Bulgaria, Latvia, Lithuania and Bulgaria, Latvia, Lithuania and Slovakia – Slovakia –

Comparison of industrial Comparison of industrial transition modelstransition models

Economic transformation Economic transformation process in Latviaprocess in Latvia

Acad. Raita KarnīteAcad. Raita Karnīte6-7 October 20086-7 October 2008

SofiaSofia

Economic transformation Economic transformation process in Latviaprocess in Latvia

• The evolution of industrial policyThe evolution of industrial policy

• Example of one highly successful policy Example of one highly successful policy measuremeasure

• Example of one less successful policy measureExample of one less successful policy measure

• Analysis of developments before and after EU Analysis of developments before and after EU accession, also in the light of Lisbon strategyaccession, also in the light of Lisbon strategy

• ConclusionsConclusions

The evolution of industrial policyThe evolution of industrial policy• Responsible institution – Ministry of Responsible institution – Ministry of Economics of the Republic of LatviaEconomics of the Republic of Latvia (also (also National Economic Council)National Economic Council)

• Large number of national level policy Large number of national level policy documents: several middle and long term documents: several middle and long term national development strategies, two national national development strategies, two national development plansdevelopment plans

• Sector policy documents – Conception on the Sector policy documents – Conception on the development of industrydevelopment of industry

• Small and medium size companies’ Small and medium size companies’ promotion policiespromotion policies and institutions (councils)and institutions (councils)

• Innovation policy, policy implementation planInnovation policy, policy implementation plan

• EU Structural fundsEU Structural funds

• Main focus – export oriented knowledge intensive industryMain focus – export oriented knowledge intensive industry

• MMost ost effective measure – educationeffective measure – education

• Supporting measures – export promotion (export Supporting measures – export promotion (export promotion institutions, export guarantee system)promotion institutions, export guarantee system)

• 5-7 priorities in research activities related to perspective 5-7 priorities in research activities related to perspective industry sectorsindustry sectors

• Innovation promotion institutions – technological parks, Innovation promotion institutions – technological parks, excellence centres, cooperation with scientific institutions, excellence centres, cooperation with scientific institutions, including Latvian Academy of Sciences and universitiesincluding Latvian Academy of Sciences and universities

• Financial support – EU FundsFinancial support – EU Funds

The evolution of industrial policyThe evolution of industrial policy• Special economic stimulus (tax regime, Special economic stimulus (tax regime, industrial subsidies) are not expectedindustrial subsidies) are not expected

• Supporting meSupporting meaasures moderate:sures moderate:

export promotion polexport promotion poliicies not implementedcies not implemented

investment promotion policies are not clearinvestment promotion policies are not clear

innovation policy measures focused on innovation policy measures focused on information technologies sectorinformation technologies sector and priorities in and priorities in sciencescience

effective financial support institutions (funds, effective financial support institutions (funds, business angels) are not developedbusiness angels) are not developed

Highly successful policy Highly successful policy measuresmeasures

• Wood processing industryWood processing industry

• Local resources Local resources • Good marketGood market• Fast privatisation and modernisation, but slow move to Fast privatisation and modernisation, but slow move to higher value added sectors higher value added sectors • Sufficient funding, intensive FDISufficient funding, intensive FDI• SufficiSufficieent supporting measures (the State Forest policy, nt supporting measures (the State Forest policy, activities of state owned company Latvijas Meži in securing activities of state owned company Latvijas Meži in securing timber resources) timber resources)

• IKT industryIKT industry• Traditions and skills from former industrial structureTraditions and skills from former industrial structure• Good education provide skilled personnelGood education provide skilled personnel• High technical level (starting from nothing)High technical level (starting from nothing)• Concepts of information society and Knowledge society Concepts of information society and Knowledge society provide secure market (state procurement is very provide secure market (state procurement is very importantimportant))

ResultsResultsWood processing industry in 2005 in % of Wood processing industry in 2005 in % of

total manufacturingtotal manufacturing

 

Manufacture of wood and wood products

Manufacture of furniture Total

Turnover 23.0 4.5 27.5

Value added 32.2 5.7 37.9

Gross investment 24.5 5.8 30.3

Employed 20.2 8.3 28.4

ResultsResults

ICT indicators      

  1999 2003 2006

Value added in % of total in Latvia 5 6 6

Total ICT value added (c.p.), mln. EUR 313 512 899

In % of ICT value added      

ICT production 1 4 5

ICT trade 15 23 39

Telecommunications 70 61 42

ICT services 14 11 14

Foreign trade balance in ICT sector, mln.EUR -176 -256 -351

in % of total in Latvia 17 13 8

Foreign trade balance in sectors      

Telecommunication equipment -67 -82 n.a.

Computers -57 -92 -92

Electronic components -15 -21 -64

Example of one lessExample of one less successful policy successful policy measuremeasure

Sugar industrySugar industry (three factories) destroyed: (three factories) destroyed:

Privatisation, concentration (one factory closed) Privatisation, concentration (one factory closed)

Before accession – supporting measures (Sugar Law, Before accession – supporting measures (Sugar Law, subsidies to farmers, market protection measures) - lot of subsidies to farmers, market protection measures) - lot of discussions but industry and supporting agriculture growsdiscussions but industry and supporting agriculture grows

In 2005 (after accession) – two remaining companies In 2005 (after accession) – two remaining companies voluntary closed due to economic stimulus voluntary closed due to economic stimulus

Sugar price ???Sugar price ???

ResultsResults

00

Analysis of developments before and after Analysis of developments before and after EU accession, EU accession,

also in the light of Lisbon strategyalso in the light of Lisbon strategy

GDP growth in selected countries, %GDP growth in selected countries, %

-40

-30

-20

-10

0

10

20

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

ES15/25/27 ASV Japāna Latvija Čehija Polija Ungārija

GDP level (1990 = 100)GDP level (1990 = 100)

89.6

58.4

49.7 50 49.6 51.354.6

62.6 64.468.8

74.178.8

84.5

91.8

101.5

113.6

125.7

0

20

40

60

80

100

120

140

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

GDP BY KIND OF ACTIVITY at constant prices of 2000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

other community, social and personal service activities (O)

health and social work (N)

education (M)

public administration and defence; compulsory social security(L)

real estate, renting and business activities (K)

financial intermediation (J)

transport, storage and communications (I)

hotels and restaurants (H)

wholesale, retail trade; repair of motor vehicles, motorcycles,personal, household goods (G)

Construction (F)

Electricity, gas and water supply (E)

Manufacturing (D)

Mining and quarrying (C)

Fishing (B)

Agriculture, hunting and forestry (A)

Structure of GDP

0%

20%

40%

60%

80%

100%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Q1

A: Agricultire B: Fishing C: Mining and quarring D: Manufacturing

E: Electricity, gas and water supply F: Construction G.:O: Services Taxes minus subsidies

FDI by sectors, mln LVLFDI by sectors, mln LVL

0

500

1000

1500

2000

2500

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 IX

Mln.

LVL

Agriculture Fishing Industry Construction Trade Hotels and restaurants Transport

Finances Real estate State management Education Health care Communal services Not specif ied

Contribution to the growth, % points

-35.00

-30.00

-25.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

A: Agriculture, hunting, forestry B: Fishing C: Mining and quarryng D: Manufacturing

E: Elacticity, gas and water suply F: Construction G..O: Services

Gross industrial output indices by activity (at constant prices; 1990=100) Source: Statistical yearbook of Latvia 2005

41.4

55.8

29.8

7.9

22.2

26.6

64.7

8.8

49.1

35.1

100.1

27

132.8

27.7

34.9

22.3

37.8

97.1

47.4

10.2

10

56.4

21.9

259.1

24.9

314.3

26.1

166.1

93.2

510.2

6.8

53.3

38.4

53.6

0 50 100 150 200 250 300 350 400 450 500 550

Manufacture of furniture; manufacturing n.e.c.

Manufacture of other transport equipment

Manufacture of motor vehicles, trailers and semi-trailers

Manufacture of radio, television and communication equipment

Manufacture of electrical machinery and aparatus

Manufacture of machinery and equipment

Manufacture of fabricated metal products

Manufacture of non-metallic mineral products

Manufacture of rubber and plastic products

Manufacture of chemical products and man-made fibres

Publishing, printing and reproduction of recorded media

Manufacture of pulp, paper and paper products

Manufacture of wood and wood products

Tanning and dressing of leather

Manufacture of wearing appeal

Manufacture of textiles

Manufacture of food products and beverages

1995 2004

Number of enterprises and number of employees in manufacturing

0

1000

2000

3000

4000

5000

6000

7000

8000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

0

50

100

150

200

250

300

350

Enterprises Employees (thsd)

Number of enterprises in manufacture by number of employed, 2004

10-4930.72 %

1979 companies

50-2499.50 %

612 companies

>2501.60 %

103 companies

0-9 58.19 %

3749 companies

0-9 10-49 50-249 >250

Latvia’s current accountLatvia’s current account

-4000

-3500

-3000

-2500

-2000

-1500

-1000

-500

0

500

1000

1995 1999 2000 2001 2002 2003 2004 2005 2006 2007

Goods Services Income

Current transfers Current account

Share of selected sectors, 2005

11.8 12.416.1

20.7

2.29 2.55 3.71N/A

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Turnover Production value Value added Employed

Sectors in % of total in industry Sectors in % of total in economy

Labour productivity in selected sectors

12202

6511

22186

19065

23882

13425

28333

17034

12952

4750

2978

10372

9097

7824

5205

7444

4915

7524

N/ A

N/ A

0 5000 10000 15000 20000 25000 30000

Manufacture of textiles

Manufacture of wearing apparel

Manufacture of chemicals and chemical products

Manufacture of computer, electronic and optical products

Manufacture of electrical equipment

Manufacture of machinery and equipment n.e.c.;

Manufacture of motor vehicles, trailers and semi-trailers

Manufacture of other transport equipment

Repair and installation of machinery and equipment

Water collection, treatment and supply

Waste collection, treatment and disposal activities; materials recovery

Production value per worker Value added per worker

Value added in % of turnover in selected sectors

39

46

47

48

33

39

26

29

58

N/A

N/A

0 10 20 30 40 50 60 70 80 90 100

Manufacture of textiles

Manufacture of wearing apparel

Manufacture of chemicals and chemicalproducts

Manufacture of computer, electronicand optical products

Manufacture of electrical equipment

Manufacture of machinery andequipment n.e.c.;

Manufacture of motor vehicles, trailersand semi-trailers

Manufacture of other transportequipment

Repair and installation of machinery andequipment

Water collection, treatment and supply

Waste collection, treatment anddisposal activities; materials recovery

ConclusionsConclusions• Latvian industry is underdeveloped, but its potential is not Latvian industry is underdeveloped, but its potential is not

exhaustedexhausted

• Industrial policies are elaborated, but implementation is not Industrial policies are elaborated, but implementation is not sufficient sufficient

• Supporting financial and organisational measures are poorSupporting financial and organisational measures are poor

• Industry needs special attention, probably, also special Industry needs special attention, probably, also special responsible institutionresponsible institution

• Collateral indirect policies would be welcomed (ex. support Collateral indirect policies would be welcomed (ex. support to entrance in the local and global military markets) to entrance in the local and global military markets)

Thank you Thank you for your attentionfor your attention