Do business in Lithuwhere?

  • 2009-01-28
  • By Adam Mullett

CASH IN HAND: Lithuania hopes it will be able to draw more money from Western European investors.

VILNIUS - Lithuania has failed to attract substantial foreign direct investment (FDI) because it hasn't created an attractive and easy business atmosphere to work in for foreign investors, experts say.
A lack of incentives, unbearable bureaucracy and difficult laws have hampered the country's attempts to bring in investments from abroad.

While Poland is cleaning up with a lot of massive deals going their way, including the recent Dell computer factory investment, Lithuania has in most cases been passed over without a second look.
Some said the loss of Dell was due to the fact that Lithuania's population is too small to warrant a second look, but others disagree.
The Lithuanian Development Agency (LDA), the government arm for attracting FDI, thinks that Poland has picked up a string of high value investments from electronics producers such as Sharp, LG Electronics and Dell because they are willing to pay for it.

"It is buying these projects as an incentive. They paid 109 million euros for the Sharp investment, 200 million euros for the LG electronics company to go there and I know Hungary recently paid 300 millon euros to attract Mercedes there with a factory," Audrius Masiulionis, director of the Investment Promotion Department at the LDA, told The Baltic Times.
"It would be easier for us [at the LDA] if we had these sorts of tools at our disposal," he said.
Others in the investment industry in Lithuania think that the government should follow Poland's lead and put up the money for companies to come to the country.

"We have to look out for those big brands, like Dell, and see what they are doing and get them to come here. We want big companies, which bring other companies with them," Ruta Skyriene, executive director of the Lithuanian Investors Forum and Chairman of the LDA council, told TBT.
"Big names are important and sometimes we need to buy them," she said.
Carl Berneheim, chairman of the board of the Swedish Chamber of Commerce and Director of Cebeco Timber, said buying big names is a small price to pay for what the country will gain.
"If you have the big names coming in, then other people will look at the country and think it is a good idea. They will think, 'well if it is good enough for Mercedes then its good enough for me' and they will come."
"It sets a good image for the country when big companies like that put their business here," he said.
Investment specialists at the Ministry of Economy were unavailable to comment on the issue, but insiders say that the government does not have incentives like Poland because it is trying to protect Lithuanian business people.

However, other schemes to attract investors are in the pipeline, Skyriene said.
"We have schemes that will subsidize investment, but they are not in place yet because we have to write more rules for them to define when they should be used. They will be for compensation for workforce development, for building and for research and development. Most of these incentives are for green field [production] investors," she said.

In the meantime, industry insiders are seeing only a half-hearted effort to attract investors.
"Its not cheap to live here and it is not attractive to foreigners to come here. There are no benefits and therefore no foreign specialists come," Berneheim said.

While the lack of incentives is keeping outsiders at arm's length, those brave enough to enter the market have had to deal with untold delays for clearance for their businesses.
Mantas Nocius, managing director of the LDA, told TBT that for companies interested in building a factory or a large building, red tape is a put-off.
"It takes one year to join two or three plots of land 's that is a lot of bureaucracy and companies don't have that long to wait and it discourages investors."

British investors also find the same problems with taxes for individuals.
"British investors still find that to run a company in Lithuania involves too much bureaucracy. Also, the tax on social insurance per employed person is still too high," Ieva Stakenait, Acting Executive Director of the British Chamber of Commerce, told TBT.

Berneheim thinks if the government cut new investors some slack, they would come in droves.
"When you know the situation here, you can work it. For a new person this would be hard. There is too much bureaucracy and the government isn't doing enough to make it easy for entrepreneurs. You want to encourage entrepreneurs to come here 's you need thousands who will make small and medium sized businesses," he said.

Recent changes to the tax laws that went into effect on Jan. 1, 2009 mean that businesses in Lithuania must pay an additional 5 percent tax under the new 20-20-20 tax regulations with 20 percent tax for personal income, corporate and value added taxes.

On top of taxes, companies are required to pay high rates of social contribution taxes based on employee salaries, which go towards the state social security fund.
Kim Bartholdy, Chairman of the Committee for the Danish Business Club in Lithuania, told TBT that these social contributions are abnormally high and added that he would recommend other countries for large investment because of it.

"If you are a company that needs a highly educated and well paid staff, I would choose another country because of the social contribution taxes. In other countries there is a cap, but here it is 31 percent," he said.
"We encouraged them [the Kirkilas government] to put a cap on the social tax, but they thought we just wanted it cheap and didn't listen to us. We want skilled specialists to stay here and we want to invest," Bartholdy added.

Following independence, one of the greatest advantages of the country was cheap labor and a largely unpopulated business landscape where one could carve out a stake. Since then, Berneheim said, the cheap labor force has disappeared and has been replaced by Western European prices.
While largely true up until now, Skyriene thinks that Lithuania will regain part of its cheap-labor competitive advantage amid the global economic crisis, which has seen many lose their jobs already, especially in low skills positions.

"One of the biggest problems that we have had recently has been that you can't find people who want to work, but now that problem is going away on its own," she said.
The Dell investment, which went to Poland in mid-January, was the perfect example of why she thinks the government needs to work on getting more business coming in.
"In Panevezys, they had Ekranas, which went bankrupt and now there are 2,000 people who know how to make electronic screens who are ready to work. Maybe they needed something more specific, but they are electronic workers," she said in rebuttal to claims that Lithuania would not have had a large enough skilled work force for the Dell computer factory.

"The government needs to say 'this is our priority.'" Skyriene said.