'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 Helsinki Tallin Stockholm Copenhagen Cities by Population Stockholm 864,324 Riga Riga 657,424 Oslo 599,230 Copenhagen 593,013 Helsinki 583,350 Vilnius 554,400 Oslo Vilnius Tallinn 409,342

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 Tromso Kittilä Rovaniemi Lulea Kuusamo Oulu Umea Arhangelska Kuopio Tampere Trondeheim Vaasa Turku Aalesund Lappeenranta Helsinki Stockholm St . Petersburg Bergen Oslo Tallinn New York Tartu Stavanger Visby Riga Gothenburg Billund Moscow Palanga Copenhagen Glasgow Kaliningrad Vilnius Hamburg Kaunas Dublin Gdansk Minsk Liverpool Bremen Amsterdam Berlin Warsaw Bristol Dusseldorf London Hannover Kiev East Midlands Almaty Brussels Frankfurt Prague Munich Paris Zurich Vienna Tashkent Chisinau Budapest Geneva Venice Odessa Dushanbe Milan Simferopol Nice Belgrade Tbilisi Barcelona Madrid Baku Burgas Yerevan Rome Bari Istanbul Tenerife Dubai Athens Antalya Beirut Tel Aviv Amman Sharm El Sheikh Hurghada

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

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 -0.8% .-0,4% -1.4% -1.5% -3.4% -4.2% Maastricht criteria € -8.1% -9.7% 2007 2008 2009 2010 2011 2012 2013 2014 SOURCE: CENTRAL STATISTICAL BUREAU OF LATVIA FORECASTS: MINISTRY OF FINANCE

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 Between 2009 and 2010, the number of % of GDP 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% 6.7 Red tape has been strongly reduced for businesses and public administration 2.0 0.7 2.8 2.1 1.5 0.5 2008 2009 2010 2011 SOURCE: EUROSTAT revenue expenditure

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

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

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 +29.4% +28.9% EXTERNAL DEMAND COMPETETIVENESS +12.6% -21.0% 2009 2010 2011 2012 JAN-NOV SOURCE: MINISTRY OF ECONOMICS

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 November 2012 S&P 5Y CDS spreads and announcements from credit rating agencies and Fitch upgraded rating to BBB ; S&P 1800 changed outlook to February 2010 positive S&P changed March 2010 Moody’s 1600 outlook to December 2010 S&P changed outlook to May 2012 S&P upgraded rating to BB+ stable stable upgraded rating to 1400 (stable) BBB- (stable) March 2011 S&P 1200 changed outlook September 2010 to positive; 1000 Fitch changed Fitch upgraded outlook to stable rating to BBB- ; 800 changed outlook to positive 600 400 200 0 Lithuania Latvia Portugal Ireland

L a t v i a ’ s R a n k i n g s – R i s i n g 2013 2009 2010 2011 2012 March Moody’s Baa3 Baa3 Baa3 Baa3 Baa3 (long term liabilities) Moody’s future Negative Stable Positive Positive Positive estimation Standart&Poor’s BB BB+ BB+ BBB BBB (long term liabilities) Standart&Poor’s Negative Stable Positive Positive Positive future estimation Fitch BB+ BB+ BBB- BBB BBB (long term liabilities) Fitch future Negative Stable Stable Stable Positive estimation

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 - DOING BUSINESS 2013 RANK 25 Source: World Bank - PAYING TAXES 2012 RANK 11 Source: PricewaterhouseCoopers / The World Bank - STATE OF THE INTERNET 2012 RANK 4 for global average connection speed 2012 Q2 Source: Akamai - GLOBAL SERVICES LOCATION 2011 RANK 13 Source: A.T. Kearney - OVERALL FREEZONES OF THE FUTURE 2010/11 RANK 5 Source: FDI Magazine - THE ENVIRONMENTAL PERFORMANCE INDEX 2009 RANK 2 Source: The Columbia University and Yale University

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 European Commission Business and Consumer Survey I N V E S T O R S C O N S U M E R S STIMULATING 20 20 SWE 10 BETTER 10 LAT LAT 0 0 LIMITING SWE WORSE -10 -10 ESP -20 -20 -30 GRE -30 -40 Policy of the public authorities, Financial position to change Factors influencing investments, over the next year, -40 -50 2004 = 0 2004 = 0 -50 -60 ESP GRE -70 -60 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004 2005 2006 2007 2008 2009 2010 2011 2012

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 ‘000 EUR PER ONE WORKER ANNUALLY 60 EUROPEAN UNION LATVIA 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 SOURCE: EUROSTAT, MINISTRY OF ECONOMICS OF LATVIA

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

N D P = N I P National Development Plan ECONOMIC PART National Industrial Policy TAX POLICY POLICY FOR EDUCATION AND SCIENCE ENTREPRENEURSHIP POLICY INNOVATION POLICY EPLOYMENT POLICY POLICY FOR EXPORT PROMOTION AND ATTRACTION OF FDI OTHER POLICIES

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% 73% Productivity growth in manufacturing 2020 compared to Employment rate in 2020 2011 40% 20% Increase of export volumes 2020 GDP share of manufacturing in compared to 2011 2020 1.5% Expenditure on R&D of GDP in 2020

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 MADE in Price EU Knowledge of labour Quality force Specializati Delivery on on (niche time production) Production by order in flexible volumes

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 ACCESS TO CAPITAL MARKETS SHORTAGE ENERGY OF LABOUR COSTS FORCE BOTTLENECKS INDUSTRIAL LACK OF INFRA- GROWTH STRUCTURE STRATEGIES REGULATION R&D IN EXPORT COUNTRIES

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 SUPPORT EXISTING PRODUCT PRODUCERS Clusters, Export promotion, Upgrade of management skills, Energy efficiency CORRECT SUPPORT FUTURE MARKET PRODUCT FAILURES PRODUCERS Business environment, Venture capital, Competence Shadow economy, Industrial centres and innovation premises, Employment issues vouchers, Technology transfer

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 Ministry of Economics Ministry of Education NGOs and Science National Industrial Policy Ministry of Environmental Other Protection and ministries Regional Development

P o l i c y A c t i o n P r i o r i t i e s Access to labour force and skills development Reduction of costs of Access to energy finance resources ACTION PRIORITIES Development Export of business promotion infrastructure Capacity building of innovation performance