There are several objective reasons for foreign investors' low assessment of Latvia's investment environment - ministers

RIGA - There are several objective reasons for the all-time low assessment of the investment environment in Latvia by the Foreign Investors' Council in Latvia (FICIL), nevertheless, the government still has a lot to do to improve the investment environment, as several ministers said at a discussion organized by FICIL on Friday.

Finance Minister Arvils Aseradens (New Unity) said that, taking into account all the circumstances, the foreign investors' assessment was still relatively good. Aseradens pointed to a number of factors affecting the national economy - the European Central Bank's (ECB) ongoing measures against inflation, very conservative lending policies pursued by banks, and the security situation that needs to be promptly addressed.

The economy cannot develop normally when interest rates are this high, said Aseradens. Lending is also weak, as there is currently an investment gap of around EUR 2 billion to EUR 5 billion in the Latvian economy. The minister believes that the funding and investment gap could be mitigated by development of the capital market.

Furthermore, bureaucratic procedures have replaced targeted progress toward implementation of the country's strategies, admitted Aseradens.

Work on tax policy guidelines will be completed in June, as a result of which the tax climate could become more business friendly. Reforms at the State Revenue Service are also continuing, as is work on universal income declarations, which will contribute to combating the shadow economy.

Economics Minister Viktors Valainis (Greens/Farmers) said that foreign investors' opinion should be taken seriously.

According to Valainis, labor shortages hamper business development in Latvia - manufacturers receive orders but are unable to produce the goods ordered due to not having enough workers.

Valainis also acknowledged the impact of bureaucracy on the construction industry. Work is already under way to reduce red tape in construction. The absolute minimum target is to reduce the time of the construction process by 30 percent, and ideally by 70 percent, said Valainis.

He also pointed to the underdeveloped capital market, which currently accounts for about 1 percent of gross domestic product. "In order to get the economy going, the capital market needs to be developing faster," said Valainis.

Transport Minister Kaspars Briskens (Progressives) admitted that infrastructure had scored low in the FICIL assessment, agreeing that Latvia had not invested enough in the development of railroads, ports, and especially roads, creating connections needed by businesses between industrial parks, ports and other facilities.

Nevertheless, Latvia is the leader in the Baltics in the aviation industry, while the communications infrastructure in all three countries is at roughly at the same level.

As reported, the FICIL assessment of the investment attractiveness of Latvia in 2023 is the lowest to date, evaluated by foreign investors with a mark of 1.9 on a five-point scale, according to the FICIL Sentiment Index 2023 survey carried out by FICIL in cooperation with the Stockholm School of Economics in Riga.

Compared to the 2022 survey, foreign investors' assessment of Latvia's investment attractiveness has decreased 0.4 points.

FICIL board chairwoman Zlata Elksnina-Zascirinska says that foreign investors in Latvia are more cautious now, and the share of investors planning to invest in Latvia in the future has decreased from 79 percent in 2022 to 67 percent in 2023.

Investors point to long-standing, persistent problems that hinder both Latvia's competitiveness and attraction of new investment, such as unavailability of labor, low education quality, high levels of bureaucracy and lack of investment attraction mechanisms.