Latvia has reached a turning point where it has to choose between becoming economically a Baltic tiger or another EU backwater. Its future depends on the current political decision-makers. Several years from now will show whether these decisions were right or wrong.
Strange as it may seem, Latvia’s current advantage is found in its small size and population. On the one hand, smaller countries tend to show more dependence on bigger neighbors, primarily in terms of world market presence; they are more susceptible to serious crises (with Ukraine serving as a case study). On the other hand, smaller states appear to be capable of waging more flexible and effective policies and this is their major advantage which becomes especially evident during the periods of instability. The awareness of this advantage and correct strategy allow them to quickly secure an adequate living standard.
There are many examples: Monaco, Switzerland, Luxembourg, Liechtenstein, San Marino, Malta, even Cyprus – before it found itself in dire straits. Latvia is not among them and the reason isn’t that this country has inherent shortcomings, but that the right kind of strategy is still to be adopted to make Latvia a competitive world market operator – thus securing its well-being.
Practice shows that it is comparatively easy to find a niche in the world economy framework that can ensure a higher living standard for a population of two million, considering Latvia’s geographical position as a bridge between the EU and CIS, with its excellent transport and transit infrastructures, advanced financial sector, and residents who can speak several [European] languages.
Of late the Latvian government has demonstrated its awareness of the situation and has been moving in the right direction, as evidenced by its program “Residence Permits for Investors” whereby Latvia has succeeded in attracting foreign inland investments worth 250 million euros, including long- and short-term investments. Latvia’s well-to-do nationals are instrumental in reviving a number of sectors of the economy, ranging from construction projects to business to service, you name it. All this serves to provide job placements and has a positive effect on the central budget and living standard.
It is hard to overstate the monetary impact of Latvia’s positive international image that involves people with residence permits. I have never met a foreign buyer of Latvian real estate who had anything to complain about.
Latvia’s new contacts between local and foreign business people with residence permits are invaluable, considering that people have had to wait for months on end to have an appointment with businessmen and politicians and spend large sums as traveling and forum accommodation expenses.
Changes in Latvian legislation providing for taxation and registration preferences for international holding companies, starting in 2013, are another encouraging aspect. This will allow Latvia to become an adequate world market operator, in terms of European tax jurisdiction, on a par with Cyprus and Malta.
Latvia boasts an advanced banking and legal framework, along with a degree of stability, something Cyprus can only dream about. Add here this country’s geographical position, language policy, mentality, historical ties with the main business clients in Cyprus, among them Russians, Kazakhs and Ukrainians. Implementing this project alone will provide jobs for a number of people – lawyers, accountants, consultants, secretaries – just as this will allow businesses to receive funds to develop themselves, which also means new jobs and tax returns.
However, all such positive changes in legislation do not protect Latvia against failures, so there is no time to rest on the laurels. The competition is severe on the world as well as local market scale. One is reminded of Alice’s Adventures in Wonderland: in order to remain in place, it is necessary to run at full pelt.
It does not suffice to pass the right kind of bills in parliament. The important thing is implementing the right kind of laws in a friendly official and social environment. Spanish authorities have been advertising real estate, using diplomatic channels, attracting foreign inland investments. Why should Latvia back up that “old route” that leads nowhere?
There is the project “Latvia: Toward a Prosperous Future.” Its success depends on the right choice of targets and priorities, discarding prejudices and stereotypes, moving in the right direction.
Jaroslav Zamullo heads the Rietumu Bank’s Legal Department (Latvia)
