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Employers' Confederation of Latvia (LDDK) Annual Report of 2008 Action Plan for 2009

Contents A statement by LDDK President Vitālijs Gavrilovs: “Businesspeople are the Driving Engine for the Economy and the Future of Latvia!” ...................... 2 A statement by Elīna Egle, General Director of the LDDK: “Responsible Change Offers a Chance to Become Stronger!” ....................................................... 3 The LDDK Strategy for Operations, 2009-2013 .......................................................................... 4 Stabilising the Economy and Restoring Growth ........................................................................... 5 “Flexicurity”: An Orderly Environment for Labour Relations, an Increase in Labour Productivity and Increased Output ................................................................ 8 High-Quality and Available Human Capital to Enhance Labour Productivity .................................. 10 An Infrastructure, Energy Resources and Environmental Protection to Facilitate Entrepreneurship ....... 12 Representing Interests: A Prerequisite for Latvia’s Competitiveness ............................................. 14 Corporate Social Responsibility for Sustainability ....................................................................... 16 A Challenge from the LDDK ..................................................................................................... 18 Services for LDDK Members ................................................................................................... 19 The LDDK Council ................................................................................................................. 20 Acknowledgement of Partners Helping to Pursue Important Initiatives Related to the Interests of Businesses .............................................. 21 MEMBERS ............................................................................................................................ 22

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A statement by LDDK President Vitālijs Gavrilovs: “Businesspeople are the Driving Engine for the Economy and the Future of Latvia! For 15 years now, the Employers’ Confederation of Latvia (LDDK) has been at the epicentre of important public events. The confederation has brought together increasing numbers of employers in Latvia, along with sectoral and regional organisations of employers, as well as relevant professional associations. Businesspeople who have a sense of responsibility know that it is necessary to come together in pursuit of common goals, and this is a philosophy which is most extensively tested at a time of economic change. Consolidation of views and understandings in relation to possible solutions to the existing problems can serve as a foundation for Latvia’s ability to overcome the economic crisis and the social tensions which accompany it. Latvia’s economy cannot be surveyed separately from the global economy – an economy which is currently undergoing unprecedented reforms. Competitiveness in international markets is diminishing, there is a lack of financial resources, and individual countries are engaging in protectionism. Neither can Latvia’s economy be considered without the participation of employers and their views. Among the most important achievements for the LDDK has been state, local government and public support for the social dialogue that is an important means for communication between representatives of employers and employees and the government so as to deal with timely economic issues such as improving the business environment, dealing with job creation, and stabilising the national economy. In 2008, there were discussions with the government which showed that the prime minister was interested in speaking to representatives of business, while the President of Latvia wished to become more actively involved in the handling of economic issues. These, however, were just the first steps toward a compromise between businesspeople and the state. Heavy work will have to be done in future years, and everyone will have to stand shoulder-to-shoulder in this regard. The LDDK has also ensured that representatives of the National Tripartite Co-operation Council (NTSP) will take part in supervising and monitoring resources that are lent to Latvia, this occurring in terms of the economic crisis and to Latvia’s multi-year obligations in relation to the European Commission and the International Monetary Fund. The LDDK does not support the government’s fiscal policy of raising taxes. It has instead pointed to a series of solutions that have been pursued in other countries – lower taxes among them. One problem for the national economy has to do with short-term liquidity and the ability to absorb the resources that come from the European Union’s Structural Funds. The LDDK has taken part in discussions about financial support instruments which the state can provide while, at the same time, also reviewing national tax policies, assessing the activities of the Structural Funds under entirely new circumstances, and conducting a thorough audit of the state’s functions. The LDDK has proposed solutions related to state guarantees, risk capital, ways of promoting competition, and provision of services to companies which export goods and services. It is important to ensure that money that has been borrowed to stabilise the national financial system become available in the national economy so as to promote further economic activity. Also in 2008, there were extensive consultations with organisations of employers from other countries at various forums. One of the most successful was an event that was organised jointly by the LDDK, the European Commission’s office in Latvia and the Latvian Foreign Ministry. Leaders of employer organisations from the countries of the Baltic Sea region met together for the first time to draft recommendations as to how economic growth and entrepreneurship can be facilitated in the region. These recommendations emphasised integration of labour markets, the limitation of barriers against trade and investment, the development of infrastructure, promoting integration in the 2

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energy sector, a more intensive approach toward environmental issues, including in agriculture and maritime safety, and greater investments in innovations and their practical application. These recommendations have created a framework for Latvia’s national position, as well as for the position taken by the Business Europe confederation. There was also the first civil society forum to be organised in the Baltic States. The event was organised by the European Committee of Economic and Social Affairs, which has as its members not just representatives of employers and employees, but also people from various interest groups. The discussion at the forum was about how the civil society can take part in the taking of decisions. Participants focused on the theoretical and practical aspects of this process in the Baltic States and elsewhere in the European Union. The strategic importance of the Baltic States is on the rise, and discussions with social partners at the European level often focus on the need to strengthen co-operation among Europe’s various regions. Good partnership that is based on mutual respect and understanding and co-operation with neighbouring countries, particularly Russia, is of key importance if the Baltic States and the EU as a whole are to enhance welfare in the future. The capacities of Latvian employers in the international environment will be determined by their own ability to work with others. An even playing field for Latvian companies at the regional, European and global level will be the determining factor in terms of the competitiveness of Latvia and its economy, as will the relevant government policies in this area. The international competitiveness of the LDDK and its ability to facilitate transfrontier trade will be strengthened by networks of co-operation with other organisations. There are contracts with CIS countries, and there are plans for co-operation agreements to be concluded by 2012 with organisations of employers in Asian countries. This will serve as a framework for further business partnerships, and it will help to eliminate obstacles against the ability of Latvian companies to enter international markets. There must be closer and more effective co-operation among the Foreign Ministry, the Economics Ministry and the LDDK to ensure that norms which are approved are favourable to Latvian businesspeople and that there is successful representation of the relevant economic interests. Powerful representation of Latvia’s business interests will be a key prerequisite for the country’s ability to develop new export markets. In 2009, the LDDK will continue to represent the interests of employers in relations with Business Europe, the European Economic and Social Affairs Committee and the European Parliament. The organisation will also work with Latvia’s representatives at the European Parliament. LDDK operations in the international arena are focused on ensuring the implementation of reforms so as to promote growth and employment. The agency also works to seek greater support and investments in innovations and research, better and lesser regulations in the field of business, improvements in the environment for entrepreneurship, as well as finances which promote sustainability and competitiveness. At the European level, there must be further integration of the common market, effective EU-level governance, adaptation to the process of globalisation, a struggle against all manner of protectionism, an energy supply system which is secure, competitive and environmentally friendly, as well as reforms in the social systems of European countries. The era of growth and change is continuing, but we face aspects of globalisation such as the development of technologies, as well as mobility of capital and labour. Entrepreneurship is the driving force behind the Latvian economy’s development, and its activity and intensity depend on the extent to which the state understands the interests of business. This involves more than just approving those decisions which help to improve the business environment. There must also be a defence of national interests at the EU and in the international arena. We can be strong and proud of our country only if all relevant groups in society work together. Together we can ensure growth, find inspiration for new business hopes, strengthen partnerships, and improve our standard of living at the national and the European level.

Vitālijs Gavrilovs, LDDK President


A statement by Elīna Egle, General Director of the LDDK: “Responsible Change Offers a Chance to Become Stronger!” Despite the increasing difficulties which we are facing – lower demand, less available finances, less stability in the business environment – the fact is that businesses in Latvia have created jobs for the people of Latvia, increased the revenue of the state and local government budget, and helped the name of Latvia to become more popular throughout the world. There must be serious changes in the public and private sector, because these make it possible for us to grow stronger and to increase Latvia’s growth and welfare. 2008 was a year in which politicians and civil servants in Latvia had to face a very harsh lesson. They had to learn not only to write up elegant strategic documents and concepts, but also to implement those in real life. Even more, they had to listen to business organisations. Ambitious goals can be reached in Latvia, if we move from formal co-operation to a true partnership among government institutions, local governments, businesses and non-governmental organisations. That is the approach that is needed in defending national interests at the EU, as well as in offering kindergartens and senior citizens homes to the people of Latvia. Thoughtless spending in previous years expanded the size of the apparatus of governance, as well as Latvia’s external debt. The government failed to communicate with the public when it came to stabilisation of Latvia’s financial system, and that is going to be reflected in the country’s economy in future years. There will be less economic activity, GDP will decline substantially, resources will become more expensive, and there will be limited availability of finances so as to ensure short-term liquidity. The LDDK has been actively involved in the working groups which the Ministry of Finance has set up to deal with these issues. We have insisted on the need to model planned changes in tax policy, looking at how taxes affect the business environment and other revenue from taxes. No unified modelling system was established, alas, but thanks to members of the LDDK and the Economics Ministry, businesses demonstrated the ability to model changes in the corporate income tax so as to promote modernisation. The government was called upon not to increase the tax burden at a time of economic decline. The LDDK also called for stimuli aimed at enhancing competitiveness and ensuring the production of products and services with a higher level of added value. During the course of the year, the LDDK helped businesspeople to take an active part in discussions about the national budget in Latvia. Sadly, the agreement that was concluded by the Cabinet of Ministers, the government and the Latvian Association of Free Trade Unions on principles related to the 2009 national budget was not always observed. Our social partners and the government agreed to reduce administrative spending in government by 15%, but the government failed to keep that promise once there were problems in the financial sector that were created by the economic decline. It would be easier to overcome this crisis if those who are in government were to listen to business representatives in a far more timely way. Over the last two years, the LDDK and many economic experts have called repeatedly for members of Parliament to be more far-sighted in reducing administrative spending, shutting down functions that are unnecessary, and establishing partnerships which make it possible to outsource those functions that are permitted by law to the private sector. In late 2008 and early 2009, steps were taken which must be seen as positive ones – the size of the governance apparatus and the expenditures of that apparatus were reduced. Still, this is a process which is occurring too late, in too big of a hurry, and without much consideration as to the effects. There has been no functional audit, there has been no evaluation of individual employees. We are very pleased that the government has not decided to waive the acceptance of funds from the European Union’s Structural Funds, because that is money which must be seen as developmental funding for future growth. In order to receive loans from the European Commission and the IMF, the government and Parliament approved an economic stabilisation programme. The LDDK generally supported that programme, but we categorically objected to the aspects of fiscal policy that were included in that plan. The VAT rate was increased to 21%, the discount VAT rate was increased to 10%, and the

range of goods and services to which the reduced rate is applied was narrowed. This attempt to patch up holes in the national budget not only meant that the tax burden was shifted more onto the shoulders of businesses, but also that the fiscal plans are in contradiction to the economic recovery plan which the European Commission prepared for Europe. There must be more work on the effective use of international loans and the mechanism whereby those loans will be repaid. The government must seek synergy between state and local government investments, as well as the investments which come from the financial sector and the national economy so as to facilitate economic activity. Some decisions were taken in 2008 which helped to deal with issues that are important to businesses – reducing the gap between the competitiveness of Latvian businesses and the competitiveness of businesses in the other Baltic States. The problem here has always been that there are different legal regulations for the business environment. The LDDK worked hard to reduce the cost of human resources – for instance, to reinstate the ceiling on social security payments that was removed thoughtlessly and made it far more expensive to attract highly qualified employees, to reduce the cost of health care, and to reduce the number of sick days which businesses have to cover. The LDDK gained the support of the Welfare Ministry in its attempt to facilitate employment and to develop human capital. Co-financing from the European Social Fund made it possible to begin consultations on issues related to labour rights and job safety with companies in Latvia’s five regions. This helps the LDDK to support companies in terms of how work is organised. We’re working on legal aspects of labour relationships, we seek to improve the environment for business, to reduce bureaucracy and to eliminate unnecessary costs in company budgets. All year long we continued to work on amendments to the labour law. We achieved several compromises which helped companies to reduce their human resources expenditures. I might add that there must be a great deal of effort in ensuring that no new demands are made against employers – ones which create additional administrative obstacles and costs. We need to simplify procedures and strike a balance between the responsibilities of employers and the responsibilities of employees. The LDDK and its member organisations made a substantial investment in drafting conceptual documents related to professional education and other parts of the educational system. We also helped to draft the necessary laws and regulations. During the first half of 2009, the LDDK will continue this work, calling on the legislature to amend the law on public procurement, the law on public-private partnership, and the law on the VAT. We are hoping to get the government to review the decisions which it has taken in terms of fiscal policy and reach new agreements on fundamental aspects of taxation during the period between 2010 and 2013. This will be an examination of the relationship which business has with political forces and the Civil Service, and it will also test the relationship between companies on the one side and trade unions and local governments on the other. Harmonised work will be facilitated by increased LDDK capacities in terms of the European Social Fund (ESF). This is something that is supported by the State Chancery. The plan is to establish representative offices in all five of Latvia’s regions, doing so in partnership with regional associations of businesspeople. 2009 will be a period of challenge at all levels. There must be substantial reforms in national governance. Changes are needed in local governments, and the method for managing issues and thinking about them must change. Professionalism, competence and responsibility must dominate over the interests of individual politicians or companies. We need a situation in which an international loan is a long-term solution, one that helps us to stimulate economic activity, overcome the crisis, and introduce the euro in pursuit of stability and competitiveness in the future. The national budget deficit must be reduced, and the way in which this is done must encourage economic activity and self-employment in our country. The LDDK is prepared to offer its support to companies and to help the government to pursue its plans on economic stabilisation, doing so on the basis of proposals that have been made by members. The LDDK will continue to support employers and businesspeople during this time of change and challenge. I call on all of you to defend your views more actively. Make use of the platform which the LDDK offers for representing interests, as well as the instruments which we have to help you to increase your influence.

Elīna Egle, General Director of the LDDK

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The LDDK Activity Strategy 2009-2013 The people of Latvia and the country’s economy have encountered the risks of globalisation – instability in the financial system, economic recession, protectionism in many countries, and increased unemployment. The LDDK must be more active in consolidating the business community in pursuit of structural reforms. The LDDK is aware of the fact that the potential for a democratic society, a market economy and a system of good governance must be implemented in full in Latvia. Opportunities for synergy must be sought out, and these are provided by Latvia’s membership in the EU and other international organisations. The LDDK is Latvia’s largest and most influential organisation of employers, and it can offer substantial support to the country’s business community in terms of strengthening the competitiveness of companies in the domestic and international market, encouraging local residents to be more active in economic terms and to enhance labour productivity, and also improving state and local governance in terms of raising levels of welfare and the country’s standard of living. In cognition of the 90th anniversary of the Republic of Latvia, the 15th anniversary of the LDDK, and the approach of the fifth anniversary of Latvia’s accession to the EU, the members, council members and directors of the LDDK have evaluated that which was accomplished between 2004 and 2008, also drafting an LDDK operations strategy for the period between 2009 and 2013. This strategy is based on an evaluation of Latvia’s business environment that was presented in the World Bank’s Doing Business study, on statistical indicators which describe the Latvian economy, and the achievements which the LDDK has ensured in consolidating and representing business interests at the national, EU and international level. Given the demands and responsibilities that are related to the rapid changes which are occurring, the LDDK has defined a new mission and vision for itself, characterising the organisation’s values and areas of activity so as to promote the more active participation of the business community in LDDK operations. We also hope to promote greater understanding and support among our partners and the public at large when it comes to the goals which we have identified. In preparing these goals, missions and indicators of results for the next phase in our operations, we took into account things which LDDK members and employees had told us. We also made use of international practice, as defined by members of Business Europe, the experience of the International Organisation of Employers, and the OECD.

Our mission ■ To represent the interests of Latvia’s employers so as to enhance business competitiveness and the quality of work and life.

Our vision ■ The LDDK is the most influential representative of the interests of employers in Latvia.

Areas of operations ■ The LDDK has two areas of operations – defending the interests of businesspeople and representing employers in social dialogue. Protection of the interests of LDDK members represents organised activities on the part of members of the business community in pursuit of better regulations and laws related to business operations. The involvement of the LDDK ensures that the decisions that are taken by the government are legitimate insofar as economic and social issues are concerned. The protection of interests shapes the foundations for rule of law and a democratic society in Latvia.

■ Representation of the members of the LDDK shows that rights and obligations are being pursued, as stated in the laws which regulate the confederation’s operations. As the largest organisation of employers in Latvia, the LDDK must represent employers in social dialogue with the state and local governments, promoting social peace and welfare. The LDDK is also charged with consolidating the views of employers when it comes to issues that are of importance to them and to employees, promoting social partnership and representing employers in the institutional framework of tripartite activity.

Goals ■ Improving the legal environment for entrepreneurship and the quality of public governance services that are offered; ■ Representing employers at the sectoral, regional, national, European and international level; ■ Attracting new members to expand the level of representation and to bring employers together; ■ Ensuring the finances that are needed for the organisation’s operations; ■ Ensuring effective and high-quality processes in the organisation; ■ Improving the services that are offered.

Indicators of results ■ An increased number of proposals that are taken into account, as well as qualitative improvements; ■ Ensured participation in the decision-making institutions which engage in social dialogue; ■ Increased representation of employees in Latvia; ■ Increased financing and better financial indicators; ■ Improved satisfaction among members and employees, better communications and a better reputation; ■ Qualitative and quantitative improvements to seminars, conferences, events for an exchange of experiences, research projects, consultations, and Internet sites.

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Stabilising the Economy and Restoring Growth The global financial crisis has had an effect on economic activities in the world’s market. Such activities have dropped significantly, and this has created a series of questions about the agenda of national fiscal policy – the availability of financial resources, ways of facilitating competitiveness in export markets, and ways of facilitating economic activity.

Source: IMF, EU and LDDK data about GDP changes now and in future in Latvia The point is that there has been a rapid increase in unemployment in the world. In America, it reached its apex in January 2009, when 70,000 workers lost their jobs in a single day. The increase in unemployment in Latvia can be expected to continue throughout this year. The most pessimistic forecast is that by year’s end, it will have reached a level of 19%.

Source: Eurostat 2008 began for the LDDK by developing common views with Prime Minister Ivars Godmanis when it comes to ways of supporting various sectors. Because the economic decline was already forecast, there was once again a discussion about the need to support priority sectors or to design specific government assistance programmes for all sectors. The problem that was related to this political decision was that there were unclear statistical indicators about the contributions which various sectors make toward the economy and the gross domestic product. In order to facilitate entrepreneurship and honest competition between the private and the public sector in the provision of services, the government was urged to review the excessive administrative apparatus of the public governance system, also reviewing functions to determine those that are not characteristic of a government system and turn them over to the private sector so that it could provide those services on a market basis. The LDDK also had proposals vis-ą-vis the system of wages in the public and private sector, focusing on ways of increasing the minimum wage and the untaxed income minimum. There were also requests to review the way in which employers are expected to pay for employees who are away from work for reasons of illness or disability.

Source: IMF, EU and LDDK data on changes in the Latvian unemployment level now and in future There was also a decline in investment values in the last quarter of 2008, and this can be attributed to unclear policies, as well as insufficient communication about the stabilisation of Latvia’s banking system, not least the nationalisation of the Parex Bank. Substantial finances flowed out of the national economy, and overall deposits in commercial banks declined by 10%. European countries are investing vast resources in their banking sectors so as to stabilise economies and restore economic activity. They are planning to offer tax relief incentives and support programmes for enterprises. Many European countries have plans to rescue banks, and these involve an inflow of capital, the implementation of guarantee plans, or the purchase of assets. In the euro zone alone, this process has cost EUR 300 billion, or 3.3% of the zone’s GDP. Total guarantees have amounted to nearly EUR 1.7 trillion, which is 19% of the zone’s GDP.

The LDDK Council meets with Prime Minister Ivars Godmanis Foot-dragging on this situation created a situation in which the financial crisis that began in the United States found Latvia unprepared when it reached its shores. In the 3rd quarter of 2008, the international financial crisis created an overall decline in economic activity. Recessions began in many countries, including Latvia.

Source: ECB, Eurostat (as of December 2008) LDDK

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LDDK President Vitālijs Gavrilovs and Finance Minister Atis Slakteris sign a resolution on co-operation and on things that must be done to promote business.

Source: ECB, Eurostat (as of December 2008) The process in Latvia has been a different one. Money had to be borrowed from foreign institutions in order to save the financial sector and save the stability of the lats. At the same time, the government dragged its feet in the provision of direct aid to business so as to maintain consumption, to preserve jobs, and to create new jobs. Employers, therefore, have been forced to act immediately so as to ensure a radical reduction in costs. National budget income is declining, and losses are caused to the national economy. Late in 2008, the government promised to implement a series of structural reforms so as to stabilise the economy. The National Lisbon Programme and a special programme to stabilise the macroeconomic situation in 2008 and 2009 were both to be pursued. Government documents speak to a series of new steps taken to facilitate the development of new products and technologies. This refers to the greater involvement of the private sector in research and development, greater flexibility in the labour market, promotion of exports, and other financial instruments and projects which are aimed at improving the environment for business. On December 11, 2008, Parliament approved a programme for economic stabilisation and restoration of growth in Latvia. The aim of this programme is to stabilise the Latvian economy, restore sustainable stability, and improve the international competitiveness of the Latvian economy. This requires strict monetary and fiscal policies, stabilisation of the financial sector, and stabilisation of the overall competitiveness of the economy. The EU and IMF have both said that if these reforms are to be successful, the government and legislature will have to win the support of social partners – organisations of employers, trade unions, and the public at large.

LDDK General Director Elīna Egle, Prime Minister Ivars Godmanis and LDDK President Vitālijs Gavrilovs at an LDDK leadership breakfast 6

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The first thing that is needed in improving the competitiveness of the economy is a restoration of the flow of resources in the national economy. Under current economic circumstances, businesses are having the greatest problems in finding financing even for the purposes of shortterm liquidity. The foundation for companies and the country’s competitiveness is exports. There are various plans to stimulate the economy, and emphasis is being placed on the export potential of companies in the processing sector and in sectors which export services. Support for exporters will be offered through various programmes, including the special investment fund instrument of export credits. Export support instruments and an effective export strategy are urgently needed, given the rapid changes that are occurring in the global economy and the decline in international trade. Export support instruments and their structural framework must be reviewed.

Fundamental achievements in 2008 in the area of economics and finances ■ Participation in scientific and practical conferences to enhance understanding about the opportunities and limitations of businesses when it comes to involvement in research problems, also addressing the difficulties which companies have in protecting intellectual property rights in the EU. ■ Proposals on changes to the corporate income tax in terms of tax breaks on profits and investments in R&D, developed in partnership with the Economics Ministry, LDDK members and the Latvian Chamber of Commerce and Industry. ■ Support for sectors represented in the LDDK to provide resources for product and service development and a reduction in the scope of administrative obstacles in this area. ■ Support for policies related to specific economic sectors which are focused on creating favourable tax policies and on reducing administrative obstacles. This refers to sectors such as telecommunications, food production, the transportation sector and retail sales. ■ Good negotiations with the government, the Welfare Ministry and the Finance Ministry on the untaxed income minimum, the individual income tax, and the need to increase the minimum wage so as to keep up with increasing costs and to promote people’s purchasing ability. ■ No progress on amendments to the law on commerce of a law which would allow tax relief to be applied to stock options in terms of the financial participation of individual employees. Ridding them of social contributions would encourage employees to take financial participation in their company and to take a more active interest in that company’s development. ■ Support for the LDDK proposals related to the VAT tax, with work on new laws concerning the VAT and the individual income tax that are to take force in 2010. Amendments to the law on taxes and fees will allow the State Revenue Service to divide up tax debts or postpone their repayment. ■ Statements about the unfavourable consequences in terms of public health,


national budget income and honest competition which result from higher taxes in socially sensitive sectors in 2009 – a time when the risk of unemployment is on the rise and the purchasing power of local residents is shrinking. ■ Active participation in the preparation of policy planning documents and in public debates focused on macroeconomic stability and the need to implement the euro in Latvia as soon as possible. ■ Support for the availability of monies from the EU’s Structural Funds and the maintenance of state financing in the 2009 budget to enhance the competitiveness of companies. ■ Proposals on increasing the effectiveness of public administration so that duplication of efforts is prevented, unnecessary functions are not handled, and outof-date functions are optimised. The LDDK has also supported attempts to bring greater order into policies related to wages and to develop E-governance to a further degree.

Goals in 2009

Foreign trade

■ To improve procedures related to launching and shutting down a busi-

The LDDK has made proposals on financing from the EU’s Structural Funds so as to ensure the effectiveness of attempts to enter foreign markets and to study those markets. The agency encouraged Latvia to audit its foreign economic policies so that economic relations can be strengthened in the region and with neighbouring countries. Diplomats posted abroad were informed about economic issues and the needs of companies. When it comes to foreign trade, Latvia is in 25th place among EU member states, whereas in 2008 it was in 18th place. Latvia is far behind Denmark (3rd), Finland (4th) and Norway (7th), and it is close to Lithuania (23rd). The LDDK must help to deal with foreign trade issues by offering its support to the Latvian Chamber of Commerce and Industry. The determinant factor in terms of Latvia losing its positions has been a 12% increase in export-related costs, with costs related to imports rising only by 5.88%. The battle over international markets can only become more harsh in future, and the ability to strike a balance in prices and to create the advantages of competitiveness will become all the more important.

Source: Doing Business, 2008

While Latvia is comparable to Finland in terms of protection of investments, it is far behind when it comes to foreign trade. According to the Doing Business report, export costs are rising in 2009. What’s more, it is cheaper in Latvia to import things than to export them.

Exports

Imports

No. of necessary documents: 6 Amount of time: 13 days Costs per cargo: USD 900

No. of necessary documents: 6 Amount of time: 12 days Costs per cargo: USD 850 Source: Doing Business, 2008

ness; ■ To improve documents related to sectoral policy planning, as well as relevant normative regulations; ■ To establish a sustainable system of tax and fee policies, developing basic positions vis-ą-vis taxation and encouraging the implementation of planned tax policies in Latvia; ■ To review the increased VAT rates, improve the system for VAT repayment, draft norms permitting a choice in terms of VAT rates and a procedure for reverse application of the VAT, and halt advance VAT payments into the national budget; ■ To stabilise the financial sector and renew the flow of finances into the national economy – ensuring financial instruments for entrepreneurship which are worth LVL 1 billion a year, the priority being government support via the banks that are owned by the state. In the banking sector, there must be favourable conditions for the restoration of loans to businesses, with an effective separation of debt burdens between banks and those who have taken out credits; ■ To improve anti-dumping laws and to strengthen the competitiveness of companies in Latvia; ■ To simplify procedures related to the use of funds from the EU and to speed up the circulation of such financing; ■ To establish a commission for oversight of international loans, involving social partners and representatives of the Latvian Association of Local Governments in this process while also ensuring monitoring of fiscal policy changes, wage systems and competitiveness in Latvia; ■ To take steps to restore economic activity and enhance competitiveness – improve foreign trade and increase companies’ export potential; ■ To protect company investments in Latvia and abroad.

According to the Doing Business report about Latvia, export-related costs exceed import-related costs by more than 5.6% in 2009. Preparing exports takes 7.6% more time than preparing imports. In terms of the index of investment protection, Latvia has a stable indicator of 5.7, and in this it compares to Finland (5.7 and 53rd place in the world) while lagging a bit behind Poland (6.0), Denmark (6.3) and Norway (6.7), but being ahead of Lithuania (5.0).

Source: Doing Business, 2008

Kristaps Klauss, Executive Director of the Latvian Timber Industry Federation, Finance Minister Atis Slakteris, LDDK vice President Aiva Vīksna, and LDDK President Vitālijs Gavrilovs in discussions with representatives of the International Monetary Fund LDDK

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Flexicurity: An Orderly Environment for Labour Relations, an Increase in Labour Productivity and Increased Output Relations between employers and employees must be improved on the basis of so-called “flexicurity” principles if sustainable business and efficient organisation of work are to be ensured. These principles speak to a balance between flexibility and security in employment, also focusing on active employment policies. The goal of flexicurity is to merge social justice with excellent economic indicators.

The LDDK concludes an agreement with the Latvian Personnel Management Association.

this issue in all of Europe when it comes to representing the interests of employers. Experts also insisted that there must be stronger social dialogue at the sectoral level. Agreements must be reached on operating principles that are of importance to the various sectors – ones which improve relations among representatives in the relevant sector and help to improve honest competition.

Source: Doing Business The results of this study show that the indicator related to the hiring and sacking of employees in Latvia has worsened in comparison to what other countries have done to implement the principles of flexicurity. All employers, including the government as an employer, are responsible for improving the quality of working life so as to promote more substantial welfare for local residents, as well as competitiveness for employers. The effectiveness and quality of work do increase when the working environment is orderly, safe and healthy. This, in turn, enhances the competitiveness and productivity of entrepreneurship. When reforms are being implemented, it is particularly difficult to maintain harmonious and equally responsible relations between employers and employees. The principles of flexicurity are meant to promote flexibility in the labour market, better legal relations between employers and employees, and the provision of sufficient social protections at the same time. If this is to happen, there must be agreement on concrete steps which social partners will take at the sectoral and national level.

Properly structured partnerships are a prerequisite for management of responsible changes. The cornerstone for social dialogue at the national level right now is a general agreement that was concluded in 2007 by the LDDK and the Latvian Association of Free Trade unions (LBAS). It was reviewed in 2008. The emphasis in this agreement is on the sustainable development of Latvia’s economy, the culture of labour relations, improvements to working environments, and the emergence of a strong and organised civil society. In 2008, the LDDK and the German Confederation of Employers completed work on a project that was called “Social Dialogue at the European and National Level.” The project allowed experts to stress the fact that the national model for social dialogue in Latvia is one of the most successful practical approaches to 8

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The number of collective labour agreements that are being concluded by companies is gradually increasing, and that shows that there is highquality dialogue between employees and employers. During this period of change, however, there is also a new trend – employers can no longer fulfil all of the obligations that are indicated in collective labour agreements, and so it is necessary to amend those contracts. Employees who understand the economic situation, know how important it is to support employers, and agree to sensible amendments to collective labour agreements are to be commended. In those cases when there is no such understanding, employers become hostages to the relevant situation. They’re forced to violate the terms of collective agreements and reduce the benefits that are addressed therein without the agreement of employees. This can lead to labour disputes and cause harm to the public reputation of companies and Latvian employers. Because employers are forced to optimise costs, there are cases in which costs related to job safety are reduced, and in the long term this can increase health-related expenditures for employees. In planning expenditures in this regard, it is important to remember that resources that are devoted to job safety are recouped indirectly, and benefits accrue both to employers and employees. In 2008, the LDDK began a new ESF project, “Practical Application of Labour Relations and Normative Acts Related to Job Safety in Sectors and Companies,” with the aim of providing support to employers in the application of the law and the relevant legal acts. The aim here was to reduce the number of violations of rules, as well as the number of work-related accidents. The LDDK also sought to ensure that employers and employees are as fully informed as possible about requirements related to legal relationships, job safety and job-related health. The result of this should be that the number of complaints filed with the State Labour Inspectorate with respect to job relations and violations of relevant norms declines by 15% in comparison to the situation in 2004. Between 2009 and 2013, employers can reduce costs and receive free consultations on labour laws and job safety issues in the five largest cities in Latvia’s territorial regions – Rīga, Valmiera, Daugavpils, Jelgava and Ventspils. Companies from dangerous sectors can receive a free evaluation of risks in their labour environment.


Results in 2008 which will make it possible for companies to reduce costs

■ To promote the sustainability of the special social security budget and the more effective management of financial resources. This requires social dialogue at the national level.

■ The law on maternity and sickness insurance was amended to state that as of January 1, 2009, the number of sickness days which employers have to finance is reduced from 13 to 9. ■ Agreement has been reached on the frequency of obligatory health checks, the examinations that must be conducted by specialists, and the optimisation of the number of such examinations. In those areas in which there are no significant risks against the health and safety of employees, mandatory health checks are to be less common – once every three years instead of once a year, as is the case now. ■ Agreement was reached on suspending planned amendments to the labour law that would have limited registration of the working hours of employees or to extend leave that must be offered when a child is sick. ■ Agreement was reached on a series of contracts with social partners in Europe which are aimed at increasing the understanding of employers, employees and their representatives about harassment and violence on the job and the comprehension of such activities. Employees, employers and their representatives will be provided with new procedures in terms of discovering, preventing and dealing with these problems, also working with non-governmental organisations and state and local government institutions to prevent harassment and violence and to promote good governance at all places of employment. ■ In co-operation with Fontes, the LDDK conducted annual research about wages, finding that the increase in wages was more rapid than any increase in productivity. This led to recommendations to employers, as well as state and local government institutions. The study allows companies to forecast trends in wage-related policies. ■ A partnership agreement was concluded with the Latvian Association of Personnel Management so as to ensure more effective support for companies which want to implement accountable and effective wagerelated policies. ■ The LDDK presented its views on a number of draft laws and regulations on issues such as wages in the public sector, the aim being to reduce the incommensurate increase in public sector wages, as opposed to private sector wages.

An ESF project: “Practical Application of Normative Acts Related to Labour Relations and Job Safety in Sectors and Companies”, 2009 In the context of this project, the LDDK will ensure: ■ Free consultations on labour rights and job safety for employers in Rīga, Jelgava, Daugavpils, Valmiera and Ventspils; ■ The opportunity for companies in dangerous sectors to receive free risk evaluation of their working environment so that employees can be informed about risks which exist at their place of employment, techniques which will help to ensure job safety, and a preventive culture at all places of employment; ■ Training for employees on job safety issues; ■ Distribution of information about labour rights and job safety issues when commercial operations are begun; ■ More information for employers through supplements to the “Employer Handbook.”

Goals in 2009 ■ To continue work on amendments to the labour law to simplify the way in which employees can be hired and sacked and to reduce labourrelated costs. One example is the possibility of agreeing on the repayment of costs related to professional training and similar costs when a trained employee leaves the job. Another is to grant unpaid study leave for employees who need to take state examinations. ■ To draft new Cabinet of Ministers regulations on how accidents are investigated and registered, the aim being to make it easier for employers to investigate and register such events. This will reduce the administrative burden by simplifying the relevant documents and issuing instructions to say that an accident must be investigated only if the relevant employee is unable to work for 72 hours (as opposed to 24 hours, as is the case at this time). ■ To continue work on other issues related to improvements to the working environment at jobs and to a reduction in the administrative burden which employers face. ■ To support employers in dealing with labour disputes at the individual, sectoral, regional and national level. ■ To represent the views of Latvian employers in discussions about amending the EU directive on working hours to ensure that inactive monitoring periods are enshrined in the directive so that there is no additional encumbrance for employers – encumbrance which would mean additional costs and limitations for companies in Latvia. LDDK

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High-Quality and Available Human Capital to Enhance Labour Productivity EU forecasts indicate that by 2020, the number of highly qualified employees in the labour market will have to increase by 30%, the number of people with medium-level qualifications will have to increase by 50%, and the number of poorly qualified employees will have to rise by only 20%. Latvia has traditionally been a country in which substantial numbers of people pursue and earn a higher education. In 2008, the number of people with newly earned doctoral degrees in engineering and the social sciences increased substantially. The LDDK insists that there must be more careful evaluations of the extent to which study programmes in the area of higher education are in line with the needs of the labour market.

Source: CEDEFOP, 2008 In 2008, the LDDK organised a competition on master’s theses from students who were studying business management, and the results of this competition allowed the agency to make judgments about the potential of new specialists. The LDDK is sure that recommendations and proposals that were given in the master’s theses would promote development and competitiveness in economic sectors and in individual companies. Toward the end of 2008, a conceptual document was drafted – “A Model on Higher Education Study Programmes and Distribution of Study Slots by Sector Which is in Line with the Country’s Development.” The aim here is to introduce new principles in the financing of professional and higher education, also increasing the level of responsibility of educational institutions for the spending of money from the national budget. EU labour market forecasts which were published in 2008 focus on the period until the year 2020, and the central thought is that if the number of workers needed to ensure economic development and the progress of the labour market is to be provided for under the current demographic situation in Europe, more attention will have to be devoted to the quality of professional education, as well as the number of students who pursue professions which require medium-level qualifications.

The LDDK believes that the quality of professional education must be improved, and the number of people who take part in professional educational programmes must be increased. Fewer than 30% of young people in Latvia choose to attend professional educational institutions at this time. According to the Education Ministry, 75% of high school graduates go on to higher education institutions. The labour market in Latvia is joined each year by substantial numbers of young people who do not have professional qualifications or working skills, which means that employers have to spend money on the training of such individuals.

Goals in 2009 ■ To propose tax relief for companies which invest in innovations, as well as the education, ongoing education and training of people who are involved in the creation of such innovations; ■ To study various sectors in terms of the development of human resources and their competence and skills so as to create qualification assessment structures for the various sectors; ■ To promote the development of a system of ongoing education and improvement of qualifications in the various economic sectors, ensuring that this becomes part of action plans related to lifelong education; ■ To ensure the involvement of employers in evaluating the appropriateness of higher education programmes, increasing the number of people who represent employers on accreditation and quality assessment committees; ■ To make proposals on new higher education study programmes and the financing of study slots in such programmes; ■ To promote optimisation and greater effectiveness among institutions of professional education, bringing ESF and ERDF finances into the process so as to develop infrastructure and educational content ■ To develop a system for the ongoing education of instructors at professional education institutions, helping them to work more closely with employers and businesspeople. ■ To increase the competitiveness of higher education in Latvia and to ensure its international recognisability by attracting students and instructors while relaxing rules related to visas and residency permits.

Innovations It has often been said that innovations must be the main driving force behind Latvia’s economy. In 2008, Latvia was one of the last places in the EU in terms of increases in innovations. According to the methodology of a progress report on innovations in Latvia, the most important indicators in this area are: ❑ The development of human resources (their involvement in educational processes); ❑ Government support and financing, as well as company investments in R&D; ❑ Registration of patents and intellectual property rights; ❑ The emergence of new and innovative companies; ❑ Employment in the areas of progressive technologies and knowledgeintensive sectors and services. The LDDK believes that if the system of innovations is to be improved, there must be harmonised national policies – simultaneous support for and development of all areas of innovation. This refers to financing, risk management, public-private partnerships, and the availability and development of a relevant labour force.

Source: Eurostat, May 2008 10

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residents who now work in professions which require little in the way of qualifications and sectors with a low level of added value. In 2008, the LDDK was involved in a survey of employers which was conducted by the State Employment Agency to determine the true situation in the labour market. The LDDK believes that if there is to be proper monitoring of the labour market so as to make short-term predictions about its development, then analysis of labour market trends and the forecast system which applies to various sectors will have to be developed further, and organisations of employers will have to be involved in this process.

Source: European Innovation Scoreboard, 2008

Support for research and development (R&D) The LDDK would like to point out that other indicators related to the development of innovations remain unacceptable in Latvia. Government support for science and corporate investments in R&D have increased, but uninterrupted annual increases in such financing must be ensured so as to provide for a higher number of inventions and patents. Only the implementation of market-oriented research in manufacturing processes will ensure a higher number of innovative companies, higher productivity, and higher employment in the area of progressive technologies and knowledge-intensive sectors of the economy.

Goals in 2009 ■ Annual increases in government financing for R&D, which cannot fall below 0.15% of GDP so as to promote market-oriented research;

■ Support for new products and technologies, offering ways of increasing financing and support from the European Union’s Structural Funds for this purpose; ■ Ensuring the availability of Structural Fund monies for new science and technology parks and competence centres, as well as a cluster support programme which facilitates the activities of co-operation networks; ■ Submitting proposals from businesspeople on national priorities in science so as to finance fundamental and applied research; ■ Promoting greater co-operation between business and science, with investments in research and modernisation, as well as the establishment of the relevant systemic, institutional and financial mechanisms.

Goals in 2009 ■ To draft proposals on reducing unemployment and taking active steps toward increasing employment so as to facilitate the preservation of existing jobs, to enhance productivity and to create new jobs; ■ To support a programme on attracting workers and developing human resources in those sectors which have potential in terms of exports and innovations; ■ To make proposals and offer support for the development of a strategy on employment and the professional and geographic mobility of the workforce in Latvia, the aim being to ensure the availability of workers and the development of resources; ■ To work with the State Employment Agency to develop new projects aimed at enhancing employment among job seekers with a higher education, helping them to develop entrepreneurial and business competence; ■ To help in the design of training programmes for unemployed people and job seekers, with an eye toward the development of competence and skills so as to expand the ability of individuals to find jobs, to provide for the professional mobility of the workforce, and to prevent people from pursuing professions that are too narrow and not at all promising; ■ To develop the system via which competence learned through professional activities and informal education processes is developed further and enshrined in the country’s normative acts; ■ To promote the availability of ESF financing for labour market forecasts, projects aimed at active development of employment opportunities, adult education centres, educational companies which provide professional education and training for working and non-working adults, as well as qualification and examination centres for the various sectors of the national economy.

Employment Unemployment increased and the number of jobs decreased in Latvia in 2008. The current decline in economic activity has had a deleterious effect on business development, but worsening opportunities in the labour market may encourage some people to start up their own businesses. The LDDK insists that economically active residents must be given a chance to develop their business skills so that they can become professionally active and find new opportunities in life. The country’s economic development will be dictated by the ability of the country’s residents to adapt to new circumstances, increasing and expanding their skills and professional competences. In terms of indicators related to the development of innovations, Latvia has the lowest achievements of any EU member state when it comes to the establishment and development of new and innovative companies and in the employment of local residents in sectors and services related to progressive technologies and knowledge-intensive processes. One indicator related to business operations is the ability of the state to attract highly qualified specialists from other countries. Foreign workers in Latvia, however, are largely employed in sectors which do not offer much in the way of added value, and the number of qualified specialists will decline now that ceilings on social security contributions are being lifted. The free movement of labour in the EU has meant that Latvia has become a source of labour for Western European countries. The people who have left Latvia have often been economically active

LDDK President Vitālijs Gavrilovs presents the Annual Effective Management Award to Baiba Paševica, director of the State Employment Agency.

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An Infrastructure, Energy Resources and Environmental Protection to Facilitate Entrepreneurship Regional policy in Latvia In 2008, the Latvian government approved a law on developmental planning which was aimed at promoting the country’s sustainable and stable development via a new planning system. Since then, a legal framework has been created for the drafting and implementation of policy planning documents. The LDDK has taken part in forums and working groups as an active participant in the preparation of a national development plan for 2007-2013, as well as a sustainable development strategy for Latvia. This latter document sets out long term development priorities and prospects for spatial development in Latvia. Once approved by Parliament, the strategy will become the country’s main planning instrument, and it will have the force of law. All strategic planning and development documents in the nearer and further future will be prepared in accordance with the directions and priorities that are defined in this strategy. For that reason, the document will be particularly important for businesspeople who are planning their business prospects.

contributions which it makes to the Latvian economy. Support is also needed for small and medium-sized companies in Latvia’s various regions. ■ There must be support for home insulation and energy efficiency projects. ■ Local governments must be supported in terms of their right to receive long term loans and to undertake long term obligations.

Social dialogue in Latvia’s regions In order to promote social dialogue in Latvia’s regions, the LDDK will, in 2009, launch an ESF-financed project aimed at increasing the confederation’s administrative capacity in Latvia’s regions. The aim is to promote the greater development of regional social dialogue, increasing the level of participation among social partners when it comes to the development and implementation of policies. The target group for this project consists of institutions which ensure that the interests of employee and employer organisations are represented when policy-related decisions are taken at the local government, national and EU level, as well as employers, employees and their organisations. The LDDK will set up five regional institutions to implement the project. This will be open to all local employers, helping them to come together into organisations and offering practical assistance to those employers who wish to become involved in regional social dialogue.

During the 2009 ESF-funded project, the LDDK will ensure the following: ■ Consultations for employers in Rīga, Cēsis, Liepāja, Jēkabpils and Rēzekne on social dialogue and opportunities for partnership with local governments; ■ The preparation of three training programmes for leaders and specialists from organisations of employers, teaching them about bilateral and trilateral social dialogue issues, as well as matters related to the development of local governments and business; ■ Expert analysis of international, EU and Latvian norms related to issues that are of importance to employers; ■ Preparation of materials on how to plan and evaluate human resources.

Energy supplies and climate change Source: Ministry for Regional Development and Local Governance, December 2008 The most important achievement in 2008: The LDDK continued to work with the State Land Service to change the way in which the cadastral value of properties is determined. This helped to ensure lower real estate tax rates for companies. These changes allow businesses to invest in modernisation and development, as well as to create new jobs.

In 2008, the LDDK was an active participant in the development of policies related to renewable energy resources at the EU and national level. The LDDK brought companies into the discussion about reducing emission quotas for Latvian companies. The confederation also was active in the area of environmental protection so as to ensure the competitiveness of Latvian companies in this context. There were discussions about how to reduce the levels of pollution and of the production of products which harm the environment.

Goals in 2009 ■ Administrative and territorial reforms were completed in Latvia, and 109 administrative district councils and nine city councils in the country’s main cities will go to work in June. The LDDK will have to continue to work on social dialogue in Latvia’s regions, focusing particular attention on infrastructure development, education and the environment. ■ In order to promote territorial development, businesses have to become involved in territorial planning at the local government level so as to facilitate the development of entrepreneurship in Latvia’s various regions. ■ EU funds must be used for the development of the regional infrastructure so as to stimulate economic activity and the establishment of new companies with products and services that can be exported. ■ Work must continue on basic areas of development in the Latvian tourism industry, doing so in co-operation with the Latvian Association of Hotels and Restaurants. A plan for 2009-2015 which is being developed at this time is to promote the development of this service sector and the 12

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Source: Environmental Ministry, December 2008


The suggestion of the LDDK was to re-evaluate the way in which the energy market is regulated in Latvia, ensuring that independent experts are brought in to assess tariffs, as is done in other countries of the European Economic Zone. The rapid increase in energy prices has had a deleterious effect on the competitiveness of industries. Together with the British Embassy in Latvia and the British Industrial Confederation, the LDDK organised an international conference to discuss why climate changes are important to business. The aim was to learn about best practice in terms of increasing energy efficiency while also encouraging companies to manufacture environmentally friendly products in Latvia. Late in 2008, the European Parliament gave first reading approval to a packet of rules on climate and energy resources, providing for a 20% reduction in emissions in all member states by 2020. An important achievement for Latvia was ensuring that the point of reference is a comparison to 1990, not 2005. In Latvia’s case, that means a 14% reduction in emissions.

Goals in 2009 ■ To work with the Environmental Ministry and the Economics Ministry on improving laws even further, ensuring that the application of tax relief and the refusal to tax resources that have been reinvested provides support for companies which are pursuing greater energy efficiency; ■ To improve policies related to energy resources so as to enhance the competitiveness of companies in Latvia; ■ To prevent the implementation of any regulations which are not effective in terms of packaging management while also promoting dialogue with businesspeople on the establishment of a deposit system; ■ To promote social dialogue in the spatial planning of Latvia’s regions and the development of their infrastructure so as to strike a balance between the interests of society and business, as well as to keep environmental protection requirements in mind.

Also in 2008, there was a discussion about the EU’s Green Book on the subject of territorial cohesion. The aim here is to ensure balanced development at all territorial levels, to strengthen territorial potential, and to improve overall territorial development. It is particularly important for Latvia to ensure that financial support from the EU’s cohesion policy will remain available after 2014. Latvia is one of the more poorly developed countries in the EU, and substantial finance have been received from the EU’s Structural Funds and Cohesion Fund. In accordance with the financing framework for 2007-2013, Latvia is receiving EUR 4.53 billion (LVL 3.2 billion) in pursuit of cohesion-related goals, but the country has not done too well in absorbing these funds, and the effect on the competitiveness of companies and the standard of living of the people of Latvia has not been assessed. As the aforementioned national development plan was being put together, experts declared that energy is not used efficiently in Latvia, and there is substantial potential in the country for energy savings. That would lead to lower manufacturing costs and help to ensure the competitiveness of manufactured products. LDDK experts have been actively involved in working groups set up by the Economics Ministry, the Environmental Ministry and the Rīga City Council, always calling for more spending on the area of energy efficiency.

Valmiera City Council chairman Inesis Boķis receives an annual award as the head of the most effective local government in Latvia.

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Representing Interests: A Prerequisite for Latvia’s Competitiveness The role of Latvian employers and companies in the international environment will be dictated by their own ability to define operational priorities, find partners, and make operations more effective. Equal rules of the game for Latvian companies at the regional, European and global level will be the determining factor in the competitiveness of Latvia and its economy, particularly if support is received from the government. In 2008, the LDDK called for a conceptual review of Latvia’s national position vis-ą-vis various aspects of European Union operations – the way in which agenda items are prepared and handled, the way in which information is circulated, and the way in which social partners are brought into the process. In future, there must be closer and more effective co-operation among the Foreign Ministry, the Economics Ministry and the LDDK so as to ensure that norms which are adopted are favourable to Latvian companies and that their economic interests are represented successfully. There is a lack of coordination in terms of lobbying at the EU, and there is also a shortage of professionally trained people at those institutions where decisions that are of importance to employers are taken. Hoping to make it easier for employers to achieve their goals, the LDDK called for a more co-ordinated approach among Latvian government institutions, as well as the establishment of a broad framework of analysis and research in pursuit of the defence of Latvian manufacturers and their interests.

in the Baltic States, where people talked about how members of the civil society can take part in the taking of decisions. The focus was on theoretical and practical aspects of this issue in the three Baltic States and in other EU member states. The LDDK will continue to represent the interests of Latvian employers in relations with the EU’s various consulting institutions. In May 2008, the LDDK worked with the European Commission office in Latvia and the Foreign Ministry to bring together directors from employer organisations in the various countries of the Baltic Sea region. They and representatives of other employer and business organisations in the region drafted recommendations on how to promote economic growth and entrepreneurship in the region. The recommendations served as a basis for the Latvian government’s position and that of Business Europe vis-ą-vis the EU’s strategy in relation to the Baltic Sea region. The European Commission has promised to release that strategy by June 2009.

A meeting of directors from Baltic Sea region employer organisations

The LDDK offered well-argued views and established a unified operating strategy with Business Europe with respect to the following issues:

Representatives of the LDDK meet with Foreign Minister Māris Riekstiņš, and the chairman of the Council of Baltic Sea States, Valdis Krastiņš

Co-operation in the EU

■ Proposals concerning the European Parliament and Council directive on industrial emissions (integrated prevention and control over pollution, COM/2007/0844); ■ Amendments to the directive on working hours (2003/88/EC); ■ A proposal on the Council directive about the entry and residence of people from third countries who have the skills necessary for highly qualified jobs (COM/2007/637);

Throughout the course of 2008, the LDDK engaged in intensive consultations with European partners, bringing together representatives of employer organisations to talk about items on the European business agenda. For the first time, representatives of the European Economic and Social Affairs Committee came to Latvia. The LDDK supported the first civil society forum

The speaker of the Latvian Parliament, Gundars Daudze (3rd from R), meeting with representatives of the European Economic and Social Affairs Committee 14

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LDDK General Director Elīna Egle, Latvian Prime Minister Ivars Godmanis, Business Europe President Ernest-Antoine SeilliŹre, LDDK President Vitālijs Gavrilovs, and Business Europe General Director Phillipe de Buck.


■ A proposal from the Commission related to the Council directive on

Goals in 2009

ensuring equal treatment irrespective of religion, faith, disability, age or sexual orientation (COM/2008/426).

The EU ■ In order to define the interests of businesspeople in relation to posi-

International co-operation and co-operation with CIS countries Over the course of 2008, the LDDK substantially expanded its range of international partners, forming closer co-operation at the level of national governments in neighbouring countries such as Russia, Belarus and Ukraine. Such opportunities were not pursued very extensively before in terms of markets for Latvian goods and services, as well as potential for business opportunities. The priorities in this area for the LDDK include protection of intellectual property rights, liberalisation of investments, promotion of trade, and repeal of double tariffs. The LDDK has concluded an economic partnership agreement with the Ukrainian Federation of Employers. The agreement provides for the establishment of an oversight council which, on the basis of parity, will include representatives of employer organisations in both countries. Another economic partnership council has been established with the Belarusian Confederation of Employers. Agreement has been reached on its programme for 2009. The Latvian chairman of the council is Kirovs Lipmans. The LDDK also signed an agreement with the Belarusian Association of Scientists and Manufacturers to develop co-operation among manufacturers, businesspeople and scientists, thus promoting the further development of economic relations between Latvia and Belarus.

tions taken by the EU as soon as possible, social partners should be involved in the drafting of national positions vis-ą-vis such issues from the very beginning with the involvement of the secretariat of the National Tripartite Co-operation Council; ■ If issues that are critical for businesses and for economic growth are to be presented adequately in the EU’s strategy for the Baltic Sea region and are to be acceptable to all EU member states, the LDDK will have to continue to monitor the way in which this strategy is debated in the European Parliament and the European Council; ■ The LDDK will represent the interests of Latvian employers at Business Europe as an associate member, as well as at the European Parliament, working with members of the institution from Latvia and by taking part in the work of the European Economic and Social Affairs Committee. Internationally ■ In order to develop co-operation between the LDDK and the Ukrainian Federation of Employers, a Latvian-Ukrainian Economic Cooperation Council is to be set up; ■ In order to facilitate better economic relations between Russia and Latvia, the Latvian-Russian Economic Co-operation Council will draft proposals and recommendations as to how this can be achieved; ■ In order to promote a better business and investment environment in those markets that are of priority interest to Latvia, the LDDK will continue to work on issues related to foreign economic policy and developmental co-operation, seeking to establish co-ordinated activities on the part of Latvian government institutions, to ensure a broad framework of analysis and research aimed at defending the interests of Latvian companies, as well as to promote good governance, social dialogue, social responsibility, and new regulations related to specific aspects of the business environment insofar as relations with third countries are concerned.

The LDDK meets with representatives of Business Europe, the Ukrainian Federation of Employers, and the Belarusian Confederation of Employers. In order to strengthen economic co-operation between the EU and Russia, the LDDK attended a meeting in Brussels in 2008 which brought together Business Europe, the Russian Union of Industrialists and Entrepreneurs, and an organisation of small and medium businesses in Russia, “Opora Rossiyi.” The meeting was devoted to the need for governments to create a new strategic and economic dialogue between Russia and the EU, complete Russia’s accession to the WTO, and begin bilateral trade and investment negotiations on the establishment of new economic partnerships. The Latvian-Russian Economic Co-operation Council, which was established by the LDDK and the Latvian Chamber of Commerce and Industry, continued its work in 2008. The council met in Moscow on November 10. Latvia’s delegation was chaired by the businessman Vasilijs Meļņiks. The LDDK also dealt with the Foreign Ministry’s partnership policies visą-vis priority countries such as Ukraine, Belarus, Moldova, Georgia and Afghanistan. The confederation called on the ministry to make use of the experience of Latvian companies and organisations of employers in promoting such concepts as good governance, stronger social dialogue, corporate social responsibility, regulation of specific types of business, improved quality in the field of education insofar as the market requires, etc. LDDK

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Corporate Social Responsibility for Sustainability Corporate social responsibility (CSR) seeks to introduce accountable change and is one of the most powerful instruments in serving the interests of a company. Over the last decade, in areas such as human rights, labour rights, environmental concerns and the struggle against corruption, the ten principles that have been integrated into company strategies have indicated a long term and strategic approach to business. From seemingly generalised guidelines which indicate good will, CSR has turned into a personnel management instrument when changes are implemented at an organisation. When CSR is taken into account during company reorganisation, that makes it possible to avoid risks to the firm’s reputation. In international markets, of equal importance is the position which the company takes in regard to quality management. That policy must be orderly and recognisable, and one way to ensure this is to become part of the UN Global Charter. Involvement in this movement allows a company to position itself as a responsible player which is familiar with global operating principles. The LDDK pursues CSR initiatives so as to help companies to understand what CSR is and to achieve public support for it. This helps us to popularise best practice among companies.

The second day of the forum was devoted to public-private partnership as a stimulus for the economy, outsourced services and procurement processes as elements of effectiveness and accessibility, transformation of public services, the issue of whether E-governance is more of a promise or reality, the use of co-operation and partnership in local governments, as well as the way in which local governments can attract new businesses. Participants included 40 experts from the public governance and private sectors. In interactive discussions, forum participants analysed opportunities for co-operation between the public and the private sector. Participants agreed that public sector functions must be audited so as to reduce administrative obstacles and to encourage bureaucrats to think harder about ways in which work can be done in collaboration with the private sector.

The Effective Governance and Partnership Forum and its annual awards For the second year in a row, the LDDK and the State Chancellery organised an Effective Governance and Partnership Forum, with some 300 participants from local governments, government institutions and businesses. The primary aim of the forum was to reach agreement on steps to be taken in order to reduce administrative Gunta Veismane, Director of the State obstacles and to implement the principles Chancellery, at the opening of the of good governance. Because of long-time Effective Governance and Partnership traditions in the area of governance, the first Forum day of the forum was devoted to the experience of Latvia and other countries. A key event for participants from Latvia was an appearance by the President and General Director of Business Europe, Ernest-Antoine SeilliŹre and Phillipe de Buck. In his opening address, SeilliŹre said that “public-private partnership improves the quality of services, ensures that adaptation to economic processes is quicker, and ensures greater control over public expenditures.” The Business Europe President called for the breaking down of barriers which hinder the application of public-private partnership principles in attempts to improve public governance.

Inese Šmitiņa, Director of the State Social Insurance Agency, Latvijas Mobilais Telefons President Juris Binde, and a representative of the Jēkabpils City Council discuss the effectiveness of governance. Also during the forum, the Effective Governance Awards were distributed. In the corporate category, Latvian Railways received an award for restructuring of the rail sector and the development of a new management model for the company. Among government institutions, the prize went to the State Employment Agency for the provision of career-related services to unemployed people and to those who are facing the risk of unemployment. In the local government sector, the award was given to the Valmiera City Council and its visitor centre.

Nominees and award recipients in the Effective Governance Awards

For the first time, Business Europe representatives visited Latvia to attend the Effective Governance and Partnership Forum. 16

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LDDK – 15 Years of Work In 2008, the LDDK celebrated its 15th anniversary. In honour of this event, the confederation published a new book, “Social Partnership and the Market Economy in Latvia: Conversations With Latvian Businesspeople.” The LDDK also awarded prizes to the authors of the five best master’s degree theses in the area of business and personnel administration (38 theses were submitted to a competent jury). On the www.latvijaspatrioti.lv Internet page, the LDDK called on people to vote for Latvia’s most patriotic businesspeople. At a ceremony, the winners of that title were congratulated – Jānis Vilnītis from a paper company in Liepāja, the baker Normunds Skauģis, and Gunārs Ķirsons from the LIDO chain of restaurants.

Jānis Vilnītis from AS Liepājas Papīrs – one of Latvia’s most patriotic businesspeople

The LDDK published “Social Partnership and the Market Economy in Latvia: Conversations With Latvian Businesspeople”.

Normunds Skauģis from SIA Lāči – one of Latvia’s most patriotic businesspeople

Latvijas Mobilais Telefons President Juris Binde congratulates the authors of the best applied research.

The board chairman of the newspaper Dienas Bizness congratulates businessman Gunārs Ķirsons on being named one of Latvia’s most patriotic businesspeople.

The LDDK turned on the lights for Latvia by holding a competition to find the most patriotic employers in Latvia via a vote on the Internet – Aigars Rostovskis, BAT Turība, Elīna Egle, LDDK, Dace Andersone and Gastons Neimanis, Dienas Bizness LDDK

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The Republic of Latvia’s 90th anniversary The LDDK was actively involved in celebrations related to the 90th anniversary of the declaration of Latvia’s independence. Together with the Defence Ministry, the confederation set up a support committee to call on people to support the celebration and to light up in support of Latvia. Financial support was received from more than 30 businesses.

Corporate Social Responsibility initiatives for 2009 Establishing an energy platform for business leaders Working with relevant sectoral associations, the LDDK has called on managers from leading companies and experts from the sectors to help in developing a sustainable energy policy so as to ensure the competitiveness of Latvian companies and to improve energy efficiency. This will involve discussions and forums on energy issues, consolidation of views, and preparation of recommendations for policymakers in relation to the goals which the EU has set out.

A platform for Corporate Social Responsibility

President Valdis Zatlers and First Lady Lilita Zatlere meet with businesspeople who, together with the LDDK and the Latvian Defence Ministry, helped to organise the celebration of the 90th anniversary of Latvia’s independence. The Finance Ministry, State Revenue Service, LDDK and representatives of a number of local governments got together in honour of the country’s 90th anniversary to organise financial forums and conferences in five of Latvia’s regions, as well as to present awards to the best employers in each region. The aim of this award was to emphasise the importance of employers in terms of investments in regional development. In 2008, the awards were distributed as follows: AS AirBaltic Corporation (Rīga), AS Brīvais Vilnis (Vidzeme), SIA Vika Wood (Kurzeme), AS Dobeles Dzirnavnieks (Zemgale), AS Daugavpils Locomotive Repair Factory (Latgale).

Corporate Social Responsibility (CSR) is an instrument for implementing changes in a responsible way. The LDDK wishes to promote understanding among businesspeople and support in the public at large for CSR and its fundamentally important role in business development and in the enhancement of public welfare (through integration into company strategy). The business world and non-governmental organisations are called upon to agree on a common vision about CSR in Latvia. Proposals will be drafted as to how CSR can be implemented and supported, and a CSR Index will be established so as to encourage companies to improve their reputation.

Awards for the best employers in Latvia’s regions In order to honour the most ambitious and socially responsible employers in Latvia, the LDDK will once again present awards to one in each of Latvia’s five planning regions. The aim is to emphasise the role and investment of the employer in dynamic and balanced regional development.

The Effective Governance and Partnership Forum The forum will be held to discuss the way in which recommendations that have been made in the past have been implemented. Delegates will look at examples of companies and organisations which have proven their ability to work successfully even under conditions of a global financial crisis. There will be discussions among experts, businesspeople and senior government officials.

The annual Effective Governance Award

LDDK Vice President Aiva Vīksna presents an award to the best employer in the Latgale region – the Daugavpils Locomotive Repair Factory.

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For the third year, the LDDK and the State Chancellery will evaluate the best examples of effective governance at the national and local government level, as well as among companies. Juries have considered the following aspects in this regard: The effectiveness of the governance structure, effective innovations and creativity, and the sustainability and results of effective governance efforts. This year we will evaluate the effectiveness of state and local government institutions, as well as companies, from the perspective of change and risk management.


Services for LDDK Members One of the services that is provided by the LDDK is a database for monitoring normative acts and a portal for consultations, www.lobijs.lv. Data show that 47% of registered users made use of this service in 2008. The goal in 2009 is to get 65% of registered users to become involved in this attempt to consolidate views.

various sectors. LDDK members were surveyed to determine how important EU and international issues are to organisations and associations of employers. Toward the end of the year, the LDDK organised a survey of member companies on the subject of foreign trade priorities and exports. Also in 2008, the LDDK continued work with Fontes Latvija on a study of wages and other compensation. A service related to support for project preparation and management was also offered in 2008, and the LDDK became involved as a partner in several international projects, and that has offered valuable information for LDDK experts and members. ❑ The LDDK was a partner in a project focused on co-operation with employees during times of change at companies, also looking at how the welfare of employees can be ensured during such times. This project also involved the British Confederacy of Employers and the UKWON organisation.

Source: Statistics from www.lobijs.lv Another service involves training and seminars for LDDK members, and 120 experts took part in five training sessions on such issues as labour norms, Corporate Social Responsibility, the role of job safety in social policy, etc. ❑ In 2009, the LDDK will take part in the “Transfer of Innovation” project, which will allow members to receive training. This will involve the University of Latvia and the Institute of Professional Financial Managers (UK), and subjects will include international financial reporting standards, managerial accounting, strategic planning, strategic management, applying internal control and internal audit in enterprises, methods for evaluating the financial condition of enterprises, as well as financial management.. ❑ Given that the LDDK will have two major ESF projects in 2009, the total number of training sessions will be 39, and the total number of participants therein is anticipated to be around 600. The LDDK will also offer training programmes to members on subjects such as Corporate Social Responsibility, lobbying, and the EU. ❑ In 2008, the LDDK organised conferences on aspects of social dialogue at the European and national level, as well as on social dialogue in the Baltic States. The conferences were supported by the German Confederation of Employers and the German government.

Another service provided by the LDDK in 2008 was opportunities for members to exchange experiences with others. This was part of the BOSMIPII project and its lead partner, Business Europe. The LDDK also had a partnership project with the Romanian Confederation of Employers. The goal was to promote partnership and experience exchange initiatives, focusing on job safety and health protection in particular. The LDDK informed people about its experience with management of businesspeople and organisations of employers, also sharing knowledge and methods for representing interests in pursuit of greater job safety and security. In 2009, there will be projects related to exchanges of experience with specialists in Turkey. Also in 2008, the LDDK continued to publish a monthly informational report on business in Europe. The number of recipients of this report will be increased in 2009.

❑ The LDDK participated in a project that was organised by the Czech Confederation of Industries, “Promotion of Flexible Forms of Work Through Social Dialogue from the Perspective of Employers.” This involved organisations of employers from Slovakia, Slovenia, Belarus, Poland, Austria, Bulgaria and Estonia, as well. Project participants studied flexible forms of work in all of the participating countries. The reports focused on conclusions and recommendations vis-ą-vis such forms of work. ❑ The “Social Dialogue” project was implemented in partnership with the German Confederation of Employers, with financial support from the German government. Here the aim was to develop social dialogue at the regional, sectoral and company level, to offer exchanges of experience, and to popularise best practice. ❑ The LDDK took part in a programme called “Actions Concerning the Modernisation of Public Employment Services,” which was co-financed by the European Commission. ❑ The LDDK and the www.brivpratigais.lv organisation pursued a project called “Every Job is Honourable.” ❑ The LDDK took part in a project that was organised by the Latvian Association of Local Government Employers, “Educating Local Residents and Institutions on Legal Aspects of Work in the Strengthening of the Civil Society and the Development of Balanced Economic Development in Latvia’s Regions.” In 2009, the LDDK will continue partnership in the following projects: ❑ The INTERREG IVB, Baltic Sea Region, 2008-2011 project “Baltic Sea Labour Network,” which has led to the establishment of partnerships among 27 organisations in 10 Baltic Sea countries. The aim of the project is to promote the establishment of a sustainable labour market. The LDDK is a project partner. ❑ The “Transformation of Innovation” project in terms of training partnerships with the University of Latvia and the Institute of Professional Financial Managers (UK).

Another service, support for market research, allowed the LDDK and the State Employment Agency to research short-term labour demand in LDDK

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The LDDK Council The LDDK President Vitālijs Gavrilovs, SIA Ladeko

The LDDK Vice Presidents Juris Biķis, AS Latvijas Finieris

Teodors Tverijons, Latvian Association of Commercial Banks

Ivars Strautiņš, Turība School of Business

Uģis Magonis, AS Latvian Railways

Kirovs Lipmans, AS Grindex

Aiva Vīksna, SIA Business Information Service

Vasilijs Meļņiks, SIA Eiroholdings

LDDK Council members

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Juris Binde, SIA Latvijas Mobilais Telefons

Valērijs Terentjevs, AS Liepājas Metalurgs

Vilnis Krēsliņš, Latvian Association of Electrical Engineers and Builders

Andris Zorgevis, Latvian Association of Railroad Sector Employers

Vilmārs Lucāns, Latvian Association of Local Government Employers

Jānis Naglis, Latvian association of Hotels and Restaurants

Jevgēņijs Kalējs, Latvian Hospital Association

Jānis Bertrands, SIA Baltijas Logi

Arkādijs Suškins, Cēsis District Business Club

Laris Polosuhina, SIA Rīga Lacquer and Paint Factory

Gundars Strautmanis, SIA Lattelecom

Kārlis Andersons, AS Latvijas Balzāms

Vilnis Rantiņš, Association of Machinery and Metal Processing Companies

Viktors Puriņš, Latvian Association of Builders


Acknowledgements We thank our member, AS Seversteļlat, for organising a meeting of directors of employer organisations from the Baltic Sea region; The Effective Governance and Partnership Forum could not have occurred without our partners – the State Chancellery, Swedbank, SIA Lattelecom, Nokia Latvija, Komerccentrs DATI Grupa, and our informational supporters – the Latvian Association of Local Governments, the newspaper Dienas Bizness, the portal Db.lv, and the LETA news agency; We thank the “Business Diena” publication for its support for the annual effective governance awards; The LDDK could not have published its book, “Social Partnership and the Market Economy in Latvia: Conversations With Latvian Businesspeople,” without the active support of SIA Business Information Service, with personal thanks to Aiva Vīksna, Rita Baroniņa, and editor Andris Vanadziņš. We thank AS Latvijas Finieris for support, and the Bergs Hotel for hospitality; Our thanks to Latvian State Forests for participation in the implementation of our Corporate Social Responsibility Programmes and to Latvijas Mobilais Telefons for the stipends which it provided for the authors of the best master’s theses; Success in the vote for Latvia’s most patriotic businesspeople can be attributed to the Turība School of Business, Dienas Bizness board chairman Gastons Neimanis and editor Dace Andersone, AS AirBaltic Corporation, the Draugiem.lv portal, and the LETA news agency.

The LDDK also would like to thank everyone who took part in the work of National Tripartite Co-operation Council panels for their investment of time and the way in which they represented the interests of employers! The Professional Education and Employment Sub-Council ❖ JS Grindex – Dace Šaitere ❖ Latvian Association of Local Government Employers – Gaida Lāce ❖ Association of Machinery and Metal Processing Companies – Andis Lejiņš ❖ JS Latvijas Finieris – Anda Būmane ❖ Ltd. BUTS – Pēteris Zaļmežs The Labour Affairs Sub-Council ❖ Ltd. GRIF – Aleksandrs Grigorjevs ❖ JS Latvenergo – Inga Kola ❖ Association of Machinery and Metal Processing Companies – Jānis Sproģis ❖ JS Inspecta Latvija – Pēteris Druķis The Social Security Sub-Council ❖ LDDK General Director – Elīna Egle ❖ Cēsis District Business Club – Arkādijs Suškins ❖ Ltd. REATON Ltd – Laura Kalniņa ❖ Latvian Postal Service – Aivars Kalniņš ❖ Ltd. Patnis – Zane Ozola ❖ Latvian Hospital Association ��� Jevgēņijs Kalējs The Health Care Sub-Council ❖ Latvian Hospital Association – Jevgēņijs Kalējs ❖ Ltd. Mēness Aptieka – Marģers Zeitmanis ❖ Association of Health Care Employers – Māris Rēvalds The Transport, Communications and Informatics Sub-Council ❖ SIA Baltijas Logi – Jānis Bertrands ❖ JS Ventspils Nafta – Andris Uzuleņs ❖ Latvijas Mobilais Telefons, Ltd. – Mārtiņš Pujāts ❖ Ltd. airBaltic Corporation – Laila Odiņa ❖ Latvian Railways – Uldis Pētersons ❖ Latvian Passenger Transportation Association – Pēteris Salkazanovs ❖ Latvian Association of Cargo Forwarders and Logistics – Vladimirs Žerebcovs The Environmental Protection Sub-Council ❖ Latvian Association of Waste Management Companies – Vladimirs Cudeckis ❖ Latvian Association of Road Builders – Kārlis Kadiķis ❖ Latvian Association of Wood Processing Companies and Exporters – Jānis Mārciņš ❖ LDDK regional development expert – Andrejs Šnepsts The Regional Development Sub-Council ❖ Latvian State Forests – Artūrs Jansons ❖ Latvian Association of Local Government Employers – Vilmārs Lucāns ❖ Adult and Professional Education Association – Guntis Tomsons ❖ Latvian Farm Federation – Ārija Jerumane ❖ LDDK regional development expert – Andrejs Šnepsts

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LDDK Members – Sectoral Associations

LDDK Members – Companies

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Responsible Change: An Opportunity for the Future