Latvian exporters continue to look for new niches for their products
The drop in the economic activity of Russia and other main export partners of Latvia has had a negative effect on the goods exports of Latvia. In May, the external trade turnover dropped by 4.4% month-on-month, with exports and imports contracting by 3.6% and 5.0% respectively. The goods export value has increased slightly year-on-year (0.7%) but their import value has decreased by 1.5%.
There was a month-on-month drop in practically all main groups of export goods, with positive growth continuing only in the export of transport vehicles, pharmaceuticals, wood and paper products, clothing accessories and furniture. For a third consecutive month, a drop in year-on-year export rate to Russia was observed, which was primarily caused by a downturn in economic activity in this neighbouring country, but exports to Ukraine grew both month-on-month and year-on-year. In five months, exports to Russia have dropped by 5.7% compared to the corresponding period the previous year. The drop has been substantial in the exports of hard alcohol: the proportion of such beverages in the exports to Russia has dropped from 26.3% a year ago to 19.2% this year. The exports of cheese, cottage cheese, particle board, plastic sheets, various electrical goods were higher in the first five months of this year than a year ago.
In the first five months of this year exports retained a 2.0% year-on-year growth, posting increases in almost all main groups of export goods, with the exception of base metals and their products and transport vehicles.
Despite generally shrinking external demand, in some groups of goods (wood products, foodstuffs, including the high-end products of "Laima" and "Staburadze" as well as the non-alcoholic juices of "Gutta" and drinking water etc.) demand has even increased.
Albeit goods exports continued to shrink to several main trading partners, including Russia, Estonia and Germany, the export markets were expanding through conquering new goods export niches and creating new products. With the exports to countries of Asia, Africa, Middle East and the Americas, the proportion of these countries in exports is growing, which has let exporters to increase their market shares. According to the operational data of the World Trade Organization, the Latvian export market shares in total world's imports continued to grow, suggesting an ability of Latvian exporters to have a flexible reaction to changes in the external environment while retaining competitiveness even under the conditions of an unfavourable global situation.
Goods imports continued to drop in May both month-on-month and year-on-year. Compared to April, almost all groups of goods shrank, except base metals and transport vehicles.
A slow year-on-year increase in goods exports can be predicted to continue, yet the conflict between Ukraine and Russia still puts any future growth of Latvian exports and economy under a cloud. Since the Russian market is always assessed to be risky, unpredictable and complicated, any producer that exports to Russia looks to spread its risks among several markets by exporting to Russia, Scandinavia, Eastern Europe and the Middle East. The media report that Latvian businesses are still managing to find new niches and create innovative, exclusive and exportable products. For instance, a positive impact on exports is probably be exerted by the world's first auto-follow drone "AirDog" created at the Latvian company "Helico Aerospace Industries" and whose production is expected to the Latvian electronics enterprise "Hanzas elektronika". The new model of the new luxury armoured car "Prombro", which is expected to be produced and sold to the rich in China and the luxury class catamarans that are to be produced by the "O Yachts" company, in cooperation with French investors, will be a positive contribution to Latvian exports. The food industry businesses are planning increased exports owing to the first six-month rise in sales in Russia and the United States and exports of new products to the countries of the European Union.
The support instruments to exporters will be supplemented by middle- and long-term export credit guarantees. If up to now the available export credit guarantee programme was oriented toward the export of consumer goods with short credit or delayed payment deadlines, as of 2015, middle- and long-term export credit guarantees will be available. Investment activity may also be raised by amendments to tax laws aimed at encouraging investments in research and development: as of 1 July, it will be possible to recover up to 30% of the costs of research and development in some branches.