Latvia Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Originally founded in 1918, the Republic of Latvia possessed one of Europe’s most modern economies and highest standards of living prior to World War II. Upon regaining independence in 1991, Latvia underwent a rapid transition from the centrally planned economy of the Soviet era to a highly modern, free-market, Western-style economy. Developments in the Latvian economy include rapid growth of all economic sectors, particularly the service sector that has become dominant, increased trade and market orientation toward the West, increased foreign investment, and a privatization program that is largely completed.

Latvia became a member of the World Trade Organization in 1999 and a member of both the North Atlantic Treaty Organization and the European Union (EU) in 2004, granting Latvia access to some of the largest markets in the world. Even prior to EU accession in 2004, Latvia had experienced rapid economic growth. Facilitated by stable internal processes and expanding trade, Latvia has led the EU with an average annual growth rate of 8.1 percent since accession. Rapid growth has led to inflation, but increases in income, including minimum salary requirements, and price/interest stabilization have allowed significant growth in standard of living and consumer spending. Approximately 75 percent of Latvia’s foreign trade is with other EU members and the importance of EU trade has been consistently expanding. Significant trade also exists with Russia and the United States. Trade between Latvia and its Baltic neighbors Estonia and Lithuania has increased exponentially since entering the EU.

Latvian exports in 2007 exceeded $8.1 billion and consisted primarily of wood products, machinery/ equipment, metals, textiles, and agricultural products. Latvia’s most important export partners are Lithuania (14 percent), Estonia (12 percent), Russia (12 percent), Germany (10 percent), and Britain (8 percent). Industrial output has been expanding consistently in Latvia, averaging increases of 7.6 percent each year between 2001 and 2005. Important industrial products include vehicles, railroad cars, agricultural machinery, synthetic fibers, appliances, electronics, pharmaceuticals, and processed foods. Leading agricultural products include grain, beets, potatoes, vegetables, meat, dairy products, and fish. The Latvian government is striving to increase exports, a goal that is being realized in part through EU assistance.

Imports in 2007 exceeded $14.8 billion with leading imports including machinery, chemicals, fuel, and vehicles. Principal import partners include Germany (16 percent), Lithuania (13 percent), Russia (8 percent), Estonia (8 percent), and Poland (7 percent). With few natural resources, Latvia is typical of most European countries in its dependency on imports for energy and raw materials. To reduce dependency on energy imports, Latvia has been supportive of exploring alternative energy options including the possible construction of a new regional nuclear power plant in the Baltic States. A negative balance of trade is one of the most pressing issues facing the Latvian economy, but demand for imports including consumer goods is likely to remain high as the discretionary income of Latvians continues to rapidly increase.

Latvia was recently ranked as having the fifth-highest travel and tourism growth rate in the world and the country’s transport infrastructure has undergone significant modernization and expansion to better facilitate trade and tourism. Reflecting Latvia’s importance as a trade entrepot and break-of-bulk point, the country has three major ports—Ventspils, Riga, and Liepaja—each of which is also a special economic zone offering incentives including lowered taxes and free customs regimes. Ventspils Free Port is one of the busiest in the Baltic Sea region and is among Europe’s leading ports in cargo turnover. Latvia is also an increasingly important airline hub with Ryanair, state-owned AirBaltic, and other airlines opening new air routes to an ever-increasing number of major cities globally. Direct flights between Riga International Airport, the leading airport in the Baltic States, and the United States are being planned pending the establishment of visa-free travel between the two countries.

Latvia enjoys many economic strengths. The World Bank ranks Latvia as one of the best countries in the world in which to do business. It is the hub for banking and finance within the Baltic region. Its currency, the lats (LVL), has proven to be one of the most stable in the world since its inception in 1993 (Latvia plans to adopt the euro). The Latvian government has among the lowest levels of general debt within the EU. Volume of foreign investment, mainly from other EU countries, in all sectors of the Latvian economy is increasing, accounting for around 34 percent of annual GDP volume at the end of 2006. Perceived as a stable and hospitable atmosphere for business and as a gateway between Europe and Russia, the Latvian economy is poised for continued growth.

Bibliography:

Investment and Development Agency of Latvia, liaa.gov.lv (cited March 2009);
Latvian Embassy to the United States, www.latvia-usa.org (cited March 2009);
Latvian Institute, li.lv (cited March 2009);
Sanda Liepina, Jacqueline G. Coolidge, and Lars Grava, Improving the Business Environment in Latvia: The Impact of FIAS Assistance (World Bank, 2008);
Ministry of Economics of the Republic of Latvia, www.em.gov.lv (cited March 2009);
Baiba Savrina, Dainora Grundey, and Kristine Berzina, “Cooperation: The Form of Sustainable Tourism Industry in Latvia,” Technological and Economic Development of Economy (v.14/2, 2008).

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