Kristīne Našeniece, Ambassador of Latvia to Finland

Economic outlook of Latvia today and what are the prospects for the country?

Latvia is a diverse, centrally located Baltic economy (between Estonia and Lithuania) with considerable growth potential. In 2018, Latvia grew by 4.8%, which is the fastest growth rate among all the three Baltic countries.

Latvia is situated in an arm’s length from Finland – direct flights from Helsinki, Turku and Tampere to the Riga international airport take about one hour. Rail Baltica railway (to be built by 2026) will bring Finland and Latvia, the Baltics and Nordics even closer together.

Let me highlight three reasons, which make me optimistic about the future development of my country and its economy, and three factors, which, to my mind, require further efforts.

First reason for optimism is the words said by the President of Latvia when celebrating Latvia’s 100-year birthday in 2018. He said that, in his view, Latvia is now sufficiently mature to be able “to give to the world, and not only ask and take”[1]. When questioned[2] about the challenges that lie ahead of Latvia for the next 100 years, he spoke about the importance of the unity of Europe, the importance for Latvia to take an active part in the decision making in Europe and strengthening it. At the same time, he underlined that “diminishing social inequality in Latvia” is the main task for Latvia internally, in order to build a more cohesive society.

Second reason for optimism is the new Government’s programme[3]. The new Government more clearly than the previous one speaks about the necessity for the Latvian economy to move to a higher added value and more innovative economy, including exports. It also highlights more than before the importance of equality and justice, well-functioning health and education sector in order to have solid foundations for development.

And the third reason for optimism as to the future of Latvia and its economy, is, in my opinion, the crystal clearness about Latvia’s “strongly Western geopolitical orientation”, as expressed by the Government, as well as the President.

Old Riga in the Night, Aleksandrs Kendovs (Latvian Institute)

Now, let me mention some less optimistic facts, which would require more work in order to turn them into positive elements for Latvia’s development.

First of all, our productivity rate is about 67% compared to the EU average[4]. It is true, that the rate is growing from year to year, albeit too slow. In comparison, the Finnish productivity rate is about 108% - so, above the EU average, Lithuania and Estonia – about 75%[5].

Perhaps, one explanation for this productivity rate is a rather low “investment appetite”[6] of enterprises in Latvia. I would mention this as the second factor that does not allow the Latvian economy deploy its “wings” to the fullest. Hopefully, last year’s tax reform[7] will help remedy this. The reform could incite enterprises build up capital, which, in turn, could allow them to borrow more and expand.

And last but not least of the problems that we have to solve is rebuilding the reputation of the Latvian banking sector. The new government has declared that a complete overhaul – something similar to putkiremontti – will be needed in the sector to ensure that banks are not used for money laundering. A law was passed last year prohibiting the banks to work with the shell companies. Needless to say, that more should be done on the European level, too, for instance, in the fight against money laundering.

I did not mention demography as a challenge, although it is, of course. There are still more people who leave Latvia than those settle in (the so-called “migration balance” is minus 4838 in 2018; the peak was in 2010 – minus ca 35 000). Demography, however, is an issue that is topical for all our countries in Europe.

I have gathered for your reader some more indicators related to the Latvian economy, (please see a separate text box below).

What business and investment opportunities are there for the Finnish companies in Latvia?

I would say there are ample business and investment opportunities, and the potential of developing further Finnish-Latvian economic relations is high. The perspective of Rail Baltica, common electricity and (soon also) gas market between the Baltics and the Nordics play well in that direction, too. Moreover, Latvia is very interested in attracting foreign direct investment, especially, in the sectors that represent higher added value.

Investment from Finland and other Scandinavian countries is more than welcome since it is associated with stability. You have to know that the image of Finland is extremely good in Latvia, so do not miss the opportunity!

As to the structure of the Latvian economy, services account for 63.8% of the gross value added of the economy and manufacturing – 16.5%. Agriculture accounts for 3.7% of Latvia’s economy[23].

By the logics of this picture, one might argue that the service sector is the one with the biggest potential. Indeed, the ICT sector was the 2nd biggest growing sector in Latvia in 2018, just after construction and before transport and storage. The Finnish software and service company “Tieto” is probably the most visible example of the already existing Finnish investment in the field of services. “Tieto” shared services centre was established in Latvia in 2005 (financial management, invoice processing, HR management).

Rundale Palace, Investment and Development Agency of Latvia

I would also like to say that ICT sector in Latvia is strong not only in services, but also in manufacturing. This is probably due to Latvia’s long tradition of engineering, radio-electronic manufacturing, as well as good telecommunications infrastructure. Some of you might still remember “Radiotehnika” radios... Nowadays, for instance, there is a Latvian enterprise in the electronics sector, which supplies a Finnish enterprise with parts that are used in equipment of the retina scanning. Electronic and electrical equipment were the 2nd biggest export goods in 2018 (after wood and wood products).

If we continue on manufacturing, besides electronics I cannot but mention metalworking and machinery sector. We often refer to the “Soviet era” when Latvia was a prominent manufacturing centre for the Soviet military and aerospace industries. Nowadays, Latvian companies deliver their products to such enterprises as “Volvo” and “Scania”. Many of those metalworking and machinery factories are situated close to the three biggest ports in Latvia (Rīga, Liepāja, Ventspils).

Another sector where Latvia has meaningful competence that dates back for quite some time is wood and forestry sector. I think it is more than natural that Finland and Latvia cooperate in this domain – we are both “forest nations”. In Latvia, forest covers about 50% of the territory, in Finland – a little bit more (70%). Half of Latvian forests belongs to the state owned company “Latvijas meži”. The competence of the Latvian Wood Chemistry Institute, as well as Latvian Institute for Wood Sciences “Silava” constitute solid basis for cooperation. Latvia’s industry is capable of proposing niche solutions for packaging; we know, for instance, how to make heavy-duty insulation sandwiches for LNG vessels, etc. The growing investments done in Latvia by “Stora Enso” speak for themselves. Therefore, I would say that the Finnish-Latvian cooperation potential in bioeconomy, not least in wood and forest sector is worth exploring more.

Concert Hall Gors in Rēzekne, Investment and Development Agency of Latvia

Before I turn to the artificial intelligence, let me say a few words still about manufacturing.

The reader should know that Latvia excels in the material science. Latvian scientists were the first in the world (in 1999) to replicate the earth’s magnetism. This knowledge in “magneto hydrodynamics” (MHD) is useful, for instance, in the next generation fusion reactors. The Institute of Solid State Physics of the University of Latvia is among the strongest research institutions in Latvia. Latvia has now world-class industrial players in designing and manufacturing vacuum coating systems (“Sidrabe”), as well as anti-reflective and other high-performance coatings on glass (“Groglass”), just to name a few of them. The visitors of the “Louis Vuitton Foundation” in Paris (architect – Franck Gehry), can admire the beautiful panoramic views through the glass produced by “Groglass”.

Last but not least, a few words on the artificial intelligence (AI). Latvia as Finland is not a big country therefore most probably both of us would be inclined to develop some specific or, should I say, unique products. If we look at 10 sub-fields of AI[24], according to my knowledge, Latvia excels for example, in machine learning. The Latvian company of language technologies “Tilde” with its Estonian-English-Estonian machine translator (the so-called “neural machine translation”) was the best in the world at the global Machine Translation competition WTM2017 in Copenhagen. “Tilde’s” quality of machine translation is known to be better than “Google”.

In relation to the artificial intelligence, I cannot but mention that Latvia and Finland already cooperate in the deployment of the 5G technologies, for instance, to use them for smart mobility. Last year in October, in the 5G conference in Riga, the telecommunications company “Latvijas Mobilais telefons” (LMT) together with “Nokia” and “Intel” demonstrated a test network of 5G.

So, in a nutshell, I would say that business and investment opportunities for the Finnish enterprises lie in several fields. I have mentioned above just a few of them – ICT (services and manufacturing), metal industry, wood, forestry and bioeconomy, material sciences, machine learning, smart mobility.

Great Amber Concert Hall in Liepāja, Liepāja Region Tuorism Information Centre

There are several more sectors with high capacity and under-utilised potential for exports, which would deserve a deeper insight. For instance, pharmaceutics, green technologies (renewable energy, wastewater management, solid and recyclable waste management), drone technologies (a Latvian enterprise won the 3rd prize in last year’s SLUSH festival), financial technologies (fintech, deeptech), transport and logistics, tourism, healthcare…

I am happy that the Finnish Chamber of Commerce kindly agreed to cooperate with the Embassy in organising in the first half of this year an “afternoon discussion” on the interrelation between the Finnish and the Latvian economies and new potential for cooperation. This will be the first event of such a kind, not very big (max. 70 people) to allow a real discussion, others will follow if there would be interest from the Finnish side.

Some facts about the current Finnish-Latvian economic relations in the text box below:

Economic relations between Latvia and Finland[25]

If a Finnish company decides to invest in Latvia, what are the most important issues it has to take into account in order to succeed in the market?

Well, first of all, it has to know that Latvians are loyal, committed and skilled workers. Those are words I have heard by the Finnish enterprises, which already work in Latvia. I have also heard them say that Latvia favours investment and is consistent, that the economic environment is dynamic and it is easy to establish an enterprise. Moreover, Latvia is well connected to the world – be it culture, physical or digital infrastructure. Latvians normally speak several foreign languages. For instance, myself I know French, English, Russian, some German, and now – trying to acquire some knowledge of the Finnish! Suomi on helppoa.

Latvia constantly improves its entrepreneurial environment, for instance, we plan to decrease the fee for the registration of a new company, introduce additional e-services. In February, the Parliament passed amendments to the Law on Construction (Būvniecības likums). It means that from January 2020, the documentation related to the construction of a new building will have to be submitted electronically.

Daugavpils Mark Rothko Art Centre, Investment and Development Agency, Author Valdis Skudre

What kind of assistance and benefits are there in Latvia for the Finnish companies which would like to invest in Latvia?

The Latvian authorities are willing to support the companies as to the selection and training of the employees. The State Employment Agency provides free of charge support in finding suitable candidates and assists in the first step of their selection.

It is also worth noting that the Investment and Development Agency of Latvia offers up to 250 000 EUR if the company wishes to train personnel (to lead a new product, process, marketing).

And last but not least, Latvia has five Special Economic Zones with special taxation regime (rebates on the real estate tax, tax on dividends, management fees, etc.), as well as a three support mechanisms for start-ups coupled with a start-up visa.

The Finnish company that would be interested in coming to Latvia should not hesitate contacting the Investment and Development Agency of Latvia (http://www.liaa.gov.lv/en/contact-us/contacts). You must also know that you have a very able and active Embassy of Finland in Riga whom you might wish to contact, as well.

Art Nouveau in Riga, Investment and Development Agency of Latvia, author Reinis Hofmanis

How Latvia has benefitted from the free trade agreements?

Latvia traditionally maintains an export oriented economy and EU Free trade agreements (FTA) negotiated and concluded with third countries are extremely important to us in this context. Those FTA`s provide better market access conditions and help boosting our exports as it is clearly demonstrated by trade statistics.

Be it FTA with Korea, CETA with Canada, DCFTA with Ukraine or other – we see significant and constant increase in export to those countries.

EU-Korea FTA has helped to triple our exports from 20 million EUR in 2011 to 62 million EUR in 2017. Latvia is also among the best performing Member States in terms of FTA utilization rate vis-à-vis EU-Korea FTA.

Our export to Ukraine have been rather stable in past decade, however, the application of EU-Ukraine DCFTA has brought additional +18 million EUR in 2016 and additional +25 million EUR in 2017. Ukrainian imports to Latvia have shown comparable increase, as well.

In case of Canada, we have seen strong positive trend in recent years and, in 2017, when CETA came into provisional application our exports increased by 21.5 % compared to 2016.

We know Latvia as a great holiday destination for Finns. What tourist attractions and holiday resorts are there in Latvia?

First of all, Latvia is very close – about one hour direct flight from Helsinki, Turku or Tampere, or a ferry to Tallinn and then – about 4 hour drive to Riga. If you are “best enjoyed slowly” type of traveller and have never yet been to Riga, there are, for the moment, three cruise possibilities per year from Helsinki to Riga.

If you have time more than one or two days, I would definitely suggest you to visit all the three Baltic countries – Estonia, Latvia and Lithuania (at least their capitals). Our history is similar, however, the capitals are so different and the atmosphere, too, not to speak about the language! Don’t be afraid, however, there are many words that are similar in Finnish and in Latvian, and even one sentence which means exactly the same in both of our languages: “firma maksaa”... Latvian and Lithuanian belongs to the Indo-European languages, whereas the Finnish and the Estonian – to the Finno-Ugric ones.

If we talk about the capitals of the three Baltic countries, Riga is the biggest one with more than 600 000 million inhabitants intra muros. Riga is actually the 2nd biggest city among the Nordic and Baltic capitals (after Stockholm) and it has always been a multicultural one.

Cycling along Jūrkalne Steep Coast, Investment and Development Agency of Latvia, author Reinis Hofmanis

In Riga, I would recommend to see the Art Nouveau. For example, Mikhail Eisenstein’s buildings (his son, the film director Sergei Eisenstein, was born in Riga), the wooden architecture on both sides of the river Daugava, the central market (included in the UNESCO World Heritage list), the old town and the churches. Most of the churches are Lutheran, from the Orthodox ones I recommend to see the Nativity of Christ Cathedral. In Riga, I would suggest you to go to an avant-garde music festival „Skaņu mežs” (‘sound forest’) – it usually takes place in October. It has featured such free-jazz musicians as Peter Brotzman, Roscoe Mitchell, William Hooker, and others. Riga offers good festivals of spiritual and classical music, not to talk about Opera and Riga Opera festival in June.

From May to September, you might wish to go to Jūrmala (‘seaside’ in Latvian). The first sandy beach is some 30min from Riga. The white sandy beaches cover more than 200km of the Latvian coastline. You can find many places where there is no one on the beach, just some blue cows somewhere nearby... but then you have to spend several days on the Kurzeme coastline.

Further from Riga, there is a coastal city Liepāja, which I would warmly recommend to visit if you have time and wish to discover more than Riga. Some say that Liepāja is Latvia’s cultural capital (the rigalians would not agree, of course). Many of Latvia’s artists and musicians come from this city, which is known for the “air of freedom”, and may be it is not just because of the sea winds…

To start with, I would suggest visiting five places in Liepāja. First, the Holy Trinity Cathedral with the world’s largest mechanical organ and, I think, one of the rare Lutheran churches with baroque interior. The reader certainly knows that the Finnish Jääkärit gave their oath of loyalty to the government of Finland in this Cathedral in 1918. So, Liepāja has a very strong connection to Finland. Second, it is worth seeing the central market if you wish to feel the atmosphere of the city and buy fresh vegetable, fruit, honey, mushroom, etc. Third, the newly built concert hall “The Big Amber” and the events it offers might be a good way to spend your time in Liepāja. Fourth, Liepāja’s “Karaosta” (‘military harbour’) will offer you a sharp contrast between Soviet-type apartment buildings and an impressive Orthodox cathedral “planted” right in the middle of them. And last but not least, Liepāja’s beach. It is, in my mind, one of the most beautiful beaches on Latvia’s coastline.

Another destination that could be worth visiting is Daugavpils, in the eastern part of Latvia, close to the border with Russia. In the “Mark Rothko Centre”, one can enjoy six original paintings by the world famous painter Mark Rothko born in Daugavpils. The Centre is located in the Daugavpils Fortress, which in 1812 it was able to successfully resist Napoleon’s army.

If you have been curious enough to go as far as Daugavpils, it would be a pity to miss the Aglona Basilica – certainly a “must see” in the Latgale region. This Roman Catholic shrine is a major destination of pilgrimage in the northern part of Europe. Last year, it was visited also by Pope Francis. Latgale is known for its ceramic artists, for instance, whom you can visit right in their ateliers. Latgale pottery is highly valued in Latvia, may be because of the colours? Once in Latgale, it is also worth seeing Rēzekne and its brand new concert hall “Gors” (‘spirit’), not to speak about the numerous churches you will find driving the roads of Latgale, as well as quite a few lakes. Latgale is called “the land of the blue lakes” in Latvia.

I think it would also be interesting to make “thematic” trips to Latvia, for instance, to see its palaces and castles, one of Latvia’s four regions, or visit music festivals.

Aglona Basilica, Investment and Development Agency of Latvia

As to the palaces, two of them – Rundāle and Jelgava – are conceived by Bartolomeo Rastrelli – the one who designed the Winter Palace in Saint Petersburg (now – the Hermitage museum).

One could imagine a trip, for example, to the region of Kurzeme. Besides Liepāja, there is the so-called Liv Coastline where one can see the villages and the culture of the Livs. Livs together with Latvians are Latvia’s indigenous people. The Liv language is Finno-Ugric, which explains why there are common words in the Latvian and the Finnish languages. Today, not many people speak the Liv language, however, it is classified among the “revitalised” languages in the world. Kurzeme region, the picturesque town of Kuldīga, is a place where every spring and autumn you can enjoy salmon jump over Europe’s widest waterfall “Ventas Rumba”.

As to the festivals, some of them I have mentioned above (“Sound Forest”, Riga Opera festival). You might wish to look into the programme of the International Festival of the Spiritual music organised by the world renowned “State Choir Latvija” since 1998. About 60km from Riga, in Sigulda, the annual Sigulda Opera festival takes place. This year, on 27th July, “Tosca” will be interpreted by the Latvian soprano Maija Kovaļevska – also a world renowned artist.

Some of the places I have described in this article are easier accessible, some might require somewhat more time to access, but I know that Finns are not afraid of distances, so, a good car, a good map and the wish to discover would do.

We are waiting for you in Latvia!

Kristīne Našeniece, Ambassador of Latvia to Finland

28.3.2019

In case you what to print the text you can find it here as a pfd verson.

[1] Centenial speech of the President of Latvia, H. E. Raimonds Vējonis, at the Monument of Liberty, Riga, November 2018.

[2] Interview with the President of Latvia, H. E. Raimonds Vējonis, magazine “IR”, November 2018.

[3] Following the general elections in Latvia that took place in October 2018.

[4] Productivity per person employed and hour worked (2017, EU28=100): https://ec.europa.eu/eurostat/tgm/graph.do?tab=graph&plugin=1&language=en&pcode=tesem160

[5] Idem.

[6] Ieva Tetere, Supervisory Board Member, Finance Latvia; CEO, SEB Latvia, “Looking forward: Latvia after dramatic financial industry shake”, Baltic Rim economies, issue No. 1, 2019.

[7] It introduces 0% tax for the reinvested profit. The tax rate is 20% for the profit “taken out” of the enterprise.

[8] https://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tec00115&plugin=1

[9] http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=nama_10_gdp&lang=en

[10]https://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=sdg_08_10&plugin=1

[11] https://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tec00114&plugin=1

[12] https://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tec00118&plugin=1

[13] https://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics

[14] https://ec.europa.eu/eurostat/statistics-explained/index.php/Employment_statistics

[15] https://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=sdg_17_40&plugin=1

[16] Investment and Development Agency of Latvia’s data.

[17] Investment and Development Agency of Latvia’s data.

[18] Investment and Development Agency of Latvia’s data.