LITHUANIA: Swedish firms in LT: good business, some glitches

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Swedish investors in Lithuania find it easy to start a company but lack trust in dispute settlement mechanisms. They report good profitability of the local market (74% in 2012, 90% expect in 2015) but suffer from low payment discipline that is seen as the worst in the Baltics.

These and other findings listed below have been revealed by a business climate survey sponsored by the Swedish Trade Council and Sweden's embassy in Vilnius in April-June. 44 companies took part, representing a third of the total of 130 active Swedish-capital companies in Lithuania (official statistics put the number of Swedish firms at 240). The respondents were predominantly Lithuanian nationals. A copy of the survey results can be found at www.swedish.lt/news.

Swedish investors commend Lithuania's ICT infrastructure but find it difficult to commute between Lithuania and Sweden by sea and especially by air.

In general, they have few complaints about the taxation regime but would like to see local laws followed to a greater extent.

They see Lithuanian media as a fairly well functioning channel for corporate communication but find it hard to trust it completely (only 16% do). Few investors have been personally exposed to corruption but almost half of them assume that corruption is widely used in one form or another.

The majority of investors find the salary and productivity ratio well balanced (or even report a low salary level) but would like to see more initiative and creativity on the part of employees that otherwise are found hardworking and easy to train. In spite of serious structural unemployment and labour emigration, Swedish companies see few problems in filling in job openings for production, sales and even management positions, but see market competition as high and fierce.

"In general, they survey's findings are positive. We plan to use it to encourage more new Swedish investments in Lithuania because today this interest is quite moderate. Swedish businesses hold a somewhat mistaken view that Lithuania is not yet over the economic crisis and business conditions here are poor. We see that it is quite the contrary," says Mantas Zalatorius, Vilnius-based vice president Central and Eastern Europe at Swedish Trade Council, to news2biz.

Commenting some of the individual findings of the survey, Zalatorius says: "We see that corruption in Lithuania is often perceived as relatively high, not something witnessed personally by Swedish investors."

"The poor payment discipline that Swedish investors are complaining about is partly a product of their own making: many businesses expect state- or municipality-owned companies to settle their accounts sooner or later, so they don't pressure such debtors. This triggers a late payment chain reaction between private companies. I would say that investors should demand the same payment discipline standards from state and municipal companies."

"Regarding the lack of direct air links to Sweden, many of the earlier links were discontinued by airlines due to low passenger numbers. I believe that the government should subsidise such links for a while to help build decent passenger flows."

Next to conclusions that can be drawn from response figures, the survey is full of live quotes from investors on most of the survey subjects, ranging from critical observations to outright praise.

Apart from the obvious informative purpose of the survey, Zalatorius also notes its practical aspects.

VAT problem gone in a sec

"In a similar 2007 survey Swedish investors found long VAT reimbursement terms as a major problem in Lithuania. The response from the government was immediate. Once the survey results were out, Lithuania's tax agency established a dedicated hotline and appointed an English-speaking person to deal with the issue. Two months later the problem was gone. This year we asked investors whether VAT reimbursement was still a problem – it was not."

Today Sweden holds the biggest share of FDI stock in Lithuania, LTL 7.7bn or 18% (Q1 2012). By economic activity, Swedish investors are most active in telecom, real estate, finance and manufacturing sectors.

According to the investment climate survey, the 44 Swedish firms plan to invest around LTL 500m in Lithuania during the next two years.