Successfully investing in Lithuania

last updated on 7 June 2024 | reading time approx. 7 minutes

How do you assess the current economic situation in Lithuania? »
How would you describe the investment climate in Lithuania? Which sectors offer the largest potential? »
What challenges do German companies face during their business ventures into Lithuania? »
How is the market for renewable energies developing in Lithuania? »
In your opinion, how will Lithuania develop? »

How do you assess the current economic situation in Lithuania?

According to the Central Bank of Lithuania, economic activity in Lithuania will remain subdued within 2024, with stronger recovery projections in 2025. In 2024, economic growth will be constrained by challenges in external markets. Rising purchasing power will spur recovery in household. While tightness in labor market persists, wage growth will continue to accelerate. Since December 2023, services have become the main driver of inflation. Lithuania’s economic growth is projected to recover within 2024. This will be mainly driven by domestic demand. Lithuania’s real GDP is projected to grow at the rate of 1.6 percent in 2024 and 3.1 percent in 2025. The balance of risks is still on the downside, i.e. there are more risks that could adversely affect economic developments, such as the risk of persisting cautiousness of Lithuanian households, lower-than-anticipated growth in export markets, or the intensification of geopolitical conflicts.

Economic developments in Lithuania have been mainly constrained by a significant decline in exports of goods and services. Challenges in overseas markets are mitigated by domestic demand. Despite the economic stagnation and persisting geopolitical risks, the labor market situation in Lithuania remained stable within 2023. Unemployment is low, and the number of employed is record high – the highest since joining the EU.

In April 2024, Moody’s Investment Service, the international credit rating agency, affirmed Lithuania's A2 long-term credit rating with a stable outlook. The international credit rating agency Fitch Ratings reaffirmed the long-term debt rating at “A” previously assigned to Lithuania and left a stable outlook. The same credit rating – “A (high)” with a stable outlook – was also assigned to Lithuania by the DBRS Morningstar credit rating agency.

According to the International Tax Competitiveness Index Rankings 2023, Lithuania ranks 9th in the world (score: 76.6) amongst the most competitive tax systems in the OECD. The following strengths of the Lithuanian tax system have been highlighted in the rankings: a) Business investments in machinery, buildings, and intangibles receive better-than-average tax treatment; b) Lithuania’s corporate tax rate is 15 percent, well below the OECD average of 23.6 percent; c) Lithuania’s taxes on labor are flatter than average, allowing the government to raise revenue from taxes on workers with very few distortions.

The Index of Economic Freedom 2024, which measures a country's economic freedom on a scale from 0 to 100, placed Lithuania at No. 15 worldwide (out of 184 countries), with an overall score of 72.9. Lithuania’s economy is considered “mostly free” according to the 2024 Index. Lithuania’s transition to a free-market economy is facilitated by the rule of law, structural reforms, and an increasingly vibrant private sector. Competitive taxation, a relatively efficient regulatory system, and policies that open Lithuania to global commerce and trade encourage more dynamic and broadly based economic expansion. The entrepreneurial framework is fairly streamlined and efficient. Business formation and operation take place without bureaucratic interference.

Lithuania also ranked 32nd (out of 64 economies) worldwide in the IMD World Competitiveness Index 2023, published by the Swiss Institute of International Management. The Index ranks countries according to their ability to manage the competencies necessary to achieve long-term value creation. Each country’s competitiveness is measured based on 336 individual criteria directly related to the quality of its business environment.

How would you describe the investment climate in Lithuania? Which sectors offer the largest potential?

Lithuania remains an attractive destination for foreign investors. According to the Central Bank of Lithuania, cumulative FDI in Lithuania rose by 11 percent over the year and amounted to EUR 33.2 billion, or 46 percent of GDP, as at 31 December 2023. FDI per capita in Lithuania amounted to an average of EUR 11,400.

The major investors in Lithuania were Germany (EUR 5.7 billion), Estonia (EUR 3.6 billion), Sweden (EUR 3.5 billion), the Netherlands (EUR 3 billion) and the United Kingdom (EUR 2.5 million). The most FDI (EUR 11.3 billion) was attracted by financial and insurance companies.

As per Invest Lithuania, the official agency for FDI and business development, within 2023 Lithuania attracted 53 foreign direct investment projects, which are expected to generate a total of 4,125 jobs over the next three years. It is worth highlighting that 25 new companies decided to start operations in Lithuania, while 28 existing companies confirmed their plans for expansion. This demonstrates the trust that international companies have in Lithuania's ability to achieve long-term success.

In general, Lithuania ranks second in the European Union for its performance in attracting Greenfield foreign direct investment (Source: FDI Intelligence 2023).

Invest Lithuania, the investment promotion agency in Lithuania, emphasizes that Lithuania has emerged as a prime destination for global tech firms seeking top-notch skills in software engineering, game development, AI solutions, fintech, and compliance & AML services. Lithuania can boast high-quality expertise in these areas and it is also perceived as a hub of innovation. With a rapidly expanding startup ecosystem, Lithuania now hosts over 1000 startups, more than doubling in number over the past decade. Additionally, the country is home to over 200 fintech companies, solidifying its position as the second-largest fintech hub in Europe in terms of licensed entities.

In the past ten years, Lithuania's Business Services & ICT Sector has experienced remarkable expansion, attracting several renowned multinational corporations. These companies operate centers that offer a wide array of intricate services to clients worldwide, communicating in more than 20 languages. Coupled with its youthful demographic and substantial number of graduates, Lithuania stands out as one of the least crowded Business Services destinations in the area.

Lithuania's Life Sciences industry is rapidly growing in importance. Fueled by a well-connected network of science hubs and educational establishments, which provide companies with a skilled workforce keen on continuous learning, the sector is advancing at a pace nearly unmatched in Europe. Life Sciences companies in Lithuania are among the most profitable in the country, with 90 percent of their output exported worldwide, yet the market remains unsaturated.

Lithuania presents numerous appealing investment prospects across various economic domains. Among these, Information and Communication Technology, Biotech, Metal Processing, Machinery and Electrical Equipment, Plastics, Furniture, Wood Processing, and Paper Industry, as well as Textiles and Clothing, have historically been the most sought-after sectors for investment.

Additionally, Lithuania offers expanding investment opportunities in the expanding sectors of Real Estate and Construction, Global Business Services, Financial Technologies, Biotech, and Lasers.

What challenges do German companies face during their business ventures into Lithuania?

The biggest challenge is still the geopolitical situation and its economic impact. Payments to and from Belarus and the Russian Federation through Lithuanian banks are no longer possible. Citizens from these countries may not enter the Lithuanian labor market legally. German companies may open bank accounts only after a lengthy review of their corporate shareholder structure and their beneficial owners in order to comply with international sanctions.

On top of that, German companies face largely the same challenges in Lithuania as they do in most other countries, namely – rising interest rates and a shortage of qualified employees.

How is the market for renewable energy developing in Lithuania?

Lithuania has committed itself to rapidly increasing its local electric power generation capacity by aggressively pushing for renewables and has set ambitious renewable energy targets. The National Energy Independence Strategy sets a target of 4.1 GW of solar PV power plants in Lithuania by 2030, rising to 9 GW by 2050.

As one of the essential steps towards this goal, Lithuania seeks to increase the number of so called generating consumers – users self-supplying electricity from their own solar power plants. Generating consumers are crucial players in the energy sector as a whole, their development significantly lowers prices for the rest of the electricity consumers, and they directly contribute to the stability and resilience of the whole system. There are already more than 100,000 generating consumers. Lithuania is aiming for 300,000 generating consumers by end of 2030.

In general solar and wind power capacity in Lithuania has almost quadrupled since 2020 and is already exceeding the capacity that was only planned for 2025. The current installed capacity of solar and wind in Lithuania is 2.7 GW and is expected to reach 3.8 GW by the end of the year.

As Lithuania strives for energy independence and embarks on a green course, offshore wind energy is a key element of decarbonization. Lithuania plans to have two offshore wind farms totaling 1.4 GW which will be the main contributor to domestic electricity production, accounting for almost two-thirds of annual electricity generation. The two offshore wind farms will provide half of Lithuania's current electricity consumption, which will allow it to be self-sufficient in electricity from local sources and eliminate its dependence on electricity imports.

Synchronizing the Baltic electricity system with continental Europe remains a major challenge. The country’s electricity systems are still linked to Russia, making them dependent on decisions taken in Moscow. For Lithuania this is a special year, as it is in the final stages of synchronization with the European electricity grid, which will enable Lithuania to achieve full energy independence from Russia. Litgrid, the Lithuanian electricity transmission system’s operator, successfully carried out an isolated operational test.

In your opinion, how will Lithuania develop?

Lithuania's economic outlook anticipates a growth rate of 1.6 percent in 2024, followed by an acceleration to 3.1 percent in 2025 and 3.3 percent in 2026. This growth trajectory is underpinned by the recovery of exports, with private consumption and investments poised to drive the expansion.

In 2025, the GDP growth forecast for Lithuania strengthens to 3 percent, driven by the resurgence of exports and the anticipated pivotal roles of private consumption and investments in fueling growth.

Although investment is not expected to match the vigor seen in 2023, it is projected to maintain high levels. Core inflation is estimated to average at 3.1 percent in the current year and at 2.4 percent between 2025 and 2026.

The projections for Lithuania's growth are accompanied by downside risks. These risks include the possibility of slower economic growth stemming from less favorable economic conditions in major trading partners, a weaker rebound in household consumption, or a resurgence of global geopolitical tensions. Conversely, if the absorption of EU support funds surpasses expectations, it could lead to more favorable economic outcomes for Lithuania.

The ongoing growth of the Lithuanian economy faces risks primarily linked to the pace of recovery in external demand and domestic consumption. Geopolitical tensions and elevated interest rates have the potential to dampen global economic growth and limit Lithuania's export prospects.