Latvia
Overview
Latvia is one of the three Baltic states, alongside Estonia to the north and Lithuania to the south. After a difficult transition to a liberal economy and its re-orientation toward Western Europe following the collapse of the Soviet Union, Latvia has become one of the region’s fastest growing economies. In May 2023, Edgars Rinkēvičs was elected as president, making him the European Union’s first openly gay head of state.
A country of pristine forests, serene lakes, and sandy beaches along the Baltic Sea, its expanding tourist industry is an important source of export revenue. The capital Riga, an emerging IT outsourcing hub, is a designated UNESCO World Heritage Site and celebrated for its art nouveau architecture. Riga Black Balsam is the national drink, a herbal liqueur that was first made in the mid-1700s.
Latvia uses the euro as its currency and is a member of many international organizations, including the United Nations, World Bank, the Council of Europe and the World Trade Organization. However, while the level of digital skills is relatively high, Latvia’s outsourcing sector remains small, due to the market’s high rates and limited talent pool.
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12hrs
Time Travel (From NY)
Average flight time from NY to the major cities in the country.
70
Partner Innovation capability
The score reflects investment in STEM progrms and IT funding by country.
59
Partner Skill Level
Level of workforce skills and quality of education, including factors such as digital literacy, interpersonal skills, etc.
49
Partner Global Competitiveness
National productivity based on 12 core pillars, including government policy, infrastructure, economic stability, etc.
Low
Software Outsourcing Readiness
Overall rating, based on the maturity of the tech sector, socio-political conditions, and on-the-ground research by Accelerance.
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Talent Pool & Education
With a population of almost two million, Latvia is building its reputation in sectors such as fintech, e-commerce, healthcare and drones. The government gives tax breaks to startups and has an accelerator fund for seed investments, creating a favorable environment for foreign investment.
The ICT industry is now the country’s third-largest exporter after timber and food production, with a growing emphasis on innovation and technology driving economic development. According to Statista’s 2024 update, Latvians are increasingly adopting digitalization and automation in their businesses, with a shift towards cloud computing.
Close to 40,000 IT specialists work in software development companies and some 700 computer science students graduate from university each year. Experienced engineers have high-level English language skills and are concentrated in the capital Riga and the second-largest city, Daugavpils.
As part of an initiative to boost digital skills,12 new study modules in high-performance computing technology will be integrated into degree programmes by 2026, aimed at the business, academic and state sectors. The project has been largely funded by a €6 million investment by the European Union Recovery and Resilience Facility.
Language
The official language is Latvian, although strictly speaking there are two variations: the widely spoken Modern Latvian and the nearly extinct Latgalian dialect in the east. Two-thirds of the population also speaks Russian but the vast majority of young people prefer English as their first foreign language. English is taught in most schools and widely used in the business and tourism sectors.
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Economic Outlook
A moderate rebound in 2024 is forecast for Latvia, supported by falling inflation, unemployment near historical lows, and a return in external demand. The war on Ukraine has led to higher energy prices and disruptions in trade and supply chains. According to the OECD’s latest economic survey, continuing to improve the capacity of the public sector, fostering investment and innovation and addressing skilled labor shortages are key for raising potential growth.
Reflecting the ongoing labor shortage, the Bank of Latvia is forecasting steep wage growth of 8% for 2024 and 7.9% in 2025. A recent macroeconomic report warns that if productivity improvements fail to keep pace, the increasing labor costs encountered by businesses will weaken their competitiveness, posing a risk to economic growth.
The Latvian economy is largely based on service industries, including transportation, information technology, and financial services. The construction industry also plays an important role. The $6 billion Rail Baltica, a greenfield infrastructure project that will connect Latvia, Lithuania, and Estonia with the European rail network, is due to be completed by the end of 2026.
Political Conditions
Latvia appointed an ideologically disparate government coalition in September 2023, consisting of the centrist New Unity, conservative Union of Greens and Farmers, and green/social democratic Progressives. Centrist Prime Minister Evika Siliņa has reaffirmed the country’s importance in the Baltic region as a NATO ally and a bulwark against Russia. On the political agenda is progressing the previous administration’s initiatives, which include undertaking moderate economic reforms while remaining strongly pro-EU.
The coalition has pledged to slash high energy tariffs and bring down borrowing costs; reforms in education and health care are also considered urgent. Its social platform has included the ratification of the Istanbul Convention on preventing and combating violence against women, and the adoption of a law on civil partnerships for both heterosexual and same-sex couples.
Prime Minister Siliņa speaks fluent English and Russian, and ran a private law practice before becoming active in politics in 2011. She worked closely with her predecessor, Krišjānis Kariņš, who resigned after a coalition crisis sent the country back to the polls. The government’s action plan outlines steps towards “a prosperous, safe and inclusive Latvia, which will develop sustainably during demographic, climate, technological and digital changes".