Latvian national Observatory report 2000

1. Socio-economic background

In order for Latvia, like any other country, to be able to pursue the road to development, to achieve certain economic and social goals, it is imperative to improve the professional skills and knowledge of individuals. It is therefore essential for the national vocational education and training system to adapt to economic changes.

1.1. Economic development

The consistent reforms that have taken place until now have stabilised the foundation of the market economy, have created a stable macroeconomic environment and secured the trust of investors. This is reflected by the dynamics and structural changes of the gross domestic product (GDP) - see Table 1 in the Annex 2.

If in 1997 the GDP per capita was 5300 Euro (converted, in current prices), then in 1998 it was 5600 Euro, but in 1999 -5800euro.

The complicated situation in the global economy has affected the rate of economic development in Latvia. Due to the Russian crisis at the end of 1998 and at the beginning of 1999 that lowered exports to this country and caused problems to some commercial banks, production outputs in Latvia declined, banking indicators deteriorated, budgetary revenues did not come in as planned and unemployment was on the rise.

The process of reforms and their influence on economic processes is characterised by the dynamics of basic indicators on national economic development (see Table 2 in the Annex 2). After the economic down-turn in 1998, which was affected by the global financial crisis and the Russian economic crisis, the recovery of the national economy is evidenced by the increase in GDP in 1999 by 0.1% (by 2.8% in the last quarter). Positive tendencies have become even more explicit in 2000. Exports, industrial and service outputs go up, the turnover of cargo on railway and in ports is high. Investments go up at a fast rate. Financial system is stable. GDP in 9 months of 2000 compared to the respective period in the preceding year has gone up by 5.4 percent.

It must be noted that radical socio-economic disparity exists among the different regions in Latvia. For example in Latgale and Vidzeme GDP in 1999 stood at 16% and 19%, of the EU average level, while in Riga and the surrounding region it was 37%.


The main economic goals outlined by the government headed by Andris Bçrziòð started to work in May 2000 in the Declaration of the Cabinet of Ministers on the planned activities for the medium term are:

to achieve a 4% increase in the gross national product in 2000 and an annual increase of 6% in the following years,

to maintain a stable exchange rate for the LVL;

to keep inflation to an annual level of 3%,

to prohibit the national budget deficit from exceeding 2% of GNP in 2000 and to develop a no-deficit or surplus budget in the following years,

to complete the privatisation of enterprises,

to decrease Tax burden for entrepreneurs.

The implementation of the privatisation programme passed by the Cabinet of Ministers on 21 February 1995 is drawing to a close. The private sector reached a proportion of 66% of the total added value in 1999 (65% in 1998), and it employs 69% (68% in 1998) of the economically active population in Latvia. In such sectors as manufacturing, construction, the fishing industry, agriculture, hotels and restaurants the proportion of GDP created by private enterprises in 1998 exceeded 90%, and in the first half of 1999 there was no significant increase. As of 1999 the main goal in the privatisation of state enterprises has been to improve efficiency in certain economic sectors (power, telecommunications, shipping). In order to achieve this, the Privatisation Agency, together with the corresponding sector ministries, is preparing long-term sectoral development strategies and restructuring and privatisation plans for the corresponding enterprises.

Figure 1: Share of the public and private sectors in gross value added

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Changes have occurred in several economic sectors. In 1999 rapid growth was evidenced by the construction, retail and other service sectors, for example “Operations involving real-estate, rental and other commercial activities”, other community, social and individual services. On the whole, manufacturing in 1999 did not regain the production level that existed before the Russian economic crisis. Positive rates of production growth are maintained by those manufacturing sectors with markets in the West. In 1999, due to the Russian economic crisis and low productivity, the agricultural sector continued to decline.

One of the most important areas of state support is promoting development of small and medium enterprises (SME). As surveys show, the main barriers to SME development in Latvia are insufficient financial resources for starting up and developing businesses, limited opportunities for receiving credit and collateral, lack of information about markets and possible business partners, lack of knowledge in management and marketing and a tax system that does not offer incentives.

The ministry responsible for the National Programme for the Development of Small and Medium Enterprises, which was approved by the Cabinet of Ministers in 1997, is the Ministry of Economics. The programme co-ordinators consider the most significant result to be the Concept on Crediting Small and Medium Enterprises, which was approved by the government in 1999. For the implementation of this plan in 2000 a sovereign loan guarantee of 3.2 million LVL has been granted. The concept of supporting organisations that represent entrepreneurs is significant - this includes a decree on the establishment of a council of experts representing 19 different economic sectors, as well as financial support which the Latvian Securities Agency received from the European Commission in April 1999, which means that SME may soon be able to actually receive loan guarantees. Actually most of the support offered to SME has come from the PHARE programme.

A significant increase in investment in Latvia occurred in 1996 and 1997. The growth rate exceeded 20% (total cost of share capital). In 1998 the volume of investments continued to increase, however at a lower rate (by 11%).

The foreign investments were 9.3% of GDP in 1997, 6% of GDP in 1998, 6% of GDP in 1999.

There are significant disparities in the dispersion of foreign investment, as 65% of the total investments in Latvia are concentrated in Riga and the surrounding region. In the course of time, changes have taken place in the structure of investment. If in the beginning of the 90’s it was channelled mostly to agriculture, food production and construction, then in the mid-90’s it was put into ports, telecommunications, as well as manufacturing. In 1999 foreign capital investment went into transport, warehousing, communications (25% of the total); financial services (21%), manufacturing (20%), commerce (16%). The largest share of accrued foreign investment in share capital belongs to Denmark (13.7% of the total), the USA (9.7%), Germany (8.4%), Sweden (8.2%), the UK (7.3%) and Russia (7.3%).

In March 2000 the Cabinet of Ministers approved the green paper “On support for investment projects of significance for the national economy”, which provides for the promotion of significant investment projects including measures for training and up-grading skills.

1.2. Demography

Demographic conditions in Latvia are still negative. Many experts consider Latvia to be the worst case in comparison to the other Baltic and Nordic countries. Since 1991 the natural rate of increase is negative. The birth rate continues to decrease both in urban and in rural areas. As a result of mobility and the migration process, the number of inhabitants in the country has decreased by 234,000 from 1990 to 1999, however the rate of decrease has slowed in the last few years. In the beginning of 1999 there were 2.439 million inhabitants in Latvia, but at the beginning of 2000 there were approximately 2.424 inhabitants (see Table 4 and 8 in the Annex 2).

The low birth rate, increased mortality (in 1999 the number of deaths exceeded the number of births by 1.7 times) and the negative migration balance cause changes in the age structure of the Latvian population (see Tables 5 and 7 of the Annex 2). The population is ageing more rapidly. The proportion of children and youth (ages 0-14) within the total population has decreased from 21.3% in the beginning of 1987 to 18.5% in the beginning of 1999.

More precise and detailed data about demographics and other socio-economic indicators will be provided by the Census that was taken in Latvia in the year 2000, beginning on March 31.

In order to achieve positive changes in the national demographic process, at the end of 1998 the government approved a plan of events for improving the demographic situation.

The first comprehensive study on the population of Latvia has been carried out within the scientific research programme of the Latvian Council of Science in the period of 1998/99. Long-term population projections were worked out by the Centre of Demography as well as the Department of Statistics and Demography of the University of Latvia (Prognosis of demographic development of Latvia: years 1998-2025. Informative material. Ed. P. Zvidriòð. Riga: University of Latvia, 1999). All the experts project under-replacement of generations in the future and a depopulation situation as well as rapid ageing of the population in the nearest decades.

The characteristic feature of projections showing changes in population age structure is rapid reduction (absolute and relative) in the number of children. Until the early 1990s children accounted for 22% of the total population, but at present the proportion is 19%. In 2005 this proportion will be only 14% which will tend to decrease in future. As a consequence of decrease in the fertility rate in the 1990s the number of schoolchildren will continue to decline at the beginning of the next century. By 2010 the current drop in the fertility rate will have a substantial impact on the number of young men called up for military service as well as the number of potential students. According to estimates of the medium variant, the number of young people at age 15-19 years in 2020 will be half of those in the year 2000. During that period there will also be a sharp decrease in the number of people who have reached the age of entering the potential labour market.

Table 1: Resident population by main age groups (1998 –2025)

Prognoses 1998 2005 2010 2020 2025
Children (0 – 14 years), thsds 473,4 335,1 285,4 310,6 293,2
% of total 19,2 14,1 12,3 14,0 13,6
Of working age (15 – 60 years), thsds 1496,5 1512,9 1511,6 1345,9 1278,5
% of total 60,9 63,8 65,3 60,9 59,3
Over working age (60 + years), thsds 488,5 524,6 518,2 554,8 584,5
% of total 19,9 22,1 22,4 25,1 27,1

Prognosis of demographic development of Latvia: years 1998-2025. Informative material.
Ed. P. Zvidrins. Riga: University of Latvia, 1999


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