RIGA, May 28 (LETA) - The number of foreign investors planning to invest in Latvia in 2026 is the lowest in nine years, the Foreign Investors' Council in Latvia (FICIL) Executive Director Tatjana Guznajeva said at the Beyond Borders conference on Thursday, while presenting the latest edition of the FICIL Sentiment Index.

Only 47 percent of foreign investors plan to increase investment in Latvia in 2026 - the lowest figure since 2017, said Guznajeva.

This year, the study focused on the investment climate and the innovation ecosystem.

The data points to a significant shift in investor sentiment: while the share of those actively planning to increase investment has declined steadily from a peak of 79 percent in 2023, this year a record high 37 percent of respondents indicated their investment plans remain conditional. 47 percent of foreign investors plan to increase investment in Latvia this year.

According to Guznajeva, 37 percent of investors said their plans depended on various factors such as geopolitics, macroeconomic stability, political stability and the new government's ability to carry out the necessary reforms. If the new government succeeds in convincing these investors to invest in Latvia this year, this would be good news for Latvia, she added.

Political instability had a significant impact on foreign investors, as challenges were evident in the coalition and its decisions, said Guznajeva. Uncertainty causes hesitation among foreign investors regarding their future investment plans. Institutional coordination is also crucial as it is directly linked to politicians' ability to agree on priorities.

Key areas for policymakers to focus on are education and retraining, labor availability, defense, the innovation ecosystem and the tax system. Investors identified digital infrastructure, labor costs, physical infrastructure, a talented and intelligent workforce, quality of life, and technology and know-how as Latvia's strengths to boost investment.

The study also looked at cooperation between different stakeholders and businesses, said Guznajeva. Although science and technology sectors in Latvia are growing, there is still no visible synergy between them. Foreign investors have also expressed concern that the tax system, which is currently seen as relatively good, could change.

According to investors, the main priorities of the new government should be human capital, education and demography, defense and regional security cooperation, tax policy, political stability, predictability and accountability, energy independence and competitive energy prices.

Looking at the government's progress over the last four years and considering the priorities of the new government, the first issue to address is human capital. This is a long-term challenge, said Guznajeva.

The study has found that there is a need to focus on reducing excessive regulation and administrative burdens on business, infrastructure and large projects, as well as on attracting foreign investment more effectively.

Foreign investors believe that sectors with the highest innovation potential in Latvia are information and communication services (67 percent), manufacturing (49 percent), professional, scientific and technical services (44 percent), agriculture, forestry and fishing (35 percent), financial and insurance activities (33 percent), public administration and defense (31 percent), education (29 percent), health and social care (25 percent), and electricity, gas supply, heating and air conditioning (22 percent).

Foreign investors believe that Latvia's innovation potential could be unlocked through targeted financing for the development of high value-added products (as indicated by 40 percent of surveyed foreign investors), commercialization of science and technology transfer initiatives (33 percent), and support for innovation scaling and exports (29 percent). Investors also named development of innovative industry clusters, financing for high-risk innovation, research capacity building instruments, dedicated innovation zones, collaborative research and development financing projects, and investments in technology and infrastructure centers.

The study concludes that no policy instrument will be effective without clear government priorities in innovation and competitiveness, as well as a clear identification of priority sectors. It also requires development of ecosystems rather than isolated efforts - moving away from limited, project-based support to coordinated, multi-stakeholder ecosystems.

The study points out that public funding is an important driver for both research organizations and the private sector. It also concludes that there is a need to attract and develop new talent, and to remove excessive bureaucracy, overregulation and overly rigid administrative procedures.

The FICIL Sentiment Index was conducted by FICIL in collaboration with RTU Riga Business School.