At the latest Foreign Investors Council of Latvia (FICIL) High Council Meeting, investors and government representatives engaged in a focused discussion on strengthening Latvia’s competitiveness in a changing geopolitical and economic environment. The conclusion was clear. The discussion was not about limiting the role of the state. It was about reinforcing performance, neutrality and enforcement in order to secure long term economic resilience. A strong economy does not require a weak state. It requires a capable and disciplined state operating within a competitive framework that inspires confidence and delivers measurable results.
1. Strategic public and private cooperation as growth multiplier
State and municipal companies play a critical role in Latvia’s economic architecture, particularly in infrastructure, energy, transport, digital services and other strategic sectors. Their presence ensures continuity, security and industrial capacity.
The discussion therefore focused not on reducing state participation, but on strengthening structured and outcome driven cooperation between public and private capital. Developing three to five well defined cooperation or co-investment projects in 2026 would demonstrate Latvia’s ability to mobilise capital efficiently while safeguarding national interests.
At the same time, Latvia’s capital market remains underdeveloped. Stock market capitalisation stands at approximately 1 percent of GDP, significantly below Lithuania and Estonia. The ecosystem requires broader participation, including from publicly controlled entities. A deeper capital market increases transparency, strengthens governance discipline and expands long term financing capacity.
The objective is not privatisation by default. The objective is performance, transparency and capital efficiency.
Pēteris Vilks, Deputy Head of State Chancellery, Head of Cross- Sectoral Coordination Department: “Publicly-owned companies are given a public mandate to provide strategically important services and goods for the functioning and growth of the economy. At the same time, they must operate in markets in compliance with competition neutrality and corporate governance principles. Compliance with these principles will provide future value growth for these companies and additional value for economic transformation and the expansion of private sector activity.”
2. Modern governance and incentive alignment
FICIL recognises the legitimate and often strategic role of state and municipal owned enterprises. In several sectors, public ownership provides stability and enables long term development where private capital alone may not assume comparable risk exposure. The emphasis should therefore not be placed on expanding excessive ex ante oversight or restrictive intervention that may reduce operational agility. The focus should be on strengthening competition neutrality enforcement and governance discipline.
Publicly controlled companies should operate under corporate governance principles equivalent to leading private sector standards. This includes clearly defined commercial mandates, measurable long term targets, transparent performance indicators, professional and accountable management, and motivational remuneration systems linked directly to clearly defined results.
Performance based remuneration and incentive alignment are not private sector privileges. They are governance instruments. Board members and executives of public companies should have incentive plans tied to profitability, efficiency, innovation, export development and disciplined capital allocation. Public capital deserves performance discipline.
As Zlata Elksniņa-Zaščirinska, FICIL Vice Chairperson of the Board, noted: “State and municipal companies are an important part of Latvia’s economic system. The focus should not be on limiting their role, but on ensuring world class governance, transparent performance metrics and accountability aligned with results.”
The implementation of the amended Article 88 framework of the State Administration Structure Law[1] should therefore concentrate on clarity of mandate and performance discipline, rather than on expanding administrative control mechanisms.
3. Stronger competition neutrality and effective enforcement
Where public and private actors operate in the same markets, competition neutrality must be actively safeguarded. This is achieved not through preliminary restriction, but through credible enforcement and clear ex post review mechanisms.
Latvia should further strengthen the capacity of its competition and enforcement authorities to address market distortions swiftly and consistently, irrespective of ownership structure. Equal rules must apply to all market participants.
Empowering the Competition Council with adequate authority, resources and investigative tools, including the appropriate use of indirect evidence aligned with international best practice, would enhance predictability and reduce systemic risk.
As Māris Vainovskis, Leader of the Investment Protection Work Group and FICIL Vice Chairperson of the Board, emphasised: “The discussion should not be framed as state versus private capital. The real issue is whether all market participants, regardless of ownership, are subject to transparent, performance based and enforceable rules. Where competition neutrality is credibly upheld, investor confidence strengthens, managerial discipline improves and economic drive accelerates in the best interests of Latvia.”
A balanced and performance driven model
The High Council discussions reflected a pragmatic and mature position. Latvia does not need to choose between state participation and competitive markets. It must combine them intelligently.
State and municipal companies can be powerful drivers of growth when mandates are clear, incentives are aligned with measurable outcomes, governance standards match those of leading private enterprises and competition neutrality is consistently enforced.
Reducing unnecessary ex ante constraints while strengthening governance discipline and enforcement credibility creates a balanced model that protects strategic interests without discouraging investment.
Latvia’s competitiveness will ultimately depend not on ownership structures, but on performance standards, neutrality and institutional trust.
References:
[1] https://likumi.lv/ta/id/63545-valsts-parvaldes-iekartas-likums