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Inside e-Estonia: How a small Baltic nation became the benchmark for a digital society

The e-Estonia portal enables residents to file taxes in three minutes, open a business in 18 minutes and vote for a new government

When Estonians elected their new government last month, almost half of voters made their decision online. That’s just one of the benefits of its e-Estonia digital society programme, which bigger nations are now trying to replicate. Dan Robinson reports

 

The date 6 September 1991 is imprinted in the consciousness of many Estonians, marking the moment their country regained its independence from the Soviet Union after 57 years.

Fewer will likely have such a vivid memory of a particular milestone in 2000 but its significance has arguably been just as profound in the development of the modern-day Baltic nation.

At the turn of the millennium, a digital signature was given the same legal value as a handwritten version, enabling users to be identified by a digital ID once they entered a short code.

The Tax and Customs Board also became Estonia’s first state institution to offer e-services, enabling individuals and businesses to submit tax returns online rather than manually.

While both may appear fairly insignificant in isolation, these schemes were the start of the digital society portal now known as e-Estonia and the envy of a world mainly stuck with inefficient legacy infrastructure.

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Tallinn, Estonia

Among the benefits for its 1.3 million population – and a growing number of people from other countries who are signing up – are the ability to cast votes online, receive prescriptions digitally and access educational materials within a few clicks.

Liina Maria Lepik is managing director of the e-Estonia Briefing Centre, which hosts 10,000 international decision-makers every year interested in how the country has used digital technology to streamline 99% of its public services.

She says: “We’re a small country – a little bit bigger than Denmark, but we don’t have much of an international reputation.

“By building the e-Estonia brand, we’re telling the world about our strengths. Our main natural resource now is our people – there aren’t too many but those we have are really talented.”

 

History of e-Estonia and birth of the X-Road

That landmark day in 1991 – almost two years after the Berlin Wall came tumbling down – was one of freedom, celebration and reflection.

But it also gave Estonia the chance to move forward on its own terms, albeit with the challenges of effectively building a country from scratch.

Liina says: “We regained our independence but didn’t have any government structure or frameworks, and there were no natural resources.

“The thing we had was a small country, which was considered an advantage for adopting new services.”

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Without the necessary funds to open government offices in every town and village, there was a need to do something different that would enable residents to access public services.

In 1997, every school was given a computer as part of the so-called Tiger’s Leap educational project in the first step towards equipping the population with the necessary digital skills.

And while it was in 2000 when the first e-service and digital signature was launched, the following year marked an even bigger milestone as the X-Road was implemented for the first time.

Described as the “backbone of e-Estonia”, X-Road is a digital exchange system in which various organisations, such as banks, telecoms companies, land registry and tax services, could exchange information securely and function in harmony.

It grew over time and there are now more than 1,000 organisations signed up – including 99% of state services – with another 52,000 involved indirectly.

Each year, the system, operating in the background, handles 500 million queries and saves 1,400 years of working time, according to the e-Estonia Briefing Centre.

Liina says: “This was a fundamental change when the government institutions were able to exchange data.”

To ensure transactions are secured, all outgoing data from X-Road is digitally signed and encrypted, and all incoming data is authenticated and logged.

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This has been supported by the introduction of the electronic ID system. Some 98% of Estonians now have an ID card, which includes a chip and enables individuals to access services online.

“That was the turning point – when people starting using their electronic ID cards and digital signatures,” says Liina.

The briefing centre says Estonians now sign nearly 50 million digital signatures annually, saving them five work days each year as a result and removing paperwork that would stack up “as high as the Eiffel Tower”.

The economic impact, meanwhile, is worth 2% of the country’s GDP in efficiencies.

 

Estonia’s e-tax system takes less than five minutes to submit income tax returns

At midnight on 15 February this year, a portal opened for income tax returns to be submitted.

Individuals had until 1 April to do so but by 7am, 120,000 people – almost 10% of the population – had already completed the task.

That’s because returns can be filed via the e-tax system, which is built on top of X-Road and requires taxpayers to log on to a system using a secure ID, review their data in pre-filled forms, make any necessary changes and approve the declaration form.

In all, the process typically takes between three and five minutes, and about 98% of all tax declarations in Estonia are now filed electronically.

Liina says this innovation, launched in 2000 and enhanced four years ago to make one-click tax returns possible, has been one of the key benefits of e-Estonia.

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A digital ID card logs people into the e-Estonia system

“It’s so easy for people to do now – one person this year even filed their taxes while running because he did it with one click on his mobile phone,” she adds.

“People joke that the race to file taxes is like our national sport – something that was really annoying has become fun, like a game.”

The e-tax system is now the envy of other countries shackled by “annoying bureaucracy”.

Iain Shearman, managing director of UK telecoms company KCOM’s national network service, has spent a lot of time in Estonia in a previous line of work and continues to keep a keen eye on how the country embraces technology.

He believes e-Estonia has become the “benchmark” for how to deliver a digital society that benefits its citizens and is particularly fond of the e-tax portal.

“For many people in business, tax returns are something they’ll put off until the Christmas period because it takes so long to do in countries like Britain,” he says.

“If only we had this e-Estonia system where all your earnings are automatically integrated – the time and cost savings must be incredible.

“Being able to access services online brings down the level of bureaucracy and makes everything more convenient to allow businesses to concentrate on what’s important to them.

“Yes, Estonia is a relatively small country, but what it’s achieved is fantastic.”

 

Estonia’s i-voting system grows in popularity

X-Road and the wider e-Estonia ecosystem continues to evolve, with 99% of public services now available 24/7 online and a new facility added each year.

In 2005, the country became the first on the planet to hold nationwide elections with an online voting option – and the first to do so in parliamentary elections two years later.

A 2014 study by the University of Michigan identified “major risks in the security of Estonia’s internet voting system”.

But the e-Estonia Briefing Centre claims i-voting is more secure than polling stations in many ways because the electronic votes move to a central server in an encrypted state, which can be checked and edited only by the citizen.

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It also uses blockchain technology and says “no one – not hackers, not system administrators, and not even the government itself – can manipulate the data and get away with”.

The i-voting system was used by 44% of participating voters on 3 March this year during the general election in which the centre-right Reform party won power from the ruling Centre group.

This represented a 13% increase on the 2015 parliamentary election, while the number of people using the system on their mobile phone jumped from 12% to 30%.

Turnout has remained relatively steady, however, with local election participation rising from 47% in 2005 to 53% in 2017 and 62% to 64% between the 2007 and 2019 parliamentary elections.

Liina says: “You can vote online two weeks before the election day and change your mind at any point – and you can still go to a polling station if you wish to.

“After voting has finished, we can give the results almost immediately. It’s something unique in the world that no one else has.”

 

What is e-Estonia? Other benefits include e-health and e-schools

Tax returns and voting don’t come around very often but the benefits of e-Estonia go further.

It takes only 18 minutes to set up a business online, according to the briefing centre, while citizens’ passports are integrated into the portal.

Car tax, driving licences and speeding fines are all linked into a single system so a fine is automatically deducted from a driver’s bank account on the roadside.

And while that may not exactly sound like much of a positive, one of the most widely-used e-solutions is in healthcare, with 99% of drug prescriptions issued digitally.

The e-health record, which was launched in 2008, has now digitised 99% of health data.

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Estonia has a thriving start-up ecosystem

Functioning like a centralised, national database, the system actually retrieves data from various providers and presents it in a standard format via the e-patient portal.

Secured through blockchain technology that adds transparency to i-voting, land registry and the court system, it enables doctors to access a patient’s records easily from a single electronic file so they can read test results, including X-rays, even from remote hospitals.

In emergency situations, doctors can use a patient’s ID code to read time-critical information such as blood type, allergies, recent treatments, ongoing medication or pregnancy.

Each year, the system now facilitates 500,000 doctor queries and 300,000 queries by patients – who can log into the portal with their electronic ID to review doctor visits and prescriptions, and check which doctors have had access to their files.

It also compiles data for national statistics that inform the Ministry of Social Affairs about health trends and epidemics so it can spend resources wisely.

E-schools are another innovation created by the Baltic nation, with students, parents and teachers able to access educational information from a laptop, desktop computer or mobile phone.

This could include homework tasks, coursework deadlines and absence data.

 

Opening up e-Estonia to other countries

The X-Road has been fundamental to Estonia’s evolution and it is now being rolled out in other countries, including Iceland, Finland, Kyrgyzstan, Azerbaijan, Palestine, Vietnam, El Salvador and Argentina.

More than 40,000 people from 150 countries have also been granted e-residency – a scheme launched in December 2014 that enables non-Estonians to access its services such as company formation, banking, payment processing and taxation.

E-residents are given a smart card they can use to sign online documents and can pick up e-prescriptions while in the country.

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These people have established 6,000 businesses, contributing about 10m euros (£8.6m) through taxes.

The country aims to have 10 million e-Estonians by 2025 and, ultimately, create a “single market” of e-services between countries.

Liina says: “It’s very easy to adapt, it’s only the legal framework that needs to adapt.

“We have a lot of Finns who come here, for example, and if they didn’t have access to e-prescriptions then maybe they’d have to go to an emergency room if they had an allergic reaction to something.

“So it saves us those costs but Estonians are also earning from it because it’s become our way to export our digital society and the expertise we have in it.

“Because our market size is tiny, our mindset is to do things digitally and efficiently that we can sell across the world.

“As we sell this digital transformation solution behind the scenes, we’re promoting the IT companies that have created those solutions and are now implementing them in other countries.”

 

Estonia’s start-up ecosystem is thriving

While bringing more convenience to people’s lives and slimming bureaucracy costs is important, e-Estonia has also bred a tech eco-system that has given the country something tangible and valuable to trade internationally.

There are now four unicorns founded in the country. The most famous is perhaps Skype, the video chat app whose back-end features were developed by three Estonians.

It was bought by Microsoft for $8.5bn (£6.5bn) in 2011 and while its headquarters are in Luxembourg, 44% of its staff were based in the Estonian cities of Tallinn and Tartu at the time of the takeover, and remain important offices.

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Estonia has a thriving start-up ecosystem

Other billion-dollar companies founded in the country are ride-hailing app Taxify; the world’s largest online gaming and sports betting software supplier Playtech, and money transfer service TransferWise.

There are about 550 start-ups in Estonia, operating in anything from fintech to greentech, and the country boasts it has one of Europe’s highest concentrations of these companies per capita.

A Startup Estonia report published in February this year found there were 3,763 people employed by start-ups in 2018 – a 26% increase on the previous year – while the businesses raised 320m euros (£275m).

Alongside the unicorns that hog the headlines, other prominent employers are Monese, Veriff, Pipedrive, Cleveron and Starship Technologies.

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Estonian start-ups raised 320m euros (£275m) in 2018

Speaking after the report was released, Allan Martinson, CEO of Tallinn business administration service LeapIN, said tech start-ups were “shifting the direction more and more of the Estonian economy”.

He said “every fourth or fifth person” was hired from abroad, and believes half the workforce could be recruited from overseas within the next couple of years – with tech salaries already higher in Estonia than in Spain, Portugal or cities outside London in England.

Liina adds: “We’ve been very focused on IT education because of the digital society we have and Estonians are very adaptive to the innovation it requires.

“This gives them very good grounding for start-ups to grow from here. We have a lot of health start-ups and our unicorns are something we can be proud of.”

 

Future of e-Estonia

Barely a month goes by without the e-Estonia Briefing Centre hosting government delegations from countries including Germany and Japan interested in replicating the digital society model.

“The interest is huge,” says Liina, who is tasked with telling the “e-story”.

“Last year, we had 90 countries come over. Germany has been here trying to implement the services but it struggles because of the legal structure.

“It has different states within the country. It’s difficult but it’s very focused on getting more services digitised.

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Tallinn, Estonia

“We hope to break the backbone of it soon enough and help as much as possible.”

Being identified as the benchmark for other countries is “very satisfying” and a source of national pride, she says, but admits the country – a member of the European Union since 2004 – must resist any temptation to rest on its laurels and lapse into a comfort zone.

It has learned from a cyber-attack in 2007 that crippled public organisations but didn’t compromise any data by adding extra layers of security.

A recent project involved setting up a “data embassy” in Luxembourg to back-up all the data in case anything happens to Estonia.

“Everyone thinks ‘wow’ when they see what we’re doing but for people in Estonia, it’s now normal to have 99% of our services available online,” adds Liina.

“But our digital state isn’t finished yet and still needs development.

“We’re building more artificial intelligence into the system so the government knows how to react automatically in certain situations.

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Tallinn TV tower in Estonia

“For example, if someone has a child, the government would know they need child support and which school they should attend without the parent having to fill anything out.

“Also, the retirement age is 63 and 95% of people that age want to apply for retirement so they can access their pension. This can be an automated solution too.”

Twenty-eight years on from emerging as an independent nation following the Cold War, and the culture of secrecy and suspicion involved in decades of Soviet rule, Estonia is a country transformed.

And Liina believes e-Estonia, with all the clarity and convenience it brings, has played a big role.

“It’s definitely given Estonians trust in the government,” she adds. “It’s minimised corruption as all services are very transparent.

“It’s made the ease of doing business unbelievably comfortable, which has attracted foreign investment and companies moving here.

“It’s made us really proud of our country.

“We have our competitive edge and something that enables us to stand out from the rest of the world, and not be just another small country in Eastern Europe.”