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Economy of Lithuania

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Economy of Lithuania [1]
File:Vilnius skyline at night.Lithuania.JPG
CurrencyLitas (LTL)
1 January — 31 December
Statistics
GDP$53.35 billion (2009 est.)
GDP growth
-16.8% (2009 est.)
GDP per capita
$15.000(2009 est.)
GDP by sector
agriculture (4.37%), industry (21.46%), services (74.18%) (2008)
4.5% (2009)
Population below poverty line
4% (2003)
Labour force
1.65 million (IIIQ 2009)
Labour force by occupation
services (72.49%), industry (19.58%), agriculture (7.94%) (2008)
Unemployment14.6% (IIIQ 2009)[2]
Main industries
ICT, Biotech, Metal Processing, Machinery and Electric Equipment, Plastics, Furniture, Wood processing & Paper Industry, Textile & Clothing, Food, Real Estate & Construction, Transport & Logistics, Lasers
External
Exports€16 billion (2008), €11.8 billion (2009)
Export goods
mineral products (21.5%), machinery and mechanical appliances, electrical equipment (10.6%), products of the chemical or allied industries (9.1%) (2009)
Main export partners
EU (64.3%), Russia (13.2%), Latvia (10%), Germany (9.7%), Poland (7.2%) (2009)
Imports€21 billion (2008), €13.1 billion (2009)
Import goods
mineral products (29.3%), machinery and mechanical appliances, electrical equipment (13.1%), products of the chemical or allied industries (12.3%) (2009)
Main import partners
EU (58.8%), Russia (30.1%), Germany (11.2%), Poland (10%) and Latvia (6.4%) (2009)
Eur 7.134 billion (2009) (26,6 % of GDP)
Public finances
RevenuesEur 6.160 billion (2010 est.)
ExpensesEur 7.588 billion (2010 est.)
Economic aidEU structural assistance: 2.286 Eur billion (2010 est.), assistance from Switzerland: 9.09 Eur Mln. (2010)
All values, unless otherwise stated, are in US dollars.


Lithuania is a member of the European Union and the biggest economy among three Baltic states. GDP per capita reached USD 17,800 in 2008 and was higher than the ones of all its neighbors – Latvia, Poland, Russia and Belarus[3].

GDP per capita in Lithuania is 70% above the world’s average of USD 10,500[3]. Lithuania has a favorable legislative basis for business as the country is ranked the 3rd in the region of Eastern Europe and Central Asia[4] and the 26th in the world by the Ease of Doing Business Index prepared by the World Bank Group [5]. Lithuania is ranked the 30th out of 179 countries in the Index of Economic Freedom, measured by The Heritage Foundation[6]. According to the Human Development Report 2009, Lithuania belongs to the group of high human development countries.

Having moved away from central planning system in the late 1980s, in 1990, Lithuania was the first to break away from the Soviet Union and become an independent capitalist economy. Lithuania soon implemented liberal reforms and became one of the fastest growing countries in the world last decade, as GDP growth rate was positive 9 years in a row till 2009. It enjoyed high growth rates after entering the European Union along with other Baltic states, leading to the notion of a Baltic Tiger. Current excellent telecommunication infrastructure and well-educated, multilingual workforce give the possibility to provide high quality business services and produce manufacturing products worldwide.

In 2005 the GDP grew by 7.5% and the inflation rate was 3%. GDP growth reached its height in 2007, increasing by 8.9%.[7] Lithuania was the last among the Baltic states to be hit by the economic crisis because its GDP growth rate in 2008 was still positive. In the third quarter of 2009, compared to the previous quarter, GDP grew again by 6.1% after 5 quarters with negative numbers[8]. Rebound in Lithuania’s economy in the third quarter was the fastest in the EU[9]. In the last quarter of 2009 Lithuanian economy rose moderately by 0.1%[10], however the Finance Ministry of Lithuania forecasts that Lithuania’s economy will keep growing by 1.6 % in 2010 and by 3.2 % in 2011[11].

History of economy

The history of Lithuania can be divided into 7 major periods. All the periods have some interesting and important facts that had an impact on the economic situation of the country in those times.

History up to the 20th century

The first Lithuanians were a branch of an ancient ethnic group known as the Balts. The tribes maintained close trade contacts with the Roman Empire. Amber was the main good provided to the Roman Empire from Baltic Sea coast, by a long route called the Amber Road.

Consolidation of the Lithuanian lands began in the late XII century. Mindaugas, the first Lithuanian ruler, was crowned as Catholic King of Lithuania in 1253. The expansion of the Grand Duchy of Lithuania reached its height in the middle of the XIV century under the Grand Duke Gediminas, who created a strong central government which later spread from the Black Sea to the Baltic Sea. The duchy was open to everyone. Grand Duke Gediminas issued letters to the Hanseatic league, offering free access to his domains to men of every order and profession from nobles and knights to tillers of the soil. Economic immigrants had a positive impact, improving the level of handicrafts.

In 1569, the Polish–Lithuanian Commonwealth was formed by the union of the Kingdom of Poland and the Grand Duchy of Lithuania. The economy of the Commonwealth was dominated by feudal agriculture based on the exploitation of the agricultural workforce (serfs). Poland-Lithuania played a significant role in the supply of XVI century Western Europe by exporting three sorts of goods, notably grain (rye), cattle (oxen) and fur. These three articles amounted to nearly 90% of the country's exports to western markets by overland and maritime trade.

The Commonwealth was famous for Europe's first and the world's second modern codified national constitution, the so-called Constitution of May 3, declared on the 3rd of May, 1791, after the 1788 ratification of the United States Constitution. Economic and commercial reforms, previously shunned as unimportant by the Szlachta, were introduced, and the development of industries was encouraged.

Following the partitions of the Polish-Lithuanian Commonwealth in 1772, 1793 and 1795, the Russian Empire controlled the majority of Lithuania. One of the most important reforms during the pressure of the Russian Empire that affected economic relations was the Emancipation Reform of 1861 in Russia. The reform amounted to the liquidation of serf dependence previously suffered by peasants and boosted the development of capitalism.

Lithuania in the 20th century

On February 16, 1918, the Council of Lithuania passed a resolution for the re-establishment of the Independent State of Lithuania[12]. Soon, many economic reforms for sustainable economic growth were implemented. A national currency, called the Lithuanian litas, was introduced in 1922. It proved to become one of the most stable currencies in Europe during the inter-war period[12]. During the time of its independence, 1918–1940, Lithuania made substantial progress. For example, Lithuania was the second in the world in exporting flax; Lithuanian farm products such as meat, dairy products, many kinds of grain, potatoes, etc. were of superior quality in the world market[12].

Having taken advantage of favorable international developments, and driven by its foreign policy aims directed against Lithuanian statehood, the Union of Soviet Socialist Republics (USSR) occupied Lithuania in 1940[13]. Land and the most important objects for the economy were nationalized, and most of the farms collectivized[12]. Later, many inefficient factories and industry companies, highly dependent on other regions of USSR, were established in Lithuania. Despite that, in 1990, GDP per capita of the Lithuanian Soviet Socialist Republic was USD 8,591, which was above the average for the rest of the Soviet Union of USD 6,871 but lagging behind developed western countries.

The Soviet era brought Lithuania intensive industrialization and economic integration into the U.S.S.R., although the level of technology and state concern for environmental, health, and labor issues lagged far behind Western standards.[7] Urbanization increased from 39% in 1959 to 68% in 1989. From 1949-1952 the Soviets abolished private ownership in agriculture, establishing collective and state farms. Production declined and did not reach pre-war levels until the early 1960s. The intensification of agricultural production through intense chemical use and mechanization eventually doubled production but created additional ecological problems. This changed after independence, when farm production dropped due to difficulties in restructuring the agricultural sector.[7]

The myth of Lithuania’s economic collapse

According to official statistics, towards the end of central planning economic output plunged in all Soviet-type countries during the transition from central planning to a market economy. The total registered declines in GDP range from 13 to 77% in Eastern Europe[14]. However, both Soviet period and early transition period statistics were deeply flawed and do not represent the real situation and processes in Eastern Europe and Lithuania.

During the transitional period former USSR republics, including Lithuania, were characterized by these aspects: overproduction reporting; reluctance to pay taxes by people and enterprises; the reduction of value detraction; overestimation of investment ratios; and politically determined trade among the Soviet countries.

Taking into account the shadow economy, value detraction from products and services, doubtful investments and indirect trade subsidies, Lithuania was not faced with such a huge contraction in GDP as was usually thought and represented in official statistics. On the contrary, Lithuania made structural reforms for future growth and welfare.

Development since the 1990s

Panorama of Vilnius downtown

Reforms since the mid-1990s have given Lithuania an open and rapidly growing economy. Open to global trade and investment, Lithuania now enjoys high degrees of business, fiscal and financial freedom. Regulation is relatively transparent and efficient. Foreign capital and domestic capital are subject to the same rules as Lithuania is a member of the EU and the WTO. The financial sector is advanced, regionally integrated, and subject to few intrusive regulations[6].

One of the most important reforms since Lithuania regained its independence was the privatization of state owned assets. The first stage of privatization was being implemented in 1991–1995. Citizens were given investment vouchers worth LTL 10.5 billion (USD 2.63 billion) in nominal value, which let them participate in assets selling[15]. By October 1995, they were used as follows: 65% for acquisition of shares; 19% for residential dwellings; 5% for agricultural properties; and 7% remained unused[15]. More than 5700 enterprises with LTL 7 billion (USD 1.75 billion) worth of state capital in book value were sold using four initial privatization methods: share offerings; auctions; best business plans competitions; and hard currency sales[15].

The second privatization step began in 1995 by approving a new law that ensured greater diversity of privatization methods and that enabled participation in the selling process without vouchers. During the period 1996–1998, 526 entities were sold for more than LTL 2.3 billion (USD 0.58 billion)[15]. Before the reforms, the public sector totally dominated the economy, whereas the current share of the private sector in GDP increased to over 80%[16].

The implementation of the monetary reform was one of the key success factors for the stability of the economy. Lithuania has chosen a currency board system formed and controlled by the Bank of Lithuania that is independent from any government institution. On the 25th of June, 1993, the Lithuanian litas was introduced as a free convertible currency, but on the 1st of April, 1994 it was pegged to the United States dollar at a rate of 4 to 1. The mechanism of the currency board system enabled Lithuania to stabilize inflation rates to single digits. The litas soon became a reliable currency as the litas is fully backed by foreign currency. The stable currency rate helped to establish foreign economic relations, therefore leading to a constant growth of foreign trade[17].

By 1998, the economy had survived the early years of uncertainty and several setbacks, including a banking crisis, and seemed poised for solid growth.[7] However, the collapse of the Russian ruble in August 1998 shocked the economy into negative growth and forced the reorientation of trade from Russia towards the West.[7]

Share of Private Sector in GDP

Lithuania was invited to the Helsinki EU summit[18] in December 1999 to begin EU accession talks in early 2000.

After the Russian monetary crisis, the focus of Lithuania's export markets shifted from East to West. In 1997, exports to the Soviet Union's successor entity (the Commonwealth of Independent States) made up 45% of total Lithuanian exports. This share of exports dropped to 21% of the total in 2006, while exports to EU members increased to 63% of the total.[7]

Exports to the United States made up 4.3% of all Lithuania's exports in 2006, and imports from the United States comprised 2% of total imports. Foreign direct investment (FDI) in 2005 was 2.6 billion litas, which represented an increase of only 4.6% compared to the same period in the previous year.

Since February 2, 2002 the litas has been pegged to the euro at a rate of 3.4528 to 1. The rate is not expected to change until Lithuania becomes a member of the Eurozone. Lithuania was very close to introducing the euro in 2007, but unfortunately the inflation level was somewhat above the Maastricht requirements[19]. The current tough economic situation precludes compliance with the Maastricht criteria on budget balance, so Lithuania cannot expect to have the euro before 2013-2015[20].

The Vilnius Stock Exchange (VSE), now renamed the NASDAQ OMX Vilnius, started its activity in 1993 and was the first stock exchange in the Baltic states. In 2003, the VSE was acquired by OMX. Since February 27, 2008 the Vilnius Stock Exchange has been a member of NASDAQ OMX Group, which is the world’s largest exchange company across six continents, with over 3800 listed companies[21]. The market cap of Vilnius Stock Exchange was LTL 11.7 billion (EUR 3.4 billion) in November 27, 2009 and was twice as large as the ones of Riga and Tallinn Stock Exchanges[22].

During the last decade (1998–2008) the structure of Lithuania’s economy has changed significantly. The biggest changes were recorded in the agricultural sector as the share of total employment decreased from 19.2% in 1998 to just 7.9% in 2008. The service sector plays an increasingly important role in the economy of Lithuania. The share of GDP in financial intermediation and real estate sectors was 17% in 2008 compared to 11% in 1998. The share of total employment in the financial sector in 2008 has doubled compared with 1998[23][24].

Structure of gross value added and employment by kind of economic activity[23]
Economic activity GDP, 1998 Employment, 1998 GDP, 2000 Employment, 2000 GDP, 2004 Employment, 2004 GDP, 2008 Employment, 2008
Trade; hotels and restaurants; transport, storage and communication 27.3% 22.6% 30.2% 22.8% 31.7% 24.7% 30.1% 27.5%
Industry 22.8% 22.1% 23.8% 20.8% 25.8% 20.1% 21.5% 19.6%
Public administration; services for social sphere 21.7% 25.5% 21.2% 27.6% 18.2% 26.3% 17.5% 26.1%
Financial intermediation; real estate 11.2% 4.0% 12.5% 4.1% 12.4% 4.9% 16.6% 8.0%
Construction 8.3% 6.7% 6.0% 6.0% 7.2% 8.1% 10.0% 10.9%
Agriculture 8.7% 19.2% 6.3% 18.7% 4.7% 15.8% 4.4% 7.9%

Lithuania in the 21st century

Real GDP Growth in Lithuania, 1996–2008
Economic sentiment indicator and its components
Balance of Payments in Lithuania, Quarterly Data

The economy of Lithuania was one of the fastest growing in the world last decade (1998–2008) as GDP growth rate was positive 9 years in a row. Since the year 2000 GDP has almost doubled with a growth rate of 77%[25].

One of the most important factors for substantial economic expansion was the accession to the WTO in 2001 and the EU in 2004, which enabled free movement of the labour force, capital and trade between the Member States. On the other hand, rapid economic expansion has caused some imbalances in inflation and balance of payments. The current account deficit to GDP ratio in 2006–2008 was in double digits and reached its peak at threatening 18.8% in the first quarter of 2008[26]. This was mostly influenced by rapid loan portfolio growth as Scandinavian banks provided cheap credits in Lithuania[27]. The loans directly related to acquisition and development of real estate constituted around half of outstanding bank loans to the private sector[27]. Consumption was affected by credit expansion as well. This led to high inflation of goods and services, as well as trade deficit.

The global credit crunch which started in 2008 affected the real estate and retail sectors. The construction sector shrank by 46.8% during the first 3 quarters of 2009 and the slump in retail trade was almost 30%[8][28]. GDP plunged by 15.7% in the first nine months of 2009[8].

Lithuania was the last among the Baltic states to be hit by the economic crisis because its GDP growth rate in 2008 was still positive. In the third quarter of 2009, compared to the previous quarter, GDP again grew by 6.1% after five quarters with negative numbers[8]. The rebound in Lithuania’s economy in the third quarter was the fastest in the EU[9].

A heavy shock to consumers helped to balance the current account in 2009[26]. Net external assets of the Bank of Lithuania are at a record height of EUR 5.46 billion[29]. Inflation in Lithuania is no longer a problem. Economic sentiment and confidence of all business activities have rebounded from a record low at the beginning of the year 2009 and suggest further improvements in the economy.

Sectors related to domestic consumption and real estate are still suffering from the economic crisis. However, exporters have started making profits even with lower levels of revenue. The catalysts of growing profit margins are lower raw material prices and staff expenses.

Tax system

Lithuania has a favorable tax system. There are four main types of taxes: personal income tax (15% + 6% health insurance contribution); value added tax (21%); corporate profit tax (15%); and social security tax on employers (31% + employee’s contribution of 3%)[30]. 5% corporate tax for small business was introduced on the 1st of January 2010. Additional taxes are tax on dividends (0-15% - dividends paid or received are not taxed when an investor controls at least 10% of voting shares in the enterprise for the period of at least 12 months), real estate tax (0.3–1.0%) and a land tax of 1.5% on businesses[30]. The overall tax burden in Lithuania is one of the smallest among all EU countries.

Lithuania attracts foreign investors not only because of small tax burden but also because of a skilled workforce, a well-developed infrastructure and a bigger domestic market than the other two Baltic states combined. Cumulative foreign direct investment (FDI) at the beginning of the year 2009 was LTL 31.6 billion (EUR 9.2 billion)[31]. The manufacturing sector constituted 28% of total FDI, real estate and business activity sector received 20% of total FDI, and financial intermediation a little bit less – 19%[32]. 4/5 of FDI came from the EU countries. Top countries-investors are Sweden (17% of total FDI), Germany (10%) and Denmark (9%)[33].

Tax Burden in EU, 2008

Lithuania has an ambitious plan to become a Northern European innovation centre by 2020. To reach this goal, it is putting its efforts into attracting FDI to added-value sectors, especially IT services, software development, and consulting services, as well as finance or logistics[34]. Well-known international companies, such as Microsoft, IBM, Transcom, Barclays, Siemens, SEB, TeliaSonera, Paroc, Philip Morris and others, have already established a presence in Lithuania.

Lithuania has prepared an attractive environment for business start-ups in two free economic zones (FEZ) in Kaunas and Klaipeda. FEZs offer not only developed infrastructure for investments and service support but also tax incentives: a FEZ is free from the corporate tax for the first six years, as well as free from tax on dividends and real estate tax[35]. There are nine industrial sites in Lithuania, which can also provide additional advantages by having a well-developed infrastructure, offering consultancy service and some tax incentives[36].

The transport infrastructure inherited from the Soviet period is adequate and has been generally well maintained since independence.[7] Its single port in Klaipeda is ice-free and supplies ferry services to German, Swedish, and Danish ports. There are a few commercial airports; scheduled international services use the facilities at Vilnius, Kaunas, and Klaipėda. The road system is well developed, including the Via Baltica highway passing through Kaunas.[7]

Border facilities at checkpoints with Poland were significantly improved with the help of EU funds, but long waits had been a frequent phenomenon until 21 December 2007 when the Schengen Agreement came in force in both countries. Telecommunications have improved greatly since independence as a result of heavy investment. There are currently three large companies providing mobile phone services. [2] [3] [4].

Workforce

Population with higher education, 2001–2008
Salaries and unemployment, 2001–2009

The number of the population aged 15 years and over is 2.85 million, and 1.52 million of them were employed in 2008[37]. The population with higher education was 0.54 million, or more than 35% of employed people[37]. This ratio demonstrates that workforce in Lithuania is one of the best-educated in Central and Eastern Europe (CEE) and is twice the EU-15 average. About 90% of Lithuanians speak at least one foreign language; every second person speaks two foreign languages and every third person speaks English [32].

Lithuania takes the first position in the EU by the number of students in the country. Compared to the EU’s average of 15%, only 7% of 18–24 year-old people in Lithuania are not occupied with studies, the lowest percentage in the EU, announced the European Commission in the end of 2009[38]. School-leavers can choose from 22 universities or 28 colleges for further studies, so 74% of pupils graduated from an upper secondary school continue studies in schools of higher education[39]. Every year more than 30 thousand students graduate from universities or colleges, so the population with higher education is gradually increasing. The most popular higher education programs are business and administration, education science, law, and social sciences.

During the last decade (1998–2008) salaries have more than doubled in Lithuania. Despite this, labour costs in Lithuania are among the lowest in the EU. Average monthly net salary in the third quarter of 2009 was LTL 1665 (EUR 482) and decreased by 6% compared to the same quarter in 2008[40]. The sharpest annual decrease in hourly labour costs in the EU of -10.9% was observed in Lithuania in the third quarter of 2009[41].

The unemployment rate in Lithuania is very volatile. Since the year 2001, the unemployment rate has decreased from almost 20% to less than 4% in 2007. This could be explained by two main reasons. Firstly, during the time of rapid economic expansion, numerous work places were established. This caused a decrease in the unemployment rate and a rise in staff expenses. Secondly, emigration has also reduced unemployment problems since accession to the EU. However, the current economic crisis has lowered the need for workers, so the unemployment rate increased to 13.8% and then stabilized in the third quarter of 2009.

Sectors of economy

High value added production

Gross value added per hour worked in 2008, LTL

High value added production is increasing in Lithuania. Several companies produce pharmaceutical substances, components for molecular diagnostics and other sophisticated biotech products. 80% of the production is exported to more than 70 countries[42]. Lithuanian pharmaceutical companies are expanding to foreign markets by acquiring companies in Slovakia and Poland.

Lithuania has over 50% of the world’s market for high-energy picosecond lasers, and is a leader in global production of ultra-fast parametric light generators[43]. Lithuanian laser companies were among the first ones in the world to transfer fundamental research into manufacture. Lithuania’s laser producers export laser technologies and devices to nearly 100 countries, including EU members, the US, Japan, Israel, and Switzerland, mostly for universities and corporate laboratories for scientific research purposes.

Recent global broadband Internet studies show that Lithuania has got the fastest Internet in the world, as well as is one of the leading countries in terms of Internet service quality. The broadband speed analysis tool that allows anyone to test their Internet connection Speedtest.net places Lithuania as No. 1 on the list of the world’s top countries by upload speed. Lithuania is also on the list of the world’s top countries of download speed[44]. Lithuania has one of the highest mobile telephone penetration rates, as well. With a subscription rate of 149 per 100 population, Lithuania is ranked the 8th in the world[45].

An excellent telecommunication infrastructure and a well-educated, multilingual workforce enable Lithuania to provide high quality business services worldwide. Business services vary from financial to accounting and reporting services. The share of value added in this sector reaches 13%[34].

Service sector

The service sector accounts for the largest share of GDP. One of the most important sub-sectors is information and communication technologies. 37 thousand employees work for more than 2000 ICT companies. ICT received 9.5% of total FDI[44]. 11 out of 20 biggest IT companies from Baltic countries are based in Lithuania[44]. Lithuania exported 31% of its IT services in the first quarter of 2009[46].

Development of shared services and outsourcing of business processes (BPO) is one of the most promising fields in Lithuania. The research company Datamonitor forecasts a 60% personnel growth by 2009[47]. International companies successfully outsourcing business operations in Lithuania are Barclays Bank PLC, CITCO Group, MIRROR, PricewaterhouseCoopers, Anthill, Ernst&Young and etc.

Manufacturing

Manufacturing constitutes the biggest part of gross value added in Lithuania. More than 57 thousand people were employed in food processing in 2008. The food processing sector constitutes 11% of total exports[42]. Dairy products, especially cheese, are well known in neighbouring countries. Another important manufacturing activity is chemical products. 80% of production is exported so chemical products constitute 12.5% of total exports[42].

Furniture production activity employs more than 50 thousand people. This sector has grown in double-digit numbers over the last three years. The biggest companies in this field work in cooperation with IKEA and provide high quality products at competitive prices. IKEA also owns one of the biggest wood processing companies in Lithuania[34].

Companies in the automotive and engineering sector are relatively small but offer flexible services for small and non-standard orders at competitive prices. The sector employs about 3% of the working population and receives 5.6% of FDI[34]. Vilnius Gediminas Technical University, the biggest technical university in Baltic countries, prepares experts for the sector.

Financial sector

Lending and saving data

The financial sector concentrates mostly on the domestic market. There are nine commercial banks holding a license from the Bank of Lithuania and eight foreign bank branches[48]. Most of the banks belong to international corporations, mainly Scandinavian. The financial sector has demonstrated incredible growth in the last decade (1998–2008). Bank assets were only LTL 11.2 billion (USD 2.8 billion) or 25.5% from GDP at the beginning of the year 2000[49]. Half of the bank assets consisted of loan portfolio[49].

By the beginning of the year 2009, bank assets grew to LTL 89.7 billion (EUR 26 billion) or 80.8% to GDP, the loan portfolio reached LTL 71.4 billion (EUR 20.7 billion)[50]. The loan to GDP ratio was 64%. The growth of deposits was not as fast as that of loans. At the end of 2008, the loan portfolio was almost twice as big as that of deposits. It demonstrated high dependence on external financing. Contraction in the loan portfolio has been recorded over the past year, so the loans to deposits ratio are slowly getting back to healthy levels.

Utilities sector

Heating energy data

The utilities sector accounts for more than 3% of gross value added in Lithuania. Electricity production exceeded 12 billion kWh in 2007, and consumption exceeded 9.6 billion kWh [49]. Electricity production surplus is exported.

Lithuania had a working nuclear power plant in Visaginas, which had a 72% share in electricity generation[51]. However, the government undertook a commitment to decommission the nuclear power plant by the end of 2009, and the plant was shut on the 31st of December 2009. The supply of heating energy has been modernized during the last decade (1998–2008). Technological loss in the heat energy system has decreased significantly from 26.2% in the year 2000 to 16.7% in 2008. The amount of air pollution was reduced by one third. The share of renewable energy resources in the total fuel balance for heat production increased to almost 20%.

Tourism

The tourism sector is becoming increasingly important for the economy of Lithuania. It constituted almost 3% of GDP in 2008[52]. Having an untouched ecological countryside with rich natural resources (22 000 rivers and rivulets, and about 3000 lakes), a well-developed rural tourism network, a unique coastal area of almost 100 km and four UNESCO World Heritage sites, Lithuania receives more than 2.2 million foreign tourists a year[53]. The biggest tourist flows arrive from neighbouring countries: Poland; Russia; Latvia; and Belarus. Other important countries for Lithuania’s tourism are Germany, the United Kingdom, Finland and Italy.

Agriculture

Despite a decreased share in GDP, the agricultural sector is still important for Lithuania as it employs almost 8% of the work force and supplies materials for the food processing sector. 44.8% of the land is arable[54]. Total crop area was 1.8 million hectares in 2008[55]. Cereals, wheat and triticale are the most popular production of farms. The number of livestock and poultry has decreased twofold compared to the 1990s[56]. The number of cattle in Lithuania at the beginning of the year 2009 was 770 thousand, the number of dairy cows was 395 thousand, and the number of poultry was 9.1 million[56]. Lithuanians have changed their habits of foodstuff consumption somewhat. During the period 1992–2008, consumption of vegetables increased by 30% to 86 kg per capita, and consumption of meat and its products increased by 23% during the same period to 81 kg per capita[57]. On the other hand, consumption of milk and dairy products has decreased to 268 kg per capita by 21%, and the consumption of bread and grain products decreased to 114 kg per capita by 19% as well[57].

Structure of gross value added by kind of economic activity[58]
Economic activity 2008
Manufacturing 17.9%
Wholesale and retail trade; repair of goods 16.6%
Real estate, renting and business activities 13.1%
Transport, storage and communication 12.1%
Construction 10.0%
Public administration and defense; compulsory social security 6.7%
Education 4.9%
Agriculture, hunting and forestry 4.3%
Financial intermediation 3.5%
Health and social work 3.3%
Electricity, gas and water supply 3.1%
Other community, social and personal service activities 2.5%
Hotels and restaurants 1.3%
Mining and quarrying 0.4%
Activities of households 0.1%
Fishing 0.1%

Regional situation

GDP per capita vs. national average, %

Lithuania is divided into 10 counties. There are five cities with a population over 100 thousand and twelve cities of over 30 thousand people[59]. The gross regional product is concentrated in the three largest counties – Vilnius, Kaunas and Klaipeda. These three counties account for 70% of the gross domestic product while having just 59% of the population[60]. Service centers and industry are concentrated there. In five counties (those of Alytus, Marijampole, Panevezys, Šiauliai and Taurage), GDP per capita is still below 80% of the national average[61].

In order to achieve balanced regional distribution of GDP, nine public industrial parks (Akmene Industrial Park, Alytus Industrial Park, Kedainiai Industrial Park, Marijampole Industrial Park, Pagegiai Industrial Park, Panevzys Industrial Park, Radviliskis Industrial Park, Ramygala Industrial Park and Šiauliai Industrial Park) and three private industrial parks (Taurage Private Industrial Park, Sitkunai Private Industrial Park, Ramučiai Private Logistic and Industrial Park) were established to provide some tax incentives and prepared physical infrastructure[36].

Infrastructure

Volume of goods transported, million tonne-kilometers
Funding of roads

The transport, storage and communication sector has increased its importance to the economy of Lithuania. In 2008, it accounted for 12.1% of GDP compared to 9.1% in 1996[58]. Lithuania became a well-developed transport corridor between the East and the West. Having a high-quality and dense road network, Lithuania has achieved significant growth in the amount of goods carried both by road and by rail transport. The volume of goods transported by road transport has increased fivefold since 1996. The total length of roadways is more than 80 thousand km, and 90% of them are paved[54]. The government is demonstrating high attention to the quality of road infrastructure by increasing their funding. The funding of roads exceeded LTL 1.75 billion (EUR 0.5 billion) in 2008.

Railways

Railway transport in Lithuania provides long-distance passenger and cargo services. Railways carry approximately 50 million tons of cargo and 7 million passengers a year[62]. Direct rail routes link Lithuania with Russia, Belarus, Latvia, Poland, and Germany. Also, the main transit route between Russia and Russia’s Kaliningrad Region passes through Lithuania. JSC Lithuanian Railways transports about 44% of the freight carried through the territory of Lithuania[63]. This is a very high indicator compared to other countries of the European Union, where freight transportation by rail amounts to only 10% of the total[64].

Sea port

Passenger traffic by maritime transport

The northern-most and the only ice-free seaport on the Eastern shore of the Baltic Sea is located in the western part of Lithuania. The Port of Klaipeda is a regional transport hub connecting the sea, land and railway routes from East and West. Compared to neighbouring Eastern Baltic seaports, the Port of Klaipeda has the widest shipping line network with other seaports[62]. The Port of Klaipeda handles roughly 7,000 ships and 30 million tons of cargo every year, and accepts large tonnage vessels: dry-cargo vessels up to 70,000 DWT, tankers up to 100,000 DWT and cruise ships up to 270 meters of length. The ice-free seaport of Klaipeda is able to receive Panamax-type vessels[62]. One of the fastest growing segments of sea transport is passenger traffic. Passenger traffic has increased fourfold since 2002.

Warehousing

There are more than 600,000 m2 of modern logistics and warehousing facilities in Lithuania[65]. The biggest supply of new, modern warehousing facilities is in the capital city Vilnius (after the completion of several new projects in the third quarter of 2009, the supply of modern warehousing premises has increased by nearly 12% in Vilnius and currently reaches 334,400 m2 of the rentable area). Kaunas is in the second place (around 200,000 m2), and Klaipeda in the third (122,500 m2)[62]. Since the beginning of the year 2009, prices for warehousing premises have dropped by 20–25% in Vilnius, Kaunas and Klaipeda, and the current level of rents has reached the level of 2003[65]. The costs for renting new warehouses in Vilnius, Kaunas and Klaipeda are similar and reach 2.6 to 4.9 LTL/m2 (0.75 to 1.42 EUR/m2), while the rents of old warehouses are 1.2 to 2.3 LTL/m2 (0.35 to 0.67 EUR/m2).

International trade

Foreign trade, 1995–2008

International trade for such a small country as Lithuania is crucial. The ratio of foreign trade to GDP has always been at least 100%, and for the last several years exceeded it.

The EU is the biggest trade partner of Lithuania with a 58% of total imports and 64% of total exports during the first ten months of the year 2009[66]. The Commonwealth of Independent States is the second economic union that Lithuania trades the most with, with a share of imports of 34% and a share of exports of 23% during the same period[66]. The vast majority of commodities, including oil, gas and metals have to be imported, mainly from Russia. For this reason, Russia is the biggest import partner of Lithuania.

The import of mineral products has a significant share of 30%, as Lithuania has an oil refinery company owned by Polish concern PKN ORLEN, ORLEN Lietuva, with a refining capacity of 9 million tons a year[67]. The revenues of the company were more than LTL 17 billion (EUR 4.9 billion) in 2008.[67] Orlen Lietuva received 78% of its sales or LTL 13.7 billion (EUR 4 billion) from foreign markets[67] in comparison with total export of Lithuania of LTL 55.5 billion (EUR 16.1 billion) in 2008[68].

Some sectors are directed mainly at export markets. Transport and logistics export 2/3 of their products and/or services; the biotechnology industry exports 80%; plastics export 52%; laser technologies export 86%; metal processing, machinery and electric equipment export 64%; furniture and wood processing export 55%; textile and clothing export 76%; and the food industry exports 36%[69].

The total value of natural resources in Lithuania reaches LTL 58 billion (EUR 16.8 billion) or 50% of Lithuania’s GDP in 2008. The most valuable natural resource in Lithuania is subterranean water, which constitutes more than a half of the total value of natural resources.

Foreign trade partners, January–October 2009[66]
Country Import Country Export
European Union EU 57.9% European Union EU 64.6%
Russia Russia 30.6% Russia Russia 13.0%
Germany Germany 11.1% Latvia Latvia 10.3%
Poland Poland 10.0% Germany Germany 9.5%
Latvia Latvia 6.3% Poland Poland 7.2%
Netherlands Netherlands 4.0% Estonia Estonia 6.8%
Italy Italy 3.8% Netherlands Netherlands 4.8%
Belgium Belgium 3.0% Belarus Belarus 4.5%
Sweden Sweden 2.7% United Kingdom United Kingdom 4.4%
Estonia Estonia 2.6% Denmark Denmark 3.9%
China China 2.5% Sweden Sweden 3.7%
Foreign trade by product type, January–October 2009[70]
Combined Nomenclature Export Combined Nomenclature Import
Mineral products 21.6% Mineral products 29.7%
Machinery and mechanical appliances; electrical equipment 9.8% Machinery and mechanical appliances; electrical equipment 12.6%
Products of the chemical industries 9.3% Products of the chemical industries 12.4%
Prepared foodstuffs; beverages and tobacco 7.1% Vehicles and transport equipment 6.4%
Plastics; rubber and articles thereof 6.9% Prepared foodstuffs; beverages and tobacco 5.9%
Textiles and textile articles 6.7% Textiles and textile articles 5.2%
Vehicles and transport equipment 6.6% Base metals and articles of base metal 5.0%
Miscellaneous manufactured articles 6.4% Plastics; rubber and articles thereof 4.6%
Vegetable products 6.3% Vegetable products 4.3%
Live animals; animal products 5.7% Live animals; animal products 3.6%

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See also

Public Domain This article incorporates public domain material from Bureau of European and Eurasian Affairs. "Background Note: Lithuania". U.S. Bilateral Relations Fact Sheets. United States Department of State. Retrieved 2009-10-17.

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