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On April 29 the American Chamber of Commerce in Latvia together with the Norwegian and Swedish Chambers of Commerce in Latvia, Stockholm School of Economics in Riga and Rietumu banka held a seminar in the AmCham Outlook series to discuss the competitiveness of Latvia and attraction of foreign direct capital.
Experts from both government and business discussed Latvia's competitiveness and the present investment climate. Addressed were specific issues concerning competitiveness and conditions for improving the business environment in order for Latvia to remain an attractive destination for foreign investment.
Joining the debate were the following experts:
The event was supported by Rietumu Bank.
The event kicked off with a brief overview of how well Europe in general and Latvia specifically are doing in attracting foreign direct investment by moderator Guntars Krols. He offered an insight into preliminary results of the Investment Sentiment Survey conducted by FICIL highlighting the main factors hindering the inflow of capital: the lack of stability, transparency and consistency in decisions, increased shortage of skilled workers and the grey economy in certain sectors. Among main factors for driving a sustainable growth, according to investors, are low labor costs and an increased focus on technology and innovation. "Many investors have admitted that they would be ready to invest more in Latvia, but the main limiting factor is the lack of qualified labor," Krols said.
Dana Reizniece-Ozola, Minister of Economics informed the audience about the state of the Latvian economy. The main concern for future growth is the deteriorating labor market because of both the quantity and quality of labor force. In particular, people with technical skills are in high demand. Labor skills are not corresponding to the market demands and by 2020 this gap will only increase. Among other challenging factors, the Minister stressed low productivity, low share of manufacturing in GDP, middle income trap, low R&D expenditure and high energy costs.
According to her, Latvia's economy is highly dependent on external factors and geopolitical conditions significantly influence our economy. Internal consumption instead of export growth is now driving the Latvian economy. Growth of FDI inflow has slowed down, therefore Latvia needs to increase its competitiveness by facing the challenges: increase its share of production, R&D investments, reduce the cost of electricity and continue reforms, especially in education.
Among encouraging factors for Latvia's economy the Minister emphasized the following: GDP growth, creation of jobs, increase of gross salary, more diversified exports and growing potential of the manufacturing sector.
The Minister offered her key policy priorities on how to increase Latvia's competitiveness: more well-paid jobs throughout Latvia, rise of the manufacturing sector and favorable business environment.
Governor Rimsevics spoke on the current policies of the European Central bank in order to ensure that the Eurozone remains competitive. The Governor emphasized the necessity to ensure economic growth with the three basic tools: stable fiscal policy, monetary policy and structural reforms. Latvia's success recipe in regaining competitiveness during the crisis was ability to conduct speedy, decisive reforms to resume productivity and increase export capacity. Speaking about how to sustain competitiveness, the Governor mentioned the importance of a prudent fiscal policy, continued structural reforms, predictability and stability of tax policy.
Caroline Galvan of the World Economic Forum explained the definition of competitiveness and gave an overview of the methodology of the Global Competitiveness Report. She offered an insight into Latvia's performance globally and in the regional context as well as mentioned the main strengths and weaknesses in its competitiveness. According to her, Latvia has made real progress in increasing its competitiveness during the course of the past years. Being on its way toward a knowledge-based economy, the largest gaps for further increase of competitiveness are innovation, institutions and infrastructure.
Eric Trusiewicz of CEMEX Latvia offered an outlook of one of the largest foreign investors in the country on Latvia's competitiveness and business environment. With some real life examples he illustrated what foreign investors view as the main benefits and concerns for expanding their investments. Among some of the main benefits capital investment, growth of exports, value added services, ethical workforce, transparency and environmental responsibility were mentioned. Main concerns are stemming from issues such as high energy costs, poor infrastructure, unfair competition due to relatively big grey market, slow legal system and skills mismatch in the labor market.
Presentations were followed by a lively debate. In conclusion, the moderator asked each speaker to single out one unique factor of Latvia's investment attractiveness. The following were suggested:
Together with AmCham we can develop our networking not only in the local market with local companies, but also reach out to good partners far away from Latvia.
Ugis Grigorjevs, Head of Sales at Nordwoc