Country profile

1. Basic Data

COUNTRY NAME
Conventional long form: Latvijas Republika/ Republic of Latvia
Conventional short form: Latvija / Latvia

¹ Approximate since border demarcation not finalized

for more statistical information: see http://europa.eu.int/comm/eurostat; www.csb.lv

2. Geography, history, culture (Snap shot)

Latvia lies on the Eastern coast of the Baltic Sea, in between Estonia to the North, Lithuania to the South and Russia and Belarus to the East. It is as large in area as Belgium and the Netherlands together. It is a land of forests, plains, lakes, river valleys and white sandy beaches. The highest point is 311 meters. The climate is temperate with long, sunny and warm days in summer. The main river is the Daugava, which played an important role in trade. About one third of the population (747 000) lives in the capital city Riga and its surroundings. Other important cities are Daugavpils (113000), Liepaja (88000) and Jelgava (71000).

The Letts, who were Indo-European Balts, arrived around BC 2500 and gradually assimilated the Finno-Ugric Livs who had settled since 6000 BC. In ancient times, trade links (involving amber) existed with the Mediterranean world. By the 9th Century AD, trade routes and trade centres had developed with the river Daugava as an important link in the route from the Baltic Sea Region to the Black Sea. In 1201, German crusaders brought Christianity and were followed by traders, and a land owning class. Ports, cities and agriculture were developed. In 1282, Riga joined the Hanseatic League; and in the decades that followed, seven more Latvian towns joined the League. In the following centuries, Swedes, Poles and Russians have been present in Latvia or in parts of its territory. With the Great Northern War of 1700-1721 between Sweden and Russia, Tsar Peter gained control of the Eastern Baltic. Throughout these centuries, agriculture, trade and as of the 19th century also industry developed, making Latvia, and especially Riga, at times a prosperous territory.

In November 1918, after the end of World War I, Latvia proclaimed its independence which was recognized in a peace treaty with the Soviet Union in August 1920. A period of further and intense economic and cultural development followed which came to an end with World War II. In October 1939, Soviet troops arrived in Latvia, and as of June 1940, the country was effectively occupied. A year later, Nazi Germany took over until 1944-1945 when the Soviet regime was restored. During both occupations, many people were deported or fled, and economic structures were destroyed. After the war, Latvia became fully integrated in the Soviet Union and was subject to collectivization and central planning. As the country had a solid agricultural and industrial tradition, much of its production from collectivized farm and from new factories was destined for other parts of the Soviet Union. A significant migration took place and Russian became the predominant language. As a result, by the late eighties, native Latvians formed only just over half of the population. With the new policies and openness introduced by Mr Gorbatchev, the Soviet Republics, including Latvia, obtained i.a some economic autonomy and Latvian identity gradually manifested itself again.

Finally in August 1991, Latvia regained its independence. This was followed by the installation of democracy and of a market economy. An intensive co-operation emerged with democratic nations, including and foremost European Countries and the European Union. This process is leading to Latvia’s accession in 2004 to both NATO and the European Union.

Nature and culture – especially music and songs – are very important in the life of Latvians. The country has had several composers who took their inspiration from folk music. Outstanding performers in recent times include Ms Baiba Skride who won the prestigious Queen Elisabeth of Belgium International Violin competition in 2001 and Marija Naumova who won the 2002 Eurosong Festival. Also literature has been flourishing. Works of painters and sculptors, including contemporary artists, can be admired and bought in the many galleries of Riga. In the early Nineteen hundreds, many Art-Nouveau buildings were erected in Riga. Today most of them can still be admired, some of them beautifully restored. One of the architects was Latvian born Mikael Eisenstein, father of the famous filmmaker Sergei Eisenstein. Latvians scored high in several Olympic disciplines. Romans Vansteins was the World champion cycling in 2000. Friedrich Cander, an engineer and inventor born in Riga in 1887, was one of the pioneers of rocket building and jet propulsion, and was the first to precisely calculate the distance to Mars. His contemporary, Vilhelm Ostwald, received the Nobel Prize for developing nitrogen mineral fertilizers.

For more information : see website of Latvian Government and Latvian Institutions : http://www.gksoft.com/govt/en/lv.html

3. Political context

Foreign policy

Since 1991, Latvia’s main objective has been to preserve its regained independence and to promote its identity in good relationship with its neighbours. Accession to European and Western political and economic frameworks and to the transatlantic security structure were seen as the main instruments. Thus Latvia became a member of the OSCE (Organisation for Security and Co-operation in Europe), the Council of Europe and WTO. In May 2004, it will accede to the European Union and also to NATO in the same year.
The Border demarcation with Belarus is not yet finalised; with Russia it has been agreed in 1997, but has not yet been ratified. The ratification of the sea border demarcation agreement with Lithuania is expected soon.

Domestic policy

The establishment of a democratic society and of market economy were the first priorities and major tasks throughout the nineties.
The reconciliation of the preservation of the national culture and identity, with the rights of all people living in the country has required significant efforts and legislative work. The nation building, assuring that all people living in the country participate in society and in national development, is an ongoing task demanding continued attention from both politicians and society at large. Building of a solid, well-staffed and equipped public administration and of the judicial system at the service of society are other major tasks requiring significant efforts. Also the acceleration of economic development, including the creation of additional jobs and the narrowing of the gap which separates lagging regions are mobilising legislative, administrative and financial resources. In all these areas progress and in some cases significant progress has been achieved in a rather short time, much of it supported in the framework of Latvia’s preparation for accession to the EU.

[for more information see website of Saeima and of Latvian Government at the following addresses : http://www.saeima.lv and http://www.mk.gov.lv ]

4. The economy

Following the break away from the Soviet Union and the restoration of democracy and market economy in 1991, it is estimated that GDP had contracted to about half its value. As of 1996, the economy started to grow significantly with a short stagnation in 1999 as a result of the financial crisis in Russia. Average annual GDP growth since 1996 has been around 6%, so that the gap with the average GDP per inhabitant in the EU is narrowing. In 2003, average income per inhabitant was just over one third of the EU average, up from 28% in 1998.

By the end of the nineties, the macroeconomic situation had stabilised and offered a favourable basis: GDP growth (over 5%); low inflation (less than 3%), low budget deficit (around 2%), acceptable level of foreign debt (total stock of 46% of GDP in 2001), stable currency (pegged to the IMF Special Drawing Rights). Interest rates lowered to less than 10% in 2002.
As it is acceptable for an economy in transition, the trade balance is negative (imports were covered for only 57% by exports in 2001; the negative balance amounted to 20% of GDP). The trade deficit is to a great extend compensated by net export of services (transit trade) and by net foreign direct investments. As a result of transition and of the Russian crisis in 1998, foreign trade was extensively redirected towards Western Europe. In 2001, exports to the EU represented 61% of total Latvian exports, and EU supplied 53% of Latvia’s imports. Wood and wood products, textiles and base metals, which are mostly low value added goods, make up 60% of total Latvian exports.
Unemployment (around 13-14% according to the ILO methodology) remains a concern, especially as it does not significantly decrease, in spite of strong economic growth. As in all transition countries, labour productivity is still significantly lower than in the EU (33% in 2002). The strong difference in economic activity, income and social standards between Riga and most the other parts of the country also remains a concern. In order to secure sustainable growth and continuing development, efforts are required to widen and strengthen the economic basis. More diverse activities, including manufacturing, producing more high value-added products are needed. Exports are essential for production, as the Latvian market is too small.
Until 2000-2001, exports (mainly to the EU) contributed most to economic growth; as of 2002 domestic demand took over as the main engine for growth, complemented with exports to Russia and to other CIS.

The main sector contributing to GDP in 2001 was services with 70%, followed by industry 19%; construction 6% and agriculture incl. forestry and fisheries with 5%. Services are to a large extend made up of transit transport to and from Russia and CIS. In this, oil is important with Ventspils, which used to be the largest Baltic sea oil transit port. New port facilities built by Russia in the Finnish Gulf near St Petersburg at Primorsk started operations and are taking over part of the oil traffic. However, the route through Ventspils with a practical ice free port and an oil pipeline from Russia, remains economically and environmentally advantageous. Also the ports of Riga and Liepaja play a role in transit trade and in export of Latvian goods (mainly timber).
Other main contributors to economic activity are whole sale and retail trade (19%), food processing (5%), wood industry (3%) and textiles (2%). Much of the manufacturing industry, for which Latvia had a solid tradition, closed down in the process of economic transition. However, chemical, electrical machinery, and pharmaceutical factories remained, as well as one steel plant.

[ for more information on the economy: see i.a http://www.ebrd.com ; http://www.lem.gov.lv ; http://www.csb.lv ]

5. EU - Latvia Relations

Since Latvia regained its independence in August 1991, relations with the EU developed dynamically including a rapid succession of agreements, which each time were more ambitious.

5.1 Important dates and events include :

According to a Latvian opinion poll in February 2004, EU support has decreased to 55%.

5.2 Development of EU - Latvia trade

In 2002, the EU bought 61% of Latvia’s exports and provided 53% of its imports.
From 1992 to 1995, trade of EU-12 Member States (Finland, Sweden and Austria joined the EU in 1995) with Latvia more than doubled to reach 1.5 billion Euro (0.6 EU exports and 0.9 billion € EU imports). From 1995 to 2002 trade of the EU enlarged to 15 Member States with Latvia again more than doubled, and the balance had turned in the favour of EU. Investment goods (machinery and electrical equipment, transport equipment, chemical products) are among the most important goods exported from EU to Latvia and together represent about half of the EU total. Agricultural goods, including those processed and textiles, some of which meant for outward processing, are also among the main categories of goods exported to Latvia. Wood and textiles represent about 60% of the EU’s imports from Latvia.

5.3 EU financial support for accession preparation :

As of the year 2000, total financial pre-accession assistance allocated to Latvia amounts to over €100 million per year, consisting of 35 to €47 million from Phare, €22 million from SAPARD, and €36.4 to €57.2million from ISPA.

PHARE

From 1992 to 2003 a total of €404 million was allocated to Latvia. In the early years, Phare supported the transition to democracy and to market economy; as of 1998 it was exclusively reserved for EU accession preparation. As of 2000, most of the funds were in support of continuing “Institution Building” by which public administrations and institutions were strengthened, so as to be in a position to apply and enforce the “acquis”. A smaller part of the funds could also be used for strengthening “Economic and Social Cohesion” in the country.
The allocation for the 2003 Phare Programmes amounted to around €49million of which nearly €45.65 million for the National Programme, €3million for Cross Border Co-operation in the Baltic Sea Region and €0.42 million for the Nuclear Safety Programme. The National Programme continues to address the Political criteria, such as the integration of society, civil society and anti-corruption measures, it provides support for the strengthening of the administration with a view to EU accession. Priorities include subjects of Justice and Home Affairs including border management, Free movement of goods and company law, Agriculture, Social Affairs, Employment and Public Health, Energy, Customs Union and Public Finance Management as well as Regional policy matters including actions of the European Regional Development and of the Social Development Fund types regarding economic and social cohesion. The 2003 budget has been the last of Phare support for Latvia. In order to ensure continuation of Institution Building support on issues not covered by the Structural Funds a “Transition Facility” has been set up, which will co-finance actions until budget year 2006.

Information on Phare : http://europa.eu.int/comm/enlargement/contacts/info_centre.htm

ISPA

ISPA started as of the year 2000 and can be seen as a forerunner of the Cohesion Fund. It finances major environment and transport infrastructure projects. In Latvia, the priorities for environment infrastructures concern: drinking water and wastewater treatment and waste management. The upgrading of the Via Baltica (Road Corridor I) and of the East-West railway link are transport priorities. The measures approved between 2000 and 2002 have a total value of about €390million with an ISPA contribution of €277million.

SAPARD

SAPARD was set up in 2000 to assist candidate countries in preparing for the application of the Common Agricultural Policy and in addressing in a sustainable way agricultural and rural sector problems. Revenue generating investments (mostly projects proposed by enterprises) require 50% co-financing from the project owner. The indicative SAPARD allocations for Latvia for the four years 2000-2003 amount to 91.6 M€. The agreed objectives to be pursued are development of sustainable agriculture, integrated rural developments and improvement of the environment. Projects financed include: investment in agricultural holdings, improvement of agricultural and fisheries product processing and marketing, development and diversification of economic activities providing alternative income, improvement of general infrastructure and environmentally friendly agricultural methods.

5.4 Latvia as an EU member as of May 2004

Upon becoming an EU member, Latvia will benefit from all rights and will also have to comply with all obligations of membership. These are set out in the Accession Treaty which will be signed on 16 April 2003 in Athens. Latvia will delegate 9 members out of a total of 732 to the European Parliament, will dispose of 4 votes out of a total of 321 in the Council of Ministers, and will have: one Commissioner in the European Commission, one judge in the Court of Justice, one judge in the Court of First Instance, and one member in the Court of Auditors. Latvia will also delegate members to the Economic and Social Committee and to the Committee of Regions and will be represented in various EU Committees and other bodies.

text of Accession Treaty: http://www.europarl.eu.int/enlargement/access_draft_en.htm

It has been estimated that during the first three years of accession (2004-2006) Latvia will receive net payments from the EU budget of around 830M€ (1117 M€ receipts from the EU budget less 287M€ contributions to it), most of which for investments in structural improvements to allow for accelerated development, including improved environment.
In a number of areas, restricted both in scope and in time, Latvia is allowed transition periods for applying the acquis to the full. Management of these transition periods will be closely monitored. This will i.a be the case for purchase by non–residents of agricultural and forest land in Latvia (up to 7 years). 117 food processing plants are given more time to allow them to make the investments needed to meet the EU norms. Several phasing in periods in matters of road transport (i.a cabotage, tachographs) are provided. The level of excise duty on cigarettes has until end 2009 to adjust to the EU level, and several other taxation arrangements are foreseen. Latvia is given until end 2009 to build its safety stocks for oil. Eight transitional arrangements are granted in matters of environment. It has been agreed that in Latvia the level of turn over under which persons have no obligation to register and to pay value added tax is the equivalent to 17200€ (); which is more favourable. A maximum quota for milk of up to 728.648t in 2006 has been agreed along with some other specific quota and references for the application of the Common Agricultural Policy in Latvia. In addition, Latvia has been allowed to top-up direct payments to farmers, some of which can be financed from EU funds. Further, Latvia is allowed to maintain its traditional fishing of small size Baltic Herring (10gr) for human consumption as a derogation from the standard rule.

       Annex 1

       Annex 2

Overview of key documents related to enlargement

Interesting links

       EC Delegation in Latvia - Home page

       EC tender opportunities in Latvia (the Phare Programme)

       Latvian European Integration Bureau