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HIGH - TECH INDUSTRIES - STRATEGIC GOAL FOR LATVIAN ECONOMY. Dr. Māris Ēlerts Director General Latvian Development Agency. Vilnius, December 2, 2002. INTERNATIONAL MEMBERSHIP. UN WTO IMF EBRD WB UNESCO. - United Nations Organisation, - Council of Europe ,

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slide1

HIGH - TECH INDUSTRIES -

STRATEGIC GOAL FOR

LATVIAN ECONOMY

Dr. Māris Ēlerts

Director General

Latvian Development Agency

Vilnius, December 2, 2002

slide2

INTERNATIONAL MEMBERSHIP

UN

WTO

IMF

EBRD

WB

UNESCO

- United Nations Organisation,

- Council of Europe,

- World Trade Organisation,

- International Monetary Fund,

- Euro-Atlantic Partnership Council,

- European Bank for Reconstruction and Development,

- NATO Partnership for Peace,

- World Bank,

  • Invited to join NATO (Summit in Prague, 21.11.2002)
  • Planning to conclude accession negotiations with EU by the end of 2002, ready for accessions in 2004

Latvia’s current membership:

slide3

STABLE MACROECONOMIC ENVIRONMENT

between western Europe and Russian market

  • Currency (Lats) pegged to SDR since 1994
  • The lowest inflation among Central European Countries

(1999: 2.4%; 2000: 2.6%; 2001: 2.5%; 2002F: 2.5%)

  • Rapid GDP growth rates

(1999: 1.1%; 2000: 6.8%; 2001: 7.7%; 2002F: 5 %)

  • Latvia rated as investment safe and stable country by:

Moody`s: A2, S&P: BBB+, Fitch IBCA: BBB

  • 61% of exports to EU in 2001
  • FDI stock 2.34 billion USD at the end of 2001
slide4

CUMULATIVE FDI IN LATVIA BY SECTOR

(END OF PERIOD, MILLION USD)

  • In 2001 18% of FDI invested in manufacturing, increasing by 13.7% to compare with 2002, in high technology sectors growth was 7%.
  • In 2001 75% of FDI was invested in services - trade (31.5%), financial sector (22.8 %), real estate (22.5%) and transport and telecommunications (21.1 %)
legal framework
By law, the foreign investor has the same rights and duties as local investors

The foreign investor may be the sole founder and owner of a company in Latvia

No restricted sectors activities

The foreign investor may freely repatriate after tax profits and investment capital

Foreign companies registered in Latvia are entitled to buy land and property

Active dialogue between the Foreign Investors’ Council in Latvia (FICIL) and the Latvian Government

LEGAL FRAMEWORK
slide7

EXCELLENT BUSINESS ENVIRONMENT

LOW TAX RATES AND INCENTIVES

  • Corporate income tax 19% from 2003 down to 15% till 31.12.2003
  • High-tech manufacturers - reduction by 30%
  • Depreciation rate for high-tech equipment 70%
  • Real estate tax 1.5%, from 2004 1%
  • Corporate income tax holiday for large investment projects, equal to 40% of the invested amount
slide8

LONG TERM ECONOMIC STRATEGY OF LATVIA

  • Creating new knowledge based sectors of industry Using already existing science base in
      • Information Technologies
      • Biotechnologies and pharmaceuticals
      • New materials
  • Restructuring of traditional sectors of the economy
      • Based on principles of comparative advantages of traditional industrial sectors;
      • Introduction of new technologies and increasing competitiveness
innovation policy key priority for development of industrial competitiveness
KEY OBJECTIVES OF THE NATIONAL INNOVATION PROGRAMME (being developed):

Formation of the society open to innovative activity;

Innovation policy coordinated with the EU regulations;

legal environment favorable for innovative business;

support to innovative enterprises and to their further growth;

efficient cooperation between all elements of the innovation system.

Innovation policy in Latvia is at its development stage. The Latvian Government has passed in 2001 the National concept for innovation, and is soon going to accept the National program for innovation and its action plan that will set concrete goals for a period of 3 to 5 years.

Reduction of the trade deficit and an increase by 20% of the high-tech products in total exports is expected.

INNOVATION POLICY - KEY PRIORITY FOR DEVELOPMENT OF INDUSTRIAL COMPETITIVENESS

Ministry of Economics, Republic of Latvia

slide10

THE GOVERNMENT IS SERIOUS ABOUT DEVELOPING AN INFOR-MATION SOCIETY IN LATVIA, BY INCREASING SPENDING…

  • National Program for Information Society development adopted and National Information Society Council established, led by Prime Minister
  • IT education a priority:
    • spending on IT education programs increased by 20% in academic year 2000, translating into 33% enrolment growth
    • currently all educational institutions have permanent Internet connections and PC classes
  • Implementation of strategic IT projects
    • - Public Investment Program instituted for 2000-2005
    • 40 MUSD annual public spending for IT projects
  • Latvian National Library: making state-of-the-art information resources available in every region of the country
  • E-government project: linking of public databases, registries, public offices into a uniform information system
  • Legislation on digital documents and signatures, introduction of microchip-enabled personal IDs by 2002
slide11

KNOWLEDGE BASED ECONOMY

  • High third-level enrolment rates: 37.3 students per 1000 population
    • of those, 35% Engineering and technology
    • and 26% Business Administration and Social Sciences
  • University-level enrolment: 26.4 students per 1000 population
    • of those, 15% Engineering and technology
    • and 21% Business Administration

Source: Ministry of Education and Science

slide12

KNOWLEDGE BASED ECONOMY

GROVING NUMBER OF HIGH EDUCATION ESTABLISHMENTS

Source: Ministry of Education and Science

slide13

KNOWLEDGE BASED ECONOMY

RAPIDLY GROWING AMOUNT OF IT STUDENTS

Number of IT students

6000

4804

5000

3876

4000

2940

3000

2538

2520

2100

2000

1000

0

1996/97

1997/98

1998/99

1999/00

2000/01

2001/02

Source: Ministry of Education and Science

slide14

Quality of the university IT curriculum

Job profiles of new specialists

Applications Design

Communications Network Design

Software & Services

Software & Applications Development

Software Architecture and Design

Multimedia Design

IT Business Consulting

Technical Support

Products & Systems

Product Design

Integration & Test

Implementation & Test Engineering

Systems Specialist

Telecommunications

Radio Frequency (RF) Engineering

Digital Design

Data Communications Engineering

Digital Signal Processing

  • Internationally recognized IT studies in Riga Technical University, Latvian University, Institute of Transports & Communications
  • Participation of IT companies in curriculum quality assurance, ex. CISCO joint participation in the development of IT study program in the Latvian University
  • Acquiring of practical IT skills in Latvian software houses
  • Targeted support from local firms (research prizes, scholarships, donations etc.)
  • Joint activities to promote the interestof youth in this sector
highly educated and skilled labor force
HIGHLY EDUCATED AND SKILLED LABOR FORCE
  • Over 10 000 employees in ICT sector:
    • Telecommunications 6756
    • Computers and 4235 computer-related operations
  • Over 3,500 highly-skilled professionals in top 20 IT companies
    • Major international customers of Latvian IT companies: Boeing, IBM, Nokia, Siemens Nixdorf, Unisys
    • Established technology partnerships with Cisco, Lotus, Microsoft, Oracle, SAP
  • About 36% of IT specialists work in ISO certified companies
  • About 85% of IT specialists work for companies with international experience
  • 200 % growth of software development specialists foreseen by 2005
slide16

WAGE ADJUSTED PRODUCTIVITY

Output per one salary EUR invested in employee

Source: Eurostat yearbook, CSB 2001

Low tax burden:CIT only 15 % by 2004

slide17

High capacity Telecom network

Source: Lattelekom, Latvenergo 2001

slide18

EASY NETWORK ACCESS

  • High capacity telecommunication network
    • Backbone for Latvia’s telecom system - growing optical cable network
    • Optical cable network length is 3000 km, density ratio is 0.04 km per square km of territory
    • Digitalization ratio for Telecom switchboards is 99%
    • 80% digital lines in cities, 64% overall digitalization ratio
    • Full range telecom services for customer (e. g. digital line lease, ISDN, DSL, LAN 2 LAN, X.25)
  • Latvia is fully integrated into the international telecom network
    • Broadband optical cable & satellite access to the regional telecom network (e. g. access to Ebone, UUNET, Metrocom with international transmission capacity of 110 Mb/s)
    • New Baltic Sea Region optical cable ring by 2002 enabling 32 Gb/s and using the latest DWDM technology (LinxTelecommunications B.V.)
    • Significant data and voice transmission transit via Latvia
  • Competing & complementary networks
    • 4 independent optical networks offered by telecom, energy & transport companies (e. g. Lattelekom, Latvian Railway, Latvenergo)
    • Comprehensive network held by number of cable TV & Internet providers (e. g. Telia, Baltcom)
    • Separate telecom network for public bodies (VITA)
slide19

ADVANCED TELECOM INFRASTRUCTURE

Telecommunications

  • Telephone penetration 32 / 100 inhabitants
  • Digitalisation rate 72,7% (2002)
  • ISDN 128 kbps (basic) from 1998
  • ISDN 2Mbps (primary) from 1998
  • GSM Operators 2
  • Mobile penetration 34.2%
  • PC density 9,5/100 inhabitants
          • (among companies 39%)
  • ISP providers 50
  • Uses Internet regularly 21% of economically active population
  • Cable TV subscribers 31.25% of households
  • WAP service available WAP banking, GPRS

Source: Central Bureau of Statistics

slide20

Public institutions

Banking & finance

Business process re-engineering,

Data transmission & storage IS,

Integrated networks, ASP, Databases &

Transaction software, Financial

data storage, Specific applications

applications, WAP solutions, Client

handling systems

Transport

EDI systems, warehousing, distribution &

Software development

Wireless & cable

transport software, aviation software

IT consultations

communications

Hardware architecture

Healthcare

Data transmission & storage IS, Large

Networking & data

customer registers, WAP solutions, Call

Centers, ASP solutions

P

atient & case-record registers, medical

transmission solutions

equipment support software, telemedicine

Service & manufacturing

Education & science

C

lient handling systems, Accounting &

L

AN, Internet & Intranet solutions, Digital

financial software, Network architecture,

signal processing

WEB solutions, office software, ASP

services

LATVIAN ICT SECTOR

THE MAIN SPECIALISTIONS AND PRODUCTS

slide21

GOVERNMENT SUPPORTS DEVELOPMENT OF KNOWLEDGE BASED SECTORS

SUPPORT TO IS CLUSTER DEVELOPMENT

  • EU Phare funded project “Support to Industrial Cluster Restructuring, LE9812.01/0001” (2001):
    • Articulated and agreed cluster strategy (vision, mission and values)
    • IS Cluster Code of Ethics signed by all involved companies
    • Cluster resources pool and costs assessed
    • Several legislative initiatives started with government of Latvia
    • web site operational - document’s sharing and collaboration tools - www.is.lv
  • IS Cluster Development Activities, Supported by the Government in 2002:
    • The Applied Informatics R&D and Software Outsourcing summit, Riga, April 4-5
    • Export marketing training program “Partnerships in Digital Age”, Riga, May 6-10
    • Participation in IT exhibition “Systems”, Munich, October 14 - 18
    • Development of IT professional standards
    • Development of project of Latvian - Danish IT college
    • Development of project Postgraduate IT&T professional training centre
    • Participation in process of improvement of business environment (through identification of the main problems and legislative initiatives)
slide22

VISION OF LATVIA’S IS CLUSTER UNTIL 2010

  • Latvia would be a leading software services exporter in Eastern Europe
  • Cluster of more than 10 000 qualified specialists
  • Annual export of services over 1 billion USD
  • Sourcing of additional HR
  • Provision of ASP services, know-how and products
  • Current expertise in implementing large-scale projects enhanced by 2010
  • Establishment of an R&D center for the development of IS projects
slide23

Background for integrated product development

  • Strong and competitive related sectors stipulating IT demand - banking, insurance, telecommunications, logistics etc.

- Highly competitive international banking sector dealing with Scandinavian and German business practice (Foreign investment into Latvian banking sector accounts for 65%)

- Scandinavian multinationals in the telecommunication sector (ex. Sonera, Telia)

- Latvia as a regional logistics hub & distribution center for Western and CIS customers

  • Traditions in hi-tech inventions & unique IS development

- Pioneers in computer and data transmission network architecture in former USSR

- Experience in digital signal processing equipment & information systems

slide24

LATVIA’S IS CLUSTER

THE MAIN EXPORT PRODUCTS AND SERVICES

  • SAP / Oracle consultations,
  • JAVA software design,
  • Software product development
  • Localization & documenting of software,
  • application service provision,
  • data storage and transmission,
  • software outsourcing services
  • New system development for public utility projects
  • Re-engineering
  • System maintenance & testing
  • CASE tools
  • B2B Internet technologies
  • SAP/R3 interfaces
  • Web solutions
  • Networking solutions
  • Payment card systems

Source: ICT Country Profile, Latvia, ITC, October 2002

slide26

SUCCESS STORY: SYBASE

  • Sybase, a leading supplier of database software, has set up a company in Latvia

Sybase competence areas are co-ordination of operations, outsourcing, sales & marketing in Latvia

  • Sybase Baltic, the Finnish subsidiary of Sybase Inc (US) aims to become the leading supplier of mobile and Internet solutions in the Baltic Sea Region
  • In less than a year, Sybase has established outsourcing partnerships with 8 local software companies
slide27

THE MAIN AREAS OF LATVIAN E & E INDUSTRY

Latvian Electrical Engineering and Electronics Industry Association

  • intelligent e-technologies
  • original equipment and software for industrial application
  • electrical equipment for electric trains
  • electromechanical tools
  • power electrical engineering equipment
  • microelectronics
  • telecommunication equipment
  • nuclear electronics for radiation measurements
  • consumer electronics
  • automotive electronics
  • fiber optics
  • electrical filament lamps, including decorative and reflector lamps
  • wind power engineering
latvian electrical engineering and electronics industry association
MAIN INDUSTRIAL BRANCHES

electrical engineering, electronics, microelectronics,

telecommunications, fiber optics

KEY FIGURES

Association represents: 9 large companies (250 < employees)

12 medium companies (50 – 249)

29 small companies (10 – 49)

Total: 50 companies

Total turnover: EUR 97.1 mln (2001)

EUR 107.0 mln (2002 estimated)

Share in GDP: 1.2 %

Export: 75 %

Employees: 5400

.

LATVIAN ELECTRICAL ENGINEERING AND ELECTRONICS INDUSTRY ASSOCIATION
slide29

AUTOMATION CLUSTER INITIATIVE

  • Business leaders – around 15
    • Locals: Dambis, Arcus Elektronika, Hansa Elektronika, Jauda, Fundus, Peruza, LF Machinery Plant, Olimps etc.
    • MNS: ABB, Festo, Siemens, Klinkmann, Danfoss
  • Support industries – 20-30
  • Universities & Colleges – around 6
  • R&D centres – around 12
slide30

HIGH R&D COMPETENCE (2)

ACCENTIA® DISPLAY MATERIALS

SIDRABE

System for coating ITO

  • ITO coated films
  • Barrier coatings
  • Hard coatings
  • Patterned ITO
slide31

Success story: ARCUS ELEKTRONIKA

  • Arcus Elektronika: a producer of electronic control devices and software for the energy industry
    • A number of joint-projects have been effected with well-known multinationals such as ABB, Siemens, AEG, Alstom and ELGA.
    • Deloitte and Touche rated Arcus Elektronika as a High-Tech company front-runner in Central Europe in 2000.
  • Arcus Elektronika’s growth is supported by a developed R&D base
    • The company oversees the development process, from conception to final product, using the latest technology.
  • Year-on-year growth of 40%, projected at 60% for 2002
slide32

Success story: SAF TEHNIKA

  • SAF Tehnika: a pioneer in wireless communication
    • SAF Tehnika offers original solutions for fixed wireless radio and infrared laser communications equipment.
    • SAF Tehnika equipment meets CE standards.
    • In 2000, SAF Tehnika merged with Microlink - the largest IT holding in the Baltics.
  • In 2000, growth rate of 100%; in 2002, projected growth rate of 200%
    • Turnover per employee was USD 0.15 million (2000)
  • SAF Tehnika serves the regional ITC market
    • The company exports to European and American markets.
    • Customers include Telia, NetCom, Sonera, and Tele Denmark.
    • In a field dominated by competitors Ericsson, Nokia, and Siemens, SAF Tehnika has successfully found it’s market niche.
slide33

LATVIA’S ICT GROWTH RATES

  • TOTAL ICT MARKET IN LATVIA: 2001 - 600 MUSD 2005 - 1 160 MUSD
  • SOFTWARE and COMPUTING SERVICES 106 MUSD
  • HARDWARE MARKET + 20 %
  • SOFTWARE MARKET + 18 %
  • SOFTWARE EXPORTS (+13 % in 2000) + 15 %
  • INTERNET SERVICES + 45 %
  • MOBILE TELEPHONY + 65 %

Source: ICT Country Profile, Latvia, ITC, October 2002

slide34

R&D: CENTERS OF EXCELLENCE

Riga Technical university

Improves manufacturing with areas of specialization including automated and flexible manufacturing and assembly systems, process planning, and processing of engineering materials, telecommunications.

Institute of Solid State Physics

Focuses on research, testing and development of new materials, nanosize technologies, new power sources, sensors, optoelectronic solutions

Institute of Electronics

digital signal processing

Institute of Transport and Communications

Telecommunications, radioelectronics

Institute of Physics

MHD technologies

slide35

SIGNIFICANT NEW PROJECTS

SCIENCE TECHNOLOGY PARK

  • Physical result of the project
    • The optimisation and concentration in Riga of the currently scattered STP elements by forming complex infrastructure for scientific research, higher education and high tech enterprises, including:
    • the relevant faculties of universities – natural sciences, engineering sciences etc.;
    • the relevant research institutes;
    • spin-off high-tech companies;
  • Business Environment result
    • co-operation between universities, enterprises, risk capitalists,
    • creation of a national and an international, formal and informal organisational platform;
    • creation of new knowledge based companies, commercialisation of ideas;
    • attraction of foreign high tech companies and their branches;
    • training of workforce to meet the requirements of the sector;
    • creation and introduction of new technologies;
slide36

LATVIA IS CLEARLY ONE OF THE MOST SUCCESSFUL TRANSITION ECONOMY CENTRES IN EASTERN EUROPE

THE LATVIAN DEVELOPMENT AGENCY

  • Pērses iela 2, Rīga, LV 1442, Latvia
  • Phone: +371 7039400
  • Fax: +371 7039401
  • E-mail: INVEST@LDA.GOV.LV
  • HTTP://WWW.LDA.GOV.LV