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Saturday 21.10.2017 | Name days: Severīns, Urzula

Economic diary. How business influences politics

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe situation in Ukraine has undoubtedly overshadowed all other political events this week. Latvian politicians condemn the actions performed by Russia in Crimea. However, there are no serious talks about any real economic sanctions against Latvia’s eastern neighbour: everyone knows how application of sanctions against Russia would impact Latvia’s economy.

This mostly applies to transit. Russian cargo make up 60% of all cargo handled by Latvia’s sea ports. Argo includes coal and oil products. Investor visas issued to residents of the neighbouring country in exchange for real estate properties and investments also add finances to Latvia’s state treasury. Over the course of this programme’s existence, Latvia’s economy acquired nearly EUR 900 million.

Even though some Saeima deputies are against the issue of temporary residence permits until the situation in Crimea has stabilized, it is likely there will be no decisions made in this regard. Entrepreneurs who have once worked with potential investor visa recipients are also against it: it is hard to regain the interest of foreigners for this programme if it is stopped at least once, they say.

It is worth adding that Latvian and Lithuanian politicians managed to avoid the application of economic sanctions against Belarus in 2012. This was mostly because of the pressure of domestic businessmen. The European Union had to make do with smaller measures.

As it was said by businessmen after the whole ordeal with Belarus, the situation was resolved in a way that barely impacted Latvia’s economy. In other words – the influence of businessmen in solving political situations should not be underestimated.

Until the situation has stabilized

Unfortunately, Latvian companies that remain in Ukraine are having a tough time. For example, a store owned by Dzintars in the middle of Kyiv had to be closed. The reason – a fire that started during armed riots.

Brīvais vilnis fish processing plant has decided to discontinue all supplies to Ukraine. In response to the drop in value of the Russian ruble, the company has also decided to reduce export to Russia as well.

The most unpleasant factor of Latvian exporters is the devaluation of the Ukrainian hryvnia. Finally, Latvian Guarantee Agency has decided to temporarily halt insurance operations with transactions related to Ukraine. According to the agency, insurance operations for export contracts will be continued as soon as the situation in the country has stabilized.

In spite of the growing tension between Russia and the EU, Latvian Guarantees Agency continues insuring foreign trade transactions with Russian companies. There are currently 27 guarantees issued to 14 Latvian companies. In the eyes of this agency, Russia has a low level of political and commercial risks among all CIS countries.

Money loves count

The situation in Ukraine has yet to affect regular residents of Latvia. Consumers live as usual. However, according to data of the central Statistical Bureau of Latvia, residents have become more careful in their expenses. In January 2014, the volume of retail trade had increased 3.2% in comparison with that of January 2013. In comparison with December 2013, however, there was a 0.6% reduction.

As it was expected – residents need time to get used to new prices. According to statistical data, purchasing activity had been steadily reducing as the end of 2013 drew closer. The same trend is expected for 2014 as well.

According to Swedbank senior economist Lija Strasuna, retail trade sector may start growing again in the second half of the year. The total increase is expected to be 4-5%. Growth of wages and unemployment level will contribute to this, as will the reduction of labour taxes and pension indexation.

Life is getting better

Information about wages in Latvia was published by the Central Statistical Bureau of Latvia. In 2013, the size of average gross income in Latvia was EUR 716, which is 4.6% than it was in 2012 (EUR 685).

Average wages were also higher in specific sectors: employees of the finances and insurance sector had wages of EUR 1,531, employees working in IT and communications sector – EUR 1,158. Average wages of employees in energy sector were EUR 1,000. Outsiders in this list can be considered the entertainment and accommodations sector (EUR 455), education sector (EUR 602) and real estate sector (EUR 602).

DNB Bank economist Peters Strautins believes there was an increase of purchasing power last year. Statistical growth in 2012 was secured thanks to the growth of available jobs and work time. However, the actual effect was eaten away by inflation.


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