Talent and connectivity driving Lithuania’s GDP and foreign investment growth
By Invest LithuaniaAuthor | Invest Lithuania
Lithuania In the EU for GDP growth since 2000, and with GDP growth of 3.8 % in 2017 and predicted growth of 2.9% in 2018, the country successfully weathered the aftershocks of the financial crisis of 2008, and hasw been increasing GDP year-on-year. Now in the top 16 nations in the 2018 Ease of Business rankings, Lithuania is justly taking its place as a regional hub for Foreign Direct Investment.
What has attracted so many big names to the small Baltic nation? For the answer to this question you first need to look to connectivity. Located at the heart of Europe, and as a convenient bridge between East and West, Lithuania is an ideal gateway nation. It can offer companies direct access to clients in the CEE, CIS and Western Europe. Moreover, with average flight times of 2- 3 hours to most European destinations, and international airports in both Kaunas and Vilnius it is easily accessible for international business. The country’s airport and transport infrastructure has also proved to be a draw for the MRO sector, with companies such as Ryanair, Aeroflot, Easyjet and SAS all conducting MRO operations in the country. Ryanair’s Chief Operations Officer, Mick Hickey, explains why: “The excellent infrastructure, the quality of the aviation specialists and the possibility to successfully co-operate with local institutions were all key factors in our decision to establish – and then later expand- our aircraft maintenance center in Lithuania.” Once more, you will find that the stress is placed on the talent on offer, a point that is reflected in the feedback from foreign investors time and time again.
The country also ranks 1st in the CEE for its roads, and it offers direct rail links to Russia, Belarus, Latvia, Poland, Germany, Ukraine and Asia (incl. China). This rail connectivity, meanwhile, is set to expand following the opening of the Rail Baltica rail-link, which will run from Berlin to Helsinki via Kaunas. Then there is the ice-free Sea Port of Klaipeda, which is the largest port in the Baltic States, handling up to 65 million tons of cargo each year.
But the connectivity the country has to offer is not limited to rail, road, air and sea. One of the global leaders in internet speed and 4G coverage, the country can provide a global digital reach that is fast, reliable and affordable: its fixed broadband prices are the lowest in the EU. In fact, Lithuania ranked 1st in 2016 for globally fulfilling business needs for ICT. This is partly why the GBS sector in particular has taken off.
Overall, FDI is led by Nordic investment. In 2010-2017 FDI projects from the Nordics (Sweden, Norway, Denmark and Finland) accounted for 32% of the total number. Meanwhile, both the US and the UK each accounted for 10% of the total number of FDI projects. Another 8% of the projects originated from Germany. This particular weighting towards Scandinavian investment is, of course, precipitated by geographical proximity, but also by working culture and mindset. The local workforce is extremely adaptable, and quick to fit the needs of any incoming company. This is why such operations as Western Union and Barclays have been keen to scale up their operations from original projections by up to 200%.
Another reason the country has proven attractive is that its government and local institutions have been very proactive in enacting changes that improve the conditions for foreign investment. Lithuania’s take on the emerging fintech industry is a prime example of this. Just recently, the Bank of Lithuania overhauled the country’s financial regulatory framework so that it could guarantee the sector with the quickest turnaround in the EU for financial license application. The pan worked nicely, and Lithuania is now able to issue e-money and payments institution licenses 2-3 times faster than other European nations. And these licenses are valid in the broader EU market comprising 512 million people and 23 million businesses, making Lithuania the fastest gateway to Europe. This commitment to providing the best environment for Fintech is clearly reflected in the words of Marius Jurgilas, Board Member of the Bank of Lithuania: “With a view to providing favourable conditions for FinTech companies that are considering setting up in Lithuania, we have made a number of improvements to the system which will be felt by companies from the very start.” This forward thinking approach to making the country more attractive for investment and talent is most clearly expressed through the introduction of its new Startup Visa program. Designed to fast-track visa applications from Non-EU individuals looking to expand or build new innovative startups, this program has one overriding aim – to put Lithuania firmly on the map as a go to location for talent and innovation.
With corporate tax rates ranging from 0-15%, and 6 Free Economic Zones which offer a raft of financial incentives, Lithuania also offers a cost competitive solution for companies looking to expand or develop their operations. The country’s FEZ zones in particular are especially attractive: they offer 0% corporate tax for the first 10 years, and a 50% reduction for the subsequent 6 years, 0% tax on dividends and 0% tax on real estate.
If we look at the Lithuanian FDI sector at a national level, we see that the largest centers are at present Vilnius and Kaunas, which account for almost all of the fast growing GBS sector. The regions and Klaipeda meanwhile account for most of the second largest FDI sector, manufacturing.
The capital Vilnius, as the largest and most populous city in the country, is unsurprisingly the focus for a large part of Lithuania’s foreign investment. This largely comes in the shape of the GBS sector, where the city accounts for 84% of the entire sector. For proof of how well the city has managed to tailor itself to the sector, you need only look to the local CEE SSC awards, where Vilnius has taken top awards three years in a row. But why has the city become home to Western Union’s biggest operation outside the US, as well as the first choice of support and expansion for a large part of the Scandinavian banking sector? The main reason may lay in its willingness to bootstrap. Vilnius has proven time and again that its self-motivating talent is driven to deliver results that outstrip expectations. This is how Kendra Ricenbew, Managing Director at Western Union, Vilnius puts it: “The talent we have found in Lithuania has been motivated and inspired to drive results and improvements in Western Union’s globally diverse and dynamic business.” This desire to exceed expectations is not exclusively a characteristic of Vilnius however; it is in fact one of the defining traits of Lithuanian talent identified by all foreign companies with operations in the country.
Vilnius is not only a hub for GBS – it is also a thriving base for young and dynamic startups. A large part of those are designing and implementing cutting-edge technology, and the country was recognized best in the EU for progress in the ICT startup environment. The reasons for this are many. Firstly, there is the lure of the local talent as discussed above, but on top of that there is also a commitment on the part of the local government, and in particular the city’s municipality, to nurture and support innovative business. The opening in 2016 of Vilnius Tech Park – a cutting-edge tech-centered business park set amongst the lush grounds of a 19th-century manor estate-is evidence of this. As a private venture, developed in close co-operation with the municipality, the Tech Park stands as a clear statement of how the city is willing to help build and support private ventures that stimulate growth, investment and innovation. The fact that the city’s tech park has been built in a green space is no coincidence.
the country’s second city Kaunas is fast developing to become a hub of its own. It has a far lower saturation rate than most comparable European cities of the same size, especially in the key sector of GBS, where only 5 in 1000 is employed in the sector, compared to 66.1 per 1000 in Krakow. Added to which, wage rates in the city are 19% lower than in Vilnius. The city also offers cost competitive office space rates: 10EUR per 1m2 .
What makes Kaunas such an attractive destination overall is its educated workforce. As home to the country’s (and the Baltic’s) premiere technical university, Kaunas University of Technology, the city is able to consistently produce the kind of talent modern innovative business demands. This is born out by Intermedix, who opened their SSC there in 2014, and now employ 640 offering IT, F & A and Operations Support to 15,000 healthcare professionals worldwide. And Kaunas University of Technology is not only aware of its importance in creating the right talent for modern business, it is actively co-operating with business to make this a reality. Intermedix is collaborating with the university through their common Innovation and Creativity laboratory to help drive new solutions and ideas. Barclays also has a partnered program, its Mainframe Talent Academy, which is especially tailored to help develop specific market-defined skills. The University is also home to the first Bloomberg Financial Markets lab in the Baltic States and Poland, which is designed to enable businesses and public sector organizations to hire new employees with practical experience of the processes which occur in global markets.
On the industrial innovation front, the country has a long tradition in cutting-edge photonics. Lithuania’s Workshop of Photonics is working alongside Corning Incorporated – whose Gorilla Class is found in 4.5 billion smartphones worldwide – on new laser glass technology. Meanwhile, in the Health Technology field, Lithuanian talent is delivering solutions for such global names as Thermofisher, Teva, Moog and Intersurgical. Information and internet solutions is also a growing field. The local startup community has attracted more than $100 million in investment, and spawned such international successes as Vinted, TransferGo, CGtrader and Deeper. This has led big names such as Uber, Wix and Nasdaq to come knocking and set up local global operations.
Mention of the country’s manufacturing sector, which is mainly focused in its regions and third city Klaipeda. Panevezys is notable as the location for Schmitz Cargobull’s sizeable Lithuanian operations. Klaipeda, Lithuania’s port city, meanwhile is the centre for manufacturing companies across a wide range of industries. As a port, it is a natural setting for a number of shipbuilding and offshore structure companies, with Hugaas and Advantec each with a sizeable presence. Food and beverage production is also an important industry to the city, and FDI presence comes in the shape of Philip Morris and Mars, amongst others.
All in all, Lithuania’s consistent GDP growth, along with its supportive business environment, makes it a fertile ground for companies wishing to expand their operations. As a gateway that provides links to Western Europe, the CEE, the CIS and Scandinavia, it is perfectly placed for companies looking to extend their market. Moreover, with a deep talent pool with the highest level of tertiary education in the EU, and near 100% proficiency in English amongst young professionals, the country is able to provide companies with the kind of employees that put them on the way to exceeding their business expectations.
Author | Invest Lithuania