INVESTMENT CLIMATE IN LITHUANIA

Laimutė KalinauskienėDirector 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 %

Unemployment12.4 % 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

110 million North European consumers

Almost 500 million EU consumers

250 million CIS consumers

In-between huge markets

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 – EstoniaNo. 22 LithuaniaNo. 41 LatviaNo. 87 PolandNo. 120 Russia

Sources: The Heritage Foundation

No. 87

No. 120No. 12

No. 41

No. 22

SURROUNDED BY THE MOST COMPETITIVE ONES: Global Competitiveness Indexes 2006

Source: World Economic Forum

No. 1

No. 10

No. 12

No. 2

No. 3 No. 25

No. 4 No. 36No. 40

No. 14

No. 34

Trans European network

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

Visaginas

Kėdainiai

Alytus

Marijampolė

Free economic

zones

Industrial parks

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 139 km 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)

Other 22,5%

Trade 10,7%

Financial intermedia-tion 16,0%

Manufactu-ring 39,9%

Transporta-tion and

communica-tion 10,9%

Other 21,4%

Germany (4) 9,9%

Finland (5) 6,7%

Russia (6) 6,3%

Poland (1 place) 22,6%

Denmark (2) 15,3%

Sweden (3) 10,6%

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

Agricultural and rural

development; 4.17 billion EUR

Decommissio-ning of the

Ignalina NPP; 0.83 billion EUR

Structural support; 6.77

billion EUR

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 AssessmentChanges in conditions for business and development in Lithuania based on the Report “Doing

Business 2007”

2006 2005 Changes in rankingBusiness conditions, including: 16 15 -1Starting a business 48 44 -4Dealing with licences 23 22 -1Employing workers 119 119 0Registering property 3 2 -1Getting credit 33 33 0Protecting investors 60 58 -2Paying taxes 40 42 +2Trading across borders 32 31 -1

Enforcing contracts 4 5 +1Closing a business 30 28 -2

Source: World Bank, figures denote the country’s ranking in the world

Source: European Innovation Scoreboard‘2005

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.

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 6 15

Lithuania 16 4 3 23 40

Germany 21 29 42 21 73

Poland 75 112 86 146 71

Russian Federation

96 25 44 163 98

Singapore 1 23 12 8 8

United States

3 6 10 22 62

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 Lithuania is open for the investment AGAINAGAIN!!

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