OECD urges Latvia to Address State-Owned Enterprises, Labor Shortages for Economic Growth
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The Economic Cooperation and Development Organization (OECD) has issued a stark assessment of Latvia’s economic landscape, highlighting the dominance of state-owned enterprises as a key impediment to private sector competitiveness. In its 2025 economic forecast, the organization recommends listing large state-owned companies on the stock exchange to deepen the capital market and foster a more level playing field. These concerns were recently reinforced by OECD Secretary General,Matiass Kormans,during a working visit to Latvia and subsequent conversations with Latvian Public Media.
The call for reform comes as Latvia grapples with persistent challenges to productivity and economic growth. A year ago, the OECD identified increasing labor productivity as a primary goal for Latvia’s international competitiveness. While progress has been made, Kormans acknowledged that
a labor shortage is particularly acute in Latvia, a problem exacerbated by a 20% decline in the labor market participation rate over the past two decades.This demographic trend, coupled with evolving labor market demands, presents a significant challenge. “Latvia has had structural problems for a long time,” Kormans explained, “because, for example, the number of participants in the labor market has decreased by 20% in the last 20 years.”
The OECD recommends attracting migrants to supplement the domestic workforce, alongside investments in education and training. This requires streamlining procedures for foreign professionals and providing support for language training and skills development. Currently, Latvia primarily attracts unskilled workers in sectors like construction, manufacturing, and transport, who often do not remain long-term, frequently moving on to other European countries.
According to Kormans, this pattern stems from difficulties in qualifications recognition for skilled migrants and the significant language barrier posed by the Latvian language. “A more systematic approach is needed to attract the right people with the right technical skills, who then also learn the Latvian language,” he asserted. While acknowledging the unique challenges of the Latvian language, he pointed to successful integration models elsewhere, suggesting Latvia can overcome this hurdle.
Tackling the Shadow Economy and State-Owned Enterprise Dominance
Beyond labor market issues, the OECD also flagged the need to combat the shadow economy. While acknowledging some improvements, the organization believes further strengthening competition is crucial, particularly by reducing regulatory barriers in the professional and retail sectors. Though,a central driver of the shadow economy,according to the OECD,is the pervasive presence of state-owned enterprises.
“One of the things here in Latvia is the very strong presence of state-owned companies, government companies, which creates some competitiveness problems in the private sector,” Kormans stated. The OECD advocates for ensuring a “neutrality of competition” between state-owned and private companies, possibly thru listing state-owned enterprises on the stock exchange.
Addressing concerns that such a move could jeopardize public companies, Kormans argued that state-owned enterprises should thrive based on genuine competitiveness, not arbitrary protections. “If you want to improve business dynamics…you don’t want state-owned enterprises to survive on arbitrary protections and government abuse of their positions of power,” he emphasized. “You want them to thrive and be successful because they are truly competitive in a well-functioning market.”
EU Funds absorption Remains a Challenge
the OECD highlighted ongoing delays in the absorption of EU funds as a potential drag on Latvia’s economic recovery. While recognizing the significant opportunities these funds present, Kormans stressed the need for improved capacity building within the public governance to ensure timely and efficient implementation of investment projects. “EU funds are a great opportunity for Latvia,” he said, “and of course, improved absorption of EU funds could be a very important engine of economic growth in the coming years.” Recent reforms are a step in the right direction,but the Latvian government must prioritize this area to maximize the benefits of EU funding and drive sustainable economic improvements.
