LATVIA TOWARDS KNOWLEDGE INTENSIVE ECONOMY
Ralfs Klavins Pavia, 06.03.2003Latvian Development Agency ESTER kick-off meeting
1
CONTENT
• Macroeconomic outlook and current industry structure
• Challenge of developing knowledge based economy
3
INTERNATIONAL MEMBERSHIP
• Concluded accession negotiations to the EU in December 2002, accessions date is set at 1 May 2004 after ratification procedure
Latvia’s current membership:
• Invited country to join NATO since November 2002
- United Nations Organisation, - Council of Europe, - World Trade Organisation, - International Monetary Fund,- Euro-Atlantic Partnership Council, - European Bank for Reconstruction and Development, - NATO Partnership for Peace,- World Bank,- UN Educational Scientific and Cultural Organisation- Organisation for Security & Cooperation in Europe
UN
WTOIMF
EBRD
WBUNESCO
EDSO
4
between western Europe and Russian marketSTABLE MACROECONOMIC ENVIRONMENT
Currency (Lats) pegged to SDR since 1994
The lowest inflation among Central European Countries(1999: 3.2 %; 2000: 1.8 %; 2001: 2.5 %; 2002 :
1.9%)
Rapid GDP growth rates(1999: 1.1%; 2000: 6.6 %; 2001: 7.5 %; 2002F: 6 %)
Conservative fiscal policy resulting in low cumulativeforeign debt
(10 % 2002)
Latvia rated as investment safe and stable country by: Moody`s: A/A2, S&P: BBB+/Baa1, Fitch IBCA: BBB/Baa2
5
EXCELLENT BUSINESS ENVIRONMENT
Corporate income tax 19% from 2003down to 15% till 31.12.2003
Corporate income tax credit - 40% of investment
High-tech manufacturers - reduction by 30%
Depreciation rate for high-tech equipment 70%
Real estate tax 1.5%, from 2004 1%
Low tax rates: the government is committed to reducing them even more
6
Annual GDP Growth
ECONOMIC OVERVIEW
6,0%
7,6%6,6%
1,1%
3,9%
8,6%
-0,8%
3,3%2,9%
1,6%2,6%
2,2%3,0%2,6%2,5%
1,7%
-2,0%
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
1995 1996 1997 1998 1999 2000 2001 2002*
* forecast Latvia EU Average
Source: Business Central Europe, Central Bureau of Statistics, Eurostat
7
Export 2002 I-IX
Textiles13,0%
Wood33,5%
Others7,3%
Metals13,1%
Miscellaneous manufactured
articles5,8%
Transport vehicles
1,9%
Machinery6,5%
Prepared foodstuffs
7,3%Pulp of wood
2,7%
Chemical products
5,8%
Mineral products1,9%Vegetable
products1,2%
FOREIGN TRADE STRUCTURE
Import 2002 I-IX
Vegetable products
3,5%
Mineral products9,4%
Chemical products
10,4%
Wood1,7%
Textiles6,8%
Machinery21,0%
Miscellaneous manufactured
articles2,8%
Pulp of wood4,4%
Prepared foodstuffs
6,9%Others15,1%
Transport vehicles
9,8%
Metals8,2%
Source: Central Bureau of Statistics
8
Export 2002 I-IX
Poland2%
Italy2%
Belarus2%
France2%
Finland2%
Russia6%
Netherlands4%
Denmark6%
United Kingdom
15%
Germany16%
Sweden10%
Lithuania8%
Estonia6%
Others19%
Import 2002 I-IX
Russia9%
Netherlands3%
Denmark3%
Estonia6%
Lithuania10%
Finland8%
Italy4%
Poland5%
Belarus3% France
3%Others
20%
United Kingdom
2%
Sweden6%
Germany18%
Source: Central Bureau of Statistics
FOREIGN TRADE STRUCTURE
9
504 675927 1107 1277 1431 1580
1093,2111261
345398
512674
635
443,2
0
500
1000
1500
2000
2500
1995 1996 1997 1998 1999 2000 2001 2002 I-III
Equity capital Other capital
(end of period, million USD)CUMULATIVE FOREIGN DIRECT INVESTMENT
Source: Central Bureau of Statistics
10
CUMULATIVE EQUITY FOREIGN DIRECT INVESTMENTS IN LATVIA BY COUNTRY, 2002 I-III
(structure, %)
More than 50% of the FDI in Latvia came from the EU countries.
12,30%1,10%
1,70%1,50%1,60%
2,10%2,20%
3,30%5,40%5,30%
4,30%5,60%
6,10%8,20%
11,40%12,50%
13,30%
0,00% 2,00% 4,00% 6,00% 8,00% 10,00% 12,00% 14,00%
Others
Liechtenstein
Liberia
Isle of Man
Singapore
Switzerland
Ireland
Netherlands
Finland
Norway
United Kingdom
Estonia
Russian Federation
United States
Denmark
Germany
Sweden
11
CUMULATIVE FDI IN LATVIA BY SECTOR(END OF PERIOD, MILLION USD)
• In 2002 three quarters sectors receiving the highest share of investment weremanufacturing, transport, communications, financial sector, wholesale and retail trade.
• By September 2002, the highest share of foreign investment is held by transport and telecommunications sector (19 %), financial sector (18 %), followed by the industry (17 %) and trade (15%).
118
231 229
270
299
369
63
123
188211
233
315
353
307 317340
329 328
257
291
114
189
277251
295 301
115
293
78 77
120
234
90
142
322334 340
264
0
50
100
150
200
250
300
350
400
1996 1997 1998 1999 2000 2001 2002 I-IX
Manufacturing Transport and communications Trade Financial services Real estate Others
MAJOR INVESTORS
Foreign investor Country Company in Latvia Activity Total investment in M USD
Sonera Finland Lattelekom Telecommunications 305Tele2 Sweden Baltcom GSM Telecommunications 277Transneteprodukt Russia Latrostrans Transit of oil products 61,8Varner Gruppen, ICA/Hakon Gruppen, Linstow ASA
Norway Linstow Varner Real estate 56
New Century Holding USA New Century Holding Real estate, insurance 45,3Ernesto Preatoni Group Italy Pro Kapital Latvija Real estate 41Den Norske Stats Oljeselskap Norway Latvija Statoil Port services, trade 40SE-Banken Sweden Unibanka Finance 38Vereinsbank und Westbank Vereinsbank Riga A./s Finance 24Noord Natie Belgium Noord Natie Bentspils
TerminālsPort services 20
Neste OY Finland Neste Oil Terminal Riga / Neste Oil Latvia
Port services, trade 20
Preussen Electra & Ruhrgas Germany Latvijas Gāze Gas supply 19,3Gazprom Russia Latvijas Gāze Gas supply 19,3Hebeda TRA AB (consotium: AB Karl Hedin, Axel Bergkvist AB, Daniels Trovaru AB) & Thomesto Sverige AB
Sweden Vika Wood, Ltd. Wood processing 15
Telia AB Sweden SIA Telia Latvia Communications 13Swedwood (IKEA group) Sweden Incukans Timbers Wood processing 13Enso Group (Pakenso OY) Finland Pakenso Baltica Production of packaging 12Rhodia France Rhodia Yarns Textiles 9Codan Denmark Balta AS Insurance 8,6
13
DevelopmentStrengthslocation in active regionliberal market economyhighly skilled labour forceinterest of the society in educationstrong banking sector
Opportunitiesintegration in European societyknowledge-based productsdevelopment of infrastructureemergence of a middle-class in the
society
Weaknessesmodest economic potentiala lack of raw materialsgrey economy, bureaucracyeducational system not oriented
towards industry needs
Threatsinsufficient growth ratesmall capacity of the countrya lack of investmentsenlargement of EU does not occur
Stagnation
LONG TERM PROSPECTS
14
LONG TERM ECONOMIC STRATEGY OF LATVIA
Restructuring of traditional sectors of the economy
Based on principles of comparative advantages of traditional industrial sectors;
Introduction of new technologies and increasing competitiveness
Creating new knowledge based sectors of industry using already existing science base in
Information TechnologiesBiotechnologies and pharmaceuticalsNew materials
INCREASING NUMBER OF STUDENTS
Source: LU, RTU, and IT&C, 2000
Number of IT students, 2001Computer sciences 4717Communication technology
and electrical engineering 3207
High enrolment rates inHigher educationalinstitutions and colleges: 47.1 students per 1000 population
of those, 10% Engineering and technologyand 51% Business Administration and Social Sciences
New enrolles: 15.9 students per 1000 population
of those, 10% Engineering and technologyand 53% Business Administration
Number of students (thsd)
39,046,2
55,464,2
76,689,5
101,3110,5
0,0
20,0
40,0
60,0
80,0
100,0
120,0
1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02
16
SOLID BASE OF FUNDAMENTAL RESEARCH
5th FP projects success rate, 1999-2001 27.5%5th FP programme “Innovation & SMEs” projects success rate,
1999-2001 52%5th FP financing from EC funds as % of Latvia’s contribution fee,
1999-2001 187%
Internationally acknowledged potential of Latvian fundamental and applied research e.g. MHD team, EUROATOM initiative etc.
17
One of the leading teams in the world in R&D andmanufacturing of short distance optic cables
Diversified portfolio of products:•Multimode Silica Optical Fibers•Silica Fiber Bundles•Medical Laser Delivery Lightguides•Side - Glowing Fibers
Solid customer base: ‘’Bayer’’ and ‘’AGFA’’ in Germany, ‘’Bio Tek’’, ‘’LT Industries’’ and NASAin the USA, ‘’USHIO’’ in Japan and ‘’Laser Industries’’ in Israel.
18
SIDRABE
Former military experimental plantStrategic partnership with Sheldahl(US)Investments from NCH (VC company)
ITO coated filmsBarrier coatingsHard coatingsPatterned ITO
19
Established in 1999 as a JV of Proditron AB (Sweden), investment 1 MUSD, partly from VC company
EMS and design services forScandinavian clients
PCB SMD assembly on soldering paste orglue, pin paste technology, soldering, assembly, testing and design services
HANSA ELECTRONICS
20
SOME CONCERNS
• Existing VC industry– Low amount
• Institutional pan-Baltic players• Few business angels
– Lack of start-up financing
• Potential VC industry– Critical mass– Political risk– Smartness– Exit!!!
21
Pērses iela 2, Rīga, LV 1442, LatviaPhone: +371 7039400Fax: +371 7039401 E-mail: [email protected]://WWW.LDA.GOV.LV
THE LATVIAN DEVELOPMENT AGENCY