Latest export data support the ability of Latvian exporters to quickly adapt to changes in external demand
In March 2014, the turnover of external trade in Latvian goods grew by 11.2%. Despite the deterioration of the political and economic situation in its eastern neighbours and the less than encouraging Latvian manufacturing data for the first few months of the year, the exports of Latvian goods increased by 7.3% month-on-month. The export value of goods went up 6.1% year-on-year, whereas their import value remained practically unchanged, dropping by a mere 0.5%. The external trade data confirm that the competitiveness of Latvian exporters, making use of the advantages of a small and flexible economy allows it to adjust to changes in external demand quickly and easily.
Compared to February, it was the exports of products of chemical industry and related industries (exports of medical products to Uzbekistan and Finland), mineral products, wood products, electrical and optical equipment, furniture and transport vehicles that grew the fastest. Growth in the exports of transport vehicles was ensured by the export of ships in the value of 7.2 million euro, filling the orders of the fishing industry (of Finland, Norway and Sweden). The fastest rate of year-on-year growth was retained for the exports of wood and agricultural products and foodstuffs.
According to the operational information of the World Trade Organization, the Latvian export market shares in world's imports continued to grow in the first two months of this year, confirming Latvia's ability to react flexibly to the drop in demand in some groups of goods and in some countries. Currently, there is no significant indication that goods export is affected by the geopolitical situation in Russia and Ukraine. On the contrary: the exports of Latvian foodstuffs producers group "NP Foods" in the first quarter grew 35% year-on-year, owing to a substantial rise in exports to Russia, with volumes increasing twofold, and to Germany. The "NP Foods" enterprises "Laima", "Gutta" and "Staburadze" increased their first quarter sales volumes by 7%, 10% and 11%, respectively.
Another example: Ukrainian entrepreneurs are planning to export agricultural products from Latvia, developing a full production cycle in Latvia – from growing and buying potatoes (and later, tart apples) to processing and utilization of production waste. Ukrainians are planning to build two full-cycle hi-tech plants, investing about 72 million euro in each.
Events in Ukraine and Russia have impacted the confidence of Latvian businesses regarding export orders, which has deteriorated for the second consecutive quarter. Yet the assessment of competitiveness in the domestic market, within the European Union (EU) and outside the EU has improved, which indicates that the majority of Latvian exporters feel rather confident, continuing a successful diversification of their goods and increasing their market shares.
Goods imports posted a rise of 14.5% in March. Such an increase could suggest increased business activity, as a greater rise in intermediate consumer goods and capital goods was observed in goods imports. Imports of construction materials, electrical and mechanical equipment, land transport vehicles, plastics and wood increased in March.
Slow annual growth in goods exports will continue this year. The structural changes in manufacturing and agriculture, which are increasingly directed at the production of a higher added value in the manufacturing of goods, together with cost competitiveness will pave the road for further growth in goods exports, yet it will be dampened by a weaker external demand, related to slower growth in Russia and some Scandinavian countries. Yet the diversified structure and flexibility of Latvian exports allow us to expect that the drop in exports to Russia will be compensated by increased exports to other countries and the EU where growth has been gradually stabilizing.
Despite the economic complications in the eastern region and slow growth in the trading partners, Latvian exporters have a rather optimistic outlook. Approximately 30% of entrepreneurs are counting on export growth this year, and many expect a rise in turnover. This is supported by several examples. The producer of chocolate truffles, "Pure Chocolate," is planning to increase its exports twofold this year, and the dairy enterprise "Preiļu siers" wis poised to begin exporting to China; the company "Mūsmāju dārzeņi" is planning to raise total sales of its products, including in the Baltic countries, and to begin exporting to Sweden. "NP Foods" is hoping to increase its exports to Russia and will continue to explore the Asian markets (in China, Japan, South Korea and Mongolia). Capitalizing on notable achievements in competitions on the American continent, the alcohol producer "Latvijas balzams" is planning to raise its export volumes to the United States, which currently accounts for 2% or the direct export portfolio of "Latvijas balzams". The birch sap processing company "Sula" is planning to begin exporting its products to Taiwan and is also looking for partners elsewhere – in Switzerland, the United Kingdom and Russia. The pharmaceutical company "Silvanols" is about to begin exporting several of its products to Bosnia and Herzegovina. The limitations set by Russia on the imports of live pigs and pig industry products from Latvia will not have and impact on the Latvian pig farmers because as of 2012, Latvia, like the other EU countries, does not export live pigs or products that have not been thermally processed to Russia.
Latvian economic growth requires investments, which initially will contribute to the growth of imports but in a more distant future, also to that of exports. Several positive developments are observed in this area. Within the framework of the fourth round of the EU funds activity "High Added Value Investments", the Latvian Investment and Development Agency has received over 150 projects, which indicates the desire of entrepreneurs to develop business activities and manufacturing with a high added value.