How to activate private capital in the state's strategic goals: three practical approaches

In order to activate this capital and strengthen the state's financial autonomy, a specific question needs to be asked: how can private capital be used to work towards the state's long-term goals, including ensuring defence, innovation and economic transformation?

A developed capital market is the foundation of a strong economy.

In Latvia, the proportion of state-owned and municipal companies is higher than in other Baltic countries. This difference is historical and continues to influence the structure of our economy. Many important companies are owned by the state or local governments, and a large proportion of them operate in commercial sectors that are dominated by private capital elsewhere.The list of the 101 most valuable companies confirms that the state controls a significant portion of essential assets in the Latvian economy, but this potential is not currently being fully utilised for the development of the capital market.

Firstly, the sale of minority stakes in state-owned companies on the stock exchange could provide significant support for the country's development, financing the development of companies and allowing the state to invest funds in strategically important sectors – defence, healthcare and others.

Discussions about the sale of minority stakes in state-owned companies on the stock exchange are often accompanied by comparisons with the privatisation experience of the 1990s. However, today's stock market listing is not identical to privatisation in its historical sense. The state can retain a majority stake and control in strategic companies, offering only a small portion of shares to the public. This approach has been widely used in other European countries and has already proven itself elsewhere in the Baltics in public offerings of shares in companies such as Tallina Sadam, Tallina Vesi, Ignitis Group, where the listing of shares in companies still controlled by the public sector has given a significant boost to market development.

The second important direction is to increase the competitiveness of companies that are important to the state.

Current regulations governing state-owned companies stipulate that state involvement in business is permissible mainly in cases where socially important services are provided, strategic assets are managed, or market failures are prevented. In reality, many of these companies are fully commercial and have the potential to contribute even more to the economy by exporting, promoting innovation and ensuring healthy competition.Partial listing on the stock exchange actually allows the state to gradually reduce its direct presence in the commercial sector, while retaining ownership rights and a decisive vote on all strategic issues. Experience in other European countries shows that, in order to ensure a balance between investor interest and state influence, it is sufficient to offer approximately one-third of the company's capital for public listing. This ensures market liquidity, broadens the investor base and allows the company to attract financing for development, while the state retains control over key decisions.

This model also provides broader public benefits. Publicly listed companies tend to operate more transparently, are more closely monitored and make decisions based on sustainability and results. This means that the company, the state and society as a whole can benefit from a more stable, professional and predictable management environment. In some cases, greater involvement of private capital could also be considered in the long term, if it is economically justified and in the public interest.

The third way to activate private capital for strategic national objectives is to make targeted use of joint ventures or public-private partnerships, combining them with the attraction of financing from the capital market.

With the growing importance of security in Europe, this model is becoming particularly relevant in the areas of defence, cyber security, civil protection and strategic infrastructure. Funding for such projects can no longer rely solely on the national budget. They require significant investment, long-term planning and a stable financing mechanism. Here, too, capital markets are becoming an essential tool.

An example demonstrating the potential of this model in practice can already be seen in the Baltic States. In Lithuania, the state-owned company Valstybės Investicinis Kapitalas issued publicly traded bonds with the aim of financing military and security infrastructure, including the establishment of a Rheinmetall factory. In the first round of issuance, Lithuania raised €25 million, and the total programme volume is expected to reach €400 million.

The implementation of strategic projects through cooperation between the public and private sectors, in conjunction with the capital market, may also be a suitable solution for Latvia to finance projects related to defence, critical infrastructure, energy and security. This would allow state projects to operate within market principles, maintaining state control and investor confidence, without having to wait for budget increases or foreign funding.

Latvia has a unique opportunity to motivate private capital for productive investments that simultaneously strengthen the economy, security and welfare of the society. By making smart and effective use of the capital market, partial listing of state-owned companies, joint ventures and public-private partnership models, it is possible to create a sustainable financing mechanism for strategic projects and ensure that the state retains control over essential assets. This is the path to a stronger, more competitive and financially autonomous Latvia, where private capital becomes a partner in achieving the state's long-term goals.