Mr. Scafo (President of the FIESP)

Honourable Ministers,

Excellencies,

Ladies and gentlemen,

I am pleased to address this prominent audience of Brazilian and Latvian business representatives here in the vibrant city of Sao Paulo, the principal economic centre of Brazil and one of the most important financial centres in Latin America. I extend my thanks to the Federation of Industries of the State of Sao Paulo and to the Latvian Investment and Development Agency for organizing this important business event.

Brazil and Latvia first established official ties in 1921 and I am pleased to note that Brazil never recognized Latvia's forceful and illegal incorporation into the Soviet Union between 1940 and 1991. The people of Latvia remain grateful to Brazil for its courageous and principled stance. After Latvia regained its independence in 1991, the relations between our two countries were re-established in a climate of friendship and understanding, despite the vast geographic distance that separates our two nations. The large Latvian community living in this beautiful Latin American country has played in important role in strengthening the cordial ties between Brazil and Latvia. I would like to extend a special thanks to Latvia's Honorary Consul General in Brazil, Mr. João Grimberg, for his efforts to promote ever closer cooperation between our two countries. Mr. Grimberg, who lives here in Sao Paulo, is an active member of the Latvian community in Brazil and addressed this business forum earlier today. I also thank the Honorary Consul of Brazil in Latvia, Mr. Arturs Stikuts, who resides in Riga and is participating in this visit to Sao Paulo.

We are doubly honoured to be here, as this is the first ever visit by a Latvian head of State to Brazil. The large Latvian business delegation that is accompanying me on this visit is composed of 35 participants from nearly 30 significant Latvian companies. The Latvian business delegates here with me today represent various sectors of the economy, including energy, logistics, information technologies, agriculture, pharmaceuticals, construction, engineering, metal processing, tourism, and many others. The diverse composition of the Latvian delegation reflects just some of the most promising sectors for strengthening the economic co-operation between Brazil and Latvia.

Latvian companies are particularly interested in the experience of Brazil in producing biodiesel and ethanol, which has made a significant contribution to the Brazilian economy, increased Brazil's trade surplus and reduced its reliance on foreign energy supplies. There are many other reasons to explore the new opportunities that have arisen for economic co-operation between Brazil and Latvia. The European Union is Brazil's largest trade, investment and cooperation partner and Latvia's membership in the EU provides a good basis for further expanding the economic relations between our two countries. 

While the trade volume between Brazil and Latvia is still comparatively small, it is increasing every year and I hope that this healthy trend continues.

Excellencies, ladies and gentlemen,

It is hard to imagine that only 16 years ago, Latvia was still an occupied country with a centrally planned, Soviet type economy. For five decades, Latvia's trade partners were almost exclusively in Russia and the other republics of the former Soviet Union. However, since regaining its independence in 1991, Latvia has made a successful transition to a free market economy and to democratic rule. We have also reoriented the bulk of our trade to our Western neighbours in the European Union. 

Since Latvia's accession the EU and NATO in 2004, my country's already favourable investment climate has become even more attractive to foreign investors. Currently Latvia is experiencing the fastest economic growth in the entire European Union. My country's GDP has grown by an average of 8.5% per annum since the year 2000 and last year alone it increased by nearly 12% (11,9%). As a result, the difference in incomes between Latvia and Western Europe is steadily decreasing. We would, of course, like to ensure that our dynamic growth is more balanced. We are still seeking to raise our productivity and exports, increase our competitiveness, produce more goods with a higher added value, invest more in research, development and education, and stimulate the high-tech industries. We are already making use of the EU's structural funds to ensure that our economy develops in accordance with these priorities.

Foreign direct investment has been a strong driving force behind my country's rapid economic development. The volume of foreign direct investment in Latvia has doubled every 4 to 5 years and about 85% of these investments have been from the EU countries. Russian and American enterprises have also invested considerably in Latvia.

With the help of foreign investment, Latvia has been able to create a growing financial sector of regional importance, a dynamic high-tech industrial complex and a very promising logistics cluster. Latvia is gradually changing its profile from a mere exporter of raw materials, such as timber and base metals, to a country that provides a diverse range of export products and services.

Many well-known foreign companies have entered the Baltic market and are already taking advantage of Latvia's business-friendly environment to establish a base in the region. German companies are manufacturing automotive parts in Latvia for such renowned carmakers as Mercedes-Benz, BMW, Volkswagen and Porsche. Other well-known companies, such as Procter & Gamble, Philip Morris, IBM, Siemens, McDonald's and Coca-Cola need no introduction.

Unfortunately, Latvia's rapid economic growth has also been accompanied by increased consumer prices. As a result of our growing domestic consumption, Latvia's imports are growing faster than its exports, increasing our current account deficit and consumer debt. Our annual rate of inflation, which had been stable at 2 to 3% for some time, has exceeded 6% during the last three years. In response to this development, the Latvian government has formulated a plan to reduce inflation and to maintain the strength of our currency, the lat, which has been stable since its reintroduction in 1992. Despite these resolute government measures, Latvia will have to delay the adoption of the euro until after 2010, rather than 2008 as originally planned. Currently Latvia meets all of the Maastricht criteria for adopting the euro, except that concerning the rate of inflation.

Excellencies,

Ladies and gentlemen,

One of Latvia's principal advantages lies in its strategic location at the crossroads between Eastern and Western Europe and at the very centre of the Baltic Sea region. Latvia serves as a natural bridge for East-West (Europe-Asia) traffic, with direct transport links to Russia and further east all the way to China. Nearly half (or 45%) of Russia's foreign trade passes through the Baltic Sea, including Latvia's three largest ports, which are endowed with very cost-efficient and well-developed infrastructures.

Latvia offers Brazilian companies a competitive and attractive business environment from which to operate between Russia in the East, and Latvia's prosperous EU neighbours in the West. My country's membership in the EU common market, with over 450 million consumers, offers those Brazilian enterprises that decide to expand their business in Latvia the unrestricted opportunity of providing their goods and services throughout the EU's 27 member States.

Latvia has also been developing industrial and technological business parks that are modern and competitive, as well as logistics centres and special economic zones. Riga, the capital of Latvia, is showing all the potential of becoming a significant commercial, financial and transportation centre in the Baltic Sea region and Northern Europe. Riga's airport is the largest in the Baltic countries and is a short flight from Europe's major economic centres.

I will add that Latvia's tourism industry has been experiencing spectacular growth in the past few years and that Riga has recently become a centre for major international events. Last year, for instance, we hosted the World Ice Hockey Championship and the NATO Summit of Heads of State and Government. As a UNESCO World Heritage Site, Riga is Northern Europe's capital of Art Nouveau architecture and one of the most beautiful cities in the region.

Brazilian companies and investors are certainly most welcome in Latvia. Latvia has many assets that make it an ideal base for Brazilian enterprises to expand their business operations in Europe. These assets include a dynamic and rapidly growing economy, an advantageous location at the crossroads between the established western markets of the EU and the promising new markets of Russia in the east, an attractive business and investment environment, low taxes, including a 15% Corporate Tax Rate, a strong banking system, highly qualified labour in certain areas, high potential in the field of research and development and many other advantages. 

Excellencies,

Ladies and gentlemen,

Once again, I thank the organisers of this important event. I hope that today's encounters between the entrepreneurs of our two countries will generate new business opportunities for our mutual benefit, and that the flow of resources, trade and people between Brazil and Latvia will continue to increase in the coming years.

My best wishes to you all.