Exporters' subsidies selection causes concern in Latvia

Subsidized wages program for exporting companies is about to begin. Experts have found a number of shortcomings in the program's criteria, which cast doubt on whether that money will reach its intended target, Latvian Television reported July 28.

The rules established by the Ministry of Economy and adopted by the government on aid to exporters affected by the COVID-19 crisis provide for special aid to compensate the wages of workers in the company.

The amount of grant for each company will be up to 25% of the social security contributions paid in 2019, but not more than EUR 800 000. They must be paid in employee salaries by the end of this year. In total, EUR 51 million is earmarked for this purpose.

The Latvian Investment and Development Agency (LIAA) is not certain whether it will be enough.

“I can only answer you right now: time will tell. I think we are all experiencing this situation for the first time, so let us see how many companies apply for such aid,” said spokesman of LIAA, Filips Tālbergs.

It is unlikely there will be a large number of applicants. Of more than 6,000 Latvian exporters, approximately 350 will be eligible for this subsidy, as the government has set very strict criteria.

Several export sectors will not be able to obtain this grant at all. These include arms and ammunition, as well as alcohol and tobacco exporters, hospitality, real estate traders and developers, scientific and technical services, administrative and customer services, as well as the tourism sector.

The benefits will also not be paid to any other sector's medium and large enterprises that were in financial trouble at the end of last year or have a tax debt of at least EUR 1000 at the time of application.

Only companies whose exports reached at least EUR 1 million last year and whose monthly revenues decreased by 20% in the April-June period this year compared to the same period last year will be eligible.

Companies meeting all these requirements will be able to apply electronically to the LIAA as soon as there is EC approval expected at the beginning of next week. Applications must be submitted by September 30.

Business organisations are welcoming the government's support, but at the same time pointing to a number of weaknesses in the allocation of money. For example, the Latvian Employers Confederation (LDDK) warned that exports react to market crisis with time lag. Therefore, a number of major exporters will only begin to feel the drop in turnover when the application for this aid is coming to an end.

“This deadline should be at least one month longer, so by the end of October, because (..) worst results will be in the beginning of autumn,” explained Līga Meņģelsone, Director-General of the Latvian Employers' Confederation.

Association of Exporters 'The Red Jackets' draws attention to the fact that the arrangements approved by the Government allow aid to be granted to re-exporters who do not produce anything but import products from abroad and sell to other foreign countries.

In the meantime, many Latvian exporting producers will not make the cut, because the export threshold of EUR 1 million is too high for them.

“There are many exporters who are smaller, whose export volumes are smaller, but for whom this aid would be urgently needed,” said Mārtiņš Tiknuss, Chairman of the Board of 'The Red Jackets'.

“It should be hoped that there will be an opportunity to make changes to the amount of aid and the amount of money, the volume of requests, the criteria, to extend that aid to more companies,” Tiknuss said.

The Association recommends to reduce the minimum export threshold from EUR 1 million to EUR 500 000, as well as to improve the procedures for calculating the drop in turnover.

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