The first steps have been taken towards speeding up construction processes and, accordingly, reducing bureaucratic obstacles, but it will be some time yet before their fruits or results can be enjoyed. This requires the joint effort of everyone involved – businesses, public administration and political decision-makers – to make the business environment in Latvia more attractive. These were the main, if not the only, conclusions voiced in a discussion on reducing the administrative burden in construction. It is worth adding that bureaucratic obstacles, or bureaucratic invention, are one of the main brakes on why Latvia, compared with the nearby Nordic countries, uses timber in construction so inexcusably slowly and so little.
Cutting it by 70% – an excellent goal
Minister for Economics Viktors Valainis stressed that reducing bureaucracy in construction (and not only there) is a very significant issue, because bureaucratic processes hold back the country's economic development. In the spring of 2024 a plan of measures to reduce bureaucracy in construction was approved, comprising more than 60 different activities, of which almost 80% involve amendments (changes) to various Cabinet of Ministers regulations and 20% changes to legislation. Not only the Ministry of Economics is involved in delivering these plans, but more than 10 different institutions.
“The goal is to shorten the construction process from idea to realisation; at the moment it looks as though it could be shortened by as much as 70% if absolutely all the planned actions are implemented,” stressed V. Valainis, expressing the hope that the fruits of this work could be seen as early as mid-2025 – construction processes would move faster and the goals and targets set would be achieved.
Losing out to neighbouring countries
Ieva Jāgere, Director of the Investment and Development Agency of Latvia (LIAA), reminded the audience that investors look at what is happening from their own point of view – how much realising a particular plan will cost and how much time will be needed for the plan to materialise. She acknowledged that in construction the process from concept to materialisation is very time-consuming, which costs the investor a great deal, and that the project implementation time is highly significant for one of the measures of return on investment. On this parameter, Latvia all too obviously loses out to its neighbours.
“A potential investor wants to work in the Baltic region, not in a specific country, so they compare not only the possible costs of realising the plan but also the time needed for it in Latvia, Estonia and Lithuania,” stressed I. Jāgere, pointing to a World Bank study assessing the time taken to obtain building permits – in 2020 Latvia was in 56th place, Estonia in 19th and Lithuania in 10th.
“That is a very significant signal that something is not right in Latvia, because for any investor Estonia and Lithuania are far more attractive for developing construction projects,” says I. Jāgere, recalling that anyone can now compare what Vilnius was like ten years ago, what Riga was like, and what these cities are today. “We have to keep track of our own regulation, assess how comparable it is with that of neighbouring countries, or – better still – make sure it is better (simpler, clearer) than that of our northern and southern neighbours. That could be shown to potential investors as an argument for why they should invest in Latvia,” I. Jāgere suggested. She emphasised that LIAA's task and goal is to retain investors already operating in Latvia, as well as to promote exports by companies operating in Latvia, all the more so if increasing export volumes is possible only by investing in development.
Reduced at one stage, regrowing elsewhere
Ints Dālderis, Chairman of the Board of the Latvian Alliance of Real Estate Developers, believes: “Identifying the problems with the bureaucratic burden is one thing, but drafting amendments to legislation, agreeing them with everyone involved and adopting them is quite another – and much harder to achieve.” He acknowledged that things cannot continue as they have until now, because Latvia's lag behind its neighbours is substantial enough, while for the time being the industry does not feel the effect of these changes: “We will feel the effect with a lag of two or three years.” I. Dālderis hopes that implementing the 60 points of the action plan is an improvement of the existing system and therefore only the beginning of more serious change, which also means looking for solutions that would simplify construction processes and shorten the time for all kinds of procedures; yet European requirements are also emerging and arriving that work in the opposite direction and demand the opposite, making housing less affordable – for example, the question of shelters, and electricity connection costs, which are shifted onto the shoulders of the developer and the flat owner (tenant).
“Any possible innovations should be viewed simply – do they improve the investment climate and housing affordability or not; if not, such novelties should not be supported and other solutions must be sought,” I. Dālderis is convinced. In his view, we need to look at and assess how Latvia takes over and implements EU requirements, and what matters more – implementing European regulatory requirements or Latvia's national goals and interests, namely housing affordability.
“We have joined the large European organisation of real estate developers and builders, where we actively discuss issues important to the industry; the European Commission and the European Parliament often have a different (contradictory) view, even though housing is problem No. 1 in Europe too, but... knowing that, a directive is adopted requiring all buildings to have zero emissions by 2050, and it is not possible to fulfil (achieve) both goals,” is how I. Dālderis describes the paradoxical situation, pointing to the conclusion reached by French businesses – they introduced the changes voluntarily two years ago and the market shrank by around 50%.
Nobody wants to take responsibility
V. Valainis acknowledged that he has come across some very interesting issues; for example, in construction the downtime of a single site in Riga costs around EUR 2 million a month, which can leave the business – the developer – with solvency problems.
“The reason is differing interpretations of one and the same regulation and an unwillingness to take responsibility,” concludes V. Valainis, citing as another interesting example a building authority's requirement to submit a construction design for cleaning a riverbed. “A non-standard situation in which nobody wants to be, or is able to be, responsible,” is how V. Valainis assesses the reasons behind this curious example, acknowledging that such a situation is not only Latvia's problem but a European one too, and that because of it a particular artificial intelligence service is unavailable.
“Scandals are loudly aired in Latvia, and as a result people want to protect themselves and therefore do not take decisions, or want to delegate (pass on) decision-making to others,” said V. Valainis, pointing to the effect of the trust deficit. He acknowledged that the prevailing view within the bureaucratic system is essentially that all the documents should be in order and correctly drawn up. “The system has to be broken; officials, just like businesses, have to think about what needs to be done and how, and how to ensure that the building in question is completed sooner, rather than about whether all the paperwork is correctly filled in,” V. Valainis is convinced, noting that it is not only businesses but also the bureaucratic machinery that spends a great deal of time on various processes.
A whole sackful of absurdities
Mārtiņš Vanags, co-founder and board member of SIA Q, described an example in which it is genuinely unclear how and what to do. Specifically, a real estate developer wants to build a boat jetty at their own expense; if the number of such boat jetties exceeds five, an environmental impact assessment is required. If the lake belongs to the local authority, it will hold an auction of lease rights, but the land by the lake belongs to yet another institution. “Nobody can explain how to start this process, so we will write a letter to the Chairman of Riga City Council, copying in the Riga Investment and Tourism Agency, asking them to assign a knowledgeable project manager who can explain what needs to be done and how, where things must be submitted, and what the sequence of steps for the project is,” says M. Vanags.
Another account of experience was also heard, in which Latvia had set higher requirements for companies to be able to receive EU co-funding for their plans, even though in other EU member states the bar had been set considerably lower. The responsible authority simply replied that other countries were doing it wrong. Latvia is said to be a star pupil at transposing regulations, even though we ought to be star pupils at business development.
Another surprising example. “We are buying a project from an Estonian crowdfunding platform; a Latvian commercial bank account is needed to carry out the transaction, but... the bank has to run procedural checks. The Estonian crowdfunding platform has had 956 investors, and all of them have to be checked against anti-money-laundering requirements; such a check costs EUR 200 an hour, but there is no telling how much time it will take,” M. Vanags continued sharing his experience.
He told another surprising story in which, on acquiring a construction project still at the development stage, the new owner wanted changes made, which the project's architect duly made and signed off as head of the architects' office – but some time later concluded that he had not signed as the project's author, and so litigation began. M. Vanags described as nonsense a situation in which an investor has built a property worth around EUR 30 million on municipal land and, once the land lease expires, has to take part in the land auction all over again alongside other bidders and interested parties. Another of the developers shared a bitter experience: to obtain a capital rebate of EUR 15,000, 13 months were needed, during which a questionnaire had to be filled in listing three competitors and analysing their good and bad qualities as well as their net turnover, and four operating balance sheets of the company had to be sent, one of them even twice. A requirement for an electronic working-time recording system has been introduced, but the shadow economy in the construction industry is said to be at the same level it was before, while businesses have gained one new staff post at every construction site. On top of that, all contracts and settlements with subcontractors have to be submitted to this system (at one site there are said to be 132 of them).
Wanting motivation
“Perhaps a different picture would emerge if the personal well-being of the decision-makers, the approvers and those who issue documents were directly linked to the way the projects in question are delivered; unfortunately the system of legislation does not allow such a solution,” concludes I. Dālderis, noting that the interest of those working in the bureaucratic machinery in delivering projects faster is the most essential driving force behind obtaining all kinds of permits and approvals.
“If decision-makers are afraid of every remark from the supervisory authorities and have no motivation to deliver a project faster, it is hard to hope for positive change,” I. Dālderis acknowledged. M. Vanags suggested that some kind of bonus for the completion of the site in question could be provided to everyone for each document approved.
“A business shows initiative, but the regulators try to find some shortcoming or gap, even to question the need for and usefulness of implementing that initiative,” is how M. Vanags outlines the harsh reality. One of the real estate developers stressed that laws and regulations in Latvia should be framed to encourage doing things rather than not doing them. When a solution to a problem is sent to the institutions, developers are left with the feeling that nobody is looking for a way to make it happen, but that reasons why it cannot be done are being carefully sought.
The first step has been taken
“It matters that concerns are being heard and that solutions are being found to reduce the administrative burden in construction,” stressed Normunds Audzišs, Executive Director of the Latvian Association of Large Cities. He noted that everyone involved had known about the lengthy processes in Latvia for a good while before the starting gun was fired for cutting bureaucracy – for shortening deadlines. At the same time, the timescales of these processes are often intertwined, and disentangling them is by no means simple or easy.
“Unfortunately, we also observe bureaucracy continuing to grow; for example: heating boilers are being replaced in a building under municipal management, which requires technical conditions issued by the State Environmental Service, and on top of that there is a two-week queue for them, and a register for recording technical conditions has been introduced,” N. Audzišs explains of bureaucracy's new shoots. He did acknowledge, though, that he does not know the point or significance of the economic justification for such a requirement. Likewise, it used to be possible to remove a non-residential building from the cadastre by writing an application to the building authority; now the process is said to be different – an application to the building authority is not enough, because alongside it an application (plus payment of a EUR 20 fee) must be submitted to the State Land Service.
Many front lines
“Work is currently under way in several directions – on simplifying and shortening construction processes, on registering beneficial owners, and on retaining those interested in large investment projects and closing the gaps that have come to light,” stressed Minister for Economics V. Valainis, acknowledging that problems exist at several levels: there are those a single official can solve, those whose solution requires a joint decision by two institutions, and those where several ministers have to meet and reach agreement.
“Investment is very important for Latvia, so a LIAA specialist will be assigned to those delivering large investment projects (EUR 10 million and above) to help the potential investor cross the fields of bureaucratic procedure and to report on the stage the investment project in question has reached; if it has got stuck somewhere, they will explain why, what needs to be done and how, so that it moves towards realisation,” stressed V. Valainis. He emphasised that this arrangement applies to any investor wishing to invest EUR 10 million or more in Latvia. The minister called on everyone who encounters problems – and all the more so oddities – to report them, because that is the only way to root out the obstacles that hold back investment and the country's development too.
The Prime Minister's priorities
Prime Minister Evika Siliņa has set the government four priorities for 2025 – security, support for families, economic growth, and reducing bureaucracy by bringing public administration closer to people. “We began last year, and this year we will continue reducing bureaucracy in public administration with an even higher priority, easing the administrative burden and bringing the work of state institutions closer to people,” stressed E. Siliņa, noting that significant changes were made last year in real estate development, and in the financial, agricultural and tax fields too. “The government is not stopping there and this year will continue to address how to make it easier for people and companies, including international investors, to deal with public administration. This year we will look at which public administration functions could be handed over to the private sector,” E. Siliņa explained. She noted that officials, heads of state institutions and their deputies will no longer be able to simultaneously hold a post on the board of a state or municipal capital company and serve permanently on that company's supervisory council.