2.1% of enterprises in Latvia create half of productivity growth, Professor Julia Bystrova from Riga Technical University reported on Wednesday during the presentation of a study on productivity enhancement and economic transformation.
In turn, 13.6% of approximately 20,000 enterprises included in the study accounted for about 80% of productivity growth from 2016 to 2024.
As noted by Bystrova, during this period, productivity grew faster than turnover only in the trade sector.
A fairly rapid growth in productivity was also observed in the construction industry, while the lagging sectors included energy, heat supply, real estate operations, transportation, and storage.
The study by the Scientific Institute of Productivity at the Faculty of Economics and Social Sciences of the University of Latvia ("LV PEAK") emphasizes that Latvia has the potential to become a regional leader if it fully utilizes a productivity growth approach based on sustainability principles.
As the director of "LV PEAK" Inna Steinbuka explained, the study identified several groups of enterprises, with three sectors in the leading group with relatively high productivity - trade, public administration, and real estate operations; however, these are not the sectors where high productivity can contribute to economic growth.
As a positive fact, she mentioned that the manufacturing industry was included in the group with growing productivity, although its productivity currently stands at 42% of the EU average. Meanwhile, productivity in the construction sector is stagnating.
Although the growth rate of productivity in Latvia is higher than the EU average, the gap remains significant - in 2024, the productivity level in Latvia at current prices was only 54.1% (72.8% in purchasing power parity) of the EU average, which is one of the lowest indicators.
As a result of data analysis and assessment of state support tools, researchers concluded that the main restraining factor for the structural transformation of the Latvian economy is not a lack of entrepreneurial activity, but a pronounced unevenness in productivity between enterprises and sectors.
A relatively small number of companies create the majority of total added value - high-performing enterprises account for only about 0.1% of the total number, generating 25.5% of added value, exports, and wage funds, while a significant portion of enterprises has stagnating or low productivity.
Such an economic structure in the long term increases the risk of getting stuck in a "middle-income trap" and hinders convergence with more developed EU countries, the authors of the study note.
In turn, productivity-leading enterprises possess characteristics such as a high level of human capital development, innovative activity, digital maturity, quality corporate governance, export potential, and access to capital. As noted in the study, the existing system of state support considers these factors only fragmentarily, with formal compliance criteria dominating, which often results in support being provided to enterprises with limited growth potential.
