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Foreign investors’ mood improves further in Latvia

The general mood of foreign investors in Latvia has improved in the past year, said Professor Arnis Sauka of Stockholm School of Economics in Riga at the presentation of the Foreign Investment Environment Index 2017 on Wednesday, 10 January.

He also said problems have not changed much, most of them are associated with the country’s demographic situation and labour force availability.

Interviewed investors gave Latvia’s investment attractiveness a score of 2.5 out of 5 in 2017, whereas the score given to Latvia the year before was only 2 out of 5. Efforts of Latvian policy-makers to improve the country’s investment environment were given a score of 2.9 points (2.3 points in the past) by interviewed investors.

Three fields in which no major progress was observed in the past 12 months include the demographic situation, labour force accessibility, as well as healthcare and social system. Investors gave the demographic situation a score of 1.6 points out of 5. 74% of interviewed investors said they have seen no improvements in this field in the past year.

«Yes, not major changes are expected with the country’s demographic situation, but we do wish to see at least some progress. If progress is achieved, this field will not have a declining tendency. In this case investors do not look at how many children were born – they focus more on political initiatives and measures undertaken to improve the demographic situation. We have yet to see any positive changes in this field. And if no positive changes are noticed, what can we expect from the future?» said Sauka.

Labour force accessibility is given a score of 2.7 out of 5. Unfortunately, 71% of respondents do not see any improvements in this field. «It is notable that it is more about productivity of workers, not their availability. Everyone says productivity of Latvian workers cannot be considered poor,» added Sauka.

Another sector in which no real progress was noted last year, according to investors, is healthcare and social system. Investors gave it a score of 2.5 points out of 5. 71% of interviewed investors mentioned not seeing any notable improvements in this field.

57% of interviewed investors also see no improvements for the country’s judicial system. 55% believe the quality of legislation associated with business activities has not changed at all, whereas 52% of investors said there is still a great deal of uncertainty in regards to certain decisions associated with the future.

«Investors still talk about lengthy and complicated court processes, which often paralyse everyday work. We can say that the situation has improved somewhat. Inefficiency is a word often mentioned by investors. I am not as much worried about obstacles in the existing system, but rather the fact that Justice Ministry acts blind and unwilling to resolve existing problems. I truly hope that this is no more than public rhetoric, because legal education in Latvia is very strong, and there is Judicial Affairs Council and other capable lawyers that are not shy to speak about problems. I hope that such a position from the ministry is only public and politically motivated,» said Sauka.

Investors are more positive about the quality of Latvia’s education system and science – 3.1 points out of 5. In addition, 17% of respondents fully agree and 40% partially agree that the education system has improved over the course of the past twelve months. 33% fully and 24% partially agree that support and communication with state structures has improved.

When asked about the quality of Latvia’s tax system, 17% of interviewed investors noticed improvements, 49% partially agree there have been improvements, whereas 43% of them said they have not seen any improvements. ‘Reading between the lines makes it look like investors do not believe things will remain the way they are,’ said the professor.

Among the initiatives undertaken by Latvia’s government, investors value the most the decision regarding non-application of reinvested profits with corporate income tax. Other noteworthy decisions include credit guarantees for exports and creation of a start-up environment. The lowest praise was given by investors to the initiative to introduce ‘zero bureaucracy’.

«If you try talking to policy-makers in ministries, they will give big speeches about all the good efforts, that 45 out of 50 initiatives have already been realized, three are in the process of completion and two more will be commenced soon. Businessmen laugh or cry, depending on which field they represent. One thing is putting initiatives on paper. It is completely different when initiatives are put into practice. Most often investors speak of bureaucracy in different e-systems and construction. Businessmen also mention unethical and illegal behaviour by state representatives as major problems,» said Sauka.

The foreign investors’ mood index was compiled in cooperation with Foreign Investors Council in Latvia. 42 businesses took part in it. 


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