Economics and business
Lithuania’s relatively liberal market economy experienced a relatively strong recovery following the 2009 financial crisis and in 2011 showed GDP growth that was among the highest in the EU. Exports are the basis for growth, but the trade balance has some deficits.
In the years 2000–08, Lithuania’s economy recorded record growth, at times highest in the EU. During that period, GDP grew by 77 percent. At the same time, low interest rates and growing lending contributed to overheating in the property market and throughout the economy. Sudden slowdown in lending, declining exports and declining home consumption led to a fall in production and reduced GDP by close to 15 percent. After budgetary tightening with reduced public wages and tax increases, the economy stabilized in 2010, and in the first half of 2011, Lithuania had a 6.6 percent GDP growth. However, unemployment was still high, just over 15 percent, and youth unemployment as much as 33 percent.
Since 2010, the economic recovery has continued and GDP growth has been around 3 percent. Obesity has decreased somewhat.
Following the liberation from the Soviet Union in 1991, a painful transition from centralized planning economics to liberal market economics with free trade followed. The loss of energy and other raw materials from the former Soviet Union led to a decline in production and GDP with high unemployment as a result. Free prices drove up inflation. Continued dependence on the Russian Federation as an export market caused the Lithuanian economy, especially agriculture, to be severely affected by the Russian financial crisis in the late 1990s.
In 1993, Lithuania exchanged the ruble for litas, which was tied to the US dollar and contributed to developed trade relations and growing exports. In 2001, Lithuania became a member of the World Trade Organization and in 2002 the currency was tied to the euro. The target of switching to the euro was almost reached in 2007 but was missed by 0.1 percent for high inflation. In 2015, the country joined the euro zone.
Privatization in the 1990s led to a large influx of foreign investment, mainly from Sweden through the banking and telecom sectors and then to small and medium-sized companies. The private sector now accounts for about 80 percent of GDP. Instead of privatizing the remaining state-owned companies in crisis, Lithuania initiated reforms in 2010 with the aim of increasing corporate profitability and thereby increasing the state’s budget revenue. Investment and growth have mainly reached the cities of Vilnius, Kaunas and Klaipėda, while the countryside is affected by unemployment, depopulation and social problems. A major obstacle to development for business is the gray sector with significant tax evasion. Still, taxes are relatively low with 15 percent in corporate and income taxes (plus 6 percent social security contributions).
Note: the capital city of Lithuania is Vilnius with a population of 540 600 (Estimated 2012). Other major cities include Kaunas with a population of 358,000, Klaipéda with a population of 186,000, Šiauliai with a population of 128,400, Panevežys with a population of 111,000 (estimate 2012).
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By far the most important crop in Lithuania is wheat, but it also grows rapeseed, barley, potatoes, sugar beets, vegetables and various fodder plants. Livestock and animal production have declined since the Soviet era but are still significant. It specializes in dairy products, beef, pork, chicken meat and eggs.
About 2/5 of the land area is usable land. Lithuania is traditionally an agricultural country. During the interwar period there was extensive livestock management with significant food industry. Despite the negative consequences of the forced collectivization in Soviet times, Lithuanian agriculture was considered successful compared to the rest of the Soviet Union.
In the 1990s, Lithuanian agriculture underwent a dramatic change; 835 collective farms and 275 state farms (1989) were cut through decollectivization and privatization in hundreds of thousands of family farms. Many of these have since been closed down while others have been modernized with EU support. In 2010, there were about 200,000 farms in Lithuania, and most farms are small units for housing needs. On average, each farm had 15 ha of land. However, agriculture is still an important sector of Lithuania’s economy and employs one in ten occupationally active residents, well above the EU average. The strength of agriculture was evidenced by an increase in production in the crisis year 2009, when Lithuania’s entire economy went down by 15 percent.
Sanctions and trade boycotts against the Russian Federation as a result of the country’s annexation of Crimea in 2014 have led to a major disruption to the country’s agricultural exports.
About 1/3 of Lithuania’s surface is covered by forest (2010), and timber is the country’s most important natural resource. Coniferous trees such as spruce and pine dominate, but birch is also very common and other deciduous trees occur. About half of the forest is state-owned. Abbreviated as LTH by abbreviationfinder.org, Lithuania has a large pulp and paper industry, and the timber and timber industry is also significant, as is furniture production and other joinery production.
The total catch of the Lithuanian fishing fleet in 2009 was approximately 173,000 tonnes. Almost 90 percent came from high sea fishing, mainly in the Atlantic off the coast of West Africa, where most of the mackerel and species of the genus Sardinella are caught. The catch in the Baltic Sea was about 15,500 tonnes that year. There, herring, crisp herring and cod dominated. Lake fishing is of limited scope, but cultivation of mainly carp for commercial purposes occurs.
The conditions for fishing are comparable to other countries around the Baltic Sea. Lithuania has a good port in Klaipėda. However, environmental degradation and depletion have circumvented coastal fishing opportunities. During the Soviet era, fishing was mainly conducted in the form of the cooperative or state company, the latter responsible for high sea fishing, which even then accounted for the majority of the total catch.
Raw material resources and energy supply
Lithuania, like neighboring Latvia, is poor on industrially useful raw materials and minerals as well as energy resources. Most of the need for metals must be imported or met through recycling. However, building materials in the form of minerals, crushing gravel, natural gravel, sand and cement are exceptions and are also produced for export. There are smaller deposits of oil and gas in western Lithuania and iron ore in southern Lithuania. Some oil extraction occurs, gas extraction has been discussed, but the ore is not considered to be worthwhile.
Traditionally, firewood and peat have served as the main sources of energy for households. In Soviet times, the large nuclear power plant Ignalina in Lithuania was built for electricity generation to the western Soviet Union, and in Mažeikiai an oil refinery was constructed which received crude oil from Russia. After its release in 1991, it has been a security policy objective for Lithuania to make itself independent of Russian energy supplies, which has not succeeded. Although the oil refinery, which is now polar bearded, gets crude oil from the west, but for its electricity production, Lithuania must import gas from the Russian Federation. The Ignalina nuclear power plant was closed in 2009 for security reasons, a condition from the EU to join Lithuania in 2004.
Lithuania plans to build a new nuclear power plant with two reactors in Ignalina that can be completed in 2018. Furthermore, an electricity cable will be drawn to Sweden and Lithuania and Poland’s electricity grid will be connected.
The oil refinery in Mažeikiai is the Baltic’s largest company and body in the Lithuanian industry. It was the Soviet Union’s most modern refinery, which, after Lithuania’s liberation, was partially privatized to US interests in 1999 and which in 2006 was majority owned by the Polish PKN Orlen. The result was strangled Russian crude oil supplies, which led to the oil now coming via the Būtingė terminal on the Baltic Sea coast.
In 2010, oil refining accounted for one third of Lithuania’s industrial production. The industry is otherwise dominated by small and medium-sized companies; 99.4 percent of all companies in Lithuania have fewer than 250 employees.
The heavy engineering industry often had a military connection during the Soviet era, but today it produces machinery, transport equipment and electronics for civilian use. Other traditional industrial branches of importance are food, textiles, chemical production and wood (among other things furniture production). In recent years, pharmaceuticals and medical technology have gained importance.
By Soviet standards, the Lithuanian industry was modern and productive, but when it was exposed to Western market competition in the 1990s, large parts were knocked out. The privatized industry has subsequently had a large influx of foreign investment, which has significantly gone to labor-intensive parts of a European production chain. Investment in low-wage production has led Lithuania to invest less in innovation and knowledge-intensive industry than in Western EU countries. This poses a problem for the competitiveness of the Lithuanian industry. The opening to the Western European market led to a painful changeover in the 1990s, but then significantly increased Lithuanian industrial exports in the early 1990s.
Nearly 60 percent of Lithuania’s foreign trade takes place with the rest of the EU. Nevertheless, the Russian Federation is still the single largest trading partner, contributing 30 percent of Lithuania’s imports (mainly crude oil) and receiving just over 15 percent of exports. The largest other export and import countries are Germany, Poland and Latvia.
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Orlen Lietuvas (formerly Mažeikiai Nafta) oil refinery is Lithuania’s largest exporter, and oil products are the country’s largest export commodity. Other major export products are machinery, transport equipment, electrical equipment and electronics, food, chemical products, plastic products, textile products, metal products, wood and paper.
Imports account for one-third of crude oil and other oil products, and machinery, transport equipment, electrical equipment and electronics account for one-fifth. Food, chemicals, metals and textiles are other important import products.
Lithuania has long had a significant deficit in foreign trade, but it declined as a result of the financial crisis in 2009. It is mainly thanks to exports that the economy was able to recover after the financial crisis.