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British-Latvian All-Party Parliamentary (APPG) Visit to Latvia

Executive Summary

The British-Latvian All-Parliamentary Group aims to strengthen relations between the United Kingdom and Latvia. The group was formed in 2011 and has hosted a number of events in the United Kingdom as part of that goal. From 23-26 September 2012, a crossparty delegation of four members visited Latvia’s capital, Riga, for the first time and met with members of the Latvian Government, Members of the Latvian Saeima (Parliament), visited local business and learned more about Latvian culture and heritage.

The APPG delegation included the following MPs:

  • Christopher Pincher MP, Chair of the APPG
  • Paul Farrelly MP
  • Bob Blackman MP
  • Angus MacNeil MP

Key Political Meetings

Dinner with H.E. Andrew Soper and Defence Attache, Lt Col Ian Watts.
The dinner with H. E. Andrew Soper and the Baltic region Defence Attache Lt Col Ian Watts, served as an introduction to the visit and region. The dinner took place at the Baltic Beach hotel in Jurmala, Latvia on the coast of the Baltic Sea. Discussions focused on goals for the visit, questions to be prepared for and insight into the current political landscape. The Ambassador briefed the delegation on key figures they would be meeting and provided local knowledge about the area. Both members of the British mission in Latvia stressed the importance Latvia attaches to joining the Euro (the security of being part of that club particularly given Latvia’s powerful eastern neighbour) and confirmed that the local currency, the lat, is already pegged to the Euro. The importance of the trans-Baltic rail link planned to extend as far north as Helsinki was also highlighted.

Meeting with the Saeima Group for Inter-Parliamentary Relations
The delegation met with counterpart group in the Latvian Saeima chaired by Mr Valdis Liepins MP. 18 members of the Latvian group participated in the formal exchange of ideas. During the meeting Mr Liepins highlighted the common interest of both countries in campaigning for human rights and acknowledged that Russia has been a difficult partner. Mr Liepins emphasised the importance of furthering economic and trade ties and that the current Latvian growth indicators are high. Members of the group then had the opportunity to question the visiting British delegation. The Deputy Chair, Ms Lolita Cigane expressed her appreciation for the opportunity Latvians have to study in the UK and enquired about changes to new immigration rules having heard of the visa issues at London Metropolitan University. Paul Farrelly MP replied, emphasizing the fact that it is illegal to prevent students from the EU studying in Britain. Other themes emphasised by Saeima Members during the meeting were the importance of NATO to Latvia’s defence strategy, Latvia’s goal of joining the Eurozone in 2014 and an analysis of the factors which have led to Latvia’s 5-7% growth in the last three quarters. Members of the Saeima expressed concern that Britain is not fully committed to the European Union. The APPG members made clear that Britain has reservations about some aspects of the EU but that the policy of the British Government is to play an active role within the EU.

Meeting with the Deputy Speaker of the Saeima, Mrs. Inese Libina-Egnere
The delegation then toured the plenary chamber of 100 seats and had tea with the Deputy Speaker, Mrs Inese Libina-Egnere. Discussions focussed on how the Saeima works. Mrs Libina-Egnere explained that Latvia’s history of debate is not as long as in the United Kingdom. Therefore speaking in the chamber is very structured. Each MP has a set time period to speak. One third of parliamentarians are newly elected and MPs are not allowed to take any other positions outside of Parliament. Local casework is handled by a committee and not the individual MPs who represent the five regions in Latvia in a proportional election system. If an MP is unable to attend a meeting of the Saeima without justification, the salary of that MP is docked. She explained that the Saeima is currently working on a lobbying law since a lobbying definition in the country does not exist giving scope for companies and individuals to unduly influence MPs. One of the most exciting debates recently has been on their referendum law.

NB. Latvia’s constitution dates back to 1922, prior to both Soviet and German occupation of the country.

Meeting with the Chairman of the Saeima Economic, Agricultural, Environmental and Regional Policy Committee, Mr Vjaceslavs Dombrovskis
The focal point of this meeting was Latvia’s economic policy. Mr Dombrovskis explained Latvia’s flat tax rate as well as the importance of joining the Euro to their fiscal policy. He explained the importance of joining the Eurozone so Latvia can draw closer to central Europe and its political and economic picture. He explained Latvia’s austerity program which involved the closure of some government services such as schools and public buildings (although we understand that significant over-provision and duplication existed previously) and the redundancy of state employees. He made clear that further borrowing is not considered a viable option since they are striving to keep the budget deficit below 3% of GDP to meet Eurozone accession rules. Another topic discussed was bank lending. The delegation asked Mr Dombrovskis if banks were willing to loan after the recession in 2009, a problem encountered in by British businesses at home. He explained that many Latvian banks are foreign owned and that securing loans is still a problem for enterprises. This was later borne out during the delegation visit to Marmara, a 60 person cosmetics sector company, which was founded in the last decade. Marmara executives highlighted their difficulties in obtaining bank credit.

Meeting with the Minister for Economics, Mr Daniels Pavluts
Explaining Latvia’s approach to austerity was the key theme to this meeting as well as discussion regarding those industries most suitable for trade with Latvia. Mr Pavluts explained that the crisis in Latvia was due to both international and home grown forces – a housing bubble financed by cheap credit. During the early “noughties” boom, insufficient investment was made in Latvian infrastructure. The government responded with internal devaluation – incomes decreased but it allowed them to achieve competiveness. Many businesses had to reinvent themselves during this process. From 2009, the country switched to export-led growth. The markets are increasingly diversified and CIS countries play an important role. Mr Pavluts emphasised the strategic role that Latvia plays in East-West trade. He noted that the economy is now doing well after a robust austerity program. “Near shoring” was a trend that has benefitted the Latvian economy. Latvia strives to be a logistics hub of activity for outsourcing from nearby EU countries. One of the main challenges will be whether there is enough labour in e.g. the IT sector to provide the outsourcing resources at a scale to create a viable service industry. The delegation explored the differences between the Latvian and British austerity programs. The key point that Mr Pavluts highlighted was that Latvia had achieved austerity and growth. In tandem to their austerity measures, they focused on improving the business environment, cutting red tape, especially for micro and green businesses which are now developing. However, he emphasised that they are still very cautious about inflation which had been a recurring problem during the credit boom. In meeting the Minister and also the British Chamber of Commerce in Latvia, it was noted that British/Latvian trade balance is in Latvia’s favour by £150m. More strikingly, Britain’s exports to Latvia are some 10 times smaller in value than those coming from France.

Meeting with the Parliamentary Secretary of the Ministry of Foreign Affairs, Mr Viktors Makarovs
This meeting explored Latvia’s foreign relations. Mr Makarovs explained that bi-Iateral relations to Russia are stable and Russia’s World Trade Organisation accession will improve ties. Latvia however, has a balanced focus on the East and West. Mr Pincher enquired about Latvia’s energy policy and Mr Makarovs explained that he sees energy security in Latvia as having the freedom to choose from multiple suppliers and not be dependent on one particular country. Mr Makarovs also explained that 900 businesses in Latvia have British funding and that there is a large Latvian Diaspora in the United Kingdom. Gaining an education in another country can be very beneficial to Latvia. Mr Makarovs raised EU structural funds and emphasised their importance to Latvia. The Latvian government believes those countries that have “done the right thing” to address their deficit and trade imbalances should be rewarded with Structural Fund support rather than southern European countries that have not controlled their spending. Mr Makarovs also made clear Latvia’s determination to join the Euro. Various Saeima Members also made this point and encouraged the United Kingdom to lend its support to Latvia’s efforts. Finally, Latvia’s role in NATO and commitment to Article 5 of NATO was emphasised as being crucial as was its spending commitment to NATO.

Key Business Meetings

Madara Cosmetics founder, Lotte Tisenkopfa
This informative meeting reinforced the discussion with Mr Vjaceslavs Dombrovskis of the Saeima Economic, Agricultural, Environmental and Regional Policy Committee about how Latvian banks are still cautious about lending. Mrs Tisenkopfa received no security support from Latvian banks. She did however receive a small start up grant from the EU to start her cosmetics company. She now employs 41 Latvians and exports to 25 countries. She would like to expand trade with Great Britain. Space NK is one of her key distribution targets and has recently begun work with a new distributing agent in the UK. The lively tour included a walk around the factory to learn how each of the products are produced. The factory machinery was manufactured in Switzerland.

Greenworld Fuels Chief Executive Officer, Paul Barratt.
A visit to a research and development plant for producing biomass from municipal solid waste was very informative. Chief Executive, Paul Barratt – who is British – explained the process and provided a tour of the machinery. The company’s goal is to eradicate landfill. They have good presence in Russian (St Petersburg), Italy and Korea. In the United Kingdom Mr Barratt stated, “everyone wants to be first to be second” and he has had little interest in his product. Mr Barratt believes that he can manage the waste of a city the scale of Riga (700,000 inhabitants) on a 5-6 Hectare site.

Summary of main observations and recommendations

  • Britain’s trade imbalance with Latvia and the relative small scale of our exports compared with other EU countries wastes the strong historical linkages between the United Kingdom and the ancient Hanseatic port of Riga. UKTI should focus on supporting British companies, particularly in the IT, logistics and green economy space, to do more business in Latvia through the British Latvian Chamber of Commerce. Ministers should also consider leading business delegations in these areas and to the British Chamber of Commerce in Latvia
  • The British Parliament, parliamentarians and ministers should consider offering internship swaps for Saeima Members’ staff to forge closer networks which might prove beneficial to British diplomacy and business. The German Bundestag operates such a scheme.
  • UKTI and the British Chamber of Commerce in Latvia should be supported in harnessing the sizeable Latvian Diaspora living in the United Kingdom to better represent British trading interests. It is also worth noting that several Latvian Saeima Members previously lived in the United Kingdom before returning to Latvia after independence. These links should also be identified, quantified and used appropriately.
  • The All Party Parliamentary Group should initiate plans to host a delegation of Latvian parliamentarians in the United Kingdom in 2013. This should link in with the Chamber of Commerce whilst every effort should be made to ensure ministers from the Foreign Office, Treasury and SIS plus, potentially, DECC and the Energy & Climate Change Select Committee (with an interest in Latvia’s green economy drive) are available to play a part in the programme.

Photos from the meetings are available here:

Christopher Pincher MP