Robust small business rebound drives growth

  • 2011-11-24
  • By Linas Jegelevicius

OPTIMISM RETURNS: Lithuanian GDP is increasing, helped by rapid foreign trade growth, says Vytautas Zukauskas.

KLAIPEDA - Emigration numbers are colossal, spending cutbacks still weigh heavily, and fewer, and often cash-strapped, Lithuanians are propelling their national economy to the top of the EU economy ranking in terms of GDP growth. According to a recent Ernst&Young report, the Lithuanian economy, with 2011’s second quarter 6.3 percent GDP growth, is the fastest growing economy in the European Union, behind only Estonia, which saw 8.4 percent growth in the same period.

Despite the gloomy forecast for Europe due to the euro debt crisis, Ernst&Young predicts Lithuania will retain stable GDP growth next year – 4.2 percent in 2012 and 6.2 percent in 2013. Even with the forecasts likely to be corrected, Lithuanian growth is to be the largest in the EU, overtaking Estonian growth (3.8 percent in 2012 and 4.2 percent in 2013).
Vytautas Zukauskas, Lithuanian Free Market Institute policy analyst, says that the Lithuanian GDP increase is due to several reasons. “Lithuania started off from a reletively low GDP base, after having experienced a 15 percent GDP plummet in 2009. Second, it has been boosted by fast export and import growth, 35 and 34 percent, respectively, during 2011’s first three quarters. Third, the increasing public sector expenses are to be considered in the GDP rise, as the state sector’s spending makes up a significant part of GDP,” Zukauskas said to The Baltic Times.

Algirdas Semeta, Lithuania-born EU Commissioner for Taxation, Customs Union, Audit and Anti-fraud activity, says the Lithuanian GDP growth shows the economic recovery is on the right track.
“Though the general European growth prospects, considering the possible fallout from the eurodebt crisis, are not very upbeat and likely will see a certain slowdown, Lithuania’s economy, in the EU context, remains pretty good. Its growth is expected to remain the fastest in the EU,” Semeta said.

Lithuania’s economic recovery is evident on the lowest level, in the growth of small business. The number of individual enterprises over 2011’s first three quarters alone has surged by 44 percent, year-on-year. Banks note that entrepreneurs, small business owners, apply for loans more frequently, and are granted them more easily.

Donatas Ziogas, director of Kaunas Business Information Center, agrees, noting a particular economic invigoration has been observed in the sectors of trade and IT. “The stir in the latter is not surprising, as an IT business usually does not require lots of initial capital or current assets, as well as a large infrastructure. Many small business owners seek advice on financial assistance. In these cases, we suggest for them to apply for loans at the local credit unions, which render loans not only to medium-sized companies, but also to inhabitants that have small-sized individual enterprises. In fact, we feel we’ve become consultants for local credit unions,” Ziogas said.

He observes small business entities’ and individuals’ increasing interest in such unions, which have taken advantage of major bank cautiousness in giving out loans during the crisis. “The unions, unlike major banks, do not demand proof of achievement in a business, basically focusing only on experience, a business plan and idea. Even small business novices are willing to take advantage of the credit union micro credits, which, up to 86,000 litas (24,900 euros), can be offered to persons who do not have previous business experience, and to the enterprises that are in business less than one year,” Ziogas said to the daily Lietuvos Zinios.

Evaldas Petrauskas, managing director and owner of Palanga Credit Union, says he sees a substantial small business boost in the resort town. “Just over the last year we have increased our assets, from 20 to 40 million litas. The entrepreneurship spirit in the resort has been little affected by the downturn. With the banks too stringent and too uptight on giving out loans, locals have discovered our credit union. Being a step closer to the local people and anticipating their needs and business perspectives better, we have been seeing lots of people walk into our office. The downturn has turned out to be a big boost to our business,” Petrauskas said to The Baltic Times.

With a 15 percent resort visitor increase last summer, he is confident the Union’s money, invested into local bars, restaurants and stores, will safely come back to the Union’s coffers. And he is sure the successful small entrepreneurs, reaping the added value of the investments, will return, if in need, for a larger loan.

Palanga is not the only town that enjoys such enlivenment. Ziogas says that Kaunas, the second largest Lithuanian city, has seen more visitors this year than it has in a long time. “The Ryanair flight expansion, the international Kaunas Hanseatic Days and the European basketball hoopla, all together, have revved up the local economy, especially giving a boost to small businesses, like stores, restaurants and bars. For many years Kaunas Old City has been literally deserted, but it was not the case this year, as many Old City small entrepreneurs puzzle over how to enlarge their business premises. The problem of new premises for a new bar in Kaunas Old City is very big,” the Kaunas Business Information Center director says.

Lithuanian banks, slackening their tight grip on loans, also see more small business representatives.
“The small business loan sector has been reinvigorated,” says Mindaugas Steikunas, Swedbank Business Credit Department head. He adds: “Especially, in the sectors which have been most ill-affected during the crisis, like real estate, transport and logistics.”

The bank representative notes that transport enterprises, in particular, are robust in applying for loans. “It is no wonder, as a second-hand truck with a trailer costs up to 100,000-150,000 litas. The transport sector, so crisis-stricken, has recovered. The speedy recovery could possibly be attributed to a large number of seasoned haulage entrepreneurs who now feel business is on the right track,” Steikunas asserts.

He notes that haulers who went bankrupt usually try to cling on to the sector, regroup and open a new company. “With the investment numbers and their visions on paper, they come to the bank for a loan. You cannot expect a bankrupt hauler, if he is not an outsider in the business, to go to the UK to try his luck. It is very welcoming that these kinds of unlucky haulers try to revive their business. Not one of them enters the bank without a business plan,” says Steikunas.
Aivaras Cicelis, SEB bank deputy president and Business Banking Department head, also notes an increase in business financing this year. The bank, he says, mostly credited the enterprises of such sectors as agriculture, transport, stevedoring, logistics, trade and all sectors oriented to export.

“Besides, this year we have a larger number of projects needing financing to enlarge production capacities. Also, we notice a significant increase in financing ‘green’ energy needs in Lithuania. This has been influenced by the recently adopted Renewable Energy Resources law, as well as the gas price increase. As we see good renewable energy prospects in the country, we want to be long-term finance partners in these kinds of projects,” the bank deputy president says.

Dalia Rakauskaite, manager of Verslo Angelu Fondas (Business Angel Fund), an investment company, says she cannot single out just one sector. “There are no identical business projects, the same business ideas. However, we have invested in production companies the most this year. Among those is the TakeWay restaurant and some companies that asked for investment in food supplement, textile and industrial facility production,” she said.

The investment company manager says the fund invests in those business projects that are most likely to pay off. “We are looking for business niches. If the competition is too high, if the prices are low and the market is too tight, we do not invest in those projects,” Rakauskaite said.