How the economy of Latvia works

After the collapse of the Soviet Union and the implementation of significant reforms, the economy of Latvia for some time quickly rose in all indicators. In the two thousandth years - about five to seven percent per year until 2008, when the crisis began. In 1990, the economy of Latvia in GDP ranked 40th in the world, and in 2007 it was in third place among the post-Soviet countries. Only Armenia and Azerbaijan were ahead of it.

Statistics

In 2006, per capita GDP was 12.6%, and in 2007 - 10.3%. In 1992, the currency was introduced - the Latvian ruble, and from 1993 it was gradually replaced by the Latvian lat. Restitution and privatization were carried out, as a result, the share of industry in the Latvian economy fell to 12% (and in 1990 this share was 30%). Already in 2008, Latvia became the leader of the European Union in terms of the number of poor - twenty-six percent of the population lived below the poverty line. And finally in 2009 GDP in the economy of Latvia became the worst indicator of the dynamics of GDP in the world.

In general, the development of the Baltic States from 1992 to 2007 was called a phenomenal success in the transition from transformation to growth and the creation of modern market institutions. However, now Western scholars from the economic sector tend to see in this growth only the residual actions of the Soviet legacy - it was then exactly in the Baltic states that industry and infrastructure were particularly well developed, and also a voluminous human capital was accumulated. The economy of Estonia, Latvia, Lithuania was raised only thanks to residual resources and only in the first few years. In 2010, Latvia's GDP continued to fall, but in 2011 it went up by five and a half percent. Coming out of the USSR, Latvia became a member of the World Trade Organization, and in 2004 joined the European Union. The use of the euros here began only in 2014.

International trade

The economy of Latvia after joining the EU keeps afloat thanks to exports. The main products are metal in bars and iron, it's just over eight percent of total production, followed by six percent of equipment and electrical machines, four percent are sawnwood, three and a half are textiles and knitwear, pharmaceutical products three percent, On a round timber and two and a half percent on wooden products. These goods are exported to neighboring Russia, Lithuania and Estonia, and also to Germany, Sweden and Poland. But imports come to Latvia from a much larger number of countries.

In 2015, the external debt of the Ministry of Economics of Latvia was 8.569 billion euros. In previous years he hesitated very slightly. Earlier - in 2000 - the share of the aggregate Latvian external debt was more than sixty percent of its GDP, and in 2007 it jumped to one hundred and thirty percent of the country's GDP. In 2009, the debt was more than one hundred and eighty percent. What does it say? How does the economy of Latvia work? Predominantly as a bankrupt.

Structure

Priority in the sectoral structure of Latvia's economy is enjoyed by the services sector - almost seventy percent of GDP is obtained from there. Five percent are given to forestry and agriculture, twenty-six percent are industry. Until 2003 (that is, before the EU accession), Latvia's industrial production grew slightly - about five percent a year, and this is despite the fact that for the development of, for example, the country's energy resources are extremely low (Riga CHP No. 1 uses local peat, the rest of the industry Need imported raw materials).

Experts estimate the oil reserves on the shelf of the Baltic Sea at thirty million tons, not too much for successful extraction. The rivers, too, because of their flat nature, do not have a large hydro potential. Latvia produces only 3.3 billion kilowatt-hours of electricity, and it consumes 5.2 billion. HYDROELECTRIC POWER STATION produce 67% of it, the rest - thermal stations, for which it is necessary to purchase fuel. Electricity is mainly imported from Russia and a little from Estonia and Lithuania.

Wood & Textile

Almost all wood processing is exported. The main enterprises of the Ministry of Economy of Latvia consider plywood producers in Kuldīga, Daugavpils, Liepāja, Riga, as well as paper producers in Ogre and Jurmala. Many handicrafts, small entrepreneurs are common everywhere in cities and in rural areas. They serve mainly tourists, making for them a variety of souvenirs. But the textile industry is much more developed. It is supported by about sixty large and well-known companies, some of which have up to thirty million dollars in annual turnover. Their products can compete quite easily with similar products in Sweden, Germany and England. It should be noted that almost all goods from Latvia are sold abroad not under their own brands, but from partner firms.

The production of textiles is focused only on exports, leaving in Latvia less than seven percent of the products produced. For example, in 2002, a variety of textiles were sold abroad for three hundred and fifty million dollars. As a member of the EU, Latvia is forced to introduce from three to seventeen percent of import duties on all imports from third countries, as well as raw materials for the textile industry. And raw materials are bought almost completely, including semi-finished products - in Uzbekistan, Belarus, Ukraine and most of all - in Russia. As a result, finished products are significantly more expensive: both fabrics and clothes produced by Latvia. The economy of the country has suffered significantly. Competitiveness is rapidly falling, and even from this industry, which has always been successful, the country has less and less benefits.

Food industry

This industry has always flourished under Soviet rule. The Minister of Economy of Latvia - the famous chess grandmaster and politician Dana Reizniece-Ozola, who took the ministerial seat in 2016, believes that today's stagnation in the food industry should be overcome in every possible way. And indeed, only the only plant in Latvia flourishes, where the famous "Riga Balsam" is produced. This alcohol still has a fairly steady sales, and the enterprise is in the top three of the largest taxpayers.

With the rest, everything is much worse. Of the fifty-six dairy processing enterprises, only eight have from the veterinary service certificates of conformity of European products, which give the right to import dairy products to Europe. The catch and processing of fish decreased three-fold, as the European quality requires a radical modernization and reconstruction of almost all enterprises. Is that small manufacturers are able to give an exclusive product.

Agriculture

Reforms and privatization of land led to a significant reduction in the main areas under cultivation. A restitution very many land allotments returned to people who are not at all interested in their processing or do not have any opportunities for it. Arable land and previously accounted for twenty-seven percent of the structure of the land fund, and now completely declined. Meadows and pastures previously occupied thirteen percent, and the forest - about forty. Now, the production of grain and potatoes has halved, the number of livestock has decreased by twenty percent, respectively, and the number of milk and meat has decreased, that is, almost those industries that have kept the basis of Latvian agriculture.

Livestock, even domestic needs can not satisfy today. The natural economy is not able to feed the people, the farmers lack financial resources, they are very poorly provided with fertilizers and agricultural machinery, and they have little experience in agribusiness. And most importantly, in Europe everything they produce is almost uncompetitive.

Services: Tourism

Latvia is rich in historical monuments. In its territory there are about a hundred interesting castles and palaces. The resort zone of the strip of the Riga seashore is famous for its mineral waters (hydrogen sulphide) and therapeutic muds. However, there is not everything in order. Previously, tourists and holidaymakers in Latvia did not hang out. And now there is the conclusion of European experts: as a recreational zone the Riga seaside can not be used, since full-scale cleaning works are necessary. And so today such attractive in the past and exceptionally lively campsites, sanatoriums and beaches are emptied and mostly idle.

The entire infrastructure of recreation in Latvia was created under Soviet rule in the middle of the last century, and therefore it is clear that without the contribution of many efforts and big finances, this system will increasingly degrade. This is an astounding figure: tourism in Latvia, a country that seemed to be created for holidaymakers, accounts for only 2 percent of GDP. Under the USSR, nearly seven hundred thousand tourists visited the seaside annually, now they are exactly twenty times smaller. People come to rest mainly from Belarus and Russia, and quite a bit - from Germany and Finland. Europe promises to help Latvia revive this industry, and the Latvian government already has a long-term plan for tourism development, but so far this country has the lowest indicators in Europe.

Transport

The economy of Latvia forms up to thirty percent of its revenues thanks to the leading industry - the transit of goods. Cargo is mainly Russian. This is twenty-seven percent of the total volume of exports of services and goods. Prevailing (up to fifty percent of turnover) rail transport, in second place with thirty percent - pipeline, fourteen percent gives water and seven - road transport. Ways pass both from west to east, and from north to south.

The largest port in the eastern part of the Baltic Sea is Ventspils, it can take any ships and handle any cargo. Even tankers with a displacement of up to one hundred and twenty thousand tons come here. The port's cargo turnover is forty million tons, the world-class export terminal. The port of Riga can handle up to ten million tons, and Russian companies through the container terminal provide up to eighty five percent of transit cargo. Pipelines, of course, are also Russian. Own fleet of Latvia has only fourteen vessels, their total displacement is less than sixty thousand tons.

How the economy of Latvia worked

Now we can state with certainty that the GDP indicators in the pre-crisis period were driven by the banal sale of state property to foreign investors, as well as subsidies from the European Union and the pumping of loans. The first in this process were commercial banks: five years before 2008 inclusive, there were almost a lot of billions of euros issued to the population of Latvia for housing construction, purchase of land, renovation of existing residential areas, purchase of expensive cars, televisions and washing machines with virtually no control. Loans were issued for a period of up to forty years at 1.5-2 percent per annum.

So life began on a loan. And then the cataclysms of the global crisis in the euro area have weakened the country's solvency so much that Latvia was ahead of the entire planet in the impoverishment of the population. Statistics of the EU will not deceive: 38% of Latvia's residents after 2012 are below the poverty line. The able-bodied population was forced to go abroad massively to earn money. By two percent a year the number of inhabitants of Latvia decreased. During the "Soviet occupation" it nevertheless sharply increased: there were 2.7 million people before 1945, and in 1985 - 3.7 million. From 1991 to 2005, about twenty percent of the population was lost, and the crisis of 2008 this process exacerbated.

Income and taxes

From the beginning of 2017, the minimum wage in Latvia (gross, that is, before taxes) was set at 380 euros a month. This is a lot. The average salary (also before taxes) is 810 euros, in state structures - 828 euros, and from private entrepreneurs - 800.

After payment of taxes, 828 euros of the average salary turns into 611 euros. However, this is not the whole picture. In 2016, 177,800 workers received significantly lower wages than the minimum wage. In 2015, these employees were 173,400, that is, more than twenty percent of all workers in the country. The population of Latvia, according to 2015, is 1,973,000 people (and there were 3,700,000 under the Soviet government). Currently able to work at 969,200, the unemployment rate is almost ten percent.