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Monday 20.11.2017 | Name days: Anda, Andīna

Economic Diary. The state overcame the crisis, the people did not

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Аuthor: PantherMedia/SCANPIXThe main intrigue of this week surrounded Liepājas metalurgs: the creditors offered the largest shareholders to sell their shares for a symbolic price of 3 LVL. Everyone awaited the their response with fated breath.

One against all

The response turned out to be conflicting: Sergei Zakharin (49%) and Ilya Segals (21.03%) agreed to give away their shares. Kirov Lipman (23.27%), on the other hand, declined the offer. He believes that neither creditors not consultants know the actual situation at the plant. This is why he believes their plan would only lead to the liquidation of Liepaja’s largest employer. Lipman said he is prepared to attract strategic investors and improve the situation on his own. Zakharin and Segals did not set their personal stake in this and do not communicate with mass media. After a meeting of the Cabinet of Ministers, Prudentia representative Karlis Krastins said that the two have agreed to sell their owned shares for 2 LVL.

However, given that, following the decision of Riga Regional Court, Lipman has been given back his 11.5% of shares previously given to Sergei Zakharin for safe keeping, the sale of the shares for a symbolic price may not take place. Lipman now has 34.77% of shares, and he is able to block any decision of other owners.

Nevertheless, Latvenergo, Citadele bank, SEB bank, Stemcor and the State Treasury will need to wait. Meanwhile, LM has restored the production of its main product – steel reinforcement. This will continue until May 10. The reason for such a short operating period – lack of funds. Owners of the plant will need to search for them on their own – PM Valdis Dombrovskis said that the state will not be helping the enterprise financially.

Is the crisis over?

The spirit of conflicting reasoning is present not just among shareholders of the largest Latvian enterprise. The processes in Latvia’s economy are being ambiguously evaluated by most of the country’s residents as well, claiming that they do not feel the end of the crisis. Economic indexes, on the other hand, point to the opposite: Latvia’s GDP has been on a rise these last three years, adding a total of 16% since the lowest point (autumn 2009).

This paradox was being discussed this week in the macroeconomic review of the Latvian Commercial Banks Association. Experts of the association do not believe Latvian residents are worrying without reason. They note the unequal recovery of the former production level and the increase in the gap of income of employers and employees.

The crisis did not leave much of an impact Latvia’s export sector. It is more likely that the burst bubble in the real estate market had made cheaper resources more accessible. It is no surprise that the sectors of external markets became the engines of Latvia’s economy after the crisis. Those employed in these sectors felt the recovery sooner than others.

On the other hand, the income of the category of residents who are owners of companies and self-employed individuals had practically reached a maximum of the previous economic cycle (level of 2007). Of course, the funds of the aforementioned group are also the main sources of investments, so they are not to be considered personal income.

At the same time, experts note that the tendency of increasing welfare in Latvia is subjected to fewer macroeconomic risks. According to them, Latvia’s economy is already balanced enough; its growth is wide and equal. And even though export volume increase rates have slowed down, they will remain positive in 2013.

Give way to the young

Even though Latvia’s situation with economic indexes is not bad, according to experts, the situation with the integration of young people in the job market is not too good. According to Eurostat, 30% of Latvia’s unemployed are young people of the age of 15 to 24. The reason for this is the lack of experience and insufficient education to meet the demands of the job market.

In order to improve the situation, the Saeima Social and Labour Affairs Commission reviewed amendments to the “State and Social Insurance Law” this week. Amendments are to provide significant social tax benefits for employers that employ young people with no prior work experience.

According to the authors of the bill, the state is to take responsibility for 24.09% of social insurance payments for such employees. These benefits are planned to be used in regard to individuals of the age of 13 to 25.

Latvian Employers Confederation has announced its support of the bill, but its fate is still not clear. Amendments were proposed by deputies of Harmony Centre (HC). Deputies who believe employers will receive cheap but inexperienced workforce do not agree with HC. This workforce may leave for foreign countries, where salaries for the same jobs are much higher.

Welfare Ministry was also sceptical about HC’s proposal, noting that such benefits could cost the state 17 million LVL per year.

Course for expansion

Meanwhile, Baltic entrepreneurs are planning to increase their numbers of employees and their salaries. At the same time, many of them note that the low qualification of their workers impedes the development of their business. This is concluded by KPMG Baltics Economy’s pulse – 2013 survey.

Estonian entrepreneurs (76%) feel more confident about increasing salaries. They are followed by Lithuania (71), and Latvia – 59%.

The survey states that the Baltic job market still lacks qualified workers. Only 7% of Latvian entrepreneurs believe that it is relatively easy for them to find potential employees.

Economy’s pulse – 2013 also shows that there is still some contradiction in the matter of tax policy. 30% of Latvian and 34% of Lithuanian businessmen support tax rate reduction. This index in Estonia is 43%. At the same time, Latvian representatives are largely dissatisfied with the tax burden and want it to be reduced in an equal manner to neighbouring countries.


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