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Klaipėda and Kaunas: as day and night

31 Jan 2011

Almost ten years ago Lithuania gave start to two free economic zones (FEZ); however, their ways have separated since then. The Klaipëda Business Park continues surprising with its rapid development, while Kaunas FEZ is gaining momentum rather slowly.

Blessing establishment of a free economic zone on the outskirts of the port city a decade or more ago, the Government hardly expected such a surge of investors.

After the international tender winning Klaipėda’s FEZ managing company signed a contract with the Government in 1999, it was planned that at least 200 million Litas will be invested in FEZ within ten years following commencement of its work.

However, five years later over ten large factories were operating in the territory of FEZ that started actually operating in 2002, and overall investment amounted to 463 million Litas.

Today sixteen different companies operate in Klaipėda’s FEZ, which have invested 760 million Litas. Four more companies are currently designing their future buildings or have already started construction works. Their investment: approximately half a billion Litas.

The potential investors arrive to the port city nearly each month. For example, a delegation of Indian businessmen visited Klaipėda a week ago. Though, of course, it does not mean that all visits result in appearance of plants and factories.

Land remains in the hands of state

The Chair of the Board of Klaipėda’s FEZ Managing Company Povilas Vasiliauskas, explains such success with the following: the state have managed to maintain the industrial area in this part of the city established 30 years ago to our days.

“All this time area to be used for FEZ has remained in public hands. The land has been neither privatized nor allotted, which allowed building roads, power lines, water and gas piping without any interference,” said P. Vasiliauskas. Nowadays the Klaipėda’s FEZ area reaches 412 ha.

According to the Chair of the Board, who constantly communicates with potential investors, time is what businessmen value most. The market success and future profit depends on how quickly the company will manage to settle, build a factory or plant, and start manufacturing products.

After the site has been fully prepared for construction, a factory or plant can grow in the open air within a single year.

Nearly 60 million Litas had already been invested into the port’s FEZ infrastructure. According to the independent expert assessments, the state investments (one-fifth of this amount) had already paid off twenty times.

Auspices of investors

The Klaipėda’s FEZ Managing Company, which employs only six people, helps foreigners interested in this port city to settle here and later provides the following services: prepares legal documentation, designs buildings in accordance with the customers’ wishes and takes care of their construction, maintains infrastructure, and clears roads of snow. For that FEZ-based companies pay certain taxes to the Managing Company.

Companies coming to the port city’s FEZ do not have to participate in the land lease tender. The state had leased the entire territory to the Managing Company.

This re-leases land plots to investors at the state-established price.
“This way investors avoid the lengthy land lease tenders, which are often brought before the Court,” explained P. Vasiliauskas.

Continental done a bunk

The FEZ’s future is normally determined by its first investors: the more renown they are, the more confidence in such zone the business world has.

In 2002, planning expansion, the famous tire manufacturing concern Continental was choosing between Klaipėda and Brazil.

It representatives visited the port city and wanted a 50 ha land plot, which they later planned to expand to 100 ha.

However, in the end Continental chose South America and built its factory in Brazil.
“Frankly speaking, it’s good everything ended the way it did. Manufacturing tires here would have been rather difficult due the potential impact upon the environment.
Nonetheless, Continental has done a good deed by informing the whole business world about its intentions to settle in Klaipėda,” smiled P. Vasiliauskas.

Benefits for the national economy

Today Klaipėda’s Free Economic Zone has companies from ten countries around the world invested in it. During eight years the overall turnover of FEZ companies exceeded 5 billion Litas. Approximately 80 to 90 percent of products manufactured here are being exported.

“Let’s count – if one tenth of half a billion Litas worth products was sold in Lithuania during those years, our country’s budget received over 100 million Litas of value added tax alone,” said P. Vasiliauskas.

Site-related courts

Meanwhile, Kaunas FEZ can not boast of such results as development of this zone is being ​​delayed due to non-purchased land. Currently, there are only four plants in its territory.
The Kaunas FEZ area, which started its operation two years after Klaipėda’s FEZ, reaches 534 ha. But only 80 ha are actually managed.

“Upon establishing FEZ, the land plots comprising its area soon began to return to their former owners.
And now the state is forced to use the Court to buy out land for general use from its owners,” the Head of Kaunas FEZ Managing Company Vytautas Petružis shared the difficulties.

Factories being built

Kaunas FEZ already has nine investors, they occupy approximately 50 ha. Four companies already started operating, the fifth completed construction, and four more started their construction activities.

So far, 129 million Litas have already been invested close by Kaunas, and 400 jobs have been created.
Another 100 million Litas investments and nearly 60 jobs will add after the company Finnfoam – Finland’s largest manufacturer of thermal insulation materials – finished its construction activities and began its operations.

Growing towards the airport

In the coming years, Kaunas FEZ plans expansion towards the Karmėlava airport.

Here the state plans to buy out from the owners approximately 40 ha.

In that place 3 kilometres of the free economic zone border on the airport, which makes it possible to load exported products aboard aircraft carriers without clearance.

It is believed that a nearby large cargo airport, which has a runway suitable for all kinds of aircraft and offers high-quality cargo handling services, will raise Kaunas FEZ to a higher competitive level.

“The mere fact that Kaunas FEZ is located near the city twice as large as Klaipėda, should attract investors by a greater choice of skilled labour,” V. Petružis was sure about Kaunas’ perspectives.

Attracted by tax incentives

In addition, FEZ investors are attracted to Lithuania by solid tax incentives. During the first six years of their operation, all zone-based companies are exempt from income tax. During the next ten years they are to pay only a half of the tax amount.

For example, Klaipėda’s FEZ companies do not have to pay property tax into the municipal budget.
Foreign shareholders are exempt from dividend taxes.

This allows savings up to half of all investments. For example, if a company invested 50 million Litas in the FEZ territory, it can be granted tax incentives in the amount of 25 million Litas.

The amount of tax incentives of small and medium-sized businesses reaches as much as 70 percent of investment.

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