EU Financing for SME Development in Latvia
Author: Aija Lokenbaha
The EC has identified the development of small and medium-sized enterprises (SME) as one of its priorities, with a significant share of funding for this purpose. Meanwhile, there is an interesting situation in Latvia in this area. Let us take a closer look at the current financial instruments available to promote entrepreneurship:
- In the field of rural support, administrative programs are intended mainly for agricultural businesses and organizations. Positive that a number of small programs are available (so-called "seed money") to promote entrepreneurship, including the LEADER program. LEADER is now actually the only real program in which companies located in a rural area outside the cities can obtain funding to develop their activities (from 30 000 to 50 000 Euro), with a 70% support intensity. There is a negative tendency in agricultural programs where large farms are better able to participate, while small farms with no turnover have minimal access to funding. Such policies contribute to the development of large farms and the disappearance of small farms, which further degrade rural areas.
- City Grant contests, Riga City Council-organized Atsperiens for new companies developing an innovative idea. Funded by municipalities. It is appreciated that cities generally pay attention to promoting entrepreneurship and are organizing such competitions, it would be nice if more cities would follow this example. Little funding for these competitions is negatively assessed – usually around 2000 In the Riga competition Atsperiens, funding has increased, but the thematic settings, which significantly reduce the range of companies that are eligible, have come to be present. In the light of the Riga City Council's corruption scants, the public also has a low faith in the fair outcome of this competition.
- Programs administered by the Investment and Development Agency of Latvia – the once-mighty agency has remained alone with a few small programs that support the participation of companies in foreign exhibitions, and only funds 40% of the costs. It is specific enough to be binding on only a small number of undertakings. Recent time focus on innovation and smart specialization seems welcome, but in a situation where SMEs practically do not support funding, it seems exaggerated. It is understood that Latvia wants to become a superpower of innovation and thus compete in the world market, but it is common ground that, in order to innovate, there is a need for the "SME pool" from which some eminent world confounders may emerge. As long as there is no "SME pool" in Latvia, there is no physical innovation.
- The large amounts of programs under the auspices of the Central financial and contractual agency are intended for public and local authorities. Of course, it is a welcome construction of new kindergartens and sports complex, which also benefits SMEs – fulfilling the works ordered by the municipality. But speaking of the country's economy, it is built by SMEs, which require different support.
- Business Incubators – designed to support innovative technology-based SMES. Provides training, premises, but does not offer real funding. Focus on innovation excludes most of the SMEs.
As we see from all of Latvia's managed EU funding programs, real support for business development is offered only by LEADER, with several conditions – the company must be located outside the cities, and the turnover may not exceed 70 000 EUR per last year, the maximum budget of EUR 50 000 is to be eligible.
SMEs are at the heart of each country's economy, they form a "pool" needed to create innovation. The current policy of Latvia promotes the outflow of businesses from Latvia, and the concentration on innovation excludes the development of production.