As the first wave of Covid-19 ripped through Europe in March 2020, Latvia had one of the lowest number of cases, relative to its population. 

Kaspars Rožkalns, the director general of the Investment and Development Agency of Latvia (LIAA), discusses how this helped the Baltic nation attract foreign companies, and his plans for the next few years.

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Q: How did LIAA shift its strategies in response to the pandemic?

A: In 2020, we attracted €252m of investment into Latvia — the highest amount for seven years. We refocused towards our businesses that were booming during Covid, and businesses that are going to be here for the long term. We are currently focusing on smart specialisation sectors, which include ICT, global business services, photonics and smart materials, biomedicine, bioeconomy and smart cities.

Q: Latvia had a relatively less severe first wave of Covid-19 than other EU countries. Did that work in your favour?

A: LMT, a Latvian phone company, developed one of the first contact tracing applications for Covid-19, which uses Bluetooth connections for both Google and Apple smartphones. Latvia was one of the first countries to develop and implement this, which enabled us to not shut down any businesses during the first Covid-19 wave. 

This helped us attract shared service centres to Latvia, such as Swisscom, that opened a second DevOps centre in Riga. Norwegian Air also opened a new international service centre. We created almost 3000 new jobs in the IT sector last year, which for a country the size of Latvia (with a population of 1.92 million), is quite a lot.

Q: The IMF forecasts that the Latvian economy will grow by 3.9% this year, and 5.2% in 2022 — the highest level in the Baltics. What is driving this positive outlook?

A: In 2020, Latvia had the steepest drop of gross domestic product (GDP) in the Baltics. That was mostly connected to our national airline, AirBaltic, which had to be bailed out. The resilience of the Latvian economy is mostly based on the ICT and service sectors, biomedicine, smart cities, e-mobility and photonics. All of these sectors were able to establish themselves well during this time of crisis. 

Q: How do you align your foreign investment attraction strategy with developing Latvia’s local innovation and start-up ecosystem?

A: We create an ecosystem that gathers different types of companies, scientists, state-owned companies, legislators and start-ups. We had a campaign in Belarus last year, that highlighted our IT and photonics ecosystem. From this campaign, there are more than 50 companies, who are evaluating the opportunity to either relocate or open an office in Latvia because they see great things are happening here. We have continued this campaign into 2021.

Using the ecosystem as a platform is the way to attract smart investment. If you just want to attract investment, you can build logistics hubs and attract companies to establish low-level production sites. But many governments do this, and it leads to a battle with neighbouring countries as to who will sell-out cheaper, and nobody wins. But if we have knowledge and ask companies to join, we show it is a win–win. 

Latvia has a great opportunity because we are still young and hungry. We do not fear robotisation, automation or digitalisation. We treat that as an opportunity on how to produce more with the same resources.

Q: What is your main focus for the next few years?

A: Over the next couple of years, we are focusing on our biggest problem, which is to boost R&D investments from the private sector. This is where we lag behind almost every country in the EU. 

In the public sector, we are one of the highest R&D spending countries as a proportion of GDP, but the private sector does not capitalise on this. We are implementing different types of incentives to support those companies to remove the risk and encourage them to build better products and services.

Kaspars Rožkalns is the director general of Latvia’s Investment and Development Agency of Latvia (LIAA). 

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