Finnish investors attracted to Baltic states by cost competitiveness

Currently, the Baltic countries are seeking economic growth by attracting foreign investors from Finland, among others. Latvia recently marketed itself in Helsinki as an excellent investment destination.

“In terms of direct investments from Finland, Lithuania has been overshadowed by Estonia,” admits Rubina Haapamaki, the general manager of the Finnish-Lithuanian Chamber of Commerce.

However, Finish companies have found setting up in Lithuania brings numerous benefits. Rock wool producer Paroc established a service centre in Vilnius three years ago. Its 42 employees are responsible for a range of services, including handling the company’s payment transactions.

“We wanted to bring expenses down and increase productivity,” says the leader of the service centre, Mikael Ljungberg.

Labour costs per person are around 21,000 euros per year, less than half the level in Finland.

“Everyone here is ready to be flexible if, for example, one needs to prolong the working day,” Ljungberg notes.

Between 2003 and 2014, investments by Finnish companies have generated over 25,000 jobs in the Baltic Countries, according to data from fDi Markets.

The combined value of these investments is approximately 4.2 billion euros, of which about 2 billion has been directed to Estonia. Lithuania has received investments of 1.1 billion, as has Latvia. These figures cover only new establishments.

The investors have generally been retail companies – such as Kesko and SOK-, finance and insurance companies, and firms in the manufacturing industries.

Last year wages in Lithuania rose by 4.5 percent. And a further increase of five percent is predicted for this year by the chief economist of Swedbank Lithuania, Nerijus Maciulis,

According to Invest Lithuania, a government agency that promotes foreign investment, the yearly gross salary for a storage worker was 5,300-6,800 euros a year and for a java-specialist in the ICT-sector it was 22,900-34,000 euros. Income tax is the same for all, at 15 percent. On top of that, a 9 percent social security fee needs to be paid.

Aside from wages, the Baltic Countries are using other methods to provide cost-competitiveness. For example, corporation taxation in the Baltic States is the lowest in the EU.

Moreover, investors are being attracted with special economic zones. In Lithuania there are five of them.

In Lithuania’s special economic zones the dividend tax is zero, there is no real estate tax, and corporate tax is zero for the first six years, after which they get a 50 percent discount for the following 10 years.