Economy of Latvia

By | April 29, 2022

According to cheeroutdoor, Latvia is a state with an industrial-agrarian economy. The main industries are: mechanical engineering, food, woodworking, light industry, production of building materials, chemical industry. In industry, there are crisis phenomena associated with structural changes, reorientation to the production of products that meet the requirements of the world market. In agriculture, St. 18% of the economically active population, the area of ​​agricultural land is 2.57 million hectares. The main direction of agriculture is meat and dairy farming.

The share of industry in GDP in 2002 was 18.7% (including manufacturing 14.8%), trade 19.9%, services 11.1%, construction 6.1%, other activities 44.2%.

The transport network is developed, has a large branching. Railways account for 50% of cargo transportation, their length is 2.4 thousand km; pipelines – 29% (oil pipelines – 437 km, gas pipelines – 1600 km), sea transportation – 14%, trucking – 7% (the length of roads is 20.6 thousand km, of which 7.5 thousand km are asphalted). Ventspils is the largest port in the Baltic Sea region and one of the 15 European ports with the largest cargo turnover.

Latvia is consistently pursuing economic reforms coordinated by the IMF and the World Bank and is a market economy country seeking to join the EU to strengthen economic security. One of the main conditions for joining the EU is WTO membership (Latvia joined this organization in 1999). Another important condition is macroeconomic stability.

Over the years of sovereign existence, the country has experienced a fairly long (6 years) and deep economic recession. In 2000, the GDP in Latvia was 61% of the 1990 level, the volume of industrial production decreased by 51%. The Russian monetary and financial crisis of 1998 had a negative impact on the development of the Latvian economy. Of the 50,355 enterprises operating in the beginning. 1998, 3303 enterprises were liquidated. The food industry suffered more than other industries, since approx. 50% of manufactured products were exported to the Russian Federation, incl. canned fish – 90%. By February 1, 1999, 43 and partially 140 enterprises in the fishing industry had completely stopped working, and, as a result, unemployment increased. The foreign trade turnover with the Russian Federation decreased significantly (by 58%), the volume of exports – by 69%, imports – by 56%, which contributed to further reorientation to Western markets. Slow growth in industrial and agricultural production began in 2000.

Dynamics of GDP in Latvia in the 1990s had a trend inherent in all transition economies: a strong decline gave way to unstable growth. At the same time, exports and foreign investment remained the main sources of growth in the face of limited domestic demand. The volume of GDP (in constant prices) in 2002 amounted to 4978.1 million lats, an increase compared to 2001 – 6.1%. Industrial products were produced and sold for 1987.6 million lats, 5.8% more. Growth was observed in the production of electrical equipment (24%), chemical, rubber and stationery products (16-13%), mechanical engineering (8%), food industry (6%). Significant growth was in construction – 10.8%, especially new buildings (34%). The volume of retail trade (241 million lats) increased by 18%, wholesale – by 12%. Growth of agricultural production in 4, 1% was due to an increase in grain yield (1 million tons) by 10.8%. Meat was produced (92.1 thousand tons) – 3% more, eggs (508.6 million units) – 12%, and milk (811.5 thousand tons) – 4% less. Revenues from the services sector grew by 5.7% (especially computer services – 27%, design and architectural work – 27%, legal consulting – 14%).

The export volume of Latvian goods in 2002 compared to 2001 increased by 12.1%, reaching 1.409 billion lats, imports increased by 13.4% – up to 2.497 billion lats, Latvia’s foreign trade deficit amounted to 77.3% of exports (in 2000 – 71, in 2001 – 75.2%). The EU countries accounted for 60.4% of exports and 53.1% of imports, the CIS countries – 10.2 and 13.1%, respectively. The main export partners were: Germany (15.5%), Great Britain (14.6%), Sweden (10.5%), Lithuania (8.4%), Estonia (6.0%), and for imports – Germany (17.2%), Lithuania (9.8%), Russian Federation (8.8%), Finland (8.0%), Sweden (6.4%). The negative balance in trade with the EU countries amounted to 471.5 million lats, the CIS – 186 million lats. The volume of imports exceeds exports to Germany, Lithuania, Estonia by 2 times, to the Russian Federation by 2.5 times, to Finland by almost 7 times.

The unstable dynamics of the world economy and the negative trends in the development of the EU countries (economic slowdown) in recent years have a direct impact on the Latvian economy. This is directly related to the shrinking export opportunities and the constant growth of imports. Latvia managed to partially compensate for losses in the EU markets by entering the markets of the CIS countries, mainly the Russian Federation.

Thanks to the activity of entrepreneurs, the Russian Federation remains a major trading partner of Latvia. In 2000-02, the volume of exports to the Russian Federation, mainly engineering products (40%) and food products, although it increased significantly, remained at an insignificant level. In import deliveries from the Russian Federation, approx. 60% falls on oil, oil products, gas, mineral fertilizers. Metals, fertilizers, plastics, wood are also imported for the production of lumber exported to the West.

The Russian Federation ranks 4th ($120 million) in terms of foreign investment in the Latvian economy, behind Sweden, the USA and Germany. RAO “Gazprom” has invested in gas distribution companies (29.7% of the shares of JSC “Latvijas Gazė”), the company “LUKOIL” has a tank farm for storing oil and oil products in Latvia, and participates in the expansion of the port of Ventspils. In the I quarter 2003 Russian oil was not exported through the port of Ventspils, which caused losses to Latvia in the amount of more than 200 million US dollars. Created and operating approx. 1400 enterprises and firms with the participation of Russian capital, engaged mainly in trade and intermediary activities.

The transit of Russian cargo remains an important element of the national economy of Latvia. The volume of these services significantly exceeds commodity exports to the Russian Federation in value terms (services are provided for the transportation and transshipment of oil and oil products, fertilizers, metals and a number of other goods). Through the port of Ventspils passes 11-13% of the total export of Russian oil. Income from the transit of these goods in the budget of Latvia is approx. 30% ($400-500 million per year).

The reduction in demand in foreign markets had a downward effect on the dynamics of consumer prices. The trade deficit increased markedly. The increase in the balance of payments deficit was counteracted by a very tangible influx of investments from abroad. The volume of accumulated at the beginning. 2002 foreign direct investment (FDI) was $2.1 billion, or $857 per capita. The largest foreign investors are Sweden, Germany and Estonia (36% of all foreign investments).

The economic development of Latvia in 2003 was still determined by the dynamics of demand in the domestic market. Some growth in consumption became possible due to the increase in wages, the expansion of opportunities for obtaining loans from commercial banks.

Latvia has a two-tier banking system, consisting of a central bank (the Bank of Latvia) and 23 commercial banks. In 2002, the volume of loans issued to enterprises and individuals increased by 35.6%, the average rates on long-term loans in national currency decreased to 7.4%, in foreign currencies – to 5.8%.

The deficit of the consolidated budget reached 2.5% of GDP. Total government debt to con. 2002 amounted to 756.2 million lats, external debt – 464.7 million lats.

In 2002, GDP per capita reached 3.6 thousand euros, which is 30% of the EU average. The average monthly wage was $269, the minimum wage was $84, the average pension was $95, and the average family income per person was $109. Food accounted for 50% of all expenses. In Latvia, 10% of the population (the richest) have a monthly income of St. $260, 30% (with an average income) – from $130 to $260, and 60% (low-income) – from $40-130.

The number of employed in 2002 amounted to 989 thousand people, increased by 3% compared to 2001. 89.7 thousand people were registered. unemployed (in 2001 – 91.6). The unemployment rate remains quite high, having increased from 7.7 to 8.5%.

Economy of Latvia