Bulgaria, Latvia, Lithuania and Slovakia – Comparison of industrial transition models Economic transformation process in Latvia Acad. Raita Karnīte 6-7 October 2008 Sofia

Economic transformation process in Latvia The evolution of industrial policy The evolution of industrial policy Example of one highly successful policy measure Example of one highly successful policy measure Example of one less successful policy measure Example of one less successful policy measure Analysis of developments before and after EU accession, also in the light of Lisbon strategy Analysis of developments before and after EU accession, also in the light of Lisbon strategy Conclusions Conclusions

The evolution of industrial policy Responsible institution – Ministry of Economics of the Republic of Latvia (also National Economic Council) Responsible institution – Ministry of Economics of the Republic of Latvia (also National Economic Council) Large number of national level policy documents: several middle and long term national development strategies, two national development plans Large number of national level policy documents: several middle and long term national development strategies, two national development plans Sector policy documents – Conception on the development of industry Sector policy documents – Conception on the development of industry Small and medium size companies promotion policies and institutions (councils) Small and medium size companies promotion policies and institutions (councils) Innovation policy, policy implementation plan Innovation policy, policy implementation plan EU Structural funds EU Structural funds

Main focus – export oriented knowledge intensive industry Main focus – export oriented knowledge intensive industry Most effective measure – education Most effective measure – education Supporting measures – export promotion (export promotion institutions, export guarantee system) Supporting measures – export promotion (export promotion institutions, export guarantee system) 5-7 priorities in research activities related to perspective industry sectors 5-7 priorities in research activities related to perspective industry sectors Innovation promotion institutions – technological parks, excellence centres, cooperation with scientific institutions, including Latvian Academy of Sciences and universities Innovation promotion institutions – technological parks, excellence centres, cooperation with scientific institutions, including Latvian Academy of Sciences and universities Financial support – EU Funds Financial support – EU Funds

The evolution of industrial policy Special economic stimulus (tax regime, industrial subsidies) are not expected Special economic stimulus (tax regime, industrial subsidies) are not expected Supporting measures moderate: Supporting measures moderate: export promotion policies not implemented export promotion policies not implemented investment promotion policies are not clear investment promotion policies are not clear innovation policy measures focused on information technologies sector and priorities in science innovation policy measures focused on information technologies sector and priorities in science effective financial support institutions (funds, business angels) are not developed effective financial support institutions (funds, business angels) are not developed

Highly successful policy measures Wood processing industry Wood processing industry Local resources Local resources Good market Good market Fast privatisation and modernisation, but slow move to higher value added sectors Fast privatisation and modernisation, but slow move to higher value added sectors Sufficient funding, intensive FDI Sufficient funding, intensive FDI Sufficient supporting measures (the State Forest policy, activities of state owned company Latvijas Meži in securing timber resources) Sufficient supporting measures (the State Forest policy, activities of state owned company Latvijas Meži in securing timber resources) IKT industry IKT industry Traditions and skills from former industrial structure Traditions and skills from former industrial structure Good education provide skilled personnel Good education provide skilled personnel High technical level (starting from nothing) High technical level (starting from nothing) Concepts of information society and Knowledge society provide secure market (state procurement is very important) Concepts of information society and Knowledge society provide secure market (state procurement is very important)

Results Wood processing industry in 2005 in % of total manufacturing Manufacture of wood and wood products Manufacture of furnitureTotal Turnover Value added Gross investment Employed

Results ICT indicators Value added in % of total in Latvia566 Total ICT value added (c.p.), mln. EUR In % of ICT value added ICT production145 ICT trade Telecommunications ICT services Foreign trade balance in ICT sector, mln.EUR in % of total in Latvia17138 Foreign trade balance in sectors Telecommunication equipment-67-82n.a. Computers Electronic components

Example of one less successful policy measure Sugar industry (three factories) destroyed: Privatisation, concentration (one factory closed) Before accession – supporting measures (Sugar Law, subsidies to farmers, market protection measures) - lot of discussions but industry and supporting agriculture grows In 2005 (after accession) – two remaining companies voluntary closed due to economic stimulus Sugar price ???

Results 0

Analysis of developments before and after EU accession, also in the light of Lisbon strategy

GDP growth in selected countries, %

GDP level (1990 = 100)

FDI by sectors, mln LVL

Latvias current account

Value added in % of turnover in selected sectors N/A Manufacture of textiles Manufacture of wearing apparel Manufacture of chemicals and chemical products Manufacture of computer, electronic and optical products Manufacture of electrical equipment Manufacture of machinery and equipment n.e.c.; Manufacture of motor vehicles, trailers and semi-trailers Manufacture of other transport equipment Repair and installation of machinery and equipment Water collection, treatment and supply Waste collection, treatment and disposal activities; materials recovery

Conclusions Latvian industry is underdeveloped, but its potential is not exhausted Latvian industry is underdeveloped, but its potential is not exhausted Industrial policies are elaborated, but implementation is not sufficient Industrial policies are elaborated, but implementation is not sufficient Supporting financial and organisational measures are poor Supporting financial and organisational measures are poor Industry needs special attention, probably, also special responsible institution Industry needs special attention, probably, also special responsible institution Collateral indirect policies would be welcomed (ex. support to entrance in the local and global military markets) Collateral indirect policies would be welcomed (ex. support to entrance in the local and global military markets)

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