Lithuania is hoping to leverage its energy security to attract foreign companies as concerns over the EU dependence on Russian gas have intensified since the Russian invasion of Ukraine.
In the first half of 2022, Lithuania attracted 31 foreign direct investment (FDI) projects, up from 22 projects in the same period a year earlier, according to Invest Lithuania, the country’s economic development agency.
Elijus Čivilis, general manager of Invest Lithuania, tells fDi that the country is a “reliable strategic partner” for many companies, given its independence from Russian energy. He adds that “one of the main concerns in Europe and around the world is energy security”, noting that this has become especially important for manufacturing operations.
Russian state-owned energy company Gazprom said on July 25 that it would cut existing flows of natural gas through its largest pipeline to Germany to just 20% of capacity. This came into effect on July 27 and represented a 50% cut of flows through the Nordstream 1 pipeline, down from the 40% capacity seen in June 2022.
European politicians have decried these moves as Russia’s “weaponisation” of gas supplies and tried to diversify sources by signing deals with other gas producing countries, such as Qatar and Azerbaijan. In Germany, Europe’s largest economy, fears of Russia turning off the gas tap have sparked fierce public debate about how to ration energy between consumers and companies.
In May 2022, Lithuania became the first EU country to stop the import and use of Russian gas. The Baltic country has had a liquified natural gas (LNG) terminal operating from the port of Klaipeda since December 2014.
Too early to tell
While it is “too early to measure the impact energy independence may have on FDI results”, according to Mr Čivilis, Invest Lithuania has noticed an increase in the number of energy-related enquiries from potential and existing investors. Among those citing the importance of energy is German automotive parts manufacturer Continental, which has a factory producing intelligent glass control and radar sensors in the Kaunas Free Economic Zone.
“A reliable supply of energy is an essential basis for stable economic conditions,” says Shayan Ali, the managing director of the Lithuanian operations of Continental Automotive. ”Lithuania’s independence from Russian natural gas is a strong advantage to Lithuania’s investment climate and general stability.”
This is echoed by other recent investors too, such as US start-up Guardhat, which is due to open an office in the Lithuanian capital of Vilnius and hire 30 software developers this year.
“Lithuania is better prepared against many impacts of the [Ukraine] war than many other EU member states,” says Jens Grebner, the managing director of the Guardhat Lithuania.
However, experts say it is too early to tell whether reliance on Russian gas is a deciding factor across the board, given that many companies are still deciding to locate themselves in countries such as Hungary and Slovakia.
Guy Douetil, a managing director for Europe, the Middle East and Africa at site selection consultancy Hickey & Associates, says that companies with energy intensive operations are looking more closely at energy resilience.
“One of the outcomes of this will be a speeding up towards renewables,” he says, adding that countries “cannot and will not allow themselves to be beholden” to the level of risk of another country turning off their gas tap. Mr Douetil notes that many of his clients have moved to diversify their portfolio of physical locations to reduce the risk presented by dependence on Russian gas.
Lithuania has recently welcomed an increasing number of foreign tech companies, with the sector accounting for the largest number of FDI projects in the first half of 2022.
Rasmus Klaassen, the CEO of Fundvest, an Estonia-based financial brokerage which is set to open a new office in Vilnius, tells fDi that the Lithuanian capital is a “Mecca for fintechs” due to factors such as its openness to innovation and predictable regulatory environment.
Lithuania has also benefited from an influx of Belarusian tech companies after the disputed re-election of Belarus’s president Alexandr Lukashenko in August 2020, according to Mr Čivilis.
Mr Klaasen notes that the Russian invasion of Ukraine has had “a negative impact on the risk appetite of larger Nordic and Western European companies” in the Baltic region, but that the tone of business leaders in Lithuania is “more pragmatic” than their “more negative” counterparts.