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Lietuvos regioninių tyrimų institutas
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Lietuvos regioninių tyrimų institutas

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Lithuanian Business Revue, 2001 rugsėjo 6d

Foreign Investors Prefer Major Cities

By Giedrė Belazarienė
Lithuanian Regional Research Institute

Direct foreign investments are crucial for the growth of the Lithuanian economy. However, the investments that reach the country have accumulated in the largest cities, thereby dooming minor towns and rural regions to economic retardation.

Investments on the increase

Lithuania has a comparatively well-developed infrastructure, qualified manpower, and sufficiently high product quality. Thus, it looks pretty attractive to foreign investors. Back in 1991, despite economic instability and great risk, international companies started investing in the Lithuanian economy. The same year, external investments in Lithuania came to 32 million LTL. As reported by the Lithuanian Department of Statistics, in 1999 direct foreign investments in Lithuania amounted to 8.252 billion LTL. In late 2000 versus 1999, these investments had risen by 11.63 percent and aggregated 9.337 billion LTL. Such world-famous companies, as Siemens, Telia, Motorola, Philip Morris, Lancaster Steel, Sonera, Kraft Jacobs Suchard, Festo, Partek, and many others have made investments in Lithuania and some have even founded their secondary companies here.

Food and light industries have always been prioritized in Lithuania, and, consequently, the enterprises in these branches are the most attractive for overseas investors.

Most of these enterprises are concentrated in the five largest Lithuanian cities - the primary targets for investors. Yet, some light and food industry enterprises are settled in other towns and rural areas, which makes the distribution of investments slightly more even.

Presently, the greatest portion of investments goes to Vilnius County, which totaled even 5.982 billion LTL in early 2001. Within the county, nearly all these investments, 97 percent, go to the city of Vilnius, 2 percent - to the district of Vilnius, and the remaining 1 percent - to the other territorial units.

In Vilnius, giant western enterprises establish their trade branches. As a result, around 44 percent of investments in Vilnius are made in the retail and wholesale sectors. Many investments reach the enterprises trad?u uing in or leasing real estate, the majority of which are concentrated in Vilnius. In addition, all foreign or joint capital companies of communications are also registered in Vilnius.

Klaipėda surpasses Kaunas

In the meantime, direct foreign investments in Kaunas County amounted to just 1.211 billion LTL at the beginning of 2001. As many as 83 percent of these investments went to the second largest Lithuanian city, Kaunas, and 12.6 percent - to the Kėdainiai District.

In Kaunas City, over 50 percent of direct foreign investments have been allotted to manufacturing industry, while investments in trade enterprises accounted for 30 percent of the total. A few recent years can be referred to as an external investment famine in Kaunas. Since 1996, investments in Vilnius County have mounted nearly tenfold, while Kaunas, in the period from 1996-1999, was left behind by the third largest Lithuanian city and the only seaport, Klaipėda. Only in recent years, direct foreign investments in Kaunas have edged up.

In early 2001, direct foreign investments in Klaipėda County were just slightly behind those in Kaunas County and aggregated 1.145 billion LTL. As reported by the Lithuanian Department of Statistics, as many as 93 percent of these investments went to Klaipėda City (Klaipėda is nearly twice smaller than Kaunas in terms of population). In Klaipėda, over 50 percent of all foreign direct investments are directed to manufacturing industry.

Other Lithuanian counties are not so attractive to external investors, and in most of them foreign investments are not concentrated in centers like in the abovementioned three counties. In Panevėžys County, whose center is the fifth largest Lithuanian city, overseas investments are ten times smaller than in Vilnius County. 73 percent of the total investments in the county went to Panevėžys City, 11 percent - to the districts of Rokiškis and Panevėžys each, and 7 percent - to the districts of Biržai and Kupiškis each. In 1996-2001, investments in the Pasvalys District were very scarce.

In Alytus County, 73 percent of foreign investments go to Alytus Town; in Šiauliai County, 72 percent - to Šiauliai City; in Utena County, 96 percent - to Utena Town; in Telšiai County, 94 percent - to the Mažeikiai District or, to be more precise, Mažeikiai Oil Refinery; in Marijampolė County, 43 percent - to Marijampolė Town.

The scarcest investments in the 1996-2001 period were in Tauragė County, totaling mere 21 million LTL. In this county, 96 percent of all external investments go to the Tauragė District.

Thus, the three largest Lithuanian cities accumulate the lion's share of foreign direct investments in Lithuania, which accounts for 89 percent of the total.

Roots of uneven distribution traced in last century

The public institution Lithuanian Re gional Research Institute was one of the first in the country to embark upon the studies of regional development and investments. The Institute's key activities include preparation of regional and city development programs and performance of scientific research. Major attention is also devoted to investment projects. In view of the gained experience and current demand, the Institute has started rendering consultations and organizing training and qualification advancement courses.

The studies of regional situation, conducted by the Institute, have showed that in Lithuania the business environment was for a long time left adrift both on the national and regional levels.

The largest amounts of investments have been attracted by economic centers with good infrastructure and located close to the main roads. The geographical regions, both attractive (Central, Southeastern, and Western) and unattractive (Southwestern, Northern, East Samogitian, and others) to investors, make up a certain system which can be useful in the formation of the Lithuanian regional policy. Investments, perhaps, are not the principal factor of regional development, however they shouldn't be neglected. 

Historically, the greatest part of industries in Lithuania was concentrated in the country's major cities back before World War II. Meanwhile, the dominant business in the rural areas was agriculture.

After the war, industry became the driving force of regional development, and its growth began to be planned with the geographical aspect in view. Economic activities in the regions were developed on the basis of the priorities of planned economy. That's why nearly all industries were developed in the major cities, Vilnius, Kaunas, and Klaipėda.

Other regions, owing to their specific activities, acquired a distinctive character. For instance, Druskininkai and Birštonas turned into health resorts with large health spa facilities and related resources; Akmenė became a center of building materials industry; the towns of Kėdainiai and Jonava developed into giants of chemical industry; Radviliškis undertook the role of a railway freight distribution center; Ignalina grew into an energy center, etc. Nearly each Lithuanian town or district had its main economic driving force, which stimulated other activities such as trade, services, culture, education, healthcare, etc.

One can notice a direct relation between the dislocation of industrial enterprises over the Lithuanian territory in the Soviet period and the present distribution of foreign capital investments.

Regional disparities deepening

After the re-establishment of the Lithuanian independence, the keystone of regional development became the integration of all human activities. However, all the processes pertaining to the economic restructuring brought imbalance into formerly established and in a centralized way administered systems of cities, districts and villages, as independent national territorial units.

Industrial innovation and establishment of joint ventures with foreign companies have concentrated qualified specialists, especially the young, in the national centers. As a result, major cities with multifarious resources enjoy better possibilities of attracting investments and administering businesses. Remote from large cities, specialized towns and districts have deteriorated into exhausted and floundering regions.

Apparently, the main reasons for the shortage of investments and unevenness of development have been the lack of attention on the local and county administration levels to the strategic investment planning (poor administrative abilities and lack of initiative, financial constrains in the municipal budgets and the absence of a mechanism to enhance the efficiency of municipal activities work against the utilization of human resources), difficulties in the implementation of long-term investment attraction programs in the less attractive regions, and the inability to take advantage of the green field investments.

Additional causes that have harmed the general attractiveness of the country to investors are the nearly lost role of "a springboard" to the East, decreased domestic consumption, worldwide globalization processes, and a number of others.