Since its independence in 1990, Lithuania has promoted market-friendly reforms; yet, stringent labour market regulations, complex licensing norms, and lengthy insolvency procedures weigh on business activity and contribute to informality. Reforms in licensing procedures are underway which should reduce the administrative burdens for firms. Also, a comprehensive law on corporate insolvency is being drafted which changes the criteria for starting bankruptcy procedures, set clearer deadlines for filings, and establishes more favourable conditions for enterprise restructuring.
OECD SME and Entrepreneurship Outlook 2019
OECD SME and Entrepreneurship Outlook
Chapter 29. Lithuania
Figure 29.1. Structure and performance of the SME sector in Lithuania
Sources: Charts A, C, D: OECD Structural and Demographic Business Statistics Database 2018, http://dx.doi.org/10.1787/sdbs-data-en; Chart B: Employer enterprise births, OECD Structural and Demographic Statistics Database 2018; and Financing SMEs and Entrepreneurs: An OECD Scoreboard 2018 for bankruptcies; Chart E: OECD Structural and Demographic Business Statistics Database 2018, Employer Business Demography dataset.
SME business conditions and access to strategic resources
Institutional and regulatory framework
Market conditions
Lithuania’s regulatory environment is overall open to foreign investment and trade, particularly in services. However, the inward FDI stock remains lower than in other Baltic countries in relation to GDP, and forward participation to GVCs remain limited. To increase attractiveness, a recent law has eased restrictions on the employment of workers from non-EU countries for selected professions and introduced simplified start-up visa scheme for non-EU entrepreneurs planning to establish a high-tech business in the country. To sustain SME exports to non-EU and non-OECD countries, a short term export credit guarantee schemes was launched in 2018.
Infrastructure
Lithuania’s investments in ICT and transport infrastructure is above the OECD median. However, domestic R&D capacity remains limited with poor outcomes in terms of international patents. The government has made steps towards enhancing domestic research capacity and joining international research initiatives. The Lithuanian Roadmap for Research Infrastructure 2015 aims to modernise research facilities and develop open access standards. Substantial investments were made in 2018 in order to participate in several European programmes, including the European research infrastructure (ESFRI). In 2017, five integrated science, studies and business centres (“valleys”) were developed with a view to building up world-class clusters and promote innovation in high-tech and traditional sectors.
Access to finance
New business lending in Lithuania declined sharply after the crisis and recovered only slowly as of 2014, despite interest rates at historic lows. In 2018, more than a half of SMEs surveyed by the Bank of Lithuania stated that lending to them is fully or partially limited. To address these limitations, INVEGA, a state-established enterprise, provides individual and portfolio guarantees. Specific instruments, such as the EU Entrepreneurship Promotion Fund (2014-20), the Open Credit Fund 2 and Risk Shared Loans offer loans with favourable interest rates to new firms or SMEs that are developing a new business. Entrepreneurs can additionally use the Business Start-up Subsidies, a programme that partially compensates their labour costs. To foster alternative financing sources, the government adopted a law on crowd-funding in 2016, and established 3 new venture capital instruments in 2017 and 5 new venture capital instruments in 2018.
Access to skills
Education performance in Lithuania is below peer countries, and gaps between students from rural and urban areas persist. Lithuania has a highly educated workforce in terms of tertiary graduates; yet finding workers with the right skills appears to be a significant constraint for over 40% of firms, well above the OECD average. The new Labour Code, in effect since 2017, introduces apprenticeship contracts. The government has implemented several instruments with European Structural Funds for encouraging businesses to invest in their employees’ competencies and for laying the foundations of competence development mechanisms. The legal framework has also been recently changed to improve the employment conditions of highly qualified specialists from third countries and facilitate employment procedures.
Access to innovation assets
Lithuania has made significant efforts for the digitalisation of its industry. SME uptake of new digital solutions is on par with OECD levels, and even above with regards to high-speed broadband or supply chain management applications. A National Industrial Competitiveness Commission was set up mid-2017 as a basis for the national platform ‘Pramonė 4.0’ that gathers experts in order to prepare the Lithuanian Industry Digitization Action Plan (2019-30) and its implementation guidelines.
The full country profile is available at https://doi.org/10.1787/34907e9c-en
References
OECD (2018), (2018), OECD Economic Surveys: Lithuania 2018, OECD Publishing, Paris, https://doi.org/10.1787/eco_surveys-ltu-2018-en
World Bank (2018), Doing Business 2018, Reforming to Create Jobs, World Bank Group, http://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2018-Full-Report.pdf.