Q. You have already outlined your aim to make Lithuania a more attractive destination for FDI. How do you plan to do this?
A. We see the overall improvement of the investment climate not only as our main policy priority but also as a crucial factor influencing the future success of Lithuania. It would be difficult to underestimate the role of FDI in stimulating economic growth across the country, encouraging healthy competition and fostering a vibrant business culture.
We are determined to unleash the economic potential of Lithuania by further easing the regulatory burden, coordinating the implementation of governmental policies and reducing administrative procedures, as well as eliminating redundant regulations.
Some progress has already been made. Businesses note that their dealings with local tax authorities and other regulatory bodies have become easier, and that they have experienced certain relief from excessive compliance requirements. We have been working closely with businesses to make these things happen.
We will continue our efforts to streamline regulatory activities and enable hassle-free services for businesses. Certain legislative proposals to this end have already been made.
We have established special economic zones, which offer investors incentives including a 16-year tax holiday. These zones are expected to spur FDI growth across the country's more disadvantaged regions, which are further away from the capital Vilnius.
It is clear that Lithuania’s dedication to improving its business environment is already bearing fruit. We were among the EU’s fastest growing economies in 2012, with GDP growth of 3.6%, following on from our 6% growth in 2011. This year, 3% growth has been projected.
With plummeting FDI in other countries, Lithuania continues to attract investment. FDI in Lithuania went up by 21% in 2012, compared with a 22% global drop in investments in the first 10 months of 2012. Not only have we attracted foreign investment, but we are committed to keeping it here by investing in our people and providing economic stability. We welcome foreign companies that share our values and are good corporate stewards, participating in Lithuania’s development, and we are ready to respond to their business needs.
Programmes that bring businesses and universities together are given priority status, as they provide for the human capital needed by foreign investors to realise the true value of their investment. For example, a leading low-cost airline has partnered with Kaunas Technological University to develop a specialised aviation mechanics training initiative. Such programmes are effective as we have the most educated workforce in the region: 93% of the population have secondary or higher education, which is by far the best rate in the EU.
Economic stability is also key to securing long-term partnerships with our investors. And as we set our sights on our admission to the eurozone in 2015, we are committed to consolidating our fiscal position and ensuring macroeconomic stability, thus providing a stable investment climate.
One of the challenges Lithuania faces today is the lack of investor awareness about opportunities offered by our country. Despite the fact that Lithuania has successfully established its name as an excellent destination for companies, the majority of potential investors may not have even heard of our name. This is unfortunate, given our highly educated workforce and robust infrastructure – from our world-leading internet speeds to well-developed transport networks.
Q. Is the issue of improving the efficiency of tax authorities going to be addressed as well? If so, how?
A. Efficient co-operation between regulatory institutions and businesses is crucial to Lithuania’s competitiveness. Tax authorities are improving their interactions with businesses by offering greater flexibility and new business-friendly procedures. This is part of the current effort towards simplifying regulations and reducing red tape.
We intend to improve our tax and regulatory oversight efficiency through better intra-government coordination. It is my hope that this kind of improvement will lead to a more conducive business environment and improved interaction between tax authorities and businesses.
Our specific steps in this regard will consist of consolidating reporting to tax and regulatory authorities to avoid redundant reporting, and more efficient application of IT solutions to speed up reporting and responses, and increase the transparency of business regulation.
Despite the challenges still facing us, Lithuania has already made progress in improving relations between tax and regulatory authorities, and businesses. I hope to build on such initiatives.
Q. Which countries do you see as the most promising sources of FDI to Lithuania?
A. The largest flow of foreign investment has come from the US, Germany, Sweden, Norway, Finland, Denmark and the UK. Companies from these countries have invested in manufacturing, finance, insurance and IT.
We have developed strong partnerships with these investors, especially those from the Nordic countries, which have a similar culture and similar business practices to Lithuania. We are committed to strengthening these ties, as we expect these countries to continue to form our largest investor base as they capitalise on our business-friendly environment
Q. Which sectors are the most attractive for potential foreign investors coming to Lithuania and why?
A. The most promising FDI sectors include advanced technology-based manufacturing, specialised business services centres, information and communication technologies, and research and product development centres.
The country as a whole can offer numerous advantages such as a deep pool of highly skilled, well-educated and multilingual professionals; a stable political environment and constantly improving economic climate; world-class infrastructure; accommodating government policies to attract FDI; a strategic and central location with well-established cultural and business ties to the rest of Europe; and highly capable and supportive local management.
Investors now see Lithuania as an investment destination not only to build new markets but also to put mission-critical architecture. Since 2009, when global financial companies opened their first technical support centres in Vilnius, others have followed suit, capitalising on the country's first-rate IT infrastructure and large workforce. [We have had] investments from major Scandinavian banks, a leader in global payment services and other global players.
Q. According to greenfield investment monitor fDi Markets, Vilnius attracted nearly 40% of all foreign investments in the country between 2003 and 2012. Which other cities and regions could be potentially interesting for investors and why?
A. It is true that Vilnius, our largest city and the capital, receives a substantial proportion of the country's total FDI. However, Lithuania's economy is far less concentrated in its capital compared to other countries of similar profile.
For example, our Baltic seaport city of Klaipėda is turning into a logistics hub linking sea, road and rail. The cities of Kaunas, Šiauliai and Panevėžys each present unique FDI opportunities from manufacturing to transportation and agriculture. These cities have an educated workforce and a much lower cost base than other cities in the EU and even in our capital.
Even more remote places have enjoyed injections of investment, too. For example, a large UK medical equipment manufacturer and one of the country’s largest employers and exporters, has set up operations in a small village, Pabradė, with a population of 6000. Despite the size of the town, the company had little difficulty filling 1500 jobs.
What is extremely important but often forgotten is that our highly skilled workforce can be found across the country. For example, first-class scientists, including chemists, physicists and engineers, live in Visaginas, a small town in the east. These talented professionals worked in the town’s nuclear power plant for decades before it closed. Such pockets of talent may exist at any place in the country. I hope that we can work with investors to find towns with the appropriate talent pool to meet their business needs.
Q. Do you see the introduction of the euro, scheduled for the beginning of 2015, as a catalyst or obstacle for foreign investment into Lithuania?
A. Membership of the eurozone opens up new trading, financial and other opportunities for the EU member states that follow strict fiscal policies and have a flexible economic framework, despite current uncertainties.
Lithuania is a small, open, exporting economy. I believe its accession into the eurozone will strengthen its competitiveness. For example, Lithuania's 15% standard corporate tax rate is among the lowest in the EU and is attractive to foreign investors. Both associated business structures and financial pundits support the government on this matter. Experience shows that often foreign investors see the Baltic market as a single economic region that would accordingly be more attractive with a single currency: it would eliminate currency exchange costs and simplify accounting.
Another incentive to join the eurozone is the fact that, in principle, Lithuania already has the euro, because the national currency has been pegged to the euro since 2002. We merely need the final formal step. Financial markets often see the currency board as a certain risk, but our membership in the eurozone will eliminate this risk. Hence, we would become even more attractive to investors.