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Successfully investing in Lithuania


last updated on 27 May 2020 | reading time approx. 3 minutes




How do you assess the current economic situation in Lithuania?

All forecasts for 2020 indicate sustained growth and another increase in foreign direct investments. According to the forecast of the European Commission, the real GDP growth will reach 2.6 per cent in 2020, making Lithuania one of the fastest growing economies in the EU.


In the ranking “Economic Freedom Index 2020” Lithuania ranks 16th worldwide. The World Bank's “Doing Business Report” which – based on various factors – assesses how easy it is to start and run a business in various countries, ranks Lithuania 11th worldwide. According to the World Economic Forum, Lithuania is considered to be the No. 1 among the emerging economies (“Inclusive Development Index 2018”).


How would you describe the investment climate in Lithuania? Which sectors offer the largest potential?

As Lithuania boasts the world's highest penetration rate when it comes to high-speed fiber-optic Internet connections, the country is a prime destination for IT companies, especially for software programmers as well as game and application start-ups. Furthermore, Lithuania is Europe's most attractive investment location especially for companies in the areas of “Shared Service Centres” and “Business Process Outsourcing”. Cushman & Wakefield's “Business Process Outsourcing and Shared Service Location Index” even ranked Lithuania 1st among all countries worldwide in 2016 in the category of economic conditions. This reputation has already attracted many global players such as Barclays, CSC, Western Union, Danske Bank and SEB.


In the wake of this development, also the manufacturing industry has become increasingly important in recent years. According to the “Cushman & Wakefield Manufacturing Risk Index 2018”, this largest of the Baltic countries currently ranks 1st in Europe and 2nd worldwide in terms of operating conditions created for manufacturing companies. Lithuania offers a perfect balance between a stable and entrepreneur-friendly regulatory framework, an untapped pool of skilled workers, a low level of risk, and competitive production costs. Especially the automotive industry is worth mentioning here. In recent time, the country has been developing into a European automotive hub. Over 400 indirect automotive suppliers in Lithuania generate a total turnover of more than 400 million Euros. During the past 2 years, many German automotive suppliers also made major investments in new production sites in the Kaunas Free Economic Zone.


In all areas Lithuania benefits from:

  • a huge pool of qualified workers (about 90 per cent of Lithuanians have a secondary education and fluently speak at least 2 languages);
  • a corporate tax rate of max. 15 per cent, in many cases even lower;
  • a total of six Free Economic Zones with a corporate tax rate of 0 per cent over ten years and 7.5 per cent over six subsequent years, as well as
  • labour costs which are 4 times lower than the EU's average.


What challenges do German companies face during their business ventures into Lithuania?

Thanks to the membership in the EU, Lithuania's business environment mostly conforms to the Western European standard. Nevertheless, due to the relatively young age of the legal and economic system and the resulting lack of legal practice, there are still some deficiencies in the areas of legal certainty and judiciary, which should be preventively addressed by taking appropriate measures. In addition, differences in the mentality of business partners sometimes pose challenges. However, with comprehensive contract management as well as by setting up an appropriate “compliance regime”, it is possible to reconcile the business culture of the foreign investor's country with the country-specific features of Lithuania.

How is the market for renewable energy developing in Lithuania?

Lithuania's declared focus is on expanding renewable energy and regaining its energy independence, which was lost when the Ignalina nuclear power plant was shut down and decommissioned in 2009. By introducing a new market premium model, Lithuania has recognized that the development of renewable energies needs a new boost.
Lithuanian support for RE has so far been subject to a fixed feed-in tariff over 12 years. The new market premium introduced on May 2019 will be determined by tenders, which will be carried out independently of the type of renewable energy source and for certain production volumes, i.e. the lowest price will ultimately be awarded, regardless of the type of generation. The market premium is added to the market price - as before, this support is capped for a maximum of 12 years.

The first tender took place in September 2019. The winner was determined in January 2020 for an annual quota of 0.3 TWh, with a market premium of EUR 0/MWh. This is revolutionary in the European market and shows that the Lithuanian RE market has reached a special maturity where RE producers can exist at market conditions. The results of the first tender show that renewable energy sources have been successfully brought closer to the market and that the development of new renewable energy production capacities offers undiscovered investment opportunities.

In your opinion, how will Lithuania develop?

The above-mentioned positive trends will accelerate even more. Even the EU sanctions imposed on Russia and the Russian counter-sanctions could not curb Lithuania's economic growth. The most heavily affected branches of industry have once again demonstrated the meanwhile almost legendary “Baltic states' ability to adapt”.


Overall, it can be assumed that Lithuania's attractiveness as the business and investment location for German investors and other companies will further increase in the future.


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Tobias Kohler


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