The Ministry of Welfare of the Republic of Latvia has come with the evaluation report on the Social entrepreneurship support system in Latvia (full report available in Latvian), specifically focusing on the assessment of socially responsible entrepreneurs, their impact, and support mechanisms in order to provide viable recommendations for improvement of legal framework addressing social entrepreneurship.
In spring 2017, Latvia has launched Social Entrepreneurship Law allowing social entrepreneurs registered as such to receive support in tackling social and environmental challenges more effectively. However, social entrepreneurship is still a new concept to be promoted in public, therefore research focuses on two groups of social entrepreneurs in Latvia: de jure entrepreneurs (recognized by The Ministry of Welfare) and de facto or sustainable entrepreneurs without the formal status of social entrepreneurs.
Social Entrepreneurship Law in Latvia allows applying for the state- and municipality-provided benefits, such as a grant for social entrepreneurs (Altum grant), citizen income and real estate tax credits, right to involve volunteers, opportunities to receive state grants, and rights to exploit the movable or immovable property of municipalities for free, privileges in public procurement assessment, corporate tax relief for specific expenditure groups. Also, the support of the Social Entrepreneurship Association of Latvia is provided for the members, social entrepreneurs, and their support organizations.
In general, social entrepreneurs evaluate benefits provided by state and municipalities positively, however as insufficient. Research has shown that one of the most appealing perspectives of gaining the legal status of a social entrepreneur in Latvia is an opportunity to apply for an Altum grant, as well as gain larger publicity, however not rated ambiguously. Networking and gaining new partnerships in turn are rather valued low. Moreover, changing the legal form to social entrepreneur often requires additional resources (i.e. accounting services, time) from NGOs with social entrepreneurship activities.
Although there is a significant growth in the awareness of social entrepreneurs and the number of employees working in the social economy of Latvia, the level of income is not growing, being lower than average across the country and leaving the competitiveness of the sector at risk. Moreover, the inability to share profit among shareholders makes socially responsible enterprises less attractive for investors.
These trends outline the necessity of additional state support provided for social entrepreneurs. Therefore, experts suggest to review and possibly decrease the citizen income and social security taxes and compensate them from other sources; modify the legal requirements for shareholders, partly allowing them to share the profits up to 5% for one shareholder per year; differentiate the amounts of available grants according to the years of operation etc. Also, the level of corporate profit during the first years of activity often makes corporate tax relief inapplicable to the social entrepreneurs, therefore canceling corporate tax for social entrepreneurs is not seen as significant support.
The report states that in practice often municipalities are unaware of support services available for social entrepreneurs. Sometimes happens that certain municipality is ready to rent public spaces for a lower price to social entrepreneurs, however, the legal act does not constitute the opportunity of doing so. Another aspect touches the mechanisms of informing social entrepreneurs about the available spaces and conditions, therefore the abilities of enterprises to receive some support should be communicated more effectively to both municipality representatives and social economy actors.
Although, The Ministry of Welfare provides consultancy in what comes to gaining and maintaining the status of social entrepreneur, the most common reasons for rejection are: inacurate definition of enterprises social goals, social problems to be solved, tasks to fulfill, the insufficient social impact of planned activities and application for a grant which is expected to cover the activities other than those of social impact. The report pointed out the necessity to develop clear guidelines with good practice examples of social entrepreneurs, however, at the same time, the need to simplify the application process is also on the list. That would allow more social entrepreneurs to dedicate time for justification of their social activities and strengthen their capacity on a market.
Additional attention researchers have paid to social impact measurement methodologies applied in Europe to determine the most suitable ones for the context of Latvia and conceptualize guidelines for impact measurement. It is necessary to implement clear selection and evaluation of social entrepreneurs according to their opportunities to receive state or municipality support. As there is no one universal approach that fits all, the following social impact measurement methods and tools were suggested to be applied in Latvia in relation to different processes:
- Cost-Benefit or Social Return on Investments Analysis – for policy planning and assessment,
- Measuring impact assessment and analysis, Rating approach – for institutional eligibility to gain social entrepreneur’s status,
- Social Impact Indicators – for self-assessment of social enterprises, as well as
- In-depth analysis (for specific aspects evaluation via expert assessment.
Social accountability and audit approach is suggested to be used only for large social enterprises in future, however so far it is not really applicable for Latvian context.
Although the legal framework and the support instruments implemented by the public sector of Latvia are set for already 4 years, improvements of support strategy for social entrepreneurship development are still necessary. Although there is a differentiated system of available support mechanisms, not all of them are applicable in practice, as some requirements are too specific or some opportunities are not sufficiently promoted in public. Also, the procedure of applying for the status of social entrepreneur or grant is often unclear and seems complicated, which makes social entrepreneurship less popular. Therefore, more consultancy support is necessary for social entrepreneurs to allow the facilitation of the benefits available. The procedures and necessary improvement include clear guidelines of the impact measurement methods for social entrepreneurs, that would help to strengthen the capacities of entrepreneurs themselves, as well as provide transparency in what comes to formal evaluation and reporting to the grant providers and stakeholders.
Download the full report in Latvian here.
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This publication has been prepared within SENBS project No. 2020- 1-EE01-KA204-077999. The content of this publication is the sole responsibility of the project coordinator and may not always reflect the views of the European Commission or the National Agency.