RIO country report 2015 : Estonia.
Date: 2016-05-02
Institutions: Institute for Prospective Technological Studies
Subjects: EU research policy, Estonia, innovation, organisation of research, private investment, public investment, research and development, research policy, research report, scientific cooperation

RIO COUNTRY REPORT 2015: 
Estonia 

Ruuta Ruttas-Küttim 

Blagoy Stamenov 

2016 

EUR 27869 EN 

 
 
 
This publication is a Science for Policy Report by the Joint Research Centre, the European Commission’s in-house 
science service. It aims to provide evidence-based scientific support to the European policy-making process. This 
publication,  or  any  statements  expressed  therein,  do  not  imply  nor  prejudge  policy  positions  of  the  European 
Commission. Neither the European Commission nor any person acting on behalf of the Commission is responsible 
for the use which might be made of this publication. 

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EUR 27869 EN 

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doi:10.2791/092522 

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How to cite: Ruuta Ruttas-Küttim, Blagoy Stamenov; RIO Country Report 2015: Estonia; EUR 27869 EN;  
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Abstract 
The 2015 series of RIO Country Reports analyse and assess the policy and the national research and innovation 
system developments in relation to national policy priorities and the EU policy agenda with special focus on ERA 
and Innovation Union. The executive summaries of these reports put forward the main challenges of the research 
and innovation systems.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table of Contents 

Foreword ................................................................................................................. 4 

Acknowledgments ..................................................................................................... 5 

Executive summary ................................................................................................... 6 

1. 

Overview of the R&I system .............................................................................. 13 

1.1 

1.2 

Introduction ................................................................................................ 13 

Structure of the national research and innovation system and its governance ....... 15 

1.2.1 

Main features of the R&I system ............................................................... 15 

1.2.2 

Governance ........................................................................................... 16 

1.2.3 

Research performers .............................................................................. 17 

2. 

Recent Developments in Research and Innovation Policy and systems ..................... 19 

2.1 

2.2 

2.3 

2.4 

National R&I strategy ................................................................................... 19 

R&I policy initiatives ..................................................................................... 20 

European Semester 2014 and 2015 ................................................................ 22 

National and Regional R&I Strategies on Smart Specialisation ............................. 23 

2.5  Main policy changes in the last five years ........................................................ 24 

3. 

Public and private funding of R&I and expenditure ................................................ 26 

3.1 

3.2 

Introduction ................................................................................................ 26 

Smart fiscal consolidation .............................................................................. 28 

3.2.1 

Economic growth, fiscal context and public R&D ......................................... 28 

3.2.2 

Direct funding of R&D activities ................................................................ 29 

3.2.3 

Indirect funding – tax incentives and foregone tax revenues ........................ 31 

3.2.4 

Fiscal consolidation and R&D .................................................................... 32 

3.3 

Funding flows .............................................................................................. 32 

3.3.1 

Research funders ................................................................................... 32 

3.3.2 

Funding sources and funding flows ........................................................... 33 

3.4 

Public funding for public R&I .......................................................................... 34 

3.4.1 

Project vs. institutional allocation of public funding ..................................... 34 

3.4.2 

Institutional funding ............................................................................... 35 

3.4.3 

Project funding ...................................................................................... 35 

3.4.4 

Other allocation mechanisms ................................................................... 36 

3.5 

Public funding for private R&I ........................................................................ 36 

3.5.1 

Direct funding for private R&I .................................................................. 36 

3.5.2 

Public procurement of innovative solutions ................................................. 38 

3.5.3 

Indirect financial support for private R&I ................................................... 39 

3.6 

Business R&D .............................................................................................. 39 

3.6.1 

The development in business R&D intensity ............................................... 39 

3.6.2 

The development in business R&D intensity by sector .................................. 40 

3.6.3 

The development in business R&D intensity and value added ........................ 42 

3.7 

Assessment ................................................................................................. 44 

4. 

Quality of science base and priorities of the European Research Area ...................... 46 

 
 
 
4.1  Quality of the science base ............................................................................ 46 

4.2  Optimal transnational co-operation and competition .......................................... 47 

4.3 

4.4 

International cooperation with third countries ................................................... 48 

An open labour market for researchers ............................................................ 49 

4.4.1 

Introduction .......................................................................................... 49 

4.4.2 

Open, transparent and merit-based recruitment of researchers ..................... 49 

4.4.3 

Access to and portability of grants ............................................................ 51 

4.4.4 

Doctoral training .................................................................................... 51 

4.4.5 

Gender equality and gender mainstreaming in research ............................... 52 

4.5  Optimal circulation and Open Access to scientific knowledge ............................... 52 

4.5.1 

e-Infrastructures and researchers electronic identity ................................... 52 

4.5.2 

Open Access to publications and data ........................................................ 53 

5. 

Framework conditions for R&I and Science-Business cooperation ............................ 54 

5.1  General policy environment for business .......................................................... 54 

5.2 

5.3 

5.4 

5.5 

5.6 

5.7 

Young innovative companies and start-ups ...................................................... 54 

Entrepreneurship skills and STEM policy .......................................................... 55 

Access to finance ......................................................................................... 56 

R&D related FDI ........................................................................................... 57 

Knowledge markets ...................................................................................... 58 

Public-private cooperation and knowledge transfer ............................................ 59 

5.7.1 

Indicators ............................................................................................. 59 

5.7.2 

Policy Measures ..................................................................................... 64 

5.8 

5.9 

Regulation and innovation ............................................................................. 65 

Assessment of the framework conditions for business R&I .................................. 65 

6. 

Conclusions ..................................................................................................... 66 

6.1 

Structural challenges of the national R&I system .............................................. 66 

6.2  Meeting structural challenges ......................................................................... 66 

References .............................................................................................................. 67 

Abbreviations .......................................................................................................... 72 

List of Figures .......................................................................................................... 74 

List of Tables ........................................................................................................... 75 

Annex 1 – List of the main research performers ............................................................ 76 

Annex 2 – List of the main funding programmes ........................................................... 77 

Annex 3 – Evaluations, consultations, foresight exercises ............................................... 78 

3 

 
 
 
Foreword 

The  report  offers  an  analysis  of  the  R&I  system  in  Estonia  for  2015,  including  relevant 
policies  and  funding,  with  particular  focus  on  topics  critical  for  EU  policies.  The  report 
identifies  the  main  challenges  of  the  Estonian  research  and  innovation  system  and 
assesses  the  policy  response.  It  was  prepared  according  to  a  set  of  guidelines  for 
collecting  and  analysing  a  range  of  materials,  including  policy  documents,  statistics, 
evaluation  reports,  websites  etc.  The  quantitative  data  is,  whenever  possible, 
comparable  across  all  EU  Member  State  reports.  Unless  specifically  referenced  all  data 
used  in  this  report  are  based  on  Eurostat  statistics  available  in  February  2016.  The 
report contents are partly based on the RIO country report, 2014 (Ruttas-Küttim, 2015). 

4 

 
 
 
 
Acknowledgments 

The  report  draft  has  benefited  from  comments  and  suggestions  of  Dr  Rein  Kaarli  from 
the Ministry of Education and Research. 

Comments from DG RTD are gratefully acknowledged. 

Peter  Fako,  Lorenzo  Isella  and  Athina  Karvounaraki  produced  the  statistics  and  the 
analytical assessments for sections 3.2 and 3.7 of the report. 

We would like to thank Sophie Bodart, Martine Troonen and Françoise Gandrey for their 
assistance in preparing this report for publication. 

Athors' affiliation: 

Ruuta Ruttas-Küttim, Independent Consultant (Tallinn, Estonia) 

Blagoy  Stamenov,  European  Commission,  Directorate-General  Joint  Research  Centre, 
Directorate  J  -  Institute  for  Prospective  Technological  Studies,  Innovation  Systems 
Analysis unit (Brussels, Belgium) 

5 

 
 
 
 
 
Executive summary 

Context 

The  Estonian  economy,  like  the  other  Baltic  economies,  was  strongly  affected  by  the 
2009 crisis (GDP fell by 14%). Economic growth was restored in 2010, reached 8.7% in 
2011  due  to  increased  exports,  but  slid  back  to  5.2%  in  2012  and  to  1.6%  in  2013  as 
foreign  demand  fell.  In  2014  the  GDP  growth  has  restored  again  with  2.9%.  The 
recovery  of  Estonia’s  economy  was  driven  mainly  by  exports.  A  very  strong  fiscal 
position  also  helped  restore  financial  market  confidence.  Still,  the  average  GDP  per 
capita  remains  under  the  EU28  average  –  73%  in  2014,  which  leaves  Estonia  the 
recipient  of  full  Cohesion  policy  support.  The  structural  weakness  of  the  national 
economy  remains,  with  a  relatively  low  share  of  high  technology  and  knowledge-
intensive companies. 

The  economic  crisis  affected  seriously  the  Estonian  economic  output  but  the  post-crisis 
fiscal adjustment process has not come at the expense of public support to the Estonian 
R&D. Even though the country was under pressure to implement fiscal consolidation with 
pro-cyclical  government  expenditure  patterns,  it  has  maintained,  and  soon  after  the 
peak  of  the  crisis,  increased  its  public  spending  on  R&D.  In  other  words,  the  sharp 
decrease  in  GDP  and  total  government  expenditure  was  not  matched  by  a  proportional 
drop  in  R&D  expenditure.  The  relatively  stable  financing  was  partially  due  to  the 
previously  committed  EU  Structural  Funds,  notwithstanding  the  9%  drop  of  the  regular 
support measures of R&D activities in MER budget in 2009. 

According  to  the  latest  Innovation  Union  Scoreboard  (2015),  despite  some  progress  in 
the  recent  years,  Estonia’s  innovation  performance  is  still  below  the  EU  average. 
Estonia’s performance relative to that of the EU average has been improving from 81% 
in 2007 to 94% in 2013 but fell to 88% in 2014 which is the reason why the country lost 
its position as an innovation follower and is now classified as a moderate innovator. 

The  overall  level  of  R&D  investments  as  a  percentage  of  GDP  almost  doubled  in  2008-
2011 (from 1.26% to 2.34%), but slid back to 2.16% on 2012. In 2013 and 2014 GERD 
as a percentage of GDP (1.74% and 1.46% respectively) fell below the EU-28 average of 
2.03% due to declining business R&D investment (from 1.29% of GDP in 2012 to 0.54% 
in  2014)  reflecting  a  one-off  investment  boom  in  oil  shale  research  and  technology  in 
2011 – 2012 by a single company – Eesti Energia. This indicates that Estonian business 
R&D  is  concentrated  in  a  limited  number  of  companies 1 .  The  public  sector  R&D 
expenditure  on  the  other  hand  has  remained  stable.  The  share  of  government  sector 
investments (GBOARD) as a percentage of GDP has been growing steadily between 2008 
and 2013 (from 0.63% to 0.82%) but fell to 0.76% in 2014. 

Key developments in the R&I system in 2015 included: 

• 

In  January,  the  Full  Report  on  the  “Research  and  Development  and 
Innovation  Strategy  2007-2013  “Knowledge-based  Estonia  2007-2013” 
was presented to the Government. According to the report, Estonia’s RDI 
system  has  developed  considerably  -  the  number  of  top-level  scientific 
publications has been growing from 0.8 to 1.43 top-level publications per 
1000 inhabitants; the share of scientists and engineers in the total labour 
force  rose  from  5.6  to  7.1  persons  per  1000  employees;  a  lot  has  been 
achieved  on  the  modernisation  of 
infrastructure  and  technology, 
internationalisation  of  research  and  on  science  popularisation.  The  main 
challenge is to further develop the research and innovation system in ways 
that it will have bigger impact on the society. 

1 State Audit Office (2014): 90% of research and development expenses in Estonia are incurred by fewer than 100 
companies 

6 

 
 
 
                                          
•  The  Ministry  of  Economic  Affairs  and  Communications  carried  out  evaluations  of 
enterprise  and  innovation  policy  to  assess  the  measures  implemented  and  the 
impact,  effectiveness  and  feasibility  of  those  measures:  the  implementation  and 
the  potential  of  demand-side  innovation  policy  instruments  were  assessed2   and 
the  designed  financial  instruments  from  the  Cohesion  Policy  2014-2020  funds 
were evaluated ex-ante, giving suggestions for use of financial instruments such 
as loans, state guarantees and credit insurance. 

•  Estonia  is  well  aligned  with  many  ERA  policies,  but  its  capacity  (human  and 
financial  resources)  to  participate  in  different  international  initiatives  is  limited 
because  of  the  size  of  the  country;  consequently,  choices  have  to  be  made  for 
optimum use of those resources. 

•  The  Estonian  R&I  policies  demonstrate  a  strong  focus  on  the  promotion  of 
knowledge  transfer  and  support  for  applied  research  and  higher  education 
specialization  in  the  areas  of  smart  specialization,  as  well  as  a  gradual  shift 
towards increased use of financial instruments. 

•  The identified challenges for Estonia's R&I system are: 

• 

Intensifying  prioritisation  and  specialisation  in  the  research  and  innovation 
system; 

•  Collaboration  between  science  and  industry  and  research  commercialization  – 
there seems to be a mismatch between the needs of the business sector and the 
provision of knowledge from the public sector; 
Internationalisation  and  addressing  the  scarcity  of  human  resources  –  Estonia  is 
still  suffering  from  a  low  number  of  new  doctoral  graduates  and  the  share  of 
foreign doctoral students remains low. 

• 

2 The concept of the application mechanism of a new measure “State as a smart customer” is currently being developed. 

7 

 
 
 
 
                                          
R&I Challenges 

Challenge  1:  Intensifying  prioritisation  and  specialisation  in  the  research  and 
innovation system 

Description 

Estonia  received  country  specific  recommendations  in  the  2012,  2013,  2014  and  2015 
European  semester  cycles.  The  Council  recommendations  have  been  almost  identical 
during  the  years  2013-2015  and  they  focus  on  intensifying  prioritisation  and 
specialisation  in  the  research  and  innovation  system.  The  2015  CSR  is  worded  as 
follows:  "Focus  public  support  for  research  and  innovation  on  a  coordinated 
implementation of the limited number of smart specialisation areas."  

Estonia  does  not  have  a  separate  national  or  regional  R&I  strategy  on  Smart 
Specialisation.  Instead,  the  country's  smart  specialisation  framework  comprises  the 
Entrepreneurship  Growth  Strategy  (adopted  by  the  government  in  October  2013)  and 
the Research, Development and Innovation Strategy (adopted in January 2014). 

Synergy  in  the  implementation  of  the  two  strategies  is  critical  for  stimulating  RD&I 
investment  in  Estonia.  Part  of  the  problem  is  exactly  the  fact  that  the  S3  is  "divided" 
among  two  strategic  documents  and  it  is  not  clear  to  what  extent  the  focus  of  the  S3 
priorities  is  shared  between  the  public  research  and  the  business  sector.  Moreover, 
according  to  the  Innovation  Union  progress  report  2014  for  Estonia,  there  is  little 
correlation  between  the  areas  of  Estonia's  scientific  production  (measured  by  the 
number of publications) and technological production (patents). 

Policy response 

The  two  above  mentioned  strategies,  the  Entrepreneurship  Growth  Strategy  and  the 
Research, Development and Innovation Strategy 2014-2020 came as a response to the 
CSRs  of  2013  and  2014  on  fostering  the  prioritisation  and  the  specialisation  of  the 
research  and  innovation  systems.  In  the  Implementation  plan  for  the  RDI  strategy 
approved  in  September  2014,  the  responsibilities  for  R&D  policies  have  been  clarified, 
the  process  of  establishing  smart  specialisation  growth  areas  has  been  set  up  and 
growth  areas  have  been  narrowed  down.  The  S3  process  was  guided  by  the  Estonian 
Development Fund. 

Estonia has identified the following smart specialisation growth areas: 

ICT  supporting  other  sectors  (use  of  ICT  in  industry  including  automation  and 

• 
robotics, cyber security, software development); 

• 

Health technologies and services (biotechnology, e-health); 

Resource  efficiency 

• 
construction, health-promoting food industry, chemical industry). 

science  and 

(material 

industry,  knowledge-based 

The  budget  for  Smart  Specialisation  in  2014-2020  (including  structural  funds  and  state 
budget  co-financing)  is  planned  to  be  about  €140m  (Estonian  Development  Fund, 
February 2015), which is a significant amount considering that the total Estonian GERD 
in 2013 was €326m. 

In  its  Estonia  2020  Action  Plan  2014-2018,  the  government  plans  to  launch  a  smart 
specialisation  monitoring  system  in  2015,  to  develop  a  longer  term  and  more  strategic 
model  of  cooperation  for  technology  development  centres  and  (industrial)  clusters, 
linking  both  formats  to  smart  specialisation  and  to  start  the  SF  funded  programme 
“Supporting applied research in growth areas of smart specialisation” 2015 - 2020. 

8 

 
 
 
Assessment 

Now that Estonia has come up with its smart specialization areas (although the process 
has  been  rather  top-down,  oscillating  between  narrowing  down  and  broadening  the 
priorities  not  necessarily  as  an  outcome  of  an  entrepreneurial  discovery  process),  it 
needs  to  set  up  a  sound  implementation  system  to  support  it.  The  operational 
programmes  have  been  approved  but  the  instruments  that  have  been  designed  to 
support smart specialization are too recent to be assessed. In any case, the key issue in 
successfully  addressing  the  2015  CSR  is  to  ensure  synergies  in  the  implementation  of 
the two  strategic  documents  related  to  RD&I  and  to  avoid  an  overlap of  measures  that 
are  too  small  and  too  fragmented  to  be  impactful.  In  order  for  public  spending  to  be 
maximally  efficient,  investing  in  smart  specialisation  high-growth  areas  to  increase  the 
return on public investment in R&D should be the guiding principle for targeting priority 
areas  (OECD,  2014).  Through  the  Estonian  Entrepreneurship  Growth  Strategy,  the 
government aims to shift to a more market-based approach to public support, with fewer 
direct  grants  and  more  financial  instruments,  including  venture  capital.  Whether  this 
would be a successful strategy remains to be seen. 

Challenge  2:  Enhancing  collaboration  between  science  and  industry  and 
research commercialization 

Description 

The need to address the weak cooperation between science and business is identified as 
a major challenge of the Estonian R&I system in the CSRs for 2012, 2013 and 2014 as 
well  as  the  Country  Reports  issued  by  the  European  Commission  in  the  frame  of  the 
European  Semester  exercise3.  There  seems  to  be  an  inherent  mismatch  between  the 
needs of the business sector and the provision of knowledge from the public sector. 

There  are  many  factors  that  signal  that  the  level  of  knowledge  transfer  and  research 
commercialization  is  low  in  Estonia.  The  share  of  privately  funded  publicly  performed 
R&D as a share of the research spending (GERD), a proxy indicator for the collaboration 
between academia and business, was 1.96% of GERD in 2013 and 2.09% in 2014, below 
the  EU-28  average4.  In  addition,  according  to  the  Community  Innovation  Survey  2012 
only 10.8% of the total sample of innovative companies cooperate with universities and 
higher  education  institutions  (compared  to  almost  18.9%  in  Lithuania).  Even  less  -  5% 
cooperate  with  government  or  public  or  private  research  institutes  but  this  is  not 
surprising  considering  that  the  share  of  government  research  performing  organizations 
(RPOs)  is  relatively  small  and  their  profile  (mostly  humanitarian)  does  not  match  the 
needs of productive enterprises. Finally, only 3.8% of public R&D is contracted by private 
enterprises (Ministry of Education and Research Annual Report 2014). 

In spite of the increase in the number of cases involving IPR protection, marketing of IPR 
remains a challenge (EC SWD 2014, 2015). The revenue from IPR commercialisation has 
remained  relatively  marginal  in  Estonia.  Connecting  to  large  international  networks  for 
IPR  commercialisation  and  acquiring  a  highly-skilled  labour  force  to  work  towards 
commercialisation  are  still  difficult  in  Estonia  (see  Challenge  3).  Both  the  legal 
framework  for  protecting  intellectual  property  and  the  university  financing  system 
(mostly project-based) discourage universities from becoming more active in basic R&D 
and  from  increasing  the  number  of  contracts  entered  into  with  companies  (EC  SWD, 
2014) although there are positive developments in this respect (see the section below). 

Policy response 

Estonia's  National  Reform  Programme  2014  acknowledges  the  need  to  further 
strengthen  cooperation  between  research  institutes  and  companies  but  is  vague  on 
specific actions.  

3 See EC Staff Working Documents for 2012, 2013, 2014 and 2015. 
4 RIO elaboration based on Eurostat data. 

9 

 
 
 
                                          
One positive development is that the number of research contracts has tripled (EC SWD, 
2015).  This  is  partially  due  to  the  fact  that  baseline  funding  of  RPOs  takes  into 
consideration  the  volume  of  RDI  contracts  with  the  private  and  public  sector  (40%  of 
total) and the number of patents and patent applications (counted respectively 3- and 2-
fold higher than scientific publications). 

As  regards  specific  knowledge  transfer  promotion  programs,  clusters  and  technological 
development  centres  are  being  set  up.  The  2014-2020  Technological  Development 
centres  (competence  centres)  programme  (opened  its  new  round  in  November  2014, 
continuing from the previous programming period) provide Estonia’s entrepreneurs with 
opportunities  for  cooperation  in  the  development  of  new  technologies,  products  and 
services  and  aims  to  increase  qualified  staff  in  business-oriented  R&D,  and  their 
movement  between  businesses  and  research  institutions.  Estonia  has  also  introduced 
innovation  voucher  grants  for  SMEs.  The  2014-2020  Cluster  Development  Programme 
(new  round  opened  in  June  2015)  aims  to  increase  the  value  added  of  companies  and 
the sales of their products/services (including exports) as well as to promote cooperation 
between  companies  and  research  institutions.  The  Ministry  of  Education  and  Research 
launched  the  new  activity  Support  for  applied  research  in  the  areas  of  smart 
specialisation  in  August  2015.  The  aim  is  to  support  enterprises  tendering  applied 
research or product development from Estonian public R&D institutions and about 1/3 of 
financing should come from enterprises. 

Estonia  is  also  in  the  process  of  renewing  its  patent  and  intellectual  property  rights 
system.  The  Ministry  of  Justice  established  an  Expert  Group  on  the  Codification  of  the 
Intellectual  Property  Law.  The  whole  intellectual  property  system  would  be  thoroughly 
examined. Although the initial plan was to create new laws, after thorough analysis the 
Expert group reached a conclusion that right now it is more feasible to wait and see what 
will be decided on the EU level and until then make some necessary minor amendments 
to the existing law (Ministry of Justice, 2015). The Agreement on a Unified Patent Court 
has been signed by the Government of Estonia in 2013, but has not yet been ratified by 
the Parliament. 

In January 2013, a new institution was created – the Estonian Intellectual Property and 
Technology  Transfer  Centre,  which  took  over  the  activities  of  the  Estonian  Patent 
Information Centre. 

Assessment 

Estonia  has  a  relatively  strong  public  research  system,  with  a  high  level  of  public  R&D 
expenditures  and  decent  performance  in  terms  of  public-private  co-publications. 5 
However, the number of companies undertaking development and innovation activities is 
still  low. 6  Moreover,  entrepreneurial  culture  is  still  underdeveloped  in  Estonian 
universities and thus requires more effective incentive systems, e.g. modifications to the 
university  IPR  policies,  vamping  up  the  existing  knowledge  transfer  offices,  and 
entrepreneurial training. The latter is especially important as according to the ERAC peer 
review  the  problem  lies  more  in  the  risk-averse  culture  of  universities  and  businesses 
than in restrictions in laws and regulations. 

More  fundamentally,  the  mismatch  between  the  needs  of  the  business  sector  and  the 
provision  of  knowledge  from  the  public  sector  is  not  simply  a  failure  to  commercialise 
scientific  activity  but  also  a  result  of  the  R&D  support  system  being  focused  on  areas 
other than those that dominate Estonia’s economy today7 (see Challenge 1). 

5 In 2011-2013 Estonia had 69 public-private co-publications per million of population which is lower than the EU-28 
average of 87 but much higher than the 21 for Lithuania and 19 for Latvia. 
6 According to Estonian National Audit Office (2014) 90% of research and development expenses in Estonia are incurred 
by fewer than 100 companies. 
7 OECD (2013), Innovation growth in regions: the role of smart specialization 

10 

 
 
 
                                          
However,  the  recently  introduced  measures  for  applied  research  in  the  smart 
specialization areas are a positive development. 

R&D  measures  (in  the  2007-2013  period)  have  had  a  less  pronounced  impact  than 
expected  in  terms  of  encouraging  companies  to  use  universities’  research  facilities  and 
some measures have reportedly increased the administrative burden on companies (EC 
SWD,  2014).  Similarly  to  its  Baltic  neighbours,  Estonia's  policies  during  the  2007-2013 
period were characterized by a strong focus on infrastructure/capacity development and 
less  on  supporting  collaboration  and  building  networks.  A  positive  development  is  the 
fact  that  the  new  strategic  documents  for  2014-2020  focus  on  obtaining  social  and 
economic results from these capacities and infrastructures. However, the key challenge 
remains  the  level  of  effectiveness  of  the  attempts  to  create  synergies  between  the 
specific policy measures and focus them on a limited number of priorities. 

Challenge  3:  STI  internationalisation  and  addressing  the  scarcity  of  highly-
skilled human resources 

Description 

The  basic  skills  levels  of  young  people  in  Estonia  are  high.  The  country's  results  in  the 
2012  OECD  Programme  for  International  Student  Assessment  (PISA)  are  very  strong. 
Performance  has  significantly  improved  since  2009  in  all  tested  areas  (reading, 
mathematics  and  science)  and  Estonia  now  ranks  in  the  top  tier  of  EU  countries 
participating in the survey. However, the specific skills sought by innovative enterprises 
seem  to  be  in  a  short  supply.  The  ERAC  Peer  Review  points  out  that  the  scarcity  of 
skilled  human  resources  is  currently  a  bottleneck  for  developing  the  RD&I  system  in 
Estonia. The pool of RD&I competent talent is small and easily absorbed by the needs of 
a few (larger) enterprises. Although there has been progress in recent years, Estonia is 
still  suffering  from  a  low  number  of  new  doctoral  graduates  and  the  share  of  foreign 
doctoral students remains low (DG RTD, 2014).  

High  levels  of  "brain  drain"  and  low  attractiveness  of  research  careers  remain  constant 
challenges (ERAC, 2012). For highly qualified foreign faculty and researchers to settle in 
Estonia,  the  drawback  is  often  the  salary  level,  which  is  not  internationally  competitive 
and  the  standard  of  living  is  not  high  enough.  Moreover,  the  Estonian  language 
requirements  for  recruitment  of  research  staff  hampers  the  internationalisation  of  the 
research  system.  Nevertheless  the  number  of  foreign  students  and  professors-
researchers is growing steadily. 

As  far  as  participation  in  EU  FPs  is  concerned,  Estonia's  share  of  EU  FP7  contributions 
received between 2006 and 2014 (compared with FP6) is higher than the EU-13 average 
and  is  on  par  with  the  EU-15  countries  (JRC-IPTS,  2015).  This  signals  that  Estonian 
excellent researchers are actively participating in international consortia. However, while 
Estonian  top  scientists  are  well  integrated  internationally,  this  is  not  the  case  for  the 
overall  research  community  in Estonia  (EC  SWD,  2013).  This is  partially  a result of  the 
fact that Estonian RD&I policy-making has been fragmented and overly concentrated on 
scientific excellence and high technologies, neglecting domestic economic structure (see 
Challenge  2  assessment  part).  The  Estonian  science  system  follows  very  different 
specialization  from  the  business  sector  (see  Challenges  1  and  2)  as  it  finances  and 
supports  mostly  curiosity-driven  excellent  basic  research  in  fields  such  as  physics, 
chemistry and earth sciences for which there is little immediate economic demand.8  

8 http://researchinestonia.eu/2014/06/smart-specialization-opportunity-challenge/ 

11 

 
 
 
                                          
Policy response 

The Estonian authorities acknowledge the need for special attention regarding fostering 
the  internationalisation  of  the  research  and  innovation  systems  in  all  National  Reform 
Programmes (NRPs). 

The Ministry of Education and Research is planning to continue the Doctoral Studies and 
Internationalisation  programme  "DoRa"  in  the  new  programming  period.  The  measure 
supports doctoral studies (for both domestic and foreign researchers) conducted in close 
cooperation with universities and companies based in Estonia in the form of scholarships 
designed  to  motivate  students  to  choose  areas  of  study  closely  related  to  the  needs  of 
key industries. 

There  is  also  some  progress  in  improving  the  relevance  of  education  for  the  labour 
market  -  the  2014-2020  Lifelong  Learning  Strategy  was  adopted  in  February  2014  and 
the  “Programme  for  linking  better  labour  market  needs  and  training”  was  approved  in 
April  2015  with the  aim to harmonise  the training  (study)  opportunities  better with the 
market demand and increase the number of people with professional qualifications. 

In addition, attracting international students and highly qualified specialists from outside 
the EU has been facilitated by amendments to the Aliens Act adopted in autumn 2013. 
According to the most recent NRP, although the goal to admit 2,000 foreign students by 
2015 has been achieved, measures that support internationalisation will be continued. 

Last  but  not  least,  Estonia  is  actively  involved  in  local  Baltic  initiatives.  For  example, 
through  the  BSR  Innovation  Express  Call  in  2013,  28  new  international  collaboration 
projects  were  established.  The  joint  Baltic  Sea  Research  and  Development  Programme 
BONUS, the aim of which is to combine scientific research of the Baltic Sea conducted in 
individual  countries  into  an  interdisciplinary,  long-term,  integrated  programme  aiming 
for  sustainable  development  of  the  Baltic  region,  was  under  implementation  in  2014. 
This programme plans to promote multilateral research of high scientific level. 

Assessment 

Estonia has been active in addressing the human resources and internationalization issue 
and  some  results  are  already  visible  (e.g.  increase  in  the  number  of  doctoral  students 
and foreign students). This challenge is very important because it is interconnected with 
the previously described challenges – in order to move up the technological  ladder and 
to achieve the strategic aim to translate acquired capacities into societal benefits Estonia 
needs people with good qualifications. However, as a small country with small population 
Estonia cannot build up critical mass and solve its talent challenge alone and needs to be 
as integrated in international networks as possible.  

There is an inherent rationale for continuing the utilisation of the European research and 
innovation  support  instruments  in  Estonia,  including  Horizon  2020.  In  addition,  the 
synergies and opportunities opening up within the Baltic Sea Region and Nordic countries 
should  continue  to  be  actively  pursued.  To  derive  maximum  benefit  from  transnational 
R&I  collaboration,  relevant  national  R&I  measures  could  include  an  international 
dimension,  stimulate  partnerships  and  open  up  for  international  partners  and  clusters. 
On  a  similar  note,  the  smart  specialisation  priority  areas  could  also  seek  to  involve 
international partners. Last but not least, it's in the interest of Estonian R&D institutions 
and  universities  to  continue  to  attract  as  much  talent  (PhD  students,  researchers, 
professors) from abroad as possible 

12 

 
 
 
1.  Overview of the R&I system 

1.1  Introduction 

Estonia  is  one  of  the  smallest  EU  Member  States  accounting  for  ca  0.3%  (about  1.3 
million) of the population of the EU28. Gross Domestic Product (GDP) per capita in 2014 
was  €15,200  (Eurostat,  2016).  The  real  GDP  growth  in  2012  was  5.2%  in  2012  and 
dropped  to 1.6%  in  2013 due to  decline  in  external  demand,  but  recovered  to 2.9%  in 
2014 (Eurostat, 2016). The recovery of Estonia’s economy was driven mainly by exports. 
A  very  strong  fiscal  position  also  helped  restore  financial  market  confidence.  Still,  the 
average GDP per capita in PPS remains under the EU28 average  – 73% in 2014, which 
leaves  Estonia  the  recipient  of  full  Cohesion  policy  support.  Except  for  2008-2009, 
Estonian  real  GDP  growth  has  almost  always  been  above  the  real  average  EU27  (now 
EU28) GDP growth.  

Estonia’s  government  deficit  as  %  of  GDP  was  0.3%  in  2012  and  0.1%  in  2013,  but 
turned  to  0.7%  surplus  again  in  2014  (deficit  in  the  EU28  in  the  respective  years  was 
4.3%,  3.3%  and  3%).  The  global  recession  in  2008  drived  the  general  government 
balance into deficit for the first time after the restoration of independence.  

Estonia’s government consolidated gross debt as % of GDP has always been the smallest 
in the EU28 (less than 5% until 2008) and despite the rise since the crisis (7% in 2009, 
9.5%  in  2012,  9.9%  in  2013,  10.4%  in  2014),  it  is  still  eight  times  smaller  than  the 
EU28 average (86.8% in 2014). About 25% of the debt is related to the involvement in 
the European Financial Stability Facility (EFSF). 

Unemployment (as % of total employment) has been declining after reaching its peek in 
2010  with  16.7%,  and  has  been  below  the  EU28  average  (10.2%  in  2014)  for  the  last 
three years (10% in 2012, 8.6% in 2013 and 7.4% in 2014).  

The input of shale oil refining industry helped to double total intramural R&D expenditure 
(GERD)  in  2011  (in  absolute  terms)  and  GERD  intensity  reached  2.37%  in  2011 
(Eurostat, 2016). GERD declined to 2.16% of GDP in 2012 and further down to 1.74 in 
2013  and  1.46  in  2014,  as  the  impact  of  investments  to  the  shale  oil  refining  industry 
disappeared, and is again below EU28 average (2.03 in 2013). 

Turnover from Innovation as % of total turnover was 10.2% in 2008, 12.3% in 2010 and 
7.8 in 2012 (Eurostat 2015). 

More  than  71%  of  the  Estonian  GDP  is  derived  from  the  service  sectors,  industrial 
sectors yield 25% and primary branches (including agriculture) approximately 4% of the 
overall  output.  In  Estonia,  90%  of  enterprises  are  micro  enterprises  with  less  than  10 
employees 9 .  The  main  fields  of  economic  activity  (as  a  %  of  total  GDP)  are 
manufacturing  (16%),  wholesale  and  retail  trade  (13%),  real  estate  activities  (10%). 
Information  and  communication  technologies  provide  about  5%  and  professional, 
scientific  and  technical  activities  and  agriculture  both  give  about  4%  of  GDP  (Statistic 
Estonia, 2015).  

The most common type of enterprise are wholesale and retail enterprises, forming nearly 
20%  of  all  enterprises.    Enterprises  engaging  in  professional,  scientific  and  technical 
activities  form  13%  of all  active enterprises  and the number increased  by  4%  over  the 
year.  In  2013,  the  number  of  information  and  communication  technology  enterprises 
was still growing steadily (by 6%), although not as fast as in the previous years (8% in 
2013 and 11% in 2012).10  

RD&I strategic objectives are set in the RD&I Strategy for 2014-2020 “Knowledge-based 
Estonia” (launched in January 2014).  

9 Statistics Estonia 2015, News http://www.stat.ee/78415/?highlight=teenindus 
10 Statistics Estonia 2015:Statistical yearbook 2015 

13 

 
 
 
                                          
The  target  towards  total  R&D  investments  (GERD)  in  2020  is  set  on  3%  of  GDP  and 
business  sector  R&D  investments  (BERD)  on  2%  of  GDP.    Considering  the  relatively 
weak economic growth, the decline of BERD and also of GBAORD (5% decline of the MER 
R&D  budget  in  2016  as  a  result  of  the  decline  of  the  support  from  structural  funds), 
reaching the target in 2020 is not very likely. 

Estonia’s  strategic  objectives  for  R&D,  innovation  and  enterprise  policy  have  been 
relatively stable over the last decade (since 2004). However, the structural weakness of 
the  national  economy  remains,  with  a  relatively  lower  share  (3.4%)  of  high  technology 
and  knowledge-intensive  companies.  The  input  of  shale  oil  refining  industry  helped  to 
double total intramural R&D expenditure (GERD) in 2011 (in absolute terms) and for two 
years  GERD  intensity  (2.34%  in  2011  and  2.16%  in  2012)  exceeded  EU28  average 
(1.97%  in  2011  and  2.01%  in  2012)  but  slid  back  below  EU28  average  in  2013  with 
1.74%,  and  further  down  to  1.46  in  2014,  as  investments  in  the  oil  shale  industry 
diminished (Eurostat, 2016). The shale oil related R&D expenditure peak proved to be a 
short-term  phenomenon  which  has  not  affected  the  R&I  system  development  in  the 
long-term. 

Table 1 Main R&I indicators, 2012-2014 

Indicator 

2012 

2013 

2014 

EU average 
(2014) 

GDP per capita (EUR) 

13,600 

14,400 

15,200 

27,400 

GDP growth rate 

5.2 

Budget deficit as % of GDP 

-0.3 

Government debt as % of GDP  9.5 

1.6 

-0.1 

9.9 

2.9 

0.7 

10.4 

Unemployment rate as % of 
the labour force 

10.0 

8.6 

7.4 

1.4 

-3.0 

86.8 

10.2 

GERD in €m 

380.695 

326.045 

285.939 

283,099.388 

GERD as % of the GDP 

2.16 

GERD (EUR per capita) 

287.3 

1.74 

247 

1.46 

2.03 

217.3 

558.4 

Employment in high- and 
medium-high-technology 
manufacturing sectors as share 
of total employment  

Employment in knowledge-
intensive service sectors as 
share of total employment  

Turnover from innovation as % 
of total turnover  

Value added of manufacturing 
as share of total value added 

Value added of high tech 
manufacturing as share of total 
value added 

4.2 

4.1 

3.5 

5.7 

35.0 

35.5 

36.1 

39.8 

10.2 (2008) 

12.3 (2010) 

7.8 (2012) 

11.9 (2012) 

26.3 (2011) 

25.1 (2012) 

25.0 (2013) 

26.2 (2012) 

2.1 (2011) 

1.7 (2012) 

1.6 (2013) 

2.5 (2012) 

Source: Eurostat, 2016 

14 

 
 
 
1.2  Structure of the national research and innovation system and 
its governance 

1.2.1  Main features of the R&I system 

The Organisation of Research and Development Act (ORDA) provides the framework for 
the structure and financing of the Estonian research and development system.   

According to ORDA all ministries perform the following functions in the field of research 
and development: 

 1) organisation of the required research and development in their areas of government 
and  the  financing  thereof,  taking  into  account  the  results  of  evaluation  and  the  related 
assessments and recommendations; 

 2)  drafting  national  research  and  development  programmes  and  organising  their 
implementation and drafting the research and development programmes of their area of 
government and organising their implementation; 

In  addition  to  that,  the  Ministry  of  Education  and  Research  (MER)    implements  the 
national  research  policy  and  organises  research  and  development  activities,  prepares 
proposals  concerning  the  research  policy  and  submits  them  to  the  Government  and 
organises  the  financing  of  research  and  development  at  research  and  development 
institutions.  

The  Ministry  of  Economic  Affairs  and  Communications  (MEAC)  organises  technological 
development  and  innovation  policy,  prepares  proposals  concerning  technological 
development  and  innovation  policy  and  submit  them  to  the  Government  and  organises 
the financing of applied research, development and innovation. 

RD&I  strategic  objectives  and  principles  of  management  and  financing  are  set  in  two 
main strategies: RD&I strategy "Knowledge Based Estonia 2014-2020" (implemented by 
MER)  and  the  “Entrepreneurship  growth  strategy  for  2014-2020”  (implemented  by 
MEAC). 

R&D funded by Business Enterprise Sector (% of GERD) was over 50% as a result of big 
investments  into  shale  oil  refinery  in  2011  (55%)  and  2012  (51.2%),  but  slid  back  to 
41.3%  in  2013.The  share  of  Government  Sector  financing  changed  accordingly  from 
32.8%  in  2011,  and  38.2%  in  2012  to  48%  in  2013  and  is  now  the  dominant  funding 
sector. 

As Estonia is a relatively small country, there is no regional decentralisation of the R&D 
system.  The  main  players  in  the  Estonian  research  system  are  six  public  universities 
(one private university is focused mostly on education, not research). Research policy in 
Estonia  is  generally  seen  as  covering  university-led  research;  and  innovation  policy  as 
covering private sector led research. This is largely due to the fact that nearly all basic 
research  is  conducted  at  universities  and  private  sector  focuses  almost  exclusively  on 
product  development  and  innovation.  There  are  no  multinational  R&D  institutions  in 
Estonia. 

The  main  RDI  funders  are  the  Ministry  of  Education  and  Research  (MER,  ca  80%  of 
public  funding)  and  the  Ministry  of  Economic  Affairs  and  Communications  (MEAC,  ca 
13% of funding). MER is responsible for the funding of R&D (including applied and basic 
research)  at  R&D  institutions  and  MEAC  for  funding  applied  research,  technology 
development and innovation. The amount of funding of R&D through other ministries is 
relatively small, e.g. in 2013 it was about 5% (Estonian Research Council, 2015). 

15 

 
 
 
1.2.2  Governance 

The  Organisation  of  Research  and  Development  Act  provides  the  framework  for  the 
structure and financing of the Estonian research and development system. According to 
this  law,  the  Government  of  the  Republic  prepares  national  R&D  development  plans, 
submits  them  to  the  Riigikogu  (Parliament),  approves  national  R&D  programmes, 
ensures the cooperation between the ministries and enacts legislation.  

RD&I  strategic  objectives  and  principles  of  management  and  financing  are  set  in  two 
core strategies - the RD&I strategy "Knowledge Based Estonia 2014-2020" (launched in 
January  2014)  and  the  “Entrepreneurship  Growth  Strategy  2014-2020”  (launched  in 
October 2013). While the RD&I strategy focuses more on research and higher education, 
the  “Entrepreneurship  Growth  Strategy”  encompasses 
innovation  and  relevant 
educational aspects. Investments in research infrastructures are also planned under the 
strategies.  The  strategies  are  supplemented  by  annually  updated  implementation  plans 
that  provide  a  predictable  policy  framework  for  short-  and  medium-term  planning,  via 
annual implementation plans, investment plans, etc. 

Policy design and evaluation is carried out mainly by the Ministry of Economic Affairs and 
Communications  (MEAC)  and  the  Ministry  of  Education  and  Research  (MER).  Other 
ministries  are  also  responsible  for  organising  and  financing  R&D  activities,  drafting  and 
implementing R&D programmes of their area of responsibility. 

A  permanent  advisory  body  -  the  Research  Policy  Committee  -  provides  advice  to  the 
Ministry  of  Education  and  Research  and  the  Innovation  Policy  Committee  advises  the 
Ministry  of  Economic  Affairs  and  Communications.  The  Research  and  Development 
Council  (R&D  Council)  is  an  expert  consultative  body  that  advises  the  Government  on 
R&D and innovation matters – all policy documents have to pass the R&D Council prior 
to being submitted to the Government for approval.  

An innovation oriented projects promoter is the Development Fund, a public law entity, 
established by the Estonian Parliament in April 200711. The aim of the Development Fund 
is  to  initiate  and  support  changes  in  the  Estonian  economy  and  society  that  would 
accelerate modernisation of Estonian economic structure, lead to growth in exports and 
contribute to the creation of new jobs requiring high qualifications. For that purpose, the 
Development  Fund  (together  with  the  private  sector)  performs  risk  capital  investments 
into  the  starting  and  growth-oriented  technology  companies  and  carries  out  socio-
economic and technology foresight activities.  

At the operational level, both ministries have implementing agencies and intermediaries. 
The main implementing body under the Ministry of Economic Affairs and Communication 
is  the  Enterprise  Estonia  Foundation,  which  is  responsible  for  managing  business 
support, innovation and technology programmes, etc. Foundation KredEx’s mission is to 
facilitate  the  increase  of  competitive  strength  of  Estonian  companies  by  improving  the 
availability  of  financing  and  managing  credit  risks,  and  the  improvement  of  the  energy 
efficiency in the housing sector by expanding financing possibilities and offering financing 
solutions  aimed  at  promoting  energy  efficiency  and  increasing  the  use  of  renewable 
energy sources. 

From the research policy perspective, the Ministry of Education and Research has three 
main  agencies  that  among  their  other  activities  deliver  funding  and  support:  the 
Archimedes Foundation is implementing agency for structural support in the field of R&D 
and  administers  schemes  for  improving  mobility  and  marketing  Estonian  higher 
education and research abroad. The Estonian Research Council was established in March 
2012 to concentrate the funding of R&D and achieve better functioning of the financing 
systems.  

11 On March 15 2016, the Economic Affairs Committee of the Parliament decided to terminate the activities of the Development Fund 
and will prepare the bill in April 2016 that would enable to adopt all reforms by the end of the spring session of the Parliament. 

16 

 
 
 
                                          
This  body  is  the  main  funding  organization  of  R&D,  consolidating  different  grants  and 
types  of  funding  and  giving  research  more  visibility  in  the  society.  The  INNOVE 
foundation  manages  a  range  of  programmes  and  support  measures  in  the  fields  of 
lifelong learning and active labour market policies. 

The Ministry of Rural Affairs (MoRA, former Ministry of Agriculture12) is the only non-core 
ministry  that  has  got  a  Research  and  Development  Department  and  a  budget  line  for 
R&D  activities  already  for  years,  financing  R&D  on  plant  breeding,  developing 
environmentally friendly and effective plant breeding technologies, rural economy and its 
sustainable  development,  research  on  the  protection  and  monitoring  of  the  agricultural 
environment, food safety, and biological diversity. In other ministries the R&D activities 
have been carried out sporadically to some extent, but the situation might improve, as 
the Implementation plan for the R&D strategy indicates R&D activities (and related parts 
of the budget) of the Ministry of the Environment, the Ministry of Defence, the Ministry 
of Internal Affairs, the Ministry of Culture, and the Ministry of Social Affairs.  

In  the  framework  of  the  Programme  RITA  different  measures  supporting  the  RDI 
activities in other ministries are supported. 

The  Organisation  of  Research  and  Development  Act  indicates  two  types  of  external 
evaluations  of  research  and  development:  regular  evaluations  (of  organizations)  and 
targeted evaluations. Targeted evaluations (introduced in 2009) serve for preparing field 
development  plans  that  guide  research  and  development  or  other  research  policy 
decisions and measures, or for assessing and analysing the impact and implementation 
thereof. MER has the right to organise evaluations at its own initiative or upon proposal 
of other ministries. 

In  the  process  of  preparation  for  the  new  research,  development  and  innovation  (RDI) 
strategic  period  of  2014–2020,  MEAC  carried  out  or  commissioned  and  MER 
commissioned  a  number  of  evaluations  (see  also  ch.2.2.1)  and  the  results  are  used  in 
designing new policies and measures. MEAC has quite a long history (since the beginning 
of  2000s)  in  carrying  out  evaluations  and  feasibility  studies  of  measures  and 
programmes,  while  MER  focused  mainly  on  the  evaluation  of  the  performance  of  R&D 
organisations.  However,  in  2011,  MER  initiated  the  Research  and  Innovation  Policy 
Monitoring  Programme  for  2011-2015  (TIPS  Programme)  to  analyse  thoroughly  the 
impact  of  2007-2013  policy  measures  and  give  policy  recommendations  for  the  design 
and  implementation  of  the  new  RDI  strategy  (2014-2020)  and  policy  measures  under 
the strategy. 

The evaluation of the implementation of the RD&I strategy is annual 13 and is presented 
in the “Report on achieving the objectives and implementing the strategy”.  

Estonia  does  not  have  a  specific  macroeconomic  model  to  assess  R&I  impact  on 
economic growth. 

1.2.3  Research performers 

The  main  players  of  the  Estonian  research  system  are  the  six  public  universities  (one 
private  university  is  focused  mostly  on  education,  not  research).  In  2014,  the  R&D 
expenditure  in  non-profit  institutional  sectors  (higher  education,  government  and  non-
profit private sectors) was €162m, of which 78% was performed by universities14 (higher 
education  sector)  and  2%  by  non-profit  private  sector  (Statistic  Estonia,  2016). 
Research  policy  in  Estonia  is  generally  seen  as  covering  university-led  research;  and 
innovation policy as covering private sector led research.  

12 Since the 1st September 2015, the Ministry of Agriculture continues to work as the Ministry of Rural Affairs. 
13 Although reports have been annual and publicly available on the MER web site, reports on achieving the objectives and 
implementing the strategy in 2013 and 2014 are absent. 
14 4 universities perform more than 80%  of all public sector research in Estonia, estimated on the basis of the 
distribution of performance based baseline funding. 

17 

 
 
 
                                          
This is largely due to the fact that nearly all basic research is conducted at universities 
and private sector focuses almost exclusively on product development and innovation.  

From 19 positively evaluated R&D institutions 7 are universities (1 private and 6 public), 
4 are private R&D institutions (2 of them funded as Technological development centres; 
3 on health services which are also engaged with bio- and environmental sciences, one 
on  ICT  field).  From  8  positively  evaluated  public  research  organisations  two  are  also 
active  on  health,  bio-  and  environmental  sciences.  Most  of  the  private  research 
organisations have less than 50 employees and the teams include foreign researchers.  

Multinational R&D organisations do not operate in Estonia and multinational corporations 
do  not  carry  out  research  in  Estonia.  The  share  of  SMEs  innovating  in-house  as 
percentage of SMEs was 33.6% in 2010 (IUS 2014).  

The  number  of  ICT  enterprises  is  quite  big  (ca  3000  in  2013),  but  most  of  them  have 
less  than  10  employees.  In  2013,  most  of  ICT  enterprises  provided  services  as 
programming and consultations and only 2.4% of them were engaged in manufacturing 
(Statistics Estonia, 2015).   

According to the National Audit Office (2014), the structure of the Estonian economy is 
still dominated by small and medium-sized low-tech companies whose need for research 
and  development  is  limited.  Only  a  few  companies  are  engaged  in  research  and 
development  and  cooperating  with  universities:  90%  of  research  and  development 
expenses in Estonia are incurred by fewer than 100 companies. 

Figure 1 Structure of the Research and Innovation System  

Source: ERAC Peer-Review of the Estonian Research and Innovation System, 2012; updated by 
the author. Note: Estonian acronyms are given in brackets.

18 

                   Strategy Office of the State Chancellery Parliament “Riigikogu” Government Research and Development Council (TAN) Ministry of Education and Research (HTM) Ministry of Economic Affairs and Communications (MKM) Other sectoral ministries Research Policy Committee (TPK) Estonian Research Information System (ETIS) Innovation Policy Committee (IPK) Archimedes Foundation Estonian Research Council (ETAG) Enterprise Estonia (EAS) Kredex Estonian Development Fund State Research Organisations Private Research Organisations Estonian Academy of Sciences (ETA)      Universities   Public Research Organisations   
 
 
 
2.  Recent Developments in Research and Innovation Policy 
and systems 

2.1  National R&I strategy 

The  innovation  governance  system  has  remained  basically  intact  and  involves  industry, 
parliament  and  the  scientific  community.  The  present  system  is  uncomplicated  with  a 
rather clear division of responsibilities and a firm connection with the political leadership 
(see  Figure  1).  RD&I  strategic  objectives  and  principles  of  management  and  financing 
are set in the RD&I strategy "Knowledge Based Estonia 2014-2020" (launched in January 
2014).  The  “Entrepreneurship  Growth  Strategy  2014-2020”  which  focuses  on  co-
operation  between  enterprises  and  R&D  institutions,  was  launched  in  October  2013. 
the 
While  RD&I  strategy 
“Entrepreneurship  Growth  Strategy”  encompasses  innovation  and  relevant  educational 
aspects. Investments in research infrastructures are also planned under the strategies.  

focuses  more  on  research  and  higher  education, 

The strategies are supplemented by annually updated implementation plans that provide 
a  predictable  policy  framework  for  short-  and  medium-term  planning,  via  annual 
implementation plans, investment plans, etc (ERAC, 2012). Both strategies are preceded 
by  international  analyses  of  strengths  and  weaknesses,  emerging  opportunities  ("smart 
specialisation")  and  market  developments.  The  strategies  also  reflect  EU  priorities  and 
exploit opportunities for joint programming, cross-border co-operation and the leverage 
effects of EU instruments.  

The main funding instruments are the state budget and EU structural funds.  Policies and 
funding  are  focused  on  specific  priorities,  addressing  societal  challenges  as identified  in 
the Horizon 2020.  

The  2007-2013  programming  period  is  being  completed  and  new  measures  are  being 
initiated for 2014-2020, based on evaluations of the previous period. As implementation 
plans of both strategies were just approved, and programmes launched in 2015, it is still 
too  early  to  assess  the  impact  of  these  measures.  While  the  previous  RD&I  strategies 
focused  primarily  on  developing  Estonia's  capability  in  research,  development  and 
innovation, the new strategy aims to use the created potential for the good of Estonia's 
development and economic growth. In the setting of priorities the methodology of smart 
specialization served as a basis.  

The RD&I strategy identifies four key goals:  

• 
• 

• 
• 

Research in Estonia is of a high level and diverse; 
Research and development (R&D) serves the interests of the Estonia’s society 
and economy; 
R&D improves the knowledge-intensity of the structure of the economy; 
Estonia is active and visible in international RD&I cooperation. 

The  implementation  plan  for  RD&I  strategy  for  "Knowledge  Based  Estonia  2014-2020" 
was approved by the Government in September 2014. 

The  implementation  plan  for  2014-2017  for  the  “Entrepreneurship  Growth  strategy 
2014-2020” (in Estonian) was approved by the Government in March 2014. 

According  to  the  Implementation  plan  for  the  RD&I  strategy  2014-2020,  the  balance 
between generic and thematic/sectoral R&D funding will be in favour of generic funding 
–  10%  of  all  R&D  funding  (2014-2017)  is  allocated  for  Smart  Specialisation,  where  a 
clear thematic focus is evident.  

19 

 
 
 
2.2  R&I policy initiatives 

Major  changes  in  research  and  development  legislation  were  made  in  2011  and 
implementation  started  in  2012.  In  2012,  the  Estonian  Research  Council  (ESC),  a  new 
funding  agency  for  Estonian  research,  was  established,  to  gather  all  R&D  and  research 
financing  instruments  of  research  institutions  ‘under  one  roof’  in  order  to  create  better 
synergy  and  avoid  duplication  and  overlap  (incl.  in  financing).  Also  amendments  were 
made to the Organisation of Research and Development Act, to offer Ph.D. students an 
employment  contract  with  the  same  social  guarantees  as  any  other  employment.  In 
2013,  the  Government  approved  the  Entrepreneurship  growth  strategy  for  2014-2020. 
The general goal of the strategy is to facilitate the achievement of the objectives within 
the  national  competitiveness  strategy  "Estonia  2020"  to  enhance  productivity  and 
employment.  Also  amendments  were  made  to  the  Aliens  Act  in  order  to  change  the 
procedures  for  giving  work  permits  with  the  objective  of  making  it  easier  for  potential 
top-level specialists and highly qualified employees to enter Estonia’s labour market. In 
2014, the Parliament approved the new RD&I strategy for 2014-2020 "Knowledge Based 
Estonia  2014-2020"  and  the  Estonian  Research  Infrastructures  Roadmap  was  updated. 
Also amendments were made to the Organisation of Research and Development Act (in 
force from 01.01.2015) which turned most of temporary (5 years) contracts of research 
personnel are into permanent contracts  

No major legislative changes have been made in 2015.  

Evaluations, consultations, foresight exercises 

The  Organisation  of  Research  and  Development  Act  indicates  two  types  of  external 
evaluations of research and development: 

-  Regular  evaluations  (introduced  in  1995)  for  assessing  the  level  of  the  corresponding 
field of research and development at a research and development institution. The period 
of validity of a positive decision of a regular evaluation is 7 years, 

-  Targeted  evaluations  (introduced  in  2009)  for  preparing  field  development  plans  that 
guide research and development or other research policy decisions and measures, or for 
assessing  and  analysing  the  impact  and  implementation  thereof.  MER  has  the  right  to 
organise evaluation at its own initiative or upon proposal of other ministries. 

The  most  influential  report,  undertaken  in  the  2014-2015  period,  is  the  “Report  on  the 
network  and  policies  of  Estonian  universities  and  other  R&D  institutions  and  higher 
education  institutions”  (Okk,  2015) 15  ,  which  was  presented  to  the  Research  and 
Development  Council  in  August  2015.  The  report  recommends  to  carry  out  a  broad 
reform of higher education and research by means of consolidation, pooling of resources, 
and  changing  the  financing  model.  The  report  triggered  a  lot  of  discussions  and  a 
number of critics. 

The purpose of the report was to identify whether and what kind of structural changes in 
the  network  and  policies  of  the  institutions  could  be  needed  to  boost  the  performance 
and  increase  the  international  competitiveness  of  Estonian  research  institutions  and 
higher  education  system.  The  report  suggests  that  the  provision  of  education  and 
research  activities  of  Estonian  universities  and  the  institutions  of  research  and 
professional higher education should be consolidated within bigger universities. It is also 
recommended  to  join  the  resources  of  Estonian  universities  in  order  to  ensure  the 
international  marketing  of  learning  opportunities,  services,  and  research  achievements, 
as  well  as  connect  innovation  and  technological  developments  with  business  and 
industry.  

15 https://riigikantselei.ee/sites/default/files/riigikantselei/strateegiaburoo/eutarkvt_loppraport.pdf 

20 

 
 
 
                                          
The number of curricula and duplication between them should be reduced. According to 
the  third  major  recommendation,  the  higher  education  and  research  funding  model 
should be reshaped. 

Critics  of  the  report  condemn  the  administrative-technocratic  approach  where  higher 
education  and  research  is  seen  in  very  practical  and  utilitarian  terms  -  how  it  can  be 
applied  and  how  to  pay  higher  salaries.  Among  other  things,  critics  point  to  the  most 
controversial  recommendations  in  the  report  as  making  higher  education  paid  in  full 
extent  (student  loans  to  replace  free  study  16 );  teaching  one  subject  only  in  one 
university; and suggesting having Masters curricula in technical fields and entire Doctoral 
curricula in English (as in Estonian there is no chance to be recognised internationally). 

To  analyse  thoroughly  the  impact  of  2007-2013  policy  measures  and  give  policy 
recommendations  for  implementation  of  the  RDI  Strategy  "Knowledge-based  Estonia 
2007-2013"  and  to  design  both  the  new  Estonian  RDI  strategy  (2014-2020)  and  policy 
measures  under  the  new  strategy,  the  Research  and  Innovation  Policy  Monitoring 
Programme  for  2011-2015  (TIPS  Programme)  was  launched  in  2011  and  a  number  of 
final  reports  published in  2015.  The  programme  activities  are grouped  into  seven  Work 
Packages (altogether 34 reports have been compiled):  

• 
• 
• 

• 

• 
• 

• 

Intellectual property rights in research and development (3 reports);  
Public funding of research activities in Estonia (6 reports);  
Leadership  and  management  models  of  Estonia’s  research  and  development 
institutions (3 reports); 
Management  of  cooperation  between  higher  education  institutions  and 
industry (9 reports);  
Complex analysis of research, development and innovation policy (4 reports);  
Internationalisation  of  research,  development  and  innovation  activities  (6 
reports);  
Designing  the  Estonian  research,  development  and  innovation  strategy  for 
2014-2020 (3 reports). 

In  January  2015,  the  Full  Report  on  the  “Research  and  Development  and  Innovation 
Strategy 2007-2013 “Knowledge-based Estonia 2007-2013” (In Estonian, „Eesti teadus- 
ja  arendustegevuse  ning  innovatsiooni  strateegia  2007–2013  „Teadmistepõhine  Eesti”” 
lõpparuanne “) was presented to the Government.  

on 

achieved 

the  modernisation 

According  to  the  report,  Estonia’s  RD&I  system  has  developed  considerably.  A  lot  has 
been 
technology, 
internationalisation  of  research  (incl.  researchers’  mobility)  and  business,  supporting  of 
start-up  companies,  and  developing  cooperation  between  business  and  academia.  Still, 
the main challenge is to further develop the research and innovation system in ways that 
it  will  have  bigger  impact  on  the  society.  Policies  should  more  strongly  contribute  to 
creating  favourable  environment  to  promote  creation  of  jobs  and  growing  export 
volumes in medium- and high-tech industries and knowledge intensive services.  

infrastructure 

and 

of 

16 The system where only free positions, ordered by the state, are available in the universities (with permission to fill paid 
positions only if the study programme is in English) was introduced in 2013. Before that, in addition to state positions, 
paid positions were made available by universities. The present system will probably face changes, as neither universities 
nor students are totally satisfied. 

21 

 
 
 
 
                                          
In  addition,  in  2014-2015, MEAC carried  out  or commissioned evaluations  of  enterprise 
and  innovation  policy,  to  assess  the  measures  implemented  and  the  impact, 
effectiveness  and  feasibility  of  those  measures:  Mid-term  evaluation  of  innovation  and 
enterprise  support  policies 17  (2014,  summary  in  English);  “Feasibility  Study  for  the 
Design  and  Implementation  of  Demand-side  Innovation  Policy  Instruments  in  Estonia”, 
which  analysed  the  feasibility  of  this  new  policy  initiative  in  smart  specialization  areas 
(2014);  and  “Ex-ante  evaluation  of  designed  financial  instruments  from  the  Cohesion 
Policy  2014-2020  funds  (in  Estonian,    Perioodi  2014-2020  ühtekuuluvuspoliitika 
vahenditest  kavandatavate  rahastamisvahendite  eelhindamine;  Ernst  &  Young,  2015) 
gives  suggestions  for  using  financial  instruments  as  loans,  state  guarantees  and  credit 
insurance. 

The findings have been used to design the Entrepreneurship Growth Strategy 2014-2020 
and its implementation plan and for the development of measures and programmes. 

2.3  European Semester 2014 and 2015 

The National Reform Programme “Estonia 2020” (updated in May 2015) sets two central 
objectives  of  “Estonia  2020”  –  increasing  productivity  and  employment  in  Estonia.  The 
main focus in the coming years is on education and employment and the main objectives 
include  integrating  long-term  and  young  unemployed  people  in  the  labour  market  and 
developing their skills. 

The  European  Council  country  specific  recommendation  of  2014  on R&D  in  Estonia  was 
to  “further  intensify  prioritisation  and  specialisation  in  the  research  and  innovation 
systems  and  enhance  cooperation  between  businesses,  higher  education  and  research 
institutions  to  contribute  to  international  competitiveness”  (European  Commission, 
2014a). 

According  to  the  Country  Report  Estonia  2015  (EC  2015),  the  research  and  innovation 
systems  and  cooperation  between  business,  higher  education  and  research  institutions 
have  improved.  However,  public  support  for  research  and  innovation,  under  the  RDI 
Strategy  and  the  Entrepreneurship  Growth  Strategy,  seems  to  lack  coordination  and 
should  focus  more  on  a  limited  number  of  smart  specialisation  areas.  The  higher 
education  system,  in  particular  as  regards  science  and  technology,  still  needs  to  be 
better  aligned  with  the  needs  of  business  and  research  institutions.  Investment  in 
intellectual property is low and few companies work together with research institutions. 
The  Estonian  government  adopted  a  lifelong  learning  strategy  in  early  2014  and 
programmes to implement it were presented in March 2015. A reform of curricula in the 
vocational education and training system is ongoing and participation in lifelong learning 
has increased. An Adult Education Act and a Professions Act were adopted by parliament 
in  early  2015.  The  attractiveness  of  vocational  education  and  training  and 
apprenticeships remains a challenge. 

The  analysis  in  Country  Report  Estonia  2015  (EC  2015)  leads  to  the  conclusion  that 
Estonia has made some progress in addressing the recommendation and measures, e.g. 
the  implementation  of the  updated innovation  voucher  scheme  and Support  for  applied 
research  in  the  areas  of  smart  specialisation  (see  also  ch.  3.5.1.),  as  well  as  the 
strategies and action plans for the north-eastern and other regions appear relevant and 
credible.  

Country specific recommendation of 14 July 2015 (EC 2015a) on R&D is to „focus public 
support  for  research  and  innovation  on  a  coordinated  implementation  of  the  limited 
number of smart specialisation areas”. 

17 R&D related conclusions: R&D grant has allowed companies to reach commercialisation more easily compared to the 
earlier  assessment,  but  company  volumes  are  still  small;  Three-quarters  of  companies  active  in  the  field  of  R&D  took 
their product innovations to market and two out of three did it thanks to the support of EAS; Of all R&D investments in 
private  sector,  90%  were  made  with  the  support  of  EAS;  The  R&D  grant  award  was  rated  the  most  positive  with  the 
strongest effect; Every fifth recipient of an R&D grant award has since terminated its activities. 

22 

 
 
 
                                          
Estonia’s  smart  specialisation  framework  comprises  the  Entrepreneurship  and  Growth 
Strategy (adopted by the government in October 2013) and the Research, Development 
and  Innovation  Strategy  (adopted  by  the  Riigikogu  in  January  2014)  with  a  focus  on 
shared  priorities  while  further  specialising  in the thematic  areas.  There  are  three  smart 
specialisation  growth  areas:    ICT  supporting  other  sectors  (use  of  ICT  in  industry  incl. 
automation  and  robotics,  cyber  security,  software  development);  health  technologies 
and  services  (biotechnology,  e-health);  resource  efficiency  (material  science  and 
industry,  knowledge-based  construction,  health-promoting  food  industry,  chemical 
industry).  

The  objective  of  the  support  grants  for  2014-2020  (mostly  financed  by  ESIF)  is  to 
increase  the  socioeconomic  impact  of  Estonia’s  science,  thus  many  of  the  activities  are 
therefore aimed at smart specialisation growth areas.  

2.4  National and Regional R&I Strategies on Smart 
Specialisation 

To  date,  there  is  no  separate  national  or  regional  R&I  strategy  on  Smart  Specialisation 
and there is no plan to have one, as Smart Specialisation has been incorporated into the 
RD&I  Strategy  2014-2020  and  into  the  Entrepreneurship  Growth  Strategy  2014-2020. 
Monitoring  and  evaluation  of  Smart  Specialisation  is  a  regular  part  of  the  monitoring 
process of these strategies (see ch. 1.2.2). The budget for Smart Specialisation in 2014-
2020  (including  structural  funds  and  state  budget  co-financing)  is  planned  to  be  about 
€140m (Estonian Development Fund, Feb. 2015).  

In  the  end  of  2012,  the  Estonian  Development  Fund  completed  the  first  phase 
(Qualitative  Analysis  of  Smart  Specialisation)  of  the  analysis  and  the  areas  of  Smart 
Specialisation  were  selected.  In  June,  2013,  the  work  on  a  follow-up  was  completed 
(Analysis of deficiencies and new opportunities) and specific bottlenecks were identified 
that  need  to  be  dealt  with  in  order  to  increase  innovation.  The  second  part  of  the 
analysis focused on practical recommendations and actions to overcome the obstacles in 
Estonia’s  innovation.  These  analyses  were  commissioned  by  the  Ministry  of  Economic 
Affairs and Communications and the Ministry of Education and Research. 

The growth areas were selected using OECD/European Commission Smart Specialisation 
methodology.  The  analysis  was  performed  in  cooperation  with  Enterprise  Estonia, 
Estonian Research Council, and leading economists.  

Smart Specialisation growth areas are:  

• 

• 
• 

ICT  supporting  other  sectors  (use  of  ICT  in  industry  incl.  automation  and 
robotics, cyber security, software development); 
Health technologies and services (biotechnology, e-health); 
Resource  efficiency  (material  science  and 
construction, health-promoting food industry, chemical industry). 

industry,  knowledge-based 

In  the  programming  period  2014-2020,  the  focus  of  R&D  funding  is  on  increasing  the 
socioeconomic  impact  of  Estonia’s  research,  thus  a  number  of  programmes  and  other 
activities (mostly financed by ESIF) are aimed at smart specialisation growth areas.  

MEAC  has  launched  programmes  to  increase  the  competitiveness  of  enterprises  in  the 
areas of smart specialisation: the Cluster development Programme (renewed in 2014) is 
aiming to improve the international competitiveness and to increase the sales and value 
added  of  the  companies  via  cooperation  between  companies  and  research  institutions. 
Enterprise  Development  Programme  was  launched  in  January  2016  which  aims  to 
support  well-thought-out  development, 
innovation 
implementation and product development. The support is given to industrial enterprises 
or  companies  of  the  smart  specialisation  field  (operating  for  at  least  3  years,  8 
employees  or  more)  which  have  clear  ambitions  and  potential  for  growth  and/or  ability 
to bring new or significantly improved products or services to the market.  

improved  action  planning, 

23 

 
 
 
Also a new measure “State as a smart costumer” will be launched to improve demand-
side innovation policies (total budget €20m).  

MER  launched  the  activity  “Support  for  applied  research  in  the  areas  of  smart 
specialisation”  (in  Estonian,  Rakendusuuringute  toetamine  nutika  spetsialiseerumise 
kasvuvaldkondades (NUTIKAS). The “Institutional development programme for research 
and  development  and  higher  education  institutions”  (in  Estonian,  Institutsionaalne 
arendusprogramm teadus- ja arendusasutustele ja kõrgkoolidele ASTRA) and “Allocation 
of support for R&D infrastructure (in Estonian, Riikliku tähtsusega teaduse infrastruktuuri 
toetamine  teekaardi  alusel)  also  consider  among  other  criteria  the  principles  of  smart 
specialisation. 

2.5  Main policy changes in the last five years 

Main Changes in 2011 
At the end of 2011, the Minister of Education and Research launched a reform of higher education 
and some amendments to the   Organisation of Research and Development Act were made and a 
new  Universities  Act  was  adopted  in  2012  with  the  aim  to  rearrange  the  financing  of  higher 
education,  strengthen  the  quality  and  effectiveness  as  well  as  to  increase  fair  accessibility  of 
higher education. 
Estonian Government approved the strategy "Estonia 2020", which sets the targets for 2020 and 
measures  for  addressing  these  challenges  were  taken  into  the  Governments'  workplan.  (The 
strategy – also referred to as National Reform Programme - is updated annually.) 

Main changes in 2012 
In March 2012, Estonian Research Council (ESC), a new funding agency for Estonian research was 
established, which took over the functions of the Estonian Science Foundation  and some functions 
of the Archimedes Foundation18. The aim of this reorganisation of functions of the ESC is to gather 
all R&D and research financing instruments ‘under one roof’ in order to create better synergy and 
avoid duplication and overlap (incl. in financing). 
Amendments were made to the Organisation of Research and Development Act, to offer Ph.D. 
students an employment contract with the same social guarantees as any other employment. This 
will contribute to improving the attractiveness of doctoral studies. 
Main changes in 2013 
In October 2013, the Government approved the Entrepreneurship growth strategy for 2014-2020. 
The  general  goal  of  the  strategy  is  to  facilitate  the  achievement  of  the  objectives  within  the 
national competitiveness strategy "Estonia 2020" to enhance productivity and employment. 
In  April  2013,  Estonian  Information  Technology  Foundation  for  Education  (HITSA) 19  was 
established.  The mission of  HITSA is to  provide a high-quality national network  infrastructure for 
Estonia’s research, educational and cultural communities. 
Amendments  were  made  to  the  Aliens  Act  in  order  to  change  the  procedures  for  giving  work 
permits with the objective of making it easier for potential top-level specialists and highly qualified 
employees to enter Estonia’s labour market. 
Main Changes in 2014 
In  January  2014,  the  Parliament  approved  new  RD&I  strategy  for  2014-2020  "Knowledge  Based 
Estonia  2014-2020",  which  is  Estonia's  third  strategy  on  research  and  development  and 
innovation. 
Estonian Research Infrastructures Roadmap  was updated. 
Amendments  were  made  to  the    Organisation  of  Research  and  Development  Act    (in  force  from 
01.01.2015):  a)  Most  of  temporary  (5  years)  contracts  of  research  personnel  are  turned  into 
permanent  contracts  and,  as  regular  evaluation  by  election  disappears,  the  evaluation  of 
professional performance of research personnel must now take place at least once in 5 years; b) 
Until the end of 2014, detailed conditions and procedures for organising a competition for research 
staff  in  a  research  and  development  institution  which  operates  as  a  state  agency  or  a  local 
authority  agency,  were  established  by  the  ministry  or  corresponding  body  of  the  legal  person 

18 Research Cooperation Centre, a department of the Archimedes Foundation, acting as a FP7 National Contact Point, was 
transferred from Archimedes Foundation to the Estonian Research Council. 
19 From May 1st 2013, the Tiger Leap Foundation and the Estonian Education and Research Network were transferred to 
the Estonian Information Technology Foundation and the new name of established organisation is Information 
Technology Foundation for Education (HITSA; www.hitsa.ee) 

24 

 
 
 
                                          
which governs a R&D institution. Since the beginning of 2015, R&D institutions can establish their 
own conditions of selection processes. 
Main Changes in 2015 
In  April,  new  government  was  established  after  Parliamentary  elections  and  new  Minister  of 
Education  and  Research  was  appointed  –  Jürgen  Ligi  from  the  ruling  Reform  Party  –  who  was 
previously the Minister of Finance.   
In  January,  the  Full  Report  on  the  “Research  and  Development  and  Innovation  Strategy  2007-
2013 “Knowledge-based Estonia 2007-2013” (In Estonian, „Eesti teadus- ja arendustegevuse ning 
innovatsiooni strateegia 2007–2013 „Teadmistepõhine Eesti”” lõpparuanne “) was presented to the 
Government. According to the report, Estonia’s RDI system has developed considerably. 
No major changes in legislation.  

25 

 
 
3.  Public and private funding of R&I and expenditure 

3.1  Introduction 

The  RD&I  strategic  objectives  are  set  in  the  RD&I  Strategy  “Knowledge-based  Estonia” 
(new  strategy  for 2014-2020  launched in  January  2014). The  target towards total  R&D 
investments (GERD) in 2020 is set on 3% of GDP and business sector R&D investments 
(BERD) on 2% of GDP.  

The  overall  level  of  R&D  investments  as  a  percentage  of  GDP  almost  doubled  in  2008-
2011 (from 1.26% to 2.34%), but slid back to 2.16% in 2012 and dropped again below 
the EU28 average in 2013 (EU28: 2.03%; EE: 1.74%) as the effect of the investments in 
a shale oil refinery ended. For 2014, GERD as a percentage of GDP dropped even further 
down to almost the same level it was in 2009 (1.46%). The business sector investment 
(BERD)  as  a  percentage  of  GDP  follows  the  same  trend  (as  the  cause  is  the  same):  it 
tripled  in  2008-2011,  slid  back  in  2012  and  dropped  further  by  about  half  in  2013  and 
further one third in 2014. The share of government sector investments (GBAORD) as a 
percentage of GDP has been growing steadily in 2009-2013 (from 0.69% to 0.82%), but 
also declined in 2014 to 0.71% (Eurostat, 2016).  

Gross  expenditure  on  R&D  (GERD)  in  absolute  terms  has  tripled  in  2004-2010  and 
doubled  in  2010-2011.  As  a  percentage  of  GDP  it  was  above  the  EU  average  in  2011-
2012,  but  dropped  back  below  EU  average  in  2013  as  investments  in  shale  oil  refining 
ended.  During  the  crisis  in  2008-2009,  R&D  investments  showed  an  increase  as  a 
percentage  of  GDP  (as  a  consequence  of  the  GDP  decline)  but  had  a  slight  decline  in 
absolute  terms.  The  relatively  stable  financing  was  due  to  the  previously  committed 
Structural Funds (GERD dropped by only 5%, while GDP changed by -14%).  

In  the  business  enterprise  sector,  investments  dropped  by  1.9%  during  the  crisis,  but 
doubled in 2011 compared to 2010, and in 2011 Business Expenditures on Research and 
Development  (BERD)  were  1.5%  of  GDP.  In  2011-2012  one  could  note  a  significant 
growth  in  BERD,  mostly  due  to  big  R&D  investments  in  the  shale  oil  refining  industry. 
Although this effect faded and BERD declined to 1.24% of GDP in 2012 to 0.83% in 2013 
and to 0.64% in 2014, BERD in absolute terms doubled from 2009 to 2013, but in 2014 
(€124m) closes again to the levels of 2010 (€118m). 

GBAORD as % of GDP is 0.71% in 2014, which is above the EU average (0.67% in 2014) 
and  as  a  share  of  general  government  expenditure  reached  2.12%  in  2013  (EU28: 
1.41%)  but  slide  back  to  1.96  in  2014  (EU28:  1.38).  The  higher  education  sector 
performed 44% of GERD in 2014 (EU28: 23.5%).  From 2009 to 2011 the share of HEIs 
declined  from  43%  to  28%,  but  returned  to  32%  in  2012  and  to  44%  in  2014,  as 
business sector investments declined.   

The  share  of  EU  Structural  funds  has  been  growing  remarkably  from  2009  to  2013.  In 
2011  and  2012,  64%  and  in  2013  60%  of  all  public  sector  RD&I  funding  was  financed 
under Structural Funds (including co-financing from the state)(Ministry of Finance, 2012, 
2013) and the ratio has been about the same in 2014 (ERC data, 2015). As the funding 
from  the  structural  funds  has  been  specifically  targeted for  infrastructure development, 
mobility  schemes  and  internationalisation,  the  possibilities  to  use  it  for  other  general 
needs,  such  as  researchers’  salaries,  maintenance  costs  and  indirect  costs  was  limited 
(ERAC, 2012). 

During  the  European  Union´s  multiannual  financial  framework  2007-2013,  education, 
research  and  development  were  financed  by  a  total  of  €763m,  of  which  the  support  of 
the European Social Fund (ESF) was €159m and of the European Regional Development 
Fund (ERDF) €523m (MER official site, 2015). In Estonia, this funding was based on the 
Operational  Programme  for  Human  Resource  Development.  In  the  framework  of  the 
Operational Programme for the Development of Economic Environment, higher education 
and university infrastructure development, research equipment acquisition, and scientific 
centres of excellence were supported.  

26 

 
 
 
For three Operational Programmes (Human Resource Development ‐ ESF; Development 
of Economic Environment ‐ ERDF+CF; Development of Living Environment - ERDF+CF), 
the  total  structural  support  for  Estonia  was  €3.4b.  The  share  for  R&D  and  higher 
education was 18.6% (data provided by RIO, 2016).  

Support  measures  for  enterprises  to  develop  new  products,  services  and  technologies 
are  financed  from  the  Enterprise  Estonia  support  scheme  for  R&D  projects.  The  total 
budget of this measure was €60m for 2007-2013 (MER, 2013a). 

Table 2 Basic indicators for R&D investments 

Indicator 

2011 

2012 

2013 

2014 

2015 

EU 
average 
(2014) 

GERD (as % of 
GDP) 

GERD (Euro per 
capita) 

GBAORD (as % of 
GDP) 

2.34 

2.16 

1.74 

1.46 

NA 

2.03 

289.1 

287.3 

247 

217.3 

NA 

558.4 

0.77 

0.83 

0.82 

0.71 

NA 

0.67 

GBAORD (€m) 

125.91 

145.83 

153.96 

148 

NA 

92,828.15 

R&D funded by BES 
(% of GDP) 

1.29 

1.11 

0.73 

0.54 

NA 

R&D funded by PNP 
(% of GDP) 

0 

0 

0 

0 

NA 

0.77 

0.82 

0.81 

0.72 

NA 

1.12 
(2013)  

0.03 
(2013) 

0.68 
(2013) 

R&D funded by GOV 
& HES (% of GDP) 

R&D funded from 
abroad (% GDP) 

R&D performed by 
HEIs (% of GERD) 

R&D performed by 
government sector 
(% of GERD) 

R&D performed by 
business sector (% 
of GERD) 

0.28 

0.22 

0.18 

0.18 

NA 

0.2 (2013) 

28 

32 

42 

44 

NA 

23.5 

8 

9 

9 

11 

NA 

12.5 

63 

58 

48 

43 

NA 

64 

Source: Eurostat (2015) 

27 

 
 
 
3.2  Smart fiscal consolidation20  
3.2.1  Economic growth, fiscal context21 and public R&D 

Estonia has  been  strongly  hit by  the  crisis,  losing  around  20%  of  its  real  GDP  in  2008-
09.  However,  its  economic  recovery  was  the  strongest  in  the  Baltics:  during  the 
subsequent  three  years the  GDP grew  by  15.5%  due  to  handling  of  special  fund stores 
and quickly regaining past volumes of exports, predominantly on the Finnish market. In 
2014  real  GDP  grew  by  1.9%  driven  mainly  by  consumption,  while  investment  activity 
was affected by geopolitical tensions. In 2015 the economic growth slowed down to ca. 
1% due to weakening investment and external demand. However, in 2016-17 growth is 
expected to rebound (2.1-2.3%) due to the strengthening trend of same factors. 

The  Estonian  public  finances  are  extremely  sound.  Although  the  crisis  has  turned  into 
negative  the  pre-crisis  budgetary  surpluses  (Figure  2,  left),  the  headline  deficit  peaked 
at around 2.8% of GDP in 2008, which is still under the Maastricht reference level (3%). 
Since  2010  the  general  government  budget  has  been  balanced,  thanks  to  the 
strengthened  fiscal  framework  with  the  structural  balance  rule  as  its  cornerstone  that 
requires that annual state budgets ensure at least the balance of the structural budget22. 
During 2016-17 the headline deficit is projected to be in surplus close to balance (2016: 
0.2% of GDP, 2017: 0.1%). Public debt increased significantly during the crisis, but with 
its 10% of GDP level it is the lowest in the EU and it is projected to reduce to 9.4% by 
the end of 2017. 

Figure 2 Government deficit and public debt 
Data source: Eurostat 

Total  GERD  in  Estonia  was  326.1  MEUR  in  2013.  There  are  three  main  sources  of  R&D 
funding:  the  business  sector  (137.1  MEUR),  the  government  (154  MEUR),  and  foreign 
funding (33.7 MEUR). Direct funding from the government goes to business enterprises 
(15.8  MEUR),  the  government  (23.5  MEUR)  and  the  higher  education  sector  (112.8 
MEUR). 

20 Smart fiscal consolidation is defined as public budget cost-cutting programmes aimed at establishing a foundation for 
long-term growth. This public policy strategy is based on a trade-off between the need to safeguard growth enhancing 
elements (including R&D) from budgetary cuts and the need to reduce public spending in a context of economic crisis. For 
reference see Kolev, G. and Matthes, J.: Smart fiscal consolidation a strategy for achieving sustainable public finances 
and growth, Centre for European Studies, 2013; Veugelers, R.: Undercutting the future? Bruegel Policy Contribution Issue 
2014/06, June 2014).The conclusions in our analysis focus only on the R&I aspect of Smart Fiscal Consolidation. 
21 Sources: DG ECFIN, Country report for Estonia http://ec.europa.eu/europe2020/pdf/csr2015/cr2015_estonia_en.pdf, RIO 
22 It is to be mentioned that the exclusive focus on the structural balance target bears some uncertainties in the medium-
term, given that fast cyclical changes that may affect a small open economy undergoing fast transformation can make it 
difficult to plan the expenditures and the headline balance on the basis of a structural balance target. 

28 

 
 
 
 
 
 
                                          
Table 3 Key Estonian Public R&D Indicators 

GBAORD, % of gov. exp. 
GERD, % of GDP 
out of which GERD to public, 
% of GDP 
Funding  from  GOV  to,  %  of 
GDP 
   Business 
   Public (GOV+HES) 
   Total 
EU funding, % of GDP 

2007  2009  2013 
1.52 
1.41 
1.40 
1.07 

2.11 
1.74 

0.54 

0.74 

0.90 

0.05 
0.43 
0.49 
0.06 

0.07 
0.61 
0.68 
0.09 

0.08 
0.73 
0.82 
0.09 

Source: Eurostat 

3.2.2  Direct funding of R&D activities 

The  sources  of  R&D  funding  according  to  the  Frascati  manual  are:  Government  sector 
(GOV),  Higher  education  sector  (HES),  Business  enterprise  sector  (BES),  Private  non-
profit sector (PNP) and Abroad (including EC). In this analysis the public sector as source 
of  funds  is  given  by  the  GOV  part  of  the  total  intramural  R&D  expenditure  (GERD), 
whereas  the  public  sector  as  a  sector  of  performance  is  the  aggregation  of  GOV  and 
HES. Figure 3 below shows the evolution of GERD financing in current prices in Estonia. 

Figure 3 Funding of the total GERD 

Data source: Eurostat 

Total R&D expenditure in Estonia in nominal terms increased during the period 2005 to 
2011  with  the  only  exception  in  2009  (year  of  the  crisis).  The  rise  is  much  sharper 
between 2010 and 2011 and it has been mainly triggered by an increase in the part of 
GERD funded by the private sector (big one-off investment in oil shale refinery). 

As  the  ERAC  Peer-Review  of  the  Estonian  Research  and  Innovation  System  points  out, 
the  Estonian  RD&I  system  has  been  characterised  by  government  sector  dominated 
funding  and  by  the  important  role  of  higher  education  institutions  (especially  the  four 
public  universities 23 )  in  performing  research  and  innovation.  The  government  sector 
dominance  fell  in  2011  as  a  result  of  a  remarkably  high  peak  of  private  R&D  spending 
due to big investments in the oil shale industry. As Figure 3 shows, that peak was short 
lived while government funding continued increasing steadily. It must be noted that one 
important reason for the relatively stable R&D financing during the crisis years was the 
availability  of  previously  committed  EU  structural  funds.  In  2014  government  R&D 
funding decreased for the first time since 2009. 

23 University of Tallinn, University of Tartu, Tallinn University of Technology, Estonian University 
of Life Sciences 

29 

 
 
 
  
 
 
 
 
 
                                          
3.2.2.1 

Direct public funding from the government 

Figure 4 R&D appropriations and government funded GERD in millions of national currency 
Data source: Eurostat 

Figure  4  shows  no  gap  between  the  actual  government  spending  on  R&D  and  the  total 
R&D appropriations (GBAORD) which is caused by the method of estimation of GBAORD 
by  Statistics  Estonia.  The  overall  trend  of  both  GBAORD  and  GERD  funded  by  the 
government  is  upward  between  2005  and  2013  with  a  slight  decrease  in  2009  (crisis 
period)  when  measured  in  nominal  terms  (millions  of  national  currency).  When  the 
national budget went into deficit in 2008 Estonia pursued austerity measures by raising 
taxes and cutting spending. The operating costs of establishments that received money 
from  the  state  budget  were  decreased,  including  salaries 24.  Indeed,  GBOARD  figures 
show  some  budget  cuts  for  2009  which  were  accompanied  by  a  modest  decrease  in 
public R&D expenditure but that trend was quickly reversed already in 2010. In terms of 
percentage of GDP, R&D intensity did not fall because of the contraction of the economic 
output during the crisis years. In 2014 both the R&D budget and the actual government 
spending was reduced in comparison to the previous year. 

One  also  observes  that  for  the  whole  period  analysed  the  difference  between  the  total 
and civil appropriations is practically indistinguishable. This is not surprising as Estonia is 
a very small country without an extensive military base. 

3.2.2.2 

Direct public funding from abroad 

Depending on the year, external funding for the Estonian R&D activities accounts for 9-
12  %  of  the  total  GERD.  Similarly  to  the  other  Baltic  countries,  most  of  the  abroad 
from  the  European  Commission  through  Structural  Funds  and 
funding  comes 
participation in the Framework Programmes. 

Table 4 Public Funding from Abroad to Estonian R&D (in millions of national currency) 

Source 
from 
abroad 

Total 

BES 

EC 

Total as % 
GERD 

EC as % 
GOVERD 

2005  2006  2007  2008  2009  2010  2011  2012  2013  2014 

17.74  24.57  20.27  19.48  22.36  26.64  45.59  37.98  33.73  35.59 

6.95 

7.47 

6.16 

4.63 

5.81 

6.32 

17.45  6.26 

8.25 

6.51 

14.09  10.39  11.45  12.26  13.89  20.27  18.99  16.97 

17.06  16.28  11.67  9.36 

11.33  11.45  11.86  9.98 

10.34  12.45 

14.39  20.94  13.1 

11 

12.72  13.52  16.1 

13.02  11.02 

Data Source: Eurostat 

24 http://www.estonica.org/en/Economy/General_overview_of_Estonian_economy/State_finances_and_economic_policy/ 

30 

 
 
 
  
  
  
 
 
                                          
Table 4 shows that R&D funding coming from the EC has been increasing from 2008 to 
2011.  In  2012  and  2013  R&D  funded  by  the  EC  dropped  both  in  nominal  and  relative 
terms. The drop in relative terms can be explained by the big increase of the total GERD 
due to large R&D investments in the oil shale sector. As a Bruegel  policy contribution25 
highlights,  in  most  Central  and  Eastern  European  states  Structural  Funds  for  research 
and  innovation  are  a  significant  component  of  national  R&I  budgets,  and  in  some 
countries  Structural  Funds  almost  double  the  volume  of  government  R&I  funding 
included in GBAORD data. This observation is especially relevant for Latvia and Lithuania 
and  although Estonia  is  not  such an  extreme  case,  funding from  abroad is  a significant 
source for the country.  

Based on data from DG REGIO, the total Structural Funds for the period 2007-2013 for 
Estonia  amount  to  3.4  billion  Euros  of  which  0.5  billion  is  dedicated  to  'Core'  R&D 
activities 26 .  In  nominal  terms  the  amount  is  not  high  but  as  a  share  of  the  total 
Structural Funds allocated in Estonia it is the sixth highest among the EU28. 

Distribution of public funding  

Figure 5 Government intramural expenditure by sectors of performance 

Data source: Eurostat 

Unsurprisingly, the public sector is the main recipient of government funded GERD. The 
importance of the business sector as a sector of performance increased, especially after 
2008  (both  in  terms  of  absolute  volumes  and  as  a  percentage  of  GDP).  Figure  5  also 
shows that the decrease of R&D funding from government during the crisis has affected 
only the public sector as sector of performance but not the business sector. This may be 
due  to  the  commitment  of  Estonia  to  increase  research  performance  in  the  private 
sector27 and due to the absence of indirect tax incentives to business R&D. However, the 
most  recent  data  for  2013  and  2014  shows  a  reduction  in  the  direct  public  support  to 
business R&D for the first time since 2008.  

3.2.3  Indirect funding – tax incentives and foregone tax revenues 

Estonia  has  no  tax  incentives  for  R&D  and  innovation  investments  except  that  the 
companies’ income is free of tax to the extent that they reinvest their profit. There are 
no specific instructions whether the reinvestment has to be made in R&D and innovation 
or  anywhere  else,  the  only  criterion  is  for  the  investments  to  be  made  into  the 
"development" of the company. The tax policy of the Government of Estonia follows the 
rule  of  taxing  everything  similarly  and  allowing  as  few  exemptions  as  possible. 
Consequently,  the  idea  of  specific  tax  incentives  for  R&D  and  innovation  expenditures 
has not been supported by the government so far. 

25 Reinhilde Veugelers (2014), "Undercutting the Future? European Research Spending in Times of Fiscal Consolidation" 
26 The definition of 'Core' R&D activities is provided in the study "Cohesion policy and regional research and innovation 
potential" http://ec.europa.eu/invest-in-research/pdf/download_en/rkf5th_brochure.pdf 
27 Estonian RD&I Strategy 2014-2020 

31 

 
 
 
 
                                          
Government support to private sector R&D has mainly been in the form of direct funding 
via  competitive  grants.  Support  measures  for  enterprises  to  develop  new  products, 
services  and  technologies  are  financed  via  Enterprise  Estonia.  Examples  of  innovation-
oriented  support  measures  provided  via  Enterprise  Estonia  include  the  Competence 
Centre Programme and the Innovation Voucher grant.  

3.2.4  Fiscal consolidation and R&D 

Figure  6  below  shows  the  scatterplot  of  the  structural  balance  and  GBAORD  as  %  GDP 
(first panel) as well as GERD as % GDP (second panel)28: 

Figure 6 Fiscal consolidation and R&D 
Data source: AMECO, Eurostat, OECD 

Based  on  Figure  6,  in  Estonia  there  was  no  post-crisis  fiscal  consolidation  in  structural 
terms.  As  we  have  seen  in  section  3.2.1,  fiscal  adjustments  in  terms  of  GDP  were  the 
strongest during 2010-12. Regardless of these adjustments, both R&D appropriations as 
well  as government  financed  GERD  were  on an  increasing  trend  both nominally  (Figure 
4)  and  in  terms  of  GDP  (Figure  6)  until  2013.  In  2014  the  structural  balance  becomes 
again positive but at the same time both GBAORD and GERD funded by the government 
decrease by about 0.1% compared to the previous year.  

Based on the above analysis, we can argue that the post-crisis fiscal adjustment process 
has not come to the expense of public support to the Estonian R&D in the period 2010-
2012. It is only in 2014 that the improvement of the structural balance had a negative 
impact on the public R&D expenses. 

3.3  Funding flows 

3.3.1  Research funders 

The  criteria  for  allocating  funds  for  RDI  institutions  are  set  in  the  Organisation  of 
Research  and  Development  Act  (introduced  in  1997,  last  update  in  2012).    Baseline 
funding  is  allocated  to  R&D  institutions  if  they  have  received  a  regular  positive 
evaluation 29  (Riigi  Teataja,  2010).  Infrastructure  expenses  and  institutional  research 
funding  are  allocated  to  institutions  whose  research  and  development  activities  have 
received a regular positive evaluation in at least one field (see also ch. 3.4.2).  

The  Estonian  Research  Council  (established  in  2012)  awards  institutional  and  personal 
research  funding  (relevant  amendments  to  the  Organisation  of  Research  and 
Development Act are in force since 2012). Institutional research funding (see ch. 3.4.3) 
is  funding  allocated  for  high  level  research  and  development  and  related  activities 
(research  topics)  of  a  research  and  development  institution  and  for  ensuring  the 
consistency  of  research  and  development  in  a  research  and  development  institution.

28 Structural balance data comes from the AMECO database the other indicators were taken from Eurostat and OECD 
29 50% in proportion with the number of high level publications in internationally recognised journals, the number of high 
level  research  monographs  and  the  number  of  registered  patents  and  patent  applications;  40%  in  proportion  with  the 
amount  of  financing  of  research  and  development  from  other  sources  i.e.  targeted  research,  commissioned  by 
enterprises, municipalities, ministries etc; 10% in proportion with the number of Doctoral graduates. 

32 

 
 
 
                                          
Personal research funding is funding allocated for a high level research and development 
project  of  a  person  or  a  research  group  working  in  a  research  and  development 
institution,  including  the  research  scholarship  of  Master’s  students  and  Doctoral 
candidates  and  funding  allocated  in  support  of  research  carried  out  by  post-doctoral 
fellows. 

The core set of measures to enhance competitive funding through calls for proposals and 
evaluations of research and development activities of R&D institutions has been in place 
since  mid-1990ties 30 .  Involving  foreign  experts  is  a  common  rule  in  evaluating  also 
personal research funding and institutional research funding.  

The  Estonian  Research  Council  is  the  main  funding  organization  of  R&D,  consolidating 
different  grants  and  types  of  funding.  The  Archimedes  Foundation  is  implementing 
agency for structural support in the field of R&D and administers schemes for improving 
mobility  and  marketing.  The  INNOVE  foundation  manages  a  range  of  programmes  and 
support measures in the fields of lifelong learning and active labour market policies. 

The  main  implementing  body  of  MEAC  is  the  Enterprise  Estonia  Foundation,  which  is 
responsible  for  managing  business  support,  innovation  and  technology  programmes. 
Foundation  KredEx’s  mission  is  to  facilitate  the  increase  of  competitive  strength  of 
Estonian companies by improving the availability of financing and managing credit risks. 

The  Development  Fund  (together  with  the  private  sector)  performs  risk  capital 
investments into the starting and growth-oriented technology companies and carries out 
socio-economic and technology foresight activities.  

Private not-for-profit funding of R&D is negligible in Estonia (0% of GDP). 

3.3.2  Funding sources and funding flows 

The  share  of  EU  Structural  funds  has  been  growing  remarkably  from  2009  to  2013.  In 
2011  and  2012,  64%  and  in  2013  60%  of  all  public  sector  RD&I  funding  was  financed 
under  Structural  Funds  (including  co-financing  from  the  state)  (Ministry  of  Finance, 
2012,  2013)  and  the  ratio  has  been  about  the  same  in  2014  (ERC  data,  2015).  As  the 
funding  from  the  structural  funds  has  been  specifically  targeted  for  infrastructure 
development,  mobility  schemes  and  internationalisation,  the  possibilities  to  use  it  for 
other general needs, such as researchers’ salaries, maintenance costs and indirect costs 
was limited (ERAC, 2012). 

The  overall  absorption  of  2007-2013  R&D  structural  funds  is  100%,  however  some 
adjustments were made in funding areas: while absorption of support for infrastructure 
innovation  and 
was  over  200%  and  measures 
entrepreneurship  in  SMEs    180%,  the  assistance  to  SMEs  for  the  promotion  of 
environmentally-friendly  products  and  production  processes  was  only  11%.  (European 
Commission, JRC-IPTS, 2015b). 

research  and 

to  stimulate 

In  the  business  enterprise  sector,  investments  dropped  by  1.9%  during  the  crisis,  but 
doubled in 2011 compared to 2010, and in 2011 Business Expenditures on Research and 
Development (BERD) results in 1.5% of GDP. In 2011-2012 one could note a significant 
growth  in  BERD,  mostly  due  to  big  R&D  investments  in  shale  oil  refining  industry. 
Although this effect faded and BERD declined to 1.24% of GDP in 2012 and to 0.83% in 
2013, BERD in absolute terms doubled from 2009 to 2013, but in 2014 (€124m) closes 
again to the levels of 2010 (€118m).  

In terms of flows, almost all of the private funding was performed by the private sector 
itself. 

30 Relevant laws: Organisation of Research and Development Act (introduced in 1997) and  2014-2020 Structural Assistance Act 
(introduced in 2004 for each programming period) 

33 

 
 
 
                                          
All  public  support  measures  to  enterprises  require  co-funding  by  the  applicant  and  it 
depends on the size of the enterprise and the support measure, but often the co-funding 
for enterprises is about 50%. 

Estonia’s  inward  FDI  stock  is  large,  accounting  for  roughly  90%  of  GDP  in  2012  and  a 
large  share  of  inward  FDI  flows  is  directed  towards  financial  intermediation.  In  2014, 
Estonia  attracted  €15.9bn  of  foreign  direct  investment  and  8.4%  of  it  was  made  into 
professional, scientific and technical activities. 

3.4  Public funding for public R&I 

3.4.1  Project vs. institutional allocation of public funding 

The main bodies through which RD&I is funded are MER and MEAC. MER is responsible 
for  the  funding  of  R&D  (including  applied  and  basic  research)  at  R&D  institutions  and 
MEAC  for  funding  applied  research,  technology  development  and  innovation.  The  share 
of competitive versus institutional funding in the R&D national budget of MER was 69% 
and  31%  respectively  in  2011  (ERAC,  2012)  and  even  80%  vs  20%  more  recently 
(Koppel, 2014). 

Likewise,  most  of  the  R&D  funding  from  the  budget  of  the  Ministry  of  Economic  Affairs 
and  Communication  (MEAC)  (12%  of  total  R&D  budget  in  2012)  is  provided  on  a 
competitive basis and MEAC funding instruments include a very high share from the EU 
Structural funds (ERAC, 2012). The amount of funding of R&D through other ministries is 
small (5% in 2014).  

Overall,  the  three  largest  RD&I  funding  instruments  comprise  ca  40%  of  total  public 
funding.  In  absolute  numbers,  government  funding  increased  from  €103m  in  2010  to 
€148m  in  2014.  The  main  RD&I  funding  instruments  in  MER  are  (Estonian  Research 
Council, 2015): 

• 

• 

• 

baseline  funding  of  evaluated  R&D  institutions,  based  on  R&D  quality  and 
outcome (7% of total government funding in 2014); 
institutional  funding  (targeted  financing  of  research  topics  of  evaluated  R&D 
institutions, competitive institutional grant for research groups) (24% of total 
government funding in 2014 31); 
personal  research  funding  (individual  R&D  grants,  competitive)  (6%  of  total 
government funding in 2014); 

This  share  of  financing  from  MER  budget  has  remained  almost  the  same  since  2007 
when  the  2007-2013 financing  framework  was  approved by  the  Government within the 
state  budget  strategy.  Although  the  titles  of  funding  instruments  were  changed  within 
the reform in 2011-2012, the shares have changed little.  

The  discontent  with  the  very  high  share  of  competition-based  funding  (ca  80%)  in  the 
present model of financing has been aired since the new system was introduced in 2012. 
In the end of 2014, a working group was set up to formulate proposals for improving the 
R&D  funding  system.  The  proposals  were  presented  in  the  beginning  of  January  2015 
and  suggest  that  the  current  “triple  breakdown”  into  institutional  research  funding, 
personal  research  funding  and  baseline  funding  should  be  replaced  by  a  “dual 
breakdown”,  which  would  consist  of  stable  operating  subsidies  to  research  institutions 
and  competition-based  research  grants.  Their  proportion  should  be  shifted  from  the 
existing ratio of 20:80 to 50:50 (MER news, 05.01.2015) and even though the total R&D 
budget for 2016 is 5% smaller than in 2015 (due to the effect of declining support from 
Structural funds), the baseline funding from the state budget will grow with about 50% - 
from €9.2m in 2015 to €13.9m in 2016 (MER, 2015b). 

31 After introducing the institutional funding scheme, infrastructure maintenance costs are allocated via that instrument. 

34 

 
 
 
                                          
3.4.2  Institutional funding  

The criteria for allocating block funds (in the case of Estonia – baseline funding) for RDI 
institutions are set in the Organisation of Research and Development Act (introduced in 
1997, last update in 2012).  Baseline funding is allocated to R&D institutions if they have 
received a regular positive evaluation (Riigi Teataja, 2010) - 50% in proportion with the 
number  of  high  level  publications  in  internationally  recognised  journals,  the  number  of 
high  level  research  monographs  and  the  number  of  registered  patents  and  patent 
applications;  40%  in  proportion  with  the  amount  of  financing  of  research  and 
development  from  other  sources  i.e.  targeted  research,  commissioned  by  enterprises, 
municipalities, ministries etc; 10% in proportion with the number of Doctoral graduates. 

In  addition,  institutional  research  funding,  including  infrastructure  expenses,  is 
competitively  allocated  to  institutions  whose  research  and  development  activities  have 
received  a  regular  positive  evaluation  in  at  least  one  field.  Notwithstanding  its  name, 
institutional research funding in Estonia is actually a project-based type of funding (see 
section 3.4.3). 

To  carry  out  regular  evaluation  of  R&D  institutions,  the  Minister  of  Education  and 
Research shall form a 3-16-member evaluation committee consisting of foreign experts 
in the various fields and approve its working procedure (Riigi Teataja, 2012).  

3.4.3  Project funding 

Competitively allocated institutional research funding (relevant amendments made to the 
Organisation  of  Research  and  Development  Act  in  2012)  is  funding  allocated  for  high 
level research and development and related activities (research topics) of a research and 
development institution and for ensuring the consistency of research and development in 
a  research  and  development  institution.  Since  2014,  infrastructure  maintenance  is  also 
added here. The evaluation of the institutional research funding applications is organized 
by  the  Estonian  Research  Council.  The  assessment  is  performed  by  the  Estonian 
Research  Council’s  evaluation  committee  by  means  of  international  peer  review. 
Institutional  research  funding  as  a  new  mechanism  created  confusion,  because  it 
consists  of  both  an  evaluation  of  institution  and  evaluation  of  research  theme  and  its 
implementation has been therefore challenging (Koppel, A., 2014). 

The  Estonian  Research  Council  (established  in  2012)  awards  not  only  institutional  but 
also personal research funding. Personal research funding is funding allocated for a high 
level  research  and  development  project  of  a  person  or  a  research  group  working  in  a 
research  and  development  institution,  including  the  research  scholarship  of  Master’s 
students  and  Doctoral  candidates  and  funding  allocated  in  support  of  research  carried 
out  by  post-doctoral  fellows.  Applicants  must  be  employees  of  an  Estonian  R&D 
institution.  

In  addition  to  implementing  the  national  financial  instruments,  the  Estonian  Research 
Council  also  is  responsible  for  project  based  funding  programmes  such  as  the  Health 
promotion research programme TerVE and the Environmental protection and technology 
R&D programme KESTA, as well as Programme TeaMe for science popularization and the 
mobility  programme  for  researchers  Mobilitas.  All  of  these  programmes  ended  in  2015. 
Two programmes have follow ups: Mobilitas plus (follow up of the Mobilitas programme, 
with the aim to activate international exchange of researchers and knowledge, with total 
budget for 2015-2022 of €35.4m), and Programme TeaMe plus for science popularization 
(total  budget  for 2015-2020  €3.2m).  In  the end  of  December 2015,  a new Programme 
for  strengthening  the  sectoral  research  and  development  (in  Estonian,  Tegevus 
"Valdkondliku  teadus-ja  arendustegevuse  tugevdamine  (RITA)”  with  total  budget  for 
2015-2020  of  €28m)  was  approved.  The  programme  includes  funds  for  ministries  for 
hiring  R&D  specialists,  commissioning  R&D  studies  from  universities  and  developing 
information systems. 

35 

 
 
 
The core set of measures to enhance competitive funding through calls for proposals and 
evaluations of research and development activities of R&D institutions has been in place 
since  mid-1990s 32 .  Involving  foreign  experts  is  a  common  rule  in  evaluating  also 
personal research funding and institutional research funding. 

3.4.4  Other allocation mechanisms 

To  promote  the  productivity  and  international  competitiveness  of  the  best  research 
groups  working  at  the  forefront  of  their  respective  fields,  the  programme  of  Centres  of 
Excellence  in  Research  was  launched  in  2001.  A  centre  of  excellence  in  research  is  a 
consortium  of  several  research  groups  internationally  recognised  in  their  field  of 
research.  

research” 

The  activity  “Support  for  centres  of  excellence  for  promoting  competitiveness  and  high 
teaduse 
quality  of 
rahvusvahelise konkurentsivõime ning tippkvaliteedi tugevdamiseks) is funded from the 
European  Structural  Funds  (41.17m  is  allocated  for  2016-2023 33  ).  The  managing 
authority is Archimedes Foundation.  

(in  Estonian,  Teaduse 

tippkeskuste 

toetamine 

The activities to be funded under the measure include research and development directly 
related to a centre of excellence, the acquisition of infrastructure and equipment, visits 
or  work  assignments  carried  out  in  other  institutions,  training,  mobility  of  researchers, 
national and international cooperation relating to centres of excellence, the development 
and  testing  of  innovative  ideas,  dissemination  of  information  and  popularisation  of 
research findings. 

3.5  Public funding for private R&I  

3.5.1  Direct funding for private R&I 

Two ministries are mainly responsible for RD&I. Funding streams cover the entire R&DI 
process from fundamental research to market innovation - in general, MER is responsible 
for research area and MEAC supervises support for and funding of business sector R&D 
and is responsible for funding applied research, technology development and innovation.  

The  main  implementing  body  of  MEAC  is  the  Enterprise  Estonia  Foundation,  which  is 
responsible  for  managing  business  support,  innovation  and  technology  programmes. 
Foundation  KredEx’s  mission  is  to  facilitate  the  increase  of  competitive  strength  of 
Estonian companies by improving the availability of financing and managing credit risks, 
and  the  improvement  of  the  energy  efficiency  of  the  housing  sector  by  expanding 
financing  possibilities  and  offering  financing  solutions  aimed  at  promoting  energy 
efficiency and increasing the use of energy from renewable sources.  

Government  support  to  private  sector  R&D  is  mainly  direct  funding  via  competitive 
grants.  Support  measures  for  enterprises  to  develop  new  products,  services  and 
technologies are financed from the Enterprise Estonia support scheme for R&D projects 
as follows:  

Technological  development  centres  for  2014-2020  (the  3rd  consecutive  programme, 
total  budget  €40m)  –  to  develop  the  technologies,  products  and  services  necessary  for 
increasing international competitiveness and smart specialisation; develop internationally 
high-level  and  competitive  technological  development  centres  that  eventually  will  be 
independent  of  national  financial  instruments  and  provide  Estonian  entrepreneurs  with 
opportunities  for  co-operation  in  the  development  of  new  technologies,  products  and 
services; increase qualified staff numbers in business-oriented R&D, and their movement 
between businesses and research institutions. 

32 Relevant laws: Organisation of Research and Development Act (introduced in 1997) and  2014-2020 Structural 
Assistance Act (introduced in 2004 for each programming period) 
33 44.7m was allocated for 2008-2015 via the measure “Development of centres of excellence in research”. 

36 

 
 
 
                                          
Cluster development Programme – aiming to increase the value added of the companies 
and  the  sales  of  the  products/services  and  exports;  to  promote  cooperation  between 
companies  of  the  same  and  different  sectors,  and  companies  and  research  institutions 
(2014-2020 total budget €10m). 

Innovation  voucher  grant  for  SMEs  for  knowledge  and  technology  transfer  and  co-
operation with R&D institutions, including procurement of innovation services related to 
product  or  service  or  production  or  technology  development,  design,  feasibility  studies, 
standardisation  and  certification,  patent  registration,  etc  (2014-2020  total  budget 
€10m).  

The  Enterprise  Development  Programme  was  launched  in  January  2016  which  aims  to 
support  well-thought-out  development, 
innovation 
implementation and product development. It targets industrial enterprises or companies 
in smart specialization fields operating for at least 3 years with more than 8 employees. 

improved  action  planning, 

MER  also  launched  the  activity  “Support  for  applied  research  in  the  areas  of  smart 
specialisation”  (in  Estonian,  Rakendusuuringute  toetamine  nutika  spetsialiseerumise 
kasvuvaldkondades  (NUTIKAS)).  The  aim  is  to  support  enterprises  tendering  applied 
research  or  product  development  from  Estonian  public  R&D  institutions.  (2014-2020 
budget from Structural Funds €26.6m + €15m co-funding from enterprises). 

In addition, the Baltic Innovation Fund (BIF) is a Fund-of-Fund initiative launched by the 
EIF in close co-operation with the Governments of Lithuania, Latvia and Estonia in 2012 
to boost equity investments made into Baltic Small and Medium sized enterprises (SMEs) 
with  high  growth  potential.  In  2013-2016  BIF  invests  €100m  in  private  and  venture 
capital  investment  funds  (sub-funds)  and  investments  from  private  investors  and 
pension  funds  are  added  in  at  least  the  same  amount.  In  addition,  venture  capital 
investments are made via the Estonian Development Fund (see more in section 5.4).  

According  to  the  Mid-term  evaluation  of  innovation  and  enterprise  support  policies 
(MEAC, 2014)34, these measures have been mostly successful and R&D grant was rated 
the  most  positive  with  the  strongest  effect  and  has  enabled  companies  to  reach 
commercialisation  more  easily.  Innovation  voucher  recipients  showed  positive 
developments in employee numbers and labour costs. The importance of grant awards to 
company development was rated at 5.1 points out of 7 by recipients, but on the negative 
side,  many  pointed  out  that  no  follow-up  projects  were  carried  out  after  receiving  the 
innovation  grant,  mainly  because  small  companies  do  not  have  sufficient  means  to  do 
so. 

According  to  the  Interim  evaluation  of  the  cluster  programme  (MEAC,  2013)  both  the 
cluster  managers  and  enterprise  managers  gave  a  positive  evaluation  to  the  cluster 
programme.  Of  the  enterprises  in  the  cluster,  65%  would  not  make  any  change  to  the 
cluster  strategy.  According  to  an  enterprise  that  was  not  satisfied  with  the  cluster 
strategy,  the  strategy  should  include  more  clearly  measurable  objectives  and  an  action 
plan framework, a sharper focus, and could involve more enterprises as well as research 
and education institutions. During the review of cluster strategies, these proposals have 
been considered. 

As  cooperation  with  research  institutions  progresses  slowly  and  is  time-consuming, 
increase in cooperation may not be attainable through the development of the clusters, 
but  rather  with  a  combination  of  other  measures  in  the  field  of  innovation.  R&D 
institutions  mainly  conducted  surveys  on  the  issues  of  common  interest  of  cluster 
members. 

34 More on evaluations in section 2.2.1 

37 

 
 
 
                                          
Since 2001, public support given to develop innovation policy has been mainly given in 
the  form  of  grants.  The  size  of  the  grant  varies  according  to  the  requirements  and 
conditions of  the  measure  and  the  legal  status  of  the  applicant.  Almost  in  all  cases  the 
grants  are  subject  to  the  European  Union  state  aid  rules,  mainly  de  minimis  or  block 
exemption.  

To  date,  no  national  target  has  been  introduced  on  public  procurement  of  innovative 
goods and services. Development of national procurement policy measures is addressed 
in  the  Implementation  plan  for  the  “Entrepreneurship  Growth  Strategy  2014-2020” 
(responsibility  of  MEAC).  The  Development  of  national  procurement  policy  measures 
(total  budget  €40m)  aims  to  increase  the  role  of  the  public  sector  as  the  leader  of 
innovation  in  enterprises  under  the  fields  of  growth  of  smart  specialisation,  i.e.  in 
commissioning  and  initiating  R&D  and  innovation.  The  innovations  include  innovative 
procurements,  development  activities  of  enterprises  under  the  leadership  of  the  public 
sector,  design  of  public  services,  public  and  private  sector  partnership,  demonstration 
projects, as well as the infrastructure and information technology solutions required. In 
the  framework  of  the  general  Development  of  national  procurement  policy  measures  a 
new  measure  “State  as  a  smart  costumer”  will  be  launched  to  improve  demand-side 
innovation  policies  (total  budget  €20m).  The  conditions  for  the  grant  of  support  were 
specified  in  the  first  half  of  2015  and  during  2015  it  was  planned  to  start  accepting 
applications for support and carry out pilot projects (see also section 3.6). 

In Estonia, there is no one single act dealing specifically with public-private partnership 
(PPP) projects. PPP is regulated by the Public Procurement Act and the Competition Act. 
Besides the Guidelines on the Public Procurement Proceedings issued by the Ministry of 
Finance, no PPP administrative guidance, framework or policy has been adopted.  

3.5.2  Public procurement of innovative solutions 

Legal Public Procurement framework 

The  Estonian  public  procurement  regime  is  governed  by  the  Public  Procurement  Act35 
(adopted  in  2007,  last  amendments  in  2014)  implementing  the  relevant  European 
Community  directives  on  public  procurement  (Directives  2004/17/EC,  2004/18/EC  and 
2009/81/EC). The standard national threshold for the publication of public procurement 
in  Estonia is  €40,000  in  the  event  of  a public  supply contract,  a  public  service  contract 
and a design contest and €250,000 in the event of a public works contract and a public 
works concession, provided that the public procurement procedure has been launched in 
2008 or later. 

PCP/PPI landscape and initiatives in Estonia 

Public  procurement  has  already  been  successfully  applied  in  the  ICT  domain  in  Estonia 
and has achieved moderate success in defence. In order to support modernisation of the 
private  sector,  a  more  generic  policy  targeting  innovation  in  public  procurements  has 
recently gained interest in the country and it has moved away from a "no policy" policy 
(Lember, 2014). 

As  a  result  of  two  feasibility  studies  in  2012  and  2014,  the  development  of  public 
procurement for innovation policy measures is addressed in the Implementation plan for 
the  “Entrepreneurship  Growth  Strategy  2014-2020”36 (responsibility  of  the  Ministry  of 
Economic  Affairs  and  Communications).  The  measure  development  of  demand-side 
policies (total budget €40m) aims to increase the role of the public sector as the leader 
of  innovation  in  enterprises  under  the  fields  of  growth  of  smart  specialisation,  i.e.  in 
commissioning and initiating R&D and innovation.  

35 https://www.riigiteataja.ee/en/eli/530012014002/consolide 
36 http://kasvustrateegia.mkm.ee/index_eng.html 

38 

 
 
 
                                          
The  innovations  include  innovative  procurements,  development  activities  of  enterprises 
under  the  leadership  of  the  public  sector,  design  of  public  services,  public  and  private 
sector partnership, demonstration projects, as well as the infrastructure and information 
technology  solutions  required.  In  addition,  as  a  result  of  the  "Feasibility  study  for  the 
Design and Implementation of Demand-side Innovation Policy Instruments in Estonia"37 
a  new  measure  “State  as  a  smart  customer”  will  be  launched  to  improve  demand-side 
innovation  policies  (total  budget  €20m,  co-financed  by  the  ERDF).  The  conditions  for 
granting support were specified in the first half of 2015 and during the end of 2015 and 
the  beginning  of  2016  it  is  planned  to  start  accepting  applications  for  support  (grants) 
and carry out pilot projects with progressive procurers.38 In addition, "soft" measures to 
generate  change  in  behaviour  concerning  risk  aversion  (e.g.  via  awareness  raising  and 
sharing  best  practices)  and  to  develop  competencies  (e.g.  practical  guides,  trainings, 
consultancy) are envisaged.  

The  coordinating  agency  on  innovation  procurement  is  Enterprise  Estonia.  The 
Government Office also plays a key role in horizontal co-ordination – in 2016 the launch 
of a horizontal task-force is expected (on "public sector innovation“) and the set-up of a 
numerical  target  for  the  share  of  innovation  procurement  is  envisaged  in  the 
Government activity plan39. 

3.5.3  Indirect financial support for private R&I 

No  tax  incentives  have  been  given  to  the  R&D  and  innovation  investments  except  that 
the  companies’  income  is  free  of  taxation  to  the  extent  that  they  reinvest  their  profit. 
There  are  no  instructions  whether  the  reinvestment  has  to  be  made  in  R&D  and 
innovation or into something else, the only criteria are for the investments to be made 
into  the  development  of  the  company.  The  tax  policy  of  the  Government  of  Estonia 
follows the rule of taxing everything similarly and allowing as few exemptions as possible 
– consequently, the idea of specific tax incentives for R&D and innovation expenditures 
has not been supported by the government so far. 

3.6  Business R&D 

3.6.1  The development in business R&D intensity 

As  one  can  see  from  Figure  7,  BERD  intensity  tripled  between  2005  and  2011,  with  a 
high  one-off  peak  in  2011  due  to  investments  in  the  manufacturing  sector  and  more 
specifically the manufacture of coke and refined petroleum products (C19) sector. Since 
2011 BERD has been going down to 0.64% of GDP in 2014 which is close to the 2009-
2010  pre-peak  values  and  is  below  the  EU-28  average.  Figure  7  also  shows  that  in 
Estonia until 2010 Services of the business economy (sectors G-N) had the highest R&D 
intensity but in 2010 and 2011 the Business R&D in Manufacturing (sector C) increased 
almost three-fold and became the most R&D intensive sector.  

In  2013  this  is  no  longer  the  case  and  the  Service  sector  is  again  the  most  BERD 
intensive  one.  The  spike  in  manufacture  BERD  is  due  to  massive  investments  in  the 
manufacture of coke and refined petroleum products (C19) which increased significantly 
in 2011 due to big investments in the oil shale sector (as will be discussed in more detail 
in Section 3.7.2). 

The business  sector  is the  main funder of the  Estonian  BERD and  it has been the  main 
driver of its changes (Figure 8). External resources, notably EU funding and public sector 
funding are relatively marginal throughout the whole period under scrutiny. 

37 https://www.mkm.ee/sites/default/files/final_report_part_1.pdf 
38 Ministry of Economic Affairs and Communications. https://www.mkm.ee/en/objectives-activities/economic-development-
and-entrepreneurship/innovation#state-as-a-smart-customer10 
39 Ministry of Economic Affairs and Communications, Presentation delivered during the 2015 EU Innovation Procurement 
event , Paris, 27 October 2015 

39 

 
 
 
                                          
Figure 7 BERD intensity broken down by most important macro sectors (C= manufacture, 
D_E=electricity, gas, water supply etc., G_N=services). 

 Figure 8 BERD by source of funds 

3.6.2  The development in business R&D intensity by sector 

Based  on  Figure  9,  below,  the  highest  BERD  spender  in  manufacturing  is  by  far  the 
Manufacture of coke and refined petroleum products (C19), followed by  manufacture of 
chemicals and computer, electronic and optical products with almost equal shares. None 
of them seem to be too strongly affected by the crisis in terms of R&D expenditure. 

According  to  Statistics  Estonia,  "the  remarkable  growth  of  Estonia’s  expenditures  on 
research  and  development  (R&D)  in  2010  and  2011  was  the  result  of  considerable 
investments in new technology in the oil industry40. Estonia is unique among EU Member 
States  in  that  its  energy  sector  is  dominated  by  one  primary  source  of  energy,  oil 
shale41.  The  Estonian  oil  shale  deposits  account  for  just  17%  of  all  deposits  in  the  EU, 
but Estonia has generated most of its power from oil shale42. 

40 http://www.stat.ee/65128 
41 Not to be confused with shale oil, oil shale is a sedimentary rock containing up to 50% organic matter rich in hydrogen, 
known as kerogen. The extracted rock can be used directly as a power plant resource or it can be processed to  produce 
shale oil, which in turn can be refined into gasoline, diesel or jet fuels (International Energy Agency). 
42 A  study  on  the  EU  oil  shale  industry  –  viewed  in  the  light  of  the  Estonian  experience.  A  report  by  EASAC  to  the 
Committee on Industry, Research and Energy of the European Parliament, March 2007 

40 

 
 
 
 
 
 
 
                                          
Eesti Energia Kaevandused, a subsidiary of the state owned electricity production group, 
Eesti Energia, dominates the production of oil shale43. Given the small size of the country 
and its market, significant change in the R&D expenditure in one big company would be 
immediately reflected in the county’s total BERD.  

The  present  State  Development  Plan  for  the  use  of  oil  shale  gives  preference  to  the 
production  of  electricity  from  oil  shale  (due  to  the  country's  drive  for  self-sufficiency  of 
energy  supply  and  it's  competitive  price),  and  in  2012,  70%  of  total  primary  energy 
supply  was  derived  from  this  indigenous  energy  source44.  The  other  major  government 
policy priority in the energy sector was to reduce its carbon intensity, which created the 
incentive  for  increased  innovation  expenditure  in  the  oil  shale  sector  in  order  to  boost 
efficiency  and  to  reduce  the  big  carbon  intensity  of  the  sector.  The  research 
concentrated on two aspects: maximising the production of liquid fuel and reducing the 
carbon intensity of oil shale-based power and heat generation.45  

Consequently, the Enefit 280 oil shale plant was constructed. The 2011 peak, however, 
was  a  short-lived  particular  phenomenon  and  BERD  returned  to  its  pre-peak  level  in 
2014. The fall in oil prices may also contribute to the future slowing down of the oil shale 
business. 

As  far  as  the  chemical  sector  is  concerned,  several  large-scale  enterprises  of  the 
chemical  industry  are  located  in  the  industrial  area  of  the  North-Eastern  Estonia  and 
have found partners and markets abroad. Up to 85% of the chemical industry production 
is exported.46 The largest factories include Viru Keemia and Velsicol in Kohtla-Järve and 
Silmet  in  Sillamäe.  Velsicol  is  one  of  the  world's  few  producers  of  benzoic  acid,  Viru 
Keemia  makes  different  oil  shale  products  (e.g.  oil  shale  oil).  Silmet  is  one  of  Europe's 
largest producers of rare earth metals.47 

Figure 9 top sectors in manufacturing (C19=Manufacture of coke and refined petroleum products; 
C20=Manufacture of chemicals and chemical products; C26=Manufacture of computer, electronic 
and optical products). 

43 Estonia: Inventory of estimated budgetary support and tax expenditures for fossil-fuels 2013, OECD. http://www.oecd-
ilibrary.org/environment/inventory-of-estimated-budgetary-support-and-tax-expenditures-for-fossil-fuels-
2013/estonia_9789264187610-12-en 
44 Energy Policies Beyond IEA Countries, Estonia, International Energy Agency 2013. 
https://www.iea.org/publications/freepublications/publication/Estonia2013_free.pdf 
45 Ibid. 
46 http://www.keemia.ee/en/chemical-industry-in-estonia 
47 http://www.estonica.org/en/Economy/General_overview_of_Estonian_economy/Processing_industry/ 

41 

 
 
 
 
 
 
 
                                          
In  the  business  services  sector  ICT,  professional,  scientific  and  technical  activities,  and 
the financial and insurance activities sectors are the top R&D spenders (Figure 10). 

Figure 10 top service sectors (J=information and communication, K=Financial and insurance 
activities, M=professional, scientific and technical activities). 

ICT is one of the fields that has had the fastest growth in the last 10-15 years in Estonia, 
and  was  not  severely  affected  by  the  economic  crisis.  Computer  programming, 
consultancy  and  related  activities  (J62)  is  currently  the  most  innovative  sector  in  the 
country  after  the  oil  shale  R&D  investment  boom  subsided.  The  mobile  phone  and 
Internet penetration rates are very high in the country and almost the entire population 
can  access  the  web48 .  More  and  more  public  services  are  offered  through  the  Internet 
(e-ID cards, electronic voting, e-health, e-tax, etc). Skype remains the most prominent 
example of the innovative approach that typifies Estonian ICT.  

The number of ICT enterprises is quite big (ca. 3,000 in 2013) and the majority of them 
are  start-ups  and  SMEs  that  have  less  than  10  employees.  In  2013,  most  of  ICT 
enterprises  provided  programming  and  consultation  services  and  only  2.4%  of  them 
were  engaged  in  manufacturing. 49  Following  initial  technology  transfers  and  learning 
from other countries, Estonian companies have themselves increasingly become creators 
of new solutions and content. In addition, the ICT sector witnesses the highest number 
of  high  growth  innovative  enterprises  and  the  second  highest  number  of  employees 
among the most innovative sectors in the recent years. 

Estonia’s inward FDI stock is large, accounting for roughly 90% of GDP in 2012. A large 
share  of  inward  FDI  flows  is  directed  towards  financial  intermediation.  Almost  50%  of 
FDI comes from Finnish and Swedish investors.50 The banking industry is dominated by 
the Nordic players. The financial and insurance activities sector is among the top 3 R&D 
spenders in the services sector and its BERD expenditure hasn't been severely affected 
by the crisis. 

3.6.3  The development in business R&D intensity and value added 

Figure  11  shows  the  contribution  of  each  economic  sector  to  the  total  GVA  in  2014 
compared with the EU-28 as a benchmark. One can notice that manufacturing, wholesale 
and  retail  trade  and  real  estate  activities  are  the  sectors  with  the  highest  GVA,  which 
account for approximately 40% of the total Gross Value Added of Estonia. 

48 
http://www.estonica.org/en/Economy/General_overview_of_Estonian_economy/Information_technology_and_telecommuni
cations/ 
49 Statistics Estonia 
50 Statistics Estonia, 2014 

42 

 
 
 
 
                                          
The  percentages  of  GVA  from  wholesale  and  retail  trade  exceed  the  EU-28  figures  and 
the manufacturing GVA is on par with the EU average. However, the R&D expenditure of 
these sectors is very limited. The ICT sector, although being the biggest R&D spender, is 
only 6th in terms of GVA contribution (a bit more than 5%) which may be due to the fact 
that the majority of the ICT companies in Estonia are quite small.  

Figure 12 focuses on the economic sectors under Manufacture. Sector C16 - Manufacture 
of  wood  and  of  products  of  wood  and  cork  is  much  beyond  the  EU-28  level  and 
contributes the most in the GVA of Estonia followed by sectors C10-C12 - Manufacture of 
food  products,  beverages  and  tobacco  products  and  C25  -  Manufacture  of  fabricated 
metal  products,  except  machinery  and  equipment.  It  is  noteworthy  that  the 
manufacturing sector with the highest R&D investments, C19 - Manufacture of coke and 
refined petroleum products, accounts for less than 1% of the total GVA. The same is true 
for C20 – Manufacture of chemicals and chemical products. This means that there is no 
correlation between R&D intensity and GVA contribution. 

Figure 11 economic sectors as percentage of the total GVA. Top 6 sectors in decreasing order: 1) 
Manufacturing, 2) Wholesale and retail trade; repair of motor vehicles and motorcycles; 3) Real 
estate activities; 4) Public administration and defence; compulsory social security; 5) 
Construction; 6) Information and communication. 

Figure 12 GVA in manufacturing. Top 6 manufacturing sectors: 1) Manufacture of wood and of 
products of wood and cork, except furniture; manufacture of articles of straw and plaiting 
materials; 2) Manufacture of food products; beverages and tobacco products; 3) Manufacture of 
fabricated metal products, except machinery and equipment; 4) Manufacture of furniture; other 
manufacturing; 5) Manufacture of computer, electronic and optical products; 6) Manufacture of 
electrical equipment. 

43 

 
 
 
 
 
 
 
 
Figure  13  shows  the  VA  of  the  most  BERD  intensive  manufacture  and  service  sectors. 
ICT  (J),  professional,  scientific  and  technical  activities  (M)  and  financial  and  insurance 
activities  (K)  are  the  most  prominent  sectors.  Their  VA  showed  a  similar  behaviour 
throughout  the  analysed  period:  ascending  up  until  the  crisis,  decreasing  (but  not 
sharply) during the crisis and being on a recovering path afterwards and surpassing the 
pre-crisis  levels  (except  financial  and  insurance  activities).  Unsurprisingly,  financial  and 
insurance activities (K) were hit the hardest during the crisis and recovered the slowest. 
Similarly, the most R&D intensive manufacturing sectors were also affected by the crisis 
and subsequently recovered (except the chemicals sector), as evidenced by their VA at 
factor costs. 

3.7  Assessment  

Figure 13 Value added for the leading sectors. 

The  discontent  in  research  community  with  the  very  high  share  of  competition-based 
funding  (ca  80%)  in  the  present  model  of  financing  public  R&D  institutions  has  been 
aired since the new system was introduced in 2012. In the end of 2014, a working group 
was set up to formulate proposals for improving the R&D funding system. The proposals 
were  presented  in  the  beginning  of  January  2015  and  suggest  that  the  current  “triple 
breakdown”  into  institutional  research  funding,  personal  research  funding  and  baseline 
funding  should  be  replaced  by  a  “dual  breakdown”,  which  would  consist  of  stable 
operating subsidies to research institutions and competition-based research grants. Their 
proportion  should  be  shifted  from  the  existing  ratio  of  20:80  to  50:50.  However,  this 
reform depends on additional funding (about €30m per year) and is not approved yet. 

The  aim  of  project-based  financing  to  set  focus  from  process  to  output  was  justified  in 
the  mid-  90ties,  while  the  whole  system  needed  reform.  For  now  it  is  clear  that  too 
many short-term projects create instability and do not contribute to long term research. 

Public  support  to  private  sector  R&D  is  mainly  direct  funding  via  competitive  grants. 
MEAC plans to exit large-scale support schemes and considers the possibility to replace 
current direct support actions in business sector gradually with financing instruments.  

The  aim  of  public  support  to  enterprises  is  to  encourage  innovation  and  increase 
productivity  of  enterprises  and  thus  the  innovation  and  entrepreneurship  policies  are 
focused on two strategic issues - activity areas with major potential (growth areas) and 
enterprises with major potential.  

44 

 
 
 
 
 
According to the new Entrepreneurship Growth Strategy for 2014-2020, the focus of new 
RDI support measures has been set on Smart Specialisation areas (ICT supporting other 
sectors; health technologies and services; resource efficiency). The set of new measures 
takes  into  account  experiences  from  previous  programmes  and  is  better  focused.  New 
measures  address  the  need  to  provide  seed  capital  and  offer  consultations  to  start  a 
business, to create conditions for the development of ideas and teams, and give access 
to  venture  capital.  New  measures  also  encourage  product  development  via  cooperation 
with  R&D  institutes.  In  addition,  the  role  of  the  state  as  a  customer  for  innovative 
solutions is enhanced by steering public procurements towards procuring more  
innovative solutions.

45 

 
 
4.  Quality of science base and priorities of the European 
Research Area  

4.1  Quality of the science base 

Estonia is small compared to most other EU countries, and this reflects on the size of its 
infrastructure  and  funding  opportunities.  Under  the  EU  programming  period  2007-2013 
funding,  research  infrastructure  was  developed  quite  extensively.  In  general,  present 
activities  concerning  infrastructure  investments  have  been  sufficient  to  cover  the 
insufficient investments from the previous programming periods. In the future, the main 
focus  will  be  on  ensuring  the  sustainability  of  this  infrastructure.  In  the  2014-2020 
programming  period,  the  main  focus  of  funding  will  be  on  making  social  and  economic 
effects of these capacities.  

Estonia’s  innovation  performance  has  been  increasing  at  a  steady  rate  until  2013,  but 
declined  in  2014.  Estonia’s  performance  relative  to  that  of  the  EU  has  also  been 
improving from 81% in 2007 to 94% in 2013 but strongly declined to 88% in 2014 (IUS, 
2015).  Estonia’s  relative  strengths  are  in  Finance  and  support  (based  on  one  indicator 
only)  and  Firm  investments  (although  the  decline  in  oil  shale  investments  will  probably 
have an impact). Estonia performs well above the average on International scientific co-
publications,  Non-R&D 
trademarks. 
Performance is well below the EU average for License and patent revenues from abroad 
and Non-EU doctorate students. 

innovation  expenditures  and  Community 

The  biggest  problem  is  still  the  economic  effect  of  innovation,  where  Estonia  holds  the 
22nd  position.  Considering  the  criterion  of  open,  excellent  and  attractive  research 
system, Estonia holds the 16th position and the same for the human resources criterion. 
Therefore,  among  the  main  challenges  for Estonia  is  employment  in  medium  and  high-
tech industry and knowledge-intensive services. 

Trends  for  patenting  and  for  scientific  publications  are  positive.  The  number  of 
international  scientific  co-publications  per  million  of  population  increased  from  500  in 
2009 to 960 in 2013 and patents applications per million of population have been around 
30 from 2009 to 2012 (32 in 2009, 28 in 2010, 30.5 in 2011, 32 in 2012; MER, 2015). 
Estonian universities have a big share (50%) of patent applications, compared to Finland 
and Sweden where enterprises apply for 94.5% of PCT applications (Mets, 2014). Patent 
application  activity  of  Estonian  scientists,  compared  to  their  scientific  publications  (two 
applications  per  100  ISI  articles),  are  on  the  same  level  with  Swedish  researchers. 
Problems  can  be  seen,  however,  in  IP  transfer  to  industrial  partners  and  also  in  the 
quality  of  patenting  decisions,  as  well  as  in  linking  IP  strategy  and  R&D  strategy 
generally.  

On  average  in  2013,  Estonia  produced  1.82  publications  per  1000  inhabitants,  slightly 
above  the  EU28  average  (1.43).  They  are  also  internationally  oriented  with  52.8%  of 
publications  internationally  co-published.  In  2013,  Estonia  had  about  0.96  international 
scientific co-publications per thousand population, which is almost 4 times more than in 
Latvia (0.24) and 3 times more than in Lithuania (0.33), but 1.7 times less compared to 
Finland  (1.6).  In  the  period  2000-2013,  nearly  11%  of  the  Estonian  scientific 
publications  were  in  the  top  10% most  cited publications  worldwide in  comparison with 
11.29% of top scientific publications produced in the EU28 (RIO bibliometric indicators, 
2015).  The  share  of  public-private  co-publications  in  Estonia  was  1.2%  in  the  period 
2011-2013  against  1.8%  for  the  EU28  again  signalling  a  science-industry  cooperation 
challenge in the country. 

All  of  the  above  indicators  point  out  to  a  relatively  high  quality  of  the  Estonian  science 
base with a few persisting bottlenecks such as insufficient science-industry collaboration 
and  a  short  supply  of  highly  qualified  human  resources  partially  due  to  outward 
migration and lower attractiveness of research careers due to short-term funding models 
and lower than the EU average salary levels. 

46 

 
 
 
Table 5 Bibliometric indicators, measuring the quality of the science base 

Indicator 
Number of publications per 
thousand of population 
Share of international co-
publications 
Number of international 
publications per thousand of 
population 
Percentage of publications in 
the top 10% most cited 
publications 
Share of public-private co-
publications 

Year  
1.82 (2013) 

EU  
1.43 (2013) 

52.8% (2013) 

36.4% (2013) 

0.96 (2013) 

0.52 (2013) 

10.93% (2000-2013) 

11.29% (2000-2013) 

1.2% (2011-2013) 

1.8% (2011-2013) 

Source: JRC IPTS RIO elaboration on Scopus data collected by Sciencemetrix in a study for the 
European Commission DG RTD (Campbell, 2013). The share of public-private co-publications is 
derived from the Scival platform and is also based on Scopus data (September 2015). SciVal ® is 
a registered trademark of Elsevier Properties S.A., used under license. The data on public-private 
co-publications is not fully compatible with the data included in the IUS, due to differences in the 
methodology and the publication database adopted.  

4.2  Optimal transnational co-operation and competition 

Increasing  the  participation  and  visibility  of  Estonia  in  international  RDI  cooperation  is 
one  of  the  key  objectives  in  the  new  RD&I  Strategy  for  2014-2020,  which  also  focuses 
on the three growth areas of Smart Specialisation (ICT supporting other sectors; health 
technologies  and  services;  resource  efficiency).  The  Implementation  plan  for  the  RD&I 
strategy  includes the “Strategic framework for international co-operation and innovation 
partnership in the EU” (approved in February 2015).   

The  Implementation  plan  for  RD&I  strategy  for  "Knowledge  Based  Estonia  2014-2020" 
(MER,  2014b)  includes  specific  actions  to  analyse  options  to  ensure  the  openness  of 
Estonia’s  research  and  development  programmes  for  international  cooperation  and  to 
develop  cooperation  opportunities  with  third  country  researchers  and  research 
institutions.  

Most of the joint financing actions are regulated by the 2014-2020 Structural Assistance 
Act (Riigi Teataja, 2014b) and by the Organisation of Research and Development Act and 
related  acts  and  procedures,  designed  for  specific  measures  and  funds.  Regulations  for 
allocating  competitive  public  funds  always  define  priorities,  selection  criteria  and 
procedures,  reporting  requirements,  eligibility  criteria,  definition  of  eligible  costs, 
intellectual  property  rights,  standards  for  proposal  evaluation,  funding  rates,  etc.  Joint 
financing  is  welcome  and  project  partners  are  selected  based  on  excellence,  not  on 
country  of  origin.  Universities  and  other  R&D  institutions  are  independent  and  can 
choose their partners from any country in the world.  

financial  resources)  to  participate 

Estonia’s  capacity  (human  and 
in  different 
international  initiatives  is  limited  because  of  the  size  of  the  country;  consequently 
choices have to be made for optimum use of those resources. Estonia is participating in 
international  initiatives  such  as  Joint  Programming  Initiatives  (agriculture  and  food 
security,  healthy  and  productive  seas  and  oceans,  water  challenges,  climate  (as  an 
associated  member),  antimicrobial  resistance (as  an  observer),  cultural  heritage  (as  an 
observer),  healthy  diet  for  a  healthy  life  (as  an  observer)),  Joint  Technology  Initiatives 
(innovative  medicines,  hydrogen  and  fuel  cells,  nanoelectronics),  Knowledge  and 
Innovation Communities (raw materials, health), FET Flagships (graphene).  

47 

 
 
 
 
Funding of these activities is allocated in budgets of relevant ministries. According to the 
RD&I  strategy  Implementation  plan,  for  the  year  2015  MER  has  allocated  €1.3m, 
Ministry  of  Environment  €0.2m,  Ministry  of  Defence  €0.46m,  Ministry  of  Agriculture 
€0.25m. 

International  co-operation  projects  are  funded  by  the  Estonian  Research  Council  in  the 
framework  of  either  bilateral  (the  PARROT  programme  with  France)  or  pan-European 
initiatives  (EUROCORES,  ERA-NET,  ARTEMIS,  EMBO).  There  are  agreements  in  place 
with the Baltic and Nordic partners and several exchange programmes, such as and the 
Nordplus Programme of eight participating countries in the Baltic and Nordic regions. 

RI roadmaps and ESFRI 

The  Estonian  Research  Infrastructures  Roadmap  (2014)  itemises  national  interest  in 
specific  ESFRI  projects,  but  does  not  deal  with  rules  on  access  to  facilities.  Indirectly, 
mobility  programmes  provide  access  also  to  the  infrastructure.  While  updating  the  RI 
Roadmap  in  2013,  Estonia  had  quite  comprehensive  consultations  with  Finland,  as 
Finland also updated their Research Infrastructure Roadmap. Swedish experts were also 
involved in the process of selection of infrastructure objects for the Roadmap.  

According  to the  Estonian  Research  Infrastructures Roadmap,  Estonia will  participate  in 
the  following  ESFRI  projects:  The  European  Life-Science  Infrastructure  for  Biological 
Information  (ELIXIR);  European  Spallation  Source  (ESS);  Biobanking  and  Biomolecular 
Resources  Research  Infrastructure  (BBMRI);  Common  Language  Resources  and 
Technology  Infrastructure  (CLARIN);  European  Social  Survey  (ESS  ERIC);  European 
Infrastructure for Translational Medicine (EATRIS ERIC). 

According to the RD&I Strategy Implementation Plan, the budget for ESFRI projects for 
2014-2017  is  €13.35m.  Under  EU  programming  period  2007-2013  funding,  research 
infrastructure was developed quite extensively and a number of labs are equipped on a 
high level - 18 R&D facilities of the R&D and higher education infrastructure investment 
plan  (adopted  by  the  Government  of  the  Republic,  total  budget  €127.4m)  have  been 
completed  and  most  of  them  are  also  equipped  and  in  use 51 .  In  general,  present 
activities  concerning  infrastructure  investments  have  been  sufficient  to  cover  the 
insufficient  investments  from  the  previous  programming  periods  and  in  the  future,  the 
main  focus  has  to  be  on  ensuring  the  sustainability  and  effective  exploitation  of  such 
infrastructure. 

4.3  International cooperation with third countries 

Estonia  has  over  20  bilateral  agreements  with  third  countries  in  the  field  of  education 
and research. These are mostly framework agreements in which parties indicate a desire 
to  cooperate.  International  co-operation  projects  are  funded  by  the  Estonian  Research 
Council in the framework of bilateral memoranda, as e.g. with the Russian Humanitarian 
Scientific  Foundation  and  the  US  Civilian  Research  and  Development  Foundation.  There 
are  also  agreements  in  place  with  the  Nordic  partners  and  several  exchange 
programmes,  such  as  Norwegian-Estonian  Research  Cooperation  Programme  and  the 
Nordplus Programme of eight participating countries in the Baltic and Nordic regions. 

The RD&I Strategy implementation plan for 2014-2017 includes “analysis of possibilities 
for promoting cooperation with third countries”.  

51 Biggest  investments  were:  buildings  of  the  University  of  Tartu  (UT)-  Chemicum  (€19.4m)  and  Physicum  (€13.5m); 
research buildings of the Tallinn University of Technology (TUT) of the faculties of Mechanical Engineering and Chemical 
and Materials  Technology  TTÜ  (€12.9m),  and  TUT  Library  (€10.8m).  The  list also  includes  following  R&D  objects:  Tartu 
Observatory,  Estonian  Biocentre,  Estonian  Literary  Museum,  Science  Centre  for  Renewable  Natural  Resources  of  the 
University of Life Sciences, National Centre for Translational Medicine.  
Source: http://www.estlex.ee/tasuta/?id=e_getfile&syscmd=1&lisadid=22331 

48 

 
 
 
                                          
4.4 

 An open labour market for researchers  

4.4.1   Introduction 

Estonia’s  universities  and  other  R&D  institutions  are  relatively  independent  in  forming 
their  HR  policies.  The  basic  rules  are  set  in  the  Organisation  of  Research  and 
Development Act (introduced in 1997, last amendments in 201452) and the Universities 
Act (introduced in 1995, last amendments in 2014), as teaching and research positions 
in  R&D  institutions  are,  in  general,  subject  to  public  competition  and  the  selection 
process  also  involves  evaluation  of  professional  performance.  Until  the  end  of  2014, 
detailed  conditions  and  procedures  for  organising  a  competition  for  research  staff  in  a 
R&D  institution  which  operates  as  a  state  agency  or  a  local  authority  agency  were 
established  by  the  ministry  or  corresponding  body  of  the  legal  person  which  governs  a 
R&D institution, but since the beginning of 2015 all R&D institutions are free to establish 
their own procedures for the selection process.  

In 2013, 20.1% of the total population or 49.5% of the active population (aged 25-64) is 
classified as human resources in science and technology activities (Eurostat 2014). The 
number  of  researchers  was  about  7,500  in  2013,  which  accounts  for  ca  0.57%  of  the 
total population (Statistics Estonia, 2014). The number of foreign researchers has grown 
from 58 in 2004 to 393 in 2013 (Statistics Estonia, 2015). 

Researchers in Estonia still do not have competitive salaries compared to other European 
countries  (average  earnings  in  Estonia  are  in  general  about  2.4  times  smaller  than 
EU2853).  In  order  to  tackle  this  problem,  all  state  budget-financing  instruments  related 
to researchers’ salaries were increased by 30% in the 2008 budget. However, the 2009 
economic  downturn  led  to  salary  cut-backs  in  the  research  sector  (Technopolis  Group, 
2011) and low salaries are still a main problem.  

Since  2004,  considerable  EU  Structural  Fund  support  has  been  directed  to  the 
development  of  R&D  infrastructure,  human  capital  and  entrepreneurship  which  has 
helped  to  improve  the  conditions  and  has  had  positive  effect  on  the  number  of  foreign 
researchers (MER, 2014). 

The  new  RDI  strategy  for 2014-2020  (launched  in  January  2014)  includes  measures  to 
further  improve  the  migration  policy  to  increase  researcher  mobility  and  to  ensure 
integrated financing of the research groups led by top researchers. 

4.4.2   Open, transparent and merit-based recruitment of researchers 

The system for open, transparent and merit based recruitment of researchers has been 
in  place  since  the  beginning  of  the  2000's.  There  are  no  barriers  to  the  application  of 
open,  transparent  and  merit  based  recruitment  of  researchers  and  such  principles  are 
applied  in  the  recruitment  of  researchers  of  the  higher  education  sector  and  R&D 
institutions. Estonia’s law stipulates  that research staff shall be elected by the research 
council or by the corresponding body of a legal person in public law or a legal person in 
private  law  by  way  of  public  competition.  Universities  and  R&D  institutions  are  very 
autonomous in their recruitment policies, but the basic rules are set in the Organisation 
of Research and Development Act.  

52 The predecessor of this act “Organisation of Research Act” which included the basic principles, was introduced in 1995 
53 Eurostat (2016): Annual net earnings 2014: Estonia – €9915; EU28 – €23142. 

49 

 
 
 
 
                                          
From  2015  (relevant  amendments  in  2014)  most  of  temporary  (5-year)  posts  of 
research  personnel  (except  research  professors)  are  turned  into  permanent  posts  and 
therefore – as “evaluation by regular selection” disappears  - the committee (formed by 
the R&D institution) must evaluate professional performance at least once in 5 years.  

Until  the  end  of  2014,  detailed  conditions  and  procedures  for  organising  a  competition 
for  research  staff  in  a  R&D  institution  which  operates  as  a  state  agency  or  a  local 
authority  agency  were  established  by  the  ministry  or  corresponding  body  of  the  legal 
person  which  governs  a  R&D  institution.  From  the  beginning  of  2015,  R&D  institutions 
will  have  even  more  autonomy,  as  according  to  amendments  to  the  Organisation  of 
Research and Development Act (relevant amendments made in 2014) they can establish 
their own conditions  for the selection process.  

Until  the  end  of  2014,  the  regulations  addressed  the  following  aspects  of  researchers' 
recruitment (Riigi Teataja, 2001): 

-  The  vacancy  announcement  includes  the  job  profile,  skills  and  competences  required, 
and eligibility criteria; 

- Information on the selection process and criteria is available for the candidates; 

-  A  minimum  time  period  between  vacancy  publication  and  deadline  for  application  is 
defined; 

- Applicants have the right to receive feedback on the results of the recruitment; 

- Applicants have the right to appeal against the decision; 

- Information on the rules for the composition of selection panels (e.g. number and role 
of members, gender balance) is available for candidates. 

Regulations  do  not  specify  the  need  to  include  external  members  (national  or 
international)  to  the  selection  panel.  Language  barrier  is  not  a  problem  for  English 
speaking researchers as most of the Estonian scientists are quite fluent in it. It might be 
a  problem  for  lecturers,  as  the  number  of  courses  given  in  English  is  limited  because 
Estonians have the right to obtain higher education in their mother tongue. 

Higher education and research institutes also enjoy the necessary autonomy to organise 
their  activities  in  the  areas  of  education,  research,  and  innovation,  but  they  are 
dependent  on  largely  (up  to  80%)  project-based  funding  and  do  not  have  many 
alternative sources of funding such as philanthropy etc. 

The share of foreign university teachers was 5.1% in the academic year 2010/11 and the 
share of foreign full-time researchers was 6.7% of all researchers (MER, 2015). One of 
the main problems is that researchers in Estonia still do not have competitive salaries as 
compared  to  other  European  countries  (average  earnings  in  Estonia  are  in  general 
almost  three  times  smaller  than  EU2754).  Another  obstacle  to  researcher  mobility  has 
been the difficulty to obtain Estonian visa/residence permit from countries where Estonia 
does  not  have  a  representation.  Also,  Estonia’s  research  institutions  not  being 
sufficiently  broadly  known  and  unattractive  conditions  have  proved  to  be  higher 
obstacles  than  expected  in  bringing  foreign  top  researchers  and  doctoral  students  to 
Estonia  by  using  human  capital  development  measures  (MER,  2012).  Since  2004  a 
significant  proportion  of  EU  Structural  Fund  support  has  been  directed  to  the 
development  of  R&D  infrastructure,  human  capital  and  entrepreneurship.  This  has 
helped  to  improve  the  conditions  and  has  positive  effect  on  the  number  of  foreign 
researchers  (MER,  2014a)  which  has  grown  from  58  in  2004  to  393  in  2013  (Statistics 
Estonia, 2015). 

54 Eurostat (2015): Annual net earnings 2012: Estonia – €4588; EU27 – €12697. 

50 

 
 
 
                                          
The  new  RDI  strategy  for 2014-2020  (launched  in  January  2014)  includes  measures  to 
further  improve  the  mobility  policy  to  increase  researcher  mobility  and  to  ensure 
integrated  financing  of  the  research  groups  led  by  top  researchers.  Estonian  Research 
Council  offers  grants  for  post-doctoral  students  via  Programme  Mobilitas  (introduced  in 
2008), post-doctoral research funding (introduced in 2012) to support young researchers 
and  also  the  Start-up  research  grant  (introduced  in  2012)  to  support  promising  young 
researchers to develop an independent research career. 

A report “The career of scientists: Estonia in the international system” (Vadi et al, 2012) 
points  out  that  scientific  career  is  not  particularly  popular  in  Estonia  because  of  low 
wages in the public sector and low demand in the private sector. 

4.4.3  Access to and portability of grants 

The  Estonian  Research  Council  (established  in  2012)  awards  institutional  and  personal 
research  funding  (relevant  amendments  to  the  Organisation  of  Research  and 
Development  Act  in  force  since  2012).  Grant  competitions  are  open  to  all  permanent 
residents of the Republic of Estonia and to all citizens of a foreign country, if they have 
full-time job in an Estonian R&D institution (residency is not required as a pre-condition). 
Grants should be applied for through an Estonian R&D institution. Researchers affiliated 
in foreign institutions can not apply for Estonian grants, but the Implementation plan for 
the  RD&I Strategy for 2014-2020 includes  specific  actions  to  analyse options  to ensure 
the  openness  of  Estonia’s  research  and  development  programmes  for  international 
cooperation and to develop cooperation opportunities with third country researchers and 
research institutions. 

Through the researcher mobility programme Mobilitas plus postdoctoral researchers and 
top researchers have a possibility to apply for a grant to carry out a research in Estonia 
or abroad.  

As regards portability of national grants, The Estonian Research Council has signed up to 
the  EUROHORCs  Money  Follows  Researcher  Letter  of  Intent  and  has  agreed  to  finance 
research  carried  out  in  foreign  institutes  after  it  has  been  initiated  in  an  Estonian  R&D 
institution.  Grant  holders  can  apply  to  transfer  their  research  grants  only  if  the  host 
country institution has also signed up to the Letter of Intent.55 

4.4.4  Doctoral training 

Estonia’s universities are very autonomous in developing doctoral training curricula. The 
Rectors’  Conference,  representing  all  public  universities  in  Estonia  and  one  private 
university, have signed a “Quality Agreement of Estonian Universities” (signed in 2011, 
in Estonian “Eesti Ülikoolide Kvaliteedi hea tava lepe“) which specifies quality standards 
for doctoral studies and encourages international networking and interdisciplinary studies 
and research. 

Doctoral  study  programmes  usually  include  training  in  transferable  skills  to  improve 
researchers’  employment  skills  and  competencies  (based  on  the  Standard  of  Higher 
Education;  introduced  in  2008,  last  amendments  in  2014).  Doctoral  schools,  curricula 
development  activities,  lectures,  seminars,  practical  training  classes,  laboratory  work 
and  individual  classes  can  be  developed  by  each  institution  with  the  aim  of  acquiring 
knowledge and achieving better learning outcomes for participants. 

The new RDI strategy for 2014-2020 (launched in January 2014) aims to pay increased 
attention  to  the  systematic  development  of  doctoral  studies,  and  ensure  competitive 
financing of doctoral studies. 

55 Researcher's Report 2014: Estonia. 
http://ec.europa.eu/euraxess/pdf/research_policies/country_files/Estonia_Country_Profile_RR2014_FINAL.pdf  

51 

 
 
 
                                          
4.4.5   Gender equality and gender mainstreaming in research 

The  Estonian  Government  has  not  introduced  specific  policies  to  promote  equal 
opportunities  for  men  and  women  in  the  research  area.  The  Gender  Equality  Act  was 
adopted in 2004 and the latest amendments were made in July 2012.  

At the same time, most indicators show that the situation in Estonia is better than in the 
EU27 on average. For the year 2010, throughout the EU27, on average 56.1 % of highly 
educated women in an S&T field were working as professionals or technicians compared 
with 54.6 % of men. In Estonia, the share of highly educated women in an S&T field who 
are  working  as  professionals  or  technicians  is  14  percentage  points  higher  than  that  of 
men (50.3% of women; 36% of men). The average proportion of female researchers in 
Estonia was 42.4% in 2013. In 2010, the proportion of female scientists and engineers 
in the total labour force was 2% in Estonia (in EU27 it was 1.75%) and the proportion of 
men was 3% (3.65% in EU27). In 2009, women represented 46% of all researchers in 
the  Higher  Education  Sector  in  Estonia  (40%  in  EU27),  61%  in  the  government  sector 
(40% in EU27) and 28% in the Business Enterprise Sector (19% in EU27). The share of 
female heads of institutions in the higher education sector in 2010 was 21.2% in Estonia 
(15.5%  in  EU27),  but  the  share  of  women  in  scientific  and  management  boards  was 
lower in Estonia (26%) than in EU27 (36%)56. 

4.5  Optimal circulation and Open Access to scientific knowledge  

4.5.1   e-Infrastructures and researchers electronic identity 

Electronic  identification  is  widely  applied  in  Estonia,  both  by  the  Estonian  R&D 
organisations  and  the  Estonian  Research  Portal.  Remotely  accessible  services  are  also 
widely  available  and  secure.  The  Programme  of  Electronic  Scientific  Information  (in 
Estonian  „E-teadusinfo“,  launched  in  2009)  aims  to  supply  Estonia’s  R&D  institutions 
with  scientific  information  and  to  acquire  access  to  scientific  information  and  electronic 
publications  for  Estonia’s  research  libraries  and  organisations.  The  programme  is 
implemented  by  the  non-profit  association  Estonian  Library  Network  Consortium,  which 
is established in the collective interest of public libraries. The total budget (2009-2014) 
amounts to €8.1m. 

The Estonian e-repository (launched in 2011) is an integrated e-environment created for 
long-term  preservation  and  availability  of  digitized  resources  of  the  Estonian  cultural 
heritage institutions: libraries, archives, and museums. The e-repository enables to link 
national heritage collections with the Pan-European library EUROPEANA.  

The Estonian Research Information System (ETIS; established in 2006) is developed in a 
way that would allow it to be used as an open repository, so that the results of research 
that  receive  public  funding  are  easily  identifiable  by  appropriate  technical  means, 
including through meta-data attached to electronic versions of the research output. 

In 2011, the Estonian higher education information and communications technology and 
research  and  development  activities  state  programme  2011-2015  (in  Estonian  “Eesti 
info-  ja  kommunikatsioonitehnoloogia  kõrghariduse  ning  teadus-  ja  arendustegevuse 
riikliku  programmi  2011-2015  (IKTP)“)  was  launched.  It  is  a  cooperation  programme 
between the universities, ICT sector, and the state, with the aim to increase the quality 
of ICT and develop cooperation between different partners.  

The Estonian Information Technology Foundation for Education (HITSA) was established 
in  April  2013 57 .  The  mission  of  HITSA  is  to  provide  a  high-quality  national  network 
infrastructure for Estonia’s research, educational and cultural communities.  

56 She Figures 2012: Gender in Research and Innovation. European Commission, 2012 
57 From  May  1st  2013,  the  Tiger  Leap  Foundation  and  the  Estonian  Education  and  Research  Network  (EENet)  were 
transferred  to  the  Estonian  Information  Technology  Foundation  and  the  new  name  of  established  organisation  will  be 
Information Technology Foundation for Education (HITSA; www.hitsa.ee) 

52 

 
 
 
                                          
Its  services  include  a  permanent  Internet  connection  as  well  as  webhosting,  e-mail, 
consultations in the event of security problems etc. 

There  is  a  big  number  of  legislation  and  national  projects  on  ICT.  The  Electronic 
Communications Act (introduced in 2004) implements the EU Regulatory Framework for 
Electronic Communications. The purpose of this Act is to create the necessary conditions 
to promote the development of electronic communications networks and communications 
services  while  ensuring  the  protection  of  the  interests  of  users  of  such  services. 
Challenges such as personal data security, the scope of personal data use, and identity 
validation  and  tracking  are  addressed  in  the  following  legislation:  Personal  Data 
Protection  Act  (introduced  in  1996);  Copyright  Act  (introduced  in  1992);  System  of 
security  measures  for  information  systems  (passed  in  2007);  Public  Information  Act 
(introduced  in  2000);  Information  Society  Services  Act  (introduced  in  2004).  Digital 
Signatures Act (introduced in 2000) and Data exchange layer X-Road (launched in 2001) 
support identification and interoperability. 

4.5.2   Open Access to publications and data 

Access  to  scientific  information  is  facilitated  by  the  Consortium  of  Estonian  Libraries 
Network  and  the  research  libraries  have  created  very  good  conditions  and  access  to 
scientific  journals  and  electronic  databases  for  national  researchers.  This  may  be  a 
reason why “Estonian researchers do not feel the need for specific open access policies" 
(European Commission, 2011).  

The  free  access  to  the  results  of  publicly  funded  research  is  stated  by  amendments 
(adopted in 2012) of the  Organisation of Research and Development Act and measures 
have been taken to develop a variety of R&D e-infrastructures (MER, 2014c).   

According to the EC report (2014) “State-of-art analysis of OA strategies to peer-review 
publications”,  Estonia  has a majority  (over 70%)  of  papers in  OA.  Estonia is  publishing 
more  in  Gold  journals  (ca  13%)  and  less  in  Green  journals  (ca  9%),  than  the  other 
states of Eastern Europe. 

Electronic  identification  is  widely  applied  in  Estonia,  both  by  the  Estonia’s  R&D 
organisations  and  the  Estonian  Research  Portal.  Remotely  accessible  services  are  also 
widely  available.  The  Programme  of  Electronic  Scientific  Information  (in  Estonian  „E-
teadusinfo“,  launched  in  2009)  aims  to  supply  Estonian  R&D  institutions  with  scientific 
information and to acquire access to scientific information and electronic publications for 
Estonia’s research libraries and organisations.  

The  Implementation  plan  for  RD&I  strategy  for  "Knowledge  Based  Estonia  2014-2020" 
encourages open access and includes the following measures:  

• 

• 

Continue  the  development  of  central  research  information  systems  and 
services with the objective of making these convenient for outside users (incl. 
state authorities and enterprises) and to allow fast access to research topics, 
performers and results.  
Encourage  open  access  to  publicly  financed  research  results  and  research 
data.  Support  extensions  to  databases  in  research  institutions  and  research 
libraries,  and  ensure  access  to  the  most  important  research  databases.

53 

 
 
Framework conditions for R&I and Science-Business 

5. 
cooperation 

5.1  General policy environment for business 

Estonia has a high ranking (rank 16 of 189 economies) on the World Bank Ease of Doing 
Business  rank  (World  Bank,  2016).  Estonia  is  ranked  among  the  38  freest  countries  in 
the  world  in  most  indicators,  except  Resolving  insolvency  (rank  40)  and  Protecting 
minority investors (rank 81). In general, the rules for starting up and running a business 
are simple (rank 15) and the legal framework is transparent and up-to-date.  

In  addition,  Estonia's  Small  Business  Act  (SBA) 58  profile  is  generally  strong.  Estonia 
performs  above  the  EU  average  in  five  SBA  principles  —  it  scores  particularly  well  in 
‘responsive administration’, access to finance, single market and internationalisation. Its 
scores  for  ‘second  chance’  are  below  the  EU  average.  The  only  issue  for  Estonia, 
therefore,  is  to  work  on  faster  insolvency  procedures  for  a  ‘second  chance’  for 
entrepreneurs who may have failed the first time around. 

5.2  Young innovative companies and start-ups  

In  Estonia,  99.8%  of  non-financial  business  sector  enterprises  are  SMEs59,  so  most  of 
the  support  measures  are  targeting  SMEs.  To  date,  measures  do  not  differentiate 
between SMEs and big enterprises. Support is mainly given via open calls and should be 
applied  through  an  Estonian  enterprise  or  R&D  institution.  A  number  of  measures  to 
facilitate  knowledge  transfer  and  the  creation  of  university  spin-offs  are  also  under 
implementation  since  2008-2009.  The  following  measures  are  funded  by  MEAC  and 
Incubation 
implemented  by  Enterprise  Estonia  Foundation:  Creative  Business 
Programme;    Competence  Centre  Programme  (2014-2020);  Cluster  development 
programme; 
Innovation  Voucher  grant;  Enterprise  Development  Programme; 
Programme “Start-up Estonia”.  

A measure especially useful for start-up companies is the programme "Start-up Estonia" 
(2011-2015,  co-financed  by  ERDF),  designed  to  develop  a  start-up  ecosystem  by 
providing  training  and  mentoring  to  new  start-up  companies  and  by  "activation"  of 
business  angels  in  Estonia.  The  programme  was  updated  in  2014  and  will  run  until  the 
end  of  2015.  A  start-up  programme  is  also  envisaged  for  the  2014-2020  programming 
period.  In  addition,  in  the  framework  of  the  Business  Incubation  Programme  (2009-
2014, €2.7m) the development of business incubation was supported, along with raising 
the competence level of service providers and the establishment of an investor network 
with  both  local  and  foreign  partners.  The  general  objective  of  the  programme  was  to 
support  the  establishment  of  enterprises  with  growth  potential,  and  their  sustainable 
development, in order to ensure that they are viable and independent when leaving the 
incubator. 

In the framework of the Business Incubation Programme60, the development of business 
incubation is supported, along with raising the competence level of service providers, the 
establishment  and  development  of  cooperation  partners  and  an  investor  network  with 
both local and foreign partners. The programme is aimed at business incubators, but the 
end  beneficiaries  of  the  programme  are  the  incubated  entrepreneurs  that  are  able  to 
grow  and  to  develop their competitiveness  as a result of  participating  in  the  incubation 
process.  The  general  objective  of  the  programme  is  to  support  the  establishment  of 
enterprises with growth potential, and their sustainable development, in order to ensure 
that they are viable and independent when leaving the incubator. 

58 See http://ec.europa.eu/growth/smes/business-friendly-environment/small-business-act/index_en.htm  
59 European Commission (2014): SME Performance Review; See also PRAXIS Survey (2012): The development trends of 
small and medium-sized enterprises (in Estonian)   
60 http://www.eas.ee/en/for-the-entrepreneur/starting/business-incubation-programme 

54 

 
 
 
                                          
In  addition,  the  new  Enterprise  development  programme  targets  ambitious  enterprises 
with  the  readiness  to  invest  and  clear  potential  and  desire  to  grow,  to  develop  and 
launch  new  products  and  services.  Participation  in  the  programme  is  open  to  industrial 
enterprises or companies of the smart specialisation field that have been operating for at 
least 3 years (as of date of registration) with a minimum of 8 employees and that have 
obtained first experiences in export or management of fast growth. The total funding for 
the programme is €73m (co-funded by ERDF).  

From the perspective of equity financing for young innovative companies, public-private 
venture  capital  investments  through  the  Estonian  Development  Fund  have  given 
significant  impetus  for  high-growth  internationally  oriented  start-ups  in  Estonia.  The 
Baltic Innovation Fund (BIF) is a Fund-of-Fund initiative launched by the EIF in close co-
operation with the Governments of Lithuania, Latvia and Estonia in 2012 to boost equity 
investments  made  into  Baltic  Small  and  Medium  sized  enterprises  (SMEs)  with  high 
growth potential. 

In  terms  of  impact  of  the  above  mentioned  instruments,  according  to  the  "Enterprise 
policy´s  report"  (MEAC,  2014a),  during  the  programming  period  2007-2013,  1861 
enterprises were provided with Start-up support. As a result, the survival rate of support 
receivers  (95.7%)  was  higher  than  average.    For  the  same  period,  1295  Innovation 
vouchers  were  granted  which  enchanced  cooperation  between  enterprises  and 
universities. Support was also given to 7 incubators which provided growth environment 
for 400 enterprises. 

5.3  Entrepreneurship skills and STEM policy 

According  to  the  ERAC  Peer-review  (2012),  a  lack  of  educated  and  skilled  labour  is  a 
major  underlying  constraint  for  growth  of  productivity  and  value  creation  in  Estonia’s 
economy,  that  should  be  addressed  through  policy  coordination  on  multiple  fronts, 
including education, particularly adult and secondary/vocational education beside tertiary 
education, as well as labour and immigration policy supporting RD&I policy.  

To  respond  to  the  challenge,  the  Implementation  Plan  for  RD&I  Strategy  2014-2020 
includes the following sub-measures that target education61: 

  Ensure  a  new  generation  of  researchers  and  engineers,  incl.  paying  increased 
attention  to  the  systematic  development  of  doctoral  studies,  and  ensure  the 
competitive-level  financing  of  doctoral  studies  (incl.  PhD  grants),  continue 
supporting  doctoral  studies,  the  position  of  junior  research  fellow  and  post-
doctoral studies (Programme DoRa, Doctoral schools, about €8,500 per year). 
  Encourage the mobility of researchers between the academic, public, and private 
sectors. As regards a researcher’s career, place value on the time worked in other 
sectors  and  the  results  achieved  there,  as  well  as  cooperation  with  enterprises. 
Continue  supporting  doctoral  studies  that  are  provided  in  cooperation  with 
universities and enterprises (financing under 1.7 and 4.1). 

  Review the motivation system related to commercialisation in universities, linking 
it  with  the  main  objectives  and  the  financing  of  universities.  Increase  the 
professionalism  and  impact  of  commercialisation  and  reinforce  links  with  other 
participants in the innovation system – investors, incubators, science parks, etc. 
Continue the development of competence in the field of knowledge transfer, incl. 
the training and bringing in of experts, the development of the organisation and 
quality  of  knowledge  transfer,  and  the  extension  of  the  international  contact 
network.  Promote  increasing  awareness  of  intellectual  property  rights  among 
researchers,  students  as  well  as  the  non-academic  staff  of  universities  (will  be 
part  of  institutional  development  programme  for  HEIs  which  is  in  preparation; 
budget for 2014-2017 about €56,000). 

61 For measures to improve doctoral training that are already implemented see ch.4.4.4. 

55 

 
 
 
                                          
  Support  the  development  of  entrepreneurship  studies  and  new  forms  of 
acquisition  of  entrepreneurship  experience  by  involving  more  enterprises  than 
before  -  as  lecturers,  practice  providers,  etc  (Measures  in  development  - 
“Systemic  development  of  entrepreneurship  and  entrepreneurial  skills  on  all 
educational  levels”  and  “Development  of  apprenticeship  system  in  higher  and 
vocational education”) 

The  Estonian  Lifelong  Learning  Strategy  2020  (approved  by  the  Government  in  2014) 
aims  to  achieve  the  distribution  of  students  60/40  as  regards  general  upper-secondary 
education  and  vocational  education  respectively  by  2020;  provide  more  work-based 
learning,  including  apprenticeships;  and  increase  the  proportion  of  vocational  education 
students  in  apprenticeships  from  the  current  approximately  2.3%  to  approximately  7% 
by  2020  (European  Commission,  2014d).  In  2015,  MER  approved  the  “Programme  for 
linking better labour market needs and training” (in Estonian, Tööturu ja õppe tihedama 
seostamise  programm,    total  budget  €51m)  which  aims  to  link  better  the  training  and 
study  opportunities  with  the  labour  market  demand,  and  to  increase  the  number  of 
people of all age groups with professional qualifications.  

In  2013,  a  new  structure  for  vocational  education  and  training  programmes  was 
introduced by the Vocational Educational Institutions Act. New programmes are based on 
the  national  qualifications  framework,  introducing  the  learning  outcome  principle  in 
designing  study  programmes  (with,  for example,  the  opportunity  for  employers  to  take 
part in the development of curricula), modernised management principles for vocational 
schools,  and  new  accreditation  requirements.  In  addition,  the  amendments  (made  in 
2013)  to  the  Basic  School  and  Upper  Secondary  School  Act  aim  to  put  general  and 
vocational  education  at  an  equal  footing,  and  provide  primary  school  graduates  with  a 
clear choice between the two paths. 

The  national  curricula  for  schools 62  sets  out  cross-curricular  topics which  focus  on 
equipping people with the capacity to learn and to develop transversal competences such 
as  critical  thinking,  problem  solving,  creativity,  teamwork,  and  intercultural  and 
communication  skills,  and  also  science,  technology,  engineering  and  mathematics,  ITC 
and  entrepreneurship.  Entrepreneurship  education  and  training  is  also  included  in  the 
curricula of universities, but it is not compulsory as for upper secondary schools. 

5.4  Access to finance 

No special tax incentives are given to the R&D and innovation investments or to venture 
capital  funds  except  that  the  companies’  income  is  free  of  tax  to  the  extent  that  they 
reinvest their profit and there is no withholding tax for VC funds in Estonia. Foundation 
KredEx  is improving the availability of financing and managing credit risks by providing 
credit  guarantees.  A  special  credit  line  was  provided  via  KredEx  in  2009-2011  to  deal 
with  the  effects  of  the  financial  crisis.  The  total  package  (including  funding  from 
European  Investment  Bank)  amounted  to  €124m  of  which  €69m  was  covered  by 
projects. Start-up loan guarantees for €7.7m were used by 304 enterprises in the 2007-
2013 period (MEAC, 2014a). 

The  Development  Fund  (together  with  the  private  sector)  performs  risk  capital 
investments into starting and growth-oriented technology companies. It invests together 
with  private  investors  who  have  an  in-depth  knowledge  of  the  specific  field.  Since  May 
2008, the Development Fund together with its daughter company SmartCap have made 
18  investments  into  Estonian  fast-growth  companies  with  an  innovative  business 
model.63  

62 Here for example: National curriculum for upper secondary schools  
63 http://www.arengufond.ee/en/investments/investment-success-stories/  

56 

 
 
 
                                          
The  fund  invests  into  companies  that  comply  with  the  VC  profile,  which  is  why  many 
companies  of  the  traditional  economy  or  companies  serving  the  local  market  have  not 
met the investment strategy criteria. Examples of big successful investments, where the 
Development Fund has already exited partially or completely, include SmartPost (bought 
by  a  Finnish  logistics  company),  Modesat  Communications  (bought  by  a  US  company), 
etc. 

In  addition,  the  Baltic  Innovation  Fund  (BIF)64 is  a  Fund-of-Fund  initiative  launched  by 
the  EIF  in  close  co-operation  with  the  Governments  of  Lithuania,  Latvia  and  Estonia  in 
2012 to boost equity investments made into Baltic small and medium sized enterprises 
(SMEs) with high growth potential. In the years 2013 – 2016, BIF plans to invest €130m 
into  private  equity  and  venture  capital  funds  to  which  an  at  least  equal  amount  of 
investments  shall  be  added  by  private  investors  and  pension  funds.  Sub-funds    invest 
into  enterprises  according  to  the  investment  policy  of  each  particular  fund,  but  the 
general  target  group  includes  Baltic  companies  with  good  international  development 
potential.  The  following  sub-funds  have  received  an  investment  decision:  BaltCap,  BPM 
and Livonia partners. 

The  Estonian  Business  Angels  Network  (EstBAN)  was  founded  in  2012.  EstBAN  is  a  full 
member of the European Trade Association for Business Angels, Seed Funds, and other 
Early  Stage  Market  Players  (EBAN)  and  the  Estonian  Venture  Capital  Association 
(EstVCA). 

According to an analysis by the Global Entrepreneurship and Development Institute and 
The Estonian Development Fund65 there are both supply side and demand side issues in 
access  to  finance  in  Estonia.  They  are  partly  driven  by  regulatory  problems  (e.g. 
constraining pension funds in funding the entrepreneurial finance sector), partly by lack 
of  incentives  (e.g.  tax  incentives)  and  partly  by  a  general  lack  of  equity  culture  in 
Estonia (small VC sector with underdeveloped VC networks, few patient and specialised 
investors). 

5.5  R&D related FDI 

Creating  favourable  conditions  for  FDI  and  openness  to  foreign  trade  have  been  key 
elements of Estonia's economic strategy. However, exports are concentrated in low and 
medium  technological  goods  and  FDI  inflows  in  high  value  added  activities  have  been 
small.  

Estonia’s  inward  FDI  stock  is  large,  accounting  for  roughly  90%  of  GDP  in  2012. 
However, a large share of inward FDI flows is directed towards financial intermediation. 
Inward FDI directed towards manufacturing is low and concentrated on low-value added 
manufacturing  goods  (Masso  et  al.,  2010).  This  is  also  reflected  in  low  participation  in 
global  value  chains  compared  to  other  small  open  economies  (OECD,  2013a).  In  2013, 
most  of  FDI  was  in  finance  and  insurance,  real  estate,  sales  and  wholesale  and 
manufacturing. Almost 50% of FDI comes from Finnish and Swedish investors (Statistics 
Estonia, 2014). 

 Activities  to  attract  foreign  investments  to  Estonia  constitute  a  part  of  the  export  and 
foreign investments action plan 2014-2017 Made in Estonia 3.0. The government agency 
promoting  foreign  investments  in  Estonia  is  the  Estonian  Investment  Agency  (EIA),  a 
part  of  Enterprise  Estonia.  The  agency  assists  international  companies  in  finding 
investment  and  business  opportunities  in  Estonia,  but  it  does  not  focus  specifically  on 
R&D intensive FDI. 

64 http://www.eif.org/what_we_do/resources/BIF/  
65 Towards a More Entrepreneurial Estonia: Call for Action, 2014 

57 

 
 
 
                                          
In the coming years,MEAC plans to follow three main directions when attracting foreign 
investments  to  Estonia:  movement  towards  attracting  into  the  country  foreign 
investments  that  offer  higher  added  value,  establishment  of  contacts  and  development 
of  the  image  and  environment  of  Estonia  (incl.  introducing  Estonia  as  an  attractive 
country for “smart workforce”). The measure Foreign investments into Estonia  to attract 
FDI in Estonia is co-funded by the ERDF.66  

5.6  Knowledge markets 

Estonia  has  a  system  of  intellectual  property  rights  that  is  well  developed  from  a  legal 
perspective.  The  legal  protection  of  patentable  inventions  is  regulated  by  the  Patents 
Act.  All universities have their own detailed IPR principles, stipulating also the rules of 
ownership, but the author has always the copyright of the work as of the creation of the 
work.  Compliance  related  activities  in  Estonia  are  closely  interlinked  with  those  of  the 
European  Union  and  the  EU’s  relationship  with  the  WTO.  The  Agreement  on  a  Unified 
Patent Court has been signed by the Government of Estonia in 2013, but not yet ratified 
by  the  Parliament.  In  January  2013,  a  new  institution  was  started  –  the  Estonian 
Intellectual  Property  and  Technology  Transfer  Centre,  which  took  over  the  activities  of 
the  Estonian  Patent  Information  Centre.  The  centre  organises  trainings  and  provides 
counselling,  and  also  compiles  annual  IPR  reports.    A  non-profit  society,  Estonian 
National  Group  International  Association  for  the  Protection  of  Intellectual  Property,  was 
founded in 1992.  

In  2004,  the  Republic  of  Estonia  acceded  to  the  protection  systems  of  the  Community 
trademarks  and  designs.  The  Estonian  Patent  Office  takes  part  in  several  cooperation 
and  convergence  programme  projects  of  the  Office  for  Harmonization  in  the  Internal 
Market (OHIM) and has joined the European Trade Mark and Design Network. 

Estonia  is  also  in  the  process  of  renewing  its  patent  and  intellectual  property  rights 
system.  The  Ministry  of  Justice  established  an  Expert  Group  on  the  Codification  of  the 
Intellectual  Property  Law.  Although  the  initial  plan  was  to  create  new  laws,  after 
thorough  analysis  the  Expert  group  reached  a  conclusion  that  right  now  it  is  more 
feasible to wait and see what will be decided on the EU level and until then make some 
necessary minor amendments to the existing law (Ministry of Justice, 2015). 

66 See https://www.mkm.ee/en/objectives-activities/economic-development-and-entrepreneurship/innovation#foreign-
investments-into-estonia14  

58 

 
 
 
                                          
5.7  Public-private cooperation and knowledge transfer 

5.7.1   Indicators  

Funding: BES-funded/publicly-performed R&D 

Figure 14 BES-funded public R&D in Estonia as % of GERD (in €MLN) and % of GDP 

The  level  of  privately-funded  public  R&D  expenditure in Estonia is  low  compared  to the 
other two Baltic states. In 2014 it was only 2.09% of the total GERD and 0.03% of GDP. 
Figure  14  also  shows  a  significant  drop  in  business  funding  over  the  period  2002-2011 
when measured in terms of percentage of GERD (from 4.3% in 2002 to 1.1% in 2011). 
This is however due to the rapid growth of total GERD in Estonia during the whole period 
(from 0.72% in 2002 to 2.16% in 2012). BERD has significantly increased in 2011 due to 
big R&D investments in the oil shale industry but these investments were performed by 
the  business  sector  so  they  did  not  trigger  an  increase  of  the  business  funding  of  R&D 
performed  by  the  public  sector.  However,  since  2012  the  share  of  BES-funded  public 
R&D  has  been  growing.  Indeed,  when  measured  in  absolute  amounts,  business-funded 
public R&D expenditure has increased from €2.25m in 2005 to €5.97m in 2014 without 
major fluctuations during the crisis.  

59 

4.30%3.33%3.11%2.16%2.03%2.34%2.06%2.00%1.83%1.09%1.23%1.96%2.09%012345670.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%2002200320042005200620072008200920102011201220132014Public R&D financed by BES as % of GERD and millions of euroMillions ofEUR% of GERD0.031%0.026%0.026%0.020%0.023%0.025%0.026%0.028%0.029%0.025%0.026%0.034%0.030%012345670.000%0.005%0.010%0.015%0.020%0.025%0.030%0.035%0.040%2002200320042005200620072008200920102011201220132014Public R&D financed by BES as % of GDP and millions of euroMillions ofEUR% of GDP 
 
 
 
 
 
Figure 15 BES-funded public R&D as % of GERD and as % of GDP in 2013 in Member States67 

Estonia is below the EU-28 average of business funded public R&D both in terms of share 
of GERD and share of GDP. The other 2 Baltic countries, Lithuania and Latvia, have both 
higher shares. 

The  general  low  level  of  privately  funded  public  R&D  indicator  is  partially  rooted  in  the 
structure  of  the  national  economy.  The Estonian  economy  has  a relatively  low  share  of 
R&D  spending  high  technology  and  knowledge-intensive  companies 68 .  Also,  the 
awareness  of  available  R&D  (including  knowledge  transfer)  support  grants  among 
Estonian  companies  is  relatively  low. 69  In  addition,  there  seems  to  be  a  mismatch 
between the needs of the business sector and the provision of knowledge from the public 
sector  as  a  result  of  the  R&D  system  being  focused  on  areas  other  than  those  that 
dominate  Estonia’s  economy  today  (OECD,  2013).  Last  but  not  least,  Estonia  is  faced 
with  significant  human  capital  problems  -  business  surveys  point  out  that  enterprises 
have problems finding RD&I competent talent. 

67 2013 was chosen as the latest data series providing a full comparison within EU-28.  
68 According to the Estonian National Audit Office (2014), 90% of research and development expenses in Estonia are 
incurred by fewer than 100 companies. 
69 http://www2.deloitte.com/content/dam/Deloitte/global/Documents/About-Deloitte/CE_RD_Estonia_2014.pdf  

60 

0%2%4%6%8%10%12%14%LTROLVNLDEHRELBEESHUBGEU28SKSIPLUKEEFIFRATSECZITDKPTLUIEMTCYPublic R&D financed by business enterprise sector as % of GERD in 20130.000%0.020%0.040%0.060%0.080%0.100%0.120%DELTNLBEFISIEU28ATLVSEHUESFRROEEUKHRDKELCZSKPLBGITPTLUIEMTCYPublic R&D financed by business enterprise sector as % of GDP in 2013 
 
 
  
 
 
 
                                          
Funding: Structural funds devoted to knowledge transfer 

Figure 16 Structural Funds for core R&D activities 2000-2006, 2007-2013 and 2014-202070. We 
use the categories: 182 (2000-2006), 03 and 04 (2007-2013) and 062 (2014-2020) as proxies for 
KT activities. 

70 Figure 16 provides the Structural Funds allocated to Estonia for each of the above R&D categories. The red bars show 
the categories used as proxies for KT. Please note that the figures refer to EU funds and they do not include the part co-
funded by the Member State.  
The  categories  for  2000-2006  include:  18.  Research,  technological  development  and  innovation  (RTDI);  181.  Research 
projects  based  in  universities  and  research  institutes;  182.  Innovation  and  technology  transfers,  establishment  of 
networks  and  partnerships  between  business  and/or  research  institutes;  183.  RTDI  infrastructures;  184.  Training  for 
researchers. 
The categories  for  2007-2013  include:  01.  R&TD  activities  in  research  centres;  02.  R&TD  infrastructure  and  centres  of 
competence in specific technology; 03. Technology transfer and improvement of cooperation networks; 04. Assistance to 
R&TD particular in SMEs; 74. Developing human potential in the field of research and innovation. 
The categories for 2014-2020 include: 002. Research and Innovation processes in large enterprises; 056. Investment  in 
infrastructure, capacities and equipment in SMEs directly linked to Research and Innovation activities; 057. Investment in 
infrastructure,  capacities  and  equipment  in  large  companies  directly  linked  to  Research  and  Innovation  activities;  058. 
Research  and  Innovation  infrastructure  (public);  059.  Research  and  Innovation  infrastructure  (private,  including  science 
parks);  060.  Research  and  Innovation  activities  in  public  research  centres  and  centres  of  competence  including 
networking;  061.  Research  and  Innovation  activities  in  private  research  centres  including  networking;  062.  Technology 
transfer  and  university-enterprise  cooperation  primarily  benefiting  SMEs;  063.  Cluster  support  and  business  networks 
primarily benefiting SMEs; 064. Research and Innovation processes in SMEs (including voucher schemes, process, design, 
service  and  social  innovation);  065.  Research  and  Innovation  infrastructure,  processes,  technology  transfer  and 
cooperation of enterprises focusing on the low carbon economy and on resilience to climate change. 

61 

0.014.162.417.65.934.925.021.93.914.30.011.90.024.30.027.40.00.08.16.222.1010203040506070181811821831840102030474002056057058059060061062063064065SF 2000-2006SF 2007-2013SF 2014-2020%Distribution of SF allocated amounts among Core R&D&I categories (%)Estonia 
 
 
 
 
 
                                          
Estonia  has  not  allocated  any  of  its  structural  funds  for  core  R&D  activities  to 
"Technology  transfer  and  university-enterprise  cooperation  primarily  benefiting  SMEs" 
(compared to 62.4% for 2000-2006 and 25.8% in the 2007-2013 programming period). 
The EU averages for the respective periods are: 26.1% for 2000-2006, 30.1% for 2007-
2013 and 15.7% for 2014-2020. 

Cooperation: Share of innovative companies cooperating with academia 

Figure 17 CIS survey 2012 – share of enterprises cooperating with academia 

According  to  CIS  2012,  in  Estonia  43.4%  of  innovative  companies  are  engaged  in  any 
type  of  cooperation.  Yet,  only  one  fourth  of  them  (i.e.  10.8%  of  the  total  sample  of 
innovative  companies)  cooperate  with  universities  and  higher  education  institutions 
compared to almost 18.9% in LT. Even less – 5%  cooperate with government or public 
or  private  research  institutes  (compared  to  11.7%  in  LT  and  7.4%  in  LV).  One  could 
clearly  see  room  for  improvement  considering  that  Estonia's  neighbour  and  one  of  the 
innovation  leaders,  Finland,  has  the  highest  rate  of  cooperation,  namely  26%  of 
innovative  companies  that  work  with  higher  education  institutions  and  23%  with 
government or public or private research institutes. 

Cooperation: Technology Transfer Offices (TTOs), incubators and technological 
parks 

Estonia has 18 technology clusters71, 8 competence centres (Competence Centre of Food 
and  Fermentation  Technologies;  Bio-Competence  Centre  of  Healthy  Dairy  Products; 
Estonian  Nanotechnology  Competence  Centre;  ELIKO  Competence  Centre;  Competence 
Centre for Cancer Research; Software Technology and Applications Competence Centre; 
Competence  Centre  on  Reproductive  Medicine  and  Biology;  Innovative  Manufacturing 
Engineering Systems Competence Centre)72,  4 Science and Technology Parks  (Tehnopol 
Tallinn, Tartu Science Park, PAKRI Science and industrial park, Incubator Tallinn)73 and 9 
Business Incubators (all the science and technology parks have incubators)74.  

71 http://www.estonianclusters.ee/?lang=en  
72 http://researchinestonia.eu/science-scene/competence-centers/  
73 http://www.workinestonia.com/living-in-estonia/science-technology/#articleblock-Scienceparks  
74 http://www.eas.ee/et/alustavale-ettevotjale/eas-i-lahendused-ja-toetusvoimalused/ettevotlusinkubatsiooni-
programm/tule-inkubaatorisse  

62 

 
 
 
 
 
                                          
Many  of  these  facilities  have  been  co-financed  from  structural  funds.  In  addition,  the 
Estonian Intellectual Property and Technology Transfer Centre (EIPTTC) was founded by 
the  Estonian  Chamber  of  Commerce  and  the  Ministry  of  Economic  Affairs  and 
Communication  in  2013.    The  predecessor  of  EIPTTC  was  the  Estonian  Patent 
Information Centre. EIPTTC offers a wide variety of intellectual property and technology 
transfer support services, training and education.75 

Cooperation: Share of public-private co-publications 

Figure 18 Co-publications by field 2003-2013 in Estonia. Scopus database 

Figure  18  shows  the  2003-2013  average  percentage  of  academia-industry  co-
publications by field in Estonia compared to the European average. Scopus data indicate 
also that the percentage of co-publications has almost not changed in the last ten years 
(2003-2013),  with  1.5%  of  academia-business  publications  in  2013  (lower  than  the  EU 
average  of  2.2%).  In  2013  Estonia  had  28  public-private  co-publications  per  million  of 
population which is on par with the EU-28 average of 29 (and much higher than the 5.7 
for  LT  and  6.4  for  LV) 76 .  The  domains  with  highest  percentage  of  co-publications 
(excluding  multidisciplinary  publications)  are  medicine,  biochemistry,  genetics  and 
molecular biology, and nursing. 

Cooperation:  Patenting  activity  of  public  research  organisations  and 
universities together with licensing income 

Estonian  universities  have  a  big  share  (approx.  50%)  of  total  patent  applications  from 
the  country,  compared  to  Finland  and  Sweden  where  enterprises  apply  for 95%  of  PCT 
applications 77 .  Patent  application  activity  of  Estonian  scientists,  compared  to  their 
scientific  publications  (two  applications  per  100  articles),  are  on  the  same  level  with 
Swedish researchers. 

75 http://www.eitk.ee/en/  
76 RIO elaboration based on Scopus data. 
77 Mets, T. Kelli, A., Mets, A. Tiimann, T. (2014): TIPS, Study 1.1 The intellectual property system and IP role in the 
framework of R&D of a small open economy country, comparative mapping of the situation and preliminary research. 

63 

 
 
 
 
 
 
                                          
There is no aggregated data on licensing income from these patents. Only the University 
of  Tartu  reports  that  its  licensing  income  from  patents  licensed  or  sold  to  industry  in 
2012 was circa €110,000. 

The  volume  (profit  from  contracts)  of  "partnership"  and  joint  collaborative  research 
agendas signed between universities and enterprises was €6.2m in 2012. 

Cooperation: Companies 

In  2012  there  were  19  spin-off  enterprises  stemming  from  public-private  cooperation 
with  the  shareholding  of  the  four  largest  Estonian  universities  (Tartu  University,  Tallinn 
Technical University, Tallinn University and Estonian University of Life Sciences). In 2012 
their  revenue  was  €11.7m78.  The  percentage  of  researchers  in  public  universities  (the 
four largest) with a share in spin-off enterprises was 15% in the end of 2011.79 

5.7.2   Policy Measures 

A number of measures to facilitate the partnerships and productive interactions between 
research institutions and the private sector are under implementation since 2008-2009: 
Competence Centre Programme (also referred to as Technological development centres), 
Cluster  development  Programme,  Innovation  voucher  grant.  All  these  measures  are 
supported by the EU Structural Funds and managed by the agency Enterprise Estonia. A 
new  instrument,  Support  for  applied  research  in  the  areas  of  smart  specialisation, 
managed by the MER entered the policy mix in 2015. 

The  Competence  Centre  Programme  is  the  largest  budget  instrument  that  aims  to 
facilitate knowledge circulation between public and private sectors. In the 2007–13, each 
of the eight centres could receive annually up to €1.28m, within a limit of 70% of their 
eligible  budgets  (for  IPR  related  costs  50%  of  costs).  The  total  allocated  budget  for 
2007-2013  was  €62.9m  (co-financed  by  the  European  Regional  Development  Fund).80 
Competence Centres are structured, long term RTDI collaborations in strategic important 
areas between academia, industry and the public sector. Centres aim to bridge the gap 
between  scientific  and  economic  innovation  by  providing  a  collective  environment  for 
academics,  industry  and  other  innovation  actors  and  creating  sufficient  critical  mass. 
Centres  are  involved  in  multiple  activities:  pooling  of  knowledge,  creation  of  new 
knowledge  by  performing  different  types  of  research,  training  and  dissemination  of 
knowledge,  movement  of  qualified  staff  between  businesses  and  research  institutions. 
The  new  round  of  the  competence  centre  programme  opened  in  November  2014.  The 
measure  was  updated  as  a  result  of  the  international  competitiveness  and  smart 
specialisation  objectives  of  the  Estonian  RD&I  strategic  documents.  The  total  grants 
budget amounts to €40m. 

The  Cluster  development  programme  is  also  co-financed  by  the  European  Regional 
Development  Fund.  The  total  budget  of  the  programme  in  the  EU  financing  period  of 
2007-2013  was  approx.  €6.8m.81 The  objective  of  the  cluster  development  grant  is  to 
increase  the  value  added  of  companies  and  the  sales  of  their  products/services 
(including  exports)  and  to  promote  cooperation  between  companies  of  the  same  and 
different sectors and companies and research establishments. In the period 2007-2013, 
18 clusters in 8 business fields82 were established. According to the Interim evaluation of 
the  cluster  programme  (MEAC,  2013a),  both  the  cluster  managers  and  enterprise 
managers  gave  a  positive  evaluation  to  the  cluster  programme.  One  of  the  greatest 
values  and  assets  for  an  enterprise  participating  in  the  cluster  programme  are  the 
cooperation opportunities it creates.  

78 Lukason et al. (2014), Spin-off enterprises and their support systems in Estonia, TIPS programme report 
79 Ibid. 
80 http://www.eas.ee/en/for-the-entrepreneur/innovation/competence-centre-programme  
81 http://www.eas.ee/en/for-the-entrepreneur/development-of-the-company/cluster-development-programme  
82 Business fields of clusters are: Clean Technologies, Recycling; Creative Industries; Defence&Security; Finance; Forestry, 
Furniture, Wood processing; ICT; Logistics; Medicine, IT, Biotechnology http://www.estonianclusters.ee/?page_id=48  

64 

 
 
 
                                          
R&D  institutions  mainly  conducted  surveys  on  the  issues  of  common  interest  of  cluster 
members and cooperation between enterprises and universities has been in most cases 
sporadic.  However,  about  a  half  of  the  cluster  enterprises  find  that  cooperation  with 
universities  through  the  clusters  has  contributed  to  the  development  of  their 
organisation, and that such cooperation is expected to increase further in the future. The 
programme  is  continued  in  the  new  programming  period  and  the  new  round  of 
applications opened in June 2015. The planned budget is €10m. 

The  objective  of  the  Innovation  voucher  grant  is  to  increase  the  competitiveness  of 
Estonian SMEs through transfer of knowledge and technology, expansion of cooperation 
with R&D institutions and increase of the capability to protect intellectual property. The 
grant  is  co-financed  by  ERDF  and  applications  are  accepted  on  an  on-going  basis.  The 
grant is specifically targeted to SMEs and amounts to maximum of €4,000 per applicant 
to support costs related to the procurement of innovation services.83 The programme will 
continue in the 2014-2020 programming period. 

As far as new measures are concerned, the Ministry of Education and Research launched 
the  new  activity  Support  for  applied  research  in  the  areas  of  smart  specialisation  in 
August  2015.  The  aim  is  to  support  enterprises  tendering  applied  research  or  product 
development  from  Estonian  public  R&D  institutions  and  about  1/3  of  financing  should 
come from enterprises. The total allocated budget is €26m. 

5.8  Regulation and innovation 

Rules for Good Legislative Practice and Legislative Drafting (passed by the Government 
in  2011)  stipulate  that  any  legislative  intent,  concept  and  draft  Act  is  prepared,  an 
impact assessment is carried out, a report on the impact assessment is prepared and an 
ex-post impact assessment is carried out in compliance with the Methodology of impact 
assessment  (approved  by  the  Government  in  2012).  The  same  principles  and 
methodology also applies to strategies and other policy measures of all fields, including 
innovation policies.   

MEAC  regularly  carries  out  feasibility  studies  and  ex-ante  and  ex-post  evaluations  of 
policy  measures  and  programmes 84  since  the  early  2000s  and  uses  the  results  to 
improve policies and measures. There is no special government department responsible 
for overseeing the impacts of regulation on innovation. Evaluations are commissioned by 
MEAC  to  different  institutions,  depending  on  the  issue  and  based  on  the  expertise  of 
evaluators. 

5.9  Assessment of the framework conditions for business R&I 

In  general,  the  rules  for  starting  up  and  running  a  business  are  simple  and  the  legal 
framework  is  transparent  and  up-to-date.  The  only  tax  incentive  for  innovation  is  the 
special feature of corporate income tax in Estonia - only dividends are taxed. If earnings 
are re-invested into the company, they are tax-exempt. There is no other specific law or 
regulation  to  promote  business  investment  in  research  and  innovation,  but  there  are  a 
number  of  measures  to  support  innovative  enterprises  (see  5.2-5.7).  Estonia  has  a 
system  of  intellectual  property  rights  that  is  well  developed  from  a  legal  perspective 
(OECD,  2011).  Estonia  is  also  in  the  process  of  renewing  its  patent  and  intellectual 
property rights system. 

As demand-side innovation policy has so far not been actively pursued and implemented 
in  Estonia,  MEAC  commissioned  in  2014  the  “Feasibility  Study  for  the  Design  and 
Implementation  of  Demand-side  Innovation  Policy  Instruments  in  Estonia”,  which 
analysed  the  feasibility  of  this  new  policy  initiative  in  smart  specialization  areas.  As  a 
result,  the  concept  of  the  application  mechanism  of  a  new  measure  “State  as  a  smart 
€20m).
customer” 

developed 

currently 

budget 

being 

(total 

is 

83 http://www.eas.ee/en/for-the-entrepreneur/innovation/innovation-voucher  
84 Policy evaluations, including innovation, commissioned by MEAC in English and in Estonian 

65 

 
 
                                          
6. 

 Conclusions 

6.1 

 Structural challenges of the national R&I system 

on 

achieved 

the  modernisation 

According  to  the  Report  on  the  “Research  and  Development  and  Innovation  Strategy 
2007-2013”  (MER,  2015),  Estonia’s  RDI  system  has  developed  considerably.  A  lot  has 
been 
technology, 
internationalisation  of  research  (incl.  researchers’  mobility)  and  business,  supporting  of 
start-up  companies,  and  developing  cooperation  between  business  and  academia.  The 
main challenge is to further develop the research and innovation system in ways that it 
will  have  bigger  impact  on  the  society.  Policies  should  more  strongly  contribute  to 
creating  favourable  business  environment  necessary  for  increasing  export  intensity  and 
employment in medium and high-tech industry and knowledge-intensive services. 

infrastructure 

and 

of 

Country  Specific  Recommendations  (EC,  2015)  suggest  focusing  public  support  for 
research and innovation on a coordinated implementation of the limited number of smart 
specialisation areas. A number of measures has already been developed to promote R&D 
in the key areas of smart specialisation (see chapter 2.4). 

6.2  Meeting structural challenges 

The effort has been made to meet the challenges with appropriate measures. As new set 
of  measures  has  just  been  launched  in  2015,  but  its  assessment  would  still  be 
premature.  

MEAC has launched programmes to increase competitiveness of enterprises in the areas 
of smart specialisation: Cluster development Programme (renewed in 2014) is aiming to 
improve the international competitiveness and to increase the sales and value added of 
the  companies  via  cooperation  between  companies  and  companies  and  research 
institutions.  Also  a  new  measure  “State  as  a  smart  costumer”  will  be  launched  to 
improve demand-side innovation policies (total budget €20m).  

MER  launched  the  activity  “Support  for  applied  research  in  the  areas  of  smart 
specialisation”  (in  Estonian,  Rakendusuuringute  toetamine  nutika  spetsialiseerumise 
kasvuvaldkondades (NUTIKAS), which has quite a big budget, constituting almost half of 
RDI measures launched so far (see Annex 2). So it deserves closer monitoring in coming 
years.  The  “Institutional  development  programme  for  research  and  development  and 
higher  education  institutions”  (in  Estonian,  Institutsionaalne  arendusprogramm  teadus- 
ja  arendusasutustele  ja  kõrgkoolidele  ASTRA)  and  “Allocation  of  support  for  R&D 
infrastructure  (in  Estonian,  Riikliku  tähtsusega  teaduse  infrastruktuuri  toetamine 
teekaardi alusel) also consider among other criteria the principles of smart specialisation 
and aim to boost international competitiveness of Estonian R&D.  

66 

 
 
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71 

 
 
Abbreviations 

BERD 

ERA 

Business Expenditures for Research and Development 

European Research Area 

ERA-NET 

European Research Area Network 

ERAC 

European Research Area Committee 

ESA 

ESF 

European Space Agency 

European Science Foundation 

ESFRI 

European Strategy Forum on Research Infrastructures 

ESS 

EU 

European Social Survey 

European Union 

EU28 

European Union including 28 Member States 

FDI 

FP 

FP7 

Foreign Direct Investments 

Framework Programme 

7th Framework Programme 

GBAORD 

Government Budget Appropriations or Outlays on R&D 

GDP 

GERD 

Gross Domestic Product 

Gross Domestic Expenditure on R&D 

GOVERD 

Government Intramural Expenditure on R&D 

HE 

HEI 

HERD 

HES 

ICT 

IP 

IPR 

IPTS 

JRC 

MEAC 

Higher Education 

Higher education institutions 

Higher Education Expenditure on R&D 

Higher education sector 

Information and communications technology 

Intellectual Property 

Intellectual Property Rights 

Institute for Prospective Technological Studies  

Joint Research Centre-Institute for Prospective Technological Studies 

Ministry  of  Economic  Affairs  and  Communication  (in  Estonian  “Majandus-  ja 
Taristuministeerium”) 

MER 

Ministry of Education and Research (Haridus- ja Teadusministeerium) 

72 

 
 
 
MF 

MSTI 

PPP 

PPS 

PRO 

Ministry of Finance (Rahandusministeerium) 

Main Science and Technology Indicators 

Public Private Partnership 

Purchasing Power Standard 

Public Research Organisations 

OECD 

Organisation for Economic Co-operation and Development 

R&D 

RD&I 

RI 

RTDI 

SF 

SME 

S&T 

TTU 

UT 

VC 

Research and development 

Research, Development and Innovation  

Research Infrastructures 

Research Technological Development and Innovation 

Structural Funds 

Small and Medium Sized Enterprise 

Science and technology 

Tallinn University of Technology (Tallinna Tehnikaülikool) 

University of Tartu (Tartu Ülikool) 

Venture Capital 

WIPO 

World Intellectual Property Organisation 

73 

 
 
 
 
List of Figures 

Figure 1 Structure of the Research and Innovation System ..................................... 18 

Figure 2 Government deficit and public debt ......................................................... 28 

Figure 3 Funding of the total GERD ..................................................................... 29 

Figure  4  R&D  appropriations  and  government  funded  GERD  in  millions  of  national 
currency ........................................................................................................... 30 

Figure 5 Government intramural expenditure by sectors of performance ................... 31 

Figure 6 Fiscal consolidation and R&D .................................................................. 32 

Figure  7  BERD  intensity  broken  down  by  most  important  macro  sectors  (C= 
manufacture, D_E=electricity, gas, water supply etc., G_N=services). ....................... 40 

Figure 8 BERD by source of funds ....................................................................... 40 

Figure 9 top sectors in manufacturing (C19=Manufacture of coke and refined petroleum 
products;  C20=Manufacture  of  chemicals  and  chemical  products;  C26=Manufacture  of 
computer, electronic and optical products). ............................................................ 41 

Figure  10  top  service  sectors  (J=information  and  communication,  K=Financial  and 
insurance activities, M=professional, scientific and technical activities). ..................... 42 

Figure 11 economic sectors as percentage of the total GVA. Top 6 sectors in decreasing 
order:  1)  Manufacturing,  2)  Wholesale  and  retail  trade;  repair  of  motor  vehicles  and 
motorcycles; 3) Real estate activities; 4) Public administration and defence; compulsory 
social security; 5) Construction; 6) Information and communication. ......................... 43 

Figure 12 GVA in manufacturing. Top 6 manufacturing sectors: 1) Manufacture of wood 
and of products of wood and cork, except furniture; manufacture of articles of straw and 
plaiting materials; 2) Manufacture of food products; beverages and tobacco products; 3) 
Manufacture  of  fabricated  metal  products,  except  machinery  and  equipment;  4) 
Manufacture  of  furniture;  other  manufacturing;  5)  Manufacture  of  computer,  electronic 
and optical products; 6) Manufacture of electrical equipment. .................................. 43 

Figure 13 Value added for the leading sectors. ...................................................... 44 

Figure 14 BES-funded public R&D in Estonia as % of GERD (in €MLN) and % of GDP .. 59 

Figure  15 BES-funded public R&D as % of GERD and as % of GDP in 2013 in Member 
States .............................................................................................................. 60 

Figure  16  Structural  Funds  for  core  R&D  activities  2000-2006,  2007-2013  and  2014-
2020. We use the categories: 182 (2000-2006), 03 and 04 (2007-2013) and 062 (2014-
2020) as proxies for KT activities. ........................................................................ 61 

Figure 17 CIS survey 2012 – share of enterprises cooperating with academia ........... 62 

Figure 18 Co-publications by field 2003-2013 in Estonia. Scopus database ............... 63 

74 

 
 
 
 
List of Tables 

Table 1 Main R&I indicators, 2012-2014 ............................................................... 14 

Table 2 Basic indicators for R&D investments ........................................................ 27 

Table 3 Key Estonian Public R&D Indicators .......................................................... 29 

Table 4 Public Funding from Abroad to Estonian R&D (in millions of national currency) 30 

Table 5 Bibliometric indicators, measuring the quality of the science base ................. 47 

75 

 
 
 
 
Annex 1 – List of the main research performers 

The  total  number  of  positively  evaluated  research  and  development  institutions  in 
Estonia is 19, so here are listed all. Official statistics or ranking of these R&D institutions 
is absent. 

1. Universities 

  University of Tartu 
  Tallinn University of Technology 
  Tallinn University 
  Estonian University of Life Sciences 
  Estonian Academy of Arts 
  Estonian Academy of Music and Theatre 

2. Public R&D institutions 

Institute of the Estonian Language 

  Estonian Biocentre 
 
  Estonian Literary Museum 
  Tartu Observatory 
  Estonian National Museum 
  National Institute for Health Development 
  Under and Tuglas Literature Centre of the Estonian Academy of Sciences 
  National Institute of Chemical Physics and Biophysics 

3. Private R&D institutions 

  Estonian Business School 
  Competence Centre for Cancer Research 
  Competence Centre for Health Technologies 
  Cybernetica AS 
  Protobios LLC 

76 

 
 
 
 
Annex 2 – List of the main funding programmes 

Name of the funding 
programme 

Timeline 

Budget 

Target group 

Cluster development Programme  2014-2020 

€10m 

Enterprises, R&D 
institutions 

State as a smart customer 

2014-2020 

€20m 

Enterprises, government 

Innovation vouchers programme 

2014-2020 

€10m 

Start-up programme 

2014-2020 

€7m 

2014-2020 

€26m 

Enterprises, R&D 
institutions 

Young, innovative 
enterprises 

R&D institutions, 
enterprises 

Support for applied research in 
the areas of smart specialisation 
(NUTIKAS) 

Institutional development 
programme for research and 
development and higher 
education institutions (ASTRA) 

Allocation of support for R&D 
infrastructure (for infrastructure 
roadmap objects) 

Support for centres of excellence 
for promoting competitiveness 
and high quality of research 

2014-2020 

€123m 

Universities, public R&D 
institutions 

2014-2020 

€31m 

Universities, public R&D 
institutions 

2014-2020 

€41m 

High level research 
groups, R&D institutions 

Programme for science 
popularization TeaMe plus 

2015-2020 

€3.2m 

Society in general, 
children etc 

Researchers mobility programme 
Mobilitas plus 

2015-2022 

€35.4m 

Programme for strengthening the 
sectoral research and 
development (RITA)  

2015-2020 

€28m 

Enterprise Development 
Programme 

2015-2020 

€73m 

Post-doctoral researchers 
from Estonia, top 
researchers who come 
from abroad 

Ministries (posts for R&D 
specialists); universities, 
R&D institutions, for open 
calls also enterprises 

industrial enterprises or 
companies of the smart 
specialisation field 
(operating for at least 3 
years, 8 or more 
employees) 

Technological development 
centres 

2014-2020 

€40m 

Estonian enterprises and 
R&D institutions 

77 

 
 
 
 
 
Annex 3 – Evaluations, consultations, foresight exercises 

MEAK (2014): Mid-term evaluation of innovation and enterprise support policies 

MEAK (2014): “Feasibility Study for the Design and Implementation of Demand-side 
Innovation Policy Instruments in Estonia” 

MEAK; Ernst & Young (2015): Ex-ante evaluation of designed financial instruments from 
the Cohesion Policy 2014-2020 funds (in Estonian,  Perioodi 2014-2020 
ühtekuuluvuspoliitika vahenditest kavandatavate rahastamisvahendite eelhindamine) 
MEAC; Technopolis group, Manchester Institute of Innovation Research (2014): 
Feasibility Study for the Design and Implementation of Demand-side Innovation Policy 
Instruments in Estonia (in Estonian, Perioodi 2014-2020 ühtekuuluvuspoliitika 
vahenditest kavandatavate rahastamisvahendite eelhindamine) 

MEAC (2015): Analysis of Smart Specialisation (in Estonian, Nutika spetsialiseerumise 
analüüs 

MER (2015): Full Report on the “Research and Development and Innovation Strategy 
2007-2013 “Knowledge-based Estonia 2007-2013” (In Estonian, „Eesti teadus- ja 
arendustegevuse ning innovatsiooni strateegia 2007–2013 „Teadmistepõhine Eesti”” 
lõpparuanne “) 

Publications of the Research and Innovation Policy Monitoring Programme for 
2011-2015 (TIPS Programme): 

Eamets, R. Tamm, K. Tamm-Klaos, D. Aksen, M. Kärner, A. Kindsiko, E. (2014): TIPS, 
Study 2.4 Efficiency of PhD studies 

Ernits, R. et al (2015): TIPS, Study 4.5 The role of higher education institutions in 
regional development in the context of Nordic regional , (in Estonian  Uuring 4.5. 
Regionaalsete kõrgkoolide roll kohalikus arengus) 

Karo, E. et al (2014): TIPS, Study 5.1 Estonian research funding instruments and the 
socio-economic impact of publicly funded research in Estonia  

Karo, E. Kattel, R. Lember, V. (2015): TIPS, Study 5.3 Analysis of policy-making and 
governance systems of the Estonian research and development and innovation policy, (in 
Estonian   Uuring 5.3. Teadus- ja arendustegevuse ning innovatsioonipoliitika 
valitsemise väljakutsed ja võimalused 2015-2020: mittelineaarne 
innovatsioonipoliitika ning uued koostöö ja koordineerimise platvormid 
poliitikakujundamisse) 

Karo, E. Kattel, R. Lember, V. Ukrainski, K. Kanep, H. Varblane, U. (2014):                  
TIPS, Study 7.2. Smart specialization opportunities and challenges in designing and 
managing RD&I policies for 2014-2020 (in Estonian, Uuring 7.2. Nutika 
spetsialiseerumise võimalused ja väljakutsed Eestis TA&I poliitika 
kujundamisel ja juhtimisel 2014-2020) 

Kaseorg, M. Pukkonen, L. (2015): TIPS, Organisational bases and barriers of the 
cooperation between industry and higher education institutions, (in Estonian,  Uuring 
4.2. Ülikoolide ja ettevõtete koostöö organisatsiooniline baas ja barjäärid. 
Praktikavaldkonna uuring) 

Kattel, R. Tõnurist, P. Karo, E. Kalvet, T. (2015): TIPS, Study 6.1 Possibilities and 
challenges of implementing the European Research Area in Estonia (in Estonian,  Uuring 
6.1. Euroopa teadusruumi rakendamise võimalused ja väljakutsed Eestis) 

Lääts, K. Ploom, K. Tohver, E. Lorenz, A. Kadak, T. Kenk, K. Haldma, T. (2015): TIPS, 
Study 3.2 Evaluation and management models assessing the efficiency of cost-
accounting and administration models of Estonian research and development 
establishments, (in Estonian, Uuring 3.2. Eesti teadus- ja arendusasutuste 
kuluarvestuse ning tulemuslikkuse hindamise ja juhtimise praktikad) 

78 

 
 
 Lember, V. Cepilovs, A. Kattel, R. (2015): TIPS, Study 6.2 Demand-side innovation 
policy in Estonia: rationales, limits and future paths 

Lember, V. et al (2015): TIPS, Study 5.2 Relevance of research and development and 
innovation policy for the real economy , (in Estonian   Uuring 5.2. Eesti 
teadussüsteemi ja majanduse seosed: juhtumianalüüsid avaliku ja erasektori 
nõudlusele vastamisest 

Lukason, O. Mõttus, M, Varblane, U. (2014): TIPS, Study 4.4 Spin-off enterprises and 
their supporting framework in Estonia 

Mets, T. Kelli, A., Mets,A. (2015): TIPS, Study 1.2 In-depth analysis of IP processes, 
testing and analysis of methodology of the survey, and formation of IP policy, strategy 
and regulatory recommendations for Estonia and the EU.(in Estonian, Uuring 1.2. 
Intellektuaalomandi (IO) protsesside süvaanalüüs, seire metoodika testimine ja analüüs 
ning Eestile sobivate IO poliitikasoovituste kujundamine) 

Mets, T. Kelli, A., Mets,A. Tiimann, T. (2014): TIPS,  Study 1.1 The intellectual property 
system and IP role in the framework of R&D of a small open economy country, 
comparative mapping of the situation and preliminary research. 

Mürk, I. Kalvet, T. (2015): TIPS, Study 4.3 The role of research and development 
enterprises in the Estonian innovation system, (in Estonian  Uuring 4.3. 
Teaduspõhiste ettevõtete roll Eesti T&A- ja innovatsioonisüsteemis) 

Philips, K. Lees, K. Lille, K. (2015) TIPS, Study 6.3 Mobility of Estonian researchers in 
Europe (in Estonian, Uuring 6.3. Eestiga seotud teadlaste mobiilsus Euroopa 
teadusruumis. Lõppraport, september 2015.) 

Rajalo, S. Taba, N. (2015): TIPS, Study 4.2 The organisational base and barriers for 
cooperation between higher education institutions and enterprises , (in Estonian  Uuring 
4.2. Ettevõtete ja teadusasutuste koostöö eripärad) 

Roolaht, T. (2015): TIPS, Study 4.1 Monitoring the cooperation experience between 
industry and higher education institutions, (in Estonian Uuring 4.1. Ettevõtete ja 
kõrgkoolide koostöökogemuse seire. Ettevõtlusdoktorantuuri 
koostööprogramm) 

Ukrainski, K. Timpmann, K, Tänav, T. Hirv, T. (2015): TIPS, Study 2.2 Collection of 
research funding data, (In Estonian, Uuring 2.2. Eesti teaduse rahastamise seire) 

Ukrainski, K. Timpmann, K, Tänav, T. Hirv, T. (2015): TIPS, Study 2.3 Alignment of 
funding sources for managing the research activities in research units, (In Estonian, 
Uuring 2.3. Eesti teaduse rahastamise instrumentide koostoime analüüs) 

Vadi, M, Reino,A. Jaakson, K. Kivipõld, K. Orav, P. Aidla, A. Türk, K. Ahonen, M. (2014): 
TIPS, Study 3.1 Management patterns of Estonian research and development 
establishments 

Vadi, M. Kindsiko, E. Alas, R. (2015): TIPS, Study 6.4 The career of scientists: Estonia in 
the international system (in Estonian, Uuring 6.4. Teadlase karjäär: Eesti 
rahvusvahelises taustsüsteemis. Lõppraport, juuli 2015.) 

79 

 
 
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JRC Mission 

As the Commission’s  
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mission is to provide EU  
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doi:10.2791/092522 

ISBN 978-92-79-57804-5