Successfully investing in Latvia

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published on May 16, 2018

 

How do you assess the current economic situation in Latvia?

In 2017, Latvia's economic growth was 4.5%. This was the biggest increase in the last 6 years. In the first quarter of 2018, the Gross Domestic Product increased by 4.3% year-over-year. The growth is attributable not only to an inflow of EU funding and investments but also to the development of industries that rely on domestic demand. The figures indicate a positive sentiment in the economy.

 

How would you describe the investment climate in Latvia? Which sectors offer the largest potential?

In 2017, foreign direct investments in Latvia significantly increased compared to the previous year. According to information released by the Foreign Investors Council in Latvia, Latvia grew in attractiveness during that year. Investors highly appreciate the fact that reinvested profits are no longer subject to taxation. Thus, companies are able to spend more on the development of their businesses. 

 
Improvements still need to be achieved in several areas in order to make the country more attractive to foreign investors. So, it is necessary, e.g., to develop the dialogue between businesses and government, improve infrastructure, and encourage collaboration between universities and companies.

 
Electronic communication, construction and domestic market are the industries that will be attractive to foreign investors in the future. Moreover, agriculture and forestry, the manufacturing industry, as well as trade and the hospitality industry continue to show great potential.

 

What challenges do German companies face during their business ventures into Latvia?

A foreign entrepreneur wishing to do business in Latvia should be prepared to face the following challenges: Insufficient availability of workforce, geopolitical situation, volatility of the tax regime. 

 
Foreign investors appreciate Latvian workforce as qualified and efficient resources. But migration of labour from Latvia is still a factor that needs to be taken into consideration in the process of hiring qualified and experienced personnel.

 
However, Latvia's geographic location at the Eastern frontier of the European Union is not only a known risk but also a strategic advantage when linking the West to the East.

 
On 1 January 2018, statutory amendments arising from the tax reform became effective in Latvia. Although foreign investors show a rather reluctant approach to many aspects of the tax reform, the reform was implemented with the aim of restructuring the country's economic environment and creating a positive impact on the business development.

 
Specialist local consultants, who speak several foreign languages, including German, assist foreign investors to enable them to successfully navigate through this dynamic situation. Starting from investments in Latvia, German companies can tap into the entire Baltic market.
   

What influence do Germany and the EU have on Latvia?

EU membership and the collaboration with the Federal Republic of Germany help Latvia not only in economic terms. They also strengthen the awareness of the rule of law, human rights and values.

 
The trade partnership between Germany and Latvia is further growing. Latvia's most important exports are wood and wood products, vehicles, yarns, woven fabrics and products manufactured thereof, grain and related products as well as metal products. The most important imports are vehicles, machinery and mechanical appliances, electrical equipment and plastics. By the end of September 2017, Germany's direct investment in Latvia reached EUR 680.6 million. 

 
Amid the rising level of prosperity among the Latvian population, the importance of low prices is becoming less crucial. Quality is becoming a hot topic and products made in Germany fully meet this expectation. 

 

In your opinion, how will Latvia develop?

The Latvian economy is expected to maintain the positive development trends. The Ministry of Finance of Latvia projects growth of 4 percent for 2018. Inflation should be at least at 2.9 percent in 2018. For 2019, growth of 3.2 percent is expected. Apart from exports and investments, private consumption will remain a driving force behind the economic growth.

 
 

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