As any country in the world, Latvia also has its weak and strong sectors of economy. Nevertheless, for the better development and national positioning in the highly competitive world’s market it is at importance to acknowledge and cultivate the areas of strength, as those sectors' success can serve as a traction power for the weaker parts and the economy as a whole. There are two sectors, which could serve as the traction for the rest.
Historically, Latvia has been recognized in the field of engineering and early IT industry. Through the 20th century, work and products of Latvian companies and scientists in the field of engineering and IT have been in high demand. Starting from radios and its related products and devices for wider use and military, ending with cameras and medtech, tv’s and first network for USSR (AKADEMNET).
Apart from engineering and IT, Latvia has also been well known as the financial center for CEE, with a thriving banking sector interesting also for foreign players. The situation has changed in the last years. Since the renewal of Latvia’s independence in 1990, there have been established over 60 banks. Surely, some of them were unsuccessful and with quite short lifespan, however, it is natural at the beginning of development of any industry and it taught the necessary lessons for the development of the successful ones.
With such a rise of the banking sector in Latvia, it introduced necessity and thus initiated a push of development of skilled and professional banking sector human resources. With already more than 30 years from the beginning of the Latvian “banking era”, there are already 2nd and 3rd generation professionals, who have the banking and finance business as the main profession in their family, thus have really deep understanding and knowledge of processes within this industry.
However, due to the change of perception of the banking industry, the geopolitical reasons and regulatory measures, the banking sector has shrunk even more significantly over the last 12 years. Firstly, the Financial crisis of 2008 made a lot of banking experts re-evaluate their choice of profession and to use their knowledge of gaps in the Baking industry to jump into Fintech. Later on closure of eight banks in the last decade and reduction of employees in other have forced many of the banking and finance professionals to use their skills and expertise in other fields of non-traditional finance or banking outside Latvia. The amount of banking professionals, who have had to find new professional challenges in the last couple years can be estimated to be more than 3500. A lot of them have been recruited by banks and financial companies in other countries, as the Latvian Banking professionals in the International financial market are in high demand, due to the experience and deep knowledge in financial sectors, as an example AML/CTF rules, which is the positive result of extreme approach to these questions by Latvian regulators. Many people chose to use their skills and expertise in other fields of finance than banking, and as we can see, a lot of them have successfully deployed their knowledge in the field of Fintech, by creating and supporting plenty of internationally and locally recognized Fintech companies. For example: Mintos (Mārtiņš Šulte), Creamfinance (Matīss Ansviesulis), INDEXO (several former banking industry experts), Viasms Group (Georgijs Krasovickis), Altero (Artūrs Kostins), Crassula (Alex Novozhenov), Bitfury (Marat Kichikov), which just proves their potential.
However, all the Fintech companies could not be possible to launch without strong and deep involvement from the IT industry professionals. Luckily, Latvian private sector IT professionals are highly skilled, being the 3rd export industry in Latvia, contributing in total more than 4,6% to the GDP and more than 2,05bn EUR in Exports combined IT industry products and services together. Latvia is saturated with many local and well known international IT and tech industry companies, as example: Accenture, Evolution, Mikrotik, Oracle, Emergn, Playtech and many others. By the latest available data, more than 37 000 are working in the Latvian IT and Tech sector and more than 23 000 people in the financial sector. In combination with people who have left the banking industry in the recent years, and Latvian professionals, who are working for financial and IT companies abroad, the total amount could be estimated around 90 000 - 100 000, which constitutes for around 5% of Latvian population.
It should be stressed, that these two industries (Finance and IT) go closely hand in hand and have really strong symbiotic relationships - the high development in IT drives innovation and new products in Fintech, and in the quite opposite - the development of the financial world drives demands new and highly competent IT professionals and their solutions.
For the last decade, it is observed that Latvian financial experts are deploying their skills and establishing companies across the globe - asset management companies in Switzerland, lending companies from Africa to Asia, payment institutions in the UK, Ireland. Banking services across the world and even in the USA. Also our neighbours` - Estonia and Lithuania, success stories of fintech and startups are partly made by Latvians, who have contributed significantly by choosing these places for establishment of their new Fintech and IT tech startups. Nevertheless this proves that Latvian Financial and IT skills can be successfully exported and are demanded worldwide. The current advantage lies in liberalisation of the EU financial sector (single passporting) which allows to provide services across all EU and Brexit, that decreases competition from the side of the UK established financial services, which have been playing one of the leading roles in the EU financial industry.
Taking into account the previously mentioned, Latvia has a good foundation in the financial sector and historically strong sector of IT and technology, from the point of accumulated human capital with high expertise. It can be concluded that Latvia has a great prospect of success, if this strong symbiosis between these two industries would be cultivated and our experts would create added value for Latvia and Baltics. Such a high amount of knowledge based experts imposes an opportunity, as it is easier to export knowledge and expertise as services, than heavy production. Latvia due to its size, objectively can not compete with larger states in heavy production or manufacturing industries. However, we can become an even more serious competitor within sectors like finance and IT, especially having a good foundation to develop Latvia as a fintech and IT hub focusing on export of our knowledge and skills.
The support and development of such industries does not simply mean more favourable regulation for fintech companies (which would really be appreciated). If thinking long-term, this is quite a complex question, which should be looked at through the perspective of national development strategy through several phases.
Firstly, everything begins with education. More focus should be allocated towards computer sciences, physical sciences, economics and finance knowledge development from a considerably young age, with a chance to continue high quality studies here. As the good examples here could be mentioned - RTU, SSE and RGSL.
Secondly, favourable settings for the young and potential professionals to stay here. It is not a secret that many highly skilled IT and finance professionals choose to work for foreign employers’. This also touches the topic of remote work, because even if these young and skilled professionals would work for foreign companies, in a lot of cases and, especially in the Finance and IT industry, people are able to work remotely most of the time. Respectively, it would be necessary to attract these people to choose Latvia as their main residence and place, from which they perform the remote work.
Thirdly, creation of competitively favourable terms in order to become a great option for prospective and successful foreign companies to transfer or even begin their operations to Latvia. This point has three main benefits. Firstly, by boosting local companies, it would increase the prestige , their competitiveness in the world market and development of new highly competent professionals, and secondly, it would attract foreign ones, creating a double positive effect of a boost in the economy and demand for highly skilled professionals. Thirdly, Latvian professionals would choose Latvia as the place of establishment for their fintech and IT companies. It can be noted that already, companies like Accenture and others are contributing to the development of human capital with expertise needed for Fintech.
Devoting more focus on support and development on Fintech and IT sectors, in which Latvia already has a strong foundation and accumulated human capital with necessary expertise, increases chances of success. Latvia should acknowledge and highlight these sectors in which its nationals have received international validation by supporting and creating chances for these professionals to create additional value and thus contribute to the overall economy of Latvia.