ECONOMIC DEVELOPMENT

LATVIJAS REPUBLIKAS EKONOMIKAS MINISTRIJAMINISTRY OF ECONOMICS OF THE REPUBLIC OF LATVIA

ECONOMIC DEVELOPMENT

V.DombrovskisMinister for Economics

30.05.2014.

LATVIJAS REPUBLIKAS EKONOMIKAS MINISTRIJAMINISTRY OF ECONOMICS OF THE REPUBLIC OF LATVIA 2

Economic development – main indicators

Main improvements in key policy areasPolicy priority directions for up-coming

year

Content


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Economic development – main indicators


Data source: Eurostat

%, 2000 = 100

LVROLTMTLUGBPLSEHUSKBGEEDKDEFRBENLCZCRSIESFIPTITELCY

-6 -4 -2 0 2 4 6

4.13.5

3.32.4

2.11.71.61.5

1.10.90.90.8

0.40.4

0.20.2

-0.8-0.9-1.0-1.1-1.2

-1.4-1.4

-1.9-3.9

-5.4

2013 compared to 2012, %

GDP growth rates among highest in EU

EU average0,1%

100

120

140

160

180

200EU-28

EE

LV

LT

GDP changes % compared to previous year 2011 2012 2013 2014 2015

LV 5,3 5,2 4,1 4,0 4,0


Source: CSB

2000 = 100

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201390

120

150

180

210

240

Domestic demand

Export

Economic model has been changed – main driver export

+24,2%

-14,6%


Export Structure

2000 2007 2010 20130

20

40

60

80

100

65

4035 31

8

1616

17

5

1414

13

915

1516

14 15 20 23Other countries

CIS

Estonia

Lithuania

EU-15

By Groups of Countriesin per cent

2000 2007 2010 20130

20

40

60

80

100

614 18 208

1011 10

15

7 5 5

3722 19 16

13

15 1411

6

11 1316

15 20 21 23Other goods

Machinery and electrical equip-mentMetals and metal articles

Wood and wood products

Products of light industry

Chemical products

Agricultural and food products

By Groups of Goodsin per cent


FDI Structure in Latvia

2005 2006 2007 2008 2009 2010 2011 2012 20130

3000

6000

9000

12000Other countries

Other developed countries

New EU member states

EU-15

5702

74668126 8072 8183

9360

10258

11472

By Groups of Countries,million LVL, at the end of the

period

4159


Data Source: Eurostat

2000 = 100

90

120

150

180

210

240

Productivity

Nominal unit labour cost

Competitiveness has increased due to decreased labour costs and increased productivity

-12,6%

+9,1%


2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Series2

Labour Supply

Labour Demand

Unemployment rate2007 – 6.1%



Labour supply and demand

Labour demand will continue increasing in the medium term, however, it will be more moderate

At the same time, labour supply will decrease From 2016 the shortage of labour will be critical


Transition to higher value added activities needed

Economic advantages of Latvia are mainly in cheap labour and low technology sectors

Rise of labour costs is inevitable due to increasing economic activities and open labour market conditions

Latvia can loose competitiveness in a low segments faster than gain advantages in production of products with high value added

Structural reforms are needed to facilitate transition from low to medium-high and high technology sectors

Structure of manufacturing by technological level (in 2013, %)

511

29

55

Latvia

14 35 26 26

High-technology manufacturing Medium high-technology manufacturingMedium high-technology manufacturing Low-technology manufacturing

Sweden, Denmark, Finland



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Key policy areas


Insuring macroeconomic stability

Accession to EURO zone on 01.01.2014

Stability report for 2014 -2017: defines general government budget balance % of GDP

Invitation to start accession process to the OECD on 30.05.2013. - expecting to finalize accession process within two years

Transformation to higher value added economy National Industrial Policy & Smart Specialization Strategy sets

directions of support for innovation, economic transformation towards higher added value, productivity and more effective usage of resources

Education guidelines for 2014-2020 strengthens capabilities in STEM fields and collaboration between entrepreneurs and education institutions

Key policy areas

2015 2016 2017

-1 -0,9 -0,8


EDUCATION REFORMS

13

Higher education Increase of education supply in STEM study fields Internationalization Functional and geographical consolidation of resources, strategic

specialization

Secondary and secondary vocational education To change the share of the number of students in vocational education and

secondary education in favour of vocational education to 50/50 by 2020 (33/67 in 2010; 39/61 in 2013)

Modernization of vocational education is being implemented and work-based learning elements are being developed

Lifelong learning To ensure that 15% of the population (aged 25–64 years) would be

continuously involved in the learning process by 2020

13


Latvia 2013 2014 Change

Starting a Business 59 57 +2Dealing with Construction

Permits 118 79 +38

Getting Electricity 89 83 +6

Registering Property 29 33 -4

Getting Credit 3 3 0

Protecting Investors 67 68 -1

Paying Taxes 52 49 +3

Trading Across Borders 23 17 +6

Enforcing Contracts 21 21 0

Resolving Insolvency 46 43 +3

Doing Business in Latvia

DK UK FI SE IE LT DE EE LV NL AT PT SI BE FR CY PL SK SE HU BG LU IT EL RO CZ0

10

20

30

40

50

60

70

80

5 10 12 14 15 17 21 22 24 28 30 31 33 36 38 3945 49

52 54 5860 65

72 73 75


Reforms in areas with lower index: Construction: Adopted new Construction Law (in force from 01.10.2014.) Electricity: Introduced favorable conditions for industrial users Paying taxes: Improved functionality of Electronic declaration system Investor protection: Introduced new e-service «Rapporteur on changes applied at

Commercial Registry’ data»

Baltic states in Doing Business 2014

15

Doing Business 2014 Latvia Estonia Lithuania

Starting a Business 57 61 11Dealing with Construction Permits 79 38 39

Getting Electricity 83 56 75Registering Property 33 15 6

Getting Credit 3 42 28Protecting Investors 68 68 68

Paying Taxes 49 32 56Trading Across Borders 17 7 15

Enforcing Contracts 21 26 17Resolving Insolvency 43 66 44


OTHER REFORMS/MEASURES

16

Judicial Reforms

State-owned Enterprise Management

Timely start of 2014-2020 EU Funds planning period

Gas/Electricity Market liberalization/ interconnections/energy efficiency

16



17

Energy policy measures


Long-term objectives:

Competitive economy – balanced, efficient, economically, socially, and ecologically justified energy policy

Sustainable energy – reduced dependency on imported energy resources, new and efficient technologies for the use of RES, measures to improve energy efficiency

Secure supply – stable energy supply and developed infrastructure

Creation of an integrated and competitive energy market means competition on the supply side, competition on the demand side: «market opening» and ensuring effective, transparent and non-discriminatory third party access (‘TPA’) to infrastructure

Latvian long-term energy strategy 2030 – competitive energy for society

18


Intension to open electricity market on 1January, 2015, when also households will become market participants

Law «Amendments to the Energy Law» which has been adopted by the Parliament on 20 February 2014 provides that: third-party access to the Latvian gas supply system including

LNG system shall be granted and managed from 4 April 2014 starting 3 April 2017 all natural gas users will have the right to

freely choose a natural gas trader unbundling of distribution system operators shall be completed

by 3 April 2017 unbundling of transmission system operators shall be completed

by 3 April 2017, if not the earliest occurrence of one of the following circumstances: Latvian natural gas system is directly connected to the interconnected

system of any Member State other than Estonia, Lithuania and Finland; the share of a main supplier in the overall consumption of natural gas

of Latvia is less than 75%

Liberalization of energy market

19


Kurzeme Ring- Internal line between Ventspils, Tume and Imanta (third stage)

Provisionary budget planned: EUR 127.42 mln, expected EU co-financing: 50%

Third Latvian-Estonian transmission network interconnection

Provisionary budget planned: EUR 112 mln, expected EU co-financing: 75%

Energy projects of common interest of strategic importance for Latvia – Electricity


Regional projects of strategic importance:• Poland-Lithuania natural gas pipeline

project GIPL

• Estonia-Finland natural gas pipeline project BalticConnector

• Klaipeda-Kiemenai gas pipeline project

Energy projects of common interest of strategic importance for Latvia – Natural gas I


Latvia: National or regional LNG terminal

In Riga (provisional costs EUR 583 mln, 50% co-financing by the EU), or in Ventspils or Skulte (provisional costs: EUR 101.2 mln )

Estonia: Paldiski regional LNG terminal

Lithuania: Klaipeda LNG terminal

Finland: Inkoo regional LNG terminal or Muuga regional LNG terminal

Poland: Swinoujscie LNG Termina

Energy projects of common interest of strategic importance for Latvia – Natural gas II: LNG terminals


Thank you!

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ECONOMIC DEVELOPMENT