According to foreign investors, the investment climate in Latvia in 2023 was the lowest it has ever been – 1.9 points out of five, as concluded in FICIL Sentiment Index 2023 by the Stockholm School of Economics in Riga and the Foreign Investors’ Council in Latvia (FICIL).
Compared to results of 2022, the overall investment climate score is down by 0.4 points.
FICIL chairperson Zlata Elksniņa-Zaščirinska reports that the foreign investors active in Latvia now are generally cautious. On top of that, the percentage of investors who have plans to invest in Latvia is down – from 79% in 2022 to 67% in 2023.
Investors point towards the still unresolved, constant problems that slow both Latvia’s competitiveness and attraction of new investments. This includes, for example, shortage of workers, low education quality, high level of bureaucracy and a lack of investment attraction mechanisms.
“The high level of bureaucracy for businesses leads to a large amount of work and high costs. This hurts the end consumer. Defining the long-term goal in Latvia’s challenge. This would help define a clear strategy on the necessary changes. Having a vision is important for investors to feel safe and welcome in Latvia,” said Elksniņa-Zaščirinska.
When asked about the reasons for the low score, the majority of investors mentioned the geopolitical situation, the shortage of qualified workers, high labour costs and poorly developed regulations.
At the same time, investors are also unhappy with policy-makers’ work in attracting investors – 2.4 out of 5. This is the lowest score since 2017. Although communication with policy-makers has improved and there is a tangible wish to become involved, investors believe there is a lack of real action in this direction. Investors also say that the lack of a clear vision is what stops Latvia from successfully competing for new foreign investments, as there is no clear position that would help showcase Latvia’s strong sides.
In last year’s index a great deal of focus was put on the administrative burden. It was underlined as a major factor that slows Latvia’s competitiveness and attraction of investments.
Foreign investors say that the administrative burden in Latvia is caused by the high level of bureaucracy, lack of coordination between public sector institutions, lack of quantifiable goals and complex regulations. The administrative burden in observed in all sectors – construction, employment, judicial system, tax administration and others. Investors say that the administrative burden creates additional work, inflates costs and creates a sense of uncertainty, deterring investors from investing in Latvia. The critical assessment from investors outlines the challenges the state administration should address. They are related to the availability of labour and human capital development, modernisation of the public sector, transparency and predictability, as well as promoting fair competition between state-owned companies and private enterprises.
These problems help outline the sectors in which Latvia made the least progress over the course of the year and in which investors want to see immediate action from policy makers.
67% of investors confirmed plans to continue investing in Latvia. This is one of the lowest scores in the history of FICIL Sentiment Index. Multiple investors mentioned it has become easier to invest in Baltic States both thanks to the size of domestic markets and lower bureaucracy. Investors who still haven’t decided what they want to do are waiting for a clear vision about the development of the state.
On the 26th of April, FICIL, together with Stockholm School of Economics in Riga and German-Baltic Chamber of Commerce will organise a discussion “Investment environment in Latvia: solutions for attraction of investments”. During this discussion, participants will present results of the index. The discussion will be livestreamed on FICIL YouTube channel and Latvian public media portal “lsm.lv” in Latvian language and “eng.lsm.lv” in English.
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