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| Why to enter this market? |
- Stable political environment
- Developed infrastructure
- Geographical location especially in terms of sea ports
- EU membership
- Educational and R&D base
- Low employment costs
- Skilled workforce
- Fast GDP growth rate – 8.76% on average in the 2000-2007 period
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Business and economical environment
One of the three former Soviet republics that joined the EU in 2004, Latvia offers a number of interesting opportunities despite of its relatively small size as a domestic market. The sixth highest GDP per capita in the region, a skilled workforce, fast development and low employment costs make it an interesting investment location especially for those who either would like to ship products through its Baltic ports or target the Russian market. The latter would be made easier by the fact that a majority of Latvians speak perfect Russian as their first or second language. The sectors worth looking at include biotechnology, chemicals, pharmaceuticals, food manufacturing, forestry, ICT, mechanical engineering and metal processing as well as logistics. As an additional benefit, businesses operating in Latvia enjoy a low 15% corporate income tax rate being third lowest across the European Union.
After a strong growth in the 2000-2007 period when economy grew by 8.76% annually on average, the country’s growth has decelerated sharply from 10% in 2007 to -4% in 2008. The forecast for the coming years mention even worse for 2009 as the economy may contract by the -14.5% and -3.6% in 2010. Despite of the deep recession it must be emphasized that Latvia has still one of the biggest advantages among other countries of the region being very low employment costs.
The value of goods exported from Latvia has decreased in 2008 by 1.3% while imports in the same period shrunk by 13.6% following a sharp reduction of the domestic consumption. Total value of the FDI (Foreign Direct Investment) in Latvia recorded in 2008 has reached EUR 1bn.
Corruption is still a problem in Latvia; however, according to the Transparency International study the Latvian society perception of this problem has improved as in 2007 the CPI (Corruption Perception Index) has been recorded at 4.8 while in 2008 it reached 5. Despite of that country rank has lowered from 51 to the level of 52.
The inflation rate recorded in Latvia has reached a level of 10.1% in 2007 but in the following year decreased to 15.5%. As in the other countries of the region facing inflationary pressure caused by unprecedented growth level after the EU accession in 2004 Latvian economy decrease will help reduce price increase as the forecasted inflation values reach 4.7% and 0.6% in 2009 and 2010 respectively.
Unemployment rate in Latvia has been on the nearly natural level of 5.3% in 2008 but as economical problems deepen forecasts for 2009 and 2010 mention the value of 13.5% for and 15.5% respectively.
Within the most attractive sectors of the Latvian economy the following might be listed:
- Biotechnology
- Chemicals
- Pharmaceuticals
- Electronics and electrical manufacturing and engineering
- Food
- Forestry and woodworking
- ICT
- Mechanical engineering and metalworking
- Textile and clothing
- Transit and logistics
Latvia is expected to join the Eurozone not earlier than in 2013. Currently its currency (Lat) is a part of the ERM II system since 2005 and is traded within the 15% range from the level of 0.702804 Euro per one Lat.
Social environment
One of the major advantages of using Latvia as a foothold for a further expansion to the Russian speaking countries is that 90% of the country inhabitants speak Russian either as their first or second language and 29.6% of Latvians are ethnic Russians. Except of this group within the Latvia inhabitants the following major nationalities might be listed Latvian 57.7%, Belarusian 4.1%, Ukrainian 2.7%, Polish 2.5%, Lithuanian 1.4%. As far as religion affiliation is concerned 63.7% of Latvians do not declare it at all while in the remaining 36.3% the following groups are recorded - Lutheran 19.6%, Orthodox 15.3%, other Christian 1%.
Average age of Latvians reach 39.9 years and is recorded higher for women than men amounting at 43 and 36.9 years respectively. Latvia records a negative population growth rate at -0.63% annually and the ration between genders reaches 0.86 men per each female. Despite of quick growth Latvia population decreases also because of immigration that reached a ratio of -2.29 people per each 1,000 inhabitants what reflected nearly a fourth of birth ratio.
As a former part of the Soviet Union Latvia has inherited a legacy of well developed education based on the foundations created in the 1918 – 1940 time of independent Latvian state. Nowadays Latvia has nearly 40 higher education institutions out of which 11 have university or peer to university status.
Infrastructure and technological environment
Latvia has an interesting research and development potential in terms of aviation and space related subjects. The system is based on the respective institutes within the Riga Technical Institute as well as the University of Latvia. Country has also a number of institutions in other fields that could provide R&D base for the potential investor.
In terms of energy sources Latvia depends very much on the imported fuel from Russia (oil, coal, gas) as the only fuel that is found within the country territory is peat. In terms of electricity production Latvia has capacity to fulfil only 70% of the domestic demand and remaining 30% is imported from Lithuania, Estonia and Russia. However, as much as 43.9% of the produced electricity comes from renewable energy sources being in 94% hydro power plants (3 big plants of this type has installed capacity of 1,534 MW).
Internet penetration in Latvia has been recorded in Q3 2007 at the level of 47.7%. In terms of mobile telecommunication usage the market penetration has reached the level of 140% that year up from 123% in 2006. This is one of the highest results in the EU.
Latvia has a road network consisting of approximately 70,000 km of roads and street out of which slightly below 12% are national roads. The railway transportation is carried within the network of 2,300 km of rails out of which 99% are of broad gauge and only 11% are electrified.
Political
Latvia is a parliamentary republic having a 100 seat Parliament (Saeima) elected every four years. The Parliament elects a president for a four year term. Latvian government is formed by the Prime Minister (nominated by the President) and needs a confidence vote from the Parliament. The next Parliamentary elections are to be held in 2010 and the President will be elected in 2011.
As the EU member state since May, 1st 2004 Latvia is illegible for Structural Funds that will boost its development. The amount of finance within the funds available within 2007-2013 budgetary perspective amounts at EUR 4.6 bn. Country has also a legal system that has been harmonized with the one of the EU. In 2015 Latvia will take over the Union presidency for the half a year period.
Latvia is a member state of all the major international organisations.
General data
Area: 64,589 sq km
Population: 2.3m (2008)
Capital city: Riga
Language: Latvian (official), Russian is spoken by ca. 40% of the population
Ethnic groups: Latvian 57.7%, Russian 29.6%, Belarusian 4.1%, Ukrainian 2.7%, Polish 2.5%, Lithuanian 1.4%, other 2%
Land boundaries: Belarus (171 km), Estonia (343 km), Lithuania (576 km), Russia (292 km)
Major economic indicators
| |
2006
|
2007
|
2008
|
2009f
|
2010f
|
| GDP (EUR bn) |
15.9
|
21.0
|
23.1
|
20.9
|
20.2
|
| Population (mn) |
2.3
|
2.3
|
2.3
|
2.3
|
2.3
|
| GDP per capita (EUR) |
6,928
|
9,218
|
10,177
|
9,248
|
8,984
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| GDP (constant prices y-o-y %) |
12.2
|
10.0
|
-4.6
|
-14.5
|
-3.6
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| Exports, real, y-o-y (%) |
6.5
|
10.0
|
-1.3
|
-10.0
|
-1.7
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| Imports, real, y-o-y (%) |
19.4
|
14.7
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-13.6
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-21.1
|
-5.2
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| CPI (average, y-o-y %) |
6.5
|
10.1
|
15.5
|
4.7
|
0.6
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| Central bank reference rate |
5.00
|
6.00
|
6.00
|
4.50
|
3.50
|
| Monthly wage, nominal (EUR) |
430
|
565
|
682
|
511
|
485
|
| Unemployment rate (%) |
6.8
|
6.0
|
5.3
|
13.5
|
15.6
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| Net FDI (EUR bn) |
1.2
|
1.4
|
1.0
|
0.6
|
0.4
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| FX reserves (EUR bn) |
3.3
|
3.8
|
3.5
|
2.5
|
1.9
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| Exchange rate to USD AVG |
0.56
|
0.51
|
0.48
|
0.54
|
0.53
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| Exchange rate to EUR AVG |
0.70
|
0.70
|
0.70
|
0.70
|
0.70
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Last update: Q2 2009
Useful data
Currency: Latvian Lats (LVL)
Exchange rate: (31.12.2008): 1 LVL = 1.423 EUR
Time zone: GMT +2
Area code: +371
If you would like to find out more on the Latvian market opportunities please do not hesitate to contact us directly:
phone: (48 12) 292 22 50
faks (48 12) 292 22 99
e-mail: info@pmrconsulting.com
PMR Business Solutions in Latvia
Market reports Latvia
To purchase or find detailed information on PMR Publications reports covering the general economy, construction, retail, pharmaceutical, and ICT sectors in Latvia.
If you are looking for greater detail trust our research and consulting divisions to carry out projects tailored to your business needs.
Consulting in Latvia
PMR Consulting offers a wide range of consulting services in Central and Eastern Europe for foreign companies interested in the region. The typical projects include: competitive intelligence, sourcing, strategic advisory, consulting at foreign direct investments and mergers & acquisitions.
Market research in Latvia
PMR Research offers a full array of qualitative and quantitative research methodologies, providing services such as customer satisfaction studies, brand awareness and brand image research, distribution and competition studies, segmentation and sector analyses.
Case studies for Latvia
Albania | Bosnia & Herzegovina | Belarus | Bulgaria | Croatia | Czech Republic | Estonia | Hungary | Latvia | Lithuania | Macedonia | Montenegro | Poland | Romania | Russia | Serbia | Slovakia | Slovenia | Turkey | Ukraine
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