Leaping from a primary to a quaternary sector in a rural EU border area

Sandra Spule

What are employment options for young people in the rural areas of Latvia? The peripheral region of Latgale, located next to the EU external border with Russia and Belarus, showcases that the fourth industrial revolution offers means for retaining the younger generation in the region.

Over the past 30 years, the overall prospects for the region's development have been grim mostly because of the negative side effects of the restructuring of the economy. In addition, the 15 years after Latvia joined the EU and the European Single Market in 2004 were not easy. Although the restructuring of the economy and joining the EU had an overall positive effect in Latvia, for Latgale it also meant a further acceleration of the initial negative side effects.

Supported by the EU Common Agricultural Policy, the traditional employer of the region-agriculture - proved that it could grow with fewer hands than before, whereas not all other industries managed to stay afloat to compensate for the job loss in the agricultural sector. As a result, many people had to leave the region, and often the country, in pursuit of employment. Therefore, between 2009 and 2019, Latgale lost one-fifth of its population, with rural areas depopulating most rapidly.

Do the fourth industrial revolution and related quaternary sector activities provide hope to the peripheral and predominantly rural regions, such as Latgale? What does the development mean for the region? What preconditions are necessary? Are there already any signs of uptake?

The good news is that the fourth industrial revolution often disregards geographical specificities, and it is becoming clear that employment in the information and communications technology (ICT) sector does not require attachment to a certain location. As also evidenced by the COVID-19 global pandemic, jobs in the quaternary sector, similarly to many other office jobs, can be set up anywhere with stable and good internet access.

“The COVID-19 pandemic and Brexit have shown that many people have appreciated the possibility to return home, and if remote job options remain, regions such as Latgale can at least reduce depopulation ”

This provides an opportunity for young people to consider staying in the region and for those who have left the region to return. The COVID-19 pandemic and Brexit have shown that many people have appreciated the possibility to return home, and if remote job options remain, regions such as Latgale can at least reduce depopulation.

Everywhere in the world, businesses in the ICT sector look for young, smart people who are able to learn, and Latgale is no exception. In 2019, around1 000 people in Latgale were employed by 279 companies in the ICT sector.

Although accounting for only 1 % of the total regional employment, since 2014 it has annually grown by 10%. For comparison, employment in the traditional sectors of the region, such as agriculture, wood processing and metal working, continues to downsize, which is also due to the technological revolution and intensification, and might also add to the need for more ICT services. This signals a potential for establishing more ICT companies in the region. The quaternary sector is growing rapidly all over Latvia. The national added value by ICT has increased by 77 % from 2014 to 2019, while in Latgale by 102%.

As acknowledged by the ICT companies, their main determinant for settling in Latgale are the two regional universities, namely Daugavpils University and Rezekne Academy of Technologies. They attract smart and ambitious young people wishing to affiliate themselves with the region.

Most importantly, they serve as regional knowledge centres, providing appropriate and timely education that corresponds to the ever-growing regional labour market needs of, inter alia, the quaternary sector. They are expected to boost regional productivity. In 2019, the total value added per person employed in ICT in Latgale was EUR 17 322, which was only half of the national average for the industry but considerably higher than the average regional productivity.

Although intelligent and talented young people are the main resource of the ICT industry, the role of appropriate hard infrastructure should not be underestimated.

This includes a high-speed and volume internet connection, coworking spaces and at least one high-quality office building. These are the main market failures in the region for which public support, including the EU strategic investments, is irreplaceable for enabling conditions to nurture the first signs of ICT growth.

Everyone in Latgale is expected to benefit from the fourth industrial revolution as it mitigates the side-effects of its peripheral location.

The knowledge spillover effect will soon also be visible in other technology-intensive sectors of the economy, starting with the few high-tech industries of Latgale and ending with more traditional industries, such as wood processing and metal working, that have been substantially technologically upgraded in recent years. Overall, it is expected that everyone in these sectors will benefit.

Sandra Spule is Analyst & Policy Adviser in Spatial Foresight (Luxembourg)