every fifth company set up in Estonia was created by an e-resident, says Liina Vahtras, managing director of e-Residency since June 2023.
That Vahtras previously worked for another of Estonia’s unicorns — the customer relationship software provider Pipedrive — in a career that has seen her working in commerce and also advising politicians is indicative of the apparently comfortable relationship between the country’s public and private sectors. In the early years after the country regained its independence it was decided that survival depended upon becoming wealthy and, adds Vahtras, all political parties stressed the importance of enterprise. “Government was only there to enable. It was private citizens’ responsibility to be entrepreneurial.” When Skype was sold to Microsoft for $8.5 billion in 2011, “everybody knew somebody who had become super-rich,” she said in a recent interview.
A key driver in enabling people to become successful is education and as a result Estonia has invested heavily in its schools system, making its people some of the best prepared in the world for working in the digital economy. But the government has also acknowledged the importance of being open and developing what Vahtras calls a diversified business eco-system. “We used to be super-closed through being occupied. We are trying to be open. This is how you get the experience of the rest of the world,” she said.
The role of e-Residency, then, is not to attract people to the country per se (becoming an e-resident does not bring the right to settle), but to encourage them to use the country’s sophisticated digital infrastructure to set up companies and — through the digital document signing facility — to participate in the country’s business and so help it become more effective. But e-Residency is not just a practical program. It is symbolic, too. It is there to advertise Estonia to the world as a beacon for technology businesses with a highly educated, digitally-savvy population and a government determined to support enterprise rather than stand in its way. Determined to punch above its weight in “soft power,” the country, admits Vahtras, has deliberately set about building a base of “friends or fans” of the country.
Clearly, it is potentially easier for a small country effectively starting from scratch to set itself up in this way. But the past quarter of a century or so does offer lessons for leaders of other, larger countries — in terms of taking tough decisions in order to improve the chances of economic and political survival, of politicians agreeing on the overall direction, of building mature relationships between the public and private sectors and creating a sense of community among citizens. It has not all been perfect. The economy has struggled lately, partly because of the rise in gas prices that has hit many other countries. Typically, it is looking abroad to see how it could do better. “We didn’t respond [to the gas price hikes]
in the way that Lithuania did. We are looking at them to see what they did differently,” said Vahtras.
Now, tariffs are on the horizon. While Estonia does not sell much to the U.S. directly, it does have substantial trade with other E.U. member states that do sell to the U.S. and so could suffer. At the same time, the indications that the U.S. is expecting Europe to do more to ensure its own defence are having ramifications. Vahtras is hoping that the efforts to create friends of Estonia around the world through e-Residency will help ensure that the country is not forgotten as has been the case in the past. “The peace talks are not just about Ukraine,” she said.
In the meantime, Estonia will hope that it can turn its technological prowess in areas such as cyber security into success in defence. There are encouraging signs in the meetings that Vahtras says technology executives in the country have been organizing between those in the public and private sectors in an effort to divert attention towards security. But she pointed out that a sense of urgency was vital. “We need to have a defence tech sector. Everything that happens there needs to happen 100 times faster than in other sectors,” she said.