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last updated on 8 June 2022 | reading time approx. 6 minutes
In general, Lithuania, as EU and NATO member state, is increasingly considered by German production companies as an excellent safe haven near-shoring location and alternative to Russian and/or Belarus or even Asian countries. In recent years, a number of German industrial companies has invested heavily in Lithuania. As a result, within 2021, Germany has become the largest foreign investor in Lithuania (EUR 5.6 billion). The major success stories are related to the entry of major German investors – “Continental”, “Hella”, “Homanit” − into the Lithuanian market. In addition, German life insurer Allianz entered the Lithuanian insurance market in 2021, taking over the Lithuanian and Polish business from British Aviva.
Lithuania is also profiting from relocation of highly qualified personnel and companies from Belarus. In total, 110 Belarusian companies showed interest in operations in Lithuania where they could create approximately 3.000 new workplaces.
According to the Bank of Lithuania, in Q4 2021, the flow of foreign direct investment (FDI) in Lithuania was positive and amounted to EUR 635.8 million. Meanwhile, cumulative FDI rose by 8.4 per cent over the year and amounted to EUR 26 billion at the end of 2021. The largest share of FDI was attracted by companies engaged in financial and insurance activities, manufacturing, wholesale and retail trade, real estate activities.
As Lithuania has been reducing its economic dependence on Russia for a long time by establishing foreign direct investment (FDI) relations with the Western Europe, especially with Germany and Scandinavian countries, the negative impact on Lithuania's economy is expected to be quite moderate.
In 2021, Lithuania was concerned about the loss of some investors due to China sanctions. Lithuania has allowed Taiwan to open its representative office in Vilnius under the name “Taiwanese” instead of “Taipei”. As the result, China imposed a set of sanctions, such as cutting of credit limits and raising prices for Lithuanian companies, Lithuania's removal from the Chinese customs systems.
Essentially, four sectors propose the largest potential in Lithuania: Technology, Manufacturing, Global Business Services & ICT and Life sciences.
2021 was a year of record growth for Fintech in Lithuania, which was ranked in the TOP10 of the Global Fintech Index. According to Invest Lithuania, the country's investment promotion agency, with a continuous focus on improving its business and regulatory environment, Lithuania has strengthened its position as one of the top ecosystems globally for developing and rapidly scaling innovative fintech solutions. When it comes to the manufacturing sector in Lithuania, it stands out for favorable business environment, multiple governmental support opportunities and highly educated workforce. In addition, with a perfect level of connectivity between local cities and close co-operation between academic institutions and businesses, Lithuania might propose potential investors a hub for Business Services and ICT. As regards to the industry of Life sciences, currently this sector is on the rise. Lithuania is eager to offer attractive financial incentives for R&D and manufacturing activities as well as government support to ensure smooth business operations.
Within the consecutive years, Lithuania has been working intensively to attract foreign investment to the country. A more business-friendly legal base has been established, and free economic zones that are particularly favorable to foreign investments have been set up. As of 2021, legislative amendments (dubbed the “Green Corridor”), entered into effect in Lithuania, creating more favorable conditions for local and foreign capital investments in large-scale projects in manufacturing, data processing and data hosting services.
The war in Ukraine is currently the biggest challenge German companies face in Lithuania. Almost all economic ties with Belarus and the Russian Federation have been severed. This concerns both the import or export of goods and services from and to these countries as well as the access of Russian and Belarusian citizens to the Lithuanian labour market. The latter has become all but impossible unless Russian and Belarusian citizens have existing national visa issued by Lithuanian authorities.
Companies that are still active in both the Russian and the Lithuanian markets have been named and shamed on social media and face risks of privately organized boycotts and a tarnished reputation in Lithuania.
Due to sanction compliance many Lithuanian banks have all but ceased to execute payment transactions to the Russian Federation and, partly, also to Belarus.
All regulatory measures by the Lithuanian government to control the spread of Covid-19 have been lifted. Their impact on the business environment is currently negligible. However, many companies feel, like in other countries, the impact of Chinese regulatory measures with regards to Covid-19 on their supply chains. The resulting shortage of raw materials, further worsened by the effects of the war, is leading to a sharp increase in prices and rising inflation.
Tobias Kohler
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