Citadele Bank (Latvia)

Citadele Index: Business Owners Look Optimistically Towards the Future

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Business owners are looking optimistically towards the future according to the latest Citadele Index survey, and it is predicted that the Latvian economy will continue its growth in 2018. Citadele Bank’s experts believe that the current stable economic situation is one of the most appropriate times for well-considered investments.

For the fourth quarter in a row, the Citadele Index value eclipsed the 50 point threshold indicating business owner optimism - the value in the last quarter was 51.34 points. In general, business owners maintain a positive outlook about both the state economy and their own finances.

In the past quarter, an optimistic mood could be seen in all sectors of the economy. Representatives of the manufacturing and construction sectors recorded the most positive outlook; meanwhile, those working in services and retail, despite remaining optimistic, are more guarded. This especially applies to retail where optimism has decreased most noticeably in the last quarter.

The most crucial difference is in how the heads of large and medium business owners feel compared with the heads of microbusinesses. Statistics from the Citadele Index survey show that, examining businesses by number of employees, the greatest optimism can be seen among heads of large businesses, followed by medium and small businesses. Microbusiness (with up to 9 employees) leaders last felt optimistic at the start of 2014; although their mood in the past year has improved and come close to the optimism threshold, it is nonetheless slightly pessimistic.

“Around a third of Latvian business owners foresee a general increase in economic activities in their country over the next six months, and around the same amount foresee an increase in the turnover of their own business. At the moment, two trends are slowly becoming clear. First of all, problems in attracting employees in construction (73%) and manufacturing (55%) businesses are increasing the desire of large businesses to automate their operations (50%). Secondly, the difference between large and small businesses is noticeably widening. This is even more clearly demonstrating the trend of large businesses continuing to grow while smaller businesses are getting left behind,” concludes Citadele economist Mārtiņš Āboliņš.

The right moment for well-considered investments

A positive view of the future encourages large and medium businesses to think about increasing their operations and improving their competitiveness. Increased operations are being planned by 44% of businesses, of which the largest proportion are large (79%) and medium (61%) businesses. Manufacturing and construction businesses demonstrated the most interest in increasing their operations.

“Currently, any business with a clear vision for development and good financial management has the opportunity to grow significantly, taking advantage of the favourable economic situation in Latvia and the world. Small businesses should especially take this into account. Although 42% of small businesses see their main challenge this year as maintaining the business, only 7% see their main challenge as increasing exports of their products. It should be said that the mood of businesses which export their products is much more optimistic than those who do not export, according to Citadele Index statistics. A clear vision in finding new sales markets and opportunities for attracting financing will also help small businesses to strengthen their position long-term,” emphasizes Citadele Bank Board Member Santa Purgaile.

The general positive economic mood is also felt by Latvia’s largest grain processing business, AS Dobeles dzirnavnieks. “Over the past few years we have made targeted investments in the development of the business. This year we will continue the growth of Dobeles dzirnavnieks, and total investment will reach 10 million Euro. The main areas for investment will be in increasing the capacity of grain delivery, storage and pretreatment, building 17 new grain storage towers, and acquiring an additional grain dryer. We predict that we will process more than 250,000 tonnes of grains this year,” says Dobeles dzirnavnieks Chairman of the Board Kristaps Amsils.

Creator of cereal product brand Graci and head of SIA Felici Alise Balgalve says that the business is planning swift growth, helped by a 600,000 Euro investment in building a factory and buying equipment. Although the business is already currently exporting their products to ten countries, the hope this year is to certify the factory and gain the internationally-recognised BRC (British Retail Consortium) certificate which is a crucial criteria in finding new export markets. “We are definitely motivated by demand, our current business partners, as well as the opportunity to save significantly through replacing hand-making with machines. Without this investment in equipment, we would not be able to achieve all of this,” says A. Balgalve.

Citadele Index is a survey  that has been undertaken by Citadele in Latvia since 2004. Each quarter, 750 business owners and leaders are surveyed, thus gaining a first-hand, trustworthy look into the economic situation of the state, sector and business, as well as a prognosis for the next six months. The surveying of the business owners and data summarisation is conducted by SKDS.