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Monday 22.07.2019 | Name days: Marija, Marika, Marina

Economic Diary of Latvia. Refugees are useless for the economy

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe IMD World Competitiveness Yearbook was published this week. Compared with the year before, Latvia has dropped eight places down to 43rd, Estonia is now on the 31st and only Lithuania has managed to rise – up to 28th place.

The rating is a global survey that also includes a rating of countries from around the world based on their economic competitiveness. It is calculated based on methodology of the Institute of Management Development, IMD, situated in Lausanne, Switzerland.

It is one of the most complete surveys of competitiveness problems of countries and regions. It is used in multiple countries for the formation of state policies and future actions based on competitiveness of national economies and strategic business decisions by large companies. Each country is evaluated based on the analysis of 333 criteria on four basing indexes of key aspects of a country’s economic life: state of economy; effectiveness of the government; state of business environment; state of infrastructure.

Each index has equal weight. Calculations use information from international organisations like the United Nations, the Organization for economic cooperation and development, the World Trade Organization, World Bank, International Monetary Fund and other institutions around the world.

Lithuania’s current state is the best since its firs inclusion in the research. Lithuania has achieved the most progress in business efficiency, which is mentioned in the research as innovative, profitable and responsible. In terms of entrepreneurship, Lithuania has upstaged last year’s leader – Israel – and has taken the first place in this regard.

Bad and very bad scenario

The situation in Latvia is not as good as it is in Lithuania and Estonia. This is proven by a recent survey by Ernst & Young Baltic regarding the country’s transit industry. The company announced only some of the results (more will be told during TransBaltica conference in Riga on 4 June, 2015).

Nevertheless, what little E&Y has announced is enough to imagine the scale of problems. Latvia’s transit business has been surviving and adapting in conditions of very complicated relations with its eastern neighbour for the past 20 years. But it is 2014 when the situation started to change for the worst. What has been happening in Ukraine lately has also started directly affecting Latvia. In spring 2014, the EU applied the third package of sanctions against Russian companies, businessmen and officials. The spiral only continued to become more and more intense later on. Latvian transit business even started speculating that if sanctions remain for long, it will reduce transit capacity even more and Latvian railway will get the worst of it.

E&Y have calculated: if turnover of any company present in transit falls by EUR 1 million, the general impact for the country will be EUR 2.4 million. Worst case scenario – Latvia will lose 18,000 jobs. Perhaps Riga will not notice a thousand unemployed people immediately, but even a hundred unemployed persons in any county can significantly impact tax indexes and tax administration. It will also show the effect on other sectors. This applies to ports and their investors, because there will no longer be cargo flow at previous capacity.

Estonia had experienced a similar situation in 2007-2008, when Russia completely closed off its cargo flow there because of the Bronze soldier situation. This had seriously impacted Estonia’s economy.

Useless for the economy

Aside from transit, there are also other problems. Specifically – refugee quotas. MAP Artis Pabriks believes: if Latvia takes in 737 refugees, as advised by EC, more will come later on.

He believes there is nowhere to put them in Latvia. The country would have to save up EUR 5-6 million in order to build them places to live. Pabriks said refugees would not be useful for the country’s economy.

On 27 May, the European Commission published the first proposals of complex solutions for the problems of migration problems. In accordance with proposed solutions, Latvia’s refugee quota could be 737 refugees. As noted in EC’s announcement, Latvia would have to accept 310 refugees already in Italy and 207 in Greece. Another 220 refugees Latvia would have to accept from their home countries. It is expected that EU countries will be provided with financing from EC worth EUR 6,000 per refugee.


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