Unlike previous years, when the volume of attracted investments was increasing, last year’s volume had demonstrated a decline. This means investors have taken out more of their investments than they have invested anew.
Lursoft’s study shows that foreign investors had provided Latvian companies with funding worth EUR 7.21 billion over the course of 1991-2016. This means foreigners own 29% of base capital of Latvia’s active companies.
Compared with 2015, the volume of last year’s investments has declined EUR 211.59 million. «It should be said that one of the reasons for the decline was Swedbank’s decision to reduce base capital by EUR 367.85 million. This decision was made in relation to Swedbank’s financial results. Its goal is to optimize the bank’s capitalization level and hand over capital shares that create additional administrative and financial burden to the mother company,» – explains Lursoft researcher Indra Urtane.
She notes that last year was the first when investment dynamics demonstrated downward-facing tendency.
«Looking at dynamics recorded in recent years, we have to conclude that information is not very optimistic, because the volume of investments shows a tendency to decline every year. While the volume of direct investments in base capital of Latvian companies had grown by EUR 1.05 billion in 2009, growth in recent years has not been higher than EUR 0.15 billion in 2014 and EUR 0.19 billion in 2015,» – Urtane says.
Decline of investments – the result of unpredictable tax policy
«Time will tell if 2017 brings positive changes to the field of foreign investments. No major hopes should be put on the possibility of a big increase of interest from investors,» – said the researcher.
This is also supported by a study published by Stockholm School of Economics in Riga, which states that the situation in regards to the protection of investors’ interests did not improve last year. Arnis Sauka, commenting on the study’s results, said that half of interviewed investors have no plans to invest more money in Latvia.
Lursoft board member Daiga Kiopa notes: «Foreign investors had previously mentioned the country’s unpredictable tax policy and the government’s unwillingness to progress with insolvency reform. What has been observed in recent months proves this – the approval of the state budget for 2017, during which we could observe unreasonable and chaotic changes to the tax policy, and delays with provision of official status to insolvency administrators. These are but some of the examples that prove how much justified foreign investors’ concerns about uncertainty and indecisiveness with the country’s tax policy truly are.»
Lursoft representative Ainars Bruvelis, explaining possible reasons behind investment volume decline, notes that one simple explanation is the fact that following the 2008 crisis, unlike Russian and Latvian companies, many western companies, including banks managed to attract then necessary resources on their own instead of going bankrupt or getting a loan. «Generally, thanks to refinancing, accounting supervision and tax policy, those companies capitalized their debts, increasing their capital or creating new companies with divided capital. After the crisis, base capital declined. This also reduced the volume of direct foreign investments,» – Bruvelis said.
Latvian companies – investments from 135 countries
«In relation to attraction of investments in Latvian businesses, it should be said that 29,273 capital associations were registered in Latvia last year. The capital of those companies was either fully or partially owned by foreigners. In total, shares in Latvian companies are owned by 29,692 foreign citizens,» – Urtane said.
She adds that those foreigners represent 135 countries.
Analysis of industries in which the largest investments were recorded in 2016 shows that storage and transport assistance, non-metallic mineral goods production and operations with real estate were in the lead.