Arvydas Avulis

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Ways to attract investors and solve city problems
Arvydas Avulis Chairman of the Board
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About Hanner

• Hanner was established in 1995. It is the
  leading real estate developer in Lithuania and
  currently operating in 4 countries
• Lithuania
• Latvia
• Romania
• Ukraine
• Current project portfolio
• consists of 23 projects
• Total value of developing
• projects over 1 billion

The biggest HANNER project EUROPA received CEE
Mixed Use Development of the Year 2004 award.
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FDI inflows Worldwide(2004-2005, million USD)
Country  2004 2005
UK 56 300 164 500
USA 133 200 109 800
China 60 600 72 400
Rusia 15 400 14 600
India 5 300 6 600
Estonia 1 000 2 900
Lithuania 800 1 000
Latvia 700 600
Source OECD (Organization for Economic
Co-operation and Development) International
direct investment database.
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FDI inflows per capita worldwide(2005, USD)
Source OECD International direct investment
database.
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FDI inflows in EU(2005, LEFT - billions USD,
RIGHT USD per capita)
Source OECD International direct investment
database.
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FDI inflows in the Baltic states (2002-2005, USD)
Source OECD International direct investment
database.
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FDI inflows in the Baltic states (2006 1st
quarter, million USD)
Source Lithuanian Statistics Department, Latvia
bank and Estonia bank
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Investors in the Baltic states(2005, percentage)
Lithuania Latvia Estonia
Sweden 13,5 14 56
Denmark 15 11,5 1,5
Russia 13 7 1,5
Germany 11,5 6,5 2
Finland 8 5 19,5
Source Lithuanian department of statistics
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FDI in the Baltic states by sectors(2005,
percentage)

Source Lithuanian department of statistics
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Best business conditions (World bank, Doing
business in 2006)

• 1. New Zealand
• 2. Singapore
• 3. USA
• 8. China
• 10. UK
• 16. Lithuania
• 17. Estonia
• 26. Latvia
• 80. Russia

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Best business conditions (World bank, Doing
business in 2006)

Starting business 2 1 3
Licenses 2 3 1
Hiring and Firing 1 2 3
Registering Property 1 3 2
Getting a Credit 2 1 3
Protecting Investors 3 2 1
Paying Taxes 2 3 1
Trading Across Borders 2 3 1
Enforcing Contracts 1 2 3
Closing a Business 2 1 3
Worldwide position 16 26 17
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Factors attracting investment 1. Economic
factors

• Market size
• Inflation
• GDP growth

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Factors attracting investment 1. Economic
factors market size
Country Population (2006)
China 1 296 157 440
USA 293 655 392
UK 59 866 864
Ukraine 46 710 816
Romania 22 303 552
Baltic states 7 097 375
Countries with a big number of potential
consumers are more attractive. In spite of
political instability, Ukrainian market is still
attractive to investors due to its size (FDI of
first half in 2006 is 3.7 times bigger than FDI
in same period in 2005).
Source INDEX mundi
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Factors attracting investment 1. Economic
factors inflation (2003-2005)
2003 2004 2005
USA 2,3 2,6 3,39
China 1,2 4,1 1,9
Ukraine 5,2 12 10,3
Romania 10,3 9,6 8,6
Lithuania -1,2 1,1 2,6
Latvia 2,9 6 5,9
Estonia 1,3 3 4
Countries with high inflation lose the attraction
because of increasing investment risks.
Source INDEX mundi
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Factors attracting investment 1. Economic
factors GDP growth (2003-2005)
2003 2004 2005
UK 2,9 2,7 2,1
USA 2,5 3,9 3,2
China 9,1 9,1 9,3
Ukraine 9,4 12 2,4
Romania 4,9 8,1 4,5
Lithuania 9 6,6 6,7
Latvia 7,4 7,6 8,3
Estonia 4,7 6 7,4
Rapid GDP growth indicates dynamic economic
development of the country.
Source INDEX mundi
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Factors attracting investment 2. Taxes
Lithuania Latvia Estonia Luxembourg UK
Corporate 15 15 23 29 33
VAT 18 18 18 15 17,5
Income 27 25 23 6-39 0-40
Real estate 1 1,5 0 0,7-1 0
Example You can get a VAT refund when you buy a
car in Latvia, but not in Lithuania.
4 temporary social tax Zero for
reinvested profit
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Factors attracting investment 3. Clear legal
system

• EU law is the base for the legal system in the
  Baltic states.
• Clear legal system prevents corruption and
  decreases bureaucracy.
• Free Economic Zones tax and legal privileges
• no corporate tax for investments higher than
  1,000,000 EUR
• avoids speculative land prices
• simpler territory planning.
• Concessions law enhances cooperation of private
  investors and local authorities.

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Factors attracting investments 4. Strong
financial institutions

• International banking networks are operating in
  the Baltic states (SEB, Nordea, SAMPO, Swedbank).
• Good crediting conditions and margins. Interest
  rate in the Baltic states LIBOR 1, Russia
  LIBOR 5.
• Though international banks exist in Ukraine, the
  banking system is poor, operated by local, not
  international standards.

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Factors attracting investments 5. Efficient
dealing with governing institutions

• Rigas Master plan has been approved, but
  planning high-rise buildings is very confusing.
  Vilnius is still working on its master plan.
• In Vilnius the process of public presentation
  and consideration of project is less complicated
  than in Riga.
• In Shanghai (China), it is possible to start
  construction in 3 months after purchasing a land
  plot.
• Municipality requirement to build additional
  infrastructure is not always reasonable.

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City problems

• TRANSPORTPROBLEMS
• Roads, bridges
• Public transport
• Parking

• SOCIAL PROBLEMS
• Schools, universities
• Medical services
• Dormitories
• Out-of-date residential areas

• ECOLOGICALPROBLEMS
• Supply of clean water
• Recycling, collection of waste
• Air pollution

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WAYS TO SOLVE CITY PROBLEMS Vilnius
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Problem transportation to the city centre,
overcrowded bridges, pollution.
Municipality was moved from the centre to the
other side of the river Neris.
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Problem absence of modern entertainment or sport
arenas in Vilnius.

• Local authorities provided a land plot and a
  private company invested into the modern arena.
• City of Vilnius gained 10 of Arenas enterprise
  shares.

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Problem absence of modern entertainment or sport
arenas in Vilnius.
2. A private company will build a leisure
centre. Total investment 43.5 MEUR Private
investment 37.7 MEUR Municipal investment in
infrastructure - 5.8 MEUR.
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Before
After
Problem dormitories old buildings, poor living
conditions.

• Renovation of a dormitory in Vilnius
• Four additional floors were built
• Only private capital was used

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Problem poor state of educational and health
care buildings.
July, 2006 Vilnius municipality decided to
renovate 16 Vilnius educational institutions and
2 hospitals using private capital under the
Concessions law.
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Conclusion

• There are a lot of factors attracting investors
  and many ways how to solve city problems.
• Simple and efficient cooperation between the
  private sector and local authorities is
  essential.
• WIN-WIN solutions are the best!

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Thank you for your attention. Questions are
welcome.
www.hanner.lt , e-mail info_at_hanner.lt Tel 370
52487272, fax [phone] Konstitucijos av. 7,
Vilnius