Big hopes in small town Latvia

By bne IntelliNews July 11, 2012

Mike Collier in Riga -

Talk about the "green shoots of recovery" is one of the more obvious phrases encountered during any economic cycle. Not only is it a cliche, it's usually also fairly inappropriate, being applied to big businesses, macroeconomic data and the like - more re-growth on the big branches than green shoots from fertile soil. But to cram in another cliche, if you want to see the green shoots, you need to bend down to the grassroots level - and they don't come much greener than the leafy town of Cesis (population: 15,000), 100 kilometres from Riga in the heart of Latvia's rural Vidzeme region.

Far from relying on the forestry, dairy products and other agro-staples that are the most obvious economic activity hereabouts, Cesis and towns like it provide ample evidence of entrepreneurship as compelling as anything you might see on the BBC's "Dragon's Den" programme. In fact it was a notorious BBC news story from 2011 that depicted Cesis as a stereotypical grey, post-Soviet ghost town. A former resident who moved to the UK to find work was pictured revisiting her dingy, abandoned school and bemoaning how awful life was. It neglected to mention, though, the brand new school that had recently opened or another one that regularly tops school ranking tables.

The report clearly still rankles with Cesis mayor Girts Skenders, who is the very personification of the bustling local busybody. "Walk around any town in Europe on a rainy Sunday in October and you will probably notice there is no one in the streets!" he tells bne exasperatedly. "To say nothing is happening is very unfair."

An audacious bid to be a European capital of culture in 2014 fell only at the final hurdle when the organisers opted for the "safe" option of Riga (probably because Vilnius and Tallinn have recently had the accolade too). "We have a saying that Riga is too close to Cesis, but Cesis is too far away from Riga," quips Skenders, on the decision. "But we still have our annual art festival and opera festival, both of which have an international reputation."

He might also have added Fonofest to the list, a rock festival that organiser Janis Sildniks admits was born simply so his own band would have somewhere to play. This year's event, the eighth, takes place July 13-14 featuring bands from Australia, the UK, Finland, Hungary, Russia, Sweden and the Baltics, as well as headline act The Asteroids Galaxy Tour from Denmark. Last year's event attracted a crowd of 4,000 - a big improvement on the 500 who showed up to the first one. "Crowd numbers certainly didn't get bigger during the crisis years, but they didn't drop either and the festival continued to develop," says Sildniks.

What started as a one-day event is now a two-day festival and the aim within the next few years is to have a three-day event with multiple stages. It is some measure of Sildniks' entrepreneurial acumen that he was prepared to make the ultimate sacrifice of pulling his own band from the bill to concentrate on running Fonofest, along with his music venue Fono Klubs. "The last time we played was three years ago. I remember playing drums and all the time looking at my mobile phone. That's when I realised we couldn't play any more," he laughs.

Magnus opus

The nexus of Cesis entrepreneurship is Agris Lapins who heads the Magnus business incubator - one of nine in the country, each of which has at least one smaller subsidiary. He is currently helping around 80 new businesses establish themselves, 25 of which have already left the cheap office space in the town centre that houses the incubator. "For some people there is no choice but to start their own company. If they lose their job, they spend a while looking for a new one then come to the conclusion that no one else is going to give them one," says Lapins, whose laid-back style is probably exactly what start-ups need to give them confidence.

One of his greatest success is the Karumlade cafe, which recently moved from tiny premises on a Cesis backstreet to a larger site on the main shopping street. The owners, Vineta Zamoidika and Alla Oldermane, began baking their cakes and confectionery at home after putting their children to bed and got such good feedback (their carrot cake is almost worth a trip to Latvia on its own accord) that they summoned up the courage to set up shop.

According to Lapins, the cafe provides a perfect example of how to tap into small-town potential. "I met with the ladies and we discussed the possibilities, but I told them we would need to work out some figures," Lapins says. "Only then did they nervously hand me a sheet of paper on which they had written all the costs of making each cake, what price they had been selling them for and so on. At a glance I could see we had a viable business. They had been keeping accounts without even thinking about it - we just needed to turn that into regular book-keeping."

Oldermane tells bne that launching right at the start of crisis was naturally scary. "But after taking expert advice about our prospects, we felt a bit more confident. Within two years it was clear we needed a bigger place."

Sitting in one of the incubator's offices is lawyer Juris Baranovskis who set up his own legal practice in 2011 and actually moved from Riga to Cesis for what he says is a better quality of life, part of an increasing trend among Riga's upwardly mobile young professionals. The possessor of two master's degrees, in his spare time he also runs an NGO promoting environmental protection. "The crisis made people more creative. This is a good time and place to set up a company," he insists, citing the introduction in 2011 of micro-business legislation giving start-ups a tax regime in which they pay just 10% of their turnover as crucial in his decision to strike out alone.

"I regard the micro-business legislation as practically a gift from our government," he says. "Under the main tax code [which sees more than 40% of an individual's wages disappearing in income and social taxes], it would have been impossible to set up a business."

Perhaps the most eye-catching example of a cosmopolitan start-up is 22-year-old Marta Matisone, owner of a company making hand-painted handbags. At around €60 per bag, they are luxury items in a country where the average gross monthly wage is €670, but each bag is made to order and Matisone says her customers love that no two bags are the same. "Prada has beautiful bags but there are thousands of each one, with the same logo. You go to a party and there are hundreds of girls all with the same bag. So women with more personality come to me and ask me to make them a bag - and I can make anything that they can imagine."

An unabashed Francophile, Matisone divides her time between Cesis and Paris. A "Teach Yourself French" book lies propped open on her sewing machine while she and two employees are busy stitching. "I spend two weeks in Latvia then two weeks in France. Latvia is a good place for business, but France is where I feel truly at home," she muses. So much for small town attitudes.

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