We speak about the future changes in the investment climate in Lithuania with Eimantas Kiudulas, Chairman of the Lithuanian Free Economic Zones Association, who is also General Director of the Klaipėda FEZ.
You‘ve been frequently communicating with the potential investors who are considering investment in Lithuania. What countries Lithuania usually competes with for the investment?
The major competitors of Lithuania are neighbouring countries, especially Poland. In fact, Poland‘s market is much wider, therefore it is practically impossible to outbid Poland with the same parameters, such as the market size. In view of this, Lithuania has to search for other competitive advantages. Poland has realized the importance of the establishment of new jobs and attraction of investment much earlier than Lithuania, and has taken specific steps.
Must it be presumed that a newly adopted Labour Code in Lithuania will pave the way to Lithuania‘s competitive advantage in the international competition for investment?
Surely, yes. Lithuania is a small country. Investors in Poland have entered a huge market, besides, Poland has borders with the major EU markets, e.g. Germany. Therefore, in order to attract potential investors to Lithuania (versus Poland) we have to demonstrate unique advantages. Since we cannot change neither the size of the market, nor geography, we should be more flexible, more responsive and creative, and eliminate the emerging risks – first of all in the labour relations. Here Lithuania shall create more flexible conditions for business, otherwise we will lose the competition.
Poland‘s market is famous for very active trade unions the actions of which are often unreasonable, and the investors are not always happy about this. Lithuania has much better conditions to improve the environment for business and employees compared to Poland. This is what our country is striving four by adopting a new Labour Code.
What arguments have been most frequently used by the investors before refusing not to invest in Lithuania? What obstacles did they identify most often?
First of all the investors evaluate availability of relevant competences necessary for this or another project. Logistics and proximity to raw material and product markets is very important. Later the analysis is always made on the possibility to settle the business and start activity. Here it is necessary to say that FEZ provides more favourable conditions for the investors.
For instance, starting this year, someone investing in Klaipėda FEZ, i.e. purchasing or leasing the land, also acquires a construction permit; consequently, elimination of bureaucratic barriers shortens time cost by half. FEZ investors are „green field“ investors; this means that they establish new enterprises from scratch, i.e. they have to organize construction activities, build the team of employees and this is a much higher risk compared to the situation when investors buy the already running business. In view of this and using our own initiative we seek to minimize the emerging risks, and this leads to relevant results. In 2015 the export of enterprises operating in the Klaipėda FEZ accounted for 29 percent of the export in Klaipėda Region.
Finally, the investors were often unhappy with the general business conditions in the country. Specifically, enterprises evaluated the proposed flexibility of labour relations and tax system.
Therefore, the adoption of this Labour Code in principle reduces the risk for investors and facilitates the decision-making process. Being aware that it will be easier to dismiss untrustworthy employees, the investors could easier recruit new workers and make relevant investment decisions for the benefit of Lithuania. Now this has become Lithuania‘s trump card which will also be used.
But the Labour Code has been adopted a few days ago. When could we feel its actual impact?
In fact, it is necessary to understand that in the subsequent period, i.e. after passing the Labour Code, several years will be needed to see the first affects: more jobs, more workers in the country. In this context both, the Government and Municipalities have to develop programmes promoting the new jobs generating higher added value, as well as programmes promoting the return of emigrants.
Why a new Labour Code will be beneficial to employees?
Currently we are the third country from bottom in the EU by the level of remuneration. Remuneration will grow if Lithuania increases competitiveness between the employers and qualified workplaces. Each employer understands that a good employee is the main value of an enterprise and will try to keep that employee by all possible means, especially if this employee could easily find an alternative in the labour market. New jobs will not appear from just anywhere. For that it is necessary to ensure continuous investment, therefore all the measures promoting attraction of investment and establishment of new jobs will also improve remuneration for employees.
Do you have concrete examples on how to promote the return of employees to Lithuania?
Let‘s take the example of Ireland. Before building the plant INTEL, there were no relevant competences in Ireland. The Irish Government Agency contacted technologists and engineers working abroad who were necessary for work in the INTEL plant. Specifically this programme helped both, to attract the investor and to bring back many highly qualified employees. These people and the plant itself currently pay taxes to the state of Ireland. This example demonstrates that for people abroad it is also important to be aware of the changes in Lithuania and of the changing environment. Only then they will be willing to return to the country.