New railroad would triple salaries

Completion of the Rail Baltic railroad could triple the average salary in Estonia compared to a situation where skeptics would manage to stop the project, a study shows.

Rail Baltic would give Estonia an average salary of nearly €3,033 a month and economic growth of 2.5 percent by 2035, a study by University of Tartu doctoral student Annika Lentso that looked at indirect economic effects of the project shows. This would constitute nearly triple the current average salary of €1,146.

The scientist based her paper on a scenario where the first international transport corridor through Estonia would not materialize. That scenario would give Estonia annual growth of 1.7 percent and an average salary of around €2,079.

The salary in the base scenario is nearly double the current average salary as a result of natural economic development. However, it would fall nearly €1,000 short of wages described in the Light Blue HUB best case scenario.

The optimistic scenario also prescribes investments into the Via Baltica highway and livelier eastern-bound trade. Construction of a tunnel between Helsinki and Tallinn would also commence.

In addition to the 440 specialists required for Rail Baltic, labor demand would also grow in companies indirectly tied to the project. Shops would be opened in international terminals, while growing number of tourists would see the emergence of new spas. Rail Baltic would therefore ideally create an additional 2,000 jobs in Estonia.

The scenario without Rail Baltic is based on transport investments continuing in recent volume, with transit volumes on the 2010-2015 level.

The scenario does not take into account President Vladimir Putin's order to reroute transit moving through Estonia to Russia's Ust-Luga port or Russian Railways' blockade of Estonia.

Road transport to lose out on silk road

In addition, Estonian transit channels also found themselves on second rate routes after the opening of the port at Ust-Luga that cannot compete with Latvian ports that service the Moscow-Riga direct line. This means that the financials of Lentso's base scenario could prove somewhat more modest in real life.

The more careful Nordic Silk Road development vision is based on finance ministry forecasts.

The silk road scenario would benefit the so-called average Estonian whose salary would grow to €2,668. Salaries would grow as a result of around 1,000 new jobs compared to a situation where the railroad would not be built. Economic growth is forecast at 2 percent.

The Nordic Silk Road scenario sees road transport as the sector that will be hit the most severely as it does not include Via Baltica investments, with Rail Baltic luring goods away from the roads to the railroad. Because relations with Russia do not seem the be improving, road carriers would find no relief from Russian partners.

The logistics business in general would survive because of Rail Baltic, with north-south transit compensating for dwindling west-east volumes. Road carriers could be looking at extensive road taxes as the state prefers ports and the railroad.

Lentso believes road transport might disappear altogether. The latter forecast has probably become an important source for Rail Baltic's opponents who are becoming more active as spring draws near.

While maritime transport will grow, development of other modes of transport is stunted and keeps a perfect network from being formed.

Online trade will benefit courier services and air traffic, while the possibilities offered by Tallinn Airport will be seized only in part.

Riga could become the regional center

Investments and jobs will be brought by north-south trade for which major companies will build intermediate depots and logistics centers.

International economic cooperation will highlight relations with Latvia and Lithuania that are the main guarantors of the success of north-south trade.

Lentso based her conclusions on a major infrastructure investment meaning more investments in other sectors. „That said, should economic development not favor investment, it is possible investments will not be made or will be made in a much smaller volume,“ Lentso wrote. „While an infrastructure investment could serve as a starting pointy for further development, small and open economies are highly dependent on general economic (also global) development.“ The study also proceeds based on prosperity growing in one region, while the economy might be growing in another.

„One such example could be a situation where Riga becomes the region's center and attracts smart people from Lithuania and Estonia. This would give the people in the latter two countries more time to concentrate on their work, while growth of GDP would be fastest in Latvia,“ Lentso explained.

A new transport option could translate into rapid growth of number of tourists that would in turn liven up the entire economy and boost demand for local products. However, a favorable result for Estonian tourism cannot be guaranteed.

A high-speed rail connection could also take our long-awaited tourists to Latvia and Lithuania instead. That possibility forces tourism companies to advertise their services much more actively in countries residents of which are seen as potential tourists to Estonia.

Andres Reimer
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