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Monday 19.02.2018 | Name days: Zane, Zuzanna
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Bank of Latvia: 2014 will be Latvia's only chance to achieve good publicity in EU

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During the post-crisis period, Latvia’s economy changed significantly and became healthier. It is no longer based on consumption. Instead, it is now more focused on opportunities on the export markets, notes Bank of Latvia economist Igor Kasyanov.

“It means that investments have a larger role in those Latvian industries that are involved in international trade. Creation of new jobs is directly dependent on industrial success. In the last two years, Latvia’s industries experienced a rapid increase, sometimes the growth was unexplainable,” – says the economist.

He adds that the industrial output increase is dictated by two factors – supply and demand. “While everything is more or less clear about demand – the crisis in Europe forces Latvian producers to be active and innovative, creating new products and seeking new trade partners – it is a lot harder with supply. Many areas of industry and specific enterprises are already hard at work to ensure their maximum production output. They are hypothetically able to take in more people and expand activities, but this creates problems. In order to employ new workers, enterprises need to provide working quarters and machinery. Enterprise co-funding indexes are not always successful enough to secure new equipment or attract bank funding. This creates a situation of a paradox – entrepreneurs are ready to export more, hire new workers, but are unable to find funding for their investment projects,” – explains the bank expert.

According to him, the inflow of direct investments from abroad improves not only the activity of capital, but also knowledge, technology circulation, as well as global logistical hubs of investments. 2014 will be a one-in-a-lifetime opportunity for Latvia to achieve good publicity in Europe. Reminding everyone of our existence and our advantages is one of the most important foreign investment attraction factors. Euro adoption is not likely to be the main factor in investment attraction. Nevertheless, its significance should not be underrated.

“The is not doubt that Euro adoption will make potential investors look at Latvia in a different way. Firstly, it is a wonderful way to remind everyone in Europe about Latvia’s existence. Even though we have been part of the EU for ten years, most foreign businessmen, investors, development funds and other market players do now know anything about us. Secondly, Euro adoption is, in a way, a seal of approval. Thirdly, previous experience shows that a country experiences an increase of investor interest after Euro adoption. A different question is whether or not the Euro adoption potential will be used to its full potential,” – says Kasyanov.

Kasyanov adds that it became known that Estonia had a significant investment potential increase one year prior to Euro adoption. Investment potential values nearly doubled in the year of Euro adoption.

“In addition to the aforementioned, it should be remembered that Latvia’s processing industry is closely linked to the procurement of raw materials. Payments are made in Euro, not Lats. Therefore, the flow of money entrepreneurs can invest in production development and worker remuneration is reduced. Competitiveness of Latvian entrepreneurs, when compared with their European counterparts, also reduces. From this we can conclude that Euro adoption will mean a lot for investments and better business opportunities with foreign partners. This will allow Latvia develop its production and create new jobs,” – concludes the economist.

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