Latvia's exports will hardly keep afloat without investment

In September 2016, the turnover of the foreign trade in goods grew by 4.2% month-on-month. With exports rising by 9.8% and imports narrowing by 0.5% within one month, the goods trade balance improved significantly, while the excess of imports over exports decreased to 87.1 million euro in September. Within a year, the export and import values of goods fell by 2.7% and 3.2% respectively.

Due to seasonality factors, exports of vegetable products posted the highest growth rate month-on-month in September brought about by an increase in exports of rapeseed as well as fresh and dried legumes. Within one month, exports of food products (including exports of alcoholic beverages to Russia), wood products, machinery and electrical equipment, products of the chemical industry, articles of iron and steel as well as furniture also picked up.

According to the data published by the Central Statistical Bureau of Latvia (CSB), exports of goods declined by 1.6% year-on-year in the first nine months of the year. An increase in exports of goods was adversely affected by a contraction in exports of mineral products, electrical equipment and appliances, iron and steel, wool as well as optical and other measuring devices, while exports of other commodity groups slightly expanded or remained unchanged from the previous year.

The largest positive contribution to exports of goods came from growth in exports of cereals and rapeseed, vegetables, fish, pharmaceutical products, wood products, building materials, vehicles and furniture.

In the first nine months of the year, imports of goods declined by 4.5% mainly on account of the fall in oil prices, weaker demand for commodities and investment in manufacturing.

In 2016, the real exports of goods posted a moderate increase; however, it is clear that the nominal exports of goods will not demonstrate a positive trend this year largely due to a fall in global prices. This year, the value of Latvia's exports of goods will remain close to the previous year's level.

Some evidence suggests that manufacturers of food and agricultural products are gradually overcoming the consequences caused by the Russian crisis and sanctions; however, they have not yet managed to fully offset the weakening demand in the markets of Russia, the countries of the Commonwealth of Independent States and some European Union countries.

The sluggish economic growth in the euro area does not contribute to the recovery of external demand, and the cost-related competitive advantages of Latvian exporters have decreased. The capacity of the market of goods is not expanding either. Furthermore, since the demand reports no significant improvements, competition continues to increase in the markets of EU countries.

Some increase in exporters' activity, while still unstable and rather fragile, can be observed in markets untapped so far, with exporters trying to realise their exporting potential in the third world countries. Exporters have only begun to penetrate into the markets of Asian and African countries as they differ considerably from those of European countries. This is associated with more extended market research, coordination of certificates and agreements, other specific supply factors, creation of new niche products as well as more complex logistics for product delivery.

In the future, an expansion of the foreign trade in goods will continue to depend on external factors still posing a range of different risks. Therefore, in order to ensure growth in Latvian exports of goods, companies urgently need investment to boost their productivity. This can be achieved by introducing new technologies to create innovative and niche products and improving competitiveness to expand the export market in EU, Asian and African countries.