INVESTMENT CLIMATE IN LITHUANIA

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INVESTMENT CLIMATE IN LITHUANIA

• Laimute Kalinauskiene
• Director of Investment and Innovation Department
• of the Ministry of Economy of the Republic of
  Lithuania
• May 2007, Klaipeda

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Lithuania - strong European market player

• EU and NATO membership
• Conveniently located between Western and Eastern
  markets
• Favorable climate for business (easiest to do
  business among the Baltic States)
• Rapid and stable economical growth, small
  inflation, descending unemployment rate
• Skilled and cost-effective labor force
• Most diversified industry base in the Baltic
  States
• EU financial support, transparent policy
  (national law adopted to EU acquis)
• Flexible institutional assistance

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Lithuania in figures
2003 2004 2005 2006 2007
GDP 10.3 7.3 7.6 7.5 7.2
FDI (EUR bn) 3.8 4.7 6.9 8.3 8.9
Exports (EUR bn) 6.4 7.4 9.5 11.4 -
Imports (EUR bn) 8.8 9.8 12.4 15.5 -
Inflation -1.3 2.9 3 4.5 3.9
Unemployment 12.4 11.4 8.3 5.6 5.2
Source Lithuanian Department of Statistics, DnB
Nord, Lithuanian Department of Statistics Foreca
sts by Lithuanian Bank, Ministry of Finance,
Ministry of Economy, Lithuanian Department of
Statistics, European Commission, International
Monetary Fund, LDA
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In-between huge markets
110 million North European consumers
250 million CIS consumers
Almost 500 million EU consumers
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Integrated part of Baltic Sea Region (BSR)

• More than 40 of Lithuanias trade (exports EUR
  2 bn, imports EUR 3 bn in 1H 2006)
• About 50 of FDI in Lithuania (EUR 3 bn in 1H
  2006)

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Business Freedom in selective countries in 2007
No. 12
No. 12 Estonia No. 22 Lithuania No. 41
Latvia No. 87 Poland No. 120 Russia Sources
The Heritage Foundation
No. 120
No. 41
No. 22
No. 87
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SURROUNDED BY THE MOST COMPETITIVE ONES Global
Competitiveness Indexes 2006
No. 14
No. 2
No. 12
No. 3
No. 25
No. 4
No. 36
No. 40
No. 10
No. 1
No. 34
Source World Economic Forum
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Trans European network
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Great labor quality and cost ratio (1)

• Approx. 20 of high education students graduates
  in engineering
• Bachelor and Magisters engineering education
  (automatics, electro-engineering, electronics,
  telecommunications, electrical engineering etc.)
  is provided at universities in five major cities
  of Vilnius, Kaunas, Klaipeda, Šiauliai and
  Panevežys.
• Over 20 000 students graduate high education
  each year.

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Great labor quality and cost ratio (2)At the
begining of 2007

• Average monthly salary 480 EUR
• Industrial workers 305 EUR
• Officers 528 EUR
• IT specialists 568 EUR
• Engineers 434 EUR

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Low-tax environment

Corporate tax 153 (2006 to be reduced to 15 by 2008 for small companies 133)
VAT 18 (and less)
Dividends 15 (0 for the EU parent companies)
Personal income tax 27 (to be reduced to 24 by the end of 2007)
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Locations for Greenfield investment
Akmene
Free economic zones
Visaginas
Kedainiai
Industrial parks
Marijampole
Alytus
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Free Economic Zones

• FEZ territory for economic-commercial and
  financial activities with special economic and
  legal conditions of operation.
• Companies in FEZ are free from corporation tax
  for 6 year, which later is reducing by 50
  percent.
• No VAT, excise and customs duties.
• Two FEZ for the moment Klaipeda (205 ha) and
  Kaunas (534 ha)

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Industrial parks
Overall territory Distance from Vilnius airport Distance from Klaipeda seaport
Šiauliai 138 ha 214 km 161 km
Kedainiai 135 ha 139 km 208 km
Visaginas 33 ha 158 km 453 km
Panevežys 49 ha 135 km 240 km
Marijampole 67 ha 139 km 231 km
Alytus 60 ha 105 km 294 km
Akmene 32 ha 290 km 166 km
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FDI by economic activities (8,3 bn EUR as of
January 1, 2007)
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Major investors in Lithuania(as of January 1,
2007)
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Attracting of foreign direct investment

• Government of the Republic of Lithuania pays big
  attention to attract foreign direct investment.
• Investment promotion program

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EU support to Lithuania for 2007 2013 (11.8
billion EUR)
Of which RD and technological development
0.67 billion EUR Business efficiency and
environment 0.46 billion EUR Energy 0.43
billion EUR Tourism development 0.26 billion
EUR.
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Investment Environment AssessmentChanges in
conditions for business and development in
Lithuania based on the Report Doing Business
2007
2006 2005
Changes in ranking Business conditions,
including 16
15 -1 Starting a business 48
44 -4 Dealing with licences 23
22 -1 Employing workers 119
119 0 Registering property 3
2 -1 Getting credit 33
33 0 Protecting investors 60
58 -2 Paying taxes
40 42 2 Trading across borders 32
31 -1 Enforcing contracts
4 5 1 Closing a business 30
28 -2
Source World Bank, figures denote the countrys
ranking in the world
20
EU Member States by cumulative innovation
capacity index and its growth tendencies
According to cumulative innovation capacity index
and its growth tendencies the EU Member States
may be grouped in 4 categories Category I
Leading countries Finland, Denmark, Sweden,
Germany and Switzerland. Category II Average
performance presenting countries France,
Luxembourg, Ireland, the United Kingdom, the
Netherlands, Belgium, Austria, Italy and
Iceland. Category III Catching up countries
Lithuania, Slovenia, Hungary, Portugal Czech
Republic, Greece, Cyprus and Malta. Category IV
Losing ground countries Estonia, Spain,
Bulgaria, Poland, Slovakia, Rumania and Turkey.
Source European Innovation Scoreboard2005
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Doing Business Across Categories, Selected
Countries
2006 Rankings Ease of Doing Business Enforcing Contracts Registering Property Dealing with Licenses Paying Taxes
Portugal 40 35 98 115 61
Norway 9 3 6 14 16
Denmark 7 1 36 6 15
Lithuania 16 4 3 23 40
Germany 21 29 42 21 73
Poland 75 112 86 146 71
Russian Federation 96 25 44 163 98
Singapore 1 23 12 8 8
United States 3 6 10 22 62
Source World Bank
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Lithuania in the World and in the EU

• Worlds 6th best reformer
• (World Bank, 2004)
• Most attractive EU country for investments
• (Centre for Economics and research LTd., the UK,
  2005)
• Easiest place to do business among new EU states
• (World Bank, 2005)
• Euro is almost reached
• (The Economist, 2006)

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Investment drivers in Lithuania

• Low-tax environment
• Excellent logistic location and infrastructure
• Skilled labor force / cost ratio
• Rapid development of 7 industrial parks
• Tax incentives in 2 free economic zones
• Legal acts on investments comply the EU standards

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International investors

• International investors come to Lithuania due to
  beneficial environment for investment, relatively
  small taxes and favorable business climate. Below
  you can find only a part of them

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Priority Not to enlarge investment flows, but
enhance quality of investment ?
regional ICT/financial/business service
centers ? centers of logistics ? centers of
scientific research ? manufacturing enterprises
for regional needs Presumptive result
production of higher value goods and cumulative
economic with increased export
FDI high technologies of high productivity small need for labour force
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Lithuania is open for the investment
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