During his presentation, Arnis Sauka highlighted the problem that was also notable the previous year – the rise of the shadow economy. "According to our estimates, it is around 25% of GDP in Latvia and close to 20% in Lithuania and Estonia. We observe an increasing trend, likely also in other EU countries, where migration and economic downturn are amongst the drivers of the shadow economy," says Sauka.

According to the professor, given the high uncertainty that comes with high inflation, the energy crisis, Russia war in Ukraine, and the situation in the economy in general that is still influenced by the Covid pandemic, it does not allow for positive forecasts.
 

"Yet we need and will need money for security, education, innovation, health, and many other areas. Hopefully, the tax increase will not be the main mechanism to compensate for the increase of the shadow economy as SMEs will be those that will feel it most,"  pinpoints Sauka.


"Second, getting out of the crisis stronger is a nice expression, but it also requires resources. One crucial resource to actually achieve this is human capital, both availability and quality. This is still an area of concern and especially SMEs are relatively less targeted by training programmes yet, al least in Latvia but not only. It is not only about human capital development in the private sector but also in the public sector. The efficiency of government is essential for the development and implementation of any SMEs related or other policies. Third and I will stop with this: the green deal vs energy independence question is of major importance. As I see it from my country’s perspective, some progress has been achieved with regards to e.g. planning who is responsible and discussing the horizontal approach. Yet many questions are still not clear including a clear action plan linked with costs, and, in the scope of today's discussion- communication to SMEs about benefits as well as supporting SMEs to switch to greener, more sustainable approaches," stresses Sauka.

How to address these issues? Sauka summarises: "In line with the 3 major focus areas that I mentioned, I believe that investment in training, higher education, science and innovation is important. This is important to both strengthen the human capital as well as increase the productivity of SMEs as well as the public sector. Focus on inclusive entrepreneurship activities such as involving disabled groups would be one activity to address the lack of labor issue by SMEs. One way to foster innovation and value-added, however, might be the involvement of SMEs in supplying to the defense industry: this is an area that desires more attention, also via innovation support schemes. Value-added, export activities of SMEs might also be fostered by supporting SME clusters both locally and internationally. Without a doubt, we need to continue focusing on green energy and energy independence activities, also not forgetting about SMEs. Fighting the shadow economy without fighting entrepreneurship is another policy area that should be constantly assessed. Finally, it is all about the context. Thus policymakers should try to be flexible and reassess various support policies to support SMEs. E.g. decreasing bureaucracy, addressing tax mechanisms and other incentives for start-ups, etc."