Analytics, Banks, Economics, GDP, Investments, Latvia

International Internet Magazine. Baltic States news & analytics Saturday, 22.09.2018, 03:00

Low investment level hampers Latvia's potential growth

BC, Riga, 14.09.2018.Print version
The low investment level in Latvia at the moment is hampering Latvia's potential growth, informs LETA referring to the Bank of Latvia's Monetary Policy Department head Uldis Rutkaste.

"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.

 






Search site