Future technologies and current challenges: world’s experts discuss investment climate in Baltics

VILNIUS - The second Baltic Investors Forum held in Vilnius gathered top representatives from government, political parties, business, academia and civil society to discuss the changes in the investment climate of Baltic countries, particularly in Lithuania.

Migration issues and the threat from Russia were on the top of the list of big picture challenges the region faces when it comes to the long term viability of investments.
One more challenge that became a buzzword, not only in the case of Lithuania, but also for other post-communist countries, is the continuation of “transition” into a western capitalist macroeconomic system that has started 25 years ago.

“Lithuania has joined the European Union and Euro area, but still the average productivity gap between Lithuania and the rest of European Union countries is 25%”, says the Head of Division in the OECD Economics Department, Andreas Woergoetter. “And EU average productivity is a reference point, not a benchmark for Lithuania. There is no reason why the index of Lithuania is still low – technologies are available without any restrictions, the skilled workers can be found and the capital is mobile. Still the same indices can be observed in Czech Republic. It is an issue of social cohesion, the issue of trust in the economy, the issue of confidence about being able to cope with certain challenges.”

According to Directorate-General for Economic and Financial Affairs of the European Commission, Lithuania’s real GDP grew by 2.9 per cent year on year in 2014, mainly driven by domestic demand — in particular private consumption — while net exports were negative, following the Russian embargo on food products and the weakening of the Russian economy at the end of 2014.

The researchers expect that private demand will be the main growth engine on the back of rising wages and employment. Net exports are expected to continue to weigh on growth, but are set to recover in 2016 when the negative effects from Russia are forecast to fade out and the European economy picks up. Against this background, the 2015 Stability Programme for Lithuania assumes real GDP growth of 2.5 per cent year-on-year in 2015, 3.2 per cent in 2016, 3.5 per cent in 2017 and 3.9 per cent in 2018.

Support for Russian economy
Robert J. Shiller, Nobel Laureate in Economics, and a Lithuanian by origin, suggested that the possible way to overcome the threat from the Russian side towards Baltics is to support the Russian economy.

“We are all trying to figure out how Putin thinks; but unfortunately his KGB background won’t let it happen easily. It is a big threat, not just for Lithuania, as Putin claims that he wants to improve his nuclear arsenal and make it impossible to stop him. He has whole different vision for the world. However, maybe we should support Russians. They are good people. Basically they have a political problem, and I think, maybe we should try to promote the Russian economy, because if it continues this way, it will definitely cause more anger and anxiety. So, trying to help the Russians may cause good changes in their politics. Because people are basically the same everywhere – the attitudes of people in Russia are not that different from attitudes of the Americans”.

And he has all the rights to say so: in 1990, Shiller and his co-author Maxim Boycko from Russia have published a paper “Popular Attitudes Towards Free Markets: The Soviet Union and the United States Compared”.
In the end, Shiller compares the situation in Russia to fascist Germany in World War II: the Germans were not bad people, but they were the victims of a political regime, he says.

There is always someone who can do the same job for half of the price
According to Nerijus Maciulis, chief economist of Swedbank, 2/3 of the Lithuanian population think that liberalizing immigration policies is a bad idea. At the same time, there is a remarkable tendency to aging and shrinking in Lithuanian society due to low birth ratio and intense emigration to other countries.

Andreas Woergoetter is sure: Lithuanian policy makers need to establish attractive environment for skilled Lithuanians.
“At the moment people choose to go somewhere else, for example, to UK. This issue is relevant for small economies and societies with very specific cultural heritage. Here I am confident that by making youth involved, provide them with opportunities which include discussing the perspectives of what kind of policies were successful somewhere else and how can one exchange experience, the situation can be changed. The most important thing the government can do is to learn from its mistakes to avoid making them in future”.

Ted C. Fishman, journalist and best-selling author, emphasizes that reverse emigration is very low in Lithuania. However, he sees potential to bring skillful human resources from neighbor countries as well as to create attractive working environment for the locals.

“First of all, there is a moral argument: a country that sends a third of its population to the rest of the world does not have an attitude about allowing people in. There is always more that you can do to make people come home. And often people come with really great skills. A lot of people are coming back to Lithuania to retire, meaning they are coming to consume, which is generally also good. Lithuania borders with countries where trust capital is very low, but the skills are very high. How can Lithuania capture some of those skills and move them into its economy, where the trust level is higher? That’s a great opportunity to export the products of their skills to the rest of the world.”

However, according to the reports of Swedbank experts, the pace of emigration from Lithuania has stabilized last year, while the number of returnees is growing each year.