Is the Estonian e-residency program a digital fairytale?
The Baltic Republic of Estonia is building up its global reputation as “the digital republic” , “the Digital Leader of Europe” , and the “world’s first digital nation” . Its most recent e-government initiative, the e-residency program, is designed to empower entrepreneurs worldwide irrespective of their political or economic background . Successful applicants to the program receive a national e-ID card and access to the e-government services of Estonia. Residents are then able to establish digital businesses in Estonia, and by extension, gain automatic access to the European Single Market.
Five years after its launch in December 2014, the e-residency program is now known globally. In its marketing campaign, the program promises potential entrepreneurs fast and cost-efficient processes with a public administration accessible 24/7. Pope Francis, Angela Merkel, and Timothy Draper each received a symbolic e-residency during official visits . But as of March 2020, only about 12,000 of 62,000 registered e-residents had launched a company . This shows the program has so far not met initial expectations of success given the gap between registered e-residents and established companies online . The figures may even suggest that the e-residency program failed to provide the business-friendly infrastructure necessary to run a company online, and attracted fewer entrepreneurs than previously expected. If this digital concept is to succeed, however, structural misconceptions need to be dealt with and transparency must be increased.
An inclusive digital business world needs diversity
Various organizations, such as the International Monetary Fund  and the Bill & Melinda Gates-Foundation , have urgently called for more inclusiveness in the technology world. By 2022, more than 60% of global GDP will be generated digitally. Over the next ten years, an estimated 70% of new global profit will be based on digitally-enabled platforms . Aiming to reap the fruits of these economic opportunities and establish more inclusive procedures, the Estonian e-residency program offers individuals access to the e-bureaucracy of Estonia, irrespective of their background. The program essentially enables entrepreneurs to start and run a business in a member state of the European Union from any location in the world. The program is part of the “eTrade for all” initiative of the United Nations, which aims to bring e-commerce opportunities to all countries. As it stands, however, the Estonian e-residency program will neither uplift individuals on a larger scale nor establish a more sustainable start-up environment in Estonia.
E-residency – Estonia’s state-up failure
A key weakness of the program is its application process. In e-Estonia, every citizen can access digital public administration services with the help of a physical e-ID card. Before gaining access to digital infrastructure, which enables individuals to start and run a business, the soon-to-be digital entrepreneur needs to apply through the government’s web page. The application process also includes a transaction fee of 100 euro . Picking up the physical key to e-Estonia can be a challenge for prospective e-entrepreneurs, as only Estonian embassies, consulates, and e-residency centers offer the service outside of Estonia itself. In Africa and South America, for example, there is only one Estonian embassy per continent . The high travel costs to obtain an e-ID card hinder applicants whose entrepreneurship should theoretically be enhanced by the e-residency program, making the procedures not as inclusive as the initiative claims to be .
Furthermore, a digital business in Estonia must set up an Estonian or European-based bank account. Bank providers in Estonia check the e-resident’s documents independently from the Estonian e-bureaucracy. Due to Estonia being the home of one of the world’s biggest money laundering scandals, public demands for strict checks and verification processes in the banking sector have become widespread . Estonian President Kersti Kaljulaid has publicly supported a more customer-friendly verification of individuals to improve e-residency services, but historical money laundering cases mean this approach may increase levels of mistrust within Estonia’s population.
Beyond these systemic barriers, establishing and running a successful company requires more than just functioning infrastructure and investment . Personal exchanges between start-up entrepreneurs, customers, and advisors may prove to be crucial for the growth of a company and personal development. There is no guarantee of success for even the best business idea if there is no genuine exchange between stakeholders. Regular meetings with investors, coaches, and other founders undoubtedly help entrepreneurs more than digital courses or chat services. Digital services are attractive for existing companies to speed up the exchange with the public administration, but when it comes to establishing a company, personal interactions are essential. Unsurprisingly, it seems that the well-advertised unicorns in Estonia are actually companies founded by local entrepreneurs .
Transforming a digital fairytale into a functioning reality
Estonia considers itself to be a “start-up” nation, with a government implementing new and innovative policy programs . To establish Estonia’s digital dream, politicians and the administrative elite have been risk-friendly and have often made far-reaching promises . Comparatively, more conservative national administrations have been slower to implement new technology programs and have been less ambitious with their goals. Similar to start-ups, however, the Estonian government could learn from the approaches of more conservative and established entities. In order to truly uplift individuals on a larger scale and establish a more sustainable start-up environment in Estonia, the government should incorporate more effective feedback loops when designing and implementing their policy program . By doing so, the problems outlined above could have been detected earlier and disappointed e-residents could be avoided.
In line with such a prudent approach, transparent and detailed reporting about the financial costs and benefits of an innovative program like the e-residency system is crucial. So far, there is no clear and transparent analysis of how exactly Estonian GDP benefits from the e-residency program. Only one analysis exists conducted by the advisory service company Deloitte, which also holds the role of an official advisor to the program . This sort of assessment, however, is of particular importance in Estonia due to money laundering.
The Estonian e-residency program has ambitious goals that have yet to be achieved due to structural misconceptions that affect its efficiency and inclusiveness. Due to its worldwide marketing success, the concept is of high importance for the government. So long as the application process, access to banking, and transparency standards are not enhanced, however, this digital fairytale may soon turn into a (marketing) tragedy.
Photo by Conny Schneider on Unsplash
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