Estonia has a strong foundation for being in the first rank of innovative economies—from Europe’s best PISA scores to high university enrolment rates and widespread digital literacy. Now, there’s one more indicator to show the progress.
Estonia’s economy is showing clear signs of becoming more research-based, with private sector research and development (R&D) investments reaching its highest levels in 2023, according to new data from Statistics Estonia. Despite economic headwinds, total R&D spending rose to €702M, representing 1.84% of GDP.
Private sector companies led this growth, contributing €405M (1.08% of GDP) to R&D activities – the highest level ever recorded.
The number of companies investing in R&D also hit a record high of 468 in 2023, up significantly from 399 in 2022. Investors feel safe and confident investing in Estonia’s innovation ecosystem, as the government has supported this trend through targeted incentives and a business-friendly environment.
Some of the key findings:
- Total R&D spending increased by €60M compared to 2022
- Private sector accounted for about €40M of this increase
- Nearly two-thirds of companies currently investing in R&D started doing so in the past five years
- The ICT sector led private R&D investments, accounting for over half of business sector spending
Within the European Union context, Estonia ranks 11th in R&D spending as a percentage of GDP, still trailing but catching up to leading innovators like Sweden (3.57%), Belgium, Austria, Germany, and Finland — all of which invest over 3% of their GDP in R&D. The EU average stands at 2.25%.
A notable development has been the sharp increase in experimental development work, particularly in the private sector, which saw a 27% year-over-year increase — the largest jump in a decade. This growth was supported by significant hiring of R&D personnel, with companies adding 1,076 R&D workers in 2022 and another 335 in 2023.
The government has played a key role in stimulating private sector R&D through support measures, including the Applied Research Program operated by Enterprise Estonia. The program has been highly successful, with experts reviewing over 200 project ideas in the past year, resulting in approximately 60 approved funding decisions.
Looking ahead, the Ministry of Economic Affairs and Communications is launching a new Applied Research Center, which aims to provide crucial R&D services and infrastructure access to businesses, further supporting the development of higher value-added products and services.
Estonia is shifting from a low-cost labour economy to one driven by innovation and research investment, providing an even better ROI for those looking for big opportunities.
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