The Ministry of Economy believes that the Latvian National Development Plan 2012 – 2020 should include specific measures for export and innovation. This week, we learnt what exactly it has in mind.

Towards 2020

According to Evita Urpena, spokeswoman of the Ministry of Economy, officials want to focus on economic productivity, export, industrial growth and more efficient use of regional advantages.

At present, what hinders work in the mentioned directions is the lack of investments in small businesses and innovation projects. There is also a discrepancy between supply and demand in the labour market. Neither is the infrastructure working in favour of production. However, mechanisms available at the European Structural Funds are supposed to sort out the issues.

To encourage innovations, the Ministry of Economy suggests creating competency centers, as well as funding development of new products and technologies. It is also set to offer its support for “green” initiatives in the manufacturing sector and cut the red tape.

The Ministry plans to boost export by increasing efficiency of Latvian diplomatic missions abroad and carrying out cluster projects. It also pledges to lend “a financial hand” to those trying to conquer foreign markets. It is intended to solve the infrastructure issue by creating regional industrial hubs, with an aim to attract investments in the manufacturing industry.

The first version of the National Development Plan included a number of economic development incentives. Among other things, the document singled out the need to introduce zero income tax on corporate profits, if they are reinvested in modernization, acquisition of equipment, export, export-oriented research and product development.

The plan also suggests making use of the tax policy and other tools to boost municipalities’ motivation to attract local investments in manufacturing and service industries.

What to teach?

Basics of Economics could become a compulsory subject in schools, this was concluded by the Financial and Capital Market Commission after holding a discussion on education. Currently, the public knowledge about economic matters is quite superficial. Participants of the discussion agreed that the basics of economics should be taught not only to students but also adults.

“It is indeed important to understand economic processes. If the public had had an understanding of the account balance, the credit boom, economic overheating and zero budget, we would have never experienced the crisis backwash we are facing now. Schools do not teach all that. Back in 1997, economics was a compulsory subject,” says Ilmars Rimsevics, Bank of Latvia President.

Ryanair prefers Vilnius

This autumn, Europe’s largest budget airline – Irish Ryanair – is set to alter its route network in the Baltic countries. In terms of Ryanair flights, Lithuania’s capital Vilnius is similar to Riga, while Tallinn will be deprived of two-thirds of flights starting from September 7. Starting from October, the airline will start gradually cutting the number of flights to the Estonian capital. During the winter season, Tallinn will be left only with flights to London, Milan and Oslo. According to Estonian media, Tallinn will lose connections with six cities.

In Riga, Ryanair operates flights to 13 destinations, being the second largest air carrier. Last year, it handled 19.8% of the total passenger traffic, carrying 1.5 million people.

According to Ryanair, starting from November 7, it will move five routes from Kaunas to Vilnius. In terms of population, Vilnius is almost two times greater than Kaunas. Besides, the distance from Vilnius to the Polish border cities is only slightly bigger than from Kaunas. During the winter season, Vilnius will serve 14 Ryanair routes.

“Ryanair is now handling about 11% of the total passenger traffic. By increasing the number of destinations, this figure will reach 17%, carrying up to 200 thousand passengers a year,” says Sandra Siauliene, spokeswoman of Vilnius airport.

Rapidly growing GDP

In Q2 2012, Latvian GDP expanded 5%, compared to the same period a year earlier. If comparing to the eurozone member states or its neighbours, the performance is great. In many ways, it was the domestic demand that contributed to the growth. The main drivers of the Latvian GDP are: manufacturing, construction, trade and transport. All the sectors have provided equal contribution in forming four-fifths of the Latvian economic growth.

Experts also praise progress in the sector of information and communication services, which come right after the mentioned fields. Also the sectors of agriculture, forestry and water management are showing remarkable growth.

In Q1 2012, the GDP grew 5,9%, compared to the same period a year ago. Compared to other Baltic states, the performance is impressive. Analysts point out that export plays a bigger role in the Lithuanian and Estonian GDP growth. Accordingly, they will immediately feel dropping demand in foreign markets. Latvia has managed to get ahead of its neighbouring countries thanks to growing domestic demand.

According to Peteris Strautins, DNB Bank chief economist, Latvian economic growth will soon slow down. However, the decline will be smooth, he says.

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