Latest trends in the Baltic States

1. Latest trends in the Baltic States

2. GDP, 2009, 2010 and 2011*, % Source: 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)

3. The Baltic States’ economy, GDP in 2009 Single region from Scandinavian perspective, however … • % of total 59 bn. € • in 2009: • Estonia-13.86 bn. € • Latvia-18.845 bn. € • Lithuania-26.87 bn. € 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

4. Why Baltic is in an ideal position to take advantage of these new opportunities • Good location for distribution • Available competence • Raw materials • Entrepreneurial • Favorable currency exchange rate • Time difference • 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

5. 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

6. 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

7. Major indicators / region Source: http://www.tmf-vat.com/vat/eu-vat-rates.html http://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=tsdcc330 http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2010-11.pdf

8. Strategic Location / springboard Lithuania

9. Economic Indicators

10. Trade and investments between major partners and Lithuania http://www.stat.gov.lt/lt/news/view?id=9013&PHPSESSID=f9e0006381cee52513fb133b3d28517a

11. Average monthly wages in Lithuania, EUR, brutto, 2010 Q3 Source: www.stat.gov.lt(http://db1.stat.gov.lt/statbank/default.asp?w=1280)

12. Taxes * 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.

13. World-class Logistics

14. Ready for Business Locations • 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 atremarkably competitiveprices. 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

15. Incentives • 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

16. 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 attaché

17. 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

18. Thank you!

19. Wages (manufacturing) Source: UAB "Simplika" ir UAB "CVO Recruitment Based on Vilnius estimates, costs in smaller towns up to 30% lower

20. Wages (services)

21. Gas 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

22. Electricity Nuclear 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 aneconomic 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.