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CONSULTING

LATVIA




Area: 64,589 sq. km
Capital City: Riga (717,371) (2008)
Population: 2,270,894 (2008)
Annual growth rate: -0.5%(2007)
Languages: Latvian (state language), Russian
Literacy: 99.8%
Government type: Parliamentary democracy
Neighboring countries: Lithuania, Belarus, Russia, Estonia
Memberships: CBSS, COE, EAPC, EBRD, EU, FAO, IAEA, IBRD, ICAO, ICFTU, ICRM, IDA, IFC, IFRCS, ILO, IMF, IMO, Interpol, IOC, NATO, OSCE, PfP, UN, WEU (associate partner), WHO, WIPO, WMO, WTO
Currency: Lat

TARGET SECTORS

• Timber and processing
• Transport infrastructure
• Regeneration/Construction
• Telecommunications
• Tourism and Leisure
• ICT
• Education and Training
• Public Private Partnerships

ECONOMY

GDP: $17.09 billion (2007)
Annual growth rate: 10.3% (2007)
GDP (PPP): $40.05 billion (2007 est.)
GDP per capita (PPP): $17,700 (2007 est.)
GDP - composition by sector: Industry 13.6%, Agriculture/forestry 3.2%, Services over 75 % (2007)
Major Industries: timber, metalworking, machinery and tools, light electrical equipment and fittings, technological instruments, construction materials, textiles, transit, food processing
Inflation: 17.9% (May 2008)
Unemployment: 5.1% (Apr, 2008)
Labor force: 1,075 million (2007): Industry--17.2%; trade--16,5%; construction--11.2%; agriculture/forestry--9.6%;; transport/communications--9.3%; public administration/defense--7.5%; education--7.3%; real estate industry--6,6%; health care/social welfare--4.5%.
Trade: Exports--$7.92 billion (2007)
Imports--$15.26 billion: machinery and equipment 20.8%
FDI: $8.62 billion (2007 est.)
FDI abroad: $699 million (2007 est.)

Privatization in Latvia is effectively complete. All of the previously state-owned small and medium enterprises have been privatized, leaving in state hands the electric utility, the Latvian railway company, and the Latvian postal system, as well as state shares in several politically sensitive concerns. Despite the lack of transparency of the early stages of the privatization process and certain difficulties in privatization of some of the largest companies, Latvian privatization efforts have led to the development of a dynamic and prosperous private sector, which accounts for approximately 70% of the country's GDP.
In the last few years, Latvia has implemented many positive reforms in the business sphere (ranking 29th worldwide on the ease of doing business there, according to the World Bank Doing Business 2009 report). Most reforms deal with licensing, taxes, and business closures. In the 2005/2006 period, Latvia made it easier for businesses to comply with building requirements and reduced the number of licenses and permits required. In addition, Latvia launched an electronic tax filing system and improved the regulation of bankruptcy administrators in order to reduce corruption.
Cooling domestic demand combined with the projected eurozone slowdown will weigh on Latvian economic growth over the course of 2008-2009. Nevertheless, we forecast that Latvian economic growth will pickup in 2010, coming in at 5.0% in 2010, and will average 5.9% in 2011 and 2012 due to an improvement in external conditions.
Expectations are that a number of factors will lead to a slowdown in Latvian growth over the medium-term. In particular, we anticipate that domestic consumption will be weighed down due to the continued effects of tighter lending conditions. Furthermore, the medium-term outlook for the external sector also looks poor. With eurozone economic growth forecast to slow to 1.6% and 1.4% for 2008 and 2009, respectively (down from 2.6% in 2007), this will weigh on Latvia’s economic growth. EU members have consistently accounted for over 72% of Latvian exports between 2000 and 2007, mitigating the possibility of Latvia exporting its way out of the slowdown.
August 22, 2008

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