INVESTMENT CLIMATE IN LITHUANIA Laimutė Kalinauskienė Director of Investment and Innovation Department of the Ministry of Economy of the Republic of Lithuania May 2007, Klaipėda

Lithuania - strong European market player EU and NATO membership Conveniently located between Western and Eastern markets Favorable climate for business (easiest to do business among the Baltic States) Rapid and stable economical growth, small inflation, descending unemployment rate Skilled and cost-effective labor force Most diversified industry base in the Baltic States EU financial support, transparent policy (national law adopted to EU acquis) Flexible institutional assistance

Lithuania in figures 2003 2004 2005 2006 2007* GDP 10.3 % 7.3 % 7.6 % 7.5 % 7.2 % FDI (EUR bn) 3.8 4.7 6.9 8.3 8.9 Exports (EUR bn) 6.4 7.4 9.5 11.4 - Imports (EUR bn) 8.8 9.8 12.4 15.5 Inflation -1.3 % 2.9 % 3 % 4.5 % 3.9 % Unemployment 12.4 % 11.4 % 8.3 % 5.6 % 5.2 % Source: Lithuanian Department of Statistics, DnB Nord, Lithuanian Department of Statistics; *Forecasts by Lithuanian Bank, Ministry of Finance, Ministry of Economy, Lithuanian Department of Statistics, European Commission, International Monetary Fund, LDA

In-between huge markets 110 million North European consumers 250 million CIS consumers Almost 500 million EU consumers

Integrated part of Baltic Sea Region (BSR) More than 40% of Lithuania’s trade (exports EUR 2 bn, imports EUR 3 bn in 1H 2006) About 50% of FDI in Lithuania (EUR 3 bn in 1H 2006)

Business Freedom in selective countries in 2007 No. 12 No. 12 – Estonia No. 22 Lithuania No. 41 Latvia No. 87 Poland No. 120 Russia Sources: The Heritage Foundation No. 120 No. 41 No. 22 No. 87

SURROUNDED BY THE MOST COMPETITIVE ONES: Global Competitiveness Indexes 2006 No. 14 No. 2 No. 12 No. 3 No. 25 No. 4 No. 40 No. 36 No. 10 No. 1 No. 34 Source: World Economic Forum

Trans European network The high economic growth requires an extensive transport infrastructure facilities with a special importance of intermodal links. Lithuanian transport infrastructure of the Trans-European importance is being formed on the basis of the national part of TEN-T network which consists of: 1617 km of roads. 1100 km of railways. 3 international airports in Vilnius, Kaunas and Palanga, and Klaipeda State Seaport – the northernmost ice-free port on the eastern coast of the Baltic Sea. Aukštas ekonomikos vystimosi lygis reikalauja plačios transporto infrastruktūros su ypatingai svarbiomis tarpmodaliniais ryšiais. Trans – Europinė Lietuvos transporto infrastruktūra yra suformuota valstybiniu lygmeniu TEN-T tinkle, kuris susideda iš: 1617 km kelių 1100 km bėgių 3 tarptautiniai oro uostai esantys Vilniuje, Kaune ir Palangoje, Klaipėdos valsybinis jūros uostas – Baltijos jūros rytinio kranto uostas, kuris yra labiausiai į šiaurę nutolęs ir neužšąlantis.

Great labor quality and cost ratio (1) Approx. 20% of high education students graduates in engineering Bachelor and Magister’s engineering education (automatics, electro-engineering, electronics, telecommunications, electrical engineering etc.) is provided at universities in five major cities of Vilnius, Kaunas, Klaipėda, Šiauliai and Panevėžys. Over 20 000 students graduate high education each year.

Great labor quality and cost ratio (2) At the begining of 2007 Average monthly salary 480 EUR Industrial workers 305 EUR Officers 528 EUR IT specialists 568 EUR Engineers 434 EUR

Low-tax environment Corporate tax 15%+3% (2006; to be reduced to 15% by 2008; for small companies 13%+3%) VAT 18% (and less) Dividends 15% (0% for the EU parent companies) Personal income tax 27% (to be reduced to 24% by the end of 2007)

Locations for Greenfield investment Akmenė Free economic zones Visaginas Industrial parks Kėdainiai Marijampolė Šiuo metu Lietuvoje veikia 2 laisvosios ekonominės zonos (Klaipėdos ir Kauno). Laisvosiose ekonominėse zonose įrengta 96 ha (Kaune tik 10,7 ha, o kitame etape – 80 ha). Rengiami 7 pramoniniai parkai su pilnai įrengta infrastruktūra: Šiauliuose, Kėdainiuose, Visagine, Marijampolėje, Panevėžyje, Alytuje ir N. Akmenėje. 2008 m. planuojama įrengti 165,5 ha pramoninių parkų teritorijos. 2011 m. baigus įrengti minėtus 7 pramoninius parkus, plotas investicijoms turėtų padidėti iki 514 ha. Planuojamiems 7 pramoniniams parkams įrengti reikės 51,3 mln. eurų. Alytus

Free Economic Zones FEZ – territory for economic-commercial and financial activities with special economic and legal conditions of operation. Companies in FEZ are free from corporation tax for 6 year, which later is reducing by 50 percent. No VAT, excise and customs duties. Two FEZ for the moment: Klaipėda (205 ha) and Kaunas (534 ha)

Industrial parks Overall territory Distance from Vilnius airport Distance from Klaipėda seaport Šiauliai 138 ha 214 km 161 km Kėdainiai 135 ha 139 km 208 km Visaginas 33 ha 158 km 453 km Panevėžys 49 ha 135 km 240 km Marijampolė 67 ha 231 km Alytus 60 ha 105 km 294 km Akmenė 32 ha 290 km 166 km

FDI by economic activities (8,3 bn EUR as of January 1, 2007)

Major investors in Lithuania (as of January 1, 2007)

Attracting of foreign direct investment Government of the Republic of Lithuania pays big attention to attract foreign direct investment. Investment promotion program Investment promotion program Investment promotion program project was prepared as an instrument which purpose is to make impact on FDI attraction process by smoothing away competitive differences in FDI market. There is prospective to promote development of industrial areas by supporting municipality's industrial parks. In prospective investors investing in high or middle-high technology manufacture, research and experimental development infrastructure, creating value added products and qualified workplaces will be supported.

EU support to Lithuania for 2007 – 2013 (11.8 billion EUR) Of which: R&D and technological development – 0.67 billion EUR; Business efficiency and environment – 0.46 billion EUR; Energy – 0.43 billion EUR; Tourism development – 0.26 billion EUR.

Investment Environment Assessment Changes in conditions for business and development in Lithuania based on the Report “Doing Business 2007” 2006 2005 Changes in ranking Business conditions, including: 16 15 -1 Starting a business 48 44 -4 Dealing with licences 23 22 -1 Employing workers 119 119 0 Registering property 3 2 -1 Getting credit 33 33 0 Protecting investors 60 58 -2 Paying taxes 40 42 +2 Trading across borders 32 31 -1 Enforcing contracts 4 5 +1 Closing a business 30 28 -2 In 2005, Lithuania ranked 15th and in 2006 16th in terms of its legal environment for business conditions – a very high ranking Main advantages: effective procedures for registering property and enforcing contracts (2nd and 3rd; 5th and 4th in 2005 and 2006 respectively) Main disadvantages: complicated conditions for hiring and dismissing and weak investment protection (119th and 119th; 58th and 60th in 2005 and 2006 respectively) This survey does not take into account problems relating to land restitution, acquisition, ownership and other land-related matters Lietuva pasaulyje 2005 m. užėmė 15 vietą, o 2006 m. – 16 vietą pagal verslo sąlygų teisinę aplinką – labai aukštas įvertinimas, Pagrindiniai privalumai – efektyvios turto registravimo bei sutarties sąlygų užtikrinimo procedūros (atitinkamai 2005 ir 2006 m. 2 ir 3; 5 ir 4 vieta pasaulyje) Pagrindinės probleminės sritys – sudėtingos darbuotojų įdarbinimo ir atleidimo sąlygos bei silpna investicijų apsauga (atitinkamai 2005 ir 2006 m. 119 ir 119; 58 ir 60 vieta pasaulyje) šis tyrimas neįvertina su žemės grąžinimu, įsigijimu, valdymu ir kitų su žeme susijusių problemų Source: World Bank, figures denote the country’s ranking in the world

EU Member States by cumulative innovation capacity index and its growth tendencies According to cumulative innovation capacity index and its growth tendencies the EU Member States may be grouped in 4 categories: Category I – “Leading countries”: Finland, Denmark, Sweden, Germany and Switzerland. Category II – “Average performance presenting countries“: France, Luxembourg, Ireland, the United Kingdom, the Netherlands, Belgium, Austria, Italy and Iceland. Category III – „Catching up countries“: Lithuania, Slovenia, Hungary, Portugal Czech Republic, Greece, Cyprus and Malta. Category IV – “Losing ground countries“: Estonia, Spain, Bulgaria, Poland, Slovakia, Rumania and Turkey. ES valstybės pagal suminį inovatyvumo indeksą (SII) ir jo augimo tendencijas Remiantis suminiu inovatyvumo indeksu (SII) ir jo augimo tendencijomis ES valstybės narės gali būti grupuojamos į 4 grupes: Pirmoji grupė – “Lyderiaujančios šalys”: Suomija, Danija, Švedija, Vokietija ir Šveicarija. Antroji grupė – „Vidutinį augimo lygį rodančios šalys“: Prancūzija, Liuksemburgas, Airija, Didžioji Britanija, Nyderlandai, Belgija, Austrija, Norvegija, Italija ir Islandija. Trečioji grupė – „Besivejančios šalys“: Lietuva, Slovėnija, Vengrija, Portugalija, Čekija, Latvija, Graikija, Kipras ir Malta. Ketvirtoji grupė – „Prarandančios augimo greitį šalys“: Estija, Ispanija, Bulgarija, Lenkija, Slovakija, Rumunija ir Turkija. Source: European Innovation Scoreboard‘2005

Doing Business Across Categories, Selected Countries 2006 Rankings Ease of Doing Business Enforcing Contracts Registering Property Dealing with Licenses Paying Taxes Portugal 40 35 98 115 61 Norway 9 3 6 14 16 Denmark 7 1 36 15 Lithuania 4 23 Germany 21 29 42 73 Poland 75 112 86 146 71 Russian Federation 96 25 44 163 Singapore 12 8 United States 10 22 62 There are many ways to measure e-business readiness, here is one of them. On what stage is your company? Have you only reached the Publishing stage – like most of your competition – then you have a competitive advantage if you are able to move to the next level before them. Source: World Bank

Lithuania in the World and in the EU World’s 6th best reformer (World Bank, 2004) Most attractive EU country for investments (Centre for Economics and research LTd., the UK, 2005) Easiest place to do business among new EU states (World Bank, 2005) Euro is almost reached (The Economist, 2006)

Investment drivers in Lithuania Low-tax environment Excellent logistic location and infrastructure Skilled labor force / cost ratio Rapid development of 7 industrial parks Tax incentives in 2 free economic zones Legal acts on investments comply the EU standards

International investors International investors come to Lithuania due to beneficial environment for investment, relatively small taxes and favorable business climate. Below you can find only a part of them:

Priority Not to enlarge investment flows, but enhance quality of investment:  regional ICT/financial/business service centers  centers of logistics  centers of scientific research  manufacturing enterprises for regional needs Presumptive result: production of higher value goods and cumulative economic with increased export FDI = high technologies of high productivity + small need for labour force:

Lithuania is open for the investment AGAIN! WWW.BUSINESSLITHUANIA.COM WWW.VERSLOVARTAI.LT