Latvia is a country in Eastern Europe and one of the Baltic countries - the three countries located on the eastern coast of the Baltic Sea: Latvia, Lithuania and Estonia. In the past, Latvia has been a part of numerous other political entities, including the Old Livonia, the Polish-Lithuanian Commonwealth, The Russian Empire and the USSR. Eventually, the country achieved its independence in 1991.
Since the 13th century Latvia has been an important trading hub and a bridge between the Eastern Europe and the rest of the continent, also being a major member of the Hanseatic League, dominating the Baltic sea maritime trade up until the 16th century. Nowadays Latvia is a market in its own right and an important economic player in the Baltic region.
In the last decades Latvia has enacted a number of reforms to support trade and the domestic market, and they turned out to be successful, making the business environment better. The amount of foreign investments and domestic consumption has increased over this time (except for a setback during the crisis of 2008 - 2009), which shows that both Latvian residents and foreign investors place their trust in the current economic environment of Latvia.
The crisis of 2008 - 2009 mentioned previously was heavily influenced the economy of Latvia, as it did in many other countries. There was a drop in GDP of 17% and a peak of unemployment of 17% (more than 20% by some estimates), and the situation has reached its worst in 2010, just in the aftermath of the crisis. The economy entered the phase of contraction, during which the so-called shadow economy or underground/unofficial economy took up approximately 40% of all the Latvian economy.
From 2010 to 2012 Latvia has been implementing various economic reforms and projects in order to restore the damage economy. Eventually, with the help of international funds, the country announced in 2012 that the economy is steadily growing again. This claim was also approved by the International Monetary Fund (IMF). The GDP, export and domestic consumption grew, and unemployment declined to about 9.5% in 2016 (almost twice as low compared to the crisis period).
Traditionally, there are four economic sector: agriculture (including mining and together extraction of natural resources), industry and manufacturing, services, and informational technologies (and other knowledge-based areas). Latvia, along with the majority of the world's most developed countries, is reliant on the tertiary and the quaternary sectors, namely services and knowledge-based industries.
Agriculture in Latvia
The agricultural sector takes up 4% of Latvia's GDP and provides jobs to approximately 7.7% of the population. The major industries within the agricultural sector is grain production, cattle, potatoes, sugar beets and other vegetables. The main agricultural export product is timber, as Latvia is abundant with forests, and the forestry industry is generally well developed in the country. Other than that, however, Latvia's resources are scarce are thus not very developed. This particularly concerns energy-related resources - these and their products are mainly imported from abroad.
Industry in Latvia
The industrial sector is the second most developed economy sector in Latvia. It contributes 24% of the country's GDP, and approximately 28% of the working population is employed in the sector. The most developed industries within are metalworking, food processing and construction, Lately, the high-tech industry also undergoes a significant development, and, although not a major branch right now, this area is expected to become a major contributor to Latvian economy.
Services in Latvia
Services, such as market entry legal support, and knowledge-based industries, such as internet technologies, are the primary economic sectors of Latvia. They take up approximately 72% of the GDP, and more than 63% of Latvians are employed in the sector. Specialists of the country are especially proficient in legal services and internet technologies, as well as a number of other industries.
Latvia is an active international player, being a member of the EU, the United Nations, WTO (World Trade Organization). OECD (Organisation for Economic Co-operation and Development) and many other economical and political organizations. Latvia is located near Lithuania, Estonia, Belarus, Russia and Scandinavian countries (especially Sweden and Finland). The country maintains active economical and trade relationships with most of them, making international trade from Latvia an advantageous undertaking.
Foreign Direct Investment
Since 2004, when Latvia joined the European Union, the flow of Foreign Direct Investments (FDI) has increased significantly. Besides that, the majority of FDI comes from reinvestments and merger-acquisition operations. Looking at the industries of the FDI, the main ones are made in telecommunications, real estate, banking and retailing.
The amount of FDI dropped somewhat during the crisis of 2008 - 2009, but since the period of economic revival (around 2010) they have increased again. Out of all the foreign investors, the biggest ones are Estonia, Denmark, Sweden and Germany. The government of Latvia especially promotes investments in high tech industry, which further strengthens the positions of this developing area of business.
Foreign trade is one of the major contributors to Latvian GDP - its share is approximately 80%. Latvia exports a number of agricultural and resource extraction products (timber, oil, iron, coal), as well as electronic equipment and metalworking products. Latvia mainly exports to Lithuania, Estonia and Germany.
As for the import, Latvia mainly buys machinery, chemicals, fossil fuel, electricity and vehicles. The main import partners are Lithuania, Russia, Scandinavian countries (particularly Finland and Sweden), as well as Poland, Germany and Estonia.
Latvia offers a number of advantages to any type of business:
- favourable geographic position - a bridge between the Eastern Europe, Scandinavia and Central Europe
- highly skilled, but inexpensive workforce
- membership in the EU - easier to trade and move inside EU thanks to the Schengen zone
- low taxes, and simple taxation and accounting (more about finances in Latvia)