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Lithuania fears becoming Nordic investment colony

  • 2001-03-29
  • Bryan Bradley, BNS
VILNIUS - While Lithuania does not face much economic risk from the fact that its foreign investments are strongly dominated by Scandinavian capital, it needs a concerted effort to attract more investments from other parts of Europe and from North America, officials and analysts warn.

Otherwise it risks being written off by much of the world as a colony of the Nordics. Upcoming sales of state stakes in gas and power companies, and the national airline should be a chance to shift the balance, officials said.

Data from the Lithuanian Development Agency show Sweden, Denmark, Finland and Norway account for a combined 49 percent of all foreign direct investments in Lithuania, and 21 of the 30 largest foreign investment deals to date. Another 6 percent of foreign direct investment is formally attributed to Estonia, though that mostly reflects investments by Swedish-owned financial institutions.

The United States trails far behind Scandinavia, though it does account for several of the largest deals and accounts for 13 percent of Lithuanian foreign direct investment.

Direct investments from Germany and the U.K. each represent about 6 percent of the total, which the Lithuanian Development Agency put at $2.65 billion as of the end of September 2000.

Government officials said the interest of Nordic businesses in the Baltic region was only natural but should not be overemphasized.

"We love our Scandinavian neighbors, who seem to have recognized Lithuania earlier than others as a bridge to Eastern markets," said Vytas Gruodis, who heads the development agency.

"But we do have and seek a broader mix of investment countries", he added.

Lithuanian Deputy Foreign Minister Dalia Grybauskaite said the Lithuanian government does not have any policy to either encourage or discourage Nordic investments.

"But these are not the final standings, it is in our interest that investments be diversified," Grybauskaite told BNS. "You have to keep in mind that the U.S. used to dominate, and the shift (toward Scandinavia) came rather recently."

She noted that since the overall amount of foreign direct investment was not very big, a single big investment could reshuffle the rankings. Thus, the United States took a clear lead after the American energy company Williams invested in Lithuania's oil complex, but was overtaken by Denmark when Danisco invested in the sugar sector.

Grybauskaite emphasized that the regional concentration of foreign investments should not imply any vulnerability for Lithuania's economy. "What is risky is to depend on supplies or trade links, but investment is something completely different," the official said.

She added the amount of foreign direct investment per capita was still so small that it was laughable to think of the Lithuanian economy as being dependent on foreign investors.

The International Monetary Fund's resident representative in Lithuania, Mark Horton, agreed that the geographic skew of Lithuanian foreign investment was noteworthy but was not a significant cause for concern. "It's more an impulse to seek investments from other regions," Horton said. "It is natural that Scandinavians would be the major investors, though one might like to see additional investment from other EU countries, particularly Germany and the U.K. and open links to North America will always be important."

The IMF aide was hesitant to compare the foreign direct investment situation with the trade links that made Lithuania suffer so much from Russia's 1998 financial crisis.

"One could suggest that a downturn in the Scandinavian economies could have an impact. But at this point all the Scandinavian countries are rather highly integrated into the EU as a whole," he said.

That means the risk of an economic shock from the Nordic region is essentially the same as vulnerability to a general downturn in Europe.

The development agency's Gruodis downplayed the failure of several non-Scandinavian investment projects over the past year, such as the French concern Dalkia's decision not to invest in Kaunas' city heating utility. He said the fact that Italy's central bank did not allow UniCredito Italiano to acquire the Lithuanian Agriculture Bank had nothing to do with conditions in Lithuania.

"We have some major privatizations coming soon, and I don't think the Scandinavians will be the main players," Gruodis said.

Grybauskaite noted that growth of economic ties within the Baltic Sea region in recent years probably reflected a new long-term trend toward regionalism in Europe.

"As the EU grows to include some 25 countries, it's natural that there be a certain grouping according to economic and other interests," he said. "We can also see that in the ever increasing cooperation of countries in the Benelux region."