I. LATVIAN ECONOMIC CHALLENGES

 

This project offers a comprehensive analysis of how Latvia can attract foreign investment to accelerate economic development and create innovation-driven jobs, improving the prosperity of its citizens.

 

Unfortunately, the last decade has seen Latvia sink deeper into economic depression due to several factors: the COVID-19 pandemic, the Russia-Ukraine conflict, economic recession in Europe, and political instability in the United States, which have strained Western economic resources and diverted attention from the Baltic region.

 

As a result, Latvia must now look beyond the European Union and the United States for the investments necessary to fuel its economic growth.

 

A geo-economic analysis highlights two major groups of potential investors for Latvia. The first is the Arab League. However, Arab League investments tend to be project-specific.

 

An example is the developing Waterfront project in Riga, which will undoubtedly enliven the capital but will not address Latvia’s broader economic challenges. Latvia’s key tasks include developing small and medium-sized businesses, industrial enterprises, agricultural cooperatives, and, most importantly, creating jobs, particularly in rural areas.

 

Latvia's biggest problem is the depopulation of its small towns and villages, as young people leave the country in search of opportunities abroad. With over 50 universities and colleges in Riga, many students aim to graduate and move westward. The critical objective is to foster innovation, establishing businesses and jobs in Latvia—especially in its periphery—to retain and attract young talent.

 

The second, more promising cluster of potential investors is South-East Asia—particularly China, India, South Korea, Vietnam, Indonesia, the Philippines, and Malaysia. These countries have demonstrated remarkable GDP growth and increasing influence in the global economy. Since 2000, their combined GDP has grown tenfold, compared to the 2.5 times growth in the United States and 2.3 times in the European Union.

 

Geo-economic realities and national interests thus urge Latvia to turn toward South-East Asia for investment and development opportunities.

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II. NEW PROSPECTS FOR COOPERATION

 

This project proposes strengthening regional cooperation between Hainan Province in China and the Republic of Latvia. A key factor is Hainan's upcoming transition on January 1, 2025, when it will exit China’s customs and tax jurisdiction, becoming a duty-free zone within South-East Asia (SEA). This includes the Yangpu Free Trade Port in Hainan.

 

Hainan is poised to become the new "Hong Kong", serving as a hub for logistics, finance, and high-tech industries in South-East Asia.

 

Latvia’s strategic geopolitical location in Europe, with its 3 free ports and special economic zones in the Baltic Sea, provides a unique opportunity to establish a mutually beneficial cooperation corridor between the European Union and South-East Asia.

 

This opportunity is especially crucial for Latvia, which is currently facing additional economic hardships due to severed ties with Russia.

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III. SYNERGIES IN HAINAN-LATVIA COOPERATION

 

1. Transportation and Trade Cooperation: 

 

Latvian ports are currently underutilized due to EU sanctions, blocking goods produced in Russia and Belarus or those transiting through them from third countries, including China, Central Asia, and the Caucasus.

 

Collaboration between the free ports and special economic zones of Hainan and Latvia could divert some of the cargo traffic from overloaded German and Dutch ports (Hamburg, Amsterdam, Rotterdam) to underutilized Latvian ports, offering lower tariffs and enhancing multimodal transport to northwestern Europe.

 

2. Innovation and Technology: 

 

The Latvian Academy of Sciences is ready to establish a certification, expertise, and marketing center for South-East Asian goods and technologies. This partnership will identify in-demand products in the EU, offering South-East Asian companies the chance to set up assembly plants in Latvia’s free zones.

 

Innovation and technology parks within Latvian ports could assemble goods labeled "Made in Latvia," granting them easier access to the EU market and boosting their competitiveness in Europe.

 

3. Financial Cooperation: 

 

Hainanese banks could enter the EU financial market by partnering with Latvian banks, expanding their customer base across Europe. Latvia’s modern financial infrastructure, high standards of service, and strong anti-fraud measures make it a trusted partner for Western financial institutions. Inter-bank credit relations would also provide expanded credit opportunities for Latvian small and medium-sized enterprises (SMEs).

 

4. Educational Exchange:

 

There is significant potential for student exchanges between Latvia and South-East Asia. South-East Asian students could benefit from Latvia’s access to the prestigious European education system, while Baltic students are eager to learn from South-East Asia’s advancements in fields like medicine, robotics, and artificial intelligence. These exchanges would foster mutual understanding and knowledge-sharing.

 

5. Tourism Development: 

 

Hainan and Latvia could enhance tourism exchanges, leveraging Hainan’s tropical climate and the Baltic’s temperate climate. Both regions are well-established international tourist destinations, and increased travel between South-East Asia and the EU through Hainan and Latvian airports would benefit both regions.

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IV. CONCLUSIONS AND PROPOSALS

 

1. Leading European politicians, including European Council President Mr. Borrell and European Economic Affairs Commissioner Mr. Dombrovskis, have stressed the importance of deepening economic cooperation between the EU and China during their recent visits to China.

  

2. U.S. President Joe Biden and Chinese President Xi Jinping agreed to restore direct ties and promote economic cooperation at their summit in California on November 16, 2023.

 

3. We propose establishing a Latvian Taskforce for this project, including prominent former politicians, business leaders, and Members of Parliament, to analyze the feasibility of the Hainan-Latvia cooperation initiative.

 

4. The successful implementation of this project could attract substantial investment from South-East Asia, create high-skilled jobs, reduce labor outflows, and encourage the return of Latvian youth who have emigrated. Our draft business plan, pending approval, envisions the creation of at least 500 SMEs in Latvia, focused on innovation.

 

5. It is essential to emphasize that this project is geared toward attracting investments, not loans. Latvia will play an active role in certifying and providing expertise for the South-East Asian goods entering the EU.

 

6. A critical first step is organizing business and political delegations to explore cooperation opportunities between South-East Asia and the EU, with a focus on SEA-Hainan and the Latvian Free Trade Area.

 

We invite all interested parties to engage in discussions on this project, as its adoption could significantly improve Latvia’s economic standing within the EU.