More than half of enterprises plan to invest in their business this year, according to results of the latest survey by Swedbank.
64% of respondents confirmed that now is the appropriate time to perform investments. Companies located in regions plan to invest more actively than those located in Riga and Pieriga (67% and 49%, respectively). Larger companies are the most optimistic about their investment plans (80%). Entrepreneurs explain that their plans coincide with the economy’s need for investments and banks’ preparedness to provide finances. Swedbank is prepared to provide EUR 1 billion to high-quality projects.
Activity across all segments
When asked about their investment plans for the year, the most optimistic attitude toward investments was expressed by financial directors (65%). Small enterprises are more cautious – 41% of respondents plan to perform investments this year. 16% of respondents have yet to make up their minds and 29% do not plan any investments for 2015.
Entrepreneurs to use existing funds and bank loans
Enterprises that have specific plans for 2015 mention their existing funds as the primary source of investments (75%). 40% of enterprises plan to use bank loans and 13% – state support.
When asked how well they are informed about different financing options, representatives of different enterprises mentioned loan services provided by commercial banks (average score of 4.03 out of 5). Entrepreneurs believe their knowledge of venture capital funds is lower than that (average score of 2.64). The same applies to start-up and micro loans (2.54) and non-guaranteed loans (2.4).
Economy needs active investments
Entrepreneurs’ current investments plans coincide with the need to speed up Latvia’s economic development. Although Latvian enterprises invest a larger proportion of GDP than other Eurozone member states, investments have become less frequent in the past couple of years. Considering that Latvia’s development level is lower, it is necessary to invest more money in order to reach the level of wealthier countries and ensure equalization of the country’s income level with the rest of Eurozone.
Funding is available
«Although we still hear the myth that banks do not finance businesses, the reality is exactly the opposite – banks have resources and they wish to provide loan services more actively. The volume of loans provided by Swedbank to different enterprises increased by 87% this year, in comparison with the same period of 2014, and reached EUR 135 million. Swedbank is prepared to provide EUR 1 billion to high-quality projects. However, we need to keep in mind that the actual demand can still be affected by different factors,» – said Reinis Rubenis, Swedbank board member.
The actual demand can be affected by factors like caution of enterprises, expectations for EU structural funds the lack of capital and shadow economy. According to Swedbank’s estimates, there are 25,000 enterprises in Latvia that are prepared to borrow money and have a free borrowing capacity. It is noted that obstacles that prevent enterprises from borrowing money differ depending on their size. Caution with investments is common among large enterprises, whereas medium and small enterprises are more often limited by the lack of available capital.
In order to motivate enterprises to invest in business development, it is necessary to carry out numerous state measures, like using tax instruments to motivate enterprises to declare their revenue. It is also worth performing multiple shadow economy reduction measures and encourage reasonable use of structural funds. Improvements to the country’s legislative environment would only benefit the country and its business environment in the long run.
Latvia’s financing potential is currently high, according to Swedbank. Enterprises have become more effective after the crisis. They have also developed better exporting capabilities and diversified their markets. Financing is also more abundant now and the situation with interest rates is better as well.