“It has nothing to do with Russia.” Zatlers comments on why foreign investors are reluctant to invest in Latvia’s economy

“It has nothing to do with Russia, because in reality, from the principle of such a security policy, investing in that border with a potential aggressor is one of the foundations of security,” said the former President of Latvia Valdis Zatlers in an interview on TV24’s program “Neđėla.Post scriptum”, acknowledging the news about the fact that the investment climate in Latvia in the assessment of foreign investors in 2023 was at the lowest level so far, making 1.9 points out of five.

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“Actually, it is very important for us to attract those investments. Why don’t they come? We have messed something up here ourselves! Well, it is. If we understand that the banks are overregulated, and the American ambassador says: “You’re okay, I can’t open an account for a month!”, well, that’s funny! However, we need to look at ourselves from the outside. But it’s not just the banks, it’s actually the whole economy,” Zatler said.

Also, the former President pointed out that we should think about how to “liberate the economy” so that it is ready for a leap and ready to take risks. “Not only to such a stable profit that I don’t have to do anything, but the profit comes to me. Well, that will never be the case,” stated Zatlers in the TV24 program “Neĺda.Post scriptum”, discussing various issues relevant to society, including the economy and foreign investments in Latvia.

It has already been announced that the investment climate in Latvia in the assessment of foreign investors in 2023 was at the lowest level so far, amounting to 1.9 points out of five, concluded the study “Foreign Investment Environment Index 2023” conducted by the Riga School of Economics and the Council of Foreign Investors in Latvia (FICIL), reported LETA on April 17.

Compared to the measurements of 2022, the rating for the investment climate decreased by 0.4 points. Zlata Elksniņa-Zaščirinska, the chairman of the board of the Foreign Investors Council in Latvia (FICIL), informed that currently foreign investors in Latvia feel cautious, including that the proportion of investors who plan to invest in Latvia in the future has decreased – from 79% in 2022 to 67% in 2023.

Entrepreneurs point to long-unsolved, constant problems that slow down both Latvia’s competitiveness and the attraction of new investments, such as the unavailability of labor, low quality of education, high level of bureaucracy and lack of investment attraction mechanisms. When asked about the reasons for the low rating, the majority of investors highlighted the geopolitical situation, also mentioning the unavailability of qualified labor, high labor costs and ill-considered regulatory framework.

At the same time, investors rated the work of policymakers significantly lower in attracting investments – with 2.4 points on a five-point scale. This is the lowest rating since 2017. Although communication with policy makers has improved and there is a sense of willingness to listen, from the perspective of investors, there is a lack of real action. Investors also point out that the lack of a clear vision prevents Latvia from competing more successfully for new foreign investments, as there is no clear positioning that would highlight Latvia’s strengths.

Last year’s study paid more attention to the administrative burden, highlighting it as a significant factor that hinders Latvia’s competitiveness and investment attraction.

Foreign investors point out that the administrative burden in Latvia is caused by a high level of bureaucracy, a lack of coordination between public sector institutions, the absence of measurable goals for those working in state and local government institutions, and complex regulatory framework. The administrative burden can be observed in almost all areas – construction, employment, justice system, tax administration and others. Investors point out that the administrative burden creates additional work, increases costs and creates a sense of uncertainty, discouraging further investments in Latvia.

In general, 67% of investors confirmed that they plan to continue investing in Latvia, which is one of the lowest indicators in the history of the study. Several investors have admitted that it has become easier to invest in other Baltic countries, both due to the size of the internal market and lower bureaucracy. On the other hand, those investors who have not yet decided expect a clear vision of the country’s development.

From February to the beginning of March 2024, 66 managers of foreign companies in Latvia were interviewed, whose contribution to the Latvian economy is significant, making up 24% of the tax revenues paid by companies, 33% of the total profit and more than a quarter or 26% of the total workforce in foreign companies in Latvia.

You can watch the full video of TV24’s program “The Week. Post scriptum” here:

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