Industry

Thus far economy has been developing according to the scenario of the optimists –economy is picking up faster than it has been expected, business people portray the future in brighter colours. Analysts say that Lithuania’s economy should grow successfully for a couple of years, however, then it would come to a standstill unless reforms were undertaken, which were necessary to be made during the economic crisis.

The first solar batteries were started to be manufactured in Lithuania at the end of the year. They should occupy a considerable place in Lithuanian export. At least the initiators of solar energy in Lithuania expect this. They state that within coming several decades, solar energy technologies will be among the fastest developing ones in the world. “After the Fukushima nuclear disaster had happened shares of solar energy companies increased by as much as 30 per cent. We came to the market just in time”, said Vidmantas Janulevičius, Director General of Baltic Solar energy to the magazine. Calculations made by the United Nations Organisation that in 2050 as much as 77 per cent of energy in the world can be produced from the sun, water and wind, and in another several decades – practically all energy, is really inspiring. Creators of modern technologies answer to the sceptics who maintain that it was traditional industry that helped Lithuania break out of the crisis, the following: “There is no solar elements plant in Eastern Europe, and there is only one plant in Europe, which manufactures solar elements of third generation that we are going to produce. Hence, prospects are really dazzling”, says Vidmantas Janulevičius. Almost all solar elements manufactured in Lithuania are planned to be sold abroad.

It is stated that crises are not so dreadful when high value added products are created because, as experience shows, demand for such products has not reduced even with recession raging in the largest countries of the world. The Chairman of the Board of one of the oldest Lithuanian laser design and manufacturing companies Eksma Rimantas Kraujalis says that last year was the best year throughout the entire history of the company’s existence. They expect something similar this year too. “We sold to Europe and the USA, however, we exported more to Taiwan, India and China, which have great ambitions to conquer the world, and this is very good to us as manufacturers of lasers”, says Rimantas. Kraujalis.
Our interlocutor thinks he might not be popular but he can say with confidence that today the most favourable conditions are created in Lithuania for high technologies companies to do business. “Fantastic possibilities”, says Rimantas Kraujalis. “Export is supported, tax reliefs are applied to the companies, which invest in scientific research and experiments, European support is possible to obtain. The most important thing is to be initiative and have the desire to receive that support. Only forward.”

They say that Lithuania is outstripping Latvians and Poles in laser manufacturing. It could march even further forward if the potential were greater, there were more specialists, and both science and business did not work each for itself. It is true that the huge gap that existed between science and business earlier is narrowing now but not as fast as we would like it to do.

Despite the fact that Lithuania takes great pride in high technologies companies, thus far their share in Lithuanian export has been rather modest. Analysts calculate that high value added production still accounts for five per cent only. Lithuanian traditional industry sells the largest quantities of products to foreign countries. Its companies were the first to start drawing Lithuania out of the crisis and have done it thus far. Export has been on the increase since last year. Good tendencies should remain within the coming year too. “Export of some products is falling though”, confesses the analyst of SEB bank Vilija Tauraitė. “This can be said about wood and paper, and plastic products industry. We have to understand that foreign markets are not unlimited, they cannot grow so intensively for a long time”. However, the analysts assure us that this means that simply quieter rather than poorer time is coming for the exporting companies. Shipbuilding industry, which is winning ever-stronger positions in the world markets, surprises the analysts most. “This business is expanding both in scope, depth and width”, says Vilija Tauraitė.

According to the analysts, Lithuania is lucky that among its major export partners there are no countries that experience great difficulties in the public sector or are worn down by enormous debts, such as Portugal or Greece. Lithuania’s major export partners such as Germany, Poland, the Scandinavian countries, Russia are recovering rapidly from the crisis and this gives hopes of a fast economic recovery to the Lithuanian companies too.

Among the three fastest growing countries again?
It is forecasted that Lithuania, which in 2009 experienced the most severe economic recession in the European Union, this year can find itself among the three fastest growing countries. It might happen that other two Baltic States – Latvia and Estonia – will line up next to it. During the past months all forecasters – beginning with economists of Lithuania and ending with those of the International Monetary Fund and the European Commission improve prospects of the growth of Lithuania’s economy. According to them, this year Lithuania’s economy should increase by as much as 5-6 per cent, next year this figure should increase by another 4.5 per cent. And this would be almost twice as much as the European Union average. “To reach the pre-crisis level of economy we shall have to wait until the year 2014”, says Vilija Tauraitė.

To help economy pick up sooner it is important that Lithuania should attract as many as possible investments. “The present authorities have done much more than the previous ones to attract large companies to Lithuania. Finally foreign investments have became number one priority rather than a simple entry in the strategic plan”, says Rūta Skyrienė, Executive Director of the Association “Investors’ Forum”. “It is very important for investors when the Prime Minister of the country himself arrives and invites them personally. It is quite often that financial incentives are not the most important thing to the investors”.

According to Rūta Skyrienė, at the present time the most important thing is to continue working and not to be content with what has been done. They say that after long years Lithuania has finally outstripped its greatest rivals Latvia and Estonia in the number of foreign companies attracted. It is calculated that during the past year as many as 42 foreign companies announced about their investments in Lithuania. Coming of IBM Corporation to Lithuania with whom an agreement on science and technological development co-operation was concluded is regarded one of the greatest achievements. The Barclays Technology Centre is further expanding in Lithuania. Other good tendencies are also observed – foreign companies acquire shares of Lithuanian companies. Most probable it will take a long time before a transaction similar to that between Fermentas and Thermo Fischer Scientific, which paid about 700 million litas for the shares of biotechnological company, is made. Of no less significant are transactions conducted at lower costs. One of the latest examples is as follows: the international French capital company Roquette acquired shares of Amilina, a Panevėžys-based wheat starch manufacturer.

Things would be more difficult without EU support
EU support totalling billions whose distribution gained momentum in 2004 after Lithuania joined the European Union, contributed considerably to Lithuania’s economic progress and development. And it is sure to contribute to that within the immediate several years. The Minister of Finance Ingrida Šimonytė named several spheres in which invested billions of the European Union brought the greatest benefit to Lithuania. First of all, these are investments in general infrastructure, such as roads, as well as investments in human resources and training. EU support helped the Lithuanian farmers to rise to their feet. In the period 2007 to 2013 alone Lithuania was allocated 25 billion litas, and the European Commission names Lithuania as one of the countries to have absorb the funds allocated to it fastest. Economists calculate that due to EU, Lithuania’s gross domestic product (GDP) increases by as much as 1.5-2 per cent annually.

True, it is recognised that anticipated benefit was not received from investments to increase volumes of construction and manufacture. According to the assessment of the analysts, European funds partly contributed to blowing a bubble in the building sector, which later exploded. Several years ago more than one company, which had received European support, went bankrupt pouring millions of European tax payers’ money down the drain. One can find stories related to a dishonest distribution of funds and projects stuck in bureaucratic traps. However, as business people note, the situation is changing for the better.

Lithuania, like other new members of the European Union, is troubled by the question about what would happen after the year 2014. Rolandas Kriščiūnas, Vice-minister of Finance of Lithuania, consoles us that support to Lithuania should not stop or decrease considerably because it is still necessary to reduce economic and social differences between the European Union countries. “In distributing support of the European Union Structural Funds for 2014-2020, Lithuania will be assigned to the least-developed EU region”, the Vice-minister of Finance once said. Statistics, however, shows that now Lithuania’s GDP per head constitutes about half the European Union average only.

The scourge of unemployment will not hit so badly
Though within the coming years Lithuania’s economy should grow at least twice as fast as that of the majority of the European Union countries, the unemployment rate, which reached the limit of almost 20 per cent during the crisis, will further remain Lithuania’s greatest trouble. Next year the unemployment rate will still exceed 10 per cent. “This is much”, says Ramūnas Vilpišauskas, a public policy expert. The good news is that the unemployment rate will decrease not only due to immigration, because of which it has been on the decrease thus far, but also because the recovered business will begin to create new jobs. “Moods of record good industry”, says Aleksandras Izgorodinas, a representative of the Confederation of Lithuanian Industrialists, however, he does not promise that business people will increase salaries to their employees considerably this year because profit that companies earn does not increase as fast as their turnover does. At the present time there are about 280 thousand unemployed people in Lithuania, half of them have been out of work for a year and longer. However, despite a high unemployment rate business people complain that there is a shortage of qualified workers. There are several reasons for that. Lithuania does not train enough specialists for the labour market.

The labour market is saturated with specialists with degrees in social sciences and the humanities, and employers badly need young qualified people with degrees in exact and technical sciences. True, foreign companies found the way of assuring work force for themselves – by co-operating with universities. Many successfully working companies use this strategy. Business people say that in the future, with technologies becoming more modern and companies automating production the need for labour force will decrease. Therefore the problem of work force will not be as acute as it is sometimes pictured now. The authorities devote much attention to reducing social problems caused by unemployment. The Ministry of Social Security and Labour has prepared long-term priorities of increasing employment until 2020. The major aims are to develop entrepreneurship and to reorient work force in rural areas from agriculture to other activities, to organise temporary work at enterprises experiencing economic difficulties, support employment of the disabled at social enterprises. To reduce the number of the unemployed living on unemployment benefits attempts will be made to motivate them to learn and work. The authorities are going to reduce illegal work by imposing strict punishment for it.

However, experts say that this is not enough – it is necessary to act now and here rather than to plan. According to sociologist Romas Lazutka, Lithuania must change its social and economic policy as soon as possible so that people earning low income and receiving benefits could make their lives easier”. In our country more efforts are being made to fight against the unemployed and the poor than against unemployment and poverty”, the sociologist thinks.

A step forward in energy
Alongside social challenges, there are energy challenges. Though there are quite a few sceptics who say that Lithuania’s aspirations for energy independence are sooner imitation than a real desire to escape from the clutches of Russia, it is difficult to refute the statements that the present authorities have moved forward the strategic energy projects as much as none of the previous authorities have done. The strategic investor in a new nuclear plant, which would replace Ignalina soviet nuclear plant that was closed down a year and a half ago, should become known in the immediate future. Thus far Lithuania’s ambitions to build a nuclear power plant has not been changed by either Russia or Belarus’ plans to build nuclear power plant near Lithuania. Specialists in energetics calculate that in 2050 Lithuania will need three times as much electricity as it needs today therefore Lithuania needs an independent manufacturer of energy, which should be a nuclear power plant. Another strategic energy project is a terminal of liquid gas necessary to assure alternative sources of gas. True, rates of its construction are recognised to be too slow; however, it should be completed to be built by 2014. Then Russia would no longer be the only source of gas to Lithuania, gas could come to our country from Norway, America or Qatar.

It seems that some progress has been made with respect to an electricity bridge between Lithuania and Poland – the link that has been spoken about for almost fifteen years, however, everything was left at the level of political discussions and nothing has been done. They say that things moved forward in Poland, and this gave hope that in 2015 Lithuania will be able to join the system of electricity of the European Union and break out of the soviet system of electricity in which it remained after the downfall of the Soviet Union. As we know, were it not for an electricity link of low capacity between Estonia and Finland, Lithuania would be completely isolated from the system of electrical energy of Western Europe. The electricity bridge should connect Lithuania with Sweden in 2016. Schistose gas, which, according to Lithuanian and American experts, would be enough to satisfy Lithuania’s needs for 30-50 years, could be another source of energy.Projects of electricity links have become not only strategic projects of Lithuania. The European Commission also put them on the list of priorities. Lithuanian strategic gas projects have been recognised to have a European significance.

Of course, as always, experts see one problem – when the authorities change the energy strategies and priorities will change too. In the course of 20 years Lithuania has prepared many strategies, however, many plans have remained on paper only. Now the situation might be somewhat different. And it is due to the European Union’s attention alone. According to the public policy expert Ramūnas Vilpišauskas, it is the European Union’s engagement in the implementation of Lithuania’s strategic energy projects that can be one of the guarantees that the latter will be implemented.

The more flights, the more tourists
During several past years Lithuania was shaken by two air companies that have gone bankrupt. Thousands of FlyLAL and Star 1 Airlines customers were left disappointed, and Lithuania practically was left without direct flights to the largest cities in Europe. Thus far no plans to establish a new Lithuanian air company have been announced. On the contrary, attempts are being made to attract well-known international companies to Lithuania. Though the State Tourism Department announced that communication with Lithuania was still inconvenient, so far it has not been possible to directly fly to Paris or Madrid from Vilnius, flights are not adapted to weekend or conference tourism. The Hungarian company Wizzair, which at the present time competes with other cheap-flight companies in Vilnius airport – the Latvian Air Baltic and the Irish company Ryanair, has returned to Lithuania. It is calculated that this year low-cost airlines will bring about 100 thousand and more tourists to Vilnius. In summer there will be flights in 50 directions from three international airports. True, the authorities of Vilnius airport are disconcerted that half-empty aircraft are still flying in some directions, for example, to Berlin or Stockholm. However, we hope the situation will change.

The Head of the State Tourism Department Raimonda Balnienė states that the tourism situation should change for the better after the authorities have been persuaded to devote more attention to this sphere. According to the data provided by the World Economic Forum, Lithuania competes effectively with other countries in the world in hotel prices, however, it lags behind other countries, including Riga and Tallinn, in the priority given by the authorities to tourism. According to this indicator, last year Lithuania was the 124th among 139 countries.

There is still a lot to do
The analyst Professor Rimantas Rudzkis says that Lithuania’s economy should have enough optimism and capacities to march forwards for several years to come. According to the analyst, if business has learned a lesson from the economic crisis – it started to count more carefully, to work more efficiently, to modernise technologies and reduce costs, the authorities have not done all the lessons they had to do. “The politicians boast that they have reduced the budgetary expenses and started to save. I think that no matter what party had been in power at the time of the economic crisis, it would have done the same because simply there was no other way out”, says Rimantas Rudzkis.

According to the Professor, now it is much more important to list the work that has not been done and which must be done in the years to come rather than to speak about the authorities’ merits. This is pressing work of paramount significance to Lithuania – reduction of bureaucratic restrictions, which have been stifling business for more than one decade, a fight against immigration, which has become a serious challenge to Lithuania after it joined the European Union. At the present time a second wave of immigration after the re-establishment of independence is taking place. Only this time Lithuanians no longer immigrate to Ireland and England but to Germany, which opened its borders to work force from third countries in May. Physicians, qualified engineers, specialists in informatics fly there with a single ticket.

The analysts note that it is not only a bureaucratic burden but also political insecurity that can frighten away the investors. “Foreign investors expect that in the country in which they are going to start their business, taxes will not change for at least five years. In Lithuania one cannot be sure of that”, says Professor Rimantas Rudzkis.

Now progressive taxes are the politicians’ target. Thus far there has been no unanimous opinion about these taxes either among politicians or analysts. The argument of the supporters of progressive taxes is that taxes are socially fair, and the argument of the opponents is that we shall lose all foreign investments, which would go to our neighbouring countries, where there is no progressive taxation.

It is for several years in a row that the International Monetary Fund has been repeating that Lithuania does not only have to carry out structural reforms, strengthen the financial system but also introduce taxes on motorcars and immovable property. Thus far this has not been supported or approved of by the Lithuania’s ruling parties, the most popular politician of the country President Dalia Grybauskaitė does not approve of the new taxes either. On the contrary, the Head of the country urges the ruling parties to be brave and to take the burden of taxes off the small companies altogether at least for a year so that new business people could manage to become established.

“Having abolished bureaucratic, often absurd restrictions on business, having made the beginning of business easier for the initiative and responsible people of the country, we shall create more jobs, attract more foreign investments. If people have work they will not leave Lithuania. Lithuania cannot only work well but it can also work best of all” President of the Republic of Lithuania Dalia Grybauskaitė underlined.

The large investors in Lithuania also list other deep-rooted troubles, the greatest of which is the inflexible Labour Code. It has changed insignificantly since the Soviet times and does not conform to the current spirit of economy. “Labour relations must be regulated in as more liberal and free way. It seems that thinking that employers are exploiters and the employees are slaves, is still alive in Lithuania. But this is not the case”, says the Executive Director of the Investment Fund Rūta Skyrienė.

This Forum has been seeking for many years, however, still unsuccessfully to achieve that Sodra’s ceiling should be introduced in Lithuania. They say this prevents Lithuania from alluring companies that hire high-quality workers and pay large salaries. Business is also looking forward to the day when Lithuania adopts the Euro. The aim of the authorities is to adopt the single European currency – the Euro in 2014. The aim to adopt the Euro should make Lithuanian politicians stop wasting money. Though some experts do not conceal their fears that recovery of Lithuania should not be sacrified for the sake of political games. Next year elections to the Seimas will take place and nobody can be sure that before the elections the politicians have no desire to demonstrate their generosity. Though attempts are made to calm everybody that the Government of the right-wingers, which is not afraid of taking unpopular political steps, should abstain from populist decisions before the elections, and at least for a time being plans of the authorities to curb the increasing budget deficit seem ambitious. The plans to curb widespread corruption seem ambitious too. The sector of public procurements also got into the focus in which transactions at several billion litas are made every year, and one has to wait to see what this war against corruption would end in. Now even the heads of the state began to speak openly about the troubles in public procurement. Business is waiting for this fight to end in victory.