A red light has come on in the Lithuanian economy: there are warnings about investments

"In a few years, there may be no more greenfield investments in Lithuania, warns Sigitas Besagirskas, president of the Vilnius Industry and Business Association (VPVA). He explains that today the red light has already turned on and something needs to be done, and the new tax reform will not contribute to a better investment tomorrow. The Minister of Economy and Innovation, Aušrinė Armonaitė, says that Lithuania must now make all possible efforts.

 

Earned

 

S. Besagirskas explained that several things have happened recently that had a significant negative impact on Lithuania's investment environment.

 

He asserted that on a global scale it is related to the decline of countries' economies, but equally important is the component of anger with China and even some possible incompetence of the authorities.

 

"Lithuania is angry with China. Those companies that trade with China to some extent will not want to have their own company in Lithuania, as this may harm their exports.

 

Another thing is that last year in the second half of the year we had the highest inflation in the European Union and the highest prices of energy resources. This is an indicator that the Government of Lithuania is handling the current challenges worst of all."

 

"Lithuania is a rather risky country when it comes to investments, especially greenfield investments," he clarified.

 

According to S. Besagirskas, it is somewhat different when it comes to service investments, meaning service centers or the IT sector.

 

"Such investments can definitely be attracted", he said and added that investments in Lithuania today still come from inertia, but the situation will change soon.

 

"Negotiations have been going on for two or three years, documents are being coordinated, the process is inert, and those who planned the construction a couple of years ago, now no one is stopping the investment, because it is cheaper to build here assuming greater risks than to cancel the intentions," he said.

 

However, when talking about new and future investments, the president of the association was not so optimistic. He assured that currently no investors are coming to Lithuania.

 

"Our investors are mainly Western European companies, and they come to Lithuania, Latvia, Estonia, Poland, the Czech Republic, and Slovakia. They don't see a big difference, because the tax environment is similar, the labor force capacity and the price are also similar. However, usually everything is determined by the involvement of the countries themselves, helping those companies, showing attention, but Lithuania now has shortcomings.

 

It tends to conflict in the international market, inflation and energy prices were the highest. And this is worrying," he said.

 

According to the representative, whoever looks at the further strategy sees that the problem in Lithuania may also arise due to the skills of the employees.

 

"We have turned from a country of talent into a country of relaxed hedonists who may not be able to do intellectual work in ten years, and will only be able to screw in screws," he warned.

 

Tax reform will also have an impact

 

S. Besagirskas assured that the tax reform introduced recently by the Ministry of Finance will also have an impact on the investment environment. According to him, any tax change always has a negative effect.

 

"Even if it were said that taxes are being reduced, it is still a disturbance of the environment. An investor thinks about the long-term perspective and stability is the first factor where a business looks.

 

If you see that the government is doing a new tax reform with each new one, there are already risks," he said and said that the ideal thing when it comes to investments is not to change taxes at all, even if they are bad.

 

Summarizing, S. Besagirskas warned that it is possible to predict that every year Lithuania will receive less and less investments.

 

"For now, we can see from inertia that the numbers are not bad, but if we talk about 2024-2025, there will be fewer investors and there may not be any greenfield investments at all, there will only be companies that are already here and are expanding." But if we talk about foreign investors, one day we may come to zero.

 

This means that the red light is on and something needs to be done. This should be done by this government, and if it doesn't want to, someone else will have to deal with this issue, because now it is being bluntly ignored, it is said that we have quarreled with China and we look good in the eyes of the world, but this is not the case," he said.

 

Taxes for banks - not beneficial?

 

Tadas Povilauskas, an economist at SEB bank, said earlier that the planned new taxation of banks' profits will also affect the investment environment. According to him, this may raise questions about attracting new banks to Lithuania.

 

"It is clear that foreign investors will be even less willing to invest knowing that, if anything, new taxes will immediately appear in this country. And that goal of attracting new banks offering those basic products probably would not have been realized," said T. Povilauskas.

 

The Lithuanian Banks Association (LBA) spoke similarly.

 

"The proposed taxation destroys the credibility of our state in the eyes of international investors.

 

The investment attractiveness of the country requires a transparent, predictable and international level have a competitive regulatory environment. We are very concerned that the new draft has been drawn up without taking into account these principles, discriminating against one business sector. The proposed project should be called an investor tax, because no area is protected from this type of initiative," LBA said.

 

Later it turned out that LBA also applied to the European Commission regarding these intentions.

 

S. Besagirskas did not agree with this opinion.

 

Having previously said that any tax change has a negative impact on investments, he did not agree that the bank tax will worsen the situation in Lithuania.

 

"Banks are not seen as a real business sector. Bank profits are pretty high everywhere and a bank tax will not make anyone think negatively about our country.

 

I would not see a problem here at all, and I would even support that tax myself, because there were many exemptions," he said.

 

"Invest in Lithuania": decisions are made more carefully and slowly

 

Vida Staskonienė, director of the Investment Development Department of "Invest in Lithuania", assured that last year's record number of foreign direct investment projects proved that, regardless of the geopolitical situation, Lithuania remains an attractive place for international companies.

 

"Lithuania is particularly interested in software engineering, cloud computing, data analytics, game development and other technology companies, the business services sector continues to strengthen.

 

However, we must understand that for all businesses, economic uncertainty, fluctuating energy prices and international tensions mean that decisions are made more cautiously and slowly - we see this trend all over the world," she said.

 

According to the director of the investment development department, due to external factors, it is more important than ever for Lithuania to look for effective solutions and new opportunities.

 

She explained that taking into account the needs of the market, it is necessary to strengthen the supply of talent - currently, as she testified, there is already a shortage of fintech, artificial intelligence, cyber security and other IT specialists.

 

"It is also necessary to ensure infrastructure needs, smooth air transportation, and the supply of plots and buildings ready for production.

 

We also not only strengthen relations with the USA, Germany and the United Kingdom, but proactively build new ones: special attention is paid to the markets of Japan, South Korea, India and Taiwan", said V. Staskonienė.

 

Armonaitė: Lithuania must make all possible efforts

 

The Minister of Economy and Innovation, Aušrinė Armonaitė, stated in "Delfi" that the investment environment in Lithuania in 2023 may be mainly affected by geopolitical challenges, slowing economic growth in Europe and the problem of labor shortages in some areas.

 

"In order to offset these risks, Lithuania must make all possible efforts to improve the tax environment and business supervision system in our country, which is very important for investors, and to reduce the administrative burden imposed by the state."

 

The ability of state institutions to make quick decisions related to starting or expanding a new business is also important. So this year, the Ministry of Economy and Innovation will continue to provide initiatives to simplify business regulation in Lithuania, to make Lithuania more open to foreign talents, and to make proposals so that, during the reform of the tax system, it remains favorable for attracting new investments and creating new jobs," she said.

 

According to her, despite the slowing down of economic growth and, as a result, the decreasing need for investments, this year the ministry expects a similar number of foreign investment projects attracted by the state as last year.

 

"In 2022 attracted 57 foreign direct investment projects.

 

We hope that foreign and Lithuanian investors will continue to use the opportunities offered by the green corridor, which allows investors to get tax benefits and settle more quickly. Last year, 5 large investment contracts were signed, according to which it is intended to create about 1.7 thousand. jobs and attract 318 million EUR investments", said the minister.

 

She highlighted that a few weeks ago, a new major investment project was launched in Lithuania - the construction of the bicycle factory of the Dutch company "Pon.Bike" in Kėdainiai.

 

"Also, last week we announced 13 million EUR to attract an internationally recognized accelerator from abroad worth.

 

Last year, about 240 million EUR was invested in Lithuanian startups.  We continue to seek to increase opportunities to attract foreign investment, because we have a huge potential of energetic startups," she said."

 

We will correct the consequences of Landsbergiai policy mistakes with China by distributing our common money (in the form of tax breaks) to businesses. This means that pensions, medical care, schools and universities, and the judiciary will receive less money. We will take from those who have little, we will use the money trying to compensate stupidity. Or not?