The crisis caused by the spread of COVID-19 both in the world and in Latvia has significantly shaken the business environment in Latvia. The Competition Council (CP) is concerned about trade restrictions that could have long-term effects on competition.
The Latvian Traders’ Association has pointed out that the COVID-19 crisis and the current trade restrictions have significantly changed the trade sector in Latvia during the emergency, affecting small, local traders and their physical sales, catering, etc., as well as non-food and non-food traders. basic necessities such as clothing, footwear, hobby goods, etc. The bankruptcy of these market participants will significantly reduce competition, drastically affecting consumer shopping habits.
At the same time, unlike small traders, the leading retail chains in Latvia are much more able to absorb the restrictions introduced during the COVID-19 crisis, as well as to find solutions to overcome them. For example, the leading everyday consumer goods sales networks in Latvia were able to expand sales on the Internet relatively quickly, as well as invest resources to ensure convenient delivery to customers. The limited financial capacity of small and medium-sized enterprises to reorient their activities to the Internet environment is already strengthening the market position of the leading retail chains, which will also affect the development of the market in the long run.
According to the OECD, small and medium-sized enterprises are the ones most affected by the COVID-19 crisis. These companies are most affected by the trade restrictions imposed, thus putting them at risk of insolvency. This raises KP’s concern that in the long run there will be a significant increase in concentration in several markets or a significant increase in market shares for those companies that are already stronger and will be able to survive the crisis.
At the same time, the current bankruptcy of small market participants and their exit from the market may lead to the Latvian economy losing companies that could potentially develop into important and efficient market players in the future.
There are also risks that it is the leading market players that could use the COVID-19 crisis to merge with competitors in difficulty on more favorable terms, thus strengthening both their position and eliminating competitors and increasing the level of market concentration in general.
The CC points out that an unequal competition situation between merchants also arises in relation to Cabinet Regulation No. 453 “Regulations on Application of Exemption or Reduction of Rent of Public Property and Public Company Controlled Capital Company Due to the Spread of Covid-19”. They provide that tenants who lease premises from a public person – the state or local government or their capital companies – may receive an exemption or reduction of the rent, as well as an exemption from late payment or a contractual penalty. Such facilities and benefits are not available to tenants renting premises from private individuals.
Since the first wave of COVID-19 in the spring of 2020, as well as this year, the CP has received several complaints about this inequality. The complaints show that private operators renting premises have limited scope to reduce rents for crisis-affected tenants. At present, the activity of tenants is limited and they do not earn income and thus are not able to cover regular payments for rent of premises and services consumed. As the crisis persists, this situation could lead to companies, especially small businesses, exiting the market.
In the opinion of the CC, a solution should be found to eliminate this problem, so that the support to cover the rent also reaches the tenants, whose landlords are private persons and not public persons. At the same time, the support provided should promote the equitable sharing of losses due to the crisis between tenants and lessors. In the sense of the above, the above-mentioned CP will promote a level playing field between market participants and a faster resumption of economic activity after the complete or partial lifting of restrictions.
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