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The Employers' Confederation of Latvia

IMPLEMENTATION OF STRATEGY OF THE EMPLOYERS' CONFEDERATION OF LATVIA IN 2009 AND ACTION PLAN FOR 2010


IMPLEMENTATION OF STRATEGY OF THE EMPLOYERS' CONFEDERATION OF LATVIA IN 2009 AND ACTION PLAN FOR 2010

CONTENTS LDDK President's address

3

LDDK Director-General's report

4

Realisation of the LDDK's strategic goals in 2009

6

The forecast commercial environment for the stabilisation of the economy and the sustainability of business 7 Structural reforms - an instrument for macroeconomic stability

7

Shadow economy

9

Tax policy must provide a vision of Latvia's competitive advantages

10

SME cooperation platform united for the introduction of the "Small Business Charter"

11

Tax policy for restructuring of the economy

11

European Union structural funds

12

A business-conducive infrastructure

12

Power industry and the environment

13

Employment

14

Social security

14

A quality professional and higher education partnership in innovation and research

15

Increased productivity in relation to competitive remuneration

16

Labour rights and labour protection for productivity

17

Labour rights

17

Labour protection

18

ESF Project "Practical application of the legislation on occupational health and safety and labour relations in sectors and enterprises" 18 Regional development

20

ESF Project "Consolidating the LDDK's administrative capacity in the regions"

20

Good partner relations are a prerequisite for the successful growth of exports

22

Exports - a priority for economic interests

22

Strengthening the activity of social partners

22

Important strategic issues for employers

23

Cooperation within the European Union and Baltic Sea region

24

International cooperation

24

International projects

26

Enterprise sustainability is rooted in corporate social responsibility

27

CSR platform

27

Effective administration and partnerships

27

LDDK members

28


LDDK

President's address

The 20th anniversary of the rebirth of the Latvian State and the spirit of commerce! In reaching the 20th anniversary of the restoration of Latvia, we have arrived at a crossroads at which we need to re-evaluate our achievements and find the strength to "reboot" our society's system of values and our socioeconomic and political model. In order to restore Latvia's competitiveness, the structural reforms that need to be implemented within both executive government and the economy are an opportunity presented to us by the crisis. We can make the most of this opportunity provided that we are united in our understanding of Latvia's Dawn Strategy and Latvia's contribution to the European Union's long-term vision within the framework of EU 2020. The goal of reforms within executive government is specific - executive government that is more effective, smaller, less expensive and focussed on the country's population. An executive government devoid of overlapping functions, idiosyncratic and unnecessary functions, and which reduces the burden on business. The goals of the restructuring of the economy have been delineated in theory, but they fail to provide a clear vision of the development of export potential and revitalization of the domestic market. This cannot be viewed as constituting practical support for sectors of the economy. Therefore, by achieving an agreement on a sustainable structure for the economy with executive government, the social partners, employers and trade union representatives will be in a position to also provide the Latvian population with answers regarding the qualitative and quantitative availability of jobs and the improvement of living standards. The LDDK sees opportunities to implement structural reforms through a clear action plan and by meeting international obligations. However, given the limited financial resources, the challenge remains to consolidate total state budget costs and model tax revenues pragmatically. We can identify five main directions for consolidation of the state budget: ensuring honest competition and reducing the shadow economy; reducing public sector costs; agreeing the guidelines for tax policy which form the spine of the state budget in the medium term; increasing return on investments from EU structural funds, as well as other financial resources, and attracting foreign investment; 3

realizing Latvia's economic interests in international markets and representing its economic interests within the European Union market. With the support of the LDDK, at the start of 2010 the Cabinet confirmed the deadline for the introduction of the euro - 2014. Such an undertaking on the part of the state, similar to its accession to NATO and the European Union a few years ago, will unite society, improve Latvia's international reputation and the trust of investors, and will restrict imprudent management of the state budget. The LDDK's priorities in 2010 are ensuring the availability of financial resources and honest competition, as well as implementation of structural reforms in partnership with the private and non-governmental sector. Attainment of these priorities will be the LDDK's members' contribution to overcoming the economic slump and the creation of jobs. The social partners are responsible for the conclusion of mutual agreements, as well as the conclusion of agreements with municipalities, governmental bodies and other non-governmental organisations. This adds value to the competitiveness of our enterprises and to the recovery of national economy. We will leverage our rights as employers.

LDDK President VitÄ lijs Gavrilovs

"The LDDK's priorities in 2010

are ensuring the availability

of financial resources and

honest competition, as well as implementation of structural reforms

in partnership with the private and

non-governmental sector."


Director-General's report

2009 belongs to the past and 2010 has begun with decisions by politicians that have failed to win the support of the business community and which contradict the logic of overcoming the economic crisis. This year, the LDDK's members have continued to work hard to balance enterprise budgets and to improve financial and economic indicators. Having neither anticipated the approach of the crisis nor adapted to the subsequent changes, central government has undertaken more than four billion lats worth obligations to international lenders. Unfortunately, having proved unable to implement structural reforms within executive government and the economy, at the end of 2009 politicians once again chose the easiest option and increased the tax burden on both employers and the population. In spite of these contradictions, the LDDK worked together with the government and international lenders, the Saeima and State President, offering the opinion and arguments of employers on how to overcome the economic slump. The Reform Management Group established by the Prime Minister and the State Chancellery's Function Audit Commission began work to draw up structural reforms to boost the competitiveness of the economy. The unity of employers and their ability to consolidate their viewpoint, persuading their partners about responsible economic decisions, was intertwined with their disbelief at the prevailing self-centredness among politicians and civil servants. In 2009, GDP fell by 18%.

"structural reforms for the

competitiveness of the economy."

The salary fund in the public and private sector is rapidly diminishing creating a negative impact on purchasing power, but increasing the flexibility of occupational legal relations and productivity. The ESF Project "Practical application of the legislation on occupational health and safety and labour relations in sectors and enterprises" implemented by the LDDK gives employers the chance to receive advice on how to improve work organisation from employment rights and work protection consultants across Latvia, as well as to get practical support in the assessment of labour risks, by engaging in training and other project activities. Accordingly, one of the positive messages for business in 2010 is that the labour market will become more flexible. This will allow employers to choose qualified employees and improve their competitiveness. Not only are training opportunities opening up for employees who have lost their jobs or face the risk of redundancy, but they also have the option of becoming self-employed or even becoming an employer. Ratification of the professional education concept set out by the LDDK in partnership with the Ministry of Education and Science

will also facilitate the successful realisation of this goal. Furthermore, in partnership with the Ministry of Welfare and the State Employment Agency the LDDK has put a lot of work into devising employment support measures. The public and private sector retains responsibility for improving existing jobs and creating new ones to reduce the risk of unemployment and emigration. 2009 was not only characterised by a rapid reduction in financial resources, adjustment in line with the demands of domestic and international markets, changes to the tax system, and the review of the remuneration system, but also by the instability caused by the amendments to the 2009 state budget and the lengthy confusion regarding the scope of the state budget for 2010. LDDK was instrumental in ensuring that there was no increase in either value added tax or social security contributions. Given the tardiness of structural reforms and the tendency to make promises during the pre-election period, the commercial environment is still exposed to the serious risk of decisions being made that are fundamentally unfavourable to business. We can reduce these risks by consolidating the LDDK' s argumentation and bolstering the social dialogue between the social partners, i.e. organisations representing employers and trade unions within enterprises and at municipal and national level, and by forming social partnerships based on the joint responsibility of the public, private and non-governmental sectors, as well as education and research institutions for decisions that are made. The proportion of Latvia's shadow economy in relation to GDP is increasing. Therefore, the LDDK reached an agreement with the Saeima regarding measures for ensuring honest competition and eradication of the shadow economy. In 2009, positive results and support were attained for the following tasks - proposals were drawn up in partnership with the Ministry of Economics for changes to the tax system, for the support of very small (micro) enterprises in particular, as well as the adoption of amendments to the Labour Law, Public Procurement Law, etc. Encouragement for these proposals within the LDDK stems from the Small and Medium Enterprise Cooperation Platform established in 2009. The LDDK will ask decision-makers to give primary consideration to small enterprises and to implement the European Charter for Small Enterprises devised by the European Commission. And the LDDK is also asking tax payers to pay their dues to the state and state institutions to make the details of how these resources are spent public. Administrative reform has made the review and improvement of public services possible, along with the development of pragmatic solutions to support business and lobbying for speedier investment of EU funds in the infrastructure and the creation of jobs. The LDDK has 4


launched a European Social Fund Project "Consolidating the LDDK's administrative capacity in the regions" with a view to developing the social dialogue regionally. The project is aimed at the formation and consolidation of regional business organisations, as well as the establishment of a trilateral cooperation council and the conclusion a joint regional agreement. And it is within the framework of the social dialogue that a stable foundation is being formed to develop municipal government, increase economic activity and meet public needs. Entrepreneurs demonstrated their toughness and sense of responsibility in winning the award for Best Employer in Latvia's regions. In 2009, the LDDK's work was characterised by its awareness of the additional resources that are available to facilitate economic recovery - identification and quality realisation of Latvia's economic interests. Increasing attention was focussed on consolidating the intellectual resources and influence of international employers' organisations at Baltic, European and international level, e.g. in the area of administrative red tape and tax policy. Vindication of the importance of international cooperation is provided in the form of the victory of employers over Swedish sector trade unions in the "Laval un partneri" legal proceedings, thus underlining the core values of the EU internal market. The LDDK prepared proposals for representation of economic interests and export support measures in Latvia and through its representative bodies overseas by organising discussions with the Latvian Foreign Ministry and the business community. The mutually beneficial exchange of information was maintained with foreign diplomats in Latvia, Latvia's MPs and experts in other EU and international structures.

"we can forecast

signs of growth

in 2011."

The basket of public services will have to be reviewed in 2010; we will have to go back to the function audit conducted in 2009, measures have to be introduced to provide genuine support for SMEs and to ensure effective leveraging of available resources to boost exports. The contribution of EU funds, guarantees and emissions to the infrastructure and energy efficiency can create real jobs and renew the "circulation" of the economy. Given the political and administrative processes within executive government, we can forecast signs of growth in 2011. This is possible provided that business is organised and united in its demands, the government works on improving the business environment to ensure that products and services produced in Latvia are competitive in external markets. A reduction of bureaucracy, combating the shadow economy and rapid and effective leveraging of EU funds are the only remaining instruments, with the exception of changes to tax policy which must serve to reduce the tax burden on the labour force We predict that we will see increased cooperation and consolidation among entrepreneurs. Business will be geared to longterm growth as evidenced in the active joint work to establish a "Corporate Social Responsibility Platform"

5

In coming years, we have to not only reckon with our own desires and capabilities, but also with demands set out by the international lenders. Therefore, in this Saeima election year, it is important that we achieve a shared vision of stability and the restoration of growth. This debate originated from the Effective Administration and Partnership Forum organised by the LDDK and State Chancellery and dedicated to the goals of the Dawn Strategy, which, if jointly achieved in the public, private and non-governmental sector, would set us on the road to growth. In 2010, GDP must not fall by more than 3.4%, unemployment figures must remain within reasonable limits not exceeding 15%, the state budget deficit must not exceed 8.5%, and the government must do everything possible to ensure that accession to the eurozone is possible in 2014. I would thank the LDDK's members for their patriotism, the politicians and civil servants who responded to the LDDK's viewpoints and initiatives, the LDDK's cooperation partners for their support in jointly overcoming the trials of the economy. In reaching the 20th anniversary of the restoration of Latvia's independence, I believe that we will summon the strength for recovery!

LDDK Director-General El朝na Egle


Realisation

of the LDDK's strategic goals in 2009 Improvement of public governance services and the legislative environment for doing business. Protection of members' interests - assessing the proposals made by the LDDK Directorate during the process of drafting legislation and policy planning documents in 2009 as compared with 2008: the LDDK improved recognition of issues relevant to members on the political agenda by 27%; there was a 5% improvement in the success rate of proposals made and recognition of issues; 62.4% of all findings provided were taken into account which is close to the LDDK's set goal of 65%. Representation of members' interests - in 2009 participation of the LDDK's members in the social dialogue within decision-making institutions reached 64% (up from 60% in 2008). We invite entrepreneurs to take a more active role in the LDDK's activities! Recruitment of members - regardless of the financial difficulties afflicting a number of the LDDK's members, the number of members has raised compared to 2008. In 2009, the LDDK's membership increased with the addition of 17 new members. It is worth noting that currently the LDDK's members employ 37% of the national workforce. Provision of financing - the LDDK's revenues have risen by 30% compared to its revenues in 2008. The LDDK has a 92% success rate in meeting the budget revenue forecast for 2009. The budget shortfall is due to overdue and unpaid membership fees, as well as foreign projects.

activity timetable changes. European Social Fund financing was secured by the LDDK for the development of the social dialogue regionally and to support business activity in the realm of labour relations and occupational health and safety. In 2009, in spite of the prevailing financial difficulties, the business community actively supported the LDDK's initiatives. Revenues from initiatives exceeded the forecasts for 2009 by 200%. Ensuring effective and quality process management within the organisation - according to the LDDK's members, membership of the organisation and public recognition are one of the most important factors of the organisation's reputation underlining the successful and visible results of the LDDK's work. Members that use the website: www.lobijs.lv, are satisfied with its quality, as well as the personnel offering advice. The activity of members and their involvement in the solution of issues have increases, as confirmed by the results of their joint work. Improvement of services provided - quantitative and qualitative results from internet website users have improved, visits to the LDDK's homepage have increased by 1,816 and the number of users of the members' website has risen by 25%. Currently, 50% of all users are active users. LDDK conferences (3), seminars (44), experience exchange events (9), initiatives (9).

"62.4% of all proposals

made were taken

into account"

Results achieved through issues relevant and proposed to LDDK members

51

60 50

%

40 30

41 24

20

31

2008 2009

11

20 10 0

Desired result achieved

Result partly achieved

No result

"The LDDK's members

employ 37% of the

national workforce."

The main body of the LDDK Council at the start of 2009

6


PREDICTABLE BUSINESS ENVIRONMENT

for stabilization of the economy and sustainable business After the global financial crisis of 2008, 2009 was spent discovering the scale of the resultant losses. A decline in GDP is forecast for the first two quarters of 2010. The previous state growth model is no longer practicable; a new one has to be found. Fiscal sustainability is required for a successful recovery from the decline in GDP. In turn, the strategy for economic recovery must be based on stringent discipline, reforms and investments. The primary task of Latvia's Strategic Development Plan should be to ensure coordinated action aimed at providing simultaneous support for fiscal sustainability, growth and the creation of new jobs. This means that investments must be provided for new skills, technologies, infrastructure and business development. The economic stabilization and growth renewal programme for Latvia drawn up by the government will be successful if structural obstacles to growth at national level are removed. Latvia's potential in this regard is a prerequisite for the restoration of fiscal sustainability. However this requires a firm commitment on the part of policy makers to implement the necessary reforms and to persuade the public about their benefits.

GDP dynamics (2004 = 100) 140

Most optimistic scenario

130 120 110

Most pessimistic scenario

100 90 2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: Ministry of Economics 2009

Hungary

Denmark

Estonia

Bulgaria

Italy

Sweden

Poland

Finland

Austria

Germany

Cyprus

Belgium

Malta

Portugal

Netherlands

France

Lithuania

Czech Republic

Slovakia

Luxembourg

Slovenia

Romania

Spain

Latvia

Great Britain

Ireland

Latvian Association of Local and Regional Governments Chairman A. Jaunsleinis, LDDK President V. Gavrilovs and Free Trade Union Confederation of Latvia Chairman P. Kr朝gers agreed on joint demands for the Cabinet for speedy, intensive and responsible action to improve economic activity and save jobs.

Greece

Lack of sustainability (% from GDP)

Lack of fiscal sustainability

Source: European Business Confederation (BUSINESSEUROPE), in reference to the European Commission's Sustainability Report for 2009

Cumulative GDP decline during currency crises 0

Thailand

Argentina

Indonesia

Latvia

-5 -10 -15 -20 -25 -30 -35 -40 Source: International Monetary Fund and Bank of Latvia data at the end of 2009

7

STRUCTURAL REFORMS -

an instrument for macroeconomic stability As a social partner, the LDDK regularly meets the international lenders to discuss the situation in commerce. The LDDK will also continue its discussions with the international lenders in 2010, based on the changes and recommendations mentioned in the international loan cooperation memorandum. In its awareness that the state has undertaken international loan obligations which stipulate the consolidation of the state budget by 2012 by another 900 million lats, in 2010 the LDDK will continue its work to guarantee macroeconomic stability.

To ensure macroeconomic stability,

structural reforms must be implemented with the goal of

balancing state budget costs with revenues.


The government's challenge is to learn to live in accordance with its means, by reducing costs and creating a small, professional and effective executive government model, and preserving socially important functions such as: preservation of life, health, social security and order, children's and youth education, minimum necessary market regulation and supervision, stimulation of economic growth, encouragement of economic competitiveness (LDDK letter to the State President in 2009).

"The government's challenge is to learn to live

in accordance with its means" In 2009 structural reforms are understood to mean mechanical cutting of salaries and costs within executive governmental bodies. Therefore, there is opposition within the civil service to changes. A tendency for self-preservation and the artificial "inflation" of the significance of functions prevails, while politicians cannot bring themselves to forsake functions that are nonessential for the state. As a result, state budget resources are used profligately and executive government continues to operate inefficiently. RESULTS ACHIEVED IN 2009 Participation in the Functional Audit Commission and its working groups to make it possible for the state to carry out its functions prudently and to leverage the support of the private sector both in conducting procurements, and in delegating functions or using outsourcing. The biggest national level organisation and tax payer groups - social partners: Together with their social partners - the LPS and LTRK, the LDDK and LBAS made proposals for subsequent work on the commencement of structural reforms and agreed on proposals for amendments to the 2009 state budget. Together with its social partners, the LDDK presented principles on how to form the macroeconomic frame for 2010-2012 and the 2010 budget to the Reform Management Group convened by the Prime Minister, stressing that the process must be linked to the implementation of the National Development Plan and the Latvia 2030 Strategy. LDDK asked the public to take an active involvement in the public survey "Devote 1/2 hr to Latvia". Thanks to the active support of the media and social partners, the questionnaire drawn up by the LDDK attracted a considerable response from the public, drawing 5091 interested participants who fully or partly evaluated the functions of executive government. Following the example set by the LDDK, the State Chancellery sought to listen to public opinion via a special reforms handbook and began developing technological solutions for the assessment of the aforementioned functions.

5091 interested persons took

part in a public survey "Devote 1/2 hr to Latvia" organised by the LDDK

The survey was markedly dominated by two viewpoints, firstly, that the implementation of functions should be continued by executive government albeit on a reduced scale and secondly, that implementation of functions should be entrusted to the private or non-governmental sector. In the autumn, the LDDK declined to support the 2010 state budget package prepared for a second reading, because it contained proposal for the implementation of many economically unfavourable measures. TASKS FOR 2010 Given that in 2010 the Latvian economy could return to its 2004 level, active steps need to be taken resulting in the reduction of public spending, concurrently preserving the socially most important functions. Commencement of work on measures to restrict and curtail the shadow economy. The LDDK will make proposals for preparation of the 2010 state budget control and supervisory procedural overview and the 2011 state budget. Intensive work on further evaluation of governmental functions is planned for the second and third quarters of the year, on the basis of which the Ministry of Finance will prepare proposals by October for the fiscal consolidation due to be implemented in 2011 and 2012. Analysis of the functions and services provided by governmental bodies, as well as the corresponding costs - ascertaining whether the provision of the relevant public services should be continued, suspended or entrusted to providers of outsourced services. Implementation of further public governance reforms must be carried out by the third quarter. This entails work on the Fiscal Responsibility Law where the goal is to establish a binding medium term budget frame by setting the number of budget amendments for the year and defining fiscal provisions to improve the introduction of the budget. Continuing work on banking sector stabilisation measures. Reviewing the processes for debt restructuring and issued guarantees. At the same time, work must be completed on the Insolvency Law during the half of the year.

LR State President Valdis Zatlers and the management of the State President's office met with the LDDK President, Vice-Presidents and Director-General.

8


The shadow economy

economy - the role of tax policy in ensuring honest competition", in which subsequent action was agreed to reduce the shadow economy:

The decisions made in order to consolidate the state budget which resulted in sudden changes to taxes and duties, not only caused risks, but also provided a serious impulse for an upsurge in the shadow economy. Currently, nationally our shadow economy causes 5.127 billion euros (3.6 billion lats) of damage (latest study from A.T.Kearney). And is our welfare comparable to that of OECD nations? 45.0

OECD 38.2

40.0

Global survey 39.4

LDDK President Vitālijs Gavrilovs and Saeima Chairman Gundars Daudze at the seminar "Honest commerce against the shadow economy - the role of tax policy in ensuring honest competition

35.0 30.0 25.0 20.0

OECD - 15.5

VID - 16.0

15.0 10.0 5.0 0.0 Shadow economy proportion within the 25 most developed OECD countries - 15.5%

39.4% of Gross Information from the Latvia according Domestic State Revenue to OECD data Service (VID) average shadow Product (GDP) A.T.Kearney in December economy indicator 2009 - 16% 38.2%

Source: CSP data in 2009, OECD report, A.T.Kearney study, www.vid.gov.lv

Given that the formation of the budget in 2011 and 2012 will require its consolidation by almost 500 million lats, it is clear that a further increase of the tax burden will either increase the proportion of the shadow economy, with the result that it exceeds the 40% barrier in 2010, or force economically active residents to quit the economy and transfer their operations to countries that are economically more stable. From a budgetary perspective, increasing the tax burden and reducing costs will reduce the population's motivation to pay taxes. The situation is made even worse by increasing dishonest competition in which honest payers are forced to compete with tax evaders.

"A further increase in the tax

burdenwill significantly increase the size of the shadow economy"

The LDDK has achieved a consensus that the shadow economy is a serious obstacle to the recovery of the state economy, but even so there are justified concerns that there is no such consensus regarding how to overcome this obstacle. The state must motivate tax payers to pay taxes voluntarily in order to not only keep the shadow economy at a manageable size, but also to curtail it. This can be achieved by: 1. Setting clear and understandable requirements and tax imposition terms and conditions, and by agreeing on a predictable tax policy; 2. Ensuring positive cooperation with the tax administration, ensuring transparency of taxes and honest and useful usage of tax revenues.

improvement of the public procurement procedure the LDDK has prepared proposal regarding amendments to the Public Procurement Law which stipulate that henceforth those enterprises will be supported which make the due payments into the budget from the employment salaries calculated for employees; improvement of the legislative base for use in joint agreements in order to protect honest market participants - the LDDK succeeded in ensuring that the new amendments to the Labour Law stipulate significant changes to the provisions regulating when sectors can conclude general agreements. carrying out changes to tax policy, to assess their impact on commerce - the LDDK has agreed with the Bank of Latvia and other partners regarding the necessity to carry out tax modelling to develop an alternative mathematical and dynamic tax modelling system. TASKS FOR 2010 Measures aimed at the reduction of the shadow economy based on optimising tax policy and the system must be directed so that it is more advantageous for enterprises to pay taxes than to be in the shadow economic zone. To ensure state budget revenues, the size of the shadow economy must be significantly reduced. The LDDK will continue to implement the agreement concluded with the the Saeima, stipulating work on the following issues: to make proposals to the Ministry of Finance's working group on reduction of the shadow economy, based on solutions put forward by industry associations; to continue work on the fulfilment of the agreement concluded between the LDDK and Saeima on reducing the shadow economy, also taking the recommendations of international lenders into account regarding the necessity for reforms to address the issues of overlapping and efficient public procurements.

RESULTS ACHIEVED IN 2009 On 14 December 2009, in partnership with representatives of the tobacco and alcohol retailing, waste management, cleaning service, construction and dairy sectors, the LDDK organised an educational seminar for deputies from the Saeima. On 21 December, the LDDK and Saeima signed a concluding document "Honest commerce against the shadow 9

Deputy Chair of the Saeima Solvita Āboltiņa and LDDK Director-General Elīna Egle sign the concluding document on further cooperation "Honest commerce against the shadow economy - the role of tax policy in ensuring honest competition"


Tax policy must provide a vision of Latvia's competitive advantages Changes that made the operation of enterprises easier: As a result of tax changes, taxation on all types of income is balanced out. The decisions made in the realm of taxes and duties in 2009 will create a range of additional costs for enterprises from 2010. Tax policy must be directed from coverage of the workforce with taxes to coverage of consumption and property with taxes. A profile of Latvia's tax system

Slovakia

Romania

Latvia

Lithuania

Ireland

Greece

Estonia

Malta

Bulgaria

Poland

Great Britain

Portugal

Luxembourg

Spain

Czech Republic

Slovenia

Netherlands

Hungary

Germany

Austria

Cyprus

Italy

Finland

France

Belgium

30.5

Sweden

Denmark

Tax % from GDP

Tax burden within EU member states (2007)

55 48.7 50 45 40 35 30 25 20 15 10 5 0

According to this table, the proportion of taxes collected in Latvia in relation to GDP is comparatively low which leads to the hypothesis that the proportion of the shadow economy in Latvia is quite high. Source: LR Ministry of Finance - 2007, with reference to European Commission data

"The LDDK was instrumental in ensuring that there was no increase in either value added tax or social security contributions" CHANGES IN TAX POLICY IN 2009 Practically all tax rates were increased, concurrently expanding the taxable base. Parallel to this, all previous tax breaks in force have been reduced. In relation to corporate income tax, this affects coefficients with costs unrelated to commercial activity and an increase in the non-deductable part of representation costs. Changes that increased an enterprise's costs: workforce costs: The personal income tax rate was increased from 23% to 26% (for self-employed persons it rose from 15% to 26%). making capital taxable: capital growth will also be taxable at a rate of 15%, and at the same time also a further 10% tax has been introduced on revenue from capital, which is not capital growth; changes in application of VAT: given the rapid changes in VAT legislation in relation to the application of VAT ambiguities can be expected in the application of tax on inter-state services, selection of the tax rate, declaration of tax and in cooperation with tax payers from other countries; new taxes and duties have been introduced, currently expanding the current base, including on company cars. Increased real estate tax rates, and making buildings taxable. An important increase in the rate of car duties. Increased excise tax rates for natural gas, cigarettes and alcohol; Justified expense amounts are being reduced, including a reduction in deductable pre-tax on representation costs, that apply to VAT.

changes in application of VAT: there have been some positive changes in regard to the application of VAT. The ongoing debate about the necessity to introduce optional norms which has dragged on for a number of years now and which included promises to introduce such norms back in 2007 has concluded. The corresponding decision was made and became effective on 1 December 2009. Accordingly, from the time when the norm came into force employers have had the chance to choose to form a VAT group and special system for VAT payments on imports, as well as a pre-tax correction in the area of recovering bad debts, thus making significant savings, reducing the amount of taxes to be paid into the budget and improving their cash flow; VAT administrative procedural relief: The deadline for submission of VAT declarations and tax payment term has been extended by five days. In turn, small enterprises will be able to apply a cash register principle in regard to VAT payments; overall, the relief provided in regard to the requirements for documents certifying transactions is also praiseworthy, since it revokes the requirement to use mandatory waybills with numbers issued by the VID. However, the repeal of such requirements does not mean that waybills will not be required in future. Amendments have already been prepared to the Cabinet Regulations which regulate how bookkeeping documents are to be drawn up and used and stipulate new requirements in regard to corroborative documents.

TASKS FOR 2010

Back in 2008 when the Latvian government signed a cooperation memorandum with the international lenders, it was decided that all Cabinet decisions or other decisions with a fiscal impact, including in regard to social security or any kind of guarantee scheme would have to be approved by the NTSP before their announcement. In 2010, the LDDK will continue its work making proposals on how to ensure financial stability based on the tasks stipulated in the cooperation memorandum concluded between the Republic of Latvia and the international lenders: at the end of the first half of 2010, proposals must be prepared for the long-term reform of tax policy, laying the foundation of a tax policy favourable to commerce and creating a predictable tax policy environment; continuation of real estate tax reform; clarification of the procedure for the application of vehicle tax, ensuring the collection of this tax. To stabilize the Latvian economy, in 2010, GDP must not fall by more than 3.4%, unemployment figures must remain within reasonable limits not exceeding 15%, the state budget deficit must not exceed 8.5%, and the government must do everything possible to ensure that accession to the eurozone takes place at the earliest opportunity. In paying taxes, tax payers fulfil their obligations to the state which in turn gives them every right to expect transparency and open communication from the state about how these tax revenues are spent. Dawn Strategy goals GDP (%)

Employment (%) R&D (% of GDP)

State budget deficit (%) Euro introduction

2010

2011

2012

2013 -2015

65-67

68.5

69.8

-3.4%

+1.5%

0.7

0.9

63-65 8.5

6

+3% 1 3

+5% 1.5 0

on 1 January 2014

Source: Effective Administration and Partnership Forum organised by the LDDK and State Chancellery

10


SME cooperation platform united for the introduction of the "Small Business Charter"

In 2009, the LDDK received support from 23 associations representing small and medium-sized, as well as micro enterprises across Latvia regarding the necessity for joint action to develop of SMEs and facilitate the availability of financial resources, which was certified by the signing of a Cooperation Memorandum. The following quantitative criteria have been set for the achievement of the memorandum's goals: An increase in the number of enterprises per 1,000 residents to 40 in 2010; Facilitation of a 10% increase in 2010 in the number of newly-established enterprises in relation to the enterprises registered during the previous period; A 30% reduction in 2010 in the number of liquidated enterprises out of all registered enterprises. Courses of action implemented by the SME platform for the introduction of the European Charter for Small Enterprises in Latvia: Development and introduction of the concept for support measures for micro enterprises; development and introduction of the 2010 plan of measures for the improvement of the business environment; participation in the introduction of micro-financing instruments. RESULTS ACHIEVED IN 2009 Given that an agreement was reached at last autumn's National trilateral cooperation meeting stipulating that the draft legislation "On Micro Enterprise Tax" drafted by the Ministry of Finance should come into force from April 2010, intensive work on the preparation of proposals is taking place on the SME platform. Administrative obstacles and costs for micro enterprises have been reduced - several important changes have been made to legislation, such as, for example, the introduction of patent charges for a specific range of professions; VAT administration relief (increasing the VAT threshold) and in the submission of annual reports for a certain category of enterprises; reduced state duty on UR registration and signature certification for micro enterprises; and amendments to the programme of micro-loans for Small and Medium Enterprises. Support to make financial resources available - with the support of the LDDK, the SME is working on the introduction of a Swiss financial instrument in partnership with the Ministry of Finance and Latvian Mortgage and Land Bank, and with the Ministry of Welfare within the framework of the European "Progress" microfinancing instrument.

"Reduced administrative obstacles and costs"

TASKS FOR 2010 To ensure that the draft law "On Micro Enterprise Tax" comes into force during the second quarter of 2010. To facilitate the speedier implementation of the measures incorporated within the Concept for Support of Micro Enterprises and other corresponding legislation: amendments to the Commercial Law, reducing SIA share capital requirements and registration costs; introduction of a fixed tax for micro enterprises; simplification of registration, accounting and tax declaration requirements. To provide bigger and more effective involvement of SME platform member organisations in the improvement of the legislative environment for business, and to recruit new organisations to join the platform. To facilitate the adoption of best practice and to facilitate cooperation to improve the operation of SMEs in cooperation with the LDDK's foreign partner organisations.

Tax policy for restructuring of the economy All state support instruments must be based on the prepared tax policy, also including tax breaks or reduced tax rates. RESULTS ACHIEVED IN 2009 In 2009, the LDDK decided that, given the depth of the crisis and limited availability of financial resources, priority sectors must be specified nationally. This decision is in line with the study of priority sectors conducted by the Bank of Latvia in March 2008. In the Bank of Latvia's study, in order to identify the sectors that would facilitate the country's move towards the production of highest value added products, certain criteria were set including export potential, the significant contribution of priority sectors to date in increasing the level of added value nationally and the presence of a small industrial base so that overly large resources or too much time are not required for the development of knowledge in some fundamentally new sector.

Economic Council Chairman, LDDK Vice-President J. Biķis, Finance Minister E. Repše and Economics Minister A. Kampars sign the cooperation memorandum on modelling the impact of tax policy changes.

By way of a response to the decision of the LDDK's Council, the Ministry of Economics prepared an information bulletin on the economic recovery in the medium term which the Cabinet received in September 2009. The report identified priority segments such as competitive enterprises with high growth and export potential and recycling industry sectors with a significant contribution to the growth of added value and exports, as well as high future growth and export potential. TASKS FOR 2010

11

LDDK Vice-President A.Vīksna also invites people to sign the SME cooperation memorandum.

Given the limited availability of state budget funds to provide state support for a wide range of sectors; an agreement must be reached on sectors of strategic importance nationally which will receive support from the state with the aim of reviving competitiveness and growth.


European Union structural funds

Monies from the European Union (EU) funds must be invested in the economy in a targeted and rapid way, by simplifying and speeding up receipt of EU funds and removing obstacles to business development. The EU is planning a programme that will grant member states greater flexibility (up from 2% to 10%) in the use of structural funds in financial crisis conditions. The changes proposed by the EU also apply to the extension of deadlines by which EU states have to use up funds allocated for the 2000 - 2006 financing period and ensure that all available funds will be used as effectively as possible. This flexibility will provide member states and regions with the opportunity to implement and complete more current projects. The EC is encouraging member states to focus on the most viable sectors and measures, for example. through investments in energy efficiency for the creation of "green" jobs and to save energy, as well as to support clean technology with a view to stimulating the construction and car production sectors. RESULTS ACHIEVED IN 2009 In 2009, the LDDK was a member of a working group reviewing EU structural funds which had been given the task of assessing the suitability of programmes to the economic situation and their contribution to the economy. Reduction of the administrative burden related to the introduction of EU funds, e.g. reduction of the review term for payment applications from 60 to 20 days, and changing the frequency of the submission of reports from once quarterly to once every six months. Several important decisions were made in the working groups regarding the distribution of financing and additional financial instruments were also created to provide support for business. However, after the Ministry of Finance has adopted all of these decisions; there is still a significant time lag until their introduction. The time lag is exacerbated by the differing viewpoints of ministries representing various sectors. And it is this intermediary stage, during which the ministries do not have a unified approach, that the biggest obstacles are encountered when it comes to securing funding. TASKS FOR 2010 Work is continuing on measures to simplify the receipt of EU structural funds: simplifying the procedure for making amendments to projects, applying a constant indirect cost rate, giving merchants the additional option of receiving additional payments paid to commercial bank current accounts, simplifying and speeding up the procedure for preparing declarations, introducing consistency to the verification of documents corroborating payments, conclusion of contracts for the implementation of projects, etc. Work is continuing on resolving the issue of attracting a co-financing share so that the private sector can secure the funds allocated in EU structural fund projects. The LDDK will make proposals regarding noncompliance with the principle of proportionality, in controlling those responsible for implementing projects.

Regulations regarding ERDF funding within the framework of the Commerce and Innovation Action Programme must be ratified. The international lenders have insisted that the funding available from the EU and other international partners must be secured faster.

"Funding must

be secured faster"

A business-conducive infrastructure During 2007-2013 planning period, EU fund support will be primarily directed towards education of the population, technological excellence and flexibility of enterprises, as well as development of science and research to promote the formation of a knowledge-based economy nationally and to consolidate other necessary pre-conditions for the development of a sustainable economy and the sustainability of people's lives in Latvia as a whole. Securing EU funds was made more difficult in 2009 by the limited availability of financial resources and the provision of state cofinancing, carrying out the consolidation of the state budget in the middle of 2009. Given the economic slump and reduction in building costs which continued during 2009, one of the most important core directions of economic activity is the construction and upgrading of necessary state infrastructure, using European structural fund co-financing. The most important tasks in 2009 were to ensure that co-financing from the state budget remained at the existing level and that the legislative environment within the construction industry improved TASKS FOR 2010 To ensure that business-conducive EU funds are secured which are provided for the improvement of infrastructure, upgrading of energy efficiency and the creation of new jobs. Fulfilment of the goals required to secure EU funds provided for the improvement of Latvia's roads, given the availability of funds saved in 2009. Development of draft legislation regulation the construction industry to simplify and speed up the development of construction projects, consequently improving the ranking of Latvia's construction industry in the World Bank's "Doing Business" survey from 78th place in 2009 and 2010 to 73rd place in 2011. Introduction of the one-stop agency principle and eservices in the provision of state and local government services to the business community. The LDDK will continue its work to persuade international partners and decision-makers in Latvia about the vital role of public and private partnerships in the implementation of structural reforms and the revitalization of the economy.

"Introduction of the one-stop

agency principle and e-services" 12


The power industry and the environment RESULTS ACHIEVED IN 2009 Europe's energy policy goals ratified in 2009 set a target of a 20% reduction in greenhouse gas emissions by 2020 and stipulate that 20% of the end energy consumption balance must be made up of renewable energy and that future demand must be reduced by 20%. In other words, these targets aimed at energy efficiency oblige Latvia to make the corresponding changes to its national legislation. In 2009, the main operational directions in Latvia's energy sector were related to obtaining clearance from the European Commission for the Cabinet's regulations regarding electricity production capacity payment tenders and to changes to the legislative regulation of the use of renewable energy resources. The obligations undertaken by Latvia as an EU member state, and which arise from European Parliament and Council Directive 2009/28/EC on the promotion of the use of energy from renewable sources with the goal of achieving a 40% share of energy produced from renewable sources in gross final consumption of energy in 2020, point to an improvement in the legislative environment. Achievement of this mandatory figure will demand additional energy from energy policy makers and entrepreneurs, as well as a shared understanding on the development of energy policy in Latvia that may also have an impact on energy resource costs in the near future. At the same time, work must continue at governmental and corporate level on the improvement of technologies and the energy efficiency of buildings, leveraging cofinancing from EU structural funds. The LDDK is working together with the Economics and Environment Ministries to ensure that structural fund financing available and secured from the sale of existing state-owned emission quotas is not only allocated for the construction or upgrading of energy production and transmission sites, but also for improving the energy efficiency of end consumers - production plants. 2009 also highlighted anticipated changes in the waste management field as the Ministry of the Environment prepared draft waste management legislation that would promote competition among service providers. TASKS FOR 2010 To support the drafting of the necessary legislation in the field of energy and renewable energy resources. To ensure an increase in competition among service providers within the framework of the draft waste management legislation. To prevent the adoption of an ineffective packaging management regulation. To promote a dialogue with entrepreneurs about the establishment of a deposit system. To promote the availability of co-financing from European structural funds for the implementation of energy efficiency measures within manufacturing enterprises. 13

LDDK Energy and Environment Platform To implement sustainable energy policy, ensuring the competitiveness of Latvian enterprises and improving energy efficiency, in 2010 in partnership with industry associations, the LDDK invites representatives of leading companies and industry experts to become actively involved on the Energy and Environment Platform. The LDDK will prepare recommendations for decisionmakers regarding the following issues: The impact of the Latvia's energy development vision on business in the long-term (analysis of documents): Latvia's Energy Guidelines for 2007-2016 and Latvia's Sustainable Development Strategy; development of the electricity base capacity within the region; electricity market analysis - benefits and obstacles arising from the establishment of a common electricity market in the Baltic States; renewable energy resources - recommendations of means of achieving Latvia's national target - 40% of renewable energy resources in the balance of primary energy resources - by 2020, as well as a review of the Renewable Energy Resource Usage Guidelines for 2006-2013; "Energy efficiency" - recommendations regarding investments today, achieving competitiveness in the long-term, for example, investments in the energy efficiency of manufacturing buildings to achieve heat and electricity savings; given that vehicle fuel makes up approximately 30% of Latvia's total energy consumption, an assessment of the fulfilment of EU mandatory requirements will be conducted in regard to 5% bio additives (rapeseed oil and ethanol) for vehicle fuel.

"Sustainable energy

policy must be

implemented"


EMPLOYMENT

A favourable business environment, restoration of competitiveness and security for investments cannot exist without social peace, the loyalty of employers to employers and public support for the creation of both material and non-material values. Rising unemployment gives rise to the risk of poverty and social instability. At the same time, this gives people a chance to improve their qualifications and to become more competitive in the labour market in future, as well as to implement their business ideas.

"This gives people a chance to improve their qualifications and to become more competitive in the labour market in future"

Latvia's tax system does not promote employment 90 80 70 60 50

Malta

Cyprus

Greece

Estonia

Austria

Great Britain

Czech Republic

Romania

Ireland

Finland

Germany

France

Poland

Sweden

Italy

Hungary

Bulgaria

Portugal

Lithuania

Netherlands

Lattvia

Slovenia

Belgium

Denmark

30

Slovakia

40

Luxembourg

Marginal tax assessment (2008, %)

The conditions of the economic slump have prompted the social partners to review the commensurability of the security and flexibility indicators of employment legal relations. In the context of the flexibility of its employment legal relations, in the World Bank's "Doing Business" survey country rankings, Latvia occupies an unfavourable position when it comes to attracting investors and the competitiveness of its enterprises. The social dialogue aimed at improving labour relations based on mutual understanding and share responsibility must be continued. Increased flexibility will not only attract investors and create jobs, but will also reduce the figures for undeclared employment and increase social security. The demand for labour and improved employment figures are linked in the most direct way possible to the economic situation in global markets and the business environment nationally. The current situation is unfavourable for the Latvian labour market.

The tax system in Latvia does not promote employment (2008 data). Source: European Business Confederation (BUSINESSEUROPE), based on Eurostat data.a

Social security

Prudent and timely made decisions about social policy nationally, as well as its implementation will make it possible to provide social security system support for those who need it most, and the sustainability and predictability of a social budget for those who invest in this system by making tax payments. The basic principles recommended by the Organisation for Economic Cooperation and Development (OECD) for overcoming the crisis are as follows: to focus on employment, focus on the most vulnerable members of society, provide support for education and training, ensure mobility and a favourable migration flow, promote commerce, and a sustainable understanding of employment and environmental protection - green

jobs, social dialogue, openness and a sense of responsibility, and opposition to any form of labour market protectionism must dominate the long-term vision. RESULTS ACHIEVED IN 2009 Together with the Ministry of Welfare and State Employment Agency, the LDDK has worked to ensure the introduction of active employment measures in practice, thus ensuring that people out of work and those facing the risk of redundancy have the chance to receive advice on how they can improve their careers and take part in qualification-improvement events and programmes. To reduce the negative impact of unemployment on society and to create preconditions for the improvement of employment indicators, the LDDK presented its vision during the drafting of the Social Security Net Strategy and Undeclared Employment Reduction Plan;

Every effort must be made to save jobs and create new ones. Given the risks posed by the declining size of the population, a migration policy must be drawn up that provides measures to negate the causes of emigration, to create the preconditions for reemigration and to attract the necessary specialists to the Latvian labour market. In 2009, the LDDK drafted amendments to the Immigration Law which were aimed at simplifying the issue of residency permits to foreigners who want to invest and promote business in Latvia. Until now, these amendments have provoked heated debates among Saeima deputies and within society. The amendments to the Immigration Law would not solve the growing pile of economic problems, but they would confirm Latvia's interest in attracting foreign investments and boosting business activity. TASKS FOR 2010 Reducing the risk of unemployment and saving jobs active leveraging and improvement of the programmes offered by the State Employment Agency (for those who are in part-time employment, face the risk of being made redundant, or are out of work, etc.). Promotion of more effective management of the sustainability and financial resources of the state social security special budget. Improvement of the operation of state-funded pension schemes progressing towards adequate pensions. Supervision of maternity and sickness insurance, state social security in case of unemployment and state social security against accidents in the workplace and occupational illnesses. Involvement in the development of social assistance (material support and social assistance services). Expansion of the functions of the NTSP Social Security Sub-Council to cover children's and family affairs, as well as for coordinated resolution of integration issues. Adaptation of the social system and policy in line with demographic trends. Work must continue on negating the inflexibility of the labour market and the flexible security approach. Social security must be provided that will promote employment and the desire to work. To achieve immigration policy relief with a view to attracting investors, students and qualified specialists (issue of five year residency permits). 14


A quality professional and higher education partnership in innovation and research The competitiveness of Latvian enterprises and revitalization and growth of the economy depend on the quality of human resources which in turn must be provided by an astute education policy. Individual competitiveness within the labour market largely depends on people's chances of getting a good education and the qualifications required for the labour market. ACHIEVEMENTS IN 2009 Professional education: After several years of work, the LDDK has attained its first results within the Professional Education Institution Network optimization programme thanks to the combined efforts of representatives of industry associations and the NTSP Professional Education and Employment Trilateral Cooperation Sub-Council (PINTSA). The goal of the optimisation is to promote the transparency of education institutions and a financing procedure for professional education institutions that society understands, as well as compatibility of the professional education programme with the requirements of the labour market; "Increasing the appeal of professional education and participation of social partners in ensuring the quality of professional education" is a concept promoted and coordinated by the LDDK and ratified in 2009. The concept incorporates the LDDK's proposals which describe the mechanism to ensure the optimal involvement of employers in professional education processes; The LDDK is continuing work on the provision of training and qualification practices by promoting cooperation between educational institutions, organisations representing employers in various industries and professional associations, as well as leading entrepreneurs; work continues on developing standards for a number of licensed professional education programmes; Cabinet Regulations for sub-activity 1.2.1.1.1 "Improvement of National Qualification System, Vocational Education Contents Restructuring" have been improved. Higher education and innovation Innovative business is based on three cornerstones: a qualified workforce, the ability to convert knowledge and ideas into innovative solutions, as well as the ability to protect and profit from these innovations.

"Competitiveness within the labour market depends on opportunities to

Work continues on the Higher Education Law aimed at ensuring that higher education becomes internationally competitive. In 2009, the higher education and science reform group led by the Ministry of Economics continued to work on the preparation of an informative report on the structural changes required in higher education and science. Support for training: support for industry associations in harmonisation of the criteria for sub-activity 1.3.1.1.1 "Support for employee training to boost the competitiveness of merchants support for training programmes organised through partnerships" under development"; support for enterprises in the harmonisation of the criteria for sub-activity 1.3.1.1.4 "Support to training for employed for enhancing competitiveness of enterprises support to individually organized training by enterprises". TASKS FOR 2010

Within the framework of the ESF financed project, to commence the process of studying sectors and analysing the development and competences of human resources in order to develop qualification structures for these sectors. Ensuring that the existence and work of industry experts' councils are stipulated within the new Professional Education Law. To ensure the involvement of employers in the assessment of the level of results of higher education and professional education study programmes by increasing the number of experts delegated by employers to take part in the accreditation and quality assessment process. To ensure the introduction of a financing mechanism for state budget financed higher education study places, in cooperation with the Higher Education Council, Rectors' Council and Ministry of Education and Science. To achieve speedier adoption of the Higher Education Law to improve the quality of higher education and international competitiveness. To propose tax breaks for employers' contributions to innovation and investments in the education, further education and qualification upgrading of employees. To participate in the optimisation and improvement of the professional education institution network. To participate in improving the quality of professional education and higher education programmes. To ensure the development and introduction of the aforementioned projects in order to achieve the qualitative goals designed to improve professional education.

acquire a good education"

15

300 250 200 150 100 50

Poland

Lithuania

Slovakia

Bulgaria

Latvia

Estonia

Greece

Czech Republic

Portugal

Cyprus

Hungary

Malta

Spain

Slovenia

Italy

Ireland

France

Great Britain

Austria

Belgium

Denmark

Netherlands

Finland

Luxemburg

Sweden

0 Germany

No. of EPO patent applications (per million inhabitants, 2006)

Latvia has one of the lowest totals of registered patents in the EU

Source: European Business Confederation (BUSINESSEUROPE) based on Eurostat data.

The LDDK is a long standing cooperation partner of the Junior Achievement of Latvia Shadow Days


Increased productivity in relation to competitive remuneration The remuneration fund within the public and private sector is getting smaller, reducing purchasing power. The remuneration fund within the private sector has been reduced by 22% largely on the basis of redundancies, but competitiveness has improved, because enterprises have reviewed their work organisation, based on changes within the market and consumer demand. Reforms have been carried out within the public sector by optimising costs and not paying enough attention to the needs of the population, thus giving rise to the risk there will be a reduction in the availability of specialists for positions within executive government. It is important to set public administration salary systems apart from those in public sector capital companies, because the goal of public administration is to carry out policy formulation and supervisory functions, whereas public sector capital companies provide strategic services or produce products that make a significant contribution to the state budget or provide important social functions. Therefore salary systems that are fair, commensurate with the labour market offering and internationally competitive in industry terms must be created for public sector capital companies which conform to the aforementioned criteria.

Best Employer in the Region This year's competition to identify the "Best Employer in the Region" was held in partnership with the LPDDA, State Revenue Service, State Labour Inspectorate and industry and regional employers' organisation, honouring the most enterprising and socially responsible employers in Latvia, highlighting the importance of the employers and their contribution to regional development and promoting employment.

"The contribution of employers to

promoting employment

has been appreciated"

A/S Latvijas Finieris was deemed to be the best employer in the Riga region, while the metal product design and production company SIA Valpro was recognised as the best employer in Vidzeme, in the Kurzeme region the award went to SIA Ventamonjak serviss, in the Latgale region it was awarded to SIA Daugavpils autobusu parks, and in Zemgale - it went to construction company SIA Ĺ lokenbeka.

The annual pace of change for nominal workforce costs and its components (contribution; percentage wise)

60

60

40

40

20

20

0

0

-20

-20

Hourly productivity (real)

-40

-40

Man hours

1. 2. 3. 4. 1. 2. 3. 4. 1. 2. 3. 4. 1. 2. 2006 2007 2008 2009

Inflation Unit workforce Cost (real) Workforce costs (nominal)

The LDDK is working on legislation to ensure that obstacles do not arise as the private sector takes over the functions of the state and provides outsourced services, as well as engaging in the restructuring of public capital companies.

The LDDK congratulates the Best Employers in Zemgale and Latgale

"It is important to set public administration remuneration

systems apart from those

of public sector capital

companies"

The LDDK congratulates the Best Employer in Kurzeme - SIA Ventamonjaks serviss

16


Labour rights and labour protection for productivity Labour rights Simplification and reducing the number of legislative requirements applicable employment rights and labour protection will make the daily work of employers easier. RESULTS ACHIEVED IN 2009 After four years of intensive work on amendments to the Labour Law, the LDDK in cooperation with the LBAS has succeeded in securing significant relief for employers and employees.

"Significant relief for employers

and employees has been secured"

The shadow economy will be curtailed To reduce non-registered employment, the amendments stipulate clarification of the provision regarding the conclusion of employment contracts, specifying that an employment contract must be concluded in writing before an employee begins work. And upon discovering a situation in which an employer fails to ensure the conclusion of an employment contract in writing and an employee cannot prove that he is employed by the aforementioned employer, the regulatory bodies will assume that he has contractually agreed to standard working hours and the minimum monthly salary. Penalty sanctions will come into force dependent on the case under consideration. To prevent a situation in which dishonest employees who have committed violations continue to work and the employer in question is not entitled to give notice in regard to the employee's employment contract, the law stipulates that the term in which an employer can give notice in regard to an employment contract is extended to twelve months from the day on which a violation is committed. Increased protection for employers against dishonest employees To resolve the problem related to dishonest employees who are absent from work on a long-term basis due to passing invalidity, amendments were made to several section that specify an employer's rights to give notice in regard to an employment contract. These amendments do not affect maternity leave, nor invalidity due to an accident in the workplace or occupational illness. During the past couple of years, employers have regularly complained about cases in which employees have used unpaid vacations to go and work abroad. Upon their return, the employee visits the employer and asks to be awarded his annual paid vacation which, of course, he is undeniably entitled to. In this instance, the employer is in a no-win situation - the employee has done the work, but wants to receive the guarantees. To avoid such dishonest practice, amendments have been made - unpaid vacations lasting over four weeks a year will no longer be included within the time that entitles an employee to annual paid leave. 17

Reduced administrative burdens and costs for employers Henceforth, an employer will only be obliged to inform the NVA about the number of employees to be made redundant and their professions in cases in which an employer has made at least three employees redundant during a 30 day period. These amendment will make redundancy procedures easier and make the coordination of the return of employees to the labour market easier. An employer will only have to inform one institution about an employee being sent to Latvia - the State Labour Inspectorate (VDI) rather than both the State Border Guard and VDI. To reduce the burden on employers, henceforth employers, in allocating study leave, will assess their situation and be able to award either paid or unpaid study leave at its own discretion. Improved employment legal relations - employment contract and joint contracts The most important amendment stipulate that the procedure for ratifying joint contracts will be made easier, along with the possibility of employing persons who are acquiring their professional or higher education. The new amendments stipulate that the previous employment salary shall be paid out for one month after the adoption of the amendments to the employment contract, as opposed to the median salary, but in the case of employees who have been award a salary by accord - they shall receive the median salary which will significantly reduce an employer's costs in the event that the employment contract is amended. To increase the number of joint employment contracts signed within a sector or territory (general agreements), the amendments stipulate that henceforth not only in instances when an employers' organisation or the members of a group of employers' organisations employ more than 50% of the employees in any sector, but also in instances in which they are responsible for providing more than 60% of the industry's total professional turnover or services nationally, all employers in the corresponding industry will be bound by the general agreement and it will also apply to all employees employed by these employers. Increasing the number of general agreement concluded would even out any discrepancies in social guarantees within an industry which are not infrequent at present. Work has begun on a plan of measures for the reduction of non-registered employment from 2010 - 2013 protecting the position of employers to ensure that they are not subjected to the imposition of an additional administrative burden. TASKS FOR 2010 Henceforth, work will have to be carried out on proposals for further amendments to the Labour Law regarding which agreement could not be reached at time when the market was afflicted by a major shortage of qualified employees and employers were more acquiescent on many issues including hiring and firing, and were less demanding in the context of labour relations. Work must continue on a plan of measures for the reduction of non-registered employment from 2010 - 2013.


Labour protection

RESULTS ACHIEVED IN 2009 The administrative burden on employers has been reduced and the frequency of the performance of mandatory health checks has been optimised in line with the actual risk posed by the work environment. Work has been carried out on amendments to the Employment Protection Law which are aimed at reducing the administrative burden related to the organisation of the employment protection system. Precise requirements have been specified for lighting and the micro-climate within the workplace in line with the type of workplace and work, and it has also been agreed that these requirements will not be directly applied to outdated workplaces. The requirements of the EU Directive have been adopted to which end the maximum permissible levels of exposure to optical radiation have been stipulated along with employment protection measures offering protection against the risk posed by optical radiation. It has been agreed that the provisions will not apply to solar radiation. The procedure for listing and registering accidents has been simplified and the amount of documentation that employers have to fill out has been reduced. The amount of documentation required to be drawn up in connection with the necessity to use individual means of protection has been reduced. There has also been a reduction in the amount of documentation to be drawn up by enterprises choosing not to engage a competent institution in the realm of employment protection, and the list of forms of commercial activity in which an employer must engage a competent institution has been updated. Work has been completed by the working group responsible for the preparation of amendments due to stipulate occupational exposure boundary limits for new chemical substances and to ensure the conformity of Latvian legislation to the requirements of the relevant EU directives and to ease the requirements for those chemical substances that are not included in the directives. Work on the information report on the reduction of nonregistered employment. Representation of the viewpoint of employers to ensure that proposed solutions are acceptable to employers. The Law on Remuneration for State and Municipal Institution Officials and Employees - capital company employees and boards excluded from the range of subjects of the law. Cabinet procedural roll - the regulation on the possibility for employers to participate in the decision-making process has been improved.

State Labour Inspectorate Director R. Elce and Latvian Builders' Association President V. Puriņť at the press conference on "Employment contracts - a more secure future"

"Reduced administrative

burden on employers" TASKS FOR 2010

.

To continue work on amendments to the Employment Protection Law which stipulate a reduction in the administrative burden involved in the organisation of the employment protection system and to stipulate the legal platform for standards of employment protection practice. To simplify perception of employment protection requirements in relation to the use of work equipment, stipulating the requirements for work at heights in a separate legal act. Work on new employment protection requirements, working at heights. To determine the mechanism for regular testing of the knowledge of employment protection specialists, as well as to improve the requirements for the training of employees in employment protection and to ensure that these requirements are not difficult for employers. To expand the availability of the performance of initial mandatory health check and to reduce their related costs for employers (Cabinet Regulations No.219). To stipulate legally binding employment protection measures for the protection of employees against electricity-related injuries, without imposing an excessive burden on employers. To achieve the stipulation of reasonable administrative penalties for violation of employment protection legislation in line with the economic situation nationally, reducing administrative penalties for minor violations. Work on amendments to the Law on "Latvia's Code of Administrative Violations"

ESF Project "Practical application of the legislation on occupational

health and safety and labour

relations in sectors and enterprises" To facilitate the practical introduction of legislative requirements applicable to employment legal relations and work safety, to provide support to employers for the reduction of violations of employment legal relations, as well as the number of accidents occurring within enterprises; to establish social responsible commercial practice, thus also reducing illegal employment, as well as to achieve a more comprehensive understanding among the subjects of employment relations about requirements in the realm of employment legal relations, work safety and occupational health, at the end of 2008 with the support of the Latvian government and European Social Fund, the LDDK embarked on the implementation of the project "Practical application of the legislation on occupational health and safety and labour relations in sectors and enterprises" (ID.No. 1DP/1.3.1.3.2./08/APIA/NVA/002).

EUROPE SOCIAL FUND

The Employers' Confederation of Latvia

18


RESULTS ACHIEVED IN 2009 Advisory centres have been established and have begun work in five planning regions - in Riga, Ventspils, Jelgava, Valmiera and Daugavpils where employers can receive advice on employment legal relations and employment protection issues in person, as well as electronically and by phone. In particular consultations are available on the provisions of employment joint agreements and employment contracts, concluding and terminating employment legal relations, job remuneration, job and leisure time regulations, work environment risk assessment, development of work safety instructions, development and functioning of work safety systems, the rights and duties of representatives of employees in the performance of indicative measurements of work safety and harmful work factors, as well as in regard to the prevention of violations of employment rights and employment protection within the workplace. De minimis support provided by six competent institutions is available to companies that operate in hazardous industries in the form of free assessment of work environment risks, as well as support in the development of a work safety plan and notification of employees about work safety issues within each enterprise for up to 340 jobs or in the amount of LVL 7,000. Training programmes have been developed for employers and leaders of employers' organisations on employment protection issues and the role of employers' organisation in highlighting work safety and employment protection issues within enterprises in the relevant sector. Informative materials have been prepared including the "New Merchant's Package" with CD attachment which provides information about employment rights and employment protection issues that merchants must be aware of when commencing their commercial activity. The materials also offer practical information about employment protection requirements in 18 sectors, as well an Employer's handbook, updated in conformity with the legislation currently in force and applicable to employment rights, which has been augmented with a section on employment protection issues. Publicity and notification measures have been carried out to inform the direct target group and Latvia's population about the implementation of project activities, the results achieved and opportunities available. Target audience engagement (results): In 2009, 623 enterprises received 810 consultations on employment rights, while 752 consultations on employment protection were provided to 605 enterprises in all five planning regions. Consultations labour protection

128

Riga Kurzeme Zemgale Latgale Vidzeme

19

39 22 38

118 111 114 104 135

Consulted enterprises

labour rights

389

labour protection

177

Riga Kurzeme Zemgale Latgale Vidzeme

120 39 46 38

203 145

107 154

labour rights

533

“623 enterprises received 810

consultations on employment rights� 459 enterprises were awarded de minimis support for assessment of work environment risks at 31,759 workplaces, amounting to a total of LVL 652,965. Training on employment protection issues has been provided to 855 employers and employment protection specialists in 45 seminars across Latvia. 20 representatives of employers' organisation attended the first seminar to be organised on the role of employers' organisations in the improvement of work safety within sector enterprises. TASKS FOR 2010 To provide support for enterprises, employers and representatives of employers' organisations throughout Latvia in the form of free consultations about employment legal relations and employment protection issues (result targeted - 1472 expert days). To provide an opportunity for enterprises operating in hazardous sectors to receive de minimis support and reduce costs related to the assessment of work environment risks, development of an employment protection measures plan, notification of employees about a preventive culture within the workplace (result targeted 20,000 jobs and employed persons). To collate the results of a study on work conditions and risks in Latvia. To offer a work environment risk assessment system available in electronic format and on the Internet. To develop an interactive computer game for youngsters about employment protection issues. To organise free seminars for employers, representatives of employers' organisations and employment protection specialists with the aim of increasing their qualifications in regard to employment protection issues, the role of employers' organisations in the improvement of industry work safety and enterprise employment protection systems (result targeted - 39 seminars with the participation of 780 employers and representatives of employers' organisations). To provide support and information to new entrepreneurs who have just started their business about employment protection requirements in the relevant industry through the distribution of the "New Merchant's Package" in 12,000 copies across Latvia and to provide practical support in regard to human resources management for all employers with the publication of the Employer's Handbook www.lddk.lv. To continue the information campaign about employment legal relations, work safety, socially responsible commercial practice and reduction of illegal employment.


Regional development Administrative reform represents a possibility to provide better quality services for the population and to create pragmatic solutions offering support for commercial practice. 2009 marked the end of the process of administrative territorial reform of municipalities. In the years to come it will become clear whether the goal of the reform will be fulfilled, i.e. to create economically viable administrative territories (districts) with local councils that will ensure the provision of better quality services to the population than was possible before. The LDDK believes that it is important to guarantee the quality and availability of services even in the face of the reduced availability of financial resources from the main sources of municipality revenues - state grants and tax revenues. By participating in forms and working groups, the LDDK actively engaged in the process of refining the National Development Plan for 2007-2013; to this end it developed proposals for Latvia's Strategic Development Plan for 2010 - 2013 and Latvia's Sustainable Development Strategy (LIAS). LIAS specified the country's sustainable development priorities and spatial development perspective, and after ratification by the Saeima this strategy will become the nation's principal planning instrument. All immediate and long-term strategic planning and development documents will be drawn up in accordance with the directions and priorities stipulated in this strategy, therefore the aforementioned document will particularly important for employers when it comes to planning business development perspectives. As a partner, the LDDK participated in a project organised by the Latvian Association of Local Government Employers (LPDDA) "Education of the population and employers in the realm of employment legal relations to strengthen the civil society and for the development of a balanced economy in Latvia's regions, by addressing conferences in Latvia's regions on the subject "Formation of social responsibility and social dialogue to ensure sustainable economic growth regionally". ACHIEVEMENTS IN 2009 The LDDK continued its cooperation with the Ministry of Regional Development and Local Government Affairs regarding the main national and regional development policy documents: Latvia's Sustainable Development Strategy and Latvia's Strategic Development Plan for 2010 - 2013. The LDDK was involved in the development of the principle of a one-stop agency to make it easier for entrepreneurs and the population to receive state and municipality services, including e-services. The LDDK is participating in the development of the electronic identity card concept.

"Ensuring the quality of services is important"

TASKS FOR 2010 To continue to participate in the development of the Latvia's Strategic Development Plan for 2010 - 2013 and in the ratification and initial introduction of Latvia's Sustainable Development Strategy. To participate in the development of proposals, assessing municipality functions and services in order to facilitate their optimisation and the introduction of the principle of a one-stop agency.

In 2009, in partnership with the LR Ministry of Foreign Affairs, the LDDK organised regional debates for prospective members of the European Parliament on the subject of "The five year balance sheet of Latvia's participation in the EU from the perspective of employers and municipalities". Pictured: a discussion involving Jekabpils employers and municipality representatives.

ESF Project "Consolidating the LDDK's administrative capacity in the regions"

"655 consultations were provided

to 393 employers and representatives

of employers' organisations" To promote the development of a regional social dialogue and to increase the participation possibilities of social partners in the formulation and implementation of executive policy, with the support of the Latvian government and European Social Fund in 2009 the LDDK began the implementation of the project "Consolidating the LDDK's administrative capacity in the regions" (ID No. 1DP/1.5.2.2.1./08/IPIA/SIF/002/02).

EUROPE SOCIAL FUND

The Employers' Confederation of Latvia

RESULTS ACHIEVED IN 2009 Within the planning regions, the LDDK established regional structural units in Riga, Liepaja, Cesis and Rezekne where free consultations are offered to employers on the possibilities of the social dialogue and current issues related to the realms of work, professional education, employment, social security, and science and innovation, as well as on how to influence these issues. Training programmes have been developed for managers and specialists representing employers' organisations so that training can begin in the planning regions in 2010. 20


No. of enterprises consulted

49 70

174 90

84

128

148 86

180 160 140 120 100 80 60 40 20 0

135

Target audience engagement (results):

84

Expert examinations of EU and Latvian legislation, as well as the conventions of the International Organisation of Employers have commenced in the realms of regional employment, science and innovation. Publicity and notification measures have been carried out to inform the direct target group and the Latvian population about the implementation of project activities, the results achieved and opportunities available. 655 consultations were provided to 393 employers and representatives of employers' organisations in 2009. Representatives of employers' organisations have taken part in experience exchange trips to ensure the exchange of information and the acquisition of experience in social dialogue and regional development issues. Seminars were organised on the significance of the social dialogue in decision-making and implementation procedures at regional, national and international level and how to improve the quality of work within enterprises. The aforementioned seminars were attended by 75 representatives of employers and employers' organisations.

No. of consultations

TASKS FOR 2010 Employers and representatives of employers' organisation have the chance to receive free consultations on the possibilities of the social dialogue and the latest issues related to the realms of work, professional education, social security, science and innovation, as well as on ways in which to influence these issues. Managers and specialists representing employers' organisations can receive free training on management of municipal development, as well as promotion of public and private partnerships, enterprise development and corporate social responsibility, as well as on bilateral and trilateral social dialogue and human resources management. Experience exchange trips were organised for representatives of employers' organisations with a view to promoting cooperation and the adoption of best practice. Expert examination of EU and Latvian legislation, and the conventions of the International Organisation of Employers in the realms of regional employment, science and innovation. Free seminars were organised for employers and representatives of employers' organisations on the significance of the social dialogue in decisionmaking and implementation procedures at regional, national and international level and how to improve the quality of work within enterprises. Printed materials were published about human resource planning and assessment methods for small and medium enterprises, as well as a bulletin on social partnerships in Latvia and a good management handbook.

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LDDK experts meet Members of the European Parliament in Brussels.


Good partner relations are a prerequisite for the successful growth of exports Exports - a priority for economic interests!

Preserving the desire of foreign investors to invest in the Latvian economy and rebuilding Latvia's international reputation abroad are extremely important if the economic slump is to be successfully overcome. This is because Latvia's reputation both currently and in years to come will have a decisive impact on Latvian entrepreneurs' prospects for success in foreign markets.

"Preserving the desire of foreign investors to invest in the Latvian

economy is important" Successfully completed homework in Latvia is a precondition for the exporting success of Latvia's businesses. This can be achieved if all parties involved - including governmental institutions and employers, as well as the organisations representing them - continue work on the development of Latvia's export potential, ensuring: the creation and retention of a favourable climate for business; protection of employers' economic interests; systematic improvements to information circulation and expansion of the scope of cooperation on the part of governmental bodies; leveraging of Internet technologies in the promotion of information about exporting opportunities and their optimisation. Not only in Latvia and elsewhere in the EU, but also globally the prospects of business during this economic and financial crisis are largely dependent on the ability to identify priorities and find cooperation partners at both national and international level. Likewise, a decisive factor for our economy and entrepreneurs will the attainment of identical rules of the game regionally, as well as within the EU and elsewhere internationally. In this regard, national governments have a significant role to play in the introduction of measures promoting economic growth, combating protectionism, and ensuring that the policies of governments are brought into line with the goals of competitiveness. Latvia - imports and exports of goods and services (price deflator) 200

160 140 120

Price deflator - imports of local goods and services (PMGS), local currency: 2000 = 100 Price deflator - exports of local goods and services (PMGS), local currency: 2000 = 100

100 80 60 40 20 2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

0 1995

"Influencing the rules of

the game is in our -

entrepreneurs' hands only." The regulations cannot be changed to benefit the interests of an individual player - social dialogue and multilateral representation of industry interests are required. Entrepreneur must know how to leverage existing representation mechanisms such as, for example. the LDDK's participation in the European Business Confederation (BUSINESSEUROPE), the European Economic and Social Affairs Committee, the European Commission's consultative councils, councils cooperating with CIS states, as well as an LDDK member at national level, preparing positions. In 2010, the LDDK will continue to represent the interests of Latvia's business community in various formats, operating at regional, national, as well as European and global level.

The LDDK issues memorandums of gratitude to the Republic of Latvia's Ambassador to the Republic of Lithuania Hardijs Baumanis, its Ambassador in Ukraine Atis Sjanītis and former (from 5 April 2005 to 30 November 2008) Ambassador in the Russian Federation Andris Teikmanis for their outstanding work in promoting business and strengthening international economic cooperation. Pictured: H. Baumanis, LDDK Vice-President V. Meļņiks, A. Teikmanis, LDDK Director-General E. Egle and A. Sjanītis.

Strengthening the activity of social partners

ACHIEVEMENTS IN 2009

180 Local currency: 2000 =100

The LDDK believes that the Latvian and Saeima must ensure the nation's competitiveness within the Baltic Sea region and fulfilment of the Maastricht criteria by setting a specific date for Latvia's accession to the eurozone.

Years

Latvia - imports and exports of goods and services (price deflator) Source: AMECO database (European Commission)

In 2009, the LDDK strengthened its status as a social partner. This entails participation in the representation of issues of vital importance to employers in EU matters and the systematic development of preconditions in Latvia's legislation. In accordance with the LDDK's proposals submitted back in 2008, a series of changes have been made consolidating the LDDK's role as a social partner. Legislative amendment stipulate Latvia's effective participation in all stages of EU decision-making - European

22


"As a social partner, the LDDK has received the right to act as an advisor at a meeting of Senior

officials on EU matters"

In Commission and Council working groups, in the Permanent Representatives Committee or COREPER, at the Council of Ministers and the Eurocouncil where the accent is placed on the timely involvement of all interested parties and, most pertinently, the early involvement of social partners in the formulation of Latvia's interests. As a social partner, the LDDK has received the right to act as an advisor at a meeting of Senior officials on EU matters (hereinafter - VAS). VAS ensures cooperation between executive governmental bodies and other institutions, including the social partners, which are linked to Latvia's participation in the proposal, preparation and adoption processes related to EU decisions. The LDDK has won the right to act as an advisor at closed meetings of the Cabinet at which the Republic of Latvia's national position in EU matters is reviewed. This allows the LDDK, as the representative of entrepreneurs and employers, to engage in the concluding stage of the decision-making process.

Important strategic issues for employers In 2009, work continued on analysis of the impact of EU level initiatives and draft legislation on Latvia's business community, as well as the development and representation of the LDDK's positions on issues of strategic importance to the business community and Latvia as a whole and regarding which debates will continue at EU level in years to come. EU budget after 2013. The LDDK believes that the EU budget must be prepared with the goal of achieving economic parity with the old member states. Priorities in the context of the review of the EU budget are: cohesion policy - its initial goal must be preserved establishing parity in terms of development between less developed states and the rest of the EU (1st goal of cohesion policy - convergence); common agricultural policy - major reforms to the direct payments system are required at EU level to ensure equal and fair direct payments to farmers of all member states; energy and climate - it is important that energy projects are implemented which facilitate diversification of energy supply sources and reduce the isolation of the Baltic market.

EU Commissioner for Economic and Monetary Policy JoaquĂ­n Almunia meets Latvian employees and experts Almunia's meeting with Latvian employers and experts

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EU strategy for the Baltic Sea region. The LDDK's position, which it had worked on since May 2008 together with regional and EU employers, was fully taken into account in the preparation of Latvia's national position. A working group including the LDDK has been established at national level for the implementation of the strategy in Latvia. A significant achievement is that within the strategy, alongside the dominant environmental protection issues, attention is also focussed on issues related to the economy and competitiveness within the region. The main investment directions which must also be reflected within a measurable period of time within EU and member state budgets are defined in the strategy. Participation in the implementation of the strategy and individual projects or the creation of new ones also constitutes an opportunity for Latvia's entrepreneurs to develop their business interests and seek out new cooperation partners.

"An opportunity for Latvia's entrepreneurs

to develop their business interests" EU Strategy 2020 or the future of the Lisbon strategy after 2010. The LDDK believes that priorities in relation to "EU-2020" must be directly related to the long-term priorities which have already been defined nationally and which will have to be changed as a result of the development of "EU-2020". The LDDK shares the opinion of European entrepreneurs' representative BUSINESSEUROPE that the priorities of "EU-2020" must be promotion of competitiveness, an environmentally friendly (green) economy and growth based on the creation of values. A Latvian enterprise is victorious in the Swedish Labour Court. A dispute between Swedish trade unions and the Latvian company SIA "Laval un partneri" which had dragged on for several years was finally resolved in December 2009 at the Swedish Labour Court and European Community Court. On 2 December, the Swedish Labour Court ruled that the Swedish Construction Workers' Union and Swedish Electricians' Trade Union must pay compensation in the amount of 2.5 million Swedish kroner to the Latvian construction company "Laval un partneri" for the losses and legal costs it had incurred due to the boycott declared by the aforementioned Swedish trade unions against the Latvian company. The LDDK is satisfied with the ruling which clearly stipulates that everybody must comply with European Union legislation. This case confirms that an enterprise that wants to defend its position at European level requires the support of a powerful organisation representing the interests of employers and the support of the state itself. The LDDK is grateful to its cooperation partner - the Employers' Confederation of Sweden for its support in financing legal services to represent the Latvian company "Laval un partneri" and for confirming the understanding of the a idea of a common market and honest competition within the EU market. LDDK representative office in Brussels. On 1 January 2010, the LDDK's permanent representative within EU institutions and the work of the European Business Confederation (BUSINESSEUROPE) started work in Brussels.


Cooperation within the European Union and Baltic Sea region

Debates between entrepreneurs and prospective Members of the European Parliament. The LDDK invited both entrepreneurs and the public to take part in the European Parliament elections. To agree on the interests of Latvia's entrepreneurs and municipalities in EU matters and to assess the results of the first 5 years of Latvia's membership of the EU, in partnership with the Republic of Latvia's Ministry of Foreign Affairs and the representative office of the European Commission in Latvia, the LDDK organised five regional debates "The five year balance sheet of Latvia's participation in the EU from the perspective of employers and municipalities". The main conclusions of the debates: Cooperation and dialogue are required, initiative on the part of entrepreneurs themselves is required for protection of the interests of Latvia's business community, Latvia an EU member state with equal rights and is responsible for the decisions it makes, and a precondition for successful membership of the EU and concurrent priority for Latvia's membership of the EU is consolidation of its competitiveness - investments have to be made in education and innovations, the creation of new technologies, facilitation of employment - creation of new jobs and protection of existing ones, etc., the main priority sectors are energy, healthcare and education. Meeting of former EESC members in Riga It is hugely important for Latvia's employers to explain Latvia's business interests to European and international partners by demonstrating real business activity and growth potential. Therefore, during a visit to Riga by representatives of the European Economic and Social Committee Association of Former Members, visits were organised to two of Latvia's leading enterprises. Meeting of Latvian - Swedish entrepreneurs In May 2009, the LDDK and the Employers' Confederation of Sweden (Svenskt Naringsliv) organised a joint roundtable discussion for representatives of both countries' business communities and the biggest Swedish banks. During a visit to Swedish Prime Minister Fredrik Reinfeldt, Latvian Prime Minister Valdis Dombrovskis also took part in this discussion. Entrepreneurs from Latvia and Sweden were in agreement that any form of protectionism within the EU internal market must be prevented. Furthermore, regional cooperation in the realm of energy and within the framework of the EU strategy for the Baltic Sea region must be increased, paying special attention to business, and mutual trust must be preserved which will provide the foundation for profitable business relations and long-term business opportunities in the future. Meeting between the Presidents of the Baltic States' employers' organisations and the Prime Ministers of the Baltic States. On 22 January 2010, the first meeting between the Prime Ministers of Latvia, Lithuania and Estonia and the Presidents of the Employers' Confederations of Latvia, Lithuania and Estonia took place. The participants discussed cooperation between the countries within the framework of the EU Strategy for the Baltic Sea region - and harmonisation of their viewpoints and positions. The Prime Ministers and representatives of the employers' confederations agreed on the necessity to strengthen their joint cooperation which would ensure that the enterprises and governments of all three Baltic States would be united in their actions. During the meeting between the Employers' Confederation of Estonia (ETTK), the Employers' Confederation of Latvia (LDDK) and Industrialists' Confederation of Lithuania (LPK) a cooperation memorandum was signed.

Opening meeting of a round table discussion cycle organised by the LDDK and Ministry of Foreign Affairs, "The foreign affairs service for Latvia's exports. Meetings between entrepreneurs and Latvia's ambassadors". Participants include LDDK President V. Gavrilovs and the Republic of Latvia's Minister for Foreign Affairs M. Riekstiņš.

Nordic Ministers' Council discussion about EU strategy in the Baltic Sea region The LDDK participated in a seminar on EU strategy for the Baltic Sea region organised by the Nordic Ministers' Council Bureau in Riga. This provided an opportunity to find out what our Scandinavian colleagues have in mind for the Baltic Sea region and about the plans of the EC and other member states in relation to the implementation of the Strategy. Latvia's entrepreneurs are also coming up with ideas for regional action and the growth of their enterprises. The LDDK presented its position on issues that are currently creating obstacles to the implementation of the strategy and for which solutions must be found - strengthening of the EU leading role by coordinating activities and decisions among countries of the region and other partners; searching for financial mechanisms in the implementation of strategic projects; availability and clarity of information on issues related to strategic goals and their implementation processes Nordic - Baltic States trade policy In partnership with employers' and producers' organisers from the Baltic Sea States organised a meeting a Nordic and Baltic States in January 2009 to discuss issues related to trade policy. The meeting was attended by representatives of confederations of employers and industries from the Nordic and Baltic countries.

International cooperation International Organisation of Employers (IOE) meeting in Riga The LDDK took the unique opportunity to organise a meeting of members of the International Organisation of Employers (IOE) in Riga. This was a great opportunity to explain Latvia's economic situation , its potential, as well as to influence the organisation's opinion on agenda issues that are too resolved within the framework of the IOE and International Labour Organisation (ILO) during the economic recession and after it has been overcome.

Meeting of members of the International Organisation of Employers in Riga. Welfare Minister U. Augulis, LDDK Director-General E. Egle, Chairman of the State President's Strategic Commission Prof. R. Ķīlis.

24


Employers organisations in every country are the bodies best placed to provide support to national governments and protect the interests of business. The only opportunity for countries to emerge from recession by resolving both economic and employment issues is through the promotion of business. Cycle of meetings between entrepreneurs and Latvia's ambassadors overseas "The foreign affairs service for Latvia's exports" In partnership with the Ministry of Foreign Affairs, the LDDK launched a cycle of round table discussions "The foreign affairs service for Latvia's exports. Meetings between entrepreneurs and Latvia's ambassadors". 400 representatives representing 200 enterprises took part in the debates. Latvia - Russia Cooperation Council meeting in Riga. President of the Industrialists' and Employer's Union of Russia A. Šohin, Latvia - Russia Cooperation Council Chairman, LDDK Vice-President V. Meļņiks and LDDK President V. Gavrilovs

Opening meeting of a round table discussion cycle organised by the LDDK and Ministry of Foreign Affairs, "The foreign affairs service for Latvia's exports. Meetings between entrepreneurs and Latvia's ambassadors". Participants include LDDK President V. Gavrilovs and the Republic of Latvia's Minister for Foreign Affairs M. Riekstiņš.

Primary issues to be resolved for the promotion of Latvia's external economic interests - cooperation between the government and business leader for regular highlighting and protection of business interests at EU and international level, for the establishment of business contact, in making systematic improvements to circulation of information and expansion of the scope of cooperation of governmental bodies to support exports. In Latvia's external economic interests, resources must be consolidated by entrepreneurs, the organisations they represent, and governmental bodies.

"Resources must be consolidated in Latvia's external economic interests" Economic councils cooperating with CIS states One of the LDDK's priorities in strengthening Latvia's external economic relations with other countries through the formation of economic cooperation councils. During the last two years, the LDDK has initiated the formation of united economic cooperation councils with Russia's Employers' organisations, Ukraine's Employers' organisations and Belarus' Employers' organisations. The LDDK invites every entrepreneur to make active proposals for the improvement of the work of cooperation councils and to engage in the formation of new partnerships.

25

United Latvia - Russia Cooperation Council meeting in Riga Latvia's entrepreneurs have important questions on how resolve the thorny issues of double taxation and avoidance of non-payment of taxes, as well as protection of investments made in Russia and the further development of these investments. During the united meeting of Latvia's and Russia's economic cooperation council (LKSP) which took place in Riga in July, Latvia's business leaders asked the government to make faster progress in putting forward a contract to be signed between both countries in regard to the aforementioned issues and to arrange the immediate signing of the agreed text at partner state government level.

Currently the harmonised texts of the contract for avoidance of double taxation and non-payment of taxes are in the hands of the Russian side, on which its further progress depends. In turn, after repeated negotiations with Latvia, the Russian side has offered to amend the harmonised text of the contract regarding the mutual protection of investments. In effect, this means that the further passage of this contract has currently run into trouble. During the LKSP meeting, the partners agreed on the formation of closer cooperation with the region's governors and municipality leaders in identifying cross-border business opportunities. Establishment of the Latvia - Ukraine Economic Cooperation Council The Latvia - Ukraine Cooperation Council was established in 2009. Latvia is represented on the Council by LDDK Vice-President and Council Chairman the Latvian cooperative company ""Turība" Central Union" I. Strautiņš. In turn, Ukraine is represented on the council by the Employer's Federation of Ukraine. The first meeting of the Latvian council working group was held in January 2010 during which entrepreneurs met up who are interested in establishing long-term cooperation with the Republic of Ukraine. The Council agreed on the following proposals for the agenda of the 3rd meeting of the Latvian and Ukrainian Intergovernmental Commission due to take place during the second half of 2010: the necessity to highlight the need to resolve legal protection issues at intergovernmental level (protection of investments), restoration of rail travel between Latvia and Ukraine to promote tourism and business contacts and to encourage cooperation between the LDDK and the Ministry of Foreign Affairs with a view to arranging experience exchange measures between entrepreneurs within the framework of the development cooperation. Cooperation with third party countries and employers' organisations In 2009, the LDDK's directorate actively work on ensuring that matters of interest to its members involving countries such as Russia, Belarus, Ukraine, Kazakhstan and Turkmenistan should be included on the agendas of the intergovernmental commissions of Latvia and the respective countries. In 2009, the LDDK concluded cooperation agreements with the Republic of Armenia's Employer's Association and Georgia's Employers' Association. This provides a foundation for developing further cooperation with entrepreneurs from Georgia and Armenia.


International projects in 2009 The PATRON project focuses on identification of effective models that will promote training primarily among young entrepreneurs, drawing on the potential and experience of senior citizens. Project duration: from 01-12-2007 till 3101-2010; project partners: the project was implemented through the cooperation of eight organisations from seven EU member states. Within the framework of the project, a corresponding inter-generation entrepreneur training and skill transfer methodology programme was developed. The methodology programme was developed within the framework of the future mentors' training programme to provide mentors with a range of methods with which to develop the skills of young entrepreneurs. These skills have brought success for the mentors themselves. A plan has been developed to promote the programme of training by older business leaders so that they can pass on the most important skills to young entrepreneurs or the heirs to their work in their own families. To make the training specific, it was decided to focus attention on the acquisition and development of skills that are inherently related to the successful realization of the role of the entrepreneur. Project "BALTIC SEA LABOUR NETWORK" (BSLN) The European model for improving inter-regional employment policy is focussed on the mobility of the workforce within the Baltic Sea region. 26 partners from nine countries are taking part in this project, representing employees, employers and the government. To neutralize the negative development of the labour market and the policy with which each country has worked until now at national level, this issue must be resolved at trans-national level. In striving to achieve this goal, the BSLN project will create a network that will identify improvements in existing labour market policy. BSLN will promote interaction between non-governmental organisations, politicians, civil servants and experts. The project will specifically directed at demographic changes and the migration process. Workforce policy strategy at regional and national levels will be reviewed and knowledge exchange on a regional basis will be promoted. The project partnership is combined from trade unions, trade union confederations (LBAS from Latvia), employers' associations (the LDDK from Latvia), educational institutions and civil servants from the Baltic Sea region and beyond it. The most notable and significant project activity was the trilateral project management committee meeting held in Riga on 9 October 2009. A joint statement was prepared as a result of the meeting (www.bslabour.net).

TASKS FOR 2010 Priorities in LDDK representation: Involvement of LDDK members in drawing up EU positions in regard to draft ES legislation and policy initiatives (ministries, VAS); Strengthening cooperation between the LDDK's experts in the development of Latvia's position on EU matters: Improvement of technical support for the NTSP secretariat and work routines of ministries during the course of the development and harmonisation of Latvia's positions regarding EU issues; work on establishing an EU representative office in Brussels Priorities in EU matters: EU budget overview (after 2013, 2013 - 2020); Lisbon strategy after 2010 - for growth and employment (ES 2020); cohesion policy after 2010 (2013 - 2020); common agricultural policy after 2010; climate change and energy policy; EU Strategy for the Baltic Sea region; employment and social policy issues; Economic recovery in Europe and Latvia. Priorities in international matters: operation of cooperation councils - Russia, Ukraine, Belarus, and formation of new councils with Georgia and Armenia; participation in the EU Eastern partnership initiative and relationship-building with third part countries (Ukraine, Belarus, Georgia, Armenia, Azerbaijan and Moldova); to develop cooperation with the Civil Society Forum within the framework of the EU Eastern partnership initiative. INTERNATIONAL PROJECTS IN 2010 The "Baltic Sea Labour Network" (BSLN) project will continue until 2011. The TOEO.U 3 project spans issues related to the financial participation of employees. Within the framework of this project, the LDDK is continuing the work begun in the earlier TOBEQU and TOBEOU 2 projects. Working together with partner organisation representing trade unions and employers from Hungary, Slovakia, Slovenia, Romania and Bulgaria, the LDDK has engaged in this project to promote employee financial participation programmes among employees and employers, as well as to make recommendations to decision-makers. Additional information: http://www.tobequ.eu

"Workforce policy strategy in the

regions must be reviewed" 26


Enterprise sustainability is rooted in corporate social responsibility "This is our joint responsibility -to defend honest business and develop sustainable

action on the part of the enterprise."

CSR platform

management of changes during the performance of state and municipality governance reforms and during the economic restructuring process. The goal of the forum was to agree on the goals for the Dawn Strategy - a clear and unified vision, short-term and medium-term goals that have the potential to consolidate society and win its support in the implementation of these goals and reforms.

RESULTS ACHIEVED IN 2009 In 2009, the LDDK established an experts' forum the Corporate Social Responsibility (CSR) platform. The CSR platform ensures the implementation of CSR policy at local, regional, national and international level. The CSR platform's experts have drawn up a Memorandum on Corporate Social Responsibility Principles in Latvia. The memorandum explains the definition and principles of corporate social responsibility, describes the major enterprise impact audiences and specifies future challenges in the realm of CSR for Latvian society. The CSR platform's experts have also drafted recommendations for the public sector to reduce the shadow economy. The recommendations envisage that the public sector in selecting a suitable cooperation partner for public procurements, private and public partnership projects and other forms of cooperation, should take CSR principles into account during the review process. TASKS FOR 2010

A memorandum regarding CSR principles in Latvia has been concluded with organisations that represent the public, private and non-governmental sector. In partnership with the LBAS, Latvian Public Relations companies and experts is developing a "Sustainability Index" for enterprises which will judge real activities and an enterprise's openness in its communication with various impact audiences. The principle of the Index accents an enterprise's progress instead of its competition with other enterprises. The index developed encompasses the five most important factors of responsible business: work environment, surrounding environment, society, market relations and strategy. More detailed information is available at: www.ilgtspejasindekss.lv. To develop recommendations for the public sector on how to recognise corporate socially responsible enterprises when assessing cooperation options.

Effective Management and Partnership Forum. Discussion of the Dawn Strategy's goals

ANNUAL EFFECTIVE MANAGEMENT AWARD

Within the framework of the Effective Management and Partnership Forum, a ceremony was held during which awards were presented to the most effective business, executive government and municipality organisations in 2009. This year was dedicated to the assessment of effectiveness, managing organisational changes and finances. Examples of best practice in each award category was nominated by cooperation partners, i.e. in executive government - the State Chancellery, among municipalities - the Latvian Association of Local and Regional Governments and for business - the LDDK in partnership with Lursoft. Annual effective management awards were awarded to SIA Dziedniecība, the State Land Service and Livanu District Council Special awards for the nominated candidates were awarded by Microsoft Latvia, selecting Jekabpils City Council, while the Editorial Board of the magazine "Lietišķā Diena" made an award to the management team at A/S Grindeks and business newspaper Dienas Bizness chose A/S Agrofirma Tērvete.

EFFECTIVE MANAGEMENT AND PARTNERSHIP The goals of the Dawn Strategy came to light during the Effective Management and Partnership Forum. On 8 October 2009, in partnership with the State Chancellery, the LDDK organised the Effective Management and Partnership Forum regarding responsible 27

2010 Annual Effective Management Awards laureates


LDDK thanks its members and cooperation partners for their active participation in representing their interests on behalf of Latvia's growth and welfare! LDDK cooperation initiatives and their partners in 2009: We are grateful for your support in the organisation of the Effective Governance and Partnership Forum and Effective Governance Annual Awards:

LDDK is grateful for your help in the organisation of the EESK meeting:

Special thanks to for its participation in ensuring representation of our interests in European Union and international institutions, and Inta Šusta in particular. We thank the LDDK's members and cooperation partners for their support during the organisation of the IOE European Members' Meeting in Riga:

SME platform supporters: especially Aiva Vīksna and Anete Baltiņa, KSA project “Business against the Shadow Economy - for Honest Competition" cooperation partner LDDK Directive, experts and advisors in 2009

Agris Derkevics, Skaidrīte Baltace, Laima Beroza, Ilze Nagle, Inta Šusta, Sanita Linde, Linda Jansone, Egils Gribačenoks, Andrejs Šnepsts, Eduards Filippovs, Ansis Teteris, Uldis Karlsons, Mārcis Dzelme, Liene Vancāne, Vija Sebre, Zanda Lamba, Elīna Egle, Agnese Alksne, Lāsma Pīlēģe, Māris Cīrulis. Fotogrāfijā klāt neesošas personas: Dagnija Lukstraupa, Inese Stepiņa un Ilona Kiukucāne.

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Jelgavas ražotāju un tirgotāju asociācija, Daugavpils uzņēmējdarbības attīstības asociācija, Tabakas izstrādājumu ražotāju nacionālā asociācija, Valmieras privātuzņēmēju apvienība “Ozols”, Latvijas Dzelzceļa nozares darba devēju organizācija, Latvijas Neatkarīgo mežizstrādājumu asociācija, Latvijas Detektīvu un drošības dienestu federācija, Latvijas sīkuzņēmēju asociācija “Kalve”, Liepājas Direktoru padome.

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Alvos SIA, Darba aizsardzības SIA, Darba aizsardzības institūts SIA, Jūrmalas ātrā palīdzība PSIA, Latvijas Neatkarīgā inspekcija SIA, Daugavkrasts SIA, „Bēnes patērētāju biedrība” SIA, Alvos SIA, Daugavkrasts SIA, RaRo-centrs SIA, Rizen Tech SIA.

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The Employers' Confederation of Latvia

For growth and welfare! www.lddk.lv

Join the leaders! Website for employers: www.lobijs.lv

Implementation of strategy of the Employers' Confederation of Latvia in 2009  

Implementation of strategy of the Employers' Confederation of Latvia in 2009 and action plan for 2010