RIGA - Latvian businessmen have started registering enterprises in Lithuania because of the neighbor country's better business environment, according analysts.
On a recent visit to Lithuania Silvija Greste, Small and Medium-Sized Business and Craft Consultative Council Chairwoman, told newspaper Dienas Bizness the country was becoming an increasingly attractive option to struggling Baltic business people across the border.
The number of companies being registered in Lithuania by residents of Latvia has risen significantly over the past several months, Greste said.
"I believe that the main reason for this is the smaller value-added tax rate in Lithuania, as well as better government policy on taxes, fewer bureaucratic obstacles, various state support programs for new enterprises and small enterprises," explained Greste.
Like its neighbor, Lithuania, has been hard hit by the global economic downturn.
In January its government launched talks with European institutions in a bid to secure loans to help shore up its business sector.
At the time the government sought an injection of between 500 million and one billion litas (146 million-290 million euros) to help Lithuanian firms cope with the downturn.
The following month Lithuania's government approved an economic stimulus plan for businesses, worth 5 billion litas.
Lithuanian businesses began receiving the first 100-million-litas slice of funding in March.
The funding boost is part of an economic stimulus plan being developed by a team of experts as part of government attempts to battle the deepening economic crisis in the Baltic state.
The plan is being financed up to 2013 using structural funds allocated to Lithuania by the European Union.
The funding scheme was established with the view to helping poorer nations catch up with wealthier members of the 27-country bloc.
Until recently, Lithuania enjoyed a reputation as an economic "tiger" in the EU, which it joined in 2004.
Its growth was powered by exports, as well as robust domestic demand stoked by rising wages, loans and money sent home by the 300,000 Lithuanians who left to work abroad, mostly in Britain and Ireland, since the country joined the EU.
Businesses were hit hard once consumption tailed off in the face of high inflation and tighter domestic credit rules.
The subsequent global economic crisis also put a dent in export markets.
Lithuania's economy contracted by 12.6% in the first quarter of 2009 compared with the same period last year.
That compares with growth of 7.8 percent in 2006 and 8.9 percent in 2007.
The country's office of statistics blamed the drop on the fall in demand for construction, the retail industry and textile sectors.
However, despite the gloomy economic forecasts economic analysts say Lithuania remains better positioned to recover from the economic slump due largely due to its more developed export market.
Larger market opportunities are yet another reason why Latvians are choosing to start a business in Lithuania in ever increasing numbers.
While Greste conceded there was no precise data to back her statements, an obvious trend had developed.
"I know businessmen who, due to bureaucratic obstacles, have chosen to export their goods from Latvia to Russia via Lithuania, where the procedure is much simpler than in Latvia," she said.
Lithuania has previously said it does not intend to follow the example of neighboring recession casualty Latvia, which in December agreed a 7.5-billion-euro bailout with the International Monetary Fund, the European Union and other lenders.