Monday, March 24, 2014

Country review: the most cost effective access into the Schengen Zone and its vast market - Invest in Latvia

When we read economic news we are bombarded by events from the usual suspects: US, China, Russia, EU. The truth of the matter is that there are key geographical areas in the world that, although sometimes made up by small economies, offer instead very good attractive environments for investors that aspire to access a large markets in a very cost effective way.

One of these key countries is Latvia. Very interesting location among the Baltic countries I will provide a series of key competitive advantages that position this country as the natural gateway into Europe on one side and into Russia on the other side.


Latvia is uniquely positions in Norther Europe with equally good access to Europe as well as Russia and CIS countries.

Latvia in spite of his moderate dimensions has 3 large ice-free international ports: Riga, Leipaja and Ventspils. All the ports are closely linked to the country transportation infrastructure including: railway, pipeline system & highways.

Since Latvia is part of the European Union and a Schengen Zone member all custom regulation are based on free trade principles and are uniformed with the rest of Europe, although custom procedures have been standardised and simplified to make the movement of goods and cargo as effective as possible.

Further Latvian railway uses the same standards as Russia and CIS countries making it very easy to transport goods into Russia and Central Asia. As an example: NATO used Latvian ports to transport non-military goods to Afghanistan using the Russian railway systems. 


Transportation & Logistics

All the global logistics and shipping companies are present and operate in Latvia (Schenker, BTL, Kuehne and Nagel, Maersk, etc.) and make wide use of the available intermodal infrastructure.
  • Roads: Latvia is one of the only three EU countries with direct access to Russia making quite easy to move goods along an east-west route. The Russian highway M9 also known as the Baltic Highway connects Moscow directly with Riga (Capital of Latvia), this highway also crosses another important traffic artery for goods and people which is the Via Baltica highway which runs north to south and connects seamlessly Helsinki with Prague.
  • Ports: Latvia is famous for its maritime routes and infrastructure, it features three international ice-free ports: Riga, Leipaja and Ventspils. All ports feature intermodal connections and Ventspils also features a free trade zone.
  • Rail: the rail system is well developed and quite reliable with standards matching the typical one of Northern European countries. One important aspect of this system is that it matches the Russian rail track standards and therefore it is very suitable to move goods into Russia and other ex CIS countries adhering to the same technical standard. The system has been used by NATO for example to move non-military goods from the Latvian ports into Afghanistan to support the military effort in the country.
  • Air: Riga airport (RIX) is the largest airport in the Baltic and offers direct flight to 80+ destinations and it is conveniently situated at the cross road between Via Baltica and the Baltic Highway.

Information & communication technologies

Latvia has one of the fasted telecommunication network in the world and this has favoured the development of the information system industry as well as contributed to one of the highest Internet literacy in Europe and the World.
  • Latvia is 5th globally for the average measured internet connection speed (7 Mbps)
  • 7th globally for broadband connectivity above 5 Mbps.
Source: State of the Internet 2011 Q4 Report, Akamai.


Latvia is a member of major economic and political global organisations including but not limited to: WTO (World Trade Organization), NATO and the European Union (Schengen Zone).
As opposed to many European countries Latvia upon the 2008 economic crises has significantly reduced government expenses and immediately put in place a series of investor friendly laws that accelerated the quick economic recovery that is currently still in place.
Data shows that post crisis a healthy de-leveraging process truly took place in Latvia, as opposed to many countries in Europe such as Spain, Greece and Italy for example, and while painful at that very moment it gave way to the recovery and a new cycle of economic expansion.

Latvia has bilateral trade and tax agreements with more than 40 countries for the promotion and mutual respect of investments.
The country joined the EURO area on January 2014.
Intellectual Property Laws are well developed in full compliance with EU standards and the country is not part of the Special 301 Report maintained by Office of the United States Trade Representatives including all countries without adequate IP protection laws and IP enforcement. 

Heritage Foundation Survey 2013 results - Index Economic Freedom: Latvia 


Latvia is one European country that allows for high productivity at low resource cost, especially what concerns human resources.
The main parameters that make Latvia a very investor friendly country are:

  • very competitive and skilled workforce at low price;
  • competitive tax rate.
Riga, the capital of Latvia, was ranked 7th best European City for Cost Effectiveness by FDI Magazine (European Cities and Regions of the Future 2012/2013), while Jelgava and Ventspils were ranked 6th and 9th respectively as Best Micro European Cities for Cost Effectiveness.

Latvian Labor productivity

Please note that Latvian workforce in addition to be very productive is also very versatile as the average Latvian speaks at least 2 languages and for the new generation it is common to speak 3 languages: Latvian, English and Russian making it an ideal place from which to conduct international business.
Labor expenses are also very reasonable as compared to the rest of Europe and the employment laws exceptionally liberal for a European country.
For example: Germany’s labor costs are approximately 4-5 times higher than Latvia.

Eurostat data available HERE

Latvian Tax rates

Latvia has one of the lowest corporate rates in Europe and one of the lowest in the world: flat rate 15%.
Personal income tax is also at a low flat rate of 25% according to a government decision such rate will be reduced by 5% in 2015. Dividends to EU citizen are not taxed.

Further note though that for re-export companies or manufacturing companies operating in the designated free zones there are significant tax benefits in place.
Latvia has 4 free economic zones (quite an anomaly in the European Union and something that the existing government negotiated hard to keep in spite of the entrance in the EURO zone this Jan 2014): Ventspils which has been ranked as 7th best free zone of the Future by fDi Intelligence. Riga and Rezekne - 49th and 50th respectively. Please note that Ventspils has also been named second best world port zone in the world.

Residence Program for Investors

Further to the various advantages above the country like few others countries in Europe has set up a residence program for investors with the exception that the entry costs are quite lower than respective programs in Cyprus, Spain or Greece for example.

Investors these days are choosing to buy a real estate property in Latvia that they can easily rent if necessary to be able to acquire a Schengen Area residency and unlock several privileges: unrestricted travel across the EU, access to resident only educational program at the European level, be eligible for European grants for business projects and so forth.
Many Russian and Chinese nationals have availed themselves of this program although recently we started noticing an increasing interest from Arab nationals, especially from the Arabian/Persian Gulf area. 

For additional information about the Schengen residence program please visit HERE.

Please inquire with me if you require additional data about Latvia, for reason of conciseness we avoided entering data about:

  • Labor related incentives granted by the government to investors hiring Latvian personnel;
  • Macroeconomic data about the different industrial sectors;
  • List of investment opportunities in renewable energy and high value added sectors
  • Quality of life data
All topics above are bound to be material for additional postings on this blog to further uncover opportunities in Latvia and neighbouring countries.