Estonians claim Latvia is risky business

  • 2009-10-22
  • Staff and wire reports

WATCH YOUR INVESTMENTS: Investors wary over economic outlook and business practices.

TALLINN - Estonian businessmen who expanded their operations to Latvia during the economic boom years are now losing millions from their investments, reports news wire The Estonians say that fraud is everywhere and debts from their Latvian customers are rising.
Speaking at a recent conference in Tallinn, Tallinna Kaubamaja Group owner Juri Kao estimated that Estonian businesses may have lost about one billion kroons (64 million euros) in Latvia. Kao, whose Selver supermarket group recently announced that it was stopping its expansion in Latvia, said that this was not the time to invest in Latvia or Lithuania.

Estonians say that Latvian businessmen who owe money to Estonian suppliers often let their company go bankrupt. Guido Piksar, CEO of Uninaks, one of the Baltic's largest manufacturers of dry construction mixes, concurs. "In 15 years, we have been victims of large-scale fraud in Latvia three times," he says, though refusing to name the amounts owed to Uninaks by Latvian businesses.
"The biggest problem is a lack of business ethics as known in Scandinavia or Western Europe," he said, adding that "Latvians seem to think that if foreign businessmen are stupid enough to invest into Latvia, it is their problem. Such thinking has become much more brutal right now."

In his opinion, for many Estonian exporters Latvia has been the only opportunity as Scandinavian markets have become very protectionist, and the situation in Russia is even worse.
"The biggest risk in Latvia is devaluation of the lats. Latvians have already lost confidence in their currency. The big question is whether the EU still trusts the Latvian economy," he claims. Finance director of Swedbank and former head of Swedbank Estonia Erkki Raasuke last week said that the lats could be devalued by 15 percent.

Moody's Investors Service reports however that "Latvia isn't facing a sudden currency crisis thanks to its current-account surplus and because the Baltic state can count on the European Union to provide financial support."

Vice president and senior analyst at the rating agency Kenneth Orchard continues that "Latvia is not at risk of an abrupt currency and banking crisis." He says that Latvia's ability to eliminate its "massive" current account gap makes devaluation unlikely, and that a "lack of liquidity and reluctance on the part of banks to lend to speculators" reduces the appeal of bets against the lats. The EU has "demonstrated a willingness to provide extraordinary financial support" to Latvia, providing a buffer against devaluation," says Orchard.

In the five years since 2004, Estonian businesses have invested about 20 billion kroons in Latvia. Most of these investments were made through the Estonian subsidiaries of large Scandinavian banks such as Swedbank and SEB.