Latest trends in the Baltic States

GDP, 2009, 2010 and 2011*, %

2Source: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tsieb020 , SEB *- data for 2011 remain as forecast (SEB)

The Baltic States’ economy, GDP in 2009

3

Source:http://www.stat.gov.lt/lt/news/view?id=8860; http://www.liaa.gov.lv/eng/home/latvia_in_facts/http://www.eestipank.info/dynamic/itp2/itp_report_2a.jsp?reference=503&className=EPSTAT2&lang=en

Single region from Scandinavian perspective, however …

% of total 59 bn. € in 2009:

•Estonia-13.86 bn. €•Latvia-18.845 bn. €•Lithuania-26.87 bn. €

Why Baltic is in an ideal position to take advantage of these new Why Baltic is in an ideal position to take advantage of these new opportunitiesopportunities

• EU Country

• Less expensive labor

• Geographic proximity and shorter distance to deliver goods and minor environment impact

• Flexible and complex deliveries

• Quick recall and replace of delivered products

• Good location for distribution

• Available competence

• Raw materials

• Entrepreneurial

• Favorable currency exchange rate

• Time difference

4

Latest developments to improve environment for sourcing / relocation in the Baltics

• Growing competitiveness through labor and multifactor productivity

• Large investments through EU structural funds:– upgrade equipment– programs for employee education– innovation component– newly built factories– developing infrastructure (ports, border and

customs, logistics)– market surveys and partner search 5

Low costs any longer?• The representatives from Western countries and business do

not see the Baltic countries as a low wage locations any longer

• This is a place of well trained, talented individuals who are available at a fair wage level

• Baltic countries have a competitive advantage in medium to high technology industries

• Because it will never be as cheap as Southeast Asia

• but at the same time, the costs for a multinational company of employing a skilled specialist or graduate in the Baltic countries will never be as high as it is in the Western and Nordic Europe 6

Major indicators / region

7

Indicator Estonia Latvia Lithuania Sweden Denmark

Corporate profit tax, % (2010)

21 15 15 26.3 25

VAT, % (2010) 20 22 21 25 25

GCI, ranking (2010-2011)

33 70 47 2 9

Electricity from renewable sources, % (2009)

5.1 49.3 7 60 29

Corruption perceptions index, ranking (2010)

26 59 46 4 1

Source:http://www.tmf-vat.com/vat/eu-vat-rates.htmlhttp://www.bdo.dk/Publikationer/Publikationer/Payment%20of%20corporate%20income%20tax.pdf http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tsdcc330http://www.transparency.org/policy_research/surveys_indices/cpi/2010/resultshttp://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2010-11.pdf

• 500 million consumers at one stop: a springboard to the single European market (over 500 million consumers) as well as emerging Eastern European markets

• Europe’s prime transport hub: two Trans-European transport corridors crossing the country

• Innovation-driven knowledge economy: global laser, biotech and ICT player

• Competitive business operation costs: productivity-driving profit tax incentives for R&D, tax “holidays” in free economic zones; competitive wages and rent rates

• Stable political and economic environment, ensured by the EU, NATO and WTO membership

Strategic Location / springboard Lithuania

8

Average GDP

Growth (over most

recent 3-year period)

Average Inflation

(over most recent 3-

year period)

Corporate Tax Rate (%)

Median

Gross Weekly Pay (Euros

)

Minimum

Monthly

Wage(Euros

)

Average Wage Growth (percen

t)

Number of foreign

languages spoken as a percentage

of the population

2007 9.8%

2008 2.8%

2009 -14.8%

2010 1.6%

2007 - 5.8 %

2008 - 11.1 %

2009 - 4.2 %

2010 - 1.1 %

15 % 

(FEZ incentive - 0% for

the first 6 years, 50%

deduction 10

following years)

 

137,41 (EUR)

231,7 EUR

14% 

(2007 – 2009)

English 37.9%

Russian 87.2%

German 20%Polish 15%

 Average

number of languages

1.9

Economic Economic IndicatorsIndicators

9

10http://www.stat.gov.lt/lt/news/view?id=9013&PHPSESSID=f9e0006381cee52513fb133b3d28517a

Trade and investments between major partners

and Lithuania

Average monthly wages in Lithuania, EUR, brutto, 2010 Q3

11Source: www.stat.gov.lt (http://db1.stat.gov.lt/statbank/default.asp?w=1280)

Lithuania Czech Repub

lic

Finland

Hungary

Poland Romania

Slovakia

Ukraine

Corporate profit tax

15 19 26 19 19 16 19 25

VAT 21 20 22 25 22 19 19 20Dividends 0* - 15 15** 28 10 – 25 19 16 - 15Personal income tax

15 (+ 6% health

insurance)

15 6,5 – 30

17 – 32 18 – 32 16 19 15

Social security paid by the employer

31 (+ 3% for

employee)

34 20 – 23

28.5 30 – 35 32,1 – 33,2

35.2 36,88

Real estate tax 0,3 - 1 10 CZK/m

2

0.6 – 1.35

2 – 4 20,51+0,77 PLN/ m2

5 – 10 *** Up to 1

* 0% tax on dividends applies when an investor controls at least 10% of voting shares in the enterprise for a period of at least 12 months.** dividends paid by Czech companies to parent companies located in EU member states, Norway, Iceland and Switzerland are exempt from withholding tax if the parent company maintains a holding of at least 10% for uninterrupted period of at least 12 months.*** levied by municipal authorities.

TaxesTaxes

12

Trans-European corridorsThe designated the two North-South highway, and the rail route connecting Scandinavia with Central Europe, as well as the East-West route linking the eastern markets with the rest of Europe, are among the 10 most important in Europe (EU Commission )

Railway networkRailway network running a total of 1,750 kilometers. Broad gauge provides direct link to Latvia, Poland, Belarus, and Russia (the Kaliningrad Region) as well as a link to Poland. Container train VIKING (www.litrail.lt) operates from Klaipeda to Belarus, Ukraine and further to Turkey, Kazachstan Best roads in the regionThough small in size, Lithuania boasts a 21,000 kilometers road system - known to be the best in the region. Lithuania is committed to investing 145 million EUR into the Via Baltica international highway, and 100 million EUR into three public logistics centres.

Ice-free seaport at Klaipėda (www.portofklaipeda.lt) The northern-most ice-free port in the Baltic Sea, and is capable of handling over 40 million tonnes of cargo annually. Currently the Klaipėda seaport is capable of handling dry-cargo carriers up to 80,000 DWT, and tankers up to 150,000 DWT.

International airportsThe three strategically located international civilian airports are located in Vilnius, Kaunas, and Palanga. Superb facilities for passenger and cargo traffic.

Logistics centresThe greatest supply of modern warehousing facilities in 2009 remains in Vilnius (341,800 sqm, growth – 17,8%), with Kaunas following in second place (160,200 sqm, growth – 0,13%), and Klaipeda in third (103,800 sqm, growth – 23,5%).

World-class LogisticsWorld-class Logistics

13

Ready for Business Ready for Business LocationsLocations

•Two Free economic zones - in Kaunas (www.ftz.lt) and Klaipėda (www.fez.lt) •Advanced industrial clusters utilize the logistical advantages (port, airport, highways) and provide favourable conditions for developing manufacturing activities: sites with physical infrastructure, support services, and tax incentives (0% corporate tax during the first 6 years and only 50% o over the next 10 years)

•Four industrial parks (IP)•prepared for business use with all the necessary infrastructure (electricity, gas, sewerage, roads, etc.). The land is leased for long-term periods at remarkably competitive prices. Infrastructure is brought to the investor’s plot for free.

•Most industrial parks offer land and real estate tax incentives.

•Five integrated science, studies and business centres (valleys)•Lithuania is investing almost EUR 300 M of the EU Structural Funds support to develop 5 integrated science, studies and business centres (valleys

• Direct cash grants to subsidize construction, equipment and salary costs (Invest Lt+ program).

• Average amount of support is 20-30% of the total investment amount and varies depending on the parameters of the project (number of jobs created, size of investment, percentage of exports, etc.). Average amount of support for project in R&D average support is 20-25%).

• Support for the personnel trainings up to 60% of the training costs needed for the investment project (up to 2 million EUR per project, up to 2600 EUR per one employee).

• Corporate tax incentives • 0% of profit tax in first 6 years and 50% reduction of profit tax value in

next 10 years, no real estate and land taxes in Free Economic Zones.

• Land / real estate tax incentives • Land (1,5%) and/or real estate (0,3-1%) tax relieves through local

municipalities where company is operating.

• Support for the R&D centre establishment (up to 70% of R&D centre establishment costs, EU Structural Funds program Intellect+). Triple deduction - expenses incurred by companies while carrying out R&D as well as by acquiring R&D carried out in EEA countries or countries with DTA can be deducted from taxable income trice. Super-accelerated depreciation - acquisition price of fixed assets used in the R&D activities can be written-off within two years

IncentivesIncentives

15

Companies partner search in Lithuania

• Enterprise Lithuania: http://www.businesslithuania.com/en/EnterpriseLithuaniaContacts.html

• Engineering association LINPRA (www.linpra.lt) and companies database https://linpra.vhspoint.lt/public/CompanySearch.aspx

• Lithuanian Apparel and textile industry association (www.latia.lt)

• Lithuanian embassy in Copenhagen (http://dk.mfa.lt/)

• Commercial attaché16

Conclusion remarks • Low costs remain one of major key criteria to drive interest for

manufacturing opportunities

• Integration into global value chains for the Baltic region companies is more likely through closer cooperation in the Nordic region

• Developed transport links and logistic infrastructure become important as never before

• Companies along with their operations require to move talents and skilled professionals thus availability of it is vitally important in the Baltics

• There are undiscovered opportunities to expose benefits by establishment in the Baltic countries where every country is unique and different

17

Thank you!

PositionExperience

(years)Monthly salary (gross, Euro)

From To

Mechanical Engineer 1-2 597 875

Mechanical Engineer 3-5 716 1105

Mechanical Engineer 5-10 1067 1486

Civil Engineer 1-2 478 835

Civil Engineer 3-5 991 1372

Civil Engineer 5-10 1143 1486

Electrical Engineer 1-2 597 875

Electrical Engineer 3-5 875 1334

Electrical Engineer 5-10 991 1334

Manufacturing Engineer 1-2 538 756

Manufacturing Engineer 3-5 875 1334

Manufacturing Engineer 5-10 1258 1334

Quality Assurance Engineer 1-2 796 1377

Quality Assurance Engineer 3-5 914 1638

Quality Assurance Engineer5-10 1562 1791

Source: UAB "Simplika" ir UAB "CVO Recruitment

Based on Vilnius estimates, costs in smaller towns up to 30% lower

Wages Wages (manufacturing)(manufacturing)

19

Position

Net Monthly Salary (EUR)

Gross Monthly

Salary (EUR) 

From To From To

Accountant Clerk 521 811 686 1067

Accountant 869 1303 1143 1715

Chief Accountant 1158 2027 1524 2668

Procurement Specialist 869 1303 1143 1715

Customer Service Specialist 377 724 495 953

HR Specialist 869 1303 1143 1715

IT Team Leader  869 1448 1143 1905

Developer 869 1593 1143 2096

Junior Developer 579 1014 762 1334

Sales Executive/Specialist 724 1303 953 1715

Sales Manager 900 1506 1185 1981

Wages (services)Wages (services)

20

GasGas

System users group

Annual natural gas distribution quantity per one delivery point

(Q)  

Tariff for distributed natural gas quantity,

EUR per thou. m3

(VAT excluded) 

I Q ≤ 500 m3)  207.58

II 500 m3 < Q ≤ 20 thousand m3) 67.08 

III20 thousand m3 < Q ≤ 0.1

million m3 64.89

IV 0.1 million m3 < Q ≤ 1 million m3 61.61 

V 1 million m3 < Q ≤ 5 million m3 51.55 

VI 5 million m3 < Q ≤ 15 million m3 35.90

VII Q > 15 million m3 14.78

Natural Gas Distribution Service Tariffs: One-component natural gas distribution service tariffs (according to

delivery points)

•The connection fee varies depending on project parameters; around 50% of installment costs are covered by the investor

21

ComponentsMedium voltage

Low voltage

Power generation price (could vary depending on Supplier) ct/kWh 15,54 15,54

Transmission fee (ct/kWh) 8,14 8,14

transmission 2,67 2,67

other services 0,74 0,74

public obligation service 4,73 4,73

Average distribution fee 5,32 12,06

Total, ct/kWh without VAT 29,00 35,74

Excise, ct/kWh 0,18 0,18

Total, ct/kWh with VAT (21%) 35,30 43,46

 Total, EUR ct/kWh without VAT 

8,39 

10,35

ElectricityElectricity

22Nuclear power plant development in Visaginas (East North of Lithuania) is ongoing, more information on www.vae.lt

23

REGULATORY ENVIRONMENT (1)

In March 2009, the Economic Recovery Plan was adopted by the Lithuanian Government as an economic stimulus package.

In October 2009, the National Agreement was signed by the Government and social partners in order to overcome rapidly recession and restore the competitiveness of the Lithuanian economy. It aimed to:

In the field of fiscal consolidation:

• reduce public expenditure (salary fund of the Government institutions reduced by 23 per cent, number of civil servants – by 13 per cent)• optimize tax environment - increase VAT by 2% to 21%, reduce corporate tax to 15% • balance social security budget (pensions reduced in average by 5 percent, reduce other social benefits (retirement age will be extended gradually to 65 years, stimulus to work)• deal current issues with disabilities (more control of evaluating disability and special needs)

In the field of support for business and improvement of business conditions:

• develop flexibly the business environment (EU funds, labour legislation, public procurement)• labour legislation: overtime from 8 to 20 hours per week; flexible part-time work • support small and medium businesses (support for starting bussines )• speed up and simplify the construction permit system, accelerate the modernization of the apartment housing• increase economic competitiveness through research, innovation and integration of technologies • restructure the energy sector (electricity market started)• reduce corruption (improving procurement system, expansion of electronic declaration

24

REGULATORY ENVIRONMENT (2)

• A number of the Structural support schemes are available for individual companies and associations in the fields of R&D, modernisation of technologies and business management as well as development of HR.

• Reform of science and higher education in Lithuania: engineering industry expects that changes will effectively support and enhance long-term value added for it, by :

– ensuring quality of specialists to be in line with the market requirements,– ensuring high level of scientific research work and effectiveness of public-private partnership in

R&D field.• 5 Integrated Science, Studies and Business Centres (Valleys) are being set up in Lithuania in the form of clusters of academic and research institutions, Competence and Excellence Centres, Science Technology parks and Industrial parks. • 10 National Complex Programmes for development of knowledge-intensive business sub-sectors, including Engineering and IT are to be launched in 2009.

• The EC award “Regions of Excellence”: in January 2011, Lithuania won the award for successful implementation of policies, programmes and projects in line with the Europe 2020 strategy. 2 other winners are Brandenburg (Germany) and Wales (UK).• “Doing Business 2011”: the World Bank gave the Lithuanian business regulatory environment the 2nd place among all the new EU Member States: Lithuania came 8th out of all EU countries and 23th in the list of 183 countries that were investigated.