The results of the 2023 FICIL Sentiment Index report suggest that, compared to the other Baltic States, Latvia has a much weaker innovation ecosystem, infrastructure, availability of labour, quality of education and healthcare system, and has fewer investment incentives.
In 2023, the Sentiment Index research, conducted by the Foreign Investors’ Council in Latvia (FICIL) and the Stockholm School of Economics in Riga, focused on the efficiency of public administration procedures and the administrative burden within Latvia. The findings reveal significant challenges and highlight the critical need for action to enhance Latvia’s competitiveness as an investment destination.
Investment Sentiment Reaches an All-Time Low
The research reveals that the investment climate in Latvia has reached its lowest sentiment score in history, dropping to 1.9 out of 5 points in 2023 – 0.4 points lower than in 2022. Investors have attributed this decline to several persistent challenges, including geopolitical uncertainties, poor legislative and regulatory frameworks, limited availability of skilled labor, and rising labor costs.
FICIL Chairperson Zlata Elksniņa-Zaščirinska explains:
“Foreign investors in Latvia are becoming increasingly cautious. The number of investors planning to continue investing in Latvia has fallen from 79% in 2022 to 67% in 2023. Investors cite long-standing unresolved issues such as labor shortages, low-quality education, high bureaucracy, and a lack of effective investment promotion mechanisms as barriers to growth. Moreover, the high bureaucratic burden increases operational costs and impacts end consumers.”
Administrative Burdens: A Barrier to Growth
This year’s study emphasizes the significant impact of administrative burdens on Latvia’s competitiveness and investment attraction. Investors identified excessive bureaucracy, poor coordination among public sector institutions, a lack of measurable goals, and overly complex regulatory frameworks as critical factors hampering their operations.
The study highlights that administrative inefficiencies affect a wide range of sectors, including construction, labor relations, judicial processes, and tax administration. These burdens not only create additional work and increase costs for businesses but also generate uncertainty that deters further investment.
The Need for a Vision and Action
Investors have voiced concerns about the lack of a clear long-term vision for Latvia’s development, which undermines confidence in the country’s ability to attract and sustain foreign investment. While communication between policymakers and investors has improved, with greater willingness to listen, the study found that tangible actions and measurable progress are still lacking.
The sentiment towards policymakers’ efforts to attract investment has dropped to 2.4 out of 5 points – the lowest score since 2017. Without a well-defined strategy to highlight Latvia’s strengths and address these pressing issues, the country risks falling behind its Baltic neighbors, which investors report as having less bureaucratic hurdles and larger market opportunities.
Challenges and Opportunities
The critical evaluation by investors points to several areas requiring immediate attention:
- Labor Force Development: Addressing shortages and improving education quality to ensure a skilled workforce.
- Modernizing Public Administration: Enhancing transparency, predictability, and efficiency in public sector operations.
- Encouraging Fair Competition: Creating a level playing field among state-owned enterprises and private companies.
Despite these challenges, Latvia has the opportunity to leverage its strategic location, highly educated workforce, and access to European markets to regain investor confidence. However, achieving this requires decisive action, a unified vision, and consistent follow-through from policymakers.
About FICIL Sentiment Index 2023: Administrative Burden Edition
For the ninth consecutive year, FICIL together with Dr. Arnis Sauka from SSE Riga carried out the Sentiment Index research. This time the research focused on the overall investment climate and the investors’ sentiment about the administrative burden in Latvia. In early 2024, executives from 66 companies participated in the interviews, representing the key foreign investors in Latvia. Together, these companies (including subsidiaries) contribute to 24% of total tax revenue and employ 26% of the workforce of companies with an annual turnover above 145 000 EUR and 50% foreign capital (data from Lursoft, 2022).
FICIL held a Sentiment Index 2023: Administrative Burden Edition presentation event on 26th of April 2024. During the event public sector representatives, politicians, investors and present guests discussed and debated the results. The event was moderated by journalist Jānis Domburs.