Economics and business
In 2011, Latvia’s economy recovered from the deepest recession in the EU, and with the help of a three-year international loan program, the state budget was on track. Government debt, which has risen significantly in recent years, represented around 45 percent of GDP in 2010.
When Latvia joined the EU in 2004, it was the Union’s poorest member with a per capita GDP of 46 percent of the EU average. After entry, the economy grew record-breaking with GDP growth of about 12 percent in 2006 and just over 10 percent in 2007. At the same time, banks’ lending increased without significant restrictions, property prices went up just over 300 percent in three years and, after extensive labor migration, wages rose rapidly – this without productivity following. after. As a result, Latvia’s competitiveness was eroded, at the same time as the economy was overheating. Consumption and investment fell through hard credit, and GDP fell by a quarter in 2008-10. In the wake of the international financial crisis followed the banking crisis and the acute budget crisis, which forced Latvia to borrow from the IMF, EU and Sweden, among others.
Soviet central planning gave Latvia’s business sector heavy sectors that depended on raw materials and labor from the interior of the Soviet Union. The shift to market economics in the 1990s knocked out many old industries that were replaced by lighter manufacturing. The restructuring of the economy, with extensive privatizations, has demanded great sacrifices and at times caused high unemployment. However, the strategic transport and transit sector has maintained its importance.
From the Soviet era and the 1990s privatizations, there is a legacy of corruption, which impedes business. The gray economy, with widespread tax fraud, was estimated at 38 per cent of GDP in 2010. Trade has been reoriented to the west, and the inflow of foreign direct investment has been significant, with a corporate tax of 15 percent. Sweden is a leading investor, primarily in the banking and telecom sectors. Productivity growth in the industry was good for a long time but has slowed. It is a problem for the business community that very well-educated professionals emigrated during the crisis years. In 2014, the country changed currency from lats to euros.
- Paulsourcing: Top 10 tips for doing business in Latvia, covering country profile and market entry requirement.
Although the natural conditions for cultivation are relatively poor, agriculture is an important part of Latvia’s business sector. About 1/3 of the land area is usable land. Agriculture, together with fishing and forestry, employs about 1/10 of the labor force.
Agriculture was collectivized in 1949–50 with devastating results for production. With independence, agriculture was re-privatized, and the transformation from the Soviet colonies became dramatic. In 1989, there were approximately 600 agricultural units with an average of 3,800 ha, which were divided into a few hundred thousand small farms of just under 7 ha on average. Agricultural land and production decreased sharply, and the nature of agriculture was transformed. Animal production (especially pork, beef and milk), which accounted for about 3/4 of the total agricultural production value at the end of the Soviet era, has now declined sharply. Animal husbandry accounts for just under half of total agricultural production value, while arable farming accounts for just over half. Crops grown are mainly cereals (mostly wheat and barley), potatoes, sugar beets, vegetables and fodder plants.
About 4/5 of 113,000 economically active farms were small family farms in 2008. Half of the 35,000 dairy farms had only one cow each.
About half of Latvia’s area was covered by forest in 2010, a significant increase since 1990. Coniferous trees such as pine and spruce dominate, but there is also a lot of glass birch and spring birch as well as some aspen, gray eel and club bale.
In 2008, 9 million m 3 were felled. Most are sold as timber and pulpwood, and the remainder is mainly used in furniture manufacturing, for plywood, firewood and the carpentry industry. The wood and wood processing industry is Latvia’s most important export sector. Almost half of the forest is privately owned and the rest is state owned or has other forms of ownership. More than a tenth of all forest is protected from harvesting, among other things. as national parks.
The conditions for fishing are comparable to other Baltic Sea countries, and Latvia has good ports in Riga, Ventspils and Liepāja. Environmental degradation, especially in the Gulf of Riga, and fishing has greatly reduced coastal fishing, although it is still of great importance to locals. Other Baltic sea fishing has also declined, and in 2010 55 percent of the catch came from high sea fishing in the North Atlantic and off the west coast of Africa. The total catch in 2010 amounted to 164,500 tonnes, which corresponds to about a quarter of the catch at the end of the 1980s. Sparrow and herring dominate the catch in the Baltic Sea, while thistle mackerel and species in the genus Sardinellais most important in high sea fishing. In Latvia, inshore fishing is of limited scope and mainly for house needs.
Raw material resources and energy supply
Abbreviated as LVA by abbreviationfinder.org, Latvia is very poor in industrially useful raw materials and minerals. Most of the need must be met through imports or met by recycling. Commercially degradable deposits of dolomite, limestone and plaster as well as of sand and gravel are found. In terms of volume, crushing gravel, natural gravel and sand make up the bulk of production. Steel production takes place in Liepaja.
Small amounts of oil and natural gas have been found in western Latvia, but otherwise the country is poor on energy resources. Traditionally, firewood and peat have served as the main sources of energy for households. Wood still accounts for a quarter of primary energy consumption in Latvia, while imported oil and gas account for almost a third of each.
When it comes to electricity, the expansion of water energy in Daugava accounts for almost half of the country’s needs, while one-third is generated in power plants with fossil fuels and biofuels. Latvia also imports electricity. The industry that was built up during the Soviet era had high energy intensity, and gas and oil pipelines were drawn from the interior of the Soviet Union to Latvia. In a huge gas warehouse below ground level in central Latvia, two years supply of gas is provided for the country. However, Latvia is striving to reduce its dependence on Russian energy and hopes for future electricity imports from Lithuania and via cable from Sweden to the Baltic countries. The restructuring of the business sector that has taken place since 1990 has reduced the demand for energy from industry, but in return household demand has increased.
The Latvian industry mainly produces food, forest and wood products, metal products, textiles and clothing, electronics and electrical engineering. Forest and timber products are also the largest export products. Relatively low industrial wages have long given Latvia a competitive advantage, and production volumes grew steadily between 2001 and 2007, when the economy overheated and wages increased by over 30 percent in one year. In connection with the global financial crisis of 2008–09, Latvia’s industrial output fell, but with a significantly lower wage position, a recovery began in 2010.
The structure of the industry is partly a legacy of the Soviet era. At that time, an extensive heavy industry was created in Latvia with the manufacture of ships, rail cars, machines and minibuses. Two-thirds of Soviet telephones were produced in the Riga factory VEF, with a maximum of 20,000 workers.
After a relatively rapid industrial expansion in Latvia in 1950–80, growth stagnated. The relatively high level of education of the population, combined with the lack of locally available raw materials, to some extent guided production towards the engineering and processing industries.
Not only raw materials but largely also labor were sourced from the interior of the Soviet Union, and the goods had been exported with government subsidies. Therefore, when Latvia was liberated from the Soviet Union, industrial production and employment declined dramatically. Following privatizations in the 1990s and the transition from heavy to light production, the manufacturing industry has again gained importance. Industrial exports, which used to go east, now go mainly to the EU market. For example, the electronic and electrotechnical industry, which was previously largely defense-related, has been transformed into high-tech manufacturing that is internationally competitive
The consumer goods sector was already largely under local control in the past and has performed relatively well, although import competition is noticeable. The manufacturing industry is to a large extent responsible for semi-finished and labor-intensive elements in foreign companies’ processing chains. This applies, for example, to the textile and clothing industry, but also to the wood and metal products industry. In addition to food, retail, service, transport and telecommunications, these sectors have attracted the most foreign investment. The inertia of privatization and modernization has long slowed down investors, but among other things, Scandinavian companies have in recent years established themselves in, for example, Liepāja, one of four economic free zones with tax rebates. However, Riga dominates industrial production.
More than 70 percent of Latvia’s exports go to other EU countries. The most important markets are Lithuania, Estonia, the Russian Federation, Germany and Sweden (mainly wood). Imports come mostly from Lithuania, the Russian Federation, Germany, Poland and Estonia. This means that former Soviet republics are important trading partners even today. Wood and wood products make up about one fifth of Latvia’s exports. Other important export goods are metal products, machinery and machinery, electrical equipment, food, chemicals and pharmaceuticals. Imports mainly consist of machinery and mechanical equipment, electrical equipment, mineral products and metal products. Latvia has long had a trade deficit. In 2007, imports were almost twice as high as exports, but during the following financial crisis, imports fell sharply.
- COUNTRYAAH: Find major trading partners of Latvia, including major exports and major imports with latest trade value and market share as well as growth rate.
Tourism and gastronomy
Latvia was visited in 2012 by just over 1.4 million tourists. The main ones come from the Russian Federation, Lithuania, Germany and Finland. The country’s small format means that most destinations can be reached through day trips from Riga. Rigathe old town houses three large brick churches, of which the cathedral, with all building styles represented from Romanesque to Baroque style, is the most striking. In the adjacent monastery buildings is Riga’s historical museum, with interesting objects from the Swedish era. In the old town there are also strange profane buildings, including the castle, today a partly historical museum. Erik Dahlbergh’s old fortification has become parks, but the moat remains. In addition, the settlement dates from Riga’s economic heyday in the 1880s-1910s, of which the Art Nouveau architecture is famous (including Alberta iela street). Riga’s culture has a strong German influence; the specific Latvian is found in the popular culture, in the wooden architecture of the farmhouses and rural churches, which can be studied at the open-air museum northeast of the city.
Note: the capital city of Latvia is Riga with a population of 764 300 (2000). Other major cities include Daugavpils with a population of 113,000, Liepaja with a population of 87,000, Jelgava with a population of 66,000, Jurmala with a population of 55,000, Ventspils with a population of 44,000 (estimate 2002).
By the sea near Riga lies the resort of Jūrmala, where the Riga Bay semi-circle of finest sandy beach attracts a growing bathing tourism. In Jūrmala there is also an outdoor scene for major music events. In this context, mention should be made of the large song festivals, which, every few years, are held in Riga at the end of June and the beginning of July. A few hours drive from Riga to the northeast, Sigulda lies with the ruins of three medieval towns and stately nature in the deep cut valley of the Gauja River. The ruins of the German Order’s central plant in Cēsis from the late Middle Ages and the 16th century are impressive, and nearby is a reconstructed Iron Age village.
The more sparsely populated eastern Latvia (Latgale) offers a varied, hilly and forest and sea-rich terrain with fine forest walks, winter sports and the Catholic pilgrimage site Aglona with a large Baroque basilica. A unique attraction in southern Latvia is the Kurund Dukes Castle Rundāle. The German ruins of the German Order, the castles and mansions of the Balth German gentlemen, as well as churches with interesting furnishings can be found throughout most of the country, although faring poorly during the Soviet era. Particularly interesting is a visit to Latvia in connection with the most important annual holiday, midsummer. Then great hospitality develops, and you go from farm to farm to drink home-brewed beer (or nowadays more and more brewery beer), maybe other national drinks like vodka and the liqueur Rigabalsam. As the sun goes down, the entire midsummer fires light up.
Agriculture has always played a major role in Latvia’s economy and culture, and the “peasant” trait is evident in the food industry. Rye, wheat and barley as well as root vegetables and dairy products characterize the menus in the form of bread, soups with cabbage and root vegetables, potato dishes and cheeses and yogurt products. There is also a preference for soured vegetables. Soup with barley grain and dried mushrooms is a specialty, as is pea soup with pork, charcoal soup, sourdough bread with sour cream as a topping, smoked herring and not least pies. These can be filled with smoked fish, minced meat, eggs or cabbage. Fruit compote is usually the end of a meal, if you do not choose the special Alexander cake, filled with currant jam.