Sigitas Besagirskas, President of the Vilnius Association of Industry and Business, revealed on the "Lietuvos rytas" TV programme "Nauja diena" (New Day) how the planned changes are perceived by business.
- The new tax reform and investment prospects in Lithuania today: how do you see them? How do you assess everything?
- The investment prospects are not good these days if we talk about greenfield investments, where a company comes and builds a factory or something on a flat site.
If we are talking about service investments, let's say service centres, I would not see a drastic negative trend in the short term. In the long term, we certainly have something to worry about.
- In your opinion, is Lithuania a favourable country for investors nowadays?
- Today, most investors do not see Lithuania as a potential investment destination, especially when it comes to industrial investments. I think that those investments that were started earlier will be completed, but the chances of a new player entering the market are close to zero.
First of all, on China. Lithuania is the only country in the world that has managed to get angry with China. How valuable that is is another topic, but the fact is that nobody in the world has been as angry as Lithuania has been. If we are talking about the industry, and industries for investment are not for the domestic market. They are usually for exports and exports in the broad sense.
Those investing companies do not usually build the first factory but the fifth, tenth or something else. This means that they have a connection with China in one way or another, so they simply do not choose Lithuania, and I believe that they will not choose Lithuania for some time to come: they will not choose this government, and they will wait for a decision from the next government, whether they are the same or not, as to whether something will change.
The government itself does not decide why it is angry, but the fact that we are angry makes us look strange, at least in the eyes of the world, so I think that for at least five years, we will get nothing from industrial investment except domestic investment - from those Lithuanian companies that will expand internally. But I am very sceptical about foreign investment.
- Regarding the planned tax reform, to what extent are investors scared by the ever-changing tax system in Lithuania?
- It is not a big scary in itself. Basically, taxes are changing in all countries. It is common that when a government comes in and is a bit short of ideas, they reform. Well, here we can see that they will change the tax system a little bit. Some things will increase, and some things will decrease. Of course, in many cases, there will be an increase, but not a decrease, but a large part of the increase will be eaten up by the administration because it is getting more and more complex.
It is not a good signal to investors that there is no clear objective for the reform. The aim is to collect more tax, to tax those who pay less, but it is unlikely to succeed because they also pay little in other countries. The reform may be theoretically correct, but in practice, it is difficult to implement: more people will go into the shadows, or more people will leave Lithuania for elsewhere. This is not good for investors.
- What sectors can attract investors in Lithuania today and why?
- I think it is the service sectors. We do have young people here who speak a variety of foreign languages and who know information technology (IT). So the main investors are investing either in service centres or in IT services.
I think that in both cases, we have enough educated people in the short term. If a service centre sees the prospect of investing in Lithuania for five years, then Lithuania is a good place to do it.
- What should we change, and what should we do to keep investors in Lithuania for as long as possible or to attract new ones? Could it be government decisions?
- Only the government can do that - business does not attract any investment, the business develops business, and people go to work and earn money for their families and themselves. It is the prerogative of the government to attract investors.
That is what is fundamentally important: the tax system. Taxes must be stable and not rise. Stable taxes are one of the most important advantages, and the second thing is a skilled workforce.
If we want investors to come in, they ask us: 'But who is going to work for us, and are you sure you have the number of people and the skills we need?'
We are now losing with education. We saw last year's maths exams and other subjects. We see articles all the time about the shortage of teachers in schools, about the lack of mathematics teachers after three months in school. We have to talk to school leaders more often. I hear all sorts of stories and accusations against the Ministry of Education. Another question is how much of it is justified and how much is not. The mere fact that there are accusations means that something is already wrong on the part of the Ministry: there is no communication and no solutions.
This is not a good sign for investors - in 5-10 years' time, there may not be a skilled workforce. Worse still, population growth does not bode well. The war in Ukraine and the Russian aggression have caused Ukrainians to leave the country and move to Lithuania. We may have a temporary increase, but the problems are temporarily solved.
I think that we all believe that Ukraine will win the war, and a large number of people may return to Ukraine. We need to think about natural population growth. Yes, we can bring in immigrants, but immigrants, as we all understand, bring not only good things but also their own culture, and their own problems, depending on what region they come from.
One of the objectives of the state should be to encourage natural population growth.
- As for investors who are already interested in a particular market and investment in Lithuania, what information do they bring with them, and what are they interested in about Lithuania's prerogatives?
- I am in the process of selling a company to the Germans, and a few weeks ago, I met the owner of a multinational, huge company in Stutthof. Their consultants are giving them all the information they can about Lithuania.
They know about the examination results and the number of births here, the regional distribution, the unemployment rate, and the poverty rate.
They know everything about China - even more than I know about China, what happened here and why. Serious investors, not the ones who open up a corner shop or a small company, but the ones who come from large multinational corporations, they learn a great deal. I think that they can sometimes tell us more than the average citizen knows about Lithuania.
I had to answer a lot of questions when I was talking to the owner of that company that even I do not know. They look into the situation very carefully, so it is naïve to think that an investor will see that Lithuania has a values-based policy and will come - no.
No, they are pragmatists. They calculate they ask questions, and they weigh things up. If a stupid investor comes, maybe Lithuania doesn't need him, but if a smart investor comes, he will do the maths, and you can't hide anything from him.
- What is the difference between the Lithuanian market and its neighbours in the eyes of investors?
- Today, we are almost no different. From the perspective of Berlin, Paris or New York, the Baltic States, Poland, the Czech Republic, or Slovakia look very similar.
Taxes are more or less the same in all countries, and bureaucracy in Eastern Europe is also quite small compared to Western Europe. The IT sector in Eastern and Central Europe is quite well developed, so we are not very different.
Perhaps our main advantage is what we call "jumping on the bandwagon" - the work of Invest Lithuania.
If Invest Lithuania shows more attention than similar agencies in other countries, if a minister or a mayor comes to shake your hand, that is a big deal. In Poland, for example, it is more difficult to organise this because the country itself is bigger. In Latvia, it is less interesting in general.
For these days, the Chinese factor, the other factor is that last year Lithuania was the worst in dealing with the energy crisis, with rising inflation, because we were breaking records. So investors are saying: "Maybe we are putting Lithuania in the back of the drawer, and we will pull out the card in five years' time and see what happens then."
- Some experts believe that today a rather high proportion of investors are coming to Lithuania out of inertia, in other words, customary law. Could that situation change in the future, and what could that entail?
- Indeed, many investments have been planned earlier. There are a number of investments that have come as a result of the activities of our diaspora abroad. People who emigrated between the wars feel nostalgic for Lithuania and therefore bring people they know to invest here.
The further we go, the more pragmatic the world becomes, and I do not think that this should be seen as a factor that can work forever.
- If investment in Lithuania were to decline, what consequences could the economy face?
- I think there will be a definite drop in investment for an objective reason: the global economy is now entering a state of recession. The second thing is that, because of the mistakes that Lithuania has made, we have public expenditure that has to be paid for, and investors, by creating jobs and coming in with investment, are partly financing our budget.
These are various taxes, for example, for building a factory and exporting goods. And that is money again for Lithuania. Around a big factory, small businesses are setting up, and they also pay taxes.
Naturally, budget collections may fall, and then there are two solutions: either raise taxes or cut funding for public spending. This means less money for national defence, education and social services.
There is also the short-term option of borrowing, but when you borrow, you have to repay.