Lithuania lags behind in attracting investment

  • 2006-01-18
  • By Milda Seputyte
VILNIUS - Although Lithuania is often referred to as an economic tiger among new EU member states, the country has come up far short in one of the key measures of economic development 's foreign direct investment.

Foreign investment flows dropped 28.1 percent to 1.23 billion litas in the first nine months of 2005, in what experts said was partly due to the government's failure to promote investment through the country's economic policy.

The Bank of Lithuania reported an average of 5,347 litas (1,548 euros) of foreign direct investment per capita, which is slightly worse than Latvia and significantly behind Estonia.

"Bearing in mind the country's rapid economic growth, which typically suggests a boost in foreign investment inflows, the fall of foreign direct investment inflows is dramatic," said chief analyst at SEB Vilniaus Bankas Vilija Tauraite.

She said in terms of accumulated foreign direct investment per capita, when compared with other EU newcomers Lithuania also lags behind.

Incidentally, Lithuania has in the meantime become a major exporter of investment, as local businesses position themselves to gain exposure to their neighbors' robust growth markets. (See story on Page 8.)

Although Lithuania maintains few barriers to foreign investment, the government fails to put FDI on the top of its agenda, experts said. "The government is more concerned about the stability of prices rather than promoting investment through its economic policy," Tauraite said.

The state has yet to approve a scenario to attract foreign capital, and priority areas of the economy are also unclear, analysts said. The Economy Ministry, for instance, had to prepare an investment stimulation program for last September. However, the program is still unprepared.

"I don't sense from the government's side a wish to do something about it, and also an understanding of the importance [of FDI]," said Ruta Skyriene, executive director of Investors' Forum in Vilnius.

"The government should go hunting for investment," she said.

What's more, experts point out that competition for investment between the three Baltic states is harsh, and Lithuania loses the competition as its promotional campaign outside the country is weak, and one of the solutions could be the country's coherent self-advertising campaign.

Given that Lithuania's market is twice as big as in the other Baltic states, with free economic zones and lower profit taxes, which remain at 15 percent, the country has some advantages to provide, Tauraite said.

Experts say that recession in foreign direct investment flows, which is crucial for economic growth, could have negative effects on the growth of the state economy. Foreign investment is also crucial in solving gaps in regional development.

A shrinking labor force is more evident in bigger cities, which are the main directions of the biggest investment flows, whereas development in regions causes more concern.

"The success of development in separate regions will depend on the government's ability to improve the business climate in the country and to attract foreign direct investment, and also to develop industrial zones in the regions," Vadimas Titarenka, Nord/LB Lietuva adviser, was quoted as saying.

This year's investments are not expected to be higher as the key reasons putting-off investors will remain. "Given the present reasons of the slowdown, chances of having significant improvements are low 's shortages of labor will remain, the government doesn't plan on spending more funds on self-advertising, changes in tax policy will only start in the summer."