The volume of money available for investments both globally and in Latvia is very large. However, the question is whether this money is spent in directions that help the economy to grow. This is where there are concerns, said Ernst & Young partner in Baltic States Guntars Krols.
He stressed that both Latvia and other countries have taken very brave steps to warm up the economy and give enterprises time to reorient their operations. However, all of this happened for borrowed money that will need to be returned.
«We don’t have to look into the issue of whether or not the state debt of a certain level is good or bad. The most important issue now is whether or not this money is directed in areas that help the economy grow. I have concerns that not all of these investments were directed to areas that will contribute to economic growth,» said Krols.
When asked about Latvia’s plan for finances provided by European Union Restoration and Resilience Mechanism, EY representative said he is generally of the mind that Latvia is too focused on building physical structures, not so much create conditions that would better Latvia’s competitiveness.
«A part of this plan involves fixing mistakes of the past by investing in projects that have received previous investments,» admits Kols.
He also predicts that the influence of Latvia’s plan on construction prices will become apparent after a couple of years.
«I believe we will see in a couple of years if those projects are even realistic at the current prices. Concerns appear significant when you look at the list of construction projects that are planned to be implemented in the coming years. If we look at the most important components behind construction costs – wages, energy costs, construction materials – all of them will have increased considerably by then. This is why it would be more reasonable to slow down some of them and instead look at the price dynamic,» said EY representative.
He also said the private investments sector is in waiting. «Enterprises are not too eager to take loans even though interest rates are low and loans are relatively reach. The question is what enterprises plan to do with the money. Will the money be paid in dividends or will enterprises prepare for bigger investments using their own finances?» said Krols.
At the same time, he said in a situation when investments become more expensive, it would be wiser to hold on to finances and wait.
«On the other hand, now is a good time for Latvian enterprises to widen their perspective – investing in foreign markets and expanding operations. Often it is the wider perspective and looking past Latvia that is lacking, because from an enterprise management point of view our enterprises are more experienced and flexible than many western enterprises. Additionally, if we look at development strategies of many different companies, the correct approach would be exploring the Scandinavian market. Yes, historically there haven’t been many examples of enterprises doing that. The reason is because this is rather complicated, largely due to cultural differences. But we also have several good examples of enterprises that have managed to explore these markets successfully,» said Krols.
EY: it is possible not all investments are directed in areas that will ensure future economic growth
