The workforce challenges are solved with automation and concentration of production, because there is no other way to maintain competitiveness in European markets, where inflation is more than twice as low as in Latvia.
This is what Māris Simanovičs, chairman of the board of JSC “Eco Baltia”, told Dienas Biznesam in an interview. He believes that in times of high inflation, the only solution in order not to reduce people’s purchasing power is for the state to allow employers to pay a bonus for at least six months in 2023, without taxing this amount with labor taxes.
Excerpt from the interview
In a situation where inflation in the eurozone country Latvia was around 22% in the second half of last year, and up to 10% in the eurozone, was it at all possible to “put” all the increase in costs into the price of the product?
This question applies to every producer who supplies his products to foreign markets where the inflation rates were (are) much lower than in Latvia. Foreign consumers buy a product at the market price, and not at any other price, and therefore the extent of the increase in costs in Latvia is by no means an argument that buyers would accept. This is a question for the Latvian government regarding the competitiveness of companies operating here. One of the most significant influencers of production costs was and is the price of electricity.
Then already in August 2022, the NordPool exchange showed that the price of electricity in Latvia is 5-6 times higher than in Estonia and about 10 times higher than in Finland, and for the first time in history this price reached 4,000 euros per MW for some hours, production had to stop!
That’s exactly what it is. In the situation of SIA Nordic Plast, as soon as the price of electricity reaches EUR 500 per MW on the NordPoll exchange, its production is stopped, people either do not come to work, or are engaged in equipment repair. 500 euros per MW is the limit when a manufactured product can be sold with a round zero profit. But who produces products only to sell them with zero profitability or even worse – to pay extra for them. In production, in some product groups, there is a decrease in the number of units produced, which is compensated by the significantly increased price as a result of inflation. In December of last year and in January of this year, electricity prices in Latvia have returned to an acceptable level for producers, but it is difficult to judge what the situation will be in the future, because December and part of January are still relatively quiet months when many factories in Europe were on vacation.
I positively assess the compensation mechanism for energy resource price increases developed by the Latvian government last autumn, because without it, many producers in Latvia would have been closed for a long time, and some of them would have already become insolvent. Currently, Latvia can fully provide itself with electricity (and even export) only when there is an adequate amount of water in the Daugava HPP cascade, the rest of the time it is necessary to operate thermal power plants that use expensive gas, but in the summer the only option is to import it from Scandinavia, and in August, it seems , there were problems with the interconnection. I don’t even know in which area producers are able to continue production at an electricity price of 4,000 euros per MW, that is the price at which electricity is a luxury item that has no consumption.
Read the whole article January 17 in Dienas Bizness magazine!
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