Increased competitiveness and new investment: cornerstone of export development

In 2010, the Latvian foreign trade increased substantially, with both the export and import turnover growing (29.5% and 21.0% over the year, respectively).  The renewed foreign demand, price rises in foreign markets, and the increased competitiveness of producers ensured an export growth in nearly all groups of goods to all the main trading partners. The goods import growth, after a drop in 2009, gradually increased starting March and in October began to exceed the annual growth rate of exports. The import development trends were closely related to export growth, which was reflected in the rapid growth of the imports of intermediate consumption goods and capital goods.

In December, the exports of goods increased 33.9%, but imports 50.5% year-on-year.

Increases in the groups of export goods conformed to the trends of previous months. The greatest annual export growth was posted for wood pulp, ferrous metals and their products, knitwear, and agricultural products. As foreign demand dropped off slightly at the end of the year, the exports of goods fell 2.6% compared to November. The export indicators in December were also influenced by the fact that construction activity diminishes in the winter season whose onset was early in 2010.

Import growth in December was also closely related to export dynamics, i.e. with the need of export industries producers for raw materials and purchases of new means of production, as the inflow of capital goods and intermediate consumption goods increased. With the domestic demand gradually growing, the imports of consumer goods are expected to rise in 2011. A rapid annual rise in imports in December was experienced in ferrous metals and their products, mechanisms and mechanical appliances, wood pulp products, electrical appliances, and pharmaceuticals; the imports of agricultural products fell. Lithuania, Russia, Germany, Poland, and Estonia were Latvia's most important import partners.

After the rapid trade recovery in 2010, the foreign trade dynamic will stabilize this year, with both import and export annual increases hovering around 10% on average. Export will continue as the main driver of the Latvian economic growth. Since many producers of export goods have reached their output maximum, the investments by enterprises in the expansion of their production capacities will play an increasingly greater role. In some sectors positive developments are already taking shape as enterprises express their wish to attract investment that would help enhance their production capacities. A positive sign is also the gradual increase of foreign direct investment in manufacturing, expanding the existing production units and building new ones for the production of construction materials, gas appliances and metal products, a great part of which is marked for export. That gives rise to the hope that exports in these industries will grow in 2011.

Taking into account the increased competition in foreign markets as a result of weakening demand, the Latvian exporters will have to look for new niche products and improve their competitiveness by creating products with an increased value added. A few changes are expected in the export structure in 2011, for it is possible that the proportion of the products of the perspective industries, e.g., pharmaceuticals and chemicals will grow. In the wood pulp exports, the volumes of sawn timber may diminish while those of energy and cellulose raw materials may rise along with the proportion of granule exports.