KAUNAS - Political stability and a number of ambitious construction projects have people buzzing about a potential business revival in Kaunas - the most remarkable changes since the interwar period, in fact - as the city takes advantage of its new-found political stability and central position on the Via Baltica highway.
Several Kaunas officials have heralded the two main Nemunas Island projects - a sports arena and an Akropolis center - as works of the century. The stadium will host the European Basketball Championship in 2007, while the center, judging by the success of the Vilnius Akropolis, is destined to become Kaunas' premier shopping mall.
Other projects that promise to alter the city's business environment are related to the Kaunas Free Economic Zone, which guarantees certain financial benefits - such as a remission of capital-gain tax for five years and reductions in the subsequent 10, and other tax breaks.
The zone is located on the intersection of Via Baltica, the priority transport corridor that will ultimately connect Helsinki with Berlin, and half of the 23 hectares in the zone have already been reserved by investors. Still, despite several years of negotiations between local institutions and foreigners, the zone has yet to get off the ground.
"Kaunas FEZ is still inactive because most foreign investors want to purchase the land [they will work on], and they are still afraid of Homo sovieticus - who frequently changes his laws," says Juozas Yla, an expert at the department of regional development.
But Vytautas Petruzis, director of the management company of Kaunas Free Economic Zone, says the area holds high potential, and a recent round of negotiations with investors showed some light at the end of the tunnel.
"We are negotiating with international companies from Denmark, Finland and Italy that are interested in manufacturing automobile bodyworks in Kaunas," says Petruzis. "Being situated in a convenient geographical location, FEZ is the best area for terminals and therefore attractive for logistic companies."
However, not all are sanguine about the expected development boom. Among the ranks of small and medium entrepreneurs operating on Freedom Alley, the central walkway in Kaunas' Old Town, moods are more downbeat.
"Grandiose objects like these [the sports arena and Akropolis] are nowhere else in the world built so close to the historic city center, and they may force the Freedom Alley businessmen to shut their windows with planks," Mecislovas Rondomanskas, a local entrepreneur was quoted as saying by the Verslo zinios daily.
Povilas Kuprys, head of the department of urban development in Kaunas, admits that there are risks with the construction bonanza.
"We ought to find a compromise that would balance the combination of cultural, administrative and commerce sectors in the center because it is an area of interest for business people," he says. "The idea of a potential sports complex and a shopping center on the island is fostering development in surrounding territories. We have already received inquiries about investment in hotel infrastructure."
Historically, Kaunas was a center for textile and fiber industries, electronics and wood processing, medical and food production. The city has extensive supplies of highly qualified and relatively cheap labor. Nine universities, including the renowned Kaunas University of Technology, train professionals from throughout Lithuania and the world.
It is widely known that economic development in Kaunas has been in the doldrums in recent years due to the city's turbulent political life, which included scores of mafia-related scandals and incriminations. The result has been a rotation rate in city mayors as frequent as Italy's prime minister.
But even that has changed in the past year.
"Political stability in the City Council has improved economic conditions for investment, and we have already noticed the heightened interest from potential investors," says Kuprys.
As a sign of the city's economic maturity, Kuprys points to the arrival of real-estate-project developer Hanner. The company is building a 13,000-square-meter retail center with premises for 40 potential shops. The project should be completed by November.
Meanwhile, Baltic Shopping Centers, a Lithuanian mall developer, has founded a new retail and entertainment mall, Mega, in the Kaunas suburb of Vytenai. Investments are expected to reach 160 million litas (46.3 million euros). By fall 2005, BSC will construct a 70,000-square-meter complex that will include a RIMI grocery store. Also, to ensure better access to the mall, contractors will build a viaduct connecting the blocks of Vyteniai and Silainiai.
In 2003, Kaunas was equipped with 40,000 square meters of new commercial premises and in 2004 the city is to enlarge its commerce potential with another 90,000 square meters.