'SMART AUSTERITY' AND THE NEW BALTIC GROWTH MODEL DANIELS PAVUTS - - PowerPoint PPT Presentation

'SMART AUSTERITY' AND THE NEW BALTIC GROWTH MODEL

DANIELS PAVĻUTS MINISTER OF ECONOMICS OF LATVIA MARCH 2013

W h e r e I s L a t v i a ?

Capital City Riga Territory 64.6 ths.sq.km Population 2.07 million Language Latvian

R i g a – M e t r o p o l i s o f t h e B a l t i c - N o r d i c R e g i o n Cities by Population Stockholm 864,324 Riga 657,424 Oslo 599,230 Copenhagen 593,013 Helsinki 583,350 Vilnius 554,400 Tallinn 409,342 Stockholm

Copenhagen

Vilnius

Riga

Oslo Helsinki Tallin

1 7 A i r l i n e s O p e r a t e 8 3 D i r e c t F l i g h t s t o / f r o m R i g a I n t e r n a t i o n a l A i r p o r t

Trondeheim Kittilä Bristol East Midlands Liverpool Dublin New York London Paris Zurich Geneva Umea Bergen Aalesund Stavanger Bremen Hannover Kuusamo Lulea Stockholm Munich Athens Nice Tenerife Barcelona Madrid Venice Milan Hurghada Bari Rome Vienna Burgas Budapest Belgrade Sharm El Sheikh Tel Aviv Antalya Istanbul Amman Beirut Odessa Chisinau Yerevan Baku Dubai Tbilisi Vaasa Oulu Arhangelska Rovaniemi Tromso

Riga

Helsinki Tallinn Tartu Lappeenranta

• St. Petersburg

Vilnius Kaunas Warsaw Kaliningrad Palanga Visby Turku Tampere Kuopio Gdansk Berlin Hamburg Copenhagen Gothenburg Oslo Brussels Glasgow Billund Dusseldorf Amsterdam Frankfurt Prague Simferopol Almaty Tashkent Dushanbe Kiev Minsk Moscow

LATVIA: GATEWAY BETWEEN EUROPE AND CIS

L a t v i a : N a t u r a l a n d F a s t B r i d g e I n E u r o - A s i a T r a f f i c

L a t v i a – W e l l - C o n n e c t e d T r a n s i t H u b

S t r o n g I n t e r n a t i o n a l P r e s e n c e

N o t Yo u r U s u a l H e a d l i n e s f r o m E u r o p e . . . “LATVIA’S BASIC ECONOMIC FIGURES ARE ALL

BETTER THAN REQUIRED”

“LATVIAN GOVERNMENT DEBT STANDS AT AROUND 41% OF GROSS DOMESTIC PRODUCT, AND INFLATION IN 2012 AVERAGED 2%, MAKING IT LOOK LIKE A MODEL MEMBER OF THE EURO CURRENCY BLOC”

“LATVIA IS GROWING STRONGLY” “LATVIAN LEADERS HAVE SHOWN THAT

THEY WILL DO WHATEVER IT TAKES TO GET THEIR ECONOMY IN ORDER” (March 2013)

L a t v i a ’ s G D P D y n a m i c s

SOURCE: EUROSTAT

.-0,4%

• 4.2%
• 9.7%
• 8.1%
• 3.4%
• 1.5%
• 1.4%
• 0.8%

2007 2008 2009 2010 2011 2012 2013 2014 Maastricht criteria

€

SOURCE: CENTRAL STATISTICAL BUREAU OF LATVIA FORECASTS: MINISTRY OF FINANCE

F i s c a l s t r a t e g y t o p r e v e n t e x c e s s i v e b u d g e t d e f i c i t % o f G D P

SOURCE: EUROSTAT

F i s c a l C o n s o l i d a t i o n = S m a r t A u s t e r i t y

2.8 2.1 1.5 0.5 6.7 2.0 0.7 2008 2009 2010 2011 revenue expenditure % of GDP

Between 2009 and 2010, the number of state agencies was reduced from 148 to 97 The number of government employees has been cut by 24% since 2008, and government wages have been slashed by 30% Red tape has been strongly reduced for businesses and public administration

104.4 107.7 114.9 102.9 103.4 102.5 I 2010 II III IV I 2011 II III IV I 2012 II III IV LATVIA EUROZONE

SOURCE: EUROSTAT

L a t v i a ’ s c u r r e n t G D P g r o w t h d e f i e s t r e n d s i n E u r o p e

338.7 409.3 584.7 431.9 659.287 755.658 569.2 749 880.2 833.8 418.2 563.507 846.132 948.759 I 2005 V IX I 2006 V IX I 2007 V IX I 2008 V IX I 2009 V IX I 2010 V IX I 2011 V IX I 2012 V IX EXPORTS IMPORTS

SOURCE: BANK OF LATVIA

E x p o r t a n d i m p o r t v o l u m e s M i l l i o n s LV L

SOURCE: MINISTRY OF ECONOMICS

• 21.0%

+29.4% +28.9% +12.6% 2009 2010 2011 2012 JAN-NOV EXTERNAL DEMAND COMPETETIVENESS I m p r o v e d c o m p e t i t i v e n e s s d e f i n e s e x p o r t g r o w t h

200 400 600 800 1000 1200 1400 1600 1800

Lithuania Latvia Portugal Ireland

May 2012 S&P upgraded rating to BBB- (stable)

5Y CDS spreads and announcements from credit rating agencies

February 2010 S&P changed

• utlook to

stable March 2010 Moody’s changed outlook to stable September 2010 Fitch changed

• utlook to stable

December 2010 S&P upgraded rating to BB+ (stable) March 2011 S&P changed outlook to positive; Fitch upgraded rating to BBB- ; changed outlook to positive November 2012 S&P and Fitch upgraded rating to BBB; S&P changed outlook to positive

I n v e s t o r s ’ c o n f i d e n c e h a s r e t u r n e d - C D S s p r e a d s h a v e d e c r e a s e d , r a t i n g s i m p r o v e d

2009 2010 2011 2012 2013 March

Moody’s

(long term liabilities)

Baa3 Baa3 Baa3 Baa3 Baa3 Moody’s future estimation Negative Stable Positive Positive Positive Standart&Poor’s

(long term liabilities)

BB BB+ BB+ BBB BBB Standart&Poor’s future estimation Negative Stable Positive Positive Positive Fitch

(long term liabilities)

BB+ BB+ BBB- BBB BBB Fitch future estimation Negative Stable Stable Stable Positive

L a t v i a ’ s R a n k i n g s – R i s i n g

• DOING BUSINESS 2013

RANK 25

• PAYING TAXES 2012

RANK 11

• STATE OF THE INTERNET 2012

RANK 4

• OVERALL FREEZONES OF THE FUTURE 2010/11

RANK 5

• GLOBAL SERVICES LOCATION 2011

RANK 13

• THE ENVIRONMENTAL PERFORMANCE INDEX 2009

RANK 2

Source: World Bank Source: PricewaterhouseCoopers / The World Bank

for global average connection speed 2012 Q2

Source: Akamai Source: A.T. Kearney Source: FDI Magazine Source: The Columbia University and Yale University

L a t v i a ’ s R a n k i n g s – H i g h a n d R i s i n g

L a t v i a h a s t h e C o n f i d e n c e o f I n v e s t o r s a n d C o n s u m e r s

• 60
• 50
• 40
• 30
• 20
• 10

10 20 2004 2005 2006 2007 2008 2009 2010 2011 2012

SWE LAT GRE ESP

C O N S U M E R S

• 70
• 60
• 50
• 40
• 30
• 20
• 10

10 20 2004 2005 2006 2007 2008 2009 2010 2011 2012

SWE LAT GRE ESP

Policy of the public authorities, Factors influencing investments, 2004 = 0

STIMULATING LIMITING

I N V E S T O R S

BETTER WORSE

Financial position to change

• ver the next year,

2004 = 0

European Commission Business and Consumer Survey

B U T. . . P r o d u c t i v i t y I n M a n u f a c t u r i n g I s L o w 10 20 30 40 50 60 2005 2006 2007 2008 2009 2010 2011 2012 EUROPEAN UNION LATVIA

SOURCE: EUROSTAT, MINISTRY OF ECONOMICS OF LATVIA ‘000 EUR PER ONE WORKER ANNUALLY

LATVIA – WHAT’S NEXT?

N a t i o n a l D e v e l o p m e n t P l a n

NATIONAL DEVELOPMENT PLAN 2020 IS THE PIVOTAL MEDIUM TERM PLANNING DOCUMENT IN LATVIA.

NDP2020 TAKES INTO ACCOUNT:

THE SUSTAINABLE DEVELOPMENT STRATEGY OF LATVIA UNTIL 2030 THE NATIONAL REFORM PROGRAMME FOR THE IMPLEMENTATION OF THE “EU2020” STRATEGY THE CONVERGENCE PROGRAMME EUROPEAN COUNCIL RECOMMENDATIONS

S t r u c t u r e o f N a t i o n a l D e v e l o p m e n t P l a n

N D P = N I P

NATIONAL INDUSTRIAL POLICY = ECONOMIC PART OF NDP

POLICY FOR EDUCATION AND SCIENCE

National Industrial Policy

National Development Plan

ENTREPRENEURSHIP POLICY POLICY FOR EXPORT PROMOTION AND ATTRACTION OF FDI EPLOYMENT POLICY TAX POLICY OTHER POLICIES INNOVATION POLICY

ECONOMIC PART

N D P = N I P

N a t i o n a l I n d u s t r i a l P o l i c y G o a l s

40%

Productivity growth in manufacturing 2020 compared to 2011

20%

GDP share of manufacturing in 2020

1.5%

Expenditure on R&D of GDP in 2020

73%

Employment rate in 2020

40%

Increase of export volumes 2020 compared to 2011

N a t i o n a l I n d u s t r i a l P o l i c y P r i n c i p l e s

MINIMIZE RENT-SEEKING BY ABOLISHING PRIORITY INDUSTRIES AVOID PICKING WINNERS IDENTIFY MARKET AND GOVERNMENT FAILURES MINIMIZE RISK TO REPLACE PRIVATE INVESTMENT COLLABORATE WITH STAKEHOLDERS

(DIALOGUE 2.0)

M a i n A d v a n t a g e s o f L a t v i a n C o m p a n i e s

Price Quality Specializati

• n (niche

production) Production by order in flexible volumes Delivery on time Knowledge

• f labour

force MADE in EU

M a i n C h a l l e n g e s I d e n t i f i e d b y L a t v i a n E n t r e p r e n e u r s

BOTTLENECKS

ACCESS TO CAPITAL MARKETS SHORTAGE OF LABOUR FORCE LACK OF GROWTH STRATEGIES

R&D

REGULATION IN EXPORT COUNTRIES INDUSTRIAL INFRA- STRUCTURE ENERGY COSTS

SUPPORT EXISTING PRODUCT PRODUCERS

Clusters, Export promotion, Upgrade of management skills, Energy efficiency

SUPPORT FUTURE PRODUCT PRODUCERS

Venture capital, Competence centres and innovation vouchers, Technology transfer

CORRECT MARKET FAILURES

Business environment, Shadow economy, Industrial premises, Employment issues

P o l i c y I m p l e m e n t a t i o n P r i o r i t i e s

National Industrial Policy

Ministry of Economics Ministry of Education and Science

Ministry of Environmental Protection and Regional Development

Other ministries NGOs

N a t i o n a l I n d u s t r i a l P o l i c y - P a r t n e r s h i p

ACTION PRIORITIES

Access to labour force and skills development Access to finance Development

• f business

infrastructure Capacity building of innovation performance Export promotion Reduction of costs of energy resources

P o l i c y A c t i o n P r i o r i t i e s

N a t i o n a l I n d u s t r i a l P o l i c y = L a t v i a ’ s E c o n o m i c B r e a k t h r o u g h

HIGHER VALUE-ADDED AND PRODUCTIVITY DRIVING ROLE OF MANUFACTURING MODERN PRODUCTS AND SERVICES SOPHISTICATED EXPORT STRUCTURE NEW AND BETTER-PAID JOBS

2014

Joining Eurozone Sustainable Economic Growth Structural Reforms

National Industrial Policy Business environment Enhanced competitiveness Social sector Education Public administration Investment environment Favorable funding costs

F u t u r e c h a l l e n g e s

AND ONE MORE THING...

I 2010 II III IV I 2011 II III IV I 2012 II III IV EU-27 ESTONIA LATVIA LITHUANIA

SOURCE: EUROSTAT

W e A r e N o t A l o n e I n D e f y i n g t h e T r e n d s I n E u r o p e . . .

2009 Q4 = 100

SOURCE: EUROSTAT

B u d g e t d e f i c i t , % o f G D P, E u r o p e a n C o u n t r i e s

• 15
• 12
• 9
• 6
• 3

3 6 IE ES EL UK CY PT SK FR SI DK NL EU CZ PL EU-27 AT LT BE IT RO MT HU LU FI BG LV EE DE SE

2011 2012p Maastricht Criterion

N o r d i c - B a l t i c C o u n t r i e s O f f e r a V i s i o n f o r E u r o p e

Nordic states [Sweden, Denmark, Finland, Norway and Iceland], which now increasingly include the Baltic states

• f Estonia, Latvia and Lithuania, offer an example. They

constitute an attractive vision for the future of Europe that contrasts the dominant 'declinist' paradigm. It is critical therefore that the Nordics see their relative well-being not just an economic asset but also as a strategic asset with real-world implications. The Success of the Nordics: It's the Mindset, Stupid! THEHUFFINGTONPOST.COM FEBRUARY 11, 2013