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RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHTL #0010/01 0081452
ZNR UUUUU ZZH
R 081452Z JAN 09
FM AMEMBASSY TALLINN
TO RUEHC/SECSTATE WASHDC 0987
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 03 TALLINN 000010 
 
DEPARTMENT FOR EEB/CBA AND EUR/NB 
HELSINKI FOR SCO MCCLEARY 
COMMERCE FOR ITA LEAH MARKOWITZ 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV EFIN ECON EINV EN
SUBJECT: TRAVEL & TOURISM: ESTONIA'S HIDDEN ECONOMIC 
DRIVER 
 
¶1. (U) SUMMARY:  The travel and tourism industry in 
Estonia accounts for an estimated one-fifth of GDP, 
and is increasingly important as the economy moves 
away from its old manufacturing base.  In-bound and 
out-bound tourism from Finland, Sweden, Russia and 
elsewhere is thriving, and the cruise ship business 
still anticipates growth.  It is too early to tell how 
hard the tourism industry will be hit in 2009 by the 
ongoing global downturn.  The hotel industry lobbied 
successfully to reduce a proposed hotel VAT tax hike, 
and local travel and tourism companies recently formed 
a Discover America committee to promote U.S. travel 
destinations - an MSP priority for post.  The 
Government of Estonia will spend USD 33 million over 
the next five years to develop special Estonian 
attractions, and a newly finished renovation of the 
Tallinn airport has doubled passenger capacity.  END 
SUMMARY 
 
TRAVEL & TOURISM: AN ESTONIAN ECONOMIC MULTIPLIER 
 
¶2. (U) The travel and tourism (T&T) industry in 
Estonia represents a vital one-fifth of the country's 
economy, and one that is often overlooked amid the 
drama of the transit sector's ties to Russia.  The 
importance of T&T is growing as Estonia steadily moves 
from a low-wage, manufacturing-based economy to one 
based on higher-wage services.  According to data from 
the World Travel & Tourism Council (WTTC), travel and 
tourism are expected to generate 20.4 percent of 
Estonian GDP in 2008 and account for 17 percent of 
employment.  Direct contributions to GDP (3.1 percent) 
come from the traditional T&T providers such as 
airlines, hotels, car rental companies.  Indirect 
contributions (17.3 percent) come from fuel and 
catering companies, laundry services, financial 
services, retail, entertainment, and others. 
 
¶3. (U) Despite extensive growth during the last few 
years, Estonia's tourism sector is still small, in 
real terms, by international standards.  Nonetheless, 
Estonia has become a key destination in the Baltic Sea 
region.  Tourism accounts for 11.4 percent of total 
exports of Estonian goods and services.  Roughly two- 
thirds of foreign visitors arrive in Estonia by ship, 
with the route between Tallinn and Helsinki being the 
most important. Daily ferry service also connects 
Tallinn and Stockholm. 
 
WELCOME TO ESTONIA: INBOUND TOURISM 
 
¶4. (U) According to the 2008 Travel & Tourism 
Competitiveness Report, Estonia is the 26th most 
conducive environment for developing the travel and 
tourism industry among 130 countries.  Estonia 
achieved best scores for tourism infrastructure, 
health & hygiene, and safety & security.  Scores were 
low for human, cultural and natural resources in 
travel and tourism, and air transport infrastructure. 
The air transportation score may soon improve, as the 
Tallinn airport has now completed a major expansion, 
related to Estonia joining the EU Schengen travel zone 
in December 2007.  This expansion created 14 new 
gates, separate arrival lounges for Schengen and non- 
Schengen passengers, 10 new check-in desks, a new 
restaurant, and several cafes.  Passenger traffic 
capacity is now twice what it was before. 
 
¶5. (U) According to the Estonian Statistics Board, 
Estonia received 1.9 million foreign overnight 
tourists in 2007.  The first eight months of 2008 
showed a 5.2 percent increase over the same period in 
¶2007. Estonia has 984 total accommodation 
establishments with 46,000 beds.  The main growth 
markets for hotels and other accommodations were 
Finland, Russia, Latvia, Lithuania and Germany. 
 
¶6. (U) In 2008, the Port of Tallinn received just over 
300 ship calls, about 7 percent more than last year. 
Cruise ship passengers (375,000) were up by 28 
percent, and the Port of Tallinn claims the Baltic Sea 
is the third most popular global cruise destination 
after the Caribbean and the Mediterranean, and the 
fastest growing.  The Port of Tallinn is very 
competitive with other Baltic Sea ports, mostly due to 
the Old Town center's easily accessible sights.  In 
passenger numbers, it is actually ahead of both 
 
TALLINN 00000010  002 OF 003 
 
 
Helsinki and Stockholm, and the Port expects at a 10 
percent increase in cruise passengers for 2009.  One 
in five cruise tourists is American, but nearly as 
many people are coming from the United Kingdom, 
followed by Germany and Spain. 
 
KEY MARKETS: FINLAND AND RUSSIA 
 
¶7. (U) As Q4 2008 Estonian tourism statistics are not 
complete, it is still hard to estimate the impact of 
the global economic crisis on the T&T sector in 
Estonia.  Over 50 percent of overnight foreign 
tourists come from Finland, so that economy will be 
the most important for Estonia.  Early indications 
point to a decline in Finnish travel here, but the 
industry hopes this will be off-set by holiday 
bargain-hunting in Tallinn shops offering cheaper 
prices than those in Helsinki.  Another key market to 
follow is Russia.  Visitors from Russia declined in 
2007 due to political tensions stemming from the April 
Bronze Soldier incident.  However, Estonia's joining 
the EU Schengen area in December 2007 facilitated 
tourism from Russia, as it opened Estonian borders to 
all those Russian travelers who already had a visa to 
other Schengen countries.  The first eight months of 
2008 saw a 44 percent increase in tourists from Russia 
over 2007. 
 
¶8. (U) Russian tourists are also important for 
leveling out the Estonian T&T business cycle.  High 
season lasts from May to October, followed by a winter 
slowdown. For some years already, Estonia has marketed 
itself to Russia as the place to celebrate Christmas 
and New Year's Eve.  Many Russians celebrate Christmas 
in December, as well as during the ten-day holiday 
period from New Year's Eve to Russian Orthodox 
Christmas on January 7.  It is very important to 
attract as many Russians as possible for this three 
week period, without whom this would be the slowest 
time of the year.  As with Finland, it is still too 
early to tell the impact of the global economic 
downturn on tourism from Russia. 
 
GOE: GIVING WITH ONE HAND, TAKING WITH THE OTHER 
 
¶9. (U) In August 2008, Estonian Minister of Economic 
Affairs Juhan Parts signed decrees giving a total of 
USD 33 million to support development of tourism 
products and sites through 2013.  This support is 
targeted at the development of major tourism products 
capable of gaining international interest, such as 
theme or interest parks, or tourist attractions based 
on national customs and traditions.  The aim of this 
subsidy is to raise the international competitiveness 
of Estonia as a travel destination through the 
development of innovative tourism products. 
 
¶10. (U) However - to help balance the 2009 state 
budget the GOE proposed to increase the value-added 
tax (VAT) on accommodation services from 5 to 18 
percent, drawing strong criticism from the hotel 
industry.  The chairman of the Estonian Hotel and 
Restaurant Association, Feliks Magus, told us that 
this kind of change in an already difficult economic 
situation would decrease Estonia's attractiveness as a 
tourist destination, and could bankrupt many hotels. 
At the same time, he said, rivals such as Latvia, 
Lithuania, Finland, Sweden and Norway still have lower 
tax rates on accommodation.  Industry lobbying paid 
off, and on November 19 Parliament approved a lower 
VAT increase on hotels to only 9 percent, effective 
January 1, 2009. 
 
DISCOVER AMERICA, AND THE OUTBOUND MARKET 
 
¶11. (U) According to Statistics Estonia, half of all 
Estonian residents made at least one overnight trip 
abroad in 2007.  Finland is the top destination, but 
other popular ones include Egypt, Spain, Turkey, 
Greece and Italy.  The United States is still a 
relatively new market for Estonian tourists.  The main 
obstacle to rapid market growth to date have been a 
lack of direct or charter flights and the perception 
that it is difficult to get a U.S. visa.  The latter 
was solved when Estonia joined the Visa Waiver Program 
(VWP) November 17, 2008. 
 
 
TALLINN 00000010  003 OF 003 
 
 
¶12. (U) In June 2008, after significant encouragement 
from the Ambassador and the Embassy, the American 
Chamber of Commerce in Estonia established the first- 
ever Discover America (DA) committee in the Baltics. 
The primary function of this committee is to promote 
U.S. travel destinations through marketing activities 
and events.  This was a Mission Strategic Plan (MSP) 
priority, and the DA committee is working on a U.S. 
T&T industry promotion event in Tallinn for early 
¶2009. 
 
PHILLIPS