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Friday 20.10.2017 | Name days: Leonīda, Leonīds

Economic Diary. Latvia Week 27 of 2012

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If not for the visit of the big delegation of American businessmen, this week’s events could have been rated under «barely average» category.

Innovations are hard to come by

Firstly, Latvia is on the 30 (141 in total) place in the global index of innovations in 2012. The main goal of the index of innovations, which is compiled every year by the INSEAD international business school and the World Intellectual Property Organization (WIPO), is the development of methods that could describe the importance of innovations in modern society. When compiling this index, authors take 84 factors into account, including education quality, human capital, conducted research, import and export of goods. Starting from 2012, two new factors are now taken into account – online creativity of country representatives and ecological stability (reasonable use of natural resources, energy efficiency and ecological policy).

As professor of INSEAD business school and one of the key authors and editors of the report Soumitra Dutta admits, there are no ideal methods to measure innovation levels. According to him, successful innovation development processes are going on in many countries, but almost all countries benefit from this kind of research.

No matter how much you reduce taxes…

Second, it turned out that the agreement signed by Prime Minister Valdis Dombrovskis with traders on the reduction of VAT by 1% starting from July 1 that will also leave a mark on retail prices, gave a completely opposite result.

In any case, Chief of the Latvian Traders Association Henrik Danusevic claims that large trade networks carried out an incomplete re-evaluation of products and they could have benefited from the reduction of VAT. Earlier, he claimed that VAT reduction would cost the trade segment 8.73 million LVL and will cause an increase in prices. According to him, by not re-evaluating products under one LVL, large trade networks received additional income. And it partially covers those expenses that were related to re-evaluation.

Maxima Press Secretary Ivars Andins reports that the trade network’s expenses are around 110 thousand LVL. The retail network reduced prices of around 25 thousand different products. First of all, prices on bread, milk, meat and fish were reduced. According to the words of Rimi Latvia representative Zane Elina, they also replaced price tags on approximately 25 thousand products. Small traders, on the other hand, have put off global re-evaluation. According to Danusevic, they are acting realistically, because they are re-evaluating everything that comes in for new prices. In general, the head of the association claims that products in Latvia will not become cheaper because of VAT reduction. This is due to the fact that natural gas has already become more expensive and the increase of the base tariff on electric energy was already announced – all this does not benefit the reduction of prices on products.

The response of trade networks was strict: Rime Latvia, Maxima Latvia and IKI announced that they will leave the Latvian Traders Association. According to the Chairman of Rimi Latvia Valdis Turlais, the head of the association discredits such a positive sign for Latvia’s economy as the reduction of VAT. These trade networks plan on representing their interests and communicating with the government through a different industry organization – the Latvia Food Traders Association.

A similar thing happened to fuel traders, with whom the Prime Minister also signed a memorandum on non-increase of fuel prices. However, after July 1, three leading networks of petrol stations – Statoil, Lukoil and Neste – increased petrol and diesel prices by one santim per litre.

As fuel traders explain, a sharp increase of oil prices has been continuing for one week and the companies are incapable of influencing external factors.

Americans find Latvia interesting

The only good news of this week is the visit of a delegation of American businessmen to our country. Representatives of 20 American companies came to Latvia, seeking economic contacts with Latvian business. Among them are the Boeing Company, Warner Brothers, the largest player on American and European market of railway wagons GATX Corporation, pipeline construction and repair company Argus Limited, IT companies JEB Technology and Novalytica and others.

American businessmen were interested in automobile construction, IT and movie making the most. Warner Bros. representative Kevin Trehy came to Riga to evaluate the possibilities offered by the local film industry: «We need to know what kind of specialists, infrastructure and places there are here.»

«We listened to the information about local railroad projects. We, as rolling stock providers, have opportunities to partake in one way or another,»- claims GATX Corporation Finance Director. According to him, the corporation could partake in such projects as the Nordic Distribution Network, which services NATO non-military shipments to Afghanistan through Riga. Furthermore, Latvia attracts GATX Corporation by its location close to Russia, the market of which the company is planning on joining.

«We have a beautiful country, a lot of educated people and relatively easy conditions for starting a business. There are low taxes here. American companies can consider coming here because manufacturing costs here are lower than in the rest of Europe,» – says Honorary Councillor of Latvia in Southern California Juris Bunkis.

In 2011, Latvian companies exported good to the United States of America worth 72 million LVL. The volume of American import to Latvia was 54.4 million LVL to Latvia in 2011. According to the data from the Bank of Latvia, direct savings of investments from USA to our country reached 183.9 million LVL in the first quarter of 2012.

So what if statistics does not cause joy so far, but as Economy Minister Daniels Pavluts said: «Not too long ago America was characterized in the world as the land of opportunity. It is unquestionably so. But no one can deny Latvia the right that are a land of opportunity ourselves; in addition, we know of our opportunities and know how use them! Cooperation with businessmen and business organizations from other countries creates opportunities to increase export, increase the flow of investments and create added value in Latvia.»


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