Investment activities since 2020 have been quite volatile. In the last three years (2020-2022), expenditures in the formation of total capital increased on average by 1.8% per year, which is much more moderate than the period before the Covid-19 pandemic (2017-2019), when the growth was an average of 8.1% per year.

As the economy stabilized after the Covid-19 pandemic shock, investment volumes in 2021 increased by 7.2%. However, the war in Ukraine has increased uncertainty, reflecting in the dynamics of investment activities. In 2022, investments only increased by 0.6%, constituting 21.7% of GDP. Investment activities were also constrained by the rise in construction prices and delays in the implementation of EU-funded programs. After three years of moderate growth, investment activities in 2023 are increasing rapidly.

Weak credit, low demand, and high uncertainty significantly limit private investments, which remain at a low level for a long time. In 2021, the volume of private sector investments increased by 10.2%, and in 2022, it exceeded the 2021 level by almost 8.2%. Positive dynamics also continued in 2023, with private investment volume in the first half of the year being 10.4% higher than the previous year.

State investments in Latvia are at a relatively high level. They make up almost 1/5 of total investments in the Latvian economy. Despite experiencing the Covid-19 crisis, state investments increased by 7.6% in 2020. However, in 2021 and 2022 (at comparable prices), they decreased by 1.4% and 24.6%, compared to the previous year. In the first quarter of 2023, state investment volume increased by 10.2% compared to the same period last year.

Foreign Direct Investments

The Foreign Direct Investments (FDI) attraction policy is focused on creating a competitive environment for investments in Latvia, considering crucial aspects for investors:

  • macroeconomic indicators of countries;
  • the business environment - simplicity of bureaucratic procedures, stable tax policies;
  • availability of qualified workforce;
  • market potential;
  • infrastructure accessibility;
  • offered support instruments and incentives.

FDI's are a crucial prerequisite for further economic growth in Latvia because of the following reasons:

  • provides Latvian entrepreneurs with the opportunity to use additional financial capital;
  • facilitates the acquisition of various production and management skills;
  • promotes the creation of new jobs; enables the utilization of new technologies/technology transfer to Latvia;
  • facilitates the integration of Latvian entrepreneurs into international trade networks and supply chains;
  • can positively impact development in indirectly related areas such as medicine, education, and infrastructure.

In the attraction of FDI in Latvia, the Ministry of Economics and the Investment and Development Agency of Latvia (LIAA) play a significant role. The Ministry of Economics formulates the strategy and planning for attracting foreign investments, while LIAA works to attract funding from foreign investors and develops various projects both, for existing businesses and the establishment of new ones, as well as implementing the initiatives of the state and local governments.

The government's economic policy aims to achieve sustainable growth in gross domestic product by promoting productivity, investments, exports, and employment. To reach these goals, active state investments in the economy are planned, which will make a significant contribution to Latvia's economy, promoting its growth and increasing export volumes.

The Ministry of Economics plans to make significant investments over the next seven years. The ministry will provide substantial support to enhance productivity, reduce inequality, improve energy efficiency, digitize, increase export capabilities, and enhance competitiveness - this will be the largest funding amount in history.

The "Green channel" (fast-track) initiative is being implemented to attract investments. According to this initiative, registered businesses in Latvia planning investment projects in priority sectors have the opportunity to receive state services expedited. This includes government services such as construction, environmental impact assessments, spatial planning, and migration.

Investment opportunities for foreign investments are visible in specific sectors where Latvia excels with great potential and experience, based on its competitive advantages. These sectors include Research and Innovation Strategy for Smart Specialization (RIS3) areas.