Government of the Republic of Lithuania
RESOLUTION no 986
APPROVING THE PROGRAMME FOR INVESTMENT PROMOTION AND INDUSTRIAL DEVELOPMENT FOR 2014–2020
17 September 2014
In implementing the Priority Measures for the implementation of the Programme of the Government of the Republic of Lithuania for 2012–2016 approved by Resolution No 228 of the Government of the Republic of Lithuania of 13 March 2013 "Approving the Priority Measures for the implementation of the Programme of the Government of the Republic of Lithuania for 2012–2016", the Government of the Republic of Lithuania has resolved:
To approve the Programme for Investment Promotion and Industrial Development for 2014–2020 (as appended).
Prime Minister Algirdas Butkevičius
Minister of Justice
substituting for the Minister of Economy Juozas Bernatonis
APPROVED BY Resolution No 986 of the Government of the Republic of Lithuania of 17 September 2014
PROGRAMME FOR INVESTMENT PROMOTION AND INDUSTRIAL DEVELOPMENT FOR 2014–2020
1. The Programme for Investment Promotion and Industrial Development for2014–2020 (hereinafter referred to as "the Programme") has been drafted pursuant to the National Anti-corruption Programme of the Republic of Lithuania for 2011–2014, approved by Resolution No IX-711 of the Seimas of the Republic of Lithuania of 17 January 2002 "Approving the National Anti-corruption Programme of the Republic of Lithuania for 2011–2014", the National progress strategy "Lithuania's progress strategy Lithuania 2030", approved by Resolution No XI-2015 of the Seimas of the Republic of Lithuania of 15 May 2012 "Approving the National progress strategy 'Lithuania's progress strategy Lithuania 2030'", the National Strategy for a Climate Change Management Policy, approved by Resolution No XI-2375 of the Seimas of the Republic of Lithuania of 6 November 2012 "Approving the National Strategy for a Climate Change Management Policy", the National Energy Independence Strategy, approved by Resolution No XI-2133 of the Seimas of the Republic of Lithuania of 26 June 2012 "Approving the National Energy Independence Strategy", and in implementing the National Progress Programme for 2014–2020, approved by Resolution No 1482 of the Government of the Republic of Lithuania of 28 November 2012 "Approving the National Progress Programme for 2014–2020", the National Strategy for Sustainable Development, approved by Resolution No 1160 of the Government of the Republic of Lithuania of 11 September 2003 "On the approval and implementation of the National Strategy for Sustainable Development", the Programme for Increasing Employment for2014–2020, approved by Resolution No 878 of the Government of the Republic of Lithuania of 25 September 2013 "Approving the Programme for Increasing Employment for2014–2020", the Lithuanian Programme for Innovation Development for2014–2020, approved by Resolution No 1281 of the Government of the Republic of Lithuania of 18 December 2013 "Approving the Lithuanian Programme for Innovation Development for 2014–2020", the State Development Programme for Higher Education, Research and Experimental/Social/Cultural Development for 2013–2020, approved by Resolution No 1494 of the Government of the Republic of Lithuania of 5 December 2012 "Approving the State Development Programme for Higher Education, Research and Experimental/Social/Cultural Development for 2013–2020", the Lithuanian Programme for Tourism Development for 2014–2020, approved by Resolution No 238 of the Government of the Republic of Lithuania of 12 March 2014 "Approving the Lithuanian Programme for Tourism Development for 2014–2020", also with regard to the provisions of Communication from the Commission COM(2010) 614 of 28 October 2010 to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions "An Integrated Industrial Policy for the Globalisation Era", Communication from the Commission COM(2012)582 of 10 October 2012 to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions "A Stronger European Industry for Growth and Economic Recovery" and Communication from the Commission COM(2014)14 of 22 January 2014 to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions "For a European Industrial Renaissance".
2. The purpose of the Programme is to set the objectives and tasks for investment in the service and production sectors and the general policy for industrial development, as well as the assessment criteria and values thereof, with a view to raising Lithuanian competitiveness.
OBJECTIVES AND TASKS OF THE PROGRAMME, ASSESSMENT CRITERIA AND VALUES THEREOF
3. The first objective of the Programme is to increase direct investment in the sectors of production and services (hereinafter referred to as "the Programme's first objective").
As reported by Eurostat, the ratio between the share of gross fixed capital formation (excluding residential building and cultivated assets) in the Lithuanian gross domestic product (GDP) and the respective European Union (EU) indicator in 2010 totalled 1.07, 1.19 in 2011, 1.13 in 2012 and 1.29 in 2013. As reported by the World Bank, Lithuania attracted EUR 416 million in investment and ranked last among the Baltic States (Estonia attracted EUR 1.194 billion and Latvia EUR 780 million in investment). Thus, foreign and domestic direct investment needs to be increased.
Investment in the service sector and especially in the manufacturing sector is of particular relevance. According to the data of Statistics Lithuania, tangible investments in Lithuania totalled LTL 15.6 million in 2009, LTL 14.3 million in 2010 and LTL 17.5 million in 2011, however the growing use of industrial capacities (75 per cent in 2013) signals a need for bigger investments in the manufacturing sector.
The degree of development of the service sector and the pace of this development reflects the level of economic development of the country. According to the data of Statistics Lithuania and the Bureau of Economic Analysis of the United States of America, this sector contributes 72 per cent of the GDP in the western countries and 65 per cent of the GDP in Lithuania.
It is important not only to seek more investment in the said sectors but also to emphasise a competitive advantage in the following areas: centres of services (financial and accounting, human resources, information technologies), manufacturing (engineering industries, in particular mechanical engineering and electric appliances (equipment)), data centres, information technology production companies and the Lithuanian smart specialisation area. There is a need for investment in business services creating above-average added value. Lithuania has been successful in attracting investment from internationally renowned companies setting up business service centres in the country. It would be reasonable to continue focusing on business services requiring a highly qualified workforce that will create a high value-added and contribute to industrial development in the long run.
4. The first task under the Programme's first objective is to improve the investment climate.
The investment climate would improve with the improvement of legal regulation, available financial incentives and other types of assistance to investors, promotion of the public-private partnership, expansion of cooperation between government and business as well as intensive targeted promotion of Lithuania as an attractive destination for investment.
Although Lithuania has risen from the 25th to the 17th place in the "Doing Business 2014" report by the World Bank, which evaluates the ease of doing business, the country still fares poorly in a number of other rankings (such as the getting electricity ranking, investor protection ranking, etc.).
It is therefore important to improve the legislation governing the public interest, migration, labour relations, spatial planning, land lease, electricity connection, dealing with construction permits, the ability of public administration authorities to provide high-quality public services, etc. This would not only help to improve Lithuania's Doing Business ranking but would also make our country more attractive to domestic and foreign investors.
In 2014, Investor Confidence index for Lithuania, reflecting the view of major foreign capital companies operating in Lithuania on the Lithuanian business and investment climate and the relevant expectations show that the investors are concerned about the imperfections of the Lithuanian tax system as well as the lack of transparency. Nearly a third (31 per cent) of the respondents hold an unfavourable view of the Lithuanian tax system and nearly one fifth (19 per cent) would like more transparency in Lithuanian business. Accordingly, 72 and 74 per cent of the investors, respectively, see those areas as problematic. Evaluation of the competitiveness of the tax system should also include evaluation of the reinvestment opportunities, because encouraging a company already operating in the country to invest here might be much easier than attracting a new one. Thus, to give Lithuania a competitive edge in terms of taxation over the other countries, it is necessary to determine the deficiencies of the current tax system, the priority areas for improving it, as well as the potential effects of changes.
Financial measures for investment promotion, implemented by the State, have been attractive to investors and therefore it is crucial to ensure the continuity of State support for investment and to plan specific financial instruments. It is necessary to make efforts to make this a flexible and swift process, i.e. to look for the best ways to address the questions relevant for investors. It is crucial to ensure incentives for large businesses, which represent a crucial element in the growth of every economy, creating conditions for the development of small and medium business, generating additional orders, etc. Additionally, the possibility of financing enterprises at acceptable conditions should be explored, as this represents a crucial factor in the survival and growth of all major enterprises. Government institutions, together with business organisations, must take coordinated action to assess and improve the conditions of lending by banks, i.e. to ensure better use of the alternative business funding opportunities as well as elimination of the existing obstacles to a sustainable growth in this funding.
According to the data of the institutions implementing public-private partnership projects, a total of 35 public-private partnership contracts, including 33 concession contracts, were concluded by 1 January 2014. Under the contracts now being implemented, the private sector has undertaken to contribute LTL 314 million in investments. Since the benefits brought by these projects are obvious (attraction of private capital, long-term modernisation of public infrastructure, better value-for-money ratio of the project, etc.), this type of partnership should be actively encouraged.
It is necessary to develop cooperation among national and local authorities and State-controlled and municipality-controlled enterprises, bodies and organisations in addressing issues relating to investment promotion and attraction as well as investment initiation, planning and implementation, to take care of timely dissemination of relevant information, and to work to make sure that the said institutions, bodies and organisations, when making decisions on the issues related to the attraction of foreign direct investment in the manufacturing and service sectors and initiation, planning and implementation of investment projects, consult with the public institution Invest Lithuania in order to come up with the best proposal to the investor.
It is essential not only to enhance the climate for investment but also to inform as many target operators as possible of the positive developments in the investment climate and the conditions offered to investors. A contribution to this objective will be made by the marketing campaigns conducted by Invest Lithuania abroad, visits by foreign company representatives and journalists in the Republic of Lithuania, introduction of the Lithuanian investment opportunities at special events, as well as presentation of comprehensive and attractive information on the Lithuanian economy, investment environment, investment success stories and other issues via international outlets of mass media. It would be useful to increase Lithuania's visibility by providing information to international communities through Lithuanian diplomatic offices abroad as well as through the country's representatives at high-level events.
Lithuanian regions boasting special qualities and a particular specialisation should reinforce this specialisation and advertise those special particular competencies internationally, purposefully promoting investment in the those sectors where the region's competencies are the greatest. Geographically specialisation should be distributed with the participation of all the authorities concerned, while municipalities and their subordinate institutions could cooperate with the public institution Invest Lithuania to organise marketing measures intended to inform foreign investors of the region's specialisation and exceptional qualities. It is important, therefore, to develop a systematic approach and to extend support first of all to those regions that are best suited to attract investments in industry and services.
The abilities to present Lithuania appropriately must be developed. Vigorous and appropriate action at municipal level to increase the visibility of Lithuania as a country attractive for investment is also significant. Measures to contribute to an adequate introduction of the Lithuanian regions to foreign investors are envisaged. Municipalities and other authorities representing Lithuania in the sphere of economy will be provided with quality consulting on the topics of introducing Lithuania as well as building investment attractiveness.
5. The second task under the Programme's first objective is to develop free economic zones and industrial parks.
Investors planning industrial and service area projects see infrastructure and logistics as the third most important factor, and one of the ways to develop infrastructure necessary for investments is the development of free economic zones and industrial parks as well as other spaces, such as public logistics centres and greenfield sites, which would enable Lithuania to compete for investors with other countries.
Two free economic zones were established in Klaipėda and on the outskirts of Kaunas in 1996. The data presented by the companies operating the free economic zones suggest that the number of enterprises operating in free economic zones has been on the rise (from 3 enterprises in 2002 to 20 enterprises in 2013 in the Klaipėda free economic zone, and from one enterprise in 2003 to 9 enterprises in 2013 in the Kaunas free economic zone). In the period of 2003 - 2013, the average investment by enterprises operating in the Klaipėda free economic zone totalled LTL 81.15 million and by those operating in the Kaunas free economic zone amounted to LTL 28.22 million per year.
The specific infrastructure of the land plots on the territory of the Kruonis Pumped Storage Power Plant (hereinafter referred to as "Kruonis PSPP"), which is located in the Kaunas free economic zone, makes these plots suitable for the implementation of large-scale investment projects for data centres providing services to the regions, high-technologies, high added-value industrial and research projects in the sphere of energy or other projects for power-intensive information technologies. Such an area increases Lithuania's capacities for attracting investment in high-technology projects, yet in order for the Kruonis PSPP region to be able to offer investors attractive and competitive conditions that would encourage them to pick this area, the necessary infrastructure must be set up (such as an electrical substation, additional optical infrastructure, etc.). It is necessary to make sure that investors meeting the pre-set criteria are exempted from the fees charged for services provided in the public interest. This would create a competitive investment environment and attract investors envisaging the implementation of such projects, increase foreign direct investments in Lithuania, create new jobs, and stimulate high technology development to maximise foreign direct investment in these activities for the purpose of introducing innovations.
Another 5 free economic zones were established in 2012 (in Kėdainiai, Šiauliai, Marijampolė, Akmenė and Panevėžys). In 2013, companies operating the free economic zones of Kėdainiai, Marijampolė and Panevėžys were formed to organise business activities in the mentioned zones. Additional international tendering procedures for the Akmenė and Šiauliai free economic zones were published in 2013 for the preparation of the best business plans and zone statutes as well as selection of founder groups.
5 industrial parks were established in the period of 2003–2005 (in Alytus, Pagėgiai, Radviliškis, Šiauliai and Visaginas). Unfortunately, only 2 industrial parks are operating: in Alytus and Šiauliai. Contracts have been signed with 7 investors in the Alytus industrial park, yet only 2 investors have reached the final stages of setting up in the park. Contracts with 3 investors have been concluded in the Šiauliai industrial park.
Thus, creation of better investment conditions in the free economic zones and industrial parks will require a clearer legal regulation of free economic zones, industrial parks and other areas, such as public logistics centres. For the Lithuanian free economic zones to operate efficiently, it is necessary to resolve the issue of land expropriation, select companies to operate free economic zones, and draft legislation necessary to start the operations of free economic zones. In the case of failure to select operators for free economic zones, the relevant reasons must be determined and assessment of the necessity of existence of such free economic zones must be made.
After determining the benefits of the State-provided financial incentives for setting up infrastructure in free economic zones and industrial parks, it is important to ensure the continuity of State support for this infrastructure.
6. The second objective under the Programme is to modernise, integrate and develop industry (hereinafter referred to as “the Programme’s second objective”).
As of 2012, the European Commission has been analysing the industrial activities in each Member State of the EU. The analysis covers indicators such as labour productivity and qualification, export results, innovation and sustainable development, business environment and infrastructure, finance and investment, energy intensity and electricity prices. In terms of the national economic impact of industry (percentage of GDP) Lithuania fell within the group of industrial nations and ranked fourth among all 27 EU Member States in 2012. Based on the other indicators mentioned above, Lithuania still belongs to the group of catching-up States, together with the Republic of Bulgaria, Romania, the Czech Republic, the Republic of Poland, the Republic of Hungary, the Slovak Republic, the Republic of Estonia, the Republic of Croatia, and the Republic of Latvia. These countries are facing major challenges relating to facilitation of investment in innovation, raising energy efficiency and improvement of the business environment.
In 2013, Lithuania increased the share of manufacturing in the total value-added generated to 20.8 per cent of the GDP (data source: Eurostat). This exceeded the EU 2020 target of 20 per cent of the GDP. Given the significant economic impact of manufacturing, the competitiveness and integrity of the national manufacturing industry must be ensured by upgrading it.
Costs reduction and raising efficiency and productivity remain the key factor in increasing the international competitiveness of the Lithuanian industry. Lithuanian industrial enterprises export around 60 per cent of all goods and services.
The Lithuanian industry is the country's main engine for the growth in added value and employment. Although in terms of generated added value, the manufacturing industry is one of the main branches of the Lithuanian economy, labour productivity per employee here is 3.8 times below the EU average (2010–2012 data). This results from both structural and technological differences, as well as the international flows of goods and services. In order to expand cooperation in production under the EU market conditions, to accelerate the inclusion of businesses in the EU value chains and to adopt more sustainable methods of production, a consistent and effective set of policies encompassing measures to support commercial applications of research and innovation in industry, efficient use of resources and environment-friendly technologies is required. This is a comprehensive approach that will also determine the overall productivity of the national economy.
Productivity per hour worked in Lithuania amounted to 66.4 per cent of the EU average in 2012 (data source: Eurostat). Due to industrial upgrading and its direct and indirect effects on the national economy, the said indicator is expected to rise to 78.44 per cent by 2020.
The European Commission estimates that over the coming 10–15 years 90 per cent of the global growth in demand will occur outside the EU. To protect their markets and domestic producers, States are expected to impose non-tariff barriers (standards, technical product regulations, product safety and quality requirements).
For the Lithuanian industry to be able to adapt to EU requirements and/or to find third-country markets, technologies must be upgraded.
The market surveillance issues will retain their significance, both as regards equal competition as well as the safety and quality of products and services. Thus, adequate attention should be devoted to the improvement of the capacities of the supervisory authorities in the markets for food and non-food products and services as well as capacities in the areas of metrology, standardisation and accreditation, with the aim of ensuring a better functioning of the domestic market, accessibility of the services provided by the said authorities to business as well as their quality.
7. The first task under the Programme’s second objective is to encourage the networking and industrial cooperation of industrial and service enterprises.
As the Lithuanian economy is opening up and integrating in the EU and global economic system, the national manufacturing industry is facing new challenges resulting from the general development trends as well as the global flows of goods and services. More and more often, Lithuanian businesses find themselves in competition with strong specialised companies with vast experience in international business. An important condition of success in that regard is the ability to cooperate with international and local partners. Industrial cooperation should help enterprises to join the activities of international value chains. Integration into the international market would encourage enterprises to improve, upgrade and thus maintain competitiveness. Lithuanian enterprises are not large. Participation in cluster operations would allow them not only to focus on larger industrial projects (acquire technologies or perform market research, harmonise product standards and requirements, use local materials) but also to master new technologies and working methods employed in the international clusters of a specific industry faster.
It is noteworthy that creation of conditions for the emergence and strengthening of industries generating and using intelligent products requires proper use of the scientific potential. Scientific institutions together with regional enterprises should form promising development centres to maximise the efficiency of local resources.
In that respect, enterprise clustering represents a very important issue. The target for 2020 is a 20 per cent increase, against the year 2015, in the number of enterprises involved in clusters as well as in the number of cases of industrial cooperation.
The predominant branches in Lithuania include not only capital-intensive industries (oil refining, main chemicals and other), but also industries intended for advertising (food, tobacco, leather, footwear, publishing etc.). Specialists observe that labour productivity here is rather high. The competitiveness of goods intended for advertising on foreign and domestic markets depends heavily on the advertising and other marketing instruments, and therefore the related services, such as logistics, installation management, design and market research, are crucial for the upgraded Lithuanian industry.
The functioning of the domestic market for services needs improvement. Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market (OJ 2006 L 376, p. 36) has done away with administrative obstacles to cross-border provision of services, yet in certain areas obstacles still remain. Industrial consumers of external services encounter a very fragmentary and non-transparent market lacking definite quality standards. Such market fragmentation places an additional administrative burden upon industrial enterprises. Common EU standards, technical regulations and directives that would affect the competitiveness of the entire EU are needed.
8. The second task under the Programme's second objective is to encourage enterprises to use materials and energy more efficiently.
As reported by Eurostat, the Lithuanian industry is among the most energy-intensive EU Member State industries (EU average: 135.4 kg, Lithuanian average: 175.7 kg oil equivalent per EUR 1 000 GDP). It is therefore crucial to promote energy efficiency in industry: increased use of renewable sources of energy as well as introduction of technologies reducing carbon dioxide emissions. The Lithuanian GDP accounts for 0.2 per cent of the EU GDP, while its greenhouse gas emissions amount to 0.47 per cent of the total EU greenhouse gas emissions. Atmospheric emissions of greenhouse gases, excluding land use, land use change and forestry sectors, have declined by 58 per cent compared with 1990 (Annual European Union greenhouse gas inventory 1990–2012 and inventory report 2014). Based on the predictions made in Lithuania's Sixth National Communication of 2013 on the implementation of the United Nations Framework Convention on Climate Change and in the First Biennial Report as well as in the European Commission's reference scenario (EU energy, transport and GHG emissions trends to 2050. Reference scenario 2013) , the total greenhouse gas emissions should not exceed 22 million tonnes CO2 equivalent after the implementation of the measures set out in the EU legislation and in the policy documents for individual sectors (energy, industry, transport, agriculture). With an annual 3 per cent growth of the Lithuanian economy, emissions may increase, unless additional greenhouse gas reduction measures are implemented. EU assistance is, therefore, necessary to help raise the efficiency of energy production and consumption as well as the use of renewable energy and thus limit greenhouse gas emissions to acceptable emission levels and pursue the target indicators.
Under such conditions, energy intensity (the amount in kilograms of oil equivalent required to generate a EUR 1000 valued-added in industry) at Lithuanian manufacturing industry enterprises should decline from 222.9 in 2012 to 182.9 in 2020.
A lot of attention should be devoted to sustainable development, creation of decent industry jobs, transition to a more sustainable use of resources and introduction of measures such as eco-design or European eco-labelling. In addition, it is necessary to take into account the common targets laid down in the Communication from the Commission COM(2010) 2020 of 3 March 2010 "Europe 2020: A strategy for smart, sustainable and inclusive growth", which stress that the use of resources and energy and the reduction of greenhouse gas emissions should be detached from the raising of output levels. Industrial enterprises should enjoy better conditions to secure funding for the introduction of resource and energy-efficient technologies and waste treatment technologies.
A crucial risk factor in upgrading and developing industry is the possibility of acquiring raw materials securely, at affordable and competitive prices. Security of supply is not so much a matter of independence from imports, but rather of supplier diversification and reliability. Key natural resources in Lithuania are very scarce and they cannot be relied on exclusively in ensuring competitive advantages for the industry.
A study ordered by the Ministry of Economy of the Republic of Lithuania, "Analysis of the current situation and future prospects of securing key raw materials for the Lithuanian economy and the effect of this situation on Lithuania's competitiveness", was conducted in 2011. With regard to the prospect of securing essential raw materials for the Lithuanian economy, the analysis covered the consumption of each type of raw material by sector of economy (sectors accounting for over 5 per cent of the total raw material consumption were analysed), the economic significance indicator of a raw material, and the possibility of importing a raw material from other countries having higher stability criteria under the World Bank's ranking. The degree of raw material processing and the possibility of raising it in Lithuania as well as the degree of substitution in certain sectors of the economy and the possibility of reducing it were analysed. Based on the above criteria, the Lithuanian List of Critical Raw Materials was drawn up (crude oil, natural gas, sulphur, caustic soda, cast iron, sodium carbonate, plywood, tin, glass in building, aluminium, and polyvinyl chloride). For the purposes of reducing raw material import as well as the dependence on foreign raw material suppliers and producers and the related risks and thus increasing the competitiveness of the Lithuanian industry, the following steps would be adequate: to design measures on the basis of which a large number of enterprises would be trained to assess materials efficiency, to compare it with the materials efficiency of competitors and to regularly introduce innovations for greater operational efficiency, and to encourage enterprises to do that; to support enterprises, in particular small and medium businesses, and to advise them on constant improvement of materials efficiency and sustainable use thereof; to train enterprises in the application of the principles and methods of product eco-design as well as resource efficient and cleaner manufacturing; to promote sustainable consumption and green procurement; to promote and support budgetary research for efficient use of key raw materials and to encourage enterprises to work together to introduce the principles of regional industrial symbiosis that enable raw material savings and waste minimisation.
If the abovesaid measures are adopted, the proportion of treated or otherwise utilised waste from manufacturing and other economic activities (apart from phosphogypsum waste) is likely to increase from 90 per cent in 2012 to 92 per cent in 2020.
The competitiveness of the Lithuanian industry is highly influenced by the prices at which energy raw materials are purchased, which means that measures to ensure safe, uninterrupted and reliable energy supply at competitive prices are of utmost importance. The European Commission predicts that interconnection of energy networks and elimination of energy islands will make it possible not only to cut energy prices but also to enhance the industry's competitiveness, stimulate the development of small and medium enterprises and increase employment. Creation of a fully integrated internal energy market and intensification of competition on the energy markets would result in lower wholesale energy prices for industrial consumers.
To increase the competitiveness and sustainability of Lithuanian enterprises for tangible economic and energy security-related benefits, it is necessary to reduce that part of the electricity price which falls on the shoulders of enterprises as a surcharge for the service in the general interest additional to the electricity tariff and which is not regulated by EU legislation or obligations. The State energy saving policy must ensure that energy efficiency is synchronised with the planned support programmes, especially at enterprises and households, with clear separation of sectors of economy and beneficiaries.
9. The third task under the Programme's second objective is to increase high and medium-high technology manufacturing.
The added value generated reflects the financial capabilities to implement investment, scientific and technological development projects, helps to compete for workforce and other resources and to pursue other activities giving a competitive advantage. Technological progress is highly dependent on the system of research and innovation, partnership links among research institutions, as well as the efficiency of joint operations by businesses and public policy institutions. Export is a significant indicator of international competitiveness. According to the data for 2013, 83 per cent of export growth owes to goods primarily manufactured at enterprises in the low and medium technology sectors. The export share of high technologies amounts to 5.8 per cent, compared to the EU average of 15.4 per cent (data source: Eurostat). For the most part, exports go to the EU (61 per cent) and the countries of the Commonwealth of Independent States (30 per cent) (data source: Eurostat). The Lithuanian industries generating a high added value are well prepared to take advantage of the opportunities offered by the EU export markets thanks to their educated and quite competitive workforce. Creation of trademarks and attention to product design in the value chain may increase the added value.
In terms of industrial policy, the complexity of exported products means that exporting only high technologies may not be as profitable as exporting industrial (including high, medium and low technologies) goods based on scientific and technological knowledge in all the sectors open for international commerce. Lithuania's main exporters come from big sectors that are more likely to use the already available innovations than develop new ones. To maintain competitiveness at least at the current level, these sectors will have to modernise, restructure and move to new higher value-added generation chains.
Industrial enterprises must be encouraged to develop new high value-added and scientific knowledge-based products. The State must share with them some of the risks associated with new product development and market entry, especially in the stage of experimental development, when prototypes of new products are designed, experimental production is developed and products are placed on the market. Young researchers must be enabled to adapt in industry and business. It is crucial to direct more research and experimental development as well as innovation investment to technology application innovations. Such a strategy would allow transforming the manufacturing process or creating new or improving the existing products or services.
The share of high-technology production in the total structure of manufacturing production is expected to edge up from 1.57 per cent in 2013 to 2.5 per cent in 2020.
10. The Programme's third objective is to provide the Lithuanian business with competitive human resources (hereinafter referred to as "the Programme's third objective").
The Human Capital Report (2013) of the World Economic Forum ranks Lithuania 87th (out of 122) in terms of ease of finding skilled employees.
Investment and development of Lithuanian and foreign enterprises are constrained by the shortage of skilled workforce, especially in the country's regions. A survey carried out by the Lithuanian Confederation of Industrialists in 2012 revealed that 44 per cent of business operators in Lithuania did not hire any new staff as they were unable to find people with the required qualifications. A survey conducted by the Kaunas Chamber of Commerce, Industry and Crafts in 2013 showed that only 15 per cent of the enterprises questioned were satisfied with the qualifications of vocational school students. As many as 73 per cent of the respondents indicated that their employees lacked practical skills (only 11 per cent noted insufficient theoretical background).
Only a third of Lithuanian schoolchildren are interested in engineering science and only one sixth choose engineering studies, and their academic achievements are below the average of the Organization for Economic Cooperation and Development (OECD).
Vocational guidance is insufficiently developed to be able to inform pupils and their parents of the needs of the economy, the labour market situation, the occupations and their prospects. Only 33 per cent of youths (EU average: 50 per cent) choose vocational education, while others, immediately upon completion of general education, enrol in schools of higher education or enter the labour market without vocational training.
For the economy to grow and gain competitiveness, efforts must be made to match the supply of qualifications with the demand, however both higher education and vocational training fail to fully satisfy the needs of the labour market in terms of programme supply and training quality.
When introducing new technologies and creating jobs that require additional competencies, the workforce must be adapted to the new high technologies as quickly as possible. According to the data for 2012, only 5.2 per cent of persons aged 25–64 were involved in life-long learning activities. The EU-27 average is 9.1 per cent (data source: Eurostat). To increase Lithuania's competitiveness, generation of a higher added value must be promoted, which will require skilled workforce. This necessitates constant efforts to maintain the level of employee competence and encouragement of employer involvement in these activities.
11. The first task under the Programme's third objective is to increase the responsiveness of higher education and vocational training to the needs of the labour market.
In order for education and vocational training to reflect the requirements of the labour market, the supply of training programmes must meet the constantly changing business requirements as well as global labour market trends, i.e. it is necessary to create mechanisms for a rapid response by the training institutions to the ever-changing labour market situation that would allow swift adaptation of the workforce to the ever-changing business requirements and technological advancements.
No medium term (5–7 years) forecasts on human resources are available in Lithuania, and both the public and the private sectors are missing crucial information as a result. There are no measures based on the extended version of the Lithuanian Classification of Occupations for comparing the occupational breakdown of the labour market at international or domestic level that would cover the regularly updated list of occupations, the descriptions of all occupations and their links with the levels of education and qualifications (the current form of the Lithuanian Classification of Occupations and the presentation and content of its information are not user-friendly). A medium-term forecasting system would make it possible to determine, on an annual basis, the main aspects of the mismatch between workforce supply and demand on the labour market and to predict medium-term needs of the labour market according to groups of the Lithuanian Classification of Occupations, sectors and level of education.
In 2011, Lithuania contributed to the survey of workforce skills (PIAAC), implemented by the OECD and supported by the European Commission, in the course of which 5 000 adults between the ages of 16 and 65 will be questioned in each country. The results of the survey will help to foresee the skills that will be expected of employees in the future when operating in a technology-saturated environment and to refocus adult training programmes for the development of the missing skills.
There is a shortage of information on the ratio of the supply and demand of human resources on the labour market and on the proportion of jobs occupied by qualified specialists. For that purpose, creation of a system for monitoring the links between human resource qualifications and jobs has been launched. Improvement and development of the operation of this system is envisaged in order to draw up and regularly update a map of specialist qualifications that will facilitate the receipt of objective information on the employment and careers of the graduates of educational establishments and to compare the effectiveness of training received by the graduates of higher education and vocational training programmes. These data will be used in the system of vocational guidance.
Following the implementation of the education reform which linked a school graduate's choice with the funding of a higher education or training programme under the "student basket" principle, an opportunity has emerged to provide school graduates with objective information on the labour market demand and employment prospects, so that they can appreciate the added value of education. Thus, it is important to make sure that pupils receive objective information on employment opportunities on the labour market, which would help them in making their further choices. Vocational guidance services for the students of educational establishments of all levels, including early leavers from education as well as adults, must be supported and developed.
In Lithuania, vocational and higher education establishments do not take any responsibility for whether or not their graduates will be in demand on the labour market and are instead guided by other criteria when approving the type and scope of their study programmes (such has costs, profitability, flow of entrants etc.). In the Kingdom of Sweden, the United States of America and other advanced countries, funding of higher education and/or the ranking of educational establishments first of all depend on the graduate employment rates resulting from the education acquired. It would be reasonable to demand that the Lithuanian institutions of vocational and higher education assume greater responsibility for the number and the quality of specialists they prepare for the labour market, successful research careers or independent business activities.
Institutions of higher education and training should be especially flexible in making changes to the study programmes offered and in updating the content of specialist training programmes and required infrastructure and should cooperate more closely with business representatives (in the formation of qualifications, development of professional standards and study programmes, assessment of acquired qualifications etc.).
As pupils find studies in the areas of science, technologies, engineering and mathematics (STEM) difficult and cannot comprehend their practical applications, it is necessary to change the methods of teaching these subjects at school, to improve teacher competencies and abilities to teach these subjects in an attractive and comprehensible manner and to actively involve the representatives of businesses, museums, vocational and higher educations and other establishments in the learning process in order to familiarise pupils with the practical applications of the said disciplines.
Equally important is the development of the link of continuous vocational training intended for a swift response to the needs of the labour market as well as rapid development of the competencies of the economy's human resources or human resource retraining. Nearly all establishments of vocational training are focused on primary vocational training, yet the demand for vocational training is changing – the demand for continuous vocational training is on the rise. There are no financial mechanisms in place to promote continuous vocational training and to ensure human resource competitiveness. The growing demand for continuous education in the economy calls for raising worker competitiveness and provision of continuous adult vocational training services.
Development and approval of new formal vocational training programmes may take up to a year and longer, which prevents businesses from finding qualified employees and reduces their determination to participate in the training process. Therefore, the legislation laying down the procedure for drafting and validation of formal vocational training programmes must set specific time limits for every step in the process and seek to make them as short as possible.
Practical training is provided for in all vocational training programmes, but only 8–15 weeks are available for on-the-job training at a company. To better adapt a student's knowledge and skills to the requirements of a specific job, it is necessary to improve the practice of on-the-job training, including apprenticeship. Although apprenticeship as a form of training is allowed by the Law of the Republic of Lithuania on Vocational Education, it does not function in practice due to the imperfections of the relevant subordinate legislation. Employers are not encouraged to train apprentices by any tax advantages that would, for instance, allow enterprises to reduce the corporate income tax based on their investments in the apprenticeship process. Enterprises must be educated and familiarised with this form of training and its benefits. Opportunities for expeditions drafting of informal education programmes necessary for and responsive to the needs of employers should be created.
Creation of a network of sectoral practical training centres with up-to-date practical training equipment started in Lithuania in 2007. 41 practical training centres were established with the key objective of ensuring that students acquire practical skills required by the labour market through the use of the latest technologies and equipment. These centres are to provide practical vocational training to persons wishing to acquire or improve their professional qualifications. The services of centres should be made available to all Lithuanian residents, i.e. to the students of various vocational schools as well as schools of general education, colleges and universities, employees of enterprises and institutions and other persons, however there are no legal or financial mechanisms that would allow the use of these centres for both primary as well as continuous vocational training. It is necessary to establish legal and financial conditions for practical training of pupils and students, to develop forms of on-the-job training and to prepare legal mechanisms enabling the acquisition of practical skills required by the labour market through the use of the facilities of sectoral centres of practical training.
It is necessary to establish conditions for the development of life-long learning services for adults at vocational schools as well as schools of higher education and to create a uniform system of financial and legal incentives that would facilitate the participation of adults in the activities of life-long learning.
Development and improvement of the qualifications system is envisaged to increase the competitiveness of human resources. As sometimes employers are not eager to trust the new employees' practical abilities and skills that diplomas and qualification certificates are expected to confirm, the work of formation of a qualification system should be pursued more vigorously in the business sphere and business representatives should be encouraged to take part in the decision-making on the formation of this system by preparing professional standards and training programmes and performing competency assessment. Often the experience and competence gained at the workplace does not have a formal expression, since the existing system of qualifications does not provide for the formalization of personal qualification advancement throughout one's professional life. Therefore, it would be useful to create a subsystem for qualifications acquired in the course of professional activities and to make sure its functionality is supported and improved.
12. The second task of the Programme's third objective is to design permanent measures for the improvement of the competencies of human resources.
According to Eurostat's data for 2013, labour productivity of Lithuanian workers is among the lowest in the EU. In part, this has been preconditioned by the competitiveness of human resources.
The surveyed employers indicate a significant problem: graduates of educational establishments lack practical skills and, despite a formal qualification, they are not always prepared to function in the workplace, where additional competencies are required. Moreover, the emerging new technologies and innovations are constantly forcing employees to adapt to changes and to improve the existing and acquire additional competencies. Hence, it is crucial to develop such forms of training assistance that would not impose any administrative burdens and would be accessible to as many beneficiaries as possible, including small and medium businesses and natural persons.
To ensure that specialists are trained with regard to the employers' needs and changes in the economic situation, creation of a permanent mechanism for the supply of qualified specialists would be useful. Many EU countries have a system of training vouchers for the development of human resource competencies. No training vouchers are used in Lithuania. The system, which is rather widely used in EU countries, could be successfully applied in Lithuania for the purposes of human resource competency development and qualification improvement. In 2007–2013, the State promoted investors' human resource competency development by funding training related to newly established jobs, however investors that decided, in the course of their operations, to expand activity areas or to train both new and current staff were not able to avail themselves of this opportunity. Support was extended under a complex mechanism.
Foreign investors in Lithuania meet with the need to provide their staff with specific competencies.
Companies operating in Lithuania had an opportunity to train their staff under the measure "Development of human resources in enterprises", administered by the Ministry of Social Security and Labour of the Republic of Lithuania, under the Operational Programme for Human Resource Development 2007–2013, yet this measure was not linked to investments by enterprises.
Funds for staff competency development were allocated through non-regular project competitions the main participants of which were larger enterprises, while participation of small and medium businesses was very limited.
It is essential to design and apply a support scheme that would make the human resource competency development measures available not only to larger enterprises but also to natural persons, and not only through project competitions but also through a global grant, thus making support available throughout the 2014–2020 period. The new support scheme should provide an opportunity to support the human resource competency projects implemented by associated structures representing sectors of economy and focusing on single-type competencies of a specific sector. It would be useful to design measures that would enable a rapid response to the investors' need for personnel adaptation to the workplace.
It would therefore be purposeful to implement measures ensuring company workforce competency improvement as well as measures accessible to small and medium businesses and natural persons and to organise training at sectoral level by supporting sectoral projects implemented by associated business structures as well as competency development centres intended for the acquisition of single-type competencies characteristic of the sector in question.
13. The assessment criteria for Programme implementation and the target values for the years 2017 and 2020 are set out in the Annex.
IMPLEMENTATION OF THE PROGRAMME
14. The Programme shall be implemented under the strategic activity plans of the Ministry of Economy of the Republic of Lithuania (hereinafter referred to as "the Ministry of Economy") and other managers of appropriations involved in the implementation of the Programme. For the purposes of implementing the Programme, an Action Plan for Programme Implementation shall be prepared and approved by the Minister of Economy after coordination with the authorities concerned.
15. In implementing the Programme's objectives and tasks, the following shall be treated as priorities:
15.1. sustainable development of the Lithuanian regions by upgrading industry and increasing investment;
15.2. job creating businesses requiring additional competencies and, in the long-run, generating substantial added value or creating jobs in the areas with the highest workforce supply;
15.3. research and research development, application of advanced technologies and innovative and eco-friendly solutions, development and introduction of innovative products and services.
16. Programme implementation shall be funded from the general appropriations to the respective authorities responsible for specific actions under the Programme, as approved by the Law of the Republic of Lithuania on the Approval of Financial Indicators of the State Budget and Municipal Budgets for the respective year.
17. Bodies participating in the implementation of the Programme shall be the Ministry of Economy, Ministry of Education and Science of the Republic of Lithuania and other ministries, agencies, enterprises and organisations listed in the Action Plan for Programme Implementation.
18. Monitoring of Programme implementation shall be performed and the achieved progress shall be evaluated by the Ministry of Economy. In the course of Programme implementation, the authorities specified in the Action Plan shall, by the 10th of February of each year, submit to the Ministry of Economy information on the completion of the actions specified in the Action Plan, the benefits generated, the problems encountered and other relevant positive and negative aspects.
Annex to the Programme for investment promotion and industrial development in 2014–2020
CRITERIA FOR THE ASSESSMENT OF THE IMPLEMENTATION OF THE PROGRAMME FOR INVESTMENT PROMOTION AND INDUSTRIAL DEVELOPMENT FOR 2014–2020, AND THE CRITERIA VALUES
Assessment criterion value
Authority responsible for attaining the assessment criterion value
The first objective of the Programme for investment promotion and industrial development for2014–2020 (hereinafter referred to as "the Programme") is to increase direct investment in the sectors of production and services
Ratio between the share of gross fixed capital formation (excluding residential building and cultivated assets) in the Lithuanian gross domestic product (GDP) and the respective European Union (EU) indicator
Ministry of Economy of the Republic of Lithuania (hereinafter referred to as "the Ministry of Economy")
The first task under the Programme's first objective is to improve the investment climate.
ease of doing business ranking; World Bank "Doing Business" Report (rank)
Ministry of Economy
The second objective under the Programme’s first objective is to develop free economic zones and industrial parks.
investments by enterprises operating in free economic zones and industrial parks (EUR million)
Ministry of Economy
The second objective under the Programme is to modernise, integrate and develop industry
GDP share of manufacturing (%)
Ministry of Economy
Lithuanian labour productivity per hour worked (% of EU average)
The first task under the Programme’s second objective is to encourage the networking and industrial cooperation of industrial and service enterprises
change in the number of enterprises participating in clusters and of cases of industrial cooperation (%)
10 (compared with 2015 data)
20 (compared with 2015 data)
Ministry of Economy
The second task under the Programme's second objective is to encourage enterprises to use materials and energy more efficiently
energy intensity in Lithuanian manufacturing industry (to generate EUR 1000 value-added in industry (in kilograms oil equivalent)) Percentage of treated or otherwise utilised waste from manufacturing and other economic activities (apart from phosphogypsum waste)
222.9 (2012) 90
197.9 minimum 91
182.9 minimum 92
Ministry of Economy
The third task under the Programme's second objective is to increase high and medium-high technology manufacturing
The share of high-tech and medium high-tech production in the total structure of manufacturing production (%)
Ministry of Economy
The Programme's third objective is to provide the Lithuanian business with competitive human resources
level of employer satisfaction with the supply of qualified specialists (%)
authority measuring the criterion: Ministry of Economy
The first task of the Programme's third objective is to increase the responsiveness of higher education and vocational training to the needs of the labour market
graduates of higher education and vocational schools who found jobs matching their qualifications (% of all graduates)
Ministry of Education and Science of the Republic of Lithuania (hereinafter referred to as "Ministry of Education and Science"); authorities measuring the criterion: Ministry of Economy, Ministry of Education and Science
The second task of the Programme's third objective is to design permanent measures for the improvement of the competencies of human resources.
employees who took part in supported programmes (in cumulative units)
Ministry of Economy