Lithuanian ambassador to Norway interviewed by "Les Maritimt Forum"

2018-11-05

Jonas Paslauskas, Lithuanian ambassador to the Kingdom of Norway, led the Lithuanian business delegation to Haugesund city on November 6-7. Thus, he answered some questions to The Maritime Forum, the association that connects the entire Norwegian maritime industry.

1. Can you give us some few words on how you see Lithuania in relation to the rest of Europe and Norway culturally and economically?

Lithuania is fully-fledged member of the European family. First, geographically. Several countries claim to be at the heart of Europe, but according to the research of the French National Geographic Institute, geographical central point of the continent is in Lithuania, a fact that has even won recognition in the Guinness Book of World Records. Secondly, historically. At the end of the 14th century, the country was the largest in Europe, stretching from the Baltic to the Black sea, thus emerging as an important political power in Eastern and Central Europe.

Today, Lithuania is treated as relatively small mid-size country. By territory we still overtake Switzerland, the Netherlands, Belgium or Denmark, not to mention our Baltic neighbours Latvia and Estonia. Despite our size, we try to be proactive member of European community and our membership in the European Union and the NATO provides us with necessary formats to make our say heard in Europe. Our membership in the European Union binds us to the rest of Europe in many different social and economic aspects of our live, while membership in NATO provides necessary security to our society.

Talking about economy, we can find some similarities between Lithuania and Norway. Both countries are open economies with relatively small internal markets, therefore international trade plays important part for both. Consequently, we are proponents of open trade and market-based economies. Lithuania, like Norway is a maritime state. Fishing, ship building and maintenance, maritime transport services and port services are important sectors of our economy. Moreover, Lithuania and Norway share their attitude toward environmental issues and thus promotes development of innovative green economy initiatives.

It is essential to mention, that Norway is the main contributor to our energy security. Since the opening of liquefied natural gas terminal in Klaipėda, half of consumed natural gas was imported from Norway. This trend is very important to us as it diminishes our dependence from Russian gas.

Culture is another great area of our bilateral cooperation. Both countries enjoy world famous patriarchs of romanticism and symbolism at the end of 19th and beginning of 20th century like famous Lithuanian composer and painter Mikalojus Konstantinas Čiurlionis, or Norwegian composer and pianist Edvard Grieg, as well as significant painter Edvard Munch. This year Kaunas hosted XXI international festival of M.K.Čiurlionis and E.Grieg music. Numerous works of Norwegian authors, like Jostein Gaarder, Herbjorg Wassmo, Jo Nesbo and many others are translated into Lithuanian.

2. Are there any significant obstacles when doing business between Lithuania and Norway concerning culture and language, or does business generally go smooth?

We have many values that are like those the Norwegians have - love of nature, family, morality.

Talking about business related cultural features, we can find some differences. However, I would not treat them as complementary features, rather than obstacles. Let’s take a decision-making process as an example. In Norwegian decision-making process, I would highlight two exclusive features – pragmatic approach and strive for consensus. Meanwhile distinguishing features in Lithuanian decision-making would be - high level or risk tolerance and a hunger for action. Our decision-making process is shorter; we are always keen to start execution process.

Therefore, putting together both produces the best results. Collective Norwegian-Lithuanian teams are both - pragmatic and dynamic, they have clear targets and have necessary energy to accomplish their tasks. That may be part of explanation why Norwegian companies chooses Lithuania as a partner for production of their products and services.

3. Are there any new statistics on trade between Lithuania and Norway also reflecting recent historical trends?

I would like to make three points on this issue:

i. Lithuania is an important export market for Norway. Based on the latest information of Norwegian statistics bureau, Norwegian export to Lithuania (6.2 bn NOK) three times bigger than export to Russia (2.1 bn NOK) or more than twice as big as to India (2.5 bn NOK). By the way, Norwegian export to Lithuania is two times bigger than to other Baltic states - Estonia and Latvia – put together (2.5 bn NOK).

ii. Lithuania is a stable export market for Norway; according to Lithuanian department of statistics, Norway is among our top trade partners. Lithuanian export of goods equals to 7.1 bn NOK. That means that our trade is well balanced, and it is good indicator of trade stability.

iii. Lithuania is permanently growing export market for Norway; in five years Norwegian export to Lithuania has doubled from 2.5 bn NOK (2013) to 6.2 bn NOK (2017). Thus, I believe, there is vast room for untapped potential. For example, Swedish export to Lithuania exceeds almost 8 bn NOK. Thus, companies, looking for new markets should definitely put Lithuania on their map.

4. Has Lithuania fully recovered after the financial crisis in 2008?

In 2009 Lithuania’s GDP slumped by 14.7 percent. As GDP fell, state revenues plummeted even more. Unemployment, usually the last crisis variable to peak out, did so in early 2010 at 17.8 percent.

On November 28, Conservative party leader Andrius Kubilius became prime minister and the new government adopted a substantial programme and a budget for 2009 in the ensuing week.

Its approach was quite radical, as the crisis demanded. However, as the economic decline proceeded, measures that are even more radical were adopted in May 2009. Without the government’s swift reaction, Lithuania could have defaulted.

The Lithuanian government managed to carry out necessary reforms without calling for support from the International Monetary Fund (IMF), which played a major role in Latvia. The government was worried that the IMF would push for devaluation. To the surprise of most, Lithuania managed to maintain the confidence of the international credit market.

Thanks to its vigorous fiscal adjustment, Lithuania escaped devaluation yet stayed competitive and could hardly have expanded its exports faster than it did. The IMF expected “strong deflation,” but it never materialized. The expected long recession lasted only one year.

The Lithuanian government opted for internal devaluation. It utilized the crisis to raise the efficiency and competitiveness. Top public salaries were cut by more than 20 percent, but by less for those with lower salaries. The gross average wages declined by 12.4 percent from the pre-crisis peak to the bottom.

While the total tax burden increased marginally, the structure of the tax system changed considerably. Overall, taxes moved from labour to consumption. Since then flat personal income tax was reduced from 33 percent in 2006 to 15 percent.

Social benefit expenditures had risen by 44 percent in real terms between 2006 and 2008. The government had no choice but to trim benefits, often in a progressive fashion to safeguard the most vulnerable. The government also went ahead with pension reform. In June 2011 the parliament legislated a gradual increase of the retirement age to 65 for both men and women by 2026, to render the public pension system financially sustainable.

The government removed restrictions on flexible work arrangements and established a substantial job support programme with EU funds, pushing unemployment down.

Thanks to its victory over the financial crisis, Lithuania was able to adopt the euro in 2014. As a member of the Eurozone, Lithuania today is entitled to ample ECB credit, so that the frightful liquidity squeeze will never be repeated.

Today Lithuania evolves as modern and innovative economy. By World Bank’s rating on Ease of doing business Lithuania takes 16th place, standing above such economically advanced countries like Ireland, Canada and Germany. By Index of Economic Freedom (The Heritage Foundation, The Wall Street Journal) we occupy 19th place. By the way Norway, for example, takes 23rd place.

Lithuania is ranked as the world’s second-most attractive destination for manufacturers, a result of having the lowest European labour costs in the CEE (Central & Eastern Europe) region, standing at 14% below Poland and 30% below the Czech Republic. Another factor in its success is that it is considered the second-easiest country in which to do business within the CEE region. [Cushman & Wakefield’s global ranking “Manufacturing Risk Index 2018”].

According to Baseline Profitability Index, it is 2nd best place to invest in Europe. Legally, it takes three days to establish company in Lithuania. If you establish your company in special Economic zone, for first 6 years of company’s activity you will get 0% tax rates, 50% profit tax deduction afterwards. 56,6% Lithuanians speak two or more foreign languages, and 16% of Lithuania’s young professionals (2x EU average) specializes in engineering, manufacturing and constructing.

5. Many Norwegian shipping companies, also local, recruit seafarers from Lithuania and the Baltic States in general. Is maritime education and research a priority to Lithuanian authorities?

Indeed, education is extremely important for us. Lithuania is a 3 million people nation so to prosper we know we have to think of quality. That means great innovative minds and committed sustainable work. This applies to Maritime sector as well. Even though Lithuania has relatively short Baltic sea coastline, but we seek to utilize the sea to its full potential. Maritime related education in the port city of Klaipėda is priority number one. Both national and Klaipėda stakeholders view education as the most critical component to see maritime economic sector developing and growing. A few years ago, national authorities have confirmed a strategy where Klaipėda was established as a maritime city. With its Maritime academy, Marine Valley, Klaipėda Science and Technology Park and Klaipėda University, Klaipėda now has both hard infrastructure and soft means to provide excellent education, develop scientific R&D and foster international and business-academia cooperation.

To take a step further, key city stakeholders – municipality, port authority, free economic zone, business associations and Klaipėda university have just created a city economic development strategy, where their vision is to become the No. 1 blue economy city in the Baltic States. This is a unique case in Lithuania (and many other countries), because it was the first time a consensus was reached among main city partners. Not surprisingly, education is one of three essential pillars on which the strategy is built. Now the University is focused on Industry 4.0 education and international cooperation bringing in the best students, business people and professors to help achieve the goal.

6. Can you give us some few words on the characteristics of the Lithuanian maritime and offshore industry? Is it correct to name it a cluster that is with a certain number of companies both competing and cooperating, but altogether making each other more competitive?

The economic development strategy was prepared in response to a fierce competition for investment and talents in the region. It was understood that with limited resources we need to concentrate on a selected number of areas to ensure that we stay competitive in the market. The 2030 vision of Klaipėda is to become a world-class blue economy city, that is to use the sea and every related industry to foster economic growth, create jobs and grow as a city.

We believe that even though it is not formal yet, maritime cluster already exists. Klaipėda Port is one of the most effective ports in Baltic sea region with highest cargo handling ratio. Port authority has been constantly investing in strategic infrastructure while players in the port - terminals, stevedoring and shipping companies – continue to build suprastructures. This hand in hand cooperation has brought amazing results so far. Where we have seen ports on the Baltic coast shrink, Klaipėda port continues to grow. There are ambitious plans until 2025 to build 130 ha outer port, to dredge Klaipėda Seaport (17 m) ensuring the possibility to accept the maximum draft Baltmax type ships in the Baltic Sea. Furthermore, we have shipbuilding industry that works both with ship building, repair, interior installation as well as building offshore constructions. Many maritime service providers (such as DNV GL, Mabrocona, Diesel Service Group, Wartsila an others) have their part in Klaipėda as well. We want to expand this value chain by inviting more foreign maritime equipment manufacturing and R&D companies to settle in Klaipėda. We have our value proposition here and we believe that in this case Klaipėda has yet undiscovered opportunities for investment.

Having mentioned that, we still want to assess and, if necessary, form a maritime cluster by including port cargo handling, shipping, shipbuilding and logistics companies, and educational institutions in the cluster to ensure active cooperation. Klaipėda city stakeholders are working with further development of Klaipėda Marine Valley and LNG Cluster. In the plans we also have establishing and developing a marine excellence center that will become a powerhouse of marine competencies.

Our vision is to consolidate every city stakeholder, involve national and international players to strengthen and further develop maritime cluster in Klaipėda.

7. Which perspectives do you find relevant on the future relationship between the Lithuanian and Norwegian maritime and offshore industries and on business relations in general?

Klaipėda have strong ties with main Norwegian maritime organizations: Oslo Shipowners Association, Ocean Industry Forum Oslofjord, Shipping & Offshore Network. We are now also working closely with Oslo International Hub – greatest startup organization in Oslo to further connect and develop Klaipėda-Oslo start-up ecosystems. For some years Klaipėda has been a participant in Nor Shipping – one of the leading maritime events – and we are looking for ways to strengthen our involvement there. In 2009 Norwegian-Lithuanian Chamber of Commerce was established in Lithuania that now represents over 100 Norwegian companies, organizes international events, business opportunities and is of great importance tying Lithuanian and Norwegian business ever closer together.

In the coming years Klaipėda will continue to focus on Blue Economy framework, which will further connect Norway and Klaipėda. We see Norway as the closest partner in maritime industry, which means there are a range of activities we are willing to undertake together – international projects, events, startup ecosystem connectivity and development, maritime education programs and traineeship programs. We are as well looking into possibilities of establishing Scandinavian language center in Klaipėda. For Norwegian companies we want to demonstrate Klaipėda’s excellent investment environment for maritime equipment manufacturing and assembling as well as potential for maritime R&D and competence center development. We believe that maritime in Klaipėda has untapped potential that is worth exploring.

8. Do you find it relevant to say something about the relationship between Lithuania and Russia based on what many in Norway see as an aggressive approach from President Putin towards some neighboring countries and towards NATO? Does this in some ways affect Lithuanian businesses, for example regarding the EU sanctions on Russia?

Our geographical proximity and negative historical experience stipulate increased sensitivity to the political activity – internal and external – happening in our Eastern neighbourhood. It worries us, since Russia has been continuously aggressive towards its neighbouring countries - the occupation of Georgian territories and the Crimea and unclear fate of Transnistria, a self-proclaimed state that declared independence from Moldova. It is not surprising that sometimes such worries become exaggerated by media with reference to our historical past, thus sending wrong signals to foreign investors. However, today’s situation is different, as Lithuania is a member of the EU and more importantly the NATO. Among others, Norwegian soldiers ensures security of Lithuania as part of NATO Enhanced Forward Presence force and Air policing mission.

Talking about Lithuanian economy, it is not first time when Russia impose sanctions on Lithuanian products. Every time, after some period of adaptation, we recover as a healthier and more diversified economy. Despite the losses because of the Russian embargo in 2014, Lithuania remained one of the fastest growing EU economies. The Lithuanian economy grew by 2.9 per cent in 2014 and is expected to grow by 1.7 per cent in 2015, 2.3 % in 2016, 3.8 % in 2017. Lithuanian export dependence on the Russian market is only partial. The sectors most targeted at the Russian market were dairy and meat sectors, and they are gradually refocusing on other markets now. Therefore, similarly to the other Baltic countries, the impact of the embargo on the Lithuanian GDP due to food industry losses in the Russian market was not so significant. Lithuania was much more dependent on re-export to Russia. The Lithuanian re-export to Russia in 2014 accounted for approx. 40 per cent of the total re-exports (i.e. as many as 88 per cent of the total exports to Russia were re-exported goods).

More information: Maritimt Forum

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