One of the key problems for the attraction of foreign investments in the Latvian economy still remains the Insolvency Law. Foreign investors have complained of corrupt practices in the course of insolvency proceedings in Latvian style down since 2008. According to some reports over this time Latvia has lost almost 700 million euro.
Also Vice President of the USA Joe Biden, who visited Riga in August, did not pass this topic round. Apart from the Insolvency Law, Biden invoked to improve the Latvian judicial system, to make it more effective and transparent.
What prevents foreign investors in Latvia? Amid common problems for investors in case of the Latvian business environment we can distinguish unpredictability of the taxation policy. The examples are round us — it is enough to remember the mess with micro-enterprise tax. Despite objections of the public the Saeima votes for the decision on compulsory social contributions in the amount of EUR 97.16. Some days later the Prime Minister Maris Kucinskis declares that the regulation on this social payment might be annulled. But immediately one of the coalition parties protests against that...
And how to plan business in such a chaos at least for one year to come? The politicians keep silence, they are busy with disputes between each other.
Nevertheless, there are yet unresolved problems such as shadow economy, disordered social security and healthcare system, negative population growth and long-drawn regional reform.
Is it any wonder that just a half of foreign investors are planning to continue investing in business in Latvia and increase the quantity of investments?
As a result, at the time when the economic growth is straightforwardly skidding and new investments are needed for the development in the country, the operating foreign investors are weighing staying away. For the same reasons new large foreign investors do not come to Latvia.
Once the problem has been established, it is necessary to look into practical modalities to address such problem. What to do? Obviously, to improve the business environment in Latvia there is an urgent need to take concrete targeted steps to advance availability of labour force and addressing demographic problems, improve taxation and judicial systems, as well as remove the most serious shortcomings in planning and process of adoption of tax policy.
Furthermore, it is necessary to intensify fighting the shadow economy, abuse of insolvency proceedings, fighting the tax evasion and other obvious problems, which have ruined competitiveness of Latvia for a long time.