Latvian exports to Russia: business almost as usual?

Figure 1: Growth rates (%) in euro value of Latvian exports of goods, quarterly data with year-on-year growth rates, 1996 Q1–2023 Q4 (goods only, not services)

One might think that this would be explained by a decline in trade with Russia due to war and sanctions but that is not really the case. As Figure 2 shows, the euro value of exports to Russia was basically unchanged from 2021 to 2022 and only declined 6% from 2022 to 2023, i.e. far less than for Latvian exports in general.

Figure 2: Latvian exports of goods to Russia, 2010–2023 (million euros)

And that is not the whole story. Many have suspected that some goods that used to be exported to Russia directly (not just from Latvia but from anywhere) might reach Russia via third countries in order to circumvent potential sanctions. The Official Statistics Portal of Latvia has very detailed data on Latvian exports, which made me want to look into whether this might also be the case for Latvia.

Two countries that have generally been suspected stand out in the case of Latvia – I shall emphasize that this is not proof of anything clandestine but, as they say, when it walks like a duck and quacks like a duck, it tends to be a duck.

Exports from Latvia to Kazakhstan and to Kyrgyzstan have risen sharply (see Figure 3). From 2021 to 2023 the euro value of Latvian exports to Kazakhstan rose by 160% while they increased by a staggering 754% in the case of Kyrgyzstan, albeit from a very low level.

I should mention that I looked for similar effects from countries such as Belarus, Georgia, Tajikistan, Turkey and Uzbekistan but did not find anything fully resembling the picture from Kazakhstan and Kyrgyzstan. Yes, exports to Georgia are also significantly up but by a much smaller magnitude.

Figure 3: Latvian exports of goods to Kazakhstan and Kyrgyzstan, 2010 – 2023 (million euros)

Digging deeper once more with the help of the Official Statistics Portal of Latvia, one can detect which types of goods are reflected in these numbers. The Statistics Portal offers exports at the so-called CN-2 level, a classification of exports into 100 sub-groups.

I ran through the data for all three countries from 2021 to 2023 to try to detect where Latvian exports to Russia had declined and where at the same time Latvian exports to Kazakhstan and Kyrgyzstan had increased significantly.

The results are presented in Table 1 below. All three cases that stand out are related to machinery so I think it is fair to assume that these are fairly sophisticated goods. The numbers are different but all three tell the same story: Latvian exports to Russia have declined drastically, actually by about two-thirds in all three cases, while it has increased dramatically from Kazakhstan and Kyrgyzstan. Not enough to cover all of the decline out of Latvia, but it seems plausible that this decline is also helped by exports from other countries through Kazakhstan and Kyrgyzstan (and possibly elsewhere).

Table 1: Latvian exports to Russia, Kazakhstan and Kyrgyzstan, 2021–2023 (million euros)

Source: Official Statistics Portal of Latvia, stat.gov.lv

As already mentioned, this analysis is not proof of any wrongdoing but the proverbial smoking gun does indeed seem to be smoking. Officially, Latvia has taken a strong stance against Russia, and rightly so. But in terms of business with Russia, it seems to remain business as usual – albeit with the slight twist that some goods end up in Russia via third countries instead of going there directly.

Morten Hansen is Head of Economics Department at Stockholm School of Economics in Riga and former Vice-Chairman at the Fiscal Discipline Council of Latvia.