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Viktors Valainis: In the new year, programs worth hundreds of millions are being continued for the support of Latvian entrepreneurs

In 2023, the development of the economy continued to be influenced by geopolitical situations and uncertainty, high prices, and rising loan interest rates. The Ministry of Economics' (EM) priorities in the upcoming years are to enhance the competitiveness of business, the resilience and energy independence of the national economy, to promote the availability of housing, and to improve the availability and quality of human capital.

"For me, as a minister, from day one it was important to make changes both in the attitude of state institutions and to eliminate problems in the legislative acts that prevent entrepreneurs from working normally and investing in development. These are things that often do not require budget money but have a significant positive effect. When I started working, I clearly saw the directions of change we need to pursue – an environment favorable for business, investments, and innovations, substantial work in attracting investments, where we are far behind our neighbors, and specific, precisely targeted European Union (EU) funds and state budget programs for increasing the productivity and competitiveness of Latvian business," emphasizes the Minister of Economy, Viktors Valainis.

"Looking back at the past year, 2023, it must be acknowledged that it was very active, as together with industry representatives and involved institutions, we have implemented significant inputs for the future development and economic growth of Latvia. Last year, the EM developed and offered entrepreneurs a number of new support programs within the framework of the Recovery Fund, EU funds, and state budget funding, both in the form of financial instruments and grants, to increase the productivity, digitalization, energy efficiency, export capacity, and competitiveness of entrepreneurs."

Within the framework of the Investment Fund support programs, which offer loans with a capital discount for large investment projects, the first and closed selection rounds of merchants have been given the opportunity to apply for an additional loan of up to 30.5 million euros, and at the end of 2023, the government supported the continuation of the Investment Fund, allocating an additional 70 million euros for organizing the next selections. Since December 11, applications for support in the third round of the program have been opened, and in the first two rounds, loans have been approved for 13 investment projects, with a total amount exceeding 279 million euros.

In 2023, the Ministry of Economics (EM) developed a series of new support programs

The government approved the allocation of 506 million euros from EU funds for the support of entrepreneurs through Altum financial instruments. This funding is intended for guarantees, loans with capital discounts, venture capital investments, startup loans for business initiation, and loans for enhancing productivity and innovation, as well as for housing availability and energy efficiency. It is planned that by December 31, 2029, this support will be received by more than 2500 companies, including 600 new businesses. The program aims to improve the energy efficiency of 13,450 households, produce 16,696 MWh/year of renewable energy, introduce additional electricity production capacity of 9.58 MW from renewable energy sources, and attract more than 700 million euros in private co-financing. Productivity financial instruments are already available, and EU fund financing for energy efficiency will be supplemented once the Recovery Fund financing ends.

Support in the form of grants is available to small and medium-sized enterprises (SMEs) for the development of innovative business and the implementation of business ideas, with a total EU funds allocation of 73.3 million euros. The program offers support for business incubation to merchants, export promotion for merchants and associations, and business-promoting activities for business idea authors, merchants, and individuals.

Entrepreneurs are also offered a Venture Capital support program from EU funds, amounting to 91.7 million euros. Within this framework, support is available for pre-seed investments up to 250 thousand euros, seed investments up to 1.5 million euros, initial and growth investments up to 2 million euros in initial risk capital funds, and up to 4 million euros in growth risk capital funds.

The EU-funded Tourism Cluster program, designed for SMEs, aims to develop new tourism products or services with higher added value, thereby increasing the export capacity and competitiveness of the tourism sector at the international level. A total of 6.4 million euros in EU funds are available for this program. The support also includes training for collaboration networks and network members on creating new, innovative, and accessible tourism products and services, implementing marketing activities, attracting foreign tourists, and engaging in tourism collaboration platforms and organizations.

The Collaboration Networks support program offers 5.24 million euros from Recovery Fund resources to ensure funding availability for the internationalization of collaboration networks and the increase in the volume of private research and development investments. The program includes activities for experience exchange, knowledge transfer, industry promotion, actions that facilitate merchant collaboration with research and knowledge organizations, scaling up new or existing products, and promoting excellence in business. This support is expected to significantly enhance merchant collaboration at the international level, involving cross-border and multinational projects, resulting in increased export capacity.

To promote investment attraction and national image recognition, additional state budget funding of 1,994,857 euros was allocated for foreign film production in Latvia by the Latvian Investment and Development Agency (LIAA) in its 2023 third selection round of film projects. This additional funding is intended to implement seven joint film projects of Latvian and German, Israeli, French, Swiss, Finnish, and Irish producers. As a result of these projects, approximately 9.79 million euros are expected to flow into the Latvian economy.

Additionally, three rounds of project acceptance were opened for supporting company energy efficiency and the promotion of renewable energy resources. Within this framework, 116 projects were submitted for support, totaling 73 million euros.

In 2023, the Ministry of Economy of Latvia (EM) released an informative report outlining the importance of structural transformation in fostering economic growth and addressing major challenges. The report emphasized the need for active participation across all state administrations to achieve the goals of national industrial policy. This involves fundamental changes in the economy to enhance Latvia's competitiveness and sustainable development. The key focus is on productivity in various sectors, including manufacturing and employment.

The Ministry identified four primary strategic directions for economic transformation:

  • Increasing investments to strengthen production capacities.
  • Implementing innovations in the development of new products and services.
  • Investing in human capital to develop necessary skills.
  • Executing institutional transformation and reducing bureaucracy.

The Ministry, in collaboration with various sectors, identified and prioritized actions to reduce administrative barriers and enhance the export capacity and competitiveness of businesses. These include streamlining processes in the business registry and customs procedures for importing goods.

Additionally, the Ministry developed the "Latvian Tourism and Event Industry Export Promotion Strategy 2023-2027." This strategy provides an overview of the current state of the tourism sector and outlines the growth objectives, vision, mission, and key priorities to regain pre-COVID-19 growth rates.

To boost Latvia's standing as a tourism destination, a partnership with the Michelin Guide was initiated. In its first year, 26 Latvian restaurants were included in the prestigious Michelin Guide, aiming to enhance the recognition and international competitiveness of Latvian gastronomy.

In 2024, the Ministry of Economy of Latvia continues its active efforts to offer support programs to businesses and improve the competitiveness of the Latvian business environment. This includes substantial support to enhance the productivity, digitalization, energy efficiency, export capability, and competitiveness of our entrepreneurs.

For business energy efficiency and renewable energy resource utilization, we will continue the support program, ensuring availability for at least 300 businesses with a total project sum of at least 200 million euros. This includes plans to expand support to businesses in the trade sector.

At the beginning of the year, it is planned to approve three support programs for research and development from the Recovery Fund support program package for Competence Centers. In total, it is intended to allocate 108 million euros of Recovery Fund financing.

In February 2024, the first call for participants in the SME innovative business development program for business incubation will be implemented, along with various program improvements. A total of 36 million euros will be available for business incubation services.

As previously mentioned, from 2024, businesses will have access to loans and guarantees for increasing their productivity of more than 70 million euros. Additionally, in the second quarter of 2024, businesses will have access to loans for innovations in investments and working capital - loans up to 5 million euros with a capital discount of up to 30%; the total support funding from EU structural funds is 68.23 million euros.

Support will also be available in programs initiated in 2023 - in the Venture Capital program, after the procurement of fund managers, the contract signing with fund managers and investments in the final recipients will begin. It is planned that the support for businesses will be provided in mid-2024.

Until March 11, 2024, the third round of the Investment Fund selection will continue, in which investment projects implemented in the Kurzeme, Zemgale, Vidzeme, and Latgale regions will be rated higher, considering the increase in labor productivity outside Riga. Preference will also be given to investment projects planned in Latvian regions with the lowest GDP per capita.

On January 15, 2024, the selection of funding recipients for the Cooperation Networks Support Program will be concluded, after which industry-representing organizations will be able to start providing support for business collaboration at an international level, involving cross-border and multinational projects, resulting in increased export capability.

The selection of funding recipients for the Tourism Cluster Program will be concluded in February 2024, after which industry-representing organizations will be able to start providing support for businesses in creating new tourism products and offering the opportunity to develop these products at an international level, thus promoting activities that will also result in increased export capability in this sector.

In order to improve the Recovery Fund's support program for entrepreneurs' digital training, the government plans to approve amendments that will enable the first round of training to be conducted in both face-to-face and hybrid formats. Additionally, the conditions for receiving support in both rounds will be updated. The call for applications for the first round is scheduled from December 4, 2023, to January 17, 2024, and for the second round from November 30, 2023, to January 30, 2024.

Furthermore, at the beginning of 2024, the Ministry of Economy will make changes in all support programs, raising the de minimis threshold from 200,000 euros to 300,000 euros. This adjustment is in response to the new European Commission Regulation No. 2023/2831, which concerns the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union for de minimis aid.

In 2024, a Long-Term National Research Program model is set to be introduced. This model will involve research organizations creating collaborative platforms to select projects and involve industry representatives in the selection and implementation oversight. This approach is expected to provide research organizations with predictable funding for research in specific areas over extended periods (more than three years), in collaboration with industry. Such research will be commercially oriented and potentially beneficial, while also developing Latvia's research excellence in strong areas such as biomedicine or smart materials.

Additionally, in 2024, the "Green Corridor" or Innovative Business and Priority Project Support Law will be developed, along with subordinate Cabinet regulations. The aim is to increase export-oriented investments and create an environment for testing and validating innovative products, technologies, and services, thereby enhancing economic competitiveness. This will encourage investments in Latvia's established smart specializations (RIS3), zero-net-emission technologies, as well as in tourism and event sectors, low-rent housing construction, social housing, and security and defense sectors.

The Ministry of Economy also plans to prepare a RIS3 monitoring report, which will include conclusions from the strategies of five RIS3 domains, including their priority measures, achievement of RIS3 objectives, and consolidated information about research, development, and innovation support programs.

For 2024, the Ministry intends to develop a medium-term fiscally neutral support program for organizing major events in Latvia. This program will ensure state co-financing up to 90% of the calculated VAT revenue generated by foreign guests.

The Ministry also plans to review certain business regulations to improve processes and supervision. This includes accelerating the evaluation of projects under the LIAA External Markets Program (applicable to other EU-funded projects as well) and developing Short-Term Rental Regulation in line with the EU proposal on data collection and exchange related to short-term rental services (amending Regulation (EU) 2018/1724). If necessary, changes will be made to the legislative acts, precisely defining which requirements apply and which do not to short-term rentals.

Source
EM

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