Business Analysis: Cleaning the Augean Stables?

I wrote on my blog about a month ago that I was beginning to feel better about the Baltics. After a few very tough years, business seemed to be picking up, confidence was returning, and the summer was on its way.

International commentators were starting to say nice things about the Baltic States, and Latvia in particular. Gone were the stories of imminent economic collapse and political ineptitude; instead, there were stories about the Latvian economic miracle, about the decisive and courageous actions taken by the Latvian government, and the forbearance of the Latvian people in accepting the tough decisions their government had had to make to put the country back into economic growth.
These stories were backed up with impressive growth figures and projections. Exports were leading the recovery, unemployment was falling, salaries growing and there seemed to be a feeling that the worst was over.

Prime Minister Valdis Dombrovskis published his book on how Latvia survived the crisis to international acclaim, and other European leaders were urging the Greek and Portuguese governments to learn from the actions taken by all the Baltic governments, but Latvia in particular.

As someone who has worked in the region for the past decade, I have been through various news cycles before. I remember the tough times and then the rise of the Baltic tiger economies. I also know, as a businessman who works to facilitate business deals between the Baltics and the UK, that coverage of the Baltics in the UK newspapers does have an effect on the way that foreign business people view the potential opportunities.

During the rise of the economy at the beginning of the 2000s, the coverage in the UK was positive, with the economies being singled out as examples of how an area could recover from Soviet occupation. As a result, UK businesses were keen to explore the markets. During the crash there was coverage of the economic decimation of the Baltics, and Latvia in particular, again as a result UK companies became very nervous about the region.

Over the past few months the coverage has become positive again, with stories of growth and the way the Balts have turned their economies around. This is leading to increased interest from UK companies, looking at inward investment opportunities. So I was feeling very positive about the future, until the recent political upheaval in Riga.

I wonder sometimes if there is something in the collective Latvian psyche meaning that when things begin to go well, the self-destruct button must be pressed. However, in the current situation, I am tempted to take a different view.
It looks like the courageous decision taken by President Zatlers may have started the final battle between the political oligarchs and the people. The reaction of the oligarchs to then in effect dismiss Zatlers and appoint their own man to the presidency underlines the arrogance of Latvia’s ruling elite.

Political corruption seems to have been an ongoing issue in Latvian life since independence, and certain politicians have made a fortune through dubious activities. Efforts to clean up the problem seem mysteriously never to have been followed through, and Latvian people are apparently prepared simply to accept this behavior by their political masters.
Perhaps that is going to change. The calling of next month’s referendum on the early dissolution of the Saiema has set the battleground. If it is won (as it surely must be), then there has to be a chance for the Augean Stables to be cleaned out. It looks clear the Unity and All for Latvia! parties must be the main beneficiaries of a new election, and perhaps the Latvian people will take the opportunity of ejecting those politicians who have taken advantage of their position.

However, despite the opportunity presented by the recent political turmoil, from the point of view of a businessman trying to bring international businesses to the Baltics, it has all been very depressing; not only is the news full of the dreaded “c” (for corruption) word, but we are also getting bombarded with stories of wrongdoing in large and respected Latvian companies like airBaltic.

I only hope that when the referendum and election have run their course, we can get back to a diet of positive news from Latvia, and that the past month has not caused lasting damage in the minds of international business.