KLAIPEDA - When it comes to foreign investment, Lithuania is trailing well behind its Baltic counterparts, Latvia and, particularly, Estonia, but this could soon change, even in this current economic downturn.
According to the Lithuanian Department of Statistics, direct foreign investment for the first quarter of 2009 slumped 6.9 percent, with cumulative investments into the country since independence dropping from 34.7 billion litas (10 billion euros) to 31.4 billions litas, compared to the end of the first quarter 2008. The government remains cheerful, however, as several major greenfield investments are about to take shape.
Last week a trilateral 'letter of intent' on the construction of an aluminum parts plant in the southern city of Alytus was signed by the Ministry of Economy, Alytus' municipality and U.S. Aviation Technology LLD, a U.K.-based enterprise. In the competition between the cities of Panevezys, in the north, and Alytus, in the south, senior vice president of Aviation Technology, Umberto Cisotti, said he favored the latter. "During the first phase of the project the investment will be approximately 9 million to 9.5 million euros. We are planning to employ up to 60 people at the beginning," Cisotti has previously said, reports news agency lrt.lt.
Alytus mayor Ceslovas Daugela says that "I can't comment on the details of shaping the deal so far. It's a bilateral agreement, though. We got in touch with the entrepreneur through the Lithuanian Development Agency. I can possibly disclose more details on the deal at the beginning of September, when the investment contract is finally signed."
When asked what allowed Alytus to outmuscle Panevezys in the competition, Daugela responded that "The Dzukai (the local inhabitants) have poured out their hearts towards the investor. We approached him with the simplicity of our proposal and a quick response to their requests. Both cities came up with pretty much similar proposals, but the human factor helped us to inch a bit closer."
"Alytus has a better developed infrastructure than Panevezys. Besides, it asked only 1,500 euros per hectare for a land lease, much less than Panevezys' bid, which was 5,000 euros per hectare," Cisotti added. If everything goes well, production should start within a year. The company works in the aviation, aerospace and automotive industries. The mayor defines the investment as "of average size."
Other foreign companies are eying possibilities to invest into Lithuania's economy as well. No-Burn Europe, another U.K.-based company making fire protection products including various types of building materials and textiles, and PINQY fire extinguishers, is currently in talks with the Ministry of Economy about building a plant in Lithuania.
"So far, we are just measuring the size of the investment, but it would be very big indeed, up to several hundred million euros. I am glad that we are advancing in the talks," said the company's executive director, Mark Gaskel. There is a possibility that both sides will sign a letter of intent in the upcoming weeks.
The British company Meditrox, together with its Lithuanian business partners, would like to invest in production of medical equipment; they specialize in 'whole room decontamination' products for hospitals. The initial investment would be up to approximately 15 million euros, and would be a long term project. Meditrox representatives have already conducted preliminary talks with the Ministry of Economy.
Another major investor in Lithuania has been Swedish furniture maker IKEA, who may come with additional expansions plans to Lithuania. In December last year the company bought Giriu Bizonas, a manufacturer of wood-wool boards and furniture parts. Unofficial data show that Ikea has invested over 250 million litas into Lithuania's furniture industry, reports business magazine The Baltic Course.
Does all this mean that Lithuania is shaking off the image of a country that is less attractive to foreign investment than its neighbors? Vice-Minister at the Ministry of Economy, Arnoldas Burkovskis, remains highly upbeat about the recent news.
"Lithuania has recently advanced a lot by improving its laws and regulations related to foreign investments. Lithuania has become much more attractive to foreign businessmen. Foreigners come here, they compare the current situation to what they saw before, and say 'Hey, we like it here!'," says Burkovskis. When asked about improvements in investment policy, the vice-minister quipped, "Do you want to hear it all? It would take a while to name them."
Director of the Department of Investment and Innovation of the Ministry of Economy Laimute Kalinauskiene is convinced that substantive amendments in the laws and regulations regarding the foreign investment environment, simplified procedures for planning, newly-established industrial parks, exemptions from several taxes, state financing of the most important projects, and EU financial assistance have helped to lure foreign businessmen to Lithuania.
"Finally, Lithuania is taking advantage of being a small country, with a relatively small but effective labor market. Just a few years ago, we couldn't find 500 qualified workers for an investor, now there's no problem. Also, labor costs have become considerably lower, so what we are seeing globally is that many foreign investors are moving their businesses from more expensive countries to the cheaper ones. The downturn is a great time to invest, foreign businessmen are well aware of that, and we have to take advantage of the situation," said Kalinauskiene.