Foreign money heading back to Latvia

RIGA - Latvia, which had the European Union’s steepest economic decline in 2009, saw foreign direct investment recover last year and is expected to return to pre-crisis levels in the next few years, according to Swedbank, reports Bloomberg. “With the economic recovery, foreign investors’ interest in the Latvian economy has renewed,” Martins Kazaks and Dainis Stikuts, economists at Swedbank’s Latvian unit, wrote in a note on Feb. 10. “We forecast that FDI inflows will amount to 4-5 percent of GDP in the coming years; i.e., they will largely return to the pre-boom levels,” they said.

Latvia’s economy expanded an annual 3.7 percent in the fourth quarter, the quickest pace in three years, the statistics office in Riga reported on Feb. 9, as exports, industrial production and domestic demand recovered. The Baltic country’s gross domestic product shrank a cumulative 25 percent since 2008 when it was forced to seek a 7.5 billion euro bailout loan arrangement from a group led by the International Monetary Fund and the EU.

During the country’s economic boom, FDI flowed primarily to financial intermediation, real estate and commercial services, the note said. “Now, foreign direct investment primarily goes to manufacturing because of its improved competitiveness and increasing export possibilities,” Kazaks and Stikuts said in the note.

Estonia had the biggest share of FDI in Latvia, accounting for 14.4 percent of the total by the third quarter of last year, according to the note. Sweden was second with 13.4 percent.
Some of the Estonian investment is actually Swedish, in particular when counting bank ownership, the note said. “Thus, it is Sweden rather than Estonia that is the true FDI leader,” they said in the note.