A conversation between Māra Liopa, Chair of the Forest Certification Council of Latvia, Pauls Rēvelis, editor of the zemeunvalsts.lv portal, and Finance Minister Jānis Reirs

For the next planning period – seven years – more than 10 (10.44) billion euros will be available (2.47 billion in grants (an additional 2.48 billion in loans) from EU recovery funding, and 7.97 billion in grants from the EU multiannual budget). It is important to add: the European Union (EU) multiannual budget consists of EU funds that are 'based' on the development plan, which incorporates all the programmes already known to date. Naturally, it also includes support for entrepreneurship, which involves NGOs.

What has been added? EU recovery funding, which, in my view, should be directed specifically towards supporting entrepreneurship. Here, three main goals must certainly be taken into account: business competitiveness, infrastructure development to ensure a labour force and work during times of crisis, and the improvement of healthcare infrastructure to 'cope' with Covid-19. Regarding the latter, for many countries with sufficient healthcare funding, the situation this year proved to be less than 'bearable'. In relation to recovery funding, I see a direct opportunity for cooperation with the forestry sector in both forest cultivation and timber processing, as it is Latvia's most significant export industry. Therefore, the allocation of funds to projects should, to a sufficient degree, also apply to forestry in order to support and maintain competitiveness, creating opportunities for companies to modernise, increase productivity, and create new jobs. Financial assistance must be targeted and precise; the foundation is export-oriented companies; behind every exporter are those who service that company. If we divide 2.47 billion among, for example, 80,000 companies, there will not be much point to such a distribution of money. That is why the priorities will be those already established!

One of the significant aspects of competitiveness is having an equivalent situation to competing companies in neighbouring countries. The forestry sector spent three years battling over regulations for felling diameters and their implementation, which concluded with the Prime Minister calling on VARAM and the Ministry of Agriculture to reach an agreement. The regulations are currently 'sitting in a drawer'. If we look at the availability of biological assets and regulatory requirements, the Finns, Swedes and Estonians are in a different situation than we are. More favourable... self-created competitiveness problems within Latvia.

The issue is by no means related to the domain overseen by the Ministry of Finance and the Minister. But, as a representative of the government, I believe that at the very beginning, when talking about the aforementioned change in regulations regarding tree felling diameters, it was a mistake to include, for example, the coastal zone, which has been removed in the current version of the project. Talking about timber processing is good and right, but public interests must also be respected. If at the start of the project many saw that there would be an opportunity to fell the seaside... That was a mistake! Responsibility must be taken by the drafter of this draft regulation. As I understand it, the 'seaside felling issue' has been removed from the project, but a large part of the public remembers it as a 'project to fell the seashore'. I do not even know why the draft regulation was created that way at first; I have no explanation. But, I emphasise, the problem is not with the government or the Prime Minister, but with the drafter of the document! If there is no explanation for the public, the project also sits in a drawer. I believe that if the possibilities are scientifically grounded, the problems could be related to a situation where people do not know or see the context, but: when driving to Baltezers or further, everyone can imagine that 'they will cut it down right there!' Many people might think this, and resistance will certainly arise. It must be explained and explained again!

The issue has been explained and explained, but – unfortunately – people are still talking not about the solution, but about the long-irrelevant seaside.

As an illustrative example in a similar vein, I would like to mention: in Lithuania, five new factories have been built in the last three to four years, three of which wanted to build in Latvia. As a result of public protests (which happened in Latvia), the factories have now been built and are already operating in Lithuania. That means labour and jobs!

A problem that has been loudly discussed over the last year...

The construction of the factories was rejected six or seven years ago. In the last year, there have been no rejections. The mentioned tree diameter issue was also discussed for the first time three years ago.

The situation is, of course, known in the ministries or the Cabinet of Ministers, but it has not been discussed loudly – either in the media or in society – for years. Something is quietly rejected, a short story appears or flickers by, or a small article is written, if one is written at all, and then silence! It has been mentioned on Latvian Radio a couple of times; the issue similar to the Lithuanian story is already being examined more regularly and loudly. Residents have also started talking about it because, as it turns out, there are people who understand that the state also needs money, not just protests and objections. It is not enough to just have the feeling that 'there is money somewhere in the country'!

That should have been discussed with three or four finance ministers before me. The question is indeed quite old!

The Minister of Finance and finance. Regarding the Riga City Council elections, there was and is loud talk about: how to spend. As soon as you ask how to earn, there is no answer, or it will be evasive. 'Where is the money, where do you get it?' In the budget!

I agree! If you ask enough people where their salary comes from, the answer will be: from the Treasury. The state is maintained by entrepreneurs through the taxes they pay and the value they produce. Many people do not understand or know this, and that is a problem! How to solve it – I do not know if anyone has a recipe or suggestion, I do not know! If someone had a clear solution on what to do, they would become a well-regarded person. Currently, as far as I know, there is no explanation. It is the mood of a part of society or even a certain sentiment, and the impact of European money that we receive in the form of grants.

For example, in Lithuania, in the last planning period, grant volumes were reduced, financial instruments – loans – were used more, and the money began to be used more efficiently! Conversely, there is a very significant example in Latvia: the building renovation programme. As soon as it is known that there will be a financial grant, the volume of submitted projects is 1-5 million euros. As soon as a financial instrument is offered, the volume of projects shrinks; it is no longer 'interesting' to municipalities. I understand this as an inefficient use of money, which, if calculated differently, cannot be paid back. The understanding that if money does not have to be paid back, it can be spent inefficiently leads to thinking: how to redistribute, rather than how to produce! An entrepreneur's first postulate: efficient use of financial resources and labour resources. The thought contained in your question is true – there is more thinking about redistributing than earning. Here is also the answer regarding the factories in Lithuania: they will now earn there, in the neighbourhood!

Neighbouring countries are often used for comparison: if a factory with a turnover of 12 million in Estonia has 0.5 million left over, the situation in Lithuania is 'at zero', and in Latvia additional funds must be found... About the so-called 'bad' tax burden!

As far as I know, the largest investments in the forestry sector are in Finland and Sweden, where taxes are at least twice as high. The tax burden is not the primary indicator for investment! A stable political environment and a stable tax system are undoubtedly more important. Stability! We can talk about reducing the tax burden, but at the same time, we must talk about the functions that the state must give up! It is related!

The Finns and Swedes certainly have better access to resources. Your mentioned unsuccessful start to the tree diameter draft regulation is one thing, but Finns and Swedes have a politically accepted opportunity in business to use available biological assets.

I have a private presentation on investment in science. In many places, it is emphasised that Latvia's investments in science are among the lowest in Europe. But! A large, authoritative company has compiled data on these investments, and... Latvia, looking at state-side investments in science, is in third place in Europe! Upon learning this, I was very surprised! However – looking at entrepreneurial investments in science – we are in a very distant last place! Forestry and the timber industry, for example in Finland, are the fields where – slightly exaggerating – 'soon they will produce oil from wood'! That is private sector investment in science! That is also an answer!

There is a lack of synergy between science and business, and it is lacking in all areas! I am not being critical only of forestry. In pharmacy, we 'package' tablets well, we do not synthesise them. If there is a 'native' (Latvian) product, it is purposefully 'buried' (I am speaking about 'Rigvir'). I do not wish to engage in scientific disputes with that, but the fact that we ourselves 'bury' the work of our scientists is evident. Europe is developing through the cooperation of entrepreneurs with science; we in Latvia look very much towards the state, forgetting that elsewhere, the huge investment in science comes from entrepreneurs. Latvia has a good financial instrument – reinvested profit – please! Support science!

I do want to emphasise that the investment of entrepreneurs in science is by no means 0, but it is very small! In total (state and private investment), it gives a negligible overall result.

By the way, speaking about the healthcare sector, we are talking about 4%... In total it will be 8%, because the other 4% is paid by private medical institutions. So it is not 4%, but 8%! Anticipating your remark, I will say: mandatory health insurance, which has been discussed for many years, can be introduced if there are at least 51 votes in the Saeima. I will add, a stable 51 votes!

You devoted kind words to Lithuania regarding the industrial development of a neighbouring country. The start for all three Baltic states was once the same. Where, in your opinion, are the obstacles? Have we really had more of them?

Unfortunately, I have no explanation! It would be interesting for scientists (humanities) to research what and how. Until 2015-2016, we were behind Estonia in economic indicators, but ahead of Lithuania. Now, our southern neighbours are ahead of us. Talking about problems that 'follow' from the 90s will not be correct. One must look at changes in policy, also the Lithuanian renunciation of grants that I already mentioned: I assume our neighbours have a more responsible attitude towards resources.

Entrepreneurship is certainly affected by the price of energy resources! For example, 'Latvijas Finieris' is opening factories in Lithuania and Estonia. We have great opportunities for peat production, the potential of which is not being used...

Transporting wood further than 200 km is not economically profitable; one must think about modern technologies and equipment. At one time, people wanted to build a pulp mill here that would have used very old technologies, for example, bleaching with chlorine.

Speaking about peat, it is easier to load it into a truck and drive it away rather than using modern technologies that would not leave a CO2 footprint... Europe is ready to finance these modern technologies, but it is lagging here. If we look simply, peat extraction or disturbing the bog results in CO2 emissions. Europe provides funds for the reorientation of production, but no one wants to take them. In words: it's fine, give it; in deeds: it is what it is. The Ministry of Agriculture ensured that peat extraction was not banned, as happened in Estonia with shale; there is money for investments, but a state institution cannot go and organise CO2-neutral production in a peat bog. That must be done by a private entrepreneur! The state institution has provided the money so that the entrepreneur does not have to invest their own funds!

Large state-owned capital companies... Stock exchange, hidden privatisation. Where did this idea come from at a time when stability and finances are necessary?

The idea was included in party pre-election programmes, and it even contained the word 'evaluation'. By voting for the parties that got into the Saeima, the residents have voted for it. I have neither a positive nor a negative opinion. From the point of view of resource utilisation, it will not be privatisation: the state frees up resources without losing control. In this sense, I see no problem. For example, the recent deal with 'Conexus', where the state will no longer own 100%, but 70%, while 30% goes to a Japanese investor. What is bad about that?

The law stipulates which companies are non-privatisable, and it cannot be otherwise!

How, in the view of the Minister of Finance, to solve the problems with transit, the flow of which is unlikely to recover, no matter how much one wishes and wants it to...

Again, we must talk about resources. Someone thought they were inexhaustible. Latvia's 30-year-long push to utilise transit was a mistake! In transit, both turnover and volume have fallen; at the same time, Latvia has internal problems in extracting wood from the forest or transporting grain; we have a railway that is not used domestically or is used very little. Elsewhere, they are seriously oriented towards local producers! Here, in the spring, they drive on (damage) the roads by carrying timber, in the autumn – they carry grain, they carry it over long distances, but they do not use the railway. (Of course, if it is nearby!) The railway should have been oriented towards the domestic market, not just the forever-hoped-for transit! That is not only the problem of 'Latvijas Dzelzceļš', but a policy problem, where Latvia was presented as a transit country for cheap labour...

Shadow economy...

There are objective and subjective circumstances. Objective – yes, the shadow economy is unfortunately everywhere! If we look regionally, among the so-called 'new' EU countries, the Baltic states have some of the lowest shadow economy indicators. With such information, one must look deeper – the attitude towards the state, shortcomings in education (for example, in Germany, from the 5th grade they study knowledge about politics and the structure of the state, the tax system, etc.), habits (for example, a grandmother is happy that her grandson earns well and 'brings all the money home', while at the same time complaining that a doctor's visit costs very much, or the doctor is not available). A state that does not have large resources available can only ensure independence through taxes. If there are no taxes...