Economic development with an asterisk

  • 2004-05-13
  • By Erlens Falks
RIGA - Looking through the prism of Latvia's economic future, experts agree that wood, transit, tourism and finance will continue to play a crucial role in boosting growth, though in each sector they point out important caveats that, if ignored, will prevent the country from reaching its full potential.

Few would argue, for instance, that tourism will eventually account for a larger portion of gross domestic product than it currently does. The question is how effective the state and industry will be in facilitating strong growth.
"Tourism as a business sector will become more profitable if Latvia seizes the chance and establishes a regular ferry service as a long-term program - like it is in Estonia now," says Olegs Baranovs, director of the Economy Ministry's economic policy department.
"Tourists want to travel with minimum expenses, and ferry service amounts to that," he adds.
Likewise, transit, even though its size in the structure of GDP has decreased over the past decade, will play an increasingly vital role now that Latvia stands on the eastern border of the European Union. Still, even here Latvia faces tough competition, and what leadership does in the next couple years will go far in determining the country's strength as a transit hub.
"Cargo brought in and taken out is kept in warehouses before continuing on to its destination, so there must be sufficient amount of warehouses to support turnover," says Baranovs.

And quality warehouses are namely what Latvia currently lacks.
Also, imagining the economic future without timber and wood products is impossible, but even here there are crucial nuances the government must address.
"Wood has become one of the top exports because in early 1990s forests were either sold to private persons or cut down," says Veronika Bikse, head of the economic theory department at the University of Latvia. "In early 1990s Latvia did not have the best foreign consultants to share their ideas and experience."
The situation, she says, hasn't improved. "Nothing has changed so far. Private forest owners are working hard to 'clear' their property."
The solution? "Only finished products must be sold, such as furniture, log buildings, et cetera. The forest industry has no future if the current trend doesn't stop," stresses Bikse.
As far as the much-maligned pulp mill project, one of the major value-added projects on the table, the professor is also unequivocal: "If we build a pulp factory to earn money, it could be done somewhere other than on the bank of Daugava River," she says.
Experts says that information technology and the food industry are particularly bright prospects given their low share in Latvia's GDP structure.