Subchapters:
- Business Relationships
- Foreign direct investment
- FTAs and Treaties
- Development Cooperation
- Prospective fields of study (MOP)
Business relations
Trade relations with the EU
The most important trade partners within the EU for Latvia are Lithuania, Poland, Germany (up to 75% of imports to Latvia) and Great Britain (mainly Latvian exports). Among non-European countries, the most important partners are the USA, Canada and Russia (however, after the outbreak of the conflict in Ukraine and the introduction of international sanctions, mutual trade was also radically limited).
- Allcountrylist: Overview of major industries in Latvia, including mining, construction, transportation, tourism, and foreign trade.
| 2017 | 2018 | 2019 | 2020 | 2021 | |
| Exports from the EU (million EUR) | 7,725.3 | 8,412.5 | 8,714.4 | 8,821.5 | ON |
| Imports into the EU (million EUR) | 16,577.50 | 17,730.10 | 18,074.00 | 16,465.20 | ON |
| Balance with the EU (million EUR) | 3,678.2 | 3,623.3 | 3,982.6 | 3,434.2 | ON |
Source: European Commission
Trade relations with the Czech Republic
Mutual Czech-Latvian trade in goods consists of a number of items across practically all sectors of our economies, a number of companies are involved in the trade on both sides. For decades, “flagship” products from the Czech Republic have been represented in Latvia by means of transport and rolling stock – passenger cars from Škodovka in Mladá Boleslav, trolleybuses and trams from the Pilsen plants Škoda Electric and Škoda Transportation, modernized shunting locomotives, etc. In 2019, an important supply contract was signed suburban trains, which will be produced for Latvia by another company from the Škoda Transportation Group, Škoda Vagonka. Deliveries of trains should begin at the end of 2022 and the entire contract should be completed by the end of 2023. In addition to this constant commodity, however, significant changes in the commodity content of exports and imports can be observed mainly in recent years;
| 2017 | 2018 | 2019 | 2020 | 2021 | |
| Exports from the Czech Republic (billion CZK) | 3.2 | 6.6 | 6.8 | 7.2 | ON |
| Imports to the Czech Republic (billion CZK) | 6.4 | 2.8 | 2.8 | 2.3 | ON |
| Balance with the Czech Republic (billion CZK) | 3.2 | -3.7 | -4 | -4.8 | ON |
Source: CZSO
Trade relations with countries outside the EU
Among the non-European countries, the most important partners for Latvia (in the vast majority of cases are imports to LV) are the USA, Canada and Russia, with whom, however, trade relations were radically limited in the first quarter of 2022 due to the outbreak of the war and the subsequent introduction of international sanctions.
| 2017 | 2018 | 2019 | 2020 | 2021 | |
| Exports from countries outside the EU (million EUR) | 3,490.4 | 5,290.70 | 5,320.30 | 5,444.60 | 6,371.90 |
| Imports to countries outside the EU (million EUR) | ON | ON | ON | ON | ON |
| Balance with non-EU countries (million EUR) | ON | ON | ON | ON | ON |
Source: EIU, Eurostat
Foreign direct investment
The intensity of foreign direct investment (FDI) in Latvia is rather moderate. Restrictions related to the Covid-19 pandemic, as well as instability in the global economy, were the main obstacles to cross-border investment flows after 2020. In 2021, however, the volume of FDI transactions increased significantly and reached EUR billion. The reason was mainly the large investments of the Swedish company Swedbank AB in companies registered in Latvia in the 4th quarter of 2021. Many of the foreign investors who were already active in Latvia in the past returned in 2021 and their investments almost 3 times exceeded the level of the previous year. Overall, the net inflow of FDI in 2021 was almost 5 times higher than in the previous year and represented 13.7% of GDP (in 2020 it was 6.6% of GDP).
The largest investor in the Latvian economy is Sweden. Cumulative investments by Swedish entrepreneurs have doubled since 2020 and at the end of 2021 accounted for 28.8% of total FDI. Investments by businessmen from Estonia, Lithuania, Germany, the Netherlands, Denmark and Luxembourg are also extensive (the Czech Republic is in 20th place in this ranking with rather partial investments in partner companies of Czech entities), and before the outbreak of the war in Ukraine, there were also investments by entities from Russia. At the end of 2021, these countries’ investments in the Latvian economy accounted for 83% of the total accumulated foreign direct investment in Latvia. The structure of FDI sectors changed in 2021 compared to the previous period. Thanks to extensive investments in the professional, scientific and technical services sector, its share in the total volume of accumulated FDI increased to 21 at the end of 2021, 6%. Significant investments went into financial intermediation (15.2% of all FDI), trade (14.1%), real estate (14.2%) and manufacturing (11%).
FTAs and treaties
Latvia has been a member of the EU since 2004.
Contracts with the Czech Republic
Bilateral relations between the Czech Republic and the Republic of Latvia are very good, there are no open problems between the two countries. On the contrary, they have many common interests, which they promote within the framework of membership in the EU and NATO.
- Investment Protection and Promotion Agreement – 10/25/1994 (and subsequent agreements) – still valid
- Treaty between the Czech Republic and the Republic of Lithuania on the prevention of double taxation and the prevention of tax evasion in the field of income and property taxes (October 25, 1999, Riga)
- Agreement between the government of the Czech Republic and the government of the Republic of Lithuania on international road transport – 29 May 1996;
- Agreement between the Government of the Czech Republic and the Government of the Slovak Republic on air transport – 11/05/1999
- Agreement between the Ministry of Defense of the Czech Republic and the Ministry of Defense of the Slovak Republic on the exchange of information and cooperation in the field of defense research and development (Prague, 31 March 1999)
- Agreement between the Ministry of Defense of the Czech Republic and the Republic of Lithuania on industrial cooperation in the field of defense (Riga, 21 June 2000)
- Agreement between the Ministry for Local Development of the Czech Republic and the Ministry for Environmental Protection and Local Development of the Slovak Republic on cooperation in the field of tourism (Riga, 11/05/2001)
- Agreement between the Ministry of Education and Culture of the Czech Republic and the Ministry of Education and Science of the Slovak Republic for the period 2012-2015 on mutual cooperation (Riga, 31 January 2012) – note: the agreement is ongoing; a new implementation protocol should be concluded for the next period
- Agreement between the Government of the Czech Republic and the Government of the Slovak Republic on cooperation in the fight against terrorism, illicit trade in narcotic and psychotropic substances and organized crime – 14.11.2000
- Agreement between the Government of the Czech Republic and the Government of the Slovak Republic on mutual protection of classified information – 16.10.2000
- Agreement between the Ministry of the Interior of the Czech Republic and the Ministry of Agriculture of the Slovak Republic on cooperation in the field of agriculture – 1.11.1999
- Agreement between the Ministry of Defense of the Czech Republic and the Ministry of Defense of the Slovak Republic on cooperation in the field of defense and military relations – 23 October 2009
- Agreement between the Ministry of Defense of the Czech Republic and the Ministry of Defense of the Slovak Republic on cooperation in the field of military geography – 7 December 2006
- Agreement between the Ministry of Defense of the Czech Republic and the Ministry of Defense of the Slovak Republic on the protection of classified military information – 10.5.1999
- Agreement between the government of the Czech Republic and the government of the Republic of Lithuania on cooperation in the field of culture – 10.5.1999
Developmental cooperation
As EU member states, the Czech Republic and Latvia do not provide each other with development or humanitarian aid, with some exceptions. The mentioned exceptions arise only in extraordinary events. In 2021, it was, for example, humanitarian aid in the form of a one-time donation during the COVID-19 pandemic, when the Czech government donated lung ventilators and other hospital equipment to Latvia to manage the crisis in the healthcare sector associated with a high incidence of the disease COVID-19.
Prospective fields of study (MOP)
Transport industry and infrastructure
Based on the experience of the coronavirus crisis, the government reassessed its financial investments in the transport infrastructure and allocated 728 million euros for its renewal in the draft budget for 2022, which is almost 300 million euros more than the previous year. It expects additional funding from contributions from EU funds, including projects supported under the National Recovery Plan (NPO). The railway network dates back to Soviet times, so it is often inadequate in terms of equipment and technology. The biggest project at the moment is the construction of Rail Baltica, i.e. the high-speed railway and related infrastructure. Revitalization will also await the ports, where very interesting opportunities could appear for Czech companies dealing with logistics solutions.
Electrotechnics
With the onset of digitization, an increase in demand for modern devices and electrical components can be expected. In the time of covid, many institutions, companies and schools/educational facilities switched to an electronic form of communication. In the near future, an increased demand for software and mobile applications that will facilitate communication processes is expected. Projects within the framework of the National Recovery Plan (NPO) count on investments in the digital transition amounting to 21%. In practice, this will mean, for example, the continued digitization of public administration (129 million euros) or support for the digital transformation of small and medium-sized enterprises and related innovation in the amount of 125 million euros.
Energy industry
In Latvia, intensive work is now underway on a project to restore the electrical transmission system and synchronize it with continental Europe, i.e. disconnection from the existing BRELL system and increase the capacity of the electrical network and security of energy supply. By 2025, two major investments in the reconstruction of the existing power lines are planned, each of which will draw 75% of co-financing from the EU. Following the synchronization project, Latvia plans to gradually revitalize the entire Latvian energy network until 2030 with the aim of ensuring the stability of the transmission system and the uninterrupted supply of energy to end users. In addition, projects to increase energy efficiency are planned in accordance with the NPO.
Defense industry
Since 2018, as a NATO member country, Latvia has committed to allocating an amount corresponding to 2% of GDP to defense in the budget, and in the 2022 budget, an increase is even expected, which should reach 2.5% by 2025. Given its geographical location and commitments within NATO, the area of defense will continue to be key to the functioning of the state. Part of the strategic development of the army is the modernization of communication and information systems for combat management, including electronic warfare.
Healthcare and pharmaceutical industry
The coronavirus crisis has shown the low systemic robustness of the healthcare sector, to which the Latvian government must respond. Strengthening the healthcare sector is therefore a priority of the government’s draft budget for 2022, which envisages investments of up to 1,594 million euros, which is more than 235 million euros more than in 2021. It will be about strengthening the entire healthcare infrastructure, as well as the renewal hospitals and other medical facilities, and the funds are also used to modernize the equipment. Following the NPO, projects should also cover adaptation measures related to environmental impacts (waste management, increasing the energy efficiency of buildings, etc.)
Rail and rail transport
This sector is potentially very promising in Latvia, especially thanks to the “project of the century” Rail Baltica, which has exactly the given scenario and must therefore continue regardless of the coronavirus crisis. The Ministry of Transport also plans to restore some parts of the existing railway infrastructure, for which tenders will be gradually announced in partial projects. In 2022, as a follow-up to the NPO, a transport greening project will probably be launched, the aim of which is to reduce transport emissions in and around the capital city of Riga.
