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Making an investor feel welcome

  • Latvia
  • Other

01-03-2014

Author: Māris Vainovskis

Forbes, Nr.3(46) March, 2014

Each year various policy planning documents, strategic development plans and government declarations specify attraction of foreign investors and improvement of the investment environment as one of the goals. However, Latvia is not doing very well at achieving these goals, at least according to international studies. The World Economic Forum’s Global Competitiveness Reports for 2012-2013 as well as for 2013-2014 still rank Latvia behind Lithuania and Estonia in terms of intelligible and predictable policy implementation. At the end of last year, the Doing Business 2014 study conducted by the World Bank also rated Latvia’s performance slightly behind its neighbouring states (Latvia being 24th, Estonia 22nd and Lithuania 17th).

How can the investment environment in Latvia be made more attractive? The Foreign Investors’ Council in Latvia notes that an efficient system for protecting rights that will guarantee investment safety is an essential factor in an investment decision. An opaque business environment and overall instability will deter investment.

In this regard, efforts should continue not only towards increasing the reliability of transactions and legal administration, developing holding regulations and making the court system more efficient, but also towards promoting regulatory stability and broader involvement of stakeholders, industry professionals and the public in the legislative process. Frequent and rushed amendments to legislation may give an unfavourable impression of Latvia as an unreliable investment environment. In turn, a high-quality, predictable legislative process and timely discussion of draft amendments to legislation with specialists will reduce the need for frequent changes in legislation and increase assurance that legal policy will be developing in a stable fashion.

Latvia has concluded dozens of international treaties for investment protection. According to data from the U.N. World Investment Report 2013, investors have been using mechanisms for protecting their interests with increasing frequency: the number of investment disputes is trending upward, and at a high pace. By the end of 2012, the total number of known reviewed cases of dispute between investors and states had reached 244, including 42% decided in favour of the state, 31% in favour of the investor and 27% ending in a settlement. One of the largest investor disputes so far was resolved in 2012 – Occidental Petroleum Cor-poration v. The Republic of Ecuador on unilateral termination of a farmout agreement. The largest amount in compensation of losses so far (1.77 billion dollars) was adjudged as a result.

We should add that dispute resolution mechanisms specified in international investor protection treaties are generally used as a last resort once all other mechanisms for protection of one’s rights have failed. Few investors presume possible disputes when they select the country to invest in, evaluating existence of an investor protection treaty as a criterion in making their investment. What an investor will always consider (and appreciate) when planning their future investments, however, is state regulations and their stability, tax policy and its predictability, and the efficiency of using means of legal protection. Observing and protecting investor interests is one of the factors that a state should consider when adopting or amending its regulations in order to avoid getting involved in protracted and exceedingly costly litigation.

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