Slovakia Lithuania

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Slovakia Lithuania Powered By Docstoc
					Dr. Gitanas Nausėda
CEO Adviser
SEB Bank, Lithuania
Kuwait
March 18, 2008



       Lithuanian economy: success
           story and future prospects
  Key facts about Lithuania

Population           3.4 million
Area                 65300 sq. km
Government           Democratic Republic
                      (Parliament and President)
Currency            Litas
                    1 EUR = 3.4528 (pegged to EUR)
Ethnic structure (% of total population)
                  Lithuanians 83.5
                  Poles                6.7
                  Russians             6.3

Sovereign ratings
                     S&P             A-
                     Moody’s         A2
                     Fitch           A


                                                     2
Recent facts of Lithuanian history

• In 1990, Lithuania escaped
  the Soviet occupation and
  re-established its
  independence, altogether
  moving from planned to
  market economy.
• In 2004, Lithuania joined
  both European Union and
  NATO.
• At the end of 2007,
  Lithuania became a
  member of Schengen area.


                                     3
    How advanced is Lithuanian economy?
                    GDP per capita in PPS (EU-27=100%)

                    2000                         2007F



   Estonia
                    44.8%
                                                 71.7%


   Lithuania
                    39.4%
                                                 61.5%


    Latvia
                    36.8%                        60.6%
Source: Eurostat.

                                                         4
     Lithuania has simple tax system with
     one of lowest tax rates in CEE region
         Standard rates of main taxes in CEE countries as of January 2008 (%)
                                                                                    Personal
                                                   Profit tax                                                            VAT
                                                                                   income tax
                                                                                                                                               5% VAT rate for books and
                                                                                                                                              magazines, pharmaceuticals,
        LITHUANIA                                          15                                 24                           18                   frozen meat, fish, ecologic
                                                                                                                                              food products, transportation
        Latvia                                             15                                 25                           18                        of passengers,
                                                                                                                                                accommodation and artist
        Estonia                                           21*                                 21                           18                           services;
                                                                                                                                               9% VAT rate for residential
        Poland                                             19                        19, 30, 40                            22                  construction and renovation

        Czech Republic                                     21                                 15                           19
        Slovakia                                           19                                 19                           19
        Hungary                                      16 + 4**                          18, 36***                           20
        Bulgaria                                 28, 34.3****                    15, 22, 26, 29                            20
        Romania                                            16                                 16                           19
     * 0% rate for undistributed profits.
     ** 4% is temporary added “solidarity tax”.
     *** Individuals whose annual income exceeds the amount of the individual pension contribution cap are subject to 4% solidarity surtax.
     **** Corporate income plus municipal tax.
Source: websites of national investment development agencies, March 14, 2008;
The Economist for Romania.

                                                                                                                                                                              5
 Monetary policy in Lithuania

 Lithuania’s monetary policy is based on currency board regime:

   – National currency (litas) is unlimitedly convertible to anchor
     currency (euro) at absolutely fixed exchange rate (1 EUR =
     3.4528 LTL);
   – Currency in circulation at least 100% covered by gold and foreign
     currency reserves;
   – No active and independent monetary policy (dependent on
     European Central Bank).
 According to EU Treaty, Lithuania is obliged to join euro zone and
  in preparation for future euro introduction, currently participates in
  ERM-II since June 2004.




                                                                           6
Euro introduction is on political agenda of
most of new EU members
                          Entry into   Euro introduction /     Euro introduction /
                                                                      official
                           ERM-II         SEB forecast       aim of national authorities

         Slovenia          2004        Introduced in 2007      Introduced in 2007
         Cyprus            2005        Introduced in 2008      Introduced in 2008
         Malta             2005        Introduced in 2008      Introduced in 2008
         Slovakia          2005             2009                      2009
         Lithuania         2004             2012-13             2010 or later
         Estonia           2004              2012                      --
         Czech Rep.        2009*             2012                      --
         Poland            2009*             2012                      --
         Latvia            2005              2013                      --
         Hungary           2009*             2014                      --
         Bulgaria          2013*             2016                      --
         Romania           2014*             2017                      2014
* SEB Bank’s forecasts.

                                                                                           7
   Inflation criterion is the only obstacle for
   euro introduction in Lithuania
              stabilumas, palyginti
                                                                                                               atžvilgiu
                                     PROGRESS ON MAASTRICHT CRITERIA
                                                 Reference
                                                    rate   Lithuania Latvia Estonia Cyprus             Malta       Period

      Inflation (average
                                                      3.1%*      6.9%      11.6%     7.8%      2.7%    1.2%       Feb 2008
      annual HICP)
      Fiscal balance (% of
                                                      >= -3%    -0.6%      -0.3%     3.6%      -1.2%   -2.5%    2006 (ESA'95)
      GDP)
      Government debt (%
                                                      <= 60%    18.2%      10.6%     4.0%      65.2%   64.7%    2006 (ESA'95)
      of GDP)

       Long-term interest
                                                      6.45%*    4.60%      5.35%     6.32%     4.51%   4.77%      Feb 2008
      rate
       Stability of national
                                                  fluctuation
      currency exchange                                         fixed to   fixed to fixed to
                                                    band +/-                                   2.1**   0.0**
      rate with regard to                                         euro       euro     euro
                                                      15%
      euro

* SEB Bank’s estimate for a given period.
** Maximum deviation while participating in ERM-II.


                                                                                                                                8
   Lithuania’s economic development
   stays strong

                                Real GDP change (y-o-y, %)
  14
                         Lithuania                                     11.9
  12
                         Latvia
                                                                                                        Natural process of
                         Estonia                                       11.2
                                                                                10.2                     convergence with Western
  10
                                                                               8.8                       living standards;
    8
                                                                       7.7               6.5            EU financial support;
                                                                              7.1
    6                                                                                          6.0
                                                                                        6.2    5.8      Tax and other economic
    4                                                                                          4.5       reforms;
                                                                                       3.5
    2                                                                                                   Ensured long-term
                                                                                                         macroeconomic stability.
    0

   -2

   -4
         1999       2000      2001      2002      2003   2004   2005   2006   2007 2008F 2009F




Source: national statistics bureaus; SEB forecasts.


                                                                                                                                    9
     Manufacturing is the largest
     economic sector while services are
     the fastest growing
        Breakdown of value added by economic sectors in I-
                          IIIQ 2007 (% )                                                 Annual change in GDP by production
                                                                                         approach in 2007 (constant prices, %)


                                    Other
                                                                                        Construction                                        16.9
                                     11%                Manufacturing
                    Energy                                  20%
                      4%
                                                                                Agriculture&fisheries                                13.2
            Education
               5%
                                                                                  Domestic trade,
    Public                                                                                                                    11.3
                                                                                hotels and transport
administration&
   defence
      5%                                                                                       Total                    8.8
                                                               Domestic trade
                                                                   17%                  Financial
     Agriculture
                                                                                  intermediation and                    8.5
         6%
                                                                                       real estate

                Construction                                                                Industry              5.2
                   10%                               Transport&com
                                      Real estate,                                    Education,
                                                          ms
                                    other business                                 healthcare, public       3.8
                                                          13%
                                         12%                                        administration
                                                                                                        0    5           10            15          20




    Source: Statistics Lithuania.


                                                                                                                                                   10
Lithuania’s economy is a well
diversified composition of industry,
agriculture, energy and services
  Lithuania did not face de-industrialization, as an exception among emerging
     markets. A lot of large industrial enterprises (oil refinery, chemistry, food
     production plants, shipbuilding and construction companies) successfully
     survived the shift from planned to free-market economy.
     The largest industrial companies that survived from Soviet times are
     (turnover in 1-3Q 2007 is given in parenthesis):

     MAŽEIKIŲ NAFTA – refined oil products (EUR 1978 mn)
     ACHEMA – chemicals (EUR 296 mn)
     LIFOSA    – chemicals (EUR 186 mn)
     ŠVYTURYS-UTENOS ALUS – beer, beverages (EUR 114 mn)
     SNAIGĖ    – refrigerators (EUR 89 mn)



                                                                                     11
Newcomer companies – market leaders

  Many companies were created on the green field in last
   decade and already play important role in the Baltic region


 MAXIMA LT – retail trade, largest in the Baltics (EUR 1432 mn)
 SENUKŲ PREKYBOS CENTRAS – retail trade of construction
 materials (EUR 330 mn)
 NEO GROUP – production of PET granules (EUR 245 mn)
 SANITAS – production of pharmaceuticals (EUR 74 mn)




                                                                  12
    Lithuania’s nuclear future

 According to EU Treaty, Lithuania will have to close its nuclear power
  plant (now supplying 70% of total electricity) at the end of 2009.
 Power bridges to Poland and Sweden are to be build until 2015.
 Construction of new nuclear plant is planned, with realistic launching
  date stretching to 2017-2019.

   Forces united for construction of new nuclear plant in Lithuania
            Lithuania
     National investor “Leo LT”
                           Private                      Poland
    Government,          electricity                     Latvia
   through public         supplier
 energy companies           “NDX                        Estonia
    (62% stake)           Energija”
                        (38% stake)

                                                                           13
          EU Structural Funds offer substantial
          support to economic growth
            EU structural support to GDP ratio in 2007-
                             2013 (% )
                                                                                    In 2007-2013 period, EUR 6.8
          Lithuania                                                       4.2
                                                                                    billion is allocated for Lithuania
             Estonia                                                    4.1             from EU Structural Funds
           Bulgaria                                                     4.0

           Hungary                                                  3.9
                                                                                  Breakdown of 2007-201 EU structural
           Slovakia                                                 3.9              funds' allocations by purpose
              Latvia                                                3.9                  Human      Technical
                                                                                        resources    support
             Poland                                               3.6                      14%         1%            Economic
                                                                                                                      growth
           Average                                                3.6                                                   46%

 Czech Republic                                               3.5

          Romania                                           3.2
                                                                                Promotion of
                                                                                  cohesion
           Slovenia                                 2.0
                                                                                    39%




Source: Ministry of Finance, Economist Intelligence Unit.


                                                                                                                                14
 Inflationary pressures have
 strengthened in all three Baltic States

                                               HICP change (annual average, %)
16

14
                                   Lithuania
                                                                                                      13.8
                                   Latvia                                              11.6
12                                                                           10.1
                                   Estonia
10
                                                                                         7.8    8.5
 8                                                                   6.6                                        8.2
                                                                                 6.7                            7.0
 6
                                                                                                7.6
                                                                       4.4               6.9
                                                                                 5.8
 4                                                                                                              4.0
                                                                       3.8
 2

 0

-2
        2000           2001          2002      2003   2004   2005    2006    2007      February 2008F        2009F
                                                                                         2008



Source: Eurostat; SEB forecasts.


                                                                                                                      15
       Gross wage growth has been gaining
       momentum since entry to EU but
       salaries still are relatively low
                               Annual gross wage growth (%)

35
                                                                                    Average monthly gross wage in IVQ
                                                                                              2007 (EUR)
30                                                    EU entry                900
                                                                 29.8
                         Latvia                                               800
                                                                                                                  784
25
                         Estonia                                              700
                                                                                                     635
                         Lithuania                                20.1                  594
20                                                                            600

                                                                 18.5    15.0 500
15
                                                                              400

10                                                                            300

                                                                              200
 5
                                                                              100

 0                                                                              0
         IIIQ




         IIIQ




         IIIQ




         IIIQ




         IIIQ




         IIIQ




         IIIQ
          IIQ




          IIQ




          IIQ




          IIQ




          IIQ




          IIQ




          IIQ
        IVQ




        IVQ




        IVQ




        IVQ




        IVQ




        IVQ




        IVQ
     2002 IQ




     2003 IQ




     2004 IQ




     2005 IQ




     2006 IQ




     2007 IQ




     2008 IQ




                                                                                      Lithuania     Latvia       Estonia




Source: national bureaus of statistics, forecasts by SEB Bank.


                                                                                                                           16
     Lithuanian export structure is well
     diversified by countries

            Main (commodity) export markets                                  Main (commodity) import markets
                 of Lithuania in 2007 (%)                                         of Lithuania in 2007 (%)

 Russia                                                       15.0       Russia                                 18.2



  Latvia                                               12.8             Germany                          14.9



Germany                                         10.5                     Poland                   10.6



 Poland                                   6.3                             Latvia            5.5



 Estonia                                 5.8                         Netherlands      4.2



      UK                           4.6                                      Italy     3.9



Denmark                           4.1                                   Sweden       3.8




  Source: Statistics Lithuania.


                                                                                                                       17
Food, refined oil products and machinery
are dominating goods of Lithuanian exports

                                Lithuanian (commodity) export structure in 2007


                                                            Machinery &
                                                             equipment
                                 Mineral products
                                                                13%             Transport vehicles
                                       14%
                                                                                      11%

          Food&agricultural
              products                                                                    Plastics&rubber
                17%                                                                              8%




                                                                                      Textiles
                                                                                        8%
                                             Other                        Chemistry
                                                         Wood&paper
                                              16%                            8%
                                                             6%




Source: Statistics Lithuania.


                                                                                                            18
 Machinery and equipment is the most
 traded good between Kuwait and Lithuania

          Structure of Lithuanian exports to Kuwait                       Structure of Lithuanian imports from
                            in 2007                                                  Kuwait in 2007

          Machinery&e
           quipment
             61%
                                                                                                        Machinery&e
                                                                                                         quipment
                                                                                                           91%




         Other                                            Wood&paper
          4%                                                 17%        Various
                                                                       industrial
                                                                         goods
              Food&agricult                                               9%
              ural products           Furniture
                    3%                  15%




Source: Statistics Lithuania, calculations of SEB Bank.


                                                                                                                      19
  Main foreign direct investment come from
  Scandinavia and neighbouring countries

         Main foreign direct investors in Lithuania                     Sectors with largest investment
           at the end of 3Q 2007 (% of total FDI)                          from respective country

 Poland                                                     19.5   Oil refinery, insurance, retail trade

Denmark                                              13.1          Telecommunications, banking, insurance

Sweden                                        10.9
                                                                   Banking, telecommunications, food industry

  Russia                                    10.0
                                                                   Energy, chemical industry, banking

Germany                               8.7
                                                                   Energy, manufacturing, retail trade

 Finland                            7.6
                                                                   Retail trade, wood industry
 Estonia                      5.7
                                                                   Banking, machine industry


 Source: Bank of Lithuania.


                                                                                                                20
         Lithuanian banking sector
    9 commercial banks, 6 subsidiaries of foreign banks.
    Highly concentrated – three largest banks own 67.6% of total assets in the
         banking sector.
    Five largest banks are controlled by Scandinavian capital (SEB, Swedbank, DnB
         Nor, Nordea).

                                        Commercial banks by assets (LTL billion, end of January 2008)

                     7.1


                                  5.4



                                                 3.2


                                                            1.6     1.6      1.5
                                                                                      1.2
                                                                                             0.6       0.5     0.3         0.2




                                                                                                               Unicredit
                                                                                                       Parex
                                                                    Nordea



                                                                             Snoras
                                                            Sampo




                                                                                      Ūkio




                                                                                                                           Medicinos
                     SEB Bank




                                                                                             Šiaulių
                                                 DnB Nord
                                   Hansabankas




Source: Association of Lithuanian Banks.

                                                                                                                                       21
Interest rates in Lithuania are almost
equal to those in euro zone

                                                     3-month interbank rates (% )
              8

              7

              6
                                                                                                                      Lithuania:
              5                                                                                                       VILIBOR

              4                                                                                                       Euro zone:
                                                                                                                      EURIBOR
              3

              2

              1

              0
                  01
                       02
                            03
                                 05
                                      06
                                           07
                                                08
                                                     10
                                                          11
                                                               12
                                                                    02
                                                                         03
                                                                              04
                                                                                   06
                                                                                        07
                                                                                             08
                                                                                                  10
                                                                                                       11
                                                                                                            12
                                                                                                                 02
                  2006                                          2007                                         2008



Source: Bloomberg.


                                                                                                                                   22
    Real estate market: rents and prices

 Monthly rent in February 2008 (EUR/m2)                                 Average price of apartment in
                                                                        February 2008 (EUR/m2, new
Offices                            A class                    B class
                                                                               construction)
Vilnius (capital)                       15                      10
Kaunas                                  11                      7         Centre/Old-town

Klaipėda (port)                         13                      8         Vilnius (capital)   3700

Retail space                   High street              Shopping mall     Kaunas              2700

Vilnius (capital)                       45                      17        Klaipėda (port)     2600

Kaunas                                  35                      12        Dormitory areas
                                                                          Vilnius (capital)   1800
Klaipėda (port)                         30                      12
                                                                          Kaunas              1500
New warehouses
Vilnius (capital)                                       4-6               Klaipėda (port)     1900

Kaunas                                                  4-6
Klaipėda (port)                                         4-7

Source: Ober-Haus, Lithuanian Development Agency, SEB
Bank’s calculations.


                                                                                                        23
Why Lithuania is an attractive
place for doing business?

 EU and NATO membership, providing guaranties for
  economic and political stability;
 Strategic position of a “bridge” between Western and
  Eastern Europe and membership in Schengen area;
 Highly skilled labour force;

 Labour costs still several times lower than in Western
  Europe;
 Transport infrastructure is one of the best in Central and
  Eastern Europe;
 Strong positions in advanced technologies (lasers,
  biotechnology).



                                                               24
Thank you for your attention!

				
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