‘Silicon Valley’ in Latvia? It's up to us!
17-Feb-2016 / Products & Services Financial technology is one of the most advanced areas currently being actively developed by countries focused on long-term economic growth. Latvia has great potential here as well, nevertheless several important decisions have to be taken for its implementation.
Renat Lokomet, Member of the Board of Rietumu Bank
The topic of improving the national ecosystem for development of the fintech area has been repeatedly discussed among professionals. These issues have also been raised at the business forum Riga Venture Summit organised last year in Riga within the framework of the international conference Silicon Valley Comes to the Baltics.
Now is the right time to seriously consider the practical implementation of these ideas that are important for the successful development of such a prospective area in Latvia.
The fact that the new technologies are currently one of the most highlighted priorities on a global scale is also proven by the numbers of investments made in the fintech area – in 2014, it accounted for 12 billion USD, four times exceeding the previous year's amount. If even a tiny share of these investments would get to Latvia, including the already announced European startup development programmes using venture capital funds, this would give us a significant impulse for growth.
In developed countries, great effort is made at the level of centralised and local governments for attracting investment, including, venture capital, to the environment. This is also true in terms of the European Union. Everything indicates that the amount of investments in this industry is only going to continue growing here. Moreover, the law-makers of several countries reasonably believe that favourable treatment of this sector will pay off in spades in the long term. Let's look, for instance, at the experience of Israel that some 20 years ago started fostering investments into the high-tech sector at the government level, and now it is one of the global leaders of the industry.
One should not neglect the fact that many countries are competing for attracting new businesses, and the Baltic States should consider increasing the competitiveness of the region as a whole. Therefore we should learn from the experience of the countries that are successfully solving such issues, and at least keep pace with them. Lithuania leads the way – over the last years, it has earned the reputation of a country that is ready to meet the needs of foreign investors who are planning to develop new technology businesses in its territory. This also applies to tax reliefs and simplified procedures for the arriving specialists, purely administrative support, as well as to overall favourable policy and an atmosphere of openness and amiability.
Latvia should consider the example of its neighbouring country and carry out a range of important initiatives; take some decisions that, I am sure, will make our country much more competitive, inter alia, on the international market. The specifics of the technological industry determine that the companies engaged in it are extremely mobile and quick on their toes. To put it in other words, as soon as the conditions start changing and particular measures aimed at 'warming up' the investment climate are taken in a country, the result is seen very fast.
I would like to note that similar initiatives were widely supported by the business, public and political operators during the conference Silicon Valley Comes to the Baltics, which gives us grounds for hopes and faith in perspective. I would like to place special emphasis on the fact that all these ideas do not require any investments at the government level – they are aimed at creating favourable conditions for a new business. And one of such conditions could be the introduction of a reduced income tax for the companies selling their goods and services exclusively outside the country borders, as is a common worldwide practice.
In the country as a whole and in Riga at the municipality level, an environment favourable for venture capital inflow should be purposefully built. Latvia can become an attractive platform for opening transnational company offices that in the end will create workplaces, allow the development of IT-clusters and the related real estate units, as well as bring other benefits arising from this process, which in this way works in favour of the prosperity of the Latvian population.
Another process which is closely related to this focuses on the necessity of the simplification of issuing work visas for the employees of the newly-opened offices of the international companies in the territory of Latvia (Riga). That would allow investors to take time-efficient decisions and would become a big plus in favour of choosing our country and its capital.
Undoubtedly, Riga is the most prospective place in our country in terms of developing a new technological business. Here it could be possible to create free economic zones with reduced taxation for the creation of development and IT businesses (by the way, this idea was also supported with flying colours by the business forum participants). Such zones already exist in the Baltics, and in particular envisage exemption from profit tax payment for 5 years and for 10 years – from the real estate tax by investing a minimum of a million euros in a company. Riga City Council’s position on these issues is also important.
I would like to note that all these ideas are not brand new, they have already been expressed in Latvia and are functioning successfully in many countries, at the same time completely complying with, e.g., EU legislation. And no obstacles can be imagined for implementing these ideas in Latvia. On the contrary, we have the required prerequisites: developed technologies, one of the highest internet speeds in the world, good specialists, liberal and stable European legislation, and an advantageous geographical location.
One of the leading industries in contemporary Latvia is financial services. Here we have great specialists, know-how, a developed banking sector, emerging advanced fintech companies, such as Swipe, 4Finance, Mintos, and Twino that are actively developing the new generation financial services. It is obvious that their number will increase if the optimal economic and taxation environment is created. According to the statistics, the investments in the startup industry in Latvia reached their peak (around 50 million euros) in 2014, and the major share was accounted to foreign capital. We are capable of taking measures for this trend to continue developing.
Events such as eCom21, Rietumu Fintech Challenge, and SV2B are advertising our market and capabilities far beyond the borders of the Baltic region. I am sure that Latvia has a chance of ranking among those advanced countries that are introducing advanced innovations and using their potential for developing prospective industries, and consequently – for the future of its economy and prosperity.
It is quite feasible to make Latvia and Riga one of the platforms for the global 'Silicone Valley'. Yet it is important to understand that this depends on us, on our decisions and efforts. We must be aware of our potential and possibilities, set achievable goals and move determinedly towards achieving them. Then we will create a basis for the further economic development and prosperity of our country, and this is in the interests of all the population of Latvia.
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