How a tiny country bordering Russia became one of the most tech-savvy societies in the world

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How a tiny country bordering Russia became one of the most tech-savvy societies in the world

For a small country, Estonia has made a big impression on the global stage.

The Baltic nation of just 1.3 million people has attracted the attention of world leaders, academics and venture capitalists thanks to its high-tech digital society.

The numbers speak for themselves: Taxes are completed online in under 5 minutes, 99 percent of the Estonia's public services are available on the web 24 hours a day and nearly one-third of citizens vote via the internet.

"We have a generation who has grown up knowing that you communicate digitally with your school because we have an e-school system, with your doctor because of e-health," Estonia's president Kersti Kaljulaid told CNBC in an interview in Tallinn in August. "You could say the Estonian government offers what normally only the private sector can offer to people."

As governments around the world wrestle with challenges from technology including data collection, artificial intelligence and cyber threats, Estonia might offer a blueprint for how to build a digital society.

"We did it straight away digitally" -Kersti Kaljulaid, President of Estonia

When Estonia gained independence from the Soviet Union in 1991, the country embarked on a series of fast-track reforms to modernize the economy. From the start, it took a digital approach.

"Estonia was a relatively poor country," Kaljulaid said. "Our public sector, our government and our civil servants wanted to offer our people good quality services. We did it straight away digitally because it was simply cheaper, easy."

A key initiative started in education as Estonia pledged to put computers in every classroom and by 2000, every school in the country was online. The government also offered free computer training to 10 percent of the adult population. The effort helped raise the percentage of Estonians who use the internet from 29 percent in 2000 to 91 percent in 2016.

In 2002, Estonia launched a high-tech national ID system. Physical ID cards are paired with digital signatures that Estonians use to pay taxes, vote, do online banking and access their health care records.

"Estonians realized because they embraced internet and technology, business, and everything, is going to move to the internet," said Tobias Koch, a business engagement manager at the e-Estonia showroom, a center in Tallinn that showcases Estonia's digital solutions. "Instead of just having an offline ID card, you need something that works online."

E-residency

Another key feature of Estonia's digital society is e-Residency, a first-of-its-kind initiative that allows individuals to start businesses in the country without living there. The program serves as a launching pad for companies looking to do business in the European Union (EU) and benefit from the EU's single market.

More than 50,000 people from around the world have applied for e-Residency since it launched in 2014.

"People who have global businesses, have a global lifestyle, they want to be served, and we want to be the best ones in that area," Taavi Kotka, Estonia's first-ever chief information officer who helped create the program, told CNBC.

Digital nomad visa

Estonia is now building on its success with e-Residency to launch a visa for digital nomads; employees who work remotely around the world. The visa is an example of a public-private partnership at work between the Estonian government and Jobbatical, a cross-border hiring firm.

Karoli Hindriks, CEO of Jobbatical, is working with the Estonian Interior Ministry to launch a digital nomad visa.
Benjamin Hall | CNBC
Karoli Hindriks, CEO of Jobbatical, is working with the Estonian Interior Ministry to launch a digital nomad visa.

"What we are doing with the digital nomad visa it really reflects what our whole immigration policy is about," said Killu Vantsi, a legal migration adviser at the Estonian Ministry of the Interior, in an interview with CNBC. "We want to attract the talented people, entrepreneurs that are beneficial to our society to our economy."

Karoli Hindriks, CEO of Jobbatical, said other countries should follow Estonia's lead as they face aging populations and a lack of skilled workers.

"The countries that are closing down and not thinking about it, I'm very curious to see where they will be in 10, 15 years," she said.

The unicorn king

Efforts like e-Residency and the digital nomad visa, along with business-friendly tax rates, have helped encourage a start-up culture in the tiny Baltic nation. Skype, the video chatting service that was bought by Microsoft, was launched in Estonia in 2003.

Skype was founded in Estonia in 2003.
Benjamin Hall | CNBC
Skype was founded in Estonia in 2003.

Today, the government boasts it is home to more tech unicorns, private companies valued at more than $1 billion, per capita than any other small country in the world. Its recent unicorns include payments firm TransferWise and Uber competitor Taxify.

Other companies focusing on everything from blockchain to organic food are now vying to be the next Estonian success.

"The environment they set up right now is really friendly," said Gregory Lu, co-founder of Natufia Labs, a start-up that created a machine to grow organic produce indoors. "I hope they keep it this way."

Roadblocks

The journey to become a digital society in Estonia hasn't been without roadblocks. In 2007, the country suffered a massive cyber attack that brought down most of its digital infrastructure.

In the wake of the attack, Estonia became home to the NATO Cyber Defense Centre of Excellence, which conducts large-scale cyber defense drills. The government also created a data embassy in Luxembourg where it stores copies of all of its data.

Still, officials were forced to respond to more than 10,000 cyber incidents in Estonia in 2017. The country's top banking regulator recently warned online databases and programs like e-Residency have made Estonia vulnerable to dirty money and sanctions breaches.

Government officials admit that being a digital society means being prepared for cyber threats. Kaljulaid said "cyber hygiene" is essential for every citizen.

"You will always be teaching and educating people," she said. "It's like teaching hygiene. You wash your hands because germs spread."