Analytics, Banks, Economics, GDP, Investments, Latvia
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Thursday, 25.04.2024, 15:35
Low investment level hampers Latvia's potential growth
"During the fat years, investments were at approximately 30% of
gross domestic product. That was even too much, and part of these investments
was unproductive," said Rutkaste. Now, however, investments are at just 20%
of GDP, but 25% is what Latvia should strive for, explained Rutkaste.
He agreed that investments were growing, but this was mostly on account
of infrastructure co-financed by the European Union or construction - there are
new shopping malls, storehouses, office buildings being constructed.
"However, investments in production equipment have been growing very
slowly, and their share in total investments has decreased significantly. In
the past, investments in production equipment made up slightly more than 30% of
all investments, now the proportion is just 23%," said Rutkaste. The
current production equipment is used at full capacity, no new equipment is
purchased, which means that, unless something changes, productivity is unlikely
to increase in the future.
This may be due to lessons businessmen learned from the crisis years,
believes Rutkaste. Lending has
also been growing very slowly.
"We are still analyzing this, but it appears that there may be
certain problems with competition. Competition is not steep enough on the local
market to prompt companies to accelerate their development," said
Rutkaste. "Quite simply, many companies went bankrupt during the crisis,
and the strongest companies now have very solid market positions. Their
positions are not threatened by anyone, they feel comfortably enough and are
not considering investing and growth as they do not see any competition to
speak of."
Rutkaste also believes that the purpose of investments should not be to
make production less expensive - rather to make innovative, complex products
that would be more competitive on the international market.