German Creditreform: Lithuania reaps the rewards of major economic reforms

On January 1 of this year, the Baltic country became the 19th member of the Eurozone. In order to meet the convergence criteria for Euro entry, long-term, intensive economic and financial reforms were undertaken. Now, Lithuania is reaping the rewards of its measured and thorough approach: national debt stands at just 39%, significantly lower than the 90.9% EU average, and the country’s budget deficit is 2.6% of gross domestic product (GDP), thereby falling under the 3% required by the EU.

While economies across the Eurozone remain sluggish, the Lithuanian Central Bank has forecast economic growth of around 3% for 2015. This forecast has been made in spite of Russian import sanctions on certain products. According to the Central Bank, these sanctions affect only 4% of Lithuanian exports, primarily foodstuffs. Thus, Lithuania’s strong economic fundamentals make it an attractive location for businesses looking for a gateway into Northern and Eastern Europe.

Attractive investment conditions

Alongside reforms to its economy, Lithuania has made significant progress in improving conditions for business, now rated amongst the top destinations in Europe. It was ranked in the top 3 countries in Central and Eastern Europe in the World Bank’s “Doing Business Report 2015”, and came in ninth place in the EU as a whole. The report looks at a range of factors when evaluating a country, including the absence of governmental barriers to the development of business activity, as well as the overall business climate and investment conditions.

Foreign investors in Lithuania also point to the abundance of highly qualified talent Lithuania has to offer, especially in the field of engineering. A competitive quality to cost ratio – with labour costs at around a quarter of the European average – and low corporate and income tax levels also support company growth.

For these reasons, German businesses in particular are increasingly choosing to establish operations in Lithuania. According to a survey by the German Chamber of Foreign Trade, 10% of all German direct investments are in Central and Eastern Europe, with investment in Lithuania now amounting to approximately one billion Euros. After Sweden and the Netherlands, Germany is the largest investor in the Baltic country.

According to the Lithuanian Foreign Office, around 1,200 German businesses have a presence in Lithuania, including the likes of Schmitz Cargobull, Lidl, and Deutsche Post. For Ralf Meiworm, Managing Director of medium-sized German firm HiSteels, the Baltic state offers an attractive combination of values. “The location conditions in Lithuania have appealed to us from the beginning,” he explains. “When we were deciding to open a location in Eastern Europe, we were able to proceed in Lithuania with confidence and a good conscience.”

Bio-Circle Surface Technology GmbH, a German firm that has been active in Lithuania since 2012, is also positive about their choice of Lithuania as a location for operations. Ulrich Behrens, Managing Partner of Bio-Circle, notes that “because of the overall conditions, we felt well-advised to commence operations in Lithuania. Many processes are un-bureaucratic here, for example licensing procedures. And not to be overlooked are the financial and strategic advantages which result from our location in the Baltic.”

Read full article in German at Creditreform.