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How might Latvia’s export product porfolio look in 2020
Pēteris Strautiņš
DNB banka
November 24, 2011
Performance
• Latvia’s exports are a success story- Despite not always favourable macro conditions (including real estate
boom), exports of goods and services have increased continuously since 2000 (except 2009)
- Exports were up 79.6% in real terms in 2010 vs. 2000, growth has continued in 2011 (by 14.6% in H1)
- Exports diversified steadily, the share of transport services and timber fell from 48% to 30%, diversification continued in 2011
• Why growth will continue – main reasons:- Good ratio of labour skills & costs
- Product portfolio is diversified and is becoming more sophisticated
- Macroeconomic stability is being restored
How export portfolio has changed since 2000
3
14%
13%
10%
10%6%5%
3%
8%
16%
5%
5%5%
Timber and timber articles Food, drinks, NFAs*
Metals and metal articles Machines and equipment
Chemicals and pharm. Minerals
Textiles and apparel Other goods
Transport services Business and leisure travel
Business services Other services
23%
9%
8%
7%4%3%3%
6%
25%
4%
4% 4%
20002010
* non-food agriculturals
Main directions and drivers in the future
• Main directions of change- Increasing volume
- Increasing diversity
• Main drivers- Increasing labour costs
- Gradual absorption of agricultural land resources
- Accumulation of capital by exporting businesses
- Growing manufacturing competence
- Brand building
- Cumulative impact of serendipitous discoveries, positive Black Swans, bright ideas, unexpected synergies and just plain luck
Expected changes in portfolio in 2020 vs. 2010
In absolute terms all main export products can (and probably will) grow, including light industries
Rising shares Roughly stable shares
Decreasing shares
Processed food
Chemicals (inc. perfumes etc.) and pharmaceuticals
Metal articles
Machinery and equipment
Furniture
Business services
IT services
Medical services
Grain
Intermediary timber products (carpentry, pre-fab houses etc.)
Non-metallic minerals
Tourism
Sawwood
Textiles & apparel
Metals
Transport services
Let the thousand flowers bloom
• There are a few markets where Latvia is a well established player- High-end plywood (globally)
- Some small and very small niches in electronics and data transmission equipment (globally)
- High quality branded food products (Baltics and CIS)
- Some diagnostic groups in pharmaceuticals (Baltics and CIS)
• LV entrepreneurs will pick up opportunities as they come along – as well as create them- Relatively new, fast growing markets (MikroTiks and its Wi-Fi solutions)
- Overlooked technological opportunities in “traditional businesses” (Innovative concrete floors by Primekss)
- Markets where people constantly wish to explore new offerings out of pure curiosity (“Bio-cosmetics” start-ups - Madara, Attirance and others)
- Selling “just” high quality products at a good price in less saturated markets – Middle East, BRICs, Africa (Pure Food)
• Given the good quality/cost ratio of Latvia as manufacturing location, established manufacturers will set up operations here (Bucher Schoerling, Brabantia)
Obstacles to overcome
• It is difficult to confront large, resourceful companies in established businesses
• Latvia’s image has improved, but there is still a long way to go
• Macro & financial stability is much better than in 2009, but a lot of work still needs to be done
• Education system is still resisting change• Road infrastructure in regions could become an increasing
problem• Country is racing against time to create opportunities for
people who are prone to leave
Some plain advice
• Good industrial policy generally means working with probabilities - It is impossible to overestimate the importance of “unplanned” (at
policy-making level) success in places no one could predict it•The export product structure should not be created by diktat from above
•There have been and there will be many “counterintuitive” success stories
- However the probability of such breakthroughs will largely depend on well planned improvements in education, infrastructure
• Understanding the dynamics of export product portfolio will be one of key competences of financial sector- Many observers with different viewpoints, experiences, prejudices will
see more opportunities and spread risks
- Success in financing exports will largely determine the success of banks
Thank you!