Finding its balance after a general election, Estonia is looking at a year of potential IT sector labor force shake-ups, a likely uptick of reorganization and bankruptcy procedures, as well as a potential real estate sector slowdown, according to Magnusson Estonia Managing Partner Jaanus Magi.
“The general elections took place quite, quite recently, so it might be a bit premature to judge the effectiveness of the new coalition, but what we can say at this point is that it will likely be a more liberal one compared to its predecessors,” Magi begins. “This presents an opportunity to finally get answers on some legislative questions that have been brewing for some time.”
Magi says that he does not expect much liberalization to come to the financial sector, however. “I believe that the old money-laundering scandals are still quite vivid to many, especially with some litigations still pending,” he says. Additionally, he reports that there have been significant tightenings of cryptocurrency regulations in Estonia. “Taking everything into account, as well as the fact that several crowdfunding frauds also happened, I do not expect there to be any reversals in this legislative approach.”
Still, Magi goes on to say that many start-ups and growth companies are registering in Estonia. “These companies are, by and large, quite data-heavy, which increases the risk of data leakages. No matter how close of a focus is kept on cybersecurity, the regulator’s approach is too soft, which means that we expect private data leak litigation to go up in Estonia, as well as Europe in general for that matter.” Moreover, he reports that there is “surprisingly strong financing activity” when it comes to start-ups and that transactions are going strong.
Still, not all is perfect, and Magi says that “several noticeable layoffs took place in the IT sector. I’m afraid we might see a restructuring of the labor force in the IT sector this year, with the industry to become more of an employer’s market,” he says. “There is a feeling that start-ups and investors are a lot more careful about boosting employment numbers and that they are trying to be more lean and prepared.”
Nevertheless, Magi says that it isn’t unemployment that’s worrying, but rather Estonia's trade balance. “There has been quite a sharp decrease in exports – which might be attributed to the war or the energy prices – but it seems we have a problem with the overall competitiveness of some sectors of our economy,” he explains. “This might lead to reorganizations and bankruptcies this year. There is even a new institution – the Bankruptcy Ombudsman – tasked with making these proceedings more efficient.”
Finally, Magi reports a potential tempest for commercial tenants. “With the inflation numbers last year standing at 19.4%, many commercial leases were affected on account of indexing. This, coupled with the rising energy prices, might come as a real shock for tenants,” he explains. “And, with the interest rates for the landlords going up, we might see some real tension in the sector amidst an overall real estate slowdown. The banks are the real gatekeepers here,” according to him, “and they are becoming more stringent in handing out loans to real estate developers.”
