MFA: Strategic opportunities for foreign exporters
Latvia entered 2021 affected by the second wave of the covid-19 pandemic, which economically affected it more deeply than the first wave in the spring months of 2020. However, in the last quarter of 2020, despite the unfavorable conditions, the export of Latvian goods increased. The growth was supported not only by a good harvest of agricultural products, but also by the looming no-deal Brexit until the last moment, which led to the pre-stocking of Latvian wood and wood products by British clients.
The second wave of the pandemic slowed down the Latvian economy drastically, and the situation forced economists to reassess the forecast of GDP development in the coming period. According to the revised forecast, the GDP growth rate will fall to 2.6% in the first half of 2021, compared to the original forecast of 4.8%. However, already in the second half of the year, when it is assumed that the epidemiological situation will be managed, the restart of investments and other projects, including those financed from EU funds, is expected.
For the year 2022, experts therefore predict steeper growth, up to an optimistic 5%. In 2021, price deflation from the start of the year should move to the usual inflation rate of 1.1-1.3%, and unemployment should hover around 8%, compared to pre-Covid 6.5%.
The Government of the Republic of Latvia used EUR 600 million in 2020 to cover expenses related to covid-19 and start the economy, which corresponds to 2.1% of GDP. In 2021, the cabinet plans to allocate an additional EUR 1.32 billion (approximately 4.5% of GDP) to the contingency fund, with the state budget for 2021 already counting on further post-covid strengthening for individual sectors. One of the key sectors for the functioning of the Latvian economy is the area of agriculture and the related food industry, which are subsidized as a matter of priority.
Latvia has also allocated part of the crisis budget to support municipalities and their investment projects. Based on an agreement within the EU, the Latvian government has developed a National Recovery Plan (NPO), which presents a long-term post-covid transformation of the system with the aim of achieving a functioning green and digital economy. In practice, this will mean large investments in digitization, transport and construction projects as well as healthcare, social areas and education, which are priority areas listed in the NPO.
Post-COVID-19 opportunities
Transport industry and infrastructure
Although Latvia has sufficient road and rail connections, the quality of roads and railways is often very low and requires reconstruction and renewal. As part of the coronavirus crisis, the government reassessed its financial investments in transport infrastructure and allocated additional funds for its restoration. It expects additional funding from contributions from EU funds, including projects supported under the National Recovery Plan. The railway network dates back to Soviet times, so it is often inadequate in terms of equipment and technology.
According to allcountrylist, the biggest project at the moment is the construction of Rail Baltica, i.e. the high-speed railway and related infrastructure. As part of the project, even during the difficult pandemic situation, tenders for individual parts are continuously issued.
Electrotechnics
With the onset of digitization, an increase in demand for modern devices and electrical components can be expected. During the state of emergency, which lasted almost half a year in Latvia, a number of institutions, companies and schools/educational facilities switched to an electronic form of communication. In the near future, an increased demand for software and mobile applications that will facilitate communication processes is expected.
Traditionally, for many years, one of the strongest items of Czech exports to Latvia are devices for recording and reproducing sound and components of television sets. The Latvian market is far from saturated in this regard.
Energy industry
Together with the neighboring Baltic states, Latvia has agreed on a project to restore the electricity transmission system and synchronize it with continental Europe. The final goal is to disconnect from the existing BRELL system by 2025 and increase the capacity of the electrical network and the security of energy supply. By 2025, two large investments in the reconstruction of the existing power lines are planned in the amount of EUR 76 million, respectively EUR 99.5 million, each of which will draw 75% of EU co-financing.
Following the synchronization project, Latvia plans to gradually revitalize the entire Latvian energy network until 2030 with the aim of ensuring the stability of the transmission system and the uninterrupted supply of energy to end users. The first tenders in this important energy project in the Baltics are expected in 2021.
Defense industry
Since 2018, as a NATO member country, Latvia has committed to allocating an amount corresponding to 2% of GDP to defense in the budget. Given its geographical location and commitments within NATO, the area of defense will continue to be key to the functioning of the state. Part of the strategic development of the army is the modernization of the communication and information systems of combat management.
In the past, Czech companies have already succeeded in tenders for supplies for the Latvian armed forces and NATO, and it can be assumed that others could follow on from them. According to the plans of the Ministry of Defense of Latvia, demand for heavy equipment and other technologies can be expected in 2021 and in the following years.
Healthcare and pharmaceutical industry
The coronavirus crisis has exposed major cracks in the healthcare sector, to which the Latvian government has been forced to respond. The healthcare sector was one of the most subsidized in 2020, and large investments are expected in 2021. It will be about the renovation of hospitals and other medical facilities, and the funds are also used to modernize the equipment. Following the National Recovery Plan, projects should also cover adaptation measures related to environmental impacts (waste management, etc.)
The pharmaceutical industry has great potential for growth in Latvia, although many international companies are active in the local market. There is still a demand for special medical equipment and in large state hospitals as well as private medical facilities there is a demand for new equipment, for example special beds, etc.
Rail and rail transport
This sector is potentially very promising in Latvia, especially thanks to the “project of the century” Rail Baltica, the construction of a new high-speed railway line connecting Estonia, Latvia, Lithuania and Poland with a large support of funding from EU funds. The Rail Baltica project has an exact scenario, so it must continue regardless of the coronavirus crisis. The Ministry of Transport also plans to restore some parts of the existing railway infrastructure, for which tenders will be gradually announced in partial projects.
In 2021-22, the so-called “Greater Riga” project could be launched, the outlines of which were outlined in the NPO proposal, and which aims to reduce transport emissions in and around the capital. The transport company of the capital Riga also plans to modernize the public transport infrastructure in accordance with the National Renewal Plan and continue to expand the existing number of trams and trolleybuses with the aim of greening the transport.
This sector is potentially very promising in Latvia, especially thanks to the “project of the century” Rail Baltica, the construction of a new high-speed railway line connecting Estonia, Latvia, Lithuania and Poland with a large support of funding from EU funds. The Rail Baltica project has an exact scenario, so it must continue regardless of the coronavirus crisis. The Ministry of Transport also plans to restore some parts of the existing railway infrastructure, for which tenders will be gradually announced in partial projects.
In 2021-22, the so-called “Greater Riga” project could be launched, the outlines of which were outlined in the NPO proposal, and which aims to reduce transport emissions in and around the capital. The transport company of the capital Riga also plans to modernize the public transport infrastructure in accordance with the National Renewal Plan and continue to expand the existing number of trams and trolleybuses with the aim of greening the transport.
