As far as Latvian businesspeople are concerned, the country’s economic situation has improved over the past six months, but forecasts about the future have become more cautious, as well – this according to the latest Citadele Index study, which was conducted by the Citadele Bank in partnership with the SKDS market and public opinion research centre.
Experts say that businesspeople in Latvia maintain optimism because of rapidly increasing domestic consumption, while caution about the future is based on the existing situation in the euro zone. The use of growing demand elsewhere in the world, moreover, means that Latvia’s status as a transit country is no myth; instead, it represents potential which the country’s businesspeople could use to a greater degree.
Manufacturing output in Latvia is continuing to grow despite unfavourable trends in Europe, and the cautious optimism of our businesspeople has been preserved for the third quarter in a row. The mood index rose from 51.89 points in the first quarter of this year to 53.04 points in Q2, and it remained at nearly the same level, 53.02 points, in the third quarter. This shows that stability and optimism are returning in the wake of the collapse of positive attitudes at the beginning of 2008.
Over the course of this year, the views of businesspeople about the situation over the previous six months has improved to a considerable degree. Views about the present moved from the pessimist column (47.94 points at the beginning of the year) to the cautious optimist column (52.91 points in Q3). With respect to the next half-year, businesspeople have been fairly optimistic all year long, but the indicator has dropped a bit (from 55.83 points at the beginning of the year to 52.91 points in the third quarter).
Graduate growth continuing
The stable optimism of businesspeople when describing the status of their companies from various perspectives shows that gradual growth is continuing. This is seen in several sub-indices of the Citadele Index which, unlike those which have seen rises and falls in the past, have remained stable during the past several quarters. In terms of investments, for instance, businesspeople began to invest in their operations in 2010. As was the case in the previous quarter, the value of all sub-indices was above the 50-point boundary between pessimism and optimism.
The optimism of businesspeople in the countryside and businesspeople who work in Rīga has improved in a comparable way since 2001, and at this time the index is at a level of 55.24 points in the former and 53.81 points in the latter case. The index for businesspeople in other towns in Latvia is lower, and during the last quarter it slid to 51.25 points.
“Increased optimism among farmers during the last quarter is largely down to a good harvest and high demand for agricultural products in other countries,” says the head of the Citadele Corporate Services Directorate, Agnese Paegle.
Interestingly, businesspeople in Latgale are the only ones who have an overall pessimistic view in the Citadele Index, but they are rather optimistic about the future and also have more positive views about the current situation. In this, they differ from other businesspeople in Latvia who, unlike those in Latgale, are more positive about the present and more sceptical about the future.
Manufacturers feel better than retailers do
“When we compare the views of people from the manufacturing sector and the retail sector, we see that retailers have more competition than manufacturers do (56.73 points and 55.56 points respectively),” says SKDS director Arnis Kaktiņš. “Manufacturers make far greater investments in their companies (52.11 for retailers, 55.09 for manufacturers). They are also more positive about the profitability of their companies (51.06 for retailers, 52.04 for manufacturers). All in all, manufacturers have more positive views in nearly all areas than is the case with retailers. Both manufacturers and retailers expect that profitability and investment volumes will increase in the country, but economic activity in the country will shrink, and so the financial situation for companies will diminish, as well. It is interesting that retailers say that they are planning to increase staff numbers in the future.”
“During the third quarter and throughout the year, a powerful element in Latvia’s economic growth has been an expanding domestic market in terms of consumption,” says Citadele’s chief economist, Zigurds Vaikulis. “External factors also help to improve the situation for sectors which operate in the domestic market. The number of tourists in Latvia has reached a new record, for instance, as has the amount of money which they spend here. The main driving force, however, for local sectors, including the retail sector, is the fact that households are earning more money and the lending market is coming back to life.”
“The development of manufacturing is important for economic development in Latvia, but retailers also provide social stability in that they create new jobs,” says the president of the Latvian Association of Retailers, Henriks Danusēvičs. “Optimism among retailers would improve if wealth in the country were to increase, because local companies are mostly focused on the domestic market. Still, that market is very much dependent on external factors. Given Latvia’s geopolitical location, both manufacturers and retailers can successfully develop projects with partners outside of the European Union. The most promising routes for the development of international trade relate to countries such as Nigeria, Indonesia, South Korea, Mexico, and Turkey.”
Exporters far more optimistic
“If we look at the views of businesspeople whose companies do and do not export products, we see that exporters are far more optimistic about the present and the future than are those who do not export anything,” says Kaktiņš. “Among exporters, the present index is at a level of 54.53 points, while among non-exporters it is 52.57 points. Exporters are increasingly likely to feel positive about the future, while the mood of businesspeople who do not export anything is deteriorating. Exporters are even more optimistic about the next six months, with the future index being at a level of 55.59 points, while non-exporters are becoming less optimistic, and their future index is at a level of only 51.87 points.”
Paegle adds that “Latvia has an advantageous geographic situation in terms of developing exports and re-exports. Latvia has three major ports, as well as the infrastructure that is needed to transport goods from the East to the West or in the opposite direction, and this involves the whole wide world.”
The Grain & Food Logistic company has used financing from Citadele to develop its business and to launch re-export of food to Africa. Company director Ģirts Vītoliņš says that he buys products from Russia and Belarus, prepares and packages them for delivery to African countries, and thus makes use of import-export opportunities, as well as the advantages which Latvia has as a transit country. “Demand in the world is growing, and so Latvian businesspeople can expand their operations by expanding into other countries,” he says. The businessman also says that one opportunity for grain farmers in Latvia is to produce bio products which can be exported. This, he says, is a process which is still in development, and our farmers do not always fully appreciate the true value and price of such products.
Experts agree that transit to third-party countries in the world is an area in which there is still much potential for growth for Latvian retailers.
About Citadele Index
The key task of Citadele Index is to obtain a unified index that characterizes entrepreneurs’ subjective assessment of economic conditions in the state. Citadele Index is calculated by summing up and assessing poll results obtained from managers of 750 enterprises of various sizes and representing various industries. The index also reflects entrepreneurs’ opinion and situation prognoses for economic activity in the State, economic activity in different industries and various business activity indices: profitability, turnover, financial condition, number of employees, amount of investments. If the index exceeds the value of 50 points, it speaks of optimism among entrepreneurs. Pessimism can be observed when it drops below the value of 50. SKDS market and public opinion research centre conducts this study in collaboration with the Citadele Bank once in a quarter. The last Citadele Index study was carried out in June 2012.
About Citadele Bank
Citadele is a local Latvian bank which offers banking, financial and asset management services. Citadele group is represented in the Latvian market as well as in 10 other countries. Citadele Bank is the only collaboration partner of American Express in Latvia and Lithuania who is entitled to issue American Express credit cards. In 2012 the bank was recognized as the best governed state-owned enterprise in the Baltic States according to a study conducted by the Baltic Institute of Corporate Governance. Citadele’s vision is to become the most valuable local financial group in the Baltic States. 75 % minus one Citadele Bank’s shares are possessed by the State Joint Stock Company Privatization agency on behalf of the Latvian State and the owner of 25 % plus one share is the European Bank for Reconstruction and Development (EBRD).