Latvia has a new record. Not an Olympian record, but still. The latest data from the Central Statistical Bureau of Latvia on the issued construction permits indirectly point toward an expected rise of Latvian industry.

Businessmen are in a good mood

77 such documents were issued in Q2 of 2012 for the construction of new industrial and warehouse buildings, January – June inclusive – 126. One and the other – a natural record. According to the latest published report of CSBL, construction output reached 354.5 million LVL in April-June, which is 3.9% more than in Q1; in an annual perspective, this increase was 23%. The most interesting information lies within the data about issued permits for the construction of new objects: an absolute record on Q2s and first half-years was reached in 2012 in the «industrial and warehouse buildings» category.

President of the Latvian Association of Builders Marcis Nikolaevs explains the good result with active use of European money and the positions of the government, which is doing its best to direct European fund money towards, mainly, industry. He clarified: “A permit is not a solution that the object will be actually built. However, these digits give us hope that there will be a sufficient rise in production output in the nearby future.”

According to expert on social and economic issues of SEB Bank Edmunds Rudzitis, the data from the CSBL are evident of the confidence of businessmen about the future. «Latest businessmen mood surveys suggest them becoming quite positive. Fresh construction statistics indirectly confirm this. On top of that, output of some industries is too overburdened to continue development. Companies are forced to keep increasing it to progress,» – he says.

A leap towards a bright future

The National Development plan for 2014-2020 was presented for public discussion this week. The document depicts a fairly bright future. Particularly, it says that Latvia’s GDP could reach 25 thousand LVL per year by the end of the next planning period (it was less than 15 thousand in 2010). In other words, we will reach the average European index in 2020. The average European index that was ten years ago. As a result, the share of processing industry will grow form the current 12-13% to considerable 20%’ productivity of one worker in this industry will nearly double from 11.2 thousand to 20.6 thousand EUR per year. R&D expenses will increase grow from the current 0.6% to 1.5% (almost like in Estonia). The key phrase of this document is “economic leap”, thanks to which Latvia will reach the stated goals. However, Chief of Latvian Commerce and Industry Chamber Janis Endzins believes if we are talking about a full economic leap, the goals the we’ve set for ourselves should be more ambitious. Nevertheless, even though the current version is not perfect, this document is being developed in direct link to the budget and European money for the first time. The public discussion of this plan will continue for an entire month.

Science can wait

While the government is busy making plans for the bright future, one uncomfortable fact surfaced while no one was looking: the program of Competency Centres (CC) that are called to improve relations between business and science is crumbling in its base. This is in spite of the fact that innovative production is claimed to be a priority of the country’s long-term development. It all began the following way: in 2010, the Latvian Investment and Development agency (LIDA) opened a program for the creation of industry CCs. Their goal was to unite the potential of scientists and businessmen, creating topical research institutes to put scientific inventions on commercial railways.

It was intended for the centres to include leading Latvian companies (70) and scientific institutions (20 academic institutes and universities). The former are to perform research according to orders from CC partner-companies for the good of the entire industry. Firms pay for the work done, but 70% of expenses are covered by European structure funds. Respectively, if the result turns out to be negative, the client loses only 30% of research costs. Centres have their own employees and can form work groups for specific projects. The total amount of research funding for 2011-2015 makes up a notable amount – 37.37 million LVL. In practice, however, a constant conflict of interests arose. Clients and the service providers were often the same people. Secondly, there was always a situation when research was being done in the interest of one single company, not the entire industry. Plus, transparent calculations and detailed expenses were necessary.

In May, the Cabinet of Ministers adopted changes to specific regulations, taking into account Finance Ministry’s proposals to ensure transparency. Particularly, regulations now clearly state which expenses are to be covered. Nevertheless, centres cannot initiate new projects. The next step should be the introduction of new normative regulations that would put everything in its designated place. Active discussions are currently going on this topic. Businessmen have difficulties giving accurate projections how all this could end. They fear that they would need to start over. The agency could not give any comment on this situation, because the question in currently in the process of being reviewed by the Economy Ministry. The only thing that is certain is that the project of rules is planned to be submitted to the government in September.

Amnesty with strings attached

The scale of tax amnesty can differ on a geographical level. The decision about the write-off of penalties and fines was left by the legislator within the competency of local governments.

The Law on Tax Support Measures is called to ease the life of businessmen that have notable debts before the budget. The debt itself (based on September 1, 2011) will not be written off, but they will be allowed to write off penalties and 90% of fines. The document does not apply to PIT, corporate tax, VAT, excise tax, customs duty, compulsory social insurance benefits, natural resources tax and real estate tax. In reality, amnesty for the last mentioned payments could become available to only a limited number of businessmen: every specific municipality can only allow it if specific domestic rules allow it. Whether or not municipalities will be able to develop the necessary rules before the amnesty comes into force, is a debated question.

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