Although economic growth slowed last year, export sectors continued to increase their contribution to the incomes of Latvian residents, according to the regional export study by Luminor bank presented today. The economic structure of Riga and the rest of Latvia is very different – while the IT and business services sector clearly dominates in Riga, the largest part of the economy in the regions is made up of the forest sector, as well as mechanical engineering and electronics.
“One of the benefits of this study is the opportunity to gain a nuanced picture of Latvia's economic geography that is not available elsewhere. In some cases, conclusions can be drawn from it, in others not, but the overall picture obtained is interesting – it allows us to assess how people's lives are unfolding in different places in Latvia. Last year, the fastest growth among the new or 'emerging' municipalities, which will be formed as a result of the administrative-territorial reform, was observed in Valka Municipality, whose export income in real terms grew by 15% last year. Among the regions, despite fluctuations in transit, export sectors developed fastest in Kurzeme. In turn, Latgale's future depends to a very large extent on industrial development in Rēzekne and Daugavpils. However, over a five-year period, according to the study's results, the fastest growth in export income was in Ādaži Municipality, and Kuldīga, Smiltene, Līvāni, and Gulbene have also developed rapidly,” says the author of the study, Luminor bank economist Pēteris Strautiņš.
Differences in regional economies
The economies of Latvia's regions are very different, and over the last five years, they have become more distinct rather than similar. The role of services and other goods has grown in Riga and its immediate vicinity. The fastest export growth has been in the capital region.
The differing economic structure of Latvia's regions shows that the paths to prosperity are very diverse. Among the emerging municipalities with high income levels are those specializing in IT and business services export, as well as wood processing and engineering sectors.
At the same time, P. Strautiņš points out that diversification should be promoted at least at the regional level. Vidzeme is clearly dependent on the forest sector, while Latgale is dependent on transit (railway).
The comparative dynamics map of the municipalities shows that convergence is possible. For example, since 2014, the turnover of exporting companies in Valka, Līvāni, Kuldīga, and Gulbene municipalities has grown much faster than the average.
However, there are also municipalities that continue to lag behind, and municipalities with low levels of export income and an economic structure unfavourable to growth are, unfortunately, in some cases the same ones.
Among the new municipalities, Mārupe still had the highest profitability in 2019, supported by the airport, developed manufacturing, and intellectual services. Next is Olaine with its developed pharmaceutical industry.
IT and business services dominate in Riga, but the forest sector in the regions
Last year, the largest increase in the total sum of wages paid was generated by income from the IT and business services, engineering sectors (metals, machinery, and electronics), as well as food processing and beverage production. IT and business services, which are mainly concentrated in Riga, were also the strongest driver of export development in the time since 2014, and two companies in this sector – Evolution Latvia and Accenture – made the largest contribution over the last five years.
In turn, in Latvia outside Riga, the largest additional income over the last five years was provided by the forest sector (forestry and wood processing), and engineering sectors also played a very significant role. Over the last five years, Riga has become more specialized, while the other Latvian municipalities have diversified.
In the forest sector, the fastest growth has been in product groups that generate the highest value added per cubic metre of wood – wage income in pallet and packaging production has increased by 180% over the last five years, while in wooden house manufacturing it has risen by more than 100%.
Regional reform will level out contrasts in many places
New outlines on the map of Latvia's economic geography have been marked by the regional reform, on which the Saeima made a decision on 10 June, the day before the presentation of the study. The study data were processed assuming that the version proposed by the responsible committee would be approved, but the changes that took place in the adopted version are not significant from an economic aspect – there has been a 'redistribution' of territory between municipalities (Madona and Rēzekne), which have a similar economic structure.
The regional reform is certainly a big step that will create opportunities to promote development. In many cases, by merging stronger and weaker municipalities, the reform will provide an immediate contribution to smoothing out contrasts. However, in several newly created municipalities, the income level is low, and in some of them, the economic structure is such that it reduces hopes for rapid development in the near future.
Material first published on 11 June 2020 at www.luminor.lv
(https://www.luminor.lv/lv/petniecibas/jauno-latvijas-novadu-starta-pozicijas-krasi-atskiras)
Republication on zemeunvalsts.lv is done with the kind permission of Luminor Public Relations Manager Inese Kronberga. Photograph from zemeunvalsts.lv used