Business startups a tedious obstacle course

  • 2004-05-20
  • By Elizabeth Celms
RIGA - As rewarding as it may be, opening a business in Latvia can be a legal and bureaucratic nightmare. Compared with entrepreneurial procedures in America and Canada, the system here is an obstacle course whose map is regularly redrawn. At least this is the picture that North American expats who have gone through the process have painted.

"In Canada, you roll along with everything pretty easily," says Krissy Pavelson, a restaurant systems consultant who has helped open more than 10 restaurants in Latvia over the past eight years. "You register your company, pay an administrative fee of $45 and open up. If you don't make money you don't have to declare."
In Latvia, she explains, one needs a startup capital of 2,000 lats (3,030 euros) for a limited liability company (a "SIA" in Latvia), and then it costs another 500 lats for registration.
A chef by profession who is currently opening her own restaurant in Riga, Pavelson has seen the best and worst of business start-ups in Latvia. She has helped launch two of the country's biggest food and retail industries, and she has sat through a painstaking audit after watching a company go bankrupt. She has also dealt with corruption.
In fact, if anyone knows how to climb the ladder of legal procedures and find short cuts through the bureaucratic maze, it's Pavelson. Having worked with the system for eight years and speaking fluent Latvian, she has the two things most needed by foreign entrepreneurs – experience and language. These are the two things that would have made Matt Ettl's life a lot easier when he and partner John Whitmore opened up the Lingua Franca language center two years ago.
"It's going to be so hard if you don't have contacts here that know the ropes," says Ettl, an American who has lived in Latvia for five years. "Without having local friends here, we couldn't have done it. The language issue is a big deal, and there are so many nuances here that seem different from at home."
Ettl and Whitmore opened Lingua Franca, a language center that offers English, Latvian, Russian and French courses, in July of 2002. Although the legal paperwork only took a few months to complete with the help of a local lawyer, Ettl admits that the process was extremely tedious and stressful.
"It was difficult mostly because of the language barrier and trying to understand what's required of you," Ettl says. "There's a lot of standing in lines then being told you're in the wrong line – and going from office to office."
Unlike Pavelson, Ettl has never experienced starting up a business before – not in Latvia, not in the U.S.A. Therefore, having nothing to compare the Latvian system with, it was difficult for him to judge how organized the overall process was.
"It's hard to say if it's disorganized," he says. "It's chaotic, but from both sides. We were probably as unorganized as they were."
Pavelson, however, confirms Ettl's suspicion that the process is not as efficient as it could be. In addition to problems and misconsensus over the laws, much of the system is still corrupt, registration and taxes are expensive and the declaration procedure is unreasonably drawn out and complicated.
"It's the system itself [that's difficult]," Pavelson explains. "It's still 50-50 sovietsky with bits of American, German, Canadian, et cetera being added. But it's growing – from Soviet to whatever it's going to be."
Having helped firms battle this chaotic process for years, Pavelson knows exactly what to expect now that she's starting her own company. The plans for her downtown restaurant are already laid out and she hopes to open this fall. As of now, the consultant is just waiting for a "yes" from the bank.
"It's pretty smooth and much easier now because I know all the hurdles coming," she says.
Despite the stress and difficulty of opening a business in Riga, both entrepreneurs agree that it's worth it in the long run. According to Pavelson, there's a future in Latvia, especially with EU membership creating an image of stability around the small Baltic country.
"I think it's worth it to open a business in Latvia," she says. "Since 9/11 Eastern Europe was at one point the only growing economy in the world."
Statistics support her claim. With 2004 growth projected at 6.5 percent, Latvia's economy is flourishing. Even Ettl admits he's impressed by the amount of progress his small corporation has achieved. The school had only two teachers when it opened, now it employees nine and the number of clients is steadily growing.
"I'm glad that I didn't know how difficult [starting a business] was. I don't know that I would have gone for it," Ettl says. "But now I'm glad we did it. When I look back two years I can't believe where we are now. We'll keep moving forward."