Investing in Latvia

December 20th, 2022
6 minutes read

The Balkan countries haven’t always been a prime choice for global investors, taking somewhat of a neglected stance against the backdrop of its highly-developed European neighbours. Recently though, Latvia has been making a name for itself as a prominent destination for industrial and economic growth; bolstered by well-balanced sectoral growth across health, logistics, and energy. 

An innovative hub of forward-thinking start-ups, the Balkan countries are becoming more than a niche route for foreign capital. Boasting a booming tech scene, Latvia’s identity is shifting out of the shadows. As investors look towards creative tech start-ups and more modernised routes of investment, countries like Latvia are starting to become real competitors. 

Interested in the possible routes for investment in Latvia? Learn about ETF options, as well as the real estate investing and peer-to-peer lending space in Latvia.

Latvia’s Economy

Latvia sits 18th in the world on the Economic Freedom Index 2022. [1] Since joining the EU, Latvia’s economic transformation has been remarkable. The country’s GDP continues to climb year on year, and its firm positioning in the EU, NATO, WTO, and OECD speaks volumes for its political and geographical strength in everything from trade to the general quality of life. Domestically speaking, the Latvian tax system favours various forms of investment. So much so, Latvia has been recognised as the 2nd most competitive tax system in the world according to the International Tax Competitiveness Index 2022. [2] 

Akin to its Balkan neighbours, the Latvian start-up scene has been turning heads. Tech-savvy, well-educated founders flock to Latvia’s kind startup initiatives and deep funding opportunities. Coupled with a national focus on attracting foreign investment, Latvia has a strong relationship with its EU members, pulling in nearly EUR21 billion in FDI from member states across 2021. [3] Looking at overall GDP, Latvia exceeded its 3.5% growth prediction for 2021, reaching total growth of 4.7%. [4]

Traditional investors will be more than familiar with indexes like the Nasdaq, S&P 500, or FTSE 100. Diving into the heart of Latvian business, the Nasdaq Riga is the country’s own branch of the Nasdaq Baltic; a joint market fostering investment interaction between Latvia, Estonia, and Lithuania. The Nasdaq Riga might seem dwarfed in comparison to other European markets with a small market cap of EUR0.6 billion, but should investors wish to invest capital in the Latvian economy, the OMX Riga is an index tracking the 30 total public companies in the Nasdaq Riga.

Investing In Latvia with ETFs

The Baltic countries, including Latvia, face a stark shortage of coverage from international brokers offering exchange-traded funds (ETFs). A lack of market liquidity and international conglomerates means the Nasdaq Riga isn’t the first choice for most investors. As a result, popular ETF brokers like iShares don’t feel the need to create a fund that covers the OMX Riga index. Domestic investors will be able to purchase leading company shares, but international investors might have to look down other avenues. For highly developed globalised economies, investors can typically look towards the MSCI collection of indexes for accurate insight into economic performance. Unfortunately, the collaborative project hasn’t reached Latvia just yet. 

Widening the scope, Latvia is still unrecognised in indexes that offer coverage in emerging or less developed economies. For example, neighbour Estonia features slightly in the MSCI Frontier and Select EM ETF, meaning international investors are still provided with some degree of exposure. 

ETFs can be a great way to invest capital in a market with a strong liquid moat; heavily involved in global trade or a hub for global conglomerates. With such a limited market cap, the lack of a Latvian-tracking ETF is no great surprise. Luckily for international investors, the alternative investment sector is causing much more of a fuss. If ETFs represent tradition, the alternative investment market is the voice of a new wave of capital growth.

Alternative Investing In Latvia

Investment culture in Lativa revolves around the country’s buzzing tech infrastructure and innovative start-up frontier. The Balkan countries were quick to the mark in establishing strong roots in the property crowdfunding and peer-to-peer lending markets; currently home to an abundance of long-standing successful platforms.

Latvian Real Estate Crowdfunding

The concept of property or real estate crowdfunding is still relatively nuanced, often subject to scepticism versus traditional forms of investment. The process connects borrowers and lenders through online platforms, meaning new property projects can source capital without a banking intermediary, all the while lenders are provided direct access to highly competitive interest rates.

The Latvian crowdfunding market is regulated by EU regulation 2020/1503, with all new platforms requiring authorization through the FCMC.

There are currently numerous real estate crowdfunding platforms in Latvia, but Latvia is a stronger hub for loan originators - marketplaces that aggregate pre-funded loans from platform partners. Heralded as one of the largest and most successful loan originators in Europe, Latvian company Mintos, launched in 2015, offers loans stretching from personal and business to real estate ventures. The platform, along with quick-moving competitor Debitum, are two pillars of the fast-paced alternative investment sector in Latvia.

Peer-to-Peer Lending in Latvia

Latvia has previously been deemed the number 1 start-up friendly company in the world; a statistic that speaks volumes for the country’s innovative backbone. [5] Whilst property crowdfunding has taken off in wealthy developments across Western Europe, peer-to-peer lending allows for a much wider scope of business and personal loans, feeding into Latvia’s promising venture scene.

New platforms flocked to Riga, the country’s capital and fintech hub, taking advantage of the lack of regulation previous to 2021 and the country’s sturdy digital ecosystem. There is a solid selection of P2P Lending platforms in Latvia, with companies like Lande assisting farmers borrowing for agriculture and Capitalia tailored specifically towards small business debt investments.

The Bottom Line

Investors looking for the next era of investing will already be turning their heads towards the Balkan countries as they continue to prove their worth in the global fintech space. Latvia’s OMX Riga might not seem too attractive for traditional share investing, but it’s the evolving crowdfunding space that should warrant serious attention. Boasting some of Europe’s largest loan originators and a collection of other P2P lending platforms, Latvia has made a strong name for itself in the world of alternative investing.

Article Sources

  1. Heritage Foundation: “2022 Index of Economic Freedom
  2. Tax Foundation: “2022 International Tax Competitiveness Index
  3. Invest In Latvia: “Foreign Direct Investment
  4. European Commission: “Latvian Economic Forecast
  5. Sifted: “Latvia is the most “startup friendly” country in the world