A prospective analysis in the candidate countries report on latvia

Up to 2003, several state and public institutions were involved in the implementation of IS.

Since 2003, the Office of Information Society (established in end of May, 2003) has been the

main executive and co-ordinating body. The Office is authorised to co-ordinate IT projects at

the state level (former responsibility of Ministry of Communication). The chief of the Office

is subordinated directly to the Prime Minister of the Republic of Latvia, and institutionally to

the State Chancellery. The chief of the Office is to be hired (and dismissed) by Director of the

State Chancellery after reconciliation with Prime Minister. The last fact is important in aspect

of authority of the Office.

II.3. Regulatory framework

The Public Utility Commission regulates services that are considered as public and issues

licenses. The Commission was established in 2001, following the concept of a single public

service regulatory body. The Commission is really independent. The staff of the Commission

is approved by Saeima for 5 years, and the decisions of the Commission are incontrovertible

for any state of a private institution except the court. The Commission is financed from the

state fee that is set at the 2% level from the net turnover of delivered public services.

As regards data protection in information systems, the State Data Inspectorate, established

under the law on Personal data Protection of March 2000, started operating in January 2001.

The 1981 Council of Europe Convention on the Protection of Individuals with regard to the

Automatic Processing of Personal Data was ratified in April 2001.175 Relevant institutions are

responsible for the protection of intellectual property rights and fighting against software

piracy.

The capacity of managing and regulating institutions is satisfactory; some problems exist with

liberal, only affects the most essential regulations (intellectual property rights, distribution of

frequencies, telecommunication process).

There are voices that telecommunication market is not actually liberal, as the Public Utility

Commission does not regulate interconnection tariffs, which are high. There are also other

problems in the telecommunication sector, caused by lack of updated sector strategy. The

government plans to issue a new Communication law that would replace the current

Telecommunication law.

174 Economic Development of Latvia, Ministry of Economics of the Republic of Latvia, Riga, December 2002,

p.97

Brussels, 13.11.2001, SEC(2001) 1749, p.92

Diagnosis of Factors and Impacts in the Information Society in Latvia

REPORT ON LATVIA 147

The driving motivation of political decisions promoting development of IS is the

understanding that IS (more often ICT) is necessary for economic development,

modernisation and restructuring of economy from low value added production to more

effective, based on knowledge intensive industries. Indeed, functioning of the open economy

where information and effective communication is a decisive competitiveness factor without

effective information service is impossible.

The government has to react to the requirements of business for effective information

infrastructure, as well as information services that respond to ICT at their disposal. The last is

very important, as to ensure communication with foreign partners, Latvian enterprises have to

adjust to the world technical level of communication means. On the other side, if available

ICT provides faster communication, business strives to implement new communication

technologies within the country, which also includes functioning of the state information

systems.

environment every year, which is based on proposals elaborated by the responsible ministries

in co-operation with the social partners, of which the Council of Foreign Investors is the most

influential. This plan also includes measures aimed at the improvement of the business –

government communication (for instance, computerisation and Internetisation of the state

procurement system).

Wide representation of IS related measures in the National Development plan is promoted by

the necessity to respect EU policies, as National Development plan frames use of EU funds.

Implementation of IS policies fall into interests of every business, and especially ICT

producers and service providers are interested in fast development of IS. This explains the

fact that representatives of large ICT companies are main drivers of the policy making process

in IS issues – and they really benefit from the active ICT and IS policy. Strong ICT business

lobby has often promoted changes in the governmental information systems.

IS has active support from lobbying institutions – IT enterprises and research centres, public

organisations and state institutions that are responsible for economic development (Latvian

Development Agency, the Council of Foreign Investors).

No doubt that EU integration has influenced the development problems concerning IS at the

institutional level. Requirements to elaborate local economic development policies and

harmonise them with the EU practice, as well as regular assessment and proposals regarding

consistency and reasonability of such policies, have promoted co-ordination of ministries’

work and more comprehensive treatment of aspects of a “new economy” (including IS) in

local policies.

It may be concluded that despite the lack of special IS policy, legal background of IS is being

created. State institutions implement information systems and eGovernment components. EU

integration, business interests and necessity to provide open economy with the relevant

infrastructure promote the process. In general, main emphasis is put on the development of IT

and IT related education. Less attention is given to improvement of IT use, including training

and access (for instance, in rural areas, where access to IT and Internet is limited, and schools

are not properly equipped with IT for training needs). The process has started, but without

common and comprehensive policy it appears fragmented and therefore the potential

efficiency has not been achieved. Main actions are at the government institutions, while

actions aimed at improvement of education, regional developments, development of SMS, are

less applied.

148 FACTORS AND IMPACTS IN THE INFORMATION SOCIETY

A PROSPECTIVE ANALYSIS IN THE CANDIDATE COUNTRIES

II.5. Access to infrastructure

The provision with the physical infrastructure (networks) is at a rather high level, even too

high compared with the level of economic development. It is partly because of heritage from

the former USSR, when the density of telecommunication systems, especially in rural

locations was very high, and partly because of rapid development of new ICT providers. It is

expected that liberalisation of telecommunication market will facilitate expansion and

modernisation of physical infrastructure even more and appearing of alternative public

networks. On the other hand, having only low income, potential customers are not able to

obtain necessary attributes (computers) and pay for services that enable access to

infrastructure. Regional differences are important.

Three operators – Lattelekom, Latvijas Mobilais Telefons and Tele2, provide

telecommunication services. Mobile telephone network covers the majority of the territory of

Latvia. Penetration rates of telecommunication services are satisfactory, but prices are high.

With increasing competition in telecommunication sector, prices go down. It is expected that

new undertakings might enter the market – the auction of the new standard UMTS mobile

telecommunication licences was held in 2002.

Computer penetration and the number of Internet users is rather poor. Application of ICT in

industry is a necessary pre-requisite of competitiveness. In 2001just 47% of companies in

Latvia use computers. Just 36% of small enterprises (with number of employers less than 10)

may afford computer. The less equipped with computers are enterprises in the hotel and

restaurant sector (28.2% of enterprises within the corresponding group in average, 20.1% in

group of small enterprises). The best equipped are financial institutions – 71.3% in average

and 61.9% in the group of small enterprises.

Just 26.4% of enterprises have access to the Internet, but the share of such enterprises grows.

Even faster growth of Internet users is fixed in the group of small enterprises. Again, the

lowest provision is in hotel and restaurant sector, the highest – in financial intermediation.

The most popular is Dial-up access – 51.2%. Just 7.4% of enterprises have home page on the

Internet.

On the other hand, a lot of investment is done in order to improve IT provision in state

institutions by using Public Investment program, international funds, international aid and

others. Public administration and defence institutions are best equipped with computers – the

level of computerisation there reaches 93%, followed by educational establishments – 75%.

It may be concluded that ICT penetration rates are high in comparison with the economic

situation but moderate with regard to provision of effective communication and management.

The major obstacle of wider computerisation is lack of finances. The provision improves

rapidly, but correlating with the economic development.

Provision with information systems and networks available for public are rather rich. Several

(but not all) of mentioned state systems are available for public access in the state institutions.

Each ministry and state institution has Internet home page, some of them are built in

interactive regime. State supported and private TV provides reproduction of their programs on

the Internet and on-line viewing. Customer related system operates in the Road Traffic Safety

Directorate and also in some local governments.

In the private sector e-technologies are widely used in financial intermediation, transport and

trade. The most often used ones are eBanking services. There are plans to introduce

sophisticated systems in health care (telemedical treatment or eHealth care services, for

Diagnosis of Factors and Impacts in the Information Society in Latvia

REPORT ON LATVIA 149

instance, distance consultancy based on cardiogram taken by patient at home), e-education

(international lectures from distance) and others. Private companies provide content for large

number of Internet domains, concerning politics, creation of civil society etc. The supply from

the private sector rapidly expands.

Specialists consider that for the time being content problem is important in order to gain

customers’ confidence and increase Internet use. They think that for a Latvian customer more

information in Latvian must be provided.

In general institutional capacities, regulatory background and provision with IS may be

assessed as satisfactory. Institutional background of IS is prepared in general. At the

government level implementation of relevant measures is rather fast within the magnitude and

scope of different tasks, which interpose all-embracing transformation of the economy. From

the business side implementation of IS infrastructure is hampered by lack of finances.

However, the whole development of Latvian economy promotes and urges IS, and

improvement of its constituents is only a question of time.

Effectiveness of investment in IS is a more complicate question. According to our

observations the state administered information systems are not mutually co-ordinated and

this weakens their efficiency. The government institutions often modernise their information

systems, because systems are gradually implemented, and every new system is more updated

and inconsistent with the previous. The process is expensive and ineffective at the first sight,

however neither contemporaneous implementation of the entire state information system, nor

lagging behind updated systems is possible.

We did not observe excess expenditures or low efficiency of information systems in the

business sector, but empirical judgement of this hypothesis is impossible due to poor

investment data and the complexity of impacts in conditions of massive modernisation.

Institutional restrictions for implementation of IS are not existing. Regulatory background is

liberal. Only public telecommunication services are regulated, however telecommunication

markets are also fully liberalized with liquidation of the natural monopoly status of public

service provider – former state enterprise Lattelekom.

Finally we analyse the development of ICT industries in Latvia. ICT sector have different

roles with regard to IS. On the one hand, ICT is the main infrastructure element in IS, and

some ICT business units are necessary to ensure infrastructure working and improve it. On

the other hand, ICT business is an independent sector, working towards all possible markets,

not connected with local IS. The feasibility of IS depends on the strength of ICT business, as

well as strength of ICT business depends on the development of IS.

ICT and telecommunications are among the fast growing sectors. Both industries provide

modern services and technologies and have high development capacity. According to recent

research of International Trade Centre, competitiveness of Latvian IT sector is very high – it

was given mark 8 from 10, while unused export potential is assessed by mark 6.7 from 10176.

For the time being ICT is based strongly on the local demand, great part of which is

government procurement. The whole sector has remarkably grown since 1996, and in

particular in 2001 and 2002. The fastest growth in all aspects is fixed in manufacture of office

machinery and equipment, wholesale of office machinery and equipment, telecommunication

and computers and related services.

176 Global Technology Markets. Inforemation technology. Country Profile – Export Potential. Latvia: 2002.

International Trade Centre. UNCTAD/WTO, 2002, p.188

150 FACTORS AND IMPACTS IN THE INFORMATION SOCIETY

A PROSPECTIVE ANALYSIS IN THE CANDIDATE COUNTRIES

The largest sector in terms of the number of enterprises is computers and related activities,

manufacture of office machinery and computers and telecommunications.

Latvia’s ICT sector does not produce any hardware parts for ICT, it deals only with

assembling systems from imported parts. From this point of view Latvia is a strong importer.

It is known that ICT is an attractive zone for FDI, still precise figures concerning the entire

sector are not available. Foreign investors show interest in the development of the sector

“Office equipment and computer production” in Latvia, the majority of investment is made by

US and Estonian businesses.

Major actors of ICT industry in Latvia are fixed and mobile telecommunication operators.

Latvijas Mobilais Telefons, first and by that moment largest (by number of clients, by size of

infrastructure and by financial indicators) mobile operator is also Top 1 enterprise in Latvia.

Lattelekom, a fixed telecommunications operator is the market leader, as the monopoly on

fixed telecommunications was closed only by May 2003.

The second largest group of major actors of ICT industry are ICT whole-sellers – GNT

Latvia, ELKO Riga and others.

Software producers also play a serious role in ICT industry. DATI grupa, Tilde, DataPro,

Tieto Enator and Exigen Group should be mentioned in this chapter.

Fast growing and taking more and more market shares are Internet Service Providers – Delfi,

Apollo (part of the Lattelekom) and Latnet.

Regarding to the hardware industry, Microlink group is one of the most important players.

Scenarios for Future Development

REPORT ON LATVIA 151

The “baseline scenario” suggests that current fast development of business legislation and

legislation concerning IS implementation continues, but proposed measures are partially

implemented.

Latvia continues its integration to the EU, NATO and other international structures.

Political relations with Russia, the Baltic Countries and CEC remain at the present status.

Special measures aimed at improving Latvian-Russian relations, as well as increasing activity

in CE countries and special programs in framework of Baltic co-operation are not applied.

Society integration policies (ethnic integration, social integration, gender integration) are

formal.

I.2. Economic development policy

Macroeconomic policy remains unchanged. Latvia joins EMU in 2006 - 2007.

Integration in EU and NATO is unconditional from Latvia’s side, monitoring and assessment

of the impacts and consequences of integration are absent.

The fast progress in creating institutional basis for economic development continues and it is

aimed at development of high value added production (regardless of the sector of national

economy in which it might appear). Economic development policies are neutral to particular

sectors, based on cluster’s approach. The government focuses on establishing conditions for

development of high value added (understood as knowledge based) production rather than

supporting particular industries – potential producers of high value added.

Competition rules are fair. Product and market regulation systems are adjusted to EU

approved principles, expected to be as liberal as possible.

The government declares its business support policy, including fiscal policy (tax schemes),

principles of the state support, business support institutions, government participation in

creation of business support institutions, export and import policies, state guarantees system

etc. The state support is aimed at promotion of innovation and R&D in business enterprises.

The implementation of the envisaged policy is not fully realistic due to the drastic fiscal

constraints, high social needs, and consolidation of economic and political powers. Still the

government uses every opportunity, including FDI and loans, to allocate for facilitating of

high value production as much as possible. Financing of economy is kept in conformity with

stability considerations.

The government introduces clear foreign trade promotion strategy, but it does not have

sufficient funding and its implementation is slow and partial.

Efforts are made to improve the quality of professional education and the content of

education. The government introduces measures aimed at raising enrolment in natural

sciences.

152 FACTORS AND IMPACTS IN THE INFORMATION SOCIETY

A PROSPECTIVE ANALYSIS IN THE CANDIDATE COUNTRIES

The government provides moderate financing of innovation policy, but it promotes

development of innovation processes in business enterprises (declaring government policies

aimed at the development of high value added production, supporting innovation and training,

creating necessary financial institutions). The government sets an ultimate goal to increase

financing of innovation process to 1% of GDP in 2050 and 2% of GDP in 2010.

The government tries to keep low tax burden in order to facilitate returns and investment. Tax

policy favours foreign trade, investment and development of high-tech industries.

It is expected to support development by effective use of EU structural funds.

The government elaborates sector development policies in line with EU strategies. Sector

development policies are based on cluster’s approach to national economy; they are expected

to be coherent with sector policies in related industries. Sector representatives participate in

elaboration of sector policies.

Sector policies are not based on local economic research. Assessment of every sector is

optimistic from the competition point of view.

Monitoring of sector development is the competence of Ministry of Economics; adjustment of

adopted development strategies to changing circumstances is not common practice.

I.4. Investment

The government continues investment promotion policy with tax deduction for large

investments. Investment promotion policy is general and not restrictive; nevertheless indirect

management of investment flows (through clear sector policies, stability and market

promotion policies) aimed at accumulation of investment in high value producing sectors is

applied.

The government implements social policy measures according to the principle of “easier

solution”. Social policy and systems are made secure and stable. Social insurance benefits

slowly increase, but remain low compared with living costs during the whole period. Social

policy is not a priority, but some measures are implemented in order to eliminate social

tension. It is assumed that better economic development will soften social problems.

Special national level income policy does not exist. The government sets higher income

normative, but it is difficult to provide their implementation.

Following the course on optimisation of social expenses, the government implements

insurance principles in main social systems (pension insurance, health care insurance, fully

credit based education).

I.6. Labour supply

Demographic policy remains passive.

Industrial relations develop in line with EU common policies, and this enlarges labour market

resources. The government does not implement special measures aimed at better involvement

of women, graduates and population in pension age or near to that.

Scenarios for Future Development

REPORT ON LATVIA 153

I.7. IS development policies and legislation

The government understands the significance of information and communication in the

emerging economy, but is not able to allocate the necessary resources.

It elaborates lacking legislative basis and continues implementation of state-level information

systems.

Established responsible institution and regulating institutions are effective.