As seen in The Economist June 10, 2022 issue. The article has been edited for context.
Energy independence.
Freedom in Europe.
Recession-proof future economy.
This is a unique period in history where a third of Europe is on the verge of a major shift and has promising opportunities for business and investment based on the high economic potential and high geopolitical importance. The region in question? The Baltics and the north-south axis of Eastern Europe, also known as the Three Seas Region.
What is the Three Seas Region?
12 EU countries on the Baltic, Black, and Adriatic Seas.
Territory 1.2m km2 ~ 30% of EU
Total GDP € 2.003 tn ~ 14% of EU
Population of 111m ~ 25% of EU
Average GDP growth of 2.6% over the last 5 years (compared to EU - 1.2%)
Infrastructure investment gap of more than €500bn
GDP forecast for 2030 - 2.3 € trillions
GDP projected growth for 2022 - 3.2%
Unprecedented cut in ties – and opportunity for growth
The security of the Western world depends on the ability of countries to interact and work together to develop solutions not only to strengthen national defense capabilities, but also to address the economic challenges of the region's sustainability, innovation and economic viability as such.
Through historical events and geographical proximity, the Baltic region has always been a forced participant in its ties with Russia. The past 30 years, however, have been spent distancing themselves – through rebuilding a market economy, embracing democracy and the rule of law.
The Baltic States have turned themselves into an attractive destination for investment, while simultaneously taking brave political energy security decisions – they have now fully renounced their eastern neighbour.
Latvia, Lithuania, Estonia being fully integrated members of all major economic and political structures, including the European Union, NATO, WTO and OECD, and by adherence to those standards — offer investors both opportunity and stability, and its potential is not exhausted.
“The Three Seas Initiative is a key factor in ensuring the safety and prosperity of the region. By collaboratively working together and strengthening investments we are able to lift a region that has until now been largely dependent on Russian resources. The more independent the region, the greater the economic growth potential for all of Europe, and the world.” – Eglis Levits, President of Latvia
US investment
The US has already appreciated the investment opportunity, having expressed a commitment to contribute.
“There is incredible potential for increasing cooperation and connectivity among this group that will enhance the security and prosperity of the region and quite frankly benefit the world. The United States will be your unfailing partner.” –Joe Biden, President of the United States
In 2021, the United States made up 30.7% of the share of FDI in eurozone countries, while in the Three Seas region, the US makes up only 3.7%. There certainly is room for growth.
Baltic resilience
Despite complicated geopolitical influences and coming out of a pandemic, the Baltic states have seen a growth in foreign investment, and are positioned to weather the upcoming economic difficulties well.
The Baltics can boast a variety of positives – political and administrative stability, developed e-governance, and the relative availability of human resources. What's more, the region is perceived as an emerging technology hub.
A study of surveyed investors by EY found that “the general consensus is that the Baltic countries are directly in competition with some of the more established digital and technology hubs, including the Nordic countries as well as Israel and Singapore, in inviting attention from investors.
As members of both the EU and NATO, the Baltics are considered among the most stable regions for long-term investments.
Latvia – on a mission to become the HQ for sustainable innovation
After a major economic recession in 2008, total financial system overhaul, a pandemic, war in Europe, and being among the first to fully renounce Russian gas, the country's GDP and export is growing at higher levels than the projected EU average. Experts are unanimous – this is a resilient country.
The country punches above its weight, doing what others have considered impossible:
1st country to successfully implement all 40 FATF recommendations in an aggressive fight against financial crime
among the first to fully renounce Russian gas, has spent ⅓ of its defense budget in supporting Ukraine
Impressive economic convergence in GDP per capita terms (PPP) from just 30% of the EU average in the mid-1990s to 70% of the EU average today
Small yet effective, a secret to Latvia's resilience is its focus on future-proof investment. Investing in high value-added Smart Specialization projects – in digitalization, ICT, smart energy, and more. These projects are particularly welcomed, and their development is fast-tracked through the “green corridor” policy.
Investment climate:
71 active investment projects
2-2.9% growth – projected economic growth in Latvia in 2022
32 – new infrastructure projects launched in Latvia alone
The highest value of the country lies in its people, fast adoption to changes, and their tight-knit community.
“Not only is Latvia among the most literate of all European countries, has excellent ICT infrastructure, is home to the most 5G test sites per capita, has the most women in management positions, but the people are accessible to each other – we have a two-handshake principle, where you are only two handshakes away from any other citizen of Latvia. Therefore, you can get things moving very fast.” – Kaspars Rozkalns, Director General of the Investment and Development Agency of Latvia.
Fun facts:
#1 most startup-friendly country in the world
1st 5G military test site in Europe
3rd in the world in mobile data usage
Riga – the #1 city globally for drone technology development
Latvia's rankings:
A+ S&P credit rating
A3 Moody's rating
#1 in the Baltics in Bloomberg Innovation Index
OECD, NATO, EU area country
Making history in Riga
To discuss what is on the agenda for digitalisation, energy, and connectivity in the region, more than 600 like-minded politicians, including Heads of State, international organizations, and business leaders, will gather in Riga, Latvia, on June 20-21 for the Three Seas Summit and Business Forum. The event will run for two days and offer a blend of industry-panel discussions, keynote presentations, and networking events.
In a changing geopolitical reality, this year's forum in Riga, Latvia is shaping up to be the most decisive yet.
Those interested in joining are welcome to follow the Forum online at www.3seas.eu.
Sources: Eurostat, Bank of Latvia, Three Seas Initiative Investment Fund