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Tuesday 26.03.2019 | Name days: Eiženija, Ženija
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Opinion: minds of high-rank officials still plagued by soviet ideology

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUBecause of businesses formed in Latvian municipalities, especially Riga, the country’s economy is divided into ‘clans’ that each pull in their own direction without giving the thought of how much damage such behaviour could deal to the economy and how much the country stagnates because of that, said Competition Council chairperson Skaidrīte Ābrama in an interview to BNN.

This implies many high-ranking officials believe monopoly is the best way to manage the country – something of a soviet way of thinking. This only increases corruption risks. There are also serious concerns that by offering advantageous conditions for their companies, municipalities thereby ignore more professional and more efficient solutions.

In Latvia, involvement of the state and municipalities in business activities is very common. Lately this tendency has been on a rise – especially after the crisis. The share of state companies in Latvia’s economy has always been large. However, with the Competition Law it was possible to push out as many as was possible at the time, as well as outline what it and what is not permitted, says Ābrama.

CC believes there is a problem with municipal companies that do not have dominating position on the market – ones it is impossible to apply with Competition Law’s regulation regarding abuse of dominating position. «This is free territory – do what I want and do what the municipality wants. But with such thinking we end up in a controversy. This is about market development, promotion of business activities and that the state and municipalities should not create artificial obstacles. Lately, however, the opposite has been happening – private businesses have been actively interfered,» says Ābrama.

CC chairperson says to improve market economy’s development from the side of municipalities and the state, it is necessary to make it clear that we need business activity, and that it is each person’s private initiative. «People need to find a hobby they like, develop it, find a way to turn it into a business and then compete with one another. The state and municipalities should not interfere. If there is no private initiative, there is no business. How will the state survive in such a situation?»

It should be said that the Saeima had submitted to the Competition Council amendments to the law with which it was possible to reduce public persons’ direct and indirect decisive influence over state and municipal capital associations, as well as prohibit state and municipal institutions from discriminating market participants by creating uneven competition conditions.

«However, the previous Saeima had a large presence of municipal lobbyists, and politicians wanted to see what the big heads of municipalities would say. Because of that, our initially proposed amendments became toothless: only the first principle [on prohibition for state and municipal officials to discriminate companies] remained. They have to comply with competition neutrality principle. That is all,» says Ābrama.

She stresses that CC’s initial proposal included a stricter regulation, like the one Lithuania has had since 90s. «All of it was crossed out in the end. But that was the previous Saeima. I don’t know about the current one, because two thirds of its members have been replaced. We got some hopes after talking with National Economy Committee,» says Ābrama.

«Politicians do no always comprehend why the Competition Council speaks about the need to improve Latvia’s market economy and competition between municipalities and private companies. This means their minds are still ruled by monopolism and soviet views. Such a way of thinking makes development of the country stagnant, because it does not represent conceptual political thinking. High, ineffective administrative costs will remain if this monopoly and municipal lobby also remains in the country,» says Ābrama.

She believes law amendment approval in Latvia lasts years.

«Riga municipality does not have environment for fair competition»

Surveys of businessmen often outline serious problems – composition distortion by the state and municipalities, non-compliance with competition neutrality principle, says the council’s chairperson.

She told BNN that 60% of Latvian companies are concentrated in Riga. However, business competition is continuously distorted because of the municipality. «The municipality [Riga] here provides companies with resources in a non-transparent way. Secondly, no procurements are really organized. Even if a procurement is organized, there is usually only one company with realistic chances of winning. Municipalities use their advantages and create special conditions that limit private companies. Consumers are forced to use ‘bonuses’ provided by municipalities, because they seem more convenient, while private businesses suffer from unequal competition conditions created by municipalities.»

«Why are these companies beneficial for municipalities? It’s because they don’t have to think about securing equal competition. I do it how I know to do it – no supervisory institution can understand why administrative costs appear or why services are not provided with appropriate quality. This is easier for municipalities,» says Ābrama.

She adds: «These are the reasons that make it clear for us as a supervisory institution there is market distortion. Currently we are trying to make it so the new Saeima has better understanding of market competition, because the last parliament definitely did not have any interest.»

«Cooperation with Environment Protection Ministry is also absolutely lukewarm»

CC found in a study that 8% of interviewed municipalities would be ready to support their owned capital associations’ involvement in competition distortion. Ābrama says in practice this share is larger, because in reality CC faces many cases, which is something indicated by the large number of complaints.

«In such cases CC needs to assess the situation – we send requests to municipalities to ‘change their behaviour’. We also send additional letters to Environment Protection and Regional Development Ministry. It should be said that small municipalities follow [CC] recommendations like they are law and respect the council’s advice, whereas large municipalities, especially Riga, ‘knows what is and what is not written in the law’. Because of that, warnings issued to them are usually ignored,» says Ābrama.

She says CC invites the ministry to participate, too, because it is the ministry responsible for this field. Unfortunately, the ministry reacts slowly and cooperation in general is lukewarm.

According to Ābrama, businesses aiming for fair operations and innovations do not require political support to assist with growth of their business. It is important for no obstacles to be put in their way and for them to be allowed to work in peace.

«Municipalities have not formed a single export-worthy company»

«Municipalities have not formed a single company able to export goods or services to other countries. We have discussed this matter with Latvian Chamber for Commerce and Industry. If we see a priority in the country to develop some specific industry in early stages of development, it is necessary for competitiveness to develop not just on a local level between municipalities but also outside Latvia. But there isn’t a single municipal company that has reached a level of export capacity,» says Ābrama.

According to the council’s chairperson, it proves once more what global competition theorists say: that by creating advantages for their companies, the state and municipalities make them inefficient and incapable of competing, because they lack competition pressure.

«With that, I can see Latvia’s economy is not provided with an engine for competition that always pushes forward. This is why our economy is generally stagnant. Every now and then we can show in numbers that we export, but currently I see our country’s economy is behind Lithuania, which was behind us a couple of years ago,» says Ābrama.

Latvia is behind Lithuania’s Competition Law

CC chairperson says since the 90s Lithuania has had very strict regulations that prevent public persons from creating advantages. If this happens, the country’s competition institution commences and investigation. «There have been court rulings in regards to violations. If I’m not mistaken, a year ago Lithuania’s Seimas voted in favour of fining public persons who breach the law.»

Latvia is significantly behind Lithuania’s Competition Law. While Lithuania is already ahead with application of fines on public officials for abusing power, Latvian municipalities are still allowed to create benefits and limit completion for other companies, continues Ābrama.

«Latvia’s economy stagnates from the lack of political progress. It is a matter of priorities – where do we go to ensure economic benefits and where do we concentrate resources? Even Russia strictly supervises to ensure public involvement does not slow down market development, because the current situation is not exactly favourable for Russia’s economy. This means all existing regulations are reviewed to ensure no distortion towards private businesses. Russia’s economy has come so far that they understand that nothing good can be expected without private businesses. Unfortunately, Latvia has yet to reach the same conclusion,» says Ābrama.


Leave a reply

  1. Zerry says:

    THANK YOU! Finally someone tells how it is. I know companies who don’t even want to participate certain tenders because it is non-sense. Winner is known in advance. And energy sector is so rotten. Big boys’ playground.

  2. Lh says:

    Honest and straight assessment of the situation. Thank you!Hope people who should read it also read the council’s opinion.

  3. Andris says:

    There may be a structural problem and a mentality of wanting quick returns on investment and not understanding the need to invest in the building of capacity and capability in business knowledge and skills. The building and operating of successful collaborations an partnerships does not happen by magic. Assessing business risks going forward dies not happen by magic.

    Lack of investment in vocational business capability would be a start.

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