EY: Last year, a third less new foreign investment projects were launched in Latvia and almost half less new projects were created – Economy, finance

EY: Last year, a third less new foreign investment projects were launched in Latvia and almost half less new projects were created – Economy, finance
EY: Last year, a third less new foreign investment projects were launched in Latvia and almost half less new projects were created – Economy, finance
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photo; mk.gov.lv

EY’s annual investment environment study European Attractiveness Survey, which collects foreign investment statistics throughout Europe and analyzes investors’ opinions on the attractiveness of European countries for investments, reveals that 22 new investment projects were launched in Latvia last year, as opposed to 32 projects in 2022. The number of jobs created by new foreign investment projects has also decreased – from 2,245 jobs in 2022 to 1,265 jobs last year.

The EY study shows that a significant decrease in new investment projects can also be observed in Lithuania – from 47 projects in 2022 to 28 last year. In Estonia, the decrease was small, from 9 projects to 8. The number of new jobs created by investments also decreased throughout the Baltics – from 5,868 jobs in 2022 to 4,186 last year.

“It should be noted that the investment attraction indicators of Latvia and the Baltic States are still not bad – although there is a visible reduction in new investment flows in the Baltics and Latvia, our country, based on new investment projects per million inhabitants, would rank eighth in Europe, while Lithuania would be tenth. On the other hand, in terms of new jobs created, Latvia would be ninth, Estonia – sixth and Lithuania – eleventh in Europe,” he says Guntars Krols, EY Partner, Head of the Strategy and Transaction Consulting Department in the Baltic States.

“I think that the latest investment data should be interpreted not as a distinctly pessimistic assessment, but as a warning signal that we need to act urgently to attract foreign investors even at a time when there is low economic growth throughout Europe and a full-scale war is going on just beyond our borders ,” continues G. Krol.

The EY study reveals that foreign investors are relatively optimistic about the investment attractiveness of the Baltics and Latvia in the future – that is, 42% of investors expect that Latvia’s investment climate will become more attractive for investments in the next three years (in the Baltics as a whole – 56%) and only 20% expect that it will worsen (in the Baltics as a whole – 17%).

Latvia’s biggest risk is domestic politics, not geopolitics

The research shows that, when talking about Latvia, investors indicate that the biggest risk for investment attraction in Latvia in the next three years is domestic political instability – 48% of foreign investors mention it as one of the three main risks. Domestic political instability refers to various political changes, legislative changes and lack of predictability in domestic political processes. This risk is followed by high financing costs (high interest rates) and financial market conditions – mentioned by 30% of investors. The third highest risk for investments in Latvia is the high national debt and its impact on tax policy – this is also mentioned by 30% of investors.

Latvia’s advantage is people’s skills, innovation and infrastructure

The most important factors that allow investors to choose Latvia for investments are labor skills and availability, which in the case of Latvia is cited as the most important factor by 22% of investors, followed by 18% of investors who note the opportunities for research and innovation development in Latvia, and another 12% note the availability of Latvian infrastructure . Another 8% note the favorable energy costs. It should be noted that only 6% of investors note the tax policy as a factor that allows them to choose Latvia as an investment country and only 2% note the size of the local market and the same – only 2% mention political stability.

The advantage of the Baltics in attracting investments is the availability of labor with technological skills – 55% of foreign investors consider it better in the Baltics than in other regions, followed by the availability of private capital and the availability of various financing options – 49% of investors mention it as better in the Baltics.

These advantages are especially clearly visible in the case of Latvia – 62% of investors believe that Latvia has better available workforce with technology skills, while another 52% believe that Latvia has a better developed network of technology start-ups and development institutions. 50% of investors think that Latvia has better support from state institutions for advancing the digital agenda than elsewhere in Europe. However, it must be said that only 28% of investors believe that Latvia would have a higher level of innovation than elsewhere in Europe and 30% think that we have a better environment for the development of artificial intelligence investments.

Latvia’s potential in the creation and production of business services, support centers

Of the investors whose companies intend to expand operations in Latvia, most, or 56%, intend to do so in the field of business support services (call centers, data centers, etc.), while 33% intend to create R&D or research and development centers in Latvia. Another 30% are thinking about the creation of sales and marketing centers, as well as the development of logistics and supply chain projects in Latvia, and 26% are planning the creation of training and training centers. 22%, on the other hand, plan to establish production in Latvia (in terms of percentage, the amount does not have to be 100%, as investors can plan investments of various functions).

It is interesting that Lithuania differs in that here the most investors plan to create sales and marketing centers – 54%, while in Estonia the most investors think about expanding production – 33% of investors plan to do so.

A moderate decline in foreign investment also in Europe as a whole

Also in Europe as a whole last year there was a drop in the inflow of new foreign investments – in 2023 there were 4% fewer new investment projects than the year before (5,694 versus 5,962) and importantly, 7% fewer new jobs were created than the year before (319 923 jobs against 343,634 a year earlier). In Europe, large economies dominate in attracting investments – the most new investment projects last year were in France (1194, -5% year-on-year), Great Britain (985, +6%) and Germany (733, -12%). Interestingly, Poland is in sixth place with 229 new investment projects (-3%).

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The EY European Attractiveness Survey is a comprehensive, annual study that gathers foreign investment statistics across Europe based on the EY European Investment Monitor (EIM) database. The statistical section of the study is complemented by investor surveys conducted by EY in collaboration with FT Longitude. Interviews with 550 international investors and 150 investors in the Baltics were conducted in March and April of this year.

lv.ey.com

The article is in Latvian

Tags: year foreign investment projects launched Latvia projects created Economy finance

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