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The latest FDI statistics mark another successful year for Latvia
Latvia ’s FDI Statistics in Brief
Despite an increasing number of warnings on economic instability lately from the international media, the FDI in Latvia has continued to shine by reaching nearly 6 707 m EUR by the end of the second quarter in 2007. During the three years since Latvia’s accession to the EU in 2004, FDI has increased four-fold compared to the 2001-2003 period.
Source: Bank of Latvia
Remarkably enough, 2006 was a record year for Latvia by attracting 1 330 m EUR, twice as much as in 2005. The first half of 2007 reports an FDI inflow of 920 m EUR allowing exceeding the 2006 data well before the year ends. Whether or not FDI for 2007 will exceed 2006 levels or not, it is a clear signal that Latvia is still considered an attractive location for FDI.
Source: Bank of Latvia
Looking at the countries investing in Latvia, Nordic countries along with Germany and Russia have grabbed the largest piece of the cake thus far.
Source: Bank of Latvia
While it has been mainly Scandinavian banks that have been the largest contributors to the FDI by having 25% of the total stake in the middle of 2007, services and manufacturing have also played a substantial role with a combined figure of 23%.
Source: Bank of Latvia
LIAA’s Impact and Closing Remarks
An obvious interest given the latest FDI data is to look at how we as the Investment Promotion Team of the Investment and Development Agency of Latvia (LIAA) have impacted the manufacturing and services figures during 2007.
Looking at the statistics, LIAA over the course of the year has been directly involved in more than 150 potential investments projects in sectors like metalworking, software development, insurance, data centres, construction materials, automotive components, and transport & logistics. Projects completed or in the final stage of completion may account for about 130 m EUR. It is worth mentioning that despite having an equal split between services and manufacturing projects, size-wise more than 95% of the total investments will go into the high value-added manufacturing sector. This in turn will have a positive impact on Latvia’s long-term economic development.
One of the most important projects is the project by well-known French giant Saint-Gobain (www.saint-gobain.com) which plans to start construction of an ISOVER (www.isover.com) factory, making insulation materials. Apart from ISOVER, Saint-Gobain has stated it plans to invest in another large-scale manufacturing project in Latvia before 2011. Among the reasons why Latvia was considered were the countries favourable location which provides easy access to the whole Baltic region and neighbouring Scandinavian and Russian markets, its economic growth and the state support given to develop the manufacturing sector.
No Time to Celebrate
Despite the positive signs that Latvia has seen in FDI, it is clear that the government has to continue working on anti-inflation measures. While the initial anti-inflation plan adopted in April 2007 has brought a much expected cooling of the real estate market and decreased the level of consumption, there is still plenty of work to be done.
Therefore, at the end of November a working group on the macroeconomic stabilization plan from the Ministry of Economics prepared a new proposal for the Government to battle the current issues. The new action plan contains a number of instruments for cooling down the economy, but the most important is a proposed reform of the taxation system which will stipulate a full corporate income tax rebate or decreased tax rate for investments in R&D, as well as changes in Competition law which will facilitate a more efficient battle against competition violations.
As far as the manufacturing sector is concerned, the Ministry of Economics is going to put more emphasis on promoting export by implementing an export guarantee loan system for which 30 m
In addition, a special attention will be given to the improvement of the labour market situation. Priority for the coming years will be given to attracting a highly skilled labour force and decreasing local labour flow to other EU countries. As an example, there will be a special state aid program “Support for the Attraction of Highly Skilled Labour Force” administered by the Investment and Development Agency of Latvia allowing to recover 40 000 LVL (57 000 EUR) per employee per year.
This policy shift by the government will have significant benefits for companies relocating to Latvia. For those lucky companies which happen to be working with high technology products they will find that government policy is now orientated to their needs.
With the expected changes in taxation and the labour market in Latvia there has never been a better time to locate here.
