In view of budgetary pressures in Latvia, the Foreign Investors’ Council in Latvia (FICIL) emphasizes the need for effective use of state and municipal capital, calling for increasing efficiency and improving corporate governance of the state and municipal-owned companies, while stimulating capital market development.
Capital markets: Latvia’s untapped opportunity
In view of the foreign investors, capital markets (stock, bond markets and related institutions) remain one of Latvia’s greatest, yet underused opportunities, as they could support effective mobilisation of savings and provide financing for boosting economic growth. Latvia’s stock market capitalization at the beginning of 2025 was only 1% of GDP, which is significantly lower than in Lithuania (6.2%) and Estonia (12.8%). While Latvia’s state and municipal-owned companies already combine bank financing with bond issuance in certain cases, the equity market remains an underutilised opportunity for securing long-term growth capital. In view of Liene Dubava (CEO at Nasdaq Riga and a FICIL Board member): “The development of the capital market is not only about diversifying sources of finance for companies; it is about strengthening the entire investment climate in Latvia by fostering greater economic stability, providing opportunities for more ambitious and long-term investments, supporting mobilisation of household savings into investments, and lowering the costs of capital, due to increasing competition between banks, bond and equity markets.”
Given Latvia’s defence investment needs and associated pressures on the state budget, the foreign investors argue that capital markets could provide alternative sources of funding for state and municipal-owned enterprises. If the capital market development would be beneficial for the Latvian economy, why has it been so slow, and why do the state and municipal-owned companies avoid raising money through capital markets?
State-owned enterprises: control versus efficiency
The unwillingness to raise money through capital markets may be rooted in a strong preference for full control of the state and municipal-owned companies. Some officials consider listing shares as the first step towards gradual privatisation and partial shareholder influence on company development. Both of the above have been viewed as undesirable by some policymakers. In contrast, the foreign investors argue that a partial stakeholder influence and greater transparency of the state and municipal-owned companies would be beneficial for the investment climate in Latvia. Māris Vainovskis (Senior Partner at Eversheds Sutherland Bitāns and a FICIL Investment Protection work group leader) summarises the sentiment of the foreign investors: “It is critical to ensure transparent, accountable, effective and efficient governance of the state-owned companies, which would imply professional and ambitious company management, minimising political influence in guiding company management, and ensuring fair market competition. Contrary to a populistic myth, state and municipality-owned companies can leverage public capital markets to their advantage without privatisation, as the state would retain a majority ownership and control. Greater transparency would stimulate better corporate governance, boost efficiency, and enhance accountability to investors and stakeholders. This would positively impact economic growth and provide additional, much-needed resources for the state budget”.
Positive signals
This week, FICIL met with the Ministry of Economics and took part in the meeting of the Riga City Municipal Companies Corporate Governance Advisory Council, held together with the Mayor of Riga and the City’s key management officials. The discussions focused on capital market opportunities and the importance of ensuring efficient, transparent governance of the state-owned and municipal enterprises in the best interests of the public. The Ministry of Economics reaffirmed its commitment to evaluate FICIL’s proposals and to advance policies that foster a predictable, transparent, and investor-friendly environment. In addition, the Ministry noted that it is preparing potential amendments to the state-owned enterprise regulatory framework and emphasized that public-private partnerships remain a key instrument for mobilising investment and expertise.
The Riga City Municipal Companies Corporate Governance Advisory Council highlighted the significant progress achieved in corporate governance, while also underlining the strategic and regulatory challenges in the operations of public companies. The Council expressed support for the move of RNP (Rīgas namu pārvaldnieks) towards a stock exchange listing. FICIL is grateful to the Riga City and the Ministry of Economics for the important steps taken in the right direction, with the expectation that these efforts will lead to greater efficiency in public spending and further development of the capital market.