Latviski English По-русски
Tuesday 24.04.2018 | Name days: Nameda, Visvaldis, Ritvaldis

Economic Diary: the All-Baltic Innovations Fund

(No Ratings Yet)

The agreement of Latvia, Lithuania and Estonia regarding the creation of the Baltic Innovations Fund (BIF) with a total volume of 100 million EUR can be called this week’s main event. With the mediation of private venture structures, this fund will invest in companies working in the region.

The All-Baltic Innovations Fund

The European Investment Fund, Latvian Guarantee Agency and its Lithuanian counterparts – Invega and Credex – became the founders of BIF, called to stimulate the growth of competitive economies of Baltic countries. Each republic will invest 20 million EUR in the project. An additional 40 million EUR will be provided by the European Investment Fund. The involved venture foundations will be responsible for the division of funds. These foundations will also invest the same amount, making the total volume of the investment portfolio 200 million EUR.

A single company will be allowed to attract no more than 3-15 million EUR. Up until now, there hasn’t been a single instrument of government aid in the Baltic region, the manager of the fund and risk departments of the Latvian Guarantee agency Krisjanis Zarins. Investments objects will be chosen by the foundations. It is expected that every country will be able to attract the same amount of money it invested in the project.

The duration of the agreement signed in Vilnius is 16 years. The first four years are to be used for the search of private BIF partners. The next five years will be used to manage the investment proves. Another five years – for the exit of foundations from their chosen assets. Nonetheless, these terms are more provisional: if some foundation is chosen next year, it will be able to start selecting companies right away. According to Zarins’ projections, the first Latvian firm will be able to receive money from the BIF in the beginning of 2014.

What we need is more people

Given the rates of economic immigration and low birth rates, Latvia will need innovative industries and service industry pretty soon. These problems were discussed during the meeting of the Demographic Affairs Council under Valdis Dombrovskis. Immigration, made worse by the crisis, is also a more serious threat to economy than the lack of desire of Latvians to reproduce. President of Latvia Andris Berzins started talking about the return of the people who left as the government’s main priority. It is planned to achieve this by improving work productivity, which will make the average wages in Latvia closer to the levels of other EU countries.

The fact that a higher income level is a key factor, which stimulates Latvians to search a better life in other countries, is also confirmed by the latest survey of DNB Latvian barometer. 46% of respondents are confident that the main reason why some of them would consider leaving their homes and work abroad is high income. Reasons like better quality of life (29%) and better social policy (26%) are also popular among respondents.

All that is left is for us to feel happy about the fact that a large proportion of residents cannot be motivated by anything to make them leave our country (31%). Another important factor is keeping in contact with friends and family. This is reason preventing 50% of respondents from going abroad for a long time.

We need to be aware

Two more problems talked about this week – the heavy dependency of Latvia’s economy on export and the relative poverty of households.

Export remains the locomotive of Latvia’s economy. Its proportion in the country’s GDP has grown sufficiently over the years: from 25% in the difficult 2009 to 40-44% in 2012. Nevertheless, the Central Statistical Bureau of Latvia reports that 81% of respondents did not have any savings in the end of 2011. An uneasy prediction can be made from all this: the further growth of economy in the nearby perspective completely depends on the success of exporters, and the notable reduction on important foreign markets (the EU for example, where 70% of Latvian goods are shipped) could result in a new deflation spiral.

Bank analysts say the problem could, theoretically, be expressed in the following way. With a notable decrease of sales on one of the foreign markets, export-companies temporarily freeze or reduce salaries or reduce the number of employees. The negative effect will also be felt by companies of related sectors. The index of consumer attitude, which has been growing confidently in the last months, will go down, dragging retail trade turnover and domestic goods and services producers along with it.

Given this scenario, it is likely the pressure on the state budget will rapidly increase because of the increased number of unemployment benefit receivers, the poor and others. However, economists are certain there will be no repetition of another 2009 scenario. Compared with what the country had three years ago, the country budget is balanced far better. There is even a small reserve; private sector also seems to be more competitive than it was in 2009. Nonetheless – it pays to be vigilant.

A state bond for every Latvian

There is also a possibility that the financial state of Latvia could be improved by the opportunity to purchase state bonds (nominal value 1 LVL). The minimum investment volume for each resident will be 30 LVL, the maximum – 50 thousand LVL per day, the manager of the State Treasury Kaspars Abolins said.

The payment period will be set at six to twelve months. In the future, depending on the level of interest, it is planned to issue five to ten year bonds, Finance Minister Andris Vilks said. This innovation will become an alternative for bank deposits for Latvians. Up until now, individuals have been able to purchase Latvia’s internal loan bonds, but only through a broker or a bank. Mediators collect commissions, and with a small order (for 100 or even 1000 LVL), this is why the purchase of debt papers with respect to a relatively small profitability appears pointless.


Leave a reply

Saeima speaker in Tallinn: EU and NATO cooperation in defence should be enhanced

Close cooperation between European Union and NATO in defence is now more important than ever. This is especially true for cyber security and hybrid-thread prevention, said Latvian Saeima’s speaker Ināra Mūrniece during a meeting of EU member states parliaments in Tallinn on Tuesday, 24 April.

Ministry avoids going against supporting parties; Ventspils City Council’s violations reported to court

Environment Protection and Regional Development Ministry has no influence at all, and sometimes it seems it has no desire to exercise its rights and perform its duties. This situation most likely appeared because the institution is led by a minister who represents a specific political party.

Warfare in Ukraine escalates, soldiers wounded

In the Donbas War that continues for the fifth year in the Ukrainian regions of Luhansk and Donetsk, Russian hybrid forces have this week conducted a total of 44 attacks, wounding five soldiers, the Ukrainian military reports.

Demand for mortgage loans grew 53% in March

Increased demand for mortgage loans with state guarantees was observed in Latvia in March. Nearly every other loan application filed last month was intended for housing purchase using Altum guarantee. The largest amount of interest came from families with children, as reported by Citadele Bank.

Most businesses in Latvia still not ready for data protection regulation

The majority of businesses in Latvia are still not ready for EU General Data Protection Regulation, which is due to come to force on 25 May, says KPMG lawyer and certified data protection specialist Sanita Pētersone.

Finnish prisoners found radicalising towards Islamic and far-right extremism

In prisons in Southern Finland, a study of radicalisation of inmates has been conducted and has identified dozens of inmates, who are moving into either radical Islam or into far-right violent extremism.

Ušakovs invites colleagues from Russia to attend centenary festivities in Riga

Mayor of Riga Nils Ušakovs has invited mayors from 56 cities to attend festivities organized for Latvia’s centenary. This includes mayors of Moscow and St. Petersburg, as confirmed by Ušakovs’ press-secretary Laila Ivāna.

Estonian President sees no return from e-governance

Estonian President Kersti Kaljulaid has discussed with Christine Lagarde, the Managing Director of the International Monetary Fund, the Baltic country's experience in providing public e-services to the population.

Norway interested in developing cooperation with Latvia in tourism industry

«Latvia welcomes successful regional and economic cooperation with Norway. Our countries have common values and goals – developing Baltic and Nordic countries as a wealthy and secure European region,» said Latvia’s Economy Minister Arvils Ašeradens during his meeting with Norwegian State Secretary for Trade, Industry and Fisheries Roy Angelvik.

Finland not to continue its basic income scheme

The basic income scheme in Finland that has been tested in the Nordic country since 2017, will not be continued as the Finnish government has decided to look into other schemes for reforming the Finnish social security system

MEP: New Unity may be in the government with other parties that have similar goals

After Saeima elections, New Unity will cooperate with parties prepared to work with the association to accomplish specific goals, says leader of New Unity and member of the European Parliament Krišjānis Kariņš.

Canada experiences tragic attack on pedestrians in Toronto

In the Canadian city of Toronto, a driver has been driving onto pedestrians taking the lives of 10 people and injuring 15 more.

Latvian residents spend an average of EUR 81 on cosmetics every year

Latvian residents spend an average of EUR 81 on cosmetics every year, which is one of the lowest indexes in Europe. Compared to other Baltic States, Latvian residents spend less money on cosmetics, according to data compiled by Latvian Cosmetic Manufacturers Association.

Armenian Prime Minister Sargsyan resigns unexpectedly

The Prime Minister of Armenia, Serzh Sargsyan, has unexpectedly stepped down from office after ten days of protests in the Armenian capital Yerevan.

Baltic Express: Europe has already invented the bicycle; we just have to adopt it

13 March marked a historic event for Ventspils railway hub – for the first time in the history of Latvia’s railway a private cargo carrier – Baltic Express – delivered wagons to Ventspils 1st station and private infrastructure’s railway terminal. Why is this event so important and what is the future for Latvia’s cargo railway system? – Baltic Express chairman Māris Bremze told

Reduction of employees in state administration went the smoothest in finance sector

Measures to reduce the number of employees in state administration last year went the smoothest for the State Revenue Service and the entire finance sector, said Latvia’s State Chancellery’s Director Jānis Citskovskis.

Alleged Paris terrorist Abdeslam convicted of attempted murder

The lone Paris attacks' suspect Salah Abdeslam has been found guilty of attempted terrorist murder of police, when taking part in a shootout with police in the Belgian capital Brussels in March 2016.

Rail Baltica’s infrastructure management model to be studied by British company

On 8 November 2017, RB RAIL joint Baltic company announced the winner in the tender for the study of Rail Balica’s infrastructure management model. The winner was British design, engineering and project management consulting company: Atkins and SNC-Lavalin Group.

Harmony and UGF have their sponsors, whereas Sudraba’s party relies on donations

Since the beginning of the week, Latvia’s political parties have received more than half a million euros in donations and membership fees. According to the database of the Corruption Prevention and Combating Bureau, pockets fill up the fastest for political parties in power in the country and Riga.

Chemical weapons investigators have taken samples in Doma, Syria

In Syria, the scene, where according to the UK, U.S. and France, an attack with chemical weapons was conducted earlier in April, has after delays been visited by inspectors from the Organisation for the Prohibition of Chemical Weapons, who have managed to collect samples.

Estonia and Finland to share patient data over innovative «secure» data highway

The Estonian-developed international data exchange technology X-road, said to be hacker-proof is to be the basis for a new Estonia-Finland system of linked doctor prescription registers that would make prescriptions issued in one country available in pharmacies in the other.

Prime minister: Linužs’ dealings with offshore business warrants an investigation

Latvia’s Transport Minister Uldis Augulis refused to comment on information reported by De Facto programme one week ago – that Rail Baltica organized Andris Linužs had signed a deal with an offshore company based in Seychelles and used by influential businessmen from St. Petersburg. Prime Minister Māris Kučinskis, on the other hand, told the programme that «deals associated with state security had been recorded in the past and represent a matter that warrants an investigation».

Afghanistan hit by tragic terror attack

In Kabul, Afghanistan, a suicide bomber has killed not less than 57 people and injured 119 more as the attack with explosives targeted a queue of people outside a voter registration centre, Afghan officials have stated.

Armenia mass protests continue as opposition leader Pashinyan detained

In Armenia, mass protests against ex-President Serzh Sargsyan being elected as Prime Minister, have continued over the weekend marking over a week of protests in the capital Yerevan.

Weather in Latvia to be cold; air temperature to rise at week’s end

This week will be slightly colder for Latvia. Rain is expected in almost all regions every day. It will start getting warmer on Saturday and Sunday, when daytime air temperature is expected to rise again, as reported by State Environment, Geology and Meteorology Centre.