baltic states · 3 uriekstes str., riga, lv-1005, latvia fax: +371 67097970 e-mail: [email protected]...

ALPA CentrumsAVE TRANS GROUPBanking Institution of Higher EducationGratekaLatvian Business SchoolLatvian RailwayLatvijas GazeLETA

Liepajas osta LMLSF TRANSMesse Munchen GmbHNP Properties PriBaltRMSSENSEI

1The Baltic Course No. 25 – Spring 2007 Contentswww.baltkurs.com

ROUND TABLE: р. 20

LATVIA — RUSSIA BOARDER TREATY: р. 30

PRIVATE DETECTIVE'S SERVICE: р. 28

BALTIC BUSINESS RATING: р. 46

TRANSPORT: р. 6 LATVIA — RUSSIA: р. 36

INTEGRATION: р. 50

SOCIAL AFFAIRS: р. 53

OUR PARTNERS

Baltic StatesTransport

6 The direction is towards container transportationMarket Review: Transport

10 Latvia's ready to become a transit hub14 Lithuania in a state of sober optimism16 Estonia: as turnover grows, the directions change18 Looking into the future19 LSF TRANS — individual approach to each customer Round Table: Family Business

20 Family as a capital 22 Family capital and investments 23 Family business in the legal context24 We are both leaders 25 Ready to take up business!26 "Family business" is more than matrimonial relations27 Love or common sense?Market Review: Private Detective's Service

28 Pinkertons in the 21st centuryLatvia — Russia Boarder Treaty

30 Our common assets Relationship Review: Lithuania — Russia

32 Business regardless nationality Relationship Review: Latvia — Russia

36 “Close neighbor is better than far away relatives”Relationship Review: Estonia — Russia

40 Business in Estonia without ethnic differencesCooperation

44 Slovak tiger Investment

45 Venture capital guides to the Eastern wildernessBaltic Business Rating

46 Business champions in the Baltic economy Education

49 BIHE to form tolerant student’s environment

European UnionIntegration

50 Economic integration in the Union: problems and realitiesEconomics

52 Fall in economic growth poses greater threat to euro zone than inflation

CISSocial Affairs

53 2007 — Russian Language Year

Figures & Facts54 Statistics

Contacts:3 Uriekstes str., Riga,LV-1005, LatviaFax: +371 67097970 E-mail: [email protected]

Phone: +371 67097911+371 67097912+371 67097901+371 67097902+371 67097900

Our main aims are: • Creation and implementation for our clients most optimal

goods delivery chains regarding various taxation, customs and transport specifics, including subsequent service control;

• All sorts of supplementing service provision, i.e. financial,legal, insurance, accountancy, repair etc.

Our policy and purpose: • Complex service is more efficient and less expensive

Our group structure: • Transport-logistics division: • International goods transport including all types sea and

railway goods delivery, as well as export-import logistics within the EU territory, as well as that of the Baltic States, CIS and so on.

• Customs terminal service: • Custom clearinghouses and custom brokers licensed

to processing necessary documents and holding all kind of goods including food-stuff and excise goods; provision of all kind of brokers' services and guarantees

• All sorts of custom documents for internal and transit goods with respect to goods' "individual specifics"

• Provision of all sorts and sizes of heated and non-heated clearing-houses, as well as open parking lots

• Provision of all kinds of loading and un-loading operations,including sorting-out performances

• Containers' storage facilities • There is a division of national Latvian Custom Service

on our custom terminal territory • Consulting companies — already 10 years

in the market — providing: • Information and legal support; representation in Latvia,

support and advice in finding business partners. • Legal, accountancy and financial services • Assistance in visa-support activity • Insurance broker: • All kind of insurance on the EU territory, compulsory

insurance in RU, disputes resolution, independent expert assessment, technical expert reviews, etc.

Industrial ParkAVE TRANS GROUP has acquired an industrial park next toRiga Commercial Port container terminal and our clientscan rent necessary facilities just 7 minutes from Riga down-town. The park can provide as well the followingservices: • General guarded parking spaces of up to 12 ha • Clearinghouse- and industrial facilities

of up to 18 thousand sq.m • Office apartments (class B & C) of 3 200 sq. m • Free parking lot for passengers' cars • Parking lot for trucks • A branch of a Bank

Transport Section: We have our own transportation companies including both international road transport firms in Latvia (Riga) and Russia (Moscow) • Our transport facilities fulfill all Euro-standards'

requirements • We provide CMR-type insurance • We have due experience in different cargo-trade routs

(since Sovtransauto-time) • We have qualified drivers' staff with adequate knowledge

and experience

Auto-repair works' Section: • We provide complex repair works for trucks, busses

and other heavy vehicles, including oil and wheels' checks, mailing and etc.

• We supply clients with auto spare parts • We have car-wash service

and disinfection unit for trucks • In our shop one can buy various spare-parts,

instruments and worker-dress • We can help in all sorts of goods' re-loading • We can assist in buying and selling used cars

Logistic operator rendering a unique complex of services

The present BC marks a “silverjubilee”, i.e. 25 magazine’s issues

have been published during lastsix years. With this in mind, we

decided to celebrate the occasionby publishing four sectoral reviews

and the content of the roundtable. It is the greatest ever num�ber of reviews the BC published inone issue. But of course, as we all

know, it’s not the number butrather the materials’ quality and

actuality that count. It has already become a tra�

dition to convene regular the BC — Baltic International Academy round tables. This time —it’s about extremely important for the Baltic States issue, i.e. fam�ily business. It happened that after the collapse of the Soviet sys�

tem and regaining independence, these three Baltic States, whenentering into market economy relations, explored potentials and

possibilities of the family business. Attention to these issues isdeemed both to change the existing patterns and to make such

“business” adaptable to the EU rules. Transport issues have been under constant attention in the

Baltic States, to explore these states “transit” geographic position.Extensive interview with the regions’ three transport ministers can

provide readers with a most accurate overview on transport situa�tion in the Baltics. Important sign in this regard: there good

prospects for the ports in the 3 Baltic States. The Baltic�Russia business relationship review has been

important in several aspects. For the first time in modern Balticeconomic history an assessment has been made as to the role andimportance of Russian�Baltic business interconnections. And theyappeared to be great, regardless of the angle one can take in order

to assess it. Thus, in the list of richest people in the three Balticrepublics there plenty of Russian names. There are plenty of com�panies with Russian participation (either personal or financial) inall three states, e.g. in Latvia it’s more than 2 thousand in totals.

Due to modern business’s international character, the ethnic orlinguistic “colors” almost ceased to play any relevant role.

The complicated work of private detective’s services was thetheme of a sectoral review in the “jubilee issue” showing both the

organizational and practical service’s difficulties in the Baltics. Then, we have a Baltic business rating review showing the

champions in the Baltic economy.A view from the inside of the Commission’s headquarters is

always interesting. It reveals more than just the EU official opinion;it provides readers with a new insight into the EU development. TheBC offers an interview with the member of the Economic and Mone�

tary Commissioner’s Cabinet, Mr. Benjamin Angel.I hope you’ll find this issue thought�provoking; and as always,

we welcome your letters and comments. Enjoy your reading!

Eugene EterisBC’s International Editor,

Head of the BC’s Scandinavian Office

3The Baltic Course No. 25 – Spring 2007 Editor’s Note

www.baltkurs.com

Published quarterly since 1996Spring 2007 (No. 25)

Our readers are in Latvia, Lithuania, Estonia, the CIS countries,Western, Central and North Europe, the US, Canada,

Latin America, Israel, etc.

The Baltic Course was registered in the Republic of Latvia Company Register on March 1, 1996.

Registration number 000701928

Editor�in�Chief: Olga PavukE�mail: [email protected]

International Editor: Eugene EterisE�mail: [email protected]

Executive Secretary: Alla PetrovaE�mail: [email protected]

Editorial Board:Stanislav Buka – Baltic International Academy (BIA), Chairman of the Senate, Dr. Oec., LatviaRaivo Vare – transport’ expert, EstoniaJanis Domburs – independent journalist, LatviaBo Krag – Svenska Handelsbanken, Vice�president, Baltic finances’ expert, SwedenBronislavs Lubis – Lithuanian Industrialist Confederation,President, Kazbalt Association President, LithuaniaNikolai Mezhevich – University of St.Petersburg, Professor;Center of Transborder Studies, Director, Dr. Oec., RussiaOlga Pavuk – Editor�in�Chief for magazines Балтийский курсand The Baltic Course, Dr. Oec., LatviaInna Rogatchi – Rogatchi Productions & Communications, Vice�president, FinlandOleg Soskin – Institute for Society Transformation, Director, Dr. Oec., UkraineDmitry Trenin – Moscow Carnegie Center, Deputy Director, RussiaEugene Eteris – BC International Editor, Doctor of Laws, Denmark

Publisher: Cordex Media9 Vesetas str.Riga, LV�1013, LatviaPhone: +371 67389694Phone/fax: +371 67389696 Distribution and Subscription: Jelena SaikinaE�mail: [email protected]: +371 67389694Fax: +371 67389695Advertising Department: Ludmila FomkinaE�mail: [email protected]: +371 26183630Phone/fax: +371 67389695Scandinavian Office:E�mail: [email protected] Designer: Peter VladimirovPainter: Sergej TjulenevPhoto: A. Jermolinskij, press�photo, BC’s archive

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The editorial board is in no way responsible for the content orclaims made by any of the advertisements published in thismagazine.Reference to The Baltic Course must be made upon use of anymaterial from the magazine. Advertisements are printed on a toned background.

RUSSIAN GASOLINE ARRIVES IN LATVIA

At the end of January this yearLatvia received the first shipment —2,000 tons gasoline — from Lukoilplant in Nizhniy Novgorod. A newsupplier’s appearance on the marketmight mean increased competition onthe Latvian fuel market, which wouldonly be to the benefit of consumers,the Lukoil Baltic subsidiary, LukoilBaltija R representative said at in apress-release. Gasoline imports fromRussia were the result of negotiationsand following a meeting betweenLukoil President Vagit Alekperov andLatvian Prime Minister Aigars Kalvi-tis in last December in Riga. At thattime Alekperov offered that Lukoilmight deliver gasoline to Latvia, incase of necessity. And apparently thetime has come for the deliveries.

LITHUANIA’S SECURITY IS THE US CONCERN

Lithuanian President Valdas Adam-kus visited the United States on February7-13. After touring the country, Adamkushad talks with the US President GeorgeW. Bush and other high-ranking officialsat the White House. At the annual US-Baltic Foundation meeting V.Adamkusreceived the Baltic Statesmanship Award;the nomination was effected by the for-mer US national security adviser, Zbig-niew Brzezinski.

Lithuanian president delivered aspeech at the conference, which was organ-ized by the Joint Baltic American NationalCommittee to discuss the energy securityissues in the Baltic region.

“Lithuania still is an ‘energy island’with no effective alternative gas supplies,with undeveloped ‘Western electricity con-nections’. It is therefore extremely vulnera-ble because of its technically and politi-cally unreliable energy infrastructure.Without stable commodities supply alter-natives, major energy utilities on our East-ern side can easily transform even minortechnical problems into tools of politicalpressure,” said Adamkus.

He underlined that Lithuania andother Baltic countries were already takingaction to reduce energy dependency.

BORDER TREATY SIGNEDLatvian-Russian border treaty was

signed in Moscow on March 27 by primeministers of the two countries: Mikhail Frad-kov and Aigars Kalvitis. “Today we havesucceeded in solving the most sensitive issuein bilateral cooperation,” said Fradkov afterthe signing ceremony. “I think it will help to

solve all other problems,” he added. (Fordetails, see our material in the magazine).

Besides creating stable bi-lateral rela-tions, this even closed another chapter in theEU external control by establishing officialborder line between Russia and the EU.

The treaty concerning Russian-Lithuanian national border delimitationwas signed on October 24, 1997. Lithuaniaratified the treaty in October 1999 andRussia in June 2003.

The Russian-Estonian border treaty wassigned by foreign ministers of both countries onMay 18, 2005.The Estonian parliament ratifiedthe treaty on June 20 the same year,and Eston-ian President Arnold Ruutel promulgated theact for ratification.But already on June 27,2005Russia revoked its signature under the docu-ment, demonstrating disagreement with clausein the preamble about territorial claims, whichwas included in the treaty too.

KAZAKHSTAN TO RECEIVE ANTI�TBC DRUG FROM LATVIA

Latvian pharmaceutical JSCOlainfarm has won a tender for sup-plying Kazakhstan with anti-tubercu-losis medicine, i.e. PASS-sodium salt.This is the largest contract everreceived by Olainfarm; the total deal’svalue amounts to EUR 1.38 million.

POLISH CEO FOR MAZEIKIU NAFTA Piotr Kownacki, new PKN Orlen’s

president and a long-time associate of PolishPresident Lech Kaczynski, was electedLithuanian oil refining complex Mazeikiunafta’s new board chairman this February fora term of one year. P.Kownacki’s appointmentas the head of PKN Orlen was regarded byexperts as a sign of expected improvements inPoland’s energy security. At the meeting withLithuanian Prime Minister, Gediminas Kirki-las,P.Kownacki said that Mazeikiu nafta’s newowners in the next five years planned to investUSD 700-900 mln in development andupgrading the Lithuanian company.Currentlythe Lithuanian government holds 9.98% ofshares in Mazeikiu nafta.

The Baltic Course No. 25 – Spring 20074 News & Views www.baltkurs.com

ESTONIAN HOUSING PRICES AS GLOBAL LEADER

Northern Europe has led the globalhousing price boom in 2006, reported theGlobal Property Guide. Among the threecountries showing the steepest housing pricegrowth are Estonia, Denmark and Norway.

Prices in Estonia grew by 54% in2006, which is a 30% rise from 2004,though 2% less than in 2005. In Denmarkthe price growth was 23% (+1%), and realestate prices in Norway increased by 14%(+7%). Prices in Sweden, Canada and theUnited Kingdom also grew fast.

Apartment prices in Tallinn havegrown by 30%, but in certain districts of theEstonian capital the prices have risen asmuch as 55%. However, the official Latvianstatistics were not yet available for this sur-vey but the realty company Latio has esti-mated the price growth in 2006 at 59%.

VENTSPILS MAYOR UNDER ARRESTThe Riga City Central District

Court on March 14 issued and arrestorder for Aivars Lembergs, the mayorof Ventspils city in north-westernLatvia; he should be taken underpolice custody.

The Ventspils mayor’s chargesstem from the provisions of Article164.3 of the Latvian Criminal Code ontwo counts (criminal events datingback to 1994-1995), including large-scale briberies coupled with extortion.In addition, A.Lembergs has also beencharged with money laundering underArticle 195.2 of the Latvian CriminalCode.

TISSOT PRESIDENT HELPS RUNDALE PALACE IN LATVIA

The Swiss world-famous watch-mak-ing company, Tissot S. A. has completedfacade round-clock’s restoration, the clockused to adorn the Rundale Palace, an out-standing monument of Baroque and Rococoart built by Italian architect Francesco Bar-tolomeo Rastrelli in the 18th century. Fran-cois Thiebaud, President of Tissot S.A., per-sonally attended the ceremony during whichthe clock was returned to Imants Lancmanis,Director of the Rundale Palace Museum, onMarch 1. Restoration experts have done agreat job on the clock which had been seri-ously damaged since late. After the restora-tion the clock can boast a unique sound sys-tem, which can play both classical tunes andalso create complex musical effects.

There is a story behind this restoration.Thiebaud and his spouse visited Riga in May2006 to attend the World Ice-Hockey Champi-onship sponsored by his company. In additionto tourist attractions in Riga, Mrs. Thiebaudvisited also the Rundale Palace where her eyewas caught by the clock on the main facade ofthe magnificent building.This is when the ideaoccurred to the Thiebauds couple about assist-ing in restoration of the unique clock.

LIEPAJAS METALURGS’ 125TH ANNIVERSARY

Liepajas metalurgs, the only metal-lurgy company in the three Baltic States,dates back to 1882. The company, which isbased in Liepaja, south-western Latvia,organized celebration anniversary eventsin Riga. The anniversary celebration willlast from March to September and includea number of sports competitions, musicfestivals and concerts.

REQUIREMENT TO USE MINORITY LANGUAGE

The Estonian parliament has approvedamendments to the Language Act. Accordingthe amendments, the regional and municipalpublic authorities where at least half or moreof the population represent a national minor-ity will be required to communicate with visi-tors, besides Estonian language, in their nativelanguage too. In addition, the amendmentsallows translations into a foreign languagealong with the original text in Estonian of out-door signs, advertising, etc. “But this can onlybe done under one condition — that theEstonian text comes first and is clearly visible,”explained the parliament’s press service office.

ONE BANK’ DOWN The Riga Regional Court has approved

the Latvian Financial and Capital MarketCommission (FKTK) request and issued a rul-ing putting the AS Ogres komercbanka underliquidation procedures.The court ruling is notsubject to appeal. FKTK’s resolution aboutannulling the banking license issued to ASOgres komercbanka and seeking the Rigaregional Court ruling on the liquidation of thebank was adopted on December 21, 2006.Theresolution was based on the lasting failure bythe bank to introduce adequate internal con-trol system. Moreover, cases of document for-gery were also revealed at the bank.

LINKING LITHUANIAN AND LATVIANGAS PIPELINES

Linking Lithuanian and Polish naturalgas pipelines should become a matter of Euro-pean concern, Lithuanian Foreign Minister,Petras Vaitiekunas said at the meeting of theEU foreign ministers in Brussels this January.

“I welcome the European Commis-sion proposal identifying four links-con-nected priority chains that need to be built,calling for increased European coordination.Regretfully, this will not solve the problemsof isolated natural gas markets’ integration,which depends on a sole supplier and a sin-gle pipeline within the EU energy network,”said Lithuanian foreign minister.

Participants of the Brussels’ meetingalso agreed to start negotiations with Ukraineon a new, enhanced cooperation agreement.P.Vaitiekunas said that the EU should thinkboth about those neighbors, which have pro-ceeded on the reforms’ path and include inthe process Belarus Republic as well.

DENMARK’S DANSKE BANK ACQUIRED FINISH SAMPO BANK

Sampo banka, the Latvian subsidiaryof Finland’s Sampo Bank Plc., will continueoperating under its current name and inde-pendent management until 2008. After-wards the bank will be fully integrated intothe group of its new owners, Denmark’sDanske Bank.The takeover of Sampo bankby Danske Bank is officially completed.Sampo Bank has daughter banks in Latvia,Lithuania, Estonia and Russia. As a resultof the deal, Danske Bank, which is thelargest bank in Denmark, will expand thenetwork of its branches and subsidiaries inFinland to 125. In the Baltic states itacquires 33 branches with a total staff of1,100 people. The Danish group intends tospend on the takeover more than DKK1.5 bln and will rename its new branches inother countries after 2008.

The new owners also intend to splitSampo Bank management into tworegions — Finland and the Baltics, explain-ing that the two markets were very differ-ent from each other and needed individualdevelopment strategy. Georg Schubiger

has been put in charge of the activities bythe Baltic banks and would also sit on theBoard of the Danske Bank group. Theboard chairmen of the Baltic subsidiarieswill not be replaced and would keep theirrespective offices: Ingus Grasis in Latvia,Gintautas Galvanauskas in Lithuania andAivar Rehe in Estonia.

EU’S ASSISTANCE FOR LASER TECHNOLOGIES

The Lithuanian National Centre ofLaser Science and Technologies, establishedtwo years ago by the Institute of Physics andVilnius University’s scientists, will developfurther on with the support from the EUfunds. The Project’s partner, Vilnius Univer-sity, plans to complete modernization of thecentre somewhere in April 2007. The centrewill accommodate laboratories for laser Tech-nologies, optical coatings, etc. As part of theproject, the Institute of Physics will purchasenew equipment for a total amount of 2 mil-lion litas. Phase 2 of the project will be com-pleted in April 2008. All in all, the EU hasgranted 5.5 million litas for the project.

During Phase 3 the new students’curricula will be worked out and the nec-essary conditions created for aligning theLithuanian laser science standards withthat of the EU.

5The Baltic Course No. 25 – Spring 2007 News & Views www.baltkurs.com

The Baltic Course No. 25 – Spring 20076

Baltic StatesTransport www.baltkurs.com

The direction is towards

BC: What were the key events for you as the transport minis-ter in 2006?

Ainars Slesers, Latvia: First of all, Latvian parliament elections.Having won the people’s trust, I became the transport minister for thethird time and again took charge of the transport industry, which is veryimportant for the Latvian economy.We, the government and the Trans-port Ministry, are interested in developing logistics and transit.

Algirdas Butkevicius, Lithuania: The year 2006 was a good yearfor the Lithuanian transport industry.We achieved record-high results infreight rail transport; the rate of passenger transportation is also grow-ing steadily. We are particularly pleased with the port companies andstevedores’ performance. Cargo turnover at the Klaipeda sea port grewby 8% to 23.55 mln t. Cargo transportation by rail also increased signif-icantly in 2006. There was a slight decrease (by 1.2%) in road haulage,which was not bad after all, as we could get rid of traffic congestions onthe roads. The transport industry showed quite good results in general.

The growing intensity of air travels is a trend common to all threeBaltic States;therefore I do not want to linger your attention on the growthfigures in our country. I will only say that all airlines operating in Lithuaniacarried much more passengers than in previous years and the three inter-national airports in Lithuania served 25% more passengers than in 2005.

Edgar Savisaar, Estonia: First of all, it was controlling stake inEesti Raudtee (Estonian Railway Company) buyback. The processwas arranged mostly during last year, even though the transactionitself took place in the start of this year. Now the state has againbecome the sole shareholder in Eesti Raudtee, and the railway com-pany is likely to operate just as successfully as other state-ownedcompanies, which have become the flagships of our economy, e.g.Eesti Energia and Tallinna Sadam (Tallinn Port).

I have to mention too the opening of the Saaremaa deep-waterport and completely renovated Soru port in Hiiumaa,which has becomethe most modern of Estonia’s small ports.We have also ensured reliablepassenger ferry traffic to West Estonian islands by signing a 10-yeartransportation contract with the winner of the tender.

BC: What Transport Ministry’s initiatives would influenceindustry’s development?

A. S.: Our ministry is making serious efforts towards trans-port industry development in all directions.These include expansionof the Riga International Airport, restructuring of the Latvian rail-way company Latvijas dzelzcels, upgrading of ports, renovation ofexisting roads and construction of new highways.

Our goal is to turn Latvia into a finance center, as well as logis-tics and transit hub.The Riga airport should become the largest in theNorth Europe. It should be bigger than the airports in Stockholm andCopenhagen. After all, we have the opportunity to provide air linksbetween cities in the EU and the former Soviet Union territories.

A. B.: On the initiative of our Ministry of Transport andCommunications we received co-financing from the EU TEN-Tfunds for the first phase in the Rail Baltica project’s implementa-tion. This project is vital for our country as it would help to increasedramatically the interoperability between the Lithuanian railwayand the railways of other European countries.

We do not have to forget that Rail Baltica is the project aimed atconstruction of a railway line with the standard European gauge. It isplanned both at building a new railway line and at renovating the exist-ing railway bed in order to increase the train speed to up to 160 km/ph.

There are many other things related to the railway develop-ment. Last year we ordered two double-decked electric passengertrains from a rail-car plant in the Czech Republic. It means that weare upgrading both the railway infrastructure and the rolling stockat the same time. By this I am already answering the third questionbecause our initiatives and projects are inter-related as the projectsare implementing the initiatives.

E. S.: Transport Development Plan composition for 2006-2013and the Public Transport Development Program for 2006-2010,and theirapproval by the Estonian government and the parliament have been thekey factors influencing the transport industry development in Estonia.These documents lay down the rules and provide instructions for solvingthe transportation problem and the level we want to achieve in this.

We have also reached a political agreement to follow the prac-tice of most European countries and to start providing support to the

By Olga PavukOn the eve of the “TransRussia” international confer�

ence and a fair that regularly assembles transport industryrepresentatives from all over the world in Moscow, the BC, bytradition, interviewed the Baltic States’ transport ministers.

AINARS SLESERS: Minister of Transport, Latvia.

* When the article was already in press, Edgar Savisaar has become Tallinn’s city

major; new transport minister, Juhan Parts was elected, he served as country’s

prime-minister in 2003-2005.

shipping industry on the national level. The first subsidies will be paidin 2007 and are meant for the merchant fleet. In March 2006 a plan fordevelopment of the ice-breaker sector in 2006-2013 was adopted andenvisages construction of at least two new ice-breakers. Preparationsare already being made for construction of the first ice-breaker.

BC: What would be the most important for the sector proj-ects in 2007?

A. S.: In order to achieve further growth of services, the Rigaairport needs to be expanded radically, and its infrastructure has tobe developed. Construction of a new terminal will begin this year. Itis also planned to extend the existing runway and build the secondrunway later. It will require investment unprecedented in the Lat-vian economy, i.e. 500-600 mln lats. This is a tremendous plan to beextended over several years.

Another project important for the transit industry will belaunched this year. It will be the construction of the Moscow high-way, a road that would link our ports with Russia.

In the context of the emerging trend to move logistics centerscloser to the EU external borders, the Latvian railway will have to takeon the task of handling a significant part of cargos traveling along theWest-East transport corridor. Latvia and the CIS countries are linkedby railway tracks with the same 1520 mm gauge. This year old railtracks are being replaced with new ones. In future the second set of railtracks will be built in the direction to Russia (in the Skriveri-Krustpilssection along with modernization of the railway stations in Krustpils

and Plavinas). It is also planned to build the second set of rail tracks inthe section between Indra and the Belarus border (at Bigosovo sta-tion) and to modernize the railway junction in Daugavpils. There arealso plans for extensive renovation of sorting stations and railwayaccesses in the Riga and Liepaja ports.

A. B.: We continue implementation of the Via Baltica projectin Lithuania, building the highway that would link all three BalticStates — Lithuania, Latvia and Estonia — with Warsaw and fromthere to other European capitals. In some sections we do not builda new highway but upgrade, renovate and expand the existing roadsinstead. Nevertheless, the purpose is the same, i.e. to have a nice,convenient high-speed road Via Baltica, which the Lithuanian driv-ers as well as their colleagues in Latvia, Estonia and other Nordiccountries need so much.

RAIN or Rural Area Information Technology Broadband Net-work is another important project which envisages construction ofbroadband Internet cable channels in Lithuania’s rural areas.The pur-pose of the project is to provide every Lithuanian resident with accessto Internet. The project is already under way. Its first phase is to becompleted by 1 January 2009, and then all public authorities andorganizations, not only in the cities but also in the rural areas, shouldhave access to Internet. By 2010 the network of the broadband cableInternet channels should cover 90% of the Lithuanian territory.

E. S.: There are a number of facilities from renovated road sectionsto new bridges which will be completed both on motor ways and railways

7The Baltic Course No. 25 – Spring 2007 Transport www.baltkurs.com

container transportation

ALGIRDAS BUTKEVICIUS: Minister of Transport and Communications,Lithuania.

EDGAR SAVISAAR: Former Minister of Economic Affairs and Communications, Estonia.*


in 2007. I would say that one of the most important projects is the over-haul of a 47-km section of the Tallinn-Pechori railway main line,which willsignificantly reduce the train travel time between Tallinn and Riga.

BC: How would you assess the free economic zones’ activitiesin the Baltic ports from the attracting investments point of view?

A. S.: Our ports have several attractive investment projects. One ofthe most significant projects is the construction of the container terminal inthe Kundzinsala area of the Riga Free Port. I met personally an investor’srepresentative, Vitaly Yuzhilin, a member of the Russian State Duma, who isrelated to the Russian company First Quantum, which intends to implementthis project. It would mean reloading of 1-2 mln containers or 40-50 mln t ofcargo in future. Of course, we have to support such a project as it is a clearbusiness project in view of new jobs.

Another interesting project — a general cargo terminal — isto be developed in the Krievusala area.

The ports in Ventspils and Liepaja will each get EUR 50 mlnin investments from the EU funds.

A. B.: Personally I appreciate very much the role of free eco-nomic zones in the national economy. They represent oases for theproduction development and, consequently, improved employment,competitive ability and increased cargo turnover. Any taxallowances function as a magnet pulling investors because theyincrease the return on capital. I hope that free economic zones inLithuania would attract ever more investments.

E. S.: As regards free economic zones, in Estonia’s case we canspeak only about customs-free zones in our ports. Their effectivenessdepends, first of all, on the quality of port services, which is something wecannot complain about and which therefore are attractive to investors.

BC: Do you expect any changes regarding transport and tran-sit industry in the Baltics in view of the possibility for Russia to jointhe World Trade Organization (WTO)?

A. S.: During meetings with Russian Transport Minister Igor Lev-itin in Moscow this March the issue of railway freight tariffs and prob-lems with crossing the Latvian-Russian border have been discussed.

It is very important for us to have good relations with Russia and tobe able to settle our issues directly,without the intermediation by Brussels.

Signing the border treaty with Russia at the end of March wasa good start for a long-standing and mutually fruitful cooperation.

A. B.: I wish that Russia join the WTO as soon as possible. Ibelieve this will contribute to development of partnership and transportcooperation. First of all, it will help to simplify product quality checks,customs and other procedures. Standardization of mutual relations intrade would facilitate further integration, transparency in cooperationand fair competition. I hope that Russia’s membership in the WTOwould increase the flow of Russian transit cargos through Lithuania.

E. S.: For us, the key result of Russia’s accession to the WTOwould be that the Estonian government and Estonian business peoplewould in future have a more clear idea about the Russian Federationtrade policy.As a WTO member, Russia will be required to comply withthe WTO rules and agreements and would no longer be free to takeany unpredictable measures. From the perspective of the Estoniantransit competitiveness, it is important that during the WTO member-ship negotiations Russia undertake the commitment to level up therailway freight tariffs for outbound cargos with the tariffs applied tocargos destined for the Russian ports.This would also create good pre-conditions for bringing to our ports new product categories.

But the most important changes in the transit and transportindustry are not directly connected to Russia’s membership in thisor that organization.They will have to do with modernization of oureconomy and infrastructure. For example, Eesti Raudtee and theEstonian ports have set the course towards transition to containertransportation as a strategic development direction. •

8 Transport www.baltkurs.com


Latvian minister intends to turnLatvian ports into a springboard for Russ-ian businessmen seeking for “workingcapital” abroad. “We are both closer thanSwitzerland and mush better because,contrary to Swiss, 90% of Latvia’s popula-tion speaks Russian. Knowledge of Russ-ian is our precious commodity, like oil,gold or diamonds, which shall be investedright,” said Shlesers. He is strongly con-vinced that already in a couple of yearsLatvia will become a part of the SilkRoad, a transport corridor that wouldlead Chinese goods to Europe.

INTEREST GROWS FOR THE RUSSIAN MARKET

This fact is confirmed by statistics,too. According to Russian FederationMinistry of Economics preliminary data,Latvian-Russian foreign trade grew by34% in 2006, reaching about USD 2 bln.Transit cargos to Russia have made up 75-80% of the total cargos amounts crossingLatvian borders.

It should be noted that Latvian sta-tistics shows a somewhat different pictureof foreign trade with Russia, e.g. totalamount is USD 541 mln, whereas exportgrowth is by 27.8% and import growth by20.6%. According to the Russian Federa-tion statistics, Russian export (being con-sequently Latvian import) is more thanthree times higher. The reason for this hasbeen known all along, i.e. the differencesin the accounting methodology as Latviadoes not include in its imports goods des-tined for the bonded warehouses and spe-cial economic zones.

Russian statistics reveals that mostof the growth (up to 50% a year) hasbeen due to Russian oil products’exports, mineral products, metals andmetalwork, and food stuff both to andthrough Latvia. Steep growth of importsfrom Latvia to Russia was observed par-ticularly in metals and metalworks(+240%), leather, furs as well as leatherand fur products (+198%); pearls, pre-cious stones and precious metals (+70%).

According to the head of the RussianFederation Trade and Economic Mission toLatvia, Evguenij Tikhonov, one can surelyacknowledge quite real potentials for Lat-vian transit and its further growth on theRussian market.

AIRPORT: MULTITUDE OF PLANSMinister’s dedication and energetic

efforts, which coincided in time withLatvia’s accession to the EU, provided animpetus for Riga International Airportdevelopment. The number of passengersgrew by 49% in 2004, by 55% in 2005 andby 33% in 2006. In 2003 there were regu-lar direct flights to 18 cities, in 2004already to 30 cities, in 2005 their numberincreased to 38, and in 2006 one could flyfrom Riga to 43 cities in Europe, America,Asia and Africa.

The Riga Airport maintains theleading position among airports of thethree Baltic states by all main indicators,e.g. the number of passengers, the num-ber of flights and the amount of freighttransportation.

One of Shlesers’ associates, KrisjanisPeters, who himself had been for a whileTransport Minister, was elected Riga Air-port’s Board Chairman this January.Changes in the airport management coin-cided with the inauguration of the newMaintenance, Repair and Overhaul (MRO)Center in Riga Airport. It is the largest and

10

Market ReviewTransport www.baltkurs.com

Although Russian ports on the Baltic Sea keep growing, they are unable however to tackle with ever increasing cargo flowsin the region. It can serve as a good sigh for Estonian, Latvian and Lithuanian ports; the growing transit might be very helpfulfor their economic development. For this to be a reality, it would require political will of the Baltic States’ governments, as wellas new Russian investments into the ports. On the other side, Russia’s anticipated WTO accession would urge investors into theneighboring countries’ transit infrastructures. The BC has chosen these points to assess the transport industry development inthe three Baltic States.

Good prospects for the ports in the Baltic States

Latvia's ready to become a transit hubBy Olga Pavuk

Much of the credit for Latvian transport industry development should go toMinister of Transport Ainars Slesers, even though some may find his ambitious proj�ects unrealistic. Political clashes often hamper industry’s progressive movementwhile forcing participants to be on the constant state�of�alert.

most advanced aircraft maintenance facilityin the Baltic States.

“No major airport in Europe hasbeen able to keep up with our develop-ment pace,” K. Peters told the BC. “Inorder to achieve further growth of serv-ices, to serve five million and in nearfuture ten million passengers a year, theairport needs to be expanded radicallyand its infrastructure must be developed.It means, practically, a construction of anew terminal, the extension of the exist-ing runway and the construction of thesecond runway later on. It will requireunprecedented in the Latvian economyamount of investments at the level of500-600 mln lats.”

The airport also intends to developservices indirectly related to aviation. Inaddition to the existing facilities, a townwith hotels, a conference and exhibitioncenter, office buildings will start growing inthe airport’s business park with the area of20 ha already this year. Investment in thisproject will exceed EUR 400 mln.

RAILWAY AT A CROSSROADThe Latvian railway company Latvi-

jas dzelzcels is headed by another of Shle-sers’ associates. Latvijas dzelzcels’ BoardChairman Ugis Magonis faces the difficulttask of restructuring the company andupgrading the railway.

In 2005 Latvijas dzelzcels achieveda record-high cargo turnover of 54.9 mln t(of which 46.7 mln t international cargos).In 2006 the cargo turnover fell by 11.2%to 48.7 million tons (of which 40.1 mln tinternational cargos). The downwardtrend continued also at the beginning of2007 as transit reduced by 14.6%, includ-ing a 10.3% decrease of transit throughthe ports.

There are several reasons for reduc-tion of the cargo turnover, in particular,

trains with coal standing idle at the ports inRiga and Ventspils, waiting to be reloaded.Transportation of oil products throughLatvia has also decreased.

One of the most sensitive issues is thetransit tariffs in the Russian transport direc-tion. Russia has announced that in two orthree years it would be willing to lower therailway freight rates for transportation inthe Baltic direction along with raising therates for cargo destined for the Russianports. If Russia keeps this commitment,cargo transportation by Latvian railway islikely to grow by 20% annually and willdouble in five years, said Shlesers.

“In the context of the emergingtrend to move logistics centers closer tothe EU external borders, the Latvian rail-way will have to take on the task of han-dling a significant part of cargos goingalong the West-East transport corridor,”U. Magonis told the BC. “In view of thistask our priority investment projects in2007-2013 have been developed. The proj-ects are co-financed from the EU Cohe-sion Fund. About EUR 486 mln will beinvested in a set of measures aimed atincreasing the railway’s throughput on themost loaded routes.”

TRUCKERS LOOK TO THE EAST An interesting trend has recently

been observed on Latvian internationalroad haulage market. “Despite the contin-uous rumors about the TIR system near-ing the end of its time, the number of itsmembers in the association is growing,”Secretary General of the Latvian roadhaulage association Latvijas Auto, PavelGroshev, told the BC. “The new membersdo it only in order to get TIR carnets,which means those are the companies thatwork on the eastern market.”

There were 82,879 TIR carnets issuedin 2005 and 93,764 in 2006. The statistics on

TIR carnets issued in January-Februaryduring last 3 years has shown that 10,169TIR carnets were issued in 2004, 13,648 in2005 and 14,961 in 2006.

The fleet of heavy trucks has grownrecently by one-fourth, and most of themare new, environmentally friendly trucksmeeting Euro-3, Euro-4 and Euro-5 stan-dards. In 2006 alone, the number of vehiclesmeeting Euro-4 and Euro-5 standardsincreased by 1,500. Trucking companies areinvesting huge amounts of money in truckfleet renewal. It should be said that a trucksuited for international road haulage costsup to 70,000 lats.

“Currently there is a very tough com-petition between Finland and the Balticstates (especially Lithuania) over domina-tion in transit cargos transport from Russia,Kazakhstan and China. We have all theopportunities to turn these cargos to transitroutes through Latvia,” said Latvijas Autopresident Valdis Trezins.

Further growth in the internationalroad haulage market in Latvia is hamperedby three problems: idle time spent waitingin lines at the Latvian-Russian borders,inadequate road infrastructure and greatshortage of drivers. These problems are reg-ularly discussed on all levels but any realsolutions are still a long way to go. Heads ofthe Latvian and Russian customs services atthe meeting in Moscow on March 8 agreedon customs checkpoints’ upgrading on Lat-vian-Russian borders.


INTERNATIONAL ROAD HAULAGEMARKET IN LATVIA AS OF DECEMBER 31, 2006

Truck fleet

Bus fleet

Number ofcompanies

3028 402

Number ofvehicles

10048 813

Source: Latvijas Auto.

Sour

ce: R

iga

Airp

ort.

AIR TRANSPORTATION MARKET IN THE BALTIC STATES

Passengers Flights Cargoes, tRigaTallinnVilnius

RigaTallinnVilnius

RigaTallinnVilnius


RUSSIAN MONEY FOR THE BALTIC PORTS

Total cargo turnover in the three Lat-vian ports was 58.4 mln t in 2006 (58.8 mln tin 2005). On the Baltic Sea east coast, onlyPrimorsk can show larger turnover at 65.9mln t and St. Petersburg is in the third placewith 54.2 mln t. The turnover of liquid car-gos in Latvia increased in 2006 (at theaccount of oil products). There was a slightreduction for bulk cargos (coal and mineralfertilizers) as well as for general cargos (atthe account of timber) while turnover ofcontainer cargos increased. By tradition,Ventspils port kept the leadership, both bythe general cargo turnover (29.1 milliontons) and by the rate of cargo turnoverreduction (-2.7%).

The Riga port is the third largest inthe Baltic region (after Primorsk andKlaipeda) by growth of cargo turnover, andthe only port in Latvia that demonstratedgrowth in 2006 (25.3 million tons, with 3.8%growth). Yet, both ports — Riga andVentspils — suffered reduction of cargoturnover in January 2007. Representativesof stevedore companies put blame on theLatvian railway company Latvijas dzelzcels’tariff policy.

The third and the smallest of all thelargest Latvian ports, Liepaja, has donebetter in the beginning of 2007, showing a25.4% percent growth of cargo turnoverin January.

There is hardly any vacant space leftin the Liepaja port and, according to ourinformation, this port also invited Russianinvestments. “Through implementation ofpurposeful investment policy the port willattract up to EUR 50 million from the EUCohesion and Structural Funds as well asfrom Latvian national budget for develop-ment. These investments are expected toresult in a double growth of the cargoturnover in 5-7 years to 10 million tonsannually,” said Guntars Krievins, Managerof the Liepaja Special Economic Zone.

Board Chairman of the Riga FreePort, Andris Argalis, explains the positivedynamics of the cargo turnover growth atthe port in the following way: “Riga is oneof the most advantageous transit routesdue to its geographic position and rela-tively developed infrastructure as well ashigh quality cargo services coupled withcompetitive prices for freight transporta-tion in this direction”.

Transit cargos to/from the CIScountries make up to 80% of the cargoturnover at the Riga port. Today success-ful operation of the Riga port to a largeextent depends on coal from Kuzbas andoil products from Russia.

“One should look for new cargos andpursue a more active policy as regardsattracting Russian strategic investors todevelopment of the transport and portinfrastructure. Making the port one of thelinks in the production and logistics chainwould provide certain guarantees for usingthe ports’ piers,” said Tikhonov.

Riga ranks second among the portsof the Baltic States by handling of con-tainer cargos. In recent years the Riga portprocessed one-third of all containersshipped through the Baltic States (interms of both the cargo volume and thenumber of containers).

Presently there is one container ter-minal (Baltic Container Terminal) func-tioning in the Riga port. But it might facethe competition from a new terminal thatRussians intend to build in the Kundzin-sala area. An agreement has been signedwith the Russian company TransKonteiner(a subsidiary of the Russian state railwaycompany, RZD) concerning the leasing ofthe land for the 45 years’ period of a newterminal construction in Kundzinsala. Acompany Nacionalais konteineru terminals(National Container Terminal) wasfounded in Latvia in May 2006 for imple-mentation of the business plan. The com-pany founder on the Latvian side was

Ivars Millers, Vice-President of SkontoBuve, one of the largest Latvian construc-tion companies. The new terminal to bebuilt in the Riga port plans to be handlingcontainer cargos transported from SouthEast Asia and Russia’s western region toEurope, and vice versa.

According to the preliminary data,the terminal will become operational in2008-2009. Its capacity will be 2 mln con-tainers a year. If one container weighs about20-25 t on average, it would mean annualcargo turnover of 40-50 million tonswhereas currently the entire port handlesonly 25 million tons.

“Today the Ventspils Free Port is notonly a deep-water ice-free harbor withmodern specialized cargo terminals. It isalso a rapidly growing ferry traffic hub inthe Baltics and an attractive location forinvestments in production of goods withhigh added value,” Ventspils Free Port Man-ager, Imants Sarmulis told the BC.

In 2006 the port showed a cargoturnover of 29 million tons, of which almost62% were liquid cargos, about 30% werebulk cargos and over 8% were general car-gos. In addition to traditional cargos like oiland oil products, liquid chemicals, coal, min-eral fertilizers, raw sugar, sawn timber etc.,handling of general and container cargos atthe port is constantly growing. Opportuni-ties are emerging for reloading of new typesof cargos (grain, juice concentrates).

The major event in 2006 was theacquisition of state-owned shares inVentspils nafta by Euromin Holdings repre-sented by the Vitol Group. In March 2007Latvian Competition Council approvedthe takeover resulting in Euromin Hold-ings’ acquiring decisive influence overVentspils nafta terminals (VNT), a sub-sidiary of Ventspils nafta. In January-Feb-ruary 2007, VNT reloaded 1.9 million tonsof oil and oil products (as to 1.2 milliontons in January-February 2006). Oil prod-ucts were delivered to the terminal by thepipeline, by rail and by sea.

If anything hampers operations ofthe Ventspils port, it is the continuousscandals involving the Ventspils CityMayor, Aivars Lembergs, as well as con-stant quarrels between a group of steve-dore companies reloading potassium salt,grain and other cargos and the Latvianrailway company. As a result of the con-flict, several companies withdrew from theLatvian Transit Business Association andformed a new organization, the BalticTransport and Logistics Association,which is headed by Janis Jurkans, formerpopular Latvian politician. •


CARGO TURNOVER AT PORTS ON THE BALTIC SEA EAST COAST, MLN TPorts 2002 2003 2004 2005 2006Primorsk 12.4 17.7 44.6 57.3 65.9St. Petersburg 41.3 42.0 51.2 57.5 54.2Kaliningrad 9.9 12.6 14.0 14.6 15.2Ventspils 28.7 27.3 27.8 29.9 29.1Riga 18.1 21.7 24.0 24.4 25.3Liepaja 4.3 4.8 4.5 4.5 4.0Tallinn 37.8 34.9 37.4 39.5 41.2Klaipeda 19.7 21.1 20.2 21.8 23.5Butinge 5.6 10.8 7.2 6.1 5.9Gdansk 17.4 21.3 23.3 23.3 22.4Gdynia 9.4 9.7 10.7 12.2 n. a.Source: Latvian Transport Ministry.


Lithuanian transport industry alongwith the processing industry, construction,financial intermediation and real estate sec-tors contributed 11% each to the nationalGDP; while for other industries’ sectors thisfigure was 4%. It means that the leadingindustries generated about half of the entireLithuanian GDP. Quite naturally that trans-port and communication industries receivedthe biggest share (846.7 mln litas) from 2007public investment funds.

PORT COUNTS ON DEVELOPMENT’S RESERVES

The Klaipeda port reached in lastyear’s accounts a record-high result inrecent years: in 2006 it reloaded 23.55 mlnt of cargos, which is 8% increase from theyear before. In addition, the port served240.2 th passengers, which also is a highernumber than in 2005.

Klaipeda port has succeeded inincreasing the turnover in all categories ofcargos — liquid, bulk, combined and gen-eral, but the leading products in terms ofgrowth in 2005 were bulk fertilizers, Ro-Rocargos and oil products.

These advances in Lithuania werenot however perceived as an unexpectedthough quite a pleasant surprise. Mediareports about multi-million investments inKlaipeda port seabed deepening, as well asinfrastructure development and other proj-ects have become a common place recently.These investments, judging by the results in2006, have already started paying off.

Although in 2006 there were 6.5%less ships than in 2005 visiting Klaipedaport, nevertheless, the total cargo turnoverlast year increased by 8%. Sigitas Dobilin-skas, Director General of the Klaipedaport, expects the port to operate just assuccessfully also in 2007, achieving anotherrecord — 25 mln t a year.

But Arturas Drungilas, MarketingDirector in Klaipeda State Seaport Author-ity, told the BC that when it comes to invest-ments, one has to consider state and privatebusinesses’ cooperation in Lithuanian port.

“Investment efforts by the state are,of course, extremely important, saidA.Drungilas, but half of the success stilldepends on private companies. If the portauthority builds new piers or deepens theseabed in the port but private businessesare not neither building warehouses onthose piers nor invest in getting loadingmachinery or develop the infrastructure,then successful outcomes would take along time to come. Every year both parties,i.e. the port authority and the private busi-nesses, invest in the port’s developmentabout 100 mln litas each”.

A.Drungilas believes that the appar-ent benefits are shared by both parties. Forexample, the Bega stevedore companyreloaded 2.9 mln tons of cargos last year,which is 11% increase as to 2005. Since2000 the amount of cargos handled by thecompany has been growing steadily at therate of 10-15% annually.

It seems naturally that all this cannot escape business people’s attention.Hence, it is possibly for this reason thatone of the largest land-users in Klaipedaport, the shipbuilding company Vakarulaivu gamykla (VLG), has planned to startliquid products’ terminal construction in2007. The estimated investment in the proj-ect is 25 mln litas.

“Currently there is no shortage ofareas for development in the port, saidA.Drungilas. We expect that there will beenough territory for development for awhile. In addition, we can count on thevacant areas in the Klaipeda Free Eco-nomic Zone. I think those territories willbe sufficient for 7-10 years’ development.Moreover, Lithuania plans to build a newport in Melnrage, not far from Klaipeda”.

FEZ PREPARES FOR BREAKTHROUGHA.Drungilas had a good reason to

mention the Klaipeda Free EconomicZone (FEZ) as a reserve territory. For thesame reason, Eimantas Kiudulas, Manag-ing Director of the Klaipeda FEZ, consid-ers seaport’s vicinity as one of the key fac-

tors which potential FEZ’s members takeinto consideration.

“I would say that the access to theport is extremely important for 60% of thepresent Klaipeda FEZ’s members, saidE.Kiudulas. About 90% of our tenants areexporting their products by sea. Plus, wecan offer not only the sea transportationbut also a convenient railway links. Under-standably, business also takes into accounttax privileges.”

Yet, according to E.Kiudulas, the“Klaipeda port’s factor”, which continu-ously expands its capacities, takes prece-dence in the minds of businessmen. Possi-bly this is why the FEZ, which had so muchproblems at the start (after completion ofthe paperwork, several years passed beforethe FEZ actually began functioning), isnow ready for a breakthrough. Today fivecompanies are operating at the Klaipeda’sFEZ, but the managing director expectstheir number to reach 18 by the middle ofthe next year.

“By the end of the year a logisticscomplex with total warehousing area of20,000 sq.m is to open in the FEZ,” saidE.Kiudulas. “Two of three companies willbe working there. In addition, as many asthree plants will start biofuels’ productionin the near future. One of them specializesin making bio-diesel petrol and the othertwo will produce bio-ethanol.”

Companies from various countriesare showing interest in Klaipeda FEZ’sactivity. The FEZ management has dividedthem into several groups. There are com-panies from EU member states willing toexpand their production while cuttingoperating costs. The the countries next tothe EU: e.g. negotiations are underwaywith a Norwegian company specializing inmetal equipment for energy industry.Asian companies interested in entering theEU market also put their stakes onKlaipeda. Businesses from the CIS coun-tries also pursue the same goal, and thelocal capital is also anxious to be present inthe Klaipeda FEZ.

RAILWAY: TOTAL MODERNIZATION Lithuanian state-owned railway

company Lietuvos gelezinkeliai (Lithuan-ian Railway) cannot claim large growthfigures. According to the LithuanianDepartment of Statistics, the railway


Lithuania in a state of sober optimismBy Sigitas Pasilaitis, Lithuania

Lithuanian transport industry’s employees can be really happy about lastyear’s activity: it is seen in the preliminary figures published by the Department ofStatistics at the beginning of 2007 that transportation had been one of the sectors,which contributed most to the total added value growth in the country.

company transported 50.2 million tons ofcargo in 2006, which is up by only 1.9%from the previous year. The growth oninternational routes was 5.6%, whiledomestic railway freight transportationdecreased by 7.1%. These trends havebeen constantly persisted during last fewyears and are hardly likely to change inthe near future.

Nevertheless, the figures andtrends given above should be consideredthrough the light of the problems whichLietuvos gelezinkeliai authorities identi-fied at the beginning of the currentdecade: measures for modernization ofthe infrastructure and the locomotivefleet need to be taken immediately. Oth-erwise the time will come soon whenthere will be no rail cars for carrying car-gos, no locomotives to pull those trainsand no rail tracks that would meet theever growing requirements.

Therefore, if one tries to describe thecurrently priority of Lietuvos gelezinkeliaiin just one word, that word would be “mod-ernization”.

TRUCKERS INVEST IN BUSINESS GROWTH

Lithuanian road haulage industry in2006 performed quite well is the opinion ofAlgirdas Baranauskas, Secretary for Trans-port Policy and Information of Linava, theLithuanian national association of roadcarriers. The positive results are based,among other things, on great activity bylocal trucking companies in the newtrucks’ investments.

Favorable terms offered by leasingcompanies also played a role here, ofcourse. If the Lithuanian truckers were notable to make the ends meet, as the sayinggoes, they would not be likely to investtheir hard-earned money into upgrading,not to mention expansion of their fleets.Consequently, they see great potentials insuch action.

Yet,A.Baranauskas thinks, such activ-ity’s development may actually play againstthe companies, being of a leap service.

“As long as a system of trucking per-mits exists, one cannot rule out a situationwhere the number of those permits foroperations on the eastward routes fallshort of the growing capacity of theLithuanian road carries, he said. In thatcase they might have to switch to the EUmarket. If we can see a more or less massswitch, tariffs might fall and revenueswould reduce.”

But it takes time to see what devel-opment scenario the Lithuanian market ofinternational road haulage will follow thisyear. So far the truckers themselves feeloptimistic. Logistics experts expect 5-7%price growth in the sector this year.

One of the reasons for this is notonly the demand for the trucking servicesbut also a considerable shortage of drivers.The trucking companies are looking fordrivers not only in the labor markets of theCIS countries, which by now have becomea traditional source, but also in the neigh-boring Poland.

COMPETITION IN THE AIR TRAFFICGROWS TOUGHER

In 2006 the Lithuanian air compa-nies operated with varying success (seeTable). All in all, they carried 729,600 pas-sengers, which was 8.2% increase from theyear before. At the same time, the amountof freight and mail deliveries carried by theLithuanian air companies fell by 26% from2005 reaching 5,600 tons in 2006.

It should be said that the Vilnius air-port, which accounts for a lion’s share ofthe passenger transportation (about 1.45mln people), reduced two of the main air-port fees last year: the passenger’s depar-ture fee was cut from 60 litas to 50 litas,and the aircraft landing fee was cut from 52litas to 45 litas per ton. Even though theseactions, as well as expected growth of costs

will probably bring the airport’s profitdown from 23 mln litas in 2005 to 18 mlnlitas in 2006, the airport administration hadno intentions to give up the reduced fees,said the Vilnius airport spokesman, ArunasMarcinkevicius.

Apparently this can be explained bythe increasing competition both from themain rival, the Riga airport in Latvia, andfrom other Lithuanian airports, which alsodo not stand idle. Thus, Kaunas airport,which cooperates with the Irish low-cost-ticket airline Ryanair, served 250,000 pas-sengers in 2006, which three times morethan in 2005. Moreover, the second largestairport in Lithuania, which is calledKarmelava after the neighboring town,maintains the leading positions in thefreight transportation market, too. In 2006it handled over 6,600 tons of cargos, whichrepresents a 60% growth.

And it looks like there are no limitsyet: by October 2008 Kaunas airportintends to expand the passenger terminalby some 3,000 sq.m, adjusting it to theShengen requirements, and will spendabout 10 mln litas for the purpose.

Palanga airport cannot competepresently with Vilnius airport on equalfooting as it serves only small and mediumaircrafts. Nevertheless, the curve repre-senting the number of passengers served atthe Palanga airport annually is risingupwards steadily. In the last three years(2004-2006) the airport served 76,020,94,000 and 110,828 passengers a year,respectively.

Therefore Vilnius airport should notlet its guard down. Actually, it has no inten-tion to do so. The Vilnius airport has suc-ceeded in bringing in the Latvian airlineairBaltic, which last year ousted flyLAL-Lithuanian Airlines from No. 1 position, acompany with the Lithuanian capital thattraditionally used to lead the companiesworking at the Vilnius airport by the num-ber of passengers carried. •


CARGO TURNOVER BY LIETUVOS GELEZINKELIAI, MLN TTransit Import Export Domestic Total

2000 17.99 3.96 4.10 4.66 30.712001 15.15 3.41 4.27 6.34 29.172002 20.80 4.90 4.47 6.48 36.652003 23.78 7.18 7.05 5.44 43.452004 22.99 7.92 8.60 6.04 45.552005* 19.20 10.25 5.48 14.36 49.292006 20.20 11.70 4.98 13.34 50.22* From 1 January 2005, the methodology for rail transport statistics was changed in line withthe Regulation (EC) No 91/2003 of the European Parliament and of the Council, and theCommission Regulation (EC) 1192/2003. It means that the cargos carried from other countriesto the Klaipeda port by rail and the cargos shipped to the Klaipeda port by sea but removed toother countries by rail are not considered the transit cargos.Source: Lietuvos gelezinkeliai.

ROAD HAULAGE IN LITHUANIA, TH T

Sour

ce: L

ithu

ania

n Tr

ansp

ort

and

Com

mun

icat

ions

Min

istr

y.

(forecast)

Contemporary trends in theEstonian transport industry have beenspecified at the TransEstonia confer-ence held recently, by Raivo Vare, for-mer Development Manager at EestiRaudtee (Estonian Railway) companyand presently transit industry expert.

First, Estonia occupying Easternpart of the Baltic Sea would explorefast development in relation to con-tainerization, growth of road haulageand sea transportation. Secondly, Rus-sia is stepping up production of energyresources, on one hand, and the globaldemand for such resources is growing,on the other hand, which will lead toincrease of the Russian energy exportsthrough the ports on the Baltic Sea,including the ports in the Baltic States.

“It is very important for Estoniathat the Russian oil product exportsshould not slow down,” said Mr. R.Vare.Some sources claim that oil transit con-stitutes about 61.5 percent of thefreight transportation in Estonia; someother analytical sources make it as highas 70.2%.

Mr. R.Vare has said on severaloccasions that transit is an element of keyimportance for Estonia’s development.Demonstrating flexibility in solving vari-ous issues when working out logisticschains, tariff components, etc. also mat-ters a lot. Especially now, when Russia, onone hand sends the bulk of its export car-gos though her own ports and, on another— boosting capacity of its ports. “TheRussian ports now have a price advan-tage, therefore the Estonian ports can’tcompete with them,” said R.Vare.

Russian Transport Minister IgorLevitin, who recently visited Tallinn atthe invitation of Edgar Savisaar, theEstonian Minister of Economic Affairsand Communications, became the firstmember of the Russian government tomake an official visit to the formerSoviet republic in the Baltics. In con-

clusion of the visit, Mr. Levitin said inthe interview to the internet provider,RZD.Partner.ru: “It was important forus to understand today the way Estoniais ready to accept the cargos that Rus-sia can’t reload through the Russianports. Estonian ports now processabout 40 mln tons of Russian cargos.The meetings in Tallinn revealed thatwe share with the Estonian Minister ofEconomic Affairs and Communica-tions, Mr. Savisaar, the same under-standing of the importance of transitand investments for our countries andare willing to work together.”

TALLINN AIRPORT’S UNLIKELY TO CATCH UP WITH RIGA

Tallinn airport served 1.541 mlnpassengers (+10%) and 34,000 flights(+1.1%) and also handled 10,360 tonsof cargos (+4.3%) in 2006.

According to the Tallinn airportmarketing manager, Kristel Saulepp,the passenger growth in the last 5-6years has been driven by several fac-tors, e.g. including opening of the newair routes and the growing number offlight operators’ companies. Interest inair travels has increased also due to thefalling air fares and Estonia’s accessionto the EU. “One has to keep in mindtoo the overall economic growth in thecountry and, consequently, the improv-ing welfare of its citizens. Foreigntourists preferring air travels have alsotaken an increasing interest in Esto-nia,” K. Saulepp told the BC.

In addition to regular flights, thenumber of charter flights departingfrom Estonia has also increased as thetour operators offer terms favorable toEstonian tourists.

The Aripaev newspaper reportedabout the official beginning of the ren-ovation of the Tallinn airport. Two key-stones were laid — for the passengerterminal and the airplanes’ take-off

strips. Both facilities have to be com-pleted by mid-2008.

Mr. Rein Loik, Board Chairmanof the Tallinna Lennujaam (Tallinn Air-port) company, believes that even afterthe renovation that would cost EEK1.2 bln, Tallinn airport is unlikely tokeep pace with the Riga airport,although only few years ago the Tallinnairport was serving more passengersthan the airport in Riga. “There aremore people living in Latvia,” said R.Loik, explaining the growing riftbetween the two airports.

PLENTY OF FACILITIES IN THE PORTSSpeaking about the port capacity,

Managing Director of the EstonianAssociation of Port Operators, AgoTiiman, told the BC that, contrary toEstonia’s direct competitors — Latviaand Finland, where ports are situated inthe cities and therefore have limitedpotentials for expansion. In Estoniathere are vacant areas, it is seen by theexpansion of the country’s ports, e.g.new terminals are being built in Muugaand Paldiski ports and improvementsmade to the infrastructures.

As to the Russian capital’s activ-ity on the territories of the Estonianports, one can note the presence of sev-eral large Russian groups striving todevelop business. Of course, Severstal-trans can be mentioned among the mostactive of them, as it has been buying up

By Dmitry Kulikov, Estonia

The Estonian transport industry is exploring new development options which,first of all, are related to containerization and growth of oil products’ export.

The Baltic Course No. 25 – Spring 200716 Transport www.baltkurs.com

Estonia: as turnover grows, the directions change

the Estonian terminals to become theleading player on the oil-productreloading market. Those terminals,operating under the E.O.S. brandname, now reload over one-third of oilproducts shipped through Estonia.

“Operations by the mineral fertil-izer producer Acron and constructionof the coal terminal should be noted aswell,” said A. Tiiman. He added that oiltransportation is becoming more trans-parent as blending takes place both inEstonia and Russia.

NATIONWIDE CONTAINERIZATIONThe main issue of concern for

business in the ports is changing theports’ profiles. The rumors have longbeen spreading about the likelihood ofending huge profits from oil transit.Now the problem of containerizationhas entered the limelight. Experts thinkthat, regardless of the rapid develop-ment of the business in general, adownward trend has emerged in con-tainer transportation in Estonia.

At the same, a debate startedrecently in Estonia about the need tobuild another container terminal in theTallinn port. The proposal is not quite log-ical, thinks Igor Zimin, Board member ofMuuga CT container terminal in Tallinn.His speech became one of the key eventsat the conference TransEstonia 2006. Mr.Zimin believes that it will be impossibleto safeguard enough cargos for the twocontainer terminals. He said that insuffi-cient workload was one of the main fac-tors having adverse effect on the MuugaCT terminal’s activity results.

In Mr. A.Tiiman and otherexperts’ opinion, the issue of port con-

tainerization faces “the chicken and theegg” dilemma, i.e. which came first. Itmeans that either Estonian ports firstbuild the infrastructure and find amajor global operator, or initiate anagreement with a solid partner likeMaersk and afterwards build the infra-structure to meet its needs.

According to RZD.Partner.ru, thecontainer terminal in Muuga has a long-term development plan for 2005-2015.Phase 1 of the terminal developmentprovides for expansion of the area to 40hectares around the terminal. DuringPhase 2 a pier will be built and the adja-cent water territory deepened from cur-rent 12.5 meters to 14 meters.

ROAD HAULAGE ON THE RISE According to Association of

Estonian International Road Carriers(ERAA) statistics, there are 1,044 com-panies engaged in international roadhaulage in Estonia and they own orhold under the lease 2,234 trucks and56 buses. For most part, those are smallcompanies. Over half of them have 1-3vehicles. Only 13 companies have truckfleets with more than 50 vehicles.About 40% of all trucks are equippedwith Euro-3 engines.

Estonia, just like Latvia, is suffer-ing from congestions on borders withRussia where the trucks are stretchingthe line for many kilometers. TheERAA expects that the flow of vehiclesacross the border will increase in 2007.For convenience of drivers, the ERAAhas decided to build a truck parkingfacility one kilometer from the border,in Narva. The association has bought10 hectares of land for this purpose.

Not all truckers are happy about thisinformation as they think that the issueshould be solved by the state.

WHAT WILL FUTURE BRING?The national transport policy is

outlined in the Estonian Transport Sec-tor Development Program for 2007-2013. Investments in the amount ofUSD 615 mln (EEK 8 billion) are envis-aged in the program. The money will bespent mainly on expensive projects, e.g.Estonia needs to buy icebreakers ortogether with Russia, a bridge will bebuilt across the River Narova, whichlinks Ivangorod and Narva border-towns. Estonian railway’s infrastructureneeds to be developed, even though sofar there are plenty of uncertaintiesabout the railway company’s future.

The program takes into accountthe expected steep rise of cargo trans-portation across the Baltic Sea by 2020(some sources forecast a doublegrowth). Most of those cargos will betransported along the Estonian North-South transit corridor. If all cargotransportation routes are taken intoconsideration, the cargo turnover inEstonia will reach 448-620 mln tons.

The Estonian Statistics Depart-ment has shown that in 2005 the Eston-ian transport industry carried 96.4 mlntons of cargo, of which 70% was trans-ported by rail. This figure increased a lit-tle in 2006. Road haulage accounted for28% of all cargos. Oil products prevailedamong the cargos transported by rail at52% and oil shale constituted 22%. Tran-sit cargos made up 36 mln tons, including25.8 mln tons of oil products, which isequal to 27% of all cargos. •


RAILWAY FREIGHT TURNOVER IN ESTONIA, TH T

Source: Eesti Raudtee.

* Including Tallinna Sadam as well as ports in Paldiski, Kunda, Parnu, etc. Source: Tallinna Sadam. Source: ERAA.

CARGO TURNOVER AT TALLINN PORT*, MLN T

ESTONIAN INTERNATIONALHAULAGE TRUCK FLEET BREAK�DOWN, BY NUMBER OF VEHICLES,AS TO JANUARY 1, 2006, %

More than 30%


A key area in the activities of the railway is the deliveryof goods from Russia, Belarus and from other CIS countries tothe Latvian ports. After Russia joined the WTO and after thediscriminating railway tariffs were abolished as well as againstthe background of general normalization of relations betweenLatvia and Russia, goods’ turnover via Latvian ports shouldincrease. In order to be ready for it, the mentioned complexinfrastructure modernisation is being carried out. Whichworks have been done already and which lie ahead? Aboutthis tells Ms Aija Poca, Head of the Project Management Unitof the Latvijas dzelzcels.

A. P.: We work simultaneously in various directions. As itis not possible to do all volume of the works by the finances ofthe company, we attract money from EU funds and pro-grammes.

At present, four projects worth 200 million lats havebeen already accomplished and two others are in the phase ofpreparation and their completion has been planned for theyears 2007-2008.

BC: What would you like to emphasize of the alreadyimplemented?

A. P.: That is first of all our goods’ reception park at theRezekne-2 station. On 2 March 2006 an official opening of ittook place. It is located at a very important point of the Lat-vian railway transport corridor Ventspils-Riga-Zilupe and fur-ther to Russia. Within two years in a former boggy meadow ofthe rural municipality Verene six sidings were constructed forreceiving and dispatching of trains as well as other infrastruc-ture needed for train rooting and formation has been con-structed. The new park will allow significantly increase thetrain traffic volume when Rezekne-2 station is being used and

will ensure a smoother handling of cargo including a betterdistribution of cargo in directions to Latvian ports. The totalvalue of investments was 10.2 million EUR, 7.66 million ofwhich was a funding by the EU ISPA programme.

BC: However, the Riga railway junction remains still themost important one in Latvia. A large part of cargo goes rightvia it. What changes does it expect?

A. P.: Already in 2003, a preliminary project on mainworks was elaborated in the context of the general develop-ment of Riga port. Hereinafter however new requirements hadto be taken into account and it then needed some corrections.Therefore, now construction of a rail track to the forthcomingnew terminal in Kundzinsala is anticipated. In its turn, on theleft embankment of the river Daugava the construction of anew receiving park Bolderaja-2 will be started. It will starthandling the freight coming from the new terminal on theisland Krievusala.

By the way, here is a package approach necessary thattakes into account the interests of the railway, of the Freeportof Riga as well as of Riga, particularly taking into account theupcoming Northern ferry across river Daugava.

Preliminary investment expenses have been alreadycalculated. For a complex reconstruction of the railway junc-tion Riga, there are 53 million EUR necessary. About 60% ofthe needed financing should come from the EU CohesionFund. The remaining amount is the own financing by theSJSC Latvijas dzelzcels.

Construction works should commence in 2008 and be fin-ished in 2013. The constructed railway infrastructure will enablethe Riga port to handle 40 million tonnes cargo a year.

However, taking into account the increased traffic inten-sity, the issue requires an immediate decision at which pointcargo will cross the Daugava river. For at present, it crossesthe centre of Riga. It will be not acceptable in future. Thereare moreover forecasts that the capacity of the port of Rigaaround the year 2030 will be 100 million tonnes cargo a year.In the old development plan of the city, it had been supposedthe construction of a railway ferry on a raft of the hydroelec-tric power station of Riga. The trains however may run alsoover the Krustpils’ bridge in the section Krustpils-Jelgava witha following distribution not only to Riga, but also to Ventspilsand to Liepaja.

BC: Will the multi-million investments into the infrastruc-ture development pay off? Which goods and from which coun-tries will run along the Latvia railway?

A. P.: The purpose of our programmes is the increase ofthe speed, volume and quality of servicing the transit cargothat runs along the Latvian territory. It is indissoluble con-nected with the development of ports. Dockers and railway-men should work closely together. It will help to increase thecompetitiveness of the Latvian link of the East-West corridor.Along with Russia and Belarus interested parties are alsoexporters from more far-off regions, for instance Kazakhstan.Besides it, there are tempting projects on paving of a newsilken way — China takes an active interest in new opportuni-ties for delivering its goods to the European markets. •


Looking into the futureBy Alexander Fedotov

At the SJSC Latvijas dzelzcels a complex infrastructuremodernisation is being carried out in the East�West corridor.

The modernised main�line diesel locomotive 2M62U.

LSF TRANS Ltd main sphere of activity is to render all kindof services concerning railway transport of various goods, includingcontainers, through Latvian territory. Among the rage of servicesthere are: inter-modal railway transport; preparing all necessary rail-way documentation paper-work; receiving and processing cargoes inthe ports; facilitating intra-ports’ goods operations; goods’ sortingand security, including additional processing on the ports’ territory;preparing necessary ship-loading papers, as well as all the informa-tion presentation concerning cargoes’ movements and locations.

LSF TRANS Ltd was established in 2002. High service qual-ity, exceptional work strategy, technical feasibility and high person-nel’s qualifications — this is all that has determined our successfulwork on the market of railway transport and cargo-expeditionsecuring LSF TRANS Ltd a dignified place among leading Latviantransport and forwarding companies.

Quite advantageous transportation deals concluded with theLatvian Railway Company (Latvijas dzelzcels) allowed LSFTRANS Ltd during short time present itself as a reliable partner ingoods' forwarding by railway. The company has its own offices andagents in all major Latvian ports, which allows for both efficient pro-cessing of all the cargoes and quick resolution of all customs, railwayand port formalities.

Company’s high quality service together with reasonableprices has been adequately appraised by major trade and pro-duction companies, as well as by private dispatchers which havebeen already our company’s permanent customers during lastseveral years.

Every customer addressing LSF TRANS Ltd becomesour business partner; his wishes are always kept under controlby the company’s employees. We constantly strive for crediblerelationships with our customers following one of major mod-ern business’ principles, i.e. individual approach to each andevery customer.

From organisational point of view, LSF TRANS Ltd is adaughter company of the multi-sectoral company, LSF HOLD-INGS Ltd, which is an intermediary shareholder in container termi-nal and direct shareholder in grain and juice terminals functioningin Ventspils free port.

LSF TRANS Ltd has acquired the right to use terminals’access roads which together with the railways are situated in thestrategic Ventspils’ places allowing for quick, optimal and effi-cient cargos’ processing providing for the strategic importanceof the terminals within the transportation chains between Latviaand its neighbors.

Company’s longstanding and mutually favourable partner-ship relations with terminals’ and stevedores’ companies also in

Riga and Liepaja ports facilitate the company to offer forwardingand cargo owners extremely advantageous and elastic cooperationterms. LSF TRANS Ltd has become a solid partner in the transitchain, this fact is confirmed by the proven fact, i.e. audited yearlycompany’s account for 2005 has shown $93 mln turnover and thecargo transport which reached 10 mln t.

About 18% of all the cargoes transported by the state JSCLatvijas dzelzcels already belongs to the LSF TRANS Ltd cus-tomers, as well as 35% of all the cargoes transported throughVentspils port.

LSF TRANS Ltd is an active member in such organisa-tions as Latvian Trade and Commerce Chamber, Latvian TransitBusiness Association, Latvian Association of Freight For-warders (LAFF) and and International Federation of FreightForwarders Associations (FIATA). This membership allows ourcompany to express its position in business and pursue an activepart in creating partnership cooperation with local and interna-tional businessmen. •


LSF TRANS — individual approach to each customer By Edgars Jansons,Member of the Board, LSF TRANS Ltd

We are glad for the opportunity to inform the readersabout the LSF TRANS Ltd and the range of services we offer toour customers. We are quite certain that both our experts’professional knowledge and our previous working experi�ence provide us with the facilities to secure high�qualityservices’ provision concerning transit goods transportationthrough Latvian territory.

Dome Squire, 1a, Riga, LV�1050, LatviaPhone: +371 67359055, fax: +371 67359044

E�mail: [email protected]

It is necessary, to my mind, thatfrom the very beginning the family shallcreate a family capital management sys-tem. In the West, a regular family acqui-sition control is a common picture. In ourcountry, which made a gigantic lip fromsocialism to capitalism in a few years, thenotion of “family capital” is in its initialdevelopmental steps. It goes without say-ing that legally adequate and economi-cally feasible family capital managementis an absolute necessity to avoid possiblelosses and apparent mistakes.

FAMILY CAPITALS’ MANAGEMENT In Western states, e.g. in Sweden,

Switzerland and Germany the family’s

capital support and insurance systemshave had a long history. Hence, there areevident rules for social and pension legis-lation, efficient measures for securing peo-ple’s bank deposits and accounts, as well assufficient child care systems, to name a few.

That kind of a system is in a devel-opment stage in Latvia, where at the initialsteps all negative effects can produce greatdamaging effect. An important conclusioncomes out of this: as soon as the ordinarypeople can not influence the state budgetallocation system priorities, they can easilyinfluence the process of family develop-ment instead. So to say, we have to “trainour family structures” in order to makingthem adaptable to any economic stress. To

reach this aim one thing is needed — wehave to create an optimal family capitalmanagement to facilitate capital’s accu-mulation and to provide sufficient guar-anties in any critical situation.

MANAGEMENT MODELS As a rule, the family property and

some liquidity in the bank are, no


Family business was the theme of a new round table (RT) organised by The Baltic Course (BC) and BalticInternational Academy (BIA). In contrast to the previous BC — BIA round tables (see, e.g. BC No. 23&24),BIA students took part in the discussions besides the academia, experts and businessmen.

The theme was so interesting that the RT could not manage to cover in detail all the issued within thehours devoted to it. The participants, students in particular, just poured the questions on the speakers. Inthis BC’s issue we present main participants’ reviews, and the results of the poll conducted.

20

Round TableFamily Business www.baltkurs.com

By Vladimir Gurov, Professor, Prorector, BIA

We come from the assertion that a family is a small group of people unitedeither by the fact of marriage or by other kind of a family relative’s relations. In thyeconomic sense, these relationships are permeated by the family capital in the formof accumulated family assets in liquidities or real estate, including family members’shares (one or several) in the common family business, if there is one, or in the formof other companies’ shares. It is quite a natural trend that any family seeks toincrease its capital. If such a task is pursued, that means that we are dealing with asort of regular business arrangements.

Family capital: love, marriage contract,inheritance and business

“I've loved Mickey-Mouse more than any women I ever knew”.

Walt Disney

Family as a capital

doubt, at the “founding fathers’ merits”,who already went through enormousand severe “business school”. This“fathers’ generation” went throughundeserved sacrifices during the turbu-lent 1990s in the Baltics. It might seemthat such experience can give “found-ing fathers” certain advantages in fam-ily business management.

Somehow, in reality things rarelyhappen that way; there are plenty exam-ples when founding fathers intentionallyset themselves aside from family busi-ness. Why? The answer, as a rule, lies intheir present business engagementsand/or life-long tiredness. As a result,family business moves onto a wife’sshoulders, which resembles an old-Soviet system when a husband earnedmoney and a wife “carried on the house-work”. As a rule, actual capital manage-ment does not occur in such families:house-wifes just spent money instead ofinvesting into profitable projects.

The model where both a husbandand a wife are earning money could beregarded as a second one. And the thirdone, in which children in the familywould take part in management, on parwith the other family members. Thethird model seems to me to be the mostperfect: the young generation hasalready elaborated a different to theprevious time approach to the capital,life-styles and moral values. And it’snot a complement to the youth, it’s arecognized fact. Their behavior ispresently determined by the new west-ern approaches to life, i.e. pragmatism,rationalism and prudence which duringprevious Soviet period were perceivedas some negative features. Children’sparticipation in a family capital’s man-agement makes the whole process morepragmatic as well as predictable.

As an outcome — relationships invarious families, including the young ones,are becoming formalised, e.g. marriageagreements are concluded or parents-kids’relationships are getting regulated as tothe intra-family loans, etc. In such familiesoften the testaments are drafted before-hand. Besides, property management insuch families can be run jointly and/orseparately by a single person. It goes with-out saying that the rights and duties of thefamily participants are legally defined.

RIGHTS DEFINED IN THE CONTRACT The importance of this notion can be

shown in two examples. In the first, thehusband is running a shady business and is

killed in a criminal fight; after his deathquite suddenly from a “dark side” somedebts showed up. As a result debts, uncer-tain inheritance and the death of the“bread-winner” are becoming an unbear-able burden for the family. Another exam-ple: a husband is a casino-infected personand intentionally does not reveal all hisassets. Once he loses all the money in gam-bling; in order to pay the debts he leaves asdeposit the apartment and the house, notinforming the family about it. As result, thefamily is homeless and broke.

In order to avoid the negativeconsequences of these two examples,the relationships in the family shall be“formalised” in order to provide forlegally binding relations.

AROUND THE WORLD... There are different family capital

management models in the world; Ishall touch upon some of them.

Thus, the American model is char-acterized by a great pragmatism in rela-tionships among family members: as arule, children reaching 18 trying to starttheir own life outside the parents’ house.Relatives in such families regard them-selves being “separate from the kids”entity. I’ll take two examples in thisregard: Bill Gates, the Microsoft founderunderlined in his will, that his childrenwould get “only” 5 mln dollars each outof family’s multi-billion heritage; therest is devoted to various charities.Another example, Yul Brynner, a popu-lar American actor, testaments all hisassets valued at about 60 mln dollars tohis last wife giving nothing to his previ-ous wifes, children nor to his own sister.

American family capital manage-ment model is wholly based on con-tracts and all family decisions are takenwith the lawyer’s assistance.

German model. Germans arefamous for their inclination to accom-modate capital through several fami-lies’ generations. I talked recently witha German businessman who accordingto national standards occupied a mid-dle-income position: his company’sturnover reached 15 mln euro andabout 150 mln in acquired capital. Itturned out that it was his grandfatherwho was actually the founder of thecompany; then the business came overto his father and in the last extent theownership turned on to him.

Swedish model. Swedes are veryrestrained people; emotions in their lifemean less than in other Europeans’souls. It seems that in the Swedish fam-ily’s capital management the first placeis occupied by a developed social wel-fare system rather than the pure busi-ness factors. Swedes in the social con-text are protected by the welfare statesystem in which each person can sur-vive independently of other persons orrelatives. Therefore, Swedish familiesare rather independent; besides thecountry has experienced an acute mar-riage system crisis. Moreover, there is ahighest in Europe suicide-level per100 th citizens in Sweden.

Jewish model. Jewish families seemedreturning recently to their traditions as theJewish family demonstrated a remarkabletenacity of historic family capital manage-ment principles. Thus, parents regard a fam-ily capital as a means to keep contacts with

21The Baltic Course No. 25 – Spring 2007 Family Business www.baltkurs.com


the kids, as a means to educate them creatingthe conditions for career’s growth, includinga transfer of some competences to run fam-ily business. In the core of a Jewish model liesa rational approach to running business andemotionally-spiritual drive to preserve theinherent ties between generations.

A model based on infantilism. Thewestern family “maturity age” presentlyreaches 30, when people acquired good edu-cation and earned sufficient initial capital.

Such a situation reflects a serious approachto the following marriage with the drive tominimise all possible risks.

On the opposite side of the ladder areyoung genes which do not want to establishfamily ties, holding tight to parents instead.Such young people are examples of a pure“boarders” wishing to run their lives con-stantly sucking money from their wealthyparents; they do not wish to change any-thing in their lives.

Such model does not carry any-thing positive and is critical to familycapital management. Such families, inorder to survive on rental paymentsmust have enormous savings; there arequite a few such people in Latvia. There-fore sooner or later the “boarders”would be forced to earn their living, thetransfer which is followed by economicdifficulties at first, then by the psycho-logical crisis in the family capital. •

In order to find out, let us first clarifythe notions.

MAIN FAMILY “DRESS” Family. Latvian Civil Code specifies

that a “family” in a narrow sense of theword consists of parents and children, assoon as the latter share common, notdivided, household.

Capital. The word capital as trans-lated from various languages, e.g. French,English or Latin generally means “themain”, which is remarkable in itself, isn’t it.Modern economy dictionary specifies thatin the broad sense the word “capital” means“anything that can deliver profit”. In addi-tion it says that the term “capital” can beused to specify “material or financial invest-ments in economy and/or production and iscalled capital investments or just invest-ments”. It seems that such notions as capitaland investments, or in that respect “invest-ment activity” are quite similar.

Before we arrive at any conclusions, letus not forget that an investment is a long-term

capital contribution with the aim of a futureprofit. Interesting enough, that the Latin“investore” means “putting something on”.

It seems that the main conclusioncould be, jokes apart, that family capitalinvestment is the main family dress.This con-clusion depicts both the danger and the griefrealities of the modern family existence. Maindanger lies in the fact that a family capital,investment, business in general and moneyare turning into “idols” ousting out basic fam-ily and human existence values. People tendto “forget” about themselves, their close rela-tives and kids in pursuit for money as theprime instinct. Anglo-Saxon world even

introduced a notion concerning “humanvalue in a monetary sense”. One can appar-ently commit the worst atrocity while plead-ing innocent on the pretext that it was busi-ness and nothing personal; the worst thingseems to be that such an approach would betreated as normal by other people around.

ASSETS AND CAPITAL We have to acknowledge that the

family assets and its capital are completelydifferent notions. Hence, money and othervaluables in monetary form belonging tothe family are not in fact a family capital.Only the assets that are partly or whollydevoted to any form of investment processis, in fact, a family capital.

Why is it so important, and why do wehave to understand all that before startingany investment-type activity? Because thecapital can be “lost” which would raise aquestion, how shall we feed the kids; andnot only them? And if we do not mix-up thedefinitions of capital and assets then any“losses” or failures would not be crucial,though certainly providing us with the senseof dissatisfaction.

22 Family Business

Comment

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Family capital and investments By Rihards and Julia Svelpe, PriBalt venture fund

Capitalist system has acquirednew notions, such as family capital andinvestments; but what does that imply?Do they exist in the Baltics? How usefulare they, in general?

By Julia Svelpe In a family, even when there are two clever and active people, they have to decide who isgoing “to rule”. It’s necessary for the whole process to get through smoothly. The twodecide: whatever happens, one is going to be the boss. This is what we decided in our fam�ily: the husband is going to be the leader; afterwards, it was easier for me — he standsresponsible. Sometimes, I think it’s natural that things become difficult for me: I am a wiseperson too and I have my own opinion which is not in line with that of the leader. Then theonly thing is appropriate — be submissive, as a true Christian. And I keep in mind that underall circumstances my husband holds responsible.

It is well-known that the law usuallyregulates those relationships that alreadyexist in the society. The law in that sense is“secondary” and cannot, so-to-say, has “out-stripping effect”. The popular belief that thegood-written laws can make life better inthe legal science is called “legal fetishism”.

The old Latvian law on “Individual(family) enterprises, agricultural and fish-eries companies, and personal labour serv-ices” adopted in 1990 is to be changed soonas it does not fit into the EU requirementsconcerning legal entities’ property liabilities.

A family, as a union of people con-nected by marriage including all thoseinvolved in the relationship performs ahousehold-economic function, among otherthings. Clear enough that the mentionedfunction is broader in coverage both thefamily capital and the family businessarrangements.

Property-type relationships in a fam-ily are regulated in the Latvian Civil Code,i.e. in part one, “Family law”. First of all, thelaw regulates matrimonial property rela-tionships between the husband and thewife. Children’s property is not included in

the parents’ property, as the kids beforereaching full legal age can only administerthe property.

Civil law determines two possiblelegal conditions for the parents’ property:according to the law and according to mar-riage agreements.

MARRIAGE’S LEGAL EFFECTS Property relationships within a mar-

riage provide for the contract-type propertyagreement between the spouses. Legal con-ditions for separate property of husbandand wife, their common property as well asspouses’ share in common assets are pre-cisely defined in the law. The law at thesame time defines the order and sequencesof spouses’ property liability due to variousproperty obligations or contracts. The prin-ciples of spouses’ legal community propertyliability are embodied in all marriages; evenwhen the spouses do not fully realize that.

MARRIAGE AGREEMENT In certain occasions when legally

binding regular property’s marriageconditions don not satisfy the spouses,

they can enter into specifically bindingmarriage agreement. Such marriagecontracts were included into Latvianlegislation on 1 September 1993, afterthey were completely abolished in 1940;gradually, these contracts are becomingrather popular in the country. Thus,there were only 17 such contracts in1994 in comparison to 1296 marriagecontracts in 2006.

The spouses can themselves choosewhat kind of contract they want to con-clude, e.g. they can agree on a completeproperty division, which means that there isno common matrimonial property left, andeach spouse is liable before third persons

This is why it is so important that thefamily capital can be what it has to be — thevaluables separated from other familyassets. This rile is to be followed strictly.

Unfortunately, in real life we canoften see quite the opposite situations.Some explore the business principle:“everything is supposed to deliver profit”.But does it have to be that? Even the popu-lar wisdom says that one can not put all theeggs into one basket.Wise men would arguethat these arguments hold only for the bigbusiness arrangements and for small andmedium business things are different.

The truth is that quite often in order tostart business one has to invest the familyassets.On another side, it’s equally true that thedecision has to be completely realistic; it has tobe understood by a wife and a husband; theyhave to aware of their actions in case the wholeproject goes broke.Anything can happen! Andit has to be understood that all the necessary

steps were taken, and at the end of the linepeople have to turn to the regular life-order.

Thus, we can conclude that the familycapital represents “valuables” qualified by thetwo main principles:1) it belongs to the family;2) it can yield profit. Though, investment is aprocess reflecting the way we use the capital.And we could see the basic dangers and mis-takes facing husbands and wifes, as well as themain actors in family capital management.

We still have some questions to answer:do we have such a problem in the Baltics; how

useful, if at all, is such an activity? Of course,family capital investment has become a realityand it forms an important part of nationaleconomy. Just imagine: behind each banknotestays someone’s family and that the nationalcapital consist of numerous family’s assets!Without a family capital there won’t be thefirst railway! Just thing about it! •


Family business in the legal contextBy Vladimir Bagirov, Professor, BIA

Modern Latvian legislation does not refer to the “family capital”, or to the“family business” definitions. This fact depicts that these social relationships havenot been regulated in full yet.

Comment

By Rihards SvelpeI do not see particular features that distinguish a regular business from that of the family one.Probably we are becoming more demanding to those closest to us. I do not think that the fam�ily business model is more efficient; I can fire my wife in half�a�second time. And if we see thatour management system (when I direct and Julia heads our legal department) does not work,so we quarrel over things at home or business is not good enough, we change the model. Andas to efficiency, how many boors have been written on the subject? Plenty! That means thatproblems in family business are as urgent as in the so�called regular ones and not all goes therewell either. The relatives, as a rule, do not steel; if they do it stays in the family anyway.


only by their own property assets. As tocommunity household property thespouses, according to their property situa-tion can allot some property assets intocommunity use.

An agreement can be reachedestablishing communal character ofany property amounts being in theirindividual ownership (according theirwishes) into an indivisible communityproperty part. Some spouse’s personalbelongings can not be subject to com-munal property apportion. With thiskind of contract, the law determinesgreater community property depend-ence on spouses’ individual and col-lective liability concerning their mat-rimonial property obligations.

Therefore, all possible family’s com-mercial activities subject to such economiccategories as “family capital” or “familybusiness” are presently covered by the Lat-vian Civil/Family Law, excluding any spe-cific relationships connected to it. •

When my husband Vitalij worked at“Aldaris”, one of the company’s stockholderswas the Hartwalls, a well-known family in Fin-land. It was known as a family with about 143years history where business was hand downthrough generations. It has been since an ami-cable and united family cherishing at all coststhe family values: by inheritance, by involvingchildren and relatives into business, by hold-ing common family holidays two-three times ayear. In short, the family did whatever it couldin order to unite it.

Then the family faced globalisationchallenges. The Hartwalls has been a hugecompany; they entered first into holdingwith the Swedish Pripps, and then mergedwith “Aldaris” and other breweries. So, theHartwalls have been developing and enlarg-ing. And then once came the moment todecide, how to develop further on? At thisturning point the company decided that in amodern world family companies weredeemed either to be small or ceased to be afamily company at all. In order to develop a

company, it has to merge; hence, afterwardsthere is always risk of acquisition.

My husband was chocked by thecourse of events when Hartwalls sold theirshares to Carlsberg; it was incredible forVitalij. How could they do that, he said? Forthe last 8 years they were praising the familyvalues and Vitalij himself praised them toowhenever he could. Everybody knew thatthrough the Latvian press. So, we started totalk about the changes too, arguing that fam-ily relations can not be appropriately devel-oped in business, as it used to be hundredyears ago. Hence, we have to change, too.What does it mean? Our kids are growing;my husband’s wish was to make the businessand then to hand it down to the family, sothat everything would be good and perfect. Iremember saying to him: it won’t do. Even ifwe are sure to create something that does notmean for sure that our children would like towork there. More than that, it generallyrestricts the perspectives; so to make some-thing, we have to make it “broader”.

There is more logic in involving childreninto business, to give them start in their livesand then leave them to their own. Important inall this is — to make them interested in busi-ness, to help provide them with the life-start-up. Of course, if they want to; it’s a very impor-tant issue. At that very moment Vitalij aban-doned “Aldaris” and we decided to assist ourdaughter and her husband with their business-project, i.e. Go Planet complex! My husbandand me, in fact were the project’s investors.

When the project’s effective guidanceperiod started, I distanced slowly from thebusiness leaving everything to my son-in-law and my daughter. He became the com-pany’s boss; I left for myself the head of the

24 Family Business www.baltkurs.com

By Lidija Gavrilova, GO Planet, Board Chairwoman

Our family’s attitude towards “family business” has been changing with time.We represent a family in which both the husband and the wife are leaders. Thoughinitially, when we were in our 20th nobody wanted to be a leader. When asked aboutthe leader between us two, we were pointing at each other.

Comment By Ajdin Askerov, Latvian Small and Medium Business Association "KALVE", presidentWe know that the civil law gives priority to men in matrimo�nial relations; however the marriage contract defends theinterests of women and children. In contrast to marriage con�tracts existed in the Latvian First Republic these relation�ships mainly regulated the issues concerning property. Our lawyers in formulating matrimonial agreements tend to specifybeforehand all kind of spouses’ relationships including such aspects asapartment, cars, real estate property ownership and even dishwashingand walking out dogs at night, as well. Funny enough, but thesedomestic problems could often spark the fire of matrimonial conflicts.The law suggests that a spouse can not be liable for property debts of another spouse. Thus women enter�ing into such kind of marriage contract can be aware of the fact that if their husbands make risky busi�ness then wifes will not be dragged out of their apartments, neither the furniture is taken away. Marriage contracts are working out by all law offices; though such contracts can be compiledby a certified barrister or even the notary. The commission is about 30 lats and the contractwill be a rather simple document consisting of 5�10 points. If one wants to work out a moredetailed document with all the needed peculiarities of an agreement, the commission will bemuch higher, though the scope of a contract might be extremely broad. The contract must be certified at the notary office and it enters afterwards the National Mar�riage Contracts Register. In case the contract includes a clause on real�estate, it has to be reg�istered in the National Land Register which contains information on the property.

We are both leaders

Board’s position. This is how it all wasarranged with my eldest daughter.

My younger daughter, she is 10 yearsyounger and 24, she studied in London andalready being there she decided to returnto Latvia. She is in the family but works inanother company. It is in that way that ourperceptions of the family business havetransformed. In our students’ time familybusiness seemed something serious andfundamental. Presently we have under-stood that the main thing in the familybusiness was to give children good educa-tion and to provide them with a start-upcapital with all possible assistance. Andthen, we have to leave them in due thoughright time. We have to quite Go Planetbusiness as well; moreover the kids areworking there days and knights.

When we started the Go Planet proj-ect, I have written up the main family busi-ness’ principles: complete trust in eachother, mutual respect, timely and compre-hensive information, competence division

and delegated powers, reciprocal assis-tance, to name a few.

There is something important aswell: even the most spectacular company’s

financial achievements can not substitutefor real family values, such as love, respectand the feeling that you’ll be alwaysunderstood and supported. •


The Gavrilovs at the capsule installation; the present place of Go Planet amusement center.

There were 25 participants in thepoll, i.e. those who took part in the round-table; among them 30.4% were people inthe 30-40 age group, and about 17,3% in theage-group from 20 to 25. Such a participa-tion in the round-table reflected a potentialinterest in the themes of discussion cover-ing family business and family capital from

the representatives of the most economi-cally active population’s strata.

According to the respondents’answers, the profits of 39.1% was higherthan 450 lats per month; 21.7% within150-250 lats and 17.4% — profits were lessthan 150 lats.

As to the respondents’ professionalactivity the division was the following: stu-dents — 21.7%, employees — 13%, CEO,managers and unemployed — 8,6%. Themain purpose in creating a family 40.5% ofrespondents consider love, 21.6% — confi-dence and 18,9% — understanding. Onlyone respondent regarded children as themain purpose of family values.

In contrast to the known examples offamous family names with longstandingtraditions and tens of generations, inLatvia the “age” of family business countsby about two decades; that was the opinionof about 30-34% of respondents.

About 35% of respondents con-ducted their own “family business”; how-ever 74% were ready to take over the fam-

ily business connections from their rela-tives. As the most successful factor in thestarting up of a family business wasregarded a connection of technical andfinancial expertise, this fact was acknowl-edged by 39,1% of respondents, followed bythe mixture of financial and human science(39,1%) and pure social science (30.4%).Separate technical knowledge as an impor-tant background for family business was rel-evant only for 8% of respondents.

Clearness of business purpose wasregarded as a vital personal character in thefamily business’ participants by 13,6% ofrespondents. Other popular personal char-acters were also mentioned: the ability forcompromises, the experience to work inteams, hard-working, resoluteness and theability to take calculated risks. •

By Jana Jermakova, Master Student, IBA

During the round table, the poll has been conducted which revealed that 65%of those participated in the discussions were ready to start their own business. Someother facts were interesting as well.

THE OPTIMAL COMBINATION OF PERSONS IN A FAMILY BUSINESS

Ready to take up business!

Husband, wife, children and relatives Husband and wifeFather and sonHusband, wife and 2 kidsHusband, wife and a child


INTERNATIONAL FAMILY�NETWORK Those interested in the family busi-

ness’ theory and practices are definitelyaware of the existence of the Family BusinessNetwork, FBN. The network’s informationcan be obtained at: www.fbn-i.org. Thosewanted to join the network can easily dothat: the membership fee is about 350 euro.The FBN provides educational and network-ing opportunities for family businesses.

In the FBN’s website there is inter-esting information on some family businesscriteria: longstanding and stable purpose,efficient governance and management,strong activity in its own business-niche,etc. Curious enough that even FBN’s lead-ers think that these parameters bring fam-ily business closer to some forms of privateequity funds. As to financial sector, the onlyvalid criterion is that not less that 10% ofshares in such a business shall be hold bythe family members. Some experts (e.g.John Ward, Kellogg School of Manage-ment, USA) argue that a family must holdat least 30% of shares.

The FBN convenes regular worldconferences, once a year; the latest is takingplace mid-May 2007 in Spain and is devotedto new generations in family business.

SELF�EVALUATIONS There are some remarkable assess-

ments that global family business leadersprovide for themselves and their activities.

Levi Strauss: “We hold ourselvesmore responsible than just towards othershareholders’ interests; this is higherresponsibility before our family values”.

Warren Buffet: “We are generouswhen others are greedy and we are avidwhen others are lavish”.

Giovanni Agnelli: “Continuity is thebasic value in the family business”.

Marcus Wallenberg: “All decisionsare taken out of long-standing considera-tions for a family’s name, its honour andtraditions”.

WALLENBERG’S EXAMPLE Wallenberg’s dynasty in Sweden is the

closest to the Baltic States and one of the old-est in Scandinavia.Presently it’s the fifth gener-ation in the family business (the oldest in theworld, though, is a small Japanese companywith 130 employees and about $120 mlnturnover, which runs already through 41 gener-ations). The founder, Andre Oscar Wallenberg(1816-1886) established first family financialbusiness in 1856 creating Stockholm’s EnskildaBank; in 1916 his son Marcus establishedinvestment branch, Investor. Present genera-tion has diversified family’s activities: Jacob(born in 1956) is the member of the boards inSAS and ABB, and chairman of Investor, Peter(born in 1959) is in hotel business and vice-chairman in Wallenberg-fund; Marcus “junior”(born in 1956) is a member of the board inAstra-Zeneca and chairman in SEB-Bank.Central to the family is Wallenberg’s holdingInvestor which holds shares in vital Swedishcompanies: Ericsson (5%), Saab AB (20%),ABB (10%), Scania (9%), Electrolux (6%),SEB (21%), OMHEX (11%), etc.

Wallenberg’s example is provocativein one important sense. Market capitalism isnot an ideology: it can be both creative anddestructive. Such capitalism is good, amongother things, in efficiency: as “machinery” itdoes not have values or soul; and this iswhere family business comes in. It co-cre-ates competence and provides personality.

BETWEEN TWO FIRES The EU legislation is trying to put a

hand on creating a balance between the fam-ily interests, its business activity and increas-ing role in society. However, in the enormousmixture of relationships (legal, economic,administrative and financial) the EU norms,per se, are often outside the family issues’ reg-ulation; though the EU always wanted tostretch its influence over it (often at theexpense of the member states’ interests).

It has to be underlined that in thepresent EU’s institutional system the “family

business” as a specific regulatory categorydoes not exist: it is purely a national sphereof regulations. At the same time, the EUleaders do recognize the importance of suchbusiness regardless of its internal regulatorystructures. Presently, these relations arewithin the so-called additional or coordinat-ing EU and the member states’ actions.

Therefore, the EU commissioner onenterprise and industry (G.Verheugen) “coordi-nates” entrepreneurial part of family business,including easier access to financial resources,opti-mal business regulations without red tape, com-panies’ social responsibility and environmentalprotection. Recently there have been adoptedseveral perspective initiatives: see website:http://ec.europa.eu/enterprise/index_en.htm.

Another EU commissioner for employ-ment, social affairs and equal opportunities(V.Spilda) “coordinates” labour relationshipsincluding labour law issues. The latter is evermore important presently as about 40% of allthose employed in the EU economy are eitherself-employed or enter into completely non-traditional labour agreements with theemployers. Realities of life have becomebroader than the Procrustean “legal forms”.Therefore the EU have already prepared a cor-responding draft for member states’ adoptionin the first half of 2007; the draft can be down-loaded from: http://ec.europa.eu/employ-ment_social/labour_law/green_paper_en.htm

As to the exciting family companies’ his-tories, with the global implication, where busi-ness, love, fortunes and family values intervene,we could recommend a recently publishedbook by David Landes: Dynasties: fortune andmisfortune in world’s great family business. —Viking Press Publ, USA, 2006, 400 pp. •

26 Family Business www.baltkurs.com

"Family business" is more than matrimonial relationsBy Eugene Eteris, Denmark

A family as the society’s nucleus can be definitely regarded as a true one,according to the popular Marxist’s assertion. At the same time, the family could beeasily the nucleus of any kind of business, e.g. small, medium and the big one.However often, it is not necessary always so. Truly enough, business relationshipin the family could be advantageous for both sides; though this approach does notnecessary hold always water either.

Our position in defence of familybusiness, i.e. mainly small and mediumenterprises, is based on the branding’sinnovative concept. One of the concept’sfounders, K.Roberts underlines the impor-tance of emotional rather than abstractrelationship between the suppliers andconsumers of various goods and services.Lovemarks or, so-to-say, most belovedbrands are driven by love and passion, beit for design, for customers’ service to cus-tomers themselves or for life in general.These brands have to acquire certainamount of energy and embody mystery,mystique and intimacy.

In fact all what K.Roberts is writingin his “Lovemarks” is banal and simple. Oneof his theses is respect for teachers andtutors, the inspired professional who believethat to dream is as important as to act.Another thesis is that the way to success liesthrough dedication and love towards one’sprofession.The latter perfectly fits into fam-ily relations which easily transform intofamily business relationship.

Presently, it often happens thatmatrimonial connections are reducing inimportance as it concerns relationshipsamong people. Therefore, affiliation withthe common cause could serve as a back-ground to build strong connectionsamong spouses, parents and children,brothers and sisters.

Extremely valuable experience increating optimal consumers’ relationshipK.Roberts acquired in the Middle Eastwhere mass-marketing is still in a rudimen-tary development stage. In this part of theworld people still cherish such communica-tional values as friendship, strong familyrelations and traditions in numerous walksof life. Common to the Western world redtape and bureaucracy in commerce do notexist there and new ideas are quickly com-ing on to practical implementations.

HUMOUR OFTEN HELPSGreat ideas and witty decisions are

usually appearing from the secluded cor-ners of our brains. It is the sense of humorthat often helps us to find a way out ofnumerous personal problems, out of con-stant life-turbulent moments and out ofbusiness turnabouts. Mr. K.Roberts arguedthat in the modern age the time has comefor the “peripheral cultures” to playincreasingly vital role. He underlines that“great ideas most often appear on theglobal periphery”, i.e. from the regionswhere most of the restless and inventivepeople reside, those who are aware thatanything is possible.

This argumentation can be used forthe Baltic States too, as these countrieshave appeared on the EU’s periphery andpeople so far have not realized in full alltheir talents and potentials. Taking intoaccount Roberts’ argument, these coun-tries can strive both for importantachievements and for the excellent ones,as well. Their aims shall be more ambi-tious: not just creating company number 2or 3 in line; in has to be number one! Andthe “instruments” to reach that goal shallbe inspiration and love.

EMOTIONS RATHER THAN RATIONALITY Numerous evidences have shown that

when emotional centres in the human brainare damaged, the person not only loosescontrol over vital emotions, e.g. laughing andcrying, the person looses the ability to makedecisions. Businessmen have to take seri-ously this argumentation into consideration.

The idea was brilliantly supported bya prominent neurologist, Donald Kealn:main difference between emotions andrationality is such that the outcome of emo-tions is action, while the work of mind’s out-come is logistic deliberations. Hence, thenotion that without an emotional supportthe work of human mind can easily parish.

K.Roberts particularly stresses thefact that most consumers, when makingtheir choice, use both brains and theirhearts, or emotions in that sense.

As a rule, it happens that we oftenhardly saw an article but already acquire afeeling whether we would like to have it or

not. Presently, when the article’s price is apriority, it is becoming difficult to rely onemotions in business; though emotions aremore productive (and rational) both in theshort- and long-term perspective.

K.Roberts divides emotions into pri-mary and secondary (see below). One of hisopponents argue that in the background ofhuman relations are secondary emotions,therefore they play primary and not the sec-ondary role. The distinguished feature ofemotions is their social character.

FRANKLY ABOUT LOVE As the emotion number one, argues

K.Roberts, is love; we fully share his view.Out of his numerous reflections about love-feeling we shall enumerate only six.

The first one is a sort of warning-reflection: people’s live is impossible withoutlove, their live is loosing meaning withoutlove. In many countries the fertility rate isdecreasing, the number of singles is growing.The world generally suffers without love.

Second revelation: love is somethingmore than just affection and great sympathy.

Third: love is a responsive behaviour;it’s a very fine and intuitive feeling.

Fourth reflection is about “love’s sub-ject”, i.e. it’s not only a romantic love, it’s aswell a matrimonial love that underwentsever ordeals or love to relatives and friends.

In fifths — love demands time! The sixth reflection, probably the

most important one: love is not subject tocommands, no delivered on request. Love isa life present. Love, similar to an authority,can be acquired only by rendering it fromthe bottom of one’s heart. •


Love or common sense?By Olga Pavuk

The article is inspired by Kevin Roberts’ book “Lovemarks. Future brands”.

Primary emotions Secondary emotions Happiness Love Grief Guilt Anger Shame Fear Pride Astonishment Envy Aversion Jealousy

The present overview of the pri-vate detective and security servicesmarket in the Baltic States and Polandis far from being exhaustive. However,it is based on the analysis of materialsprovided by the Latvian Detectives andSecurity Services Federation(LDDDF), information from the Con-federation of European Security Ser-vices (CoESS) and expert opinions bythe leading specialists in corporate andpersonal security services.

LATVIA WAS THE FIRST TO PASSPRIVATE DETECTIVES’ LEGISLATION

There were 310 private securityfirms and 80 private detectives operatingin Latvia in 2006. Thus, there are threetypes of services currently representedin the Latvian market, i.e. security serv-ices, detective services and the mixedsecurity and detective services. The leg-islative framework for operations of pri-vate security companies is laid down inthe Republic of Latvia laws on securityservices, on detective services, on use ofweapons, on protection of personal data,etc. It should be said that only Latvia hasa Law on Detective Services (effectiveas of November 1, 2001). So far no suchlaw has been adopted either in Lithuaniaor Estonia.

Latvia’s accession to the EU cre-ated conditions for entry of new play-ers to the market of private securityservices. According to the amendmentsto the Law on Detective Services, effec-tive from May 1, 2004), “citizens of theEuropean Union member states andcitizens of the European EconomicArea are eligible to receive the [privatedetective] certificates.” In other words,private detectives from the EU memberstates can now do the detective busi-ness in the territory of Latvia. How-ever, the EU laws do not say anythingabout Latvia’s citizens and non-citizensbeing permitted to carry out privatedetective services in the EU’s territory.

The EU membership gave rise tothe trend of outflow of security staff toIreland, for example. The shortage of

the staff in Latvian security companiesis due to the need to change the focusof the security business, namely, toexpand the use of technical securityequipment, to develop further the useof remote control systems in monitor-ing the situation in the guarded facilityand use of swift response teams.Another trend is that private securitycompanies hire staff without properqualification and certificates.

Apparently, further expansion offoreign security companies on the Lat-vian market is very likely, as those com-panies have financial potential andopportunities for lobbying their inter-ests in the security contracts’ tenders,which are not available to local securitybusinesses. In such situation smallfirms, having failed to survive the com-petition battle, are either bought up byforeigners or retreat to the shadowmarket.

LITHUANIA MARKET MONOPOLY IS UNLIKELY

In experts’ opinion, the Lithuanianmarket of private detective and securityservices has a low monopolization level.The total number of the companies oper-ating in the security business is around70-80, and less than a dozen of them arelarge players (with a staff of more than500 people). The following authoritiescontrol the Lithuanian market of privatesecurity services: the Ministry of InteriorAffairs, the Police Department and localpolice commissariats.

The special legislation governingthe operations of private security com-panies started with the LithuanianCabinet Resolution No. 160 datedDecember 3, 1993, the Law IX-2327 onpersonal and property protection,adopted by the Lithuanian parliamentand effective from January 12, 2005.The law on legal protection of personaldata, as well as the laws on securityoperations and weapons, belongs tothis category, too.

As is mentioned before, there isno law in Lithuania governing private

detective business’ sector. Neverthe-less, the Codification Manual of Per-mitted Business Activities in Lithuania,published by the Department of Statis-tics annually, lists such types of opera-tions as “search for missing persons”and “investigation of theft.” Theseoperations, being officially permitted,essentially fall into the scope of privatedetective services.

The Lithuanian Ministry of Inte-rior Affairs carries out mandatorylicensing of security companies.Licenses, which are valid for threeyears, are issued only to companiesfrom Lithuania and member states ofthe EU, EEC and NATO. Companies,which have been licensed in the EUand EEC member states for protectionof people visiting Lithuania for nomore than three months a year, are notrequired to obtain the Lithuanianlicense.


Market ReviewPrivate Detective's Service www.baltkurs.com

By Valery Zemljanov, Latvian Detectives and Security Services Federation, Director; Docent, BIA

In the conditions of market economy, the security issues are handled both bythe national law enforcement authorities and by the private detective agencies andsecurity companies. The latter provide for the following services: detective’s work,security services, development, installation and operations of special securityequipment. The BC offers a brief overview of the private detective service market inthe Baltic States and Poland. The material is unique because so far no survey on thesubject has been done in the Baltics.

Pinkerton

“WE NEVER SLE

ESTONIA HAS NO LAW GOVERNINGPRIVATE DETECTIVE BUSINESS

The security services provided byprivate companies in Estonia are regu-lated by the following legislative acts— the law on security dated October 8,2003 (effective from May 1, 2004), thegovernment regulations on cash collec-tion services, the law on professionalqualification, the law on weapons, thelaw on security services, the law on pro-tection of personal data, etc.

The legislative acts in Estoniacover the following types of activities— security consulting, security of mov-able property and real estate, cash col-lection services, personal protection,security services during events or atcertain facilities, surveillance centreservices, planning, installation andoperation or security equipment. Thecontrolling authority is the NationalPolice Department.

Private security companies arenot allowed to hire people, which havelimited legal capacity, are serving a sus-pended sentence on criminal charges,have been declared bankrupt or areprivate detectives. The last restrictionseems weird, to put it mildly, as there isno legal framework in Estonian gov-erning private detective business.

Employers of the security servicesector are united into the EstonianEmployers’ Confederation. There is alsoa professional trade union association.

POLAND: PRIVATE DETECTIVES SERVE THE COUNTRY

There the following Polish non-governmental organizations related tothe security service activities: the PolishChamber of Personal and Asset Protec-tion; the Polish Association of Employ-ers, Ochrona; the National Associationof Alarm System Producers, Designersand Fitters, Polalarm; the Polish Cham-ber of Security Alarm Systems.

Security services in Poland areregulated by the following legislative

acts: the Law on Economic Activitydated December 23, 988; the Law onPersonal and Property Security Ser-vices with Implementing Regulationsdated August 22, 1997; and the Law onDetective Services with ImplementingRegulations dated July 6, 2001. Thecontrol functions are carried out by theMinistry of Interior Affairs and theadministration of the relevant author-ity after receiving information from thehead of local police.

The Polish laws permit the follow-ing services — property protection,personal protection, surveillance, cashcollection services, installation andmaintenance of alarm systems, detec-tive services.

Public contracts account for 25%of contracts for security services, 8%are for corporate security and the restare private contracts.

The Polish security technology’smarket can be divided into three sec-tors: 30% are price-sensitive con-sumers, for whom the cheaper, the bet-ter. Another 30% of customers preferpackage solutions, which are ratherexpensive. And there are 40% of con-sumers, who do not know what theywant and have no idea of where to go insearch for security services. The reasonfor this is the lack of information.

Considering that the organizationof private security companies inPoland, like in the Baltic States, beganalmost simultaneously with collapse ofthe Soviet Union and the Warsaw Pact,it would be logical to assume that thesecurity services consumer market inthe Baltic States consists of the samesectors as in Poland. However, the dis-tribution of consumers among sectorsby percentage might be different. How-ever, there is no reliable information onthis subject in the Baltic States.

Experts describe the situation onthe Polish security market as quitefavorable. Following the accession tothe EU, Poland (as well as Latvia,Lithuania and Estonia) is obliged tofollow the common European stan-dards, which mean mandatory installa-tion of appropriate security equipmentat various facilities. The Polish govern-ment is investing in security of itsnationals (which is not yet somethingone can say about the Baltic States).

In experts’ opinion, Polish com-panies producing security technologiesmay appear on the market in the near-est future. •

29The Baltic Course No. 25 – Spring 2007 Private Detective's Service www.baltkurs.com

s in the 21st century

EEP”. Аllan Pinkerton


Yevgeny Primakov, President, Russ-ian Trade and Commerce Chamber:

— We can acknowledge that a realbreakthrough in the relationships betweenRussian and Latvia occurred. Suffice it tosay that Russia already occupies the 4th

place in Latvian foreign trade and tradeturnover with Latvia reached $2 bln in2006. Good potentials are present in the bi-lateral investments: thus Russian invest-ments in Latvia are at the level of $ 0.5 blnwhereas Latvian in Russian are at the levelof $ 30 mln. We can see that there is roomfor further investment increase.At the sametime we have to activate regional trade andcommerce chambers’ cooperation.

Aigars Kalvitis, Prime-Minister,Latvia:

— Our bi-lateral relations havealready existed during last 16 years. In ournegotiations with president Putin, prime-minister Fradkov and other officials we fol-lowed a common line; therefore signing thetreaty has been an important step towardsfurther developing of our relationships.Thus already this June we are going toresolve other important issues, e.g. to signan agreement on bi-lateral investments’protection and on double taxation. What isreally important, that our countries’ busi-

nessmen can meet and discuss problems inthe Russian Trade and Commerce Chamber.

Peter Aven, president, Alfa Bank:

— During last years we have beenworking on the so-called post-Soviet terri-tories. In fact, we never actually treated nei-ther Latvia nor Lithuania and Estonia asindependent entities. Present treaty is a car-dinal breakthrough “into another trajec-tory”, or rather coming back to those whomwe actually new well long ago.

Our interests in Latvia are: telecom-munication company Golden Telecom,

which is part of the Alfa-Group and intendsto acquire a Latvian operator; we are inter-ested to launch our STS-channel in Latviato broadcast in Russian; we’d like to acquirea big Latvian bank.

For a long time “a big wall” hamperedour relations. I am fully aware that the bestfor countries’ friendship is mutual capitals’penetration. In that case there won’t be anyconflicts. Then it’s high time to create aRussian-Latvian Business Council.

Alexander, All-Latvia and Riga Met-ropolitan:

— Some think that business can runwithout spiritual connections. It seemsthough that entrepreneurs, their relativesand friends are closely connected to thechurch and to spiritual values.

The head of Russian ChristianChurch, Patriarch Alexij the Secondreceived Latvian delegation in St DanielMonastery, Moscow. The Patriarch under-lined both countries leaders’ approaches tospiritual values without which our life lacksits meaning. He expressed a belief thatsooner or later the two independent states,Latvia and Russia would find common solu-tion to all confronting issues. He concluded:I would remind you the words of a XIXthcentury millionaire who said:“we lived withprayers on peoples’ needs and the latterlived by our donations”.

Vitalij Gavrilov, Chairman, LatvianEmployers Council:

— Russian-Latvian BusinessCouncil so far exists only in plans; nopractical steps have been made to estab-lish such a Council yet. Some suggestthat a Council to be a part of inter-gov-ernmental commission. The Council’sparticipants might be, for example, Lat-vian Employers Council and from Russ-ian side Trade and Commerce Chamber,Industrialists and Entrepreneurs Union,and non-profitable public organisation“Business Russia”. Out first meeting wecan arrange already this July.

Here in Latvia we try to supervisethe government’s activity and we areready to represent Latvian businessinterests in Russia. Russian Chamber ofCommerce, Business Council andEmployers Association are fully capableof resolving communication issues in dif-

30 Latvia — Russia Boarder Treaty www.baltkurs.com

Our common assets By Olga Pavuk

On 27 March 2007 a long�awaited boarder treaty between Latvia and Russiahas been signed by the countries’ prime�ministers, Mikhail Fradkov, Russia andAigars Kalvitis, Latvia. At the same time Latvian businessmen who accompaniedLatvian government delegation discussed cooperation issues with their colleaguesin Russian Trade and Commerce Chamber, headed by the former Russian Prime Min�ister, Yevgeny Primakov. BC followed about two�hour round�table discussionopened by Y. Primakov and A. Kalvitis; below follows some fragments from the dia�logues between the two countries’ entrepreneurs.

ferent economy sectors. We do have ourcommon assets.

Oskars Spurdzins, Latvian FinanceMinister:

— In Latvian foreign investmentsthere is a great share of Russian capital.Now that the treaty is concluded, the workof the inert-governmental commission shallstart; there are plenty of questions thatrequire urgent solution. I upheld Mr. V.Gavrilov’s proposal to create a Latvian-Russian Business Council.

Janis Leja, President, Latvian Tradeand Commerce Chamber:

— I would like to remind that suchbusiness council was created already abouta decade ago. However during last years itperformed mostly the cross-border tradecouncil’s functions. It’s time to re-createanew the “business council” for entrepre-neurs in Latvia and Russia; it would play arole of supporting existing official channels.

Salman Babaev, vice-president, JSCRussian Railway Lines:

— Russian and Latvia are united bythe same railway’s gauge-size. Then, about23 mln t of Russian cargoes is exportedthrough Latvian ports. Hence, further coor-dination with Latvian Railway Company isneeded with a decision on a common oper-ator and unified transport rates. We do notwant to create any obstacles on the Latvianoperators’ path. There are 15 Latvian expe-ditor’s companies working in Russian Fed-eration, and the train “Baltica-Transit” suc-cessfully functions. Bottom-line: we aregoing to become a vital link connectingRussia with the European Union.

Valdis Trezins, president, Associationof Road Carriers “Latvijas Auto”:

— We have to admit a very negativepresent picture at the Latvian-Russian bor-

der-crossings, i.e. there are about 1300trucks idly waiting their turn to get through;and everyday at the border-crossings thereare about 500 trucks waiting. Each country,due to this, and Russian and Latvia truckersin particular, waist about 11-13 mln euro ayear. Transit and logistics’ share in LatvianGDP is about 20 per cent. We wish all whatwe can do in order to facilitate roadhaulage, including cargoes from China.Transport operators are waiting for thequick resolution of boarder crossing issuesand better cross-border infrastructure. Assoon as these issues are not resolved, thelines on the crossing points will survive.

Ruslan Greenberg, Director, Econom-ics Institute, Russian Academy of Sciences:

— Latvia can play an important rolein both securing Russian-EU relationshipand creating a “common economic space”.Latvia better understands the EuropeanCommissioners; we want to understandthem too. Latvia can play a role of a coun-cillor rather than an attorney.

Ivars Strautins, President, JSCTuriba:

— In the “old good days” science andbusiness community closely cooperated. It’sgood if we cooperate too at different levels.Presently we have surrendered our both theinternal and external markets. Hence thequestion: how to protect our goods, first ofall agricultural ones, which are alreadyknown in Russia?

Viktor Kuzenkov, Executive Director,Russian Trade and Commerce Chamber’Committee on energy and utilities:

— We have elaborated projects onthe oil-gas transportation and processing,including LNG. It’s important that we useLatvian ports’ initiatives in order to createadequate terminals. Previously dispersed

Latvian legislation has led to risks greaterthan in other countries. The legislativebackground is to be modernised in order toeliminate risks. We have to admit that Lat-vian authorities managed to resolve dis-crepancies and created conditions fororganising a new economic area.

Kirov Lipman, co-owner, JSCGrindeks:

— Two pharmaceutical companiesOlainfarm and Grindeks have been estab-lished under Soviet regime in Latvia. Wehave managed to secure enormous highquality GMP’s potentials. An adequateprocess in Russia proceeds with difficulties.We greatly rely on the Russian marketwhere our turnover already reaches $100mln. We have concluded a contract withSOTEKS to produce at a joint venture com-pany about 30 mln “Mildronat” ampoules.Another company’s product, cancer-pre-venting drug “Ftorofur” is used in Japan;and an additional project with the RussianScience Academy is under consideration.We are ready to make all efforts to facilitatepharmaceutical sector in Russia. •

31The Baltic Course No. 25 – Spring 2007 Latvia — Russia Boarder Treaty www.baltkurs.com

It’s a well-known fact that afterrestoring its independence, Lithuania ren-dered country’s citizen status to everybodypermanently living at the time in the coun-try, regardless of nationality, place of birthand who reached full legal age and, obvi-ously expressed a desire to acquire Lithuan-ian citizenship.

STARTING POINT Most reasonable explanation that

Lithuania did not start “civil-separation-dis-pute” policy was that in the beginning of1990s in Lithuania, the most populous of the3 Baltic republics with 3,7 mln people atthat time, the core-Lithuanian populationreached 80 per cent.

It is probably here, in the “lack-of-contradiction” climate that nationalminorities (e.g. mostly Russians andPoles, with, correspondingly, 8% of thetotal, in each group) did not raise issuesconcerning any aspects of the “national”aspects to conduct business. These con-tradictions sometimes occur in otherspheres of social life, e.g. politics, culture,etc., but never in business.

There could be another explanation:there is not such a notion in Lithuania as a“Russian” or a “Lithuanian” company, andspecialists are treated by their professionalqualities rather than on national grounds.

As for some presently acute Lithua-nia-Russian political relations (for exampleaccusations of the KGB-system’s contacts),they are generally used as an instrument inparty politics.

TO CHERISH OWN RANKS... Former Lithuanian President, Rolan-

das Paksas’ most active fund-raiser, JuryBorisov did not arise bad attitude in thepublic; on the contrary, he was even deco-rated by his impetus to national economy(his car-repairing firm Avia Baltikaincreased both employment and budgetallocations through profit taxes). The atti-tude towards him changed to the oppositewhen he entered politics; the same hap-pened with another Lithuanian millionairewith Russian routs, Victor Uspaskich.

It is a recognized fact that so-called“aliens” are not welcome in politics; it actu-ally does not matter which nationality “the

alien” might be. Anti-Russian accusations,as a rule, are aimed at “local leaders”; mostdrastic example is the first independentLithuania’s prime-minister, Mrs. KazimeraPrunskiene, called often the country’s“amber lady”. She conducted a firm andpragmatic foreign policy course in the East-ern direction. Her attitude has been basedon the premises that trade with Russia has alot of advantages for Lithuanian business-men, and worsening relations with thecountry having such an enormous marketwould only damage Lithuanian economy.Even presently, at her agricultural ministry’sposition, she is heavily criticized by politicalopponents who seem not to apprehend thereal-life’s facts.

Recently, Lithuanian agro-producerswere the first among the Baltic States to getRussia’s veterinarian service authorizationfor the country’s consumer export to Rus-sia. Therefore, Russian officials would ceaseto control agro-goods’ export fully relyingon Lithuanian controllers. Besides, Lithua-nia is a leader among the EU member statesas to the number of authorization: 97 com-panies are allowed exporting their vegeta-bles and meet-products to Russia withoutadditional control.

All that has had a positive effect onLithuania’s agricultural trade: e.g. during2006 the country increased 1.6 times itsdiary products’ export to Russia, whichpresently reached about 320 mln litas; vari-

Relationship ReviewThe Baltic Course No. 25 – Spring 200732 Lithuania — Russia www.baltkurs.com

Business regardless nationality By Sigitas Pasilaitis

National “inflections” in Lithuanian business are almost invisible. Thus,when a Lithuanian entrepreneur gets information on separately functioning“Latvian” or “Russian” business in a neighboring Latvia, he would regard it as avery great exaggeration.

ous meet-products’ export more than dou-bled, as to the year before, and reached 83mln litas.

Bit regardless of all the positivetrends in agricultural developments, Minis-ter Kazimera Prunskiene was blamed by theright-wing forces as “the Russian interests’advocate” in Lithuanian politics.

PROFITS WITHOUT NATIONAL FLAVOUR Most common “hand-of-Moscow-

type” accusation in Lithuania has defi-nitely had very practical implications. Thusrecently, Mr. Rimandas Stonis,Dujotekana’s president has been criticisedas a head of the company importing Russ-ian gas. Politicians and journalists quicklydabbed the company both the “Gazprom’svicegerent” and “Kremlin’s hand” inLithuania. Main reason: Lithuania intendsto regulate gas process for big companies;critics of the move, including Dujotekana’sbosses, were against the measure andargued that some years ago when Lithuan-ian government sold third of its shares in astate-owned gas company Lietuvos dujos,

it promised not to interfere in price regula-tion; in return Gazprom promised to keepthe prices stable for two years. It seemsnow that by violating its obligations thecountry instigated Russia’s actions.

Another example: after Lithuaniajoined the EU, most ardent country’s“integrators” initiated an active foreignlanguages’ enforcement policy. During asimilar “campaign” recently the objectfor attacks was Russian language onradio (hit-sings) and TV (talk-shows andserials). Now the aim was to implementas quickly as possible main EU lan-guages; the means to make it done was,of course, at the expense of substituting“Russian hours” for other languages, e.g.English, German, etc whish wasregarded as vitally important for thecountry’s citizens. The problem is thatRussian language does not give awayquick enough. Some blame TV-cableoperation companies which do not seemto be quick in substituting Russian-lan-guage-channels. It’s difficult to blamethese companies for sympathies towards

Moscow, as all operators, due to tradi-tions, are operators with local orLithuanian capital (it could be seen evenby the operators’ names).

The position of the TV- authorities iseven easier to understand: about three-fourths of the TV audience knows Russianand only one-fourth English; which means,they argue, that by abandoning Russian weslash a sound part of our viewers. The prob-lem seems artificial enough, as transpositionto digital TV system would allow viewers tochoose the language of, for example, Dis-covery program.

Country’s businessmen remain calmto “Russian issue” in the language sphere.Thus, Mr. Arturas Drungilas, marketingdirector in the State Sea Port Directorateunderlined that the Sea Port authority isopen to cooperation with all new investorsand partners, without any geographicalrestrictions. Port’s Directorate is willing todiscuss businessmen proposals from Russiatoo; the only important aspect -the projectsshall be profitable both for the port and thecountry in general.

33The Baltic Course No. 25 – Spring 2007 Lithuania — Russiawww.baltkurs.com

Kaunas’ banker, Vladimir Romanov, is one own the rich-est men in Lithuania; he is Russian by birth and a former Sovietmarine officer. It seemed that he was deemed to be the first inline for the miserable object in anti-Russian campaign. Strangeenough, but the feelings of despise he aroused only from... theKaunas soccer fans, and only recently. It would be most correctto call him a Lithuanian businessman of Russian origin, as thedivide in Lithuanian business does not proceed along thenational lines.

Most exciting in the whole situation is the fact that withRomanov’s financial assistance Kaunas’ soccer team won nationalchampionship for the six times in a row. However, the banker is notconfined only to investments in Kaunas. He has created a special“soccer pyramid”, which is quite specific for the whole post-Sovietterritory. Besides, he owns Scotland’s Hearts and another club inByelorussia, MTZ-RIPO.

As to “the soccer pyramid”, the idea has been that soccerteams from the former Soviet republics would supply players forthe more sophisticated in the soccer sense British market. There-fore the transfer of the best Kaunas players to Hearts has becomea common place.

When the number of Lithuanian players in Hearts reached12, Kaunas’ fans went in revolt claiming that Hearts’ success “wasnot for their hearts” as soon as the success was reached at theexpense of their victorious club’s march which could loose its placein the UEFA’s Champions League.

At the end of 1990s Mr. Romanov established a traditionto celebrate, in the extreme splendor manner, the Russian “oldNew Year”, the event highly praised by the Lithuanian beaumont.And again, it seemed that organizing strictly Russian event onLithuanian soil could be an ideal target for Romanov’s accusa-tions in “imperial traditions” and imposing foreign habits.

Strange enough, but nothing of the kind ever happened. Theexplanation could be that the New Year fest was orginised as acultural kaleidoscope of famous artists from Russian andLithuania, rather than purely Russian artists alone. Last time, forexample, Russia was represented by Dima Bilan with “TeremQuartet” and Lithuania by scholarship artists from Mstislav Ros-tropovich’s Fund “Helping Lithuanian Kids” supported by othernationally famous entertainers. By the way, the program hostswere Vitautas Carnages and temporary residing in Vilniusactress, Tatiana Lutaeva, well-known for her role in the move-serial “Guardemarines, forward!” •

Hearts' cooling success

VLADIMIR ROMANOV: Creating a special soccer�team.


TWO RUSSIANS AMONG COUNTRY’S MILLIONAIRES

In the last poll of the richest people inLithuania (June 2006), conducted by theVeidas weekly, among the list of the first tenthere were two Russian names: VladimirRomanov, main stakeholder in Ukiobankas) and a former economy ministerand Labour Party leader, Victor Uspaskich.According to Veidas weekly, “during lastelections, at the end of 2004, Labour Partyleader declared his family capital at morethan 160 mln litas”.NATIONAL INFLECTIONS

The national ramifications are quitevague in Lithuanian business life. Thuswhen a Lithuanian businessman can hearthat in a neighboring Latvia there are sep-arate notions for, say, Latvian or Russianbusiness functioning rather separately too,e.g. Latvians put their ads only in Latvian-language papers, Russians — only in theRussian-language ones, he regards that asa strong exaggeration. For example, inLithuania there is only one business daily,Verslo zinios and it’s highly improbablythat another one in Russian would appear.Why? The answer is very simple: business-men in Lithuania are mostly interested ina competent and urgent information, thelanguage is actually not important, eitherLithuanian or Russian.

BUSINESS RUNS BETTER WITHOUT POLITICIANS

Russian trade representative in Lithua-nia, Igor Zotov works already 5 years in Vil-nius. He remember that during that time onlyonce he heard about the idea of a Russian

business-club; though, there was nothingmore then talks about the club as a place andmeans for communication rather than theplace to settle any business issues.The reasonthat such a club does not exist in the countrylies in the fact that there is no any sort of prej-udices towards Russian business (neitherbusiness from Russia) in Lithuania.

Said Mr. I. Zotov: “Russian busi-ness projects, to my mind, have beendeveloping quite well. For example,Yukos has had no hostile claims towardsLithuania. Some years ago Russianchemical company Eurochim made aprospective decision to invest into abiggest in the Baltics phosphate fertilisercompany Lifosa (presently more than athousand employees). That was a reallygood decision: last year company’s prof-its increased by 13,1% and turnoverreached 682 mln litas. And there arepotentials for growth, as well”.

Mr. Zotov pointed out some otherexamples of successful Russian-Lithuanian capital cooperation: one is acompany in the city of Rokishkis wherethe Russian “Volga-type” car is assem-bled. These cars are exported into sev-eral countries, among them to 12 statesin the EU. The demand for these cars isconstantly growing.

Russian trade representative particu-larly praised Lithuanian capital involve-ment in the neighboring Kaliningrad region.More that 600 Lithuanian companies arealready registered in this enclave and theinterest is growing. “I recently visited Kau-nas where we discussed the options ofLithuanian companies in that Russian

region: these are mostly machinery andhigh-tech manufacturing; there are someother projects too”. Thus, soon companyArvi from Marijampole will start producingfertilizers in Kaliningrad region; importantthat most of production is to be exported”,added Mr. Zotov.

As to the problems Russian businessis facing entering Lithuania, Mr. Zotovstrongly denied the existence of any partic-ular impediments for Russian investmentspresently. Said Mr. Zotov: “If any such seri-ous obstacles exist, they are quire sporadicand individual; they mostly stem from inad-equate elaboration of the project as a wholeor its constituent parts”.

As to the often heard and quitesharp political declarations concerningRussian-Lithuanian relations, includingthose of Mazeikiu nafta, they are,according to Mr. Zotov, damaging forthe customers and businessmen alike.The customers, for example, can not getthe goods they need on local marketsand on competitive prices. “We canconclude that when businessmen aregoing on without “politicians’ help”and decide everything by themselvesusing economic efficiency instruments,business proceeds quicker and better”,argued Mr. Zotov.

Some statistics in the conclusion:according to Russian data, trade ingoods with Lithuania increased in 2006by 32.5% in comparison to 2005. Russianexport to Lithuania increased by 11.5%(up to $ 4.7 bln); Lithuanian export toRussia increased by 157% and reached1.8 bln dollars. •

34 Lithuania — Russia www.baltkurs.com

Lithuanian company, Arvi is alreadyperforming several projects in Kaliningradregion. Besides trade and agro-production,the company with the head office in Mari-jampole, has as its main aim in the regionthe production of granulated fertilizers.

The JSC Arvi-NFK’s GeneralDirector, Virginijus Darguzhas has toldthe BC that the company started the proj-ect in 2004 with investments of about 16mln euro. First commercial outcome isexpected in summer 2007; after the com-plete production capacity, the companywould produce fertilizers at the rate of250 th t. The product is aimed primary forfinal exports to the EU countries, LatinAmerica and the Balkans.

If all goes well, the initial expenses willbe covered in 5-7 years, said V.Darguzhas.

“The rate of expenses’ repaymentdepends on several factors, he continued,but there is one thing we are sure about —we always find mutual understanding inresolving confronting issues. We do nothave to claim about it at all”.

Lithuanian businessman’s reflec-tions shall be understood in the contextof Russian intention to turn Kaliningradspecial economic zone (through variousprivileges and favours for foreigninvestors, in particular to production)into an export-driven zone, rather thanthe subsequent goods transfer to the“mainland Russia”. Lithuanian companywith its plans to use the Russian enclaveas a springboard in trade with the rest ofthe world perfectly fits into Russianintentions. •

ARVI sets on Kaliningrad

VIRGINIJUS DARGUZHAS: We can alwaysfind a common platform with Kaliningradregion authorities.

35The Baltic Course No. 25 – Spring 2007 Lithuania — Russiawww.baltkurs.com

A perfect explanation of causeunder discussion is found in the Reladusadvertising agency’s head, Mrs. SvetlanaMolokovich.

She was Russian born in Kazakhstanand ten years ago, together with other twoad-agents, moved to Lithuania to startadvertising business. Starting from thescratch, both financially and linguistically,she is presently firm on her feet: her adver-tising agency has more than hundred cus-tomers and sales are growing.

When asked about nationality prob-lems in business issues during last decade,she said:“nobody’s interested neither in mynationality nor in my Lithuanian languageproficiency. When my agents or I addressour customers with a business proposal,then the latter’s commercial attractivenessis the decisive factor, or probably the onlyfactor in proceeding with it, at all”.

Language and national aspects canserve, at best, as a background in doingbusiness, argued Mrs. Svetlana Molokovich.

Thus, recently, she goes on, on theeve of this year’s February municipal elec-tions one of the parties (which somehow

could be termed Lithuanian; though I donot think there are “purely Lithuanian par-ties” in the country either) asked us to con-duct their advertising campaign.This exam-ple clearly shows that with the beneficialapproach from both sides we can alwaysfind a way, in any language.

Mrs. S. Molokovich acknowledgedthat the language she uses depends on theday; sometimes she cannot find a properword in Lithuania or uses words in a waythat bewilders clients. But never ever thatwas a serious problem. “Quite on the con-trary, she adds, our customers lately askedus to talk Russian as they wanted to prac-tice their language skills”.

However, she admits, national issuescan not be completely tuned down in ourwork; though the main approach to work isthrough professional motivation.

“Our company’s staff is quite mixedin nationalities, she concludes, though it iscommunication skills and responsibleapproach that really matters in an advertis-ing agent’s work, not the language affilia-tion. If, for example, I need a scale-model-ling expert, I would rather take a Lithuan-

ian as that person would be netter in writ-ten Lithuania, so I would save time in cor-recting the final scale. However, thevacancy can be filled in by any other“nationality” if the person could satisfy therequirements”. •

Purely professional motivation

SVETLANA MOLOKOVICH: Language and national aspects can serve, at best, as a background in business.

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Though the division might soundquite relative, everybody in Latvia knowsthat there are mainly Latvian companies,than the “Russian-speaking” companiesand the mixed ones, which in fact corre-sponds to the families’ composition inquestion, as it concerns nationality. TheBC has looked in this review at Latvianbusiness through the light of Russian cap-ital participation in it (or rather, non-Lat-vian capital) and that which have origi-nated in Russia; with an additional insighton the companies which are alreadyworking and willing to work in Russia.

WITHIN THE FIRST TEN... In the list of the richest people in

Latvia (published by the Pastaiga maga-zine; the poll was conducted by theBaltic Screen in cooperation with Laikastars in 2006) there are only three Lat-vian names. First 3 places are taken bythe Parex banka owners, i.e. VictorKrasovitskij with his 175 mln lat for-tune, Valerij Kargin and his formerwife-with their common 182 mln lat, fol-lowed by Leonid Esterkin, Reitumubanka shareholder, with 83 mln. On thefifth line — Oleg Fil, Aizkrauklesbanka’s co-owner, with 80 mln; on theeighth line — Oleg Stepanov, co-ownerof several companies in Ventspils, with60 mln; and close to him with 56 mln lat— Sergej Zaharjin who holds control-ling share post in Liepajas metalurgscompany.

There are several public organisa-tions uniting Russian businessmen: since2001 the Russian Club with AnatolyIljin as president (it unites businessmen,politicians and scientists) was estab-lished. Since 2004 the Union of Russianentrepreneurs is active with AlexanderGaponenko as president, which unitesinterests of more that 120 SMEs andmedium companies mainly from Russia.

Riga Business Club with Vladimir Solo-matin as president was established thesame year uniting about 100 big Latvianbusinessmen. All these organisationsunite people who take up the cause ofprotecting Russian language in Latvia aspart of the European Union heritage.They render assistance in protectingChristian culture’s and Russian commu-nity values in the country, as the maintask of these organisations is mutualbusiness support.

NEWS IN RUSSIAN Public interest to news in electronic

mass-media is constantly growingtogether with news portals in Russian;they are actively read both in Latvia andin Russia. The BC numbered more thanten information sites with free access, e.g.rus.delfi.lv, lenta.info, rosbalt.lv (the lat-ter represents Russian government chan-nel), etc. Rosbalt’s Latvian representationdirector, Vasilij Sokolov was maderecently the head of St. Petersburg’sinformation and business center in Riga.

RUSSIAN CAPITAL IN LATVIA As to the Russian capital influ-

ence on companies’ development inLatvia, according to Latvian CompanyHouse data and Lursoft statistics, during1991-2007 this influence increased morethan 80 times (from 1.3 mln lat to103 mln). There are more joint-venturecompanies in Latvia with Russian capi-tal participation (2167) than, for exam-ple, those with Estonian capital (1338),American (1337), Lithuania (1112) orGerman capital (1106).

About 20 Russian “participants”already heavily invested into Latviancompanies. There are, e.g. the followingRussian companies in this list:Transnefteproduct (co-owner of LatRos-Trans) with 36,5 mln lat, Gazprom (Latvi-

jas Gaze) with 13,5 mln lat, Moscow Busi-ness Community/Moscovskij Delovoj Mir(Latvijas tirzdniecibas banka) with 5,2mln, Moscow Bank (Latvijas biznessbanka) with 4.9 mln, etc.

Among those investors there are 15Russian businessmen: Yuri Shefler (withcontrolling stakes in Latvijas Balzams)with 4.4 mln lat, Igor Krupnik (Fish PKHolging) with 1.7 mln lat and MichailElfimov (Mezaragi) with 1.4 mln lat. It isknown that the latter has been a memberof the board in YUKOS with responsibil-ity for oil processing and export; on 5March custody warrant was ordered inMoscow on his name.

Quite active in Latvia is presentlyone of the richest men in Russia, VictorVakselberg, he is the main share holderin Renova Group. Swiss holding RenovaManagement AG through its daughtercompany New Europe Real Estate takespart in the new 25-ha residential com-plex construction project in the mostprestigious Riga’s district, Mezapark. Adaughter company, Mezaparks SPV wasestablished in Latvia; former Riga majorGundars Bojars heads the company.Construction project accounts for about1 bln dollars.

IN SEARCH OF RUSSIAN PARTNERS A number of Latvian businessmen

have already paved the way to Russianmarket, including some that wanted to doso. “Association of Latvian Businesses inthe Russian Federation” has been foundin Russia on the initiative from both Lat-vian Investment and DevelopmentAgency (LIDA) and Latvian Embassy inMoscow; more than 50 companies andfirms joined the association wishing todevelop business contacts with Russianpartners. The association, for example,organisers Latvian businessmen tours todifferent Russian regions. LIDA’s deputyhead in Russia, Ilja Podkolzin supplied uswith some success stories of such cooper-ation: FIB Group’s fibrolite export toKazan reached 250 th euro; Olainfarmgoods export to Tatarstan, Vologda andJaroslavl reached more than 150 th euro;Parex leasing made a deal with Russiancompanies which totalled $2.2 mln andpresently is negotiating deals with part-ners in Magadan and Kazan.

36 Latvia — Russia www.baltkurs.com

“Close neighbor is better than far away relatives” V. Dhal

By Olga PavukSince the time immemorial the present�day Latvian territory has had close

ties with Russia. Therefore, it is not the rule of chance that Latvians call Russianterritory Krievija and Russians are called krievi, which is reminiscent of krivichi,the ancestors to the origins of Moscovite royalty. Even at present Russian popula�tion in Latvia (or, probably, better those who regard their Russian as native lan�guage) is much bigger than in the adjacent Estonia and Lithuania. It is, probably,therefore that business, being international by nature, is divided here into theLatvian and/or Russian one.

The following association membersare already active in Russia: Ventspilsnafta, Riga Railway Company, Dzintars,Laima, Ecolines, Kalnozols, etc. There arethose that are searching for partners:Ameri (textile), Logistics Solutions Com-pany, Baltijas gumijas fabrika (chem-istry), Data Pro (information technol-ogy), to name a few.

First consultations were conductedin March in Russian Transport Ministry inview of opening a direct air-rout betweenRiga and Perm by Air Baltic. The mainproblem being that there isn’t so far aninternational aviation transport agree-ment between Russia and Latvia; withoutsuch an agreement only air flights betweenthe two states’ capitals are allowed.

For the present year an interestingLatvian businessmen trip is to be per-formed on the Latvian Railway Com-pany’s train on the Ekaterenbourg-Novosibirsk-Irkutsk rout.

Moscow business association unitesRussian entrepreneurs working in Latviatoo. In previous years Russian business-men were mostly interested in Latvian laxtax regime; at present they are mostlyinterested in using the EU funds. Stillpolitical discontent can be regarded as amajor stumbling block for entrepreneurs’activity.

SITUATION IS BECOMING BETTER Political climate in bilateral rela-

tions has become much better recently.

A “thaw” has been set in 2002 by theMoscow City Council delegation visit toLatvia headed by Moscow City Major,Jury Luzhkov. Reciprocal Latvian citiesmajors’ visits to Russia took place in2003; then there were “Moscow Days”events in Riga in 2004 and 2005.

Further on, there were Latviandelegation visit to Moscow headed bythe Latvian Economy Minister JurisLujans, followed by the “St. PetersburgDays” event in Riga in 2006 and minis-ters’ participation in the Baltic Forum’sconferences. Specifically shall be men-tioned Former Russian president, BorisYeltsin’s visit to Latvia followed by theRussian Patriarch Alexis, as well asLatvian president’s visit to Moscow on

37The Baltic Course No. 25 – Spring 2007 Latvia — Russia www.baltkurs.com

It’s already 20 years since Adrians Davis is heading LatvijasGaze company. In 2001 Gazprom’s authority decorated him withthe “Honorary Gas industry engineer” budge.

It has been his most distinguished reward; he was the onlyone outside Russia to be decorated with such a budge. He says:“it’sboth and honour and an obligation to be a gas-engineer. When theSoviet Union ceased to exist, we were the first to unite into an asso-ciation. We are just a big family, which helps a lot to find a commonground for understanding”.

After graduating in 1965 from the Polytechnics University heentered Latvijas Gaze company where he climbed up to the posi-tion of the Board Chairman. He knows Russia perfectly well and isquite aware that being associated with that country brings bothpleasure and profit.

Russian Gazprom participation in this Latvian company,according to Mr. A. Davis, serves as a guarantee for both the stabilityof gas deliveries and the company’s bright and secure perspectives.

“Latvian companies and consumers never experienced anydisruptions in gas supplies, says A. Davis. Mostly due to our country’sgeology structures we have had quite unique underground gas-depots”. He continued:“recently we signed gas supply agreement withGazprom for up to 2015. Our stakeholders do not take away divi-dends; they invest them into further development. That means theyhope for longstanding cooperation, which was possible due to com-plete understanding between Latvijas Gaze and Gazprom. We haveto take it for granted as Russians are co-owners of our company;besides, both sides work under the terms of mutual advantage”.

Presently, some serious attention has been devoted to moreactive use of Dobele natural gas depot. It has to be additionallystressed that Latvian’s about 50 bln m3 gas-depot facilities cover about10% of the European gas consumption during a year. If Latvia’s gas-depot system is connected to the future North-European gas pipeline,it can help to secure stability of gas supply to European countries. Tosettle down the project, political relations between the EU and Russ-ian must be resolved. By the way, the European Commission alreadyprovided funds for feasibility study concerning Dobele natural gasdepot potentials and a working group has been created.

“Russia for us is a kind of “home front”, Mr. Davis underlines,as it provides us with modern technology and equipment.To-day inall sectors of economy we lack specialists; not in the gas industry.

Since 1994 our company subsidizes our students’ educationexpenses in Moscow Oil and Gas Institute. Already presently wehave 10 highly trained specialists resolving complex issues on thecompany’s modernization and security”.

According to Davis, he visited Russia about 400 times; andnot only on business trips. When a teenager, he rafted with hisfriends in Sajan, Altai, Jakutija, Baikal, Kamchatka and Chukotka.

“I feel myself at home there, says Davis, or even better. It isthere that one can appreciate other values, in comparison to thosewe concentrate in big cities”. •

I am proud to be a gas�engineer

ADRIANS DAVIS: Russia is a kind of "home front" for us.


the occasion of the Russian 50th VictoryDay’s anniversary. One of the latestwas a meeting between Latvian primeminister, Ajgar Kalvitis and Russianpresident, Vladimir Putin at the Eco-nomic Forum in St. Petersburg in sum-mer 2006.

Two important agreements havebeen concluded between Russia andLatvia in October 2006: on the estab-lishment of intergovernmental commis-

sion (IGC) and on economic coopera-tion. The IGC is expected to speed upthe intergovernmental contacts devel-opment in various economy sectors, aswell as in exploring legal cooperation inforeign economic relations.

Already in the beginning of 2007in Latvian Economy Ministry consulta-tions took place with the representa-tives of Russian Ministry for economicdevelopment and trade (RMEDT)

devoted to speeding up the pace ofintergovernmental economic coopera-tion.

One of the representatives in theseconsultations, RMEDT’s external eco-nomic relations’ department head, SergeyChernishev during his meetings with Russ-ian ambassador to Latvia, VictorKaluzhny underlined that Russia repre-sented a huge market for Latvian exportand that Russians respected Latvian

38 Latvia — Russia www.baltkurs.com

Russian-Latvian company’s, FIB-GROUP General Director ZigurdsSkrodelis during last 20 years has beenliving in Russia. But he is still closely con-nected to Latvia both by business con-nections and personal ties. Thus, due tohis personal involvement, “Association ofLatvian Businesses in the Russian Feder-ation” was established this February inMoscow; he became its first president.

As Mr. Skrodelis underlines,fibrolite is known to the world duringlast 70 years and is not something newfor Russians; experienced constructionworkers know this material well. In theformer Soviet Union there were 42 fac-tories producing fibrolite.

Unfortunately, due to the lowquality of material produced, it ceasedto be used in construction. Therefore,all the factories producing fibrolite inRussian were closed.

With the FIB-GROUP’s assis-tance fibrolite is exported to the Russ-ian market from Jelgavas buvniecibassistemas factory situated in LatvianJelgava city. Latvia exports to Russiaabout 60 th sq.m of fibrolite a year; thefactory plans to enlarge its export toRussia. This year the factory starts pro-ducing pressed fibrolite (the only suchproduction in the world) bearing Elto-board trade mark. FIB-GROUP offi-cially represents in Russia another Lat-vian company, Brocenu keramika whichproduces various ceramic plates.

For several years FIB-GROUPhas been working in Tatarstan, whereits partner is a republic’s constructionleader, KMK-construction company.KMK is a partner in the Russiannational construction project called“Accessible apartments”, which is sup-ported personally by the Tatarstanpresident, Mintimir Shaimiev.

Among Skrodelis’ ambitiousplans there is “Latvian-Russian Busi-ness Forum” to be convened in mid-July 2007 in Jurmala.

Latvian Ambassador in Moscow,Andris Teikmanis thinks that the timingis good for creating “Association of Lat-vian Businesses in the Russian Federa-tion” as relationships between twocountries are becoming better: e.g.recently a boarder treaty was signed;there are drafts for discussion oninvestments’ protection, double taxa-tion and social legislation.

It might seem that Mr. Skrodelisdoes not actually need the support ofLatvian business community. Though,according to his own assessments, hisenergetic stance is constantly pushinghim into new projects. He is lookingfor the practical outcomes as well: forexample, he takes part in Latvian dele-

gations’ trips in Russian regions. Oftenthe meetings with local businessmenare oriented towards distant aims, butif his business association’s ideas areused properly, the practical resultscould be quite impressive.

However, besides some practicalpurposes, as association membersacknowledged, the association establish-ment followed some emotional drives aswell, i.e. the need to talk to people fromLatvia. The venue has been alreadyagreed on, i.e. Moscow’s restaurant “OldRiga”; somewhere in April anotherrestaurant “Jurmala” is to be opened.Official meeting would proceed, as usu-ally, in Latvian Embassy in Moscow.

Mr. Skrodelis invites all Latvianbusinessmen and entrepreneurs inter-ested in enlarging their contacts in Russiato join his “Association of Latvian Busi-nesses in the Russian Federation”. •

Zigurds' in full strength

ZIGURDS SKRODELIS, ANDRIS TEIKMANIS AND AIGARS STRAUSS.

Latvian designer, Anna Osmushkina argues that couture’screative work is measured and signified by his/her prestige andpopularity rather that profit. This Latvian designer has acquiredthe fame among most prominent couture in the world.

This year Anna Osmushkina Model House celebrates its 10-years anniversary; already in 1996 the house acquired a status of amodel designer in the Baltic States.

There are several reasons for optimism: elegant salon inRiga’s downtown; two haute couture type’s season-collections andtwo seasonal pret-a-porter collections each year; various garmentsand clothes for women preferring classic-type as well as extrava-gancy styles for men and women; own salon to sell small collectionsof popular models during the season; model demonstrations inMilan, Paris, Nye-York, Dusseldorf, Moscow and, of course, innative Riga. On top of all that — individual work with mostrespectable customers from various countries.

Hence, in last September Anna Osmushkina demonstratedher collection through the whole week at Paris yearly mode exhi-bition “Salon du Pret-a-Porter Paris 2006”; she was the only repre-sentative from the Baltic States. Anna’s first mode-collectionappeared in Paris in 1999.

Behind significant success stays company’s every-daytedious work. Besides her creative work devoted to constantlyinventing ever new clothes’ designs, she is to administer a wholeteam of managers, clothes’ cutters and seamstresses, as well as todeal with foreign fabrics’ delivery and press-people from famousmagazines all over the world.

Valuable assistance in her work is rendered by her husbandVladimir and her son, Denis. They take over all the duties con-cerning fashion-shows, company’s marketing strategy and dealingwith numerous customers and partners around the world.

During several years Anna Osmushkina Model House,already recognized in the world, was an ordinary commercialenterprise in her native Latvia. Country’s authorities seemednegligent to the famous brand she created in view of streamlin-ing Latvian image in Europe and in the world. Only last yearfor the first time Riga City Council decided partially subsidizethe House’s show in Paris exhibition. Then, the stall calledAOFH (“Anna Osmushkina Fashion House”) was literallyheaped up with information materials about Latvia’s capital.Not bad thing, after all. •

39The Baltic Course No. 25 – Spring 2007 Latvia — Russia www.baltkurs.com

Prestige rather than profit

ANNA AND VLADIMIR OSMUSHKIN: New�York, 2005.

goods; at the same time Russiansexpressed interest in exporting their goodsto Latvia. Russian representativeexpressed energy issues importance inbilateral relations as Latvia is stronglydependent on Russian energy supply.

Another important event for Lat-vians was February 2007 former Russ-ian prime minister’s Yevgeny Primakov(presently Russian Trade Chamberpresident) visit to Riga who had metwith Latvian Archbishop Alexander,Latvian president and the prime minis-ter, businessmen and conducted anopen lecture at Latvian University. Atthe center of all discussion has been theterritorial border issue, which at thetime took place in Latvian Parliamentas well. As a positive outcome of thesediscussions, Latvian Parliamentapproved the boarder treaty with Rus-sia. Even Latvian president, V. Vike-Freiberga took part in discussion andmade a speech in the parliament. Shesaid: “The time has come to resolvefinally the much delayed boarder treatywith Russia; in particular, the Russian

side expressed strong intention to solvethe issue”.

In mid-march a meeting betweenthe two co-chairmen, i.e. Russian Trans-port Minister, Igor Levitin and LatvianFinance Minister Oskars Spurdzins inbilateral economic cooperation commis-sion took place.

AS A RESULT: MUTUAL ECONOMIC GROWTH

It is not a secret that during lastseveral years there was a decline in Lat-vian-Russian trade at the expense offormers increased trade within the EU.The initiatives mentioned above pro-vided for a certain impetus to mutualtrade between the two countries, whichin 2006 increased by 34%, according toRussian statistics.

Due to Latvian membership in theEU, Russian investment activityincreased. As Latvian Company Housedata and Lursoft statistics show, directRussian investments’ share in Latviancompanies’ capital is quite small (about6% or 106,4 mln lat) and occupies 7th

rank after Estonia, Sweden, Denmark,Norway, USA and Germany. Accumu-lated Latvian investments in Russianeconomic development are almost neg-ligent, i.e. $28 mln. There are presently320 Russian-Latvian joint ventures inRussia, mainly in Moscow and aroundNorth-Western Russia’s region, whereasmore than 2 thousand Russian compa-nies are active in Latvia.

Russian export structure inLatvia, as underlined by Russian Trade& Economy Mission in Latvia, YevgenyTichonov, has had a single-orientedpurpose, dominated by utilities andexport goods. There are presently goodperspectives for creating in Latvia theCenter for Russian Innovations, arguedY.Tichonov, to streamline high-techproduction with Russian capital partic-ipation, for example in Latgale.

Y.Tichonov considers that time issharp to create a business informationcenter, and he rests his hopes in thisdirection on cooperation between tradeand commerce chambers of the twostates. •


Taking into consideration the listof “top-500” richest people in Estoniain 2006, one can see that already amongthe first ten there are plenty of Russiannames. Thus, Maxim Liksutov’s fortuneis estimated at 1.61 bln crone, on parwith another “Russian name”, SergeyGlinka, his partner and TransgroupInvest business colleague in whichthere are tens of companies registeredboth in Estonia and Russia. Thespheres of activity are numerous: car-gos’ expedition, railway tank-cars’ pro-duction, construction, utilities and coalexport, tourism and so on. The group’sprofit exceeds 10 bln crones. SomeRussian sources trace group’s quicksuccess due to business connectionswith Iskander Mahmudov, who is Trans-mashholding’s major stock holder andcontroller. The holding, among otheractivity directions, is major railway

rolling-stock producer; it employs morethan 60 thousand people. It seems thatin reality these people are richer as theabovementioned profit is calculatedonly at activity in Estonia, argued Ari-paev, Estonian daily.

Among “tenth richest” is themajor country’s employer, FedorBerman (1.16 bln crone), main shareholder in ship-building and renovatingcompany, BLRT Grupp. The company,besides Estonia, functions in Latvia,Lithuania and Finland. All the profitearned during last several years (about1.8 bln crone) was invested in produc-tion enlargement.

Then there are other names: e.g.Igor Izraeljan (with 886 mln crone for-tune) who is involved in play-wood andetc. items’ production and owns asupermarket; Valerij Kovalenko with730 mln who is second after F.Berman

shareholder in the BLRT Grupp; “met-als’ man”, Viktor Levada with 719 mlncrone, and furniture producer, PeterSedin from the Grove Invest. The lattertwo, besides business activity, are devel-oping soccer in the country: each owns asoccer club playing in the national firstdivision; besides Mr. Sedin is theNational Soccer Union’s president.

60:40 — “SACRED COMBINATION” According to various Estonian

entrepreneurs, the business divisionaccording to ethnic grounds does notexist in the country. However, some“sacred combination” does exist: if acompany is owned by Russians, thenthe “combination”, as a rule, is 60 to 40,i.e. 60 per sent aliens and 40 — locals.In the Estonians’ owned company thecombination is 40 to 60. Though, ofcourse, it’s an average calculation anddifferences might be greater but an“average” combination persists.

Alien businessmen, as a rule, ownmedium and small companies. Russianinvestments in Estonia are rather small,says official statistics, i.e. about 2% ofthe country’s FDI. In fact, the invest-

40 Estonia — Russia www.baltkurs.com

Business in Estonia without ethnic differencesBy Dmitry Kulikov

Russian investments in Estonia are rather small, says official statistics,i.e. about 2% of country’s general FDI. In fact, the investment share mightbe bigger as to find out who precisely stays behind particular investments isa complicated issue; besides, business connections have become reallyinternational.

JSC Glaskek’s board chairman,Vladimir Obersneider explains thatsince 1997 the windows producingcompany begun spreading its activityalong other Estonian cities. And soon,he adds, the company’s Latvian filialwas opened. At the end of 1990s, thecompany’s board of directors startedthinking about further expansion intothe Russian market.

“The strategy seemed quite sim-ple: made a tour, looked around andassessed perspectives”, said the com-pany’s founder. In 1999 the JSCGlaskek St. Petersburg has been estab-lished. There are 170 employees in JSCGlaskek St. Petersburg presently.

The company produces, installsand sells plastic, wooden windows andaluminum frames. According to theboard’s chairman, the company intendsto reach 100 mln crone turnover in2007. He said: “We are not the only

company to produce windows in theRussian “northern capital” but we aredefinitely among the first five. We par-ticipate constantly in all major tenders.We are proud to implement suchorders as making windows for suchtrade centers as “PIK” and “Grand-Canyon”; we also won the tender forglazing the whole city’s street”.

Mr. Obersneider says that bothcountries face similar problems: lack ofspecialists in “narrow” sectors (there-fore we are forced to prepare our ownstaff, he said), high wages and socialsecurity allocations, in particular in St.Petersburg; small wages -it’s all in thepast.

Vladimir Obersneider arguesthat Estonian businessmen are moreinterested in Russian market than viceversa. Although the present politicalsituation does not stimulate country’sattractiveness either. •

Timely assessed perspectives in St. Petersburg

VLADIMIR OBERSNEIDER: There are 170employees in Glaskek St. Petersburg presently.

ment share is bigger as it’s difficult tofind out who precisely stays behind aparticular investment and business con-nections have become really interna-tional.

This fact is verified by the Russ-ian embassy in Estonia. It’s really diffi-cult to find out what sort of invest-ments were used in Sillamae port con-struction by the former country’sprime-minister, Tiit Vjahi. “On papers”,as one of the port’s owner and Vjahi’spartner is mentioned a Finnish com-pany; behind the latter are “hiding” twoRussian businessmen, Yevgeny Malovand Andrej Katkov.

The same can be said aboutLUKoil’s activity: its European office isregistered in Switzerland but numerousdaughter companies are spread outaround the continent. AS LUKOILEESTI functions on Estonian marketsince 1992 and is involved in variouswholesale and retail commodities.

NORTH�EASTERN REGION IS ATTRACTIVE

Regardless of the fact that politi-cal climate does not help in invitingRussian capital to Estonia, some bigcapital investments do show up. Thusrecently, one of leading Russian andglobal mineral fertilizers’ producer,Akron announced its intention toinvest 50 mln euros in Sillamae portreconstruction (the information wasverified officially by the Estonian gov-ernment press-service and Akron’spresident, Ivan Antonov).

Company’s intention is to turnSillamae into a port specialized in dryand liquid fertilizers’ transit with mod-ern technical equipment. The port’sturnover is expected to be after mod-ernization at the level of 2.5 mln t liq-uid fertilizers a year. Presently Akrontransports its produce through anotherEstonian port, Muuga; though increas-ing export is constantly demanding new

facilities. Besides her advantageousgeographic position, Estonia was cho-sen for investments, according to Mr.Antonov, because of the country’s “sim-ple and clear taxation system, as well aslegislation in general, which created astable environment important forinvestors”.

However, the final decision indefining the Akron’s investment proj-ect future is to be taken by the coun-try’s new president, Toomas HedrickIlves. According to some sources, thepresident is not particularly excitedabout the perspectives in Russian-Estonian economic relations. Neither is“Tallinn corridor” mentioned in theprogram for Russian transport infra-structure development.

On the other hand, Estonian exportto Russia has increased: thus, last year Rus-sia outstripped Germany in the list ofEstonian goods’ importers. The reasonbehind it was abandoned double-taxation

41The Baltic Course No. 25 – Spring 2007 Estonia — Russiawww.baltkurs.com

Tiit Vjahi, JSC Silmet Grupp’s board chairman saysthat about 2 bln crone was already invested into the portdevelopment and other facilities in the Sillamae free cus-toms zone; in the coming years the port and the zone’s own-ers intend to invest about 1 bln crone yearly.

T. Vjahi’s interest in Ida-Virumaa region, which mostregarded as unfavorable, is explained by the following posi-tive factors: the EU, on one side, with about 450 mln popu-lation and SNG/CIS region with about 200 mln people onthe other; ice-free deep port with adjacent railway andmotor road connecting Tallinn with St. Petersburg; two pow-erful state-owned electric stations and regional power unitwhich can supply heat and electricity to the port making itself-sustained.

There are good specialists with good education in theregion anxious to work, which is a good factor in its per-spective development (regardless of the fact that Estonianis a native language for only 4 per cent of local population).“I am not interested what language my employees use, assoon as they work well”, he adds.

Sillamae transit port’s main aim is to reach in thecoming years 10% turnover between the EU and Russia,which equals to 10 mln t cargos a year. By 2030 this far-eastern in the EU ice-free sea port situated at the inter-national goods crossroad “Eastern Finland — Ida-Viru-maa — St. Petersburg” plans to increase goods turnover to40 mln t a year.

He formulated these plans after he saw World Bankassessments, as well as his partners’ and Russian investors’intentions. As to the “special approaches” towards Russianinvestments, T. Vjahi said half-joking: “I don’t look afterRussian investors, they find me. What I do is to suggest astrategic background for business on the EU’s external bor-ders, and then we start talking about cooperation”.

According to Mr. T. Vjahi, Estonia is an attractiveplace for Russian businessmen on several grounds: its geo-graphical position, proximity to Russia, lack of languageproblems, liberal policies and secure legislation in variousfields, first of all, in private property regulation.

As to the ethnic differences, the port’s owner does notdraw any specific lines for business. And he concludes:“each leader chooses the personnel which suits best his pur-pose. For example, in Estonian transit there are more Russ-ian entrepreneurs, whereas in construction or agriculture -there are more Estonian ones. •

A constructive dialogue with Russia is needed

TIIT VJAHI (ON THE LEFT) AND EDGAR SAVISAAR: At the new ferryinauguration event between Sillamae and Kotka.

Mr. Leonid Michailov is a managerof high class. Besides his leadership inthis non-profit organization, he is themember of the board and developmentdirector in the JSC Tallinn Tram & Trol-leybus Association, TTTA; the latter isowned by the city council.

According to Leonid Michailov,Tallinn Merchant Society was createdby Ivan Egorov, Russian propertyowner and merchant, publisher andphilanthrop in 1919. Presently the soci-ety unites people of various nationali-ties who, after collapse of the SovietUnion, managed to establish goodbusiness relations with their ancestors.

Leonid Michailov described thediverse society’s membership in thefollowing way: “some of them withcontacts in Ukraine, for example, areactively developing metal business;there is a businessman from Hungary

roots, whose company, Budampex ASexports Hungarian wine to Estonia;there is a Chinese member who openedin Estonia several Chinese restaurants.As a consequence of such multi-nationality, the society often organizesmeetings in various nations’ embassiesand with foreign business representa-tives. What actually unites all the soci-ety’s members is the knowledge ofRussian.

The society with about 100 localcompanies’ members is a non-profitorganisation and functions on mem-bership fees. Besides successful com-mercial activity, the society is deeplyinvolved in philanthropy: total amountfor various support and donations forsocial protection equals 1 mln crone(about 64 th euro).

There about 857 employees in theJSC Tallinn Tram & Trolleybus Associ-ation, TTTA which the former citycouncil vice chairman presently heads.About 60% of the staff, are so-calledemployees “with different languageskills”, to be said politically correct. Infact, most of the TTTA’s drivers areRussian speaking people. Average dri-ver’s salary is about 640 euro permonth.

Mr. Leonid Michailov thinks thatTTTA’s employees are getting rathergood salary, on Estonian account. Allaccusations that Russians are gettingless than Estonians are far from thetruth, he says. Statistically, on average,local citizens earn more, but they, atthe same time, occupy more responsi-ble posts in the country.

The greatest problem, accordingto Mr. Michailov, lies in the fact thataliens are becoming afraid of the docu-ments written on “foreign” language,which unfortunately not all cam masterwell. Because of low level of languageproficiency, most good positions aretaken by the locals, acknowledged Mr.Michailov, or by a small percentage ofRussians who had learned the language;this is the reason for a disadvantagedstatistics. Often TTTA’s employees wereoffered promotions but they refused, hesaid, because of language problems. •

We never forget our homeland


regime. Metals, various metal constructionsand food stuff are the main items of Eston-ian export to Russian Federation. Last yearRussian share in Estonian export reached10%, whereas Russian import to Estoniawas at the level of 13%.

ESTONIAN MERCHANTS’ 10 NATIONALITIES

There are two entities in the coun-try — Merchant Society and Estonia-Russian Entrepreneurs Chamber, whichmight be regarded as Russian business-men “clubs”, though they do not performthese functions. These organisations pur-sue the same, seemingly, aims, althoughthey differ as to the participants’ range,

i.e. they help in finding business part-ners, assist on different aspects of trade,production, customs and legislationissues, as well as in organizing seminarsand exhibitions, and defending theirmembers’ rights.

Tallinn Merchant Society has beenre-created in 1993: it unites presentlythe heads and CEOs of about 100 com-panies dealing with trade, consulting,brokerage, investments, etc. The Societyis an associated member of the RussianMerchants and Industrialists Guild.Merchant Society unites businessmen ofvarious nationalities; the distinguishingfactor in the Society’s procedure — itsworking language is Russian. The Soci-

ety’s chairman said that there were evenChinese businessmen among its mem-bers, so if take into consideration ethnicfactor, then it would come up to 10nationalities in the Society.

Estonian-Russian EntrepreneursChamber differs in its members’ com-position, i.e. it unites Estonian entre-preneurs which are either making busi-ness in Russia or cooperating withRussian partners. The Chamber’s chair-man, Oleg Karpikov said that theChamber concluded cooperation agree-ments with 40 regional Russian cham-bers of commerce; therefore Russianbusinessmen often apply to the Cham-ber for assistance. •

42 Estonia — Russia www.baltkurs.com

Aripaev daily regularly sum-marizes accounts of the most suc-cessful Estonian enterprises. As tothe “top-100” list, there are severalcompanies that are members of theTallinn Merchant Society, such asIntorex AS, Alvigo AS, Levadia OUand Famar-Desi AS. The turnover ofmost profitable companies exceedsone billion crones.

Among most successful in the“the top-500” list, there are the fol-lowing companies: Bankend EestiAS, Frelok AS, Anava Eesti AS,Onistar AS, Chr. Jensen Eesti ASand Tsenter AS.

LEONID MICHAILOV: Chairman, Tallinn Merchant Society .

The Baltic Course No. 25 – Spring 200744 Cooperation www.baltkurs.com

BC: Is Slovakia attractive in termsof doing business?

A. S.: Of course, it is. Slovakia isfamous not only by its tourism destina-tions, in particular the ski resorts, but weare rather industrial country with adeveloped manufacturing sector. In thisregard we have supplementary economystructure compared to the Baltic states.Our country is called a “Tatry’s tiger”because of high GDP growth rate thatreached 9,5% and production growthreached 8,9% in the 4-th quarter of 2006.Slovakia is also called an “Detroit of theEast” due to its accelerated growth inautomobile production that should putSlovakia on the first place what regardsnumber of cars produced per capita.Final production in Slovakia of such pop-ular brands as Volkswagen, Peugeot-Cit-roen and Kia Motors stimulated quickdevelopment of domestic subcontractingindustries connected to automotive sec-tor, like mechanical engineering, plasticand electrotechnic industry etc. We aregood at producing various technologieswith an excellent price-quality ratio.

BC: How is business developingbetween Slovakia and Baltic States?

A. S.: Trade between Slovakia andthe Baltic states — Latvia, Lithuania andEstonia is constantly growing. Bilateraltrade turnover in 2006 increased by 36%compared to the previous year andreached $273 mln. There is positive trendin increasing share of goods in our tradewith higher added value, in particular inelectronic and machine manufacturingsectors. There is a space to develop moresophisticated forms of cooperation includ-ing investments, manufacturing coopera-

tion and establishing joint ventures aimedat serving the EU markets as well as coun-tries in the East.

BC: What concrete products aremost traded between Slovakia and Latvia?

A. S.: The range of goods is reallybroad but there is still space to grow.From Slovakia come to Latvia at presentmostly chemicals, machinery, electricgoods, metals and metal products, plas-tics, construction materials and differentconsumer goods. What we import fromLatvia is mainly metals and metal prod-ucts, wood and wood products, foodstuff,clothes, machinery etc. But this is justpresent situation. I see perspectives ofmutual business development in manyother areas in the near future.

BC: What are these perspectives inthe mutual cooperation?

A. S.: At present I see big perspec-tive in technologies. With our technologieswe can assist the Baltic States to modern-ize or expand production, in particular inmetal, wood and food processing indus-tries. Cooperation in energy sector lookspromising as well. Slovak technologies forbuilding power stations including nuclearones are at the moment quite actual. Slo-vakia can offer also technologies to userenewable sources of energy, which isnowadays quite reasonable due to recentobjectives of the European Commission toreduce significantly energy consumptionand emission volumes by the year 2020.During the trade mission of Latvian com-panies in the framework of official visit ofyour President Vaira Vike-Freiberga toSlovakia in July 2006 I noticed reasonableinterest to cooperate in information tech-nologies and tourism. I think that our sci-

entists, especially in technical fields couldsuccessfully cooperate and prepare proj-ects using the EU financial funds. In Junethis year Slovak businessmen delegationwill visit Riga and Vilnius. It will be con-crete opportunity to develop our coopera-tion further.

BC: What would you recommendour businessmen?

A. S.: I think we are living verycrucial times nowadays when everythingis changing very fast. Slovakia and Balticcountries are relatively small countieswhat regards territories and number ofinhabitants. But we are very dynamiccountries with strong will and enthusi-asm. This is our advantage. As we bothhave access to the whole EuropeanUnion market without tariffs as well asaccess to cheap financial sources, mostimportant in successful business is agood idea and enough pacience. In thisway I would like to wish businessmenfrom Baltic countries as well as fromSlovakia a lot of perfect ideas andenough energy to carry on. As it is said:“The sky is the limit.” •

Slovak tiger By Olga Pavuk

Quite often in the foreign press one can come across the expression “Slovaktiger” to denote quick and dynamic development of the Slovak economy. AlexanderSkurla, Slovak Embassy’s 2nd Secretary from economic and commercial section hastold the BC about the “driving force” behind Slovak’s economy and economic rela�tions with the Baltic States.

TRADE TURNOVER BETWEEN SLOVAKIA AND THE BALTIC STATES, MLN USD2002 2003 2004 2005 2006

Lithuania 48.0 75.5 82.4 90.8 129.8Latvia 32.3 42.8 63.5 67.1 95.6Estonia 8.4 15.3 22.1 39.8 47.6Total 88.7 133.6 168.0 197.7 273.0Source: Embassy of the Slovak Republic in Latvia.

ALEXANDER SKURLA. Graduated fromBratislava University, Trade Faculty with majorin economics of foreign trade. Further studieswent on at the Limburg Business School (Belgium) and Scuola Superiore Enrico Mattei(Italy). Before being sent to Latvia he workedin private companies and public organizationsincluding Slovak Investment and Trade Devel�opment Agency and Ministry of Economy ofthe Slovak Republic.

Explanation for this is quite simple: ven-ture capitalists do not seek adventures (meaningthey do not seek risk).They are willing to take ahigher risk to gain higher profits and please notethe word w i l l i n g. Venture capitalists are notextremists who make investments according tothe principle ‘the crazier — the better’! In an idealsituation, a venture capitalist would like to earnhuge profits without any risk whatsoever. How-ever, it is not possible; thus, venture capitalistsmake their first investments in the Baltic States.

For international investors the BalticStates are like a unique and precious pearl. It isbased on the history and the present comple-mented by geographical location. In the recentpast the three Baltic States were part of the unionwith other countries of Eastern Europe.That wasthe Soviet Union. We all together with Belarus,Russia,Ukraine,Kazakhstan and other countriesof Eastern Europe were a single nation. How-ever,the Baltic States were distinguishable amongother countries as they were the western borderand a special place by the Baltic Sea which every-one dreamt to go to on a holiday.The Baltic Statesand people of the Baltic States were and still aretrade marks in the East.They trust us! Today theBaltic States are member states of the EuropeanUnion, forming the eastern border of Europe.Business and life here goes on in a manner under-standable to and habitual for Europeans. Every-thing is the same as or similar to any other coun-try of old Europe. It is this Baltic synthesisbetween the East and the West and the specialstatus of the Baltic people that forms the uniqueand precious pearl for international investors.It iseasier and safer to make investments in Belarus,Russia or any other country of Eastern Europethrough the Baltic States. It does not raise thecosts significantly and helps to remarkably reducerisks.For this reason initial investments in EasternEurope are made in the Baltic States, a homecountry and a habitual European environment,and post-socialist countries at the same time.Using this strategy investors make their profits inthe Baltic States,get to know the specific featuresof the Eastern European Region and ensure afuture deal flow in a wider region. Survey of anew market and establishing a position in it with-

out additional costs and a rapid rise in theinvestment risk is the phenomenon of this strat-egy. This means that investors are graduallymoving from a developed market to a develop-ing one, which is the case with the Baltic States,and then on to an emerging market: Belarus,Russia or some other market. This phenome-non has secured the interest of global venturecapitalists in Latvia and the rest of the BalticStates, as a result of which in Latvia there havebeen tens of investments and successful “exits”.Speaking of the size of Latvia and other BalticStates one has to remember that it is the extentof a project not the size of a country that mat-ters to an investor. Projects matching the extentof international private and funded venturecapital investment policies are, in their turn, onthe menu of the Baltic investment projects.

A liberal tax system is used in Latvia pro-viding for different options as regards the appli-cation of taxes.The average tax burden, i.e. thetotal amount of state taxes payable by an entre-preneur, is 30%.The tax burden can be loweredto 20% through application of the wide systemof tax rebate available in Latvia. These areexcellent conditions for business, as opposed tothe Nordic countries where the tax burdenamounts to 50%. It is only tax free zones thatoffer lower costs than Latvia.

In the Baltic Region, the attractive Lat-vian tax system is characterised by a companyincome tax rate or the so called profit tax rate,which is 15% in Latvia,22% in Estonia and 26%in Lithuania. Estonia lures businesses with theopportunity not to pay taxes for profits which areinvested in further development and not paidout.This is an attractive short-term solution, butone has to remember that these 22% — 7%more than in Latvia — will nevertheless bededucted when the profits are paid out.

The Latvian legal system is an integratedpart of the legal system of the European Union.The system used at the Commercial Register ofthe Register of Enterprises is particularly con-venient.Using a computer,one can check at anytime whether a company exists,whether it is notgoing through an insolvency procedure, as wellas check annual reports of the company, verify

authorised signatories of the company, andobtain information on commercial collateral.Title to any real property is registered in a spe-cial register called Land Register, including own-ership, security and any burdens, including theright of use.This register is publicly available andit features any restrictions imposed by the stateregarding the right of use or burdens of anykind. It is also important that this register — theLand Register — is a register that establishesrights.This means that ownership is not acquiredas of the date of signature of, say, a real estatepurchase agreement; instead, ownership isacquired upon registration of the purchaser’stitle in the Land Register. On the whole, theLand Register provides for transparency andsecurity in transactions with real property.

The Latvian venture capital and privateequity market has become an organised market,with the Latvian Venture Capital and PrivateEquity Association,an associated member of theEuropean Private Equity & Venture CapitalAssociation since 2003,operating in it.A LatvianAssociation of Business Angels was establishedlast year.There are signs of support from the Lat-vian State as well — three venture capital fundsco-financed by the Latvian State were establishedto finance small and medium enterprises wherethe state acts as a subordinated investor.

The Baltic Region has historically beenthe venue for Eastern and Western trade inter-ests. Today, too, it is a place where demandmeets supply, including Western capital andEastern investment projects. Experience andhistory shows that the shortest way from Lon-don to Moscow leads through Riga and thatthe Baltic people are the best guides to theEastern wilderness. •

45The Baltic Course No. 25 – Spring 2007 Investmentwww.baltkurs.com

Venture capital guides to the Eastern wilderness

By Rihards Svelpe, Venture fund PriBalt, Latvia

Latvia, the Baltic States and Eastern Europe have drawn attention of the Euro�pean venture capital investors. At this point, this is no longer just primary insignif�icant attention; it has turned into a stable interest. Initial investments are of coursebeing made in Latvia and the rest of the Baltic States. Why is it so, that despite thefact that Latvia is incomparably smaller than, for instance, Russia or Ukraine andaccordingly is a less attractive market for investors?

Total turnover of the 300 biggestBaltic companies equaled about 34 bln euroin 2005, with a yearly increase of 21.7%.This list included Baltic companies with theturnover of not less than 38 mln euros.

Quite remarkable that Top-300, i.e.biggest companies in the leading econ-omy sectors, accounted for about 76.8%of the three Baltic States’ aggregateGDP; a year earlier the figure was 73%.Even in view of different statistic meth-ods in the three states, it is quite clearthat the turnover of the leading 300 com-panies is growing faster that the generalregional GDP level.

DIFFERENCES IN APPROACHES Statistics’ variations are

explained by the fact that Lithuanianand Estonian dailies’ used both consol-idated balances and companies’ bal-ance-sheets in their assessments.Whereas Latvian daily used the datasupplied by the Latvian CompanyHouse’s register and modified later bythe Lursoft agency. Another differenceis that Latvian companies operate withthe so-called effective corporate profitwhile neighbors with the profitsamounts calculated before the taxes arepaid. And at last, Lithuanian banks and

insurance companies are not includedin the Top-300, which hampered thetotal picture of the biggest Baltic finan-cial institutions.

PERMANENT LEADER HITS THE RECORD

For the first time in the Top-300list there is a Lithuanian company,Mazeikiu nafta with the turnoverexceeding 3 bln euros. The company isheading the Baltic business list alreadyduring last several years. The com-pany’s turnover for the last 8 yearsincreased 5 times (the BC wrote about

The Baltic Course No. 25 – Spring 200746 Baltic Business Rating www.baltkurs.com

Business champions in the Baltic economy By Olga Pavuk

Latvian business daily Dienas bizness (Db) published this April the list of Top�300 Baltic companies; the rating is based onpolls made by business partners’ dailies in Estonia (Aripaev) and Lithuania (Verslo zinios). The BC publishes information aboutBaltic champions in the leading countries’ economy sectors using Db’s data.

47The Baltic Course No. 25 – Spring 2007 Baltic Business Ratingwww.baltkurs.com

the Top-100 Baltic companies alreadyin 1999).

Turnover exceeding 1 bln euro forthe second year in track is shown by theretail-traders network, VP Market. Twocompanies, Lithuanian Achemos grupeand Estonian Hansapank for the firsttime have shown the turnover exceed-ing 0.5 bln euro.

It has to be noted that most of thecompanies in the Top-300 list are companieswith the turnover in the rate of 50 to 100mln euros. Quite remarkable is that a yearago the leaders’ turnover has been in therank of not more than 50 mln euros.

The list is “closed” by a Lithuanian ITcompany, Alnos amoniu grupe with theturnover of “only” 38,3 mln euros.

LATVIANS ARE QUICKER AND EFFICIENT

As to the rate-increase in profits,Latvian companies have shown 30.2%increase, Lithuanian ones — 20.4% andEstonian companies — 17.5%. ThoughLithuanian companies have been moreefficient, i.e. average company’s turnoverin the country was about 154.2 mln euros,in comparison to 91.4 mln in Latvia and91.1 mln euros in Estonia.

It was quire interesting to comparepresent sectoral economy leaders in theBaltics with those eight years ago. At both,the consumers’ traders have been the cham-pions, followed by the energy sector, trans-port and oil-business.

Although, if 8 years ago there wasnot a single IT company in the informa-tion technology sector, there were 4 suchcompanies among the first hundred atpresent, and 10 IT companies in the wholeTop-300 list. As to the booming construc-tion sector, both then and now there are4 leading companies in the “first hun-dred”. However, 8 years ago among these 4there were two Estonian and two Latviancompanies; presently all four leading con-struction firms have Estonian origin; Lat-vian companies did not enter even intothe list of the first ten champions.

Estonian company, Transtrade (onthe 7th place) has been is in list of the Top-300 for the second year; the company headsthe list of ten best Baltic companies in trans-port and transit sector. Transtrade is adaughter company of Transgroup Invest AS(earlier functioning under the title World-Wide Invest), and it is affiliated with theRussian TransGroup company; the latter isamong the fifth largest Russian railwayoperators. TransGroup’s Board of Direc-tors’ chairman, Maxim Liksuto and co-

owner of Transgroup Invest, together withhis partner, Sergej Glinka occupy third andfourth place in he list of Estonian million-ears, correspondingly.

Quite exotic for the list of the Balticchampions seemed 145th place occupied bythe Latvian company, jet Games Eurasia

SIA dealing with gambling and game-busi-ness, e.g. it sells slot-machines.

Among the list of Top-300 thereis only one publishing business sector’srepresentative, Lithuanian companyLietuvos Rytas, occupying 285th placein the list. •

TOP�300 MAJOR BALTIC COMPANIES’ TURNOVER, BY COUNTRY, 2005 Estonia Latvia Lithuania

General turnover, bln EUR 9.56 8.17 16.34Changes as to 2004, % +17.5 +30.2 +20.4Average turnover per employee, mln EUR 91.1 91.4 154.2Changes as to 2004, % �10 +12.5 +31.8The number of companies 105 89 106Source: Dienas bizness, Aripaev, Verslo zinios.

TOP�300 MAJOR BALTIC COMPANIES BY TURNOVER’S AMOUNTS, 2005 Estonia Latvia Lithuania Total

Over 1 bln EUR 0 0 2 2501 to 1000 mln EUR 1 0 1 2401 to 500 mln EUR 2 1 1 4301 to 400 mln EUR 0 2 2 4201 to 300 mln EUR 3 7 12 22101 to 200 mln EUR 19 13 26 5851 to 100 mln EUR 48 31 36 11538 to 50 mln EUR 32 35 26 93Source: Dienas bizness, Aripaev, Verslo zinios.

TOP�300 MAJOR COMPANIES WITH THE BIGGEST TURNOVER PER EMPLOYEE*, 2005

Company Economy sector Turnover peremployee,

th EUR

Turnover,mln EUR

Number ofemployees

Neste Latvija Trade in oil goods 3159.9 208.6 66Kauno Tiekimas Whole� and retail consumers trade 2850.0 185.3 65Lavesta AS Wholesale trade 2186.8 155.3 71Neste Eesti Trade in oil goods 2022.0 111.3 55G.S.G. Metal AS Trade in metals 1667.5 98.4 59Elko grupa Whole sale in computers’ technique 1353.4 473.7 350Tolmets Whole sale in metal scrap 1232.2 77.6 63Tele2 SIA Telecommunications 1123.6 132.6 118TD Baltic UAB Trade in computers and IT 1095.2 100.8 92Stora Enso Mezs Trade in wood materials 1078.1 81.9 76* Only companies with more than 50 employees are included. Source: Dienas bizness evaluations from Top�300 in Baltics.

TOP�300 MAJOR ECONOMY SECTORS BY TURNOVER, 2005

Sector Turnover, mln EUR

Increase as to 2004, %

Number of companies

Retail trade 3633.2 +20.3 19Energy 2677.4 +28.8 17Transport and transit service 2675.2 +24.6 23Trade in oil products 2640.9 +57.6 22Food�stuff industry 1862.4 +26.3 22Telecommunication 1752.9 +10.2 10Financial service* 1435.5 +30.8 13Construction 1332.6 +42.5 20IT�sector 1089.2 +39.4 9Wood industry 961.5 �1.10 13Metal� and machine� manufacturing 847.7 +26.6 9Retail sale in medicinal industry and drugs 627.1 +13.7 8Car sales and services 668.8 +23.2 9Trade in construction materials 399.7 +9.4 3Construction materials’ production 352.6 +22.2 7Consumers’ light industry 205.0 �20.6 4* Lithuanian banks and insurance companies are not represented in the list of the Baltic Top�300.Source: Dienas bizness, Aripaev, Verslo zinios.

The Baltic Course No. 25 – Spring 200748 Baltic Business Rating www.baltkurs.com

Leading 10 Baltic companies are represented in Top�300 economic sectors TOP 10 IN RETAIL TRADE Rank Company Turnover, Country Rank in the

mln EUR Top�3001 VP Market 1269.0 LT 22 Palink (IKI’s chain) 337.4 LT 103 VP Market 330.9 LV 114 Norfos mazmena 298.6 LT 135 Rimi Latvia 279.5 LV 146 Tallinna Kaubamaja 183.9 EE 397 Rimi Lietuva 138.2 LT 538 CBA Aibe 134.3 LT 579 Prisma Peremarket 76.0 EE 13810 Stockmann 71.2 LV 148

TOP 10 ENERGY COMPANIES 1 Eesti Energia 452.9 EE 62 Latvenergo 353.3 LV 93 Lietuvos energija 269.4 LT 164 Rytu skirstomieji tinklai 247.8 LT 235 VST 244.0 LT 256 Latvijas gaze 189.8 LV 367 Lietuvos dujos 176.0 LT 428 Ignalinos atomine elektrine 166.0 LT 459 Vilniaus enerмija 107.0 LT 8710 Rigas siltums 84.0 LV 114

TOP 10 COMPANIES IN TRANSPORTATION SECTOR AND TRANSIT SERVICES 1 Transtrade 419.9 EE 72 Lietuvos gelezinkeliai 318.6 LT 123 Tallinnk Grupp 259.7 EE 204 Latvijas dzelzcels 245.1 LV 245 MT Transiit 153.0 EE 506 Air Baltic Corporation 120.4 LV 677 Eeste Raudtee 112.3 EE 748 Alpa Centrums 92.7 LV 1019 Rigas satiksme 90.8 LV 10210 Ventspils ekspedicija loмistika KS 83.5 LV 117

TOP 10 COMPANIES IN OIL�PRODUCTS’ TRADE 1 LUKoil Baltija 416.0 LT 82 Mazeikiu Nafta Trading House 259.4 EE 213 Mazeiku Nafta Trading House 221.1 LV 284 Neste Latvija 208.6 LV 315 Latvija Statoil 207.5 LV 326 Lietuva Statoil 187.2 LT 377 Eesti Statoil 135.2 EE 558 LUKoil Baltija R 123.1 LV 659 Neste Eesti 11.3 EE 7710 Kurzemes degviela 80.9 LV 124

TOP 10 FOOD�STUFF PRODUCING COMPANIES 1 Plunges kooperatine prekyba 200.1 LT 342 Rokiskio suris 137.0 LT 543 Pieno zvaigzdes 129.3 LT 624 Latvijas balzams 111.7 LV 765 Zemaitijos pienas 107.0 LT 886 Svyturys�Utenos alus 102.4 LT 897 Rakvere Lihakombinaat 94.7 EE 978 Biovela 77.0 LT 1379 Kraft Foods Lietuva 74.0 LT 14010 Rigas piena kombinats 62.4 LV 164

TOP 10 TELECOMMUNICATION COMPANIES Rank Company Turnover, Country Rank in the

mln EUR Top�3001 Omnitel 248.1 LT 222 Latvijas Mobilais telefons 239.7 LV 273 TEO LT 212.4 LT 304 EMT 196.8 EE 355 Lattelecom 182.9 LV 406 Elion Ettevotted 165.4 EE 467 Bite Lietuva 151.5 LT 518 Tele2 132.6 LV 599 Tele2 Eesti 90.3 EE 10410 Elisa Mobiilsideteenused 89.0 EE 105

TOP 10 CONSTRUCTION COMPANIES 1 Merko Ehitus 206.7 EE 332 Skanska EMV 118.6 EE 693 Eesti Ehitus 107.0 EE 854 YIT Ehitus 94.4 EE 985 YIT Kausta 81.5 LT 1226 Ranga IV 65.7 LT 1577 Kauno dujotiekio statyba 58.4 LT 1798 Panevezio statybos trestas 55.5 LT 1899 Koger&Partnerid 51.1 EE 20210 Teede REV�2 50.3 EE 207

TOP 10 COMPANIES IN WOOD�INDUSTRY AND CONNECTED SECTORS 1 Latvijas finieris 145.4 LV 522 Nelss 109.4 LV 793 Latvijas Valsts Mezi 97.9 LV 954 Stora Enso Timber 88.3 EE 1075 Stora Enso Mezs 81.4 LV 1206 Vakaru medienos grupe 73.2 LT 1427 RMK 70.8 EE 1508 Metsaliitto Latvia 61.6 LV 1679 Metsaliitto Eesti 50.3 EE 20610 Pata AB 48.6 LV 217

TOP 10 COMPANIES IN METAL� AND MACHINE� MANUFACTURING 1 Latvijas metalurgs 219.5 LV 292 BLRT Grupp 179.7 EE 413 Kuusakoski 75.3 EE 1394 Eesti Talleks 60.5 EE 1695 Vakaru laivu gamykla 59.9 LT 1716 Kuusakoski 55.6 LT 1887 Krasainie lejumi 53.3 LV 1948 Baltik vairas 49.8 LT 2099 Galvex Estonia 48.2 EE 22010 Rigas kugu buvetava 38.6 LV 293

TOP 10 COMPANIES IN IT SECTOR 1 Elion Ettevotted 165.4 EE 462 GNT Lietuva 107.0 LT 863 TD Baltic 100.8 LT 924 TD Baltic 94.0 EE 995 GNT Latvia 84.5 LV 1136 Acme grupe 79.9 LT 1297 Sonex Group 79.0 LT 1318 Acme kompiuteriu komponentai 64.9 LT 1609 GNT Eesti 47.2 EE 23210 Alnos amoniju grupe 38.03 LT 300

Countries’ codes: EE — Estonia, LT — Lithuania, LV — Latvia.

Demographic problems, whichexperts in Latvia have predicted long ago,can be felt already now. According toEducation Ministry, there were about 38thousand students in the system of highereducation in 2006/2007. However, therewere only 19,6 thousand first-class pupils.It seems that quite soon there will hardlybe any students in the high schools. Thatwas one of the reasons that Bank HighSchool has been developing programs toattract foreign students through variousexchange programs.

Presently, at the time of informationtechnologies, specialists prefer cross-borderactivities.This is why for Latvia, as a countrywith high scientific potentials, it is importantto conquer a respectful place in the higheducation’s niche. However, as BankingInstitution of Higher Education (BIHE)rector, Tatjana Volkova argues, the schoolhas been already for several years workingon the problem, with due respect, at thesame time, for Latvian students’ intentionsto study in international environment.

Foreign students have been involvedin the BIHE’s modules during last four

years and their numbers are constantlyincreasing. There are presently 32 studentsfrom France, Lithuania, Austria, CzechRepublic, Portugal and Germany in theschool. At the same time, 63 students fromthe Banking Institution of Higher Educa-tion went for studies abroad; they usuallystay in foreign universities for severalsemesters and take part in practical work’sexchange programs. Such internationalexchange program, called Socrates/Erasmusis usually financed by the European Union.The program’s aim is to activate Europeanintegration and youth’s better understand-ing of the surrounding environments.

Foreign students study the same sub-jects as their Latvian counterparts, with thebusiness administration as the generalmajor. Several modules are included, e.g.inter-cultural management, economics,finances, strategic management, etc. A gen-eral lecture is given to students on Latvianhistory and culture. Therefore, for foreignstudents returning back home Latvia ceasedto be “a white spot” on the world map. Gen-eral language of instruction is English,which has become already the language ofinternational communications.

It is not by accident that studentsfrom SNG/CIS often choose BIHE. Forexample, this May we expect Moldovaprime-minister’s official visit to Riga; BIHE

representatives are invited for official dis-cussions. Moldova is very interested in edu-cating their students in financial issues. It isfor the fourth year in a row students fromUzbekistan are coming to our school for so-called “summer sessions”, which last twoweeks. The program is financed by Uzbek-istan. With the same idea rector TatjanaVolkova visited Kazakhstan recently. Thereis, certainly, an interest to study in Latvia.The contacts in this direction will be devel-oping further on. •

49The Baltic Course No. 25 – Spring 2007 Educationwww.baltkurs.com

BIHE to form tolerant student’s environment By Alexander Fedotov

Tolerant environment can be bestmade with foreign students’ exchangeprograms.

Banking Institution of Higher Education Celebrating the 15 year Anniversary!

Banking Institution of Higher Education (BIHE) had excellent track record in business and finance education.

BIHE provides full range of professional study programs:

BIHE1b K.Valdemara Street, Riga, LV-1819, LATVIATelephone: +371 67322605Fax: +371 67320620E-mail: [email protected]

www.ba.lv

The first level professional higher education programmes:Economics and EntrepreneurshipBanking operations

Master’s level programmes:FinanceBusiness Administration (MBA)Global Finance and Banking(joint programme with Swiss Business School)

Bachelor’s level programmes:Business AdministrationFinance

Doctor’s study programme:Joint doctoral programme in business administrationIn cooperation with Riga International School of Economicsand Business Administration (RISEBA) and Ventspils Univer-sity College (VUC).


By Eugene Eteris A view from the inside of the

Commission’s headquarters is alwaysinteresting. It reveals more thanjust an official opinion; it provides anew dimension to the whole EUdevelopment. The BC offers an inter�view with the member of the Eco�nomic and Monetary Commissioner’sCabinet, Mr. Benjamin Angel.

Among the present EU-27 com-missioners the post of the Commis-sioner for Economic and MonetaryAffairs (Joaquin Almunia) is withoutdoubt one of the most important: itoversees, among other obligations, thewhole economic development of theUnion. The Commissioner’s Cabinetconsists of 7 extremely qualified per-sons; one of the Cabinet’s members,Benjamin Angel gave interview to BCthis spring.

BC: Your portfolio is the only oneout of the 27 commissioners that con-tains in the title the words economicdevelopment and monetary affairs.What is exactly the Commission’s mis-sion?

B. A.: The Commission — moreprecisely, Commissioner Almunia — ismainly in charge of the coordination ofnational economic policies. It is theCommission for instance, who preparesthe European broad economic policyguidelines or the various steps of theimplementation of the famous stabilityand growth pact, our main instrumentis to ensure that public finances aremanaged as seriously as any goodhomemaker would. The word “mone-tary affairs” does not mean that wedeal with monetary policy -this is obvi-ously the task of the ECB and of thevarious National Central Banks — butrather it refers to some responsibilitiesrelated to the euro, from the variousquestions linked to the enlargement ofthe Eurozone up to very technicalissues related to euro coins.

BC: What is the organic structureof your Cabinet, how it “runs theshow”? Can 15 or 20 officials in the DGreally manage the colossal tasks?

B. A.: A cabinet is a very smallteam of 7 officials, assisted by some

supporting staff. Its main task is toadvice the Commissioner on all portfo-lio and non-portfolio issues (don’t for-get the Commission is a College, unlikenational governments) and to organizea smooth link with the services. Wemust make sure that the DG followsthe orientations given by the Commis-sioner and we must keep the Commis-sioner informed of the ongoing work inthe DG. The Directorate General isobviously much larger. The size of thevarious DGs varies greatly in the Com-mission. A DG can go from 200 people,up to more than one thousand. But theyall have one thing in common: therecruitment is based on very high stan-dards, through EU wide competitions.When talking of staff, quality matters

more than quantity. The administrationof the Commission is very small, espe-cially if you compare it with largeMember States, but fortunately, wehave a very competent, hard workingand dedicated staff. Moreover, I mustadd that it is a work like no other: it isa work with a soul. People are not hereto do administration: they are here tobuild Europe.

BC: How productive are the pres-ent talks about the “Union’s econ-omy”? Is it not just the sum of the “27ingredients”?

B. A.: Being French and thereforerather fond of cooking, I could answerthat many ingredients are needed for agood recipe! Each ingredient has itsown flavor and importance, but at the

50

EUIntegration www.baltkurs.com

Economic integration in the Union:

BENJAMIN ANGEL• Education: Master degrees in management, political science and public administration,PHD in Law.• Lectured in several masters’ courses; published numerous books and articles on the EUissues.• Since 1996 member of the Cabinet in the Commissioner for economic and monetaryaffairs (Yves-Thibault de Silguy). Member of the Pedro Solbes’ cabinet and presently,member of the Cabinet of the Commissioner for economic and monetary affairs (JoaquinAlmunia).

end, they all matter for the success ofthe final preparation. EU economiesare increasingly integrated. Forinstance, on average, 2/3 of our trade isdone within the Community. This pro-portion even rises to more than 3/4 forthe 10 new Member States, includingLatvia, and peaks at 85% in the CzechRepublic. Whatever the differences interms of development or GDP, it makesus very inter-dependant. When yourpartner is having a cold, you tend tosniff and are more susceptible to get-ting sick. When their situationimproves, you import part of thisimprovement through an extradynamism of your exports. Obviously,some” ingredient-states” — like Ger-many — are more important than oth-ers in the finale recipe, simply becauseof their size, but at the end of the line,they all matter.

BC: While striving for European-dimensional economy, are the memberstates’ independence and sovereigntyon the economy side preserved?

B. A.: Undoubtedly. We are coor-dinating national polices; we are notsetting them. Moreover, if the Commis-sion proposes the content of this coor-dination, it is up to the Council todecide. The main common objective isto make sure that everyone follows thebasic principle of sound managementand prepares themselves for the bigchallenges, e.g. financial impact ofaging. However, each Governmentremains in charge of its own policy. Thefine-tuning is then a question of collec-tive choice. Here is an example: you canhave a balanced budget with a very bigwelfare system and public spending at60% of the GDP or a balanced budgetwith a small welfare system and publicspending at 30% of the GDP. The EUwill ask for the balanced budget, butwill leave countries free to decide pro-vided that the balance is sustainable.

BC: What is the European econ-omy role and influence in the world?

B. A.: It is huge. We used to com-plain about the EU problems that wetend sometimes to forget how impor-tant we are. The EU includes only 7%of the world’s population, but repre-sents 31% of the world’s GDP (more

than the US); it has 25% of the world’strade and it attracts 37% of world’s for-eign direct investment. The question is,how does our political influence matchour economic importance? When wehave a unified representation, like forinstance for trade, it does. When we donot, our role tends in practice to be notas important as it should be.

BC: The Communities for abouthalf a century explored the motto “evercloser union”, what is the economicsense of that? Moreover, what is goingto change when the Draft Constitutionsuggested a new motto — “united indiversity”?

B. A.: Mottos are more a questionof political symbolism than economics!From a political point of view, I wouldsay that there is no contradictionbetween the two principles: you canbuild an “ever closer Union” withoutdenying diversity. You are not moreEuropean by being less Latvian, Ger-man or Italian. The European identitytops up the national one, it does notreplace it. Euro coins offer a perfectmaterialization of the “unity in diver-sity”: you have one common Europeanside of the coin and a huge variety ofdifferent national sides. This is Europe.We are not building the Union fromscratch: most European States have athousand years of history. We have totake this into account.

BC: Is the “Union’s project” apolitical or rather an economicendeavor?

B. A.: It’s both. It is a politicalproject, which started with the estab-lishment of an economic community. AsR. Schuman said in its famous declara-tion on 9 May 1950: “Europe will not bemade all at once, or according to a sin-gle plan. It will be built through con-crete achievements which first create ade facto solidarity”. There was indeedan attempt in the early 1950s to speedup the pace, creating from scratch acommon army and a political union, butit failed. This failure has had lastingconsequences and shaped what is calledthe “Monnet” method: “one small step,calling for another one, calling foranother one...” After many small steps,we have started besides the economic

field to reach for political aims. Signifi-cant efforts are for instance being madeto build a common foreign and securitypolicy and a common policy for justiceand home affairs. The EU is today farmore than a mere economic area. It hasbeen estimated for instance that 70%of the law enforced in France and otherstates has a European origin. The EU isnot a federal state, but it is alreadymuch more than a confederation. It isan original sui generis model, to whichnothing can really be compared.

BC: What, to your mind, are themain stumbling blocks on the EU eco-nomic integration process in its per-spectives?

B. A.: We still have many chal-lenges ahead. We must for instance keepworking on improving the functioningof the single market, particularly inenergy sector and services. We still haveto make the coordination of economicpolicies more effective, particularly forthe euro-zone. The reform of the stabil-ity and growth pact has so far given verygood results. We are closing down exces-sive deficits one after the other. How-ever, the experience is still recent andwe need more time before being able toclaim a complete success.

BC: And the last question: howdifficult it is to work for the Commis-sion? Is there a spare time for yourfamily, friends, hobbies and leisure?

B. A.: It is both a hard and alsovery rewarding job. To give you anexample, I was fortunate enough tostart working on the euro issues in themid 1990s, when no one believed in it.At that time it was called ecu, a differ-ent name, and the stability and growthpact did not exist...Being able to seethe evolution from the inside and tocontribute directly to the success of amajor historic event — Europe has nothad a common currency since the fall ofthe Roman Empire — is an extraordi-nary experience. It is worth makingsome sacrifices for it. However, thisdoes not mean people in the Commis-sion are unable to have a normal life.Thank God, we have families, lovelykids, leisure time; indeed life in Brus-sels is more pleasant than it may seemat first glance. •

51The Baltic Course No. 25 – Spring 2007 Integration www.baltkurs.com

: problems and realities


“Theoretically, global marketevolves according to the capitalistic gamerules, i.e. everyone’s gains match theiropportunities. In fact, goods reach onlythose who wish to have them, even whenconsumers are not able to pay for themand consequently are involved in high debtcommitment,” tells Frank Ville, Head ofEuler Hermes Kreditversicherungs-AGRepresentation Office in the Baltics. Thereare two possible scenarios of further eco-nomic development: 1) overheating withthe global inflation around 2009 — 2010,and 2) reduction of inflation in most coun-tries. “Past two years’ global trends indi-cate that the latter scenario is more likelyto happen,” points out F. Ville.

The world economic cycle was verystrong in the 2006 first quarter, with excel-lent figures in all of the three biggest eco-nomic zones — the US, Japan, and the eurozone — but this gradually deterioratedthereafter under the impact of slowdown,from the second quarter onwards in the US,and then from the third quarter in Japanand Europe. The situation improved at theend of 2006, leaving hope for growth of theorder of 2% in the three zones in 2007. Theworld GDP deflator rose by 1.5% in 2006(against 1.6% in 2005), and should fall backto 1.3% in 2007, with demand slowing and

with commodity prices on average likely tohead slightly downloads. Euler Hermesexperts believe that deflation in 2007 willgradually improve quarterly GDP indices inmost countries, which will lead to GDPincrease in 2008.

However, even in this case the globaleconomics will remain unbalanced. Thecontrast seems likely persist between over-consuming countries with deepening cur-rent account deficits (principally the US,and to a lesser degree Spain, the UK andFrance), and those countries with excessiveexports (China, but also Japan and Ger-many). This situation could lead to tensionson the currency markets or on the presentsystem of free trade in goods.

GLOBAL TRADEModeration in world economic

growth should in turn trim world tradegrowth to blow 7% in 2007, primarilybecause of dampening in domestic demandin the US and a weakening in intra-EUtrade, the latter slowed by the expecteddeceleration in the German economy.

FINANCIAL MARKETInflation in Europe is lower than pre-

dicted by the experts of the European Cen-tral Bank and is likely to keep falling in

2008. Fall in economic growth poses toEurozone a greater risk than rise in infla-tion. Therefore, the European Central Bankmust maintain solid rates.

In 2006 the rate of euro against dollarincreased by 11%, whereas the value ofJapanese yen slightly decreased. Euroincrease was caused by the US internaldeficit and rapid drop in interest rates inspring 2007. Market experts predict a dropin interest rates in the USA and a significantincrease in European rates in 2007.

EUROZONE COUNTRIESIn 2006 economic growth in Euro-

zone countries exceeded the previousexpectations thanks to improvement of thesituation in Italian and German consumermarkets, as well as strong export growth.However, the impact of these factors islikely to weaken in 2007. Slow-down of eurointerest rates will slacken household invest-ments, especially in Spain and France.According to analysts, 2008 will bring moresuccess due to reduced inflation andrenewal of international active trade.

“Slovenia’s accession of to Eurozonethis January would seriously test other can-didate countries and would partly affect theBaltic States,” emphasised F. Ville. On theother hand, the public’s enthusiasm regard-ing transition to euro, especially in Polandand the Czech Republic, is fading becausethe Maastricht Criteria restrict budget pol-icy in all countries. •

52 Economics www.baltkurs.com

Fall in economic growth poses greater threat to euro zone than inflation

According to Economic Outlook, made by experts of Euler Hermes Group in Jan�uary 2007, global inflation level is expected to decrease in 2007, which will be fol�lowed by the subsequent economic growth in 2008.

Economic Outlook provides detailed analysis of all major economic factors in the world’s largest countries — the USA, Canada, Japan and theEuropean countries — Germany, France, Italy, Spain, the Netherlands, Belgium, Greece, Finland, Portugal, UK, Sweden, Denmark, Norway andSwitzerland.Euler Hermes Group is the global leader in credit insurance and one of the leaders in bonding and guarantees. Euler Hermes offers a wide rangeof trade receivables management services. The company has offices in 49 countries and employs 5,500 employees. In 2006 its sales reached 2 blneuros. Euler Hermes is a subsidiary of AGF and a member of Allianz Group. The company’s shares are quoted in Euronext Paris. The company andits subsidiaries have been awarded Standard & Poor’s AA�rating.

53The Baltic Course No. 25 – Spring 2007

CIS Social Affairs www.baltkurs.com

It is well known that Russian is acknowl-edged as an official communication language inthe United Nations. By about 300 million peo-ple on our planet it is regarded as a commonlyused every-day language. It is the forth lan-guage in the world on the account of practicaluse; tens of millions Russian-speaking peoplelive outside Russia. Russian is taught presentlyto about 180 million people in the world.

FESTIVITIES STARTED IN PARISThe start to festive events for the “2007-

Russian Language Year in the World”occurredin Paris,on 24-27 January at the 25th Languagesand Cultures Anniversary Saloon — Expo-langues. This Saloon takes place traditionallyin Paris under the slogan of “Languages of theworld and the world of languages”; it is dedi-cated to the international education develop-ment and languages’ diversity in the world.

Russia was invited to the 2007 Expo-langues’ events as a guest-of-honour coun-try. Russia took part in the exhibition underthe slogan: “Russian as the first language ofcommunication in cosmos”. First ladies ofthe two countries, i.e. Madam L. Putin ofRussian and Madam B. Chirac of Francepresided over the event.

COMPETITION FOR TEACHERS AND PUPILS

During 2007-Russian Language Yearthe VII-th International Pushkin Competi-tion for teachers from the Baltic countriesand SNG-CIS will take place. The Pushkin-award was created in 2000 in order to ren-der moral and material support to mostenergetic and gifted Russian-languageteachers in the countries surrounding Rus-sia. The competition’s organisers invite allthose teaching Russian and Russian litera-ture, as well as other lecturers involved inRussian culture and history studies and, infact, all teachers in the CIS and the Balticsto take part in the competition and write apamphlet on a chosen subject-theme.

The 2007-theme is “Language.ru.Does the computer generation need Russ-ian language?” The results of the competi-tion will be known on the 6th of June,A.Pushkin’s birthday.

As a unified event within “2007-Russ-ian Language Year in the World”celebrations,another written-essay competition, amongthose learning Russian as the foreign lan-guage, not native one, will take place too.Theessays’ themes are the following: “Russian as

the first communication language in cosmos”,“Russia: its language and culture in my life”and “My famous Russian writer”.

It was decided that for each countrythere would be only one winner. As anaward, the winners will be invited thisNovember to Moscow for the final RussianYear celebrations.

HOSPITABLE RIGA CITY COUNCIL Russian Ambassador in Latvia, Vik-

tor Kalyuzhny on 2 March opened in theRiga City Council the “2007-Russian Lan-guage Year in the World” celebrations.Latvia, he said, was among more than 30countries for the moment, which alreadystarted festive events concerning the occa-sion. On the eve of the City Council’s open-ing, Russian Embassy in Latvia organised around-table discussions under the theme:“Russian media sources in Latvia: priorities,problems and means of support”, which tookplace in the Russia House in Riga. The BC’sstaff participated in the event.

At the ceremony in the City Council,Mr. V. Kalyuzhny, Russian Ambassador said:“Latvia has been always famous for hermagnificent centres in learning Russian lan-guage and literature. We are very glad thatLatvian youth is showing recently someinterest in Russian Language and in theopportunities provided to acquire highereducation in Russian”.

Riga’s Metropolit and Latvian Patri-arch, Alexander underlined that each lan-guage in the world is God’s providence andthat from the time immemorial Russian lan-guage co-existed with the Latvian one onher territory. When we talk about Russianlanguage, he said, we mean more than justRussia, we mean a tremendous geographic,cultural and spiritual Russian world’s entity,which is preserved and multiplied by theChristian Church, and first of all this preser-vation occurs through Russian language.

Latvian Social Integration Minister,Oskars Kastens underlined Russian lan-guage’s strong positions in Latvia.The missionto secure Russian language positions fromglobalisation challenges and other threats hasbeen put on the country’s intelligence andRussian-speaking organisations the numberof which is constantly growing.The Ministry’ssecretary would support in the future Russianpublishing projects, Russian holidays and theSlavic Culture and Literacy Holliday. •

2007 — Russian Language Year By Olga Pavuk

Russian president, Vladimir Putin at an official public�state reception in theKremlin devoted to the Peoples’ Unity Day last November announced that 2007would be celebrated as the Russian Language Year in the country and around theworld. All those who know, respect and cherish Russian language, he stressed, wouldtake part in festive events.

2007March

2006December

2005December

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2006December

2005December

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The Baltic Course No. 25 – Spring 200754 Statistics www.baltkurs.com

Australia | A1 | | A1 | | A1 |Austria | A1 | | A1 | | A1 |Belgium | A1 | | A1 | | A1 |Canada | A1 | | A1 | | A1 |Denmark | A1 | | A1 | | A1 |Finland | A1 | | A1 | | A1 |France | A1 | | A1 | | A1 |Germany | A1 | | A1 | | A1 |Hong Kong | A1 | | A1 | | A1 |Iceland | A1 | negative | A1 | negative | A1 |Ireland | A1 | | A1 | | A1 |Japan | A1 | | A1 | | A1 |Luxemburg | A1 | | A1 | | A1 |Netherlands | A1 | | A1 | | A2 |New Zealand | A1 | negative | A1 | negative | A1 |Norway | A1 | | A1 | | A1 |Singapore | A1 | | A1 | | A1 |Slovenia | A1 | | A1 | | A2 |Spain | A1 | | A1 | | A1 |Sweden | A1 | | A1 | | A1 |Switzerland | A1 | | A1 | | A1 |Taiwan | A1 | negative | A1 | negative | A1 |United Kingdom| A1 | | A1 | | A1 |United States | A1 | negative | A1 | | A1 |Botswana | A2 | | A2 | | A2 |Chili | A2 | | A2 | | A2 |Czech Republic | A2 | | A2 | | A2 |Estonia | A2 | negative | A2 | | A2 |Greece | A2 | | A2 | | A2 |Italy | A2 | | A2 | | A2 | negativeKorea | A2 | | A2 | | A2 |Kuwait | A2 | | A2 | | A2 |Malaysia | A2 | | A2 | | A2 |Portugal | A2 | | A2 | | A2 | negativeQatar | A2 | | A2 | | A2 |Thailand | A3 | | A2 | negative | A2 |U.A.E. | A2 | | A2 | | A2 |Bahrain | A3 | | A3 | | A3 |China | A3 | | A3 | | A3 |Hungary | A3 | | A3 | | A2 | negativeIndia | A3 | | A3 | | A3 |Cyprus | A3 | | A3 | | A3 |Latvia | A3 | negative | A3 | | A3 |Lithuania | A3 | | A3 | | A3 |Mauritius | A3 | | A3 | | A3 |Mexico | A3 | | A3 | | A4 |Namibia | A3 | | A3 | | A3 |Oman | A3 | | A3 | | A3 |Poland | A3 | | A3 | | A3 |Slovakia | A3 | | A3 | | A3 |South Africa | A3 | | A3 | | A3 |Trinidad | A3 | | A3 | | A3 |Algeria | A4 | | A4 | | A4 |Brazil | A4 | | A4 | | B | positiveBulgaria | A4 | | A4 | | B | positiveColombia | A4 | | A4 | | B |Croatia | A4 | | A4 | | A4 |Israel | A4 | | A4 | | A4 |Morocco | A4 | positive | A4 | positive | A4 |Panama | A4 | | A4 | | A4 |

Romania | A4 | | A4 | | A4 |Saudi Arabia | A4 | | A4 | | A4 |Tunisia | A4 |positive | A4 |positive | A4 |Bangladesh | B | | B | | B |Benin | B | | B | | B |Burkina Faso | B | | B | | B |Cameroon | B | | B | | B |Cap Vert | B | | B | | C |Costa�Rica | B | | B | | B |Dominican Rep.| B | | B | | C |Egypt | B | | B | | B |El Salvador | B | | B | | B |Gabon | B | | B | | B |Guatemala | B | | B | | B |Indonesia | B | | B | | B |Iran | C | | B | | B |Jordan | B |negative | B |negative | B |Kazakhstan | B | | B | | B |Lesotho | B | | B | | B |Mali | B | | B | | B |Mozambique | B | | B | | C |Papua New Guinea| B | | B | | B |Peru | B | | B | | B |Philippines | B | | B | | B | positiveRussia | B | | B | | B |Senegal | B | | B | | B |Sri Lanka | B |negative | B |negative | B | negativeTanzania | B | | B | | B |Turkey | B | | B | | B | positiveUruguay | B | | B | | B |Vietnam | B | | B | | B |Angola | C | | C | | C |Argentina | C | | C | | C |Armenia | C | | C | | C |Azerbaijan | C | | C | | C |Congo | C | | C | | C |Djibouti | C | | C | | C |Ecuador | C | | C | | C |Ethiopia | C | | C | | C |Ghana | C | | C | | C |Honduras | C | | C | | C |Jamaica | C | | C | | C |Kenya | C | | C | | C | positiveLebanon | C |negative | C |negative | C |Libya | C | | C | | C |Macedonia | C | | C | | C |Madagascar | C | | C | | C |Mauritania | C | | C | | C |Mongolia | C | | C | | C |Niger | C | | C | | C |Pakistan | C | | C | | C |Paraguay | C | | C | | C |Sao Tome | C | | C | | C |Serbia Montenegro | C | | C | | C |Syria | C | | C | | C |Togo | C | | C | | C |Uganda | C | | C | | C |Ukraine | C | | C | | C |Venezuela | C | | C | | C |Yemen | C | | C | | C |

COFACE СOUNTRY@RAITING: COMPANY'S TIMELY ABILITY TO FULFILL ITS SHORT�TERM FINANCIAL OBLIGATIONS

2007March

2006December

2005December

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55The Baltic Course No. 25 – Spring 2007 Statistics www.baltkurs.com

Zambia | C | | C | | C |Albania | D | | D | | D |Belarus | D | | D | | D |Bolivia | D | | D | | D |Bosnia Herzegovina| D | | D | | D |Burundi | D | | D | | D |Cambodia | D | | D | | D |Central Afric. Rep. | D | | D | | D |Chad | D | | D | | C |Cuba | D | | D | | D |Georgia | C | | D | | D |Guinea | D | | D | | D |Haiti | D | | D | | D |Irak | D | | D | | D |Ivory Coast | D | | D | | D |Kyrghyzstan | D | | D | | D |Laos | D | | D | | D |Malawi | D | | D | | D |Moldavia | D | | D | | D |Myanmar | D | | D | | D |Nepal | D | | D | | D |Nicaragua | D | | D | | D |Nigeria | D | | D | | D |Rwanda | D | | D | | D |Sierra Leone | D | | D | | D |Sudan | D | | D | | D |Turkmenistan | D | | D | | D |Uzbekistan | D | | D | | D |Zaire (Congo) | D | | D | | D |Zimbabwe | D | | D | | D |

Source: COFACE.

COFACE COUNTRY RATING'S DEFINITION A1 The steady political and economic environment has positiveeffects on an already good payment record of companies. Defaultprobability rate defined as very weak.

A2 Default probability is still weak; even in the case when onecountry’s political and economic environment or the paymentrecord of companies is not as good as in A1-rated countries.

A3 Adverse political or economic circumstances may lead to the worsen-ing payment records that are already lower than in the abovementionedcategories. However, the default probability of payments is still low.

A4 Already noticed patchy payment record could be further wors-ened by a deteriorating national political and economic environ-ment. Nevertheless, the probability of a default is still acceptable.

B: An unsteady political and economic environment is likely toaffect further an already poor payment records.

C: A very unsteady political and economic environment coulddeteriorate an already bad payment record.

D: The high risk profile of a country’s economic and political envi-ronment will further worsen a generally very bad payment record.

WAGES, EURMonthly average, Q3 2006 Latvia Lithuania Estonia Gross wages 434.0 479.0 580.0% to Q3 2005 122.8 119.9 116.5Min. wages, January 200 171.0 174.0 230.0% to January 2006 133.3 109.1 120.0Old�age pension, monthlyaverage, Q4 2006

147.0 147.0 225.0

% to Q4 2005 119.2 113.7 128.6Source: Central Statistical Bureau of Latvia.

AVERAGE PRICES FOR GOODS AND SERVICES, EUR PER KGLatvia Lithuania Estonia

January January January 2007 2006 2007 2006 2007 2006

Beef 3.09 2.83 3.37 3.08 2.97 2.95Pork 2.75 2.66 2.68 2.58 3.56 3.40Chicken 2.19 2.01 1.84 1.73 2.48 2.37Butter 3.66 3.50 4.68 4.56 4.21 4.02Milk, 2.5% of fat,1l

0.58 0.54 0.50 0.48 0.44 0.44

Eggs, 10 pcs 0.98 0.91 1.00 0.80 0.83 0.80Rye bread 1.01 0.80 0.87 0.70 0.92 0.86Wheat bread 1.08 0.95 1.06 0.88 1.06 0.91Sugar 1.01 0.94 0.89 0.85 0.97 0.95Potatoes 0.47 0.27 0.47 0.30 0.52 0.31Vodka 40% alc. vol., 1l 8.45 8.04 7.60 7.24 9.18 8.50Petrol А�95, 1l 0.81 0.83 0.79 0.85 0.79 0.82Electricity, per 100 kWh

7.26 6.40 9.86 8.98 8.05 7.86

Source: Central Statistical Bureau of Latvia.

FOREIGN TRADE, MLN EUR2006 Latvia Lithuania Estonia Export (FOB)total 4641 11240 7632to EU�25 3466 7098 4936% of total 75 63 65Import (CIF)total 8915 15371 10349from EU�25 6796 9596 7607% of total 76 62 74Balance of foreign trade –4274 –4131 –2717Source: Central Statistical Bureau of Latvia.

POPULATION, TH

Latvia Lithuania Estonia

Jan –Dec

2006

Jan –Dec

2005

Jan –Dec

2006

Jan –Dec

2005

Jan –Dec

2006

Jan –Dec

2005

Births 22170 21497 31094 31094 14819 14302Deaths 33070 32777 43799 44732 17435 17393

Natural increase

–10900 –11280 –13638 –13258 –2616 –3091

Source: Central Statistical Bureau of Latvia.

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