Task of the science is to serve
people.

– Tolstoy –

Science is the captain, and
practice the soldiers.

– Leonardo da Vinci –

Frontiers of science are like the
horizon: the more we approach
it, the more it moves away.

– Boiste –

The fantasy is more important
than knowing.

– Albert Einstein –

Science – it means organized
knowledge.

– Spencer –

Freedom for the science the
same as the air for a living soul.

– Poincaré –

Research area of all sciences is
endless.

– Pascal –

System of science must be
looked at as the system of
nature: all in it is endless and
necessary.

– Cuvier –

Scientific plan without working
hypothesis is a skeleton without
living body.

– Hirschfeld-

The main research subject of
mankind is the human.

– Goethe –

All is important in science.

– Heine –

Books must be results of
sciences, but sciences not results
of books.

– Bacon –

Scientist is not the one, who
gives the right answers, but the
one, who asks the right
questions.

– Claude Lévi-Strauss –

The more we will seek for the
truth outside us, the more we
will move away of it. The more
we will be able to understand
who we are, the more the truth
will assert us in ourselves.

– Antonio Meneghetti –

Before being dictated the nature
needs to be obeyed.

– Bacon –

A true scientist is not one who
has more acquired, but one who
has more understood.

– Leibniz –

Science – to know how the
being acts. To know the action
of the being.

– Antonio Meneghetti –

Science is benefactor of
mankind.

– Berthelot –

Sākums » Briefings » Page 3

Latvia economy briefing: Information and communication sector in Latvia – jump of the decade

The information and communication technology sector have seen a significant upturn and development over the past 10 years. This is confirmed not only by the increasement of companies in the field but also by the produced amount of a variety of innovations in the information and communication technology sector. In recent years, the information and communication sector has seen around 10% growth annually.[1] Over the last decade, the share of information and technology in total exports has increased, thus changing Latvia’s economic course.

In 2019 around 6950 companies have identified their core activities in telecommunications, computer programming, counseling, and related activities, as well as in the information services sector. About one in five of them there have been made foreign investments.[2]

Electronics and electrotechnics are commonly viewed together as related high-tech industries focused mainly on exports since both of the segments mostly export their production.

The data show that export in the information and communications technology sector has been seen as increasing in the last couple of years.

The fact that the information and communication technology sector is expanding for several years also shows the industry’s profits and total turnover. The total annual turnover of the information and communication technology industry is growing on average by 10%.[3] If the sector turned over €1.27 billion in 2014, then it was already €1.74 billion in 2017, while in 2018 the information and communication sector formed 4% of the total turnover in Latvia.

Continuing this even growth path for the sector is expected to lead to an increasing share of exports. Although the information and communication sector is growing, according to export figures, it still remains well away from the leading export sectors of Latvia, ranking at only 10thplace last year.

Although information and communication technologies’ services are not yet at the top of Latvian export products, experts point out that with such development rates, the sector could become the main export product in a few years’ time. Some experts also reveal that the biggest challenge in the field could possibly be expected in terms of employment.

In terms of the challenges for the future of the sectors, it is worth looking into what the business-limiting factors are indicated by entrepreneurs and what capacity pressures there potentially are. It is no secret that the manufacturing industry is currently characterized by two supply-side under-capacity factors: lack of employees and historically high capacity workload.

For computer and electronics manufacturers, capacity loads reached 74% in Q4 2018, a few percentage points below the historic peak (77%). In the production of electrical equipment, capacity was only 65% (the maximum historical capacity was 76%).[4] Thus, unlike many other sub-sectors of the manufacturing industry, where capacity pressures are very high (up to 90%), electronics and electrical engineering producers could still increase production without the need for new investments. This proves that electronics and electrical engineering producers still have an opportunity to expand even more.  On the other hand, in the matter of restrictive factors, the responses of the representatives of the electronics and electrotechnology industry show that these sectors are similar to the overall situation in the manufacturing industry: more and more producers indicate that they do not see any restrictions on development, the overall demand is annually increasing. However, since mid-2017 there has been an increasing number of labor shortages. Moreover, this is a problem that is much more difficult to solve since the necessary skills and level of education cannot be learned and achieved in a few months’ training courses. Many years of investment in human capital or attracting skilled labor from abroad are needed.

The information and communication technology sector are constantly entering the leading position between sectors with the highest average wage outperforming both the financial and insurance industry and as well as the energetics sector.

Data published by the Central Statistical Bureau showed that while the average gross national salary was EUR 1004 in 2018, the average earnings in the information and communication industry were EUR 58.57% higher meaning around EUR 1592 in gross monthly.

The level of salaries is also reflected in the data on the amount of personal income tax paid per worker. In the field of information and communication technology, the average amount of personal income tax paid per employee reached EUR 3.07 thousand in 2018, while per employee the amount of personal income tax paid to all companies registered in Latvia was almost as half lower.[5]

This industry’s growth success story was made to a large extent thanks to a Latvian company “MicroTik”, which overall produces and focuses on computer network equipment, mainly wireless equipment and routers.

One of the most successful information and communication technology leaders in Latvia is the company “MicroTik”, which has seen a major breakthrough in its sector in recent years. The production of “MicroTik” computers, electronic and optical equipment has developed relatively gradually since 2000. However, since the year 2014, the company has experienced rapid growth, increasing production several times and in the last ten years. In the year 2008 “MicroTik” formed around 1.5% of the total share of the manufacturing industry. However, in 2018 it was already made up approximately 4.5% of the total share in the manufacturing industry

In 2017, the company’s gross profit per employee of “MicroTik” reached to 365 thousand. Over the last five years, the company’s productivity increased by EUR 105 thousand per employee. In addition, such a result has been achieved despite a drop in profits in 2017 due to fluctuations in exchange rates. Comparing to competitors, the average salary in the company is also high – €2.6 thousand per month, which is about 2.6 more than the average in Latvia.[6] It marks the path of the development of the economy in Latvia: knowledge-intensive and well-rewarded jobs that are sustained by productivity growth. The company employs more than 200 employees and that number has nearly doubled in the past five years.[7]

Over the past 10 years, Latvia has witnessed the replacement of 2 generations of wireless mobile telecommunications technology. In 2019, a 5G network was introduced in Latvia. As a result, Latvia became one of the first countries in Europe[8], with 5G network coverage being introduced, thereby outperforming some European countries in the field of the Internet coverage sector. The deployment of 5G is currently developing an information and communication technology environment in Latvia, which will contribute to a higher level of exports, thereby allowing Latvia to compete on a global scale. The development and use of 5G have been one of the priorities at both Latvian and European Union level. Implementation of the 5th generation wireless technology for digital cellular networks has not only made improvements in speeds and coverage but also created a series of new additional functions in the information and communication technology industry. 5G was introduced in Latvia in 2019 by the experienced information technology company “Latvijas Mobilais Telefons”.

Education and information and communication technologies have a common future in Latvia. With the introduction of the new education reform in Latvia, emphasis will be placed on the acquisition of information technologies, promoting computer skills for pupils. The number of students in the information and communication technology sector has also increased in recent years.[9] It is therefore important that future professionals in this sector are being provided with an environment that is competitive with the global market, an environment for improving their knowledge in the field of information and technology. Developing 5G specifically in Latvia will allow students to operate with “big” data, create innovation in the information and communication technology sector.

Currently, the company Printful, which was originally based and founded in Latvia, has become one of the fastest-growing companies in the United States of America. In 2019, “Printful”, a subsidiary company of “Draugiem Group”, entered the “Inc.com” list of 5000 US fastest-growing companies, ranking at the 564th place.

The company offers services of integration with e-commerce platforms, automating product creation and order receipt and execution, as well their partners have the option to set delivery costs online. Printful provides integration with a variety of e-commerce platforms and services for companies such as “Shopify”, “eBay”, “Amazon”, “WooCommerce”, “Etsy”, “Weebly”.

“Printful Inc.” and corporation “Printful Latvia” had a total turnover of $77 million (67.66 million EUR) in 2018, while in 2017 they were $46 million (40.42 million EUR).

“Printful Inc.” works for the North American market with departments in the U.S. (Los Angeles, California, and Charlotte, North Carolina) and Mexico (Tijuana). European orders are provided by the subsidiary company “Printful Latvia” in Latvia. In order to expand more rapidly in Spanish-speaking countries, the “Printful” office in Barcelona has been opened this summer.

The Printful central office and the European production unit, employing more than 250 people, is located in Latvia. During the year 2019, at least 100 new, talented specialists have joined the Printful Latvian team and the number continues to grow rapidly. Together, Printful employs over 600 people worldwide.

[1]Lursoft Data Bases: https://www.lursoft.lv/?l=en

[2]Lursoft Data Bases: https://www.lursoft.lv/?l=en

[3]Lursoft Data Bases: https://www.lursoft.lv/?l=en

[4]Data from the European Commission

[5]CSB data: https://www.csb.gov.lv/en/sakums

[6]CSB data: https://www.csb.gov.lv/en/sakums

[7]Lursoft Data Bases: https://www.lursoft.lv/?l=en

[8] https://www.speedtest.net/ookla-5g-map

[9]www.izm.gov.lv.

*This article has been made in cooperation with China-CEE institute and is the intelectual property of China-CEE institute

Latvia social briefing: Development of Latvian safety and health issues in February 2020

Latvia plans to create municipal Traffic Safety Index

Latvia has one of the biggest number of deaths rates in road traffic accidents in the European Union. [1]Besides the majority of traffic accidents with injured people are registered in populated areas. Although the number of total deaths in road traffic accidents has decreased in the last years, the Ministry of Transport has decided to implement new tools to reduce the total number of road traffic accidents. [2]The Ministry of Transport plans to establish a local government Traffic Safety Index that would be published annually stating both the most secure and most precarious list of municipalities in Latvia. The purpose of the Traffic Safety Index is to motivate the local governments to pay more focus on road safety improvements in their administrative areas. The proposal on the implementation of the Traffic Safety Index was supported by the Road Safety Board and in the upcoming time the Ministry will start to work on the development of methodology of the Traffic Safety Index. It is planned that the Index will consist of data about the number of accidents, population, cars, and other indicators.

Ministry of Welfare of the Republic of Latvia does not support Parliament’s intention to impose a ban on the adoption of children abroad

The Ministry of Welfare has stated various risks which are related to the announcement of the Human Rights and Public Affairs Commission to establish a moratorium on the adoption of children abroad. Although the moratorium is planned only temporarily until stricter regulation is developed, the Ministry of Welfare has expressed concerns that the preparation process for the amendments to the law may take a long period of time in which for some children the possibility of adoption in families may be deprived.

The current Civil Law provides that a child can be adopted abroad only with the permission of the responsible minister and only if it is not possible to ensure the parenting process for the child in a family in adequate care. The regulatory framework provides that foreign adoption is the last solution to ensure quality childhood for children. At the same time, the Ministry of Welfare considers that local adoption should be promoted primarily. Therefore, topics such as strengthening prevention work for families with children so that the child must not enter the adoption system and as well as the development of the child rights protection system with a view to promoting better quality work in local governments in the field of protection of children’s rights, without duplicating the functions of Orphan’s courts and the social service should be considered first.

The minister of Welfare Ramona Petravica stated that even currently each case regarding the adoption of a child abroad is carefully evaluated and in order for a foreign family to adopt a Latvian child they must go through a sufficiently large investigation process. “Overall it is the only way for these children to become a part of a family, especially for teens and children with disabilities or major health problems. Undoubtedly, our priority will always remain and be given to Latvian families that are willing to adopt a child. However, if we are not able to ensure adoption for a child in Latvia, the child should not have to live in institutions for all its childhood.”

Latvia launches new social project 

There are currently approximately 20 thousand people in Latvia who are affected by mental disorders and for which the first or second disability group has been determined. Due to the stereotypes and prejudices of society, the social networking opportunities for people in Latvia suffering from mental disorders are limited. To explain to the general public the importance and potential of inclusion of these people the Ministry of Welfare has started an informative campaign. In the upcoming years, it is planned to implement deinstitutionalized care to include people with mental or physical disorders in the general public. As part of the campaign, the diagnosis of mental disorders such as autism, Duane syndrome, depression, schizophrenia, and vegetative dystonia will be discussed more often. It is planned to inform the general public about common mental disorders and about what is essential to remember in communication with people who suffer from them.

By the middle of the 20th century, providing services to long-term social-care institutions was the way how the state took care of people with mental disorders. The institutions used to provide the daily needs of the most vulnerable members of society and, at the same time, cordoned them to protect fellow people from possible aggression and other dangerous behavior. However, the development of medicine has helped to reduce the noticeable signs and symptoms of people who suffer from mental disorders. The practical need to separate people with mental disorders has been lost, and now knowledge, that is available to society, allows to see people behind their diagnosis – personality with both individual needs and rights. The existence of these institutions entails the separation of people with mental disorders from the general society, so they are forced to live together. People with mental disorders do not have sufficient control over their lives and the decisions that affect them, and the rules of the institution are prioritized over the individual’s needs.

There have been observed various disadvantages in institutional care such as lack of personality, strict routine, and social isolation. In the social care institutions, the personalities of the patients have been directly impacted – they are characterized by impersonality and lack of privacy. People living in institutions often do not have any personal property that symbolizes their individuality, including even private clothing and in most cases,  they must share living space with others. The patients of the institutions must follow a strict routine and follow a regime that determines a daily sleeping schedule, eating habits and spare time schedule. People living in social care institutions often do not have the opportunities to participate in social inclusion activities – on the contrary, there is social alienation between people with mental disorders and others, because the events are mostly organized on the premises of the social care institution.

In the context of project “Deinstitutionalization”, it is planned to provide social services with an aim to include people with mental disorders in society and to strengthen the public awareness of the human rights of people with mental disorders as well. To strengthen the social inclusion for the vulnerable members of society in cooperation with 115 out of 119 municipalities of Latvia it is planned to offer various activities. For example, local governments will create group apartments or group houses where people with mental disorders will live permanently while receiving the necessary support, as well as day-care centers. In addition, the acquisition of employments skills for people with mental disorders will be promoted by established specialized workshops. Besides, the process of social inclusion support for the inclusion process will be provided by both support groups and consultations from various specialists as well. Within this project, it is planned that people with mental disorders, which require periodic support, will be able to receive additional care at home.

It has been stated by the organizers of the project that the expenses of institutional care and social services-based society are roughly the same. However, social services-based society provides a significantly better quality of life for people and therefore can be seen as a more efficient use of taxpayer’s money.

Coronavirus reached also Latvia

Although there was not registered any official case of Coronavirus in Latvia in February 2020 it was confirmed by the Estonian Health Board that the some of the diagnosed patients of coronavirus in Estonia had traveled through the International Airport of Riga, which is the main airport in Latvia, and later drove to Estonia, where the patients had noticed the symptoms of the virus. In February 2020 the Ministry of Health of the Republic of Latvia had already been making virus containment measures prior. The State Operational Medical Commission decided to extend the control measures of coronavirus to include additional countries and territories such as China, South Korea, Iran, Italy, from which special precautions need to be taken upon return.

The outbreak of COVID-19 has impacted the development and economic tendencies of Latvia in 2020. It is worth noting that following the global economic development trends of 2020 it was previously forecasted that the growth of GDP in Latvia will experience decrement comparing to the previous years as well. However, during the prior analysis of economic growth in 2020, the potential economic impact of COVID-19 had not been taken into account.  Therefore, in February 2020 the Ministry of Finance of the Republic of Latvia announced that the growth of GDP in 2020 could only reach 2,2% and not 2,8% as initially planned. It is doubted that the total growth of GDP could potentially amortize the negative economic consequences created by the virus by that causing a potential economic recession. Since Latvia’s economy is both small and open and is particularly affected by the global events the continuation of the outbreak of virus could affect the economy even further.

Summary

In February 2020 the Latvian government had taken on multiple actions to contribute to the social development of the country. Since Latvia has one of the biggest number of deaths rates in road traffic accidents in the European Union, the government of Latvia is planning to implement Traffic Safety Index to raise awareness of the local municipalities to pay more attention to road safety developments in their administrative areas.  With the Ministry of Welfare disproval of Parliament’s intention to impose a ban on the adoption of children abroad and concerns about the impact of the amendments on orphans, the Ministry encourages to raise more attention to the current problems of children protection rights. In addition, to contribute to the inclusion in society of the people who suffer from mental disorders the Ministry of Welfare has started the deinstitutionalization process of social care institutions in Latvia. Although in February 2020 the government of Latvia had been already making Coronavirus control measures, it is doubted that the economic growth could amortize the negative economic consequences caused by the virus.

[1] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Road_safety_statistics_-_characteristics_at_national_and_regional_level&oldid=463733

[2] https://www.csdd.lv/celu-satiksmes-negadijumi/celu-satiksmes-negadijumu-skaits

*This article has been made in cooperation with China-CEE institute and is the intelectual property of China-CEE institute

Latvia political briefing: Priorities of Latvian national development policy for 2021-2027

The National Development Plan of Latvia for the next planning period of 2021-2027 has been developed to identify the largest state budget investments into the development of Latvia and improvement of the quality of life of people over a 7-year period, and has been submitted to Parliament of the Republic of Latvia on March 4, 2020. The document serves as a road map for policy makers on the country’s development vision and investment needs for the next seven years.

National Development Plan of Latvia for 2021-2027 (furthermore – NDP or NDP2027) aims to implement more than 330 initiatives for a total of € 14.5 billion over the next seven years, from 2021 to 2027. This includes national development priorities, objectives and investment directions, as well as planned reforms and policy changes. The NDP 2027 also pictures Latvia’s seven-year commitments to achieve the Latvian Sustainable Development Strategy 2030 (Latvia 2030) and the UN Sustainable Development Goals. The NDP balances investments or spendings/expenses and opportunities for the state and its citizens to “earn”[1].

Latvia’s NDP is prepared by the Cross-Sectoral Coordination Centre (CSCC) – the leading development planning authority which is under direct authority of the Prime Minister. The number of meetings, discussions and public hearings dedicated to the subject are large. The result is a multi-vocal but also a fragmented perspective on Latvia. Although many actors are involved, the ministries have the decisive role in setting the priorities included in the NDP.

The NDP is implemented mainly with public resources and is also supported by private and municipal funding as well as foreign financial assistance. The resources of the European Union funds also contribute to the future of the Latvian population by supporting and co-financing the implementation of objectives of the National Development Plan.

Structure and overview of NDP 2027

The NDP 2027[2] provides a vision for fundamental change and growth of Latvia in four general directions. Equal rights encompass the implementation of the fundamental rights of all residents of Latvia through state-provided services. The quality of life characterizes the general increase of well-being and opportunities of every inhabitant of Latvia. The knowledge society is a common direction for change in education and science, civic awareness, media and the economy. Responsible Latvia is the answer to the threat of climate and demographic trends today and in the future.

Accordingly, the NDP 2027 sets 4 strategic goals (equal opportunities; productivity and income; social trust; regional development) in six priority areas. Each priority consists of several directions for key policies. Policy changes are supported by public investment from the national budget, European Union (EU) funds and other financial instruments.

The structure of the National Development Plan 2021-2027 is following:

Priority: Strong families, healthy and active people

  • Direction: Human-centered health care
  • Direction: Psychological and emotional well-being
  • Direction: Strong families across generations
  • Direction: Social inclusion

Priority: Knowledge and skills for personal and national growth

  • Direction: Science for social development, economic growth and security
  • Direction: A high quality, accessible and inclusive education system

Priority: Competitiveness of business and material well-being

  • Direction: Productivity and innovation
  • Direction: Jobs and income
  • Direction: Capital and the business environment

Priority: Quality living conditions and territorial development

  • Direction: Nature and the environment
  • Direction: Technological environment and services
  • Direction: Balanced regional development
  • Direction: Housing

Priority: Culture and sports for active and fulfilling life

  • Direction: Public participation in culture and sport activities
  • Direction: Contribution of culture and sports to a sustainable society

Priority: A united, secure and open society

  • Direction: Cohesion
  • Direction: Rule of Law and Governance
  • Direction: Security

To compare, National Development Plan for 2014-2020[3] contained only 3 main priorities: “Growth of the National Economy”, “Human Securitability”, “Growth for Regions” and had a motto: “economic breakthrough – for the greater well-being of Latvia!”. The outcomes and tasks in NDP2020 were structured as 12 mutually coordinated and interrelated strategic objectives: Competitiveness and Productivity; Business Environment; Research and Innovation; Energy Efficiency; Employment; Competencies; Health; Demography; Cooperation, Participation and Culture; Natural Capital; Potential of the Regions; Access to Services.

So, we see that for the next planning period of 7 years there is more stress at law, public governance and security (which was not even mentioned in objectives for NDP 2014-2020). Also, while acknowledging that costs of energy are crucial for industry and manufacture, NDP’s priority areas do not comment on the energy policy directly. Only “smart energy solutions” are listed among the activities for productivity and income. The National Development Plan ascertains that energy transformation will have a solid place in Latvia’s governance and lists it among the budgetary priorities after 2021. However, the plan mainly considers energy as a part of environment and technology, leaving its commercial and industrial drivers largely intact[4].

Strategical targets of the Latvian national development for 2021-2027

Strategic indicators mentioned in the NDP 2027 are: nominal productivity per hour of work as a % of the EU average (60,2 % in 2018; target value in 2027 – 68 %); ), GDP per capita PPP as a % of the EU average (71 % in 2018; target value in 2027 – 80 %); GINI coefficient (35.6 % in 2018; target value in 2027 – 30 %); rate for children at risk of poverty (17,5 % in 2018; target value in 2027 – 10 %); mutual trust (51 % in 2015; target value in 2027 – 64 %). Regarding employment and social issues, Latvia has planned to increase employment level of inhabitants aged 20-64 from 76,8 % up to 78 % in 2027. It is important for Latvia also to decrease long-term unemployment, setting the measurable indicator 2,2 % in 2027, and number of NEET young people (15-24 years old who will stay not employed, nor in education, nor in training) from 7,8 % till 6 %. Education is another important priority for the development of Latvia. It is defined that in 2027 proportion of STEM graduates out of total number of higher education graduates should be at least 12 %; 60 % of 16-74 years old people will possess basic and advanced digital skills; there will be 54 % of 25-64 years old who took part in formal or non-formal education/training in the last 12 months. It is also planned that ratio of general education and vocational education at the secondary education level will be 50/50 (at the moment this ratio is 61,14/38,86).

According to Head of the CSCC Pēteris Vilks, the most difficult goal in the new NDP will be to reduce inequality, as discussions on tax policy are expected to be tough. He admitted that the previous National Development Plan 2014-2020 has achieved its targets by about 70%. There are areas where targets have not been achieved at all, such as demographics, where targets have been very ambitious.

Conclusion

The Latvian National Development Plan for 2021-2027 provides four general directions for future growth of Latvia: equal rights, the quality of life, the knowledge society and responsible Latvia.

It also sets 4 strategic goals: Equal opportunities; Productivity and income; Social trust; Regional development, and contains 6 priority areas: 1) Strong families, healthy and active people, 2) Knowledge and skills for personal and national growth, 3) Competitiveness of business and material well-being, 4) Quality living conditions and territorial development, 5) Culture and sports for active and fulfilling life, 6) A united, secure and open society.

Thus, following sectors has been put in the center for the next 7 years for Latvia: healthcare, demography, education and science, business and innovation, environment and regional development, culture and sports, security and the law. Quantitatively the main focus of NDP is on education, health and business promotion, and measures based on European Green Deal. If divided by main topics, NDP 2027 indicates funding for: climate (almost 5 Mln euro), research, science and innovation (1,1 Mln euro), digitalization (1,2 Mln euro), demography (1 Mln euro), all Latvian regions (nearly 6 Mln euro), including regions outside Riga (4 Mln euro). Funding will also be allocated for development of public media and their exit from advertising market, to promotion of critical thinking among general public etc.

References:

[1] Law on the Development Planning System: https://likumi.lv/doc.php?id=175748

[2] The Cross-Border Coordination Center of the Republic of Latvia website: https://www.pkc.gov.lv/

[3] National Development Plan of Latvia for 2021-2027:https://www.pkc.gov.lv/sites/default/files/inline-files/NAP2027galaredakcija.pdf

[4] National Development Plan 2014-2020: https://www.pkc.gov.lv/sites/default/files/inline-files/NDP2020%20English%20Final__.pdf

[5] Prospects of Energy Transformation in Latvia’s National Development Plan 2027, Green Liberty (NGO):https://www.zalabriviba.lv/jaunumi/energy-nap2027/

[1] The Cross-Border Coordination Center of the Republic of Latvia website: https://www.pkc.gov.lv/

[2] National Development Plan of Latvia for 2021-2027. Available at:https://www.pkc.gov.lv/sites/default/files/inline-files/NAP2027galaredakcija.pdf

[3] National Development Plan 2014-2020. Available at: https://www.pkc.gov.lv/sites/default/files/inline-files/NDP2020%20English%20Final__.pdf

[4] Prospects of Energy Transformation in Latvia’s National Development Plan 2027, Green Liberty (NGO):https://www.zalabriviba.lv/jaunumi/energy-nap2027/

*This article has been made in cooperation with China-CEE institute and is the intelectual property of China-CEE institute

Latvia economy briefing: Latvia’s credit rating upgraded to the historically highest level

In the recent months Latvia’s credit rating was upgraded twice by international credit rating agency S&P Global Rating, in 2019 the credit rating raised from “A- “level to “A” level and for the second time the rating was upgraded to “A+” level therefore reaching historically highest level ever since the Year 1997, when Latvia was first assigned with a credit rating. The improvement of the credit rating is mainly explainable due the successful national fiscal policies.

In the latest years, the government of Latvia has paid a lot of focus to raise the credit rating of the country due to various reasons. Credit rating is an independent opinion of the rating agency on the solvency by that meaning the ability to meet financial obligations at a specified time and in the full amount of a State or another entity. In addition, in recent years the credit rating has become an internationally recognized indicator describing the level of investment risk. Because of that, the credit rating is often used by investors for evaluation and comparison purposes prior to investment. To create attracting investment environment Latvia has worked on the improvements of more stable economic, finance and governance indicators of the State since it has a direct impact on the credit rating of the country. As a result of the improvement of the credit rating Latvia and the companies based in Latvia will be able to attract investments on more favorable terms.

In the report regarding credit rating, S&P Global has stated that stricter regulations for commercial banks and that the measures taken to reduce non-resident deposits in the Latvian banking system do not pose a threat to the stability of Latvia’s financial sector and has no significant impact on the Latvian economy.[1] The S&P Global agency had additionally noted that the reduction of non-residents deposits in the Latvian banking sector also reduces external risks, such as short-term external debt amount.  The mentioned measures which were taken by the government of Latvia served as a cause for the upgrade of the credit rating of Latvia in the Year 2019.

   Because of the continuous improvements on the flaws in governance, economy and fiscal policies in 2020 the credit rating agency S&P Global Ratings raised the credit rating of Latvia from “A” level to “A+” level maintaining a stable outlook for the future of economic development of Latvia. In its assessment, S&P Global Ratings agency highlighted two major factors which contributed to the upgrade of rating. Since Latvia has determined stricter fiscal policy which, despite moderate economic growth in medium term, it will allow to reduce the country’s current public debt, the S&P Global Agency concluded that the vulnerability of the Latvian financial system is limited. [2]

“This is a historical moment. For the first time in Latvian financial history we have been rated with such high credit rating. This is a clear international confirmation of Latvia’s public finance management policy. An increase in the national credit rating is the basis for further attraction of investments to our country as a reliable and secure cooperation partner” emphasized Minister of Finance Janis Reirs.

At the same time the Agency recognized that despite the current fragmentation of political parties in Latvia, the progress regarding the implementation of Moneyval recommendations over the past 2 years has been significant. The input of government regarding the creation of appropriate framework for preventing money laundering and financial crime and restoring the reputation of the public financial system has been valuable. Furthermore, the credit rating agency had stated that both in good times and times of crisis, the government of Latvia has been able to demonstrate its ability to implement effective policies.

In the Year 2018 Moneyval published a report regarding the effectiveness of the Latvian system of money laundering and terrorism financing, analyzing 11 efficiency indicators which concluded that series of improvements are required to ensure transparent financial system. At that time only one indicator regarding international cooperation was marked as high, the other 10 indicators showed inconsistencies from which two of the indicators – “Legal persons and entities” and “Targeted financial sanctions to prevent proliferation financing” – were marked as low.[3] It was concluded that the system of identifying the true beneficiaries and system of prevention for the financing of proliferation of weapons of mass destruction was ineffective. Because of that Moneyval established a supervisory status for Latvia in 2018.

The restauration process of financial sector in Latvia was necessary to strengthen the ability to prevent money laundering and terrorist financing and to meet international standards in this area. In the latest years both government and banks have made a significant input to sort the financial sector of Latvia and implement the tools for financial crime prevention. To ensure sustainable and safe financial system in Latvia, there were introduced and passed draft laws, which provided law amendments to both to the Financial and Capital Market Law and the Law on Credit Institutions.

To strengthen the supervision over money laundering activities and both prevention of terrorist finance and proliferation financing activities the responsible institutions of Latvia have focused their attention especially in the latest years to ensure safer financial system. The changes to the regulatory framework have strengthened the risk-based approach to supervision in all supervisory and control authorities, and the resources of all those authorities have also been increased. With the amendments of Law regarding financial system the supervisory authorities now use specific risk identification and profiling to identify the highest risks in the sectors. In order to carry out targeted monitoring, the number of on-site inspections have been increased.[4]

A significant part of the strategy for strengthening the supervision over money laundering activities and both prevention of terrorist finance and proliferation financing activities was decrement of the risk of banking sector and consolidation. The current amendments to the Law prohibit enterprises to cooperate with shell companies that do not have a legal entity associated with their actual economic activities, and is incorporated in a country where statutory requirements do not include the preparation and submission of financial statements. Additional measures that were taken specifically to prevent both importation and exportation of undeclared or criminally acquired cash from Latvia were the amendments to the law on declaration cash at the State border.

Following the evaluation report of the 5th round of Moneyval, Latvia has taken various actions and steps to improve the system of strengthening the supervision over money laundering activities and both prevention of terrorist finance and proliferation financing activities and in particular has raised the awareness of risks and the comprehension of the subject of law. The report of Moneyval stated that additional resources and effective supervision have let to improve the adequacy of the subject of law about the risks and the effectiveness of the application of preventive measures.[5]

During the previous plenary session Moneyval had inspected technical compliance progress report of Latvia providing the information and expert assessment of Latvia’s progress in developing its regulatory framework to meet the 40 recommendations of Financial Action Task Force. Because the implementation of these recommendations in each country’s regulatory framework provides a basis for effective anti-money laundering and terrorist financing prevention system the recommendations became a crucial importance to the government of Latvia and in the last two years the responsible institutions has been working on implementing a regulatory that would meet the recommendations. Following the evaluation of the progress report, 7 out of 40 recommendations are currently rated as fully compliant and 33 as mostly compliant. [6]

The implementation of the Law amendments can be considered as one of the most ambitious finance sector reforms programs in Europe and has proved that Latvia is willing to ensure stable and transparent financial system as a basis of sustainable growth and welfare for all Latvian citizens.

The upcoming challenges for Latvia to an even further upgrade of credit rating would be the contribution to the economy of Latvia by the improvement of balance of payments rates above the ones forecasted by the credit rating agency. Additional challenges will be caused by the relatively low-income rate and long-term demographic difficulties, which currently limits the upgrade of credit rating. However, the credit rating of Latvia could be downgraded if there will be a significant change in the current strict fiscal policy that could cause increment of the national net debt or would affect the stability or economic growth of the financial sector.[7]

Summary 

The work of government of Latvia on financial sector regulation in the last two years to strengthen the supervision over money laundering activities, prevention of terrorist and proliferation financing activities has resulted in an upgrade of the credit rating of Latvia reaching historically highest level. Since the Moneyval report in 2018 on effectiveness of the Latvian system of money laundering and terrorism financing the government of Latvia has been paying a lot of focus to international finance institution recommendations regarding improvement of financial system of Latvia. The statement of S&P Global Ratings both in 2019 and 2020 certifies that the implementation on stricter regulations regarding banking system and financial supervisions for illegal financing activities has contributed to minimization of threats to the economy and sustainability of Latvia.

[1] https://www.lsm.lv/raksts/zinas/ekonomika/sp-paaugstina-latvijas-kreditreitingu-vesturiski-augstakaja-limeni.a349294/

[2] https://fm.gov.lv/lv/aktualitates/jaunumi/kreditreitings/61710-latvijas-kreditreitingu-paaugstina-vesturiski-visaugstakaja-limeni

[3] http://www.fatf-gafi.org/media/fatf/documents/reports/mer-fsrb/Moneyval-Mutual-Evaluation-Report-Latvia-2018.pdf

[4] https://www.fid.gov.lv/images/Downloads/useful/Pasakumu_plans_Moneyval.pdf

[5] https://www.la.lv/makoni-atkapjas-latviju-neieklauj-pelekaja-saraksta

[6]https://www.mk.gov.lv/sites/default/files/editor/Finansu_sektors/financial_sector_update_no_21.pdf

[7] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/s-p-upgrades-latvia-to-a-on-expected-sustained-fall-in-public-debt-57232086

*This article has been made in cooperation with China-CEE institute and is the intelectual property of China-CEE institute

Latvia economy briefing: The strategy of Latvia to overcome the economic crisis of Covid-19

In the last months, the economics of Latvia has been facing various challenges due to the global pandemic. Taking into account the negative impact of Covid-19 on Latvia’s economic growth and the support measures introduced by the Latvian government to reduce the impact of the crisis the report from the Ministry of Finance states that the economics of Latvia could experience approximately 7% reduction of gross domestic product in 2020. [1] For this reason, the main priority for the Latvian government regarding economics is to focus on the development of a short-term economic development to reduce the effects of the fall of gross domestic product. 

The economic prognosis of the Year 2020

The current economic prognosis of the Year 2020 shows that the economy of Latvia will be facing numerous of difficulties. Besides the decrement of gross domestic product, it is seen that the average salary will experience 3% reduction.[2]  Additionally, the employment levels for the Year 2020 are quite alarming and is proceeded to increase from 6.3% in 2019 to 11.2% in the Year 2020 reaching the level of unemployment rates in 2014.[3] And it is foreseen that with the support measures introduced by the government of Latvia to reduce the impact on crisis the unemployment levels could gradually fall for 2.6% reaching 8.6% in the Year 2023.  It is forecasted that the exports will decrease by 9% in 2020 comparatively to 2019 and the overall import levels will experience fall by 10%. Although it is seen that in the Year 2020 the economics of Latvia will face recession currently it is prognosed that by the end of the Year 2021 the growth of gross domestic product will reach 2.4 % therefore overcoming the economic recession.  Latvia prioritizes short-term economic development      To assimilate the consequences of the Covid-19 crisis the government of Latvia has prioritized the short-term economic development activities.  During the April 2020, the Economic Development Work Division accepted the plan of action to reduce the economic consequences of Covid-19 crisis.   The current strategy of the Ministry of Economics is to make structural changes in the economy focused on productivity and export of knowledge-intensive goods and services. Priority directions of the strategy are to stabilize the economy, to change the structure of the economy and to develop companies with high export capacity. Entrepreneurs already have several support programs available both for attracting working capital and retaining the workforce. However, in order to ensure stability in the internal sector, the proactive involvement of not only state institutions, but also local governments are currently important, purposefully ensuring the implementation of public procurement, for example, in improving the quality of infrastructure and housing and energy efficiency of buildings. These types of activities will contribute to the recovery of both domestic consumption and production and service provision. Although there have been already made some enforcements to stimulate the development of economics on a regional level such as increasing the municipal borrowing limit by 150 million euros for local investment projects it is seen that in the upcoming months new support policies will be enforced.

Currently the government of Latvia has prioritized the development of a short-term economic development program so that it would be clear to entrepreneurs how, taking into account all safety measures, they can continue working now or resume as soon as possible and what support instruments the state can currently offer and what support is needed so that after overcoming the Covid-19 crisis the capacity of the enterprises of Latvia would be strengthened.

Renovation of apartment buildings – an effective support mechanism for rapid mitigation of the economic consequences of Covid-19

To continue to stimulate the economics, Latvia has developed new projects to solve the increasing unemployment rates and other issues. Measures to promote the energy efficiency of buildings can become an effective tool for restoring economic activity, helping entrepreneurs and the Latvian economy to overcome the effects of the Covid-19 pandemic, as well as helping residents to manage their housing stock and reduce heating costs. Therefore, in order to facilitate the overcoming of the crisis caused by the Covid-19 pandemic as soon as possible and the resumption of Latvia’s economic activity, the Ministry of Economics offered the Cabinet of Ministers to decide on the allocation of additional funding of 75 million Euros for the implementation of measures to promote the energy efficiency of buildings.       Renovation of apartment buildings is an effective support mechanism for rapid mitigation of Covid-19 consequences, as it will allow solving several problems simultaneously: at least 150 million euros will flow into the Latvian economy and construction sector, which will create new jobs, 67% of house renovation money remains in Latvia.[4] Investments in housing insulation are also an important source of support for Latvian building material producers. In addition, by reducing the consumption of natural gas in heat supply, Latvia’s trade balance will be improved. The house renovation program is especially important because it will promote economic activity in the regions, as so far, the most active projects in the program for housing renovation have been submitted from the regions of Latvia.

Travel industry has been deeply affected by the Covid-19 crisis

Although mostly all the private sector fields have been deeply affected by the Covid-19 crisis, the travel industry has experienced massive drop in income levels. The crisis caused by the Covid-19 virus in the industry has now caused almost a 100% drop in turnover in all tourism sectors, to the detriment of both travel agents and operators and the accommodation and catering sectors. All this has directly affected more than 3,000 small and medium-sized enterprises, as well as created a catastrophic situation in the workforce – more than 25 thousand employees have been affected.[5] At the end of March and April, there is an almost 100% drop in turnover in all tourism sectors, causing losses of 10 million Euros per month. It is important to note that there are a large number of small and micro enterprises in the sector, which are often a source of livelihood for one family.       To prevent the ongoing crisis in tourism industry various solutions have been looked at. During April 2020, the Ministry of Economics prepared various solutions for special support mechanisms for the enterprises in tourism industry such as to introduce a reduced value added tax rate of 5% for the catering and tourist accommodation sectors, to evaluate and implement a balanced voucher system for solving the situation of complex tourism services of tour operators and agencies, support measures for the development of local tourism in order to receive special support for local tourism companies and stimulate local demand within the coming season, including implementing an information campaign for the development of local tourism, attracting new foreign tourists after the Covid-19 crisis, providing support especially for the development of business tourism, in addition, specific health safety guidelines for tourism service providers and travelers are planned.

Latvia, Lithuania, Estonia, and Finland agree on a roadmap for regional gas market integration

The process of regional gas market integration began at the political level in December 2015, when the Prime Ministers of the Baltic States approved an action plan for the development of the regional gas market and invited Finland to participate in this process. The aim of this agreement is to create a single regional gas market in Estonia, Finland, Latvia and Lithuania in order to improve market liquidity, integration and competition by providing affordable gas prices and high-quality services, thus ensuring the attractiveness of existing and new entrants. During April 2020, all partner countries agreed on a roadmap for regional gas market integration. The common regional gas market will be the first of its kind, with the merger of four countries’ cross-border gas markets into the European Union. This will strengthen security of supply in the region, increase market liquidity and foster competition, thus ensuring affordable gas prices and high-quality services for all consumers in these countries.

Conclusion

It is forecasted that during the Year 2020 the fall of import and exports levels and all the safety precautions taken will impact the decrement of employment levels by 4,9% and fall of gross domestic product by 7%. Because of the Covid-19 crisis the government of Latvia has prioritized short-term economic development prioritizing stabilization and restructuring of the economy and to develop companies with high export capacity. To stimulate the economy the Ministry of Economics offered the Cabinet of Ministers to decide on the allocation of additional funding of 75 million Euros for the implementation of measures to promote the energy efficiency of buildings, which will not only ensure new finance sources for construction field but will also allow to save the money of Latvian citizens since the  consumption of natural gas in heat supply will be reduced. During April 2020 more focused has been paid on travel industry as majority of travel related enterprises are facing financial difficulties and as there are a large number of small and micro enterprises in the sector, which are often a source of livelihood for one family.

[1]https://www.fm.gov.lv/lv/sadalas/tautsaimniecibas_analize/tautsaimniecibas_analize/galvenie_makroekonomiskie_raditaji_un_prognozes/

[2]https://www.fm.gov.lv/lv/sadalas/tautsaimniecibas_analize/tautsaimniecibas_analize/galvenie_makroekonomiskie_raditaji_un_prognozes/

[3]https://data1.csb.gov.lv/pxweb/lv/sociala/sociala__nodarb__aktivitate__ikgad/NBG040.px/table/tableViewLayout1/

[4] https://em.gov.lv/lv/jaunumi/27825-daudzdzivoklu-maju-renovacija-efektivs-atbalsta-mehanisms-atrai-covid-19-radito-ekonomisko-seku-mazinasanai

[5] https://em.gov.lv/lv/jaunumi/27833-vitenbergs-jarod-specifiski-atbalsta-risinajumi-visiem-turisma-nozares-uznemumiem

*This article has been made in cooperation with China-CEE institute and is the intelectual property of China-CEE institute

Latvia social briefing: The coronavirus pandemic has become a challenge for the Latvian education system: distance learning implementation experience

On March 14th, 2020, the government of Latvia declared an emergency situation due to the global pandemic. Because of that all educational institutions now have been closed for more than a month thus making one of the historically biggest challenges for all members of the education process such as teachers, students, parents, and the Ministry of Education. Although previously there had been developed virtual tools for contribution to the educational process, the capacity of them is insufficient since they were not originally developed for ensuring the learning process for all students of Latvia simultaneously.  The shift of educational approach has been drastic and demanded a fast reaction from all the sides involved. Despite the pressing issues and all the difficulties in such a short period of time, the educational institutions and the government have developed new tools and innovative approaches to ensure the continuation of the remote education process in Latvia.

One of the first challenges right way that restricted ensuring virtual educational process was the students’ limited access to technologies with an internet connection.  A research made by the Ministry of Education in March 2020 showed that approximately 3% , which is around 5300, of the students  studying in school do not have access to nor computer, nor a smartphone with an internet connection, which made it difficult for these students to participate in the distance learning process.[1] In the age group from 1st to 5th grade there were slightly more than 3000 or 3.6% of the total number of children who did not have any smart devices, in 6th-9th grade there were almost 2000 students or 2.8% in total, but from 10th to 12th grade – 361 or 1.22% of the total number of students in the particular age group who did not have the access to the internet. The survey data showed that in schools with less than 100 pupils, the percentage regarding the lack of smart devices is higher – approximately about 4.5% of pupils lacked the smart devices, while on average in the country there were 2.9% who did not have the necessary facilities for distance learning process.

To solve this problem the Ministry of Education by working together with one of the biggest mobile operators in Latvia were able to ensure the needed tools including free of charge internet connection for the students. By far the problem has been solved partially as the Ministry of Education continues to receive notice from large families with one or two devices on a household for 3 or more children by that limiting proper access to virtual education tools in larger families. Because of that there are approximately 2000 pupils who still lack facilities for distance learning process. [2]

To ensure accessibility, quality education content and provide more support to parents, especially in primary school during the distance learning process the Ministry of Education came with an innovative initiative developing a TV channel “Your class”, which aim is to simulate a class environment for students. The lessons consist of 20-minute-long audiovisual materials, in which teachers, enthusiasts in their field from different cities of Latvia, present the subjects in an interesting and student-friendly way. The curriculum is designed so that the younger students can complete a task after each subject and move on to the next subject. The project “Your class” solves various problems, that have been identified during the first weeks of distant learning approach.  One of the key problems for ensuring distance learning was that there was a crucial necessity to ensure high quality study environment for pupils in grades from first to sixth. Experts of education system have claimed that for this age group it is practically impossible to obtain such a large amount of study material independently. [3] Additionally, the project will also facilitate distance learning in families with several students. Besides that, with the implementation of this project equal educational opportunities are created throughout Latvia, reducing inequalities that arise due to the lack or inaccessibility of teachers or infrastructure.

During April 2020 the main discussion regarding distant education process revolved around State examination. By far the Ministry of Education is still planning to hold exams for 9th and 12th grade students, and has currently elaborated three working plans regarding State examination depending on the development of the pandemic in the continuous months. Currently the Ministry of education has only postponed the exams for a certain period. However, depending on the development of the Coronavirus there will be made some amendments to the content of exam, or the exams will be canceled completely replacing the results with final grades. Additionally, it has been proposed to hold combined examination for 9th grade students instead of four separate exams. However, the representatives of the Latvian Association of Local Governments and the Union of Educators and Researchers recommended that in the case of 9th grade, exam this year should be cancelled and that the innovation –  combined exam – should not be introduced especially in the times when the education process is already difficult. Additionally, a recent survey showed that 88% of Latvian 9th and 12th grade students have expressed that they do not feel fully prepared for the upcoming exam session.[4]

During April 2020 there had been made survey in 4 days’ time by the Ministry of Education with approximately 60000 respondents focusing on students, parents, and teachers regarding the transformation of education process. The aim of the survey was to was to understand how distance learning takes place in Latvian schools, to identify areas where the Ministry of Education and Science, municipalities and schools can improve the learning process remotely, as well as to get feedback from students, teachers and parents on the organization of the learning process. Overall the implementation of distance learning has been described as good by the respondents. Furthermore, the respondents of the survey had emphasized that there is an operative exchange of information between all parts involved – teachers, students, and their parents. Approximately 99% of the students and parents noted that they have received all the information about distant learning.[5] In addition, 86% of the teachers think that continuing learning remotely has succeeded quite well. However, the teachers have noted that with the implementation of distance learning approach they have been facing various challenges. Almost half of the teachers noted that they are facing additional workload because they have to develop new or adjust the previous educational materials and have to spend more time on giving feedback to their students.   Although the distance learning approach has been identified as overall successful the survey showed that there is one alarming aspect that has not been taken enough into consideration – the overall workload of students. Despite the fact the Ministry of Education and Science has recommended to lower the overall workload of studies by up to 50% in primary schools and at least 10% in high schools[6],  60 % of the students claimed that with the implementation of distance learning they devote more time for their studies as they used to.        The innovations have not only been in implemented in schools but as well in higher education institutions. Latvian university students have already proven that they have been able to create and develop original and practical solutions in various short programs, hackathons. Because of that on April 2020 five universities jointly created a new program “CrisisLab”. The aim of the developed program is to involve students to come to a solution for such pressing issues, which have appeared due to the Coronavirus, in field of education, healthcare, security of organizations and businesses, offering innovative tools and methods to improve distance learning, patient consulting remotely, tackling the economic crisis and other challenges. Students of all Latvian higher education institutions will be able to participate in the program in order to develop solutions to problem situations of local governments and the public sector, industry, non-governmental organizations that have arisen or may arise due to the global pandemic, emergency and restrictions on movement, assembly and social distance. Student teams will be formed to develop solutions, assisted by mentors and experts.

Summary

Although the implementation of distance learning education process has been one of the greatest challenges in history of Latvian education system, the shift to a distance learning process has been successful with the help of innovative approaches and solutions. While the overall transition to distance learning process has been described as smooth, Latvian authorities are still facing challenges such as lack of smart devices with internet connection and the workload of students. To solve the pressing issues with the lack of smart devices for distance learning, Ministry of Education and Science together with one of the biggest mobile operators in Latvia have come to a solution and were able to provide mobile devices with free internet connection for 3% of the Latvian pupils who did not have any access to mobile devices. This has solved the problem partially as households with larger families do not have enough devices to ensure the distance learning process for all children simultaneously. To simulate the class environment for younger students the Ministry of Education and Science in a week’s time developed a new, innovative TV channel. Survey by the Ministry of Education and Science shows that overall the distance learning process has been seen positively as almost all of the students and their parents have received sufficient information regarding distance learning process. Although 86% of the teachers think that overall the shift to distance learning has been successful, 88% of Latvian 9th and 12th grade students have expressed that they do not feel fully prepared for the upcoming exam session.

[1] https://izm.gov.lv/lv/aktualitates/3978-izm-kopa-ar-partneriem-plano-nodrosinat-5000-viediericu-latvijas-skoleniem

[2] https://www.la.lv/vel-2000-skoleniem-trukst-attalinatajam-macibam-nepieciesamas-viedierices

[3] https://izm.gov.lv/lv/aktualitates/4006-izm-izveido-izglitojosu-tv-kanalu-tava-klase

[4] https://www.db.lv/zinas/88-skolenu-nejutas-pilnvertigi-sagatavoti-eksameniem-495919

[5] https://home.edurio.com/izm-attalinato-macibu-rezultati

[6] https://www.izm.gov.lv/images/MaciesMajas/VISC_Skola2030_Vadlinijas-attalinatam-macibam.pdf

*This article has been made in cooperation with China-CEE institute and is the intelectual property of China-CEE institute