In spite of efforts by policy-makers to sort out the business environment and make it more favourable, there have no serious changes in the last twelve months, and Latvia’s overall attractiveness for investors has not improved.
Investors in Latvia are worried the most about the country’s unpredictable tax policy, as well as the lack of qualified labour force and precise state development strategy, as concluded in FICIL Sentimenta Index 2015-2016 compiled by Foreign Investors Council in Latvia and Stockholm School of Economics in Riga.
The study’s author, SSE Riga associated professor Arnis Sauka notes that «latest index covers three main problems: (1) do investors see improvements in Latvia’s business environment when compared with 2015; (2) what, according to investors, has been done and what remains to be done to improve Latvia’s business environment; (3) what are the main short-term objectives Latvia has to accomplish in order to improve its business environment.»
Sauka emphasizes – results of the study show that aside from the aforementioned factors, investors repeatedly point to other problematic matters that remain unresolved in Latvia and whose continued existence impedes the development of businesses in the country and its national economy. Among the problematic matters are the grey economy, corruption, unsorted social security and healthcare system, negative demographic growth and unresolved regional reform. In addition, investors believe the recent political initiatives have not improved the situation.
The study has also helped uncover another problematic tendency – only half of the largest foreign investors plan to continue investing in businesses in Latvia in the future. Unfortunately, some investors share this opinion. ‘Year after year there are less and less reasons to invest in Latvia – the government introduces new taxes without rhyme or reason, and often the only way to look for truth is to go to court. There is currently no strong motivation to invest in Latvia. Even more so if you compare investment environments in neighbouring Lithuania and Estonia,’ – a banking and finance investor mentioned in the study.
«Like last year, a large number of investors are worried about the situation in Latvia and avoid making important decisions in regards to investments. Uncertainty about the tax system reform, controversial changes in legislation and the inability to sort out the country’s healthcare system and find an exit from the demographic crisis – there are but some of the many reasons why many investors are cautious. It is likely that those reasons are to blame for the hesitation of investors to enter Latvia. If effective actions to improve Latvia’s overall competitiveness are not performed in the near future, not only will the country not see the creation of new businesses, but existing ones will likely decide to relocate to other countries,» – warns Marta Jaksona, CEO of Foreign Investors Council in Latvia.
Although foreign investors criticize Latvian policy makers’ accomplishments in 2016, there is still room for positive changes. Most respondents mentioned that communication with the government has improved this year. Latvia’s competitiveness in infrastructure has also improved.
To improve Latvia’s business environment and increase investments, foreign investors urge Latvian politicians to look for ways to improve labour force accessibility, resolve demographic problems, and improve the tax and court justice system.