Investors confident about Lithuanian economy, but low demand a concern

Higher-class housing in Vilnius, DELFI / Šarūnas Mažeika

Investors’ Confidence Index for Lithuania (ICIL) – a quarterly research conducted by association “Investors’ Forum” – revealed that in the nearest future four out of 10 investors are planning to increase capital investments, almost as many (38%) expect to launch new investment projects and create new workplaces. However, entrepreneurs are more pessimistic about demand growth – only one out of four investors believes it will increase.

In the second quarter of 2015 ICIL value has reached 1.174 points out of possible 2 and almost caught up with the highest value in its history recorded at the end of 2014. Association Investors’ Forum links increased investors’ confidence in Lithuanian economy with a smooth process of euro adoption which, according to the experts, has ended a period of economic uncertainty. Traditionally, such factors as transport, logistics, telecommunications and IT infrastructure had the greatest impact on the favorable investors’ outlook on Lithuanian economy. Moreover, participants of the latest survey were more optimistic about business transparency – 7% of respondents expressed expectations it will increase in the nearest future and none expected that Lithuanian business environment will become less transparent.

Association “Investors’ Forum” measured Investors’ Confidence Index by surveying 42 foreign capital companies operating in Lithuania and evaluating Lithuania’s business environment, investment plans of the companies and factors affecting investment activities.

“At the beginning of the year optimism replaced skepticism. Foreign capital companies showed positive perception of Lithuanian economic perspectives and revealed plans to increase investments which is an excellent signal for potential investors. However, entrepreneurs noticed some barriers as well, such as lack of skilled labor – Lithuania remains a country of cheap but not of skilled labor. In order to sustain our economic competitiveness this problem must be solved as soon as possible”, – commented Rolandas Valiūnas, Investors’ Forum Chairman of the Board.

Forty percent of survey participants noted that there are not enough skilled employees in Lithuania and eventually it may affect country’s economy. Yet another worrying factor detected by the latest survey was relatively modest companies’ performance indicators. This time entrepreneurs assessed potential to increase profitability of their companies more carefully. While in the first quarter 36% expected larger profit, only 29% predicted profit growth in the latest ICIL survey. 1 out of 5 investors predicts that profitability will decline and more than a tenth (12%) believes that demand will also fall. Compared to the data of the first quarter of the year, investors expecting to have a higher demand declined by 11 percentage points.

“We see these worrying results for the first time. Although they seem pessimistic we cannot talk about a trend yet. We hope it is only a short pause and foreign business in Lithuania will not suffer long-term problems. On the other hand, problems such as a lack of skilled labor force can certainly be resolved by starting to reform the education system which currently does not meet the market needs. It is a question of political will,” noted Rūta Skyrienė, Investors’ Forum Executive Director.

In order to find out investors’ opinion on other important issues concerning today’s Lithuanian economy, questions about national airlines and the new social model have also been included in the latest LIPI survey. As many as 85% of investors pointed out that they have experienced troubles traveling to Lithuania by air or have heard similar complaints from colleagues.

“If we are to keep Lithuanian economic competitiveness and its attractiveness for FDI, business connections and tourism, efficiency of the air transport system is a must. 95% of investors believe that this infrastructure needs to be improved or reformed in general. Only 5% of respondents voted that our international flights system is effective and user–friendly,” said Rūta Skyrienė.

Opinions on the new social model were somehow more uncertain. Only 29% of respondents acknowledged that they had a chance to read it carefully. According to Investors’ Forum this figure is much lower than expected having in mind the potential impact of the new social model on business and general economy. As for dissemination of the information about the new social model investors’ were even more skeptical – 76% expressed criticism and noted that public campaign went wrong or worse than expected.

The Investors’ Confidence Index for Lithuania (ICIL) reflects attitudes and expectations about Lithuanian business and investment environment of the largest foreign capital companies operating in Lithuania. The purpose of this index is to assess country’s business environment and economic attractiveness for prospective foreign investors, taking into account the experience and observations made by investors operating in Lithuania.

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