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Investment activity in Latvia remains low - FICIL Sentiment Index 2016

BC, Riga, 05.12.2016.Print version
Investment activity in Latvia remains low, according to FICIL Sentiment Index 2015-2016 "Development of the investment climate in Latvia: the viewpoints of foreign investors" presented by the Foreign Investors' Council in Latvia (FICIL) on Monday.

Zlata Elksnina-Zascirinska, FICIL Chairperson of the Board, said that investment activity in Latvia was low due to a multitude of factors and some of those factors, in particular, external ones, were impossible for us to change.


"But we can and we should focus on those factors that we can influence - reduce the internal barriers and inefficiencies, achieve real and tangible results on the much needed and long delayed structural reforms, ensure effective and transparent functioning of the court system and judiciary, create predictable and sustainable tax system," she said.


The second annual FICIL Sentiment Index shows that majority of foreign investors see only minor improvements in investment climate in Latvia over the past 12 months. A service company, which was one of the investors participating in the survey, remarked rhetorically: "Why would someone want to invest here if new taxes are introduced without any consultations and your only possibility to look for justice is to go to court, like in the case of the solidarity tax? And what will happen if the constitutional court decides that it was not right? Will anyone pay back the tax?"


At the same time, certain foreign investors noted positive changes, for example, Latvia's accession to the Organization for Economic Cooperation and Development (OECD), and others pointed out that, with so many problems and big risks in other parts of the world, Latvia looked slightly better than other places.


Latvia's demographic situation drew the harshest criticism, with some foreign investors noting a lack of improvement and others saying that the situation has even become worse over the past year. The respondents admitted, however, that demographic problems represented long-term challenges that could not be resolved in a year. The foreign investors voiced similar opinions also about the availability of workforce, with most of them complaining that efforts to deal with this issue have been insufficient so far.


Foreign investors also criticized the work of the Latvian government on improving investment climate. Some said the government was not interested in making real changes and did not have a real plan about how to tackle the problems. Others indicated also positive trends, like awareness of problems such as insolvency and the shadow economy and some rational steps to deal with them.


The 2016 study suggests that there are major concerns with regard to the quality of the tax system. Only five of the 32 interviewed respondents evaluated the quality of the Latvian tax system as either good or experiencing some positive change compared to the previous year.


Only three of the surveyed 32 investors gave a positive or neutral answer when asked about uncertainty of the situation in Latvia. Most of the respondents said that the situation remained as uncertain as a year ago, with many investors being concerned about the geopolitical situation and unpredictability of Latvian tax regulations. They also said that Latvia lacked a long-term development vision.


Majority of foreign respondents said that communication with the Latvian government had improved and some also saw improvement with regard to government support for foreign investors. However, as many as 10 of the 32 interviewed investors said that no positive change has happened over the year or that the situation with regard to government support and communication is, in general, negative


The FICIL Sentiment Index was established in 2015 by the FICIL in cooperation with the Stockholm School of Economics in Riga. The key aim of the Index is to foster more evidence-based policy decisions to further promote a favorable investment climate in Latvia. The report, based on qualitative survey, summarizes key concerns and suggestions of the main foreign investors in Latvia – representatives of companies that have made the decision to invest in the country and have been operating here for a considerable time period.


The main problems stated in the 2015 report were demography and access to labor; education, science and value added; and legislation and support from the government.

The mission of the FICIL is to improve the business environment in Latvia through active dialogue with the government. The FICIL represents the 30 largest companies from various countries and sectors that have made significant investments in Latvia as well as twelve international chambers of commerce.






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