Photo by Kęstutis Petronis

Lithuanian Economic Outlook

2009
Lithuanian Economic Outlook
2009
Foreword

Throughout the year the shifting winds of the economy put

the Baltic countries, and Lithuania among them, into sharper
focus than ever before. Economic recession has clearly be-
come a key topic in business and in everyday life. Therefore,
I am pleased to present the latest publication by DnB NORD
Bankas’ Economic research team, Lithuanian Economic Out-
look, that embraces a thorough economic sectoral analysis
and in-depth examination of the Lithuanian economy.
The publication is an important part of DnB NORD Bankas’
strategic initiative to become a financial guide to our custom-
ers. We firmly believe that namely during periods of economic
downturn both individuals and corporate clients need finan-
cial advice and are looking for open and professional dialogue
more than ever.
Considering the fact that Lithuanian businesses have proved
robust and resilient to all kinds of rigour, I expect the analy-
sis will be a helpful instrument to leaders and managers to
manoeuvre through the economic turmoil and emerge with
stronger and more efficient business.

Werner Schilli
President DnB NORD Bankas
Lithuanian Economic Outlook was prepared by:

Assoc. Prof., Dr. Vadimas Titarenko

Chief Economist of the DnB NORD Group
In memoriam

Prof. Rimantas Rudzkis

Chief Analyst
Tel. +370 5 2393402, +370 686 59638
e-mail: rimantas.rudzkis@dnbnord.lt

Jekaterina Rojaka
Senior Analyst
Tel. +370 5 2393590, +370 685 47578
e-mail: jekaterina.rojaka@dnbnord.lt

Indrė Genytė
Senior Analyst
Tel. +370 5 2393678, faks. +370 5 2139056
e-mail: indre.genyte@dnbnord.lt
Content

1. Macroeconomic overview ........................................................................... 7

2. Business and consumer confidence indicators ......................................... 13
3. Gross domestic product . ........................................................................... 19
4. Prices ................................................................................................................... 23
5. Labour market and income ....................................................................... 29
6. Foreign trade and balance of payments ................................................... 35
7. Investments ............................................................................................... 41
8. Financial indicators of enterprises ............................................................ 47
9. Government finance .................................................................................. 51
10. Financial market ........................................................................................ 57
11. Real estate market .................................................................................... 65
12. Agriculture . ................................................................................................ 71
13. Mining and quarrying ................................................................................ 75
14. Manufacturing ............................................................................................ 79
Food products and beverages ........................................................................... 83
Textiles and wearing apparel . ........................................................................... 88
Wood, wood and paper products and furniture ..................................................... 91
Refined petroleum products .............................................................................. 95
Chemicals and chemical products ...................................................................... 96
Rubber and plastic products ............................................................................. 99
Other non-metallic mineral products ................................................................. 101
Basic metals and metal products ..................................................................... 104
Machinery and equipment .............................................................................. 107
Electrical and optical equipment ...................................................................... 110
Transport equipment ..................................................................................... 113

15. Electricity, gas and water supply ............................................................ 117

16. Construction . ........................................................................................... 123
17. Domestic trade ........................................................................................ 129
18. Transport .................................................................................................. 135
19. Information and communication technologies ...................................... 143
20. Hotels and restaurants ............................................................................ 149
21. Annex ....................................................................................................... 155
Comments ................................................................................................ 178
1. Macroeconomic overview
 1. Macroeconomic overview
Last year, the nature of economic develop-
ment in Lithuania changed dramatically. A
strong growth of the last couple of years was
replaced by a downturn in autumn. It was not
hard to foresee these changes as indicated
in the previous publications of the Lithuanian
Economic Outlook. The investment climate
in the country has been recently deteriorat-
ing: red tape barriers of business regulation,
widespread corruption, inflexible labour mar-
ket, unfavourable business environment for
small and mid-sized companies, unreformed
vocational training and higher education sys-
tem were negatively affecting the competi-
tiveness of Lithuanian companies. A huge
foreign trade deficit clearly showed that the
country was consuming much more than it
should be according to the income level. Rat-
ing agencies and analysts were downgrad-
ing the outlook for Lithuania, expectations
of business and households were worsen-
ing due to overheating of the economy and
banks tightened their lending policy, which
pushed the real estate market into a stand-
still and weakened the domestic demand. Al-
though the portfolio of banking loans granted
to business and households still kept growing
last year, net credit flows continued to shrink
and at the end of 2008 fell to a level of 4–5
years ago. Some companies failed to adapt
to the nature of rapidly changing environ-
ment and accusations were being thrown at
the banks that they were ruining business.
However, the problem lied in higher business
risks and the shortage of available financial
resources entailed by the ongoing crisis on
global financial markets rather than a lack of
goodwill. In the second half of the year, the
first signs of a downturn were obvious in the
majority of economic activities.
Nevertheless, the scope of negative changes
was much wider than expected. The global
economy stasis made our main export mar-
kets contract so the national economy re-
ceived a double blow and faced a real threat
of a deep recession. As a result of a “short-
sighted” fiscal policy of the previous Cabinet,
the country teetered on the brink of default.
Although the cabinet of ministers led by
Kubilius reviewed the national budget in De-
cember and urgently reformed the tax system
in an attempt to broaden the fiscal framework
and boost treasury revenue (see Government
finance), politicians, analysts and internation-
al institutions failed to see the full extent of
 Lithuanian Economic Outlook
these threats. The latest statistics on produc-
tion, foreign trade, tax collection and labour
market “dispelled the fog”. It is enough to
mention the staggering Lithuanian unemploy-
ment rate published by Eurostat for March
2009: the latter estimate is above 15%, while
it lingered around 4% just a year ago. So it is
no accident that the Ministry of Finance dras-
tically cut its previous estimate of GDP growth
in 2009 to –10.5, but it is believed that the
new projection is too optimistic as well.
Before discussing the immediate prospects of
the national economy, we will briefly review
the main macroeconomic indicators of 2008,
even though last year’s statistics hardly re-
flect the current situation since the deterio-
ration of the economic environment acceler-
ated in the last few months only. In recent
years, economic development in Lithuania
has been similar to that in Estonia and Lat-
via, although compared to the neighbours the
relevant trends in our country reversed with
some delay. Indicators of the Baltic States
presented in Table 1.1 show that economic
growth in Lithuania slowed down consider-
ably during last year but still remained posi-
tive, while Estonian and Latvian economies
were contracting. In the fourth quarter of
last year, the annual change of the real GDP
in Lithuania became negative as well. Stall-
ing domestic consumption and falling invest-
ments last year slowed down the growth of
imports and significantly reduced the current
account deficit (CAD) in all the Baltic States,
but the CAD to GDP ratio in these countries
remained very high. Lithuania’s indicator fell
by 3 percentage points to 11.6%, while the
latter of Latvia was even higher although it
went down by nearly a half in a year. As the
economic development fell short of expecta-
tions, budget revenue of these countries was
well below the target. Therefore, preliminary
estimates indicated that the fiscal deficits of
Lithuania and Latvia even slightly exceeded
the Maastricht criterion (3.2% and 4% of
GDP respectively), while Estonia’s indicator
was marginally better. All this compounds the
efforts of these countries to join the eurozone
as soon as possible.
Having reached its peak last summer, inflation
finally began to go down in the Baltic States.
In Lithuania, the annual change in the con-
sumer price index (CPI) went up to 12.5% in
June 2008 but then began its steady decline
Table 1.1
Key macroeconomic indicators of the Baltic countries

Lithuania Latvia Estonia

2007 2008 2007 2008 2007 2008

Real GDP, annual change, % 8.9 3.0 10.0 –4.6 6.3 –3.6
Current account deficit, ratio to GDP, % –14.6 –11.6 –22.5 –12.7 –18.1 –9.2
Annual inflation (HICP), % 1)
8.2 8.5 14.0 10.4 9.7 7.5
Average gross monthly earnings, annual change, % 1)
18.5 13.0 29.7 12.1 20.1 6.9
Unemployment rate, % 1) 2)
4.2 7.9 5.3 9.9 4.1 7.6
General government budget balance, ratio to GDP, % –1.0 –3.2 –0.4 –4.0 2.7 –3.0

1)
End of period
2)
Labour Force Survey

Source: Eurostat, national statistics offices

reaching 8.5% in December. Growing labour the economic downturn would be short-lived.
costs, which have outpaced labour productiv- Last year, expenditure on gross fixed capi-
ity in the Baltic States for several consecu- tal formation fell by more than 3 percentage
tive years, continued to be one of the major points to just below 25% of GDP. Although
sources of inflation. Last year, the average the indicator was claimed to be not that bad,
wage increased by about a fifth from the pre- the majority of spending went into construc-
vious year but its growth rate decelerated in tion, while the ratio between the expendi-
autumn. ture on productive capital goods and GDP
was merely 6.5% in Lithuania. Once again
Average income of households rose by about
it was much lower than in Latvia or Estonia
15% in Lithuania last year and the social
and went well below the EU average. These
divide narrowed down after an interval of
figures correlate with the volume of imports
several years. Results of statistical surveys
of investment goods which fell by about 12%
showed that the expenditure by the top ten
in 2008 compared to the previous year, while
percent of biggest spenders exceeded the ex-
the rate of contraction reached 33% in the
penditure of the poorest decile 8 times, while
last quarter of the year. Indicators of foreign
the indicator stood at 9.3 two years ago (see
direct investment slightly improved last year
Tables 8 and 9 in the Annex). Despite the
as the net flow of FDI into the share capital
growing purchasing power, expectations of
became positive albeit remained quite mod-
the population deteriorated considerably in
est (see Investments). Therefore, no break-
2008. A sharp increase in the unemployment
through in labour productivity should be ex-
rate and high inflation pushed the consumer
pected this year.
confidence index to record lows as the indica-
tor fell to –51 in December, the lowest level As the domestic consumption eases off, ex-
on record (since 2001). ports should re-emerge as the main driving
force of the economy. At first glance, last
The situation in the Lithuanian labour mar-
year’s foreign trade figures look encouraging
ket began deteriorating in the second quarter
as the volume of exports of goods and servic-
of 2008 when the economy was still growing
es increased by a quarter in 2008 compared
quite strongly. By the end of the year, the
to the previous year. Although the result was
unemployment rate rose to just below 8%,
mainly held up by the improved performance
nearly doubling compared to last year. Unem-
of Mažeikių Nafta oil refinery, Lithuanian ex-
ployment is once again becoming the most
ports, even if petroleum products are exclud-
pressing social issue. At the end of last year
ed, look fairly respectable within the context
and during the first months of this year, the
of other Baltic States (up by 12% from the
unemployment rate was growing at a record
previous year). The EU was still the main ex-
pace. The labour exchange estimates that 7
port market for Lithuanian products account-
to 8 thousand people were joining the ranks
ing for 60% of visible exports, but the impor-
of the unemployed every week.
tance of Russia and other CIS countries was
Recently, investment processes have lost mo- gradually growing as the purchasing power of
mentum and there was little if any hope that the population kept improving in that region.

Macroeconomic overview 
 In recent years, eastbound exports were
growing at a much faster rate than exports to
Western and Central Europe. This once again
proves that our entrepreneurs know how to
work on CIS markets which are important for
Lithuanian producers both as the suppliers
of commodities and importers of production.
However, the Russian economy is expected to
contract this year which does not bode well
for our exports.
Sadly, latest statistics indicate bleak pros-
pects for the national economy in the coming
months. According to preliminary estimates,
GDP at constant prices fell by nearly 14%
year-on-year in the first quarter of this year,
and the figure is most likely to be revised
downward. From January to March, visible
exports declined by more than a fifth year-on-
year, invisible exports went down by almost a
third and imports of investment goods shrank
by half year-on-year. Indicators of foreign in-
vestment were very poor, while sales of the
manufacturing industry (excluding petroleum
products, at constant prices) were below the
level of 2006 for the relevant period. In April,
the number of unemployed people registered
by the labour exchange was close to 190,000,
well above the indicator of 2003, not to men-
tion that many Lithuanians emigrated in the
last five years.
It seems that the current global economic
crisis will drag on, and Lithuania should not
foster any hope that its economy will recover
quickly and easily. We predict that the eco-
nomic downturn in the country is most like-
ly to continue into the next year (see Table
1.2). If we want to speed up the economic re-
covery, we need a clear action plan based on
the experience of other countries and knowl-
edge of the specific nature of our economy.
In recent years, Lithuania has seen exces-
sive consumption so the first priority should
Table 1.2
Forecasts for Lithuania
Real GDP, annual change, %
Current account deficit, ratio to GDP, %
Annual inflation, % 1)
Average gross monthly earnings, annual change, %
Unemployment rate, % 1)
General government budget balance, ratio to GDP, %
1)
End of period
Source: DnB NORD Bankas
10
be boosting such activities which could 'drive
out' imports within the country and could
compete on foreign markets. In this era of
globalisation, local capital will not be enough,
therefore Lithuania needs to attract the rele-
vant flows of FDI competing for them fiercely
with the neighbouring countries. The fact that
Lithuania has been losing out to the Czech
Republic, Slovakia, Estonia and even Latvia in
this respect is one of the main reasons for the
current sharp decline of production. It seems
that the current Cabinet holds the same view
so some positive changes could be expected
in this area.
Any considerable improvement of the invest-
ment climate requires immediate elimination
of the existing red tape barriers. The govern-
ment also needs to raise the effectiveness of
public administration and law enforcement,
undertake major reforms of higher education
and vocational training. The current reform
of this system is insufficient and is unlikely to
improve the quality of education by much, it
may even intensify the brain drain, while the
lack of adequately trained workforce has long
been indicated as one of the major disincen-
tives to invest in Lithuania. Another impor-
tant problem is the dismal situation in the air
transport sector, and the government needs
to focus more on this industry.
The time needed for the economy to recover
will also depend on the fiscal policy which
should now be aimed at strengthening the
above-mentioned competitive production
and raising capital. Politicians should make
up their mind: do they want to mitigate the
social consequences of the crisis or overcome
the downturn as soon as possible. The de-
sire to boost treasury revenue prompted the
Seimas to impose excessive taxes on small
businesses, adopt the excise rates which are
too high given the current situation and raise
2009 2010
–12.0 –2.0
–6.0 –6.0
3.0 2.0
1)
–10.0 –3.0
15.0 15.0
–6.0 –5.0
Lithuanian Economic Outlook
the corporate income tax above the rate ex-
isting in Latvia. This straightforward policy
worsened the business environment and its
indirect effect (which was underestimated)
probably increased the budget deficit. These
errors should be corrected swiftly. Now is the
worst possible time to introduce progressive
taxes, yet another option considered at the
moment. The country needs to boost inno-
vations, i.e. promote the initiative of highly
skilled employees and try to retain them in
Lithuania rather than push away.
It is obvious that the tax revenue will fall short
of its target level so the precise budget plan-
ning is not reasonable at this moment. The
important thing is to stimulate businesses
(see Manufacturing industry for the comment
on the economic stimulus plan). Plans to ad-
vance and facilitate payments of EU support
are very welcome, but the Cabinet should
Macroeconomic overview
also expand borrowing on foreign markets.
Although they say that bankruptcies clean up
the market, it may not be reasonable to let
the almost completed construction projects
or companies with strong positions on foreign
markets to fail. During the crisis, the govern-
ment should provide guarantees for business
loans and make tax deferrals more accessible
thereby protecting the companies from tem-
porary shortages of working capital, contin-
ue the investment projects and cut budget
spending in conjunction with more decisive
actions of the sunset commission. The gov-
ernment cannot hang around because a very
deep and long economic downturn may trig-
ger a new massive wave of emigration which
would have disastrous and long-term effects
and would most likely deprive Lithuania of
any chance to ever catch up with the most
advanced countries.
11
2. Business and consumer confidence indicators
 2. Business and consumer confidence indicators
The deterioration of expectations among busi-
nesses and households, which started at the
beginning of the second quarter of 2007, con-
tinued in 2008 as well, and the economic sen-
timent indicator (ESI) which reflects expec-
tations posted one record after another with
each passing month (see Diagram 2.1). The
situation has been even gloomier this year.
A survey of consumers and business lead-
ers conducted by Statistics Lithuania showed
that the overall economic sentiment of major
economic players in Lithuania dropped by 43
points year-on-year in April (see Table 2.1).
The fall in the retail trade, construction and
services sector confidence indicators was the
major contributor to this decline.
In April 2009, the industrial confidence indi-
cator fell by 27 points compared to April 2008
(see Diagram 2.2). The mood of industrial
companies deteriorated considerably in the
second half of last year. It is hardly surprising
since value added generated by this econom-
ic sector was still growing in the first half of
the year, while the second half brought about
a rather sharp fall (see Mining industry and
Manufacturing industry).

Diagram 2.1
Economic sentiment indicator

30

20

10

-10

-20

-30

-40
2003

2004

2005

2006

2007

2008

2009

Source: Statistics Lithuania

Table 2.1
Economic sentiment indicator and its components

2008 2009
Period IV V VI VII VIII IX X XI XII I II III IV

Economic sentiment indicator 6 6 1 –3 –4 –5 –12 –22 –35 –37 –36 –37 –37
Industrial confidence indicator –6 –2 –3 –7 –7 –9 –15 –30 –38 –36 –30 –29 –33
Construction confidence indicator –5 –11 –16 –20 –33 –35 –47 –58 –69 –74 –76 –82 –84
Retail trade confidence indicator 17 19 10 14 12 4 –12 –24 –38 –55 –58 –53 –55
Services confidence indicator 34 31 24 18 19 17 15 7 –19 –18 –24 –27 –23
Consumer confidence indicator –10 –16 –21 –24 –27 –26 –35 –41 –51 –56 –51 –51 –50

Source: Statistics Lithuania

14 Lithuanian Economic Outlook

 Diagram 2.2
Industrial confidence indicator
20
10
-10
-20
-30
-40
2003
2004
2005
2006
Source: Statistics Lithuania
Therefore, it is only natural that the number
of business leaders indicating a decline in
their activities almost doubled compared to
a year ago. They specified falling production
volumes and demand for production as well
as the rising level of inventories in the pre-
ceding 2–3 months. The respondents were
even more pessimistic about the current and
expected export demand for their production.
This perception is also hardly surprising given
the situation on the neighbouring markets.
An increasing number of industrial companies
(37% of the respondents, up by 16 percent-
age points year-on-year) expect their produc-
tion volumes to shrink in the coming months.
The percentage of business leaders planning
to lay off some of their workforce in the im-
mediate future increased from 15% to 40%,
i.e. more than 2.5 times. Flat demand for pro-
duction and rising level of inventories force
an increasing number of the respondents to
believe that prices will go down in the coming
months. Business leaders referred to insuffi-
cient demand (75% of companies) and finan-
cial difficulties (31%) as major obstacles to
future development of production.
A standstill on the real estate market and
dried up credit flows from commercial banks
contributed to very gloomy moods among the
construction companies. In a year, the con-
struction confidence indicator dropped by a
massive 79 points. In surveys of construction
companies, 80% of company managers indi-
cated in April that the volume of construction
Business and consumer confidence indicators
2007
2008
2009
work shrank in the preceding 2–3 months (only
24% a year ago). Nearly all the respondents
(95%) stated that the number of orders for
construction work was insufficient (32%) and
60% of company managers predicted the de-
cline in construction work orders to continue.
Three quarters of the respondents specified
that the financial situation of their companies
worsened and the same percentage planed
to cut their workforce (23% and 11% of the
respondents respectively one year ago). Of
the business leaders surveyed, 63% said that
they expected the prices of construction work
to go down (just 7% last April). Similarly to
managers of industrial companies, represen-
tatives of the construction industry identified
flat demand (80% of companies) and finan-
cial difficulties (48%) as the main factors ob-
structing their operations.
Representatives of retail trade followed close-
ly in the footsteps of construction companies
as the retail trade confidence indicator lost 72
points during the year (see Diagram 2.4). Its
movements strongly correlate with the sec-
tor's performance in the last and this year. In
the first half of 2008, results were simply ex-
cellent: turnover of retail companies grew at
a double-digit pace but growth decelerated by
the middle of the year and became negative
in the fourth quarter. This year, the downward
slide got even steeper.
According to the survey, just 2% of the re-
spondents indicated in April that their busi-
15
 Diagram 2.3
Construction confidence indicator

40

20

-20

-40

-60

-80

-100
2003

2004

2005

2006

2007

2008

2009
Source: Statistics Lithuania

ness situation had improved in the preced-
ing 2–3 months. The percentage of optimists
was much higher last year (36%). This April,
a mere 4% of the respondents believed that
the economic situation would improve in the
coming months. The sentiments about the
level of inventories also deteriorated consid-
erably. More than a half of managers of retail
companies indicated that they had excessive
inventories. A year ago, just 5% of the re-
spondents held the same view. The same per-
centage of the respondents planned to reduce
their workforce last April. This year, 57% of
managers surveyed indicated that they would
make some redundancies. There was a sharp
increase (3% to 39%) in the number of re-
spondents expecting prices to drop in retail
trade. Managers of retail companies indicat-

Diagram 2.4
Retail trade confidence indicator

60

40

20

-20

-40

-60
2003

2004

2005

2006

2007

2008

2009

Source: Statistics Lithuania

16 Lithuanian Economic Outlook

 Diagram 2.5
Services confidence indicator

50

40

30

20

10

-10

-20

-30
2003

2004

2005

2006

2007

2008

2009
Source: Statistics Lithuania

ed that the main barriers to developing their
activities were insufficient demand (27% of
companies), competition (25%), imperfect
laws (23%) and financial difficulties (21%).
It should be noted that a factor of ‘insufficient
demand’ was not even on the list last year and
leaders of retail companies, just like the rep-
resentatives of all other industries, believed
that the shortage of labour force was one the
main problems obstructing their business.
The paths of retail trade and services con-
fidence indicators have been very similar. It
is natural as the results of both sectors de-
pend strongly on the purchasing power of the
population. On the other hand, the transport
and warehousing industry accounts for some
part of the services sector. Its growth trends
have been very similar to those of the retail
industry. Excellent results of the entire trans-
port sector in the first half of the year turned
into negative indicators at the end of the year,
while road transport companies began facing
problems even earlier (see Transport). The
deteriorating situation of the services compa-
nies is reflected in the sector’s confidence in-
dicator which dropped by 57 points in a year
(see Diagram 2.5). Surveys showed that rep-
resentatives of the sector were much more
pessimistic about the economic situation of
their company compared to a year ago, and
even 54% of the respondents indicated that
the situation has worsened in the preceding
2–3 months (only 9% of company managers
a year ago). The opinion of the respondents
on the existing and future demand changed
in a similar manner. Just 2% of the respond-
ents expected prices to go up and planned to
increase the number of employees (13% and
21% respectively last year).
In a year, the consumer confidence indica-
tor fell by 40 points (see Diagram 2.6). The
general pessimism of households was caused
by the worsening economic situation in the
country. The biggest change in household ex-
pectations was related to the labour market
situation. In a year, the percentage of peo-
ple expecting the unemployment rate to go
up rose from 16% to 93%. Moreover, there
were a lot more people (up to 69% from
39%) believing that the economic situation
in the country would deteriorate in the next
12 months. Therefore, there were hardly any
households expecting their financial situation
to improve, while the possibility to save at
least something in the coming 12 months was
chosen by fewer households compared to a
year earlier.
It should be noted that the consumer mood
has somewhat improved since the beginning
of the year. One of the potential reasons for
that could be lower inflation as prices of a
number of basic goods and services have
gone down.
Therefore, the above indicators reflect that
expectations of all economic players deterio-

Business and consumer confidence indicators 17

 Diagram 2.6
Consumer confidence indicator

20

10

-10

-20

-30

-40

-50

-60
2003

2004

2005

2006

2007

2008

2009
Source: Statistics Lithuania

rated considerably in the previous year. It is
necessary to point out that the same trends
prevail in other Baltic states and across the
European Union, and the relevant indicators
move along nearly the same paths as pre-
sented here. A deep downturn of the global
economy and the fact that the outlook for
the Lithuanian and neighbouring markets has
been getting increasingly gloomier recently
suggests that it will be impossible to dispel
this pessimism in the nearest future. In its
turn, this will delay the recovery of markets
since expectations weigh heavily on the eco-
nomic activity of both business operators and
households.

18 Lithuanian Economic Outlook

3. Gross domestic product
 3. Gross domestic product
Last year, GDP at the then prices stood at
LTL 111.5 billion, up by 13.6% from 2007.
Higher producer prices accounted for the ma-
jority of the nominal growth of GDP (see Dia-
gram 3.1). The GDP per capita rose by LTL
4,000 to over LTL 33,000. Measured at pur-
chasing power standards, the indicator stood
at 60.6% of the EU average preliminary and
grew marginally during the year.
Last year, the Lithuanian economy grew at the
slowest pace since 2000. The annual change
in gross domestic product was a mere 3% at
constant prices. The growth indicator of the
economy was deteriorating quarter by quar-
ter in 2008 falling into a negative territory
(–2.2%) in the last quarter from 7% in the
first quarter. There were no longer any doubts
that the economic growth will be replaced by
a deep, most likely double-digit, downturn in
2009, as reflected by preliminary estimates
for the first quarter. GDP at constant prices
contracted by 13.6% compared to the previ-
ous year.
None of the major economic sectors, except
communications, was dynamic last year (see
Table 1 in the Annex). The communications
industry picked up speed considerably in 2008
as its value added at constant prices increased
Diagram 3.1
GDP annual change, %
20
15.0
15
11.2
10.2
7.2
10
3.8
5 10.2
7.4 7.8
0 -0.1
-5
2003 2004 2005
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
20
by nearly 16% compared to the previous year.
More active provision of digital television, In-
ternet and data transmission services ensured
that the rate of growth in the telecommuni-
cations sector reached its peak in the fourth
quarter of last year, even though the entire
economy began to contract. Last year, major
economic sectors focusing on the domestic
market began loosing momentum: the annu-
al change in the real added value generated
by domestic trade stood at about 3%, down
nearly four-fold compared to 2007, while the
growth of construction plummeted to about
1%. Quite unexpectedly, the growth indicator
of real estate operations rose to above 6%
last year, but the deepening downturn of the
real estate market will make living extremely
difficult for companies in this industry.
In 2008, the growth of the manufacturing in-
dustry, the largest sector of the economy, fell
to 2%, and the production results of the ma-
jority of companies, either exporting or sell-
ing on the domestic market, deteriorated. The
overall industrial indicator would have even
been negative if not for an excellent perfor-
mance by Mažeikių Nafta oil refinery. After
a spurt of 2007, agriculture nearly came to
a standstill last year, and the sector’s situa-
tion was compounded by a sharp increase in
17.7
14.6
13.7
8.8
6.8 8.9
10.7
8.9 8.5
7.8
3.0
0.4
2006 2007 2008 2008
II H
Lithuanian Economic Outlook
 Diagram 3.2
Shares of economic activities in Lithuania’s GDP structure, compared to those in the EU, in 2008*, times

3.0
2.4
2.5

2.0 1.8
1.6
1.5 1.4
1.5
1.1 1.0
0.9
1.0
0.6 0.6 0.5 0.5 0.5 0.5
0.5

0.0

Education
storage and
Transport,

communication

Domestic trade

Mining and
quarrying
Real estate,
renting and
business
Construction

Manufacturing

Financial
intermediation
gas and
water supply
Electricity,

restaurants
Hotels and
Agriculture

and defence
administration
Public

Other

Health
* In EU estimate based on the GDP indicator in 2006

Source: Eurostat

fertiliser and fuel prices in spring. In the last prised 3.5%, while the energy sector stood
couple of years, the growth of the public sec- at over 3% and was closely followed by com-
tor industries such as public administration, munications.
education and health care was rather slug-
gish. Last year was no exception as all these Among the industries financed from the bud-
three industries grew at a similar pace in the get, the largest one was public administra-
range of 2–4%. tion, defence and compulsory social security
with a relative weight of 6.4%, education
Diagram 3.2 shows differences in the GDP (4.8%) as well as human health and social
structure in Lithuania and the EU for the pre- work (3.2%). Of the latter industries, the
vious year. There was no change in the per- only change was in the indicator of educa-
centage of agriculture and forestry in value tion which went up by about a tenth during
added generated nation-wide, which stood at the year.
4.4% in 2008 exceeding the relevant EU in-
dicator by roughly 2.5 times. Such industries Analysis of GDP components using the expen-
as transport, electricity, gas and water supply, diture approach shows that the percentage of
construction, domestic trade and manufactur- expenditure for gross capital formation, which
ing industry also had a much higher relative was on the up since 2001, shrank by nearly
weight in Lithuania compared to the European 4 percentage points last year to 26.6%. A
Union. Meanwhile, health care and financial sharp decline in the relative weight of invest-
intermediation were at the opposite side of ments supports the concern that the ongo-
the spectrum as their relevant shares of the ing economic recession may be protracted.
Lithuanian GDP were about 2.5 times smaller Despite a considerable growth in the nominal
than EU averages in 2008 (same as in the GDP, the scope of this expenditure in 2008
preceding year). The manufacturing industry was slightly smaller than a year ago (see Dia-
remained the largest sector of the economy gram 3.3) and even fell by about 13% in the
last year accounting for almost 19% of value second half of this year. Last year, the gov-
added generated nation-wide, and was fol- ernment sector expenditure grew faster than
lowed by domestic trade (almost 17%), while household expenditure, and the relevant an-
real estate, renting and other business ac- nual indicators went up by 19.3% and 15%
tivities contributed over 12%. Transport and partly due to co-financing of EU support. The
construction industries accounted for about foreign trade deficit to GDP ratio went down
10% of GDP, financial intermediation com- by more than two percentage points last year

Gross domestic product 21

 Diagram 3.3
GDP components by expenditure approach, LTL million

140

120
29.7
100 29.9

80 21.6
21.8
17.2 18.1
60 14.2 16.1
12.5 13.6 16.2 14.0
12.3
40 11.5 11.7
72.7 9.8
63.2
46.3 53.3
20 36.4 40.6 34.0 37.1

0 -3.3 -4.4 -5.1 -6.5 -4.4

-8.4 -13.2 -12.5
-20
2003 2004 2005 2006 2007 2008 2007 2008
II H II H

Gross capital formation Government consumption expenditure

Households consumption expenditure Exports of goods and services

Source: Statistics Lithuania

as a result of a strong decline in imports of
investment goods and stalling domestic con-
sumption in the second half of the year.
This year, the volume of exports is likely to
drop considerably because the neighbour-
ing markets have contracted, while imports
will decline by an even larger margin due to
tighter bank lending policies. Stifling domes-
tic demand and government policies aimed
at ‘belt-tightening’ will inevitably result in a
considerable drop of GDP and all its compo-
nents analysed above using the expenditure
approach. The only comfort is in knowing that
the foreign trade balance will improve.

22 Lithuanian Economic Outlook

4. Prices

Photo by Judita Grigelytė (Verslo žinios)

 4. Prices
Having reached its peak in the middle of last in January went up after the excise rate for
year, the inflation rate began to slide down as petrol was raised (prices of services within
economic activity came to a standstill. How- the transport group leaped up by a fifth). A
ever, despite a steep decline in the prices, an- higher VAT rate contributed to the increase in
nual inflation in December 2008 was slightly prices of some foodstuffs and pharmaceuti-
higher in Lithuania than a year ago. This an- cal products. Prices of housing, water, elec-
nual result was mainly caused by the most tricity and other fuels soared. The consumer
expensive heating season in the country’s price index rose slightly in February but the
history. Consumer prices in the housing, wa- inflation rate began to slow down in March as
ter, electricity and other fuels group jumped the consumption started to subside offsetting
by 23.3% (see Diagram 4.1). Among other the impact of administrative measures on the
categories of consumer goods and services, prices. Despite a raised excise for tobacco
the hotels and restaurants sector was a ma- products and higher public transport fares,
jor contributor to rising inflation, and prices the monthly inflation rate was zero in March,
of alcoholic beverages and tobacco increased while prices dropped by 0.1% year-on-year
due to raised excise rates. in April. The annual change in the consumer
price index (CPI) was 6.3% in April, i.e. al-
However, in 2009 the ‘tightening of belts’,
most twice as low as a year ago.
weakening flows of consumer loans and un-
certainty about the future has dramatically Interestingly, annual changes in core infla-
eased off the desire of Lithuanians to spend tion1 have nearly matched the fluctuations
and curbed further price hikes. Inflation of the general consumption index for some
showed some signs of a ‘renaissance’ at the time in Lithuania (see Diagram 4.2). It would
beginning of the year as the consumer prices seem to indicate that the price reduction in

Diagram 4.1
Consumer prices indices, end of period, annual change, %

25

20

15
23.3
19.5

10
19.1
16.2

15.5
15.3
14.1

12.4
11.8

11.7

10.9

5
9.5

9.6
9.4

9.4
9.1
8.5

8.4
8.1

6.5
6.3

5.5
5.1

3.6

1.6

1.5
2.9

2.4

0
-0.5

-1.9

-3.8
-3.9

-5.8
-6.4
-7.3

-7.5

-5

-10
Health
beverages,
tobacco
Alcohlic

Education

Communication
Furnishings,
household
equipment

Transport
and other fuels
Housing, water,
electricity, gas

Restaurants
and hotels

Recreation
and culture
Food products

Clothing and
footwear
CPI

2007 2008 2009 April

Source: Statistics Lithuania

1
The Harmonised Index of Consumer Prices (calculated according to the EU methodology) excluding energy and unprocessed food prices.

24 Lithuanian Economic Outlook

 Diagram 4.2
HICP and core inflation*, annual change, %
14
12
10
-2
2004 2005
EU HICP
EU core inflation
*HICP excluding energy and unprocessed food
Source: Eurostat
the country is ‘imported’ and relies strongly
on inflationary trends worldwide. The situa-
tion is also rather unorthodox in the Euro-
pean Union: it is clear that competitive pres-
sures and stalling demand drove core inflation
above the HICP indicator. Less flexible labour
costs is one of the contributing factors since
the employers, despite the current downturn,
are trying to observe their long-term agree-
ments on wage rises and governments are
making every effort to promote consump-
tion. Therefore, despite falling prices for ma-
jor commodities, prices for other goods and
especially services remain more stable. By
the way, inflation of services in Lithuania has
also been higher than the so-called consum-
er price inflation since the latter category is
more sensitive to foreign competition.
Prices have also been falling sharply in the
neighbouring countries struggling with reces-
sion. In Estonia, prices of consumer goods
and services have been on the downward
slide since last November, while the annual
inflation measured a mere 0.3% in April (the
lowest rate since the country’s EU member-
ship), and the middle of the year is likely to
bring about deflation. Prices have also been
tumbling down in Latvia. The inflationary
pressure in EU countries has also receded.
Prices
2006 2007 2008 2009
Lithuanian HICP
Lithuanian core inflation
According to Eurostat, annual inflation within
the eurozone stood at 0.6% in March. The
stalling demand, falling consumer prices and
costs were conducive to ‘loosening’ the mon-
ey market again. To stimulate the economy,
European central banks were actively snip-
snapping: the ECB cut its benchmark inter-
est rate to the lowest level ever (1%) and
the Bank of England lowered its basic interest
rate to a record low (see Financial market).
Two years ago, the price stability criterion was
the only barrier left on Lithuania’s way to the
eurozone. The country has failed to overcome
this obstacle: Lithuania’s indicator was triple
the relevant Maastricht criterion both last De-
cember and at the end of the first quarter of
this year. According to Eurostat, the change in
the 12-month Harmonised Index of Consumer
Prices (HICP) was 10.5% in March, while the
maximum permissible inflation rate was 3.6%
(see Diagram 4.3). It has to be said though
that other EU countries also find it difficult to
'squeeze into' the narrow interval. In March,
twelve EU member states failed to meet the
criterion. Slovakia, the newest member of the
eurozone, was also unable to keep its inflation
below the required price stability level. Just
six months after joining the euro club, Slove-
nia also failed to follow the rules.
25
 Diagram 4.3
Average annual HICP inflation, %

18

15
Latvia
12
Lithuania
9
Estonia

6 Slovenia

Slovakia
3 €
€ Maastricht
0 criterion

-3
2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Eurostat, DnB Bankas

It seems that prices will no longer threaten since March prices of industrial output have
the adoption of the euro in the nearest future. been below the level of last year (see Dia-
Other criteria such as long-term interest rates gram 4.4).
and budget deficit are much more likely to
The deteriorating outlook of the global econ-
shut the door to the club. Some already doubt
omy dragged down the prices of main com-
that electricity prices could double after de-
modities. For instance, the price of Brent oil
commissioning of the Ignalina nuclear power
contracted almost 4.5 times on global com-
plant. It is likely that global markets will see a
modity exchanges in the first half of 2008
significant surplus of generated electricity by
plummeting from 143 USD/barrel in July to
the end of the year which will set the ‘caps’
just 32 USD/barrel in December. This year,
for energy prices, unless the economic situ-
oil prices lingered around 40 USD/barrel and
ation in the world changes dramatically dur-
rose slightly above USD 60 in May. Analysts
ing the year. However, major economies are
do not expect oil prices to recover before the
showing no signs of recovery and the arsenal
beginning of next year and estimate that oil
of economic stimulus tools is depleting.
may cost around 60–80 USD/barrel in the
Changes of consumer prices can be partially second half of the year.
explained by looking at the trends of produc-
It should be noted that prices of industrial
er prices. Last year, producer prices reached
products sold outside the Lithuanian market
record highs fuelled by steeply rising costs of
were falling relatively faster than prices of
energy products. In July, prices of industrial
locally-sold production. Last year, many pro-
output sold went up by more than a quarter
ducers faced rather serious challenges due
year-on-year. The annual change in the pro-
to the steep downfall of output prices as the
duction price of refined petroleum products
costs of production were much higher than
and gas alone was over 66% in June. Prices
the final price. Competition on the domes-
of chemical products also rose sharply. In
tic and foreign markets was melting selling
September 2008, their prices doubled year-
prices like ice and a number of producers in-
on-year. This hike in output prices was partly
curred considerable losses (see Financial in-
fuelled by a sharp rise of wages. However,
dicators of enterprises).
in autumn the producer price index of indus-
trial output began moving in an opposite di- Construction input prices were also not sur-
rection and by December its annual change prising: they rose by a mere 0.5% in 2008
was negative. This trend also prevailed in the (compared to a 15.5% rise in 2007). After
first months of this year. Even excluding the seven consecutive years, the annual growth
impact of refined petroleum products (whose of construction input prices has returned to a
prices plummeted by the largest margin), negative territory since the beginning of this

26 Lithuanian Economic Outlook

 Diagram 4.4
Producer price indices, annual change, %
30
25
20
15
10
-5
-10
-15
2004 2005 2006
Manufacturing
Source: Statistics Lithuania
year. The overall decline of construction input
prices was mainly caused by lower wages and
overheads as well as falling prices of building
materials.
In December 2008, price indexes of products
exported by Lithuania dropped by about 6%
year-on-year, and in the first months of this
year the decline of export prices was mea-
sured in double digits. A much flatter domes-
tic demand, fierce competition in the Europe-
an Union and neighbouring countries affected
negatively Lithuania’s export indicators (for
more see Foreign trade) and, at the same
time, pushed down the prices of exported
products.
As the economic indicators continued to de-
teriorate, the decline in prices accelerated
across the EU. The competitive battle be-
tween producers and retailers will probably
intensify in the future. Therefore, many EU
countries are likely to face deflation this year.
The same scenario applies to the Baltic states
as well. It has to be said though that the
specific nature of price level formation (de-
commissioning of the Ignalina nuclear power
plant in 2010 and compulsory excise raises,
etc.) will slow down the downward slide of
prices. However, if these factors are eliminat-
ed, Lithuania is very likely to join the ranks of
countries struggling with deflation sometime
during next year.
Prices
2007 2008 2009
Manufacturing excluded refined petroleum products
Although it would seem that the falling prices
should infuse some optimism and encourage
consumption, the reality is quite different,
sadly. The prolonged price decline process
impedes production which causes further in-
creases in the unemployment rate as well as
the reduction of the purchasing power and
consumption. In terms of public finance, the
problem is that falling consumer and producer
prices result in lower tax revenue. Therefore,
it is obvious that Lithuania will have to ‘tight-
en the belt’ even further to come closer to
the threshold budget deficit level. The exces-
sive budget deficit procedure launched by the
European Commission against Lithuania will
also contribute to deflationary processes.
However, price movements may get in full
swing again and a combination of growing
budget deficits of major economies, quantita-
tive easing and lower inflation base may give
rise to a new worldwide wave of inflation in
the future. Then Lithuania, the importer of
relatively large quantities of raw materials
which will definitely become more expensive,
will again have to face serious challenges in
trying to curb price hikes. This may delay the
adoption of the euro even further. Therefore, it
is necessary to define the guidelines and spe-
cific measures detailing how and when Lithua-
nia could fully comply with the Maastricht cri-
teria and set the accession to the eurozone as
a national priority for the benefit of economic
stability and welfare of the population.
27
5. Labour market and income
 5. Labour market and income
The labour market was one of the first ones on-year, and went up to 11.9% in the first
to be hit by destructive forces of the eco- quarter of this year. The latest monthly indi-
nomic crisis. Having grown gradually since cators are also less than encouraging. Euro-
the very first day of accession to the EU and stat estimates that the seasonally adjusted
peaked spring last year, the employment rate unemployment rate in Lithuania was among
began to decline thereafter. The pessimistic the highest in the European Union this April
trends on the labour market came to the fore and stood as high as 16.8% (see Diagram
worldwide last year. The International Labour 5.1). In this respect, Lithuania was overtaken
Organisation predicts that the number of em- by Latvia (17.4%) and Spain (18.1%) only.
ployed people will fall by about 1% this year In other EU member states, unemployment
following a 1.4% drop in 2008. It is believed has also been rising. In a year, the unem-
that the crisis will deliver a more severe ‘blow’ ployment rate jumped 3.7 times in Estonia
to the labour market in the developed coun- (to 13.9%) and almost doubled in Denmark
tries and Europe than in developing econo- (5.5%), while the EU average increased by
mies. Experts worry that this unprecedented 1.8 percentage points to 8.6%.
economic downturn may push Europe to the The economic crisis has hit young people the
brink of a social disaster if countries fail to most. In the group of people aged below 24,
take additional economic stimulus measures. the unemployment rate almost tripled during
So far, all attempts to restore confidence in the year in Lithuania and stood above 28%
the market and promote job creation have in the first quarter of this year. Similar trends
fallen short of the desired effect. were seen in other EU countries as well. In
According to a population employment sur- April 2009, this unemployment indicator
vey conducted by Statistics Lithuania, the stood at 36.2% in Spain and around 29% in
unemployment rate began to rise sharply in Latvia, while the average youth unemploy-
the second half of 2008. In the fourth quar- ment rate in EU-27 gradually rose to 18.6%.
ter of 2008, the unemployment rate stood Negative trends in the rise of unemployment
at 7.9%, up by two percentage points from are also supported by the information of the
the previous quarter and almost double year- Lithuanian Labour Exchange indicating that

Diagram 5.1
Harmonized unemployment rates, seasonally adjusted, end of period, %

20
18.1
17.4
18 16.8
16
13.9
14
12 11.1
9.6
10 8.6
7.8 7.8 7.7
8
6.2 5.7 5.5 5.5
6
4
2
0
Latvia

Estonia

Hungary

Germany
Lithuania

Denmark
EU-27

Poland

Slovenia
Bulgaria
Ireland

Czech
Republic
Finland
Spain

2007 2008 2009 April

Source: Eurostat

30 Lithuanian Economic Outlook

the number of registered unemployed people
more than doubled in the four months of this
year. Last year, there was a 30% increase in
the number of people applying to the labour
exchange compared to 2007, while the num-
ber of people looking for work was 1.5 times
higher in December than in the previous three
quarters on average.
Regional disparities in the unemployment
rate became more obvious in the Lithuanian
labour market. At the end of the year, the
gap between the highest and lowest rate was
6.6% and rose further to 10.4% at the end
of the first quarter of this year. As summer
approaches, the labour market is set to enjoy
a temporary reprieve but it is likely that we
will see yet another rise of unemployment in
autumn.
The Lithuanian labour market was affected
quite strongly by a ‘barrage’ of bankruptcies in
the national economy. Last year, the number
of reported bankruptcies reached the highest
level since 1993 (957 companies or 1.5 times
more than in 2007) and there is little doubt
that this year will see yet another anti-record.
According to the Enterprise Bankruptcy Man-
agement Department under the Ministry of
Economy, the number of companies subject
to bankruptcy proceedings doubled year-on-
year from January to March of this year alone
and comprised 446. Most proceedings (over
90%) were started against private limited li-
ability companies and usually at the request
of management (41%) or creditors (20%) of
the companies.
The harshest business conditions were en-
countered by domestic trade and industrial
companies as their percentage in the total
number of bankruptcies stood at 29% and
23.4% respectively last year. However, con-
struction companies have dominated the
bankruptcy statistics this year as their num-
ber tripled in a year and comprised almost a
quarter of all economic entities going out of
business. It has to be said though that the
respective percentages of domestic trade and
industrial companies have also been impres-
sive (22.2% and 17.7%). In the manufactur-
ing industry, manufacturers of wood, textile
and food products as well as dressmaking
companies faced the most serious challenges
last year. This year, furniture makers (16.5%)
and manufacturers of metal products (13.9%)
have encountered financial difficulties and be-
gun joining the ranks of bankrupt companies.
1
Statistics of the labour market are provided on the basis of the relative number of workers, i.e. the sum of the number of people working full month and
full time and the number of workers working part-time during a month or a week converted to full-time units.
Labour market and income
It is not surprising that changes in the num-
ber of workers1 correlate strongly with the
bankruptcy trends: the biggest fall in the
headcount (more than 20%) was posted by
apparel and textile companies in the second
half of 2008. In general, only two branches
of industry, namely the chemical industry
and transport equipment industry, boasted
positive changes in the number of workers
last year, while the majority of sectors dem-
onstrated the gloomy aftermath of slumping
business. Having made considerable cuts to
its headcount, the manufacturing industry
was for the first time overtaken by domestic
trade which became the leading industry by
the number of workers.
The army of workers in the construction in-
dustry was still growing in 2008 due to inertia,
although the industry’s headcount fell by 5%
year-on-year in the second half of the year.
The situation followed a similar pattern in the
domestic trade, hotels and restaurants, edu-
cation industries. Although the total annual
number of workers increased marginally, the
indicator contracted in the second half of the
year (–2.3%).
The services sector was slightly more resis-
tant to the downturn. Both in the first and
the second half of the year, the headcount
was rising in the transport and warehousing
industry, postal and telecommunications in-
dustry, financial intermediation and real es-
tate as well as in two public sectors (health
care and public administration).
Responding to changes on the labour market,
employers were forced to reverse the trajec-
tory of wage growth. Although the annual
increase in wages (excluding sole proprietor-
ships) remained quite high and the growth
rate decelerated by just a couple of tenths
compared to 2007, growth was more moder-
ate in the second half of the year and stood
at 15.9% (see Table 2 in the Annex). Wages
grew at a much slower pace than before in
some industries, for instance, construction
(4%) and basic metals and metal products
(1.9%), but the trends of wage movements in
most sectors followed the same pattern as in
the entire economy. The average wage grew
a bit faster than across the entire economy in
the second half of the year in the hotels and
restaurants industry (17.5%), real estate and
other business activities (19.4%) and public
sector (20–27%).
31
 Diagram 5.2
Annual change of labour productivity* and wages, %

25

19.6 19.2
20

16.8
16.3

15 14.1
13.3 13.4
12.6
11.5
9.7
10
8.0

6.0
4.3
5 3.7
3.1
2.5

0
2001 2002 2003 2004 2005 2006 2007 2008

Wages Labour productivity

* Value added per employee at current prices

Source: Statistics Lithuania, authors’ calculations

Despite a slightly slower growth of wages,
the increase in value added per worker was
even smaller and the disproportion between
these two indicators widened last year (see
Diagram 5.2). This year, we are likely to see
some sort of a ‘breaking point’: the amount of
value added will fall but a smaller number of
workers will most probably result in a positive
increase of labour productivity. At the same
time, the annual growth of wages will be neg-
ative. It means that the increase in labour
productivity will be larger than the growth of
wages for the first time since 2005.
Last year, labour productivity rose at a slight-
ly slower pace. Although value added per
worker increased in nearly every sector of the
economy in 2008, the growth of labour pro-
ductivity decelerated markedly in the second
half of the year. In the financial intermedia-
tion sector, it even fell 1.5 times year-on-year.
Negative indicators were also posted by three
branches of the manufacturing industry: rub-
ber and plastics (–11.9%), basic metals and
metal products (–3.5%) and other non-me-
tallic mineral products (–12.2%). Agriculture
achieved an exceptionally high indicator of
labour productivity: value added per worker
rose 1.5 times on average in the industry
compared to the previous year. However, the
overall labour productivity indicator of this
industry remains very low compared to the
national average (see Table 2 in the Annex).
According to Statistics Lithuania, earnings of
the population have grown at a double-digit
rate since 2005. It has to be said though that
earnings rose by 20% on average every year
until 2008 and then the growth slowed down
to 14.8% last year. Due to the high inflation
rate, real earnings grew at the slowest pace
since accession to the EU.
Last year, disposable income of households
was by a quarter higher than consumption
expenditure (see Diagram 5.3). Among all
types of income, social benefits grew at the
fastest pace (27.8%). Income of employed
people rose by 14.2%, while earnings from
agriculture declined by a tenth as a result of
high prices and growing costs.
As regards consumption expenditure, smok-
ers had ‘to dig deepest into their pockets’ as
spending on tobacco products increased by
a fifth on average compared to 2007. The
cost of utilities and other services as well as
prices in hotels and cafes rose by about 12%.
Expenditure on food products and alcoholic

32 Lithuanian Economic Outlook

 Diagram 5.3
Average disposable income and consumption expenditure per capita per month, LTL

1200

986.8
1000
859.3
793.9
800 748.8
680.8
651.5
579.7 578.1
600
495.8 512.3

400

200

0
2004 2005 2006 2007 2008

Disposable income Consumption expenditure

Source: Statistics Lithuania

beverages went up by a similar margin (up
by 11.3% and 11.8% respectively). By the
way, the percentage of expenditure on food
products, which was contracting for several
years, increased by 1.7 percentage points
last year to 34.8%.
It should be said with regard to the mid-
term outlook of disposable household income
that both household earnings and purchas-
ing power of the population is very likely to
contract considerably. Average disposable in-
come per household member will decline by a
larger margin than wages due to a very high
likelihood of unemployment; when at least
one family member loses his or her job, in-
come of a household decreases significantly.
Moreover, social benefits will, in all probabil-
ity, follow in the footsteps of declining wag-
es. Therefore, despite decelerating inflation,
the purchasing power of the population will
weaken in the coming years.
The severity of the global crisis has forced pol-
icy-makers to fight against the possible worst-
case scenario in the pension system. Unfortu-
nately, no measures have been put in place in
advance. Experts of the United Nations esti-
mate that the number of people of retirement
age may increase by two-thirds in the next 50
years and reach about 100 million in the Euro-
pean Union. About one quarter of them will be
older than 80. Therefore, the need to reform
the pension system is not even questionable.
EU member states are seriously considering
the possibility of attracting immigrants from
other countries. This alternative is the cheap-
est one but may fundamentally change the
current social and immigration policies. How-
ever, the economic crisis and sharply rising
unemployment make it more difficult to roll
out new immigration programmes and the
popular support for these programs is weak-
ening. In an attempt to regulate the flows of
migrants more efficiently and lure in skilled
labour, the European Union has adopted a de-
cision to introduce the immigration card from
2011 onwards. The blue card will be valid in
all EU member states, except Great Britain,
Ireland and Denmark, and will entitle to work
temporarily in the EU, bring in the family and
receive social guarantees until the card ex-
pires. Therefore, Lithuanians planning to emi-
grate to other EU countries in future may face
stronger competition from skilled labour from
third countries.
The Lithuanian labour market is also ripe for
changes. In May 2009, the Cabinet approved
the proposal put forward by the Sunrise Com-
mission to liberalise work time. The proposed
changes include a plan to slash out compul-
sory limitation of the work day length for
many occupations, introduce a more flexible
work schedule which will only regulate the

Labour market and income 33

 average weekly number of hours, differenti-
ate overtime pay, not to shorten ‘more ex-
pensive’ work hours at nigh, and scrap forced
allotment of additional vacation time. How-
ever, so far all the proposals of the said com-
mission have aimed to facilitate work time
organisation and excluded one issue signifi-
cant for business people, i.e. the procedure
of staff hire and dismissal. According to the
study of business conditions conducted by the
34
World Bank, this category must be improved
(Lithuania ranks 131st out of 181 countries,
Latvia is 103rd, while Estonia is 163rd) as it is
the biggest obstacle for business. We have no
doubts that further liberalisation of the labour
market is the only viable option today as the
removal of some red tape barriers would en-
courage the business community to be more
efficient in creating new jobs.
Lithuanian Economic Outlook
6. Foreign trade and balance of payments
 6. Foreign trade and balance of payments
The Lithuanian economy should brace itself
for a difficult period ahead and it is not clear
when the national economy will begin grow-
ing again. To a large extent, it depends on ex-
ports: if the Lithuanian companies succeed in
boosting their sales abroad, the downturn will
be short-lived. In recent years, foreign trade
has developed erratically, as it grew strongly
in 2005–2006 and then slowed down consid-
erably. The overall result of last year seems
excellent. According to the Bank of Lithuania,
turnover rose by 21.5%. Exports of goods
and services stood at LTL 66.9 billion, up by
25.4% from 2007. Since the annual increase
in exports was almost three times as low two
years ago, it seems that the growth of ex-
ports accelerated last year. However, a more
detailed analysis of available data is less than
encouraging. An impressive indicator of to-
tal growth of exports in the period concerned
was mainly held up by excellent performance
of Mažeikių nafta last year and its misfor-
tunes two years ago, when the company was
unable to operate at full throttle, which cre-
ated a low reference basis. If the mineral fuel
(MF) is excluded, the picture is completely
different. While exports of goods and serv-
ices increased by a fifth in 2007, their growth
in 2008 stood at only 12% and the annual
increase was meagre in the last quarter. It
means that a downward trend emerged which
signals that the volume of exports is set to
shrink this year.
Last year, imports of goods and services (at
fob prices) were worth LTL 78.6 billion, up by
18.3% from two years ago, while the rele-
vant deficit to GDP ratio finally began to fall,
losing almost three percentage points until it
reached 10.5% of GDP (see Diagram 6.1). In
the first half of 2008, the indicator even ex-
ceeded 14% but began to drop subsequently.
The negative balance of foreign trade should
decrease considerably this year due to the
weakening consumption and evaporating
capital investments.
General indicators of exports and imports of
goods, as reported by Statistics Lithuania,
are presented in Diagram 6.2, and may differ
slightly from the relevant figures derived by
the Bank of Lithuania because of the differ-
ences in the methodologies used. We can see
that imports of goods (at cif prices) increased
by 18% last year to LTL 72.6 billion, while ex-

Diagram 6.1
Current account and foreign trade (goods and services) deficits, ratio to GDP, %

16

14

12

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2007 2008
II H II H

FTD 6.3 5.4 5.5 5.7 7.0 7.2 10.3 13.4 10.5 12.1 7.3
CAD 5.9 4.7 5.1 6.8 7.7 7.1 10.6 14.6 11.6 13.3 6.8

Source: Statistics Lithuania

36 Lithuanian Economic Outlook

 Diagram 6.2
Exports and imports of goods, LTL Mio
80000
70000
60000
50000
40000
30000
20000
10000
0
2003 2004
Exports of mineral products 4304 6458
Exports of other goods 16958 19361
Imports 29438 34384
Source: Statistics Lithuania
ports stood at LTL 55.5 billion, up by 28.4%
from 2007. If the MF is excluded, imports
rose by less than 2% and export volumes in-
creased by almost 12%. Moreover, exports
of locally produced goods grew much more
slowly than re-exports, which approached
40% of total exports excluding MF last year.
Exports broken down by product group are
presented in Diagram 6.3 and Table 10 in the
Annex. Exports of food products grew strong-
ly for a sixth year in a row and went up by a
fifth last year. The indicator of metal products
was very similar, while the value of exports of
the chemical industry was 1.5 times higher
than in the previous year due to the steep
increase in product prices. At the same time,
the annual increase in the exports of plas-
tics, wood products and furniture, which grew
quite strongly for a couple of years, became
negative in 2008. Exports of textiles also con-
tracted. Despite the worsening export results,
only these three product groups plus food
products enjoyed a positive balance last year,
while the balance of foreign trade in other
product groups reviewed here was negative.
Analysis of changes in last year’s exports of
products originating in Lithuania and com-
parison with the relevant general indicators
reveals considerable differences. Following
the previous growth, exports of machinery
and equipment fell sharply; export indicators
of textiles, wood products and plastics erod-
Foreign trade and balance of payments
2005 2006 2007 2008 2007 2008
II H II H
8859 9193 5791 13704 2870 6718
23908 29696 37402 41773 19725 21291
43152 53275 61504 72593 31920 35189
ed, and the annual growth of exports of food
products and metal products slowed down by
almost a third (see Table 11 in the Annex).
A breakdown of last year’s exports of goods
by region is given in Table 13 in the Annex.
As in the previous years, most products were
exported to the EU. The only exception was
transport equipment as more than a half of
exports went to the CIS as a result of east-
bound re-export of second-hand cars. Com-
pared to 2007, the regional structure of ex-
ports slightly changed. Except the MF, the
EU share declined in exports of all product
groups reviewed, the percentage of goods
exported to the CIS increased relatively, while
other countries gained in importance as ex-
port markets for food products, furniture and
chemical products. It means that the geogra-
phy of Lithuanian exports is expanding.
In general, the EU accounted for about 60%
of total exports of Lithuanian goods and 57%
of imports last year (see Table 12 in the An-
nex). On an annual basis, these indicators fell
by 4.5 and 11 percentage points respective-
ly. Meanwhile, Russia’s share in Lithuania’s
foreign trade has been growing for several
consecutive years: it accounted for 16% of
exported goods and over 30% of imported
goods in 2008, well above the share of other
countries. If the MF is excluded, exports of
goods to this country rose by 38% and its rel-
37
 Diagram 6.3
Exports by commodity groups (mineral products excluded), LTL Mio

45000
40000
35000
30000
25000
20000
15000
10000
5000
0
2003 2004 2005 2006 2007 2008

Machinery and equipment 2346 3287 4079 4886 5589 5895

Food stuff and beverages 2355 2956 4209 5417 7346 8876

Textile and textiles articles 2970 3022 3043 3228 3263 3046

Wood and furniture 2470 2859 3304 3792 4650 4381

Transport vehicles 3178 2339 2707 3948 4557 4758

Products of the chemical industry 1406 1793 2390 2515 3477 5359

Plastics and rubber 557 779 1186 2000 3430 3303

Other goods 1675 2325 2990 3910 5089 6155

Source: Statistics Lithuania

ative weight was above 21%, while exports to
the EU contracted marginally and the region’s
share went down to 57%. As the competition
gets increasingly tighter on this market and
the situation in Western European economies
continues to deteriorate, no breakthroughs in
exports to the EU should be expected in the
coming years. Sadly, the volume of goods
exported to Russia and other CIS countries is
also unlikely to increase this year. In most of
these countries, imports began to shrink and
the national currencies of countries impor-
tant to the Lithuanian exports depreciated.
The share of other markets in the structure of
Lithuanian exports (excluding the MF) should
continue to grow. Last year, it increased by
over two percentage points to 11.4% and
rose further in the first quarter of this year.
As the investment processes continued to sub-
side (see Investments), the share of invest-
ment goods began to plunge last year in the
structure of imports of goods by macroeco-
nomic category. In 2008, imports of invest-
ment goods fell by 11.5% compared to 2007
(see Diagram 6.4), and the negative growth
stood at as high as 60% in the first quarter of
this year. Imports of goods for final consump-
tion have also declined considerably this year,
although last year they only decelerated and
still rose by almost 17% compared to 2007.
The volume of total imports of goods shrank
1.7 times year-on-year in the first quarter
of 2009, exports contracted by a third and
trade deficit (at fob prices) fell to less than
3% of the relevant turnover. All this supports
the misgivings that foreign trade will plunge
deeply this year, although its balance should
effectively improve.
Last year, exports of services were worth
LTL 11.4 billion, almost five times as little as
revenue earned from exports of goods (this
ratio would be much lower if we compared
the exported value added rather than turno-
ver). In terms of the level of invisible exports,
Lithuania lags far behind the other two Bal-
tic states. Last year, its invisible exports to
GDP ratio dropped slightly to 10.2%, while
Estonia’s indicator was more than double that
of Lithuania. Lately, exports of services have
grown quite slowly. However, instead of slow-

38 Lithuanian Economic Outlook

 Diagram 6.4
Imports by broad economic categories, LTL Mio
75000
65000
55000
45000
35000
25000
15000
5000
-5000
2003 2004
Other goods 423 256
Passenger cars 1646 1709
Intermediate goods 16442 20096
Capital goods 5895 6172
Consumption goods 5032 6150
Source: Statistics Lithuania
ing down in the fourth quarter of last year,
the growth rate accelerated quite surprisingly
and the annual increase in invisible exports
was quite respectable last year standing at
12.7% (only 2% two years ago, see Dia-
gram 6.5). For a third year in a row, imports
of services outpaced exports. Last year, they
grew by almost a fifth pushing down the bal-
ance of services by a quarter to LTL 1.2 bil-
lion. According to preliminary estimates, both
exports and imports of services fell by about
a third year-on-year in the first quarter of this
year, while trade surplus almost halved.
In 2008, exports of transport services were
worth LTL 6.8 billion, up by 15% from two
years ago, and raised their share in invisible
exports by a percentage point to over 59%.
However, transport companies are finding it
increasingly difficult to operate as the flows
of goods weakened, fuel prices went up and
competition from Bulgaria, Romania, etc., got
stronger (see Transport). This year, exports of
transport services are expected to plummet.
Exports of tourism services have excellent
long-term prospects (beautiful nature, small
population density, favourable geographical
location, etc.), especially if the national gov-
ernment pays more attention to the sector
Foreign trade and balance of payments
2005 2006 2007 2008
225 262 215 239
2259 3463 4731 4133
26332 31084 33137 44050
6896 8974 11225 9933
7439 9492 12196 14237
and lifts red tape barriers. Sadly, the poten-
tial of this industry has not been fully tapped.
Although the growth of tourism services ex-
port accelerated last year to 7.5% following
a standstill of 2007, its share in invisible ex-
ports fell by more than a percentage point
to 27.3%. This year, Vilnius is the European
capital of culture but it seems that this ad-
vantage will not be used to attract more tour-
ists: Vilnius became more difficult to reach
by air, higher VAT rate forced hotels to raise
their prices, and preparation for the events
has been accompanied by various problems.
As the domestic demand keeps contracting,
construction companies carry out an increas-
ing amount of work abroad. Last year, ex-
ports of their services were worth LTL 227
million and rose by about a third. Although
the construction market is stiff in a number of
countries, the provision of these services to
Russia and the Kaliningrad Region in particu-
lar may increase. Exports of financial services
rose by 35% in 2008 to LTL 128 million, while
the indicator of information services leaped
1.6 times and came close to LTL 100 million.
Nevertheless, the exported volume of the lat-
ter services is still meagre.
39
 Diagram 6.5
Exports and imports of services, LTL Mio

12000

10000

8000

6000

4000

2000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2007 2008
II H II H

Exports of other services 703 967 1133 940 873 1667 1763 1320 1511 689 820

Exports of travel services 1565 1532 1870 1944 2164 2562 2844 2899 3115 1699 1807

Exports of transport services 1967 2127 2395 2852 3760 4413 5333 5902 6777 3122 3549

Imports of services 2715 2801 3411 3848 4535 5715 6969 8530 10215 4500 5251

Source: Statistics Lithuania

Further development of visible and invisible
exports and the entire economy will strongly
depend on the ability of the current Cabinet
and the Seimas to promote investment into
the exporting sectors of the national econ-
omy.
The current account deficit (CAD) to GDP
ratio reached record highs in the first half of
last year, but the forecast outlined in our pre-
vious publication came true and the annual
result was more moderate. After a two-year
period of strong growth, this indicator went
down by three percentage points last year to
11.6% and is expected to fall even further
this year. As in 2008, the critical factor is like-
ly to be the improving foreign trade balance.
Last year, the negative balance of revenue
shrank by about 10% to LTL 3.7 billion: the
balance of work-related income declined even
further to just LTL 278 million but the overall
result depended on an improved indicator of
investment revenue as its negative balance
went down by more than 12% last year to LTL
3.9 billion.
The contribution of current transfers to
changes in the current account balance was
minor as their balance virtually did not change
during the year and stood at LTL 5.1 billion.
More generous EU support to investment
projects is adding to the capital account sur-
plus which rose by 18% last year to over LTL
2 billion.
The financial account balance stood at LTL
11.5 billion last year, down by 9.3% from
2007. The net flow of foreign investment
plummeted by almost 44% to LTL 8.8 bil-
lion as a result of changes in lending policies.
Having grown for several consecutive years,
the net flow of loans rose to LTL 12.8 billion
two years ago, or 13.1% of GDP, but fell to
LTL 10.7 billion in 2008, or 9.6% of GDP. For
a fourth year in a row, the net flow of portfo-
lio investments was negative and small (LTL
–262 million), while the indicator of direct
investment fell by about 4% to LTL 3.4 bil-
lion (for more information on FDI flows, see
Investments). The CAD coverage by the capi-
tal account balance and net FDI flow should
be treated as insufficient although it rose by
more than five percentage points last year to
over 42%.
Having grown strongly in the last five years,
gross foreign debt was above 72% of GDP at
the end of 2007 but fell by almost a percent-
age point last year to 71.4% of GDP.
Following a three-year period of growth, of-
ficial reserves contracted by LTL 2.7 billion
in 2008 (excluding changes due to the ex-
change rate fluctuations) and stood at LTL
15.8 billion at the end of last year. This figure
was equivalent to imports of goods and serv-
ices for a period of 2.4 months (the indicator
comprised 3.2 months at the end of 2007).

40 Lithuanian Economic Outlook

7. Investments
 7. Investments
Record high profits of companies in 2006–
2007 were conducive to an increase in invest-
ments in tangible fixed assets. However, the
deteriorating business expectations and tight-
er bank lending policies triggered a downward
trend last year: the share of expenditure on
gross fixed capital formation in GDP fell by
more than three percentage points to 24.8%
during the year (see Diagram 7.1). The rela-
tive decline of investments in buildings was
quite moderate, but investments in produc-
tive capital goods (machinery, plant and vehi-
cles), which are of utmost importance for the
competitiveness of the economy, fell by more
than a quarter in Lithuania and accounted for
6.5% of GDP last year, remaining much lower
than in Latvia and Estonia and dropping well
below the EU average (see Diagram 7.2).
The worsening investment trends are reflect-
ed not only in the statistics of national ac-
counts but also capital investments of compa-
nies. For several years in a row, the volume
of this type of investment was growing quite
rapidly: it went up by 23% at constant prices
in 2007 compared to the previous year. How-
ever, the change was marginal last year. At
the then prices, the annual increase in the
volume of investments in tangible assets was
around 6% in 2008, five times as little as two
Diagram 7.1
Gross fixed capital formation, ratio to GDP, %
30
25
22.3
21.1
20
15 13.5
13.2
10
5 8.8
7.9
0
2003 2004
Other investment
Machinery, equipment and motor vehicles
Total
Source: Eurostat
42
years ago, while investments into machinery,
plant and transport accounted for just 29% of
total capital investments. The latter indicator
has been steadily declining since 2004 when it
stood at 36%, while the share of investments
into buildings has been growing accordingly.
Among all industries, real estate operations,
as in several previous years, accounted for
the largest percentage of total capital invest-
ments. The sector attracted over 23% of total
capital investments into the national econo-
my, up by four percentage points from two
years ago (see Table 3 in the Annex). How-
ever, there is little doubt that the sector’s in-
dicators will plummet this year since the real
estate market has grounded to a halt and
the manufacturing industry should regain its
leading position, even though last year its rel-
ative weight shrank by two percentage points
to about 13%.
In 2008, the ratio between capital invest-
ments and value added generated by the lat-
ter industry fell to 15.4% and was well below
the economy’s average (21.6%), just like in
the previous years. The insufficient level of
investment signalled a slow production mod-
ernisation process and raised doubts about
the competitiveness of Lithuanian products
and prospects to boost sales on foreign mar-
28.0
25.2 24.8
22.8
19.0
16.5
14.2 18.3
8.6 8.7 9.0
6.5
2005 2006 2007 2008
Lithuanian Economic Outlook
 Diagram 7.2
Gross fixed capital formation in 2008, ratio to GDP, %

35
30.2
29.4
30 28.4 28.0
25.9
24.8
24.0
25 22.4
22.0 21.5
20.9 21.1 20.8 20.6
16.8 20.5
19.6 19.2 19.3
20 17.0 17.2
15.1 21.9 16.2
13.8
13.9 18.3
15 11.8 13.4
13.6 13.6
11.3
11.6* 11.8 14.9 14.8 15.3
10.3
10
13.5
11.4 10.8 10.8
5 10.1 9.1 8.6 8.5 8.4 7.9 7.6* 7.5 7.5 7.5 6.5 5.9 5.9 5.7 5.3

EU-27

Malta
Sweden

Germany

Lithuania

Netherlands
Estonia

Denmark
Slovenia

Finland
Greece

Norway
Austria
Slovakia

Spain
Poland
Czech
Republic
Latvia

Italy

Other investment
Machinery, equipment and motor vehicles
Total

* Estimate according to the data of the year 2007

Source: Eurostat

kets. Among various branches of industry, the said ratio fell dramatically in the construction
indicator continued to grow in manufacture of and domestic trade sectors last year declining
food products, timber and furniture in recent from 7.5% to 4.7% and from 14.5% to 9.4%
years, rose sharply in the plastic industry but respectively, while the indicator of hotels and
fell significantly in the chemical industry since restaurants contracted almost by half to less
2007. Judging from the indicators reported than 10%. The communications industry also
by Mažeikių Nafta, the petroleum products cut its investments into fixed tangible assets
industry had the highest level of capital in- last year as they accounted for slightly more
vestments among all branches of the manu- than 18% of value added. The transport sec-
facturing industry in the last two years, but tor had a similar level of capital investments,
Statistics Lithuania does not publish the offi- even though the indicator went up marginally
cial figures of this sector for reasons of confi- during the year.
dentiality. Meanwhile, the capital investments
to value added ratio in the light industry went After a relative decline in 2007, the invest-
down to below 6% last year as if highlighting ment level in agriculture recovered last year,
rather poor prospects of this industry. But on while capital investments in the mining indus-
the other hand, it was one of the few indus- try rose to almost 22% of value added.
tries to enjoy a much better indicator in the The net flow of direct investments was slightly
second half of the year compared to 2007. weaker last year compared to 2007 and com-
Apart from the real estate operations and prised LTL 3.4 billion. Foreign investments of
public administration sectors, the electric- Lithuanian companies almost halved during
ity, gas and water supply industry remained the year falling to less than LTL 800 million,
a clear leader in terms of the capital invest- while the FDI flow to our country fell by 17%
ments to value added ratio. Although its in- in 2008 to LTL 4.2 billion, or 3.8% of GDP, the
dicator fell by ten percentage points in 2008 lowest level since Lithuania’s accession to the
to 50%, it was still 2.3 times higher than the EU. The good news, however, is that about LTL
economy's average. Compared to 2007, the 1.7 billion of this amount went into the share

Investments 43
 Diagram 7.3
Foreign direct investment flows, LTL Mio
6000
5000
4000
3000
843
2000
741
1000 1823
1042
581
0 -28
-1000
2001 2002 2003
Other FDI
FDI in equity capital
Lithuanian DI abroad
Source: Bank of Lithuania
capital, up by 74% from 2007 (see Diagram
7.3), while the overall indicator was dragged
down by a sharp fall in reinvestment from LTL
2.6 billion to just LTL 200 million.
As can be seen from Diagram 7.4, other Bal-
tic states have managed to attract a much
stronger flow of foreign investments in re-
cent years. Although Latvia’s economy is in
the worst shape out of the three neighbouring
countries, even this country is more appeal-
ing to investors than Lithuania. The Estonian
indicator was strongly affected by heavy for-
eign investments of Estonian companies, but
the country remained a clear leader among
the three Baltic states in terms of accrued FDI
per capita; it has accumulated more invest-
ment than Lithuania despite having 2.5 times
fewer people.
Last year, FDI accrued by Lithuania contracted
by about LTL 4 billion and stood at LTL 31.5
billion by the end of 2008. The indicator was
affected by the fluctuating stock prices of for-
eign-capital companies. In terms of the level
of investment in Lithuania, last year saw ma-
jor changes in the line of countries (the coun-
try’s position in 2007 is given in brackets):
Sweden became the leading country (3) as its
percentage in the accrued FDI was close to
17%, Germany’s (5) indicator stood at around
10%, Denmark’s (2) share comprised almost
44
2099
4081 2479
1653 1301
2048
1277 2901
1744
1199 1004 1249
875 810
2004 2005 2006 2007 2008 2007 2008
II H II H
9%. These three countries were followed by
Estonia (6), the Netherlands (9) and Latvia
(8). Following a plunge in the stock price and
profit indicators of PKN-owned Mažeikių Nafta,
Poland fell from first to seventh and was then
followed by Finland (7) and Russia (4), which
was the leading investor just three years ago
(see Table 13 in the Annex).
As seen from Table 3 in the Annex, over 23%
of total accrued FDI was directed to the man-
ufacturing industry at the end of 2008 (the
highest indicator), about 16% to financial in-
termediation and 14% to domestic trade. The
share of the communications sector was just
below 13%, a similar indicator was posted by
real estate operations, while the electricity,
gas and water supply sector attracted 7.5%
of the total investment volume. Although
the manufacturing industry remained a clear
leader, its share in the FDI structure declined
by more than a third during last year. Since
this sector generates the majority of national
exports, foreign investments in the manufac-
turing industry are vitally important. Sadly,
the FDI flow to the manufacturing industry
was quite weak and comprised about LTL 450
million, of which only LTL 112 million was in-
vested into the share capital.
In addition to the injection of money into the
national economy, foreign direct investment
Lithuanian Economic Outlook
 Diagram 7.4
Net FDI flow to GDP ratio in the Baltic countries, %

2.2
6
3.8
4 7.9 0.3
3.2
0.8 1.3 6.0
5.3
2 4.3 4.2
2.3 2.9
1.9 2.1
0
-0.7
-1.8
-2.5
-2

-4
2006 2007 2008 2006 2007 2008 2006 2007 2008

Lithuania Latvia Estonia

Other
FDI in equity capital
Total

Source: Eurostat

brings know-how, brands, ensures easier ac-
cess to new markets and integration of the
local economy into international value gen-
eration chains. Without the support of foreign
capital, the high and medium-high technol-
ogy sector or applied research are unlikely
to see any breakthroughs. That is why the
emerging economies pay particular attention
to efforts to attract foreign investors. In Lith-
uania, the FDI flow would benefit mostly in
the short run from the eradication of red tape
barriers to business, development of indus-
trial parks, introduction of incentives for tar-
geted investments and more active relations
with potential investors at the official level. It
seems that the incumbent Government is on
the right track.

Investments 45
8. Financial indicators of enterprises
 8. Financial indicators of enterprises
The accelerating borrowing and booming con-
sumption financed by bank loans in recent
years has subdued competition and created
an excellent environment for profit margins
to rise in the economy. However, the situation
on Lithuanian and global financial markets
changed last year and the average profitabil-
ity ratio of non-financial companies shrank
by more than twice to 3.9% (see Diagram
8.1). It is expected to decline even further
this year due to the deteriorating economic
situation in Lithuania and the neighbouring
countries.
Last year, revenue from products sold and
services provided (turnover) grew by 16%
compared to 2007 to LTL 211 billion, but pre-
tax profits (hereinafter the ‘profits’) almost
halved to LTL 8.1 billion (see Table 8.1). In
the second half of last year, financial indica-
tors clearly signalled the deteriorating situ-
ation in the economy: inflation grew faster
than turnover and profits shrank by as many
as six times compared to the previous year. In
2008, total equity of non-financial companies
rose by about 17% and total liabilities, al-
though their growth decelerated substantial-
ly, went up by an even larger margin pushing
the total debt ratio from 0.443 to 0.447. In
the middle of the year, it exceeded 0.47 but
later on, as the banks began tightening their
lending policies, the liabilities to equity ratio
began to decline.
Diagram 8.1
Return on sales of non-financial enterprises, %
10
6 5.4
3.8
4
1.9
2 1.5
1.1
0
2000 2001 2002
Source: Statistics Lithuania
48
Just like two years ago, turnover of real es-
tate companies soared last year as their total
revenue was 1.5 times higher than in 2007,
although profits almost halved and the sec-
ond half of the year was no longer profitable
(see Table 4 in the Annex). The situation was
similar in the industry. As a result of soaring
prices, turnover of electricity, gas and wa-
ter supply companies rose by about a third
compared to the previous year, while profits
shrank 2.4 times due to substantial rise in
costs and the second half of the year resulted
in a considerable loss. In 2008, sales of the
manufacturing industry increased by almost
a quarter and profits fell by half since the last
six months of the year were loss-making. Out
of all branches of the manufacturing industry
reviewed here, only two ended last year with
a loss. These were the light industry as well
as wood, paper products and furniture indus-
try. For a second year in a row, the highest
profitability was posted by the chemical in-
dustry, building materials industry and trans-
port equipment industry.
Having reached more than 40% in 2007, the
annual growth of revenue of construction com-
panies shrank six-fold and their annual profit
fell by almost a third. Nevertheless, contrary
to concerns, the construction industry finished
last year with a profit. Financial indicators of
retailers were similar: all the quarters were
profitable in 2008 but the annual profit fell by
9.6
8.8
6.0 6.2
4.9
3.9
2003 2004 2005 2006 2007 2008 2007 2008
II H II H
Lithuanian Economic Outlook
Table 8.1
Financial indicators of non-financial enterprises

2005 2006 2007 2008 2008 2008 II H

Annual Semiannual
change, % change, %

Balance, LTL Mio*

Assets 110856 126903 161786 190771 17.9 –2.7
Current assets 42712 50196 64611 69291 7.2 –6.5
Equity 63858 71675 90074 105517 17.1 1.7
Liabilities 46999 55228 71712 85253 18.9 –7.7
Current liabilities 28297 33120 42721 48581 13.7 –7.2
Income and profit, LTL Mio Annual change, %
Income from sales 122205 147175 181437 211106 16.4 8.0
Gross profit 25972 30147 38377 40320 5.1 –7.2
Profit before tax 7331 9163 15892 8130 –48.8 –83.2
Liquidity and profitability
Debt ratio* 0.42 0.44 0.44 0.45 – –
Return on sales, % 6.00 6.23 8.76 3.85 – –
Return on assets, % 7.00 7.58 10.60 4.20 – –
Return on equity, % 12.07 13.40 19.20 7.71 – –

* End of period

Source: Statistics Lithuania

43% compared to 2007. At the same time,
their revenue continued growing, albeit at a
much slower rate falling from 30% to 13%.
Despite a 12% annual increase in turnover,
the hotels and restaurants industry incurred
a small loss last year following a respectable
profit earned two years ago. Total revenue
of transport and warehousing companies in-
creased by a similar margin but profits con-
tracted more than three times and the indus-
try returned a notable loss in the last quarter.
As a result of fierce competition, the prices for
services of information and communication
technology companies grew moderately and
the sectors’ revenue rose by a much smaller
margin last year compared to the majority of
other industries. Profits were well below the
indicators of 2007, although the profitability
remained quite high.
Generally speaking, profit margins of all re-
viewed industries eroded last year because of
poorer results of the second half of the year
in the aftermath of drying-up credits, weak-
ening domestic consumption and stalling for-
eign markets. This year, the profitability will
decline even further and no economic sector
is likely to avoid that.
The figures of return on assets and return on
capital presented in Table 6 in the Annex cor-
relate strongly with the profitability ratio and
support the above conclusions.
Although the borrowing fever receded last
year, the level of financial liabilities remained
high in many sectors of the economy (see
Table 5 in the Annex) and even increased in
2008. The retail trade was the leading sec-
tor in this respect as its debt ratio rose 1.3
times to 0.69, and the debt burden of other
trade sectors was also very heavy. In 2008,
the alarming indicator of hotels and restau-
rants did not improve and stood at 0.67, while
the debt ratio of construction and real estate
operations increased slightly to 0.58 and 0.55
respectively. Moreover, the value and liquidity
of real estate is falling during the crisis, so the
actual debt ratio of these industries is prob-
ably even higher. During the year, the rele-
vant indicators of the communications and
transport industries went up considerably but
still remained below the economy’s average,
while the debt ratio of the manufacturing in-
dustry, by contrast, improved slightly but was
still above the critical level (0.5). Among the
branches of industry, the wood sector became
an outsider as its indicator rose to 0.67, fol-
lowed by the previously ‘leading’ plastic in-
dustry which managed to drag down its debt
ratio to 0.58. Having carried the heaviest

Financial indicators of enterprises 49

 debt burden recently, the chemical industry
enjoyed the relatively lowest volume of lia-
bilities (0.37) last year among all branches of
the manufacturing industry reviewed here.
In terms of the ratio between liabilities and
value added generated during the year, the
worst indicator was posted by wholesale last
year (1.95) as it was more than double the
50
entire economy’s indicator (0.85), and the
indicator of real estate operations was just
marginally better, followed then by the elec-
tricity, gas and water supply sector (1.82).
As the flow of bank credits continues to dry
up, the debt level of the national economy
should begin to decline for the first time in
the last seven years.
Lithuanian Economic Outlook
 www.kaunas.lt

9. Government finance
 9. Government finance
Last year, the ratio of government sector rev- outpacing the increase in value added gen-
enue to GDP grew for a fourth year in a row erated country-wide. Therefore, the NB rev-
and reached 34% but remained by about 10 enue to GDP ratio went up slightly to 21.4%
percentage points lower than the EU average (see Diagram 9.2). The relevant indicator of
(see Diagram 9.1). Lithuania, having been at tax revenue rose by 0.5 percentage points to
the bottom of the list of EU member states in 19.5% of GDP, the highest level in the last
terms of this indicator for several years, rose nine years. However, tax revenue collection
above Slovakia in 2007 and then overtook fell short of the overly optimistic target by
Ireland and Romania in 2008. Total trea- 4.3%. VAT collection target was set too am-
sury revenue reached almost LTL 38 billion, bitiously as the actual VAT proceeds fell 9%
falling below the target, but exceeded the below the relevant target.
indicator of 2007 by 14%. During the Sei-
Last year, NB expenditure stood at LTL 28.7
mas election year, politicians tend to splash
billion, up by 17.5% from the previous year,
out. Therefore, general budget spending
while the deficit to GDP ratio tripled to 1.2%.
shot up by 21% last year to LTL 41.5 billion,
For several years in a row, social spending
and the fiscal deficit grew in double digits to
has been growing faster than the overall in-
3.2% of GDP clearly exceeding the relevant
dicator, while the percentage of NB spent on
Maastricht criterion. The national fiscal pol-
education increased for the first time in six
icy which ignored the worsening economic
years to almost 22%. Nevertheless, this in-
trends also contributed to the deteriorating
dicator was still too low as it was higher by
Lithuania’s credit rating.
8 percentage points in 2001 and reached the
In 2008, national budget (NB) revenue was highest level in 1999 (see Table 15 in the An-
LTL 27.4 billion, including LTL 3.5 billion in EU nex). By the way, all governments of this de-
support. Excluding the EU support, the an- cade insisted that the education sector was
nual growth of NB revenue stood at 16.3% one of their priorities.

Diagram 9.1
General government revenue in 2008, ratio to GDP, %

60
55.7 55.4
52.5
49.3 48.6
50 48.2
46.5 46.4 46.0
44.5 43.8
42.7
40.9
40 39.2 39.0
37.9
36.6
35.5
34.0 33.8 33.1
32.7

30

20

10

0
Romania
Estonia
Slovenia
Hungary

EU-27

Poland
Sweden

Slovakia
Germany

Latvia
France

Austria
Belgium

Lithuania
Czech
Republic

Bulgaria
Netherlands

Ireland
Spain
Finland
Denmark

Italy

Source: Eurostat

52 Lithuanian Economic Outlook

 Diagram 9.2
National budget revenue and expenditure, ratio to GDP, %

28

24

20

16

12

0
2000 2001 2002 2003 2004 2005 2006 2007 2008

EU support 2.2 2.8 2.6 3.5 3.1

VAT 7.5 7.2 7.3 6.7 6.3 6.7 7.4 8.0 8.3
Income tax 5.5 5.2 4.9 4.7 4.9 5.0 4.9 4.6 4.6
Excise duties 2.6 2.7 3.3 3.1 3.0 2.8 2.9 2.9 3.0
Corporate income tax* 0.7 0.5 0.6 1.4 1.9 2.1 2.8 2.6 2.7
Other revenue 2.8 3.5 4.2 4.1 3.8 3.5 3.3 2.9 2.8
NB expenditure 20.7 20.3 22.4 21.9 23.2 23.7 25.2 24.9 25.7

* Including social tax

Source: Statistics Lithuania

Last year, revenue of the state social insur-
ance fund (Sodra) comprised LTL 11.2 billion.
Its ratio to GDP increased significantly for a
third consecutive year rising above 10% for
the first time (see Diagram 9.3). Since 2002,
the Sodra budget enjoyed a considerable sur-
plus which turned into a large deficit in 2008
after the Seimas decided to sweeten the deal
for voters and adopted a number of decisions
to raise social benefits, which resulted in an
unexpected increase in social spending and
pushed the said deficit to over LTL 1.4 billion.
Last autumn, ‘black clouds’ gathered over the
country's public finance system. There were
no longer any doubts that the Lithuanian
economy was rapidly plunging into reces-
sion and the example of Latvia illustrated the
emerging default threat in the Baltic states.
However, the then government of Lithuania
turned a deaf ear to these warnings. In Octo-
ber, it approved very ambitious draft NB and
Sodra budgets for 2009 which provided that
the relevant revenue collection during the
crisis would be LTL 30.2 billion and LTL 13.1
billion respectively, projecting an increase
of 10% and 17% from the previous year. In
addition to these ‘fantastic’ revenues, the
government planned to borrow about LTL 6
billion for the repayment of previous loans
which were nearing maturity and financing
of a substantial budget deficit since the ex-
pected expenditure of the national budget
was by 8% higher than in the previous year
(LTL 32.8 billion). Seeing the extent of diffi-
culties encountered by the national economy
as well as the global economy this year, it
is obvious that any continuation of such vol-
untaristic policy would only bring the public
finance system to its knees since the govern-
ment would have to borrow under extremely
unfavourable terms.
Subsequent developments in the public fi-
nance sector looked as if someone had pressed
a fast-forward button. In an attempt to in-

Government finance 53
 Diagram 9.3
State Social Insurance Fund revenue and expenditure, ratio to GDP, %
12
10
0
2000 2001
Revenue 9.6 9.1
Expenditure 10.0 9.2
Source: Statistics Lithuania
crease treasury revenues, the new govern-
ment promptly drafted a set of amendments
to the fiscal system as well as a new draft
budget, and most proposals were backed by
the Seimas. The VAT rate was raised to 19%,
most tax privileges were scrapped, excise
rates for fuel and alcohol went up steeply,
and then the excise rate for tobacco products
was also increased in March 2009. Although
the personal income tax was reduced to 21%,
higher-income people (earning more than LTL
3,150 per month) became no longer entitled
to non-taxable income deductions and most
income tax privileges were also cancelled.
A 20% tax rate replaced the previous 15%
rate for profits and dividends of legal entities.
Deductions of social insurance contributions
to private funds were cut from 5.5% to 3%,
and new categories of workforce, previously
exempt from social security and health insur-
ance contributions, were added to the sys-
tem. These contributions will now have to be
paid by athletes, farmers and people working
under author’s contracts, they will also be de-
ducted from profits of sole proprietorships.
The government expected that this fiscal re-
form will help boost treasury revenue to a
level higher than in the previous year even
despite the current crisis. The draft budget
for 2009 approved by the Seimas says that
the NB revenue will reach LTL 29.7 billion and
expenditure LTL 31.2 billion, up by 8.4% and
8.8% respectively from last year. Unfortu-
54
2002 2003 2004 2005 2006 2007 2008
8.8 8.6 8.9 8.9 9.4 9.9 10.1
8.6 8.3 8.5 8.5 8.8 9.5 11.3
nately, the first months of this year showed
how misguided these projections were. Bud-
get planners underestimated the negative
indirect effect of higher taxes such as an in-
crease in smuggling and tax evasion, shop-
ping trips by Lithuanians to the neighbouring
countries, etc. Moreover, the economic down-
turn is much deeper than foreseen in the said
draft budget.
It is hardly surprising that this careless piece
of work fell under heavy criticism and needed
improvement. The governing coalition admit-
ted that the tax burden for people working
with business licences and self-employed
entrepreneurs was too heavy and promised
to correct these errors. However, we be-
lieve that a lot more mistakes were made:
the new rules for eligibility to non-taxable
income deductions made the proportional
taxation system unnecessarily complicated;
higher excise rates had a negative effect on
the competitiveness of transport companies
and manufacturers of alcohol and raised the
unemployment rate in the country, while their
aggregate impact on treasury revenue collec-
tion has been negative in all probability; a
higher income tax rate for legal entities made
Lithuania less attractive for investment com-
pared to the neighbouring countries and even
tempted company groups to rearrange their
financial flows so that their profits could be
taken out elsewhere, in Latvia, for instance,
where taxes are lower.
Lithuanian Economic Outlook
 Diagram 9.4
State debt, ratio to GDP, %

25

20

15

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008

Domestic debt 7.6 8.1 8.9 8.2 7.4 7.3 5.7 5.6 5.6

Foreign debt 16.1 14.8 13.4 13.0 12.0 11.1 12.3 11.4 10.0

Source: Statistics Lithuania

Pretty soon the new Cabinet had to amend
the draft national budget and make significant
cuts in both revenue and expenditure. The
expenditure of the entire government sector,
which includes the national budget, local-gov-
ernment budgets, social budget and compul-
sory health insurance budget, was reduced by
more than LTL 3 billion. Moreover, this was
not the final correction as new amendments
to the budget are expected in June.
The Finance Ministry has also been increas-
ingly criticised for its preferred borrowing
method. It is becoming more evident that the
Cabinet had to be more proactive looking for
external funding sources for the economy: it
should have asked the European Commission
and other international organisations as well
as the governments of Nordic countries for
financial assistance.
A small national debt is a ray of light in these
dark times. In 2008, the debt to GDP ratio fell
by 1.4 percentage points to 15.6% of GDP
(see Diagram 9.4). Lithuania’s foreign debt
was nearly double its internal debt. However,
foreign debt will inevitably increase in 2009
for the first time in many years.

Government finance 55
10. Financial market
 10. Financial market
As the ‘pandemic’ of the financial system
spread to the real world economy, major in-
ternational economic policy-makers began
consolidating their efforts. The second G20
summit held this April produced a consid-
erable range of financial tools to battle the
spreading crisis and the downturn of the glob-
al economy. A decision was made to boost
the resources of the International Monetary
Fund (IMF) to EUR 556 billion. In addition,
credit line limits for IMF loans to struggling
countries was raised to EUR 185 billion. To
reenergise trade flows and finance devel-
opment, EUR 185 billion and EUR 75 billion
respectively were provided, and the latter
will be distributed by banks set up by donor
countries. All these resources will be available
in addition to those injected into the global
economy by governments and central banks
of individual countries. The pool of financial
rescue facilities is likely to grow to EUR 3.7
trillion, the highest amount ever available to
stimulate the economy.1
Diagram 10.1
3-month interbank interest rates, %
16
14
12
10
0
2008-07
2008-08
2008-09
2008-10
EURIBOR
Source: Reuters EcoWin
1
Source: http://ec.europa.eu/news.
58
Increasingly gloomier diagnoses of the health
of EU economy forced the European Central
Bank (ECB) to act more actively in an at-
tempt to revive the economy. Having quietly
watched a series of monetary moves made
by the Fed to stimulate the economy, the ECB
finally followed suit. In the last six months,
the benchmark interest rate was cut seven
times to 1% in May 2009 from 4.25% in Oc-
tober 2008. It is the lowest level since 1999
when the ECB began setting the cost of bor-
rowing in the eurozone.
A look at the mood on the European inter-
bank market shows that these efforts by the
ECB were not in vain: the EURIBOR humbly
followed in the footsteps of key interest rates,
and interbank markets of many countries
outside the eurozone responded positively.
Nevertheless, banks are still reluctant to lend
in the Baltic states (see Diagram 10.1). After
a leap at the end of 2008, the interbank cost
of borrowing went down to the original level
and stabilised for some time in Lithuania and
2008-11
2008-12
2009-01
2009-02
2009-03
2009-04
2009-05
TALIBOR RIGIBOR VILIBOR
Lithuanian Economic Outlook
 Diagram 10.2
Credit default swaps (in EUR) for the Baltics, 5 year period, bps

1200

1000

800

600

400

200

0
2008-10

2008-11

2008-12

2009-01

2009-02

2009-03

2009-04

2009-05
Latvia Lithuania Estonia

Source: Reuters EcoWin

Estonia. Meanwhile, interbank interest rates among the three outsiders compared to other
have continued to go up in Latvia this year European nations, while the bottom two posi-
as well. The main culprits are the country’s tions are occupied by IMF’s debtors Ukraine
credit ratings which have been lowered down and Latvia. Estonia is fourth from the bot-
to a speculative level, a ‘label’ of an IMF debt- tom, sharing its position with Hungary and
or, changes in the political arena, inadequate Bulgaria.
efforts to narrow down the fiscal ‘gap’ of
Flat domestic demand had a negative effect
the public sector and, most importantly, the
on indicators of changes in the main mon-
nomination of the biggest economic slump
etary aggregates (see Table 10.1). Following
in Europe. However, this internal risk ‘hump’
a 12.5% annual growth at the end of 2007,
of the three Baltic states grew as a result of
the M1 money supply stalled in the first half
both objective indicators of macroeconomic
of last year and subsequently fell by a con-
imbalance and emotions and expectations of
siderable margin of 16.5% year-on-year last
market players. The reputation of financial
December. Trends were similar in the first
capacity of the Baltic states on international
quarter of this year. The contraction of the M1
markets is perfectly illustrated by the curve
money aggregate was mainly caused by the
of credit default swap prices (see Diagram
volume of overnight deposits, which fell by a
10.2). Until October 2008, 5-year CDSs to
quarter in a year, while currency in circulation
hedge against Lithuania’s credit risk stayed
still increased by 5% by the end of 2008. The
below 200 basis points. However, later this
M2 money supply also lost momentum as the
indicator increased almost fourfold and ex-
indicator fell by a slight margin year-on-year
ceeded 800 basis points in February 2009.
last December. In March 2009, the annual fall
And although the cost of CDSs of the Baltic
of M2 reached nearly 3%. The reduction in
states has been going down in spring, early
M2 was mitigated by the continuing growth
summer the three courtiers in dismay were
of time deposits with a maturity up to 2 years
observing uprising CDSs’ curves. In the near-
which rose by a fifth over the year.
est future the indicator is expected to remain
within the highest-risk zone in the context of As official international reserves of Lithu-
European countries. Currently, Lithuania is ania were depleting more slowly than the M1

Financial market 59
 Table 10.1
Key indicators of Lithuanian financial market

Outstanding amounts, end of period, Ratio to Annual

LTL Mio GDP, % change, %
2005 2006 2007 2008 2008 2007 2008

Monetary aggregates

M1 20902.5 24833.7 27938.1 23321.9 20.9 12.5 –16.5

Currency in circulation 6118.8 7244.5 8107.8 8520.4 7.6 11.9 5.1
M2 29487.8 35819.2 43470.1 43312.8 38.8 21.4 –0.4
M3 29850.5 36346 44227.8 44062.9 39.5 21.7 –0.4

Loans of credit institutions

25330.9 38404.3 55890.1 65914.5 59.1 45.5 17.9
granted to private sector

Non-financial corporations 15976.9 22569.0 30859.7 35733.8 32.0 36.7 15.8

LTL 5122.4 9426.6 12706.1 11674.3 10.5 34.8 –8.1
By
EUR 9862.7 12215.6 16562.3 22321.4 20.0 35.6 34.8
currency
Other currencies 991.9 926.8 1591.2 1738.1 1.6 71.7 9.2
Households 9353.9 15835.4 25030.4 30180.7 27.1 58.1 20.6
LTL 4234.6 8888.4 12568.7 11578.2 10.4 41.4 –7.9
By
EUR 5058.2 6910.6 12415.2 18314.4 16.4 79.7 47.5
currency
Other currencies 61.1 36.4 46.5 288.1 0.3 27.7 519.6
Housing loans 6457.5 10348.1 16743.9 20908.4 18.8 61.8 24.9
By
Consumer credit 1522.7 2559.3 3659.5 4368.3 3.9 43.0 19.4
purpose
Other 1373.7 2928.0 4627.1 4904.0 4.4 58.0 6.0

Private sector deposits

22015.4 26970.2 33449.7 33340.7 29.9 24.0 –0.3
in credit institutions

Non-financial corporations 7798.5 8408.1 9968.5 8648.0 7.8 18.6 –13.2

LTL 4723.9 6125.5 7558.4 6170.5 5.5 23.4 –18.4
By
EUR 1262.6 1497.5 1939.4 2187.3 2.0 29.5 12.8
currency
Other currencies 1812.0 785.0 470.7 290.2 0.3 –40.0 –38.3
Households 14217.0 18562.1 23481.2 24692.7 22.1 26.5 5.2
LTL 11118.7 14798.0 18355.2 18107.3 16.2 24.0 –1.4
By
EUR 1549.8 2250.8 3726.6 5321.3 4.8 65.6 42.8
currency
Other currencies 1548.5 1513.3 1399.4 1264.1 1.1 –7.5 –9.7

Interest rates for new loans and new deposits          

LTL 4.70 5.37 8.61 10.08 – – –

Loans
EUR 3.76 4.94 6.04 5.91 – – –
LTL 2.40 2.97 5.40 7.65 – – –
Deposits
EUR 2.32 3.04 3.96 3.66 – – –

Source: Bank of Lithuania, Statistics Lithuania

money supply, coverage of this monetary ag-
gregate improved: compared to the end of
2008, the ratio between the official interna-
tional reserves and M1 rose by nearly 3 per-
centage points in March and by as many as
9.3 percentage points year-on-year reach-
ing 70.4%. Lithuania continues to fully meet
its commitment to maintain coverage of its
national currency by gold reserves and hard
foreign currency reserve.
In terms of financial performance of the Lith-
uanian banking system in 2008, total assets
of the sector rose by 10.8% and shareholder
equity increased by 14.0%. The system of
credit institutions operated profitably during

60 Lithuanian Economic Outlook

 Diagram 10.3
Transactions of loans to households broken down by purpose, LTL Mio

700

600

500

400

300

200

100

-100

-200
2006-01

2006-03

2006-05

2006-07

2006-09

2006-11

2007-01

2007-03

2007-05

2007-07

2007-09

2007-11

2008-01

2008-03

2008-05

2008-07

2008-09

2008-11

2009-01

2009-03
Consumer credit Housing loans Other loans

Source: Bank of Lithuania

the first three quarters of last year. However, Baltic states, the speed at which this ratio has
the last quarter ended with a loss, and the been growing causes some concern.
overall annual result stood at LTL 867.3 mil-
Therefore, it is only natural that the lending
lion, down by a quarter compared to the pre-
flows of banks penetrating through a very
vious year. 2008 was a profitable year for nine
tight risk assessment ‘sieve’ have almost de-
credit institutions and seven incurred losses
pleted. Since December 2008, indicators of
(in 2007, only two branches of foreign banks
loan agreements have been negative which
failed to break even). The beginning of 2009
means that monthly loan repayments ex-
was extremely rough for credit institutions
ceed newly issued credits. These trends also
as the total loss of Lithuanian banks reached
changed the path of loan portfolio move-
LTL 20.1 million in the first quarter. These re-
ments. Having settled at the peak in No-
sults are hardly surprising since the banking
vember 2008, the volumes of loans issued
system which relies heavily on the financial
by credit institutions began their downward
health of its customers responds sensitively to
slide. And although the annual increase in the
ever increasing macroeconomic ‘woes’ of the
loan portfolio stood at 10% in March, it was
national economy. A double-digit unemploy-
virtually the last year’s result as the volume
ment rate, higher number of corporate bank-
of credits contracted by almost 2% compared
ruptcies and deteriorating business prospects
with December 2008. In the first quarter, the
in nearly every segment of the economy in-
value of loans issued by banks to businesses
creases the lending risk of banks forcing them
and households dropped by 2.6% and 1.1%
to cushion against these risks by higher pro-
respectively.
visions. These precautions are simply neces-
sary for the banks as shown by rapidly deteri- Lithuanian households began generating
orating quality indicators of the loan portfolio. negative total loan flows to banks this Feb-
The ratio between the liabilities of customers ruary. As regards the flows of loans issued
at least 60 days delinquent in repaying their to private customers by type (see Diagram
loans and the loan portfolio rose to 2.91% 10.3), it should be noted that people were
in the first quarter of this year from 1.14% most eager to get rid of consumer loans and
at the end of last year. And even though the other loans.2 This behaviour of households
ratio is not that bad compared to the other is hardly surprising as people try to reduce

2
Other loans include loans for businesses, debt consolidation, studies, etc.

Financial market 61
 their periodic liabilities as much as possible
during economic downturn. Consumer loans
for other than the basic goods and services
with quite sizeable interest rates are often re-
paid immediately, even using the ‘rainy day’
funds, to alleviate the financial burden during
this period of uncertainty.
A complete standstill in the residential prop-
erty market is already reflected by statistics
published with some delay and indicating a
negative growth of mortgage loan contracts.
As indicators of the labour market and the
prospects of employers continue to deterio-
rate at a record pace, Lithuanians are reluc-
tant to risk undertaking a long-term mort-
gage loan burden.
As the cost of borrowing in the litas and euro
continued to move in opposite directions, the
structure of credits issued to the private sector
has changed dramatically in terms of the pre-
ferred currency. In March 2009, litas-denomi-
nated loans accounted for 32.7% of the port-
folio, down by 12.5 percentage points from the
end of 2007. Both households and businesses
were reducing their liabilities to banks in the
national currency and preferred to borrow in
foreign currencies, mostly the euro. The lat-
ter trend applied both to new credits and to
refinancing of previous liabilities. Households
responded extremely sensitively to higher in-
terest rates of litas-denominated loans. New-
ly issued litas-denominated loans in February
and March accounted for just a quarter of all
new credits. These statistics may also be con-
strued as an indicator of customer sensitivity
to risks. It is obvious that currently Lithuanian
businesses and households are reacting more
sensitively to higher interest expenditure than
to any rumours about the risk of exchange
rate stability.
Among alternative non-bank lending sources
in Lithuania, the largest market share is held
by leasing companies. At the end of the first
quarter of this year, their assets comprised
LTL 10.4 billion, i.e. up to a tenth of the pro-
jected GDP. As the main sectors (i.e. real es-
tate, transport, etc.) continued to face a deep
downturn, the activities of leasing companies
previously ‘fed’ by the success of these sec-
tors began to stall quite rapidly. In the first
quarter of this year alone, the leasing port-
folio contracted by more than 8%, and leas-
ing volumes fell by more than 12% compared
to the ‘spike’ seen in the middle of last year.
Analysis of the consolidated leasing portfolio
3
Including an investment company with variable capital.
62
by type of leased assets shows a low degree
of diversification in this respect. At the end of
the first quarter of 2009, road vehicles and
cars comprised almost 64% of the entire leas-
ing portfolio, while the so-called productive
investments in capital goods and industrial
installations (except heavy-duty vehicles) ac-
counted for a relatively small share of the
leasing portfolio (27.6%). It is yet another
indicator showing that the Lithuanian econ-
omy laid a very weak foundation for future
growth during the upturn phase.
As regards liabilities of credit institutions, it
should be noted that the annual growth of
deposits held by the private sector in credit
institutions virtually stopped growing in the
first months of this year. While the annual
increase in bank deposits by businesses and
households stood at 10% and 20% respec-
tively by the middle of last year, the annual
growth of deposits of the private sector is
close to zero at the moment. Deposits by
households rose by a mere 3.5% year-on-
year in March, while deposits by businesses
in the banking system fell by 8% on average
year-on-year in the first three months of this
year. Statistics of deposit flows clearly show
that households are very vulnerable to inten-
sifying public rumours about the pressure to
the national currency.
Despite very attractive interest rates offered
by banks for deposits in litas, the annual
change in the balance of household depos-
its in litas has stayed in a negative territory
since December 2008. Meanwhile, euro-de-
posits attracted by credit institutions retained
their high rate of growth which was as high
as 50% this March. As a result, the percent-
age of euro-deposits swelled by as many as
8 percentage points year-on-year and com-
prised more than a quarter of the amount of
deposits attracted by the entire Lithuanian
banking system.
As stock markets ‘kept sinking to new lows’,
last year was rather forgettable with regard
to investments in collective investment un-
dertakings, a substitute for deposits offering
more freedom of choice. Although the be-
haviour of collective investment entities (see
Diagram 10.4) has been rational and no one
was in a hurry to leave the market during the
downturn with a considerable loss, their as-
sets have been melting rapidly so far. Since
the fourth quarter of 2007, the value of net
assets of mutual funds3 has fallen 3.5 times,
Lithuanian Economic Outlook
 Diagram 10.4
The assets and the number of participants of Lithuanian collective investment undertakings

1400 49
1267.0 1261.4

1200 42
42.9 43.4 43.0 42.4 42.2
41.4
995.3 1000.8
1000 35
899.3 36.4
832.0 854.8

800 30.5 28

601.4 623.3
600 24.2 21
497.8 505.2
19.7
386.7 364.1
400 16.4 14
14.5
12.6
200 7

0 0
2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009
I II III IV I II III IV I II III IV I

Assets, LTL Mio (scale on the left)

Number of participants, thou (scale on the right)

Source: Lithuanian Securities Commission

and the indicators recorded in the last quar-
ter of 2008 and the first quarter of 2009 were
down by more than 25% compared to the
starting position of this financial instrument
in Lithuania in 2006.
In terms of investment products comprising
the assets of collective investment undertak-
ings registered in Lithuania, the overall strat-
egy of the sector remains high-risk even in
this period of instability. In March 2009, stock
investments comprised the largest percent-
age (32.4%)4 of the portfolio of funds. And
although the percentage of stocks in total as-
sets of Lithuanian collective investment un-
dertakings fell by as many as 16 percentage
points year-on-year to 32%, investments in
stocks and equity funds taken together still
exceeded 50% of total assets of the sector.
Judging by investments of an average player,
this category of funds is the most popular
among minor investors who took the brunt of
the loss incurred by financial markets.
Analysis of the direct investment position
of management companies of collective in-
vestment undertakings by region shows that
more than a half of securities bought by the
sector (except units of funds) were from the
CIS countries. The Baltic states and Western
European regions with their respective shares
of 21% and 14% of total direct investments
are the other two significant directions of in-
vestment strategy. From the macroeconomic
angle, this mix is quite risky since the old
members of the EU are likely to face a lengthy
downturn and the Baltic states should brace
themselves for the deepest recession in the
region. At the same time, any recovery in the
CIS countries, especially Russia, will depend
on the movement of oil prices whose trend, it
seems, has been reversed already.
As regards the outlook for this year, the fi-
nancial sector will also face serious challenges
as the national economy continues to plunge
down at a double-digit pace and market play-
ers suffer from a decline in real income and
higher unemployment risk. At present, the
immediate objective should be putting the
credit risk under control and increasing oper-
ating efficiency.

4
Excluding investments in units of equity collective investment undertakings.

Financial market 63
 DnB NORD būstas

11. Real estate market

 11. Real estate market
Real estate markets of a number of countries
have found themselves in a major standstill
as the global financial crisis cut the vital ‘ar-
tery’ of lending and the demand for housing
went down. The number of housing contracts
plunged to record lows in nearly every major
economy and prices began their steep down-
ward slide giving in to the pressure (see Dia-
gram 11.1). Property developers which lost
their projected income began delaying pay-
ments to their contractors and suppliers of
materials. These signals of insolvency soon
had a knock-on effect on the entire economy
triggering a wave of bankruptcy among con-
struction companies and businesses indirectly
related to the real estate market. This way one
of the fastest growing sectors in recent years
turned into one of the major weights plum-
meting national economies into the quagmire
of recession.
The main question keeping both the market
players and macroeconomic ‘gurus’ sleep-
less at night is when the downturn is likely
to end. Carmen M. Reinhart and Kenneth S.
Rogoff, economists at University of Maryland
and Harvard University, carried out a histori-
cal analysis of financial crises worldwide and
Diagram 11.1
Residential real estate prices, annual change, %
30
20
10
-10
-20
-30
-40
Finland
Austria
Sweden
Germany
2007
Source: RICS, ft.com, real estate agencies
66
their effects on the real estate market and de-
termined the average duration of a downturn
in the real estate market and decline of home
prices (see Diagram 11.2). According to them,
a downturn in the real estate market caused
by historical financial crises stretches out over
six years on average and home prices decline
by about 36% from the last ‘peak’. Although
all the crises referred to in the analysis differ
in both their nature and scope, this assess-
ment enables to draw at least the preliminary
guidelines for projecting medium-term trends
in different regions. It is only natural that the
countries which underwent a more significant
overheating of real estate will face a deeper
price decline, while housing markets of more
dynamic economies will recover in less than 6
years. However, what should be emphasised
is the fact that the economies of different re-
gions have achieved a high degree of integra-
tion in recent years. This helped countries to
grow during the upturn period but such close
mutual dependence may become an obstacle
on the road to recovery for the economies of
individual countries in these difficult times.
Ongoing processes in the Lithuanian residen-
tial property sector have convinced even the
Lithuania
Latvia
France
Estonia
Ireland
Norway
Denmark
UK
Poland
2008
Lithuanian Economic Outlook
 Diagram 11.2
Peak-to-trough real housing price declines and years duration of downturn*

20

10 6

-10

-20

-30

-40 -35.5

-50

-60
Hungary (2008)

Spain (1977)
USA (1929)

USA (2007)
Austria (2008)

Columbia (1998)
Argentina (2001)

Philippines (1997)
Thailand (1997)

Hong kong (1997)

Indonesia (1997)
Japan (1992)
UK (2007)

Korea (1997)

Finland (1991)
Sweden (1991)

Norway (1987)
Malaysia (1997)

Norway (1899)
Iceland (2007)

Ireland (2007)

Historical average
Housing real price decline**, %
Duration of downturn in years

Notes: * Each banking crisis episode is identified by country and the beginning year of the crisis;
** The historical average reported does not include ongoing crises episodes; consumer price indices are used to deflate nominal house prices.

Source: C. M. Reinhart, K. S. Rogoff (2008). “The Aftermath of Financial Crises”

biggest downturn sceptics that this market The existing situation on the housing market is
develops in cycles. Real estate agencies also well illustrated by the statistics on real estate
admitted that the housing market has en- contracts. It should be pointed out that housing
tered into the recession phase as their esti- sellers managed to retain rather solid indicators
mates indicate that residential property pric- of trading in residential properties last year.
es in Lithuania fell by almost a quarter last Even though the overall number of contracts
year. The steepest decline was demonstrated fell by 32% compared to 2007, monthly sales
by the prices of new mass-produced homes still comprised about 2,700 units on average.
as a number of property developers overesti- The relevant indicators of the first quarter of
mated their success and were unable to bal- this year already reflect deep market stagna-
ance their cash flows. Early 2008 saw some tion. According to preliminary estimates of the
attempts to maintain the price level relying Centre of Registers, the number of contracts
on additional service packages boosting the contracted by nearly 60% year-on-year, and
welfare. However, the first cases of an open the average monthly indicator was just above
price slashing appeared in the second half of 1,000. The overall monthly result is likely to
the year. These trends of price movements be even worse as this macroeconomic ‘curb’
point out to the fact that soon time will be (see Labour market and household income),
ripe to start ‘feeling for the bottom’ and buy. which stopped any growth in this sector, has
Sadly, macroeconomic and especially labour not finally tightened.
market indicators show that the number of In terms of a short-term outlook of this sec-
such ‘hunters’ will be quite low. In addition tor, it is useful to take a look at the neigh-
to the decline in housing demand, players of bouring countries. Many analysts often note
this market find themselves with their backs that the Lithuanian real estate market is fol-
against the wall because of a tighter lending lowing in the footsteps of Estonia and Latvia,
policy of banks. As the indicators of home sale albeit with a 6–9 month lag. According to Sta-
contracts deteriorated, prices fell and the risk tistics Lithuania, the number of housing pur-
level of real estate projects rose, the costs of chase contracts in Estonia fell by a third last
borrowing were raised accordingly. year compared to 2007. In Tallinn, real estate

Real estate market 67

 Box 11.1
Modernisation of public buildings and apartment houses

Apartment house renovation model in brief:

• State aid for housing modernisation is 15% if the energy saving effect is achieved.
• Private customers receive 20-year loans with a 3% fixed interest rate.
• The state covers 100% of loan costs to low-income families.
• After renovation, the aggregate amount of payments for heating and soft loan interest should be below the amount for hea-
ting of unrenovated housing.
• Heat demand in a renovated apartment building must be reduced by 47%.
• Financial assistance must be provided for the preparation and implementation of building's modernisation project.
• A special renewable fund must be set up to finance modernisation pooling the resources of EU Structural Funds, loans of
international financial institutions, national budget and commercial banks.

Having identified the problems of stalling engine of the national economy, the government chose to improve energy efficiency of
buildings as one of the priorities of the economic stimulus plan. It seems rational at first glance as you can kill two birds with one
stone: upgrade the buildings and support the construction sector which has found itself in a market sinkhole. However, a number
of economists find a reason to criticise these objectives. They question the privileges for the construction sector with respect to
other industries, reasonability of state aid (i.e. distribution of taxpayer money), timeliness of renovation processes, the issue of
consensus in decision-making by residents of an apartment building, etc.

Table 11.1
Multi-storey blockhouses and number of inhabitants living in such dwellings broken down by type of building energy efficiency, as of 2008–2009
heating season

Heating Heating price Share of such Number of inhabit-

consumption to heat 1 sq. m dwellings in ove- ants, living in such
(VAT included) rall housing stock dwellings, Mio

I.   M
 ulti-storey blockhouses, where heating consumption is most
8 kWh/m2 2.00 Lt/m2 4.6% 0.09
effective (newly constructed high quality dwellings)

II.  Multi-storey blockhouses, where heating consumption is low or

15 kWh/m2 3.75 Lt/m2 17.3% 0.36
medium (newly constructed and other heat-saving dwellings)

III. Multi-storey blockhouses, where heating consumption is high

25 kWh/m2 6.25 Lt/m2 55.7% 1.17
(old-construction not renovated dwellings)

IV. M
 ulti-storey blockhouses, where heating consumption is most
35 kWh/m2 8.75 Lt/m2 22.4% 0.47
ineffective (old-construction dwellings with bad thermo-isolation)

Source: http://www.lsta.lt

Of course, renovation would definitely improve the energy efficiency of buildings and increase the national welfare level. Data from
the Lithuanian District Heating Association illustrate the need for housing renovation. They reflect a considerable gap in the amounts
of heating bills among flats with different heat insulation. During the 2008–2009 heating season, owners of old and poorly heat-
insulated flats paid LTL 8.75 per 1 sq. m for heating, i.e. 4.4 times more than people living in newly-built flats (see the table). The
sad thing is that 78% of all homes in Lithuania have low energy efficiency, and about a fifth of all homes are unrenovated apartment
buildings which consume considerable volumes of heat. Out of the total number of people living in apartment houses, over a half
of the national population live in unrenovated homes with poor heat insulation.
The seriousness of the problem was obvious a long time ago, but the flywheel of renovation has failed to start racing. At first, the
process lagged due to a lack of attention from construction companies targeting windfall profits on new homes, while later renova-
tion efforts were hampered by the stalling link of public financing in the modernisation process. Today we have a brand new housing
renovation model prepared by the Ministry of Environment and the Ministry of Economy. The government has set ambitious targets
to renovate 1,000 apartment buildings every year (until now only about 200 buildings underwent renovation in a year), but the
swamp of uncertainty and obscurity is even larger.
This version of financing the renovation process is based on financial management models of pooling the resources of Structural
Funds, public and private sectors recommended by JESSICA,1 a joint initiative of the European Commission and European Invest-
ment Bank. The financing mechanism prepared under these schemes would operate as a renewable fund in Lithuania pooling the
resources of state aid and Structural Funds. This ‘common pool’ would comprise up to 40% of the total funding demand. The re-
maining portion of the total amount planned for renovation of apartment houses would be contributed by commercial banks. Flat
owners wishing to renovate an apartment building will have to take loans with a 5% down-payment and assume long-term (up to
20 years) obligations with respect to loan repayments and interest payments.
It should be noted with regard to the latter that it would be difficult to find a less opportune moment to offer such loans to house-
holds. With the labour exchange facing record numbers of unemployed people and the unemployment rate lingering in a double-
digit zone, Lithuanians feel very anxious about the future and are actively tightening their belts. Therefore, it will be extremely
difficult to convince them of the necessity to take out a dubious loan (speculation that interest on these loans will be fixed at 3% is
questionable until the proposals of commercial banks willing to take part in the renovation processes are received). Especially when
the motivation to renovate homes will be undermined by the likely decline in heating prices.
The interest of credit institution in this mechanism also raises a number of questions. Given the lending processes of recent years,
the percentage of bank loan portfolio related to real estate projects has increased considerably. These types of loans issued by credit
institutions to business customers comprise 22% of total loan portfolio, while the share of mortgage credits to households stands at
31%. Moreover, the percentage of bad loans in this segment is growing rather rapidly and the banks, despite the current downturn,
will continue to avoid additional risks or credits will not be financially attractive to customers. The tension could only be relieved by
additional state guarantees, credit insurance or a stronger contribution of the above-mentioned renewable fund to the project.
In summary, it should be noted that renovation of homes considered by the Cabinet is not a cure-all for the national economy,
especially as it moves in the opposite direction to market forces and expectations. A more attractive scheme is necessary to attract
private capital and raise motivation of the population since households try to avoid any additional risks during the crisis.

Source: http://www.eib.org; http://www.skatinimoplanas.lt/; Lithuanian District Heating Association

1
Joint European Support for Sustainable Investment in City Areas.

68 Lithuanian Economic Outlook

 Diagram 11.3
Dynamics of commercial real estate space, thou sq. m

1000 925
900 860

760 200
800
200
700 160 607
600 225
530
225 102
500 225 425 80
155
400 65 160
300 90
500 500
200 435 435
375 375 350
270 290
100
0
2007 2008 2009 F 2007 2008 2009 F 2007 2008 2009 F
Office premises Retail trade premises Warehousing premises*

Vilnius Kaunas Klaipėda Total

F – forecast; * districts of these cities

Source: Colliers International

agencies2 recorded a 60% drop in the month-
ly number of closed housing sale contracts as
the relevant indicator fell from 1,100 in early
2007 to 375 last December.
In terms of movements of housing prices,
Latvia was leading the trio of the Baltic states
which shared all anti-records within the Euro-
pean region. Compared to the peak of 2007,
prices fell sharply by more than 36% in Latvia
and by 27% in Estonia last year. The prices for
mass-produced residential properties dropped
to the range of 700–1,600 EUR/sq. m in Tal-
linn and 900–1,500 EUR/sq. m in Riga.
Property developers in Lithuania plan to reen-
ergise the housing market by cutting the sup-
ply considerably. There is some speculation
that no new housing projects will be carried
out in the country for the next 3 to 5 years.
However, if we compare the numbers of flats
built throughout the year by all three Baltic
states it becomes obvious that this strategy is
too little too late for Lithuania. Last year, the
number of new flats on the market dropped
by 25% and 13% in Estonia and Latvia re-
spectively compared to 2007. In Lithuania,
meanwhile, the inertia of housing market pro-
cesses still drove the supply of new flats up by
27%. As a result, the number of newly built
flats reached nearly 12,000 climbing to a re-
cord high in the last 15 years. Moreover, con-
struction companies came up with yet another
proposal on how to ‘cure’ the real estate mar-
ket suggesting that the excess unsold homes
should be handed over to the government
at net cost thereby implementing the social
housing development plans. To ensure mutual
benefit, such processes should be undertak-
en openly and transparently by setting equal
competition terms for everyone. However, we
believe that the biggest challenges lie here.
Moreover, the government is trying to extend
a helping hand to Lithuanian property devel-
opers by attaching extra importance to ener-
gy efficiency and maintenance of jobs in the
construction sector in its economic stimulus
plan (see Box 11.1).
Last year, we anticipated that excessive opti-
mism of construction companies and the first
symptoms of an economic downturn was a
menacing combination for the commercial
property sector. This year we have already
seen these insights materialise. Even though
the first signs of recession were obvious last
year, the pool of commercial properties in all
segments grew considerably in 2008 (see
Diagram 11.3). The strongest growth was re-
corded by the warehousing segment (up by
almost a quarter), followed by more modest

2
Information of Ober-haus real estate agency.

Real estate market 69

 increases in the area of retail and office space
(up by 13% and 16% respectively).3 The oc-
cupancy rate has declined dramatically both
as a result of a new injection of new com-
mercial properties and financial difficulties
faced by tenants. In terms of modern office
space in the capital, the vacancy rate went up
steeply by 10 percentage points last year and
reached nearly 12% this January. Operators
of both class A and class B offices failed to re-
tain their tenants. Facing a shortage of orders
and financial difficulties, many companies
went on a ‘crisis diet’ cutting their appetite for
non-basic, luxury and image-building costs in
the first place. Many businesses decided to
abandon their plans to have a modern office
in the city centre.
In terms of the warehousing and retail seg-
ments, the situation is similar in Vilnius and
Klaipėda. A ‘batch’ of new commercial prop-
erties supplied to the market against the
backdrop of diminishing financial capacities
and needs of tenants had a negative impact
on the occupancy rate and asking rent. At the
end of 2008, the vacancy rate of retail prop-
erties in the capital and port city fluctuated at
3
Statistical information published by Colliers International was used for the review of commercial property market.
70
around 6% and is likely to go up considerably
this year. Warehouses around these two cit-
ies were also emptying, and the vacancy rate
in Vilnius and Klaipėda was close to 8% and
16% respectively in January 2009. Kaunas,
however, displayed different trends in these
segments of the commercial property mar-
ket. Market analysts predict that Kaunas has
the most stable outlook for the next year. Due
to a limited supply of both warehousing and
retail space, the vacancy rate was below 2%
at the end of 2008 and the indicator is un-
likely to plummet this year as well.
With regard to the development of the com-
mercial property market in the medium term,
the sector in Lithuania can be expected to re-
cover only after the macroeconomic health of
the country improves, its reputation on for-
eign markets is restored, international trade
flows are reenergised and external investors
are again able to see the potential for break-
throughs in the region. Depending on the
ability of Lithuania and the economies im-
portant for the country to tackle the current
downturn, the real estate market may begin
to recover in no less than 3 years.
Lithuanian Economic Outlook
12. Agriculture
 12. Agriculture
At the end of April, Statistics Lithuania pub-
lished a press release on gross domestic prod-
uct saying that value added fell by the smallest
margin in agriculture during the first quarter
of this year. Indeed it seems that agriculture
is the only industry to be little affected by the
economic crisis. Surveys of commercial banks
indicate the same thing as banks have a fa-
vourable view of the industry.
Historically, agriculture has always been one
of the most important industries in the coun-
try. Although agriculture’s share in total val-
ue added went down from 12.3% in 1996 to
4.5% in 2008, it plays an important role in
the current economy of Lithuania. Despite the
said decline in its relative weight, agriculture
still generates a relatively large percentage of
gross domestic product compared to the EU
average. The growth of production and ex-
ports of the food industry, the largest sector
of the national economy, relies heavily on the
results of agriculture.
At first glance it seems that agriculture was
in good nick last year. An 11% fall in pur-
chased quantities of animal breeding output
was offset by a marked increase in the output
of plant production (grain buying-in leaped
by 43%), and value added by the entire sec-
tor increased by a small margin: the indica-
Diagram 12.1
Value added created by agriculture, annual change, %
25
20
15
10
7.4 3.6
5 1.3
4.2
0 1.4
-0.6
-6.1
-5
-10
-15
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
72
tor was up by 1.4% at constant prices and
by 13.4% at the then prices compared to the
previous year (see Diagram 13.1). It should
be noted that agriculture was one of a hand-
ful of sectors of the Lithuanian economy to
boast a positive year-on-year change in value
added (at constant prices) in the second half
of 2008.
However, last year agricultural entities had
to face serious difficulties mainly caused by
price movements unfavourable for farmers
both with respect to agricultural production
and goods bought for agricultural needs. The
said decline in purchased quantities of animal
breeding output was accompanied by an even
larger fall of produce prices. In the fourth
quarter of last year, this fall was caused by
a 33% decline in milk producer prices, while
prices for animals were slightly higher than
one year ago. It should be emphasised that
the development of animal breeding has been
a cause for concern for a number of years
due to a clear downward trend of the num-
ber of animals. For instance, from 1990 to the
beginning of this year, the number of cattle
went down by more than three-fold (from
2,422,300 to 770,900) and the number of
pigs shrank from 2,730,200 to 897,100. To
meet the needs of pork processing compa-
22.8
18.9
9.5
13.4
16.9
12.5 12.0
13.3
2.2
2.0
1.9
-3.9
-10.3 -5.8
2005 2006 2007 2008 2008
II H
Lithuanian Economic Outlook
Table 12.1
Key statistical indicators of agriculture, hunting and forestry

Ratio to the
Annual growth
Year economy’s
rate, %
indicator, %
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 2911 2953 1786 1820 4.1 1.4 1.9
Value added (at current prices), LTL Mio 3873 4393 2501 2403 4.4 13.4 –3.9
Total production, LTL Mio 8340 10017 5199 5815 5.0 20.1 11.8
Labour productivity, LTL thou** 24.7 37.7 16.5 19.9 47.3 52.6 20.7
Number of persons employed, thou 156.9 116.6 151.4 120.5 9.3 –25.7 –20.4
Average monthly earnings, LTL 1482 1786 1590 1817 79.4 20.5 14.3
Fixed investments, LTL Mio 447 549 270 332 2.5 23.0 23.2
Foreign direct investments
192 269 192 269 0.9 39.9 14.1
(end of period), LTL Mio

* FDI – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

nies, Lithuania would have to raise about 4
million pigs. Danish businessmen, who have
encountered problems trying to expand pig
breeding in Lithuania, indicate that Denmark
raises about 25 million pigs annually, even
though the country’s territory is 1.5 times
smaller than Lithuania’s.
The increase in the output of crop production
was offset by an almost 40% year-on-year
decline in grain prices in the fourth quarter
of 2008. Farmers suffered an extra blow from
the prices of mineral fertilisers which nearly
doubled. This factor also affected the results
of dairy companies, which were hit by a sharp
fall in dairy producer prices and the fact that
the so-called herbage fodder was being pre-
pared at the time when fuel prices were at
record highs.
Although prices of mineral resources used in
agriculture began falling at the end of last
year, the situation in the sector improved just
marginally in the first quarter of this year.
Farmers are also struggling with continuously
declining producer prices. The most affected
are dairy farmers as the annual drop in milk
producer prices exceeded 40% in the first half
of the year. So far, intervention by the Euro-
pean Commission which renewed its export
subsidies for dairy products exported to third
countries at the beginning of the year and
subsequently raised them on 20 February had
little, if any, effect. However, it would have
been naive to expect the immediate results
as this measure should firstly revive exports
and ensure that milk processing companies
can operate profitably, which takes time dur-
ing a downturn.
Changes in the production and prices of oth-
er agricultural output are also less than en-
couraging. In the first quarter of 2009, pur-
chased quantities of animals and poultry (by
live weight) fell by 11% year-on-year. At first
glance, buying-in of cattle declined fraction-
ally (5%). However, the decline in the over-
all indicator would have been much larger if
not for an 18% increase in cow slaughtering.
Moreover, slaughtered cows comprised almost
a half of total cattle. This fact is disconcerting
since farmers are forced to slaughter cows
because of falling milk producer prices which
means that milk production is likely to decline
in future as it is difficult to quickly restore a
cattle herd. Although swine producer prices
remained virtually unchanged in a year, buy-
ing-in quantities fell by 25% year-on-year in
the first quarter of this year. Poultry producer
prices contracted by almost 15% and buying-
in quantities fell by 5%.
The beginning of this year was slightly better
for crop producers. In contrast to last year,
buying-in of almost all types of output in-
creased in the crop production sector in the
first quarter of this year. Buying-in of cere-
als rose by 55%, potatoes by 37%, vegeta-
bles by 0.7% and buying-in of fruit doubled
year-on-year in the first quarter of this year.
However, the relevant producer prices fell by
similar margins or even sharper, by 47.6%,
17.5%, 11.3% and 46.5% respectively. Given
these opposite trends, farmers are unlikely to

Agriculture 73
 see any considerable increase in their sales
revenue.
However, financial results of farmers for the
first quarter of this year should be improved
by movements in price indexes of goods ac-
quired for production of agricultural output
and invested in agricultural production. The
gross index fell by 14.2% year-on-year. Costs
of farmers were only affected by a rough-
ly 20% increase in prices of chemical plant
protection products and electricity as well as
slightly higher (2.8%) prices of combined fod-
der for poultry. The steepest year-on-year de-
cline was in the prices of other fodder (grain
and offal) and agricultural structures. Prices
of building materials, petroleum products and
mineral fertilisers dropped by 13.7%, 20.4%
and 8.0% respectively. Prices of agricultural
machinery and vehicles also declined slightly.
Current trends in the agricultural industry
on the back of deep recession of the global
economy indicate that short-term outlook for
the sector is not as gloomy as for other sec-
tors of the Lithuanian economy, but even ag-
riculture is unlikely to avoid a downturn. In
the immediate future, milk producers will find
it most difficult to survive. However, food is
food and after the crisis is over its demand
will undoubtedly begin to grow worldwide.
Therefore, the Lithuanian agricultural sector
should have a bright future ahead of it, es-
pecially given the considerable inflows of EU
support (LTL 14.4 billion will be appropriated
for Lithuanian agriculture and rural develop-
ment in 2007–2013). However, the question
is: will there be any entities able to use the
support efficiently? A lack of skilled labour
in agriculture became a serious problem in
Lithuania as far back as 2007, and Lithuanian
farmers began talking about the possibilities
to invite people from third countries to work
in agriculture. Indeed, since the accession to
the EU until last year, the number of workers
decreased by half in the sector. On the one
hand, it is a positive development showing
that farms are becoming increasingly mod-
ern, labour productivity is improving, un-
skilled workers are leaving the industry, etc.
On the other hand, it is obvious that some
skilled labour also drained away from the sec-
tor as people went abroad looking for work or
were ‘successfully absorbed’ by the construc-
tion sector which offered much higher pay.
74
Maybe the deteriorating situation in the con-
struction, transport and other sectors of the
national economy will make some workers re-
turn to agriculture naturally. However, as time
went by, it became unpopular and unfashion-
able to be a farmer. Therefore, we believe that
the EU financial support must also be accom-
panied by actions of the national government
aimed at improving a farmer’s reputation for
instance, introduction of the most advanced
global technologies and forms of business or-
ganisation, inflow of foreign direct investment
and development of a training framework for
highly-skilled labour force. The time has come
for Lithuania to finally realise that in addition
to being a style of life agriculture can also be
a lucrative business.
Another fundamental problem for Lithuania is
a lack of a single food sector in the nation-
al economy uniting agriculture and process-
ing entities, which negatively affects both
sides. Lithuania is dominated by small farms
and small processing companies which incur
higher production costs. The European Com-
mission estimates that Lithuania lingers at the
bottom of the list of EU countries in terms of
milk production per farm. The indicator is low-
er in Bulgaria and Romania only. The situation
could be improved by closer cooperation of
farmers (according to the European Commis-
sion, Lithuanian cooperative companies united
10% of agricultural producers in 2007, while
25% of people living in rural areas of older EU
member states belong to cooperatives) as it
would give more power to farmers in negotia-
tions with processing companies. The number
of small companies in the Lithuanian meat
processing sector is excessive. Undertakings
of this type are unable to use their production
capacities in full and find it extremely difficult
to penetrate foreign markets as they can only
offer small quantities of their products and
are unknown. Processing entities should also
change their approach to farmers. It seems
that food producers chose the easiest strat-
egy: to maximise their profits here and now.
However, this strategy is doomed to fail as
one day they may find it impossible to obtain
raw materials. Instead of a short-sighted ap-
proach to their business, they should engage
in dialogue and coordinated activities with
farmers. Needless to say that the government
and various associated structures should also
join in addressing this problem.
Lithuanian Economic Outlook
13. Mining and quarrying
 13. Mining and quarrying
When the national economy is broken down
into sectors according to the classification of
economic activities, industry on the first level
comprises three economic activities: mining
industry, manufacturing industry and supply
of electricity, gas and water (energy). Since
Lithuania is not rich in natural resources,
mining is the smallest sector of the econo-
my and has three branches: oil production,
peat production and quarrying of stone, sand
and clay. Last year, this sector accounted for
just 0.41% of value added generated nation-
wide, while the share of the entire mining in-
dustry was above 22%. The growth indicator
of the mining industry was negative for the
fifth consecutive year. In 2008, the industry’s
value added at constant prices fell by about
7% from 2007 and the decline even acceler-
ated in the second half of last year (see Dia-
gram 13.1). While the prices of output grew
moderately in 2007, they increased consid-
erably last year. As a result, value added at
the then prices rose by 8% compared to the
previous year. A positive result was ensured
by the first half of the year since the annual
change in these prices contracted significant-
ly in the following six months and the nomi-
nal value added was lower than a year ago.
Turnover of the sector concerned increased
by about 7% last year, sales on the domes-
tic market were growing much faster than
exports, which accounted for 42% of output
sold and went down by 2 percentage points
(see Diagram 13.2).
Mining boasts excellent financial indicators:
in the last decade it stood out for its excellent
profitability, exceeding 25% last year and
growing despite the above-mentioned de-
cline in mining in the second half of the year.
Total liabilities of the sector’s companies were
relatively much lower than the entire econo-
my’s and the debt ratio stood at just 0.23 at
the end of 2008 (see Table 13.1). Last year,
the sector enjoyed a considerable increase
in investments in tangible assets which grew
1.7 times compared to the previous year. The
indicator improved markedly in the quarry-
ing sector as well as in oil production. Last
year, the average wage in the mining industry
went up by more than a fifth and exceeded
the national average almost 1.3 times, but
the number of workers fell by 8%.
Several years ago, the mining industry was
dominated by oil production in Lithuania. Re-
cord volumes of oil were produced in 2001
(about 470,000 tonnes) and oil production
accounted for over 78% of value added gen-
erated by the mining industry in 2001. How-
ever, since then the relative weight of oil pro-
duction has been declining steadily and fell
to just 40% last year. In 2008, only 128,000

Diagram 13.1
Value added created by mining and quarrying industry, annual change, %

25

20
13.4
15
10.1
10 8.0
10.1 22.0
4.1
5 12.1 0.8 15.2 8.7
4.9 8.7 2.6
0 -2.0 -1.8
-5.2 -4.6 -3.9
-5 -7.2
-8.6
-12.5
-10
-15
2003 2004 2005 2006 2007 2008 2008
II H
Deflator
Value added at constant prices
Value added at current prices

Source: Statistics Lithuania

76 Lithuanian Economic Outlook

 Diagram 13.2
Sales of mining and quarrying products, LTL Mio
700
600
500
400
117 215
238
300
200
310
250
100 209
0
2002 2003 2004
Domestic sales
Source: Statistics Lithuania
tonnes of oil was produced since prospected
fields are almost depleted, while the Geologi-
cal Survey held a tendering procedure for oil
prospecting and production at new fields in
2006. Since then, two winning tenderers – LL
Investicijos and Geonafta − have been in-
volved in a legal battle. And although the
companies seem to have finally come to an
agreement and intend to cooperate, the pros-
pecting work was been quite sluggish and
rather unsuccessful so far. J. Mockevičius,
head of the Geological Survey, says that no
positive changes in the oil production indus-
try should be expected this year. Moreover,
operations of oil production companies may
be negatively affected by the proposal put
forward by the Government to scrap roy-
alty tax incentives and impose a 20% basic
tax rate on all oil and gas fields. “If we go
back to a single tax rate for all fields, oil pro-
duction in small fields could be suspended,”
says Mockevičius. However, this implication
is doubtful as the current tax burden for oil
production is really low in Lithuania, while the
sector’s profitability rate is above 35%.
Last year, production of peat and peat bri-
quettes rose considerably compared to the
previous year, and value added, measured at
the then prices, generated by peat producers
increased by about 8% during the year. How-
Mining and quarrying
275
270
226
224
385
339 346
291
2005 2006 2007 2008
Exports
ever, their sales contracted to just LTL 100
million, and over 80% of output was sold on
foreign markets. Annual changes in produc-
tion and sales correlate weakly since much
of the output is stored and sold during next
year. Lithuania has vast resources of peat and
the demand is strong even during the crisis.
Therefore, peat producers are full of optimism
despite suffering a small loss last year due to
the poor first half of the year. Durpeta, one
of the largest peat producers and processors,
built a new modern peat processing plant in
Šepeta, Kupiškis district, investing LTL 15 mil-
lion. The company is expected to create 50
additional jobs in summer for seasonal work
in Kupiškis alone. Šilutės Durpės, a company
of the German Klasmann-Deilmann group,
also plans to expand.
The results of the quarrying sector, which
depend quite strongly on the construction
industry, were respectable last year: value
added at the then prices increased consider-
ably due to higher product prices and stood
at around LTL 180 million, or over 44% of
the total indicator of mining, turnover rose
by 12% to LTL 340 million and average profit-
ability of companies reached 26%. However,
there is little doubt that this year’s results will
be much worse as the construction industry is
set to undergo a deep downturn and another
77
 Table 13.1
Key statistical indicators of mining and quarrying

Ratio to the
Annual growth
Year economy’s
rate, %
indicator, %
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 309 287 171 149 0.4 –7.2 –12.5
Value added (at current prices), LTL Mio 380 410 214 205 0.4 8.0 –3.9
Total production, LTL Mio 777 834 450 414 0.4 7.3 –8.0
Labour productivity, LTL thou** 121.8 143.2 68.2 69.8 185.4 17.6 2.4
Number of persons employed, thou 3.1 2.9 3.1 2.9 0.2 –8.1 –6.1
Average monthly earnings, LTL 2389 2887 2561 2947 128.4 20.9 15.1
Fixed investments, LTL Mio 53 90 31 45 0.4 69.5 43.9
Foreign direct investments
187 188 187 188 0.6 0.7 4.6
(end of period), LTL Mio
Sales of goods and services, LTL Mio 739 734 419 372 0.3 –0.7 –11.2
Gross profit, LTL Mio 320 324 184 164 0.8 1.4 –11.0
Operating profit, LTL Mio 187 173 109 74 1.7 –7.6 –32.3
Profit before tax, LTL Mio 179 186 101 101 2.3 4.0 0.3
Assets (end of period), LTL Mio 1041 1150 1041 1150 0.6 10.5 3.8
Liabilities (end of period), LTL Mio 233 262 233 262 0.3 12.6 –21.5
Return on sales, % 24.24 25.39 24.12 27.25 659.2 – –
Return on assets, % 18.40 16.66 19.91 17.60 396.9 – –
Debt ratio (end of period), % 0.22 0.23 0.22 0.23 50.9 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

industry important for quarrying and produc- budget spending which will not be fully offset
tion of break-stone, road building and repair, by stronger EU financial support.
will also face difficulties due to the reduced

78 Lithuanian Economic Outlook

14. Manufacturing
 14. Manufacturing
Last year, the manufacturing industry (MI) re-
mained the largest sector of the Lithuanian
economy even though its share in the GDP
structure fell for a third consecutive year to
18.6%. Despite reaching the lowest level since
2000, the indicator was still well above those
of Latvia and Estonia as well as the EU aver-
age. In 2004–2006, the MI grew very strong-
ly as the average annual increase in value
added stood at 11% at constant prices in the
period concerned and was much higher than
the economy’s average. Two years ago, the
sector’s growth slowed down to 7.5% and fell
to a mere 2.1% in 2008 (see Diagram 14.1).
Overall indicators of the MI rely heavily on
the performance of Mažeikių Nafta (MN), the
largest industrial company, which varies from
year to year. Excluding MF’s contribution, an-
nual changes in value added generated by the
sector concerned were as follows: 12.0% in
2006, 10.8% in 2007, 3.9% in the first half of
2008 and –7.2% in the second half of 2008,
signalling a rather steep downward trend.
A large part of output produced by Lithu-
anian manufacturing industry companies
is sold abroad. As a result of flat domestic
consumption and exports of petroleum prod-
ucts which more than doubled, the share of
exports in the MI’s turnover soared by more
than 5 percentage points to 61.2% last year,
Diagram 14.1
Value added created by manufacturing industry, annual change, %
25
20.4
20
8.7
15 13.3
10
14.0
11.8
5 8.6
0 -0.7
-5
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
80
the highest level on record. Without MN’s in-
put, the relevant indicator rose by a percent-
age point to 54.5%. In a year, the volume of
exports went up by 7.5% to LTL 20.6 billion
and domestic sales stood at LTL 17.2 million
last year, exceeding the indicator of 2007 by
about 3% (see Diagram 14.2).
The level of productivity of Lithuanian MI
companies is several times lower than in de-
veloped countries. However, in 2008 it went
up markedly as the average value added
per employee, measured at the then prices,
was up by a fifth on previous year’s indicator
(see Table 14.1). This year, labour productiv-
ity should not be expected to rise sharply as
the level of capital investments dropped con-
siderably last year, down by nearly a tenth
in volume compared to 2007 (about 15% at
constant prices). The main contributors were
low expectations of businessmen, higher
borrowing costs and lower profitability of a
number of industrial sectors (see Table 4 in
the Annex). In addition, the sector concerned
lost its appeal to foreign investors as the flow
of FDI to the share capital of MI companies
was just LTL 112 million in 2008.
Last year, the MI lost its status as the largest
employer in Lithuania since workforce con-
tracted by 7% to 203,000 and lagged behind
14.7
11.3 11.6
10.5
6.0
0.9
3.8
9.5 5.1
9.5 7.5 7.5
2.1
-2.3
2005 2006 2007 2008 2008
II H
Lithuanian Economic Outlook
 Diagram 14.2
Manufacturing industry sales, LTL Mio
40000
35000
30000
25000
20000
11876
15000 10708
9695
10000
10173
5000 7686 8913
0
2002 2003 2004
Domestic sales
Source: Statistics Lithuania
domestic trade for the first time. The aver-
age wage in the MI rose by a smaller margin
that across the entire economy (by less than
17%). As we can see, after an interval of two
years labour costs were growing at a slower
pace than productivity in the manufacturing
industry. Despite an increase in the total turn-
over, MI companies earned LTL 1.3 billion in
pretax profits in 2008, or nearly twice as little
as one year ago, and the profitability ratio
declined by more than 3 percentage points to
a mere 2.3%. Last year saw a slowdown in
borrowing by MI companies. During the year,
the volume of liabilities rose by less than 2%
and the debt ratio fell slightly to 0.51.
A very sudden reversal of the trend of pro-
duction indicators and a dismal situation in
the neighbouring markets leave no hope that
the MI could manage to avoid a deep down-
turn this year. It is also reflected by data for
the first quarter of this year: output sold by
the manufacturing industry at constant prices
fell by 15.3%, or by 22% if we exclude MN.
Lithuania is no exception in this respect in
Europe as the industry is battling recession in
a number of countries. According to Eurostat,
in March industrial production in the eurozone
fell for the seventh consecutive month and
the annual decline was more than 20%, the
highest fall since 1990 when records began.
Slovakia is sending very worrying signals,
Manufacturing
20566
19131
15093
13216
16681 17239
13887
11482
2005 2006 2007 2008
Exports
while industry in Estonia has been falling for
13 months in a row reaching record levels in
February and March for the entire downturn
period (30%). In the first quarter of this year,
industrial output went down by 23.2% year-
on-year in Latvia, nearly 12% in Poland, over
14% in Russia and 32% in Ukraine.
Production of manufacturing industry’s com-
panies account for the ‘lion’s share’ of visible
exports of Lithuanian origin and the recovery
of the national economy is believed to be de-
pendent on the growth of exports. Therefore,
further development of the economy relies
heavily on the ability of the sector concerned
to pick up. General recipes on improving the
situation of the MI can also be found in the
previous issues of the Lithuanian Economic
Outlook and include the elimination of red tape
barriers, improvement of public administra-
tion and law enforcement effectiveness, elim-
ination of corruption, liberalisation of labour
market, support for export, fostering contacts
with potential investors, widening the range
of public services (information, etc.) for busi-
nesses, more pragmatism in relations with
Russia, development of venture capital funds.
Long-term prospects of the MI also rely heav-
ily on the overall quality of vocational training
and higher education system, where there is
much room for improvement, as well as ef-
ficient collaboration between the academic
81
 Table 14.1
Key statistical indicators of manufacturing industry

Ratio to the
economy’s Annual growth
indicator, rate, %
%
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 15152 15476 7891 7708 21.6 2.1 –2.3
Value added (at current prices), LTL Mio 16692 18631 8853 9308 18.6 11.6 5.1
Total production, LTL Mio 52458 64755 28113 32148 32.3 23.4 14.4
Labour productivity, LTL thou** 76.4 91.8 41.1 47.9 118.9 20.1 16.7
Number of persons employed, thou 218.5 203.0 215.6 194.2 15.7 –7.1 –9.9
Average monthly earnings, LTL 1814 2116 1941 2177 94.1 16.7 12.2
Fixed investments, LTL Mio 3176 2872 1764 1511 13.3 –9.6 –14.3
Foreign direct investments (end of period),
12571 7326 12571 7326 23.3 –41.7 –36.2
LTL Mio
Sales of goods and services, LTL Mio 46071 56678 24815 27954 26.8 23.0 12.7
Gross profit, LTL Mio 8516 7808 4534 3257 19.4 –8.3 –28.2
Operating profit, LTL Mio 2599 1753 1256 261 17.5 –32.5 –79.2
Profit before tax, LTL Mio 2563 1308 1352 –144 16.1 –49.0 –
Assets (end of period), LTL Mio 32554 33486 32554 33486 17.6 2.9 –8.0
Liabilities (end of period), LTL Mio 16824 17084 16824 17084 20.0 1.5 –12.2
Return on sales, % 5.56 2.31 5.45 –0.52 59.9 – –
Return on assets, % 8.35 3.71 8.47 –0.83 88.5 – –
Debt ratio (end of period), % 0.52 0.51 0.52 0.51 114.2 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

and business communities. The most press-
ing issue today is the recovery of the financial
market as companies are in a severe need of
cheap credits. The problem will not be solved
without government interference (loan guar-
antees, etc.) in the immediate future.
In addition to exporting companies, it is very
important to support production aimed at the
domestic market which drives out imported
goods or services. Given the current unem-
ployment rate which is close to a record high,
it is necessary to stimulate domestic turnover,
in other words, production of goods and pro-
vision of services for our own needs. To quote
Prof. Čičinskas: “It is extremely reasonable to
support the activities of small companies, es-
pecially family businesses; the rules for set-
ting up, accounting and taxation must be as
simple as possible.”
It seems that the national government under-
stands the urgency of action but everything
the current Cabinet has done until now was
too little too late. As rightfully noted by Ver-
slo Žinios business daily (5 May 2009), the
Economic Stimulus Plan has had no impact so
far. The association Investors’ Forum agrees
adding that the Investment Promotion Pro-
gramme became outdated before it was even
put to practice and direct contracts with po-
tential foreign investors remained very weak.
By the way, although now the country needs
foreign investment more than ever, the role
and efficiency of the Lithuanian Development
Agency remain meagre.
Nevertheless, there are some encouraging
signs: Sunrise and Sunset Commissions are
putting forward recommendations and have
the backing of the Cabinet; the business com-
munity welcomed new proposals of the Minis-
try of Economy to support exports by way of
short-term credits and to provide partial risk
compensation to insurance companies, to de-
fine the criteria when preparation of detailed
plans is unnecessary for extension or restruc-
turing of production (which would speed up
the complex and protracted approval process

82 Lithuanian Economic Outlook

of spatial planning documents as well as the
development of infrastructure for industrial
parks and facilitate FDI flows). The govern-
ment agreed that the detailed plans in areas
which have the approved master plan of the
municipal territory and do not provide for con-
struction of any major infrastructure facilities
can be approved by the director of municipal
administration instead of the municipal coun-
cil. The requirement to prepare a detailed plan
will also be scrapped for land lots which are
being merged or divided, where new buildings
are planned to be built or the existing ones to
be rebuilt or upgraded on a built-up territory,
when forests are to be planted on agricultural
land according to the approved procedure and
in other cases. One can only hope that these
measures will be implemented quickly.
The development of the MI relies heavily on
the situation on export markets and thus
on the development of the global economy.
However, if the current crisis forces the na-
tional government and businessmen to join
efforts in materially improving the business
environment and competitiveness, it is very
likely that the downturn of the manufacturing
industry and other economic sectors will not
last long, showing that there is truth in the
saying that every cloud has its silver lining.
Food products and beverages
Among the sectors of the manufacturing in-
dustry reviewed here, this economic activ-
Diagram 14.3
Value added created by manufacture of food products, annual change, %
25
20
15
9.8
8.4
10
4.4
5 9.8
5.4
0 -1.4
-5
-10
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
Manufacturing
ity (the food industry) generated the larg-
est amount of value added last year. At the
then prices it comprised LTL 3.4 billion, or
18.1% of the entire MI’s indicator. Its rela-
tive weight used to be even higher in previ-
ous years: having stood at 30% in 1995, it
gradually declined to 17% (2005–2006) dur-
ing the decade. Two years ago, a different
trend emerged as the sector reviewed was
growing at a much faster pace than the man-
ufacturing industry’s average. Although value
added generated by the food industry at con-
stant prices last year fell by 2.3% annually
(see Diagram 14.3), the decline was caused
by short-term adverse circumstances such
as the global financial crisis, massive price
fluctuations on global markets and temporary
suspension of EU export subsidies and does
not signal any deterioration in long-term out-
look. On the contrary, the United Nations and
many futurologists predict that the demand
for food products and their prices will grow
worldwide, so the main premises for the de-
velopment of the national food industry re-
main unchanged.
In 2003–2007, the annual growth of exports
was faster than that of domestic sales. How-
ever, their share in turnover of companies
within the food products and beverages in-
dustry declined by almost two percentage
points last year to 34% (see Diagram 14.4).
In addition to the above-mentioned reasons,
the situation was compounded by the weak-
ening US dollar as well as depreciation of na-
22.1
8.1
12.4
10.6
8.2
4.4 2.6
14.0 3.9
8.0 10.4
8.0
7.8
-2.3
-3.9
2005 2006 2007 2008 2008
II H
83
 Diagram 14.4
Sales of food products and beverages, LTL Mio
10000
9000
8000
7000
6000
5000 1733
1445
1237
4000
3000
2000 3913
3557 3753
1000
0
2002 2003 2004
Domestic sales
Source: Statistics Lithuania
tional currencies in Russia, Poland and some
other markets important for our exports.
For a third year in a row, capital investments
and labour productivity in the industry im-
proved considerably, and the growth of sales
was accompanied by a shrinking number of
workers. Last year, the capital investments to
value added ratio reached nearly a fifth and
stood well above the manufacturing industry’s
indicator. It is logical that the average wage
in the food industry increased by a slightly
higher margin than across the entire MI. In
2008, it rose by 17% from the previous year
(see Table 14.2). The FDI flow to the industry
stood at LTL 111 million last year and rose by
about a fifth compared to 2007.
For several years, the food industry stood out
for its almost stable profitability ratio which
amounted to 5.3% on average in 2003–2006,
rose to 7.3% two years ago and fell below
3% last year. Still, for a third consecutive
year, the sector was more profitable than the
entire manufacturing industry. Several fac-
tors cloud excellent future prospects of the
industry: a relatively high debt ratio which
grew to 0.53 last year; the ratio of total liabil-
ities of companies operating in the sector to
value added generated during the year was
well above the MI’s indicator (1.09); a recent
shortage of local raw materials as agriculture
84
3359
3234
2409
2119
6405
5750
4740
4207
2005 2006 2007 2008
Exports
in the country lags behind the accelerating
food production.
This year will not be easy for the food indus-
try as signalled by the declining sales in the
first quarter of 2009. As the Lithuanian econ-
omy is contracting rapidly, the domestic de-
mand is weakening, competition from Polish
products is strengthening and the situation
in the neighbouring regions is unfavourable
for exports now. Drop in turnover of almost
10% clearly shows that. Russia has become
a very important market for the food industry
because it absorbs about a third of exported
foodstuffs. However, Russian economy is set
to undergo a deep recession in 2009 which
will inevitably restrict import opportunities.
For a number of years, the milk process-
ing sector has been generating the largest
share of turnover of the food industry, which
was above 26% last year. Following a mas-
sive leap in 2007, the volume of total output
sold by milk processing companies (here and
further: including products not attributed to
core activities of the company and services
provided) grew by just 6.5% to around LTL
3 billion. This deceleration was caused by
weaker exports as their contribution to turn-
over fell by more than five percentage points
to 44.4%. The year 2008 will be one of the
worst years for milk processing companies in
Lithuanian Economic Outlook
Table 14.2
Key statistical indicators of food products manufacture

Ratio to the
Annual growth
manufacturing
rate, %
indicator, %
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 2594 2535 1420 1364 16.4 –2.3 –3.9
Value added (at current prices), LTL Mio 3124 3379 1781 1850 18.1 8.2 3.9
Total production, LTL Mio 8984 9764 4864 5040 17.8 8.7 3.6
Exports, LTL Mio 3234 3359 1801 1726 10.0 3.9 –4.1
Labour productivity, LTL thou** 1)
71.6 78.8 40.8 43.8 85.9 10.0 7.3
Number of persons employed, thou 45.0 44.3 45.1 43.6 21.8 –1.6 –3.4
Average monthly earnings, LTL 1721 2021 1832 2070 95.5 17.4 13.0
Fixed investments, LTL Mio 590 668 316 374 23.3 13.3 18.5
Foreign direct investments (end of period),
1523 1554 1523 1554 21.2 2.0 2.7
LTL Mio 1)
Sales of goods and services, LTL Mio 9927 10609 5554 5559 18.7 6.9 0.1
Gross profit, LTL Mio 2391 1974 1379 1027 25.3 –17.4 –25.6
Operating profit, LTL Mio 804 330 486 205 18.8 –58.9 –57.8
Profit before tax, LTL Mio 725 302 439 169 23.1 –58.4 –61.4
Assets (end of period), LTL Mio 6558 6969 6558 6969 20.8 6.3 –0.9
Liabilities (end of period), LTL Mio 3378 3697 3378 3697 21.6 9.4 –5.5
Return on sales, % 7.31 2.85 7.91 3.05 123.3 – –
Return on assets, % 12.00 4.34 13.95 4.85 116.8 – –
Debt ratio (end of period), % 0.52 0.53 0.52 0.53 104.0 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices
1)
Indicator of food products, beverages and tabacco manufacture

Source: Statistics Lithuania

terms of profitability because of the surplus
of products existing on export markets and
the global economic downturn. The decline in
product prices, which were much higher in
the second half of 2007, worldwide as well as
the lifting of EU subsidies for dairy products
exported to third countries in mid-2007 had
a strong negative impact. The deteriorating
situation pushed all major dairy companies
in the country into a negative territory last
year as their raw materials acquired under
earlier contracts were much more expensive.
As milk processing companies began rapidly
reducing milk producer prices, farmers have
found themselves in an unenviable situation
as their costs soared last year due to higher
fertiliser and fuel prices. The Ministry of Ag-
riculture reported that maximum milk pro-
ducer prices declined 1.9 times in the period
from December 2007 to March 2009 (down
from 923 to 488 LTL/t) and reached the level
of June 2004. Although milk producer prices
were falling across the European Union, Lith-
uania saw the steepest decline and the low-
est price level achieved. However, milk prices
have stabilised recently after the EU renewed
and raised subsidies for dairy exports to third
countries.
Actually, small dairy farms dominate in Lithjua-
nia. which entails higher dairy production
costs. The European Commission estimates
that Lithuania is third from the bottom in the
list of EU countries in terms of milk production
per farm. In our country, average annual milk
production per farm is about 20,000 litres,
and only Bulgaria and Romania have lower
indicators. Therefore, it is hardly surprising
that Lithuania has failed so far to utilise the
milk quota granted by the EU, which stood at
1.6 million tonnes in 2008−2009, while the
production indicator was below 85%. Last
year, the buying-in volumes of milk rose by
a mere 2% from the previous year. However,
an increasing amount of raw milk is being
imported from Latvia. In 2008, imports from

Manufacturing 85
 Latvia accounted for about 13% of total con-
sumption by Lithuanian companies.
There is a high degree of concentration in the
Lithuanian milk processing sector. About 95%
of overall earnings in the milk processing
sector are shared by five largest companies:
Rokiškio Sūris, Pieno Žvaigždės, Žemaitijos
Pienas, Marijampolės Pieno Konservai and
Vilkyškių Pieninė, whose sales have grown
strongly and profit margins have been re-
spectable in recent years. However, last
year’s results were disappointing. In 2008,
revenue of Pieno Žvaigždės, one of the larg-
est milk processing companies in Lithuania,
virtually did not change and stood at LTL 663
million, but a good profit earned during the
previous year was replaced by a loss of LTL
4.3 million. The company exports much of its
production to Russia and has optimistic plans
for this year thanks to the above-mentioned
export subsidies as it looks to earn LTL 690
million in turnover and LTL 24 million in pre-
tax profit. In the first quarter of this year, the
company returned a profit.
Last year’s results of Rokiškio Sūris were also
similar: sales grew marginally to LTL 682 mil-
lion and the company incurred a loss of LTL
18.3 million. Meanwhile, in the first quarter of
this year, sales shrank by 5% year-on-year.
The company expects that its profit margins
will be 1–2% and turnover will drop by 14%
in 2009. Having invested about LTL 40 million
to modernise production, the company plans
to invest just LTL 5 million this year.
The Žemaitijos Pienas group earned LTL 472
million in turnover, up by about 2%, and in-
curred a loss of LTL 3.7 million last year. In
the first quarter of this year, the volume of
output sold declined by a fifth and losses
shrank by a third year-on-year.
Sales of the Vilkyškių Pieninė group rose by
12% last year to LTL 152 million and losses
stood at about LTL 12 million. The compa-
ny has grown strongly this year achieving a
turnover of LTL 46 million from January to
April, up by 39% year-on-year.
Marijampolės Pieno Konservai is a manufac-
turer of slightly different products than these
four companies. Its product range is domi-
nated by canned dairy products and milk
powder. The company has grown strongly
for several successive years, and its turnover
rose by 8.3% to LTL 314 million in 2008. As a
result of a steep increase in purchasing prices
of raw materials, the company incurred a loss
of LTL 3 million last year. The company is ac-
86
tively looking for new markets and is eyeing
African countries and Azerbaijan.
Fish processing companies increased their
production strongly in 2007 but slowed down
considerably last year earning about LTL 860
million in revenue, up by almost 7% from the
previous year. Over 70% of production was
exported.
The meat processing industry has been
growing strongly for six years in a row, al-
though it lost some momentum last year.
Turnover of meat processing companies rose
by almost 16% to LTL 2 billion, and the sec-
tor’s share in total revenue of food industry
companies rose by a percentage point to
17.5%. A low degree of concentration of com-
panies in the sector is inhibiting the growth of
exports; the percentage of products sold on
foreign markets declined by 1.1 percentage
points to 21% in 2008. Since the situation of
the Lithuanian economy is deteriorating rap-
idly, immediate prospects of meat processing
companies do not look good as they should
focus more on the penetration of foreign mar-
kets. By the way, Russia has been increasing
imports of meat and meat products strongly
in recent months.
Producers of meat products are constantly
facing problems with the supply of raw mate-
rials: the majority of them must be imported
because Lithuanian cattle and pig breeders
are successfully selling their animals abroad,
but cattle exports fell by about 7% last year.
In general, cattle and swine herds have been
contracting in Lithuania lately (see Agricul-
ture).
Currently, the concentration process in the
meat sector has accelerated. Looking at indi-
vidual companies we can see that the Biovela
group has been reinforcing its position look-
ing to acquire new companies, including in
Latvia as well. Its turnover stood at LTL 352
million two years ago and rose to about LTL
500 million last year. Agrovet, one of the
largest companies in the meat industry which
invests heavily, boosted its sales by 35% for
the second year in a row and earned LTL 246
million in revenue last year.
The share of bread, confectionery and
sugar producers in the output sold by the
food industry did not change in 2008 and
stood at around 18%, while their overall
turnover grew by about 9% to LTL 2.03 bil-
lion during the year. Exports generated about
27% of turnover, a similar percentage to two
years ago. The said increase in turnover was
Lithuanian Economic Outlook
caused by higher product prices since pro-
duction of bread and confectionary did not
increase and sugar production declined 1.8
times to just 70,000 tonnes. This year, sug-
ar production should fall even further as the
sugar quota for the only remaining factory in
Kėdainiai was cut to 64,000 tonnes. By the
way, retailers noticed that sales of sugar in
the first quarter of this year rose by a third
year-on-year. This raises suspicion that sugar
may be bought for the increasing production
of moonshine.
Last year, Vilniaus Duona controlled by Finn-
ish capital raised its product prices by 15%.
Its sales went up by almost a quarter to LTL
119 million but the company incurred a loss of
LTL 3.6 million. Vilniaus Duona opened a new
bakery which required significant investment
and was operating below its full capacity in
2008. The company hopes to boost produc-
tion through exports to other Baltic states.
Having successfully survived the change in
management, candy maker Vilniaus Pergalė
exceeded its targets last year boosting turn-
over by 11% to LTL 82 million and expects to
earn LTL 90 million in revenue this year. Vil-
niaus Pergalė has a 3-ha land plot in a pres-
tigious Žvėrynas area near the new commer-
cial centre Panorama. This April, the company
was divided into four enterprises two of which
will manage real estate.
Last year, turnover of the grain processing
and fodder sector stood at around LTL 1.5
billion, or about 13% of the food industry’s
indicator, rising by almost a tenth in a year.
Exports accounted for over 50% of total rev-
enue and their share has grown for several
years in a row. Kauno Grūdai remained the
largest company in the sector. Judging from
the figures for January to September, its sales
rose almost 1.6 times in 2008 to over LTL 450
million.
Panevėžys-based Amilina (formerly known
as Malsena) retained its high growth rate in
2008 boosting sales by about 40% to LTL 227
million. Last year, the company sold its flour
and pasta businesses focusing solely on pro-
duction of starch, which is expected to grow
by about 30% this year and generate about
LTL 170 million in revenue. The company ex-
ports 95% of its production.
Last year, the growth of turnover of com-
panies operating in the beverages sector
slowed down considerably. Sales rose by more
than 7% to LTL 1.75 billion, while its relative
weight in turnover of the food industry de-
Manufacturing
clined slightly during the year to 15.4%. The
growth of sales relied on the domestic market
which was negatively affected by higher ex-
cise rates on alcoholic beverages introduced
in early 2008, since exports comprised just
about 8% of output and did not change dur-
ing the year. Although the value of production
sold increased, Statistics Lithuania estimates
that the production volume of all main groups
of beverages, namely, soft drinks, beer, wine
and strong drinks, declined in 2008. Produc-
tion of the latter and beer comprised 1.54
million decalitres (dal) and 28.1 million dal
respectively in Lithuania last year, down by
17% and 2% from the previous year. This
year will be a difficult one for the sector as the
sharp economic downturn coupled with high-
er excise rates has negatively affected the do-
mestic demand and no export breakthroughs
are also expected. Figures of the first quarter
signal that the situation is dire: companies
have reported partial suspension of produc-
tion and layoffs. Moreover, competition from
imported beverages also intensified. Even the
Lithuanian beer, which has strong positions,
feels the pressure of cheap Polish imports.
Last year, Švyturys-Utenos Alus remained the
beer market leader with its 46% market share.
Turnover of the company owned by the Dan-
ish Carlsberg group stood at LTL 567 million,
up by 10.2% from the previous year. Com-
pared to 2007, the company’s pre-tax profit
fell by 15.6% to LTL 144.5 million. According
to the company's press release, the growth
of turnover mostly relied on higher product
prices resulting from an increase in the cost of
raw materials and energy sources. Last year,
the company produced and sold 19.3 million
dal of drinks, down by 1.4% from 2007.
In 2008, revenue of Kalnapilio-Tauro Grupė,
the second largest brewery in Lithuania con-
trolled by Danish Royal Unibrew, reached LTL
184 million, up by 24% from two years ago.
Last year, the volume of drinks sold by the
company increased by 16% from 2007 to 9.2
million dal. Royal Unibrew reported that Kal-
napilio-Tauro Grupė strengthened its posi-
tions both on the beer and soft drinks market.
The report said that the company controlled
about 25% of the Lithuanian beer market.
Last year, turnover of Kaunas-based Ragutis,
a brewery within the Finnish Olvi group, rose
by 8% from 2007 to LTL 82 million and op-
erating profit was just LTL 110,000. Ragutis
brewed 4.4 million dal, up by 3.1% from two
years ago.
87
 For several consecutive years, Šiauliai-based
Gubernija operated at a loss. Last year, it in-
curred LTL 6 million in losses, a result similar
to 2007, and revenue plunged by almost a
quarter to LTL 38 million.
Last year, total turnover of makers of strong
drinks did not grow much and the situation
has been even worse this year. In 2008,
Kaunas-based Stumbras earned LTL 161
million in revenue and LTL 29 million in net
profit, down by 4.2% and 11.6% respectively
from 2007. At the beginning of the year, sales
declined in double digits and the company
was forced to suspend production for a short
period of time.
In 2008, turnover of Alytus-based Alyta
group rose by 3% to LTL 204 million, but the
company incurred a loss of LTL 12.7 million.
In the first quarter of this year, the company,
which has lately operated just four days per
week, also returned a loss.
Last year, net profit of Vilniaus Degtinė fell
by a quarter to LTL 1.27 million and sales
rose by 2.3% to LTL 69 million. Compared to
2007, exports of production rose 1.8 times
to LTL 2.3 million. According to polling com-
pany AC Nielsen, Vilniaus Degtinė managed
to raise its vodka market share from 21.9%
to 24.5% in the first quarter of this year.
This year and next year will be difficult for
producers of strong beverages as the rel-
evant shadow economy keeps growing and
people now are more inclined to save.
Diagram 14.5
Value added created by manufacture of textiles, annual change, %
15
10 6.1
5
10.7
0 1.5
-0.8 -1.4 -5.2
-4.6
-5 -2.2
-3.7
-10
-15
-20
2003 2004 2005
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
88
Textiles and wearing apparel
This sector, also called the light industry, is
undergoing difficult times. Higher labour costs
and an influx of cheap imports from Asia have
contributed to a rather poor performance of
the sector concerned in recent years. In 2008,
these problems were compounded by a lack of
working capital after the banks tightened their
lending policies. As a result, a decline of two
years ago was followed by a 12% drop in val-
ue added at constant prices generated by the
light industry in 2008 (see Diagram 14.5). At
the then prices, value added was LTL 1.44 mil-
lion, its lowest level since 2000. Having stood
at over 20% in 1999, the industry’s share in
value added generated by the MI went down
to 7.7% last year. In six years, domestic sales
almost doubled but were offset by contract-
ing exports (see Diagram 14.6). Last year,
exports declined by 17% compared to 2007,
while sales in Lithuania did not change much.
As a result, the relative weight of exports fell
by 3.5 percentage points to about 72%. Our
companies have been losing their position on
foreign markets. The downward trend of tex-
tiles and apparel exports (of Lithuanian origin)
is reflected in foreign trade statistics, while
domestic consumption will also weaken in the
coming years due to the economic downturn.
The light industry has been steadily losing its
importance as one of the largest employers.
The relative number of workers in the indus-
try has been declining for several years and
5.9
3.8 8.3
1.0
-2.7 -2.4
-6.5
-12.1
-18.4
-11.1
-0.2
-18.6
2006 2007 2008 2008
II H
Lithuanian Economic Outlook
 Diagram 14.6
Sales of apparel and textiles, LTL Mio
3500
3000
2500
2000 2596 2504
2947
1500
1000
500
624 666
402
0
2002 2003 2004
Domestic sales
Source: Statistics Lithuania
stood at 30,600 in 2008, down by a fifth from
two years ago and 1.8 times from 2002 when
it reached the maximum. Wages grew by less
than 14% and remained much lowed than
the MI’s average.
Unfortunately, recent investment and profit
indicators of the sector are regrettable (see
Table 14.3). Having contracted by 40% two
years ago, investments in tangible assets de-
clined further by almost a fifth, and their ratio
to value added was just 5.6%, nearly three
times lower than the MI’s average. The prof-
itability ratio went into a negative territory
last year and stood at –1% but financial li-
abilities also declined by about 9%.
The light industry comprises textiles, dress-
making as well as leather and footwear indus-
try. The latter ended 2008 with a zero prof-
it, the average profitability of dressmakers
plummeted about three-fold to 1.6% and the
textile indicator, which was already negative
two years ago, lost another three percentage
points falling to –3.8% last year. Sales of all
these three industries plunged last year.
Since the light industry is labour-intensive,
the Cabinet should pay more attention to it
given the massive scale of unemployment in
the country. Moreover, the industry has old
traditions in Lithuania as well as a certain sci-
entific potential. The apparel and textile in-
Manufacturing
2363
2330 2355
1960
702 721 751 746
2005 2006 2007 2008
Exports
dustry is still capable of competing on foreign
markets and becoming a higher value-added
industrial sector. By the way, textiles remain
one of a handful of product groups with a pos-
itive foreign trade balance. The current global
economic crisis and changed situation on the
local labour market (labour force is no longer
in deficit, labour costs began to fall sharply
this year) open up new opportunities for the
light industry: there is an increasing num-
ber of signals that foreign companies began
searching actively for partners in the Baltic
states. Gediminas Viškelis, Director General
of the Lithuanian Apparel and Textile Industry
Association (LATIA), believes that Western
companies, given the current situation, are
no longer willing (or able) to risk large-scale
buying in China. In his opinion, the number
of workers in this Lithuanian economic sector
has declined recently as a result of advanced
technologies, not a shortage of orders. This
statement is partially supported by statistics
as labour productivity rose by a tenth in the
light industry last year. Nevertheless, the ap-
parel and textile industry needs government
support more than any other sectors as it is
in a severe need of cheap credits to finance
working capital and investments.
Still, neither Western European nor Lithua-
nian companies will be able to compete with
their Asian counterparts on production costs
89
 Table 14.3
Key statistical indicators of textiles manufacture

Ratio to the
Annual growth
manufacturing
rate, %
indicator, %
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 1526 1341 771 629 8.7 –12.1 –18.4
Value added (at current prices), LTL Mio 1616 1437 816 664 7.7 –11.1 –18.6
Total production, LTL Mio 3114 2706 1557 1279 4.9 –13.1 –17.8
Exports, LTL Mio 2363 1960 1154 907 5.8 –17.1 –21.4
Labour productivity, LTL thou** 42.5 46.9 22.8 23.7 51.1 10.3 3.5
Number of persons employed, thou 38.0 30.6 35.7 28.1 15.1 –19.4 –21.4
Average monthly earnings, LTL 1345 1529 1430 1561 72.3 13.7 9.2
Fixed investments, LTL Mio 98 80 54 58 2.8 –18.1 6.1
Foreign direct investments (end of period),
451 404 451 404 5.5 –10.4 –7.7
LTL Mio
Sales of goods and services, LTL Mio 2375 2114 1194 1004 3.7 –11.0 –15.9
Gross profit, LTL Mio 478 390 224 191 5.0 –18.3 –14.9
Operating profit, LTL Mio 73 9 14 0 0.5 –87.1 –100.7
Profit before tax, LTL Mio 42 –20 –4 –17 – – –
Assets (end of period), LTL Mio 1950 1866 1950 1866 5.6 –4.3 –6.3
Liabilities (end of period), LTL Mio 982 897 982 897 5.3 –8.6 –12.6
Return on sales, % 1.77 –0.96 –0.32 –1.68 – – –
Return on assets, % 2.08 –1.04 –0.38 –1.79 – – –
Debt ratio (end of period), % 0.50 0.48 0.50 0.48 94.3 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

given recent developments. The national ap-
parel and textile industry will have to invest
more into brands and design developing prod-
ucts with higher value added and outsource
more and more cheaper and simple opera-
tions to low-cost countries. Lithuania has ma-
jor trump cards: producers are flexible, ex-
peditious and are able to make fashionable
clothes, which allows them to cooperate with
well-known European companies. Moreover,
as we mentioned in our previous publication,
it is reasonable to concentrate on manufac-
ture of products that are given priority by
the EU. These products include articles from
biodegradable materials, protective clothing,
technical textile products, etc. Another prom-
ising area is the design of products, logistics
and management of apparel manufacture.
Although the results across the sector vary
from company to company, the aggregate
figures highlight the deteriorating situation in
the sector. The number of reports on compa-
nies within the light industry laying off work-
ers, going into bankruptcy or out of busi-
ness has been increasing. The latter include
Kaunas-based Drobė and Dobilas, Raseiniai-
based Litspin and Camira Fabrics, Kėdainiai-
based Natūrali Oda, Alytus-based ERC and
Trikotažo Gama, Kupiškis-based Viglita, etc.
Last year, more than 800 people were made
redundant by Linas, 272 by Audimas, 120 by
Sparta, 56 by Skinija, even though this com-
pany, which has grown strongly in the last
few years, saw its turnover increase by 7%
in 2008 to LTL 24.5 million. Last year, Sparta
lost a major customer from Ireland and its
sales dropped down by a tenth to LTL 13.4
million. The company incurred losses but
hopes to return a profit this year despite the
expected decrease in turnover.
Last year, Panevėžys-based Linas group in-
curred a huge loss of LTL 15.9 million and its
revenue dropped by almost 30% to LTL 45
million.

90 Lithuanian Economic Outlook

Sportswear and leisurewear maker Audimas
remained one of the largest companies in the
sector but its sales went down by 23% to LTL
86 million.
Failures continue to haunt the Utenos
Trikotažas group, probably the most famous
company in the light industry. Last year, its
losses rose 2.4 times from 2007 to LTL 18.6
million and turnover shrank by almost a fifth
to LTL 111 million. Still, there is “some light
at the end of the tunnel”. Nerijus Vilūnas,
CEO of Utenos Trikotažas, says that the com-
pany has not lost any of its major and long-
term customers during this year. In the first
quarter of this year, turnover of the compa-
ny stood at LTL 20.4 million, down by 41%
year-on-year, but operating profit rose from
LTL 0.4 million to LTL 0.7 million. “Our profit
margins increased as a result of two factors:
optimised operations which allowed us to cut
costs significantly and our focus on higher
value-added production,” insisted Vilūnas.
Today, the company is not operating in a sur-
vival mode; it is looking for ways to continue
its restructuring process and increase exports
of new products.
It is quite difficult to find any success sto-
ries of late in the industry concerned. One of
the candidates is Danspin from Raseiniai dis-
trict. Founded by the Danish capital, this yarn
spinning company managed to boost its turn-
over by about a quarter to LTL 14 million and
earned a profit of LTL 0.8 million last year.
Diagram 14.7
Value added created by manufacture of wood, paper products and furniture, annual change, %
30
25.7
25
19.3 8.9
20
15
10 20.2
16.7
5 8.7
0 -1.0
-5
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
Manufacturing
Wood, paper products and furniture
The wood, paper products and furniture in-
dustry (hereinafter the ‘wood industry’) has
been growing strongly for a long time. In
2000–2006, its value added at constant prices
was rising by 18% on average annually. Two
years ago, the growth indicator was slightly
below the said average and stood at 11%,
then declined to 3% in 2008 (see Diagram
14.7). This marked slowdown was caused by
weaker demand on foreign markets because
of the global crisis and by negative develop-
ments in the Lithuanian construction indus-
try. These negative factors will only become
stronger this year and the wood industry is
very likely to undergo a deep downturn. In
the first quarter, sales went down by more
than 25% already.
Last year, value added at the then prices gen-
erated by the wood industry stood at LTL 3.1
billion, or almost 17% of the MI’s indicator,
and was close to the figure of the food and
beverages industry. During the year, prices of
its products increased slightly.
The sector has been able to compete success-
fully on foreign markets as reflected in the
large surplus of foreign trade in the relevant
products. However, the growth of exports of
the wood industry slowed down considerably
last year to just 2% (see Diagram 14.8). Al-
though domestic sales also increased by a
small margin, the relative weight of exports
16.7
14.3
0.1
10.6 5.9
1.9
14.2 4.2
10.8
0.9 0.2
3.3
1.1
-0.9
2005 2006 2007 2008 2008
II H
91
 Diagram 14.8
Sales of wood, paper products and furniture, LTL Mio
6000
5000
4000
3000
2185
2000 2111
1753
1000
1381
737 892
0
2002 2003 2004
Domestic sales
Source: Statistics Lithuania
fell for a fifth year in a row to below 55%. By
comparison, this indicator was above 70% in
2002–2003 but subsequently exports of both
wood products and furniture grew at a much
slower pace than domestic sales.
This trend is disconcerting and is partially
caused by a lack of foreign direct investment.
Nevertheless, last December saw a break-
through in the industry: Swedish furniture
giant IKEA became the strategic investor in
Kazlų Rūda-based Girių Bizonas, the largest
manufacturer of chipboard for furniture. Un-
til then, Sigitas Paulauskas, owner of Vakarų
Medienos Grupė (VMG) which previously con-
trolled the company, had plans to join efforts
with IKEA and build an industrial complex in
Alytus as well. The plant was said to become
one of the most up-to-date and largest man-
ufacturers of medium-density fibreboard in
Europe. The project was believed to be worth
LTL 450–700 million with 350–600 new jobs.
Unfortunately, VMG failed to find a compro-
mise with the Directorate General of State
Forests and obtain any guarantees for the
supply of raw materials and decided to move
the project to Belarus. Paulauskas says that
VMG also plans to relocate some of the ex-
isting production capacity from Lithuania to
Belarus. Moreover, VMG will also invest into
its wood processing unit in Ukraine this year
92
3172
3098
2726
2409
2535 2632
1960
1590
2005 2006 2007 2008
Exports
where it plans to manufacture both pre-forms
and final products.
All this is yet another example of the lack of
national strategy for forestry and wood in-
dustry and the need for a comprehensive ap-
proach. This has resulted in a strange situa-
tion when investors are withdrawing from the
country due to shortages of raw materials and
forest enterprises complain of their inability to
sell the same. Managers of forest enterprise
have been complaining that no one buys or
can afford to buy timber as the construction
industry has come to a halt during crisis and
that the timber prices, which were fixed under
a new procedure as far back as December,
cannot be easily adjusted. “Forest enterprises
are unable to sell and processing companies
cannot afford to buy timber at approved pric-
es since they are too high for the market,”
said Benjaminas Sakalauskas, head of the Di-
rectorate General, this February. For more on
the topic of forestry, please see the previous
issue of the Lithuanian Economic Outlook.
The main statistical indicators of the wood in-
dustry are presented in Table 14.4. In the last
decade, the headcount in the industry was on
the rise but declined by almost 9% last year
to 48,000. A number of companies operat-
ing in the sector are located in remote areas
Lithuanian Economic Outlook
Table 14.4
Key statistical indicators of wood and paper products and furniture manufacture

Ratio to the
Annual growth
manufacturing
rate, %
indicator, %
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 2823 2917 1422 1438 18.8 3.3 1.1
Value added (at current prices), LTL Mio 2999 3125 1533 1535 16.8 4.2 0.2
Total production, LTL Mio 5633 5805 2911 2828 10.6 3.1 –2.9
Exports, LTL Mio 3098 3172 1536 1501 9.5 2.4 –2.3
Labour productivity, LTL thou** 57.1 65.1 29.6 33.7 71.0 13.9 14.0
Number of persons employed, thou 52.5 48.0 51.8 45.5 23.6 –8.5 –12.1
Average monthly earnings, LTL 1631 1900 1748 1945 89.8 16.5 11.3
Fixed investments, LTL Mio 446 466 269 194 16.2 4.6 –27.9
Foreign direct investments (end of period),
777 817 777 817 11.2 5.1 5.5
LTL Mio 1)
Sales of goods and services, LTL Mio 5746 6378 2983 3104 11.3 11.0 4.1
Gross profit, LTL Mio 782 762 372 375 9.8 –2.5 0.8
Operating profit, LTL Mio 251 104 104 15 5.9 –58.6 –85.3
Profit before tax, LTL Mio 170 –13 59 –45 – – –
Assets (end of period), LTL Mio 4226 4862 4226 4862 14.5 15.0 –8.1
Liabilities (end of period), LTL Mio 2530 3278 2530 3278 19.2 29.5 –1.4
Return on sales, % 2.95 –0.21 1.97 –1.44 – – –
Return on assets, % 4.16 –0.26 2.80 –1.80 – – –
Debt ratio (end of period), % 0.60 0.67 0.60 0.67 132.1 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices
1)
Indicator of wood, paper products, furniture, publishing and printing manufacture

Source: Statistics Lithuania

of the country, so previous growth promoted
more rational use of human resources and
reduced the disparities of economic develop-
ment between regions. If the emerging trend
of shrinking workforce in the wood industry
becomes stronger, it will raise the unemploy-
ment rate in rural areas where it is already
much higher than in cities. Last year, the av-
erage wage in the sector was still by about
a tenth lower than the manufacturing indus-
try’s average although it grew by around 17%
compared to 2007.
Last year, productivity of the wood industry
rose by almost 14% but was 29% lower than
the manufacturing industry’s average and
the gap only widened during the year. Having
grown by more than a quarter two years ago,
capital investments in the wood industry rose
by less than 5% last year compared to 2007.
Their ratio to value added remained virtually
the same and stood at around 15%, which
was just below the average level across the
manufacturing industry. However, it must be
noted that statistics on capital investments
do not fully reflect the production moderni-
sation process since a large percentage of
equipment is bought by way of leasing.
The profitability ratio of the wood industry
has been declining for several consecutive
years. Two years ago, it stood at 3% and was
almost twice as low as the MI’s average. Due
to the rising cost of labour and energy as well
as the weakening demand, the profitability
dipped into a negative territory last year and
is most likely to remain there in 2009. The
relative reduction in profits in recent years
was accompanied by a sharp rise in the lever-
age ratio. In 2008, total financial liabilities of
companies operating within the wood industry
jumped by 30% and the debt ratio went up
to 0.67, a much higher indicator than those
of other industrial sectors reviewed here (see
Table 5 in the Annex).
For the third consecutive year, the profit-
ability of pulp and paper manufacturers was

Manufacturing 93
 better than the wood industry’s average and
stood at 4% in 2008. Financial indicators of
furniture makers were much better last year
compared to manufacturers of other wood
products as profit margins stood at 3.1%
and the debt ratio was 0.57. Moreover, the
annual growth of their exports soared to
19% in 2008 which, it seems, signalled quite
good trends. However, in the first quarter of
this year, sales of the furniture industry fell
by a fifth year-on-year, while the results of
other above-mentioned sectors of the wood
industry were even poorer: the indicator of
paper industry fell by almost a quarter and
that of wood and wood products contracted
by a third.
So the short-term prospects of the wood in-
dustry are bad. The demand for wood and
wood products relies strongly on the situ-
ation in the construction sector which has
been struggling lately both in Lithuania and
in the surrounding regions. The decline in the
housing market is usually accompanied by
weakening demand for furniture. Short-term
development of the industry concerned will
depend on exports as the domestic market is
unlikely to recover in 2009–2010. However,
the situation on foreign markets is also bleak
and the weakening US dollar against the euro
is undercutting the competitiveness of Lithu-
anian products outside the EU. Probably the
only good news is the fact that the growth
of relevant exports from China finally slowed
down considerably last year.
In the long-run, the wood industry will prob-
ably play an important role. Forest coverage
in Lithuania is high and the wood industry
has acquired vast experience. In addition,
the industry is an important component of
the production sector even in well-developed
countries (such as Denmark, Finland, Italy,
etc.). However, the development of this na-
tional sector will rely heavily on the speed
of modernisation processes and success in
securing additional supplies of raw materials
from abroad as well as in optimising the use
of local resources. In this area, the govern-
ment plays a key role.
We will review the results of individual com-
panies briefly as a large share of this type of
statistics is available in the magazine Lietu-
vos Medienos ir Baldų Pramonės Žinios. The
overall performance of the wood industry was
dragged down by two large companies, name-
ly Pajūrio Mediena and Venta, which went out
of business last year. The companies ceased
to exist for reasons other than the crisis. In
94
the case of Venta, it was internal manage-
ment problems. This year, Dilikas, a company
of the Baltijos Baldai group, went under and
laid off more than 200 workers. Last year, its
turnover stood at LTL 40 million, the eight-
best result among furniture manufacturers.
The Vilnius District Court decided this April to
start a bankruptcy procedure against Narbu-
tas Ir Ko, one of the largest companies in the
sector which grew very strongly in 2007 and
enjoyed excellent profitability. The company
had ambitious plans and launched a new of-
fice furniture plant, the largest of its kind in
the Baltic states, in July 2008 in Ukmergė. It
invested about LTL 75 million into buildings,
installations, advanced technologies and in-
frastructure. Last year, the company earned
LTL 87 million in turnover and employed over
500 people. The average wage at Narbutas
was the highest among major furniture mak-
ers and exceeded LTL 3,000. One can only
hope that the suspended production can be
renewed.
Last year, Vakarų Medienos Grupė boosted its
turnover by 17% to LTL 420 million; most of
its production was sold to IKEA. Having lost
Girių Bizonas, its largest company, the group
plans to increase its sales by at least a quar-
ter and expand production in Belarus and
Ukraine. In 2008, revenue of Girių Bizonas
rose by 28% to LTL 248 million, turning the
company into the largest enterprise in the
wood industry.
Following a loss of LTL 3.7 million incurred in
2007, parquet maker Boen Lietuva earned a
pre-tax profit of LTL 6.6 million last year. Ac-
cording to the list of Lithuanian furniture and
wood industry companies compiled by busi-
ness daily Verslo Žinios, sales of the com-
pany fell by 5% in the period concerned to
LTL 188 million.
Baltijos Baldų Grupė, which supplies its prod-
ucts almost exclusively to IKEA, saw its sales
fall marginally to LTL 201 million last year.
Furniture maker Freda controlled by the com-
pany earned a pre-tax profit of LTL 4.6 mil-
lion and its turnover reached LTL 113 million,
slightly down from 2007.
Consolidated sales of the SBA furniture group
stood at LTL 334 million last year and were
slightly lower than in 2007. Klaipėdos Baldai,
the largest furniture maker in the country
controlled by the SBA group, boosted its turn-
over by a fifth to LTL 185 million and earned
a net profit of LTL 3 million, the same as two
years ago.
Lithuanian Economic Outlook
The results of Vilniaus Baldai were a lot worse
last year as sales reached LTL 138 million,
down by 9% from 2007. Although the com-
pany returned a net profit of LTL 7 million, the
result came from the sale of its stake in Girių
Bizonas rather than from core activities.
Last year, the Grigiškės group incurred an un-
audited loss of LTL 4.3 million after it enjoyed
a net profit of LTL 5.1 million two years ago.
Revenue of the group rose by 1% to LTL 145
million last year.
Turnover of Alytus-based Stora Enso Timber,
one of the largest and modern sawmills in the
country, plunged by 30% to LTL 60 million.
Recently, the company has been utilising only
about one half of its production capacity.
Turnover of Klaipėdos Kartonas, manufacturer
of paper products controlled by Hanner, was
LTL 110 million last year, down by 10.6% from
2007, and its workforce was cut by a fifth.
Refined petroleum products
Mažeikių Nafta (MN) generates nearly 100%
of the oil industry’s turnover and, therefore,
Statistics Lithuania does not disclose many
of the sector’s indicators for reasons of con-
fidentiality. In this publication, we present
some of the figures derived using the MN data
published by the media.
As you might remember, a fire broke out at
MN in October 2006 and its effects were felt
throughout 2007. In addition, the oil refin-
ery was undergoing running repairs during
a period of about 1.5 months in 2007. Last
year, the plant operated at full throttle. As
a result, indicators of this sector improved
impressively last year. Having been falling
considerably for two consecutive years, value
added at constant prices rose 1.7 times in
2008 compared to the previous year. More-
over, prices of petroleum products increased
by more than a quarter on average in 2008
compared to 2007, thereby nearly doubling
the sector’s share in value added generated
by the MI to 11.9%.
The Mažeikiai-based company has retained
one of the highest efficiency rates in Lithu-
ania. Therefore, labour productivity of the
sector concerned is several times higher than
in other branches of industry. Last year, av-
erage value added per worker at the then
prices was about seven times higher than the
indicator of the entire manufacturing indus-
try. Compared to 2007, the refining volume
of Mažeikių Nafta rose by 95% to 9.24 mil-
lion tonnes. In 2008, the company’s exports

Diagram 14.9
Sales of refined petroleum products, LTL Mio

18000

16000

14000

12000
13005
10000

8000
8949
8549
6000 5776
5907
4000
3213 3783
2000 4040
2397 2795 2871
1249 1234 1523
0
2002 2003 2004 2005 2006 2007 2008

Domestic sales Exports

Source: Statistics Lithuania

Manufacturing 95
 stood at 7.1 million tonnes, up 1.8 times from
the previous year.
According to PKN Orlen, a Polish company
which controls MN, revenue more than dou-
bled last year to about LTL 20 billion and
consolidated net profit stood at around LTL
55 million. In 2008, the Lithuanian company
invested approximately LTL 600 million. The
annual profit indicator was held up by the in-
surance benefit paid for the said fire. How-
ever, changes on global markets meant that
the company finished the second half of the
year with a loss. In the first three months of
this year, MN refined 2.2 million tonnes of oil,
fractionally up year-on-year, but incurred LTL
48.5 million in unaudited consolidated loss.
The company utilised 86% of its refining ca-
pacity. According to MN, the performance in
the first quarter of this year was mostly af-
fected by falling fuel consumption and low oil
refining margins due to the global crisis.
The prospects of the Mažeikiai-based com-
pany are not clear. European oil refineries,
whose profits have already been undercut by
the global recession and lower energy prices,
will soon have to compete with new plants
in Asia and Middle East which, analysts es-
timate, will be able to offer higher-quality
fuel to the market. The oldest refineries in
Europe may be forced to reduce their produc-
tion volumes or go out of business entirely in
the next few years as the demand is drop-
Diagram 14.10
Value added created by manufacture of chemical products, annual change, %
80
60
40
26.3
20
24.7
5.7
6.7 1.5
0 -1.0
-20
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
96
ping and European markets are increasingly
sourcing fuels from the regions which have
more modern ‘black gold’ refineries, says the
Wall Street Journal.
As the competition is increasing, it is vitally
important for MN to secure sufficient quanti-
ties of crude oil at the lowest possible cost.
Therefore, there is some speculation that the
refinery may be taken over by Russian capi-
tal. “Investments at the Mažeikiai plant have
economic implications. If the company were
controlled by somebody else, it may have a
negative impact on our fuel market and Or-
len positions. However, given the current
situation – the global recession and declin-
ing investments – we cannot eliminate the
possibility that we might be forced to look
for a partner for this investment,” said Jacek
Krawiec, president of PKN Orlen, in an inter-
view to Polish daily Rzeczpospolita.
Chemicals and chemical products
This industry also has a high concentration
degree. Last year, about three quarters of in-
dustry’s output was generated by three com-
panies, namely, fertiliser makers Achema and
Lifosa and PET resin manufacturer Neo Group.
In 2008, the weight of the chemical industry
in value added generated by the manufactur-
ing industry rose by almost two percentage
points to 12.3% (by comparison, it stood at
76.7
25.3
37.5
29.6 31.9
5.0
51.4 17.8
17.1 36.8
32.5
12.5 36.6
-4.9
-18.7
2005 2006 2007 2008 2008
II H
Lithuanian Economic Outlook
 Diagram 14.11
Sales of chemicals and chemical products, LTL Mio
7000
6000
5000
4000
3000
2000
1000 1266
922 1041
256 243 284
0
2002 2003 2004
Domestic sales
Source: Statistics Lithuania
a mere 4.5% in 2003). The sector was third
among all MI’s branches by volume of pro-
duction. This leap was caused by a significant
increase in product prices since value added
generated by the chemical industry at con-
stant prices shrank by almost 5% compared
to the previous year (see Diagram 14.10).
According to Statistics Lithuania, physical
volumes of production of main chemicals and
fertilisers declined in 2008, but the value of
output sold by the industry concerned rose
by more than a third to LTL 6.6 billion (see
Diagram 14.11). Foreign markets accounted
for over 80% of sales, the highest indicator
among all industries reviewed.
In Lithuania, the sector concerned has a much
higher labour productivity than the entire in-
dustry. Last year, value added per worker was
LTL 377,000 on average in the chemical in-
dustry, up by almost a fifth from two years
ago and four times more than in the manu-
facturing industry (see Table 14.5). It is only
natural that the average wage in the sector
was 1.7 times higher than the MI’s average
and stood at LTL 3,600 in 2008 rising by 18%
during the year. A change in the trends of
global and Lithuanian economy last year re-
sulted in a reduction of workforce across most
of industries but the chemical sector boosted
the number of workers by a tenth last year. In
Manufacturing
5279
3837
1946
1601
1295
761 1057
408
2005 2006 2007 2008
Exports
recent years, the chemical industry stood out
for its lavish capital investments. Their vol-
ume rose by almost 28% in 2008 compared
to the previous year achieving the highest
growth indicator among the MI’s sectors pre-
sented in Table 3 in the Annex.
The said sharp increase in the product pric-
es resulted in much higher profit margins in
the chemical industry. The profitability ratio
stood at 5.5% in 2006, rose to 9.6% in 2007
and was above 16% in the first half of last
year. However, production costs and prices
of raw materials also rose steeply last year
and the demand for production weakened
considerably in autumn and was accompa-
nied by a decline in prices. Therefore, the
total profit indicator of companies operating
in the chemical industry was negative in the
second half of the year, while the average an-
nual profitability stood at 7.6% last year. The
industry is expected to post a much worse
result this year.
Recently, the debt level of companies within
the industry concerned has improved mark-
edly: in 2002, the leverage ratio of the chem-
ical industry stood at 0.73 and was one of
the highest among all sectors of the national
economy, but it declined to 0.37 in 2008 and
was well below the economy’s and MI’s indi-
cators.
97
 Table 14.5
Key statistical indicators of chemical products manufacture

Ratio to the
Annual growth
manufacturing
rate, %
indicator, %
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 1122 1067 572 465 6.9 –4.9 –18.7
Value added (at current prices), LTL Mio 1744 2300 995 1172 12.3 31.9 17.8
Total production, LTL Mio 4894 6574 2631 3117 12.0 34.3 18.4
Exports, LTL Mio 3837 5279 2084 2597 15.7 37.6 24.6
Labour productivity, LTL thou** 315.3 377.1 179.6 190.6 410.9 19.6 6.1
Number of persons employed, thou 5.5 6.1 5.5 6.1 3.0 10.3 11.0
Average monthly earnings, LTL 3054 3600 3245 3688 170.1 17.9 13.7
Fixed investments, LTL Mio 236 301 140 150 10.5 27.6 7.3
Foreign direct investments (end of period),
2472 1413 2472 1413 19.3 –42.9 –52.8
LTL Mio***
Sales of goods and services, LTL Mio 5019 6054 2697 2921 10.7 20.6 8.3
Gross profit, LTL Mio 1100 944 633 87 12.1 –14.2 –86.3
Operating profit, LTL Mio 548 412 359 –133 23.5 –24.9 –
Profit before tax, LTL Mio 481 463 305 –50 35.4 –3.7 –
Assets (end of period), LTL Mio 3936 3810 3936 3810 11.4 –3.2 –9.9
Liabilities (end of period), LTL Mio 1707 1394 1707 1394 8.2 –18.4 –11.8
Return on sales, % 9.57 7.65 11.32 –1.70 331.3 – –
Return on assets, % 13.15 11.16 15.66 –2.35 300.4 – –
Debt ratio (end of period), % 0.43 0.37 0.43 0.37 71.7 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices
*** Refined petroleum and chemical products industry

Source: Statistics Lithuania

As we already mentioned, the national chemi- market developments which emerged by

cal industry is dominated by fertiliser and PET
resin manufacturers which generated 89% of
total turnover by the companies operating in
the chemical industry in 2008. The share of
output of the so-called other chemicals was
still small (about 6%), although it rose 4.3
times last year. This segment includes some
biofuel companies which have been develop-
ing strongly. High oil prices were very favour-
able for its last year's spurt even though the
price of these commodities went down in au-
tumn. The European Union requires to ensure
that biofuel consumption accounts for up to
10% of total fuel consumption by 2020. Dur-
ing the year, the relative weight of the phar-
maceutical sector in turnover of the chemical
industry dropped by a percentage point to
2%, while the share of chemical fibres almost
halved falling to just about 1%.
Last year, the conditions on foreign markets
were extremely favourable for the chemical
industry. However, the trend of unfavourable
the end of the year will hardly be reversed
this year as the global economy continues to
plunge deeper into recession. It is very likely
that the Lithuanian chemical industry will see
a negative growth indicator in 2009. In the
first quarter of this year, sales of this sector
fell by about 30% year-on-year (by 13.3% at
constant prices).
Nitrogen fertiliser maker Achema remained
the largest company of the sector last year
earning LTL 2.1 billion in revenue, up by 44%
from 2007. From January to September, the
company returned a pre-tax profit of LTL 201
million. The growth in turnover was mostly
caused by higher product prices which almost
doubled year-on-year in summer. In October,
prices of fertilisers went down sharply world-
wide, while the cost of natural gas, the main
input, remained high, forcing the company to
reduce production in November and return
to full-throttle operation only in early April
2009. In the first quarter of this year, Ache-

98 Lithuanian Economic Outlook

ma incurred a loss of LTL 14.6 million and the
volume of its output sold fell by 45% year-
on-year to LTL 277 million. In 2008, revenue
of the Achema group increased by 35% to
LTL 5.04 billion, and the group invested about
LTL 300 million. The group expects to invest
a similar amount in 2009 as well even though
it projects that turnover will only reach LTL
3 billion.
Despite the slowing economy and a stand-
still in the fertiliser market, Kėdainiai-based
phosphate fertiliser maker Lifosa controlled
by Russian Jevrochim also intends to contin-
ue its investment programme. The company
is about to launch construction of a new fod-
der-grade phosphate production line for LTL
50 million. Last year, the company earned
LTL 237 million in net profit, up by 7.3% from
2007, and its revenue rose 1.9 times to LTL
1,749 million. This year, the company tar-
gets sales of LTL 1 billion. In the first quarter
of 2009, Lifosa incurred a loss of LTL 11.9
million (cf. LTL 70.3 million in net profit in
the same quarter of last year). Sales of di-
ammonium phosphate, the main product of
the company, rose by 32.5% year-on-year
to 256,000 tonnes both were worth only LTL
254 million, down by 9.4%.
In 2008, revenue of PET resin manufacturer
Neo Group stood at around LTL 880 million,
down by about a fifth from a year ago. The
company plans to cut its workforce from 213
to 185 people. Since November, the company
has operated at half of its capacity and planned
to return to normal mode in March 2009.
Last year, Kaunas-based Sanitas, the larg-
est pharmaceutical company in Lithuania, in-
curred a loss of LTL 12.3 million, down from
a net profit of LTL 16.5 million in 2007. Its
turnover stood at LTL 26.8 million and fell by
a quarter compared to two years ago. This
summer, the company plans to relocate pro-
duction of some industrial medicines to its
new plant in Kaunas which cost Sanitas LTL
68 million in investment. Last year, the Sani-
tas group, which operates pharmaceutical
factories in Lithuania, Poland and Slovakia,
incurred a loss of LTL 1.9 million, down from
a net profit of LTL 37.3 million in 2007. Rev-
enue of the group rose by 14% to LTL 382.5
million in 2008.
Last year, sales of Lithuanian skincare pro-
ducer Biok stood at LTL 11.6 million, up by
22.4% from the previous year.
Producer of soaps and detergents Naujo-
ji Ringuva plans to build a new factory this
Manufacturing
year which will boost its production capac-
ity four-fold. The company received LTL 2.8
million in EU financial support to upgrade its
process lines. Previous reports indicated that
the company planned to invest around LTL 15
million into this project.
Rubber and plastic products
A decade-long rapid development of the plas-
tic industry came to an end in 2007. Last year,
its growth was negative for the second year
in a row as value added at constant prices
fell by 5.5% compared to the previous year,
and the decline accelerated in the second half
of 2008 (see Diagram 14.12). Last year, the
share of the plastic industry in value added
generated by the MI dropped by nearly a per-
centage point to 4.9%. The industry’s sales
abroad contracted marginally but domes-
tic sales fell dramatically last year, boosting
the export’s share in turnover from 51.6%
to 54% (see Diagram 14.13). Since the de-
mand for many plastic products is created by
the construction industry, the need for plas-
tics will weaken considerably in Lithuania this
year, and the situation on foreign markets is
unlikely to improve either.
Nevertheless, capital investments in the plas-
tic industry were quite encouraging. Last year,
the investment volume increased by almost a
quarter and the investment to value added
ratio rose to nearly 19%, was well above the
MI average. Moreover, as Table 14.6 shows,
the number of people employed in the plastic
industry did not change much, although the
decline across the manufacturing industry
was very sizeable. The sector concerned has
a relatively high labour productivity. Although
value added per worker in the industry was
by a fifth higher than the manufacturing in-
dustry’s average in 2008, the gap narrowed
down significantly in the last couple of years.
The average wage in the plastic industry was
fractionally above the MI average and even
came closer last year since it rose by a slight-
ly smaller margin during the year compared
to MI’s indicator.
Profit margins in the plastic industry dropped
by almost two percentage points to 3.5%
last year but, in contrast to the majority of
MI branches, the sector managed to avoid
any major decline in the second half of the
year. Another important factor was a size-
able decrease in the average debt ratio of
plastic companies. Having risen to 0.63 in
the first half of 2008, it fell to 0.58 at the
99
 Diagram 14.12
Value added created by manufacture of plastic products, annual change, %

50

40 35.3

30 25.2
22.6
45.3 4.2
20 7.2
9.2
10 21.0
15.5 2.8
12.7
0 -0.8 3.5
-3.5 -5.5
-10.1 -0.3 -10.5
-10 -5.8 -4.3

-20 -14.8

2003 2004 2005 2006 2007 2008 2008

II H
Deflator
Value added at constant prices
Value added at current prices

Source: Statistics Lithuania

end of the year. Nevertheless, even this level
is quite high.
In the first quarter of 2009, sales of the in-
dustry concerned fell by a third year-on-year.
Generally, it can be said that this year will
not be a successful one for the sector, and
for the entire manufacturing industry as well,
but there are many signs that the downturn
in the sector will be short-lived.
PET resin maker Retal Europe (formerly
known as Nemuno Banga) is one of the larg-
est companies of the industry concerned. To-

Diagram 14.13
Sales of rubber and plastic products, LTL Mio

2000

1500 1033
1047
913

729
1000
493
534

305
500 902 969 892
648 715
540
420

0
2002 2003 2004 2005 2006 2007 2008

Domestic sales Exports

Source: Statistics Lithuania

100 Lithuanian Economic Outlook

Table 14.6
Key statistical indicators of rubber and plastic products

Ratio to the
Annual growth
manufacturing
rate, %
indicator, %
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 991 937 509 456 6.1 –5.5 –10.5
Value added (at current prices), LTL Mio 966 910 509 433 4.9 –5.8 –14.8
Total production, LTL Mio 2001 1938 1040 945 3.5 –3.1 –9.1
Exports, LTL Mio 1033 1047 513 501 3.1 1.4 –2.5
Labour productivity, LTL thou** 116.1 110.4 61.8 54.4 120.3 –4.9 –11.9
Number of persons employed, thou 8.3 8.2 8.2 8.0 4.1 –0.9 –3.3
Average monthly earnings, LTL 1969 2274 2099 2373 107.5 15.5 13.0
Fixed investments, LTL Mio 138 171 67 75 5.9 23.7 10.9
Foreign direct investments (end of period),
293 309 293 309 4.2 5.2 1.6
LTL Mio
Sales of goods and services, LTL Mio 2590 2391 1385 1156 4.2 –7.7 –16.5
Gross profit, LTL Mio 470 382 260 187 4.9 –18.6 –27.8
Operating profit, LTL Mio 159 126 84 59 7.2 –21.0 –30.4
Profit before tax, LTL Mio 139 84 72 35 6.5 –39.1 –51.0
Assets (end of period), LTL Mio 1741 1883 1741 1883 5.6 8.2 –3.7
Liabilities (end of period), LTL Mio 1063 1098 1063 1098 6.4 3.4 –11.0
Return on sales, % 5.35 3.53 5.21 3.06 152.9 – –
Return on assets, % 8.67 4.40 8.60 3.67 118.4 – –
Debt ratio (end of period), % 0.61 0.58 0.61 0.58 114.3 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

gether with the above-mentioned Neo Group,
it is owned by the Retal Industries group. Two
years ago, turnover of the company rose by a
fifth to LTL 428 million, but the figures for the
first three quarters of last year indicate that it
fell by a tenth year-on-year in 2008.
Last year, sales of Megrame, manufacturer
of plastic windows, rose by 2% to LTL 338
million.
Plastic packaging manufacturer Umaras grew
very strongly in 2006–2007. Two years ago,
its revenue stood at LTL 123 million, and
revenue in the first nine months of 2008 in-
creased by 7% year-on-year.
Sales of Plasta, one of the oldest companies
in the sector concerned, were LTL 73 million
last year, up by 11% from the previous year.
Last year saw a rather strong growth of Ave-
plast, manufacturer of plastic windows and
doors, which boosted its sales by 18% to LTL
32 million. The company expects its growth
rate to reach at least 14% this year.
Panevėžys-based Stigma exports almost all
its production. Two years ago, the maker
of plastic and rubber products increased its
turnover more than 1.5 times to LTL 34 mil-
lion and earned a profit of LTL 1.8 million. In
2008, the company targeted a revenue level
of LTL 40 million but sales rose to LTL 36 mil-
lion only, which is a respectable achievement
given the ongoing crisis.
Other non-metallic mineral products
This sector comprises manufacture of build-
ing materials (cement, plaster, bricks, etc.),
glass and ceramics. In Lithuania, the sector
is domestically-oriented and relies heavily on
the construction industry. The period 2003
to 2006 was successful for building materi-
als industry. The demand for its production
was strong on the domestic market and value
added at constant prices grew by 27% an-
nually on average. The trend was reversed
in 2007. While the sector’s growth was still

Manufacturing 101
 Diagram 14.14
Value added created by manufacture of building materials, annual change, %

50
40.3
40 35.1
7.8
1.8
30 22.3
16.9
20 12.3
2.7 33.2 32.4
27.5
10 14.3 10.1
0 2.2
-5.2
-10 -16.7
-24.4
-20 -1.9
-18.6 -1.6
-30 -26.0
2003 2004 2005 2006 2007 2008 2008
II H
Deflator
Value added at constant prices
Value added at current prices

Source: Statistics Lithuania

rather strong in the first half of the year, the
decline started in the second half of the year
and has continued up to the present. There-
fore, the industry’s value added at constant
prices increased by a mere 2% in 2007 com-
pared to the previous year, while last year
the industry’s growth was negative compris-
ing about –17% (see Diagram 14.14). As a
result of rising cost of inputs, energy and la-
bour, product prices were growing rapidly in
the last three years. The volume of produc-
tion sold at current prices still rose strongly in
2007 but subsequently went down by almost
a tenth last year as higher prices of products
just partially offset the contraction in produc-
tion (see Diagram 14.15).

Diagram 14.15
Sales of building materials, LTL Mio

2000
314

348
1500 271

187
1000
1675
147
153 1381 1446

153
500 958
634 708
475

0
2002 2003 2004 2005 2006 2007 2008

Domestic sales Exports

Source: Statistics Lithuania

102 Lithuanian Economic Outlook

Table 14.7
Key statistical indicators of building materials manufacture

Ratio to the
Annual growth
manufacturing
rate, %
indicator, %
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 827 689 449 340 4.5 –16.7 –24.4
Value added (at current prices), LTL Mio 950 774 530 392 4.2 –18.6 –26.0
Total production, LTL Mio 1989 1794 1122 876 3.3 –9.8 –21.9
Exports, LTL Mio 314 348 167 172 1.0 10.8 2.4
Labour productivity, LTL thou** 91.4 80.7 50.1 44.0 88.0 –11.6 –12.2
Number of persons employed, thou 10.4 9.6 10.6 8.9 4.7 –7.8 –15.7
Average monthly earnings, LTL 2272 2527 2440 2582 119.4 11.2 5.8
Fixed investments, LTL Mio 186 113 117 66 3.9 –39.1 –43.9
Foreign direct investments (end of period),
384 499 384 499 6.8 29.9 9.9
LTL Mio
Sales of goods and services, LTL Mio 2155 1945 1223 939 3.4 –9.8 –23.2
Gross profit, LTL Mio 615 441 360 191 5.7 –28.2 –46.9
Operating profit, LTL Mio 343 157 200 42 8.9 –54.3 –78.9
Profit before tax, LTL Mio 335 137 195 36 10.5 –59.0 –81.5
Assets (end of period), LTL Mio 2022 2184 2022 2184 6.5 8.0 –0.5
Liabilities (end of period), LTL Mio 805 895 805 895 5.2 11.2 –4.3
Return on sales, % 15.54 7.06 15.93 3.84 305.8 – –
Return on assets, % 17.97 6.40 19.33 3.26 172.3 – –
Debt ratio (end of period), % 0.40 0.41 0.40 0.41 80.4 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

The stalling domestic market contributed to
a rise in exports which increased by 16% in
2008. However, even after a significant leap,
exports still accounted for a small share of
turnover (less than 20% last year). Since
construction companies are now cutting the
volume of work both in Lithuania and in most
neighbouring countries, exports of the sec-
tor’s output are unlikely to surge this year.
The indicators of capital investments are not
encouraging either. Following a strong growth
in 2006–2007, their volume fell by nearly
40% last year (see Table 14.7). Labour pro-
ductivity also deteriorated significantly. For
several years, value added per worker was
much higher in the sector compared to the
entire manufacturing industry, but last year’s
indicator plunged and comprised just 88% of
the MI’s average. As the production volume
began to shrink, so did the labour force. In
a year, the number of workers went down by
8% and the process, unfortunately, will only
accelerate this year. In 2003–2007, labour
costs in the sector concerned were rising
much faster than across the entire manufac-
turing industry or Lithuanian economy. How-
ever, the average wage increased by just 11%
last year compared to 2007, i.e. the rate of
growth fell by more than half.
The construction boom was very conducive
to improving profit margins of manufacturers
of building materials. As a result, the average
profitability in 2006–2007 was very high and
stood at 15.6% despite a significant increase
in costs. Last year, profitability fell to about
7% and went down below 4% in the sec-
ond half of the year. There is no doubt that a
downward trend has emerged since compa-
nies operating within the industry previously
would see higher profits in the second half of
the year. Due to high profitability of recent
years, the sector’s debt ratio was much lower
than the MI’s average, standing at 0.41 at
the end of last year.
In 2009, the decline of building materials is
likely to be one of the steepest among all re-

Manufacturing 103
 viewed sectors of the manufacturing industry.
In the first quarter of this year, the sector’s
sales contracted 2.5 times year-on-year. The
outlook of this sector will rely quite strongly
on the growth of exports. Although the envi-
ronment is not favourable for growth at the
moment, the construction industry is likely to
recover sooner in the neighbouring regions
than in Lithuania, while the Polish economy
may avoid a downturn.
Last year, Akmenės Cementas, the largest
company of the sector concerned, manufac-
tured 1.1 million tonnes of cement. Although
the output was similar to the previous year,
higher product prices led to a 14% increase
in turnover which stood at LTL 282 million.
Net profit reached LTL 48.8 million, down by
a tenth compared to a year ago, as the con-
struction crisis has also affected the cement
market and turnover fell in the last quarter
of 2008. The weakening demand means that
the production volumes of Akmenės Cemen-
tas will continue to shrink in the nearest fu-
ture. In the first three months of the year,
sales of the company fell by 40% but the de-
cline was also caused by a colder winter, so
the drop does not show a full picture. In our
previous publications, we mentioned that the
company was carrying out a LTL 290 million
investment project scheduled for completion
in 2011. The new dry-process cement pro-
duction line will enable the company to im-
prove labour productivity considerably and
cut energy costs. The design capacity of the
line is 1.5 million tonnes of cement per year.
Dvarčionių Keramika, the largest manufac-
turer of ceramic tiles in the Baltic states, saw
its sales rise by almost 4% last year to nearly
LTL 70 million and earned a small profit. The
company managed to boost its sales through
much stronger exports to Poland and the CIS
countries. Its revenue increased by 6% to
LTL 3.9 million in Ukraine, by 63% to LTL 5.3
million in Russia, by 58% to LTL 1.3 million in
Belarus and almost tripled to LTL 5.3 million
in Poland. However, the company incurred a
loss of LTL 2 million in the first quarter of this
year and sales fell by almost 40%.
Bituminous roofing producer Gargždų Mida,
which saw its sales reach LTL 90 million in
2008, looks to earn just LTL 65 million in rev-
enue this year. It has laid off more than a
quarter of its workforce and expects a poor
year. However, the company intends to in-
crease sales in the Czech Republic and Nordic
countries. Last year, revenue of the Gargždų
Mida group rose by 7% to LTL 108 million.
104
Finnish Finnfoam, one of the largest mak-
ers of thermal insulation boards in Scandi-
navia, plans to build a plant in the Kaunas
free economic zone (FEZ) investing LTL 70
million. Construction is scheduled to begin
this summer and the plant is expected to be
fully operational by next spring. The compa-
ny intends to invest another LTL 30 million in
Lithuania by 2012.
In 2007, turnover of Betonika, manufacturer
of concrete and reinforced concrete struc-
tures, fell by a fifth and dropped by another
9% last year to LTL 45 million. More than a
third of workers were made redundant.
Despite the crisis, glass packaging maker
Kauno Stiklas continues with its plans to in-
vest over LTL 25 million into the production
line of disposable glass bottles for export to
Poland. Manufacture of disposable glass bot-
tles would help save raw materials and re-
duce the electricity bill. Thin-wall and inex-
pensive bottles, which can be recycled after a
single use, could interest beverage exporters
as such bottles are lighter than the conven-
tional ones. Moreover, they are very popular
in countries which have no bottle deposit sys-
tem as the one used in Lithuania.
Basic metals and metal products
The metal industry relies heavily on the con-
struction sector which uses a lot of metal
structures. In 2003–2007, both industries
were growing very rapidly but the construc-
tion boom lost steam last year which caused
a decline in the metal industry as value added
at constant prices generated by the industry
fell by almost 19% from the previous year, the
worst result among all economic activities re-
viewed here (see Diagram 14.16 and Table 1
in the Annex). At the then prices, the decline
was more moderate since the products of this
sector became more expensive in 2008. De-
spite a worsening situation on foreign markets
last year, domestic sales fell twice as rapidly
as exports. The percentage of exports in the
output sold rose by three percentage points to
over 45% (see Diagram 14.17). By the way,
as we mentioned in our previous publication,
statistical indicators of the industry concerned
could have been distorted by reclassification
of some companies (through mergers, etc.)
which could have reduced last year’s turnover
of the metal industry and increased that of
the machinery industry.
Today, the potential of the metal industry is
limited not only by a weaker demand for its
Lithuanian Economic Outlook
 Diagram 14.16
Value added created by manufacture of metal products, annual change, %

50
42.6
38.1
40 33.9 32.5
7.8
30 23.1 4.0
10.6
20 43.7
30.3 28.5
10 23.3 24.0
6.8 7.3
0 -1.1 -0.9

-10 -12.1
-17.2
-18.9
-20
-24.5
-30
2003 2004 2005 2006 2007 2008 2008
II H
Deflator
Value added at constant prices
Value added at current prices

Source: Statistics Lithuania

products but a shortage of specialists and
insufficient production capacities. In recent
years, labour productivity in this industry has
comprised just about 3/4 of the manufactur-
ing industry’s indicator and fell to 72% last
year (see Table 14.8). In 2008, workforce in
the metal industry shrank by more than a
tenth and the average wage was very close to
MI’s overall indicator. This industry has failed
to attract any significant flows of foreign in-
vestment so far, although the flows increased
by almost a third in 2008. The figures of capi-

Diagram 14.17
Sales of metal and fabricated metal products, LTL Mio

2500

2000

915

1500 832
707

1000 584

416
214 1264
500 1012
188 885
692
502 566
332
0
2002 2003 2004 2005 2006 2007 2008

Domestic sales Exports

Source: Statistics Lithuania

Manufacturing 105
 Table 14.8
Key statistical indicators of metals and fabricated metal products manufacture

Ratio to the
Annual growth
manufacturing
rate, %
indicator, %
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 1038 841 560 422 5.4 –18.9 –24.5
Value added (at current prices), LTL Mio 1107 973 600 497 5.2 –12.1 –17.2
Total production, LTL Mio 2178 1843 1147 918 3.4 –15.4 –20.0
Exports, LTL Mio 915 832 455 411 2.5 –9.0 –9.8
Labour productivity, LTL thou** 67.7 66.6 37.4 36.1 72.6 –1.6 –3.5
Number of persons employed, thou 16.3 14.6 16.0 13.8 7.2 –10.6 –14.2
Average monthly earnings, LTL 1996 2180 2147 2188 103.0 9.2 1.9
Fixed investments, LTL Mio 128 82 79 41 2.8 –35.9 –48.4
Foreign direct investments (end of period),
136 177 136 177 2.4 30.6 1.5
LTL Mio
Sales of goods and services, LTL Mio 2481 2523 1326 1245 4.5 1.7 –6.1
Gross profit, LTL Mio 536 551 278 272 7.1 2.8 –2.4
Operating profit, LTL Mio 148 114 68 43 6.5 –23.2 –36.2
Profit before tax, LTL Mio 139 107 62 34 8.2 –23.1 –45.5
Assets (end of period), LTL Mio 1545 1550 1545 1550 4.6 0.3 –5.7
Liabilities (end of period), LTL Mio 885 831 885 831 4.9 –6.1 –12.5
Return on sales, % 5.60 4.23 4.65 2.70 183.4 – –
Return on assets, % 9.00 6.57 7.83 4.16 176.9 – –
Debt ratio (end of period), % 0.57 0.54 0.57 0.54 105.1 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

tal investments were very poor last year as
the volume fell by 36% from 2007 and the
ratio to value added remained much lower
than the average level across the MI.
Considering the decline in production, fi-
nancial indicators of companies operating
in the medal industry remained respectable
last year. Although pre-tax profits contracted
by 23% compared to the previous year, the
profitability ratio was almost double the MI’s
indicator and stood at 4.2. In 2008, finan-
cial liabilities of companies operating in the
sector concerned went down by 6% and the
debt ratio fell to 0.54 remaining just margin-
ally above the MI’s average.
This year is not likely to bring any good news
for the Lithuanian metal industry: its turnover
fell by more than a third in the first quarter of
2008. The long-term outlook is not clear and
will improve considerably only if the industry
manages to attract significant flows of FDI or
maintains strong partnership with the leading
foreign companies and the vocational training
in the country becomes more relevant. Lithu-
ania has a poor network of vocational training
schools with barren and outdated technical
facilities, while the level of university gradu-
ates is not up to the standards of companies.
Both the metal industry and related indus-
tries (machinery and equipment, electronics,
etc.) will retain their competitiveness if the
technologies are updated, the qualification
level of workforce is improved and the envi-
ronment for innovations is more favourable.
The results of individual companies vary. Two
years ago, turnover of the Hronas group, pro-
ducer of metal and glass structures, rose by
almost a quarter to LTL 197 million but the
stalling construction marked changed the sit-
uation dramatically as turnover of the group
fell to LTL 125 million and workforce was cut
significantly last year.
In 2008, sales of Mechel Nemunas, manufac-
turer of wire products controlled by a Russian
group, stood at LTL 130 million, up by 9% from
2007, but the company returned no profit.

106 Lithuanian Economic Outlook

It seems that the crisis has not affected Alyt-
us-based Astra, maker of stainless steel prod-
ucts, which grew at a remarkable pace two
years ago and enjoyed high profit margins. It
is probably the only major company in Alytus
which has managed to retain its workforce and
to invest heavily in modernisation of the pro-
duction process. Still, turnover of Astra fell by
4% to LTL 61 million and profit stood at LTL 2.6
million last year. Currently, the plant employs
about 300 people. This year, Astra launched
a new state-of-the-art production line for
stainless steel tanks investing about LTL 13.5
million. The company exports its products to
more than 22 countries worldwide, including
Germany, Romania, the Netherlands, France,
Russia and other countries. It sells less than
20% of production domestically.
Arginta, manufacturer of metal structures
and their parts, was growing rapidly in 2007,
almost doubled its sales to LTL 33 million and
earned a profit of LTL 2.3 million last year.
The company exports most of its products.
Last year, aluminium foundry Baltical grew
strongly earning LTL 4.7 million in pre-tax
profit and LTL 22 million in revenue, up 1.7
times from 2007.
After a successful year in 2007, Marijampolė-
based Stevila, which exports most of its
products to the EU, struggled last year as its
turnover fell by 40%. However, the company
has seen its order book improve this year.
Diagram 14.18
Value added created by manufacture of equipment, annual change, %
30
20
10.7
10
3.8 12.0
0.8
0 3.0 -1.2
-10
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
Manufacturing
Machinery and equipment
The share of machinery and equipment (the
machinery industry) in the national GDP
structure was the lowest among all reviewed
sectors of the manufacturing industry. In pre-
vious years, it declined slightly and was just
3.4% in 2008. In the last five years, the sec-
tor grew quite strongly. In 2004–2007, the
annual change in value added at constant
prices was above 12% but fell below 8% last
year (see Diagram 14.18). While the growth
rate picked up some speed in the first half
of 2008, the relevant annual change went
into a negative territory in the second half of
the year. Analysis of changes in the volume
of output sold (at the then prices) last year
paints a similar picture: a very strong growth
in the first half of the year was followed by
a moderate decline in the second half, while
turnover of the entire 2008 rose by about
11% from two years ago. As can be seen from
Diagram 14.19, exports of products went up
by more than 15% last year and their relative
weight exceeded 58%, while domestic sales
increased by only about 5% compared to the
previous year.
In 2004–2007, the flow of capital invest-
ments in the machinery industry was very
strong but the trend was reversed last year.
Although the volume fell by 36% compared
to 2007, it was still well above the indicator
of 2006. This decline is indeed very bad news
17.9
13.2
9.9
1.9
6.9 18.0 2.2
11.3
7.8 7.7
-0.9 -0.1
-5.7
-0.6
-6.3
2005 2006 2007 2008 2008 II H
107
 Diagram 14.19
Sales of machinery and equipment, LTL Mio
1500
1200
900
600
428
425 424
300
327
265 276
0
2002 2003 2004
Domestic sales
Source: Statistics Lithuania
since the companies operating in this sector
invested rather modestly in tangible fixed as-
sets despite the above-mentioned growth pe-
riod lasting several years. Although the need
for production modernisation in the machin-
ery industry is strong, the ratio between cap-
ital investments and value added remained
below 10% last year and was much lower
than the MI’s average. Labour productivity in
the sector rose by almost a fifth last year but
still comprised 79% of the MI’s average (see
Table 14.9).
Despite lower productivity, the average wage
in the sector has been markedly higher than
across the manufacturing industry due to a
severe shortage of skilled labour. Last year,
it grew by almost 12%. At the same time,
workforce in the machinery industry con-
tracted by about 8% in 2008, and the sector
was similar in this respect to other branches
of the manufacturing industry.
In contrast to most sectors of the MI reviewed
here, profit margins in the machinery indus-
try fell considerably in 2007 already as they
were affected negatively by higher labour and
commodity costs. Last year, the profitability
ratio stood at a mere 1.3%. However, total
financial liabilities of companies operating in
this sector did not grow in 2008 in contrast
to most industries. Therefore, as equity capi-
108
763
662
531
474
522 550
469
392
2005 2006 2007 2008
Exports
tal increased, the debt ratio fell to 0.46 and
was by a tenth smaller than the MI’s indicator
(see Table 5 in the Annex).
The machinery industry, just like the entire
economy, will face serious difficulties this
year. Companies pin their hopes on exports.
According to the Engineering Industry Asso-
ciation of Lithuania (LINPRA), local business-
es have networked successfully with western
companies lately and they hope that their
sales will recover. However, it is unlikely to
happen this year. In the first quarter of the
year, the volume of sales contracted by 30%
year-on-year. The long-term outlook of the
sector is quite good as companies are expe-
rienced and Lithuania boasts quite capable
technological universities and a favourable
geographical location. Moreover, the Govern-
ment aims to increase the weight of high and
medium-high technology sector (which also
includes the machinery industry) in the na-
tional economy and promote the relevant in-
vestments and exports, declaring its commit-
ment to deal with chronic vocational training
problems. If the machinery and equipment
industry managed to attract new significant
FDI flows, the growth would be strong again.
Unfortunately, Alytus-based Snaigė, the
largest company in the sector concerned,
has been balancing on the brink of bank-
Lithuanian Economic Outlook
Table 14.9
Key statistical indicators of equipment manufacture

Ratio to the
Annual growth
manufacturing
rate, %
indicator, %
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 621 669 343 323 4.3 7.7 –5.7
Value added (at current prices), LTL Mio 584 642 324 303 3.4 9.9 –6.3
Total production, LTL Mio 1184 1313 666 646 2.4 10.9 –3.0
Exports, LTL Mio 662 763 375 373 2.3 15.2 –0.5
Labour productivity, LTL thou** 61.0 72.7 33.6 35.9 79.3 19.2 6.7
Number of persons employed, thou 9.6 8.8 9.6 8.5 4.3 –7.8 –12.2
Average monthly earnings, LTL 2043 2281 2173 2359 107.8 11.7 8.5
Fixed investments, LTL Mio 99 63 54 26 2.2 –36.0 –51.7
Foreign direct investments (end of period),
176 81 176 81 1.1 –53.8 –21.7
LTL Mio
Sales of goods and services, LTL Mio 1341 1234 767 618 2.2 –8.0 –19.4
Gross profit, LTL Mio 257 242 149 116 3.1 –6.0 –22.1
Operating profit, LTL Mio 61 32 43 2 1.8 –47.8 –95.8
Profit before tax, LTL Mio 52 15 36 –7 1.2 –70.1 –
Assets (end of period), LTL Mio 1051 1147 1051 1147 3.4 9.2 –8.2
Liabilities (end of period), LTL Mio 531 530 531 530 3.1 –0.2 –19.0
Return on sales, % 3.85 1.25 4.66 –1.13 54.3 – –
Return on assets, % 4.87 1.27 6.82 –1.18 34.3 – –
Debt ratio (end of period), % 0.51 0.46 0.51 0.46 90.6 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

ruptcy lately. The only fridge maker in the
Baltic states also has a company in Kalinin-
grad whose performance has been very poor.
Last year, consolidated sales of the Snaigė
group plummeted by 17.4% to LTL 339 mil-
lion and the company incurred a consolidated
audited loss of LTL 24.1 million, more than
double compared to 2007. In 2008, Snaigė
sold 523,200 refrigerators, down by 19.9%
from two years ago. The company sold 55%
of its production on Eastern markets (mostly
Russia and Ukraine) where it earned LTL 195
million in revenue, 41% was sold on Western
markets (LTL 118.5 million in revenue) and
4% in the Baltic states (LTL 14.1 million in
revenue). On 2 March, the company indefi-
nitely suspended production at its Kaliningrad
plant and rumour has it that the plant may
be shut down. The plant in Alytus was also
forced to lay off workers. In 2008 and at the
beginning of 2009, about 600 workers got
the pink slip. Unable to secure enough work-
ing capital, Snaigė has been offering refrig-
erators as part of their redundancy package
to workers this year. In the first three months
of 2009, turnover of the company reached
LTL 32.8 million, down 2.4 year-on-year, and
consolidated unaudited pre-tax loss stood at
LTL 14.1 million, up 1.8 times year-on-year.
Although the situation is extremely bleak on
the fridge market at the moment and even
multinational companies are finding it difficult
to make ends meet, shareholders of Snaigė
are making every effort to keep the company
afloat. Let’s hope that they succeed.
Last year, special-purpose equipment maker
Iremas saw its turnover rise by 9% to LTL 73
million and earned over LTL 1 million in pre-
tax profit.
Utena-based Umega, one of the largest Lith-
uanian companies in metal and machinery
industries, earned a net profit of LTL 3.4 mil-
lion last year, up by 87% from 2007. Its rev-
enue rose marginally to LTL 36 million. The
company manufactures electrical devices,
agricultural machinery, heating equipment
and metal structures. In 2008, it acquired

Manufacturing 109
 Ukmergė-based Vienybė, a company with a
similar profile.
Following a strong growth in 2007, compres-
sor maker Panevėžio Aurida earned LTL 26
million in revenue, which was slightly less than
two years ago. Most of its products are sold in
the East and efforts to penetrate the Western
markets have been unsuccessful so far.
Two years ago, Vingriai, manufacturer of ma-
chine tools for metal processing, boosted its
sales by a quarter to LTL 16 million, but its
revenue reached only LTL 11 million last year.
The number of workers shrank by 27% in
2008.
Last year, household appliance maker Vilma
earned more than LTL 50 million in revenue,
up by 3% from a year ago.
Electrical and optical equipment
This sector (MEOE) comprises computers,
electrical machinery and apparatus, electron-
ics, medical devices as well as precision and
optical instruments. Just a fraction of Lithu-
anian industrial companies are bracketed
within the high-tech category and most of
them belong to the MEOE which has been suc-
cessful for a number of years. In 1996–2004,
its growth was much faster and profitability
much higher than the manufacturing indus-
try’s average. In this period, its value added
at constant prices increased four-fold every
Diagram 14.20
Value added created by manufacture of electrical equipment, annual change, %
40
27.5
30 25.8
5.8
20 36.1
10 21.7
0 1.1
-10.3
-10
-20
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
110
year and its share in the structure of MI’s
value added was as high as 8.6%. However,
later the situation in the electronics industry
deteriorated as many products were no longer
able to compete with cheaper Asian imports,
and Ekranas, the largest company within the
industry, together with its business partner
Vilniaus Vingis had to stop production. As a
result, growth indicators of the entire sector
concerned declined and went into a negative
territory in 2006–2007. Last year, the rela-
tive weight of MEOE in the manufacturing in-
dustry stood at just 5%. In the past year, it
declined marginally partly due to much low-
er product prices. Nevertheless, production
grew strongly after a break of three years.
In 2008, value added at constant prices gen-
erated by MEOE companies rose by 15.5%
compared to the previous year and, despite
the deteriorating global economy, the growth
rate of the industry remained high in the sec-
ond half of the year (see Diagram 14.20).
Turnover indicators were much worse: the
volume of output sold at the then prices de-
clined by almost 6% last year compared to
2007 (see Diagram 14.20). The share of ex-
ports in sales fell marginally to around 72%.
Analysis of indicators of individual MEOE in-
dustries shows that sales of electronics sector
as well as electrical machinery and apparatus
dropped down by more than a fifth last year,
turnover of medical devices and precision in-
struments remained virtually the same, while
sales of computer industry increased almost
9.0
11.0
15.5
-0.4
1.9
-5.9 -4.7 -6.5 -6.5
-2.8 -11.4
-1.1
-4.8
-7.6
2005 2006 2007 2008 2008
II H
Lithuanian Economic Outlook
 Diagram 14.21
Sales of electrical and optical equipment, LTL Mio
2500
2000
1500
1710
1496
1000 1117
500
577
411 431
0
2002 2003 2004
Domestic sales
Source: Statistics Lithuania
five-fold during the year. Having been quite
small until now, the share of the latter indus-
try in MEOE sales rose to 13%.
Last year’s investment indicators illustrated
the worsening prospects of the sector: FDI
flows were weak and the volume of capital
investments fell by 6%. The ratio between
capital investments and value added was low
for a third consecutive year and stood at just
8.5% in 2008, down 3.3 times from the aver-
age indicator of the period of strongest growth
in 2001–2003. Despite skimpy investments
and lower product prices, the average value
added per MEOE worker at the then prices
rose by 14% last year but remained by about
9% lower than the MI’s indicator (see Table
14.10). Last year, the headcount in the sec-
tor contracted. The number of workers stood
at 11,300, down by almost 5% from 2007,
while the annual change in the average wage
remained high for a third year in a row and
reached almost 20%.
In the last nine years, the sector concerned
was profitable. However, like the majority of
other branches of the manufacturing indus-
try it saw its pre-tax profits slump in 2008
compared to the previous year, while the
profitability ratio fell 2.5 times to below 4%.
Total financial liabilities of MEOE companies
declined by about 8% last year, while the
Manufacturing
1526 1544 1459
1358
561 560 557 543
2005 2006 2007 2008
Exports
debt ratio fell to 0.46 and was by more than
a tenth lower than the MI’s average.
This year is unlikely to bring any good news for
the MEOE companies as the global electronics
market is projected to undergo a downturn.
The latest figures support this forecast. In the
first quarter of this year, sales of the indus-
try concerned fell by a third year-on-year. It
is extremely difficult to predict the long-term
outlook for the sector in Lithuania. Like the
transport equipment industry, the MEOE is
classified as the HMHT sector but Lithuanian
MEOE companies feel a much stronger com-
petition from Asian manufacturers compared
to other industries. Still, good performance
indicators of some MEOE companies are a
source for optimism.
Last year, revenue of Kaunas-based sub-
sidiary of Norwegian electronics company
Kitron, which manufactures electronic devic-
es and units, rose by almost a third to LTL
177 million and pre-tax profit stood at LTL
14.2 million. This year, the company plans to
increase its turnover by a fifth. According to
the subsidiary, it was able to achieve excel-
lent results last year and can project growth
for this year thanks to a significant improve-
ment of efficiency. In the first quarter of this
year, revenue of Kitron subsidiary in Lithu-
ania went up by 23% year-on-year.
111
 Table 14.10
Key statistical indicators of electrical equipment manufacture

Ratio to the
Annual growth
manufacturing
rate, %
indicator, %
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 1092 1261 575 639 8.1 15.5 11.0
Value added (at current prices), LTL Mio 870 948 460 458 5.1 9.0 –0.4
Total production, LTL Mio 2016 1901 1015 926 3.5 –5.7 –8.8
Exports, LTL Mio 1459 1358 727 657 4.0 –6.9 –9.6
Labour productivity, LTL thou** 73.2 83.7 39.2 42.7 91.3 14.4 9.0
Number of persons employed, thou 11.9 11.3 11.7 10.7 5.6 –4.7 –8.7
Average monthly earnings, LTL 1899 2271 2026 2330 107.3 19.6 15.0
Fixed investments, LTL Mio 86 81 45 44 2.8 –6.1 –1.5
Foreign direct investments (end of period),
395 415 395 415 5.7 5.0 –0.2
LTL Mio
Sales of goods and services, LTL Mio 2002 1992 1012 938 3.5 –0.5 –7.2
Gross profit, LTL Mio 435 385 189 195 4.9 –11.5 3.4
Operating profit, LTL Mio 213 99 56 33 5.6 –53.4 –40.6
Profit before tax, LTL Mio 197 77 47 18 5.9 –61.1 –60.8
Assets (end of period), LTL Mio 1395 1373 1395 1373 4.1 –1.6 –7.4
Liabilities (end of period), LTL Mio 678 625 678 625 3.7 –7.8 –18.9
Return on sales, % 9.85 3.85 4.62 1.95 166.9 – –
Return on assets, % 14.43 5.24 6.68 2.55 141.2 – –
Debt ratio (end of period), % 0.49 0.46 0.49 0.46 89.2 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

Šiaulių Tauro Televizoriai switched to manu-
facture of more complex and more expensive
products. This year, the company has stopped
production of CRT television sets and will fo-
cus on products with LCD screens. In 2008,
turnover of the company increased by a frac-
tion to LTL 181 million but losses amounted
to more than LTL 4 million and were lower
than two years ago. The company expected
to grow strongly this year but the crisis forced
it to adjust these plans.
Having grown at a remarkable pace two years
ago, Šiauliai-based manufacturer of electrical
equipment Elga boosted its sales by 15% in
2008 to LTL 104 million. However, a profit of
LTL 1 million was almost six times as low as
in 2007.
Despite the ongoing crisis, Pabradė-based
maker of disposable medical breathing sys-
tems and their accessories Intersurgical has
been operating successfully and its products
have been in great demand in a number of
countries. Last year, the company earned
over LTL 159 million in revenue, up by almost
a quarter from the previous year. Currently,
the plant employs about 1,200 people and the
headcount has been on the rise. A number of
employees underwent training at Intersurgi-
cal located in the United Kingdom.
Last year, turnover of the Eksma group spe-
cialising in laser and medical devices rose by
11% to LTL 48.5 million and pre-tax profit
stood at LTL 1.5 million, down by 50% from
a year ago. In 2008, sales of the entire la-
ser industry amounted to LTL 98 million, up
by 15.5% from 2007, and 86% of production
was exported.
Manufacturer of electrical engineering equip-
ment Rifas earned LTL 28 million in revenue
in 2008, almost 1.6 times more than in 2007.
A similar increase in sales was posted by elec-
trical switchboard maker Automatikos Siste-
mos, which achieved a turnover of LTL 23
million and profitability of almost 12%, and
electronics company Selteka, which earned
LTL 15 million in revenue.

112 Lithuanian Economic Outlook

Meanwhile, revenue of telecom Skaidula and
Televizijos Ir Ryšio Sistemos fell about 1.5
times in 2008 to LTL 28 million and LTL 31
million respectively, but both companies man-
aged to retain respectable profit margins.
US-based manufacturer of industrial and
medical installations Moog Inc. paid USD 21
million (LTL 51.5 million) for a 100% stake in
Lithuanian syringe pump maker Viltechmeda,
which has grown strongly in recent years and
returned excellent profits.
A subsidiary of Japanese Yazaki Wiring Tech-
nologies in Klaipėda has been reducing its
output and laying off workers. After June, the
company will only employ about 200 people
in Lithuania. It will probably have to aban-
don its plans to relocate some production of
wiring sets for Volvo trucks from Portugal to
Klaipeda since the estimated relocation costs
would exceed the potential benefits of this
project due to reduced output.
Currently, about 500 workers are still assem-
bling wiring sets for Renault Megane and Re-
nault Scenic cars. Yazaki branches in Plungė,
Šilutė and Mažeikiai have already been shut
down and the majority of work has been
taken over by Bulgarian companies. Just a
couple of years ago, the company asked the
government for permission to bring in cheap-
er labour from Belarus when its turnover
stood at around LTL 500 million. Last year,
the company employed 950 people, while a
Diagram 14.22
Value added created by manufacture of motor vehicles, annual change, %
50
41.0
40 3.2
30
37.8
20
10 5.4
5.5
0 -0.2
-10
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
Manufacturing
few years ago it was able to provide work for
4,000 workers.
Sales of Panevėžys-based wire and cable
maker Lietkabelis declined by 13% in 2007
to LTL 95 million, fell to LTL 59 million last
year and are expected to contract even fur-
ther to just LTL 35 million this year. However,
the company continues with its investment
programme. Having secured support from
the EU, it has already ordered new installa-
tions and plans to begin assembling them at
the end of the year. The total value of invest-
ment is LTL 12 million, and modernisation is
scheduled to be completed within three years.
The company has signed a contract with an
unknown Scandinavian enterprise and hopes
that sales to the new partner will generate up
to 30% of company’s revenue in autumn.
Transport equipment
In 2004–2006, this sector grew at the fast-
est pace among all economic activities re-
viewed in this publication but began ‘losing
momentum’ in 2007. Last year, the transport
equipment industry again demonstrated ex-
cellent growth as its value added at constant
prices rose by almost a quarter compared to
the previous year (see Diagram 14.22). The
volume of sales increased by almost a fifth
last year compared to 2007. Exports of pro-
duction leaped by 23%, and over two-thirds
40.9
2.0
24.9
23.3
3.1 20.3
1.6
39.0 2.3
21.8 7.6 21.7
1.1 18.0
6.5
2005 2006 2007 2008 2008
II H
113
 Diagram 14.23
Sales of motor vehicles and other transport equipment, LTL Mio
1800
1500
1200
900
600
427
300 394 375
181
60 105
0
2002 2003 2004
Domestic sales
Source: Statistics Lithuania
of output was sold on foreign markets (see
Diagram 14.23). Despite the global economic
downturn, the industry retained its strong
growth and remained in the positive territory
in the first half of the year, in contrast to the
majority of industries.
Table 14.11 presents the main indicators of
the sector. As we can see, labour productivity
in the transport equipment sector was by a
fifth above the MI’s average in 2008, although
the annual growth of this indicator was much
smaller than across the manufacturing in-
dustry. Value added per worker increased by
about 14%. The growth of productivity was
hampered by a low level of investment: for a
fourth year in a row, the ratio between capital
investments and value added was lower than
10% and even fell below 8% last year, which is
twice as little as the MI’s average even though
the latter was not high either. While the num-
ber of workers in the manufacturing industry
continued to decline, workforce in the sector
concerned increased by almost 8%. In the
last four years, the headcount rose by 36%.
For a third year in a row, average profitabil-
ity of manufacturers of transport equipment
was much higher than the manufacturing in-
dustry’s average. It stood at 8.4% two years
ago and dropped to 7% last year. It should
114
1119
912
741
544
451 508
410
317
2005 2006 2007 2008
Exports
be mentioned that it remained quite respect-
able in the second half of the year when profit
margins across the manufacturing industry
shrank dramatically. Last year, the average
debt ratio of companies operating in this sec-
tor went down to 0.43 and was by 15% lower
than the MI’s average.
The transport equipment industry should
brace itself for serious challenges this year.
The demand for vehicles has drastically de-
clined worldwide and the year will not be as
successful as 2008. In the first quarter of this
year, the sales volume of the sector fell by
half year-on-year.
We will now briefly review the structure of total
turnover of companies operating in this indus-
try and changes in this structure throughout
2008. Shipbuilding and repair companies
generated the largest percentage of total turn-
over which stood at about 40% last year, ris-
ing by two percentage points over the year.
For the last several years, manufacture of
vehicle bodies and trailers has been grow-
ing very strongly. The relative weight of these
companies increased by a percentage point to
31% last year. In a year, the weight of bicycle
manufacture fell from 12.3% to 10% of ag-
gregate turnover. The contribution by railway
locomotive and rolling stock manufacture
Lithuanian Economic Outlook
Table 14.11
Key statistical indicators of motor vehicles manufacture

Ratio to the
Annual growth
manufacturing
rate, %
indicator, %
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 761 926 381 450 6.0 21.7 18.0
Value added (at current prices), LTL Mio 754 929 378 455 5.0 23.3 20.3
Total production, LTL Mio 1364 1627 656 770 3.0 19.3 17.4
Exports, LTL Mio 912 1119 434 543 3.3 22.7 25.3
Labour productivity, LTL thou** 96.3 110.3 47.7 55.4 120.2 14.5 16.1
Number of persons employed, thou 7.8 8.4 7.9 8.2 4.2 7.7 3.6
Average monthly earnings, LTL 2342 2876 2523 3005 135.9 22.8 19.1
Fixed investments, LTL Mio 63 66 37 35 2.3 4.5 –5.1
Foreign direct investments (end of period),
495 530 495 530 7.2 7.0 2.1
LTL Mio
Sales of goods and services, LTL Mio 1705 2069 912 1092 3.7 21.4 19.8
Gross profit, LTL Mio 371 375 184 185 4.8 1.2 0.9
Operating profit, LTL Mio 150 158 59 67 9.0 5.3 12.7
Profit before tax, LTL Mio 143 145 55 56 11.1 1.2 2.0
Assets (end of period), LTL Mio 966 1184 966 1184 3.5 22.6 –9.2
Liabilities (end of period), LTL Mio 424 511 424 511 3.0 20.5 –23.5
Return on sales, % 8.41 7.01 6.02 5.13 303.8 – –
Return on assets, % 11.67 10.58 6.57 10.26 284.9 – –
Debt ratio (end of period), % 0.44 0.43 0.44 0.43 84.6 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

and repair companies was almost the same
in 2008, rising slightly above the indicator of
2007. The percentage of car assembly com-
panies declined more than 1.5 times last year
to around 4%, while the relative weight of
aircraft manufacture and repair plunged
to 1.5%.
Vakarų Laivų Gamykla, the largest company
in the transport equipment sector, and its
subsidiaries boosted their sales by 63% to
LTL 401 million and employed 1,500 people
last year. The company controlled by Estonian
BLRT Grupp earned LTL 66 million in consoli-
dated pre-tax profit, up 1.9 times compared to
2007. The shipyard is fully booked until 2011.
Arnoldas Šileika, CEO of the company, admit-
ted that the volume of work has declined but
shipyards have also benefited from the cri-
sis. While the prices of metals and equipment
have doubled and wages have risen steeply
in recent years, the crisis helped cut these
costs of producers.
In 2008, turnover of Baltijos Laivų Statykla
stood at LTL 195 million, up by 23% from two
years ago, but profit was close to zero. The
shipyard is controlled by the Danish Odense
Shipyard which has been securing orders for
the Lithuanian company lately. The Klaipėda-
based company seems to have sufficient or-
ders for this year but is not sure about its
prospects in 2010–2011 as the Danish parent
has already felt the aftermath of the crisis.
Baltijos Laivų Statykla employs about 1,400
people but plans to make about one hundred
workers redundant in the coming months. In
general, the number of shipbuilding orders
has fallen considerably worldwide, while the
competitive pressure of Asian manufacturers
has increased which means that both Lithu-
anian shipyards will face serious challenges.
In Panevėžys, Schmitz Cargobull Baltic, sub-
sidiary of German Schmitz Cargobull, manu-
factures isothermal car bodies, ferroplast pan-
els and tilt semi-trailers. The company has

Manufacturing 115
 enjoyed strong growth for several consecutive
years. In 2008, turnover rose to LTL 341 mil-
lion and pre-tax profit stood at LTL 32 million,
up by 56% and 63% respectively compared to
2007. However, orders were few and far be-
tween at the end of the year and the company
laid off 54 people out of 347. The European
Automobile Manufacturers’ Association pre-
dicts that the global economic crisis will cut Eu-
ropean production of cars by 25%, which will
most probably translate into a weaker demand
for the output of Panevėžys-based company.
Bicycle producer Baltik Vairas owned by the
German Panther group earned LTL 164 mil-
lion in revenue last year, a fractional decline
from the previous year.
116
In 2008, Vilniaus Lokomotyvų Remonto Depas
saw its sales rise by 12% to LTL 118 million
and its profit double to over LTL 4 million.
Last year, railroad switch maker VAE Legete-
cha earned LTL 51 million in revenue and LTL
2.6 million in profit, up by 42% and 37% re-
spectively from a year ago.
Žiemgalos Automobiliai, which assembles Be-
larusian MAZ trucks, grew strongly in 2004–
2007. However, a standstill in the construction
industry across Europe last year weakened
the demand for dump trucks and the compa-
ny’s turnover shrank almost by half to LTL 30
million.
Lithuanian Economic Outlook
15. Electricity, gas and water supply
 15. Electricity, gas and water supply
Some unresolved problems have accumulat-
ed lately in the Lithuanian energy sector, not
to mention the fact that the Ignalina nuclear
power plant (INPP) will be decommissioned
at the end of the year which will dramatically
change the situation in the electricity industry.
Therefore, even the latest drive to cut govern-
ment spending could not prevent the resurrec-
tion of the Ministry of Energy. The first action
taken by the new minister Arvydas Sekmokas
signalled a commitment to firmly control the
undertakings subordinate to the government,
ensure their efficiency and curb rising prices
of supplied energy. However, it is important
not to go over the top: if savings are made
sacrificing the necessary investments, the ex-
isting problems will only become more press-
ing in future. The government needs to take
measures aimed at liberalisation of the energy
market, promotion of small energy producers
and broader use of renewable energy sources.
By the way, the European Parliament agreed
to the so-called third energy market liberalisa-
tion package in late April. The new legislation
provides for the ways in which member states
should separate production and transmission
of electricity and gas. The European Com-
mission said that the package was designed
to promote competition and reduce energy
Diagram 15.1
Value added created by electricity, gas and water supply, annual change, %
30
26.4
0.8
25
20
15
25.6
10
5.3
5 3.2
7.4
0 0.0
-2.1
-5
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Labour market and wages
Source: Statistics Lithuania
118
prices. According to the European require-
ments, Lithuania will have to select measures
to break up the monopolies within a period of
18 months. Estonia and Latvia face the same
problems and it is increasingly likely that the
Baltic states will soon create a single electric-
ity market. Sweden also has some interest in
it as this country should be connected to Lith-
uania via an electricity link to be co-financed
by the EU (EUR 175 million). Prime Minister
Kubilius insists that this market will be cre-
ated based on the example of Nord Pool, the
single Nordic market.
This sector plays a very important role in
modern economy and its output is regarded
as one of the basic necessities. Lithuania still
stands out among other EU member states by
its energy-intensive economy and, therefore,
it is only logical that the comparative weight
of the sector concerned is much higher than
across EU-15, although the gap to the EU av-
erage has narrowed slightly in recent years.
The energy and fuel balance indicates that
final energy consumption was growing at a
slower pace than value added generated coun-
try-wide in 2006–2007. Two years ago, it in-
creased by 5.2% annually to 5 million tonnes
of oil equivalent (TOE). The detailed data of
17.6
14.8
18.8
5.8 15.2
1.4 4.7
3.2
0.3 1.1 1.1 -0.4 -1.2
2005 2006 2007 2008 2008
II H
Lithuanian Economic Outlook
Table 15.1
Key statistical indicators of electricity, gas and water supply sector

Ratio to the
economy’s Annual growth
indicator, rate, %
%
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 2512 2501 1260 1245 3.5 –0.4 –1.2
Value added (at current prices), LTL Mio 2768 3177 1407 1655 3.2 14.8 17.6
Total production, LTL Mio 6057 7446 2954 3731 3.7 22.9 26.3
Labour productivity, LTL thou** 117.5 138.2 60.1 73.0 179.0 17.6 21.5
Number of persons employed, thou 23.6 23.0 23.4 22.7 1.8 –2.4 –3.2
Average monthly earnings, LTL 2360 2738 2487 2832 121.8 16.0 13.9
Fixed investments, LTL Mio 1650 1579 1052 963 7.3 –4.3 –8.4
Foreign direct investments (end of period),
3206 2354 3206 2354 7.5 –26.6 –15.2
LTL Mio
Sales of goods and services, LTL Mio 7563 9915 3767 5156 4.7 31.1 36.9
Gross profit, LTL Mio 951 837 289 227 2.1 –12.0 –21.5
Operating profit, LTL Mio 341 168 –45 –109 1.7 –50.5 –
Profit before tax, LTL Mio 399 167 19 –94 2.1 –58.0 –
Assets (end of period), LTL Mio 22014 24645 22014 24645 12.9 12.0 2.9
Liabilities (end of period), LTL Mio 4282 5774 4282 5774 6.8 34.8 17.2
Return on sales, % 5.27 1.69 0.50 –1.83 43.9 – –
Return on assets, % 1.92 0.70 0.18 –0.78 16.7 – –
Debt ratio (end of period), % 0.19 0.23 0.19 0.23 52.4 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

2008 are not available yet but gross inland
consumption of natural gas, which includes
consumption of energy sources for both en-
ergy generation and non-energy needs, fell
by a tenth last year and the relevant indicator
of electricity rose by less than 4%.
Last year, value added generated by the in-
dustry concerned (hereinafter the ‘E industry/
sector’) stood at LTL 3.2 billion, up by almost
15% from 2007. Its share in the GDP struc-
ture increased slightly to 3.2% exceeding the
relevant EU indicator almost 1.5 times. This
growth relied on higher product prices since
value added at constant prices generated by
the E industry fell by a small margin com-
pared to two years ago (see Diagram 15.1).
Although the E sector has always had a rela-
tively strong flow of capital investments and
the ratio between these investments and
value added was 2.3 times higher than the
economy’s average last year (see Table 3 in
the Annex), the volume of capital investments
has almost stalled lately. In 2007, the annual
increase was a mere 5% and the volume fell
by a similar margin in 2008. Therefore, mod-
ernisation of the energy industry is moving
‘at a snail’s pace’. This can be explained to a
degree by a decline in industry’s profitabil-
ity: having stood at 7.3% in 2006, the profit
to revenue ratio fell for the second consec-
utive year in 2008 to just 1.7%. Moreover,
the E sector carries a considerable ‘hump’ of
debt. Although the debt ratio of the indus-
try is much lower than the economy’s aver-
age (see Table 15.1), the liabilities to annual
value added ratio rose strongly in 2008 for a
fifth year in a row and was one of the highest
among the economic sectors reviewed here
and was double the economy’s average. Last
year, the amount of total liabilities of compa-
nies operating in the E industry swelled by
more than a third.
The headcount in the E sector has been de-
clining for several years. In 2008, it fell by
2.4%, or almost twice as little as in the few
previous years. At the same time, the growth

Electricity, gas and water supply 119

 of average wages accelerated. In 2008, the
average wage in the E industry rose by 16%
to LTL 2,738 and remained much higher
than the national average. During the year,
value added per worker in the energy sec-
tor went up by almost 18% on average, but
this increase was mostly due to higher prod-
uct prices, as mentioned before, rather than
higher efficiency.
Next year, after the decommissioning of the
INPP, which generates about 70% of total
electricity consumption in Lithuania, the en-
ergy sector will face serious challenges and
the country will become even more energy-
dependent on Russia. However, the threat of
the potential electricity deficit and a steep
increase in prices should not be exagger-
ated. No doubt, the era of cheap electricity
will end and the period of 2010–2011 will be
extremely difficult until two modern 400 MW
and 320 MW units are put into operation by
power plants Lietuvos Elektrinė and Kauno
Elektrinė. Although there seems to be quite
good electricity import opportunities, experts
believe that the price for household custom-
ers may rocket to 0.55 LTL/kWh (see an ar-
ticle by Dr. A. Galinis in Mokslas ir technika,
2009/7). It will strongly depend both on the
global prices of oil and the efficiency of elec-
tricity distribution and supply systems. In
many countries, the producer or wholesaler
price comprises 20–40% of the final price paid
by the consumer. The rest is paid for trans-
mission, distribution, etc. Therefore, it is im-
portant to ensure that the electricity market
has as strong competition as possible, which
simply has not existed in Lithuania until now.
This factor is also important for the competi-
tiveness of our economy. Some industry rep-
resentatives maintain that many companies
are finding it increasingly difficult to compete
with foreign companies because of the inflex-
ible current energy pricing policy.
The development of alternative energy sourc-
es is another pressing problem. Currently,
they meet only 9% of the demand in the EU
but their share has been growing strongly. In
2007, wind energy alone accounted for 40%
of new electricity generation capacity. Lithua-
nia, as a country highly dependent on Russia,
performed poorly in the field of alternative en-
ergy sources, and builders of wind farms say
that they even encountered artificial barriers.
In 2007, only 4.6% of total electricity gen-
eration came from alternative sources in our
country. Most of this energy was generated by
hydro power plants (70%), while wind farms
and biofuel incineration plants produced just
120
20% and 10% respectively. Lithuania has a
commitment to the European Union to gen-
erate 7% of electricity using ‘green’ sources
by 2010. Prof. Jurgis Vilemas believes that
Lithuania will not be able to meet the target
next year as it is a couple of years behind
schedule. He sees the only option: in addition
to small wind farms, Lithuania has to build
200 MW or more powerful installations as the
developed countries do.
There are also vast opportunities for eco-
friendly heating and biofuel use but their
potential has not been tapped yet. Repre-
sentatives of companies selling solar heat-
ing systems, heat pumps and biofuel boilers
insist that advanced and eco-friendly energy
generation technologies struggle to find a
place in our lives because private consum-
ers in Lithuania are not offered any incentives
or compensations for the use of alternative
energy sources. At the same time, many Eu-
ropean countries have put in place a support
system promoting investment in alternative
energy generation.
By giving priority to these types of energy,
Lithuania would deal with its energy security
and pricing issues supporting, at the same
time, local businesses and introduction of
new technologies, which is vitally important
during the economic downturn. It seems that
the situation is changing for the better with
the arrival of the new Cabinet. Lithuania has
set a target to generate 23% of energy from
renewable sources by 2020, with particular
focus on the generation of thermal energy.
The government has plans to promote bio-
fuel use and development of wind farms. The
latter area has been reenergised. Currently,
the total capacity of wind farms amounts to
70 MW in Lithuania and is set to reach 200
MW by 2011, i.e. comprise about a sixth of
the currently used capacity of INPP. However,
electricity imports are very likely to increase
dramatically next year and the production in-
dicators of the E sector will decline.
The Lithuanian economy also relies heavily
on imports of natural gas. Its dependence
on a single supplier means that Gazprom is
unlikely to agree to any concessions. More-
over, Lithuania may face a shortage of gas
in future. However, until now Lithuania has
not experienced any disruptions in the supply
of natural gas or abnormal price hikes incon-
sistent with the global trends, so the debate
about construction of the liquefied gas import
terminal has subsided. This project would not
be cost-effective and it seems that, given the
Lithuanian Economic Outlook
current crisis, nobody is interested in the ter-
minal. At the same time, local gas custom-
ers can enjoy some good news as gas utility
Lietuvos Dujos plans to lower its prices due
to the falling cost of oil. From the middle of
this year, gas prices for households are set to
shrink by 14–19%.
Cheaper gas gives hope that the district heat-
ing costs will also go down. Actually, the po-
tential for cheaper energy or reduced imports
of energy sources lies not only in a broader
use of local biofuel and biogas for heat gen-
eration but also in renovation of buildings and
heat supply lines. The Association of Heat
Suppliers estimates that technical losses in
Lithuanian heat transmission networks have
accounted for over 17% of total heat supplied
in recent years.
Finally, let’s review the latest results of indi-
vidual companies operating in the E sector.
According to preliminary estimates, total
electricity generation comprised 13.9 billion
kWh in Lithuania last year, down by 0.7%
from 2007. Last year, 71% of total energy
in Lithuania was generated by the Ignalina
nuclear power plant, 21% by thermal power
plants, 7% by hydro power plants and Kruon-
is pumped storage plant, 1% by wind farms.
Last year, total energy consumption rose by
3.4% compared to 2007 to 9.1 billion kWh,
of which retailers and service providers con-
sumed 35.2%, industrial companies 31.9%
and households 29.7%. Last year, Ignalina
NPP sold 9.14 million MWh of generated elec-
tricity, a similar volume to 2007. Its revenue
rose by 4.3% to LTL 597 million, but pre-tax
profit fell in double digits to LTL 2 million.
In 2008, revenue of Lietuvos Elektrinė grew
by 30% to LTL 396 million, but net profit of
LTL 34 million earned in 2007 was replaced
by a loss of similar magnitude. Last year,
the power plant, which will become the ma-
jor producer of electricity after the INPP is
decommissioned, received LTL 63.5 million
in grants for its modernisation projects. The
International Ignalina NPP Decommission-
ing Fund transferred LTL 48.6 million to the
power plant and another LTL 14.9 million was
received from the National INPP Decommis-
sioning Fund.
Electricity, gas and water supply
Last year, net profit of Lietuvos Energija
stood at LTL 47 million and was similar to last
year’s, while revenue went up by 31% to LTL
1,482 million. Domestic sales comprised 10.1
million MWh of electricity, up by 3.6% from
2007, and 2.4 million MWh was exported. The
company’s investments into renovation and
development of energy installations reached
LTL 160 million in 2008, up by 5% from 2007,
and this year the volume of investment will
shrink slightly.
Profits of power distribution companies were
quite high in 2007, but margins declined con-
siderably last year due to the higher price of
bought-in electricity. Last year, VST revenue
rose by 10% to LTL 1,165 million and net
profit plummeted 5.8 times to LTL 11.7 mil-
lion. The company invested LTL 144 million
into renovation of networks and installations,
slightly more than two years ago.
In 2008, Rytų Skirstomieji Tinklai (RST)
earned LTL 1,191 million in revenue, up by
12.3%, to but incurred a loss of LTL 81 mil-
lion as a result of revaluation of assets and
higher electricity production costs. Last year,
the company invested about LTL 250 million
into tangible fixed assets and plans to spend
LTL more than 180 million this year.
Higher fuel prices meant that Lithuanian heat
suppliers have been unable to return a profit
lately. In 2008, turnover of Kauno Energija
rose by 22% and a loss of LTL 4.3 million was
twice as little as a year ago. The company
expects to earn almost LTL 11 million in profit
this year.
Higher prices of gas contributed to an im-
pressive growth of turnover of gas compa-
nies last year, but their profitability went
down. As a result of higher gas import prices,
sales of Lietuvos Dujos soared by 51.9% to
LTL 1,555 million last year, pre-tax profit fell
by 41.5% to LTL 73.3 million and net prof-
it shrank by 38.3% to LTL 64.2 million. In
a year, the company’s investments rose by
4.1% to LTL 123 million, of which LTL 38.6
million was invested into renovation of gas
transmission and distribution system and
LTL 84.7 million into construction of new gas
systems. The company plans to invest LTL
250 million this year.
121
16. Construction
 16. Construction
Having been ‘spoiled’ by the booming real
estate market in recent years, players of the
construction sector are struggling for their
survival today. The freefall of the economy has
drastically adjusted the needs and possibilities
of customers, while the increased operational
risk of the sector made it more difficult to bal-
ance financial flows. Companies have suspend-
ed their operations as they are unable to find a
safe haven to make it through the downturn.
As a result, the construction industry went into
a standstill at the end of last year.
Although the annual growth of gross output
of the construction industry remained in the
double-digit zone (11.1%) in 2008, this in-
dicator essentially represents the result of
the first quarter as gross output of construc-
tion rose by 2.9% year-on-year in the second
half of 2008 in Lithuania. The turning point in
the construction sector is even more vividly
reflected in the trends of value added gen-
eration (see Diagram 16.1). After impressive
leaps of 2006 and 2007, last year’s 1.2%
annual increase in value added looks very
modest indeed. While the sector still demon-
strated an inert growth of over 8% in the first
half of 2008, the result of the second half of
the year, a drop of almost 4% in value add-
ed, was a clear curtain-raiser to the phase
Diagram 16.1
Value added created by construction sector, annual change, %
40
30
24.2
1.4
20
13.8
22.8 6.6
10
7.3
0 1.2
-10
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
124
of a deep downturn. The sector retained its
growth rate (at current prices) in the posi-
tive territory thanks to the annual increase
in input prices which still stood at 5.9% on
average in the second half of 2008. However,
monthly changes in the annual inflation of
construction input prices show that the indi-
cator was losing 11% percentage points since
June 2008 and finally came to a halt last De-
cember. It is not surprising that the first fall
in prices was seen in the housing segment,
and construction prices in other categories
of real estate also began sliding down in the
first quarter of this year. The main ‘anchor’
dragging the annual change in the construc-
tion input price index down into the negative
territory was labour-related costs. While the
component of wage costs was still growing at
a rate of 5% last autumn, it contracted by al-
most a quarter year-on-year in March 2009 in
the industry concerned. It means that the li-
abilities have put a stranglehold on the devel-
opers and building companies forcing them to
improve their efficiency, optimise costs and
lay off workers. As payment delays become
more abundant, construction companies
made the first announcements of massive re-
dundancies at the end of last year. As a re-
sult, the number of workers, which has been
37.2
33.3
16.0
12.4
19.9
8.5 10.8
21.2
21.0
11.4 9.6 3.2
6.9
-3.8
2005 2006 2007 2008 2008
II H
Lithuanian Economic Outlook
Table 16.1
Key statistical indicators of construction sector

Ratio to the
economy’s Annual growth
indicator, rate, %
%
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 6254 6330 3674 3537 8.9 1.2 –3.8
Value added (at current prices), LTL Mio 8992 9964 5424 5596 10.0 10.8 3.2
Total production, LTL Mio 18431 20480 11148 11476 10.2 11.1 2.9
Labour productivity, LTL thou** 86.4 94.5 51.2 55.6 122.5 9.5 8.6
Number of persons employed, thou 104.1 105.4 106.0 100.7 8.1 1.2 –5.0
Average monthly earnings, LTL 2213 2449 2377 2471 108.9 10.6 4.0
Fixed investments, LTL Mio 672 473 364 208 2.2 –29.6 –42.8
Foreign direct investments (end of period),
549 632 549 632 2.0 15.1 15.9
LTL Mio
Sales of goods and services, LTL Mio 17021 18145 10095 9987 8.6 6.6 –1.1
Gross profit, LTL Mio 3648 3443 2225 1883 8.5 –5.6 –15.4
Operating profit, LTL Mio 1652 1201 1069 733 12.0 –27.3 –31.4
Profit before tax, LTL Mio 1617 1102 1043 672 13.6 –31.8 –35.6
Assets (end of period), LTL Mio 10593 12104 10593 12104 6.3 14.3 –1.3
Liabilities (end of period), LTL Mio 6042 6964 6042 6964 8.2 15.3 –9.1
Return on sales, % 9.50 6.07 10.33 6.73 157.7 – –
Return on assets, % 16.33 8.98 19.62 10.58 214.0 – –
Debt ratio (end of period), % 0.57 0.58 0.57 0.58 128.7 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

growing in double digits for several years in
a row, fell by 5% year-on-year in the second
half of 2008. Today, the situation in the con-
struction labour market is even gloomier as
both local builders who have lost their jobs
and the returning emigrants who had ‘their
wings clipped abroad’ are joining the ranks of
the unemployed. Labour productivity indica-
tors (see Table 16.1) point out that the sector
has benefited from this painful workforce re-
duction procedure. Despite the financial diffi-
culties befalling the construction industry, the
latter efficiency measure continued to grow
strongly in the second half of 2008 (up by
8.6% year-on-year).
However, given the current standstill, these
efforts are unlikely to have much effect.
The indicators of own-account construction
work show that the construction industry will
be ‘lethargic’ in the coming years (see Dia-
gram 16.2). While the sector continued to
grow quite strongly in the first three quar-
ters of 2008 supported by the inertia of non-
residential buildings and engineering works,
both segments were falling in unison dur-
ing the fourth quarter. Analysis of individual
categories of construction work shows that
the broadest range of fluctuations could be
seen in the volumes of residential construc-
tion work, which accounts for up to a fifth of
construction work. Having grown 1.5 times
in 2007, the volume of this type of work be-
gan declining in the third quarter of 2008
and plunged by a massive 70% in the first
quarter of this year. In the first three quarters
of 2008, the volume of non-residential con-
struction was still growing strongly. However,
the stalling market of commercial properties
contributed to an 8.6% year-on-year decline
in the construction volume in the last quar-
ter of last year. Deplorable indicators for the
first quarter of the year (the volume of own-
account work in non-residential construction
contracted by almost 48% year-on-year) sig-
nal that this segment, which generates over
40% of total construction work volume, is set
to decline at a double-digit rate this year.

Construction 125
 Diagram 16.2
Construction works carried out by local construction enterprises within the country (at current prices,
VAT excluded), annual change, %

60
52.2
45 39.0 37.5 41.6 40.0
36.2 37.0
31.4
28.430.8
30 23.1 23.7
13.6 12.0 11.8
15

0
-1.4
-6.6 -8.6
-15 -12.3 -13.2
-15.9
-30

-45
-45.1 -47.8
-60

-75 -69.9

Total Residential Non-residential Civil engineering

buildings buildings works

2007 2008 I 2008 II 2008 III 2008 IV 2009 I

Source: Statistics Lithuania

As the residential property market came to a but could not avoid a symbolic annual decline
halt, the volume of own-account construction of 1.4% by the end of the year. The cost cut-
work carried out abroad has risen sharply. In ting initiative undertaken by the government
2007, this sort of construction work exports al- has dealt a severe blow to investment proj-
most doubled (87%), while the relevant annual ects: construction volumes of engineering
change stood at 23% last year. These trends works contracted by 13.2% year-on-year in
are supported by statistics of the balance the first quarter of this year.
of payments of construction services export
Analysis of domestically carried out construc-
published by the Bank of Lithuania. However,
tion work by type indicates that the structure
it is likely that the haven found by Lithuanian
has remained stable in the last few years and
construction companies abroad will be short-
that new projects accounted for more than a
lived as real estate markets of a number of
half of domestic construction work. The rest
countries are also undergoing a deep price re-
was shared between reconstruction as well as
cession. In terms of the mid-term prospects of
repairs and renovation work in almost equal
the construction industry, developers struggle
parts. However, the growth rate of the volume
with finding a niche for their operations where
of individual types of construction work (at
they could safely sweat out the economic
the then prices) changed compared to 2007.
recession. As both housing and commercial
While the volume of new construction work in-
property markets stalled, construction com-
creased roughly 1.5 times in 2006 and 2007,
panies feverishly rushed to look for ‘straws’
i.e. nearly double the rate of other catego-
to catch in the modernisation programme for
ries, new construction was growing 3.5 times
public and apartment buildings as well as con-
slower than repairs and reconstruction work in
struction of engineering works. However, cur-
2008. Last year, the volume of new construc-
rent developments in public finance indicate
tion work increased by 5% compared to the
that, unfortunately, the government sector is
relevant indicator of 2007, while the volume of
also struggling to make ends meet. Accord-
reconstruction work went up by 18% and the
ing to the figures of last year, development of
volume of restoration and repair work rose by
engineering works comprised nearly 38.6% of
16.4% compared to the previous year.
own-account construction work. This segment
continued to grow strongly at an average rate The fact that Lithuanian businessmen no lon-
of 31.3% in the first three quarters of 2008 ger see their future in property development

126 Lithuanian Economic Outlook

is also reflected in the statistics of invest-
ments in tangible assets. After an exceptional
growth period during the construction boom,
investments in capital goods and real estate
fell by a third at constant prices and by a
massive 43% at the then prices last year. The
indicator is not expected to recover this year,
while market pessimists believe that the de-
velopment of both residential and commercial
projects will continue to stagnate for at least
three years. Foreign investors are more opti-
mistic about Lithuania’s prospects. Last year,
foreign direct investment in the construction
sector stayed at the level of 2007 and contin-
ued to grow by more than 15%. This signals
that foreign investors expect a positive return
in the longer run at least.
Last year, the financial performance of the
construction sector was much more modest
than before. Having grown at an average an-
nual rate of 35% in 2005–2007, total revenue
of construction companies rose by just 6.6%
last year, and the indicator was negative in
the second half of 2008. During the year, the
leverage ratio in the sector grew marginally by
one basis point to 0.58 at the end of 2008 but
was by 29% higher than the economy’s av-
erage. Last year’s profit indicators were also
more modest: pre-tax profits of construction
companies fell by almost a third during the
year and their profit margins dropped from
9.5% in 2007 to 6.1% in 2008. And even
though the inertia of the construction seg-
ment kept this indicator still 1.5 times above
the economy’s average in 2008, the situation
will soon change. Weak demand for construc-
tion services, depleting sources of earnings
and high loan administration costs are forcing
a number of companies into the negative ter-
ritory or even out of business. These trends
are reflected in the rapidly rising percentage
of loss-making businesses in the total number
of construction companies. At the end of last
year, such companies accounted for over 45%
of all players in the sector, up by 20 percent-
age points year-on-year, and the situation is
even bleaker at the moment. The view is sup-
ported by Panevėžio Statybos Trestas (PST),
one of the largest construction companies in
Lithuania. In the audited annual report 2008,
it identified the reluctance of banks to lend
and unreasonably low prices quoted by de-
velopers in construction work tendering pro-
cedures as the main obstacles for business
in future. According to the audited results of
last year, the PST Group managed to achieve
1
Based on BNS information.
Construction
and even beat its operating targets. In 2008,
it earned LTL 24.2 million in net profit, down
by 21% from the previous year, and its rev-
enue rose by 13% to LTL 0.586 billion. At the
same time, another market giant, a group of
construction and real estate investment com-
panies Ranga Group, can only ‘boast’ about
an intricate net of debts around its companies
and angry creditors. Debts of property devel-
oper Ranga IV, which belongs to his group,
reached LTL 74.84 million1 at the end of 2008,
and nearly half of the amount comprised li-
abilities to other companies associated with
the director of Ranga IV. At the beginning of
this year, Ranga IV went into restructuring
but its creditors want to terminate the proce-
dure accusing the group of deliberately creat-
ing the chain of debts. In 2008, Ranga Group
earned LTL 0.35 billion in revenue, down by
40% from the previous year.
Turnover of Telšiai-based Vėtrūna, which is
building Kaunas Arena, contracted by 2%
compared to 2007 and stood at LTL 263.58
million. Meanwhile, services and sales of the
Mitnija group, one of the top five property de-
velopers in Lithuania, grew by 22% last year
to LTL 288 million. Revenue of property devel-
oper Eika also rose by a fifth (to LTL 252.15
million) in 2008 but its last year's profit more
than halved compared to 2007 and stood at
LTL 14.4 million.
The psychological climate of players in the
construction sector and their sentiments about
the future are well reflected in the ‘barom-
eter’ of expectations of construction compa-
nies (see Business and consumer confidence
indicators), which has been indicating bleak
prospects for some time now. Having reached
a record high for the construction confidence
indicator in May 2007 since the records be-
gan, this indicator of the sector’s psychological
state plunged down and has been posting one
anti-record after another since October 2008.
The outlook for the construction industry in
Lithuania is bleak as the sector is set to stay
in a complete standstill for the next several
years. Residential and commercial property
markets will become appealing to investors
only after the economy recovers and play-
ers of the domestic market regain their opti-
mism. The development of engineering works
is also set to stall since the government is
already buying the ‘thread’ to patch up holes
in public finance at the expense of investment
projects.
127
17. Domestic trade
 17. Domestic trade
After a hugely successful period of growth
lasting several years, domestic trade came
to a grinding halt last autumn. The mood in
nearly all types of trade companies was dis-
mal and the main indicators of the sector de-
teriorated considerably. Although the annual
growth in value added at constant prices was
still positive (3.2%) in domestic trade, the in-
dicator plummeted below zero in the second
half of 2008 (see Diagram 17.1).
With consumer expectations reaching record
lows and macroeconomic projections worsen-
ing with every month, many companies had
to rethink their growth plans and market be-
haviour. As the ‘golden age’ ended, compa-
nies made drastic cuts to their investment
projects. Last year, capital investments in the
sector declined by more than a quarter and
fell by almost 36% in the second half of 2008
(see Table 17.1). The headcount in domestic
trade began contracting in the last months of
2008 and the process has continued this year.
Nevertheless, domestic trade overtook the
manufacturing industry as the largest em-
ployer in Lithuania for the first time last year.
Some retailers responded to the new eco-
nomic situation last year and began offering
Diagram 17.1
Value added created by domestic trade, annual change, %
20
15
12.0
9.7
10 2.6
9.4
5 10.5
0 -0.8
-5
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
130
slightly cheaper goods and many discount
campaigns to consumers. Although the mar-
athon has continued even after the new col-
lections were brought in, it had little effect on
sales. While revenue from sales of products
and services was still growing in 2008, the
growth rate slowed down almost 2.4 times
compared to 2007 to 12.6% and stood at a
mere 4% in the second half of last year.
The deteriorating financial indicators also add
to the pessimism as pre-tax profits, which
reached their growth peak in 2007 (118%),
fell by 42.7% last year mostly due to the de-
cline in the second half of the year (–62.5%).
As a result, the annual profitability ratio fell
by half from 6.8% in 2007 to 3.4% in 2008.
The debt ratio soared to its highest level since
2000 reaching 0.64 (from 0.61 in 2007).
The slumping sales and relatively large liabili-
ties became an unbearable burden for some
representatives of the sector. Last year, do-
mestic trade saw the highest rate of bank-
ruptcies as 269 trade companies went out
of business (29% of all companies that went
bankrupt in the country). In the first quarter
of this year, almost 100 trade companies also
faced financial difficulties (22.2%).
17.4
13.6 14.0
5.2
10.7
3.9
8.7
4.0 10.8
12.2
9.7 9.6
6.7
3.2
-0.9
2005 2006 2007 2008 2008
II H
Lithuanian Economic Outlook
 Table 17.1
Key statistical indicators of domestic trade

Ratio to the
economy’s Annual growth
indicator, rate, %
%
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 12770 13175 6880 6821 18.4 3.2 –0.9
Value added (at current prices), LTL Mio 14677 16733 8061 8764 16.7 14.0 8.7
Total production, LTL Mio 21487 24123 11901 12684 12.0 12.3 6.6
Labour productivity, LTL thou** 70.6 78.7 38.1 41.9 101.9 11.4 9.9
Number of persons employed, thou 207.8 212.7 211.4 209.0 16.4 2.4 –1.1
Average monthly earnings, LTL 1810 2092 1917 2117 93.0 15.5 10.4
Fixed investments, LTL Mio 2125 1574 1260 810 7.3 –25.9 –35.7
Foreign direct investments (end of period),
3962 4449 3962 4449 14.1 12.3 9.4
LTL Mio
Sales of goods and services, LTL Mio 77718 87479 42611 44381 41.4 12.6 4.2
Gross profit, LTL Mio 13926 15697 7569 7792 38.9 12.7 2.9
Operating profit, LTL Mio 3886 3455 2080 1609 34.5 –11.1 –22.6
Profit before tax, LTL Mio 5256 3012 3449 1292 37.1 –42.7 –62.5
Assets (end of period), LTL Mio 35188 37803 35188 37803 19.8 7.4 1.2
Liabilities (end of period), LTL Mio 21311 24138 21311 24138 28.3 13.3 –3.9
Return on sales, % 6.76 3.44 8.09 2.91 89.4 – –
Return on assets, % 16.41 7.93 20.27 6.71 188.8 – –
Debt ratio (end of period), % 0.61 0.64 0.61 0.64 142.9 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

The indicators of the first months of this year
are also less than encouraging. In the period
of four months, retail turnover1 declined by
almost 30% year-on-year. The indicator has
been falling for seven consecutive months.
The results are slightly better if we eliminate
retailers and wholesalers of motor vehicles
and motorcycles as well as repair shops, as
the decline from January to April comprises
about 19% then.
In the first half of last year, the annual change
in turnover of vehicles was at a similar level to
two years ago (about 28%). However, in the
second half of the year, the demand for cars
came to a halt and turnover fell by 11.3%
year-on-year. The annual result contracted to
15.7% accordingly. In the first four months of
this year, the said indicator more than halved
(–55.2%). The situation on the market of
brand new cars is even more desperate: ac-
cording to AutoTyrimai, just 3,900 new cars
were registered in Lithuania in the first five
months of this year, down by 71% year-on-
year. It is one of the worst indicators in the
European Union as only Iceland and Latvia re-
corded a steeper drop in sales of new cars.
As the summer season approaches, retailers
will most likely be able to breathe a sigh of
relief since the decline of turnover will decel-
erate for a while. After hitting rock bottom at
the beginning of the year, the retail trade con-
fidence indicator shot up in May and the trends
of turnover are also indicating some sort of
stabilisation (see Diagram 17.2). Improving
expectations across the domestic trade in-
dustry are also reflected in the data from the
survey of managers of retail companies: while
86% of company managers said that their
turnover had declined in April, the percentage
of pessimists fell to just 68% in May. Although
there are more and more encouraging signs
on the horizon, the real recovery is still far

1
Turnover of retailers and companies engaged in retail trade and wholesale of motor vehicles and motorcycles, repair shops (excluding VAT), measured
at constant prices.

Domestic trade 131

 Diagram 17.2
Annual change of retail trade turnover at constant prices (in percent) and retail trade confidence indicator
60
40
20
-20
-40
-60
2005 2006 2007
Retail trade confidence indicator
Source: Statistics Lithuania, authors’ calculations
away as retailers will face a number of serious
challenges in autumn and winter.
The government has also prepared a number
of surprises for retailers this year. Tax rates
were changed at the beginning of the year, a
proposal to limit markups on food products
was adopted (and subsequently withdrawn),
more stringent requirements to settle with
the suppliers were introduced; these are just
a handful of decisions which had a direct ef-
fect on the activities of retailers. Although the
government actively declares that elimination
of red tape barriers and improvement of busi-
ness conditions is its priority, many decisions
ran counter to that. When the business com-
munity opposed these hastily made decisions,
the government had to make the necessary
adjustments. Currently, authorities consider
the possibility of lifting the ban on night sales
of alcoholic beverages and an option of re-
ducing the excise rate for fuel due to a dra-
matic drop in fuel consumption. These un-
predictable ‘twists’ in political thinking of the
government triggered discontent of business
people. Another decision to impose taxes on
company cars or cars borrowed from other
persons for personal needs is also very ques-
tionable as some companies will be forced to
drastically reduce their car fleet. In summary,
it is obvious that virtually every proposal to
132
2008 2009
Retail trade turnover
increase the tax burden during the crisis de-
livers a severe blow to the results of domestic
trade industry.
As consumption continues to plunge, retailers
have no illusions to see their results improve
in the immediate future. An increasing num-
ber of companies are reporting that they ex-
pect to incur losses and see their sales fall.
Turnover of Apranga, the largest clothing re-
tail chain in the Baltic states controlled by the
MG Baltic concern, rose by 13.5% but net
profit shrank by 46% (to LTL 418.622 mil-
lion) from 2007. In the first five months of
this year, sales of Apranga declined by more
than a fifth to LTL 155.6 million. It is likely
that the group’s turnover will be falling at a
similar rate throughout 2009 and Apranga will
incur losses. However, these gloomy projec-
tions did not prevent the company from suc-
cessfully distributing a LTL 20 million stock
issue (to redeem a two-year debenture issue
of the same value which matures this June).
According to the company’s press release, the
demand was triple the supply of shares and
shareholders raised a total of LTL 57.6 million
through this issue. The group, which added
16 new stores (19 were opened and 3 closed)
to its retail chain, says it has no plans to make
any additional investments in 2009–2010.
Lithuanian Economic Outlook
Some construction projects of retail centres ten stores (three of them to improve operat-
were frozen due to the stagnating domes- ing efficiency and seven at the request of the
tic demand and melting queues of tenants Competition Council to reduce the share of
(such as Akropolis II, DomusPro, etc.). commercial space in several towns).
Nevertheless, retail operators say that they
Norfos Mažmena also set aside its plans to
see attractive growth opportunities despite
grow on foreign markets and decided to re-
the downturn and do not intend to put a
store its network in Lithuania instead. Turn-
stop to their plans in Lithuania. Palink, which
over of this company, which operates retail
operates retail chains Iki and Cento, was
chain Norfa, rose by 12.3% last year to al-
tempted by attractive prospects to invest
most LTL 1.7 billion (excluding VAT). This re-
into its future. This year, the company has
tail chain continues to focus on lower-income
opened seven new stores and intends to add
consumers and claims that prices of almost
11 retail centres to its chain. The company,
all food products have been reduced by up to
which belongs to the Coopernic alliance, has
15% since June.
extended the holdings of retail chain Iki in
Latvia, where it has acquired 17 stores of The next couple of years will be very chal-
Latvian retain chain Nelda. lenging for retail centres. As the consumption
fever ran out of steam, an increasing number
Having opened three new stores this year,
of buyers decided to shop at marketplaces
Rimi Lietuva also says it considers expanding
and many Lithuanians were tempted to make
its investment programme. From January to
purchases in Poland, where prices fell by a
April, sales of the company (excluding VAT)
fifth due to the zloty depreciation. Shops sell-
fell by about 4% year-on-year and stood at
ing building materials, furniture, household
LTL 289.7 million. Turnover rose by 11% to
articles and other durable goods will suffer
LTL 951.6 million last year. Sales of the entire
the most. We also expect that wholesale will
Rimi Baltic group which operates 241 retail
also be more aggressive on the market as
centres in the Baltic states (11 in Latvia, 76 in
an increasing number of wholesalers will try
Estonia and 65 in Lithuania) were above LTL
to offer their products directly to the final
4.5 billion last year, up by 13% from 2007.
consumer circumventing any intermediaries.
Meanwhile, Maxima LT, owned by Vilniaus Retail chains will find themselves in a fierc-
Prekyba, the largest group of private compa- er battle competing on price and campaigns
nies in Lithuania, which operates the largest trying to attract buyers by way of tempting
retail chain in the Baltic states (228 stores) offers. Those who prefer to wait for better
lost some momentum. This year, the com- times and do nothing run a risk of going out
pany has opened only three retail centres in- of business before the crisis ends.
stead of the planned five and closed down

Domestic trade 133

18. Transport
 18. Transport
Just like almost every major sector of the
Lithuanian economy, the transport industry
did not grow strongly last year. After a record
leap of 2007, value added generated by the
entire sector rose by a mere 2.9% at con-
stant prices and by 11.4% at current prices
(see Diagram 18.1).
Interestingly, the representatives of the
sector made an excellent start to last year.
In the first quarter of 2008, turnover of all
freight carried by all modes of transport (ex-
cluding marine transport) rose by 11.8%
year-on-year in quantitative terms. Klaipėda
state seaport and Būtingė terminal, which
saw their cargo handling volumes rise by
more than a third during the year, looked the
most impressive against the background of
other entities of the transport sector. Railway
transport also demonstrated unprecedented
growth indicators as freight traffic by rail
jumped by almost a fifth. However, indicators
of the entire sector began to deteriorate later.
Growth indicators were getting increasingly
modest in the second and third quarters of
2008 and even went into a negative territory
in the fourth quarter as freight volumes and
turnover shrank by 15.7% and 6.6% year-
on-year respectively.
Diagram 18.1
Value added created by transport and storage sector, annual change, %
25
20
13.6
15
3.4 10.0
10 0.9
5 10.2 9.1
0 0.8
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
136
Similar trends were also seen in the financial
indicators of the transport sector. Annual rev-
enue of companies operating in the sector in-
creased by 11.4% but this double-digit year-
ly result relied on the beginning of the year
since the annual growth of revenue slowed
down to 4.9% in the second half of 2008 (see
Table 18.1). During the year, pre-tax profits
slumped by a massive 70%, while the profit-
ability ratio was negative in the fourth quar-
ter and stood at –2.2%. The percentage of
loss-making companies in the total number
of transport and warehousing entities jumped
from 40.9% in the fourth quarter of 2007 to
53.3% at the end of last year. Despite the
deteriorating financial indicators, representa-
tives of the sector continued to invest heavily
as capital investments rose by more than a
quarter in 2008.
Although rail transport had its ‘slice of the pie’,
road transport remained the main freight
carrier last year. A total of 59.4 million tonnes
of freight, or 49.2% of total cargo, was trans-
ported by road in 2008. Unlike in the case
of Klaipėda port and Lithuanian Railways,
indicators of road transport companies were
no longer impressive at the beginning of last
year. Soaring fuel prices, decelerating growth
23.2
18.7 18.3
10.2
6.0
6.6
11.4
9.2
8.5
12.7 13.0
11.7 8.5
2.9
2005 2006 2007 2008 2008
II H
Lithuanian Economic Outlook
of foreign trade flows, slower economic devel-
opment in most EU member states, invasion
of the common market by Romanian and Bul-
garian carriers and unsustainably large fleet
of trucks led to a sluggish growth of the seg-
ment concerned. In the first half of last year,
both the freight volume and freight turnover
measured in tonne-kilometres rose by about
2% year-on-year.
Only the first quarter of last year was slightly
more favourable to road transport, when the
volume of freight carried by all road vehicles
rose by 5.7% and freight turnover increased
by 7.7%. However, it should be noted that
the said indicators of specialised road trans-
port companies (whose core activity is freight
carriage) which focus more on international
haulage were much more modest and stood
at 1.0% and 2.7% respectively. These results
are hardly surprising, since the above-men-
tioned negative factors were expected to have
a more adverse effect on businesses with in-
ternational routes. Other statistics further
support this fact: in the first quarter of last
year, the volume of freight carried on domes-
tic routes was growing almost three times as
fast as the volume of freight on international
routes. This growth was partially supported
by the construction industry, which still grew
at a fast pace (13.5%). Moreover, the trade
industry, which demonstrated a surprising
growth in retail turnover at the beginning of
2008 lasting several months in a row, has
quite a sizeable fleet of trucks.
Unfortunately, the situation has changed
dramatically on the domestic market turn-
ing ‘meteoritic’ rises into nightmare falls. The
situation on the neighbouring markets is also
dire. It seems that countries are simply rac-
ing against each other which one will come
up with the bleakest outlook for the economy.
For the transport sector, it means that more
cargo should not be expected in the nearest
future. In the fourth quarter of last year, the
volume of freight, measured in tonnes, car-
ried by road fell by almost a quarter year-
on-year, while freight turnover contracted by
just 5%, which indicates that the Lithuanian
carriers continue to extend their routes in an
attempt to conquer faraway countries (the
recovering Kazakhstan and emerging Uzbeki-
stan markets).
It is obvious that transport companies are
going through difficult times, to put it mild-
ly. Their situation is further compounded by
other factors such as a changed approach of
commercial banks which treat the sector, to-
Transport
gether with the construction industry, as the
most risky one as well as much more expen-
sive fuel compared to the neighbouring coun-
tries (especially Poland and Belarus). Idling
carriers are being strangled by loan repay-
ments and payments to leasing companies.
Moreover, Russia is one of the key markets
for Lithuanian transport companies, but the
two countries have not yet signed a bilater-
al agreement on VAT refunds for fuel (even
though Lithuania already has such agree-
ments with as many as 40 countries). These
factors entailed ever higher losses. Last year,
the percentage of loss-making companies in
the land transport industry rose from 41.4%
to 55.5%.
As already mentioned, state-run Lithuanian
Railways (LR) had a wonderful start to the
year in 2008 but the projections outlined in
the previous issue of the Lithuanian Econom-
ic Outlook came true in the second half of
the year as the volume of freight began to
decline. In 2008, the company carried 54.97
million tonnes of freight, up by just 2.7% from
the previous year. Compared to 2007, inter-
national freight volumes declined by 3.8%
last year to 39.6 million tonnes and domes-
tic freight volumes rose steeply by 24.7% to
15.4 million tonnes.
Last year, revenue of the company increased
by 14% to LTL 1.6 billion but net profit fell
to LTL 109.7 million, down by 18% from LTL
133.6 million earned in 2007. Rapid changes
in the macroeconomic environment in Lithu-
ania and neighbouring markets forced the
company’s management to make several ad-
justments to this year’s target indicators. Ac-
cording to the latest projections (May 2009),
the company will incur a loss of LTL 54 million
and will see its revenue shrink by 26%.
Last year, Lithuanian Railways almost dou-
bled its investments compared to 2007 as the
volume reached LTL 780 million (two years
ago, the company invested LTL 419 million).
It seems that LR has adopted a never-say-
die attitude in this difficult year as well. Even
though the company plans to invest a lot less
than last year, it will still spend over LTL 500
million, a rather solid amount, on moderni-
sation.
Compared to 2007, the largest increase last
year was in the volume of oil and petroleum
product group, which accounts for the largest
share of total cargo (41%). Moreover, there
was also a marked increase in the volume
of solid mineral fuel and products of plant
origin.
137
 The volume of both local and exported petro-
leum products grew because of the restored
production capacity of oil refinery Mažeikių
Nafta. In the period analysed, transported
volumes of the refinery’s output soared 1.5
times to 8.5 million tonnes resulting in an
18.2% increase in the total volume of freight
exported from Lithuania. The flow of import-
ed freight fell by 4.7% and transit volumes
went down by 8.7%.
In 2008, the number of railway passengers
shrank by 2.4% compared to 2007 and stood
at 5.1 million. Local routes account for 81%
and international for 19% of the passenger
transport market. The number of passengers
travelling on local routes did not change and
stood at 4.1 million. The number of passen-
gers travelling on international routes fell by
10% to 1 million. As in the previous years,
passenger transport was a loss-making ac-
tivity for Lithuanian Railways but it did not
have a major effect on the overall results as
the activity generates less than 5% of total
revenue.
According to the latest information published
by Statistics Lithuania, this year will be a dif-
ficult one for Lithuanian Railways. In the first
quarter of this year, the company carried 9.9
million tonnes of freight, down by 32.5% year-
on-year. Freight volumes shrank by 39.4%
on international routes and by 9.1% on local
routes (to 6.8 million tonnes and 3 million
tonnes respectively). Transit accounted for a
large share of international freight transport
(45.6%) and fell by 43.2% year-on-year dur-
ing the quarter. The biggest decline (almost
by half) was recorded by freight transport to
the Kaliningrad Region. Of course, such a no-
table decline was caused by the high refer-
ence basis effect but it is obvious that the
downturn of the Russian economy was a fun-
damental reason behind this contraction.
In 2008, Klaipėda state seaport together
with Būtingė terminal handled 38.9 mil-
lion tonnes of freight, up by 21.9% from
2007. The seaport alone handled 29.9 mil-
lion tonnes of freight, while Būtingė terminal
handled 9.1 million tonnes, up by 9.2% and
98.1% from 2007 respectively. The above-
mentioned recovery by Mažeikių Nafta acted
as a catalyst for the growth of Klaipėda port
and Būtingė terminal in particular last year:
crude oil and petroleum products comprised
47.3% of handled cargo and rose by 57.3%
compared to 2007.
138
According to the Klaipėda port authority, the
port alone handled 9.4 million tonnes of pe-
troleum products last year, the largest quan-
tity since the restoration of Lithuania’s inde-
pendence, which was by 31.1% more than
in 2007. Sadly, handling of other types of
cargo (excluding petroleum products) grew
more moderately and comprised 20.5 million
tonnes, up by just 1.5% from 2007. The port
handled 200,900 road vehicles, down by 8%
from 2007, and the handling of containers
continued to grow (up by 16.1%).
It should be noted that Klaipėda port handled
almost 12 million tonnes of transit freight in
2008, which accounted for 40% of total cargo
handling at the port. The port authority re-
ported that it managed to restore the flow of
transit freight close to its full capacity which
had been lost following the changes in tariffs
of Russian railways introduced in 2000. Last
year, transit through Klaipėda port rose by
5.1% compared to 2007. An 8.9% increase
in transit of Russian freight resulted from pe-
troleum product and fertiliser handling. The
Belarusian transit rose by 3.6% thanks to the
volumes of food and petroleum products as
well as fertilisers. Handling of mineral prod-
ucts and ferrous metals boosted the Kazakh-
stan transit by 7.6%. There was also an in-
crease in freight transit from/to Uzbekistan
(35.5%) and Estonia (54.3%), while transit
flows from/to Ukraine and Latvia went down
by 2.4% and 23.2% respectively.
The cruise ship season in 2008 was less suc-
cessful for Klaipėda port than in 2007. Last
year, 46 cruise ships (65 in 2007) visited the
port and brought 32,500 passengers, down
by 11.9% compared to two years ago.
Nevertheless, last year Klaipėda seaport re-
mained the leading port in the Baltic states
by total volume of handling, the volume of
container handling and growth rate (see Table
18.1). On the other hand, Riga port, which
was not affected by operations of Mažeikių
Nafta, is clearly ahead of Klaipėda port in
terms of the volumes of all types of cargo.
Figures presented in Table 18.1 support the
prediction made in the previous issue of the
Lithuanian Economic Outlook that the conflict
between Russia and Estonia in May 2007 had
triggered a redistribution of Russian freight
flows among the Baltic states (the same is
reflected in a 30% decline of freight volumes
carried by Estonian railways). Therefore, we
believe that the pragmatic approach should
Lithuanian Economic Outlook
Table 18.1
Cargo handling in the seaports of the Baltics in 2008
Container handling, TEU
Ports 2008
Klaipėda 373 263
Riga 207 122
Tallinn 180 927
Ventspils 14 148
Liepaja 4 227
Source: Klaipėda state seaport
dominate the relations with this country now
(during economic stagnation) more than ever
before.
In the first quarter of this year, the downturn
which began at the end of last year contin-
ued at Klaipėda port. According to Statistics
Lithuania, Klaipėda state seaport, including
Būtingė terminal, handled 8.6 million tonnes
of freight, down by 12.8% year-on-year. The
overall indicator of the first quarter of this
year was held up by Būtingės terminal as its
handling volumes rose by 7.7% year-on-year,
while Klaipėda port alone handled 6.5 million
tonnes, down by 17.9% year-on-year. Unlike
in 2008, handling volumes contracted in all
key groups of freight in the first quarter. Han-
dling of liquid freight, bulk freight and general
freight fell by 4.4%, 18.5% and 24.5% year-
on-year respectively. Having been on the up
for a number of consecutive years, the vol-
ume of handled containers changed direction
this year as this freight category recorded a
27% fall. Compared to the first quarter of
2008, there was a marked reduction in han-
dling of vehicles (25.4%) and freight wagons
(41.5%).
Even though many handling companies at
Klaipėda port felt the first ‘aftershocks’ of the
global crisis in 2008 already, their revenue
rose and operations were profitable. In 2008,
KLASCO, the largest company at Klaipėda
port, handled 9.6 million tonnes of cargo and
repeated the previous year’s record achiev-
ing the best result among port companies.
Last year, the company’s net profit soared by
95% to LTL 15.369 million, pre-tax profit rose
by 24.7% to LTL 18.059 million, and sales
revenue increased by 8.1% to LTL 146.355
million.
Preliminary estimates indicate that revenue
of Bega stood at LTL 68.97 million last year,
Transport
Other cargo handling, t Mio
Annual change, % 2008 Annual change, %
16.1 29.9 9.2
–2.2 29.6 14.0
0.0 29.1 –19.3
–16.0 28.6 –7.9
–44.9 4.2 3.7
up by 13.8% from 2007. The company has
not published its profit indicators. Bega han-
dled 3.04 million tonnes of freight, up by
0.7% from two years ago.
Last year, Klaipėdos Konteinerių Terminalas
handled a similar volume of freight to 2007
but managed to boost its revenue by 12.6% to
LTL 64.65 million and earn a pre-tax profit of
LTL 10.93 million, up by 12.1% from 2007.
Last year, Klaipėdos Smeltė earned LTL 38
million in revenue, up by 31.7% compared to
two years ago.
In 2008, sales revenue of Birių Krovinių Ter-
minalas reached LTL 20.07 million and pre-
tax profit amounted to LTL 6.6 million. Dur-
ing the year, the company handled 1.6 million
tonnes of cargo.
This year, the prospects for Klaipėda port as
well as for other sectors of the transport in-
dustry are rather bleak. The port authority
estimates that total cargo handling may de-
cline by 15–20% this year. Individual compa-
nies operating at Klaipėda port have also set
less ambitious operating targets compared to
last year.
Aiming to help the railway transport sector
and Klaipėda port, transport ministers of
Lithuania and Russia signed a memorandum
of understanding in mid-May 2009 enabling
Lithuania to offer discount tariffs for some
freight carried by rail in the direction of Kalin-
ingrad and allowing Russia to increase the vol-
ume of freight transported through Lithuania
according to the classification of freight used
by Klaipėda port. In addition, representatives
of Belarusian railways promised to cancel an
8–10% increase in tariffs imposed at the be-
ginning of this year. We believe that a tangi-
ble increase in the flow of Russian (or other)
139
 freight should not be expected given the cur-
rent situation since Russian ports themselves
also feel shortage of freight due to weakening
consumption and production.
According to Statistics Lithuania, 45,800
planes of Lithuanian and foreign airlines land-
ed at and took off from national airports
(in Kaunas, Palanga and Vilnius) in 2008,
of which 97.2% were flying on international
routes. Compared to 2007, the number rose
by 9.6%. The number of passengers arriving
to and departing from the airports stood at 2.6
million, up by 16.2% compared to 2007. The
majority of passengers (99.99%) were trav-
elling on international routes. Freight and air
mail shipments handled by airports declined
by 20.7% last year to just 10,900 tonnes.
Only Vilnius airport returned a profit last year,
while Kaunas airport and Palanga internation-
al airport operated at a loss (due to the write-
off of bad debts of bankrupt Aviakompanija
Lietuva and Orient Avia and higher costs).
As in the previous years, all Lithuanian air-
ports taken together were unable to com-
pete with Riga airport which catered to 3.69
million passengers last year, or 1.65 million
more than Vilnius airport managed to attract.
Although there are 2.5 times fewer people
living in Estonia than in Lithuania, Tallinn
was hot on the heels of Vilnius airport last
year with 1.81 million passengers. Howev-
er, in terms of the number of aircraft, even
Tallinn was far ahead of Vilnius. The number
of planes arriving to/departing from the air-
port was 37,839 in Vilnius, 41,654 in Tallinn
and 57,232 in Riga. In 2008, Tallinn airport
led in terms of freight shipments as it han-
dled 41,900 tonnes of cargo, while Vilnius
and Riga just 5,710 tonnes and 7,710 tonnes
respectively.
It is obvious that Riga has definitively gained
a victory in the battle for air transport since
the Latvian government has a strategic ob-
jective to continue reinforcing Riga airport’s
position as the main point of transit between
the West and the East as well the South and
the North creating an infrastructure which
would enable Riga to compete with major
airports in Western Europe. To that end, Riga
airport built the longest runway in the Baltic
states designed for large aircraft and inter-
continental flights and plans to build new air-
port terminals.
Despite a remarkable increase in the number
of passengers (aircraft of Lithuanian airlines
carried 1.2 million passengers in 2008, up by
140
53.7% from the previous year), the industry
incurred a massive loss of 33.5 million last
year. The main culprit was flyLAL-Lithuanian
Airlines, the largest local-capital airline in
Lithuania, which incurred a loss of LTL 79.9
million last year, an almost ten-fold increase
from 2007.
If the results of airports and air transport
were rather forgettable in the previous year,
the situation in the air transport sector be-
came tragic in the first half of this year. Af-
ter the largest Lithuanian airline flyLAL ter-
minated all flights on 17 January and went
into bankruptcy, the number of direct flights
from the country’s capital declined drastically.
As a result, the total number of passengers
served by Lithuanian airports dropped down
by 29.6%. The geography of routes also be-
came distorted as the most popular flights to/
from Ireland, United Kingdom, Germany and
Denmark (passenger numbers declined by
28.8%, 21.6%, 33% and 20% respectively)
were hit hard. However, Riga airport benefit-
ed hugely from the changes in Lithuania as
the number of passengers travelling to and
from Latvia increased five-fold!
Other indicators of airports were also deplora-
ble in the first quarter of the year. The number
of planes of Lithuanian and foreign airlines as
well as the volume of freight dropped down
by more than a third.
Currently, there are 13 airlines operating at
Vilnius airport which offer flights to 16 cit-
ies. By comparison, passengers were able to
fly to 37 destinations from Vilnius during the
summer season in 2008.
The Cabinet finally showed real concern over
the problems of Vilnius airport. On 21 May,
Prime Minister Kubilius signed an order setting
up a task force which has to come up by 15
July with specific proposals on how to finance
marketing, promotional, business risk sharing
and other measures aimed at immediately
addressing the problems of Vilnius airport to
attract foreign and local airlines. We can only
hope that things will at least get rolling.
Looking at the current growth trends of indi-
vidual transport sectors and the deteriorating
economic situation in Lithuania and its key
foreign trade partners, it seems that the trans-
port sector may face even more serious chal-
lenges in the immediate future. The industry
could only recover if international trade flows
get going. The road transport has a potential
to energise the sector as it is slightly more
flexible compared to other modes of trans-
Lithuanian Economic Outlook
Table 18.2
Key statistical indicators of transportation and warehousing sector

Ratio to the
economy’s Annual growth
indicator, rate, %
%
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 6724 6921 3546 3574 9.7 2.9 0.8
Value added (at current prices), LTL Mio 9149 10195 4976 5436 10.2 11.4 9.2
Total production, LTL Mio 16325 17859 8844 9331 8.9 9.4 5.5
Labour productivity, LTL thou** 118.6 128.3 63.8 68.7 166.3 8.2 7.8
Number of persons employed, thou 77.2 79.4 78.0 79.1 6.1 3.0 1.4
Average monthly earnings, LTL 1816 2232 1925 2299 99.3 22.9 19.4
Fixed investments, LTL Mio 1441 1855 799 1053 8.6 28.7 31.8
Foreign direct investments (end of period),
675 569 675 569 1.8 –15.7 –5.3
LTL Mio
Sales of goods and services, LTL Mio 14211 15835 7691 8069 7.5 11.4 4.9
Gross profit, LTL Mio 3055 2761 1563 1221 6.8 –9.6 –21.9
Operating profit, LTL Mio 1147 516 575 100 5.1 –55.0 –82.6
Profit before tax, LTL Mio 1056 315 534 –40 3.9 –70.2 –
Assets (end of period), LTL Mio 17690 18515 17690 18515 9.7 4.7 3.2
Liabilities (end of period), LTL Mio 6599 7879 6599 7879 9.2 19.4 1.2
Return on sales, % 7.43 1.99 6.95 –0.50 51.6 – –
Return on assets, % 6.46 1.75 6.24 –0.44 41.6 – –
Debt ratio (end of period), % 0.37 0.43 0.37 0.43 95.2 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

port. This sector has more power to pave the tics on the balance of payments indicate that
way to more active markets in Central Asia. transport companies generated the major-
ity (nearly 60%) of total exports of services
In its economic rescue plan, the Lithuanian
(see Foreign trade and balance of payments).
government has included measures to help
Therefore, the government must extend a
local exporters. We believe that the transport
helping hand to local carriers. It is necessary
companies should also be viewed as export-
to understand that the transport sector is the
ers since, for instance, the ‘lion’s share’ of
backbone of the economy. However, it is ob-
freight is transported on international routes
vious than even state aid, if any, will not be
by specialised road transport companies. Last
able to rescue all players of the sector and
year, freight turnover of these companies on
market forces will inevitably end the exist-
international routes comprised 93% of total
ence of the weakest entities.
freight turnover. Moreover, last year’s statis-

Transport 141
19. Information and communication technologies (ICT)
 19. Information and communication technologies (ICT)

Struggling with the economic stagnation, anian ranked 35th among 134 countries. The
business entities are actively looking for ways index was topped by two Nordic countries,
to reduce their costs and improve competi- namely Denmark and Sweden. Among the
tiveness. It is obvious that the information Baltic states, the best indicators were posted
and communication technologies (ICT) sec- by Estonia, which continued to strengthen
tor, which boasts rapid innovation and tech- its position among the top 20 countries, ris-
nology development, still has something to ing from the 20th to 18th place. Latvia had
offer. Even last year, when the financial per- the worst result out of the three Baltic states
formance of economic operators was deterio- dropping down four places during the year to
rating, advance information technology so- the 48th in the latest index. So Lithuania re-
lutions retained their popularity in Lithuania mains to be a player in a really solid ‘league’
and this industry continued its sprint. even though its latest ranking was two places
below last year’s assessment.
Lithuania’s efforts to create knowledge soci-
ety and improve the environment for ICT de- This high ranking of Lithuania partially result-
velopment have been also visible on the in- ed from rapid ICT penetration in the national
ternational arena. For that purpose, the World economy. According to the European Com-
Economic Forum holds a ‘race’ for countries mission,1 the mobile penetration rate of Lith-
providing an assessment of business, regula- uania stands at 149% (see Diagram 19.1),
tory and infrastructure environment for ICT, or 1.5 mobile subscription plans per capita.
the readiness and actual usage of information This is the second highest rate in Europe af-
technologies by individuals, businesses and ter Italy. This rather high indicator of Lithu-
governments in individual countries. In the ania mostly depended on the prevalence of
Network Readiness Index 2008–2009, Lithu- pre-paid mobile services: subscribers to this

Diagram 19.1
Mobile penetration in EU in October, 2008, %

160

140

120

100

80
151 149
137 137 134
131 129
60 122 122 121 121 121 120 119
117 115 114
103 102 101 100
98 96 95
88
40

20

0
Estonia

Slovakia
Slovenia
Bulgaria

Sweden
Finland

Malta
Ireland
Austria

Poland
Czech Republic
Germany

Latvia
Lithuania

Romania
UK

Hungary

France
Belgium
Netherlands

Spain
Portugal

Denmark
Italy

Greece

Source: European Commission, The Communications Regulatory Authority of Lithuania

1
European Electronic Communications Regulation and Markets 2008 (14th Report), European Commission, 2009.

144 Lithuanian Economic Outlook

 Diagram 19.2
Fixed and mobile broadband penetration rate in EU in January, 2009, %

45

40

4.7
9.1
35

6.6
30

2.3

1.6
1.1
11.4
25

2.8

1.2
6.3

2.3
2.6
8.3

2.9
20

3.4

37.3
2.7

0.4
0.4

31.3
30.7
15
2.8

27.5

27.5

27.7
24.6
4.0

23.9
1.3

22.9
0.5

21.4
21.0
20.2

20.2
10

19.0
18.2
17.6
17.1

17.4
16.5
13.2
11.7
11.2
10.9

EU-27
Austria
Poland

Spain

Malta

Estonia
Ireland

Sweden
Romania

Portugal

Lithuania
Slovakia

Bulgaria

Czech
Republic

Germany

France
Italy

Belgium
Slovenia
Latvia

Finland
Cyprus

Denmark
Fixed connection technologies Mobile connection technologies

Note: Estonia did not provide broadband using mobile connection technologies penetration rate statistics for the EC survey

Source: European Commission, The Communications Regulatory Authority of Lithuania

type of mobile services comprise 64.7% of tively) last year. Scandinavians are the most
all mobile subscribers. According to the cal- active Internet users (80% and more). Busi-
culations based on the methodology of the ness companies in Lithuania were also keen
Organisation for Economic Cooperation and on using ICT innovations. According to last
Development,2 Lithuanian mobile subscribers year’s data, companies with Internet access
paid the lowest monthly charge for an aver- comprised 94% of the total number of non-
age service basket, i.e. LTL 18.75, nearly LTL financial corporations with more than 10 em-
52 lower than the EU average. Moreover, mo- ployees, up by one percentage point on the
bile subscribers in Lithuania enjoyed probably EU average. More than half of these compa-
the cheapest calls in Europe paying LTL 0.24 nies used high-speed broadband Internet.
per minute, almost half the EU average.
In terms of fixed-line broadband Internet ac-
According to Statistics Lithuania, the percent- cess penetration (see Diagram 19.2), Lithu-
age of households having a personal com- ania keeps in step with Latvia. At the begin-
puter doubled compared to 2004: almost one ning of 2009, this indicator stood at roughly
half of Lithuanian families had a computer 17.5% in both countries, i.e. down by 5.5
last year. In the last five years, the Internet percentage points of the EU average. Esto-
penetration also increased considerably in nia, meanwhile, had a better indicator than
Lithuania. Compared to 2003, the percentage the EU average as the number of broadband
of households with Internet access jumped lines and connections using fixed technolo-
7.5 times to 47% in 2008. Despite strong de- gies per 100 people stood at 24.6%. In terms
velopment within the country, Lithuania still of the speed of broadband access using fixed-
has room for improvement compared to its line technologies, Latvia stands out of the
neighbours. According to Eurostat, 50% of three Baltic states for its best indicators. In
people aged 16 to 74 were regularly using this country, more than 60% of all broadband
the Internet in Lithuania in 2008. In this re- lines have a data transmission rate above
spect, Lithuania was behind the EU average 2 MBit/s. The infrastructure of the relevant
by 6 percentage points, while the gap to the speed category comprises 42% in Lithu-
neighbouring Latvia and Estonia was even ania and is below 25% in Estonia. In terms
wider (7 and 12 percentage points respec- of the speed of fixed-technology broadband
2
Prepared on the basis of information provided in the Annual Report 2008 of the Communications Regulatory Authority.

Information and communication technologies 145

 Diagram 19.3
Income structure of communication sector by service type in 2008, %

2.3 1.2 4.4 12.8

12.3

23.4
43.6

Fixed telephony Network interconnection Mobile telephony

Internet access services Data transmission services Leased lines

Other

Source: The Communications Regulatory Authority of Lithuania

Internet, the three Baltic states lag far be-
hind the relevant EU indicator, where around
75% of Internet lines ensure the transmis-
sion rate above 2 MBit/s. It is encouraging
that the percentage of infrastructure ensur-
ing the capacity of more than 10 MBit/s has
almost reached the EU average in Lithuania
and comprised 13%.
Lithuania has more to be proud of in terms
of mobile broadband Internet penetration
among EU member states. The penetra-
tion rate is 0.6 percentage points above the
EU average and Lithuania is among top ten
countries in the EU. This mobile broadband
rate should improve even further this year
as the wireless Internet technology WiMAX
(Worldwide Interoperability for Microwave
Access) operating on the basis of 4G services
was introduced in March in Vilnius. The Lithu-
anian Radio and Television Centre (Telecen-
tre), provider of 4G broadband wireless In-
ternet services, promises that the high-speed
WiMAX 4G Internet will soon be available to
people living in other major Lithuanian cities.
In addition to Telecentras, WiMAX services
in Lithuania will also be offered by Neltė and
Balticum. The mobile Internet technology,
which has been making its first steps in Lith-
uania, has fallen under some criticism for the
‘holes’ in coverage and slow data transmis-
sion for WiMAX’s standards. Nevertheless, we
can safely say that ‘the die is cast’ in Lithu-
ania and we have crossed our own Rubicon
towards the 4G technology.
With regard to the structural economic indica-
tors, it should be noted that the information
and communication technology sector does
not play a key role in the Lithuanian econo-
my. This joint industry3 contributes just about
3.5% of value added generated nation-wide.
Nevertheless, this economic sector kept grow-
ing strongly in Lithuania last year, while other
large sectors began to slow down. The tele-
communications category, which generates
almost two-thirds of the sector’s value added,
continued to be the driving force of ICT growth.
According to preliminary estimates, the an-
nual growth of the communications segment
(at constant prices) reached 17.4% last year,
up by 7.6 percentage points from the previous
year. The price component affected this indi-
cator quite strongly. In contrast to the prices
of other goods and services in Lithuania, com-
munication services became cheaper to con-
sumers by 3% on average during last year.
Therefore, the annual growth of telecommu-
nications stood at 10.5% at the then prices in
2008. At the same time, the growth of com-

3
According to Statistics Lithuania, the ICT sector covers manufacturing production meant for information processing or aimed at carrying out communica-
tion functions, trade in information technology goods and services, information technology service activities related to information processing and car-
rying out communication functions by electronic means (i.e. telecommunications (NACE 64.2); computer and related activities (NACE 72); rent of office
machinery and apparatus, including computers (NACE 71.33)).

146 Lithuanian Economic Outlook

puter and related activity, the second largest
ICT category generating 18% of value added,
slowed down considerably. Having jumped by
16% in 2007, value added of this ICT segment
rose by a mere 4.5% last year.
According to the Communications Regulatory
Authority, revenue of the communications
sector alone increased by 5.1% from 2007.
Although most of revenue of the communica-
tions industry was generated by mobile and
fixed services (see Diagram 19.3), revenue of
these two categories fell by 1.7% and 3.2%
respectively last year compared to 2007. The
growth in sector’s revenue was supported by
the spurt of Internet access, data transmis-
sion (except the Internet) and interconnec-
tion services which boosted their revenues by
22.7%, 31.2% and 8.4% respectively during
the year. However, preliminary estimates in-
dicate that the total revenue of the commu-
nications market fell by 5.7% year-on-year in
the first quarter of this year.
Modernisation processes in the communica-
tions sector lost some momentum in 2008.
Following a leap of 2006 and 2007, total in-
vestments by the communications sector de-
clined by 16.9% compared to 2007. Invest-
ments in electronic network infrastructure,
which comprised over 80% of total invest-
ments, fell by a massive margin of 18.6%.
The potential of the communications market
abroad is also reflected in the export indica-
tors of communication services published by
the Bank of Lithuania. In 2008, exports of
communication services stood at LTL 252.4
million. A look at the export indicators of this
economic sector clearly shows that the com-
petitiveness of the communication services
has been weakening on international markets.
In 2005 and 2006, exports of communication
services were growing at a double-digit rate
(up by 19.4% and 12.5% respectively), but
the growth slowed down to 5.1% in 2007 and
completely stopped last year.
TEO LT continues to dominate the fixed ser-
vices market. The company has more than
three-quarters of the domestic market in
terms of local and long-distance calls as well
as international calls. Last year, the compa-
Information and communication technologies
ny earned LTL 804 million in revenue, up by
4.2% from 2007. Profits of TEO LT dropped
by 4.2% annually to LTL 180.3 million.
Analysis of the mobile market shows that
its growth has slowed down significantly. Al-
though the number of active subscribers ex-
ceeded five million last year, it increased by
a mere 2% compared to 2007. The flows of
outgoing SMS stayed at the level of 2007,
while the number of MMS even contracted
by 2.5% last year. In 2008, total revenue of
mobile service providers stood at LTL 1.9 bil-
lion and was just fractionally higher than a
year ago. Analysis of the structure of revenue
generated by mobile service providers shows
that competition among market players has
been fierce for the last three years and their
respective shares of revenue have been lev-
elling up. As a result, the share of revenue
generated by market leader Omnitel fell by
more than 15 percentage points from 54%
in 2004 to 39.6% at the end of last year. The
‘loss’ of this mobile operator was absorbed
by its main rivals Bitė Lietuva and Tele2. Last
year, the structure of revenue was similar:
the largest slice of the income ‘pie’, as in the
previous years, was taken by Omnitel and
the remaining two operators shared the rest
in nearly equal parts. Other service provid-
ers had to be content with the crumbs, i.e.
3% of total revenue generated by the mobile
services sector.
In terms of the structure of active subscrib-
ers by operator, the leading positions were
retained by two market leaders at the end
of 2008. Omnitel and Tele2 shared 78.3% of
all mobile subscribers in nearly equal parts,
while the market share of Bitė Lietuva fell
slightly to 19%.
Looking at the prospects of the ICT sector
during this crisis, it seems that this economic
segment is one of the few chosen ones to
board the ‘Noah’s ark’: information technolo-
gies have become an integral part of the
daily life of both businesses and households.
Therefore, even though the ‘tightening of the
belts’ is in full swing already, services of the
ICT sector will not be among the first things
to be abandoned.
147
20. Hotels and restaurants
 20. Hotels and restaurants
2009, the year in which Vilnius is the Europe-
an capital of culture, which promised an im-
pressive ‘yield’ for hotels and restaurants, not
only resulted in a sharp disappointment for the
market players but pushed many of them to
the brink of bankruptcy. In addition to objec-
tive factors caused by the economic downturn
(weaker demand for tourism services, higher
variable operating costs, etc.), the situation
was compounded by hectic attempts by the
Government to patch up the budget through
tax reforms as well as an unexpected ‘venous
thrombosis’ in air transport. These dire chal-
lenges have triggered a wave of discontent
among the sector's companies and prompted
the association of hotels and restaurants to
take action. In spring, the association held a
warning strike and prepared a list of specific
requirements for the government. Represen-
tatives of the sector wanted a 5% VAT rate
to be restored for incoming tourism services
claiming that it was an export service which
was subject to the relevant provisions of the
VAT law. The association of hotels and res-
taurants also protested against the amount
and calculation methodology of the property
tax for accommodation providers. Moreover,
the association demanded equal business
conditions for companies holding alcohol and
tobacco licences and non-licensed companies
since the legal provisions currently in force
stipulate that the licence may be withdrawn
if a company fails to pay taxes to the bud-
get in due time. The Government tried to ad-
dress this problem by raising the threshold
of permissible debt to the national and social
budgets from LTL 1,000 to LTL 10,000 and
extending the period for warning over the
possible licence withdrawal to 60 days. How-
ever, the association is generally against the
licence withdrawal practice and suggests that
fines should be imposed instead for failure to
pay taxes when due.
The difficulties encountered by the Lithuanian
tourism and services infrastructure were also
noted internationally. In the Travel and Tour-
ism Competitiveness Index published by the
World Economic Forum, Lithuania ranked
49th among 133 countries. Compared to last
year’s result, the country fell down two plac-
es and was yet again below the other two
Baltic ‘peers’. Latvia and Estonia ranked 48th
and 27th respectively. This travel and tour-
ism index covers three main areas: regulato-
ry framework, business environment and in-
150
frastructure, and human, cultural and natural
resources. The only position in which Lithua-
nia scored better than Latvia was the regula-
tory framework, where both countries ranked
30th and 32nd respectively. Estonia, mean-
while, was in the league of its own: it was
recognised as the best performing country in
the Baltic region which keeps in step with such
tourism destinations as Italy, Greece and the
Czech Republic. In terms of flexibility of its
regulatory framework and tourism business
environment, Estonia ranked 17th and 21st
respectively. The environment for travel busi-
ness in Lithuania and Latvia is perceived as
being much worse (46th and 43rd place re-
spectively). Both Lithuania and Latvia scored
very poorly on the last criterion (human,
cultural and natural resources) which essen-
tially defines the value of travel (89th and
86th place respectively). Estonia also ranked
relatively poorly (47th). The competitiveness
‘grades’ of Lithuania, which deteriorate year
by year, indicate that the authorities respon-
sible for promoting Lithuania as a tourism
destination fail to do their ‘homework’ prop-
erly. Instead of looking for ways to improve
the regulatory framework, ensure better ac-
cess to the country and add the country to
international travel itineraries, the authorities
approach the problem from the wrong end.
Huge sums of money are being spent on ‘co-
louring the marketing paper’ disregarding the
fact that the world has fewer and fewer op-
portunities to see what it is about.
The fact that the tourism sector is in need of
a structural reform is reflected in the dete-
riorating performance indicators of the hotels
and restaurants industry which relies on the
sector’s success. Both in 2007 and last year,
real value added grew by less than 2% in the
sector (see Diagram 20.1), while the double-
digit growth in previous years, measured at
the then prices, mostly relied on rising prices
of catering and accommodation services. In
the second half of last year, as in many other
Lithuanian economic sectors, value added
at constant prices contracted slightly in the
hotels and restaurants sectors but the price
component remained impressive. The main
reasons were record high food prices (in mid-
2008, the annual inflation of food products
fluctuated within a range of 17.3−18.6% in
Lithuania) and a continuously strong growth
of labour costs. Although the headcount in-
creased symbolically (1.5%) last year and
Lithuanian Economic Outlook
 Diagram 20.1
Value added created by hotels and restaurants sector, annual change, %
18
15
12
8.0
9 13.3
6.5
1.8
6 8.9
2.2
3 6.2 4.3
0 -0.2
-3
2003 2004
Deflator
Value added at constant prices
Value added at current prices
Source: Statistics Lithuania
some people even got the pink slip in the sec-
ond half of the year, employers continued to
raise wages across the sector. Both in 2007
and last year, the average wage in the sec-
tor went up by a fifth but still remained very
low compared to the economy’s average (just
61.7%). As the sector’s service price compo-
nent went up, the annual change in labour
productivity improved considerably in the
hotels and restaurants industry (see Table
20.1), which was negative in 2005–2007 but
went over 13% last year and narrowed the
gap to sprinting labour costs.
In 2008, the hardest blow to the attractive-
ness of the Lithuanian tourism sector was de-
livered by the trends of consumer price index
of hotel and restaurant services. In the mid-
dle of last year, when the annual inflation in-
dicator reached its peak at 12.7%, the annual
increase in the prices of hotel and restaurant
services was by more than three percent-
age points higher than this indicator during
the season. The steepest increase was in the
prices of catering services at restaurants and
cafes (about 15%) as well as canteens (28%)
during last summer. Changes in the prices of
accommodation services were more modest.
Having gone up by an average of 7% year-
on-year in spring, the cost of overnight stay
even fell fractionally year-on-year in the mid-
1
Inbound tourism statistics when travelling is organised and services are provided by tourism companies.
Hotels and restaurants
15.0
10.5 10.3 10.5
9.2
4.0
3.7
10.7
5.5 6.5
1.4 1.8
2005 2006 2007 2008 2008
II H
dle of summer. This year, the growth of the
component of hotels and restaurants, just
like the other headings in the consumer price
index, has lost momentum: after its peak re-
corded during last year’s tourism season, it
contracted almost by half and stood at just
8.2% this April. Nevertheless, this indicator
was still by 2.3 percentage points higher than
the inflation rate. Summing up the trends in
price movements in these industries provid-
ing services to tourism, it is obvious that that
the motto of a ‘European quality at Lithua-
nian price’ used until now to lure in economy-
class travellers has become obsolete since,
for instance, the ‘Polish price’ is much better
these days.
The fact that Lithuania does not have a dis-
tinctive ‘face’ in international travel itinerar-
ies is also reflected in deteriorating statistics
of inbound tourism.1 Last year, the number
of foreigners arriving to the country was be-
low 102,000, down by 7.4% from 2007, and
the average duration of stay contracted by
12.5%. A breakdown of foreign tourists in
Lithuania by region shows that the number
of visitors from Europe declined by 6.3% last
year compared to 2007, and the biggest fall
(15.3%) was in the last quarter of the year.
The number of visitors from Spain and the
United Kingdom went down by about 40%,
151
 Table 20.1
Key statistical indicators of hotels and restaurants sector

Ratio to the
economy’s Annual growth
indicator, rate, %
%
2007 2008 2007 2008 2008 2008 2008
II H II H II H*

Value added (at constant prices), LTL Mio 818 833 435 434 1.2 1.8 –0.2
Value added (at current prices), LTL Mio 1112 1279 610 674 1.3 15.0 10.5
Total production, LTL Mio 1662 1932 913 1040 1.0 16.2 14.0
Labour productivity, LTL thou** 36.0 40.8 19.5 21.7 52.8 13.3 10.9
Number of persons employed, thou 30.9 31.4 31.2 31.1 2.4 1.5 –0.3
Average monthly earnings, LTL 1141 1388 1208 1419 61.7 21.6 17.5
Fixed investments, LTL Mio 192 126 116 62 0.6 –34.5 –46.5
Foreign direct investments (end of period),
263 307 263 307 1.0 16.8 19.2
LTL Mio
Sales of goods and services, LTL Mio 1511 1688 811 852 0.8 11.7 5.0
Gross profit, LTL Mio 743 800 405 401 2.0 7.7 –1.0
Operating profit, LTL Mio 128 48 77 21 0.5 –62.1 –72.8
Profit before tax, LTL Mio 97 –7 60 –7.5 – – –
Assets (end of period), LTL Mio 2262 2298 2262 2298 1.2 1.6 –4.5
Liabilities (end of period), LTL Mio 1524 1534 1524 1534 1.8 0.6 –8.4
Return on sales, % 6.41 –0.42 7.35 –0.88 – – –
Return on assets, % 4.60 –0.30 5.39 –0.65 – – –
Debt ratio (end of period), % 0.67 0.67 0.67 0.67 149.4 – –

* FDI, assets and liabilities – semiannual change

** Value added per employee at current prices

Source: Statistics Lithuania

the number of Italians and French fell by a
quarter and that of Swedes by 35% in 2008.
At the same time, the number of Austrian and
Polish tourists in Lithuania rose by 1.7 times
and 23% respectively. Although there were
19% more visitors from Russia compared to
two years ago, the number of tourists from
the CIS region fell by 13.3% mostly due to
a 40% contraction in the number of travel-
lers from the neighbouring Belarus. Analysis
of inbound tourism, when travelling is or-
ganised by tourism companies, in Lithuanian
counties shows that only the capital is being
introduced to the majority of tourists. About
80% of all people visiting Lithuania last year
stayed in Vilnius county, while the remaining
20% were shared, in almost equal parts, by
Kaunas and Klaipėda counties.
Statistics of the balance of payments of travel
exports also show that tourism services were
not developed sufficiently during the econom-
ic upturn period. After Lithuania’s accession
to the European Union, the value of exported
tourism services grew at an average rate of
13.6% annually, but Lithuania failed to sus-
tain this growth for a longer period. In 2007,
the annual change contracted several times
to less than 2%, while last year’s results were
slightly better as the growth of exports stood
at 7.5%. However, complaints by the players
of this sector signal that the result of 2009
will be poor again.
Statistics of Lithuanian accommodation pro-
viders show that the number of Lithuanians
and foreigners booking accommodation rose
by just 2.6% last year after a much stronger
growth in 2006 and 2007 (16.2% and 15.5%
respectively), and even fell by more than a
fifth year-on-year in the first quarter of this
year. Hotels and guest houses which accom-
modated about 76% of all visitors returned
a slightly better indicator (5.3%) than the
economy’s average. This indicator was held
up by an increase in foreign visitors (8.9%),
while the number of Lithuanians choosing to
stay at this type of accommodation did not

152 Lithuanian Economic Outlook

 Diagram 20.2
The distribution of the number of beds in hotels and rest establishments by the number of acquired stars
in 2008, end of period, %
3 5
17
35
Source: Statistics Lithuania
grow during the year. The number of guests
from EU member states staying at accommo-
dation facilities in Lithuania rose by 10%. The
largest flow of visitors was from Poland, Ger-
many, Russia, Latvia, Finland and the United
Kingdom. Statistics of the occupancy rate
of Lithuanian hotels and guest houses show
that after pretty successful years of 2007 and
2008, when the occupancy rate in this cat-
egory was 45% on average, the situation de-
teriorated dramatically in the first quarter of
this year. Preliminary estimates of Statistics
Lithuania indicate that the occupancy rate of
hotels and guest houses fell to 26.4% in the
first quarter of 2009, down by more than nine
percentage points year-on-year. The saving
mode ‘imposed’ by the crisis which restricted
the financial freedom of many and the sev-
ered air tourism ties of Lithuania with the rest
of the world imply that the Lithuanian accom-
modation providers should brace themselves
for a very lean tourism season.
The hotel market is dominated by market
players with a three-star and four-star rating.
These categories of hotels account for 41%
and 22% of all hotels in the country respec-
tively. Both three-star and four-star hotels
have very similar market positions in terms
of the number of rooms (see Diagram 20.2).
According to Colliers International, several
new market players were added to these seg-
ments last year. Having completed the devel-
opment work, Artis Centrum Hotels opened
the door to a new conference centre in Vil-
nius, four-star Vila Valakampiai and three-
star Algirdo hotels appeared on the market,
while Ramada Vilnius received a higher rank-
Hotels and restaurants
�����
6
����
34
���
��
Unclassified
ing according to the standards of the Ramada
Worldwide hotel chain and was granted a five-
star rating according to the Lithuanian hotel
industry standards at the end of the year.
In Kaunas, the accommodation market was
joined in spring by a large four-star Reval Ho-
tel Neris, which underwent renovation, and a
new-three star Magnus hotel. Three-star Old
Port Hotel, which added 46 new rooms to the
city’s hotel market, opened its doors in the
first half of last year in Klaipėda. This year,
the sector is set to grow in two major cities
only. After numerous delays in the last couple
of years, five-star AAA Kempinski Hotel Vil-
nius is finally expected to open its doors in
Vilnius. Moreover a 101-room two-star Ehotel
Tennis should also begin operating in the
capital. Kaunas, meanwhile, should witness a
start to the operations of a 98-room Europa
Royale Kaunas hotel this year.
The general trends of financial indicators of
the hotels and restaurants sector signal very
bleak prospects. Having grown by a fifth on
average each year in 2006−2007, turnover
of this economic activity lost steam last year
contracting almost by half, and the sector
plunged into a negative territory again (see
Table 20.1) after a short profitable spell which
lasted just three years (in terms of pre-tax
profits). Moreover, relatively large liabilities
of the companies look menacing. In 2008, the
debt ratio stood at 67% and was more than
1.5 times higher than the relevant average
of the entire economy. This debt burden of
the hotels and restaurants sector shows that
the sector is indeed in a critical condition: it
will become increasingly difficult to manage
153
 financial flows and remain solvent as revenue prevent an economic ‘genocide’ of this indus-
continues to plummet. try, the government must listen to at least
some of their demands, most importantly,
Last but not least, we would like to point out
find a way to fill in the vacuum in the Lithu-
that the percentage of representatives of the
anian air space.
hotels and restaurants sector is relatively
high among doomed business entities. To

154 Lithuanian Economic Outlook

ANNEX
 Table A.1
Value added by economic activity

Value added at current prices, LTL Mio

Share,
ANNEX

NACE Activity %

2006 2007 2008 2007 II H 2008 II H 2008

Total economy 74677 87904 99949 48090 52353 100

A Agriculture and forestry 3155 3873 4393 2501 2403 4.4
C Mining and quarrying 377 380 410 214 205 0.4
D Manufacturing 14994 16692 18631 8853 9308 18.6
Manufacture of food products and
15 2559 3124 3379 1781 1850 3.4
beverages
Manufacture of textiles and wearing
17-19 1526 1616 1437 816 664 1.4
apparel
Manufacture of wood and paper products,
20,21,36 2569 2999 3125 1533 1535 3.1
furniture
23 Manufacture of refined petroleum products 1701 1015 2212 419 1047 2.2
24 Manufacture of chemical products 987 1744 2300 995 1172 2.3
25 Manufacture of rubber and plastic products 940 966 910 509 433 0.9
26 Manufacture of building materials 846 950 774 530 392 0.8
27,28 Manufacture of metal products 835 1107 973 600 497 1.0
29 Manufacture of machinery and equipment 496 584 642 324 303 0.6
Manufacture of electrical and optical
30-33 941 870 948 460 458 0.9
equipment
34,35 Manufacture of motor vehicles 701 754 929 378 455 0.9
E Electricity, gas and water supply 2615 2768 3177 1407 1655 3.2
F Construction 6554 8992 9964 5424 5596 10.0
G Domestic trade 12505 14677 16733 8061 8764 16.7
50 Retail trade of motor vehicles 1818 2014 2271 1111 1178 2.3
51 Wholesale trade 5475 6486 7383 3536 3899 7.4
52 Retail trade 5173 6133 7027 3389 3659 7.0
H Hotels and restaurants 1008 1112 1279 610 674 1.3
60-63 Transport and storage 7427 9149 10195 4976 5436 10.2
60.1 Railway transport 757 864 1008 441 516 1.0
60.2 Other land transport 3934 4767 5166 2570 2760 5.2
61 Water transport 279 328 305 168 156 0.3
62 Air transport 154 193 155 105 89 0.2
63.1 Cargo transport and storage 2302 2997 3562 1692 1915 3.6
64 Post and telecommunications 2085 2286 2538 1161 1241 2.5
J Financial intermediation 2138 3079 3468 1674 1717 3.5
K Real estate, other business activities 9049 10483 12119 5747 6484 12.1
70 Real estate activities 5551 6379 7146 3415 3710 7.1
72 Computer and related activities 479 601 693 365 388 0.7
74 Other business activities 2686 3071 3755 1707 2080 3.8
L Public administration and defence 5213 5691 6373 3040 3436 6.4
M Education 3298 3793 4836 1788 2330 4.8
N Health and social work 2225 2667 3228 1432 1721 3.2
Other activities 2034 2262 2604 1203 1385 2.6

156 Lithuanian Economic Outlook

 Value added at constant prices, LTL Mio Deflator, annual change, %
Share,

ANNEX
% NACE

2006 2007 2008 2007 II H 2008 II H 2008 2006 2007 2008 2008 II H

63716 69402 71496 37181 37321 100 6.3 8.1 10.4 8.5
2569 2911 2953 1786 1820 4.1 14.0 8.3 11.8 –5.7 A
315 309 287 171 149 0.4 12.3 2.7 16.4 9.9 C
14096 15152 15476 7891 7708 21.6 0.9 3.6 9.3 7.6 D

2276 2594 2535 1420 1364 3.5 2.4 7.1 10.7 8.1 15

1563 1526 1341 771 629 1.9 –6.3 8.5 1.1 –0.2 17-19

2548 2823 2917 1422 1438 4.1 0.1 5.4 0.8 –0.9 20,21,36

1183 846 1437 413 765 2.0 4.1 –16.5 28.3 35.1 23
741 1122 1067 572 465 1.5 3.8 16.7 38.7 45.0 24
999 991 937 509 456 1.3 6.2 3.6 –0.3 –4.8 25
810 827 689 449 340 1.0 5.9 9.9 –2.2 –2.1 26
808 1038 841 560 422 1.2 –0.8 3.1 8.4 9.7 27,28
526 621 669 343 323 0.9 –0.9 –0.1 2.0 –0.6 29

1167 1092 1261 575 639 1.8 2.0 –1.2 –5.6 –10.3 30-33

714 761 926 381 450 1.3 2.6 1.1 1.3 2.0 34,35
2484 2512 2501 1260 1245 3.5 1.1 4.7 15.3 19.1 E
5161 6254 6330 3674 3537 8.9 10.2 13.2 9.5 7.2 F
11382 12770 13175 6880 6821 18.4 3.7 4.6 10.5 9.7 G
1506 1633 1596 891 821 2.2 5.0 2.1 15.4 15.0 50
5049 5730 5917 3063 3085 8.3 3.3 4.4 10.2 9.5 51
4801 5390 5655 2916 2912 7.9 3.7 5.6 9.2 8.1 52
807 818 833 435 434 1.2 3.8 8.8 13.0 10.7 H
5952 6724 6921 3546 3574 9.7 5.9 9.0 8.3 8.4 60-63
618 684 700 349 335 1.0 4.7 3.2 13.9 22.2 60.1
2874 3235 3220 1620 1610 4.5 4.1 7.6 8.9 8.0 60.2
262 257 248 126 121 0.3 1.3 19.8 –3.8 –3.0 61
131 149 124 82 73 0.2 0.4 10.1 –3.5 –4.9 62
1973 2294 2533 1329 1392 3.5 10.4 12.0 7.6 8.0 63.1
2137 2350 2716 1192 1370 3.8 –0.8 –0.3 –4.0 –7.1 64
1167 1220 1250 623 618 1.7 29.3 37.8 9.9 3.5 J
7236 7686 8072 4150 4268 11.3 6.9 9.1 10.1 9.7 K
4314 4377 4486 2303 2319 6.3 10.2 13.2 9.3 7.9 70
392 455 475 270 262 0.7 4.8 8.0 10.5 9.8 72
2236 2491 2731 1363 1480 3.8 1.4 2.6 11.5 12.3 74
4578 4754 4937 2448 2549 6.9 8.1 5.1 7.8 8.6 L
2664 2650 2737 1308 1368 3.8 12.2 15.6 23.5 24.6 M
1443 1485 1512 808 824 2.1 23.6 16.5 18.9 17.9 N
1669 1746 1796 919 944 2.5 4.2 6.2 11.9 12.1

Annex 157
 Table A.2
Average number of employees in full-time units, earnings and labour productivity*

Average number of employees in full-time units, thou

ANNEX

Share,
%

NACE Activity

2006 2007 2007 2007 2008 2008

II H II H

Total economy 1275.9 1291.5 1253.5 1292.6 1239.2 100

A Agriculture, fishery and forestry 183.9 156.9 116.6 151.4 120.5 9.3
C Mining and quarrying 3.2 3.1 2.9 3.1 2.9 0.2
D Manufacturing 221.2 218.5 203.0 215.6 194.2 15.7
Manufacture of food products, beverages
15,16 45.7 45.0 44.3 45.1 43.6 3.4
and tobacco
17-19 Manufacture of textiles and wearing apparel 43.1 38.0 30.6 35.7 28.1 2.4
Manufacture of wood and paper products,
20,21,36 51.7 52.5 48.0 51.8 45.5 3.7
furniture
23 Manufacture of refined petroleum products 3.4 3.5 3.3 3.5 3.2 0.3
24 Manufacture of chemical products 5.3 5.5 6.1 5.5 6.1 0.5
25 Manufacture of rubber and plastic products 7.9 8.3 8.2 8.2 8.0 0.6
26 Manufacture of building materials 10.0 10.4 9.6 10.6 8.9 0.7
27,28 Manufacture of metal products 15.5 16.3 14.6 16.0 13.8 1.1
29 Manufacture of machinery and equipment 9.3 9.6 8.8 9.6 8.5 0.7
Manufacture of electrical and optical
30-33 13.1 11.9 11.3 11.7 10.7 0.9
equipment
34,35 Manufacture of motor vehicles 7.3 7.8 8.4 7.9 8.2 0.7
E Electricity, gas and water supply 24.6 23.6 23.0 23.4 22.7 1.8
F Construction 91.2 104.1 105.4 106.0 100.7 8.1
G Domestic trade 195.6 207.8 212.7 211.4 209.0 16.4
50 Retail trade of motor vehicles 35.0 37.9 – – – –
51 Wholesale trade 63.7 69.1 – – – –
52 Retail trade 96.9 100.8 – – – –
H Hotels and restaurants 28.0 30.9 31.4 31.2 31.1 2.4
60-63 Transport and storage 71.6 77.2 79.4 78.0 79.1 6.1
64 Post and telecommunications 13.8 14.2 14.3 14.3 14.3 1.1
J Financial intermediation 15.0 16.7 17.7 17.1 17.8 1.4
K Real estate; other business activities 72.7 82.1 89.6 83.8 89.2 6.9
70 Real estate activities 16.6 19.0 – – – –
72 Computer and related activities 6.4 6.9 – – – –
74 Other business activities 41.7 47.7 – – – –
L Public administration and defence 77.0 79.2 81.1 79.7 81.7 6.3
M Education 146.9 143.5 145.1 149.7 146.3 11.2
N Health and social work 85.6 86.5 87.8 85.9 88.9 6.8
Other activities 45.5 47.3 43.4 42.0 40.8 3.4

* Value added per employee at current prices

158 Lithuanian Economic Outlook

 Average monthly earnings Labour productivity, LTL thou
(personal enterprises excluded), LTL

ANNEX
Ratio Ratio
to the to the
economy’s economy’s
average, average, NACE
% %
2006 2007 2008 2007 2008 2008 2006 2007 2008 2007 2008 2008
II H II H II H II H

1577 1886 2248 1994 2312 100 58.5 68.1 79.7 37.2 42.2 100
1205 1482 1786 1590 1817 79.4 17.2 24.7 37.7 16.5 19.9 47.3 A
1996 2389 2887 2561 2947 128.4 117.9 121.8 143.2 68.2 69.8 185.4 C
1466 1814 2116 1941 2177 94.1 67.8 76.4 91.8 41.1 47.9 118.9 D

1390 1721 2021 1832 2070 89.9 58.7 71.6 78.8 40.8 43.8 102.1 15,16

1131 1345 1529 1430 1561 68.0 35.4 42.5 46.9 22.8 23.7 60.7 17-19

1297 1631 1900 1748 1945 84.5 49.7 57.1 65.1 29.6 33.7 84.3 20,21,36

3651 3825 3986 3947 4198 177 507.3 292.7 675.1 120.2 329.8 874.5 23
2448 3054 3600 3245 3688 160.1 185.3 315.3 377.1 179.6 190.6 488.5 24
1549 1969 2274 2099 2373 101.1 118.3 116.1 110.4 61.8 54.4 143.1 25
1825 2272 2527 2440 2582 112.4 84.6 91.4 80.7 50.1 44.0 104.6 26
1524 1996 2180 2147 2188 97.0 53.8 67.7 66.6 37.4 36.1 86.3 27,28
1655 2043 2281 2173 2359 101.5 53.2 61.0 72.7 33.6 35.9 94.2 29

1610 1899 2271 2026 2330 101.0 71.6 73.2 83.7 39.2 42.7 108.5 30-33

1925 2342 2876 2523 3005 127.9 96.5 96.3 110.3 47.7 55.4 142.9 34,35
2072 2360 2738 2487 2832 121.8 106.3 117.5 138.2 60.1 73.0 179.0 E
1728 2213 2449 2377 2471 108.9 71.8 86.4 94.5 51.2 55.6 122.5 F
1496 1810 2092 1917 2117 93.0 63.9 70.6 78.7 38.1 41.9 101.9 G
1328 1642 – – – – 52.0 53.2 – – – – 50
1924 2275 – – – – 85.9 93.8 – – – – 51
1223 1506 – – – – 53.4 60.9 – – – – 52
947 1141 1388 1208 1419 61.7 36.1 36.0 40.8 19.5 21.7 52.8 H
1523 1816 2232 1925 2299 99.3 103.8 118.6 128.3 63.8 68.7 166.3 60-63
1848 2183 2432 2254 2457 108.1 151.0 160.5 177.0 81.4 86.6 229.3 64
3177 3685 4153 3790 4205 184.7 142.2 184.6 195.6 98.0 96.5 253.4 J
1732 1996 2514 2121 2590 111.8 124.4 127.8 135.3 68.6 72.7 175.2 K
1264 1522 – – – – 334.2 335.1 – – – – 70
2163 2510 – – – – 74.6 87.0 – – – – 72
1886 2133 – – – – 64.4 64.5 – – – – 74
2314 2492 3063 2565 3149 136.2 67.7 71.8 78.5 38.1 42.1 101.7 L
1299 1539 1931 1603 2030 85.9 22.4 26.4 33.3 11.9 15.9 43.2 M
1502 1792 2174 1905 2287 96.7 26.0 30.9 36.8 16.7 19.4 47.6 N
1316 1541 1858 1609 1899 82.7 44.7 47.8 60.0 28.7 34.0 77.7

Annex 159
 Table A.3
Fixed investments and foreign direct investment (FDI)

Fixed investments, LTL Mio

Share,
ANNEX

%
NACE Activity
2006 2007 2008 2007 2008 2008
II H II H

Total economy 15169 20312 21633 12132 12528 100

A Agriculture, fishery and forestry 441 447 549 270 332 2.5
C Mining and quarrying 71 53 90 31 45 0.4
D Manufacturing 2298 3176 2872 1764 1511 13.3
15 Manufacture of food products and beverages 458 590 668 316 374 3.1
17-19 Manufacture of textiles and wearing apparel 162 98 80 54 58 0.4
20,21,36 Manufacture of wood and paper products, furniture 352 446 466 269 194 2.2
24 Manufacture of chemical products 343 236 301 140 150 1.4
25 Manufacture of rubber and plastic products 185 138 171 67 75 0.8
26 Manufacture of building materials 143 186 113 117 66 0.5
27,28 Manufacture of metal products 92 128 82 79 41 0.4
29 Manufacture of machinery and equipment 57 99 63 54 26 0.3
30-33 Manufacture of electrical and optical equipment 74 86 81 45 44 0.4
34,35 Manufacture of motor vehicles 54 63 66 37 35 0.3
E Electricity, gas and water supply 1565 1650 1579 1052 963 7.3
F Construction 580 672 473 364 208 2.2
G Domestic trade 1567 2125 1574 1260 810 7.3
50 Retail trade of motor vehicles 312 488 368 280 175 1.7
51 Wholesale trade 695 829 603 431 329 2.8
52 Retail trade 561 808 603 549 306 2.8
H Hotels and restaurants 184 192 126 116 62 0.6
60-63 Transport and storage 1077 1441 1855 799 1053 8.6
64 Post and telecommunications 365 530 468 286 257 2.2
J Financial intermediation 203 211 182 120 97 0.8
K Real estate; other business activities 3338 4471 5622 2462 2841 26.0
70 Real estate activities 2836 3893 5050 2159 2573 23.3
72 Computer and related activities 37 62 48 38 23 0.2
74 Other business activities 283 267 315 136 152 1.5
L Public administration and defence 2906 4481 5176 3093 3668 23.9
M Education 124 177 157 114 95 0.7
N Health and social work 178 242 319 140 224 1.5
Other activities 273 444 592 262 362 2.7

160 Lithuanian Economic Outlook

 Ratio of fixed investments to value added, % FDI stock, end of period, LTL Mio
Ratio to the Share,

ANNEX
economy’s %
average, % NACE
2006 2007 2008 2007 2008 2008 2006 2007 2008 2008
II H II H

20.3 23.1 21.6 25.2 23.9 100 28925 34601 31485 100
14.0 11.5 12.5 10.8 13.8 57.8 170 192 269 0.9 A
18.9 13.9 21.9 14.5 21.7 101.1 156 187 188 0.6 C
15.3 19.0 15.4 19.9 16.2 71.2 11510 12571 7326 23.3 D
17.9 18.9 19.8 17.7 20.2 91.4 1434 1523 1554 4.9 15
10.6 6.0 5.6 6.7 8.7 25.7 434 451 404 1.3 17-19
13.7 14.9 14.9 17.5 12.6 69.0 702 777 817 2.6 20,21,36
34.7 13.5 13.1 14.1 12.8 60.5 1293 2472 1413 4.5 24
19.7 14.3 18.7 13.3 17.3 86.6 241 293 309 1.0 25
16.9 19.5 14.6 22.2 16.8 67.4 342 384 499 1.6 26
11.0 11.5 8.4 13.1 8.2 38.8 123 136 177 0.6 27,28
11.5 16.9 9.8 16.7 8.6 45.4 228 176 81 0.3 29
7.9 9.9 8.5 9.8 9.6 39.4 296 395 415 1.3 30-33
7.7 8.4 7.1 9.8 7.7 32.7 440 495 530 1.7 34,35
59.8 59.6 49.7 74.8 58.2 229.6 3049 3206 2354 7.5 E
8.8 7.5 4.7 6.7 3.7 21.9 475 549 632 2.0 F
12.5 14.5 9.4 15.6 9.2 43.5 3085 3962 4449 14.1 G
17.1 24.3 16.2 25.2 14.9 74.9 479 645 648 2.1 50
12.7 12.8 8.2 12.2 8.4 37.7 2056 2591 3122 9.9 51
10.8 13.2 8.6 16.2 8.4 39.6 550 726 680 2.2 52
18.3 17.3 9.8 19.0 9.2 45.4 202 263 307 1.0 H
14.5 15.7 18.2 16.1 19.4 84.1 335 675 569 1.8 60-63
17.5 23.2 18.4 24.7 20.7 85.1 2795 3761 3972 12.6 64
9.5 6.8 5.2 7.1 5.7 24.2 4604 5946 4927 15.6 J
36.9 42.6 46.4 42.8 43.8 214.3 2265 2902 5137 16.3 K
51.1 61.0 70.7 63.2 69.3 326.5 1583 2047 3813 12.1 70
7.7 10.3 6.9 10.5 6.0 31.7 122 145 174 0.6 72
10.5 8.7 8.4 8.0 7.3 38.7 431 487 834 2.6 74
55.7 78.7 81.2 101.7 106.8 375.3 – – – – L
3.8 4.7 3.3 6.4 4.1 15.0 – – – – M
8.0 9.1 9.9 9.8 13.0 45.6 – – – – N
13.4 19.6 22.7 21.8 26.2 105.1 – – – –

Annex 161
 Table A.4
Sales and profit

Sales of goods and services, LTL Mio

Share,
ANNEX

NACE Activity

2006 2007 2008 2007 2008 2008

II H II H

Total economy 147175 181437 211106 99323 107266 100

C Mining and quarrying 631 739 734 419 372 0.3
11 Extraction of crude petroleum and natural gas 261 282 292 157 139 0.1
D Manufacturing 42610 46071 56678 24815 27954 26.8
15 Manufacture of food products and beverages 8641 9927 10609 5554 5559 5.0
17-19 Manufacture of textiles and wearing apparel 2310 2375 2114 1194 1004 1.0
Manufacture of wood and paper products,
20,21,36 4713 5746 6378 2983 3104 3.0
furniture
24 Manufacture of chemical products 2788 5019 6054 2697 2921 2.9
25 Manufacture of rubber and plastic products 2208 2590 2391 1385 1156 1.1
26 Manufacture of building materials 1808 2155 1945 1223 939 0.9
27,28 Manufacture of metal products 1877 2481 2523 1326 1245 1.2
29 Manufacture of machinery and equipment 1058 1341 1234 767 618 0.6
30-33 Manufacture of electrical and optical equipment 2047 2002 1992 1012 938 0.9
34,35 Manufacture of motor vehicles 1200 1705 2069 912 1092 1.0
E Electricity, gas and water supply 6727 7563 9915 3767 5156 4.7
F Construction 12045 17021 18145 10095 9987 8.6
G Domestic trade 59698 77718 87479 42611 44381 41.4
50 Retail trade of motor vehicles 11208 15269 16003 8279 7463 7.6
51 Wholesale trade 32915 42738 48188 23533 24780 22.8
52 Retail trade 15575 19712 23288 10799 12139 11.0
H Hotels and restaurants 1264 1511 1688 811 852 0.8
60-63 Transport and storage 10952 14211 15835 7691 8069 7.5
64 Post and telecommunications 3308 3668 3922 1924 1979 1.9
K Real estate; other business activities 6870 9215 12478 5172 6352 5.9
70 Real estate activities 2316 3578 5407 1960 2501 2.6
72 Computer and related activities 832 1103 1127 678 624 0.5
74 Other business activities 3322 3849 5091 2137 2750 2.4

162 Lithuanian Economic Outlook

 Profit before tax, LTL Mio Return on sales, %
Share, Ratio

ANNEX
% to the
economy’s
average, NACE
%
2006 2007 2008 2007 2008 2008 2006 2007 2008 2007 2008 2008
II H II H II H II H

9163 15892 8130 9526 1602 100 6.2 8.8 3.9 9.6 1.5 100
164 179 186 101 101 2.3 25.9 24.2 25.4 24.1 27.3 659.2 C
99 96 103 52 55 1.3 37.8 33.9 35.1 33.3 39.4 911.6 11
1900 2563 1308 1352 –144 16.1 4.5 5.6 2.3 5.4 –0.5 59.9 D
455 725 302 439 169 3.7 5.3 7.3 2.8 7.9 3.0 73.9 15
86 42 –20 –4 –17 –0.3 3.7 1.8 –1.0 –0.3 –1.7 –25.0 17-19

165 170 –13 59 –45 –0.2 3.5 3.0 –0.2 2.0 –1.4 –5.3 20,21,36

153 481 463 305 –50 5.7 5.5 9.6 7.6 11.3 –1.7 198.5 24
110 139 84 72 35 1.0 5.0 5.4 3.5 5.2 3.1 91.7 25
283 335 137 195 36 1.7 15.7 15.5 7.1 15.9 3.8 183.2 26
126 139 107 62 34 1.3 6.7 5.6 4.2 4.7 2.7 109.9 27,28
56 52 15 36 –7 0.2 5.3 3.9 1.3 4.7 –1.1 32.5 29
71 197 77 47 18 0.9 3.5 9.9 3.9 4.6 2.0 100.0 30-33
139 143 145 55 56 1.8 11.6 8.4 7.0 6.0 5.1 182.1 34,35
489 399 167 19 –94 2.1 7.3 5.3 1.7 0.5 –1.8 43.9 E
1110 1617 1102 1043 672 13.6 9.2 9.5 6.1 10.3 6.7 157.7 F
2405 5256 3012 3449 1292 37.1 4.0 6.8 3.4 8.1 2.9 89.4 G
362 539 263 261 30 3.2 3.2 3.5 1.6 3.2 0.4 42.7 50
1549 2451 1889 1258 722 23.2 4.7 5.7 3.9 5.3 2.9 101.8 51
494 2266 860 1930 541 10.6 3.2 11.5 3.7 17.9 4.5 95.9 52
116 97 –7 60 –8 –0.1 9.2 6.4 –0.4 7.3 –0.9 –10.9 H
768 1056 315 534 –40 3.9 7.0 7.4 2.0 6.9 –0.5 51.6 60-63
644 657 494 258 174 6.1 19.5 17.9 12.6 13.4 8.8 327.1 64
1330 3676 1369 2509 –409 16.8 19.4 39.9 11.0 48.5 –6.4 284.9 K
649 1369 725 753 –147 8.9 28.0 38.3 13.4 38.4 –5.9 348.3 70
107 244 146 167 69 1.8 12.9 22.1 12.9 24.7 11.0 336.0 72
500 1957 317 1522 –453 3.9 15.0 50.8 6.2 71.2 –16.5 161.5 74

Annex 163
 Table A.5
Assets and liabilities

Assets, LTL Mio

Semiannual Share,
ANNEX

change, % %
NACE Activity
2006 2007 2008 2008 2008 2008
IH II H

Total economy 126903 161786 190771 21.2 –2.7 100

C Mining and quarrying 880 1041 1150 6.4 3.8 0.6
11 Extraction of crude petroleum and natural gas 527 605 655 10.1 –1.7 0.3
D Manufacturing 27570 32554 33486 11.8 –8.0 17.6
15 Manufacture of food products and beverages 5845 6558 6969 7.2 –0.9 3.7
17-19 Manufacture of textiles and wearing apparel 1915 1950 1866 2.1 –6.3 1.0
Manufacture of wood and paper products,
20,21,36 3488 4226 4862 25.2 –8.1 2.5
furniture
24 Manufacture of chemical products 2757 3936 3810 7.5 –9.9 2.0
25 Manufacture of rubber and plastic products 1370 1741 1883 12.4 –3.7 1.0
26 Manufacture of building materials 1591 2022 2184 8.5 –0.5 1.1
27,28 Manufacture of metal products 1425 1545 1550 6.3 –5.7 0.8
29 Manufacture of machinery and equipment 1043 1051 1147 18.9 –8.2 0.6
30-33 Manufacture of electrical and optical equipment 1210 1395 1373 6.3 –7.4 0.7
34,35 Manufacture of motor vehicles 724 966 1184 35.0 –9.2 0.6
E Electricity, gas and water supply 19946 22014 24645 8.8 2.9 12.9
F Construction 8518 10593 12104 15.8 –1.3 6.3
G Domestic trade 26645 35188 37803 6.2 1.2 19.8
50 Retail trade of motor vehicles 4169 5485 5424 11.6 –11.4 2.8
51 Wholesale trade 15651 20067 23105 15.5 –0.3 12.1
52 Retail trade 6825 9636 9274 –16.4 15.1 4.9
H Hotels and restaurants 1903 2262 2298 6.4 –4.5 1.2
60-63 Transport and storage 13226 17690 18515 1.4 3.2 9.7
64 Post and telecommunications 4129 5423 4897 –13.2 4.1 2.6
K Real estate; other business activities 16634 27946 44920 78.8 –10.1 23.5
70 Real estate activities 11644 16809 24987 66.7 –10.8 13.1
72 Computer and related activities 701 926 1073 4.6 10.8 0.6
74 Other business activities 3661 9213 17565 113.5 –10.7 9.2

164 Lithuanian Economic Outlook

 Liabilities, LTL Mio Debt ratio
Semiannual Share, Ratio to the

ANNEX
change, % % economy’s
average, % NACE
2006 2007 2008 2008 2008 2008 2006 2007 2008 2008
IH II H

55228 71712 85253 28.7 –7.7 100 0.44 0.44 0.45 100
177 233 262 43.3 –21.5 0.3 0.20 0.22 0.23 50.9 C
67 73 45 68.6 –63.4 0.1 0.13 0.12 0.07 15.5 11
13441 16824 17084 15.6 –12.2 20.0 0.49 0.52 0.51 114.2 D
3026 3378 3697 15.8 –5.5 4.3 0.52 0.52 0.53 118.7 15
919 982 897 4.6 –12.6 1.1 0.48 0.50 0.48 107.6 17-19

2003 2530 3278 31.4 –1.4 3.8 0.57 0.60 0.67 150.9 20,21,36

1034 1707 1394 –7.4 –11.8 1.6 0.38 0.43 0.37 81.9 24
767 1063 1098 16.1 –11.0 1.3 0.56 0.61 0.58 130.5 25
638 805 895 16.2 –4.3 1.1 0.40 0.40 0.41 91.8 26
801 885 831 7.4 –12.5 1.0 0.56 0.57 0.54 120.0 27,28
477 531 530 23.2 –19.0 0.6 0.46 0.51 0.46 103.4 29
601 678 625 13.7 –18.9 0.7 0.50 0.49 0.46 101.8 30-33
261 424 511 57.5 –23.5 0.6 0.36 0.44 0.43 96.6 34,35
3809 4282 5774 15.0 17.2 6.8 0.19 0.19 0.23 52.4 E
4916 6042 6964 26.8 –9.1 8.2 0.58 0.57 0.58 128.7 F
16475 21311 24138 17.9 –3.9 28.3 0.62 0.61 0.64 142.9 G
2472 3461 3379 14.8 –14.9 4.0 0.59 0.63 0.62 139.4 50
9906 12722 14377 18.3 –4.5 16.9 0.63 0.63 0.62 139.2 51
4097 5128 6382 18.9 4.7 7.5 0.60 0.53 0.69 154.0 52
1143 1524 1534 9.8 –8.4 1.8 0.60 0.67 0.67 149.4 H
4764 6599 7879 17.9 1.2 9.2 0.36 0.37 0.43 95.2 60-63
650 1820 2032 10.3 1.2 2.4 0.16 0.34 0.41 92.9 64
8801 11844 17737 82.7 –18.1 20.8 0.53 0.42 0.39 88.4 K
6567 8637 13763 98.4 –19.7 16.1 0.56 0.51 0.55 123.3 70
346 415 499 7.8 11.5 0.6 0.49 0.45 0.46 104.0 72
1401 2112 2674 49.2 –15.1 3.1 0.38 0.23 0.15 34.1 74

Annex 165
 Table A.6
Return on capital, return on assets

Return on capital, %
ANNEX

Ratio
to the
economy’s
NACE Activity average,
%
2006 2007 2008 2007 2008 2008
II H II H

Total economy 13.4 19.2 7.7 21.9 3.0 100

C Mining and quarrying 24.8 23.7 22.7 25.6 23.7 293.9
11 Extraction of crude petroleum and natural gas 22.4 18.9 18.0 20.2 18.6 233.7
D Manufacturing 13.8 17.0 7.8 17.3 –1.7 100.8
15 Manufacture of food products and beverages 16.7 24.7 9.3 28.7 10.4 120.4
17-19 Manufacture of textiles and wearing apparel 8.7 4.2 –2.0 –0.8 –3.4 –26.2
Manufacture of wood and paper products,
20,21,36 12.1 11.0 –0.7 7.5 –5.2 –9.4
furniture
24 Manufacture of chemical products 9.5 23.8 17.9 28.0 –3.7 232.4
25 Manufacture of rubber and plastic products 19.3 21.3 11.4 21.2 9.1 148.1
26 Manufacture of building materials 34.9 30.2 10.8 32.2 5.6 140.7
27,28 Manufacture of metal products 21.9 21.0 15.2 18.0 9.3 197.3
29 Manufacture of machinery and equipment 10.2 9.6 2.5 13.7 –2.2 32.9
30-33 Manufacture of electrical and optical equipment 11.0 28.0 10.5 13.1 4.9 135.8
34,35 Manufacture of motor vehicles 29.5 20.3 20.7 11.4 19.7 268.8
E Electricity, gas and water supply 3.1 2.4 0.9 0.2 –1.0 11.6
F Construction 34.7 40.2 22.6 47.2 25.9 292.6
G Domestic trade 25.4 44.4 22.4 53.9 19.3 290.4
50 Retail trade of motor vehicles 22.6 27.9 12.5 25.9 2.9 162.3
51 Wholesale trade 28.8 35.8 22.5 34.8 16.5 292.2
52 Retail trade 19.9 73.8 29.0 108.9 41.8 376.0
H Hotels and restaurants 16.6 13.7 –1.0 16.2 –2.0 –12.3
60-63 Transport and storage 9.8 10.3 3.1 9.9 –0.8 39.7
64 Post and telecommunications 20.0 18.4 16.4 14.4 12.3 212.2
K Real estate; other business activities 18.8 26.1 4.9 32.5 –2.9 63.2
70 Real estate activities 14.8 19.2 6.5 19.6 –2.7 84.8
72 Computer and related activities 33.9 58.5 27.1 68.7 24.3 351.1
74 Other business activities 22.7 31.1 2.0 43.8 –5.8 25.7

166 Lithuanian Economic Outlook

 Return on assets, %
Ratio to the

ANNEX
economy’s
average, %
NACE

2006 2007 2008 2007 II H 2008 II H 2008

7.6 10.6 4.2 12.1 1.7 100

19.5 18.4 16.7 19.9 17.6 396.9 C
19.4 16.7 15.6 17.8 16.6 372.5 11
7.0 8.3 3.7 8.5 –0.8 88.5 D
8.2 12.0 4.3 13.9 4.8 103.3 15
4.5 2.1 –1.0 –0.4 –1.8 –24.7 17-19

4.9 4.2 –0.3 2.8 –1.8 –6.1 20,21,36

6.0 13.1 11.2 15.7 –2.4 265.8 24

8.3 8.7 4.4 8.6 3.7 104.7 25
18.9 18.0 6.4 19.3 3.3 152.5 26
9.8 9.0 6.6 7.8 4.2 156.5 27,28
5.6 4.9 1.3 6.8 –1.2 30.4 29
5.3 14.4 5.2 6.7 2.6 124.9 30-33
17.8 11.7 10.6 6.6 10.3 252.1 34,35
2.5 1.9 0.7 0.2 –0.8 16.7 E
14.7 16.3 9.0 19.6 10.6 214.0 F
9.6 16.4 7.9 20.3 6.7 188.8 G
9.1 10.6 4.5 9.7 1.0 107.6 50
10.4 12.9 8.2 12.6 6.1 195.5 51
8.0 28.6 9.4 44.6 11.8 223.9 52
6.3 4.6 –0.3 5.4 –0.7 –7.2 H
6.1 6.5 1.7 6.2 –0.4 41.6 60-63
16.7 13.7 9.9 9.6 7.2 236.1 64
8.9 14.4 2.9 18.4 –1.8 68.7 K
6.4 8.9 2.8 9.2 –1.2 66.2 70
18.1 31.6 14.8 38.3 13.2 353.4 72
14.0 23.2 1.7 33.8 –4.9 39.5 74

Annex 167
 Table A.7
Sales and exports of industry sectors

Sales of goods and services, LTL Mio

Share,
ANNEX

%
NACE Activity
2006 2007 2008 2007 2008 2008
II H II H

C+D+E Industry 47411 52131 64049 27434 31426 100

C Mining and quarrying 565 616 660 348 326 1.0
10 Extraction and agglomeration of peat 93 105 111 48 54 0.2
11 Extraction of crude petroleum and natural gas 235 207 208 115 91 0.3
14 Quarrying of stone, sand and clay 236 303 341 185 181 0.5
D Manufacturing 40724 44458 54850 23603 26770 85.6
15 Manufacture of food products and beverages 7149 8984 9764 4864 5040 15.2
16 Manufacture of tobacco products 1286 1356 1171 672 549 1.8
17 Manufacture of textiles and wearing apparel 1702 1659 1453 829 690 2.3
18 Manufacture of dressing 88 98 82 55 41 0.1
19 Manufacture of leather products 2265 2717 2457 1381 1151 3.8
20 Manufacture of wood products (excluding furniture) 398 464 549 241 265 0.9
21 Manufacture of paper products 1040 1226 1247 659 652 1.9
22 Publishing, printing 2707 4894 6574 2631 3117 10.3
24 Manufacture of chemical products 1814 2001 1938 1040 945 3.0
25 Manufacture of rubber and plastic products 1652 1989 1794 1122 876 2.8
26 Manufacture of building materials 63 86 209 45 93 0.3
27 Manufacture of basic metals 1529 2092 1635 1102 825 2.6
28 Manufacture of metal products 1001 1184 1313 666 646 2.0
29 Manufacture of machinery and equipment 40 49 246 29 120 0.4
30 Manufacture of office machinery 896 902 715 451 318 1.1
31 Manufacture of electrical equipment 839 621 493 311 260 0.8
32 Manufacture of radio, television 330 444 447 224 228 0.7
33 Manufacture of optical instruments 321 472 544 229 221 0.8
34 Manufacture of motor vehicles 830 892 1083 427 549 1.7
35 Manufacture of other transport equipment 2023 2452 2799 1290 1412 4.4
36 Manufacture of furniture 375 521 503 251 186 0.8
37 Recycling of metal waste and scrap 6122 7058 8540 3483 4330 13.3
E Electricity, gas and water supply* 3497 4067 4451 2039 2288 6.9
40.1 Production and distribution of electricity* 1018 1341 2093 697 1072 3.3
40.2 Manufacture and distribution of gas 1431 1470 1806 655 874 2.8
40.3 Steam and hot water supply 177 179 189 92 96 0.3
41 Collection, distribution of water 175 177 179 88 93 0.3

* Exports estimate based on electricity exports data from foreign trade statistics

168 Lithuanian Economic Outlook

 Exports, LTL Mio Ratio of exports to total sales, %
Share,

ANNEX
%
NACE
2006 2007 2008 2007 2008 2008 2006 2007 2008 2007 2008
II H II H II H II H

24388 25355 34118 13232 16305 100 51.4 48.6 53.3 48.2 51.9 C+D+E
226 270 275 139 128 0.8 40.0 43.8 41.7 40.0 39.1 C
71 85 90 38 44 0.3 76.6 80.3 81.0 79.5 81.9 10
140 163 156 87 69 0.5 59.4 78.7 75.0 76.2 76.2 11
15 22 29 13 14 0.1 6.3 7.2 8.6 7.2 7.7 14
24042 24906 33571 13010 16055 98.4 59.0 56.0 61.2 55.1 60.0 D
2409 3234 3359 1801 1726 9.8 33.7 36.0 34.4 37.0 34.3 15
1010 1044 858 504 391 2.5 78.5 77.0 73.3 75.0 71.3 16
1300 1276 1072 627 501 3.1 76.4 76.9 73.8 75.6 72.7 17
45 43 29 22 14 0.1 51.5 43.6 35.8 40.9 35.4 18
1429 1603 1403 771 639 4.1 63.1 59.0 57.1 55.9 55.5 19
182 217 250 112 119 0.7 45.8 46.9 45.5 46.6 44.9 20
160 195 155 99 76 0.5 15.4 15.9 12.4 15.0 11.7 21
1946 3837 5279 2084 2597 15.5 71.9 78.4 80.3 79.2 83.3 22
913 1033 1047 513 501 3.1 50.3 51.6 54.0 49.4 53.0 24
271 314 348 167 172 1.0 16.4 15.8 19.4 14.9 19.6 25
42 44 154 23 66 0.4 67.1 51.4 73.5 51.3 71.1 26
665 870 678 432 344 2.0 43.5 41.6 41.5 39.2 41.7 27
531 662 763 375 373 2.2 53.1 55.9 58.1 56.3 57.7 28
5 4 169 2 86 0.5 12.4 7.6 68.7 7.2 71.7 29
655 657 470 317 200 1.4 73.1 72.9 65.7 70.4 63.1 30
676 486 425 247 222 1.2 80.6 78.3 86.3 79.2 85.5 31
208 312 294 161 148 0.9 63.2 70.3 65.8 72.0 65.0 32
177 275 374 133 171 1.1 55.2 58.2 68.8 57.9 77.5 33
564 638 745 301 372 2.2 67.9 71.5 68.8 70.5 67.8 34
1115 1278 1520 653 744 4.5 55.1 52.1 54.3 50.6 52.7 35
288 401 383 187 141 1.1 76.9 77.0 76.3 74.6 75.7 36
120 179 272 82 123 0.8 2.0 2.5 3.2 2.4 2.8 37
120 179 272 82 123 0.8 3.4 4.4 6.1 4.0 5.4 E
– – – – – – – – – – – 40.1
– – – – – – – – – – – 40.2
– – – – – – – – – – – 40.3
– – – – – – – – – – – 41

Annex 169
 Table A.8
Average income and consumption expenditure of households, per capita, LTL

Structure, Annual
% change,
ANNEX

%
2005 2006 2007 2008 2008 2008

Disposable income 580 681 859 987 100 14.8

Income from employment 328 409 536 613 62.1 14.2
Income from self employment (excl. agricultural
79 90 105 105 10.7 0.4
economic activity)
Income from self employment in agricultural
51 58 59 53 5.4 –10.2
economic activity
Social transfers 131 146 183 233 23.6 27.8
Other income 41 36 35 35 3.6 0.3
Consumption expenditure 578 652 749 794 100 6.0
Food and non-alcoholic beverages 212 220 248 276 34.8 11.3
Alcoholic beverages 14 17 19 21 2.6 11.8
Tobacco 8 8 9 10 1.3 19.8
Clothing and footwear 50 57 69 68 8.5 –2.2
Housing, water, electricity, gas and other fuel 70 78 90 100 12.6 12.0
Furnishings, household equipment and routine
26 36 43 40 5.0 –7.9
maintenance of the house
Health care 30 33 36 39 4.9 8.3
Transport 51 67 78 78 9.8 0.5
Communication 29 32 37 37 4.6 –0.8
Recreation and culture 27 34 41 38 4.8 –8.0
Education 7 6 6 4 0.6 –22.8
Hotels, restaurants, cafes, canteens 29 32 39 44 5.5 12.3
Miscellaneous goods and services 26 32 35 40 5.0 12.5

Table A.10
Exports by commodity group, LTL Mio

Year Total Food Mineral Chemicals Rubber Wood and

products products and chemi- and plastic wood prod-
cal products products ucts (exclud-
ing furniture)

2006 38888 5417 9193 2515 2000 1584

2007 43192 7346 5791 3477 3430 1985
2008 55477 8876 13704 5359 3303 1739
2007 II H 22596 4065 2870 1956 1733 1018
2008 II H 28009 4799 6718 2752 1554 810
Structure in 2008, % 100 16.0 24.7 9.7 6.0 3.1
Annual change, 2008, % 28.4 20.8 136.7 54.1 –3.7 –12.4
Annual change, 2008 II H, % 24.0 18.0 134.1 40.7 –10.3 –20.4
Balance 2007*, % –15.0 11.8 –24.2 –23.9 6.9 21.9
Balance 2008*, % –10.8 7.1 –16.6 –7.3 6.6 22.2
* Foreign trade balance (at fob prices) ratio to respective sales

170 Lithuanian Economic Outlook

 Table A.9
Average consumption expenditure per capita in deciles, LTL

Expenditure, LTL Annual change, %

Year

ANNEX
2005 2006 2007 2008 2006 2007 2008

I 178 197 219 249 11.0 11.3 13.6

II 265 293 332 371 10.7 13.3 11.8
III 326 362 410 457 11.0 13.1 11.5
IV 384 426 484 539 11.1 13.6 11.2
V 443 491 566 624 10.8 15.3 10.2
VI 511 565 654 713 10.7 15.7 9.0
VII 592 657 755 822 11.0 15.0 8.8
VIII 705 784 904 969 11.2 15.2 7.2
IX 887 993 1131 1202 12.0 13.9 6.2
X 1491 1747 2031 1994 17.1 16.3 –1.8
Average 578 652 749 794 12.7 14.9 6.1
Ratios: (X/I) 8.4 8.9 9.3 8.0 – – –
(IX+X)/(I+II) 5.4 5.6 5.7 5.2 – – –

Textiles Basic metals Machinery Transport Furniture Other Year

and fabricated and equip- equipment goods
metal ment
products

3228 1780 4886 3948 2208 2131 2006

3263 2262 5589 4557 2665 2827 2007
3046 2660 5895 4758 2642 3495 2008
1615 1137 3006 2223 1377 1595 2007 II H
1547 1320 3039 2340 1291 1840 2008 II H
5.5 4.8 10.6 8.6 4.8 6.3 Structure in 2008, %
–6.7 17.6 5.5 4.4 –0.9 23.6 Annual change, 2008, %
–4.3 16.0 1.1 5.3 –6.3 15.4 Annual change, 2008 II H, %
7.4 –33.7 –30.2 –35.4 52.3 –28.0 Balance 2007*, %
4.8 –23.0 –25.0 –27.6 52.5 –25.4 Balance 2008*, %

Annex 171
 Table A.11
Exports of Lithuanian origin by commodity group, LTL Mio

Year Total Food Mineral Chemicals Rubber Wood

products products and chemi- and plastic and wood
ANNEX

cal products products products

(excluding
furniture)

2006 28239 4114 9076 1781 1442 1433

2007 29498 5391 5693 2579 2786 1759
2008 38734 6109 13638 4165 2598 1455
2007 II H 15367 3137 2826 1472 1371 907
2008 II H 19060 3368 6680 2137 1159 665
Structure in 2008, % 100 15.8 35.2 10.8 6.7 3.8
Annual change, 2008, % 31.3 13.3 139.6 61.5 –6.8 –17.3
Annual change, 2008 II H, % 24.0 7.4 136.4 45.2 –15.5 –26.7

Table A.12
Exports and imports by region, LTL Mio

Exports
Share, % Change, %
2006 2007 2008 2008 2008 2008 II H

Total 38888 43192 55477 100 28.4 24.0

EU 24743 27967 33434 60.3 19.5 14.7
Belgium 482 728 916 1.7 25.8 34.1
Denmark 1634 1749 2589 4.7 48.0 25.1
Estonia 2515 2514 3168 5.7 26.0 19.5
Italy 823 981 883 1.6 –10.0 –16.4
United Kingdom 1714 1968 2560 4.6 30.1 22.5
Latvia 4304 5562 6457 11.6 16.1 15.2
Poland 2361 2714 3202 5.8 18.0 16.9
Netherlands 1885 1295 1888 3.4 45.8 53.2
France 1627 1580 2677 4.8 69.4 69.3
Finland 336 570 751 1.4 31.6 13.9
Sweden 1749 1641 1889 3.4 15.1 12.1
Germany 3345 4534 3996 7.2 –11.9 –15.6
CIS 8252 10567 14321 25.8 35.5 35.4
Belarus 1473 1733 2496 4.5 44.0 54.3
Russia 4956 6473 8917 16.1 37.8 34.8
Ukraine 1006 1176 1806 3.3 53.5 44.7
EFTA 1264 1436 1750 3.2 21.9 14.4
Norway 724 993 1167 2.1 17.4 20.9
Switzerland 272 118 521 0.9 339.9 295.7
Other 4629 3222 5973 10.8 85.4 70.3
USA 1682 1109 1776 3.2 60.1 43.1

172 Lithuanian Economic Outlook

 Textiles Basic metals Machinery Transport Furniture Other Year
and fabri- and equip- equipment goods

ANNEX
cated metal ment
products

2585 1151 2353 836 2076 1392 2006

2444 1376 2321 960 2456 1732 2007
2096 1514 1946 1021 2430 1763 2008
1185 683 1136 467 1258 925 2007 II H
1002 708 909 405 1166 862 2008 II H
5.4 3.9 5.0 2.6 6.3 4.6 Structure in 2008, %
–14.3 10.0 –16.2 6.3 –1.1 1.8 Annual change, 2008, %
–15.4 3.7 –20.0 –13.3 –7.3 –6.8 Annual change, 2008 II H, %

Imports
Share, % Change, %
2006 2007 2008 2008 2008 2008 II H

53275 61504 72593 100 18.0 10.2 Total

33434 42030 41600 57.3 –1.0 –9.9 EU
1321 1774 1742 2.4 –1.8 –20.6 Belgium
1534 1687 1536 2.1 –9.0 –15.9 Denmark
1639 2198 2093 2.9 –4.8 –19.2 Estonia
1799 2451 2580 3.6 5.3 –1.6 Italy
1418 1736 1367 1.9 –21.3 –31.4 United Kingdom
2542 3365 3792 5.2 12.7 1.1 Latvia
5070 6533 7268 10.0 11.3 5.1 Poland
1988 2629 2581 3.6 –1.8 –15.7 Netherlands
1679 2153 2058 2.8 –4.4 –12.6 France
1548 1721 1518 2.1 –11.8 –20.7 Finland
1777 2302 2144 3.0 –6.9 –20.7 Sweden
7916 9222 8498 11.7 –7.8 –13.2 Germany
14885 13466 24750 34.1 83.8 78.8 CIS
945 1220 1247 1.7 2.2 –5.4 Belarus
12975 11083 21855 30.1 97.2 92.0 Russia
722 848 1019 1.4 20.2 11.8 Ukraine
527 633 735 1.0 16.2 52.6 EFTA
261 300 409 0.6 36.7 140.5 Norway
222 287 277 0.4 –3.5 –5.9 Switzerland
4428 5376 5508 7.6 2.5 –3.5 Other
859 1356 1275 1.8 –6.0 –8.9 USA

Annex 173
 Table A.13
Exports by commodity group and region in 2008, %

Total Food Mineral Chemicals Rubber and Wood and

products products and chemi- plastic wood products
ANNEX

cal products products (excluding

furniture)

Total, LTL Mio 55477 8876 13704 5359 3303 1739

Total, % 100 100 100 100 100 100
EU 60.3 57.3 69.7 61.6 79.1 83.6
Latvia 11.6 14.4 15.5 11.2 7.8 7.5
Germany 7.2 9.6 0.2 9.0 17.6 17.9
Poland 5.8 6.1 5.1 6.7 13.5 6.9
Estonia 5.7 5.3 11.1 5.2 4.3 4.1
CIS 25.8 32.9 8.7 10.5 18.6 7.0
Russia 16.1 29.3 0.3 4.6 11.3 5.2
Belarus 4.5 2.7 0.2 3.4 4.4 0.3
Ukraine 3.3 0.5 7.7 1.2 2.3 0.5
EFTA 3.2 1.4 3.0 1.5 1.5 7.6
Norway 2.1 1.3 0.3 1.5 0.9 7.3
Other 10.8 8.3 18.7 26.3 0.8 1.8
USA 3.2 0.4 9.1 4.2 0.4 0.5

Table A.14
FDI position by country, end of period, %

2002 2003 2004 2005

LTL Mio % LTL Mio % LTL Mio % LTL Mio %

Total 13184 100 13699 100 16193 100 23896 100

Sweden 2016 15.3 2010 14.7 2435 15.0 2644 11.1
Germany 1264 9.6 1335 9.7 1839 11.4 2552 10.7
Denmark 2262 17.2 2374 17.3 2466 15.2 3792 15.9
Estonia 1547 11.7 1151 8.4 1239 7.6 1777 7.4
Netherlands 240 1.8 468 3.4 704 4.3 705 3.0
Latvia 196 1.5 212 1.5 181 1.1 301 1.3
Poland 283 2.1 278 2.0 290 1.8 393 1.6
Finland 815 6.2 1173 8.6 1256 7.8 1526 6.4
Russia 687 5.2 796 5.8 1366 8.4 5880 24.6
Norway 389 2.9 421 3.1 461 2.8 489 2.0
Cyprus 123 0.9 166 1.2 280 1.7 205 0.9
USA 1142 8.7 1162 8.5 1034 6.4 654 2.7
Luxembourg 155 1.2 201 1.5 142 0.9 232 1.0
Switzerland 374 2.8 392 2.9 427 2.6 414 1.7
United Kingdom 709 5.4 679 5.0 562 3.5 426 1.8
Austria 42 0.3 49 0.4 506 3.1 518 2.2
Other 940 7.1 833 6.1 1005 6.2 1389 5.8

174 Lithuanian Economic Outlook

 Textiles Basic metals Machinery Transport Furniture Other goods
and fabricated and equip- equipment

ANNEX
metal ment
products

3046 2660 5895 4758 2642 3495 Total, LTL Mio

100 100 100 100 100 100 Total, %
67.6 63.7 41.8 35.3 70.9 47.6 EU
4.8 16.0 10.4 7.3 3.8 12.2 Latvia
10.8 10.0 5.2 5.8 12.4 7.0 Germany
2.2 11.1 2.7 4.1 5.3 5.1 Poland
2.4 3.6 4.8 1.6 1.2 3.4 Estonia
22.6 20.8 53.2 59.2 7.9 43.0 CIS
16.8 13.6 35.2 27.1 6.4 33.1 Russia
2.5 3.6 8.9 21.3 0.4 5.0 Belarus
2.5 1.0 4.6 1.4 0.7 2.7 Ukraine
5.9 3.0 2.2 1.9 11.6 4.8 EFTA
5.0 2.4 2.0 1.6 8.1 4.4 Norway
3.9 12.6 2.8 3.6 9.6 4.7 Other
0.9 0.5 0.5 0.1 4.9 1.3 USA

2006 2007 2008 I H

LTL Mio % LTL Mio % LTL Mio %

28925 100 35504 100 31485 100 Total

3040 10.5 4057 11.4 5298 16.8 Sweden
2793 9.7 3040 8.6 3170 10.1 Germany
4396 15.2 4491 12.6 2753 8.7 Denmark
1713 5.9 2030 5.7 2397 7.6 Estonia
711 2.5 1496 4.2 2114 6.7 Netherlands
412 1.4 1633 4.6 1946 6.2 Latvia
6493 22.4 6259 17.6 1853 5.9 Poland
1933 6.7 1811 5.1 1749 5.6 Finland
1804 6.2 3467 9.8 1664 5.3 Russia
766 2.6 1098 3.1 1242 3.9 Norway
702 2.4 825 2.3 972 3.1 Cyprus
702 2.4 677 1.9 817 2.6 USA
790 2.7 634 1.8 792 2.5 Luxembourg
496 1.7 537 1.5 693 2.2 Switzerland
393 1.4 621 1.7 666 2.1 United Kingdom
131 0.5 194 0.5 218 0.7 Austria
1651 5.7 2634 7.4 3138 10.0 Other

Annex 175
 Table A.15
National budget and SoDra* revenue and expenditure, LTL Mio

1999 2000 2001 2002 2003

ANNEX

NB revenue 8984 8724 9276 10572 11360

NB revenue (EU funds excluded) 8984 8724 9276 10572 11360
Tax revenue** 8376 8033 8105 8991 9723
Income tax of individuals 2576 2504 2512 2547 2666
Corporate income tax*** 361 312 259 308 785
Value added tax 3467 3419 3512 3810 3823
Excises 1318 1210 1295 1706 1765
Property tax 247 259 285 328 308
Other taxes 407 330 242 292 376
EU support – – – – –
Other revenue 608 691 1171 1581 1637
NB expenditure 9109 9468 9874 11673 12490
Social affairs 4769 4808 5006 5337 5614
Education 2788 2704 2949 3169 3266
Other 1982 2104 2057 2168 2347
Economy**** 1116 1148 1164 2146 2536
Public order and safety affairs 973 933 966 1028 1091
National defence 494 611 700 847 944
Other 1756 1969 2037 2316 2305
Payments to EU budget – – – – –
SoDra revenue 4204 4405 4438 4570 4886
SoDra expenditure 4538 4581 4452 4461 4703
* State Social Insurance Fund
** Excluding Road tax
*** Including Social tax
**** Including housing and community

176 Lithuanian Economic Outlook

 2004 2005 2006 2007 2008

ANNEX
13805 16490 19781 24048 27396 NB revenue
12415 14487 17618 20566 23914 NB revenue (EU funds excluded)
10649 12603 15604 18629 21787 Tax revenue**
3054 3569 4063 4558 5106 Income tax of individuals
1169 1508 2290 2536 3065 Corporate income tax***
3930 4842 6152 7824 9243 Value added tax
1858 2040 2375 2804 3354 Excises
248 249 274 288 308 Property tax
391 396 451 619 711 Other taxes
1390 2003 2162 3482 3482 EU support
1766 1884 2014 1937 2127 Other revenue
14561 17063 20844 24420 28685 NB expenditure
6009 6672 8587 10095 12702 Social affairs
3642 3919 4470 5129 6278 Education
2367 2753 4117 4966 6424 Other
2896 3986 5180 5742 6862 Economy****
1157 1254 1458 1647 2082 Public order and safety affairs
934 987 1304 1741 1468 National defence
3565 4164 4315 5194 5572 Other
412 739 835 939 1050 Payments to EU budget
5564 6391 7800 9759 11217 SoDra revenue
5324 6121 7245 9283 12654 SoDra expenditure

Annex 177
Comments
Abbreviations ROE return on equity;
RRT Communication Regulatory Authority;
RST Rytų skirstomieji tinklai
BMW basic monthly wage;
SoDra State Social Insurance Fund;
BoL the Bank of Lithuania;
t ton;
CAD current account deficit;
toe tonne of oil equivalent;
CI confidence indicator;
VAT Value Added Tax;
cif Cost insurance and freight – A pricing term indicating that the
cost of the goods, insurance, and freight are included in the VILIBOR Vilnius Interbank Offered Rate;
quoted price; VMI State Tax Inspectorate;
CIPI construction input price index; VST Vakarų skirstomieji tinklai.
CIS Commonwealth of Independent States;
CPI consumer price index;
cub. m cubic metre; Terms
dal decalitre;
DI direct investment; E sector/industry – electricity, gas and water supply sector.
EBIT earnings before interest and tax; Equity – equity including grants and subsidies.
EBITDA earnings before interest, tax, depreciation, and amortization; Profit – profit before tax.
ECB European Central Bank; Profitability or return on sales – profit before tax divided by sales, %.
EFTA European Free Trade Association; Return on assets – profit before tax divided by assets, %.
EIU Economist Intelligence Unit; Return on equity – profit before tax divided by equity, %.
ESI economic sentiment indicator; Debt ratio – total liabilities divided by total assets, %.
EU European Union; Turnover and sales – sales of goods and services.
EU-15 the EU states prior 2004 May; Sales of goods and services of a sector – consolidated sales of goods and
EURIBOR Euro Interbank Offered Rate; services of the companies classified to the particular sector according to
their basic activity.
EUROSTAT Statistical Office of the European Commission;
Sales of industry sector – consolidated income from sales of the companies
FDI foreign direct investment;
that indicate this industry sector as the basic in their statistical reports.
FEZ free economic zone;
Visible export – exports of physically tangible goods, involving the export of
Fed Federal Reserve System; goods at various stages of production.
fob Freight on Board – a pricing term indicating that the quoted Invisible export – exports of physically intangible items such as services.
price covers all expenses up to and including delivery of goods
upon an overseas vessel provided by or for the buyer;
FOF
FTD
fund of funds
foreign trade deficit;
Statistical data
GDP gross domestic product;
HICP harmonized consumer price index; Number of employed stands for average number of hired employees con-
verted in full-time units, except for agriculture, where number of employed
HMHT high- and medium-high technologies; includes self-employed persons. Number of employed in a particular sector
INP Ignalina Nuclear Plant; is estimated based on the data of Statistics Lithuania and SODRA.
ITC information and communication technologies; Economic Sentiment Indicator (ESI) is comprised of five constituents –
arithmetic weighted average of consumer, industry, construction, trade and
KTU Kaunas University of Technology;
services confidence indexes. Weights of ESI constituents: industry accounts
kW kilowatt; for 40%, services – 30%, consumers – 20%, construction – 5% and retail
kWh kilowatt-hour; trade 5%.

LDHA Lithuanian District Heating Association;

LFS Labour Force Survey;
LG Lietuvos geležinkeliai;
Sources of statistical data
m metre;
M1 money aggregate measuring the amount of currency in circu- Statistical data on individual companies are obtained from the mass me-
lation and deposits into checking accounts; dia – basically from Baltic News Service (BNS), ELTA and Verslo žinios daily
newspaper.
M2 money aggregate consisting of M1 plus savings deposits, small
time deposits, and money market mutual funds; The data on the balance of payments is obtained from the Bank of Lithu-
ania.
MEO manufacture of electrical and optical equipment;
The rest of statistical data is provided by the Statistics Lithuania and Euro-
MI manufacturing industry; stat (if not otherwise indicated).
MLS minimum living standard;
MME minimum monthly earnings;
MF mineral fuel;
MN Mažeikių nafta;
MW megawatt, one million of watts;
NACE (Nomenclature Générale des Activités economiques dans les
Communautés Européenes) – the official European Community
classification for economic activities.
NB national budget;
OECD Organisation for Economic Co-operation and Development;
PET polyethylene terephthalate;
PPI producer price index;
PST Panevėžio Statybos Trestas;
RE real estate;
RIGIBOR Riga Interbank Offered Rate;
For your comments
About AB DnB NORD Bankas
AB DnB NORD Bankas is a member of dynamic and reliable DnB NORD banking group. It is
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