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UPDATE January 2002

Lithuania is doing well in many respects right now. It suffered gravely from the Russia crisis of 1998, but is now registering respectable growth of 3.6% for 2001 and prospectively 4.7% for 2002, according to latest IMF estimates. 
Its inflation rate of only 0.6% in 2001 is the best among the Baltic states, indeed the FSU states for that matter. But it is expected to rise to 2.8% in 2002, partly due to the pick-up in growth.
The one drawback is that the current account deficit is high at 6.7% in 2001 and prospectively 6.6% in 2002. But this is manageable, given the high level of inward foreign investment and the low level of external debt.
Lithuania's prospects have greatly improved of late. It joined the World Trade Organisation in December 2000, which should open up new markets for its exporters and help to erode the proclivity towards external deficit. But even more important - it is likely now to join in the first wave of EU entrants or shortly afterwards. Its negotiators have concluded the vital chapter on competition in the acquisition communitaire ahead of time and are set fair to conclude all 30 chapters early enough for it to join the first wave.
Lithuania has advantages that make it an attractive place for foreign investors. As the southernmost Baltic state its port of Klaipeda is ice-free nearly all the year. It long had an intimate relationship with Poland, the flagship among the countries with an economy in transition. It is Catholic in religion and so attractive to investors from Southern Europe and France, which are prominent among its roster of FDI partners. It has little going against it, unless one were to cite Russia's Kaliningrad enclave lying between itself and Poland part of the way.
That is the major outstanding geopolitical issue in the Baltic zone. In the new post-9:11 climate, with Russia cosying up to the West it should be amenable to reasonable negotiation, becoming an open zone for foreign investor and tourist alike. Even, as it is likely to be surrounded by the EU once Lithuania and Poland become members, a very special relationship with the EU.

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BANKING

Strategic investors justify booming banking services

The positive outlook for Lithuanian banks reflects the presence of foreign strategic investors, which now own around 80% of the system, and the growth of bank services, as well as the on-going impact of banking consolidation, Moody's Investors Service disclosed in its first annual report on the country's banking sector, BNS News Agency reported recently.
Moody's pointed out that healthy asset growth and improved profitability strengthened financial fundamentals and underpinned the sector starting in 2000, and these trends have continued into 2001 because Lithuania's economy has performed well for most of the yeaar.
Edward Vincent, the author of the report, noted that Lithuanian banking is at a turning point. "The stabilising economy and the influence of foreign owners are now making it possible for the banks to develop more substantial banking activities and services for clients both on the lending and on the saving sides," the analyst said.
Moody's said a growing proportion of the Lithuanian population has banking relationships, although the country is the least developed in this respect among the three Baltic states.
The rating agency predicted, however, that the demand for more sophisticated and electronic banking products in Lithuania should continue to grow strongly over the next few years.
Moody's noted that the ample liquidity of the Lithuanian banks is a cause for some concern. "The banks are very cash rich, which is obviously a positive factor, but this may also translate into reinvestment risk," the report explained.
In conclusion, Moody's pointed out that Lithuania's economy remains vulnerable to the situation in other countries, its trading partners, and this is likely to remain the case, at least until the country's closer integration with the European Union.
"Nevertheless, the ability of Lithuania to weather a potential global downturn will be a key factor setting the tone for the performance of the banking sector in the next year or so," Moody's concluded.

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FOOD & DRINK

Litmalt set to build malt plant

Litmalt, Lithuania's only malt producer, is planning to build a new malt plant with a view to increasing its production capacity five-fold, Verslo Zinios reported recently.
The business newspaper quoted Litmalt Director, Gintaras Aukstinaitis, as saying the company's owners - Finland's Polttimo Companies Ltd and the Lithuanian brewery, Utenos Alus - were to invest around 100m litas (US$25m) in the new production facilities. Litmalt's shareholders are expected to approve the project .
Aukstinaitis said the construction should begin this year and it should be completed in the spring of 2004. The plant will be designed by Finnish experts, while the general construction contract will be awarded to a local building company.
After the new plant is put into operation, Litmalt will have the capacity to produce 50,000 to 70,000 tonnes of malt per year. "That amount would meet the needs of Lithuanian brewers. If we produced more malt, we would export it to Latvia, Estonia or Belarus," the director said.
Litmalt's annual output is expected to reach 13,200 tonnes of malt this year. All of the company's production is now purchased by the country's leading beer producers - Kalnapilis, Utenos Alus, Svyturys, Vilniaus Tauras and Gubernija - and some smaller brewers. Imports now account for around 70 per cent of Lithuania's malt market.
Based in Panevezys, central Lithuania, Litmalt anticipates an annual turnover of 18m litas for 2001, up by 30 per cent compared to the previous year.

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TRANSPORT

EBRD invests US$54m in Lithuanian Railways

The European Bank for Reconstruction and Development is lending US$56m to Lietuvos Gelezinkeliai (LG) to help finance the rehabilitation of 155 kilometres of mainline track, and to accelerate the restructuring of the rail sector in Lithuania.
The US$112m project, developed in co-operation with the European Union's ISPA programme, will enable LG to renew track in two key sections of the rail network - between Vilnius and Kaliningrad, and between Vilnius and the port of Klaipeda. The sections form part of the pan-European Corridor IX, one of ten routes highlighted by the European Commission as important trans-European rail links. The EU is expected to provide an additional US$41.4m for telecommunications, signalling and power supply, and to reinforce bridges and important structures along the line. LG will provide US$16.3m to replace and upgrade track.
The EBRD loan will help provide fast and reliable freight transportation service on the international rail route linking the Baltic Sea and western Europe to Russia and enhance the competitiveness of LG within the country's freight industry, said Matti Hyyrynen, head of the EBRD's office in Lithuania. The EBRD is committed to supporting the country's rail sector, and will work closely with LG to implement this project, Mr Hyyrynen added.
Lithuania's rail sector is at a crucial stage of transition, and this project will help it become more commercially focused.
"The EBRD, ISPA, LG and the Ministry have worked in close co-operation to ensure the development of this project," said Zigmantaas Baloytis, Minister of Transport of Lithuania. "This loan is important not only for Lithuania's rail sector development in line with EU requirements, but also for Lithuania's successful integration into Europe and for economic development in general."
"This project will make us more competitive within the freight industry," said Albertas Simenas, LG Director for Development. "It will help increase our efficiency and enable us to complete the upgrading of this key section of the pan-European network."
To date, the EBRD has invested around 400m Euro in 28 projects in Lithuania. In the transport sector, the bank has invested around 2.3bn Euro in 66 projects.

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