Twenty years in the European Union have fundamentally transformed Latvia’s economic environment: roads and bridges have been built, laboratories and industrial parks created, public services digitalised, and energy systems modernised and upgraded. Since accession in 2004, approximately €18 billion in EU funding has been invested in several thousand projects in Latvia – a volume that domestic resources alone could not have provided.
The main question today is no longer whether “Brussels money” is coming into Latvia – it flows in continuously – but rather what type of funding we are able to attract and how effectively we convert it into productivity gains and economic growth. Latvia’s performance on this front is uneven: strong results have been achieved in large, state-co-financed programmes, while performance is significantly weaker in areas related to innovation and the creation of intellectual property.
How “Brussels money” works
EU funding is not one single fund but three distinct channels, each with its own rules and implementation pace.
Indirect management operates as a financial instrument. The European Commission delegates fund management to partners such as the European Investment Bank (EIB) and the European Investment Fund (EIF) under the InvestEU programme. Capital reaches companies via ALTUM, LIAA and commercial banks in the form of loans, guarantees or equity investments. Often this is the fastest way to secure co-financing for grant projects or to scale up investment volumes.
Shared management funds – the European Regional Development Fund (ERDF), European Social Fund+ (ESF+), Cohesion Fund, Just Transition Fund and the Common Agricultural Policy (CAP) – are agreed with Latvia and then implemented through the Central Finance and Contracting Agency (CFLA) and programmes launched by line ministries. The project promoter co-finances, procures and implements the project; the state reimburses eligible costs and settles accounts with Brussels. These funds form the backbone of productivity growth, energy efficiency, skills development and infrastructure modernisation.
Direct management programmes – Horizon Europe, the European Innovation Council (EIC) and Erasmus+ – are designed and awarded in Brussels. Applications must be submitted via the Funding & Tenders portal, often within international consortia. When a project is approved, funding is provided directly by the EU, based on the achievement of milestones. This is where deep-tech development, the creation of intellectual property and cross-border partnerships take shape.
Twenty years on: the scale of support
In the 2021–2027 programming period, the volume of public investment available to Latvia is substantial. Cohesion policy allocations (the European Regional Development Fund, the Cohesion Fund and the European Social Fund+) amount to around €4.6 billion – similar to the previous 2014–2020 period. The Common Agricultural Policy (CAP) Strategic Plan for 2023–2027 foresees a further approximately €2.5 billion, while the Recovery and Resilience Facility (RRF) allocation is around €1.97 billion. The third payment of €293 million to Latvia was made on 14 May 2025.
In total, including shared management funds, the RRF and direct EU programmes, €10.5–11.5 billion is effectively in circulation during this period, not counting InvestEU and the mobilisation of national co-financing.
These allocations are not automatic. Under both the RRF and the Connecting Europe Facility (CEF), payments are tied to the achievement of milestones. Failure to meet them can delay payments or even reduce the overall level of funding.
The Rail Baltica example illustrates both success and challenges. In November 2024, Latvia secured €397.7 million in CEF Transport grants for RB works, and in July 2025 the EU approved a further €295.5 million under the CEF 2024 call. This raised the total RB-related EU support allocated to Latvia to more than €1 billion, even though the updated first-phase costs for Latvia exceed €6.4 billion. This demonstrates a very intensive implementation schedule at a time when Brussels continues to provide co-financing.
Latvia’s ability to reach agreement and secure additional funding shows that results can be delivered for large infrastructure projects. However, this is only one part of a broader funding picture. Historically, Latvia has consistently prioritised infrastructure, while areas such as human capital, research and innovation, and business competitiveness are harder to mobilise and depend heavily on how effectively initial approvals are converted into contracts, procurements and timely payment requests. With several more billions still to be channelled, the main challenge is no longer access to EU funds, but their effective absorption across all programmes. This requires continuous monitoring, consistent implementation and a focus on outcomes that go beyond physical infrastructure – roads, buildings and tracks.
Is there a risk of losing 2021–2027 money?
A brief look back. At the beginning of 2024, the overall mood was gloomy. A status report from the Ministry of Finance highlighted “very high risks” in getting the new 2021–2027 funding period underway – Cabinet regulations were delayed, few calls were open, and only a handful of projects had reached the implementation stage. The media carried warnings of a possible shortfall of around €500 million in 2024 if the pace did not improve.
What changed?
In March 2024, the government reallocated €662.8 million within the programme to prioritise projects ready for implementation – without reducing any ministry’s allocation – and adopted amendments to unblock the project pipeline.
The latest report from the Ministry of Finance and the CFLA shows clear acceleration and a perspective of full absorption: investment regulations have been approved for €3.6 billion (~85%), calls have been opened for €3.2 billion (~76%), and €2.1 billion (~50%) is already under contract. For the RRF, projects totalling €1.8 billion (~92%) are under contract, €835 million (~42%) has been disbursed, and 59% of milestones have been achieved. The state has also implemented 95% of the EU funds simplification plan, which aims to cut bureaucracy by at least 25% by 2026.
Where were the bottlenecks – and what to watch
Latvia’s procurement mechanisms and permitting timelines needed time to adapt to the new rules, but the policy response is already visible: the simplification plan has largely been implemented, processes for project selection are being improved, and in August 2025 a structural reform of the public procurement system was submitted to the government. These measures should ensure a steady flow of funds in 2026–2027, when larger transport, energy and human capital projects will be entering into contracts.
The only formal risk that remains
The EU de-commitment rule sets an N+3 deadline for commitments made in 2021–2026 and an N+2 deadline for 2027 commitments, meaning that allocations for the final year must be fully absorbed and claimed by 31 December 2029. For Latvia, this implies particularly careful preparation for major procurements and the need to ensure that payment requests do not bunch up at the very end of the period.
Where we lag behind: competitive, Brussels-led innovation money
Figures from the Horizon Europe dashboard paint a stark picture. Of the total ~€44 billion awarded so far in grant agreements, Latvia has secured only ~€112 million – significantly less than Lithuania with ~€183 million and Estonia with ~€286 million. Per capita, this equates to about ~€60.6 per Latvian resident, compared with an EU average of ~€118 and Estonia’s figure of ~€209. (All figures are as shown in the Horizon Europe Dashboard at the time of writing.)
The gap becomes particularly clear in project leadership. Estonia is in front with 102 coordinated projects, Lithuania follows with 64, while Latvia has just 32. These coordinator roles are crucial because they set project strategy and secure a larger share of funding. By contrast, Latvia’s 380 participations in projects often involve narrower work packages, which bring less financial and strategic added value.
Participation: where do we stand? Are we unable to dream, or do we not believe in ourselves?
It is well known that to succeed, you have to try – sometimes again and again. The Horizon Europe dashboard also shows participation indicators for the current programme. As of 8 August 2025, Latvia has the lowest participation rates in the Baltics and in several dimensions they are almost half those of Estonia.
Compared to a relatively smaller country, this highlights a serious problem: many Latvian projects either do not know that they can receive funding from Europe or simply do not apply.
The statistics also cover private sector participation. The share is similar across the Baltics – ~25–28% of participants – but in Latvia a large portion of this activity is concentrated in state-owned enterprises, leaving independent SMEs underrepresented. There are exceptions, for example NACO Technologies (EIC Accelerator funding of €2.3 million) and SIA Semantic Intelligence (€75,000 for an AI project). Yet such success stories are rare, and most Latvian SMEs remain passive in EU innovation programmes.
A key barrier is the co-financing requirement, which can mean ~30% or more of project costs for participants; many businesses and educational institutions lack the capital or support structures to meet these commitments, which discourages applications and limits growth.
The role of professional support
Another major problem is the underuse of professional assistance. Horizon Europe data show that around a quarter of applications are deemed ineligible or improperly prepared already at submission due to errors. Among correctly submitted projects, roughly one in five succeeds in the Baltics – figures broadly in line with EU averages. Our practical conclusion is clear: far too few Latvian projects use experienced bid-preparation support.
The consequences of this problem
Latvia’s weak performance in Horizon Europe and other direct EU programmes stems from limited innovation capacity, as shown in the European Innovation Scoreboard (EIS) 2025. Competitive EU grants go to countries with strong R&D ecosystems, private sector investment, a skilled talent base and accessible finance – and these are precisely the areas where Latvia still lags. The data highlight both the causes and the costs of this lag.
Latvia is classified as an “Emerging Innovator”, with a Summary Innovation Index (SII) of 56.7 (EU = 100), ranking 25th out of 27 Member States. Since 2018, Latvia’s score has risen by only +4.9 points, compared with an EU average increase of +12.6. In stark contrast, Estonia has recorded the fastest innovation growth in the EU – +30 points, reaching an SII of 104.8 and gaining “Strong Innovator” status. Over the same period, Lithuania grew by +17.4 points to 81.0, consolidating its position as a “Moderate Innovator”.
A detailed breakdown of Latvia’s indicators clearly shows the bottlenecks. The finance and support index is just 35.5, venture capital availability has collapsed to 24.2 (-235% since 2018), and direct and indirect government support for business R&D stands at only 4.4 – the lowest figure in the EU. This is critical, because most EU programmes, including Horizon, require substantial co-financing – a barrier that affects not only private companies but also universities and research institutes, which struggle to secure the necessary matching funds for project proposals.
Digital infrastructure, by contrast, is strong: a score of 87.5 for high-speed internet availability. Latvia’s human capital base is also robust: 105.1 for post-secondary education levels (above the EU average) and a significant share of graduates in STEM fields. This shows that Latvia does not lack ideas, talent or ambition. What is missing is the financial and institutional framework to turn this potential into competitive, scalable innovation projects.
The cost of lagging behind is high. Latvia is missing out on grants that fund cutting-edge laboratories, prototypes, patents and deep-tech companies – investments that drive productivity and create highly skilled, well-paid jobs. Although Latvia performs well in areas such as trademark applications and CO₂ productivity, this is not enough to offset the lack of an R&D base and a globally connected innovation ecosystem. Without a substantial improvement in corporate R&D investment, venture capital attraction and co-financing capacity, Latvia will continue to fall behind in direct EU programmes, while its neighbours – Estonia and Lithuania – convert their stronger ecosystems into faster growth and a larger share of EU funds.
What is holding back the private sector
Closing Latvia’s innovation gap with the rest of Europe requires more than just acknowledging the problem – it demands long-term investment, smarter implementation and consistent participation in competitive EU programmes.
- The first step is to increase public and private R&D investment. At around ~0.8% of GDP, Latvia invests far less than the EU average (2.22%) or Estonia (~1.8%). Without a stronger base of national projects, Latvia will continue to submit fewer and weaker proposals to Horizon Europe and EIC calls.
- The second step – co-financing must be made easier to access and more predictable. Many EU programmes require 30% or more as co-financing, which is a barrier for SMEs and even universities. Expanding and simplifying ALTUM instruments could help more organisations apply with confidence.
- The third step – Latvia must professionalise its application preparation process. Around 25% of Horizon proposals are rejected on eligibility or formal grounds (according to Horizon Europe data). Securing expert support and building internal competencies in proposal preparation would raise success rates and relieve innovators of administrative burdens, allowing them to focus on content.
- Fourth, consistent participation is needed. Even unsuccessful applications help build experience and networks. Latvia already has talent, digital infrastructure and a strong STEM base – what is missing is execution to translate this potential into a stronger presence in Brussels-led programmes.
If Latvia combines higher investment with easier co-financing and a smarter application process, it can secure more funding, more partnerships and more know-how that drives growth in Europe’s most innovative economies.
And there is reason for hope. In today’s world, where efficiency is rapidly increasing thanks to automated artificial intelligence solutions that learn alongside us, these problems can be solved faster than ever before. Mastering new technologies is crucial, as they are true game-changers. If we do not use them, we will fall even further behind. Venture Faculty’s AI-based procurement and grant solutions are already delivering better results, and our own experience shows that smart use can be a decisive factor. The key is balance: using AI wisely to scale outcomes without losing human oversight.
The verdict – and an action plan
Latvia is not falling behind in absorbing overall EU funding; we stand out in large, co-financed programmes and continue to secure Connecting Europe Facility (CEF) resources for flagship infrastructure projects. But where we lag – and where it will hurt most, both now and in the long term – is in competitive, direct innovation funding.
Closing this gap requires an increase in public and private research and development investment, making co-financing simple and predictable, and professionalising the application process – starting as partners in consortia, moving to co-lead roles and ultimately becoming leaders.
Participation in Horizon Europe and related programmes is not just a way to obtain funding; it is also an entry point into cutting-edge research and innovation networks. Every application, even an unsuccessful one, builds experience and credibility, while successful projects provide direct access to advanced technology development, international cooperation and deep expertise that cannot be replicated through national programmes alone.
Living through an ongoing artificial intelligence revolution that is rapidly transforming labour productivity and innovation, there is no alternative but to use AI to close this gap. Those who leverage AI will accelerate rapidly, while those who do not will fall even further behind. Latvia faces a clear choice: act quickly or risk settling into a state of lagging behind and losing ambition.
Our neighbours clearly show that it is possible. Estonia and Lithuania demonstrate that with a clear strategy and persistent investment, even small countries can punch above their weight in Brussels-led programmes. Brussels is not the ceiling – the only limits are those we set through our own implementation.
The authors are “Venture Faculty” CEO Edgars Poga and analyst Tomass Vilks,
Originally published at https://inc-baltics.com/miljardi-darba-latvijas-es-fondu-puzle/
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