Economic Sectors

Economic Sectors

During the postwar era, industry supplanted agriculture as the foremost economic sector. By 1990 industry accounted for almost 43 percent of the gross domestic product (GDP--see Glossary) and for more than 30 percent of the labor force (see table 24, Appendix). Aggressive industrialization and forced relocation of labor, particularly in the 1950s and 1960s, reduced agriculture's share of the labor force from 66 percent in 1930 to about 16 percent in 1990. Agriculture accounted for 20 percent of GDP in 1990; transportation and communications, about 8 percent; construction, less than 6 percent; and trade, services, and other branches, about 20 percent.

Industry

In 1990, 38.9 percent of all industrial personnel in Latvia were employed by the engineering industry (including machine building and electronics) and 17 percent by the textile industry. Other important industries included food (12.7 percent), wood and paper (9.6 percent), chemicals (5.7 percent), and building materials (4.6 percent). Latvia, the most industrialized Baltic state, accounted for all electric and diesel trains produced in the Soviet Union, more than one-half of the telephones, and more than 20 percent of the automatic telephone exchanges, refrigeration systems, and buses.

Because of its deficiency in natural resources, Latvia relies heavily on imports of fuels, electric power, and industrial raw materials. Energy is generated domestically by three hydroelectric power plants on the Daugava River, which have a total capacity of 1,500 megawatts, and by two thermal power plants near Riga, which have a total capacity of 500 megawatts (see fig. 9). In 1991 about 43 percent of total electricity consumed was imported from neighboring states. The country's natural resources are primarily raw construction materials, including dolomite, limestone, clay, gravel, and sand.

Agriculture

In 1990 Latvia had 2,567,000 hectares of agricultural land, 32 percent less than in 1935. More than 1 million hectares of agricultural land, much of it abandoned, were converted to forest under Soviet rule. Of its nearly 1.7 million hectares of arable land, about one-half was used for growing fodder crops, more than 40 percent for grain, 5 percent for potatoes, and approximately 2 percent for flax and sugar beets together.

The Soviet authorities socialized agriculture, permitting only small private plots and animal holdings on the vast state and collective farms. By 1991, when Latvia regained its independence, a network of more than 400 collective farms, with an average size of almost 6,000 hectares, and more than 200 state farms, averaging about 7,300 hectares in size, had been created. Private household plots, despite their small size (0.5 hectare, maximum), played a significant role in the agricultural sector by supplementing the output of the notoriously inefficient state and collective farms. In 1991 some 87 percent of all sheep and goats were held on private plots, as were approximately 33 percent of dairy cows and more than 25 percent of cattle.

Under Soviet rule, Latvia became a major supplier of meat and dairy products to the Soviet Union. From 1940 to 1990, livestock production nearly doubled; by contrast, crop cultivation increased by only 14 percent, despite major investments in soil drainage and fertilization projects. In 1990 Latvia exported 10 percent of its meat and 20 percent of its dairy products to other Soviet republics, in return for which it obtained agricultural equipment, fuel, feed grains, and fertilizer. As the centralized Soviet system collapsed, however, a shortage of feed and the rising costs of farm equipment took a toll. From 1990 to 1991, the number of animals on state and collective farms in Latvia fell by up to 23 percent. Consequently, the output of meat, milk products, and eggs from these farms declined by 6 to 7 percent (see table 25, Appendix).

Transportation and Telecommunications

Transportation is a relatively small but important branch of Latvia's economy. The infrastructure is geared heavily toward foreign trade, which is conducted mainly by rail and water. Roads are used for most domestic freight transport.

In 1992 Latvia had 2,406 kilometers of railroads, of which 270 kilometers were electrified. The railroads carried 31.8 million tons of freight and 83.1 million passengers. Most railcars are old, with some having been in service for twenty or more years. Train service is available to Moscow, St. Petersburg, and Warsaw.

Of the 64,693 kilometers of public roads, 7,036 kilometers were highways or national roads and 13,502 kilometers were secondary or regional roads in 1994. Latvia had a fleet of 60,454 trucks and 11,604 buses; private passenger automobiles numbered 367,475. Many, if not most, trucks were more than ten years old. Despite the growing number of automobiles, commuters continued to rely mainly on trains and buses, each of which accounted for 5 billion to 6 billion passenger-kilometers per year in the early 1990s. Bus service was provided between Riga and Warsaw.

Latvia's location on the Baltic Sea has provided the country with one of its major economic moneymakers for the future. The three large seaports of Riga, Ventspils, and Liepaja are particularly promising for future trade because they can be used during all seasons and because a dense network of railroads and roads links them with many of the landlocked regions of neighboring countries (see fig. 10). For many years, Riga was the end point for Japanese container traffic originating in the Russian Far East, primarily the port of Nakhodka. This traffic was mostly unidirectional from east to west. With the expected opening up of Japan to incoming world trade, however, European exporters may find that Riga is the best route for their containers bound for Japan or even China.

Ventspils is the end terminal for a Volga Urals crude oil pipeline built in 1968. Its port has the capacity to service three large ocean tankers simultaneously. The American Occidental Petroleum Company constructed an industrial chemical complex there providing for the processing and export of raw materials coming from Russia and Belarus.

The port of Liepaja has not yet been involved in major economic activity because until May 1992 it was still in the hands of the Russian armed forces. The port, which ranks as one of the Baltic Sea's deepest, was restricted for many decades because of its military orientation. Much capital investment will be required to adapt this port for commercial use. With careful development, Liepaja could become an active commercial port. A dozen or so smaller ports that have been used mainly for fishing vessels could also be exploited for the distribution of commercial products.

Riga, Ventspils, and Liepaja together handled about 27.2 million tons of cargo in 1993. That year 16.3 million tons of petroleum exports from Russia passed through Ventspils, one of the former Soviet Union's most important ports. Grain imports account for most of the freight turnover at the port of Riga, also a Baltic terminus of the petroleum pipeline network of the former Soviet Union. Liepaja, a former Soviet naval port, became a trade port in the early 1990s. Also during this period, steps were taken to privatize the Latvian Shipping Company, formally separated from the former Soviet Union's Ministry of the Maritime Fleet. The Maras Line, a joint venture with British interests, began to operate between Riga and Western Europe. Latvia's fleet consisted of ninety-six ships, totaling nearly 1.2 million deadweight tons: fourteen cargo, twenty-seven refrigerated cargo, two container, nine roll-on/roll-off, and forty-four oil tanker vessels.

The country's main airport is in Riga. Latvian Airlines, the national carrier, provides service to Copenhagen, Düsseldorf, Frankfurt, Helsinki, Kiev, Minsk, Moscow, St. Petersburg, and Stockholm. Baltic International Airlines, a joint Latvian-United States company, operates flights to Frankfurt and London. Service to Oslo, Berlin, and Amsterdam is offered by Riga Airlines Express, a joint venture between two Latvian joint-stock companies and a Swiss enterprise. Other carriers include Finnair, Lufthansa, SAS (Scandinavian Airlines), LOT (Polish Airlines), and Estonian Air.

The country's telecommunications network is undergoing reconstruction as a result of the privatization of the telecommunications system in 1993 and the sale of a 49 percent share to a British-Finnish telecommunications consortium in 1994. A new international automatic telephone exchange was installed in Riga, and improved telephone and telegraph services became available at standard international rates. The long-term development plan of Lattelcom, the privatized telecommunications company, calls for the creation of a fully digitized network by the year 2012. In 1992 Lattelcom had about 700,000 telephone subscribers, over half of whom were in Riga. Unmet demand because of a shortage of lines was officially 190,000. The unofficial figure, that of potential customers not on the waiting list, was believed to be much larger. There were an estimated 1.4 million radio receivers and 1.1 million television receivers in use in 1992. By early 1995, Latvia had more than twenty-five radio stations and thirty television broadcasting companies. Radio programs are broadcast in Russian, Ukrainian, Estonian, Lithuanian, German, Hebrew, and other foreign languages.

Foreign Trade

In the early 1990s, Latvia succeeded only partially in reorienting foreign trade to the West. Russia continued to be its main trading partner, accounting for nearly 30 percent of the country's exports and more than 33 percent of its imports in 1993 and for about 28 percent of its exports and nearly 24 percent of its imports in 1994. Overall, more than 45 percent of Latvia's exports were destined for the former Soviet republics (mainly Russia, Ukraine, and Belarus), and about 38 percent of its imports came from the former Soviet Union in 1993. Among Western countries, the Netherlands received the largest volume of Latvia's exports (8.2 percent), followed by Germany (6.6 percent) and Sweden (6.5 percent). The primary sources of imports from the West were Germany (11.6 percent) and Sweden (6.2 percent).

The main import was oil, followed by natural gas, machinery, electric power, and automobiles. Oil products, wood and timber, food products, metals, and buses were the main exports (or, in the case of oil products and metals, reexports). In 1994, according to Western estimates, Latvia's foreign trade deficit was LVL141.1 million, about three times higher than that in 1993. The balance of trade deteriorated in 1994, particularly because the strength of the lats made Latvia's exports too expensive.

A total of about US$73 million in humanitarian aid was received in 1992. (Reliable estimates of total aid flows in 1993 were unavailable.) In 1993 Latvia received aid in the amount of ECU18 million (for value of the European currency unit--see Glossary) from the European Union (see Glossary) through its Poland/Hungary Aid for Restructuring of Economies (PHARE) program. Of a US$45 million import rehabilitation loan from the World Bank (see Glossary), about US$21 million had been used in 1993. In 1994 the European Investment Bank (EIB) granted loans of US$6.4 million for financing small- and medium-sized companies. For this purpose Latvia also received a US$10 million loan from Taiwan. In addition, Latvia obtained a US$100 million joint financing credit from the European Bank for Reconstruction and Development (EBRD) and the Export-Import Bank of Japan.

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