Lithuania is strategically situated at the crossroads of Europe and Eurasia. It offers investors a diversified economy, EU rules and norms, a well-educated multilingual workforce, advanced IT infrastructure and a stable democratic government. The Lithuanian economy has been growing steadily since the 2009 economic crisis but contracted in 2020 due to economic fallout from the COVID-19 pandemic. However, it recovered relatively rapidly in 2021, reaching 5.1 percent GDP growth thanks to budget surpluses and accumulated financial reserves prior to the crisis, as well as a well-diversified economy. The country joined the Eurozone in January 2015 and completed the accession process for the Organization for Economic Cooperation and Development (OECD) in May 2018. Lithuania’s income levels are lower than in most of the EU. Based on the average net monthly wage, Lithuania is 23rd of 27 EU member states. According to Bank of Lithuania statistics, at the end of 2021, the United States was Lithuania’s 15th largest investor, with cumulative investments totaling $366 million (1.3 percent of total FDI).
The new government elected at the end of 2020 has continued prior governments’ efforts to improve the business climate and lower barriers to investment. In 2013, the government passed legislation which streamlined land-use planning, saving investors both time and money. In July 2017, the government introduced the new Labor Code which is believed to better balance the interests of both employees and employers, and in 2020 it introduced a law on exemption of profit tax for the period of up to 20 years for large and significant investment to the country.
The government provides equal treatment to foreign and domestic investors and sets few limitations on their activities. Foreign investors have the right to repatriate or reinvest profits without restriction and can bring disputes to the International Center for the Settlement of Investment Disputes. Lithuania offers special incentives, such as tax concessions, to both small companies and strategic investors. Incentives are also available in seven Special Economic Zones located throughout the country.
U.S. executives report some burdensome procedures to obtain business and residence permits, and limited instances of low-level corruption in government. Transportation barriers, especially insufficient direct air links with some European cities, remain a hindrance to investment, as does the lack of transparency in government procurement.
Lithuania offers many investment opportunities in most of its economy sectors. The sectors which to date attracted most investment include Information and Communication Technology, Biotech, Metal Processing, Machinery and Electrical Equipment, Plastics, Furniture, Wood Processing and Paper Industry, Textiles and Clothing. Lithuania also offers opportunities for investment in the growing sectors of Real Estate and Construction, Business Process Outsourcing (BPO), Shared Services, Financial Technologies, Biotech and Lasers.
|TI Corruption Perceptions Index||2021||34 of 180||http://www.transparency.org/
|Global Innovation Index||2021||39 of 132||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||$182||https://apps.bea.gov/international/
|World Bank GNI per capita||2020||USD 19,620||http://data.worldbank.org/indicator/
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
7. State-Owned Enterprises
At the beginning of 2021, the Lithuanian government was majority or full owner of 46 enterprises. Throughout 2017, the government consolidated many duplicative state-owned enterprises (SOEs) in response to OECD recommendations reducing the number of its companies from 130. The SOE sector is valued at approximately $5.8 billion and employs just over 42,000 people. The greatest number of SOEs by value are found in the electricity and gas sector (38%), followed by transportation (36%) and extractive industries including fishing, farming, and mining (21%). The transportation sector (which in Lithuania’s definition includes the postal service) accounts for over half of all SOE employment, followed by the electricity and gas sectors, which accounts for about one fifth. The largest SOE employers are Lithuanian Railways, Ignitis Group, and Lithuanian Post, which collectively employ over 23,000 people.
In response to OECD recommendations issued during Lithuania’s accession process, the government passed several laws to reform SOE governance, addressing such issues as the hiring, firing, and oversight of top management, the introduction of independent board members to professionalize and depoliticize SOE boards and strengthen independent and pragmatic decision making, and a requirement for SOE CEOs to certify financial statements.
8. Responsible Business Conduct
Although Lithuania has a strong private sector, the concept of Corporate Social Responsibility (CSR) is still relatively new in Lithuania. However, over the past few years many companies, especially those in Vilnius, have developed more robust CSR programs. There are an increasing number of private-public partnerships and social projects where the private sector is involved in supporting volunteerism, environmental restoration, and scholarships. Furthermore, successful participation in the European Union market requires higher standards of CSR. Foreign investors in Lithuania have played a very important role in promoting CSR. In 2009, the government developed and approved a National Corporate Social Responsibility Development Program aimed at promoting CSR. Also, in the past few years there has been growing interest from both government and NGOs in promoting CSR values by organizing competitions and awards ceremonies such as the Social and Labor Ministry’s annual Socially Responsible Business Awards Ceremony, Confederation of Industrialists’ Awards, and others. Also, after Lithuania acceded to the OECD Anti-Bribery Convention in 2017, more business organizations and the legal community have started to promote the importance of companies adopting anti-bribery compliance programs.
A 2019 Eurobarometer study on Businesses’ attitudes towards corruption in the EU shows that corruption is becoming less of an obstacle for business in Lithuania. Only 15 percent of business executives identified corruption as a problem in Lithuania, twice fewer than in 2015. Out of 27 EU countries, Lithuania was ranked seventh for corruption being the least pressing issue in business. Additionally, the Lithuanian Map of Corruption 2019 survey initiated by the Special Investigations Service (STT) – Lithuania’s anti-corruption law enforcement agency – also showed the positive anti-corruption trends in business environment over the past decades. However, nepotism and cronyism – hiring relatives and friends – are still the most prevalent forms of corruption that hinder business development.
More than 50 governmental institutions regulate commerce in one way or another, creating opportunities for corrupt practices. Large foreign investors report few problems with corruption. On the contrary, most large investors report that high-level officials are often very helpful in solving problems fairly. In general, foreign investors say that corruption is not a significant obstacle to doing business in Lithuania and describe most of the bureaucrats they deal with in Lithuania as reasonable and fair. Small and medium enterprises (SMEs) perceive themselves as more vulnerable to petty bureaucrats and commonly complain about extortion. SMEs often complain that excessive red tape virtually requires the payment of “grease money” to obtain permits promptly. Business owners maintain that some government officials, on the other hand, view SMEs as likely tax-cheats and smugglers, and treat the owners and managers accordingly.
Paying or accepting a bribe is a criminal act. Lithuania established in 1997 the Special Investigation Service (Specialiujų Tyrimų Tarnyba) specifically to fight public sector corruption. The agency investigates approximately 100 cases of alleged corruption every year. The STT has a strong track record in investigating and prosecuting corruption cases, but has identified corruption prevention as an area for improvement, which Lithuania’s new anti-corruption law that entered into effect in 2022 aims to address. The law codifies the responsibilities of public institutions to enforce stricter standards of openness and transparency. The law also establishes a network of trained anti-corruption officials throughout all levels and areas of government, implements stricter personnel screening procedures, and standardizes metrics to measure anti-corruption performance.
Transparency International (TI)has a national chapter in Lithuania. TI ranked Lithuania 34th out of 180 in its 2021 Perceptions of Corruption Index with a score of 61 out of 100 (TI considers countries with a score below 50 to have serious problems with corruption.). Medical personnel and local government officials, among others, were cited by TI as prone to corruption.
Lithuania ratified the UN Anticorruption Convention in 2006 and acceded to the OECD Anti-Bribery Convention in 2017.
Resources to Report Corruption
10. Political and Security Environment
Since its independence in 1991, Lithuania has not witnessed any incidents involving politically motivated damage to projects and/or installations.
11. Labor Policies and Practices
Lithuanian labor is relatively inexpensive compared to Western Europe. However, employment regulations are often stricter than those in other EU countries, according to some foreign investors. By law, white-collar workers have a 40-hour workweek. Blue-collar workers have a 48-hour workweek with premium pay for overtime. Maternity leave in Lithuania is granted for up to 126 days, and the government compensates 100 percent of the mother’s salary. A father is also allowed to take paternity leave for one month. His salary is compensated 100 percent as well. Sick leave in Lithuania is granted up to 14 days at any one time and no more than 90 days a year. For the first two days, the salary compensation is 80 – 100 percent, paid by the employer, with the rest of the days being compensated by SODRA (Lithuanian Social Security body) at 80 percent of salary. Lithuania is a member of International Labor Organization (ILO) and has ratified its core conventions.
The government adjusts the monthly minimum wage periodically. Since January 2022, Lithuania’s minimum monthly wage is $817. The average monthly wage is $1,880.
The ability of Lithuanians to work legally in EU countries generated a sizable outflow of labor, causing a domestic shortage of skilled construction workers, truck drivers, shop assistants, medical nurses, and medical specialists. In March, 2021 unemployment rate stood at 6.7 percent.
Lithuania’s management-labor relations are good. Labor unions are not considered overly influential in Lithuania, according to some foreign investors. More than half of workers at Lithuanian fertilizer firm Achema went on strike in February 2022 in the first major strike since 1991. The primary dispute was over the signing of a collective bargaining agreement with management on wages and other conditions. .
Lithuania has one of the best-educated workforces in Central and Eastern Europe. Lithuania ranks fourth among the EU states in terms of population with higher education and first in the Baltic States. Lithuania is one of the five EU members with the highest percentage of people speaking at least one foreign language. Ninety percent of Lithuanians can speak at least one other language – usually English, Polish, and/or Russian – apart from their mother tongue.
Major Lithuanian companies specializing in IT, biotechnology, and laser technology cooperate closely with the leading Lithuanian technological universities, which provide companies with R&D services and offer students specialized on-the-job training programs. This way companies are able to attract a large number of qualified specialists for both local and international projects. Some technology companies, however, have noted challenges in finding highly- skilled workers with advanced technical degrees.
In 2017, the parliament passed a new Labor Code. These changes aim to encourage foreign investment and job creation by simplifying some employment conditions and clarifying other requirements. The new law decreases the advanced notice required when employers terminate an employment contract, and adds new contract options for employers, such as project-based contracts and job-sharing contracts. The law also clarifies previous informal practices by requiring non-union employers to form works councils to represent employee interests and requiring employers to establish and publicize standard company compensation policies.