Ex­perts: ex­port will help Latvia take the lead from Lithua­nia and Es­to­nia

Baltic News Network - - News -

Last year, SEB Bank is­sued EUR 780 mil­lion in loans to dif­fer­ent en­ter­prises. This is the largest amount of money the bank has ever is­sued to busi­nesses. The bank notes that it would be sur­pris­ing to con­clude from this fat that Lat­vian com­pa­nies are ac­tive in­vestors.

De­vel­op­ers built up Tallinn and Vil­nius. Now it’s Riga’s turn

SEB Bank’s ex­perts say that Riga is the largest me­trop­o­lis among Baltic States with the largest po­ten­tial. How­ever, Tallinn and Vil­nius have more ac­tive hous­ing mar­kets. For ex­am­ple, around 4,500 teals with new project apart­ments are reg­is­tered in Vil­nius every year (around 3,000 in Tallinn). Riga, mean­while, ex­pe­ri­ences roughly 1,200 every year. Riga has more res­i­dents than Vil­nius or Tallinn. Res­i­dents’ pur­chas­ing power is also equal. This is why it is clear that Riga’s hous­ing mar­ket is work­ing be­low its po­ten­tial, ex­perts say.

«Riga’s prob­lem is that there is not enough sup­ply to sat­isfy de­mand – es­pe­cially in the eco­nomic apart­ments seg­ment. This is why it is no sur­prise that Es­to­nian Merks and Han­ner com­pa­nies are cur­rently busy build­ing apart­ment homes in Riga for this spe­cific seg­ment. Smaller de­vel­op­ers are also hard at work,» ex­perts add.

SEB Bank men­tioned in its pub­li­ca­tion that hous­ing lease in West­ern Europe is a com­pet­i­tive al­ter­na­tive to pur­chas­ing a home. Lease has cer­tain ad­van­tages, and in­vestors are in­ter­ested in this seg­ment. Only municipalities in Latvia build lease houses. For de­vel­op­ers to do that in­stead there has to be a mar­ket for this kind of prod­uct. Leg­is­la­tors should bal­ance of rights be­tween ten­ants and own­ers in the Law on Res­i­den­tial Ten­ancy.

At the same time, ex­perts say that there is also high ac­tiv­ity noted in the com­mer­cial prop­erty seg­ment. Hav­ing no­ticed that of­fice space in Riga can of­fer bet­ter re­turns than of­fice space in Tallinn or Vil­nius, real es­tate funds like Lords LB (Lithua­nia), Eften and Colonna (Es­to­nia) con­tinue in­vest­ing in of­fice build­ings here. On the other hand, their prof­itabil­ity is slowly de­clin­ing.

Even Lat­vian com­pa­nies in­vest more in for­eign coun­tries

The bank’s spe­cial­ists un­der­line that it is great to see more and more Lat­vian com­pa­nies’ am­bi­tions go­ing fur­ther than the coun­try’s bor­ders. Some ac­tively search for busi­ness op­por­tu­ni­ties out­side of Latvia in or­der to get closer to their end con­sumers. Oth­ers want to grow more than Latvia’s mar­ket po­ten­tial can al­low. The pub­li­ca­tion also men­tions that Latvi­jas Finieris has fac­to­ries in Lithua­nia and Es­to­nia; Valmieras Stikla Šķiedra has fac­to­ries in the UK and USA. Depo has re­cently opened a store in Lithua­nia. Draugiem.lv’s most prof­itable com­pany in USA is Print­ful. An­other of Draugiem Group’s com­pa­nies – Mapon – has only just opened an of­fice in Barcelona.

«We feel that the num­ber of en­ter­prises that are ac­tively look­ing for op­por­tu­ni­ties to pur­chase com­pa­nies abroad or ex­pand their ac­tiv­i­ties abroad is larger than it was in the past,» ex­perts com­ment.

Com­pa­nies are fi­nan­cially strong

Ex­perts say there are two more in­ter­est­ing ten­den­cies that prove Lat­vian com­pa­nies’ sta­bil­ity. First of all, large com­pa­nies cur­rently use only ap­prox­i­mately 45% of our loan vol­ume. Se­condly, it is clear that projects en­joy a large amount of par­tic­i­pa­tion from clients. For ex­am­ple, 40% of the ap­prox­i­mately EUR 177 mil­lion worth Riga Acrop­o­lis project was in­vested by the com­pany.

Money avail­abil­ity: sup­ply ex­ceeds de­mand

SEB Bank’s ex­perts say the client dic­tates con­di­tions. Any large com­pany in Latvia can ex­pect three to five banks to com­pete for the right to pro­vide a loan. Ad­di­tional ser­vice plays an im­por­tant role: the bank’s abil­ity to struc­ture trans­ac­tions, the speed at which de­ci­sions are made, the in­sti­tu­tion’s understanding of a client’s needs and abil­ity to find the best pos­si­ble so­lu­tion. Re­source price is not the only fac­tor in the choice of a bank – re­la­tions play a ma­jor part as well.

There are also al­ter­na­tive fund­ing meth­ods ap­pear­ing in the cor­po­rate seg­ment. There are al­ready sev­eral projects in de­vel­op­ment in Riga that were fi­nanced us­ing crowd­fund­ing. Other com­pa­nies of­ten pick re­lease of bonds as a fund­ing model. It is more ex­pen­sive but also fits riskier busi­ness ideas and helps di­ver­sify fund­ing sources.

Ex­perts men­tion: «We def­i­nitely see a great de­gree of po­ten­tial for busi­nesses to at­tract fund­ing for de­vel­op­ment through bonds. This also means a duty for com­pa­nies to ful­fil in­vestors’ re­quire­ments for trans­parency, man­age­ment model and other stan­dards of good prac­tice.»

Labour force deficit presents the largest chal­lenge

The bank notes that the deficit of labour force is a healthy prob­lem, be­cause it forces em­ploy­ers to con­sider pro­duc­tiv­ity and longevity. Ex­perts add that it is nec­es­sary for em­ploy­ers to con­sider their image and rep­u­ta­tion, as well as em­ploy­ees’ mo­ti­va­tion. It is also men­tioned that there are around 600,000 pen­sion­ers in Latvia – at least some of them still want to and are able to work – this presents un­tapped po­ten­tial. There are also around 400,000 eco­nom­i­cally in­ac­tive res­i­dents – peo­ple of work­ing age that have no jobs at the mo­ment. Clever mi­gra­tion – as soon as aver­age wage in the coun­try reaches EUR 1,000 a month. Es­to­nia’s ex­pe­ri­ence shows that it is the thresh­old that re­duces res­i­dents’ mo­ti­va­tion to leave and en­cour­ages those that have al­ready left to re­turn home. Be­cause of that, labour force prob­lem rep­re­sents healthy ten­sion that keeps com­pa­nies in good shape.

Ex­perts say that it is im­por­tant to in­vest in de­vel­op­ment and com­pet­i­tive­ness. Studies show that Lat­vian com­pa­nies are be­hind their Es­to­nian and Lithua­nian neigh­bours in this re­gard. For ex­am­ple, data shows that 36% of Lat­vian com­pa­nies have plans to in­vest in their busi­ness this year (42% in Es­to­nia and 46% in Lithua­nia).

«If Lat­vian com­pa­nies do not want to be left be­hind, they have to move for­ward, develop and be more am­bi­tious in ex­ports. It is hard for me to name an in­dus­try in which in­no­va­tions are unim­por­tant. In ad­di­tion, it is nec­es­sary to keep in mind that cus­tomers in Latvia are grad­u­ally be­com­ing more de­mand­ing. Com­pa­nies un­reach­able us­ing chan­nels pre­ferred by cus­tomers will no longer be com­pet­i­tive,» ex­perts com­ment.

Edijs Pālens/LETA

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