BA_galutinis

2014 

Price 20 LTL / 4.10 LVL / 5.80 EUR 

The Winner 

Of The Year

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CONTENT 

2014 

EDITORIAL 

11 | Why the Baltics are more than 

just a region and what they fight for 

by Eduardas Eigirdas 

CRITICAL VIEW 

13 | Global economy to face 

apocalypse in 2014 

WORLD IN 2014 

14 | What kind of world China 

represents and wants to rule 


EVENT OF THE YEAR 2013 

20 | Ukraine between Russia and the 

EU – the main point for business 

by Vadim Volovoj 

ECONOMY INSIGHTS 

22 | Roubinisation of financial 

markets: what the financial gurus 

forecast for 2014 

by Artūras Milevskis 

INTERVIEW with Jolanta Latvienė 

29 | The investment climate for 2014 

CRITICAL VIEW 

33 | Printing money on a scale the 

world has never seen 

by Nerijus Mačiulis 

TRENDS 

34 | Energy from renewables has 

chilled, but not the climate 

36 | Why television is dying 

38 | Why the Vikings resemble Draculas 

TOPIC 

40 | Chinese Renminbi – 

American dream? 

by Žygimantas Mauricas 

46 | China wants to have a 

compliant middle class 

by Arūnas Spraunius 

52 | Lithuanian, Latvia and Estonia 

learning from Obama 

by Karolis Makrickas 

INTERVIEW with 

President Dalia Grybauskaitė 

56 | The EU has already gone 

through its most severe phase 

TOPIC 

60 | What Baltic real estate 

promoters dream about 

by Monika Poškaitytė 

2014 BALTIC ECONOMY 7

CONTENT 

TOPIC 

108 | LNG terminal – 

a Lithuanian fortress 

by Povilas Juodelis 

TRANSPORT INSIGHTS 

112 | Lithuania builds EU-China 

transport corridor 


POLITICAL INSIGHTS 

118 | Everyone is spying on everyone, 

but not everyone has snowdens 


TOPIC 

120 | Investing in Belarus: 

pros and cons 

by Maksimas Saveljevas 

The second issue of Baltic Economy 

will appear in December 2014. 

If you are interested and want to be the first to read it, 

subscribe, and we will send you our magazine immediately. 

Subscription service: 

subscription@balticeconomy.eu 

Tel. + 370 5 2 619662 

Advertising Department: 

almantas@balticeconomy.eu 

Tel. + 370 5 2 619662 

www.valstybe.eu 

TRENDS 

66 | Estonia: small, open and on 

solid ground 

by Hardo Pajula 

67 | Latvia: an impressive comeback 

by Andris Strazds 

68 | Lithuania: lessons 

learned from the crisis 

by Gitanas Nauseda 

FINANCE INSIGHTS 

71 | Who is sucking the blood of the 

Baltic states' pensioners 


TRENDS 

76 | NASDAQ OMX Baltic – three 

countries, one market 

by Ott Raidla 

TOPIC 

78 | Essential Event – the evacuation 

of Schibsted 


MEDIA INSIGHTS 

84 | Capitulate like Schibsted or 

adapt like Bonnier? 

By Eduardas Eigirdas 

INTERVIEW with Hans H. Luik 

90 | The way to win – to be the largest 

CRITICAL VIEW 

95 | Scandinavian investments 

in the Baltic states – risks and 

opportunities 

by Rems Razums 

TOPIC 

96 | Energy independence, Gazprom 

pipelines and Andersen's fairy tales 


ENERGY INSIGHTS 

104 | Shale gas – from America with 

love? 

by David L. Goldwyn and Leigh 

E. Hendrix 


134 | The mutating vision of 

Kaliningrad and Russia's future 


BUSINESS TOURISM 

138 | Prospects for business tourism 

in Vilnius 


INTERVIEW with David Brin 

142 | Why do we need to forecast 

the future? 

ENTERTAINMENT 

148 | Business and fun in the Baltic 

countries in 2014 

by Monika Baltrušaitytė 

ENTERTAINMENT 

152 | Latvian armoured 

cars for dictators 



EDITORIAL 

The Baltics Are 

More Than Just a Region 

Perhaps there exists a great 

number of small states all 

across the world convinced of 

their uniqueness. However, 

you will surely not find many 

which, having freed themselves 

from the Soviet Union 

are endeavouring to adopt and 

learn from Western democracy's 

experience and become a 

symbol of life that is based on 

different values. Such states are 

Estonia, Lithuania and Latvia. 

It is on their success that their 

own fate basically depends, as 

much as, in a sense, the future 

of all Europe and even Russia. 

The more successfully the Baltic 

States implement decisions that 

enhance their economic potential and social 

welfare, the more evident it will be that the 

social and economic system represented by 

democratic Western states is superior. That 

could be an example which might be disregarded 

by the dictators entrenched in separate 

Eastern states, but it will nevertheless be 

seen by the inhabitants of those states and 

will encourage them to believe in democracy 

and freedom as well as in themselves. 

That is a vexing frustration for V. Putin, for 

whose Eurasian Union, based on control and 

covenants between autocratic leaders, such 

as example, which is dispelling its society's 

humility, is especially unfavourable. Therefore, 

he is not so much taking care of the 

modernisation of the Russian 

economy, but rather, is striving 

by a variety of ways to put the 

economies of the Baltic States 

on hold. These efforts are most 

conspicuously manifest in the 

energy sector, where the Baltic 

States, the nearest members of 

the European Union to Moscow, 

are paying one-third more 

for Gazprom's gas than other 

more distant and considerably 

richer EU Member States. 

However, proactive actions are 

also being witnessed in other 

fields such as transport and the 

media. Processes that are taking 

place in the latter are deserving 

of exceptional attention, 

since it is with its help that business groups 

related to Russia very often succeed in setting 

the societies of the Baltic States against each 

other and in biasing them against decisions 

that are indispensable for their prosperity. 

This is why it is of crucial importance that we 

continue talking publicly about what concrete 

decisions may not only strengthen the Baltic 

States, but also Scandinavia and all of Europe. 

This is the main reason why we have founded 

this magazine. We hope and expect that it 

will help to better understand the processes 

that are ongoing in the Baltic Sea Region and 

will contribute towards the establishment of 

Western democracy's fundamental values. 


ISNN 1822-6574 

Editorial Staff of 

Business Magazine 

Director Almantas Gliožeris, almantas@balticeconomy.eu Editorial office T. Vrublevskio g. 6, LT-01100 Vilnius, +370 5 261 9662, fax +370 5 275 8882, almantas@balticeconomy.eu 

Editor-in-Chief Eduardas Eigirdas, eduardas@valstybe.eu Deputy Editor Vadim Volovoj, vadimas@balticeconomy.eu Chief Product Officer Ingrida Šidlauskienė ingrida@ balticeconomy.eu 

Editorial Staff Arūnas Spraunius, Monika Poškaitytė Designers Silva Jankauskaitė, Karolis Makrickas 

Subscription +370 5 231 3154, subscription@balticeconomy.eu Commercial Director Justinas Tverkus +370 5 231 3153, justinas@valstybe.eu 

Advertising Project Manager Žilvinas Šileikis +370 5 231 3153, zilvinas@valstybe.eu. 

Translation Baltijos vertimai, UAB. Printing House Lietuvos rytas Circulation Audit KPMG Baltics, UAB. Circulation 5 077 copies, plus e-version. 

Images Bulls Press, Scanpix/Reuters, Verslo Žinios, BFL, Flickr, Wiki Commons and Image state Visualizations Marius Zavadskis. Photographer Karolis Bingelis. 

Copyright © 2014 VšĮ Demokratijos plėtros fondas. All right reserved. Editorial office is not responsible for the content or language of advertising. 

It is forbidden to copy and distribute this magazine's contents without permission of the editorial office.

CRITICAL VIEW 

Global Economy 

to Face 

Apocalypse in 

2014! 

Such a conclusion comes to mind when you analyse 

the insights of the 2 best-known economists 

for 2014. Neither one of them predicts a plague, a 

famine, or an economic disaster. Even N. Roubinis, 

who in recent years predicted different challenges for 

the global economy rather unsuccessfully, this time refrains 

from apocalyptic prophecies. So ironically, it can 

be said that the world's economy is in a position where a 

serious global crisis is not currently possible, or we are observing 

a suspicious conspiracy of economists to conceal 

a looming disaster. 

However, the editorial board of our magazine believes 

that the first option is more realistic, and the majority of 

economists who attempted to forecast the risk of the next, 

greater recession following the crisis of 2008, just got tired 

and decided to stay with moderate insights. However, we 

are in no way blaming predictions that most often never 

come true, as closely monitoring the economic as well as 

scientific situation, we have to admit that today the modified, 

illustrated, scandalised or unrealistically exaggerated 

reality sells best. So if you want to get on the front covers, 

you simply have to dish out terrible statements that may 

not come true, because there is no media attempting to 

embrace false insights and notify the public – it does not 

care. 

Indeed, who could care about the past? Everyone cares 

about the future, in particular if it is very scary for someone. 

Therefore, we have to admit that even with our scary 

heading, the majority of Scandinavian entrepreneurs 

will never read this comment, because it, like the entire 

magazine, seems insufficiently cool. However, if we had 

used a more serious title, such as “The world economy 

has stabilized”, the number of our readers would probably 

be equal to zero. This is understandable, because there is 

an overload of information. The flow of information is so 

large that convincing the reader that he could find useful 

insights in our magazine is almost impossible. Therefore, 

the only way to attract attention is associated with emotions. 

It is for this reason that a large proportion of serious 

publications still try to focus on the status provided by the 

created image, catering for their audience in various ways 

such as constantly explaining to businessmen (and they 

really love it) that the state does not appreciate them, is 

taxing them unnecessarily and that generally, the country 

would collapse without them. Meanwhile, the media, with 

a focus on hot issues, is hunting for flagrant statements 

of prominent economists and politicians, often without 

regard to the purposes for which they are made and how 

true they can be. 

So when we talk about standing out in the information 

space, it is important to realize that standing out 

with captions is of course not serious, but pretending 

to read a solid release, when it constantly nourishes you 

with scandalised content, is ridiculous. For this reason, 

we expect your forgiveness, if, while reading our magazine, 

you get the impression that we are overly flagrant 

in formulating our article titles or illustrating them too 

“deliciously”. We only performed this unpleasant job so 

that you can read the essence on paper. We have no doubt 

about the value of this information because we only write 

about what is really important, and only authors whose 

competence and objectivity cause no doubt in sharing 

their insights with us. 


WORLD IN 2014 WORLD IN 2014 

The Winners of the Year – 

Good China and Grim Russia 

The Chinese economy has a great growth potential, and this is good news for the World 

economy. But it is time to answer one question – what kind of world China represents and 

wants to rule? 


Watching global processes unfolding, we 

are often unable to see the gist. It might 

be explained by our focusing on the 

events taking place on our plate, which is 

quite normal and human. It is this human property that 

allows those magicians to survive who make an elephant 

disappear in an inexplicable way in front of a gaping audience. 

While doing this, they seek to draw the attention 

of the public to a long-legged female assistant so that the 

audience does not take in the whole act and grasp where 

the elephant has gone. 

This human trait is unfortunately exploited by anyone 

who feels like it: salesmen, politicians, economists, journalists 

and even doctors. Everyone endeavours to focus 

attention on things beneficial for them. Because of this, a 

person who does not consciously devote time to get to the 

bottom of ongoing processes is simply doomed to become 

an elephant admirer – usually, merely seeing an elephant’s 

tail in the world processes. 

China Manufactures the Largest Copy in the World 

Everyone is perfectly aware that an industry of counterfeit 

brands had thrived in China earlier (one hopes this 

is no more). The Chinese used to simply copy everything, 

from Rolex watches to Pampers diapers. This included 

everything that was in demand and that they were able to 

produce to at least minimum quality standards. Therefore, 

when a Chinese-made Rolex, after getting wet, would fall 

to pieces like some Chinese diapers, consumers used to 

understand this because they had paid a cheaper price 

for it. The Chinese, however, at least until now, have not 

dared or rather failed to copy a Porsche or a Lamborghini, 

though we all undoubtedly understand that they would 

like to. The price for a fake Porsche, and for it to drive 

a few hundred meters, would be rather high, so it is not 

worth the trouble, just as for many other cost-intensive 

commodities. Subsequently, before embarking on automobile 

manufacturing and copying the German automotive 

industry, China has decided to manufacture the largest 

copy in the world – that of the US economy. 

Paradoxically, a communist state, whose raison d’être 

ought to be protection of the interests of workers, for 

several decades had become a manufacturing base of the 

so-called imperialist and capitalist predators relying upon 

cheap labour and its exploitation. This must be the charm 

of a communist system – one may do as one pleases to 

the people in the name of the party’s goals. Indeed, in 

attempting an unbiased view, we should make a point of 

the fact that Western corporations, while emphasising social 

responsibility, had exploited the Chinese to an extent 

officially and unofficially sanctioned by China. An essential 

difference in that process is the fact that the Western 

corporations had been pursuing short-term goals, while 

China – long-term goals. Thereby corporations, competing 

amongst themselves, have facilitated the Chinese 

Communist Party both in modernising the state and accumulating 

money for the manufacture of the biggest 

copy in the world. Therefore, when reading about copies 

of European or US cities cropping up in China, we are, in 

fact, seeing small-scale models of the real Chinese dream. 

One may discern the big copy by looking at the stage in its 

entirety, leaving out the elephant. 

Hundreds of billions of US dollars are being invested 

in the transport infrastructure, construction of new cities 

and even the adjustment of waterway courses to satisfy 

the demand for water in certain regions. Hundreds of millions 

of the Chinese rural population have been resettled 

in urban areas where they will get accustomed to buying 

rice in shops instead of growing it on their small plots of 

land. Hence, the growth of urban communities is accelerated, 

which is destined to become the driving force behind 

domestic consumption. Estimating investment and 

changes in the education system, we may safely assume 

that in the short run, these new urban dwellers will turn 

into a labour force ready, if not for impertinently faking a 

Porsche, at least for launching the manufacture of a Chinese 

counterpart with a hieroglyph, incomprehensible to 

the Europeans, in place of the Porsche logo. This, however, 

will require another couple of years, a decade per- 

Thus, it makes one wonder how 

China could manage to impose the 

Renminbi, comprehending the long-term 

effects this would have on domination 

of the US dollar and the Euro. 

haps, and another trillion US dollars in addition. This will 

not come easy because the resources of cheap labour are 

waning. This is further corroborated by the decision made 

by the Communist Party of China allowing Chinese to 

have two babies on certain conditions. This is not an easy 

decision as the efficiency of labour utilisation is liable to 

slump in view of raising two children, so the Communist 

Party of China is ready to sacrifice part of the potential 

to prevent economic decline in the future as a result of 

an abrupt demographic pit. There is, of course, a theoretical 

premise that the villagers-turned-urbanites will be the 

nurses who will rear the additional several hundred million 

little Chinese. At any rate, it is obvious that China 

can hardly expect those hundreds of billions, needed for 

14 BALTIC ECONOMY 2014 


WORLD IN 2014 

further rapid modernisation, to be coming from manufacturing 

and foreign trade; consequently, it is essential to 

make a copy of the US and, specifically, their dollar. 

Currency Is Also a Friend 

On numerous occasions, I have written in my articles 

that it will be fascinating to watch China seeking to make 

the Yuan a global currency, which, in coming decades, could 

become a dominant reserve currency, alongside the US dollar 

and the Euro. It is indeed curious as to when China, just 

as the US today, will be able to print a trillion Yuan in an 

attempt to solve her problems. Or, in what ways will it affect 

the potential of the US dollar and the Euro, and does it mean 

that a financial twilight is setting down upon the West (considering 

the extent of debt)? Anyway, the key issue is how will 

China succeed in implementing this process? 

Taking a glance at the processes evolving in the currency 

world, it becomes evident that reactions to currencies 

often resemble responses to something possessing 

human features. For example, if some Asian country fears 

her neighbour, in addition to foregoing her currency as a 

reserve currency, she would not trade with this neighbour 

in her own currency, instead using the US dollar or the 

Euro. Or if some Eastern dictator was not happy with US 

policies, he would straightaway tell his bankers: “Send the 

dollar home and replace it with the Euro.” It seems as if a 

currency, in addition to being a medium of exchange, is a 

kind of secret army for a certain nation, and holding this 

currency augments the potential of that nation. 

Before embarking on Porsche, China has 

decided to manufacture the largest copy 

in the world – that of the US economy. 

So, geopolitics and related emotions are merely a reality 

in the life of a currency. However, there was a reality 

when one could replace the US dollar as a reserve currency 

by the Euro, Japanese Yen or Swiss Franc, and there will 

be a totally different reality when a major part of reserves 

is held in the Chinese Yuan. This must be conceived by 

most of China’s neighbouring countries – they are far from 

striving to accumulate Yuan reserves, and neither are they 

ready to trade in this currency. Thus, it makes one wonder 

how China could manage to impose the Yuan, comprehending 

the long-term effects this would have on domination 

of the US dollar and the Euro. I think it would be 

very hard, as the adjacent countries would not be willing 

to strengthen China even more as long as her Communist 

regime posed hardly predictable threats to her neighbours, 

while the West would continue its effort to stay on cautiously 

friendly terms with the Yuan at least until China 

started to play a fair game. As it happens, fair play in this 

situation has nothing to do with copying or piracy, but 

rather with a situation where China makes money from 

free trade thriving on a global scale, and thereafter invests 

a large part of this money, either via state-owned companies 

or companies controlled by businessmen closely tied 

to the elite of the Communist Party, and thence buying up 

the world. This process will actually gather momentum 

when China is able to print additional trillions. 

Victory of the Good Communists or the Bad KGB Men? 

The Lithuanian monthly magazine Valstybė in the article 

“The British to Release the Chinese Dragon”, which 

appeared in the November issue, said that a deal had been 

signed with China in London on the 15th of October giving 

British investors the right to buy up to 80 billion Yuan 

worth of stocks, bonds and other money market instruments. 

It is claimed that this was a special step forward for 

the City in its aim for closer cooperation with China and, 

yet more importantly, in attaining the leading position in 

the Yuan trading business. As for China, friendly cooperation 

with the UK and other Western countries is simply indispensable 

in order to achieve an ambitious goal purporting 

that around a third of the total foreign trade of China 

will be conducted using the Yuan by 2015. It is easy to calculate 

that, theoretically, such a transformation will allow 

China to print hundreds of billions of Yuan in the short 

run, because with the increase of payments in a particular 

currency, the demand for that currency magnifies accordingly. 

Hence, whilst the Kremlin has been putting a spoke 

in the wheel of cooperation between Ukraine and the European 

Union (EU), China, taking advantage of her amicable 

communist face and the lucrative intents of certain Western 

countries and representatives of their financial sectors, 

has meanwhile made a historical step, which will have huge 

implications for the global economy in the coming decade. 

In getting to the bottom line of the ongoing processes, 

one must admit that, as a matter of fact, in many spheres 

China is accommodating itself to the model of global trade 

through copying the Western economic model, while, as 

a result of her size and the trading potential, she has already 

become a guarantor for global economic stability, 

alongside the US and the EU. Hence, the development of 

cooperation is inevitable as the enhancing interdependence 

entails the predictability of decisions made by the 

economic superpowers. While observing the nice side 

of this evolution, however, one should heed the fact that 

the Western nations, while moving at a rate favourable 

for China, due to a multitude of reasons, are overlooking 

manifold trends that might bring negative effects. 


WORLD IN 2014 

WORLD IN 2014 

THE WORLD IN 2014 WILL BE VERY BUSY: CHINA WILL CONTINUE TO 

COPY THE U.S. ECONOMY. RUSSIA WILL TRY TO TAKE OVER THE UKRAINE. 

U.S. AND EUROPE WILL TRY TO SIGN FTA. 

The fact is that as a result of cooperation on the part of 

the UK and other Western countries, the economic power 

and foreign investment of China are increasing, while at 

the same time, expansion of the Western corporations inside 

China is restricted. This manifestly demonstrates that 

this is a one-way process. And the most important thing 

is that this is not the only issue that should be of concern 

to the West. 

While the West is rolling out the red carpet for the 

Yuan today, an intriguing question calls for an answer 

with reference to the beginnings of the ideological wars. 

What has been the impact on the growing friendliness 

of the West towards the nice and inclined-to-cooperate 

Chinese communists propped up by the increasing efforts 

of the Russian KGB to ram Western interests wherever 

it is possible? Meshing with gas pipes, increasing energy 

prices and supporting dictatorships vexing to Western nations, 

especially those in the countries having a positive 

effect on oil and gas prices (by inflating them) are some 

of these actions. We may yet mention the influence exerted 

on political parties, support of oligarchic groups, 

wholesale buying-up of mass media and other nice affairs, 

which are incessantly promoted by Vladimir Putin’s 

fellows from the KGB not only in Ukraine or Lithuania, 

but also in West Europe. The real impact of these interventions 

is hard to assess; however, they should be taken 

into account when watching processes unfolding in the 

EU countries. For instance, the current developments in 

the UK where a Eurosceptic party, which was recently 

formed, is not only assaulting EU unity but also forcing 

David Cameron and his Conservative Party to initiate a 

referendum on Britain’s European Union membership, 

thus seeking to keep voters’ sympathies. An analysis of 

the developments unfolding in the UK inevitably brings to 

mind the assassination of Alexander Litvinenko and the 

fact that ex-KGB officers are even buying popular British 

newspapers. Or simply watch a few movies about the legendary 

British secret agent, James Bond – in these movies, 

the British faced their biggest challenge when they ceased 

understanding whether it was them watching the KGB in 

Great Britain, or whether a KGB agent was watching them 

watching the KGB, making it impossible to see who was 

in control of the situation. The British are making a living 

mainly from trade in this century and being situated 

on an island, their actions aimed at weakening Europe 

should not engender major problems for them. On the 

other hand, the nations which perceive the importance of 

the economic, financial and even military unity of Europe 

in the 21st century, see such referenda on secession from 

the European Union as bringing back the times of Joseph 

Stalin, when a fragmented Europe was, in a way, a menu 

for the dictator. Considering how the Kremlin seduces the 

EU states with various cooperation projects and secures 

its position through oligarchic structures, the expansion 

of this process means a direct road from a thriving region 

towards a menu card for a dictator. The fact that referenda 

on secession from the European Union have not yet 

been held in part of the East European countries does not 

mean that the oligarchic structures of V. Putin are unable 

to organise them. As long as the EU allocates billions, one 

may wait and see. Therefore, France and especially Germany, 

as sponsors of a larger part of the EU development, 

ought to focus attention on what structures maintain their 

influence in some countries. This may be identified on 

the basis of the situation in the mass media (we wrote 

on this subject in the article “Capitulate Like Schibsted 

or Adapt Like Bonnier?”). If this influence is maintained 

by structures relying on the centres of influence, instead 

of a transparently operating market, this creates conditions 

for the operation of oligarchic structures relying on 

the Kremlin. Hence, provided that oligarchic influences 

persist in certain countries because of failure to implement 

transparency standards accepted by the Western 

countries, referenda on secession from the European 

Union will undoubtedly become a matter of fact in such 

countries following termination of funding by the EU. 

How do We Know what Communists are Scheming? 

Everyone interested in economics and seeing more 

than just the elephant’s tail must have noticed that China 

has succeeded best in buying up lands, companies, islands 

or infrastructure in Africa or other countries confronted 

with economic hardships. This is exactly the future warranted 

for Europe by the expanding KGB and oligarchy 

based system built by V. Putin. Subsequently, from the 

point of view of the prospects of global dominance, such 

activities in Europe sponsored by the grim KGB spiritual 

leader V. Putin must be beneficial for Xi Jinping, the 

good and friendly leader of the Chinese Communist Party 

whose mind is exceptionally preoccupied with money and 

trade. To allege, however, that these actions are coordinated 

and that the Western countries are watching the 

world’s greatest show of a good cop/bad cop would be 

premature, although there exist a number of spheres of 

analysis allowing one to draw certain inferences. First and 

foremost, this is linked to the costs of energy resources, 

which lately have been largely impacted (this is especially 

true of gas) by the shale gas revolution in the US. If China, 

the world’s largest manufacturer profiting from the lower 

costs of energy resources, should act contrariwise, that 

will help Russia maintain stable income from energy exports, 

thereby expanding her influence. Dwindling costs 

of energy, on the other hand, in all likelihood are the only 

reason which could make V. Putin revise his policies in 

regard to both neighbouring states and Russia herself. 

Another aspect is related to Chinese investment in the 

countries where Russia is seeking to retain her influence. 

Currently, China is actively investing in Belarus, which is 

the most faithful ally of the Kremlin in Europe. If China 

strongly promotes the positions of pro-Kremlin forces 

through her investments in Ukraine, while Russia is striving 

to keep Ukraine within her sphere of influence, this 

will be another step towards the consolidation of anti- 

European forces, coincidentally compromising Ukraine’s 

sustainable partnership with the European Union. 

Having these trends in mind, it will be possible to judge 

what the West has nurtured when it resolved to cooperate 

Final remarks 

Our editorial opinion is that it is China who will enter 2014 

as a winner. In a world replete with challenges, and everyone 

from BRIC countries to Europe and the US facing grave issues, 

it is China which has a realistically attainable goal that might 

magnify her economic and financial power in the nearest future. 

One must invariably pay for compromises. At the time when the 

Euro Zone was created, countries such as Greece were admitted. 

Subsequently, this step required payment. It is hard to say how 

much the West might be forced to pay in the future as Western 

corporations, in pursuit of larger profit margins, have made a 

communist superpower out of a weak communist China. 

Certain events might serve as symbols of the twilight of the 

West. For instance, Norway was punished because in October, 

2010, a decision was made to award the Nobel Peace Prize to 

the incarcerated Chinese dissident, Liu Xiaobo. Abruptly, China 

shifted imports of salmon from Norway to the Faroese Islands 

and Great Britain. It clearly shows how such states, like China 

and Russia, can exploit the absence of common principles in the 

West, while certain countries are merely looking for short-term 

benefits. Thus, it is not the West who punishes for imprisoning 

dissidents or ignoring human rights, quite the reverse, the West 

itself is being punished – pushed into a corner little by little and 

compelled to reflect on whether admonishing others for jailed 

dissidents is worthwhile. 

The potential of the Chinese currency is dealt with in depth 

in the article by the economist, Žygimantas Mauricas, published 

in this issue. Speaking of the acceleration of changes, however, 

it is worthwhile to draw attention to the fact that the Chinese 

Yuan overtook the Euro in autumn of 2013 and has become the 

second most-used currency in global trade finance and transactions, 

such as bills of credit or bank bonds. 

We have given Russia the second position because she has 

managed to keep Ukraine in check by preventing the signing of 

an Association Agreement between Ukraine and the European 

Union. This is not a decisive victory, but it has allowedfor winning 

time and made Ukraine even more fractured, because 

had Viktor Yanukovych signed the agreement, it would have 

eased the tensions between the eastern and western regions of 

Ukraine. Now this tension will remain, facilitating interference in 

steady cooperation between the EU and Ukraine in the future. 

This is a hypothetical question thus far; however, among the 

developments tolerated by the West in cooperating with China, 

there was the fact that the latter had utilised numerous instruments 

in order to secure a positive foreign trade balance. This 

has helped China seamlessly strengthen her financial potential. I 

wonder whether China, having attained the status of the world’s 

biggest economy, will ultimately allow any of the Western superpowers 

to have a positive balance of trade in relations with her. 

with China: a partner, dreaming to copy the US economy 

and provide US living standards for her own citizens, or a 

dragon inspired by the great Mao, whose real friends are 

disciples of another statesman, J. Stalin, and whose major 

objective is not a thriving society, but a victory against the 

alleged enemy surviving Mao's times. 

18 BALTIC ECONOMY 2014 2014 BALTIC ECONOMY 19



Ukraine’s Choice – 

Bad News for Business! 

Is it worthwhile for a business to enter the Ukraine as a market? In recent years, the answer 

used to be - "No". That has been demonstrated by the fact that a great number of solid foreign 

companies have withdrawn or intend to withdraw from the Ukrainian market. 


As explained by the representatives of a variety 

of Western companies, they are not primarily 

dissatisfied with political issues, but instead, 

with the economic and regulatory issues of the 

country. 

As featured on the Focus.ua website, Mr. Armin Burger, 

the Chairperson of the Board of the Praktiker Group 

(a business of building hypermarkets), refers to his business 

project in the Ukraine as "our Ukrainian adventure", 

which he is willing to end as quickly as possible: four 

big stores will be closed or sold there in total (in Kiev, 

Nikolaev, Lviv and Makeyevka). Although the company 

was planning to expand in the Ukraine in 2007, its managers 

no longer tend to perceive this country's market as 

profitable or a priority. 

UKRAINIAN ECONOMY – INFLUENCE OF OLIGARCHS GROWS, WESTERN 

BUSINESS STEPS BACK. THE PRO-EUROPEAN CAMP DOESN'T WIN THE 

PRESIDENTIAL ELECTIONS, CHANGES WILL BECOME IRREVERSIBLE. 

"Finn Flare", a Finnish Apparel Store Chain which owns 

a multitude of sales outlets in Russia and Kazakhstan, is 

going to close its stores in the Ukraine on a mass scale in 

the nearest future, since it is cumbersome and pointless to 

operate there due to such things as tax inspections, general 

economic uncertainty, high rental prices and the low 

level of purchasing power. 

And this is far from being the final list of Western 

companies (let alone the major Russian investment capital) 

that are withdrawing from the Ukraine. Among them 

are the "Stockmann Group" (which used to operate in the 

Ukraine as "Seppala"), "Peacocs" and IKEA. One of the 

latest examples is the "Aricent Group" of American IT 

Holding, which is closing its representative offices in Vinnitsa 

and Kiev. As reported by LB.ua, the official explanation 

is its unprofitable operation, whereas unofficially, 

there lies a suspicion that local "players" used to deliver 

a lot of unaccounted-for orders. Such things undermine 

trust more than anything else. 

It is obvious that the current situation is due to the aftermath 

of the Ukraine's post-Soviet development. Kiev has 

had difficulties an leading its independent life after the collapse 

of the USSR. The country's political system has steadily 

become unstable and its economy has become more 

like an oligarchy. As a result, the business environment in 

the country more closely resembles everybody's war (with 

the president's "family" also an economic interest group) 

against everybody else based on the zero-sum game principle 

under the terms of legal uncertainty and nihilism. 

It is also obvious that such an investment climate is 

not acceptable to solid Western entrepreneurs. The existing 

"rules of the game" might be suitable for Russia and 

the Customs Union, but not for the Euro-Atlantic community. 

Therefore, if the Ukraine is willing to turn into a 

civilised Western-like state into which solid foreign capital 

would be willing to invest, then it is high time for it 

to take a step from "yesterday" into "tomorrow", and an 

Association Agreement with the European Union was an 

excellent opportunity to do just that. 

Of course, the shift cannot be easy, on the contrary – 

long and painful. But the Ukraine's pro-European choice 

would consistently drive the process of liberalisation as 

well as improvement in the transparency of its legal system 

and business environment. This would likewise enable 

the Ukraine to free itself from the trap of the Eastern 

business culture, allowing it to modernise itself and 

become a European state in the true sense of the word. 

That, in its own turn, would unequivocally have a positive 

impact on its economic growth and would enhance 

its attractiveness to large-scale foreign investments, 

which, finding themselves in a European investment environment, 

would be more certain of their security and 

prospects. 

Hence, when we are speaking of the Ukraine's Europeanization, 

we must understand that it is not just a geopolitically 

important process or one more way for the 

aging Western Europe to gain an extra labour force in a 

long-term perspective. Kiev's orientation towards the EU 

was a positive sign, which was going to bear an immense 

economic significance both for the Ukraine and Western 

business in the future. There was a real chance for a happy 

end, big as never before. Bad news for business – it seems 

to be missed. The Kremlin prevails, for the moment... 




very simple – knowing the opinion of the majority, one 

can have a try at seeing what they possibly do not see. 

Roubinisation of Financial 

Markets: What Are Financial Gurus 

Forecasting for the Year 2014? 

Who could have ever thought that it would be this year that the United States of America 

would find itself only one day away from a declaration of bankruptcy? Who could have ever 

guessed that the stocks of the developed countries would be the leading asset class? How 

many were there foretelling that the price of gold would drop more than 20%? 

by Artūras Milevskis 

Let’s begin with the world economy 

First of all, let’s take a look at what is being forecasted by 

the International Monetary Fund (IMF) or its CEO, Christine 

Lagarde, for the world economy in general and for 

different world regions separately. The World Economic 

Outlook report as issued by this institution in October 

this year shows that the growth rate of the world’s gross 

domestic product as forecasted by the IMF for the year 

2014 will be 3.6%. This figure should exceed the growth 

rate forecasted for the year 2013 by approximately 0.7% 

or even by a quarter. The developed countries have been 

forecasted to enjoy an economic growth of barely 2.0% in 

2014, and of this the biggest positive effect should come 

from the U.S. economy (+2.6%), which means that the 

greatest amount of the entire growth of the world economy 

will be carried “on the shoulders” of the economies of 

developing countries, which have been forecasted by the 

IMF to enjoy a growth of 5.1% in 2014. 

Hence, relying specifically on the forecasts furnished 

by the economists of the International Monetary Fund, 

a conclusion may be drawn that a positive trend is expected 

next year. However, there arises the question of 

whether the same “rosy” prospects are being discerned 

by the representatives of other institutions. For example, 

Bill Gross, Manager of the “Pimco Total Return Fund”, 

The illusion of forecasting 

Research conducted by “DrKW Macro Research” shows that 

forecasts for macroeconomic and corporate performance, bond 

yields and future stock prices just follow factual data, and not 

vice versa as imagined by many. In other words, it’s not the 

forecasts furnished by specialists that show what’s ahead in the 

future, instead, it’s factual data that suggests how economists 

and analysts are going to forecast. As an example, let’s take 

the values of the U.S. stock index S&P 500 and the forecasts 

furnished by stock strategists for the same index. If we shifted 

the curve of the stock index in question a couple of months 

forward, then we would have two curves practically coinciding 

with each other. 

A 

major portion of the year 2013 is already in 

the past, so it may be asserted with confidence 

that it was full of surprises. Who could have 

ever thought that it would be this year that the 

United States of America would find itself only one day 

away from a declaration of bankruptcy, or that approximately 

1 million U.S. federal workers would be compelled 

to take unpaid vacation for more than two weeks? Who 

could have ever guessed that the stocks of the developed 

countries would be the leading asset class this year, and 

that they would outperform the stocks of the developing 

countries by more than 20%? How many were there prognosticating 

that the price of gold from the beginning of 

the year would have been corrected by more than 20%? 

Of course, if we returned to the beginning of the year 

2013, we would find a great number of very diverse forecasts, 

both pessimistic and optimistic. However, it will 

only be when the year finally ends that we will be able to 

say exactly who was right and who “missed” completely. 

But as most of you have probably understood from the 

title of this article, we are not going to talk about the past 

today, since it’s much more sagacious to talk about the 

future, so further on we are going to review what is being 

said by the authorities of the financial world about the 

prospects of the world economy, stock markets, gold and 

currencies. 

Surely, at this point most of you could be confronted by 

an elementary question: “Why should one delve into what 

is being forecasted by various gurus if eventually most of 

such forecasts prove to be wrong?” The answer would be 

S&P500 and forecasts 

1600 

1400 

1200 

1000 

800 

600 

400 

Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- 

91 92 93 94 95 96 97 98 99 00 01 02 03 04 

Actual S&P500 

Forecast 

SOURCE: DrKW MACRO RESEARCH 




Bill Gross 

William Hunt “Bill” Gross is the manager of the 

world’s biggest bond fund, the “Pimco Total Return 

Fund”. The fund currently manages assets worth approximately 

250 billion U.S. dollars. Over the last 14 

years, the average annual return of the fund run by him 

was equal to 7.4%, surpassing its benchmark, i.e. the 

aggregate basket of U.S. bonds, by as much as 1.1%. 

Nouriel Roubini 

Nouriel Roubini is an economist, lecturer and thinker. 

He has earned wide recognition from financial-market 

players after having accurately foretold the burst of the 

U.S. real-estate bubble in 2007 and the global recession 

of 2008. Roubini is most often known for his negative 

forecasts, and is therefore called “Dr. Doom”. Notwithstanding 

his previous successful forecasts, during the 

last couple of years he also managed to err. For instance, 

after the global crisis had ended, he still continued for 

quite a long time to maintain that the recovery would 

only be short-lived and very meagre, but as almost 4 

years have now past, he has begun to slightly change his 

opinion to a more optimistic one. 

Laszlo Birinyi 

Laszlo Birinyi is a stock analyst and investor, as well 

as the founder of Birinyi Associates. The firm that he 

founded is engaged in stock analysis and investment 

management. He started his career in investment in 

1976. He was widely praised when he accurately foretold 

the U.S. stock market’s bottom in 2009 and the following 

rise in prices. He was one of the few who asserted 

from the very beginning that this bull market would be 

strong and would surely last more than a few years. So 

far this guess of his has proved correct, but at this point 

the rest of his guesses should also be remembered. For 

instance, before the drop of U.S. stock prices both in 

2008 and in 2000, Mr. Birinyi forecasted a rise in stock 

prices, but it all happened completely to the contrary – 

the two biggest stock-market crashes of the last 30 

years soon followed. 

Robert Shiller 

Robert Shiller is a U.S. economist, academician, author of 

books, and a Nobel Prize Laureate. Presently he is ranked 

as one of the 100 most influential economists in the world. 

In his book “Irrational Exuberance”, published in 2000, he 

warned about the price bubble forming in U.S. stocks, and 

especially in information technologies, about the possible 

burst of such a price bubble and about the huge losses 

that may ensue. Whereas in the second edition of his book, 

which was published in 2005, he warned that the rising real 

estate prices may lead to extremely woeful consequences: 

the inevitable crash of real estate prices and the ensuing 

financial panic. 

the world’s biggest bond fund, whose managed assets are 

currently approximately 248 billion U.S. dollars, asserts 

that the growth of the world economy will be weaker 

next year than forecasted by the majority of analysts and 

will barely reach 2.5%, which is almost one-third less 

than forecasted by the IMF. What is influencing such a 

considerable divergence? According to Bill Gross, since 

the 2009 crisis, the world has entered the so-called “New 

Normal” regime, i.e. where both economic growth and 

inflation are holding steady at very low levels, and in the 

near future the only option is adapting to such an environment. 

So, what is the famous Nouriel Roubini saying about 

the world economy and the key financial markets? According 

to him, the world economic activity is recovering 

very slowly, economic growth is meagre, inflation is 

low and the unemployment level is high. Such a reality 

determines extremely low interest rates in the key economies 

and a variety of economic promotion programmes. 

However, the worst thing is that these programmes, 

which should help the real economy and should encourage 

capital investments and the creation of new jobs, 

are failing to perform their main function. Most of the 

excess liquidity goes to diverse asset classes such as real 

estate, stocks, high-yield bonds, etc. According to N. 

Roubini, price bubbles are already perceptible in the real 

estate markets of such countries as Switzerland, Sweden, 

Norway, Germany, Brazil, Singapore and China. If such a 

situation continues, a moment will be eventually reached 

when many countries and most asset classes will be overwhelmed 

by such bubbles, and their bursting will provoke 

a sudden and deep recession. 

What are the forecasts for global stocks? 

Before presenting the forecasts of several different investment 

gurus for stock markets in 2014, let’s first remember 

what has occurred over the last 5 years. The current bull 

market commenced in March, 2009, i.e. after the biggest 

financial crisis in the last 70 years. During the crisis, the 

global stock index had lost more than 50% of its value, 

which means that stock prices were relatively low and 

that the investment sentiment and expectations for the 

future were rather subdued. The most comical aspect is 

that this period proved to be an especially good moment 

to invest! 

So over the last four-and-a-half years, global stocks 

have managed to rise in price by approximately 150%, 

which means that the average annual return of the period 

in question reached as much as 22%. What do you 

think, is that a lot or a little? When analysing the history 

of the last 50 years, it can be observed that the average bull 

market used to last approximately five and a half years and 

during this period, stock prices used to rise by approximately 

170% on average. Just having these facts allows 




one to draw a simple conclusion: considering its duration 

and growth, the current bull market should be approaching 

its end. At the present moment we should not be too 

surprised if, after such an impressive period, we meet an 

ever increasing number of optimists who, based on past 

results, will not hesitate to suggest investing in stocks. 

However, the most interesting thing is, what are the most 

renowned investors saying about the future? 

One of the most famous U.S. stock strategists – Laszlo 

Birinyi, who had quite accurately foretold the U.S. stock 

market’s bottom in 2009 and the following recovery, is 

currently forecasting a further rise in the U.S. key stock 

index S&P 500. According to him, the U.S. stock market 

is presently in the fourth or last stage of the bull market, 

which may extend one or two years further. He also thinks 

that over this period, the biggest world economy’s – U.S. – 

stock index should climb over 2,000 points (the current 

value being 1,762 points), and that before a decline in 

prices starts, the stock index may even reach 2,500 points 

(approximately 40% higher than at the present moment). 

His thoughts are basically accepted by the majority of 

Wall Street strategists, who likewise assert that the U.S. 

key stock index S&P 500 should exceed the limit of 2,000 

points sometime next year, or in the worst case, in 2015. 

However, the most interesting thing is that Mr. Birinyi 

is associating the further rise in stock prices with investors’ 

euphoria. He deems that most investors, after the last 

four especially-lucrative stock market years, will then pull 

out and decide to replace safe investments such as cash or 

bonds with more aggressive investments such as stocks. 

This psychological turning-point will be sudden and on a 

mass scale, and will evoke a final rally of stock prices which 

will inevitably evolve into a bear market. 

Nevertheless, notwithstanding such tremendous optimism 

emanating from the majority of investment gurus, 

single pessimists can also be found. For instance, Robert 

Shiller, this year’s Laureate of the Noble Prize in Economics, 

maintains that U.S. stocks are relatively highly priced 

(he relies on the indications of his own CAPE ratio). According 

to him, the current pricing of U.S. stocks is at its 

highest since 2007, which means that, when investing in 

stocks for the next 5 or 10 years, one should expect poorer 

results than the long-term historical annual-profitability 

average of approximately 9%. Of course, this does not 

mean that U.S. stocks are going to suffer the losses that 

were witnessed in 2008 – 2009 for a second time, but one 

needs to understand that after the almost 5-year long rally 

of stock prices, optimists who now invest in stocks are 

prepared to pay practically twice as much for the same 

one unit of profit. Most often, it also means that one will 

have to wait twice as long until the investment pays off. 

The yellow metal 

Before presenting the diverse forecasts of gurus for gold, I 

Peter Schiff 

Peter Schiff is an entrepreneur, investment broker, 

and author. He is known for his especially negative 

forecasts for the U.S. economy and national currency, 

though he speaks positively of commodities [raw materials], 

especially of gold, and other countries’ currencies 

and stocks. He became famous in 2008 after having 

correctly foretold of the great recession and the burst 

of the stock and real estate price bubbles. However, 

notwithstanding this accurate guess, the majority of his 

forecasts made thereafter did not prove to be correct. 

He maintained that the bouncing back of stocks that 

commenced in 2009 would only be short-lived, that the 

price of gold over the course of several years was going 

to reach 5,000 U.S. dollars per troy ounce and that the 

U.S. dollar would continue to weaken in respect to other 

major currencies. 

Marc Faber 

Marc Faber is a Swiss investor and author of the wellknown 

monthly newsletter, “Gloom Boom & Doom Report”. 

During his fairly long career in personal investment, he 

produced a great number of recommendations, but the 

first recommendation that made him famous was made in 

1987, when he recommended that his customers sell the 

stock positions they possessed. For those who don’t know, 

in October 1987, the U.S. stock indices lost approximately 

20% of their value in one day. He also warned about the 

Japanese stock price bubble in 1990, the U.S. stock price 

bubble in 2000, as well as the price bubbles in stocks, real 

estate and commodities [raw materials] in 2008. Nevertheless, 

the recent years have not been very successful for him. 

For instance, in 2013, Mr. Faber forecasted huge losses for 

global stocks and a profitable year for gold, but, as we now 

know, the situation is completely the opposite. 

would first like to furnish a couple of very concrete facts. 

Over the last 10 years, the price of gold has risen by approximately 

14% per annum. Considering that this result 

has practically surpassed all other investment instruments, 

it’s no wonder that during the same period, there 

was also an increase in the interest shown in this investment 

instrument. Meanwhile, the second fact is that during 

the last 2 years, the price of gold has been constantly 

decreasing and since its peak, it has already lost nearly one 

third of its value. Most interestingly, this extremely poor 

result has not diminished the interest shown in the noble 

metal, and some are still further forecasting incredible 

profits for gold lovers. So, what are the gold gurus saying 

about the future prospects of gold? 

Peter Schiff is one of the most passionate gold lovers, 

who warned all investors in 2006 of the approaching 

“greatest crisis of the century”, and is quite assuredly tossing 

around further forecasts about growth in the price of 

gold. He asserts that the price of gold over the course of 

years could exceed 2,000 U.S. dollars per troy ounce, which 

means that the price of gold from its current value should 

shoot up by nearly 50%! What’s the main reason for making 

such a forecast? From a realistic point of view, nothing has 

changed – the U.S. continues to print money (like the central 

banks of most other countries), the amount of money 

within the system is growing, countries’ debts continue to 

rise, etc. According to Mr. Schiff, we are inevitably drawing 

closer to the moment when countries will start going bankrupt. 

For instance, he forecasts that before the tenure of the 

current U.S. President, Barack Obama, ends in 2017, the 

U.S. will default on paying the interest on its debt and will 

be compelled to declare bankruptcy. Given such a situation, 

gold should become one of the main hedging instruments. 

Should countries go bankrupt, the price of gold could rise 

considerably, and only those investors who have purchased 

real gold will be able to retain and possibly even experience 

growth in their assets. 

Peter Schiff ’s forecast is accepted by another famous 

investment guru, Marc Faber, who has been reprimanding 

the U.S. central bank’s managers for quite a long time 

and has been constantly recommending the purchase of 

physical gold. According to him, no single asset class is 

safe presently – neither bank deposits nor U.S. stocks or 

bonds, but if the price of gold happens to reach a price of 

1,200 – 1,250 U.S. dollars per troy ounce once again, he is 

certainly going to buy some extra gold and recommends 

the same for others. 

What is most interesting is that two years ago, as the 

correction in the price of gold started, neither of the 

above-mentioned two specialists made any comment as to 

the impending extremely great losses, and since the price 

of the noble metal has dropped by 30%, no other choice 

is left apart from saying that cheaper gold is a much more 

attractive investment alternative while in quest of culprits. 

However, when it comes to gold, unlike in the analysis 

of stocks, there exists a different camp – i.e. the commodities 

[raw materials] analysts of most banks like Goldman 

Sachs or Deutsche Bank. Most of them, as if agreed to in 

advance, are forecasting lower prices for the noble metal. 

For instance, Jeffrey Currie, Head of Commodities Research 

at the U.S. investment bank Goldman Sachs, forecasts 

that the average price of gold should be at least 1,050 

U.S. dollars per troy ounce in 2014. According to him, 

such weakness in the price will correlate with the fact that 

as the economies of the U.S. and other regions are recovering, 

there will be a decline in the need for promoting 

such economies and printing money. In turn, the threat of 

global crisis and high inflation will be accordingly diminished, 

which will lead to a greater reduction in demand 

for instruments used to hedge against these events – for 

instance, gold. 

Conclusions 

In an attempt to sum up the thoughts of all the economists, 

investors and analysts mentioned in this article, two directions 

of forecasts can be distinguished: optimistic and pessimistic. 

The optimists assert that economic activity in 2014 

should recover, which should also positively affect corporate 

profits and stock prices for a while. Meanwhile, the improving 

economic situation, especially in the United States 

of America, will allow the Federal Reserve Bank to start 

diminishing its promotion programme, which, in its own 

turn, should adversely affect the prices of bonds and gold. 

In the meantime, the pessimists’ camp asserts that the 

economic incentive policy implemented by the central 

banks of the major countries provides no real benefits for 

the economy and instead, just inflates the prices of financial 

assets. Should these bubbles burst and should a global 

recession start, bankruptcies of countries may ensue, in 

which case gold is referred to as the only source of salvation. 

As we can see, as many people, as many opinions. Let’s 

not forget that forecasting the future is an especially complex 

and intricate task, even for those gurus who once 

managed to guess it earlier. So therefore, use your own 

head, don’t take the forecasts of any guru for granted and 

be prepared to embrace the unexpected in 2014. None of 

us knows exactly what is waiting for us around the corner 

of “The New Year”. 

AUTHOR 

Artūras Milevskis, 

Head of the Investment Management Unit at 

“Synergy Finance”, lecturer at investavimas.lt, 

lecturer at the International Business School of 

Vilnius University 


INTERVIEW 

The Investment Climate for 2014 

Most financial institutions publish their forecasts, but not all of them are completely solid. 

EVLI stands out as a competent and trustworthy investment bank, operating in Nordic and 

Baltic countries. Therefore, looking forward to 2014, we talk to “Evli Securities AS” Management 

Board President Jolanta Latvienė. 

What are your predictions on 

global economic development 

in 2014? What kind of trends 

should investors pay attention to? 

At Evli we think that global growth 

will pick up in 2014, although the 

recovery is not believed to be strong. 

We see the most interesting opportunities 

in Europe, which is recovering 

from the recession. In the euro-zone, 

equity valuation is still not expensive. 

Also, as growth numbers are 

getting better, especially in the US, 

we may see the Fed start to taper at 

the beginning of next year. This will 

put some pressure on long rates that 

are at a very low level. 

At the same time, 2014 will be a very 

difficult year for fixed income investors, 

as expected return is almost 

close to zero in fixed income assets. 

The best asset class in fixed income 

will be euro-area high-yield bonds, 

which we expect to earn a return of 

around 5 – 7 % next year. 

A few years ago it was clear that 

the BRIC countries of Russia and 

China are doing great, while the 

USA and EU were drowning in 

debts. How could you define the 

current situation and how long is 

this situation going to last? 

As global growth is normalising, 

and investor sentiment is improving, 

their focus on weak countries 

with high debt levels is getting less 

intense. At the moment, the biggest 

concern in the emerging markets 

(EM) is the commodity market, 

where the trend of rising prices 

experienced a downturn in 2010. 

Currently there is an oversupply in 

many commodities, and the outlook 

is weak. Usually it takes many years 

to normalise the oversupply that we 

see in the EM countries commodity 

market right now. At the moment, 

we at Evli are cautious regarding EM 

equities. 

Which countries’ or regions’ economic 

situation raises the biggest 

concerns and which of them seem 

to be the best ones? 

We are overweight in euro-zone equities, 

as the situation in this area is still 

improving from the recession. At the 

moment, our biggest concerns are 


INTERVIEW 

JOLANTA LATVIENĖ SAYS, THAT CURRENTLY 

THERE IS AN OVERSUPPLY IN MANY 

COMMODITIES, AND THE OUTLOOK IS WEAK. 

regarding countries like Brazil, China 

and Russia, which are all highly dependent 

on the commodity cycle. 

Where do the Scandinavian 

countries stand in the European 

investment map? What issues 

can have an impact on investors’ 

perceptions of the Scandinavian 

countries? 

The situation is very different depending 

on which Scandinavian country 

we are talking about. The economic 

situation is probably the weakest in 

Finland, where consumers have a lot 

of head wind from high debt levels 

and low economic growth. One of the 

biggest problems Finland is facing is 

the loss of competitiveness. Looking 

at the other Scandinavian countries, 

the outlook for growth is much 

stronger and more optimistic. 

Is there any positive news from the 

Baltic countries that could have a 

positive impact on the investors' 

perception of these relatively small 

markets? 

The Baltic countries are recovering 

quite fast and are also getting support 

from the fact that global growth 

is rising. At the moment, investors 

are quite cautious in emerging markets 

and hence their interest in the 

Baltic countries is very low. Eastern 

Europe in particular is not a place 

where we see a lot of client interest. 

Nevertheless, we hope that the latest 

economic performance and the ease 

of doing business in Baltic countries 

will attract more investors. 

When do you foresee the next 

global economic crisis? 

It has never been a good strategy 

The best asset class 

in fixed income will 

be euro-area highyield 

bonds, which 

we expect to earn a 

return of around 

5 – 7 % next year. 

for an investor to wait for the next 

crisis. But we think that before 2020 

we might have the next major crisis 

which will probably be related to the 

financial crisis of 2008 and the massive 

liquidity injection that central 

banks have done everywhere. 


CRITICAL VIEW 

On the Left – a Chasm, 

On the Right – a 

Gulf, and Everything 

Surrounded by 

Darkness 

The World has just gone through deep economic 

decline. Today it faces the money print it has 

never seen. What next? 

No, it’s not about politics. At least not the politics 

you thought about. It is about the monetary 

policy choices of the world’s major central 

banks and the attempt to decide whether they 

still have to fight the risks of deflation – price and wage 

downward spiral – or maybe extinguish the inflation that 

has begun to materialise in the markets of some assets. 

For nearly five years, the major world central banks 

have kept the case interest rates close to zero. But it is 

clear that low interest has no significant positive impact 

on economic growth, that the population and businesses 

do not want to borrow, and quite the opposite – are trying 

to reduce their financial obligations. In this situation, 

central banks chose non-traditional monetary incentives 

and started to increase their balances, or in other words, 

to print money. Since the end of 2008, this has been happening 

at an unprecedented rate – for example, the U.S. 

Federal Reserve (FED) increased the monetary base by 

approximately four-fold. 

However, the journey of central banks off the beaten 

path is not over. Currently, they are faced with a tough dilemma: 

continue the promotion of monetary policy, risking 

the creation of new bubbles, or begin to normalize the 

money supply and interest rates, risking the suppression 

of further economic recovery. The latter option is also unattractive 

because the first central bank to engage in such 

a policy will strengthen the national currency and reduce 

the competitiveness of exporters. The recent actions of the 

central banks show that the implied currency wars are already 

taking place, and most of them seek to weaken the 

national currency. 

Another no less risky alternative of central banks is to 

continue to print money. The excess money supply distorts 

the prices of financial assets, and the efforts “to do 

everything and anything” in order to boost the engine 

of economic growth, create an asymmetric risk. For this 

reason, the inadequately high investment flow is seemingly 

directed towards the more risky instruments (such 

as stocks) in anticipation of not only higher returns, but 

also protection against potential inflation. Clues to new 

emerging bubbles are seen in the real estate markets of 

many countries. 

The central banks’ freedom of action is complicated 

by unpleasant circumstances. They operate in darkness 

– they have never faced this kind of global financial crisis 

before and never applied a monetary stimulus of this 

magnitude. Therefore, it is difficult to predict how the 

normalization of the monetary policy affects international 

financial flows, financial institutions and their ability and 

willingness to provide credit to businesses and people. 

This summer, economists predicted that the FED’s money 

printing pace would be reduced by September. However, 

the expectation of a slower pace of money printing alone 

(as opposed to reducing the money supply!) caused serious 

storms in the financial markets. The Indian currency 

has depreciated by about 20%, and other emerging markets 

also seriously bled. In this unexpected context, the 

FED dollar printing house postponed the reduction of its 

working hours for an indefinite period of time, and now it 

is expected that this will happen no earlier than in spring. 

Over the past five years, the central banks have played a 

key role in stabilizing the world’s economy. Over the next 

five years, they will have the equally difficult task of not 

pulling it towards the deflationary abyss on the left, or 

over to the opening up inflation gap on the right. It will be 

difficult not to slip in the darkness. 

AUTHOR 

Dr Nerijus Mačiulis 

Swedbank’s chief economist 


TRENDS 

TRENDS 

Energy from Renewable Resources 

Has Chilled, But Not the Climate 

In a world where competition is more important than ecology, there is a question – what will happen 

faster: mankind will “eat up” the planet, exploiting its resources, or the planet will “rise” 

and natural disasters will make human existence insufferable? 

Ban Ki-moon, Secretary-General of the United 

Nations (UN), who sojourned in Lithuania in 

November, 2013, has professed that the typhoon 

that has killed thousands of people in the Philippines 

is “a wake-up call for the entire international community 

that we must accelerate our efforts to fight climate 

change”. Although no one can validate 100 percent that 

the Philippine typhoon was so devastating due to human 

activities, Ban Ki-moon is convinced that the report 

published in September by the UN’s Intergovernmental 

Panel on Climate Change should silence the sceptics 

who view concerns about global warming as unreasonable. 

The report announced that the global water level 

will rise 26–82 cm by 2100 and there is an extraordinarily 

high (up to 95 percent) probability that humanity’s 

activities have caused more than half of the total global 

warming over the last 60 

years. According to the 

UN Secretary-General, 

“everybody now knows 

that climate change is 

happening and approaching 

much faster than we 

might have thought”. 

This standpoint is even 

more supported by the 

research announced by 

several scientist groups, 

which states that gas 

particles causing global 

warming have reacheded 

the highest level ever in the 

atmosphere, the carbon 

dioxide content in the 

atmosphere grow faster last 

year than during the entire 

last decade, and the process 

of global warming over 

the last several decades 

has been taking place 2.5 

times faster than previously 

thought. Hence, considering 

these announcements, 

it is not just the inhabitants 

of the Netherlands who 

would find it well worth 

their time to start building 

dams to guard against 

the rising sea water. However, the most interesting thing is 

that more than a decade ago, people were trying to rescue 

the planet with extraordinary fervour, whereas today, this 

process more and more resembles hard and tiresome work. 

In an attempt to understand the underlying cause 

of such “chilling” in the fight against climate change, 

attention should be focused on the development of the 

renewable energy sector. Recently, it has been associated, 

at least in the European Union (EU), with a quick 

solution of problems, and such countries as Denmark and 

Germany have become symbols of the green dream. They 

have not only abandoned nuclear energy, but have also 

created a strong renewable-energy equipment industry, 

whose development has apparently had an influence 

over other countries’ orientation towards the equipment 

manufactured by this industry. In such a way, having 

come to terms with the 

rising electricity prices for 

consumers, the Germans 

and Danes have gained an 

opportunity to create alternative-energy 

companies 

in Europe that are leaders 

in the global market. But 

this strategy has eventually 

encountered an unexpected 

obstacle – Chinese 

companies have started to 

supply some of the “green” 

energy equipment more 

cheaply. So a situation has 

ensued where, due to the 

provision of subsidies for 

new renewable-energy 

production capacities, 

electricity prices for EU 

consumers are rising, and 

a big portion of profits for 

the manufacture of the 

“green” equipment is getting 

scooped up by Chinese 

companies. Probably 

it’s these changes that have 

determined that it is not 

the renewable-resource 

energy that is chilling the 

climate, but rather, the 

growing bills that are starting 

to chill the admiration 

for its development. 

We can elaborate further 

about the future of 

energy and in more detail 

in the article “Energy 

Independence, Gazprom’s 

Pipes, and H. K. Andersen’s 

Fairy Tales”. At 

this point, we would like 

to add that in view of 

the recent years’ trends, 

the last decade may be 

called a renewable-energy 

development era, whereas 

we are presently entering 

an era in which the fight 

against climate change 

will be dominated by 

costs. So, one should not 

be surprised when an 

announcement pops up 

that several new coalfired 

power plants are 

being built in “green” 

Germany. After all, the 

price of coal is at a record 

low, and modern filters 

can reduce the amount 

of exhaust pollutants that 

cause the greenhouse 

effect. Consequently, the 

production of electricity 

in these power plants will 

pay off even after paying 

taxes for the prospective 

Great Flood. 


TRENDS 

TRENDS 

Why Television Is "Dying" in 

Sweden, But Not in the East 

Sometimes it's hard to understand why in some countries progress is 

much faster than in others. However, systemic causes usually are the 

same, and their analysis allows one to grasp the essence of the processes 

in separate business sectors. 

This trend is not easily noticed, since the statistics 

tend to be generalised. Therefore, according to 

the generalised data, announced by a variety of 

companies, although the share of the Internet 

in the global advertising market is growing, television is 

still the leader in this field; its share of the global advertising 

market amounts to 

approximately 40 percent 

and has remained sufficiently 

stable. So, in order 

to notice the globally occurring 

“tectonic” breaking-point 

in the MEDIA 

market, one should look 

deeper and refrain from 

following the stereotypes 

that have been imposed 

on it. 

First of all, one should 

pay attention to the fact 

that a considerable number 

of Western countries, 

including the USA, have 

already reported that 

consumers spend more 

time using the Internet 

than watching television. 

A much more significant 

fact is that in 2008, in 

Sweden, the Internet has 

outperformed television 

in advertising income. 

In 2009, the same thing 

occurred in Denmark and 

Great Britain. This year, 

as expected, the Internet 

should outperform television 

in advertising income 

in Australia, and next 

year – in Canada. At the 

end of the decade, these 

countries should also be 

joined by the USA, which 

so far has the biggest 

advertising market in the 

world. 

Meanwhile, in Asian 

or African countries, 

growth in the television 

advertising market 

is still being observed, 

which in monetary terms 

substantially exceeds the 

income derived from 

Internet advertising. The 

growing TV advertising 

market in these countries 

is the main reason why its 

income share remains sufficiently 

stable on a global 

scale. So, one only needs 

to answer the question 

of why in the meantime, 

while the Internet is starting 

to become the leader 

in the developed Western 

countries, will it be chasing 

after television in the 

developing countries for 

quite a long time? The 

answer to this question 

is not as simple as it may 

seem. Therefore, it should 

not only be relevant to 

those who are trying to 

understand the processes 

that are taking place in the 

world, but also to those who are engaged in trade and are 

advertising themselves in the Eastern markets. 

Hence, the simplest explanation, examples of which 

are not difficult to find on the Internet, is related to the 

fact that purchasing power in Western countries is higher. 

Therefore, while part of India’s inhabitants are still dreaming 

of buying a better television set, Swedes or Norwegians 

are investing as much money in a new smart phone every 

year as the cost of two typical TV sets that match the 

dream of an average Indian peasant. One more argument 

explaining the key differences between the Eastern and 

Western media markets is their undeveloped infrastructure. 

Everybody well understands that if there was no 

fast Internet, computers and smart mobile devices would 

be used by consumers considerably less. So, the lack of 

purchasing power, as well as the related insufficient investment 

in the infrastructure, may be the principal reason 

why TV, and not the Internet market is growing faster in 

separate markets. However, in our editorial desk’s opinion, 

when judging why the “revolution” of the Internet in the 

advertising market is deposing television in the developed 

countries of the world, but is stalling in the developing 

countries, one more nuance related to market transparency 

should be taken into account. 

More detail about this factor’s impact on the advertising 

market and investments in the media can be read in 

the article “Capitulate Like Schibsted or Adapt Like Bonnier?”. 

Here we would like to note that when analysing 

how successfully the transformation of the advertising 

market is taking place in separate countries, it is worthwhile 

to take into account the scale of corruption (also in 

the business field) that exists in these countries. It may be 

just a coincidence, but if examine data about the corruption 

levels of separate states and data as to how quickly 

the proportion between TV and Internet advertising is 

changing, you would clearly see that the “revolution” 

of the Internet is taking place considerably faster in the 

least corrupt market's. Meanwhile, in countries where 

the level of corruption is higher, the changes are – by virtue 

of some weird anomaly – taking place considerably 

slower. The simplest explanation of this anomaly is the 

efforts of the advertising market‘s players to maintain the 

dominant income flows on which their profits directly 

depend. 

Hence, in summary, it is worth noting that if today, 

when it comes to Sweden or Denmark, it is already 

worthwhile to try to answer the question as to what place 

on the Internet will be occupied by television, then, when 

it comes to China or India as well as many other countries, 

the most important question still remains: How 

can funds designated for advertising be spent efficiently 

when due to ingrained interests, they most often get 

artificially channelled to television? 


TRENDS 

TRENDS 

Why Do the 

Vikings Resemble 

Draculas? 

One of the major business problems is to understand 

the situation in a particular country. It 

allows one to adopt the wisest decisions, control 

the changes – and ensure long-term profitability. 

tic states’ pension systems, 

which are submerged in 

the swamp of negative demographic 

trends, there 

could appear some money 

that could be snatched up 

right away. 

However, opting out 

from solving systemic 

problems and concentrating 

on one’s own narrow 

interests are not sufficient 

grounds for the Vikings to 

be dubbed Draculas, since 

such a short-sighted attitude 

is also typical of the 

majority of other investors. 

The image of Dracula is imparted 

upon their pension 

The answer is simple – because, when trying to 

conquer or having conquered a certain market 

segment in the Baltic States, Scandinavian businessmen 

are concentrating with great zeal on 

those solutions which allow them to generate income, but 

ignore the systemic faults which over time affect their own 

business as well. Due to this reason, a certain portion of 

the representatives of Scandinavian business not only do 

not lend a helping hand in improving the system within 

which they are operating, but, being led by their own trifling 

interests, they are even impoverishing it more, and 

eventually the accumulating systemic problems turn back 

against the Scandinavian businessmen themselves. Therefore, 

Scandinavian concerns that publish daily newspapers, 

which did nothing towards a more transparent 

Baltic media market, are silently retreating. In their own 

turn, Scandinavian pension funds, which have adopted 

a passive standpoint in respect to the necessary systemic 

reforms in this field, are only concerned that in the Balfunds 

not so much by their 

efforts to extract as large a 

share of money as possible 

from the crumbling social 

system, but rather by what 

is being done with this 

money later on. Pension 

funds that reside in Scandinavian 

countries invest the 

major portion of the collected 

money in one way 

or another domestically. 

Meanwhile, Scandinavian 

funds’ branches operating 

in the Baltic States invest 

in the latter considerably 

less, and in the Baltic stock 

market – practically nothing. 

Consequently, it is 

much more difficult for Estonian, Latvian and Lithuanian 

businessmen than for Scandinavians to attract money and 

to develop or acquire a business inside their countries. This 

moment is one of the most crucial in explaining why Baltic 

States’ businessmen very often regard pension funds only 

as instruments of generating profits for aliens, and which 

are enhancing the economic and investment potential not 

of their own country, but of those countries to which the 

business belongs. Not much of a more amicable attitude 

emanates from the working people who, unlike those in 

Scandinavian countries, do not see in the least way, any 

closer connection between the money accumulated in the 

funds and the economic welfare of their country and enterprises 

where they work. 

A somewhat more amicable attitude towards Scandinavian 

pension funds is emanating from the Baltic States’ future 

pensioners, but they also understand that something 

is wrong, since in the meantime, when money keeps being 

transferred to pension funds, the state pension system’s 

debts, at least in Lithuania, 

already reached 10.5 billion 

Litas in July, 2013. At 

the same time, it must be 

remembered that in Lithuania, 

taxes designated for 

retirement security, which 

are levied on the employee’s 

income, are among the 

highest in all of Europe, 

whereas the demographicsituation 

forecasts are one 

of the poorest. For this 

reason, our editorial desk 

journalists have already 

tried more than once to 

draw the government’s 

and market players’ attention 

to the fact that without 

systemic tax reform, 

which would diminish the 

pension system’s dependence 

on the taxation of the 

labour force, it will be impossible 

to ensure its longterm 

stability. 

In this context, it is obvious 

that increasing the 

potential of private pension 

funds, without attending 

to the reformation 

of the crumbling system, 

is at least irresponsible, if 

not immoral. And most 

importantly – extremely 

short-lived, since only a 

completely naive individual 

can believe in fairytales 

that as the income 

of the employed grows, 

the pension system will 

be enriched and will start 

functioning perfectly. In 

such a case, one should 

also believe that in the deteriorating 

demographic 

environment, salaries and 

wages will be growing very 

quickly, though nobody 

is actually going to raise 

them for the Baltic States’ 

pensioners, who have one 

of the smallest pensions in 

Europe and who will still 

not demand any increase! 

Such fairy-tales can only 

be taken for granted by 

politicians, for whom the 

most important thing is 

to refrain from making 

any complex decisions 

and who will be the first 

to raise those pensions as 

the elections approach; as 

well as by Scandinavian 

pension fund managers’ 

representatives in the Baltic 

States, for whom it is 

indispensably necessary 

that assets managed by 

the funds would grow this 

year, and that shareholders 

will be happy and that they 

can receive their annual 

bonuses. 

About pension fund 

activities and Poland’s example, 

which has decided 

to nationalise part of the 

billions accumulated in 

private pension funds, 

there is more detailed discussion 

in the article “Are 

Scandinavian Banks Sucking 

the Blood of the Baltic 

States’ Pensioners?” by 

Monika Poškaitytė. Here 

we only wanted to draw 

Scandinavian pension 

fund managers’ attention 

to how their activities contribute 

to the realisation of 

an irresponsible policy. So, 

when politicians are thinking 

of rescuing the drowning 

pension system with 

the help of the money accumulated 

in the pension 

funds during every future 

economic decline, that 

will not only be the result 

of political populism, but 

also of the irresponsible 

and “Dracula-like” behaviour 

of the pension funds 

themselves. 


TOPIC RUBRIKA 

CHINESE RENMINBI – AMERICAN DREAM 

Chinese 

Renminbi – 

American 

Dream? 

„It‘s all for money and goods, 

this fighting and quarrelling“ 

(Pieter Bruegel the Elder, 1570) 

by Žygimantas Mauricas 

The Third Plenum of the 18th Central 

Committee announced a comprehensive 

programme of reforms 

that will support China’s ambitions 

to develop into a global superpower by the 

end of the decade. China is envisioned to 

become more market-oriented, competitive, 

liberal, transparent and investor-friendly. In 

other worlds, China will continue to go along 

the path of Westernization, which, symbolically, 

started precisely 35 years ago during 

The Third Plenum of the 11th Central Committee 

Congress led by a legendary reform 

leader Deng Xiaoping. The strategy proved to 

be highly successful: in 1978 China’s economy 

was more than ten times smaller than that 

of the USA and produced only 2% of global 

economic output, whereas in 2018 China is 

forecasted to surpass America to become the 

largest economic power generating 18% of the 

world’s economic output. These impressive 

achievements more than anything else motivate 

the Chinese political elite to keep the 

Western direction. 

And yet the fact that China is becoming 

like the West, by no means suggests that China 

likes the West. China is becoming similar to 

its Western counterparts in virtually every dimension 

except one – the political system. In 

spite of economic liberalization, the People’s 

Republic of China was, is and will continue 

to be ruled by the Communist Party. Hence, 

political rivalry between the West and China 

ought to intensify in line with growing Chinese 

economic power. China’s plans to create 

an air defence identification zone around 

Japanese controlled Senkaku (Chinese: Diaoyu) 

islands were immediately followed by a 

“Cold War-like” rhetoric from the Pentagon. 

The incident perfectly illustratesthe existing 

tensions between China and the West that at 

times remind us of the Cold War antagonism: 

the difference is that today it is China and 

not the Soviet Union that represents the East. 

However, this time the battle will not be about 

who will get the larger number of nuclear 

warheads.To paraphrase the inscription of Pieter 

Bruegel the Elder “It’s all for money and 

goods, this fighting and quarrelling”. China 

already flooded the world with “made in China” 

goods, but a stable and freely convertible 

currency is a necessary prerequisite in order 

to successfully compete in the global financial 

industry. China perfectly understands that 

and is ready to fire off a principal weapon: the 

Chinese Renminbi, which is actually ready to 

compete with the US dollar and the euro, even 

though it will not be an easy task in a world 

controlled by the Western powers. 

The West rules the rest 

The year 1991 was the year of triumph and 

victory for the Western World. The Collapse 

of the Soviet Union ended the Cold War and 

greatly increased the ideological and military 

dominance of the USA and its Western allies. 

Symbolically, the same year witnessed the collapse 

of the the Japanese real estate market that 

put an end to a post-war Japanese economic 

miracle. With the Soviet Union and Japan defeated, 

the West set off to dominate the world. 

America de-facto became the world policeman, 

whereas united Germany became the 

economic powerhouse of the newly created 

European Union (Maastricht treaty was signed 

in 1992). China was no match for the West at 

that time: its economy was no larger than that 

of France, Italy or … the State of California. 

The year 2001 marked two attempts to 

question the global dominance of the West. 

The September 11 attacks challenged the military 

and ideological supremacy of the West. 

Just a few months later, British economist Jim 

O‘Neill coined an acronym “BRIC” (Brazil, 

Russia, India and China) – a group of emerging 

powers that supposedly were eager and 

ready to challenge Western economic dominance. 

And yet neither terrorists nor BRIC 

posed a real threat to the Western World. The 

War on Terror gave a nice “excuse” for the 

USA to carry on its world police duties. Economically 

BRIC countries, although making 

good progress, were no match for the West 

either. The GDP of all BRIC states combined 

was still significantly lower than that of the 

USA or the European Union alone. China was 

still seen as a place to produce cheap “made 

in China” goods whereas Russia continued to 

lose its influence in Eastern Europe to the rapidly 

expanding European Union and NATO. 

In fact, the largest threat to the West was the 

West itself. Excessive confidence and optimism 

led to excessive borrowing, which eventually 

led to global financial and economic crisis in 

2008. The situation looked increasingly serious 

and reminiscent of the Great Depression. 

The fact 

that China 

is becoming 

like the West, 

by no means 

suggests that 

China likes 

the West. 


TOPIC RUBRIKA 


China decided 

not to weaken 

the Renminbi 

during 

the global 

economic 

crisis in 2008 

and instead 

allowed it to 

strengthen in 

line with the 

US dollar. 

When the credit boom suddenly went bust, 

many countries were forced to impose strict 

fiscal discipline, while consumers massively 

cutback their spending, fearing that the worst 

was still to come. With domestic consumption 

trapped into a vicious credit cycle everyone 

had high hopes that exports would drive 

their economies out of recession. The temptation 

to start “Beggar Thy Neighbour” type 

of competitive currency devaluation policies 

was extremely high as were the stakes. But it 

was precisely these “strategies” used by many 

countries that delayed economic recovery after 

the Great Depression and resulted in multiple 

armed conflicts in late 30’s. The world seems to 

have learned this lesson: the Currency War did 

not happen this time and precisely this nonhappening 

allowed international trade and the 

global economy to recover. 

The Currency War that did not happen 

An English proverb says: “A friend in need is a 

friend indeed”. And the best friend of the Western 

world during the economic crisis was China. 

Not only did China not embark on Trade 

Wars with the USA or the European Union, 

but it also did not succumb to the temptation 

to devalue its currency in times of economic 

distress. China is occasionally accused by the 

USA of implementing competitive devaluation 

practices that allegedly give Chinese producers 

an unfair competitive advantage over American 

producers. But in fact it is not so much 

about China as about the USA itself. 

To begin with, China’s current account surplus 

was a mere 1.3% in 2001, but as the USA 

started implementing ultra-loose monetary 

policy things started to change dramatically. 

Too cheap and too easy credit transformed 

Americans into the real “homo-consumericus” 

– to paraphrase Rene Descartes, the 

motto of American consumers became “consumo 

ergo sum” (“I consume, therefore I 

am”). Cheap and abundant “made in China” 

goods, German cars, Taiwanese computers, 

Saudi Arabian oil and American dream houses 

– all those purchases made the USA current 

account deficit widen from 3.7% in 2001 

to 5.7% in 2006. China benefited a lot from 

this consumption frenzy in the USA. In just 

6 years, the Chinese current account surplus 

increased almost tenfold reaching an impressive 

10% of GDP in 2007. But China was not 

alone. For example, Germany has increased 

its current account surplus from 0% in 2001 

to 7.5% in 2007. So did Saudi Arabia, Sweden, 

Israel, Malaysia, Japan and other export-oriented 

countries that managed to avoid a USAlike 

consumption boom (Spain, Greece and 

the Baltics were among those that did not). 

Hence, blaming China for growing global 

trade imbalances during the pre-crisis period 

would not be objective. Especially keeping in 

mind the fact that China removed the peg in 

mid-2005 and allowed the Renminbi to gradually 

strengthen against the US dollar from 

mid-2005 until mid-2008. 

But even more important is that China decided 

not to weaken the Renminbi during the 

global economic crisis in 2008 and instead allowed 

it to strengthen in line with the US dollar 

(which was strengthening vis-à-vis other 

currencies due to its status of safe haven currency). 

This action had a profound effect on 

increasing the attractiveness of the Chinese 

Renminbi. First, by doing this China sent 

a clear signal that it will not start currency 

wars with its trading partners. Hence, China 

proved that it can be a reliable and trustworthy 

trading partner for the West. Secondly, China 

effectively transformed the Renminbi into a 

safe haven currency i.e. an anchor of stability 

that is sought after by international investors 

in times of economic crisis. By choosing 

not to devaluate its currency and re-pegging 

it to the US dollar instead, China in fact sent 

a signal for international investors that the 

Renminbi is at least as strong as the US dollar 

in times of turbulence. Thirdly, China’s action 

illustrated the growing divergence between 

China and the rest of BRIC countries. Since 

the onset of the crisis, the currencies of Brazil, 

Russia and India significantly weakened 

against the US dollar. The Brazilian Real and 

the Russian Rouble were particularly hard hit 

and lost close to 60% of their pre-crisis value 

while the Indian Rupee depreciated by 30%. 

The Chinese Yuan, on the contrary, gained in 

value until mid-2008 and then remain fixed 

vis-a-vis the US dollar until mid-2010. 

Renminbi: at least as strong 

as the US dollar 

In fact, the global economic crisis in 2008 

was not the first time the Chinese Renminbi 

proved itself as an anchor of stability. During 

the 1997 Asian financial crash most South- 

East Asian countries devaluated their currencies, 

but the Chinese Renminbi on the 

contrary - appreciated. This helped other 

Asian countries to regain their international 

competitiveness at the expense of China. 

For example, the current account balance of 

Thailand, Malaysia, Philippines, South Korea 

and Indonesia turned from a negative one in 

1997 to a positive one in 1998 and the years 

to follow. On the contrary, China’s trade deficit 

with ASEAN countries turned negative in 

1998, while the total current account surplus 

gradually declined from 3.9% in 1997 to 1.9% 

in 1999 and further on to 1.3% in 2001. Were 

China to follow the example of other countries 

and devaluate the Renminbi, the recovery 

in South East Asia would have been undermined. 

But China decided not to devalue 

and instead even allowed the Renminbi to 

strengthen symbolically. Hence, the first test 

was passed in 1998, the second one – in 2008, 

and the third, decisive one, in 2013. 

In May 2013, FED announced that the era of 

economic stimulus (money printing) is comming 

to an end. Warren Buffet once rightly 

remarked that “you never know who’s swimming 

naked until the tide goes out” – and with 

FED’s announcement the tide of easy money 

expectations suddenly all but vanished. As a 

result of that, the currencies of all the BRIC 

countries weakened against the dollar except 

one: the Chinese Renminbi. In just four 

months the Indian Rupee, Brazilian Real and 

Russian Rouble depreciated by 22%, 19% and 

7%, whereas the Chinese Renminbi on the 

contrary – appreciated by 1%. This shows that 

the Renminbi is building up credibility as a 

safe and stable currency that tends not to lose 

value in times of economic turbulence – property 

so needed and sought after by international 

investors. Hence, contrary to the other 

currencies of BRIC countries, the Chinese 

Renminbi fulfils the necessary condition to 

become one of the global reserve currencies. 

China’s case becomes even stronger keeping 

in mind the fact that Japan – its long-standing 

rival in Asia – is implementing Abenomics 

economic policy as a consequence of which 

the Japanese Yen depreciated significantly… 

It’s now Japan and not China who would 

rightly deserve accusations of encouraging 

global currency war. Especially given that the 

current account surplus in China dropped to 

2.2% of GDP in 2013 and is expected to narrow 

further to a mere 1% in 2015. 

BEST FRIEND OF THE 

WESTERN WORLD DUR- 

ING THE ECONOMIC 

CRISIS WAS CHINA. 


TOPIC 


FINANCIAL AREA OF 

PUDONG IN SHANGHAI. 

Making the Renminbi global 

And yet, keeping a stable exchange rate is definitely 

a necessary, but by no means a sufficient 

condition to become global reserve currency. 

It is financial liberalization that is needed. The 

ruling Chinese Communist Party was unwilling 

to liberalize financial markets fearing that 

foreign capital inflows and cheap capital could 

destabilize the domestic economy. However, 

The Third Plenum of the 18th Central Committee 

seems to be a game-changer. Measures 

have been announced that in less than a decade 

could potentially make the Chinese Renminbi 

among the top three global reserve currencies. 

There are two ways in which China 

will liberalize and globalize the Renminbi: a 

gradual widening of the trading band around 

the official fixing rate determined by the 

People’s Bank of China and experiment with 

Shanghai (and possibly Guangdong) free 

trade zones. 

First way: Gradual widening 

of the trading band 

Prior to mid-2005, the Renminbi was fixed 

to the US dollar with occasional devaluations 

to retain the international competitiveness of 

Chinese manufacturing production and keep 

the trade balance in surplus. For example, 

China’s trade balance moved into negative 

territory in 1993 and was immediately followed 

by the Renminbi devaluation the year 

after. However, devaluation of the Renminbi 

in 1994 proved to be the last one, since improving 

productivity and rising export volumes 

helped China to keep an international 

trade surplus. Hence, the Renminbi remained 

fixed to the US dollar until mid-2005 when 

significant trade surpluses started to accumulate, 

threatening the stability of global trade. 

As a result, China decided to unpeg the Renminbi 

from the US dollar and introduced a 

managed float regime. Specifically, the Renminbi 

was allowed to fluctuate +-0.3% around 

the official fixing rate determined by the People’s 

Bank of China. The band was widened to 

+-0.5% in 2007, +-1.0% in 2012 and is expected 

to be widened further on to +- 1.5% at the 

beginning of 2014.It is important to mention 

that between mid-2008 and mid-2010, the 

sRenminbi was temporarily re-pegged to the 

US dollar, but this event did not change the 

general tendency for the Renminbi to gradually 

increase its exchange rate flexibility and 

eventually transform from a fixed to a floating 

currency – an essential feature aiming to 

become a global reserve currency. So far, the 

experiment has gone smoothly: the Renminbi 

has gradually but surely been appreciating 

against the US dollar, approaching the 6 Renminbi 

per US dollar mark (the rate was 8.27 

when the peg was abandoned in mid-2005). 

However, more freedom for a currency necessitates 

more freedom for the financial market 

as a whole. First, capital controls should be 

gradually lifted. For example, China imposes 

limits on the amount of foreign currency an 

individual can take in a given year. The existing 

regulation is that each individual is not 

allowed to take more than 50 000 US dollars 

per year. However, these regulations become 

superficial given that many people find ways 

to bypass the law. In addition, the recent upsurge 

of the usage of virtual global currencies, 

such as Bitcoin, could make these restrictions 

even harder to enforce. Another issue is interest 

rate liberalization. Under existing regulations, 

a commercial bank’s deposit rates cannot 

exceed the benchmark deposit rate set by 

the People's Bank of China by more than 10%. 

For example, the one year benchmark deposit 

rate currently stands at 3%, hence, Chinese 

savers can receive for their one-year deposits 

no more than 3.3%. China also used to impose 

similar limits on lending rates, but those restrictions 

were removed in July 2013. And yet, 

it will be a real challenge for China to eradicate 

the deposit rate control, since it would 

seriously hurt banks’ profitability and may 

potentially destabilize the Chinese financial 

system, which is dominated by state-owned 

banking groups. Hence, this road to Renminbi 

globalization will be gradual and potentially 

with some set-backs if experiments do not 

bring the desired results. 

Second way: Shanghai free trade zone 

At the same time China is moving in another 

direction in trying to make the Renminbi 

more freely convertible and used by the international 

community. In September 2013, China 

opened up the Shanghai free trade zone 

with no restrictions on capital movement and 

interest rates. The experiment is expected to 

last three years and if it proves to be successful 

the capital and other controls will be gradually 

lifted in other provinces and later – on 

a national scale. In fact, Shanghai is already 

not alone as the Guangdong free trade zone is 

expected to be opened in early 2014. If those 

experiments succeed, China expects to liber- 

alize the Renminbi by the end of 2015. Hence, 

as soon as 2016, a powerful rival will come to 

the global stage with the aim of challenging 

the US dollar and euro and together Western 

absolute dominance in the world of money. 

The battle for money: ChinAmEurica 

The Cold War between the West and the Soviet 

Union left the world littered with dangerous 

nuclear warheads. On the contrary, 

Sino-American rivalry will leave it covered 

with “made in China” goods, US dollars and 

Chinese Renminbi. That is because China 

and America are like newlyweds firmly tied 

into a marriage of convenience. China is the 

biggest creditor of the USA, whereas the USA 

is by far the biggest export partner of China. 

This simply means that America without 

China would experience severe financial crisis, 

whereas China without America would 

delve into deep economic crisis. However, 

as Benjamin Franklin once put it “Where 

there’s marriage without love, there will be 

love without marriage”. Love, after all, is not 

war and this is very good news for the global 

economy. To paraphrase an anti-war slogan 

of the Cold War period, the Sino-American 

rivalry will “make money, not war”. Europe 

and the rest of the world can greatly benefit 

from this battle; hence, contrary to the situation 

during the Cold War, countries should 

strive to get into the front line of this battle. 

The battle for money between China and 

the West will make both parties more prosperous. 

On one hand, China’s rivalry won’t 

allow the West to become overly complacent 

and relaxed. Rivalry is a necessary condition 

for capitalism to flourish – and China is perhaps 

the best country to take over the role 

of a key competitor. On the other hand, increasing 

pressure from the West will prompt 

China to speed up reforms and challenge 

the West in the world of money and finance. 

China clearly understands that and seems to 

be ready to globalise the Renminbi as soon 

as 2016. 

Finally, China, together with the USA and 

the European Union, is supposed to become 

one of the three global powers responsible 

for safeguarding the stability and prosperity 

of the global economy. And yet, the fight for 

ChinAmEurica as a new world order for decades 

is not going to be easy for anyone. 

China 

imposes limits 

on the amount of 

foreign currency an 

individual can take 

in a given year. 

Under existing 

regulation, a commercial 

bank’s 

deposit rates cannot 

exceed the benchmark 

deposit rate 

set by the People‘s 

Bank of China by 

more than 

10 

PERCENT 

For example, the one 

year benchmark deposit 

rate currently 

stands at 

3.0 

PERCENT, 

hence, Chinese 

savers can receive 

for their one-year 

deposits no more 

than 

3.3 

PERCENT. 

China also used to 

impose similar limits 

on lending rates, but 

those restrictions 

were removed. 


TOPIC 

CHINA WANTS TO HAVE A COMPLIANT MIDDLE CLASS 

China Wants 

to Have 

a Compliant 

Middle Class 

Chinese middle class will decide how the world 

dominated by China will look like, because it will 

decide how China will look like. 


From time to time, especially in the 

public domains of Russia and China, 

there are calls to create a so-called 

de-Americanised world. In one of the 

most recent comments discussing this inexorable 

expectation, an editorial in The Wall 

Street Journal on October 21 st wrote that the 

frontrunners for the leaders of a de-Americanised 

planet obtain their allies, if any, mainly 

through the use of coercion. 

On the other hand, Western negligence 

sometimes leads to the aggression of other 

countries, especially Russia. For example, the 

recent suspension of the U.S. government because 

of rather futile ambitions and a lack of 

responsibility among Washington politicians, 

and reoccurring rumours of the potential 

bankruptcy of the United States, evoked a variety 

of opinions in the world. Lone China in 

Southeast Asia might think: “...Why not me?” 

It is a circumstance that speaks for itself – 

when U.S. President Barack Obama refused to 

take part in the Asia-Pacific Economic Cooperation 

summit in Bali in early October because 

of the crisis, the current Chinese leader, 

Xi Jinping, became the main celebrity of the 

summit. So this time, a Chinese breakthrough 

did occur, at least symbolically. 

Towards a liberal economy... 

Moreover, Beijing was forced to follow the 

crisis in America with anxiety. After all, China 

is a major creditor of the United States; its 

central bank holds U.S. government securities 

worth more than 1 trillion U.S. dollars. This 

means that, despite the tensions, Beijing still 

trusts (or simply has no other choice) the 

U.S. financial and political system. However, 

the editorial article of The Washington Post of 

October 9, “Does the U.S. deserve its worldclass 

credit rating?”, points out with sarcasm 

that Washington’s crazies could actually be 

dangerous to political stability not only in 

the United States, and not only theoretically. 

However, these and similar reflections in the 

American and the global media had no significant 

effect on Chinese actions, because 

in the modern world the big players are too 

dependent on each other to afford any ambitious 

movements, focusing on instantaneous 

problems rather than the long-term balance 

of power. 

In any case, the fact that China is buying 

Chinese 

Communists 

are afraid of 

democracy – 

they see how 

Russia's 

leader exploits 

its weaknesses 

in neighbor 

countries, 

buying 

influence. 


TOPIC 


Over the 

next decade 

China's 

middle-class 

appearance 

may become 

the main 

factor of 

the world 

economy. 

U.S. securities, rather than vice versa, suggests 

that the economic model based on the needs of 

the U.S. is currently still operating in the world. 

And the day when Beijing, declaring from time 

to time that the communist system is better than 

American “capitalism”, disengages from the U.S. 

economy has yet to come. 

But it would be wrong to say that China is 

not satisfied with this situation. Being pragmatic, 

the Chinese are very well aware that 

the way in which the global economy functions 

today provides highly favourable conditions 

for China to earn U.S. dollars and thus 

transform its economy and increase its potential. 

After all, now the Chinese can quietly but 

surely build themselves a bridgehead and victoriously 

take control of the global financial 

pyramid. But, as usual, China is only ready 

for change with the condition that everything 

remains under control and without risk to the 

Communist Party’s hegemony. 

This approach also dominated in the ruling 

Chinese Communist Party’s plenum on 

November 9-12 – it outlined the country’s 

economic development guidelines for the 

next decade. As announced by the Western 

media with a certain satisfaction, although 

the wording is traditionally vague, it is clear 

that the free market will play a key role in 

the country's future. According to the Financial 

Times, the state is planning to gradually 

abandon price regulation in a number 

of economic sectors as well as eradicate the 

disparity between the status of urban and rural 

land. It is believed that this will facilitate 

more rapid urban development. The plenum 

also set the stage for the liberalization of exchange 

and interest rates. 

There are also signs of abolishing the compulsory 

registration which keeps rural residents 

attached to their place of residence. The 

Chinese communists have already realised 

that registration hampers the country’s development, 

as it prevents villagers from settling 

in cities with their families. Currently, 

by coming to the big city illegally, family 

members lose their rights to education and 

medical care. Beijing also promises to change 

the rights of ownership so that non-urban 

residents have the same rights to land as the 

urban population. This could mean that Chinese 

peasants moving to large cities might be 

allowed to sell their land in future. 

But again – strictly under the guidance 

of the Communist Party… 

However, the summarizing plenum document 

(communiqué) points out with obvious 

authority that state-owned companies 

will maintain their power and monopoly in 

economic sectors such as banking, energy, 

telecommunications and transport. Although 

the communiqué states that the free market 

will play a key role in the country’s economy, 

the decisive impact of the Communist Party 

has not been omitted. This is reflected in the 

actions of Xi Jinping – he promotes the oldfashioned 

rhetoric of supporting the Communist 

Party as the main ideological power, 

while at the same time suppressing the political 

free mind, in particular among online 

commentators (some have already been arrested 

and are awaiting trial). 

Interestingly, the Chinese Communist Party 

is planning to set up a State Security Committee, 

which is likely to reinforce the powers of 

the country’s president to control the military. 

Western press sources predict that this committee 

will act in the same way as the U.S. National 

Security Council. So this is another, although 

formal, copycatting of the U.S., though 

of course adapted to the realm of a huge country 

still liberating itself from totalitarianism. 

Paradoxically, in many areas of the economy 

and even in social infrastructure, the Chinese 

attempt to copy the West, but at the same 

time they have a paranoid fear of not only 

changing the economic but also the political 

system. This paranoia can be explained by the 

fear characteristic to all autocratic leaders of 

the state that as soon as you release the reins, 

multinational corporations will exploit your 

vulnerabilities and impoverish your country 

in the blink of an eye. That explains why the 

current Communist Party elite is driving the 

Chinese economy towards a liberal free market 

(by the way, the main economic adviser of 

the ruling class is a liberal, Liu Sheng), while 

adhering to conservative communist ideological 

traditions. 

Integration with international structures 

such as the World Confederation of Labour, 

the World Trade Organization and the International 

Monetary Fund also forces adherence 

to the rules of the world. This can also be 

seen in competition all around the world. Globalization 

habits, and in particular the rules of 

global capitalism as “tested” by the U.S., penetrate 

China, sometimes in unseen forms. For 

instance, among 820,000 foreign students in 

U.S. universities during the academic year of 

2012-2013, a total of 235,000 Chinese students 

were leading without competition. 

The issue of Forbes dated July 30 cited 

Ruchir Sharma, an economist of the Morgan 

Stanley financial services company and 

author of the book Breakout Nations, who 

stated in an interview with the officious China 

Daily that China will be the only country 

of the four major developing countries (the 

other three being Brazil, Russia and India) 

to achieve a high living standard as defined 

by the World Bank (more than 12,000 U.S. 

dollars per year). If the country’s economy 

grows by 5-6 percent over the next few years, 

the average income per capita in China will 

double to about 20,000 U.S. dollars per 

year. But the most important question is 

not whether they will achieve it and when it 

will happen, because the process is beneficial 

for the global economy in the first place, 

but what will happen to China when it has a 

large middle class. 

The young capitalism is being exploited 

by everyone who can… 

After numerous scandals at the Taiwanese 

company Foxconn related to the tragic deaths 

of young workers who could not bear the stress 

of working there (the company has earned the 

nickname “the Suicide Factory”), at the end 

of July the focus shifted to a U.S. corporation, 

Apple Inc. In order to diversify its production, 

it cooperates with another Taiwanese 

company, Pegatron. A New York-based NGO, 

China Labour Watch, raised the question of 

how Pegatron succeeds in reducing the cost of 

its production. This turned out to be, by using 

methods that were prevalent in America during 

the first half of the last century. 

China Labour Watch’s report refers to 80 

violations of the labour, production and environmental 

codes at Pegatron, ranging from 

failure to comply with environmental laws to 

taking away the passports of workers (preventing 

them from fleeing to another company), to 

unbearable conditions in the factories, exploitation 

and child labour. Moreover, low wages 

force the company’s staff to work overtime. It 

turned out that 700,000 workers employed 

CHINA IS TIRELESSLY 

COPYING WESTERN 

CULTURE, BUT ONLY ITS 

APPEARANCE, NOT ITS 

ESSENCE. 


TOPIC 


A Japanese 

SOMETIMES WORKERS 

ARE FORCED TO WORK 

AN AVERAGE OF 66-69 

HOURS PER WEEK. 

Western 

corporations 

became 

dependent 

on the cheap 

Chinese 

labor, and 

today it can 

make them 

vulnerable. 

in the three Pegatron factories were forced to 

work an average of 66-69 hours per week. 

Of course, Apple received a serious blow 

to its reputation – after all, the Pegatron companies 

makecomponents for its new iPhone 

model. However, only hypocritical representatives 

of China were surprised by these reports. 

It was as if they had forgotten that China’s success 

story began with a cheap labour force. So 

it will take some time before what has become 

normal practice to become an intolerable thing 

of the past (and, if China’s non-governmental 

organizations actually begin to fight for the 

rights of working people rather than simply 

run propaganda against Chinese manufacturers, 

Huawei’s competitors). 

In any case, it is clear that the era of uncontrolled 

cheap labour in the world is about 

to end. Multinational corporations will have 

to seek a new location for their manufacturing 

operations or have to adapt, which usually 

means paying more. That would be one 

of the changes benefiting China’s economy, 

and raising the per capita income level. However, 

when we talk about the actions of China 

Labour Watch defending the rights of the 

working people, which may be useful for the 

Chinese economy and certain Chinese companies, 

we should not overlook other phenomena 

that could symbolize much deeper 

tectonic fractures in society. 

On November 13 th , the Japanese newspaper 

Asahi Shimbun announced a publication with 

a revealing title, Explosion in Shanxi: What is 

wrong with China?, telling the story of several 

bombings in a provincial capital in the western 

part of China near a Communist Party 

headquarters. 

Accurate identification of what the cause 

of the explosions was is not easy. However, it 

should be noted that Shanxi produces most of 

the Chinese coal that fires the majority of the 

country’s power plants, which in turn supply 

cheap electricity to maintain economic competitiveness 

and growth. Public corporations 

and many small and medium-sized enterprises 

operate within the province, and a number 

of businessmen were able to capitalize on the 

government-controlled economic promotion 

policies of the backward western regions, ignoring 

work safety in the mines or slave labour, 

where kidnapped individuals and even 

people with mental disabilities were forced 

to work. In addition, many people had to flee 

their homes because of the development of 

the coal fields (in this case, it should be noted 

that aggravating environmental problems 

cause public discontent in China). 

The Chinese people have become increasingly 

intolerant to such injustices – especially 

to social exclusion, which is particularly rampant 

in China compared to the rest of the 

world. A Japanese newspaper has presented 

statistics that allegedly show that the number 

of demonstrations and acts of resistance in the 

country is growing fast – from 60,000 in 2003 

to 180,000 in 2011. Accordingly, the cost for 

Beijing to maintain public order (in China it is 

called the cost of public safety) has increased 

from 330 billion yuan in 2007 to 700 billion 

yuan in 2012, surpassing the defence budget. 

The growing protests indicate that the 

Chinese are following what’s going on in the 

world and learning to fight for their rights. 

The only difference is that they convey their 

protests in Chinese forms and use Chinese 

phraseology. For instance, peasants deprived 

of their land by corrupt officials in the course 

of the current reform write in their appeals 

to higher authority that their goal is not to 

overturn the Communist Party, but that the 

government should not violate the so-called 

“heaven mandate” granted to it (in China the 

rule of law has been based on it for centuries). 

While the Chinese Communist Party leaders 

see each new issue as an opportunity to 

promote economic growth by investing the U.S. 

dollars earned from foreign trade, simple Chinese 

people have to live with these problems. 

Is it possible to control the middle class? 

According to the Sinology lecturer of the 

Centre for Oriental Studies at Vilnius University, 

Vytis Silius, China’s economic model 

is approaching the Western model. Undoubtedly, 

it has specific Chinese features. 

So far, it is only in the level of testing and 

social experiment. For example, some provincial 

towns have attempted to install a democracy, 

where a local community solves 

its problems by voting and elects the local 

government. It is argued that the Chinese 

are satisfied with this, because traditionally 

democracy for them is most important at 

the grassroots level – local communities – 

and they do not really care about electing the 

highest powers in the country. However, monarchs 

that once had power in many countries 

of the world failed to preserve it. So nothing 

is eternal. Everything changes. Traditions are 

also not forever, no matter how strong they 

are. Therefore, while watching the solutions 

currently being implemented by China, both 

China and the Western countries will have to 

answer a lot of questions – which will determine 

what the world will look like in the third 

decade of this century. 

First of all, the question is whether China, 

in seeking to free itself from economic dependence 

on the exports of cheap labour and 

create a strong middle class, which might 

boost and stabilize consumption within the 

country, will be able to perform this transformation 

without the democratisation of its 

political system. This question is very interesting 

– after all, a democratic environment 

is more favourable to creativity and innovation, 

so during the migration from textiles to 

high-tech industry, and in order to be a leader 

in a transparent competition, the dominance 

of an infallible party can become a nuisance. 

On the other hand, the current system makes 

it possible for China to consolidate its business 

stronghold in the global market, making 

use of the state apparatus and control, 

together with structural and financial support, 

to achieve positive results. However, in 

this case, the U.S. and the EU will have to answer 

the question of how long they will tolerate 

the competitive distortions where private 

Western corporations have to compete with 

Chinese state-owned companies involved in 

banking, energy, telecommunications and 

transport. 

A key question that the future will inevitably 

answer is this – will the emerging middle 

class of China want to live in the shadow of 

an ideological and unerring political regime? 

It may be all very well for Russia to control a 

situation where individuals serving oligarchs 

account for a greater part of Russia’s middle 

class. By controlling the oligarchs you control 

the middle class. How China will control 

its own middle class and how much the latter 

will allow itself to be controlled is still a 

mystery, as tales about the dangers of democracy 

with the Communist Party losing power 

and everything coming under the control of 

a mid-level clerk in a U.S. company, can only 

be told to the exploited and poor part of the 

population, while it is much more difficult 

to deceive the middle class. Its representatives 

understand what the leaders fear most 

and know who is responsible for the assets of 

certain players to grow by billions every year, 

while they end up living in a polluted environment. 

newspaper has 

presented 

statistics that allegedly 

show that the 

number 

of demonstrations 

and acts of resistance 

in the 

country is growing 

fast – 60,000 in 

2003 to 

180 

THOUSAND 

in 2011. Accordingly, 

the cost for Beijing 

to maintain public 

order (in China it is 

called the cost of 

public safety) has 

increased from 

330 

BILLION 

yuan in 2007 to 

700 billion yuan in 

2012, surpassing the 

defence budget. 


TOPIC RUBRIKA 

LITHUANIA, LATVIA AND ESTONIA LEARNING FROM OBAMA 

Lithuania, Latvia 

and Estonia 

Learning from 

Obama 

Perhaps the only reason the U.S. 

economy is not like the Greek economy 

is because it has chosen the path of 

promoting startups. 


There are fundamental foundations 

for a country's well-being – gas, oil 

and other natural resources, demonstrating 

economic potential and 

growth. What if there were no oil, gemstone 

mines or automotive concerns to focus on? 

What would show whether countries such 

as Lithuania, Latvia and Estonia will flourish 

in the next 10-15 years, and if the purchasing 

power of their populations will exceed the European 

average? 

In comparing the U.S. and the European 

Union (EU) member states, we discover that 

the number of successful startups in the Old 

and the New continents differs greatly. After 

all, the establishment and setting up of new 

companies generating high added value is 

one of the indicators that shows the further 

growth of a country's economic potential, the 

future value of real estate, etc. 

While we recognise the resources and energy 

available to a country as fundamental 

prerequisites of a welfare state, it is important 

to see that the situation is changing. The growing 

importance of technology companies and 

their ongoing research towards a country's 

economic development is well illustrated by 

the competition that has gone on for several 

years between the information technology 

company Apple and the oil giant Exxon Mobil 

for the title of the most valuable company in 

the U.S. and in the world. 

The list of the most profitable companies 

includes Microsoft, Facebook, Amazon, eBay 

and many others which could have only been 

born in the United States. All of them were 

once startups. So it is no surprise that U.S. 

President Barack Obama invites the leaders 

of these companies for dinner at the White 

House and discusses how to increase the 

number of companies in the country creating 

high added value. 

Although such a dinner party in 2011 could 

be considered a public relations campaign to 

promote the president, it without doubt embodies 

the trend preferred by the U.S. – to 

strengthen the community of startups. After 

all, it is already the strongest in the world, and 

Silicon Valley is the best place in the world to 

start a business! 

At the beginning of 2012, Obama solemnly 

signed the Jumpstart Our Business Startups Act 

(the JOBS Act), which emphasizes that small 

businesses and the presentation of young startup 

companies with experienced entrepreneurs 

and investors promotes the development of new 

jobs and plays an important role in strengthening 

the country's economic potential. 

Another step in the U.S. is that the Senate 

is about to push the Startup Visa program, 

which will allow talented immigrants who 

have created a business in America to live 

there. The programs developers have also emphasised 

that the program seeks to encourage 

U.S. competitiveness in the global economy. 

Benefits of startups 

Corporate giants such as Google say that 

startups fuel economic growth and increase 

innovation, while other information technology 

companies, such as Microsoft and Apple, 

are actively investing in startups or acquiring 

them, so it would be difficult not to notice 

their impact on the economy. 

First, startups spend the money received 

from investors very quickly on office rent, 

staff salaries, legal advice and other services, 

and support the local community. According 

to various estimates, only 30-40 percent of 

funds in Europe are invested in startups by 

local businessmen, while other money comes 

from abroad. Therefore, the benefits are obvious. 

Second, setting up new, high value-added 

companies is a source for creating better paid 

jobs, eventually allowing them to retain the 

most creative people, unlocking their potential 

and enhancing the national average wage. 

This is important for all countries that want 

THE STOCK JUMPED UP 

TOWARDS THE $50 MARK, 

AND WITH THAT, TWIT- 

TER'S EVOLUTION FROM 

STARTUP "TWTR" TO 

$TWTR WAS COMPLETE. 


TOPIC RUBRIKA 

LITHUANIA, LATVIA AND ESTONIA LEARNING FROM OBAMA 

Statistics 

Tehnopol, a 

business hub 

in Tallinn, the 

perky capital, 

houses more 

than 150 tech 

companies. 

SLUSH IS THE LEADING 

STARTUP CONFERENCE 

IN NORTHERN EUROPE. 

their citizens to prosper and stimulate economic 

growth, especially those who cannot 

boast of large corporations, such as Siemens, 

Samsung and GMC. 

Different sides of Europe 

How is the Spanish capital Madrid different 

from Tel Aviv or London? Tel Aviv, a 

60-year-old metropolis, boasts more startups 

than most countries worldwide. Tel Aviv is 

also the second most vibrant startup ecosystem 

in the world, vying with other global tech 

hubs such as Moscow, London, New York and 

Berlin to become the "new" Silicon Valley. 

Everywhere you go Israelis want to tell you 

how smart and entrepreneurial they are. The 

country has a very strong focus on research 

and makes education a priority. So it is no 

surprise that as many as 63 Israeli companies 

are included in the NASDAQ listing (more 

than Europe, Japan, South Korea, India and 

China put together). 

A complete opposite of Israel – Spain – 

cannot boast an abundance of startups 

(though it has excellent universities, carries 

out a lot of EU funded research, etc.). Coincidence 

or not, Spain is in 136th place by 

rank for number of new businesses created 

in the world out of 185 countries in 2013 (it is 

predicted to fall to 142nd place in 2014). By 

comparison: Lithuania is 105, Latvia 59 and 

Estonia 50. 

In 2013, Spain's unemployment rate for the 

first quarter was 27 percent. But unlike the U.S., 

when there are a growing number of startups 

in a deteriorating economic situation, the 

AT THE BEGINNING OF 2012, OBAMA SOLEMNLY SIGNED 

THE JUMPSTART OUR BUSINESS STARTUPS ACT. 

Spaniards do not engage in the development 

of new businesses. One hundred emprendedores 

en España surveyed said the same thing – 

they blamed the government for the current situation, 

because not only does it not care about 

them, it also makes them feel like outcasts. 

In order to change, Spain’s parliament approved 

a law simplifying paperwork and creating 

tax breaks to encourage more Spaniards 

to become self-employed or start a company. 

Lawmakers are in the process of looking at 

another law to reduce the risk of losing personal 

assets in the event of a bankruptcy. 

The differences between countries demonstrate 

how important it is to understand that 

governments must take care of tax, financial 

and other assistance in order for a competitive 

mindset to begin to flourish. Startups 

will not be born in a country if it does not 

pay sufficient attention to involving and supporting 

an educational system that produces 

engineers, mathematicians and IT professionals. 

The individual focus of each EU member 

state on startups allows one to see and understand 

how much creative inspiration a country 

has, or whether conditions are favourable 

for implementing it. It is possible to distinguish 

between countries that are developing 

potential from those that have universities 

and research institutes and absorb EU funds, 

but basically rotate within the same economic 

potential which was created in the past and 

is more or less related to the development 

of intellectual potential (for example, newly 

found oil deposits). 

Baltic countries 

The Baltic countries have two leaders: Finland 

and Estonia. In rather short period of time, 

Helsinki has become an internationally attractive 

ecosystem for startups and growth companies. 

According to a Dow Jones VentureSource 

report, the first quarter of 2013 was very successful 

for startups in Finland. Venture capitalreceiving 

companies raised 134 million Euros, 

representing 12 percent of the total money invested 

in startups across all of Europe. 

At the last Slush conference, Jyrki Katainen, 

the Finnish Prime Minister said: “Some 

people even say that the current downfall of 

Nokia is the best thing that has happened 

to this country because it's challenged us to 

come up with new ways to create a foundation 

for our welfare." Katainen also vowed that the 

Finnish government would do everything to 

help startups, starting with tax cuts for business 

angels and venture capital funds, to capital 

allocation for technology centres. 

Estonia boasts that it is the country with 

the highest number of startups in the world 

per capita. Everyone has heard of Skype, but 

here are some the country’s latest startup 

gems: TransferWise has attracted 6 million 

U.S. dollars in investment, and Fits.me – 7.6 

million U.S. dollars. A total of 28.6 million 

U.S. dollars in venture capital was invested in 

Estonia last year. 

Other Baltic countries are not doing so 

well. Lithuania can boast of only a few success 

stories: GetJar (biggest open appstore in the 

world) and Pixelmator, which was honored 

with the Apple Design Award. It is also important 

that last month Apple replaced Photoshop 

with Pixelmator 3 in the advertising 

materials for the new Mac Pro. 

Latvia has its Latvian Mark Zuckerberg, 

Lauris Liberts, managing the Draugiem 

Group – the only social network in Europe 

that has withstood Facebook. 

In assessing the current situation in the 

Baltic countries, it should be noted that 

Lithuania, Latvia and Estonia in particular 

are quite successfully moving along the path 

in their promotion of startups and thereby 

enhancing their growth potential. Investors 

should take note of this, because if more 

startups grow within the next year, long-term 

positive developments will open up before 

our eyes that will have a significant impact 

on investment return. 

In conclusion, consider whether what U.S. 

President Obama is doing is a proper example 

that could be applied to other countries. 

Perhabs the only reason the U.S. economy is 

not like the Greek economy is because it has 

chosen the path of promoting startups. Are 

the countries that you want to invest in doing 

the same thing? 

A study made in 

2013 and funded 

by the Kauffman 

Foundation reveals 

that from new jobs 

created every year, 

as many as 

70 

PERCENT 

are created by 

companies that have 

been operating for 

less than a year. The 

Forrester Research 

study suggests that 

as many as 

78 

PERCENT 

of small companies 

and startups believe 

that they will expand 

over the next two 

years, and as much 

as 

39 

PERCENT 

of them hope to 

double the number 

of employees. 


INTERVIEW 

INTERVIEW 

The EU Has Already Gone 

Through Its Most Severe Phase 

In this interview, we are speaking to Ms. Dalia Grybauskaitė, an economist and former EU finance 

and budget commissioner, not just because she is the President of Lithuania, which is currently 

presiding over the European Union, and not just because she was awarded the prestigious 

Charlemagne Prize by Germany in 2013, also dubbed the "Oscar in Politics", for Lithuania’s 

contribution to the unity of the European Union and the economic stability of all Europe. We are 

speaking to the President because her vigour and consistency represent faith and belief in a strong 

Europe, in the flourishing Baltic Sea Region and in the pro-European future of Eastern neighbours. 

Growth in Europe is 

rather slow and 

recovery – rather painful, 

but positive things can 

also be discerned. Many 

good initiatives exist that 

are indispensable and 

will help Europe become 

more competitive. 

Which global and European 

economic trends 

in the light of the year 

2014 do you find disconcerting 

and which ones optimistic? 

Primarily I would like to begin 

with what’s good and optimistic. 

The main centres of the global 

economy are forecasting growth 

in 2014, though not to such an 

extent as we would like, especially 

in Europe. The growth in Europe 

is forecasted to be small – approximately 

1.5 percent, in the USA – 

2.5–2.6 percent, and in China – 

over 7 percent. But it’s not good. 

It’s disconcerting that the growth 

in the USA and Europe is rather 

slow and recovery rather painful. 

But positive things can also be 

discerned there. I would really like 

to take an optimistic view of the 

future. 

I think that the biggest challenges 

to be faced by the world economy 

are going to be never-ending wars 

in those regions that are suppliers 

of energy resources, i.e. in Central 

Asia, the Middle East and Syria. 

That may affect both the prices of 

energy resources and economic 

recovery in the whole world, but 

so far the main centres are demonstrating 

positive growth. I hope 

very much that it’s going to be big 

strides that facilitate overcoming the 

complicated economic situation. 

The European Union has often 

been depicted as a crumbling 

giant. What do you think? Is it 

possible to assert looking ahead 

to the forthcoming year that the 

fundamental issues in Europe have 

been more or less handled and now 

a phase of somewhat more stable 

growth has commenced? 

I think that we could have been ap- 

prehensive ourselves or demoralized 

by others in view of the crumbling 

a couple of years ago, when a much 

more complicated situation ensued 

in Southern Europe. But even 

Greece, for which it certainly has not 

been easy, and which has faced six 

years of economic crisis and a complicated 

situation, might be starting 

to grow by next year. During the last 

two years, the EU has managed to 

adopt important decisions oriented 

towards the medium or even long- 

term perspective. I’m bearing in 

mind certain processes pertaining 

to the creation of the Banking Union 

and economic-policy coordination 

processes as well as common criteria 

about how the budget should be 

maintained and its adoption process 

should be coordinated in the 

national states. Hence, there are a 

number of things that will help us, 

especially in the future, to manage 

and cope with the situation more 

easily so that it could be prevented 

from deteriorating or impacting 

certain countries. Of course, it’s not 

a huge integration yet, it’s just very 

small steps towards a larger integration 

into the EU – towards economic, 

and not political, integration. 

Nevertheless, though these hard 

times are very severe and in some 

countries very protracted, they are 

already headed towards the end. 

Their consequences will still be felt 

for a while, but I see no reasons why, 

for instance, the Euro should flounder 

or why a more complicated situation 

would evolve in the Eurozone. 

What EU decisions intended to be 

adopted or already adopted do you 

think could strengthen the bloc’s 

positions in the near future, especially 

when one has to compete 

with the USA and China? 

That’s, among other things, the new 

seven-year European budget, which 

is mostly oriented towards innovations 

and pan-European connections 

in the fields of energy and services 

as well as in electronics and cyberspace. 

Many good initiatives exist 

that are indispensable and will help 

Europe become more competitive. 

These are huge steps in the pursuit of 

a common energy policy, especially 

in the fight against monopolistic 

domination in Europe in the supply 

of gas or other energy resources. 

The European Commission, for 

practically the first time, has overtly 

taken actions against monopolistic 

supply. I have in mind Gazprom. It 

shows that Europe is able and has the 

political will to fight and defend its 

interests through the use of existing 

legal measures in the pursuit of a 

more competitive base for the whole 

economy. 

Decisions that have been adopted 

are abundant, though not all of 

them are going to produce quick 

results. Another decision that is very 

important to the entire international 

community is to give a mandate 

to the European Commission to 

launch negotiations with the USA 

over a free trade agreement. I would 

guess that this particular decision is 

vexing and irritating to some, since 

attempts have been made to influence 

public opinion as well as EU 

parliamentarians’ opinions so that 

these negotiations are put on hold 

for one or another reason. We have 

received a response from third parties, 

so we are on the right track. This 

agreement will provide benefits and 

enhance the competitiveness of both 

the USA and Europe. 

The Baltic region is often talked 

about. You are a person who constantly 

stresses that such a region 

does exist and that it has certain 

common values and goals. What 

are those interests and goals? 

What vision is uniting us and why 

is it valuable? 

First of all, it is valuable to have a 

region that can be trusted, where 

one feels safe and where trade and 

economic relations are transparent 

and reliable – a region where there 

are no surprises, where our people 

can travel and live safely and where 

cooperation rests on civilised rules 

based on international law. Such is 

the Nordic region. 

We are really not rivals in ambition 

or size of population, but our 

economic systems are very similar – 

they’re regulated market economies. 

Our democratic values are likewise 

similar, for instance in terms of the 


INTERVIEW 

protection of human rights. Hence, 

the Baltics is truly a region that 

unites a great number of countries, 

not only economically but also 

politically, and even in terms of security 

since we are cooperating with 

the Nordic countries in integrating 

our economic needs and energy 

market as well as in solving security 

issues. 

The main investors in Lithuania 

mainly come from the Nordic 

countries. Scandinavians are in 

the top ten. For instance, Sweden 

has already invested over 9.5 billion 

Litas here. This country is the 

biggest investor. Poland is second, 

Germany third. We are maintaining 

relations with Finland, which is 

also investing in our country. I have 

in mind the modern combined heat 

and power plant that was launched 

in Klaipėda not long ago, which not 

only uses bio fuel but also waste, 

and not only produces electricity 

but also heat. 

Indeed, the support received from 

the very beginning of the restoration 

of our independence was both 

moral and economic, and now we 

see that we are almost equal participants 

in this region. We are very 

successful. Others, having taken a 

detached view of us, are willing to 

be friends and cooperate with us. 

For instance, the United Kingdom 

is trying to join our format and we 

are gladly inviting them as observers. 

It’s clear and evident in the 

European Council that our interests 

are shared: before every meeting, 

we still come to discuss and coordinate 

our opinions on all matters in 

the NB6 format (Nordic and Baltic 

countries). This takes place at the 

level of Presidents, Prime Ministers 

and the European Council. We are 

cooperating very closely, which is 

very understandable since regional 

grouping in an expanding Europe is 

a natural process. Sooner or later it 

had to occur, it was just necessary to 

identify in which region our interests 

coincided most, where our voice 

was equal and where our opinion 

mattered. I think that the Nordic 

region is such a region where we can 

feel the most secure, most reliable 

and probably the most dignified. 

Let’s talk about the East. What do 

you think? Will the EU manage to 

find an antidote to the actions of 

such states as Russia that are targeted 

against the interests of one 

of the EU countries, irrespective of 

whether we are talking about the 

energy sector or trade? 

The Nordic region is a 

region where we can feel 

the most secure, most 

reliable and probably the 

most dignified. 

Unfortunately, so far we can only 

see that our Eastern neighbours do 

not always act logically and reliably, 

so we can surely see actions that 

are neither careful nor measured in 

trade and other sectors. Such actions 

are very difficult to explain, and no 

explanations have been offered yet. I 

have in mind the inspection of vehicles 

and the boycott of milk products. 

I’m very pleased that our situation 

was evaluated in the EU swiftly 

and objectively. It was judged to be 

the same as sanctions or actions 

against the EU itself, especially since 

we are all members of the World 

Trade Organisation. Consequently, 

we have received support, which is 

very pleasing – we have not been left 

on our own. I think that the publicity 

has done much more damage to 

the international prestige of Russia 

itself than to us, and has also shown 

that in the 21st century non-civilised 

measures may not be employed in 

respect to neighbours. 

Today, Lithuania is presiding over 

the EU. What does it mean to our 

country? Does this fact tell the 

world anything about the EU’s 

future, its values and the opportunities 

that arise when the EU is 

united? 

It says a lot. First of all, we are the 

first Baltic country to take over the 

presidency after almost a decade’s 

membership. It shows that a state 

that has only been independent for 

23 years has managed to make very 

big progress in a short amount of 

time and has even been appointed 

to run the main activities of the 

EU. So far we are doing quite well. 

This shows that even a small state is 

important in the EU and can only be 

important if it knows how to use all 

its leverage of power as a small state 

professionally and honestly. 

Critics say that Lithuania’s foreign 

policy is dim and that we have no 

friends. I would like to say that we 

have 187 friends all across the world. 

Many of them voted that we should 

preside over the Security Council 

of the United Nations Organisation. 

So many votes were never cast 

for anything before. I would like to 

express joy that our visibility and 

rational diplomatic power as a small 

state have produced these results. 

From now on, even a small state is 

going to have a great number of de 

facto powers to exert influence over 

the EU’s expansion and participate 

in decision-making and expansion 

processes, for instance in the Eastern 

Partnership Programme. I think 

that it has been an excellent trial and 

opportunity for Lithuania, and so far 

we are making use of it really quite 

well. 

Thank you for the conversation. 


TOPIC RUBRIKA 

WHAT DO BALTIC REAL ESTATE PROMOTERS DREAM ABOUT? 

What Do Baltic 

Real Estate 

Promoters 

Dream About? 

When something is growing, it is 

always difficult to identify the factors 

that allow you to understand whether 

this growth is based on an improving 

economy or higher expectations. 


In 2007, when the future of the Baltic countries 

didn’t look so resplendent in gold, but 

was at least pink, I met a 22 year old Swede 

on a plane to Vilnius. The fourth-year student 

was flying to Lithuania, hoping to become 

a millionaire within the space of a few 

years – an investment in the Lithuanian economy, 

then growing at an incredible pace, and 

in real estate in the Baltic countries seemed 

like a gold mine to him, where you do not even 

need to dig. And he was not the only one to 

think this way. Hopefully, this young man did 

not buy too much of the real estate that was 

supposed to turn into mountains of gold ... 

Now that we know how the Baltic Tigers’ 

glittering history ended, we can see his flight 

across the Baltic Sea from prosperous Sweden 

to Lithuania as a folly. However, were those 

who as recently as the crisis of 2008, seeing the 

terrific growth of profitability of investments, 

under the impression that it was the result of 

a new model of the world economy rather 

than an investment bubble – equally foolish? 

And what to think about those who were too 

lazy to look deeper into the fluctuations of the 

gold price during this century, believing that 

even though the price was reaching record 

highs it would continue to grow? The gold 

rush fever got its name specifically because it 

was based on hope rather than logic: the belief 

that if others could succeed in easily making 

their fortunes, I can succeed too. 

When a bubble is emerging in the market an 

increasing number of people begin to believe 

that it is a real and safe opportunity to earn. 

It is for these reasons that we should have responsible 

financial and tax policies that reduce 

the potential for bubble formation. Without 

a doubt, you can’t control all bubbles because 

some of them are global, but the most negative 

influence is usually caused by bubbles formed 

at home. So now that the Baltic economies are 

growing very rapidly again in the European 

Union and real estate companies are constantly 

sharing information with the media about the 

recovering property market, it is a good time to 

decide whether to take interest in the opportunities 

of investing in the Baltic real estate market 

and check if it is more secure today. Maybe 

you should wait again for a new bubble? 

The Swedish BANG and 

the Baltic bang-bang-bang 

During the last crisis, the burst of the 

real estate bubble did not come to Sweden, 

for good reason – the country had already 

learned its lesson in the most painful way. In 

the mid-1990s, construction in Sweden intensified 

because about 4 percent of the country’s 

gross domestic product (GDP) was spent on 

subsidising it. At the same time, loans were 

becoming cheaper because of inflation, until 

experts at Uppsala University finally estimated 

that the interest had actually become 

negative because of tax preferences! The last 

ingredient in the cocktail was aggressive lending, 

which reached 150 percent of the national 

GDP because of the loan portfolio. 

A great BANG awaited Sweden in the 

1990s. In 1990-1995, residential property prices 

fell by about 25 per cent, commercial properties 

– by an average of 42 percent, while bad 

loans rose by 5 percent. Sweden was expected 

to devaluate the kronor, so the currency market 

was flooded by a wave of speculation. The 

Swedish central bank hoped to put them off 

by increasing interest rates by 500 percent. 

But this did not help either: it ended with the 

nationalization of two banks – Nordbanken 

and Gotabanken. It cost the country’s budget 

4 percent of GDP, or 64 billion Swedish kronor 

(today, this would amount to about 18.3 

billion U.S. dollars). Incidentally, the Swedish 

government only sold the last 7 percent stake 

of the former Nordbanken in September 2013. 

However, the strict actions of the Swedish 

central bank and politicians have yielded results 

– the consequences of the burst bubble 

were eliminated within about seven years. To 

achieve this, Sweden has adopted many other 

amendments: nationalised banks can only get 

government assistance if they agree to write 

IF YOU THINK WE HAVE 

FORGOTTEN THE WORDS, 

YOU ARE WRONG – REAL 

ESTATE DEVELOPERS 

DREAM ABOUT REAL 

ESTATE BUBBLES. 


TOPIC 


Ober-Haus Housing Price Index, Baltic Countries 

(JANUARY 2004 = 100) 

300 

250 

200 

150 

100 

50 

01.2004 

07.2004 

01.2005 

07.2005 

01.2006 

07.2006 

01.2007 

The real estate 

market in 

the Baltic 

countries will 

rise and prices 

will increase. 

07.2007 

01.2008 

Lithuania Latvia Estonia 

SOURCE: OBER-HAUS 

07.2008 

01.2009 

07.2009 

01.2010 

07.2010 

01.2011 

07.2011 

01.2012 

7.858 

3.189 

2.169 

off bad assets as losses; an additional supervisory 

authority (Bank Support Authority) 

was established; the regulation of banks was 

tightened and the kronor was devalued. Then 

tax reform was introduced: tax rates for employees 

were reduced, but the tax base was increased, 

and capital and dividends were taxed 

at higher rates. In analyzing the solutions of 

the crisis, economists note that one of the 

essential elements of success is the political 

elite’s ability to achieve consensus and structural 

changes. After the crisis, Sweden could 

boast of having the most stringent regulation 

of banks in Europe, and the economist Paul 

Krugman suggested they should apply the experience 

in the United States in 2008. 

However, in addressing the situation at 

home with extreme caution, Swedish banks 

have turned a blind eye to their activities in 

the Baltic countries. Or maybe the emerging 

economies seemed so attractive that no one 

wanted to spoil the party with discussions on 

the lessons learned in Sweden, necessary restrictions 

and tighter regulation? The truth is, 

though the small bang-bang-bang of the Baltic 

states reminded me of the Swedish case, 

there were many more assumptions made 

that allowed a real estate bubble to form here. 

According to the analysts, when the Scandinavian 

banks came to the Baltics, confidence 

in these markets increased, so the cost of 

loans was falling and foreign investment was 

growing. The invitation to join the EU contributed 

to even greater investor confidence. 

Wages rose, expectations were skyrocketing – 

the Baltic Tigers seemed unsurpassable. For 

example, in the decade before the recession 

Estonian real estate went up 352 percent! Let’s 

compare: during the same period, property 

prices in Germany experienced the slowest 

growth – just 1 percent. 

07.2012 

01.2013 

07.2013 

10.2013 

Construction Scale and Changes Compared to 

Previous Year, Baltic States EUR mn/Percent 

8.185 

3.617 

2.406 

2.501 2.163 

4,2 

24,3 

13,1 

5.076 

4.297 3.612 4.488 

-16,0 

1.821 

1.673 

1.898 

1.489 

1.252 

1.398 

1.099 

-47,5 

981 

1.372 1.142 1.491 1.857 

2007 2008 2009 2010 2011 2012 

Lithuania Latvia Estonia Full-scale increase compared to previous year 

SOURCE: MERKO EHITUS 

While real estate prices were rising at a 

dizzying rate, Lithuania was considering a 

discussion on the introduction of a real estate 

tax to reduce the bubble formation rate and 

prevent it from exploding. It may be hard to 

believe today, but representatives of the largest 

real estate companies, in the light of such 

proposals, recommended looking at real estate 

prices in London or Paris. They believed 

they had to prove to the public that the real 

estate prices in Vilnius and Riga still had great 

potential to rise. By the way, in trying to understand 

why the Baltic countries' politicians 

and central banks did not take any serious 

action to stop the formation of a bubble, it is 

necessary not only to pay attention to the influence 

of the promoters and intermediaries 

of real estate projects and the desire to profit 

from bubble blowing, but also the political investments 

in real estate and the influence of 

the real estate bubble on the economy. Rapid 

growth of real estate prices has a positive impact 

on the construction sector and overall 

economy growth, so for politicians it is often 

much easier to relax and enjoy a fast-growing 

economy rather than make unpopular decisions 

on restricting the availability of credit or 

the attractiveness of real estate investments by 

increasing the share of tax in the sector. So a 

lack of social responsibility among politicians 

and businesses, and ignoring Sweden's lessons 

were the main reasons why the real estate 

market crashed. 

The explosion took place throughout the 

Baltic states. The housing price index in the 

Baltic countries fell by almost half, according 

to Ober-Haus Valuation and Market Research 

Department manager, Saulius Vagonis, from 

the highest price level reached during 2006- 

2007 to the bottom reached during 2009- 

2010. In Vilnius, apartment prices fell by 

about 40 percent, in Tallinn 50 percent, and 

in Riga by as much as 60 percent. 

However, to combat the consequences of 

the downturn, the example of Sweden was 

used and, according to the manager of the 

Consultation and Analysis Department at Inreal, 

Arnoldas Antanavičius, the same errors 

were not duplicated. “A number of similarities 

can be seen between the explosions in the 

Baltic countries and Sweden, but with companies 

going bankrupt in Sweden, banks rushed 

to sell the seized property. Under these circumstances 

the real estate prices fell further, 

so not only did the bubble burst, but all the 

air escaped through the holes. Banks in the 

Baltic countries created subsidiaries and took 

over the seized property, but did not rush to 

throw it back on the market – it is being sold 

more actively now, when it is obvious that the 

prices are recovering,” A. Antanavičius says. 

“In an attempt to get out of the recession, the 

Baltic countries took a different strategy, and 

we are already seeing a rise in all the major 

cities. For example, in Vilnius we already saw 

the first signs of it last year. So far, regions and 

smaller towns are still lagging behind, so you 

can guess that the recovery will be delayed for 

a year or two there.” 

According to Ober-Haus, since October 

2010 apartment prices in Vilnius have risen 

by 2 percent, in Riga 11 percent, and in Tallinn 

by as much as 35 percent. “It seems that 

prices are recovering the slowest in Vilnius, 

but do not forget that it was hit the least”, 

S. Vagonis said. 

Both prices and construction cranes 

are rising in the Baltic countries 

During the downturn there were almost 

no new construction projects, so the Baltic 

countries are now not only facing the growing 

expectations of consumers but also rapidly 

growing demand for real estate. 

This intensifyng the construction sector. 

Andres Trink, chairman of the board of 

the Estonian construction company Merko 

Ehitus which implements projects in each 

of the Baltic countries, says that the construction 

sector has been growing over the 

past two years. 

“Much of this growth was due to public 

sector orders. However, bearing in mind 

that 2013 is the last year of the EU fund- 

ing period, I think that the share of public 

sector projects will decline in 2014. However, 

about half of the contracts Merko 

Ehitus launched in the Baltics in 2013 were 

private orders. The situation with housing 

projects in 2013 is probably the best since 

2008; the number of projects is growing, 

but the prices are still about 30 percent 

lower than the record high in 2007. 

So, rapid growth poses no threat. I would 

be more critical about office projects – 

very few new projects have started recently.” 

According to A. Trink, the main reason 

for this is fairly low rental prices, making 

office projects less attractive. 

However, Vilnius is distinguished in the 

office segment: now, about 13,000 square 

metres of construction is being completed, 

Are the 

Scandinavians 

Preparing for 

Another Bubble 

Burst? 

While real estate prices 

in the Baltic countries 

are stabilising and slowly 

rising, Scandinavia is 

swelling up again – the 

International Monetary 

Fund (IMF) in a report 

released in August 

highlights the precarious 

situation in the real estate 

market in Scandinavia, 

especially in Sweden 

and Norway. It states 

that Swedish real estate 

has been overrated by 

about 25 percent and in 

Norweay by as much as 

40 percent. The truth 

is that they have talked 

about the potential burst 

of this bubble for several 

years, but up to the time 

of the IMF report, the 

banking stress tests 

showed that they were 

capable of absorbing the 

potential problems of the 

real estate sector. 

Decisions recently taken 

in Scandinavia show 

that the rising tension 

in the real estate market 

is being taken seriously 

and measures are being 

adopted to prepare for 

potential rises. Shortly 

after the end of the 

recession, in March 2013, 

the government adopted 

measures to increase the 

credibility of the banking 

sector. Moreover, 

Swedish Finance Minister 

Anders Borg is forecasting 

the adoption of even 

stricter regulations. 

Similar precautions were 

discussed in Norway. 

Such attention by 

responsible institutions 

towards the real estate 

sector allows us to expect 

that talking of a possible 

explosion of a bubble will 

remain nothing more than 

talk in the near term. 


TOPIC 


The lack 

of social 

responsibility 

among 

politicians and 

business and 

ignoring the 

lessons learned 

by the Swedes 

were the 

main reasons 

why the real 

estate market 

crashed. 

over 40,000 square metres currently pending 

and another 30,000 square metres is planned. 

In 2013, office space for rent amounted to 

467,000 square metres according to Ober- 

Haus, so supply will increase in the very near 

future. However, according to real estate experts, 

the growth should not become a concern. 

Vacant office space in Vilnius is only 8 

percent; in Riga, where the total office space 

area is 679,000 square metres, it is 14 percent, 

and in Tallinn, where the total area is 579,000 

square metres, they have about 9 percent of 

vacant office space. Thus, the activation of 

new projects in Vilnius should not come as a 

surprise. “I would say that the current projects 

are being launched on time, but I think that 

future demand will be satisfied for a while”, A. 

Antanavičius said. 

Particularly noteworthy is the market for 

exclusive real estate. According to the coowner 

of Baltic Sotheby’s International Realty, 

Paulius Gebrauskas, the market is especially 

active in Latvia where in 2010 they passed a 

law allowing free residence – and free travel 

in the Schengen area – for anyone buying real 

estate worth more than 142,000 euro, and 

their families. “Eight percent of buyers in the 

Latvia market are foreigners, but they have 

currently launched a debate on the amendment 

or withdrawal of this law, or maybe the 

introduction of quotas. These changes may 

also affect the real estate situation”, P. Gebrauskas 

said. 

He added that exclusive luxury properties 

are less sensitive to volatility and less 

dependent on the credit markets: “During 

downturns, luxury real estate prices dropped 

by 20-30 percent, but they were the last to 

fall, and today we can talk about a price level 

comparable to that before the crisis. However, 

there were no new projects during the recession, 

so the market demand currently exceeds 

the supply.” 

Last chance to earn or 

another opportunity to lose? 

All of these trends suggest that the real estate 

market recovery in the Baltic countries is no 

longer a question. But at the same time it is 

clear that confidence in the longevity of this 

process is not high. According to A. Trink, 

the bubble explosion forced the abandonment 

of long-term plans – earlier, projects 

were planned for three to five years, and now 

plans cover only 6-12 months. This cautious 

approach is understandable and is linked 

not so much with the processes in the Baltic 

economies, but with external factors of which 

the real estate project promoters are afraid 

and which may scare away buyers. This includes 

the slowing Russia’s economic growth, 

the new wave of problems in the southern EU 

countries and the Chinese real estate crisis, 

which is predictable but has not yet become 

a reality. 

By the way, when it comes to the effects of 

free-market factors on real estate prices, with 

economic growth and the responsibility of 

public authorities in mitigating the negative 

effects, China could be one of the best examples. 

We should only remember the warnings 

of prominent economists before the crisis 

of 2008, that one of the biggest risks to the 

global economy stems from the Chinese real 

estate sector. However, no matter how ironic 

it would be, China’s real estate market not 

only failed to detonate before the recession, it 

withstood the crisis. It perfectly supports the 

assumption that the responsible and prudent 

policies of the central bank and government 

may manage the boom in real estate prices, 

making it similar to the real potential of the 

purchasing power of the economy and society, 

and not posing a danger. 

Many economists and free market apologists 

are very critical of all decisions that 

reduce the value and attractiveness of properties 

believing it is an unreasonable interference 

in free market relations and an attempt 

to regulate prices artificially. These 

statements have some truth, so when it 

comes to wise policy raising prices (the real 

estate promoters are engaged in it, deliberately 

encouraging overly positive expectations) 

or price reduction should not be the 

goal. Decisions must be made in pursuit of 

long-term goals. 

For example, if the state is concerned 

about families and wants to prevent emigration, 

wants families to live in the country 

and raise children, with growing real estate 

prices, it has to deal with the issue of housing 

affordability in one way or another. No 

less important is the choice of the elite in 

the country, of where to direct the public: 

towards creativity, or towards the accumulation 

of capital. It is very easy to identify this 

by looking at how labour and real estate are 

taxed. If society is oriented to creativity and 

increasing personal capacity, income generated 

from labour and business should be 

taxed less and properties should be taxed 

more. Thus, the focus on the long-term interests 

of the state is often very clearly a 

background for certain decisions that do not 

allow real estate prices to rise above the real 

purchasing power of the public. 

In this context, we have to recognize that, 

although after the crisis the Baltic countries 

realised that responsible policy is needed, so 

far we can talk only about isolated decisions 

addressing the most significant problems. 

Yet there are no outlines of long-term policy 

demonstrating the long-term perspective of 

real estate prices. 

There is no doubt that in the next few years 

the real estate market in the Baltic countries 

will rise and prices will increase, but whether 

it will be a long-term process that continues 

with minimal downs for decades or a phenomenon 

reminiscent of American roller 

coasters will be shown by the objectives that 

dominate the agendas of the governments of 

the Baltic countries and the ways of achieving 

them. The fact that these objectives had 

to be set long ago is best demonstrated by 

the fact that in having a lot of negative influence 

on long-term real estate values, the demographic 

situation in the Baltic countries 

is deteriorating much faster than the purchasing 

power of the public is growing. So, 

if there is no wise policy, Parisian real estate 

prices in the Baltic countries will mean yet 

another bubble. 

In the decade 

before the recession, 

Estonian real estate 

went up 

352 

PERCENT! 

During the same 

period, the prices of 

properties in Germany 

experienced 

the slowest growth – 

just 1 percent. 

In 2009-2010, 

apartment prices 

in Vilnius fell by 

about 40 percent, in 

Tallinn 50 percent, 

and in Riga by as 

much as 

60 

PERCENT. 

According to 

Ober-Haus, since 

October 2010 

apartment prices in 

Vilnius have risen by 

2 percent, in Riga 11 

percent, and in Tallinn 

by as much as 

35 

PERCENT . 


TRENDS 

TRENDS 

Estonia: Small, 

Open and on 

Solid Ground 

Estonia in the last few years has been a beneficiary 

of the strong performance of the Swedish 

economy. 

Secondly, balance of payments data (see chart) reveal 

to what extent the recent recovery has been supported 

by funds from Brussels. The cumulative outflow through 

the financial account (decline in external liabilities) since 

the end of 2008 has amounted to 4 billion euros. Export 

boom notwithstanding, only a bit less than 1 billion euros 

have been earned back with foreign sales of goods and 

services. The rest of the 3 billion euro gap has been filled 

with capital account surpluses which capture mostly the 

inflows of European structural funds. 

Hence, it is difficult to avoid the conclusion that the 

future of the Estonian economy depends to a large extent 

on the performance of the Northern European economies 

and on the continuation of the EU’s current budgetary 

policies. This is perhaps what being small and open 

ultimately means. 

AUTHOR 

Hardo Pajula 

Postimees Columnist , Former SEB Estonia Chief Economist 

The performance of the Estonian economy since 

2008 has to be seen within the larger regional 

context. With all major lenders belonging to 

Scandinavian banking groups and Nordic markets 

accounting for more than third of total exports, Estonia 

has become an integral part of an economic area 

that stretches from the Norwegian fjords to the expanses 

of Karelia and from the Arctic to the estuaries of the 

Oder and Vistula. 

The northern dimension was particularly relevant 

during the immediate aftermath of the crisis, when domestic 

fiscal contraction was opportunely countervailed 

by the loose monetary policy of the Swedish central 

bank. Having the advantage of a flexible exchange rate, 

the Riksbank responded aggressively by cutting its policy 

rates and letting the krona depreciate. While the impact 

of this on Estonian financial markets was fairly limited, 

the secondary effects were probably rather significant. 

Accumulated values, EURbn 

3 

2 

1 

0 

12.08 06.09 12.09 06.10 12.10 06.11 12.11 06.12 12.12 06.13 12.13 

-1 

-2 

-2 

-4 

Current account Capital account Financial account 

SOURCE: EESTI PANK 

A weaker currency helped Swedish exports to recover 

at a brisk pace and that in turn enabled Estonian subcontractors 

to resume their sales. The end result was the 

export-led rebound of 2010. 

As for the euro pre-accession budgetary efforts, their 

impact should not be overestimated. For one, as a result 

of the long-lasting fiscal expansion, there was a great deal 

of froth in the system. Hence, the government was able 

to consolidate public finances by eliminating the worst 

excesses of the preceding boom and relying on ad hoc, 

one-off measures. That said, public payrolls and services 

were indeed cut. There crucial thing, however, was that 

due to the coming euro accession, the fiscal retrenchment 

was seen from the outset as a project with a fixed time 

frame and clearly-defined goal. This was no doubt instrumental 

in generating political support for this admittedly 

painful exercise. 

One of the main selling points of the common currency 

was its expected positive effect on foreign direct 

investment. After having turned negative in 2009 the net 

FDI flow did indeed recover strongly after that, and two 

years later the inflow was close to its all-time high. Since 

then, however, the interest of foreign investors in Estonian 

assets seems to have fallen once again and in the last 

two years the inflows have fallen sharply. It is of course 

impossible to ascertain what role the euro has had in all 

this. On the whole it seems reasonable to conclude that 

Estonia in the last few years has been a beneficiary of the 

strong performance of the Swedish economy, which in 

turn is a satellite of the German economy – the unchallenged 

economic powerhouse of Europe. 

Looking ahead there are perhaps two key issues to be 

aware of. First, there is a danger of getting caught up in 

the middle income trap. The convergence process that 

had lifted Estonian GDP per capita from roughly one 

third of the EU average in 1995 to two thirds twenty years 

later, seems to have stalled. To the extent that there are 

plenty examples from around the world where countries 

get stuck at this level of income, this scenario has to be 

taken seriously. 

Latvia: 

an Impressive 

Comeback 

In the comprehensive Global Competitiveness 

Index Latvia has seen its global ranking go up 

from 68th in 2009 to 52nd in 2013. 

It often takes a crisis of major proportions for positive 

change to occur. The recent experience of Latvia 

clearly fits the bill. The credit-fuelled economic boom 

in Latvia from 2005 to 2007 has been compared to 

an athlete getting impressive results while being on steroids. 

After the bust that followed the subprime lending 

crisis in the US and the global liquidity crunch in 2008, 

the Latvian government had to ask for help from the 

IMF and the European Commission to keep the country 

solvent. The situation looked extremely bleak, with the 

volume of economic output declining by more than 20% 

from 2007 to 2009, real estate prices dropping by two 

thirds, the budget deficit reaching 10% of GDP in 2009 

and unemployment at the bottom of the economic cycle 

exceeding 20% of the working population. 

However, five years later Latvia has staged an impressive 

comeback. While initially being export-driven, 

growth spilled over to domestic demand, with household 

consumption this year becoming the main engine of 

growth. The economy has been growing strongly for the 

last three years, and seasonally adjusted quarterly GDP in 

the middle of 2013 was already 18% above the lowest point 

of the financial crisis. Unemployment, although still high, 

has come down sharply and is already lower than the EU 

average. The extraordinary elections to the parliament in 

2011 have also resulted in the considerably reduced influence 

of certain business groups on the parliamentary and 

government decisions, which has clearly improved the investment 

climate. The loan from the IMF has been fully 

repaid ahead of schedule and the government budget as 

well as the current account are close to being balanced, 

indicating that both the public sector and the country as 

a whole have returned to living within their means. The 

state treasury has successfully returned to international 

capital markets with several Eurobond emissions that 

have seen investor demand considerably exceed the borrowing 

needs of the government. Latvia has also fulfilled 

the Maastricht criteria and will get the euro in 2014, thereby 

fully eliminating currency risk for investors from other 

euro zone countries. 


TRENDS 

TRENDS 

In addition to returning to macroeconomic stability, a 

number of structural reforms have been carried out. The 

number of state agencies has been halved and the number 

of public sector employees reduced. A new insolvency 

law has considerably simplified insolvency proceedings 

and improved the legal protection process. Arbitration 

court reform is underway, with the aim of radically reducing 

the number of arbitration courts and improving 

their quality. The tax wedge on labour is gradually be- 

Competitiveness and GDP growth 

Percent 

10 

5 

0 

-5 

-10 

-15 

-20 

2008 2009 2010 

2011 2012 2013* 

Change in real GDP (y/y) Global Competitiveness Index Score (rhs) 

* Change in real GDP for 2013 is a forecast 

SOURCES: WORLD ECONOMIC FORUM, CENTRAL STATISTICAL BUREAU OF LATVIA 

ing lowered by the personal income tax, which was cut 

from 25% to 24% starting in 2013, and a decrease in social 

security contributions by 1% that is in effect starting in 

2014. Measures to limit the impact of the subsidies to the 

renewable energy sector on the price of electricity paid 

by businesses have been approved by the government. 

A new law on construction, which will considerably 

Lithuania: 

Lessons Learned 

from the Crisis 

The introduction of the euro in 2015 is a chance 

for Lithuania to check how consistent it is, implementing 

the goals it has set. 

The Lithuanian economy was not prepared for the 

global financial crisis that struck in 2008. A price 

bubble formed in the real estate market in 2004- 

2007, which led to the overheating of the construction 

4,5 

4,4 

4,3 

4,2 

4,1 

4 

Score 

streamline the construction process, has been passed by 

the parliament and will enter into force in 2014. The first 

pilot projects have started that aim at moving towards 

a dual vocational training system based on the German 

model. Taken together, these steps significantly increase 

the attractiveness of Latvia as a place for investment and 

doing business. 

Challenges remain, a key one being the decline in 

population as a result of both emigration and a negative 

natural growth rate. As a result, the location of business 

has become increasingly important. During the last decade 

Riga and the greater Riga area, as well as key regional 

centers such as Jelgava, Valmiera and Ventspils, have 

grown in relative importance while small towns located 

far from the capital are losing critical mass and struggling 

both to retain qualified employees and maintain 

an adequate business infrastructure. Other aspects of the 

business environment that need further improvement 

are the low efficiency of the court system, the relatively 

poor state of the roads and an undeveloped alternative 

capital market. However, the improvements achieved in 

recent years have been truly remarkable and have already 

been recognized by institutions including the World 

Economic Forum. In the comprehensive Global Competitiveness 

Index administered by it, Latvia has seen its 

global ranking go up from 68th in 2009 to 52nd in 2013. 

AUTHOR 

Andris Strazds 

Nordea Latvia Chief Economist 

sector. The credit policies of banks were oriented at encouraging 

this part of the sector, which led to particularly 

fast rates of GDP growth. However, after the crisis 

started, many households and businesses could not 

carry out their financial obligations. 

The market cycle only deepened the procyclicality of 

economic policy – right before the 2008 parliamentary 

elections a populist decision was adopted to increase 

retirement pensions, which a few months later had to 

be retracted and social benefits cut. Not only was precious 

time lost in implementing reforms but also the 

trust of investors and the people was lost in the social 

security system. 

On the eve of the crisis the government was taking 

steps to cool the real estate market, for example by getting 

rid of tax incentives for buying a home. However, the 

main decisions to stabilize the economy were to be taken 

in 2009-2010. Taxes were raised and public expenditure 

was slashed. Though this policy is subject to debate today, 

it helped to lessen the state’s dependence on loans and 

created a firm macroeconomic foundation for developing 

the country’s businesses. 

After the end of the crisis, the export sector was the 

one that best guaranteed a rise in GDP. A fair amount 

of hope to get the construction and real estate business 

back up on its feet was put in the mass renovation of 

multi-story residential buildings. However due to a lack 

of conceptual ideas it did not play a role and ultimately 

the implementation of this programme had to be put off 

for a few years. The high unemployment rate impacted a 

drop in real wages, which limited consumer power in the 

internal market. 

With the internal market recovery hampered, firms 

focused on exports demonstrated extraordinary ability 

and the true power of the country’s businesses. Many 

of them were able to increase their share of the market 

in Western European countries that are going through 

stagnation, while exports to the growing Russian market 

over the last few years have had double-digit growth 

each year. That would not have been possible without 

the reforms in production and how work was organized, 

which guaranteed the competitiveness of businesses in 

the international market. 

Real GDP Index (2007=100) 

105 

100 

95 

90 

85 

80 

75 

SOURCE: EUROSTAT 

2007 2008 2009 2010 2011 2012 

Germany 

Lithuania 

Estonia 

Latvia 

Greece 

During the first half of 2013, a comparative balance 

of the export and internal market was achieved, which 

makes up the country’s GDP. On one hand, the Eurozone 

recession and Russia’s economic problems impacted the 

natural slowdown of Lithuania’s export growth. However, 

there has been a rise in employment and the average salary 

in the country. Looking at Lithuania’s economic prospects 

in the near future, the question of the breakthrough 

of investments is becoming a decisive factor. In 2012 and 

the beginning of 2013, business investments were almost 

at a standstill while companies awaited new, optimistic 

signals from the market. It’s clear that there isn’t any 

sense in continuing this policy of wait-and-see. First of 

all, production capacity is almost at the same level as it 

was before the crisis. Secondly, the need is ripening for investments 

in technological revamping. Companies have 

guaranteed their competitiveness by minimizing production 

costs over the last few years, but looking toward the 

future, this business development model is no longer viable. 

It is necessary to invest in new equipment and technologies, 

and thereby cut the level of costs per production 

unit. In this context, Lithuanian businesses will not get 

by without foreign investment which provides not only 

financial incentives but also most often brings with it 

priceless know-how. 

The government’s duty in this situation is to guarantee 

business conditions that don’t attract investment “hands”, 

i.e. companies investing a symbolic amount of capital that 

are looking to use privileges given especially to them, but 

rather local and foreign companies that have long-term 

development plans. In this context, potential investors 

should observe the actions of policies in the job and tax 

sectors (first of all the changes to direct taxes like income 

taxes and corporate taxes). 

The introduction of the euro in 2015 is not only a tool 

to increase even more the attractiveness of investing in 

Lithuania, but also a chance to check how consistently it 

is able to implement the goals it has set for itself. In addition, 

keeping to the Maastricht criteria is a value in and 

of itself, which reflects the robust macroeconomic health 

of the country. It’s important that carrying out the criteria 

won’t become a shop-window display, i.e. that once the 

euro is introduced the criteria would be swept aside as an 

unnecessary constraint. 

AUTHOR 

Gitanas Nauseda 

SEB Lithuania President Adviser 




Who Is Sucking the Blood of 

the Baltic States' Pensioners? 

In the near future Scandinavian pension funds will grow very fast in the 

Baltic countries. However, without systemic reforms this growth will end 

as it did in Poland. 


This autumn, the name of Poland was resounding 

in economic publications all across the world – 

the country has nationalised half of the assets 

present in private pension funds, transferred 

these assets to its balance sheet and reduced its public finance 

debt that had amounted to 52 percent of the gross 

domestic product (GDP). The only thing that has been 

left for Polish fund managers is to search for justice in the 

courts of law, but discussions on the cessation of contributions 

to the second-pillar funds are rising not only in this 

country. 

Since 1999, the Polish pension system has been based 

on dual pension accumulation: one portion of employees’ 

salaries and wages was measured out and went to the Social 

Insurance Institution (Zakład Ubezpieczeń Społecznych, 

ZUS) and another portion mandatorily went to a private 

fund which could be selected by the taxpayer himself (a 

third pillar for retirement accumulation also exists, but it’s 

not popular in the country). Given such a system, pension 

funds soon became a rather powerful player: according 

to the data of the Polish Financial Supervisory Authority 

(Komisja Nadzoru Finansowego, KNF), before the moment 

of the recent reforms they had just over 16 million 

participants, and the total value of the funds had reached 

approximately 86 billion U.S. dollars, or almost one fifth 

of the country’s GDP. 

Investments of the Polish pension funds were strictly 

controlled. Up to 40 percent of the contributions could 

be invested in regulated-exchange equity securities, up to 

10 percent in regulated over-the-counter equity securities, 

up to 40 percent in debt securities, up to 10 percent in 

closed-end mutual funds’ certificates, bank deposits and 

bank securities, and up to 15 percent in open-end mutual 

funds’ securities. The most important thing is that 95 percent 

of all investments had to be made inside the country. 

This system had considerably contributed to the development 

of the Warsaw Stock Exchange, since domestic companies 

were given an opportunity to increase their capital 

by selling equity and debt securities as well as by enhancing 

the capital market’s liquidity. However, the European 

Court of Justice declared in 2012 that Poland’s requirement 

to invest within the country violated the European 

Union’s principles of free movement of capital. To put it 

more simply, a state that releases in accordance with the 

mandatory procedure a portion of the pension contributions 

to private funds cannot control where this money is 

invested so strictly. 

If no control is permitted, then take it away 

When control became impossible and the public finance 

deficit menacingly approached the limit of 55 percent of 

GDP, the Poles were not too modest and in September 2013 

announced that as of February 2014 approximately half of 

the funds’ value, or approximately 37 billion U.S. dollars, 

was going back into the ZUS accounts. Requirements to 

invest in the country will soften – it is planned that 10 

percent of the funds’ value will be allowed to be invested 

abroad as of July 2014 and by 2016 this limit should gradually 

reach 30 percent. However, the funds will no longer 

be mandatory and advertising thereof is intended to be 

prohibited. Who would like to become the participant of 

a fund whose money can be nationalised at any time if 

you can choose and aren’t assailed by any advertisements? 

Although the latter measures are just in the stage of active 

discussions, it is obvious that they pose a threat to private 

funds. So, it’s not strange at all that fund managers called 

the government’s decision anti-constitutional and intend 

to search for justice in courts of law. 

The benefit of such drastic decisions by the Polish government 

is also raising discussions. According to critics, a 

populist argument that the money appropriated from the 

funds would be used to fill the hole in ZUS’s finances also 



means that Poland, having suspended the growth of its 

debt, will be able to borrow on the international markets, 

and one or another injection into the economy before the 

elections, to be held in 2015, might seem quite attractive to 

the politicians. On the other hand, committing the funds 

to invest inside the country was beneficial to the Warsaw 

Stock Exchange, which has not responded to the new 

policy course very well – a drop of 5 percent and a reduction 

in the growth forecast for 2013 from 2.2 to 1.5 percent. 

However, even if the politicians have just populistically 

made use of the situation, the main problem in this 

story does not change: if a private player is willing to take 

a share in the tax funds with the state but is not willing to 

represent national interests, there exists an extremely high 

probability that the state will be adversely predisposed towards 

such a player. It is obvious that the problems faced 

by Poland’s ZUS require a long-term structural solution 

and its debts could be reduced by, for example, tightening 

the possibilities of earlier retirement. But it seems that it’s 

easier to tell the electorate that it is the funds that are to be 

blamed for the ZUS’s debt. 

How to plug those leaky pockets? 

Structural state-pension problems also happen to be encountered 

by the Baltic states. The state pension system 

that is currently operating there was already created in the 

world at the beginning of the 20th century and is simply 

not adapted to today’s current demographic situation. 

Therefore, the countries that follow it must over time either 

extend the retirement age or raise taxes, or apply both 

measures. 

In the meantime, when Latvia and Estonia are extending 

the retirement age and are increasing contributions to 

private funds, the Lithuanians had to decide by the end 

According to the data of the Bank of 

Lithuania, barely 0.5 percent of the total 

pension portfolio value is invested in the 

stocks of Lithuanian companies. 

of November 2013 whether they would like to accumulate 

their pensions in the second-pillar pension funds as 

previously, to return to SODRA (State Social Insurance 

Institution), or to voluntarily add 1 percent (from 2016, 2 

percent) to the second-pillar pension fund’s contribution 

and additionally receive 1 percent off the average wage 

(from 2016, 2 percent) from the state to the second-pillar 

fund’s account. It’s all very simple if not for the fact that 

at the beginning of October the Prime Minister’s adviser 

on financial matters, Stasys Jakeliūnas, also proposed 

to halt contributions to the second-pillar pension funds 

from January 2014 then to undertake reforms at SODRA 

and only then to consider where and what accumulation 

proportions should go. “My argument is that if the second 

pillar is to be funded from SODRA, which has a huge debt 

and continuous deficit, the funding itself and the second 

pillar are financially unsustainable”, S. Jakeliūnas said. 

If Lithuania opts for a larger accumulation, it is likely 

that the sum of 1.3 billion EUR that is currently present in 

the second-pillar pension funds will substantially increase. 

In Estonia, already today, employees born after 1983 must 

become participants in the second-pillar pension fund, so 

the size and power of Estonian funds will be increasing in 




the future as well. Besides, according to the data of the Organisation 

for Economic Cooperation and Development 

(OECD), Estonians are more inclined than Lithuanians or 

Latvians to opt for a risky investment strategy – 75 percent 

of the participants of second-pillar pension funds in Estonia 

go for an investment strategy that is more oriented 

towards stocks and not towards bonds. Fuel is added to 

the fire by the fact that borrowing under Basel III requirements 

will become more expensive and more complicated, 

so it will be increasingly important for companies to 

attract funds within the market. Companies can do this 

by way of initial or secondary public offerings, but that 

requires a developed capital market, and the Baltic states 

cannot boast of such. Their stock market capitalisation is 

very small; according to the World Bank’s data of 2012, 

in Lithuania it reached 9.4 percent of GDP, in Latvia 3.9 

percent, and in Estonia 10.7 percent. For comparison, the 

OECD average was 71.8 percent of GDP and the EU average 

43.1 percent. 

The second-pillar pension funds of all the three Baltic 

Have you heard 

about business 

populism? 

Problems of the 

pension systems in 

Baltic countries is 

a good example. 

states presently total 3.6 billion EUR, part of which could 

enliven the countries’ stock exchanges and help attract 

more foreign investors. In this context, it is obvious that 

where and how the money present in pension funds is 

invested should be of concern not only to state or fund 

participants but also to the businesses that sees domestic 

investments as well as to fund managers themselves. 

Today, less than one third of the funds present in the 

Baltic states’ pension funds stays inside the country where 

those funds were collected. It should also be kept in mind 

that the data presented includes both stocks and bonds, 

so in reality a much smaller amount of the pension funds’ 

money seatles at each country’s stock exchange. For instance, 

according to the data of the Bank of Lithuania, 

barely 0.5 percent of the total pension portfolio value is 

invested in the stocks of Lithuanian companies. 

Your money is closer to your pocket 

Such a situation can be explained in this way: firstly, the 

small markets of the Baltic states are characterised by a 

rather low liquidity, so when a somewhat bigger amount 

of stocks needs to be sold there arises a risk of facing a 

fluctuation in stock prices. However, this argument is 

questionable, since one of the reasons why the market is 

shallow is that pension funds do not invest in it. Secondly, 

the stocks of domestic companies are not very attractive 

to the funds because such investment is risky; it requires 

a lot of supervision and it still does not guarantee better 

investment results. Hence, investments in the stocks of 

domestic companies would increase costs for fund managers, 

but, as fund managers themselves maintain, there is 

no evidence that this would allow the generation of higher 

returns. Thirdly, it has been talked for quite a long time 

that the amount of funds present in the Baltic states’ pension 

funds is just too small that it would be worth it for 

their head offices in charge of main decisions to reconsider 

any investment directions for the funds. Nevertheless 

today these funds already amount to over 3 billion EUR, 

and that amount is only going to grow. 

The most interesting thing is that Scandinavian funds, 

which barely leave 30 percent of the pension funds’ money 

in the Baltic states, are more inclined to leave their citizens’ 

money in their own country. For instance, according 

to the OECD, Norway’s second-pillar pension funds only 

invest abroad 26.8 percent of the funds’ value, whereas 

Sweden’s biggest pension fund Alecta likewise invests 54 

percent of the funds in Sweden. More than 73 percent of 

the fund money is left by the Danes in their own country 

as well – their pension funds are considered one of the 

most successful in Europe. However, unlike Poland, the 

state here is not planning to regulate fund investments. 

According to Søren Dijon, Chief Economist of one of the 

biggest Danish pension funds, funds and strong trade unions 

that have existed in Scandinavia for decades are operating 

on the principle of collective insurance agreements, 

and if one collective entity brings a considerable amount 

of money into a fund, it can most legitimately raise requirements 

for the investment directions of that amount. 

Therefore, Danish funds not only leave a large portion of 

their funds inside the country, they are also intensively 

financing start-ups and strategic projects. Whereas Estonians, 

who have opted for a riskier – a larger share of 

stocks – investment strategy instead of investing in domestic 

start-ups and refining their image as a country of 

technologies, are allocating a big portion of funds, alas, 

not to Estonian companies. 

Political and investment populism 

When it comes to attracting funds accumulated in the 

second-pillar pension funds, the issuance of bonds worth 

20 million EUR by the Latvian company Latvenergo at 

the beginning of 2013 could be mentioned as a successful 

example. The decision to raise funds for strategic projects 

Second pillar Baltic pension funds 

according to the investment instruments, 2012 

Estonia 

Latvia 

Lithuania 

26% 

35% 

43% 

Geographical directions of the Second 

pillar Baltic pension funds' investment 

Lithuania 

Latvia 

Estonia 

Government bonds 

Time deposits 

Inside country 

U.S. 

30,1% 

33.3% 

24.02% 

2.6% 

4.23% 

11.9% 

36.5% 

Stock funds 

Other 

in this manner proved to be successful: 25 buyers were interested 

in the bonds, among which were pension funds 

as well, and the price of the bond issue reached more than 

42 million EUR. It is planned that Latvenergo will issue 

bonds worth 70 million EUR in total, and for the money 

received it will modernise its production facilities, distribution 

and transmission networks. 

The funding of strategic projects, according to experts 

at the Bank of Lithuania, is one of the directions along 

which the Baltic states’ fairly new pension funds could 

and should move. However, we must acknowledge that 

pension funds controlled by the Scandinavians are, at 

least so far, moving very slowly with investing funds in 

the Baltics. And this turns out to be the main reason why 

a young and poorly developed Baltic financial market is 

growing old and does not evolve. 

The strangest thing is that fund managers’ arguments – 

logical or not very much, which should justify their reluctance 

to invest in the Baltic markets – actually fail to 

explain why, regardless of the rapid growth of these countries’ 

economies, they deem it is not worth investing here. 

One of the arguments is really related to high risk: 

should investments be made in the Baltic states, the risk 

of bubble formation would grow, and consequently more 

attention would need to be devoted to risk management 

and to the efforts of solving the long-lasting problems that 

are troubling the pension system. Unfortunately, one patently 

noticeable effort is the focus on saving the pension 

funds’ income and not the pursuit to ensure the quality 

functioning of the entire system. Such a standpoint from 

the pension fund managers is no less populist and irresponsible 

than that of politicians who also avoid solving 

long-lasting systemic problems, but who can very easily 

propose fixing the systemic holes of the pension system at 

the expense of the funds. 

64% 

40.28% 

35% 

29.1% 

57% 

Other Baltic countries 

Luxembourg 

11.9% 

2.6% 

3.82% 

7.3% 

22% 

11% 

26.3% 

22.14% 

19.1% 

2% 

0% 

6% 2% 

Other EU countries 

Other 

0.8% 

5.52% 


TRENDS 

TRENDS 

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and settle financial products seamlessly between the three 

countries. 

In recent years the NASDAQ OMX Baltic exchanges 

have focused on removing frictions to cross-border investments 

and leveraging on regional integration. The essential 

elements of a single Baltic marketplace like shared 

global technology, one market model, joint membership, 

common information distribution and other aspects have 

been put in place, making the region more easily accessible 

and more attractive to local and international investors 

as well as companies seeking to list their shares on the 

stock exchange. 

By introducing a single trading and settlement currency 

as Latvia joins the euro area in January 2014, NASDAQ 

OMX Baltic will take another step to becoming a truly 

integrated market. The single currency across the Baltics 

will greatly improve the efficiency of the Baltic market and 

facilitate capturing larger flows of portfolio investments 

to the region. For foreign investors the common currency 

will reduce transaction costs through savings in conversion 

expenses, allow for smoother management of crossborder 

portfolios and diminish trading-related risk. 

Baltic tiger is roaring 

The Baltic region has demonstrated remarkable agility 

by its quick recovery from the recent economic crisis. Estonia, 

Latvia and Lithuania have been the fastest growing 

economies among the 27 member states of the European 

Union for the last three years. Latvia’s GDP in 2012 increased 

by 5.6% compared to 2011, while Estonia’s grew 

by 3.2% and Lithuania’s by 3.7%. 

Over the last three years the NASDAQ OMX Baltic 

Benchmark index, which is composed of the largest Baltic 

companies covering different sectors, advanced by more 

than 40%. Since the beginning of 2013 it has grown by 12%. 

More opportunities to raise capital 

As the Baltic economies grow steadily, so does the capital 

market. An expanding list of corporate bonds proves that 

there is a great alternative to bank loans. And this alternative 

is likely to become more attractive for companies 

as the regulations and requirements imposed on bank 

lending become stricter. There are more and more opportunities 

for companies to diversify their capital base and 

attract growth capital using stock exchange instruments. 

IPO as a source of attracting capital could be as beneficial 

for large companies seeking funding for expansion 

as it is for small and medium size enterprises (SMEs) that 

cannot access bank loans for various reasons. 

As SMEs constitute approximately 99% of all companies 

in the Baltics, their valuable role in the economies 

cannot be overestimated. The importance of SMEs has 

been accurately characterized in a program that aims to 

boost the IPO market in Sweden (IPO White Paper). The 

significance of SMEs in the Swedish economy has been 

growing constantly in recent years. For example, over 

OMXBBGI, % 

125 

120 

115 

110 

105 

100 

95 

90 

85 

80 

01.12.10 01.05.11 01.10.11 01.03.12 01.08.12 01.01.13 01.06.13 01.11.13 

last decade about 80% of new jobs in Sweden were created 

by companies with fewer than 50 employees. It seems 

reasonable to assume that the situation is similar in the 

Baltics. Taking this into account, it is important to ensure 

that SMEs and start-ups have the opportunity to get easy 

access to capital if they need to. 

In addition to the regulated market, NASDAQ OMX 

Baltic has an alternative market called First North Baltic. 

First North is designed specifically for SMEs and start-ups 

and has much looser regulatory requirements compared 

to the Main and Secondary lists. Two companies – Baltic 

Telekom and Telescan – joined NASDAQ OMX Baltic Alternative 

Market First North in 2013. 

The main purpose of the alternative market is to serve 

as an entrance point to the stock exchange for SMEs. Usually, 

these ambitious companies grow and seek to become 

main-list companies in the future. The alternative market 

can boost a company’s visibility and create better conditions 

for finding investors for further financing. 

As a matter of fact, the Swedish IPO White Paper also 

reveals that job growth in the companies which went public 

increased by 36.5% annually during the years following 

the IPO (by comparison, the average job growth rate in 

private-sector companies in Sweden is 1.5%). This proves 

the positive link between by SMEs access to capital and 

job creation. 

We believe that what determines success is not how 

large or small the market is, but instead whether the market 

is growing or shrinking. As the Baltic countries are standing 

firmly on the path of sustainable economic growth, we 

believe the IPO and listing trends we witness all over the 

world will gain momentum also in the Baltics. 

AUTHOR 

Ott Raidla 

NASDAQ OMX Baltic Market 

Communication & Marketing Manager 

Baltic Market 

Quick Facts 

79 listed 

companies 

33 members 

29 corporate bonds 

45 government 

bonds & bills 

5.7 billion euros – 

market cap 

3,265 euros – 

average transaction 

23.92% – 

increase in the Baltic 

Benchmark Index y-o-y 

OMX Baltic Benchmark GI index 

(26.11.10-26.11.13) 

NASDAQ OMX Baltic Market 

Awards – honoring excellence 

in investor relations 

Each year NASDAQ OMX Baltic 

exchanges identify the best companies 

in the Baltic market in terms 

of investor relations and award 

them at the Baltic Market Awards 

ceremony. 

The Baltic Market Awards project, 

alongside evaluating investor relations, 

identifies the best financial 

intermediary – a bank or a brokerage 

company trading in Baltic 

company shares – and awards it as 

Member of the Year. 

The Baltic stock exchanges have 

been carrying on the Baltic Market 

Awards project since 2006. 

Best investor relations in the Baltic 

countries in 2012 – TEO LT 

Best annual report in 2012 – TEO LT 

Best investor relations online in 

2012 – TEO LT 

Most visible improvement in investor 

relations in 2012 - 

Latvijas kuģniecība 

Member of the year in 2012 – LHV 

Pank 

Overall in the Baltic market, the 

quality of investor relations at the 

listed companies has improved by 

46% since the first Baltic Market 

Awards in 2006. 

SOURCE: WWW.NASDAQOMXBALTIC.COM 

10 largest companies by market capitalization 

Tallink Grupp (TAL1T) – 643 MEUR 

TEO LT (TEO1L) – 595 MEUR 

LESTO (LES1L) – 428 MEUR 

Olympic Entertainment Group (OEG1T) – 283 MEUR 

Lietuvos energijos gamyba, AB (LNR1L) – 241 MEUR 

Tallinna Vesi (TVEAT) – 226 MEUR 

Tallinna Kaubamaja (TKM1T) – 223 MEUR 

Lietuvos dujos (LDJ1L) – 185 MEUR 

Ventspils nafta (VNF1R) – 145 MEUR 

Apranga (APG1L) – 139 MEUR 


TOPIC 

THE ESSENTIAL EVENT IN 2013 – EVACUATION OF THE SCHIBSTED CONCERN 

The Essential Event in 2013 - 

Evacuation of the Schibsted 

Concern 

Scandinavian media concerns' withdrawal from the Baltic states is an important indicator 

of the processes going on there. Therefore, it is necessary to describe these 

processes, while there is a possibility. 


Scandinavian banks dominate the Baltic countries, 

using controlled capital and experience, 

while a high number of powerful media groups 

in Scandinavia and those controlling huge capital 

and having unique experience are abandoning positions 

in Latvia, Lithuania and Estonia one by one. 

This trend is alarming, as the transparent media market 

is no less important than the transparent and competitive 

banking market. If the Nordic entities are leaving 

because of the negative perceptions being characterised 

in the media, in the long run this may have a negative impact 

on the economies and politics of the Baltic countries. 

Unfortunately, in order to grasp the nature of media processes 

in the Baltic countries, one must not focus on the 

information provided by Scandinavian entities about the 

market specifics and reasons for their withdrawal, as most 

comments are very brief. We should also remember that 

these large entities were entering Estonia, Latvia or Lithuania 

with their heads held high and had very ambitious 

goals, while their withdrawals were modest and quiet. 

Orkla Media left in 2006 

First to decide to withdraw from the Baltic media market 

over the past decade was a Norwegian concern, Orkla 

Media. In 2006 it sold 100 percent of its shares in the 

most solid and influential regional newspaper in Lithuania, 

Kauno diena, controlled since 1998, to the British investment 

fund Mecom. This withdrawal surprised many, 

because at the time, no one thought of the impending 

crisis and the years 2006, 2007 and even 2008 were the 

most successful for the Lithuanian media. So unexpected 

changes in the economy could not have been the reason 

for the withdrawal. In any case, you can agree with Assoc. 

Prof. Dr. Deimantas Jastramskis, director of the Institute 

of Journalism at Vilnius University, who says that 

purportedly, the sale of Kauno diena meant nothing for 

such a powerful concern as Orkla. But this is true only in 

terms of financial results and not strategy. When investing 

in the Baltic media market, Scandinavian concerns were 

perfectly aware that the turnover and profits here would 

be far lower than in the major markets. But they invested 

because it was a logical strategy of expansion to neighbouring 

markets. However, that suddenly changed. For 

as yet undisclosed reasons, instead of a desire to expand 

further, a desire to return home emerged. 

When trying to understand the real causes of the 

withdrawal of the Nordic entities, we should not speculate 

on what factors led to such changes in strategy but 

instead consider who replaced them. After all, what replaces 

the Scandinavian media groups and takes over 

their newspapers points out the real forces, the development 

of which is one of the reasons why the Scandinavian 

concerns capitulated. Thus, the British investment 

fund Mecom was just an attractive cover because Kauno 

diena was fairly quickly passed on to the hands of Lithuanian 

businessmen. They played with it a little, separated 

the activities, disposed of the immovable property 

and sold the newspaper, now impoverished in terms of 

capital, to a company controlled by an even more distinguished 

businessman, the banker and Lithuanian 

People’s Party founder Vladimir Romanov. It was Ūkio 

Bankas, de facto owned by this businessman, which was 

suspended at the beginning of 2013 by the Central bank 

of Lithuania, and at the time of writing this article the 

banker had still not returned to Lithuania from Russia. 

Although Lithuanian prosecutors are eager to question 

him, as stated by representatives of the Lithuanian Prosecutor 

General’s Office, the former Ūkio Bankas owner 

is suspected of high-level embezzlement. Therefore the 

Orkla concern, after such a beautifully idyllic beginning, 

withdrew and today one of the major and once a very 

objective daily newspaper is weak, to say the least, while 

a fight is going on backstage for its control. According 

to sources close to the editorial board, the main fighting 

forces can be characterized as follows: the supporters of 

V. Romanov (hiding in Russia) and partners of the largest 

regional electricity supplier, Inter RAO. 

Bonnier has an economic alibi 

Looking at what happened to Kauno diena, one can say 

that the powerful Norwegian Orkla concern retreated and 

left one of the highest quality Lithuanian daily newspapers 

to be torn to shreds. Without a doubt, it would be irresponsible 

to say that the Norwegian entity's representatives 

could have foreseen these consequences. However, it 

is clear that the desire of local business groups to take control 

of the media was significantly higher than the willingness 

of the Scandinavian concern to stand its ground. 

Bonnier is the only major Scandinavian media entity 

whose withdrawal can be justified in part by the crisis. In 

2009, at the very peak of the crisis, it withdrew from Latvia. 

As was reported by the media at the time, the Swedish 

press publisher, Bonnier Business Press, sold its business 

in Latvia – the Diena publishing group, publishing a highly 

regarded daily newspaper under the same name, and 

the business newspaper Dienas Bizness. It was purchased 

by the Latvian company Nedela S.A. for an undisclosed 

price. It was also announced that the company Nedela was 

financed by Luxembourg Financial Services, established 

and managed by a group of wealthy businessmen in Estonia. 

Bonnier reportedly stated that the deal was initiated 

by Nedela. At the time, the chairman of the board at Bonnier, 

Casten Almqvist, said: “Nedela gave us an offer that 

The Bonnier Group 

is a Swedish family business focused on the publication 

of books and magazines, business press, 

newspapers, broadcast operations and other media. 

When Gerhard Bonnier opened a small bookstore in 

Copenhagen in 1804, he could not have dreamt that 

after 200 years his small business would turn into an 

international corporation. In 2012, Bonnier employed 

10,176 personnel, owned 175 companies operating in 

more than 17 countries and took sales amounting to 

29.176 billion Swedish crowns. 

satisfied us and was beneficial. This transaction will allow 

us to further consolidate our position in priority markets 

such as Scandinavia, Russia, Estonia, Lithuania, Poland, 

Bulgaria and Slovenia”. It is quite surprising that one of the 

most powerful Swedish concerns decided that Bulgaria 

and Slovenia were priority markets and Latvia no longer 

was. This evolution can only be explained by Bonnier’s desire 

to keep the positions achieved in the Latvian market 

significantly lower than the willingness of potential investors 

to take them over, at some point. 

What has this meant to the Latvian media market and 

what impact has this had on Latvia as a state? From 1993 

to 2009, Latvia’s largest national daily, Diena, owned by 

Bonnier, earned the reputation of a prestigious, liberal 

and western-minded daily. After the change in shareholders 

it quickly diminished, and its main editors and jour- 


TOPIC 


SCANDINAVIAN CONCERNS' DEED TO LITHUANIA RECALLS NAPOLEON'S MARCH TO RUS- 

SIA. INVASION WITH TREMENDOUS CONFIDENCE AND A DETRIMENTAL RETREAT. 

nalists left the newspaper. A mysterious transaction of an 

undisclosed amount, which, according to the Estonian 

portal aripaev.ee could have been as much as 44.9 million 

lats, fuelled speculation and rumours about where the 

shares of the daily newspaper ended up. An investigation 

by the Latvian Corruption Prevention Office revealed that 

the newspaper was now controlled by three politicians. 

By the way, when we use the phrase “mysterious transaction”, 

we mean that in the beginning, as in the case of 

Kauno diena, that Brits were involved in the acquisition 

process. Because it was namely two Brits, Jonathan and 

David Rowland, who were named as the new owners of 

the newspaper. However, after a year, 51 percent of Diena 

shares were held by a Latvian businessman, Viesturs 

Koziol, and in 2012 he already owned 98.86 percent of the 

holding. Nevertheless, as mentioned above, the Corruption 

Prevention Office investigation found that the actual 

owners of the newspaper were three politicians. 

So based on this information it can be assumed that 

the Scandinavian concern in Latvia, as in Lithuania, 

handed over influential media to persons willing to pay a 

relatively high price because they needed influence. And 

that is not good, because when a young country experiences 

the growing influence of those to whom the media 

is not a business but a tool used to influence political and 

economic processes, this does not yield anything good 

for the state or its business. Scandinavian entrepreneurs 

probably do not have to be advised how the business environment 

in Sweden and Norway might change if their 

major newspapers are acquired by populist political party 

founders or entrepreneurs associated with Russia. It goes 

without saying that this would have a negative impact on 

both society and business. Therefore, the withdrawal of 

the major Scandinavian concerns is not to be seen as a 

business transaction, but rather capitulation, when it is 

recognised that changing the business environment in 

the media and ensuring a more transparent media market 

and information environment is difficult, and withdrawing 

and giving away the market to those who need it is a 

lot easier. Of course, for the purposes of objectivity one 

can also consider the version that Bonnier, with shortterm 

assets amounting to about 7.5 billion Swedish crowns 

in 2013, sold Diena and Dienas Bizness because the publications 

had experienced 1.78 million and 6.3 thousand 

lats in losses, respectively, in 2008. However, the publications 

of the Bonnier Group also suffered losses in other 

countries during the crisis. In Lithuania, for instance, the 

Verslo žinios group it controlled, publishing a daily under 

the same name, operated at a loss for at least several years 

in succession. Yet, the Bonnier Group did not sell publications 

in Lithuania or Estonia. One has to choose whether 

we should believe the statements that these publications 

are not sold because the markets are strategic, or simply 

draw attention to the fact that in these countries the Bon- 

nier Group does not own media that has a significant impact 

on society. Therefore, for those who collect influence, 

these publications controlled by the Bonnier Group are 

not valuable enough to be paid for so that the offer satisfies 

Bonnier. 

Schibsted was the last to capitulate 

While analysing Schibsted’s withdrawal, we were surprised 

to find that this media group, which operated in Estonia 

since June 1998 and controlled the country’s largest 

media holding, Eesti Meedia, was still expanding as late 

as 2011. This was the year when a subsidiary of the Schibsted 

Media Group acquired 100 percent of the second biggest 

news portal in Latvia, tvnet.lv. The director general of 

Eesti Meedia managing this Schibsted investment, Mart 

Kadastik, called this a significant step of expansion in 

the Baltic countries. The development process in Lithuania 

took place fairly recently and was distinguished by 

its short-term determination to achieve results. The companies 

managed by this concept made attempts to establish 

themselves in the market of daily newspapers twice. 

Initially they purchased the Ekstra žinios newspaper and 

attempted to establish themselves with it, and after failing 

Schibsted 

Oslo-based Schibsted is one of the largest media groups 

in Scandinavia and has been operating since 1839. It not 

only owns press companies but also TV channels, movie, 

publishing and mobile services companies. Schibsted 

employs more than 7,800 personnel. The concern operates 

in 29 countries and is well established in Scandinavia and 

many countries in Europe, Latin America, Asia and Africa 

(Morocco). According to financial statements from 2012, 

Schibsted's operating income amounted to 14.763 million 

Norwegian crowns. 

purchased the freely distributed and promising 15 min 

newspaper. After a few years it became a weekly and then 

disappeared completely, just like Ekstra žinios. Yes, they 

still have the website, which is currently the second most 

popular in Lithuania. 

So the concern was pursuing expansion back in 2006 in 

Lithuania and in 2011 in Latvia, said they realised they had 

to concentrate on larger markets and pursue the classified 

advertising business and therefore sold their business in 

the Baltic states to the managers of the Eesti Meedia group 

and the host of UP Invest, one of the wealthiest people in 

Estonia, the pharmaceutical tycoon Margus Linnamäe. As 

reported, he offered to buy the shares because he had heard 

rumours that Gazprom allegedly intended to buy the Estonian 

media concern. One can only be glad that the retreating 

Schibsted was not replaced by Gazprom, but what it has 

left behind will only be seen after a few years. 

The rapid development of Schibsted and very quick 

retreat, when the business was sold to Eesti Meedia for 

30 million euro (according to bbn.ee, this transaction for 

Schibsted resulted in a 26 million euro loss), is surprising. 

But even more surprising is that in all cases the major 

Scandinavian concerns were replaced by influential local 

businessmen. Somehow they do not try to buy the Scandinavian 

banks or other companies, but quickly purchase 

companies that control the media, and especially influential 

newspapers. By the way, when we are talking about 

newspapers and their specifics, one should consider that 

in the opinion of some of the experts, they are much better 

suited to influencing citizens’ opinions compared to the 

TV, let alone the Internet. Therefore, national and regional 

newspapers are the targets of entrepreneurs combining 

major political and business interests. Their control can 

have a significant impact on election results, and through 

them, on all processes going on in the state. For this reason, 

to achieve certain goals through the media, business 

groups tend to pay more for influential daily newspapers 

than they are worth. 

Why did the Scandinavians run away, 

and when will they return? 

Business efforts to use the media to help win elections to 

parties that, in return, make beneficial decisions, is a tradition 

as old as the media itself. However, awareness of 

this tradition does not answer the question of why the big 

Scandinavian entities that control the influential newspapers 

retreated now. This question is best answered by an 

analysis of the processes taking place in the geopolitical 

and energy sectors. One can see the trend that with the 

growth of Gazprom gas prices, the Baltic countries have 

experienced growing discontent and the increasing efforts 

of business groups representing Russia’s interests 

to direct negative public reaction on the right path, thus 

reducing the possibility for people capable of achieving 

change detrimental to Gazprom and other Russian energy 

companies to enter the political arena. For this reason, the 

influence of the money allocated in support of Russia’s 

interests has significantly increased in the Baltic media 

market. For example, as revealed by the Lithuanian State 

Security Department, before the advisory referendum on 

the construction of a new nuclear power plant, funds were 

granted by businesses representing Russian interests (according 

to unofficial reports, tens of millions of litas) to 

turn public opinion against this project, despite the fact 

that today Lithuania imports about 70 percent of its electricity, 

most of it from Russia. Thus, the transparent media, 

which did not participate in assimilating these funds 

assigned by the Kremlin structures, faced strong competition. 

Speaking about media revenue from “non-traditional” 

sources which seek to influence viewers or readers, 


TOPIC 


MEDIA ARE VERY PROUD AND SEE WHAT IS HAPPENING AROUND THEM 

VERY WELL. BUT THEY BECOME VERY SENSITIVE WHEN SOMEONE 

STARTS TO ANALYZE WHAT IS HAPPENING AROUND THE MEDIA. 

we must understand that the need for media which can 

provide such a kind of service is never-ending. Therefore, 

the larger the market share occupied by the media, which, 

in order to survive, become well attached to the proceeds 

of the sale of their impact on the consumer, the more difficult 

it becomes for other media to compete by refusing 

this income. Of course, it is likely that a large part of the 

Scandinavian political and business elite did not even pay 

attention to this problem, because media corporations do 

not boast, while Scandinavia is dominated by companies 

that suffice with traditional income. 

We write all of this not to complain about how difficult 

it is for us, as expecting any sympathy or assistance from 

the pragmatic Scandinavians would be ridiculous, but to 

at least describe the situation of the media market in the 

Baltic states, enabling a better understanding of why we 

see the withdrawal of Scandinavian concerns as capitulation. 

There are no ideal or 100 percent objective media 

enterprises, but there are some that take into account 

national interests and there are others that get extra income 

because of a nihilistic approach. For this reason, the 

withdrawal of the Scandinavians at a time when Lithuania 

and Latvia are going through a crucial battle for energy 

independence (Estonia extracts shale, so its situation is a 

little different) is understandable as the process worsens 

the competitive conditions. However, in the background 

of the essence of the whole process, such withdrawal can 

be seen as desertion. Consequently, the number of media 

enterprises with at least minimum consideration for national 

interests and the essential mission of the media – 

to objectively inform society – has declined in the market. 

Meanwhile, the effect of money from interested business 

structures has grown significantly. This, no doubt, 

will have long-term adverse consequences because today, 

journalists who would like to be employed in media 

that appreciate their professionalism, rather than in their 

readiness to splash dirt around when asked, have minimal 

choices. They either adapt or abandon journalism altogether 

and become spokespersons or employees of public 

relations agencies. 

Let’s forecast the future. In view of the fierce battle 

for the energy independence of Lithuania and Latvia, 

competitive media market distortions will be the greatest. 

Therefore, only the media that will sell themselves to 

business groups that see the media as a tool of influence 

and disregard negative financial results will survive, along 

with the media that adapt, i.e. concentrate their efforts on 

establishing themselves in business but do not overdo representing 

national interests. Quite the contrary – they will 

often have a nihilistic approach and thus avoid the risk 

that their principles can complicate their competitive environment. 

So if we are talking about when the Scandinavian 

concerns could return to the national daily newspaper 

business of Lithuania, Latvia and Estonia, we should 

note that this will only happen when the Baltic countries 

throw off the yoke of Gazprom and Inter RAO and gain 

energy independence. After all, then it will not be worthwhile 

to overpay for media control. 

In this situation, the Scandinavians 

would have already withdrawn 

If we are talking about the processes taking place in recent 

years in the Baltic media market, one can mention the 

example of VALSTYBĖ, a magazine of economic and political 

analysis published in Lithuania. Since almost seven 

years ago, when we began to publish the magazine, one of 

our main objectives was the struggle for energy independence 

from Russia, and during the first two years we got 

questions from five companies on our intention of selling 

our publication. Only one interested person was related to 

a Scandinavian entity and their interest was very superficial, 

while that of all the others was very specific. Unfortunately, 

the links of all these four companies with Russian 

interests were obvious to us, and we refused to sell shares 

very profitably to protect the magazine’s mission against 

rape. After six months, when we refused to sell our magazine 

(because we decided to keep fighting for energy independence), 

we were not surprised at all to know that there 

are new publishers in Lithuania who proclaim themselves 

to be partners of the British (again the Brits) weekly magazine 

The Economist. Their magazine is targeting the same 

segment of readers as VALSTYBĖ, thus not only reducing 

the potential income from the sale of magazines but from 

advertising, which in this segment, given the relatively 

small layer of wealthy people who are interested in the 

analysis of economic and political processes, was already 

limited. Quite soon it became clear that the publishers of 

this magazine are partners of the main Russian giant, Inter 

RAO, in Lithuania. Thus, the so-called partners of The 

Economist became the competitors of VALSTYBĖ, which 

consistently supported the idea that Lithuania, together 

with Latvia and Estonia, should seek self-sufficiency in 

the supply of power, and to reduce the influence of Russia. 

The company controlled by these partners was officially 

authorised by Vladimir Putin to sell electricity from the 

power plant built in Kaliningrad in the Baltic states and 

other countries. The ambitions of these players were not 

limited to the establishment of a single publication for the 

business segment. Later, they also opened the annual The 

Economist publication, and the Intelligent Life, Top Gear 

and L’Officiel magazines. It is interesting that since the beginning 

of their publishing there has not been a year when 

the publishing house of these magazines has operated 

profitably. But talking about profitability is, given the fact 

that while the magazine publisher, Intelligent Media, a 

subsidiary of Scaent Baltic, was counting losses: 2 million 

litas in 2012 (8 percent more compared to 1.85 million litas 

in 2011), – Scaent Baltic in 2012 had 87.258 million litas net 

profit, mainly coming from the supply of electricity from 

Russia. To summarize this textbook example, in our opinion 

demonstrating the competition to be faced by those 

who do not adapt to the media policies implemented by 

separate interest groups and attempt to defend the national 

interest with integrity, it is necessary to pay attention to 

one more thing. Lately, Verslo žinios, controlled by Bonnier, 

revealed the companies selling mostly the electricity 

of Inter RAO and publishing several British magazines, as 

the Swedish capital investment company, Scaent Baltic. So 

while it would seem that the competition is going on with 

a company whose economic background is based on the 

trade of electricity supplied by a Russian entity, the official 

competition is going on with British magazines that are 

controlled by a Swedish capital company. 

P. S. A few days before publication, we knew that instead 

of selling highly unprofitable publishers Inter RAO partners 

let a staff-created public body take control of them. 

After these changes our magazine VALSTYBĖ will have to 

compete in Lithuania not with a Swedish capital company 

but with a public body named “open public forum” and 

with courageous staff, not afraid of millions in losses. We 

all probably know why. 

Remarks 

There are three main factors adversely affecting the 

functioning of the media market: influence of the media by 

business associated with Russia (both its acquisition and 

performance through other, mostly financial, means), media 

survey quality (as stated in one of the comments), and the 

issue of the transparency of state orders, which is closely 

related both to the oligarchic group influence and the quality 

of surveys. 

Today the Baltic market is confronted with a paradoxical 

situation where Estonian business has the greatest impact 

on the media. Acting in Lithuania, we have to admit that it 

is the most popular web portal, delfi.lt, (controlled by the 

Estonian businessman Hans Luik), so far guaranteeing 

objective news of events taking place in society and 

preventing other web portals from standing out. For this 

reason, in our interview with this entrepreneur we asked 

how he manages to survive in the current market and 

preserve the principles and values of the democratic media. 

I want to believe that the new Eesti Meedia owners, the 

largest of which has guaranteed that he has purchased 

this company to protect the media from Gazprom, will 

also attempt to do everything possible to prevent at least 

Estonian media capital companies from supporting Russian 

interests and not oppose projects for establishing energy 

independence. 




Capitulate Like Schibsted 

or Adapt Like Bonnier? 

The Western world is doomed if it is not able to ensure transparency even in the 

most important areas, such as finance or media. 


Mankind has survived as it learned 

to adjust, but prosperous states 

were only established where 

there were people more capable 

of improving the functioning of mechanisms 

affecting the life of society, so it would maximise 

the economic potential of a particular state 

and ensure its social welfare. So if the German 

or Scandinavian trusts do not try to influence 

the evolution of the economic system while investing 

in post-Soviet countries, and adapt to 

the existing conditions, they not only legitimise 

the existing, often non-transparent system, but 

also endanger their investments. 

Compromise and the price of adjustment 

Since this issue is much related with China, 

it must be noted that if the West had stuck to 

its principles and demanded that democratic 

changes be made before moving production 

to China, today's China would be a thriving 

democracy or its economic development 

would be much less. So, in this particular case, 

the consequences of adaptation and the shortterm 

pursuit of profit have changed the entire 

world's future. While there are adaptation 

cases that are much more local, their generated 

losses sometimes amount to hundreds 

of billions of dollars. And in this case, we are 

not talking about a process taking place in a 

banana republic, but of phenomena that have 

caused major problems in both the U.S. and 

the European Union. Compromises, a lack of 

principles and the dominance of some business 

interest groups were the reasons for the 

crisis in 2008. During the crisis it became 

clear that because of the financial alchemy, the 

dubious mortgage loans arranged by a certain 

method turned into AAA credit rating securities 

that spread throughout the world. Thus, 

the heating U.S. economy, essentially thanks 

to the largest American credit rating agencies, 

exported securities with dubious value all over 

the world and, in particular, to its European 

partners. Their export allowed the extension 

of the real estate bubble process, significantly 

increasing the bubble itself and shifted a large 

part of the damage to other countries. So, in 

looking at the processes cynically, it can be 

stated that the United States took a large part 

of the growth benefits for itself, but shared its 

problems with its European partners. 

This whole situation is interesting because 

suggestions for the tighter oversight of credit 

rating agencies have been around for decades, 

but only after the crisis of 2008 decisions that 

reduced the risk of irresponsible rating agencies 

were initiated. Unfortunately, only in the 

future we will be able to assess whether these 

measures were sufficient to eliminate the fundamental 

defect relating to the credit rating 

agencies' dependencies from the customers. 

This dependency is the main reason that is 

forcing competing rating agencies to maximize 

efforts to please the customer. This leads to a 

vicious environment, without responsibility for 

the damage, caused by the inappropriate ratings, 

and without compensation practices for 

the damage, while at the same time there is 

constant pressure from the customers for better 

ratings. For this reason, it will be interesting 

to monitor the court proceedings taking place 

in the U.S. that are not only attempting to adjudge 

billions from the credit rating agencies, 

but also to quantify their responsibility for the 

poor quality of risk identification. Again, it will 

be interesting to analyze how the EU will be 

able to implement solutions that reduce the 

systemic problems of credit agencies and their 

impact on the market. These processes may allow 

us to get a better look at the changes next 

year, and to answer the question of whether 

the danger to the financial system caused by 

poorly performing credit rating agencies has 

been reduced. 

How are the ratings of banks 

and televisions alike? 

It's hard to say how many billions were 

lost in 2008 by investors who believed the 

AAA stock ratings. While logic says that the 

credit rating companies had much to do with 

it, they categorically deny it. In particular, 

they stated that everything had been done 

transparently, professionally and responsibly. 

It is funny and even a bit pathetic that they 

are trying to prove in the courts that the ratings 

they granted did not have any influence 

on how successfully the banks distributed 

the AAA-rated securities that depreciated 

by 90 percent when the crisis began. Lack of 

responsibility for your own actions is something 

that all rating-making companies have 

in common, regardless of whether it is bank 

reliability or television viewer ratings. The 

only difference is that while attempts to address 

the supervision of the financial sector 

rating companies and potential systemic risks 

are being made, issues related with the media, 

especially television viewing and audience 

ratings have already been solved in the 

majority of the developed Western countries. 

Long ago the market participants identified 

that the greatest threat to the advertising 

market was caused by the financial dependence 

of television rating companies on the 

major television companies ordering the rating 

measurements. Therefore, decisions that 

reduce these risks were made. In some countries, 

market participants agreed that television 

viewer surveys could only be purchased 

The rating 

agencies have 

an amazing 

feature – 

never to be 

guilty even 

if something 

that had 

AAA rating 

depreciates 

50, 60 or 90 

percent. 




This picture 

shows the situation 

when agencies 

analyzing TV ratings 

and advertising 

agencies orient 

themselves to 

advertisers' 

interests. This 

makes TV serve 

their audience. 

Most often this 

results in higherquality 

output and 

more objectivity. 

from the company performing the surveys, 

only by the associated structure, to avoid the 

direct financial impact of the major market 

players on the survey company. An even more 

favourable business situation exists in countries 

that encourage competition between 

companies performing television viewing surveys. 

In these countries the business has more 

opportunities to make sure that the advertising 

budget allocation is in line with the goals. 

And if a campaign did not work, one should 

not blame the ratings for incorrectly directing 

Ferrari advertising to housewives, but instead 

the creative advertising team, which failed to 

produce the correct type of advertising, or a 

new model of Ferrari, which did not meet the 

expectations of potential customers. However, 

there are several Western countries where 

the market participants failed to take care of 

market transparency and television ratings are 

part of state regulation. 

Meanwhile, a number of countries in which 

the functioning of market transparency is still 

questionable remained with the old system, 

where most of the television companies directly 

consult a single survey company and safeguards, 

which in one way or another have been 

implemented in Western Europe, do not exist. 

Why was Schibsted doomed? 

In all countries and in all areas of business, 

problems are mainly caused by a non-transparent 

competitive environment. However, in 

countries where the media is trying to break 

free from the nomenclature environment and 

where Russia is trying to keep its influence, 

the problem is even greater. Investments 

made by Russian-related business groups are 

not oriented to profit but to influence, and 

for that reason this distorts the competetive 

environment. Thus, there are businesses on 

the market that are essentially close to Russia 

or the former Soviet nomenclature, and they 

subsidize media directly or through intermediaries, 

which take away part of the market 

share from media which aim to compete in 

a transparent manner. Such media, in dumping 

prices, finally distort the competitive environment. 

It is also important to understand 

that a large portion of the advertising revenue 

consists of orders from state institutions and 

state-controlled enterprises, and when the 

influence of oligarchic structures in media is 

growing these incomes are going mostly to 

them. In this situation, companies wishing to 

operate in a transparent manner simply must 

pursue the best quality media surveys, as this 

is the only way to achieve one’s goals. 

It is necessary to realize that the strength 

of transparent media is objectivity and professionalism 

appreciated by consumers, but if it 

is not reflected in the ratings because of a lack 

of high-quality active surveys, such media is 

doomed. Of course, there is another possibility 

for the Western media owned by trusts – 

to adapt to the existing system. This is possible, 

but it means their editorial policy should 

not present a systemic threat to the interests 

of Russia or the remaining nomenclature 

structures wishing to retain the greatest impact 

on the public. In this way, Scandinavian 

media groups, in order to survive and adapt, 

not only become part of the existing system, 

but also validate and reinforce it. So do not 

be surprised if the media controlled by Scandinavian 

concerns, such as in Lithuania, have 

been at the forefront in increasing tension in 

society before elections and giving air time to 

those who were systematically attempting to 

convince the public that projects guaranteeing 

the country's energy independence are harmful, 

or simply allow themselves to be used as 

the main media, giving the floor to representatives 

of the Russian energy giants. Such 

behaviour allowed the Scandinavian-owned 

media concerns to become a useful ingredient 

and survive. 

However, if we are talking about long-term 

potential, it must be said that if media which 

are not able to adapt to the exsisting interest 

groups is doomed, then those who do adapt 

will still have less profit than there could be 

in a transparent market. This adaptation guarantees 

short-term benefits, but reduces longterm 

potential. This is because the advertising 

expenses per person are much lower in markets 

where the media operate with a lack of 

transparency, compared with gross domestic 

product. Thus, focusing on adjustment does 

not create long-term perspective. 

However, to more clearly define in which 

environment Schibsted found itself, one has 

to understand the sequence of processes. First 

of all, when the Baltic countries were liberated 

from the Soviet empire, the media were 

targeted by structures closely associated with 

the former communist nomenclature, which 

as in many countries in the region, considered 

the march to the West as a new opportunity; 

however, they have done and continue 

to do everything to maintain control 

over the process. After a few years, especially 

after Vladimir Putin came to power in Russia, 

the impact of Russian related structures 

increased in the Baltic media. These two interest 

groups dominated at the time when in 

the market decisions related to how transperant 

the media system was going to be were 

made. Therefore, media research companies 

were doomed to accommodate themselves 

to this environment. Meanwhile, business 

groups newly investing in the market, such 

as Schibsted, found themselves in a system 

where even after investing huge funds they 




A system looks 

like this when 

agencies analyzing 

TV ratings become 

dependent on 

the major TV 

channels as the 

largest customers. 

Advertisers' and 

viewers' interests 

in such a system 

are secondary. 

remained unable to achieve the desired result. 

This is because locally hired managers were 

motivated to pursue short-term and immediate 

results and therefore, perhaps in an effort 

to maintain their positions, did not bother to 

explain to their bosses that in order to have 

long-term positive results, you first have to 

initiate transparency in the media market 

and related changes. It may be that today 

Schibsted’s management still does not fully 

understand how, despite being so powerful, 

they lost the competitive struggle in the Baltic 

countries. 

In order to understand the impact on the 

system made by the situation in the media 

research market, one has to know that currently 

internet portals are informative objectivity 

oases in Lithuania. It is important 

to notice that real competition takes place in 

online media market surveys. In our opinion, 

the media associated with objectivity rather 

than those having powerful systemic backing 

become stronger because of this competition 

and gain a position as leader. At the same time 

Schibsted invested most of its money, at least 

in Lithuania, in the press, the media most affected 

by the non-transparent environment, 

and invested in the internet later. However, 

Schibsted again ignored the overall transparency 

of the market and could not hold a dominant 

position on the internet, and therefore 

did not create the preconditions for a longterm 

profitable business. 

Once again, advertising market issues primarily 

relate to the oriental principles acting 

in the television advertising market, when 

TV companies directly negotiate with a single 

market survey company. Therefore, when 

advertising agents adapt to this system they 

often bring more money to the largest customers 

because not only does this generates 

discounts, it also creates a system in which 

money is simply vacuumed out of the market 

and quality is not guaranteed to the advertiser. 

In the long run, it undermines confidence 

in the market as a whole and reduces advertising 

expenditures. It is an essential part of 

the systemic reasons why in the press market, 

at least in Lithuania, Schibsted was doomed, 

and in the Internet market, even if they could 

stay, in the best case profitability would have 

been very low because of the non-transparent 

distribution of money between the different 

media. 

Will Bonnier become a transparency driver? 

When we talk about the processes in the 

Baltic media, without a doubt most precisely 

we could talk about the ones occuring in Lithuania, 

but the majority of the effects surely are 

systemic in nature. Therefore, our insights 

could be highly valuable to entrepreneurs 

who are trying to understand the processes 

taking place in the media and are considering 

investing in the Baltic countries or further to 

the east. This article is dedicated to this topic, 

because we want their investment to be successful 

and promote the media, rather than 

adapt it to the insufficient transparency of the 

system, thus reinforcing the latter. In our editorial 

opinion, this is very important. 

Why should our editorial staff care about 

the methods that the Scandinavian media 

groups employ to establish themselves 

in Lithuania and in other Baltic states? The 

fundamental purpose of our editorial board 

involves issuing the magazine in Lithuanian 

and also creating this magazine in English to 

promote the transformation of Lithuania and 

other Baltic states from nomenclature capitalism 

to a transparently functioning Scandinavian 

type capitalism, but this is not possible 

to achieve without a transparent and responsible 

media. Therefore, as long as we can hold 

our positions in this non-transparent environment, 

our goal is to encourage Western 

companies to look for solutions to help consolidate 

transparency in the Baltic countries’ 

media. The success of our magazine’s mission 

depends on whether we succeed in encouraging 

the powerful Western concerns to act in 

the Baltic markets as responsibly as they do 

in the Swedish, Norwegian and German markets. 

It is for this reason that we do not provide 

examples of the serious (in our opinion) 

survey issues demonstrated by the company 

TNS LT in Lithuania. First of all, we will inform 

the central headquarters of TNS about 

our concern about the current situation and 

wait for their evaluation. We will also directly 

inform the Bonnier group of certain processes 

in Lithuania, which, in our opinion, demonstrate 

their adaptability to the local system, 

which is probably not consistent with the general 

attitude of this honourable concern. We 

hope that the management of these concerns 

will be able to be responsible in evaluating 

their impact in consideration of the Lithuanian 

media and the public, and will have a 

position which allows us to hope for a positively 

changing environment favourable to 

the development of the Western media concerns 

and to democracy. We believe that the 

Bonnier group specifically could be the main 

power driving the media market towards the a 

Scandinavian type of transparent system. 

Post scriptum 

A few years ago, The New York Times wrote 

that only two superpowers remained in the 

post-Cold War world: the U.S. and the rating 

agencies. The United States, with its immense 

military power, cloud bring defeat to any enemy, 

while the rating agencies could destroy 

any country financially if they set very low 

credit ratings for it. That might have been 

true, but today, even though the U.S. may 

still be able to defeat an enemy, this is temporary, 

because once you lose the title of the 

most powerful economy it is only a matter 

of time before you no longer have the most 

powerful army. Previously, indeed, the major 

rating agencies, mostly based in the U.S., 

could cause damage to any state, but today it 

is no longer true. The crisis of 2008 has shown 

that it was the major rating agencies that were 

guilty about the scale of the crisis and its consequences 

to the financial system through 

the “creation” of beautiful ratings for banking 

products. Writing about the potential damage 

of rating agencies, The New York Times most 

likely had other countries in mind rather 

than the U.S. or the European Unionmember 

states, but it is these countries that were most 

affected by the irresponsible activities of the 

rating agencies in 2008. 

To paraphrase The New York Times, you 

can say that it is not only in the Baltic states 

but also in other Eastern European countries 

that the fight between a nomenclature-style 

future and western-style future continues. 

The result of this struggle will significantly 

depend on the impact of the media. Will it be 

Western-like or nomenclature-like? Therefore 

today, when we talk about the rating agencies, 

whether they are a bank or television rating 

agencies, we have to understand they are no 

longer a tool allowing others to make money 

while sitting in New York and London, thriving. 

They are an instrument that may become 

one of the main reasons responsible for the 

decline of Western democracy due to irresponsible 

actions. 

The biggest 

problem is 

that Western 

corporations 

fail to realize 

that a nontransparent 

advertising 

market allows 

oligarchic 

structures to 

consolidate. 


INTERVIEW 

INTERVIEW 

The Way to Win – 

You Have to Be the Largest 

In the opinion of our editorial office, Hans H. Luik is a businessman who works in a particularly competitive 

and often problematic Baltic media market, which a host of famous media concerns have 

left, and has been able not only to survive, but to be a leader. We chose him for an interview about 

economic trends and prospects on business expansion in the region because the media branches he 

leads demonstrate a rare high level of professionalism and objectivism. 

Our governments seem 

to ignore the fact that we 

have to encourage people 

to stay in Latvia, Estonia 

and Lithuania. They 

should do more. 

The first thing that I would 

like to ask you is your understanding 

of what happened 

in Latvia, Estonia and Lithuania 

after the crisis. Could you say 

that these countries started to 

act differently and that the Baltic 

countries became a better place for 

doing business? 

I think that all the free countries 

were very happy to join the European 

Union, and those European funds 

were vital for the Baltic countries. I 

also think that we became better at 

bookkeeping, and at least the Estonian 

government is now much better at 

giving subsidies to economic sectors 

which are in real need of them. The 

governments became more electronically 

based, and there is much more 

analysis, and I even think that the tax 

systems, especially the very hard bit 

which Mr. Kubilius’ government had 

to give the Lithuanians, were worthwhile. 

I think that otherwise, if we had 

heavier tax burdens, if we were taxing 

more profits, the shadow economy 

would be much higher, but we ended 

up not having a large shadow economy. 

Now governments are collecting 

taxes. It could be worse. At the same 

time, the hit that the private industries 

took was hard. Private industries had a 

heavy tax burden. And these industries 

still have a long way to go to clear 

their balance sheets, including my 

company the Ekspress Grupp. 

When talking about the future of 

these economies in the coming five 

years, what is your forecast: will it 

be bright or will it be cloudy? 

Well, if I am talking about the 

economic area which I am quite familiar 

with, the media and printing 

industry, I think that there are bad 

signs. For example, the most technologically 

advanced media company 

in Scandinavia, namely Schibsted 

from Norway, sold its assets in the 

Baltic countries. They took a loss, 

and this is a sign that they thought 

they would not be able to do profitable 

business here. Secondly, some 

years ago Bonnier, which is a mighty 

publishing company from Sweden, 

sold its assets in Riga. The best and 

widest Latvian newspaper was sold 

to local oligarchs. The third thing is 

that the “Murdoch” TV station was 

sold in Latvia. It ceased to exist. 

I feel that in terms of big business 

our Baltic states are not doing well, 

and the reason why we are not doing 

well is the demographic situation, 

with a steady decrease in the core 

population. Therefore these markets 

do not seem to be attractive anymore. 

And not only in the media 

sector: the international French giant 

Dalkia has disinvested from the 

Estonian monopoly Tallinn Heating. 

At the same time Sanoma Group 

divested from an Estonian chain of 

bookstores , Apollo. I think the biggest 

Finnish group is going to leave 

the Baltic states altogether. 

Our governments seem to ignore 

the fact that we have to encourage 

people to stay in Latvia, Estonia 

and Lithuania instead of playing a 

liberal market economy and letting 

them go. They should be doing 

much more. It is especially relevant 

to Lithuania because it is very hard 

to get its population to return. With 

Estonia it is slightly better, because 

most Estonians just go to Finland, 

which is 80 km away. They might 

return if they choose to. I think the 

governments would have to take the 

initiative, take loans and invest in 

jobs especially for young people to 

get introduced to companies and 

perspective jobs. And I also think 

that businesses should help young 

people to get practice in the companies, 

factories, and offices which 

we have. I am ready to do this. I am 

giving young people insight in our 

company, particularly to students. 

Also, if these countries are going to 

be attractive to foreign capital, which 

you are asking about, they need to 

free up their immigration policies. Up 

to now the situation in these countries, 

even though there is a change 

in legislation in Estonia right now, is 

such that they are forcing foreign students 

who have completed their studies 

to leave within a couple of months, 

which is a silly thing to do. These are 

people who have been satisfied with 

the environment that we have in the 

Baltics, with the levels of your institutes 

and universities. Why would 

we force them to leave the country 

instead of finding a partner, marrying 

and getting a job? So immigration 

and demographic policies would have 

to be altered in the Baltic countries 

for them to become attractive. 

We both understand that we are a 

small market, so it is very difficult 

to explain why somebody has to 

care about us, but when we are 

talking about the period before the 

crisis we can say that Scandinavian 

companies were investing much 

more than they are investing now. 

Why? After all, now we have more 

order, as you mentioned, in all 

areas of finances and government 

policies. We now also know that in 

the upcoming three to five years 

the Baltic countries will have one 

of the quickest growth spurts in 

Europe. 

I think the cause might be that now 

the big Scandinavian countries as 

well as central European countries 

are having difficulties themselves. 

They don’t have excessive capital and 

the banks would not support investment. 

Nordic companies normally 

work hand in hand with their banks, 

and if they extend their activities the 

bank also extends a loan. Now I think 

that everybody is very conscious 

under these economic circumstances. 

Finland has negative growth. Sweden 

is announcing some problems. 

At the same time I see agriculture as 

being very interesting. We have a big 

Russian investor who is consolidating 

Latvian agriculture in arable land. 

We have big Austrian companies 

doing the same thing in Estonia. I 

don’t know about Lithuania, but there 

was a big Turkish green agriculture 

product company in Estonia, wishing 

to either buy or rent 1000 hectares. 

“Everybody wants to buy now”, they 

were told and they stepped back. So 

some particular areas have foreign 

investment. 

Speaking of growth, we can see 

an example such as Ikea and their 

partners from Lithuania, which are 

now building factories in Belarus 

and producing furniture for Ikea. 

And when we talk about media or 

other businesses you are familiar 

with, can you see the same trend: 

investing in the Baltic countries 

and from there moving to the east – 

to Belarus, Ukraine, Kaliningrad, 

Russia. Does this kind of direction 

exist? 

Yes. Estonia has been like this all the 

time. I think that ABB has been doing 

this and also the great brewery system 

which has Aldaris, Saku and Baltika – 


INTERVIEW 

they were investing in the Baltic 

states and then they made a jump to 

Ukraine and so on. This has been happening 

the whole time. At the same 

time I think there is a tendency which 

I observed aside from the media. 

We saw the big French international 

infrastructure company Dalkia leaving 

Estonia, leaving the provision 

of Tallinn’s central heating to their 

local Estonian partner, which is very 

exceptional. We saw the big cinema 

company Finkino leaving the Baltics 

and selling their operations to the local 

management. When times are bad 

and the foreign companies choose to 

leave, huge potential appears for locals 

to gain shareholdings in their local 

companies. 

You see many problems, including 

demographic problems, but 

you are still thinking of expanding 

your business by acquiring some 

extra facilities. 

You have to be the largest in order 

to attract customers and advertisers, 

especially in the media. This is our 

strategy and we have been sticking 

to it. Delfi is the largest information 

portal in the three Baltic countries. 

We have been acquiring companies 

all the time. While building our portal 

we as well as our competitors have 

been purchasing different advertising 

systems, different small niche portals, 

like Portal 4 for young mothers. 

Again let me ask you: when talking 

about the business of investing in 

the Baltics and from the Baltics to 

other areas, what is your opinion 

about investing in Ukraine and Belarus? 

And secondly, what do you 

think about investing in Scandinavia 

itself? 

We are doing a lot of export. Our 

printing operation is doing a lot of 

business with Scandinavian customers, 

so Scandinavia is a market which 

we know pretty well. I have done a lot 

of investing in Ukraine. Delfi is working 

in Ukraine. We set up advertising 

You have to be the 

largest in order to 

attract customers and 

advertisers, especially in 

the media. This is our 

strategy. 

and media agencies with Agecom, 

which I started with my colleagues 

years ago, and we also set up a telephone 

information service in Warsaw. 

So I have been quite busy as you 

can see, but due to the rough current 

situation I don’t think that we have 

accumulated enough capital now, but 

maybe if banks come to help and a 

good opportunity arises we could do 

it. We also have been looking recently 

into Polish investment opportunities 

in the internet. At the same time my 

companies and other Baltic investors 

are far from being satisfied with 

the legal atmosphere in Ukraine. A 

Ukrainian court looks as much like a 

business as any other. 

When we talk about differences 

in the markets what could you 

say about the differences between 

Lithuania, Latvia and Ukraine? 

Well, Ukraine is very specific. I think 

that in the Ukraine, the internet 

is not doing well and advertising 

systems have not fully formed yet. 

The advertising market is still full of 

opportunities, but there are too many 

middlemen. So it might be that instead 

of finding the right channel the 

advertiser goes to the direction that 

the middleman wants the advertiser 

to go. Middlemen have too much 

power in the Ukrainian advertising 

business. 

You mentioned that currently 

your opinion is that Scandinavia is 

withdrawing some of their investments 

because they are having 

difficulties themselves. Do you 

think that such an attitude towards 

the investments will remain the 

same in the coming years or will it 

change, if the data is going to show 

a steady 3-4% growth during the 

upcoming period? 

I am a little bit pessimistic about this. 

We might look forward to the end of 

international crisis, but the problem 

remains that the euro zone is lacking 

confidence and if the euro zone can’t 

realize its united banking inspection, 

then there will be no confidence in 

European Union. What is actually 

happening in Spanish and Greek 

balance sheets? Nobody knows. 

Therefore there has to be bank 

inspection, but the effects remain to 

be seen. If they can’t put their banks 

in order no one will trust Europe and 

the recession will be prolonged. The 

middle class is experiencing hard 

times everywhere in Europe, except 

in Germany. We will see competing 

economies such as China and the 

USA rising, and now we must find 

our own way. 


CRITICAL VIEW 

Scandinavian 

Investments in the 

Baltic States – Risks 

and Opportunities 

Lessons of the recession, Norwegians’ 

determination to invest in the Baltic states 

and the business challenges are discused 

here, by Rems Razums. 

It was just last year that the Norwegian company Reitan 

Convenience acquired Lietuvos spauda (Lithuanian 

Press). For both the Scandinavian and Baltic 

business communities, the crisis was a very good 

learning opportunity, though harsh and expensive. It has 

taken a lot of “foam” away, but those companies that are 

here with long-term plans are staying and expanding. 

Certainly there are several sectors that will probably 

never be as vibrant as before, namely real estate with its 

tough market, sluggish growth of a customer base and 

high development prices, and the media. In the media, I 

would guess Scandinavian companies are facing tremendous 

challenges and/or opportunities at home, i.e. issues 

with the decline in print media or the TV vs. Internet 

shift, so cutting “loose ends” is inevitable. 

But I am sure that other sectors like production or agriculture 

are becoming more interesting. And what is also 

important, there are more and more local players that are 

not just seeking money or advice, but are ready and willing 

to talk with Scandinavians as equal partners. 

I think the Baltic countries are in a very good position 

economically. Just think about being located between the 

European powerhouse of Germany and the most prosperous 

part of Europe, Scandinavia, on one side and fast - 

growing economies like Poland and Russia on the other. 

But there are a few challenges, namely the shrinking 

population and the fact that our politicians do not understand 

the concept of competitiveness. Why are we experiencing 

such an exodus of population? It’s because other 

countries have been better at selling their image, dream 

or social model, and active people have chosen their offer! 

Many politicians still think they are sitting on “golden 

eggs”, although it is far from that. Every European country 

is competing for money, the best people and the best 

ideas. So what are our competitive advantages, really? 

I think there are few differences in the business culture 

in the Baltic capitals. We recently discussed customer 

habits with a lady from Lithuania and as she said, the retail 

customers in Tallinn and Vilnius are more similar than in 

Vilnius and Marijampole, for example. And I think the 

same can be said about the business culture. This is because 

in the Baltics I think we are very quick to adapt. 

Also, historically we have lots in common with Scandinavia 

– small nations, German and English–language 

influences; societies open to the world; historical gender 

equality (compared to other parts of the world), etc. 

However, there are still areas I feel we are lagging behind 

in general – we are much less outspoken (afraid to criticize 

our bosses and leaders) and less sensitive to human 

capital. Therefore, I believe that Scandinavian investments 

bring a part of their own business culture here and I think 

we should be very happy about their vast presence in the 

Baltics. However, we are more passionate about what we 

are doing and that is a positive trend when looking to the 

future. 

AUTHOR 

Rems Razums 

General Director of Reitan Convenience 

Lithuania and Business Development 

Executive of Narvesen Baltija. 


TOPIC 

ENERGY INDEPENDENCE, GAZPROM PIPELINES AND ANDERSEN'S TALES 

Energy Independence, 

Gazprom Pipelines and 

Andersen’s Fairy Tales 

The European Union is one of the the largest energy markets in the 

whole world, so it would be reasonable to expect that the prices of 

energy resources in this market would be among the 

lowest, thanks to the economies of scale. But that is not the case. 


A 

number of factors have determined 

that the populations of certain EU 

countries are overpaying for energy 

resources, while a large share of 

the overpayments go to other countries’ companies. 

This results in the decreased competitiveness 

of the EU and the growing revenues 

of Chinese and Russian companies. 

In one of the trends in this edition, we highlight 

the situation concerning renewable energy: 

when the EU started actively supporting 

renewable energy development, some countries 

and groups believed in creating a powerful 

industry of renewable energy through supporting 

more costly energy production mode 

in the EU territory, which would become a 

factor enhancing certain EU member states 

and the entire EU. Unfortunately, it eventually 

turned out that the support of renewable energy 

development created rising energy prices 

for the population, while a substantial share of 

the benefits from equipment production was 

not received by the EU industry, but rather by 

China, as Chinese companies started producing 

cheaper equipment. Thus, electricity prices 

fell on the EU consumers’ shoulders, while 

the profit was enjoyed by other countries. 

It was not an accidental outcome, but rather 

enforcement of the wrong EU policy by the 

renewable energy lobbyists in the field of renewable 

energy. Of course, one can presume 

that the latter decisions were made hoping that 

if the creation of a leading industry of renewable 

energy was successful then long-term 

benefits would cover the growing consumer 

expenses. But this version is hard to believe 

bearing in mind that renewable energy lobbyists 

keep the great secret of the alternative 

energy revolution to themselves. 

Transformation with invisible costs 

Energy is a system. Everyone knows it and 

it seems that a systematic approach should be 

taken to the transformation of the energy sector. 

But it did not happen in Europe. On the 

contrary, the major orientation was on environmental 

protection, machinery production 

and technological progress, completely ignoring 

the potential impact on the whole system 

and the final prices for consumers. Such approach 

can be understood; if someone calculated 

the costs paid by Germany for renewable 

energy development in electricity generation, 

a majority of the German population would 

have their hair stand on end, while some of 

them would lose it completely... 

When assessing this vital systematic 

change, it should be noted that the system that 

was functioning before the renewable energy 

revolution relied on large electricity generating 

sources, which being connected to a common 

network ensured the reliable operation 

of the entire system. Launching renewable 

energy development and its prioritisation created 

a situation where areas which had never 

had any production before had new wind turbines 

or solar power plants erected, which all 

had to be connected to a network. That is how 

the costs of the adaptation and safe operation 

of the electricity distribution system started 

growing, because the construction of an additional 

electricity generation and supply system 

based on decentralised production was 

started on an already existing system based 

on centralised production. Consequently, the 

revenues of the former large generators started 

falling drastically, as well as the value of 

businesses, while the growing number of new 

renewable energy enterprises resulted in increased 

grants and system maintenance costs. 

By the way, when speaking about the system 

maintenance costs, it must be admitted 

that no analysis has been published yet on the 

costs of the renewable energy revolution for 

Germany or Denmark. Therefore, in trying 

to understand the possible costs of the decentralisation 

of the centralised system, with the 

decentralised system to be based on electricity 

generation from renewable sources, one 

should have a look at the electricity consumers’ 

prices. 

If compared to the electricity prices paid 

by consumers in Denmark and Germany, i.e. 

in the countries trying to generate as much 

electricity from renewable sources as possible, 

with the prices paid by electricity consumers 

in France and Slovakia where over 

half the electricity is generated in nuclear 

power plants, it becomes evident that prices 

in Denmark and Germany are much higher. 

If we compare the prices between these countries 

we can get a good understanding of how 

much more expensive the new electricity supply 

system is. Moreover, the difference in costs 

cannot be precisely determined, because the 

final price paid by consumers does not reflect 

all the grants assigned to renewable energy. 

For this reason, Germany could provide a giant 

favour to the entire EU if it gave a detailed 

calculation of the rise in costs following the 

modernisation of the electricity supply system, 

i.e. adapting it to decentralised production 

and the rise in the cost of such a system’s 

maintenance. 

Such information would be extremely 

handy in future, because a transition towards 

this system is undoubtedly necessary. But it 

cannot be done without knowing the cost of 

such a system. Denmark and Germany are 

able to amortise the electricity consumer’s 

prices thanks to their competitive industry 

(including the renewable energy sector), while 

some EU member states infected with the renewable 

energy revolution can suffer much 

greater damage due to rising electricity prices. 

This is because of the absence of a competitive 

renewable energy industry in such countries, 

while the industry’s competitiveness mainly 

depends on the prices of energy resources. 

Andersen’s fairy tales of the 21st century 

Probably everyone knows the fairy tales 

by the exceptional Danish writer Hans Christian 

Andersen. They are beautiful, simply enchanting, 

and therefore highly esteemed by 

book lovers all over the world. But today, he 

has serious rivals because of the endless flow 

of fairy tales and legends about renewable en- 

Renewable 

energy 

development 

is related to 

the transformation 

of the 

whole energy 

system, which 

costs, and 

costs a lot, 

and so – 

must be 

considered. 


TOPIC 

ENERGY INDEPENDENCE, GAZPROM PIPELINES AND ANDERSEN'S TALES 

Probably even 

the Danes 

would be 

surprised 

by the 

declaration 

of some 

wind energy 

lobbyists in 

the Baltic 

states that it 

can satisfy 

100 percent 

of electricity 

demand. 

ergy spreading from Denmark. For example, 

in September 2013 Lithuania was visited by 

the Danish Minister of Climate, Energy and 

Construction, Martin Lidegaard, who stated 

that the future of the energy sector lay in the 

efficient use of renewable sources. Lietuvos 

rytas, the most influential Lithuanian daily, 

published the minister’s photograph with his 

following thought: “Denmark is increasingly 

using green electricity, while its price is lower 

than the average EU price”. When reading this 

interview, one should take a second look at the 

Eurostat figures showing the electricity price 

in Denmark as being among the highest in the 

EU. Then you can continue reading the Lietuvos 

rytas article, which sounds like “green” energy 

advertising. 

For example, when asked about the high 

cost of the system developed in Denmark, 

the minister gave the following answer: “Our 

experience shows differently. Electricity 

prices in Denmark are lower than the average 

European Union price, even though over 

40% of the electricity in our country is generated 

from renewable sources. I have three 

pieces of advice about how to have cheap 

and green energy. First, stability and regulation 

are needed. A solid foundation is required 

to make investors know that they can 

trust you. Then it will be cheaper to attract 

them. Second, an infrastructure network is 

needed. Denmark, like all the other Nordic 

countries, is a member of the common electricity 

market [Lithuania will also join it in 

2015, - E.E.]. This is very beneficial for Denmark, 

because when we have strong wind 

we can sell the surplus electricity to others 

without the need to store it. If the wind stops 

blowing we can import electricity. The third 

important thing is population and business 

support. In Denmark, we asked the business 

world what could be done to prevent energy 

reforms from impairing their competitiveness. 

Population support is also ensured by 

law, instructing the sharing of the resulting 

benefits with neighbours. For example, if one 

resident has a wind turbine constructed, then 

his/her neighbours receive 30% of the state 

grants paid to him/her. So instead of complaining 

about the change, they count the 

money coming into their pockets.” 

When reading these thoughts of the minister, 

one should understand that when talking 

about prices he must have had market 

prices in mind. But electricity on the market 

is paid for after applying grants, reducing its 

production costs. The distribution and other 

costs covered from the final user’s pocket are 

not considered. In this way, one of the most 

costly electricity markets for consumers becomes 

a cheap electricity fairy tale from the 

minister’s lips. 

When gaining insight into the ideas related 

by the minister, one should really welcome 

Danish society finding ways to support the 

development of renewable energy, in particular 

wind. But at the same time, one should 

not forget that Denmark is among the leading 

manufacturers of wind energy equipment. 

Therefore, the development of this sector and 

more expensive electricity for consumers represent 

an increase in industry potential, which 

can eventually increase export revenues, 

contribute to job creation, increase taxed incomes, 

etc. Other EU member states which 

do not manufacture equipment for wind turbines 

would find it much more interesting to 

hear from the Danish minister about the exact 

amount of grants assigned for the construction 

of one wind turbine of a certain capacity 

and whether such grants are included into the 

consumer’s final bill, or whether payment is 

made separately and not reflected in the final 

consumer’s bill. It would also be interesting to 

know what costs determine the final consumers 

of such cheap electricity paying that high 

price. This information would provide a better 

understanding of the actual price of the 

system's reformation and maintenance, when 

40% of the electricity is produced from renewable 

resources. It would also be interesting to 

know whether Denmark is aiming at producing 

about 70-80% of its electricity by 2020 

from renewable resources (half of the volume 

from wind) if consumer prices continue 

growing, and how many additional grants will 

be needed. These figures are very important 

because they could allow other EU member 

states to identify system transformation costs 

and determine whether they are ready for the 

next step. 

The Kremlin is fighting Aikido style 

Maybe it is a coincidence, but the Danish 

minister’s visit to Lithuania and the interview 

highlighting the cheapness of renewable energy 

coincided with the wind energy lobbyists’ 

efforts to persuade the Lithuanian government 

to be in favour of large-scale wind farm 

construction in the Baltic Sea. Again, there is 

nothing wrong with this; otherwise it would 

be extremely strange to hear the minister talking 

negatively about decisions that may increase 

the Danish industry’s exports. But if we 

talk about the increase in the potential of the 

whole EU rather than just one of its member 

states, we have to consider the issues specific 

to a certain country or region to answer the 

question about what the most effective way of 

dealing with energy sector problems is. 

When talking about energy problems relevant 

to Lithuania, Latvia and Estonia, first of 

all we must understand that the stage of liberation 

from Russian influence is still continuing. 

It is getting complicated not only because 

of Gazprom's monopoly gas supply, but also 

because of the agreement made when joining 

the EU on the basis of which the Ignalina nuclear 

power reactor was switched off in Lithuania 

on 31 December 2009. It automatically 

made Lithuania the EU member state with 

the largest import of electricity. The situation 

formed when, after closing the Ignalina Nuclear 

Power Plant, Lithuania had hardly any 

electricity generating sources left that were 

not subsidised in one or another way and 

could not compete on the market without no 

grants assigned. And in order to provide itself 

with a slightly larger quantity of electricity, 

Lithuania had no other choice but to start 

burning Gazprom gas, which is supplied by 

Russia, taking advantage of a monopoly with 

a much higher price than to, for example, 

Germany. Under this situation, a major share 

of its electricity is imported from Russia, and 

Lithuania’s dependence on this country’s energy 

has increased further. 

Lithuanian politicians who understood the 

problems that were going to arise once Ignalina 

shut down voted several times for the 

construction of a new nuclear power plant 

when adopting the National Energy Strategy. 

But the fulfilment of this goal has now been 

stopped twice, when unexpected public opposition 

was encountered. This was unexpected, 

because electricity generation in nuclear 

power plants was very favourably accepted 

by Lithuanian residents for a long time. But 

when the final decisions were to be made, society 

was simply overloaded with propaganda, 

as if renewable energy is cheaper and the best 

solution is to develop electricity generation 

based on renewable sources and importing 

the shortage of electricity. 

Unfortunately, this already long article has 

no room in it for discussing all the examples 

of brainwashing, but in order to understand 

what we have in mind when talking about 

RENEWABLE ENERGY 

DEVELOPMENT IS IM- 

PORTANT, BUT THE 

COMPETITIVENESS 

OF THE EU IS MORE 

IMPORTANT. 


TOPIC 

EU MEMBER STATES WITH THE HIGHEST PERCENTAGE SHARE 

OF NUCLEAR ELECTRICITY 

Member state 

Final consumer electricity 

price, in EUR 

(1st quarter of 2013) 

France 0.1471 74.8 

Slovakia 0.1716 53.8 

Share of electricity generated 

in nuclear power 

plants, % (2012) 

EU MEMBER STATES 

PAYING THE HIGHEST PRICE FOR ELECTRICITY 

Member state 

Final consumer electricity 

price, in EUR 

(1st quarter 2013) 

Denmark 0.3000 38.81 

Germany 0.2919 20.35 

Share of electricity 

generated from renewable 

resources, % (2011) 

SOURCE: EUROSTAT.EU 

No analysis 

has been 

published yet 

on the costs of 

the renewable 

energy 

revolution for 

Germany or 

Denmark. 

anti-nuclear propaganda I will quote two 

statements from an interview with the president 

of the Lithuanian Wind Energy Association. 

This interview was published at the very 

climax of the first fight against the nuclear 

power plant project stipulated by the National 

Energy Strategy. Thus, in June 2008 the president 

of the Lithuanian Wind Energy Association 

stated: “Once all obstacles are removed, 

Lithuania could produce 7-8% wind generated 

electricity by early 2010. Today, 0.5% of 

its electricity is produced from wind, while by 

2015, upon the construction of a wind farm 

by the sea, about 60% of the required electricity 

in Lithuania could be produced from wind”. 

The other quotation: “According to my forecasts, 

nuclear energy will be banned during 

the next decade and the incineration of any 

type of fuel by 2020. At present, the European 

Union has 600,000 signatures for banning nuclear 

energy”. 

People who have a slight knowledge of 

energy should consider the statement that 

the incineration of any fuel would be banned 

by 2020 as laughable, but similar statements 

were flowing like a fast river in Lithuania. And 

again it has something to do with the situation 

in the mass media, which is highly favourable 

for spreading financially-based influence. 

And the interest was evident. 

After the Ignalina Nuclear Power Plant 

was shut down, with the entire energy infrastructure 

adapted for the needs of a nuclear 

power plant, the demand for electricity has remained 

the same. It goes without saying that 

Russia was quick at taking advantage of the 

whole situation. It started planning the construction 

of not one but two nuclear power 

plants: one in Kaliningrad, the other in Belarus 

(only 50 km from the Lithuanian capital 

Vilnius). Therefore, if Lithuania had managed 

to launch the construction of the nuclear 

power plant stipulated in the national energy 

agreements, the intention of Vladimir Putin 

to build nuclear plants would have become 

very vague or superfluous. The purpose of the 

Kremlin through the construction of the nuclear 

power plants near the Lithuanian border 

and connection to the Baltic networks was to 

use the latter, like the EU-funded power links 

under construction with Sweden, Poland and 

Finland, for the expansion of its electricity 

export markets. And if the Baltic states constructed 

a nuclear power plant and provided 

themselves with basic electricity generation, it 

would prevent the achievement of these goals, 

because then the Baltic states would have no 

need to closely cooperate with Russia. Under 

such a situation, new Russian reactors at the 

EU border would look like another unfriendly 

action in the EU’s respect. 

Since a big majority of not only Scandinavian 

but also British businessmen pretend to 

see no difference between Swedish electricity 

exports to Denmark and Russian electricity 

exports to the Baltic states, this issue 

needs some brief discussion as well. Scandinavian 

businessmen and some politicians 

probably do not know that electricity, as with 

gas, are middlemen used by Russia as a tool 

to strengthen its oligarchic influence in its 

neighbouring countries. As more energy resources 

are imported by a country from Russia, 

more money is left to impact politics and 

the mass media. In other words, processes 

have taken place about which the Danish people, 

importing their electricity from Sweden 

or Norway, have probably never heard of. Furthermore, 

competition on the free electricity 

market is not protected against seizure by the 

use of energy resources, because by holding 

two thirds of the Lithuanian electricity market 

Russia can sell electricity to its middlemen 

much more cheaply at any time and thus increase 

their legal profits, which in its turn can 

be used to influence politics, buying up mass 

media and overpowering the country with the 

help of other oligarchic groups. 

The long-term impact on the Baltic countries 

is essentially the cause of the fight on 


TOPIC 

Solutions to the 

fundamental 

problem of the 

shortage of 

basic electricity 

generation. 

the energy market, which is still taking place. 

But probably everyone understands that 

even having lots of money and a big number 

of money-susceptible media helping to 

shape public opinion, it was not feasible to 

convince society quickly that the safest and 

most beneficial solution for Lithuania would 

be electricity imported from Russia. In particular 

for this reason, fairy tales about renewable 

energy became a part of the daily 

life of Lithuanian society. For this reason, the 

new nuclear power plant project established 

in the national energy sector, which would 

have actually resulted in the reduced import 

of electricity and the use of the existing infrastructure 

adapted for nuclear power plant operation, 

was confronted by opposition several 

times, while renewable energy projects, that 

increase the final consumer price and require 

additional expenses from the network operator, 

are flourishing. 

In assessing the situation formed by natural 

and external factors, one must understand 

that the supporters of renewable energy simply 

pursued their goals, and their desire to get hold 

of the biggest electricity market share possible 

simply coincided with the Kremlin’s efforts to 

establish the dominating position of the Russian 

nuclear power plants in the region. Putin, 

being a good wrestler, masterfully took advantage 

of the goals pursued by the renewable 

energy supporters and directed their energy 

to shaping public opinion, and public opinion 

was used to block the projects consolidating 

the energy independence of Lithuania. 

The EU needs a wise energy strategy 

Looking at the problems in a specific EU 

member state, which are related to Russian 

influence or renewable energy projects, it 

would be too simple to blame Russian imperial 

ambitions, the arduousness of renewable 

energy lobbyists or public ignorance for everything. 

The quality of the energy policy implemented 

in the EU must also be considered. 

Challenges faced by the EU energy sector and 

its potential will be discussed in more detail at 

the Lithuanian energy conference to be held 

in October 2014, while today it is important 

to note that EU energy policy still lacks a 

consistent vision that would enable it to secure 

the greatest benefit. Defects in this vision 

were also seen by the European Commission 

(EC). At the end of 2013, it announced 

a Communiqué regarding state intervention 

in the electricity sector. The EC highlighted in 

the Communiqué that the need for state intervention 

in the electricity sector existed and 

would remain in the future, but this intervention 

must be effective, cost-effective and not 

distort the EU domestic electricity market's 

principles. 

The Communiqué and related documents 

contain the EC’s guidelines for member states 

on the reformation of the existing state intervention 

schemes, in particular when subsidising 

renewable energy and the development of 

new effective mechanisms. According to the 

European Commission, if state intervention is 

not thoroughly planned it can distort market 

operation badly and even provoke a rise in energy 

prices for households and industry. The 

purpose of the Communiqué is to provide the 

EU member states with the necessary information 

and recommendations and to introduce 

good practices to enable them to make 

the optimum decisions when developing their 

national electricity systems. 

When evaluating rapid technological development, 

the documents related to the Communiqué 

also emphasise the necessity for 

the market system to be gradually adapted to 

energy generated from renewable resources. 

Therefore, attempts have to be made to stop 

subsiding or otherwise financially supporting 

renewable resources in the long term. The necessity 

to develop sufficient basic generation 

capacities to ensure uninterrupted electricity 

supply when facing fluctuation in electricity 

generation from other sources, without impairing 

the EU domestic market is also highlighted. 

Initial analysis of the Communiqué allows 

one to state that its purpose is to mitigate the 

negative impact of processes that previously 

took place in the EU. The Communiqué focuses 

still more attention on the interests of 

countries which are interested in the faster development 

of renewable energy rather than on 

states which are facing huge problems related 

to the shortage of basic energy generation. 

Therefore, while considering this Communiqué 

as a positive step towards orientating 

the European Union’s energy sector development 

in a favourable direction, nevertheless it 

is slightly disturbing whether this document 

will serve as a sufficient tool in limiting factors 

that have a negative impact on the EU's 

potential. 

LITHUANIAN ENERGY POLICY 2014: 

GOALS AND STRATEGY 

– The Most Important Government 

Policies and Upcoming Decisions; 

– Priorities of EU and State Budget 

Distribution for Energy Development; 

– Strategic Projects: Implementation, 

Challenges and Prospects; 

– Activity and Development 

Possibilities of Gas, Electricity and Bio Fuel. 

BUSINESS AND STATE 

INVESTMENTS IN ENERGY SECTOR 

– Economic and Investment Potential 

of Lithuanian Energy Sector; 

– Factors, Influencing Banks' Abilities 

to Finance Energy Projects; 

– Government Investment Policy, 

Increasing Energy Efficiency; 

– The Role of Local Officials 

in Promoting Changes in the Energy Sector. 

RENEWABLE ENERGY 

DEVELOPMENT TRENDS 

– Main Priorities Influencing EU and Budget 

Funding Distribution for Renewable Energy 

– Which Renewables have the Best Potential 

for Decreasing Heating Price? 

– Which Renewables Should be 

Developed and Which Refused? 

EU ENERGY POLICY AND GLOBAL 

ENERGY TRENDS 

– Which Issues of EU Energy Policy are the Most 

Relevant to Lithuania and the Baltic Region? 

– The Influence of Geopolitical Factors' 

on the EU and Lithuanian Energy Policy; 

– Overview of the Main Global Energy Trends; 

– Evaluation of Shale Gas Influence on the Market. 




Shale Gas – 

from America with Love? 

The shale gas revolution has fundamentally changed the energy market in the U.S. Now the 

whole world is waiting for its expansion – Russia anxiously, Europe with hope. Can shale gas 

go global? Much will depend on the improvement of extraction technology, investment frameworks 

and U.S. global energy strategy. 

US production of natural gas and crude oil from 

shale formations is transforming energy markets 

and geopolitics. The dramatic rise in US natural 

gas production has led to a rapid and sustained 

decline of US domestic gas prices, a revival of US 

manufacturing, a global glut of displaced liquefied natural 

gas (LNG) and a subsequent erosion in the linkage between 

crude oil and natural gas prices in Europe. Global 

gas markets are becoming more competitive and Middle 

East dominance of oil markets is increasingly challenged 

by the US and Canada. Shale formations are ubiquitous, 

so technologies that can produce them economically can 

democratize access to energy. Countries historically dependent 

on a single supplier, or on imported gas or coal, 

can access indigenous supply if the right economic framework 

is in place. So far, only a few countries have created 

such frameworks. 

The US experience 

Since 2008, when the production of shale gas first garnered 

widespread attention in the United States, the US 

has experienced positive benefits with regards to price, climate 

and industry growth. US shale gas production rose 

from 2.25 trillion cubic feet (Tcf) in 2008 to a projected 

8.6 Tcf in 2013. The US is poised to become a net exporter 

of natural gas by the end of this decade. Today, natural 

gas prices in Europe average more than twice the average 

US price, while Asian gas importers pay roughly three 

times as much for gas. The US Environmental Protection 

Agency announced in October 2013 that carbon dioxide 

emissions from power generation declined by ten percent 

between 2010 and 2012 largely as a result of natural gas 

replacing coal as the power generation fuel of choice. 

Impact on global markets 

European markets began to see price improvements in 

2008, when the US began producing enough shale gas to 

lower its imports of LNG, freeing up those LNG cargoes 

to go elsewhere, including Europe. Gazprom was forced 

to decide between adapting to new market realities or 

cede some of its market share. In 2012, a number of gas 

companies in Western Europe renegotiated long-term 

gas contracts with Russia’s Gazprom, including Poland’s 

PGNiG, Italy’s Eni, and Germany’s E.ON; some renegotiations 

resulted in retroactive price reductions. 

US LNG exports are likely to grow, albeit slowly. The 

US is poised to become a net exporter of natural gas by 

the end of this decade, with some analysts projecting LNG 

exports of as much as six to eight billion cubic feet per 

day (bcf/d) by the end of this decade. So far, one export 

project has received final export authorization from the 

US government for 2.2 bcf/d and is currently under construction, 

while four additional applications, totaling 4.57 

bcf/d, have received export approval conditional upon 

technical and environmental approval. The US Department 

of Energy expects to issue new conditional approvals 

every two months, but final approvals can come up 

to eight months after conditional approvals, and if these 

projects reach final investment decision (not a certainty), 

construction can also take two to three years. It is safe to 

say that there will be LNG exports from the US, but the 

volume will be determined by market prices and the pace 

of development of competing LNG projects elsewhere in 

the world. As additional supplies of natural gas become 

available, whether as a result of US LNG exports or production 

of shale gas in Europe, Europe’s negotiating power 

will continue to grow. 

Growing US oil production from shale impacts global 

oil markets. US production has helped to replace supply 

lost from Libya, Iraq, Sudan and Nigeria. US oil supply 

growth has helped lower the cost of security cooperation 

on Iran to China, Japan and Korea. The potential impacts 

of shale oil and gas development are enormous, particularly 

if the phenomenon can go global. 

Can the shale gale go global? 

In spite of the positive market impacts to date, the benefits 

of shale oil and gas continue – so far – to be limited 

primarily to the US. Shale formations are ubiquitous, with 

resources being identified in Europe, Asia, Africa and 

South America. While Russia, China, the US and Argentina 

are among the largest resource holders for both shale 

THE SHALE GAS REVOLUTION HAS FUN- 

DAMENTALLY CHANGED THE ENERGY 

MARKET IN AMERICA. 

gas and shale oil, there are sizable gas resources in European 

countries including France, Poland and Ukraine, as 

well as Romania, Bulgaria and Lithuania. 

The US success is the result of the right configuration of 

geology, economics, technology, industry experience and 

policy. In 2008, natural gas prices in the US were relatively 

high, the resource plays were known, and the technological 

advancements in horizontal drilling and hydraulic 

fracturing made development economic. The domestic oil 

and gas service industry was robust, technically capable 

and reputable. The US had in place an investment framework 

that helped to assure companies that they would see 

a return on their investment. And last but not least, the 

policy framework in the US, which included a stable regulatory 

regime and land/mineral ownership rights helped 

companies take the risk of investing. The scale of success 

in the US was dependent on all of those factors, and that 

success will be difficult to replicate. 

Public confidence 

While US production has not been without controversy, 

the existence of sound environmental laws on drilling 

safety, water usage and emissions allowed US production 

to rise rapidly. Even so, many states created new laws 

on fluid disclosure, community impacts, water recycling 

and well bore integrity to address public concern over the 

scale of development. In Europe and Latin America, shale 

oil and gas can be developed safely and successfully, but 

governments have to create policy frameworks to ensure 

safety and protect investment. Rules need to be robust 

and include rigorous enforcement mechanisms to engender 

public confidence. Numerous reputable organizations, 

not least of which include the International Energy 

Agency and Resources for the Future, have done work to 

outline how shale oil and gas can be developed safely, and 

their reports can help to provide a blueprint for designing 

sufficient regulatory frameworks. While safety and 

environmental protection are often the primary focus of 

regulatory efforts with regards to oil and gas development, 

governments also need to consider the issue of local benefits, 

which can be addressed through policies like revenue 

sharing or severance taxes. Additionally, development can 

be harder when there are entrenched interests that support 

the status quo in the energy sector, whether with regard 

to the fuel mix or supply hegemony. Governments 

can combat these interests by promoting the diversity of 

supply and fuel types. 

Investment frameworks 

Economics matters. Decisions to invest are driven by risk 

and reward. The cost of developing shale formations varies 

greatly depending on geology and the availability of 



SHALE GAS 

EXTRACTION SCHEME. 

SOURCE: NT.GOV.AU 

infrastructure. Tax and regulatory costs must incentivize 

exploration in early stages, as the risk of failure can 

be high. Unfortunately, some of the initial enthusiasm 

for shale gas development in Lithuania and Poland has 

waned, largely because the resources are proving to be too 

small or too costly to develop at current natural gas prices. 

In Central and Eastern Europe, oil and gas development 

can be particularly costly because there is limited existing 

infrastructure both for drilling and for delivering gas 

to markets. Given the numerous opportunities for natural 

gas development globally (including, but not limited to, 

unconventional gas), governments will need to be competitive 

in order to attract investment. 

The Outlook for Europe 

Misinformation, domestic politics and a lack of private 

ownership have slowed the development of shale in Europe 

so far. Those countries most dependent on imported 

gas from Russia have been the most motivated, led by Poland 

and Ukraine. Romania and Bulgaria have important 

resources, but internal political rivalries and some external 

desire to preserve market share have temporarily 

complicated development. In Western Europe, the United 

Kingdom has made major strides towards allowing the 

development of its shale resources in a safe and sustainable 

manner, evaluating the risks, working with industry 

to consider safe operating requirements, and being pragmatic 

about the timeline for development. In Germany, 

which currently has a de facto moratorium on fracking, 

a formal moratorium is expected to result from recent 

coalition-forming talks among the leading political parties. 

Similarly, France currently has a moratorium on the 

practice of hydraulic fracturing. Russia, on the other hand, 

already a major player in the oil and gas world has substantial 

reserves of shale oil, providing them with a potential 

win in oil even as shale gas development elsewhere in the 

world is forcing them to adapt. So far, Russia has proven to 

be better able to adapt than expected, negotiating on fiscal 

terms and attempting to become more competitive. This 

will serve to make the Russian economy more competitive 

and, in the long run, less dependent on natural resources. 

At present, no single European country has taken a 

leadership role with regards to developing a strong regulatory 

framework for shale development, and the EU Commission 

is not in a place to do so with such fragmented 

views among member states and given the intensely local 

nature of allocation of water resources, land access and 

drilling safety. The US has taken a leadership role in promoting 

the safe development of shale gas through initiatives 

like the Department of State’s Unconventional Gas 

Technical Engagement Program, but global leadership on 

shale will have to extend beyond the US. The shale revolution 

should not just be an American tale; it should be a 

global opportunity. 

In the end, the shale revolution strengthens global 

energy security and lowers the cost of carbon reduction. 

New supplies of oil and gas, be they from shale or from 

ultra-deepwater reservoirs or the Arctic, represent a slow 

democratization of energy that provides new countries 

with the chance to generate economic growth, improve 

their carbon intensity and reduce the power of hegemonic 

suppliers. Even as incremental energy demand shifts 

from West to East, the world is becoming less dependent 

on energy production centered in an elite few countries. 

US LNG exports and perhaps new supply from Canada, 

Australia and East Africa will give countries more choice. 

In an era where ‘energy security’ remains critical to national 

security in Europe and elsewhere, this is an important 

shift, and one to be encouraged. But it will take good leadership 

to get the mix right. 

AUTHORS 

David L. Goldwyn 

is the President of Goldwyn Global Strategies, LLC. He 

formerly served as the Special Envoy and Coordinator for 

International Energy Affairs at the U.S. State Department, and 

as Assistant Secretary of Energy for International Affairs. Mr. 

Goldwyn is the co-editor of Energy and Security: Strategies for 

a World in Transition (Johns Hopkins University Press, Wilson 

Center Press: 2013) & Energy and Security: Toward a New Foreign 

Policy Strategy (Johns Hopkins University Press, Wilson 

Center Press: 2005). 

Leigh E. Hendrix 

is an associate at Goldwyn Global Strategies, LLC., where she 

provides analysis on energy markets, trends and policy. She 

previously worked for the Energy and National Security Program 

at the Center for Strategic and International Studies. 


TOPIC 

LNG CARRIER - FLOATING LITHUANIAN FORTRESS ON THE BALTIC SEA 

LNG Carrier - Floating 

Lithuanian Fortress 

on the Baltic Sea 

In December 2014, a liquefied natural gas (LNG) terminal project of a kind unlike any other 

before in Lithuania or the Baltic region will be launched in Klaipėda Seaport. This highly important 

strategic project aspires to change the economic map of the Baltic and Nordic countries. 

by Povilas Juodelis 

The regional rather than local 

aspect of the LNG terminal 

project is the hobby 

horse of today’s situation. 

But Lithuania is not alone. The importance 

and benefits of projects 

like this are being realised by other 

countries as well: Poland is having its 

own terminal constructed; Gazprom 

started talking about a similar development 

project. Even if it’s not the 

only one, Lithuania may still be the 

first to have such a terminal; therefore 

the starting positions in the 

“game” are very favourable. 

Strategic significance 

The Swede Rudolf Kjellen, who 

coined the term “geopolitics” back in 

the early 20th century, when talking 

about small countries described them 

as doomed to play according to the 

rules of “large countries”. Strategic 

thinking for small countries is some 

sort of a luxury, as limited financial 

and other resources only allow for acting 

in a very close environment. 

This was probably true a century 

ago, but recent decades have shown the 

opposite to be true. There are a number 

of examples in the world where 

small countries have managed to fly 

high at the regional and even international 

level and are competing with 

the heavyweight players on the global 

market, such as Taiwan, Singapore, 

Belgium and Switzerland. Economic 

globalism in particular (in the case of 

Europe) enables such countries to take 

advantage of their unique properties 

and achieve amazing results. 

Lithuania considers itself to be one 

of the leaders in the Baltic Region. 

This small country with a population 

of only three million can boast of 

having three strategic projects at the 

very least: a new nuclear power plant, 

power links to Poland and Sweden 

and a liquefied natural gas terminal, 

and if the first initiative looks like 

An LNG carrier is a 

tank ship designed for 

transporting liquefied 

natural gas (LNG). As 

the LNG market grows 

rapidly, the fleet of LNG 

carriers worldwide 

continues to experience 

tremendous growth. 

eration from one politicised gas 

pipeline. The LNG terminal is a bold 

attempt to tackle this long-standing 

problem. 

The most interesting thing is that 

the Lithuanian project will also help 

Latvia and Estonia deal with the issue 

of energy dependence, since 

the Baltic states are interconnected 

it’s making no headway, the second 

and especially the third are moving 

forward. But will the LNG terminal 

really become a ticket to a brighter 

tomorrow for Lithuania? 

After regaining its freedom, the 

country has remained strongly dependent 

on the former soviet economy 

and its successor, Russia. Many 

problems have not been solved during 

its twenty independent years. 

One of them is energy dependence, 

demanding a diversification of the 

import of energy resources and libby 

gas pipelines which have been 

planned to be further expanded. If a 

gas link between Estonia and Finland 

(this project is EU supported) is constructed, 

the latter country’s market 

would open as well. There are also 

talks about a Lithuanian-Polish gas 

pipeline. In other words, although 

the primary goal of the Lithuanian 

LNG terminal is to satisfy national 

needs (basically, to provide the country 

with 100% of its gas needs), it 

will probably not be the only source 

of energy supply for Lithuania, and 

some of its capacities could be available 

for other countries. 

Though gas for Finland is not its 

primary energy source, and while 

Poland is currently constructing its 

own LNG terminal (it will be put 

into operation at approximately the 

same time as the Lithuanian one), it 

is believed that the entrance of aditional 

competitors into the market 

will not harm these countries. While 

a Lithuanian terminal could be beneficial 

for Sweden and Denmark, or 

maybe even Norway, which is actually 

constructing the Lithuanian 

LNG storage vessel, Sweden is already 

transporting large quantities of 

liquefied gas from various terminals 

to the small-capacity degasification 

terminals at its shore. Therefore, if an 

additional powerful supplier appears 

at their side, the Swedes could search 

for possibilities to make use of it. The 

same applies to Denmark. 

For Norway, the Lithuanian terminal 

could become another export 

market. Today this country has no 

shortage of oil and gas and is exporting 

nearly all its volume to the east 

and south, but if a natural gas terminal 

were to emerge in near proximity 

to it with a promising market, the entire 

Eastern Baltic Sea region should 

also interest it, especially considering 

the possibility to compete successfully 

against other potential suppliers 

from the Middle East (first of all, Qatar) 

because of the lower transportation 

costs. 


TOPIC 

LNG CARRIER - FLOATING LITHUANIAN FORTRESS ON THE BALTIC SEA 

History 

The seaborne transport of liquefied 

gases began in 1934 when a 

major international company put 

two combined oil/LPG (Liquefied 

petroleum gas) tankers into operation. 

The ships, basically oil tankers, 

had been converted by fitting small, 

riveted pressure vessels for the carriage 

of LPG into cargo tank spaces. 

This enabled transport over long 

distances of substantial volumes of 

an oil refinery by-product that had 

distinct advantages as a domestic 

and commercial fuel. LPG is not only 

odourless and non-toxic, it also has a 

high calorific value and a low sulphur 

content, making it very clean and 

efficient when burnt. 

Today, most fully pressurised 

oceangoing LNG carriers are fitted 

with two or three horizontal, cylindrical 

or spherical cargo tanks and have 

typical capacities between 3,500 and 

7,500 m 3 . However, in recent years 

a number of larger-capacity fully 

pressurised ships have been built, 

most notably a series of 10,800 m 3 

ships, built in Japan between 2003 

and 2013. Fully pressurised ships 

are still being built in numbers and 

represent a cost-effective, simple way 

of moving LNG to and from smaller 

gas terminals. 

Manoeuvrability of the project 

Ignoring the energy security that 

comes with the terminal is not only 

unreasonable, but even dangerous. It 

is nothing new in the EU when someone 

talks about the energy blackmailing 

being applied by Russia. It 

is in particular relevant and evident 

when the future of Ukraine is discussed. 

Every Baltic state has had the 

same painful experience. In this context, 

the enhancement or assurance 

of energy security also essentially 

means a strengthening of the negotiating 

position against Gazprom. 

No longer able to dictate conditions, 

the Russian gas giant will have no 

other choice but to play according 

to the market rules or to step back 

and merely exist as a gas supplier for 

business entities under long-term 

agreements. It is also obvious that 

Gazprom prices will have to compete 

with the gas terminal prices, because 

nobody will want to pay a higher 

price. This will be better for business 

and residents. 

But energy security is not the 

only advantage of the LNG terminal. 

Usually its operation is pictured as a 

gas supply to pipelines leading to the 

businesses using it. But this is only 

part of the truth. Global experience 

shows that so-called small-volume 

LNG trade can account for one tenth 

of the potential operation of a terminal. 

In other words, gas to a buyer 

can not only be supplied via pipelines, 

but also by tank trucks, smaller 

ships or railways. In this way, smaller 

market players get an opportunity 

to join in the trade and supply gas 

to regions that are not connected to 

the pipelines, which are called either 

“white stains” or “white spots”. Usually, 

these are businesses or smaller 

settlements in remote locations, 

where connection to pipelines is too 

costly. “Access” to gas accordingly 

opens new opportunities for these 

“white spots” for satisfying their 

business, heating or electricity generation 

needs. The best example of this 

is Portugal or Spain. A great majority 

of the greenhouse businesses in 

this region are supplied with gas by 

tank trucks or railways. This allows 

them to successfully grow vegetables 

or fruits for a competitive price all 

year round. Think about this when 

you are buying a ripe tomato in the 

middle of winter. It does not necessarily 

mean that the Baltic states will 

start competing in this field with the 

Spanish, but it may provide a possibility 

for even the smallest entrepreneur, 

farmer or village to receive gas 

and opens broader opportunities for 

planning for a different future. 

Few know that liquefied natural 

gas is an excellent fuel for ships and 

commercial vehicles. True, this type 

of gas should not be confused with 

the LPG sold at petrol stations. So it 

is very unlikely that every driver on 

the road will immediately start using 

gas from the LNG terminal in the 

nearest future. But right now, quite 

a few ships with liquefied gas driven 

engines rather than diesel engines 

operate in the world. There are also 

quite a few medium and heavy haulage 

trucks using liquefied gas. Bearing 

in mind that the Baltic states and 

Poland are transit countries, even a 

minor reduction in the price of cargo 

transportation should be of immense 

interest for their carriers. Figures 

currently published in Europe show 

that LNG as a fuel is about 30% 

cheaper than diesel. 

Furthermore, liquefied gas is ten 

times more environmentally friendly 

than diesel. When burned, the emission 

of carbon dioxide (CO2) is up 

to 20% less, nitrogen dioxide (NO2) 

up to 90% less, and sulphur dioxide 

(SO2) up to 100% less than that of 

diesel fuel. Furthermore, LNG does 

not emit any solid particles at all. So 

these environmental advantages have 

led to the EU Directive on Clean Fuel 

for Transport, according to which a 

chain of liquefied natural gas stations 

throughout the EU community, 

with a maximum distance of 400 km 

between them, must by created by 

the year 2020 (in the worst case, by 

2025). Every significant EU seaport 

will be required to supply such fuel 

for ships. 

In other words, sooner or later, 

all the Baltic countries will have to 

ensure a possibility for everyone interested 

in receiving liquefied gas. If 

Lithuania does not construct its terminal 

it will have to buy LNG from 

elsewhere (Poland, Russia, Norway). 

While at the same time, the Lithuanian 

terminal would become an 

additional source of liquefied gas 

for the ships and road transport of 

other countries in the region. Thus, 

it should in no event be unprofitable. 

Finally, one should also not forget 

the fact that the gas terminal commissioned 

by Lithuania is not a stationary 

object. At the end of the day, 

it is a ship, and ships sail. If needed, 

the terminal could be moved elsewhere. 

Even if it is not needed today 

or tomorrow, it is hard to foresee 

market and regional changes after a 

decade or more. If the terminal to become 

too hard a financial burden or 

Lithuania does not need that much 

gas, there will always be the possibility 

to search for another location 

for the floating Lithuanian fortress. 

Maybe in Sweden? Germany? Poland? 

A degasification unit travels together 

with the vessel, so in practice 

the terminal can be adapted for operation 

at any location. It may sound 

like speculation, but such a capability 

for the project is a huge advantage. 

In any event, if there was a chance to 

buy gas in any other terminal for a 

lower price, the Lithuanian terminal 

itself could sail there and such a journey 

could allow saving about 10% in 

costs. 

The first but not the only one 

As already mentioned at the beginning 

of this article, Lithuanians 

are not the only ones constructing a 

liquefied gas terminal. The Poles are 

constructing a very similar terminal 

in near proximity. The Swinoujscie 

LNG terminal constructed near Gdansk 

should also be put into operation 

at the end of 2014, but it should not 

be a rival for the Lithuanian project, 

since first of all it is intended for the 

huge Polish market (in the best case 

it will satisfy up to 30% of its gas demand) 

and it does not aspire to any 

significant regional role. Besides, the 

Polish terminal would not be mobile 

and it would only be able to accept 

gas transporting ships. 

LNG terminals of smaller capacity 

also operate near the Swedish shore, 

but again, they are stationary, and 

when compared with the Lithuanian 

terminal their capacities are very 

small and they are intended for the 

domestic market only. 

Probably the most interesting 

news is that when talking about 

alternatives to the Lithuanian terminal, 

there are many different rumours 

about Gazprom’s plans to 

construct liquefied gas terminals 

on the Baltic seashore, in Primorsk 

and Kaliningrad. This kind of 

news probably does not come from 

nowhere, because the corporation 

is large and interested in the LNG 

market (e.g. export to Great Britain 

or Southern Europe). If this happens, 

at first glance a slightly comical 

situation may emerge: Lithuania 

and the Baltic states would not only 

buy gas from Gazprom from one 

end of the pipe, but from the other. 

But it seems that the Russian gas giant 

does not have a clear strategy for 

the Baltic region, and it is constantly 

bouncing between various projects. 

The idea of the Kaliningrad LNG 

terminal further confirms this. Even 

Russian experts are saying that this 

project would be economically detrimental 

and politically motivated, 

when thinking that Lithuania may 

stop gas transit to the Kaliningrad 

region (everyone judges according to 

themselves). In this context, Vilnius 

should be engaged in its work rather 

than paying attention to Gazprom’s 

twists of thought. And if one day it 

offers liquefied gas to the Klaipėda 

terminal for a competitive price, then 

it should be considered. 

In summary, it can be stated that 

the LNG terminal in Lithuania is a 

serious claim to an important role 

in the Baltic and Nordic economy, 

making its potential development a 

significant contribution. At the same 

time, it is not only a possibility but 

also a necessity for Lithuania to prove 

to itself and others that small countries 

do not lack common sense, farsighted 

thinking, responsibility and 

competence. And representatives of 

the early 20th century’s geopolitical 

thinking may think whatever they 

want to. 




Lithuania Builds New 

EU–China Transport Corridor 

As anticipated, intense competition for at least some of East-to-West and West-to-East 

cargo flows is taking place within the EU as well as with third countries. The asian market 

of cargo transportation is immense, so it is understandable that everyone is trying 

to get a portion of it. 


According to data published by Eurostat (as of 13 

Feb 2012) the exports of the 27 European Union 

(EU) member states to China increased by 

21 percent during the first ten months of 2011, 

compared with the same period of the previous year 

while imports of goods from China to the EU increased 

by 5 percent. As reported by China Customs, the turnover 

between trade partners reached 567.2 billion dollars 

throughout 2011 and rose by 18.3 percent in comparison 

with 2010. China is the second-largest EU trading partner 

behind the USA while the EU itself is the top partner of 

the dynamically rising Southeast Asian powers and an important 

supplier of advanced technologies. 

Competition and cooperation on 

the eastern coast of the Baltic Sea 

As anticipated, intense competition for at least some Eastto-West 

and West-to-East cargo flows is taking place within 

the EU as well as with third countries. According to Andrius 

Šniuolis, head of the Water and Railway Transport Policy 

Department of the Ministry of Transport and Communications 

of the Republic of Lithuania, the Asian market of 

cargo transportation is immense, so it is understandable 

that every country, not just the EU, is trying to get a portion 

of it. Therefore, no illusions should be entertained – 

competition between the Baltic countries in this situation 

will only intensify. 

Marius Matulaitis, Deputy Director of the Market Research 

and Development Department of Cargo Transportation 

Directorate of the state-owned railway operator 

Lietuvos Geležinkeliai (Lithuanian Railways) agrees with 

this too. According to him, Lithuania competes against its 

Baltic sisters in the cargo transportation sector. However, 

this competition is not well-proportioned due to the fact 

that it can take advantage of only one seaport, whereas its 

neighbours (Latvia in particular) – more. Therefore, let us 

say Latvia can attract to one of its ports a business structure 

as a shareholder to construct a terminal, which will 

ensure cargo flows as well. 

Another field of competition, this time in the railway 

transportation corridors, lies between Brest in Belarus (to 

Poland) and Šeštokai in Lithuania (also to this neighbouring 

country). This competition poses considerable difficulty 

for Lithuania as Warsaw can freely choose priorities 

and means of implementation of its transport policy (direct 

the freight via Belarus as well as Lithuania). However, 

Vilnius doesn’t possess such room for manoeuvre. 

Nonetheless, the state-owned railway operator Lithuanian 

Railways carries on its railway projects. Šeštokai 

Express, to name one of them, aims to direct freight from 

Warsaw through Vilnius to Smolensk, where it is distributed 

to further destinations. 

On the other hand, aside from the competition, in 

certain spheres the Baltics seek pragmatic adjustment of 

their interests. As an illustration, the Baltic states jointly 

work on equal freight transportation issues employing socalled 

container trains (Latvians have the Zubrus carrier, 

while Lithuanians operate Vikingas, and Saulė is gradually 

being launched). Also, steps are being made to resolve 

tax tariff concerns. In the meantime, a joint Lithuanian 

and Latvian task force is being established, which besides 

other matters will discuss and accommodate pragmatic 

railway transportation interests. 

Seeking to take full advantage of opportunities presented 

by the East–West transport corridor, Lithuania 

should improve its infrastructure in the Klaipėda–Vilnius–Belarus 

border sector. In addition to already elongated 

railway stations, (which are now capable of receiving 

longer trains) it is essential to lay secondary tracks and 

encourage more intense locomotion in both directions. 

Incidentally, China is also trying to get access to longer 

and heavier trains that are capable of carrying not just 




Plans are being designed to 

implement the project The 

Eighth Corridor, which will link 

up Belgium, the Netherlands, 

Germany, Poland and Lithuania. 

6,000 tons as of now, but 7, 8 and even more thousands 

of tons. 

The most expensive way of transferring cargo is by air 

transport; second in terms of cost is the railway; and the 

cheapest solution happens to be marine transport. Obviously, 

the price is heavily corrected by the existing infrastructure. 

The majority of freight from Southeast Asia is 

carried by sea transport, but it takes time to circumnavigate 

Africa and pass the Suez Canal. The task confronting any 

railway company is to build a kind of infrastructure capable 

of competing with sea transport. It is sought to adjust railway 

routes because these provide twice as fast delivery at a 

competitive price. However, Russia is a factor that has to be 

taken into consideration as it interferes between pragmatic 

China and Kazakhstan. Russia’s decisions regarding freight 

transportation are often politicised and not necessarily 

based on economic considerations. 

Moscow does not confine itself to merely economical 

means to conduct cargo flows to its rapidly developing 

sea ports, like Ust-Luga. This port’s capacity is being 

expanded to 180 million tons per year (in comparison, 

Klaipėda currently loads 36–37 million tons, and even after 

the maximal deepening and reconstruction of the quay 

the new territory and infrastructure will boost its capacity 

just to 65 million tons). The Russian authorities allocate 

massive investments to expand their ports and related infrastructure. 

Investments into railways and ports 

Since time is a key factor in the freight transportation 

business, smooth cooperation between the airport and 

railway is essential. Lithuanian Railways and the state 

enterprise Klaipėdos valstybinio jūrų uosto direkcija 

(Klaipeda State Seaport Authority) are uniting their 

efforts in shared infrastructure projects and such cooperation 

intensifies. A balanced development of both 

sectors is being sought. The importance of these sectors 

is recognized by the state too, as railway and sea transport 

at the Ministry of Transport and Communications 

is supervised by the same Water and Railway Transport 

Policy Department. 

A lot of money has been invested in Klaipėda seaport 

as well as the country’s railway development over the last 

seven years. The new EU financial plans for the years 

2014–2020 intend new investments, for example, to allow 

for the mooring of larger vessels. Currently, different scenarios 

for the port extension are being considered (specific 

details should show up at the beginning of next year). 

Upon realization (it is anticipated to occur after 2020), the 

port capacity could reach 100 million tons. 

The state railway operator Lithuanian Railways invested 

about 700 million litas in infrastructure in 2012. At the 

start of this year, it developed and presented its strategic 

development project up to 2030. This time limit is chosen 

because of the slow momentum typical in the railway 

industry as a whole due to its long rolling-stock service 

duration, long lasting implementation of infrastructure 

projects and slow investment absorption. The strategic 

transport corridor Kena–Klaipėda is planned to be a twoway 

road capable of transferring 85 million tons of cargo 

per year. Klaipėda will extend itself by building new stations: 

Draugystė, Pauostis and Rimkai. 

By transporting freight via the East–West corridor 

Lithuanian Railways earns its basic income (70 %) and 

competes with Latvian, Estonian, Russian, Ukrainian and 

Polish ports, also with the Belarus Brest transport corridor. 

Although working in harsh conditions of competition, 

according to railway statistics in 2009, Lithuanian 

Railways still transported less than Italy, UK and Austria 

but outpaced Romania, the Czech Republic, Turkey, 

Spain, Denmark and Belgium. Due to environmental considerations 

the EU plans to carry at least half of the load 

by rail and Lithuania already does this. The strategy up to 

2030 aims to preserve traditional freight market share and 

seeks to improve cargo handling from Asia. 

In 2001, Klaipėda port reloaded 17.2 million tonnes of 

cargo and 36.6 million tonnes in 2011, which is 19.4 million 

tonnes more. This was strongly influenced by investments – 

Klaipėda State Seaport Authority invested about 1.34 billion 

litas in port infrastructure, and companies operating 

in the port used twice as much. In 2013–2015, investments 

are expected to reach 467 million litas. The new investments 

will allow integration into European transportation 

networks and the establishment of a sea highway system. 

In the wake of its dredging operations Klaipėda port 

has widened to 150 metres and deepened to 14.5 metres. 

The port is now capable of receiving the so-called Post- 

Panamax class of ships that are 300–310 meters long and 

40 meters wide. One more project being implemented 

is the Container Distribution Centre (the so-called 

Klaipėdos Smeltė HUB). Upon its completion, Klaipėdos 

Smeltė has a potential to increase the volume of containers 

transfer over the decade to up to a million per year. 

The bulk cargo distribution centre (Bega HUB) has 

operated since 13 June 2013. The company runs a universal 

agribulk export and import terminal here suited for 

all types of agricultural products: corn, various extruded 

products, rough milling grain, granules, raw sugar, etc. In 

technical terms, the terminal is capable of both import 

and export operations, and its capacity and technical potential 

also allow it to receive the Post-Panamax class of 

ships. 

Container trains as a counterbalance 

to “political cargo” 

The so-called intermodal transportation model equips 

businesses with a fast and efficient freight transportation 

means not only to neighbouring countries but also to 

more distant economies. One such container train, Vikingas, 

was put into service in 2003 in Lithuania. This project 

links the Baltic Sea and the Black Sea regions. A lot of 

efforts are being applied to include Sweden; cooperation 

with the country’s national railway carrier is being conducted. 

For example, talks regarding the harmonisation 

of transportation conditions for component parts to one 

of the giants of the passenger car assembly plants in China 

are being held. In case of success, the component parts 

would be carried from Karlshamn in Sweden to Klaipėda 

and then, with Vikingas would move further to Belarus, 

from which the train – connected to another one – would 

travel to China once a week. 

In the realization of another project, Saulė, the first 42 

containers packed with computer hardware have been 

shipped from China to the port of Antwerp via Šeštokai. 

A reverse transportation test was also carried out from 

Klaipėda to China, which took just 11 days. Although the 

project cost is not terribly competitive, it is still being pursued; 

every month partially filled containers from Klaipeda 

are heading to China. Lithuanian Railways views 

this route as a prospective one, particularly in the light 

of China’s plans to develop industry in its western region. 

This is typical in the cargo carrying business – the container 

train Vikingas has been running already for more 

than ten years and is still expanding its geography and attracting 

new countries. 

In 2013, the first container train Baltijos vėjas departed 

from Vilnius Paneriai railway station to Kostanay in Ka- 




zakhstan. The train will transport cargo by this route twice 

a month and reach its final destination within a week. The 

expected volume of each train is up to 120 TEUs. The train 

is operated by the Vilnius company Hoptrans Projects. 

The project implementation is contributed to by the companies 

Transkonteiner, Autoverslas, Kedentransservis, 

Unico Logistics and Lithuanian Railways. 

The importance of the project is determined by the 

direction of cargo flow from West to East. Up to now the 

majority of railway freight in Lithuania flew from East to 

West. “We intend to carry about 80 containers every month 

by the train Baltijos vėjas,” CEO of the Lithuanian logistics 

company Autoverslas Valdemaras Zakarauskas said. 

“We have long-term contracts with car-part suppliers, so 

we deliver car bodywork, assemblies and component parts 

to Kazakhstan. It is extremely difficult to predict the arrival 

time if cargoes are shipped in a single railcar.” 

M. Matulaitis claimed that the implementation of the 

container train projects for Lithuanian Railways is also vital 

in the sense that this is a counterbalance to so-called 

political cargo (such as oil, fertilisers), although these 

make up the bulk share of transported freight (the biggest 

competitor in this segment is Latvia). In fact, container 

trains constitute only 5% of all carried cargo. 

Chinese business representatives of the would not take 

seriously the idea that Lithuanians alone could transport 

commodities from China to Europe. Even if Lithuania 

managed to “snatch” just one percent of this volume, Lithuanian 

Railways and Klaipėda port would probably not be 

able to service it. That is why Lithuanian Railways is holding 

talks with its counterparts from China neighbouring 

Kazakhstan on establishing a joint venture. Discussions 

are not confined just to cargo carrying issues alone, but 

also involve the establishment of public logistics centres 

in Kazakhstan. Such centres could service the container 

trains coming not only from China but from all of Southeast 

Asia. The cargo would flow to logistics centres already 

being built in Vilnius, Kaunas and Klaipėda, reloaded here 

and transported further to the West via Klaipėda seaport 

or Polish railway. 

The state railway operator 

Lithuanian Railways invested 

about 700 million litas in 

infrastructure in 2012. 

Fervour for public logistics centres 

Implementation of projects for the establishment of public 

logistics centres started in 2008 in Vilnius and Kaunas 

while Klaipeda joined them in 2012. According to the 

estimates of Lithuanian Railway specialists, such centres 

will save time (from 40 now to just seven or eight hours), 

that is still taking containers to be dispatched from the 

seaport by rail. 

The most advanced of all projects is the 360 hectare 

Vilnius logistics hub near Vaidotai railway station, which 

is planned to be included into the terminal. The future 

plans envision a bypass around the terminal, thus building 

a Vilnius roundabout at the terminal, thus ensuring 

egress to the motorways in the direction of Minsk and 

Klaipėda. The mandatory requirement for the terminal 

is to be surrounded by transportation and logistics businesses 

nurturing it with cargo flows. That is why Lithuanian 

Railways and Vilnius municipality established in 

2011 a public organization called Vilniaus logistikos parkas 

(Vilnius Logistics Park), whose purpose is to develop 

infrastructure and map land lots around the intermodal 

terminal. Four lots are already mapped and being offered 

to potential investors. 

The project of the Kaunas Public Logistics Centre is 

linked with the Rail Baltica project. The terminal will 

feature two types of railway track gauge – European and 

Russian – and will boast a super-fast cargo reloading procedure 

from one type of railcar to another, also to automotive 

transport. According to the representative of the 

Rail Baltica project, Domas Jurevičius, the planning stage 

for the European type of railway track gauge is finished 

from the Polish border to Kaunas and the construction 

work that has started should be finished by the end of 

2015. The European track gauge construction is taking 

place in Lithuania only – neither Latvia nor Estonia has 

set to work yet. 

A lot of discussions is being drawn to the High Speed 

Train track construction between Kaunas and Tallinn 

where trains could be capable of reaching 240 kilometres 

per hour. The transport ministers of the Baltics have signed 

a joint statement regarding this issue; so far, this is still the 

initial stage at which matters of establishing of a joint venture 

are discussed. By 15 November, a specific assessment of 

impact on the environment was performed, had to clarify 

the dilemma of the line routing via Panevėžys vs Šiauliai. 

A European gauge railway from the Polish border to 

Kaunas may actualise the North-to-South (Poland–Finland) 

passage as well as the East-to-West direction in 

the sense that the cargo reloaded in the Kaunas public 

logistics hub could be transported further to the West 

via Poland not only through Klaipėda port but also by 

rail. By the way, there are plans to implement the project 

The Eighth Corridor, which would connect Belgium, the 

Netherlands, Germany, Poland and Lithuania. 

In reality, taking advantage of the potential or failing to 

do so will be decided by various factors – cargo transporta- 

tion tax rates, cargo volumes and carrying capacity. In Poland, 

for example, outdated infrastructure prevents trains 

from putting on higher speeds. The Polish government 

promises reconstruction of the track width by 2024 (by 

then the high speed train line Kaunas–Tallinn should be 

launched) permitting speeds of up to 160 kph. Poland has 

actually started reconstruction of the track in certain strips, 

so it is likely that these pledges will be fulfilled. This would 

suffice that freight moves smoothly to Western Europe. 

Potential is seen by everyone 

The cargo flows in the direction from the EU to China 

are still obviously weaker than the opposite China–EU 

direction, also due to the different levels in development 

of the parties. Until recently the Chinese could not afford 

purchasing goods “made in Europe”. Actually, the Chinese 

get richer, their middle class increases and the country 

is trying to get rid of its “world factory’” reputation and 

move on to manufacturing that would be more complex 

and requiring more expensive technologies. As a result, 

the Western brands gradually become more attractive to 

the Chinese. By the way the Scandinavian countries are 

particularly interested in the Chinese market. 

As regards competition between the various cargo transportation 

types from China to the EU (and vice versa), it 

should be noted that it is considerably segmented. Suppose 

that the products that should be instantly delivered (such as 

clothing – China is known as speedy manufacturer and distributor 

of famous and fashion brands) are transported by 

aircraft. The vast majority of other commodities are being 

transported by ship. In regard to railways, projects are beginning 

to evolve, including transnational ones. For example, 

Russian Railways and the German company DB Schenker 

have established a joint venture which carries cargo from 

China to Western Europe by container train. 

According to M. Matulaitis, this is just the beginning. 

One of the reasons is that transportation of cargo by rail 

across China (including third countries) to Europe is too 

expensive. Chinese industry just a while ago started to 

move from its eastern part which is rather urbanised to 

the western part that is closer to the EU and, therefore, 

larger quantities of Chinese commodities that will be 

transported by rail can be expected approximately in five 

years. Moreover, the Chinese have strong freight shipping 

companies (such as Cosco, one of the largest in the world) 

that would not be happy if railways took over their cargo 

(or part of it). 

During the Asian and European ASEM Transport 

Ministers’ Meeting that was held in Vilnius in October 

2009, Lithuanian Transport Minister Eligijus Masiulis declared 

that Lithuania wanted to become a bridge between 

Asia and Europe. At that meeting, the Vilnius Declaration 

was signed. The document states that closer cooperation 

between Asia and Europe should be encouraged. Almost 

at the same time, in the capital of Lithuania the Asian and 

European Transport Development Forum took place. 

During the closing conference China’s Transport Minister 

Lee Shenglin emphasised that his country was ready to 

solve the transportation problems actively because it was 

interested in the easier and faster movement of cargo between 

China and the EU. 

The priority of the European Commission is to provide 

environmentally friendly, clean transport and rail belongs 

to such type of transport. This means greater investment 

in this sector on a scale of the entire Old Continent. The 

EC also works on the transport corridors aiming to connect 

them with the transport networks of so-called third 

countries (Russia, Belarus, Kazakhstan etc.). The EU cannot 

make direct investments, let us say, into railway construction 

somewhere in Belarus, Russia or Kazakhstan. 

However, the EC can initiate the preparation of a feasibility 

study in this subject. No doubt this is crucial in order 

to take advantage of the cargo flows in the East–West and 

West–East directions. Also, a joint China and EU work 

group has been established. Transport issues have received 

a lot of attention in its agenda. 

Of course, business assesses and calculates financial 

expenses and time ratios and makes its own choice on 

what type of transport – sea, land or a combination – 

to choose from. Anyway, this discussion is more about the 

prospects, although initial steps that have been taken already. 

For example, the Saulė project is widely supported 

by Kazakhstan. There is no shortage of preparatory works, 

in particular of infrastructure development; however, the 

potential is seen by all participants. 





Everyone is Spying on Everyone, 

But Not Everyone Has Snowdens 

Attention! The New World is here – the world where nobody can hide, the world of Big Brothers, 

fighting terrorism – and stealing everyone's secrets. Edward Snowden has decided to 

stop the American spying machine – from Russia. 


Despite a nice, routine conversation held at the 

White House this April between Secretary- 

General of the United Nations Ban Ki-moon 

and US President Barack Obama, the US National 

Security Agency (NSA) took advance measures regarding 

the upcoming event and by the use of electronic 

spying equipment learnt the main issues to be discussed 

by Bank Ki-moon. Later the Agency even boasted of this 

“achievement”, though it is not clear what advantages the 

US President could expect by knowing the scenario of the 

amicable conversation beforehand. If the NSA saw the report 

altogether... 

Half a year after the demarche of former NSA programmer 

Edward Snowden, who has turned into an international 

star, the scandal caused by the actions of the 

Agency for spying on the mobile phone calls of even the 

leaders of US allies remains in full swing. It was discovered 

that the spying was authorised by a clause of the official 

assignments of the NSA in order to acquire “diplomatic 

advantage” over friendly France or Germany, or 

to acquire “economic advantage” over also friendly Japan 

and Brazil. It was revealed that the NSA spied on approximately 

35 global leaders (by the way, the NSA did not 

even require a court sanction for that: it is only required 

if the object of the spying is a US national or is within the 

territory of the US). Public claims regarding the activities 

of the National Security Agency have already been made 

by Paris, Berlin, Rome, Mexico, Stockholm, and Madrid. 

It was discovered that the NSA is sucking content from 

fibre optic cables, breaks into laptops and listens to mobile 

phones all over the globe. The Agency installed aerials 

on the roofs of 80 US diplomatic missions. US navy 

vessels sailing along the shores of China are intercepting 

radio conversations. In the course of the Olandocard operation, 

the Agency’s technicians connected a computer 

with the romantic name Honeypot to the Internet. The 

website was visited by 77,413 users, and in this way over 

one thousand computers got infected with a spying virus. 

The information obtained from them can be very useful 

in the future, according to the NSA. In 2009, the NSA 

even established a unit with the task to learn about, analyse 

and adapt foreign programmers’ practices. 

Former Inspector General of the NSA, Joel F. Brenner, 

admits that the technologies applied by the NSA have surpassed 

political goals, while spying on the closest allies 

represents a poor and politically stupid practice. After the 

information exposing the NSA’s activities was published 

by E. Snowden, the organisation is suffering from a “crisis 

of purpose and legitimacy”. It also caused damage to 

the image of America as the bastion of democracy and a 

trustworthy ally. 

The published information caused many investigations 

at various levels in the USA to be carried out. During 

a vote in Congress, an initiative to introduce an amendment 

to the law prohibiting the financing of mass information 

collection programs was only short of 12 votes. 

But the NSA did not cease spying on the telephone calls 

of other countries’ leaders until President B. Obama’s administration 

launched an internal inspection of its activities. 

Based on this information, The Wall Street Journal 

made a conclusion that the head of the USA had no idea 

what his own spies were doing for nearly five years. 

It looks likely that for some time everyone will be involved 

in passionate discussions and someone will gain 

political points out of this entire story. Nevertheless, 

when assessing historically established intelligence practice, 

it is more than a picture with aggrieved goodies and 

rascals observing them from behind the corner cunningly 

(illegally). Director of US National Intelligence James R. 

Clapper, Jr. on a number of occasions called the foreign 

countries’ claims hypocritical, as they themselves are also 

engaged in similar spying practices. Electronic spying 

receives financing from the German and French governments, 

not to mention China or Israel. Everyone is trying 

to be as least vulnerable as possible, as well as curious. The 

USA only found itself in the centre of the dispute because 

the capacities of the country’s special services are much 

more advantageous than those of other countries. 

European indignation is legitimate, and their coordinated 

efforts are needed to stop Washington from behaving 

cowboy-style. But one must understand that everyone 

is always spying on everyone. The 21st century is only 

different for the unprecedented enhancement of spying 

capacities by modern technologies. Therefore, it will 

take some time for us to learn to live in a world where 

unnoticed access to the private lives of other people or 

even heads of states is very easy. Obviously, it will be a 

long-term, maybe even a decade’s trend. Therefore, it will 

not only demand for attempts to legally regulate it, but 

One must understand that 

everyone is always spying on 

everyone. Therefore, it will take 

some time for us to learn to live 

in a world where unnoticed 

access to the private lives of 

other people or even heads of 

states is very easy. 

also for modes of clipping the possibilities of information 

accumulators. Though probably, we all realise that such 

regulation will not protect us against today’s technologies. 

Besides, in a piquant episode, the British Daily Mail of 

1st November published a small notice about spying bugs 

found in Saint Petersburg in Chinese kettles and irons. 

The information was published soon after an investigation 

was launched in the European Union on the suspicion of 

Russia hiding bugs in presents given to the participants of 

the G-20 summit. 

Since E. Snowden was eventually provided shelter by 

Moscow, it is obvious who has the strongest interest in this 

entire story, so that the leaders of Western Europe could 

learn new details about the activities of their “comrades” 

and the USA. One should not rule out the possibility that 

E. Snowden himself disclosed the secret data following 

noble intentions and without knowing that if he was in 

any trouble, shelter for him would be provided in Russia. 

But he is fighting for a world without secrets from a country 

which has been terrorising its neighbours with methods 

that have nothing to do with democracy, free choice 

and human rights. 

Maybe this could be the reason for E. Snowden’s published 

information to have become the cause of serious 

talks but not a major crisis in the relations between the EU 

and US. Everyone has a perfect understanding that if an 

equivalent of E. Snowden emerged in the Russian special 

services and started disclosing their actions in respect to 

other countries and their leaders, the result would be no 

less breathtaking. 

The tension between the EU and US was also mitigated 

after it was discovered that the conversations of German 

Chancellor Angela Merkel were not only listened to by the 

US agency, but also by the special services of at least four 

other countries. It is obvious that it was not nice of America 

to spy on its allies, but if talking about a vital problem, 

someone should take care of the security of Ms. Merkel’s 

phone. 


TOPIC 

INVESTING IN BELARUS: PROS AND CONS 

Investing in Belarus: Pros and Cons 

Belarus is an authoritarian state, and member of the Customs Union. But it doesn't mean 

that Belarus is not interested in foreign investment from the West and that Western business 

is not interested in the Belarusian market. The following article wants to help Western businessmen 

to understand the specifics of doing business in Belarus in order not to suffer in its 

complicated investment environment. 

by Maksimas Saveljevas 

Map of foreign investments 

in Belarus and China 

The origin of foreign investments in Belarus 

has remained quite the same. The 

largest amounts of foreign direct investments traditionally 

come from Russia and EU countries. It is noteworthy 

that since 2007 the Russian Federation, the United Kingdom 

and Cyprus have been among the top five countries 

investing in Belarus. Statistical data show an increase in 

European investments in Belarus against a backdrop of 

deteriorating Belarus-EU political relations. 

The situation with foreign investments from China remains 

unclear. Belarusian-Chinese economic cooperation 

receives special attention in the Belarusian media. However, 

actual Chinese investments in Belarus are still quite 

modest. The most significant contributions come to Belarus 

from China as earmarked loans from Chinese banks 

aimed at carrying out projects involving the use of Chinese 

goods and workers. Two-way trade between Belarus 

and China has been showing impressive results during the 

past decade, but looking from a regional perspective the 

figures don’t appear to be extraordinary. 

The Chinese and Belarusian authorities have announced 

quite ambitious plans for the future. In 2011, 

China and Belarus signed an agreement on developing 

an industrial area in the suburbs of Minsk (the Sino- 

Belarus Industrial Park). Xinhua News Agency reported 

that there was a Chinese investment of USD 5 billion in 

the project. In July 2013, China and Belarus established 

a partnership by signing a large number of cooperation 

agreements, including the offer of loans by the Export 

and Import Bank of China for the first Belarusian nuclear 

power plant. According to the statement made by the Belarusian 

Government on 11 July 2013, for the purposes of 

the nuclear power plant, from 2013 to 2018 Belarus will 

take a soft loan of USD 323.8 million from the Export and 

Import Bank of China for a 15-year period. 

While Belarusian officials are very enthusiastic about 

the prospective inflow of investments from China, a number 

of experts remain rather sceptical. The Belarusian 

Institute for Strategic Studies believes that the Belarusian 

authorities want, somewhat naively, to turn their country 

into China’s stronghold in Europe. However, the goal will 

not be easy to achieve as Belarus has strained relations 

with the West. Experts from the above institute emphasize 

that while Belarus is borrowing, China is making money. 

Some experts believe that Belarus overrates the potential 

of economic benefits of cooperation with China, stressing 

that large-scale project financing schemes impose certain 

limitations on Belarusian enterprises and pose risks related 

to external borrowing. 

A joint venture with Belarusian partners: a good 

business model or a future failure? 

One option that many foreign investors consider when 

looking for ways to invest in Belarus is establishing a joint 

venture with reliable Belarusian partners, bearing in mind 

certain difficulties they may face due to lack of knowledge 

of certain aspects of the local market. 

Belarusians are quite positive about establishing joint 

ventures with foreigners. However, as there is always a 

question of reliability of local partners, foreign investors 

need to be careful about the process of selecting such partners. 

A proper operational due diligence review, based on 

information obtained from reliable third sources of information 

or by investors themselves, is always strongly 

recommended. The financial viability of local partners 

should also be checked in advance, though this is a pretty 

difficult exercise on the Belarusian market due to a lack of 

well-recognized reputable credit agencies on the market. 

When making a business plan for a Belarusian joint venture, 

foreign investors are quite often advised to produce a 

number of alternative business plans and solutions in case 

the initial business plan does not work. It is always good 

to think about any exit strategy as early as the stage of en- 

Sowing Success 

Vakaru medienos grupe SBA 

On 28 February 2011, UAB 

Vakaru medienos grupe 

(VMG) and the Republic of 

Belarus signed an investment 

agreement on the implementation 

of the investment 

project “Establishment 

of a vertically integrated 

wood processing complex 

in Mogilev region in the 

territory of Mogilev Free 

Economic Zone”. The foreign 

limited liability company 

VMG Industry, founded and 

registered as a resident of the 

Mogilev Free Economic Zone 

in June 2009, was selected 

for implementing the investment 

project. The investment 

project involved investments 

in fixed assets totalling EUR 

58.264 million, attracted 

EUR 64.3 million worth of 

Lithuanian investments to 

Belarus and resulted in the 

creation of at least 870 new 

jobs. The investment project 

was financed by the European 

Bank for Reconstruction and 

Development and a few German 

banks. 

Also on 28 February 2011, the 

foreign limited liability company 

Mebelain (an SBA group 

company) and the Republic 

of Belarus entered into an 

agreement on implementing 

the investment project “Construction 

of a furniture manufacturing 

facility in Mogilev 

Free Economic Zone”. 

Mebelain was registered as 

a Mogilev FEZ resident back 

in April 2010. The business 

plan of Mebelain’s investment 

project provided for investments 

in the amount of EUR 

15 million (including EUR 8.2 

million investments in fixed 

assets), setting up to 270 new 

jobs and the export of 100% 

of the goods it produced. 

At the beginning of July 2013, 

Vakaru Medienos Grupe and 

SBA successfully opened 

an industrial complex worth 

more than LTL 325 million in 

the Mogilev FEZ. The joint 

project is going to be one 

of the largest foreign direct 

investments in Belarus by 

Lithuanian investors. 

VMG Industry representatives 

emphasize that the easy access 

to raw materials (timber) 

and their good relationship 

with the local authorities 

in Mogilev were important 

factors that determined their 

investment decision. Initially 

there was great uncertainty 

as to whether Belarus would 

let a furniture manufacturer 

into the country, but the plans 

for exporting considerably 

facilitated the negotiation 

process. A joint venture of 

furniture manufacturers enables 

efficient communication 

with suppliers and reduces 

logistics costs. According 

to the representatives of 

SBA group, the purpose of 

the factory in Belarus is to 

consolidate SBA’s position in 

Eastern markets, where they 

see a strong potential for 

development and growth in 

consumer purchasing power. 

At the same time, as a part of 

the Customs Union, Belarus 

provides better opportunities 

for Mebelain to sell its products 

in CIS countries with its 

considerable resources of raw 

materials and an old furniture 

manufacturing tradition. 


TOPIC 

INVESTING IN BELARUS: PROS AND CONS 

ALEKSANDR LUKASHENKO SEEKS TO GET FROM 

CHINA AS MUCH INVESTMENT AND CREDITS AS HE CAN. 

tering the Belarusian market – this can pay off if things 

really go wrong. 

Unfortunately, shareholders’ agreements are a grey 

area in Belarus, since there is no relevant regulation at 

the moment (though such a regulation is in the plans of 

the government). Therefore, a foreign investor who enters 

into a shareholders’ agreement with a Belarusian partner 

within the framework of a Belarusian joint venture the 

way he is used to do in other jurisdictions has to be aware 

that in the event of a dispute, such an agreement may be 

declared void or voidable by a Belarusian court or arbitral 

tribunal and eventually become unenforceable. 

Nevertheless, foreigners could consider establishing 

an overseas holding company and regulating the relationship 

with Belarusian partners by means of a shareholders’ 

agreement of the holding company governed by foreign 

substantive laws and providing for settlement of disputes 

outside of Belarus. However, there is always uncertainty 

if any foreign judgement or arbitral award in any dispute 

arising out of the shareholders’ agreement will be recognized 

and enforced in Belarus. Often foreign investors are 

advised to check in advance whether Belarusian partners 

have any sufficiently liquid foreign assets in case of any 

overseas holding company setup. 

As a limited liability company (общество с 

ограниченной ответственностью (ООО) in Russian), 

the most popular business setup option in Belarus, may be 

established by at least two founders, those foreign investors 

who prefer a limited liability company over a singlemember 

unitary enterprise (a унитарное предприятие 

in Russian; applicable to situations when there is only one 

founder) attract a Belarusian partner as a co-founder, assuming 

there are no ready-made solutions for creating а 

company with exclusively foreign investors as founders. In 

a number of instances, to avoid a joint venture setup with 

involvement of Belarusian partners, foreign investors go for 

an option of two foreign founders employing two related 

foreign companies as founders and members, or for an option 

of allocating a pretty marginal number of shares to an 

expatriate CEO of the limited liability company established. 

There are also optimal solutions available on the market for 

legally correct and economically viable disposal of a singlemember 

unitary enterprise or the second partner’s joining 

the business after a while. 

It is also in line with the existing practice that any foreign 

investor, who is contributing a major investment, 

retains the controlling stake enabling him to have a qualified 

majority at corporate level. However, this is not a uniform 

recipe, since Belarus has witnessed disputes among 

foreign and local shareholders, when the locals with a 

minority stake were effectively blocking the majority’s decisions 

or otherwise opposing the majority. Long-lasting 

disputes between shareholders brought to the court have 

also taken place in Belarus. That is why it becomes extremely 

important to have the Articles of Association of a 

newly established company properly worded and agreed 

to among the shareholders, so that the interests of majority 

and minority shareholders are properly reflected in 

order to avoid any disputes or mitigate their effects from 

the outset. 

The impact of the membership of Belarus in the 

Customs Union (CU) and the impact of Russia’s 

membership in the World Trade Organization 

(WTO) on economics and the investment environment 

in Belarus 

One of the most important changes associated with the 

CU is that agreements signed within the framework and 

decisions made by the supranational institutions of the 

CU (the Commission of the CU, and, since 2012, the Eurasian 

Economic Commission / EEC), which change trade 

flows in terms of magnitude and direction (for example, 

Belarus had to reduce tariffs for about 2,000 products, but 

had to increase them for 700 products), are binding on 

all members of the CU. Most of the EEC’s decisions are 

adopted unanimously, but the role of Russia seems to be 

dominant, which strengthens the risk of dependence of 

Belarus on Russia. At the same time, exports of Belarus 

to Russia and Kazakhstan are now seeing steady growth. 

Investors with presence in the various CU countries generally 

quite positively perceive the CU as a transnational 

structure eliminating or reducing trade barriers. However, 

they still have some concerns regarding its impact on the 

investment environment (for example, it seems that free economic 

zones in Belarus or any major tax incentives granted 

in such zones might be abolished as a result of the CU). 

By joining the WTO, Russia bound itself to reduce tariffs, 

which automatically means a cut in import tariffs in 

Belarus due to its participation in the CU. Different industries 

in Belarus are and will be affected, in particular those 

that produce import competing products (for instance, 

pharmaceutical products, TV sets, refrigerators, truck 

tractors and trucks, etc.). At the same time, even if Belarus 

is able to maintain its current levels of state support for agriculture, 

Russia can force Belarus to ‘deliberately’ reduce 

its exports of some goods to Russia, if Russian producers 

complain of unfair competition due to the high levels of 

subsidization of Belarusian agriculture. Some economists 

believe that this is likely to happen in the coming years. 

Privatization in Belarus 

Eight small and medium-sized State Owned Enterprises 

(SOEs) representing different industrial sectors have 

been selected for the first pilot privatization and assigned 

to the Belarusian National Investment and Privatization 

Pure inflow of Foreign Direct Investments from 

the EU and EFTA, thousand USD, per half year 

700 000 

600 000 

500 000 

400 000 

300 000 

200 000 

100 000 

0 

49 655 

78 566 

36 754 37 840 

684 994 

466 138 

52 340 

1 / 2009 2 / 2009 1/ 2010 2 / 2010 1 / 2011 2 / 2011 1 / 2012 

The Sting of Failure 

The Case of Vingės terminalas 

and Alvora in Belarus 

In April 2013, the Belarusian 

company Belintertrans 

and UAB Vingės terminalas 

agreed on the commencement 

of the construction of a 

transport and logistics centre 

in the Volozhin Region, Minsk 

Oblast, with plans to spend 

an estimated USD 25 million. 

UAB Alvora, a major Lithuanian 

construction company 

with extensive experience of 

building logistics terminals, 

was to build the facility. The 

future transport and logistics 

centre was intended to service 

commodity traffic from 

CIS countries and Europe and 

to have offices, modern terminals 

for storage and customs 

clearance of cargoes. UAB 

Vingės terminalas announced 

that it was going to invest 

LTL 62 million in the logistics 

centre together with its 

partners. The terminal would 

become one of the ten largest 

logistics facilities in Belarus 

and at the beginning of its 

operations was described as 

a model project for foreign 

investors. 

The first construction stage 

was finished, but the second 

was not even started because 

a disagreement between the 

partners resulted in a big 

investment dispute heard before 

the Supreme Commercial 

Court of Belarus. The shareholders 

of the logistics centre 

operator Belvingeslogistik – 

UAB Vingės terminalas, UAB 

Alvora and Belintertrans, accused 

the counterparties of an 

attempt to push the partners 

out of the joint venture and 

take over the management of 

the logistics centre. 

The Supreme Commercial 

Court of Belarus called for an 

amicable settlement between 

the parties, and it was announced 

at the beginning of 

March 2013 that Vingės terminalas 

had reached a verbal 

agreement with Belintertrans. 

At the same time the CEO 

of Vingės Terminalas stated 

that they would refrain from 

commenting any details until 

there is a document setting 

out how the agreement will 

actually be implemented. 

Foreign investments to Belarus in 2012 

0.9% United States 

1.2% Lithuania 

1.3% Germany 

2.4% Ukraine 

2.8% Netherlands 

4.0% Austria 

6.4% Cyprus 

25.2% Great Britain 

46.7% Russia 

9.1% other 

Source: belarusdigest.com 


TOPIC 

Agency. On 22 December 2010, the Belarusian Ministry 

of Economics and the International Bank for Reconstruction 

and Development (World Bank group) signed a Grant 

Agreement, pursuant to which the Ministry of Finance of 

Austria established a Trust Fund in the amount of USD 

3.6 million for a five-year period to support the Belarusian 

privatization programme implemented by the Agency. 

The project is implemented under the supervision of 

the World Bank. The aim of the privatization programme 

is to implement a small scale case-by-case privatization 

programme in accordance with international practices. 

A case-by-case privatization process is aimed at: (I) attracting 

the best strategic investors of either domestic or 

foreign origin able to ensure further development of the 

company; (II) generating revenues to the state budget as 

a result of successful sales; (III) minimizing the potential 

negative social impact of these transactions. 

Overall, the progress of pilot privatization is quite slow. 

It is not fully clear whether the privatization process is going 

to be completed in the case of at least one of the abovementioned 

eight companies in the nearest future. As the 

process is supervised by the World Bank and financed by 

the government of Austria, it is generally perceived as fairly 

transparent. In fact, privatization processes in Belarus have 

only started. A number of privatization deals were completed 

in the past; however, these were very specific cases 

targeted at either Russian investors or local investors. 

Investors interested in the privatization of particular 

companies could obtain individual investor guarantees 

and incentives by entering into specific investment agreements. 

Legal experts usually advise to seek a 100% stake 

in the targets in privatization to avoid any kind of pressure 

(whether actual or implied) from the minority represented 

by the state. Also, it should come as no surprise for 

investors that any kind of additional social or loss-bearing 

entities are sold together with the targets in privatization. 

Furthermore, foreign investors should be aware of the intentions 

of Belarusian authorities to introduce the ‘golden 

share’ rules that would enable Belarusian authorities to intervene, 

under certain circumstances, in the management 

of the privatized companies. However, it is worth mentioning 

that scandalous stories of nationalization or deprivatization 

(when the results of privatization were revised) 

are quite rare in Belarus and have happened when 

strategic industry enterprises are involved. 

AUTHOR 

Maksimas Saveljevas 

Attorney-at-law, Partner in Minsk, Representative of 

Raidla Lejins & Norcous Vilnius office in Minsk 

Some key legal risks and 

practical tips for foreign investors 

Below is a summary of some key legal risks and practical 

tips when considering Belarus for investment. 

Legal risks 

• Lack of regulation of the 

shareholders’ agreement, 

which may be void or 

voidable. 

• A large number of official 

bodies performing 

controlling functions. 

• Insufficient attention 

to the peculiarities of 

local legislation (currency 

regulations, taxation, 

book-keeping and 

corporate legislation, in 

particular) may lead to 

severe implications. 

Practical tips 

• Foreign investors thinking 

of investing in largescale 

projects may seek 

to conclude individual 

investment agreements 

providing for substantial 

tax and non-tax benefits 

and operational guarantees. 

• In case of a significant 

investment project, be 

ready to invest additionally 

into local social 

projects supported by the 

state. 

• When considering 

privatization, always 

target a 100% stake, and 

do not leave any minority 

stake to the state or local 

authorities. 

• A lot of legislative 

changes, some of which 

are made retroactively (e.g. 

restrictions on circulation 

of shares were adopted 

with retroactive effect). 

• The case law sometimes 

differs from legislation. 

• Enforcement of judgements 

and arbitral awards 

can be time-consuming; 

bailiffs should be properly 

supervised by the creditor 

to avoid a ‘no asset to 

exact’ situation. 

• Preferably choose foreign 

arbitration as a forum 

for any contractual 

disputes with the state 

or local authorities. 

• When you consider 

investing in Belarus, 

explore various investment 

scenarios in the 

case something goes 

wrong with your main 

investment plan. 

• Have an exit strategy 

from the outset. 

• A thorough tax and 

legal analysis and 

planning of prospective 

business operations in 

Belarus is highly recommended. 

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SPECIAL PROJECT 

Vilnius Esteemed 

by Investors, 

Open to Investors 

EUR 76 billion is the total annual turnover of the companies 

investing in Vilnius. That's seven times Lithuania's yearly national budget. 

“In 2013 alone, projects totalling nearly 0.4 billion 

Euro have been launched, 10,000 jobs have been created, 

and 200,000 sq.m. of space have been built for business, 

science and public needs in Vilnius. It is a great 

achievement for Vilnius, the government and their 

subordinate agencies to have created business-friendly 

conditions for investors and to have secured huge benefits 

for the city and the national budget”, said Vilnius 

City Mayor Artūras Zuokas. 


Dozens of companies have already 

recognized the investment potential 

of Vilnius, its favourable investment 

environment and the payback of 

investments in the capital of Lithuania. 

STRONG AND WELL-KNOWN COMPANIES 

HAVE LAUNCHED THEIR ACTIVITIES IN 

VILNIUS. 

Large companies and foundations with extremely 

rapid growth are investing in retail trade, finance 

and the real estate sector, including the development 

of innovations and technologies in Vilnius. 

There are an ever-increasing number of newly-established 

centres for joint services and services for third countries. 

Last year, GRG Banking Equipment Europe, a Chinese 

company manufacturing and servicing ATMs and AFCs, 

settled in Vilnius. In the same year, a financial and accounting 

centre of the Finish building materials manufacturer 

Paroc OY started operations, while the Danish engineering 

design company Cowi has founded information 

technology and design services centres. 

Dozens of companies (including Western Union, 

Barclays, etc.) have already recognized the investment 

potential of Vilnius, its favourable investment environment 

and the payback of investments in the capital of 

Lithuania. 

At present, major investments are concentrated in the 

city centre, in particular on the right bank of the river 

Neris, which has become the largest building site in the 

Baltic region and where there are still 500 hectares available 

for real estate developers. The second priority is the 

conversion of industrial territories by adapting them to 

modern needs. 

Vilnius is friendly for business start-ups and purple 

companies – those that are oriented to research and development 

and are developing science and business collaboration. 

A detailed plan of the Visoriai scientific cluster was 

approved back in 2002. By approving the latter plan, the 

Vilnius Council opened the door to the long-term strategy 

of scientific innovation zone development. Dozens of 

companies, including three world-famous companies of 

Lithuanian origin, the BOD Group, Biotechpharma and 

Viltechmeda (MOOG), have already invested over 29 mil- 




Investors not only choose Vilnius because of 

its well-developed infrastructure, logistics 

and relatively low office lease prices, they also 

consider its educated labour force and rich 

cultural life as highly important factors. 

HALF THE GLOBAL GDP IS CREATED IN THE 

600 LARGEST CITIES, SO THE FUTURE BE- 

LONGS TO THE CITIES”, SAID MR. ZUOKAS. 

Entrepreneurs are also invited to take part in public 

projects to be implemented with financial support from 

the European Union. In preparation for the EU support 

period of 2014-2020, the terms and conditions of a tender 

for the construction of a swimming pool with 25 m lanes 

are already being drafted, where the total investment value 

is 5.8 million Euro. The value of the construction of 

Lazdynai Swimming Pool with 50 m long lanes is 14 million 

Euro. The project of the National Palace on Tauras 

Hill (investment total, 72 million Euro) is being planned. 

By the end of the year, the winer will be known of a 

tender, to undertake an obligation to renovate Vilnius' 

street lighting networks over four years, which will cut 

energy consumption by 50%. The tender has already received 

applications from five international companies. 

Vilnius is also a direct bridge for investing in the Russian, 

Belarusian and Ukrainian markets. International 

freight routes interconnecting the European Union and 

Eastern European countries stretch through Vilnius, 

which creates the prerequisites for the development of logistics 

centres. 

Vilnius creates 40% of Lithuanian GDP 

According to the data of Euromonitor International, 

the gross domestic product (GDP) of Lithuania, after a 

rapid drop in 2009 brought about by the recession, managed 

to reach the pre-recession level in 2012 and has continued 

growing at a consistent pace. Four percent growth 

in GDP has been forecast for 2013. 

Vilnius creates approximately 40% of the national 

GDP. This share will not decrease in the future and may 

slightly increase in the near future to 41%-41.8%. Vilnius 

is the engine of the country’s economy. 

The average salary is consistently growing in Vilnius. In 

2012, the average salary increased by 2.8% during the year 

and amounted to 672 Euro. In 2013, the average salary in 

Lithuania should grow by 4.5% to reach 640 Euro, while in 

Vilnius this figure will be over 753 Euro. 

Vilnius City Municipality is the first municipality in 

Lithuania to require the tenderers to ensure the average 

salary when organising public tenders. Since this procedure 

came into effect, 343 public procurement contracts 

have been signed in Vilnius over the last two years for a 

total value of 43 million Euro, incl. VAT. 

Vilnius, as in all of Lithuania, is experiencing a decrease 

in unemployment, but the rates of employment in Vilnius 

are better than the rest of the country. First of all this is 

because of the size of Vilnius. In large cities, where foreign 

investments are concentrated and which have become the 

economic engines of the country, the issue of unemployment 

should become irrelevant in the near future. 

Leader in direct investments 

In 2012, FDI Magazine evaluated Vilnius as one of the 

lion Euro in the park’s development. Next year the investments 

should climb to 43 million Euro, with another 500 

new jobs created. 

“A new building at the Visoriai Information Technologies 

Park (VITP) was opened this year, and 22 companies 

have already opened their offices inside it with about 

500 highly-qualified employees now working there. It is a 

Vilnius-based Silicon Valley and it proves once again the 

importance of long-term strategy and the forecast of steps 

in advance”, emphasised Mr. Zuokas. 

New projects are waiting for investors 

The city is waiting for investors for at least a dozen 

large projects with a total investment amount of 5 million 

to 1.5 billion Euro. 

One of the largest projects is Architecture Park. This 

territory of 75 ha is a real park of possibilities for investors, 

because private business is determined to turn this 

territory of former factories into a contemporary residential 

district with shopping and leisure centres, streets and 

public buildings. 

Vilnius creates about 40% of 

Lithuania's total GDP, LTL, million. (1 EUR = 3,45 LTL) 

140 000 

120 000 

100 000 

80 000 

60 000 

40 000 

20 000 

0 

43 097 

35 286 36 461 41 920 45 341 48 325 

2008 2009 2010 2011 2012 2013 

Vilnius 

Lithuania 

Unemployment Rate in Vilnius, Percent 

Unemployment rate in Vilnius 

18 

16,3 

15.4 

14.4 

Unemployment rate in Lithuania 

13.4 

12.7 

2010 2011 2012 2013* 




In 2012, FDI Magazine Evaluated Vilnius as 

one of the Regions with the Largest Growth of 

Foreign Direct Investments in the World, LTL, billion 

40 

35 

30 

25 

20 

15 

10 

5 

0 

20.96 22.85 

24.65 

2010 2011 2012 

Despite its urbanisation 

processes, Vilnius has held the 

title as the greenest capital city 

in Eastern Europe for several 

years now. 

Vilnius 

Lithuania 

regions that experienced the largest growth in foreign direct 

investments in the world. Having increased the level 

of investments by 100%, the Lithuania capital was fourth 

in the global rating, after Seoul (South Korea), Michigan 

(USA) and Central Thailand. 

Foreign direct investments in the Lithuanian economy 

are consistently growing. According to Eurostat data, in 

2010, FDI amounted to 10 billion Euro, in 2011 11 billion 

Euro and in 2012 12 billion Euro. 

Vilnius has been receiving 60% of the total FDI in Lithuania 

for a number of years. Foreign direct investments 

in Vilnius amounted to 6 billion Euro in 2010, while in 

2011, this figure jumped up to 6.6 billion Euro, or almost 

1.5 times more than the total foreign direct investments in 

Lithuania in 2005. 

“All facts show that the 21st century is the century of 

cities, so we will apply all possible measures to make Vilnius 

the best city to live and invest in. Many rates demonstrate 

the success of these efforts: last year, we came 

in fourth in the world by growth of foreign investments. 

Lithuania is still among the European Union member 

states with the most favourable environments for business 

and holds ninte place”, said the Vilnius city mayor. 

Among the most business-friendly EU member states, 

Lithuania has outpaced Belgium, France, Portugal, the 

Netherlands, Austria and others. 

The Doing Business ranking of 185 countries in 2013 

drawn up by the World Bank ranked Lithuania as 27th in 

the attractiveness of its business conditions. By comparison, 

Russia is 92nd in this ranking. 

“But investors not only choose Vilnius because of its 

well-developed infrastructure, logistics and relatively low 

office lease prices, they also consider its educated labour 

force and rich cultural life as highly important factors. 

Užupis Incubator of Arts, St. Christopher’s Festival, Vilnius 

Jazz Festival, St. Kaziukas’ Fair – these are just a few 

of the many cultural events and celebrations attracting investors 

and visitors to Vilnius”, the mayor said 

The future belongs to cities 

European Union support during 2014-2020 will be 

more oriented to urbanised areas, which is another signal 

to those planning their investments in cities. For the first 

time since the European Union’s support was allocated, 5% 

of the total support will be assigned to large cities. 

“The 19th century was the age of empires, while the 

20th century was the age of states.The 21st century belongs 

to the cities. In 2050, 70% of the world’s population 

will reside in cities. Half of the global GDP is created in 

the 600 largest cities, so the future belongs to cities”, said 

Mr. Zuokas. 

Despite its urbanisation processes, Vilnius has held the 

title as the greenest capital city in Eastern Europe for several 

years now. Research conducted by the Economist Intelligence 

Unit together with Siemens showed that Vilnius 

has the best air quality in Europe (the city collected a 9.37 

score out of 10), while the water in Vilnius is the purest in 

Europe as it comes from deep wells. 

Through optimisation of the heating companies’ operation, 

renovation of pipelines and increase in the proportion 

of biofuels used, Vilnius has succeeded in gradually 

reducing the price of heating. Heating prices in Vilnius 

have decreased by nearly 12% in the last few years (24.73 

ct/kWh), and a project has been launched in the city which 

will help to cut the price by another quarter. In 2016, a 

second power plant in Lithuania generating energy from 

waste is planned to be put into operation in Vilnius, which 

will recycle 170,000 tons of waste per year, while waste 

will partly replace the expensive natural gas currently being 

used in the heating sector. Once the energy from the 

waste power plant starts to be generated, the heating tariff 

in the city could drop by 10%, while on completion of 

the conversion of the TE-3 heating power plant to biofuel 

it could further decrease by one fourth. Upon the implementation 

of these projects, CO2 emissions will decrease 

by 90,000 tons per year and poisonous and smog-causing 

emissions will be reduced by as many as 1000 times. 

The policy of Vilnius is openness 

Vilnius City Municipality holds the clear position 

that a businessman willing to invest must be free of any 

bureaucratic obstacles, while adopted decisions must be 

clear and transparent. 

Therefore, by creating favourable conditions for business, 

the municipality is continuously improving the administrative 

process to ensure the maximum efficiency of 

detailed plan preparation, building permits, connection 

to networks and the possibility to establish companies 

online. 

The number of detailed plans approved during the last 

three years increased from 200 in 2010 to 550 in 2013. The 

average speed of the process of approval of each detailed 

plan nearly doubled in three years. The process of building 

permit approvals accelerated at a similar pace. 

For example, a detailed plan for the IKEA shop construction 

was prepared within six months. No other city 

in Lithuania or a neighbouring country could offer the 

same term. The words of Sigurdur Palmason, Head of Felit, 

UAB, the company administering the IKEA store that 

opened this August in Vilnius, further confirm it: “The 

local government has proved its ability to offer all possible 

assistance to foreign investors implementing large-scale 

projects. We have chosen Vilnius as the leading city in the 

region, which is easily accessible by millions of people living 

nearby”. 

According to the mayor of the capital, it is very important 

to ensure that a businessman who comes to Vilnius 

can not only work here but also have an opportunity to 

lead a quality life. 

According to the Net Index data of 2013, Vilnius has 

had the fastest internet not only in Europe but in the entire 

world for several years in a row. 

The New York Times in its article “How Innovative Cities 

Are Thinking, How They Work” named Vilnius one of 

the world’s Top Ten best managed cities, alongside Berlin, 

Barcelona, Cape Town, Copenhagen, Montreal, Santiago 

and Shanghai. 

The city is not only favourable for Lithuanian but also 

foreign children. The developed network of schools guarantees 

the presence of a school in near proximity to every 

residence. The children of businessmen children who 

have come to Lithuania are provided with the possibility 

of a quality education without fearing to have to start everything 

anew when coming to a foreign country. In Vilnius, 

as in many Western European capitals, education in 

English, Russian and other languages is available. 

Prepared by the Baltic Economy editorial office in 

cooperation with Vilnius City Municipality 


The Most Solid and 

Most Influential, 

Lithuania Business Magazine 

With the Biggest 

Amount of Subscribers 

Advertising 

almantas@balticeconomy.eu; + 370 5 2 619662 

www.valstybe.eu



According to Putin plan, 

Kaliningrad had to become 

a gambling paradise, looking 

like fabulous Las Vegas. 

The Mutating Vision of Kaliningrad: 

From Casinos to Iskander 

Putin can’t make a decision on whether Kaliningrad region should be an economically vibrant 

and open country, or just one huge military base, which is the desire of supporters for a great 

Russian power. 


The Russian exclave of Kaliningrad is an important 

part of the Baltic region that has substantial 

economic potential. In 2013, the Russian edition 

of Forbes singled out Kaliningrad as the best 

place for business in a list of Russian cities. The region’s 

inhabitants and government want to use their economic 

opportunities and have more cooperation with their European 

neighbours, however the problem is that Kaliningrad 

(as almost all regions in Russia) is a political hostage 

of Russia. What exacerbates the problem even more is that 

the Kremlin doesn’t know itself what it wants to make of 

its exclave, whether it should be a successfully developing 

special economic zone, an area full of giant casinos, a regional 

centre for nuclear energy, a region that is a testing 

grounds for relations with Europe, or a military outpost 

that could be a threat to NATO and the European Union. 

The experiments Moscow has carried out on the Kaliningrad 

region is essentially a reflection of the unclear vision 

it has for Russia as a whole: Putin can’t make a decision 

whether it should be an economically vibrant and open 

country, or just one huge military base, which is the desire 

of supporters for a great Russian power. Kaliningrad 

is simply an unfortunate testing ground in all of this. 

Economic Successes and Hardships 

In 1996, the Kaliningrad region was declared a Special 

Economic Zone. In 2006, the law was changed with a new 

one that is in effect until 2016. According to this legal act, 

a resident of the SEZ does not pay any income or property 

tax for the first six years, and for the next six years 

after this period pays only half of these taxes, depending 

on what their amount is in Russia. According to statistics 

from the Kaliningrad region’s government, 11,000 new 

jobs were created and investments were made in the range 

of 40.5 billion rubles. Until 2008, the economic development 

of the Kaliningrad region was quite successful – this 

is shown by the constantly rising direct foreign investment 

in the region’s economy (2005-2009 it amounted to 

$943 million, while in the future it should be further encouraged 

by Russian’s membership in the WTO, though 

its long-term effect on Kaliningrad’s economic development 

is unclear). 

All of this confirms that Kaliningrad truly does have 

great economic potential, and that the 2008 slump 

should be looked at only as a temporary phenomenon 

(the gross regional domestic product grew 7.3 % in 2011, 

and another 3.6 % in 2012). However not all that glitters 

is gold: for example, a total of 164 companies went 

bankrupt in 2009, which is 12.3 % more than in 2008, 

with one of the more resonant cases of bankruptcy being 

the liquidation of regional airline KD Avia. In order 

for the growth of the Kaliningrad region to stabilize and 

gain speed, its government has to work at it. This task, as 

experts say, is complicated by the new conditions (both 

before and after the crisis) of a clear economic strategy 

and lack of independence in the sphere of Moscow’s economic 

policy, not to mention the weakness of the transport 

ties with Russia proper. As Stanislav Voskresensky, 

who is Deputy Presidential Plenipotentiary Envoy to the 

Russian Northwestern Federal District, said in speaking 

about the Kaliningrad region, “according to unused 

potential, this territory perhaps occupies first place in 

the country. Europe is nearby, there’s access to the sea, 

the exclave’s location (there’s minuses, but also pluses). 

There is a regime of a special economic zone for business. 

At the same time local companies are living in conditions 

of fierce competition from the Baltic countries 

and Poland. Today the food products and health as well 

as educational services are cheaper and of higher quality 




Plans have changed. 

Today in Kaliningrad 

more popular 

are military “games”. 

there. And that is being with a transport system that is 

separated from Russia. This is why economic development 

must be supported by the creation of a better environment 

for business, investments and the creation of 

the quality appearance of new jobs so that the conditions 

foreseen for the special zone would start operating at full 

capacity.” At the same time, Voskresensky emphasized 

that “Kaliningrad is unique, and policy should be unique 

in its case, I am certain of that.” 

Casinos, a Nuclear Power Plant and 

Corvettes for the Baltic Fleet 

The economic expression of such a unique view was 

the decision of the Russian government to award Kaliningrad 

the status of a special gambling zone. However as 

Valery Ivanov, who is the council chairman of the Russian 

Association for Gaming Business Development, stated in 

2010, “up to this point there has been no shift in the Kaliningrad 

region. Serious – huge – investments are needed 

there. Which means long money. Investors are not ready 

and it’s doubtful whether they will decide to invest.” Experts 

from companies like Dress & Sommer, MCB and 

BRT believe that the American format of project implementation, 

which calls for building on a large plot of land 

“out in the open air”, as they are currently planning to do 

in the Kaliningrad region, is highly unlikely. According to 

them, in the case of Kaliningrad they need to discuss the 

possibility of a “European” option, where the casinos work 

on the basis of an existing tourist infrastructure (first of 

all in luxurious hotels). However, that is only in theory. 

In reality, the Kaliningrad region’s government was still 

looking for a plot of land for their gambling haven in 2013 

(the auctions that were organized did not provide any results), 

while in 2016-2018 they planned to invest 14 billion 

rubles into this idea according to a specific federal 

programme. 

An example of the politically unique view toward 

Kaliningrad is embodied in the idea from Moscow that 

was born at the beginning of this century of the area as a 

testing region for relations with Europe. Putin developed 

the idea of having closer ties with the European Union, 

hoping for greater help from the EU in modernizing the 

region, which is why he attempted to build “bridges of 

friendship.” However, the Kremlin was soon afraid of its 

own plans, as the inhabitants of the Kaliningrad area met 

this news with great enthusiasm and began to actively 

europeanize in both a social and economic sense. And 

though there were no clear traits that Kaliningrad smelled 

of separatism, Moscow decided not to risk anything. In 

this way, the pilot project finished without even being able 

to get off the ground. For example, today the Russian government 

is looking for a free visa regime with the entire 

European Union all once, instead of starting with the Kaliningrad 

area, which is harder to achieve, thus Vladimir 

Putin is more at ease. 

Let’s go back to its strategic view toward Kaliningrad. 

One can say that after the rather unsuccessful experiments 

with the SEZ zone along with the gambling zone, the head 

of the Kremlin decided to take up what is dearest to him, 

energy. The concept of Russia as an energy superpower 

was born in his mind, which did not hope in friendly relations 

with its neighbours, but be able to demand it. At one 

point it seemed that Moscow wanted to turn Kaliningrad 

into a regional centre for nuclear energy. There were efforts 

to build a powerful Baltijskaja Nuclear Power Plant 

(with an overall strength of 2300 MW) in Kaliningrad, 

which would have produced too much electricity for the 

district itself. Most local and foreign experts were unanimous 

in saying that it was more of a geopolitical project 

than an economic one, the goal of which was to export 

Russian electricity to neighbouring countries that in this 

way solidify the influence of Russian energy (and along 

with it, its politics) in the Baltic region. In this context, 

there was a desire to lay an electricity bridge to Poland 

and through it to the Western Europe market (first and 

foremost that of Germany), and perhaps lay a direct electric 

cable to Germany and turn Lithuania into a junction 

for the distribution of electricity made in the Baltijskaja 

Nuclear Power Plant (the Visaginas Nuclear Power Plant 

that the Baltic countries planned in this case would, then 

be rendered moot). However Warsaw, Berlin, Vilnius and 

various international investors that were actively encouraged 

by Russia to take part in the building of the nuclear 

power plant viewed Moscow’s intentions rather sceptically, 

which forced Russia to look again at their initial plans. 

It is likely that there will be further attempts to implement 

the Baltic nuclear power plant project in 2014 (as Russia 

is able to financially support its own nuclear power industry 

with such projects). First of all efforts will be made 

to convince the neighbours of the Kaliningrad region of 

its pluses and necessity for the expansion of electricity 

connection (after all, the Baltijskaja Nuclear Power Plant 

needs back-up capacity and a market) to neighbouring 

countries. However, whether or not this power plant will 

be built first of all depends on how neighbouring countries 

and the EU will succeed in carrying out their energy 

strategy, the goal of which is the integration of the European 

energy market and the lessening of its dependence 

on Russia. 

In other words, Putin’s nuclear strategy in Kaliningrad 

essentially was unsuccessful, and now it seems that he decided 

to return to an old but trusted method – to turn 

Kaliningrad into a Russian military outpost that could be 

a threat to NATO and the EU, which gets the hearts of the 

brainwashed neo-imperialists longing for old Soviet times 

to beat ever faster and support their president. The argument 

is that it’s necessary to have an answer to the West’s 

plans to have an anti-missile defence system in the area. 

To show that this is not empty talk is proved by the facts 

that confirm that recently Moscow has strengthened the 

military might of its exclave: the Baltic Fleet has received 

modern war ships, strengthened their air force, while the 

region now has the S-400, one of the best anti-aircraft 

and anti-missile defence systems in the world, the range 

of which (up to 400 km) allows them to control a large 

part of the airspace of the Baltic region. It also possesses 

a powerful Voronezh radar system, the range of which is 

from 4000 km to 6000 km, plus there is still talk about 

the deployment of the mobile theatre ballistic missile system 

Iskander, which can be armed with nuclear warheads. 

What’s more, as was shown by the Zapad-2013 joint military 

exercises of Russia and Belarus, Kaliningrad together 

with Belarus hold a special place in Moscow’s defence (or 

perhaps attack) strategy in the Baltic. 

In short, one can say that the militarization of the Kaliningrad 

region as a priority option in its development is 

rather short-sighted, because the growth of its economic 

potential seems to have much better prospects, and more 

effective by implementing things like the Special Economic 

Zones. In the latter case, the Kaliningrad region 

could become not only attractive for Russian investment, 

but also foreign investment (especially from the countries 

of the Baltic region). But as a political hostage of an undecided 

Moscow in the broader sense, it can only hope for a 

more sober view by Putin in this Russian exclave that has 

great economic prospects. 




Prospects 

for 

Business 

Tourism 

in Vilnius 

Vilnius is doing a lot to become 

attractive for business 

tourists. Want to hold a good 

conference? Welcome to the 

capital of Lithuania, one of the 

best by price – quality ratio. 


been established in the United Kingdom, 

Spain, Poland, France, Russia, 

Sweden, Germany and Italy. A 

new website has also been launched, 

www.Lithuania.travel. Together with 

Latvia and Estonia, Lithuania is creating 

a joint tourism brand, a Three- 

In-One-Vacation, which will be designated 

for attracting tourists from 

North America, Japan and China. 

The potential 

of conference tourism 

Conference (or business) tourism 

has been recognised as an especially 

promising field. According to 

Mindaugas Rutkauskas, Director of 

the Vilnius International Exhibition 

Centre Litexpo, the mathematics 

here are quite simple – a tourist arriving 

for a conference spends approximately 

three times more money 

than an ordinary tourist in the host 

Lithuania for a third consecutive 

year has become an EU 

leader in the growth of inbound 

tourism. According 

to the data of the European Travel 

Commission, Lithuania was in second 

place on the Old Continent in 

2012 in the growth of its number of 

tourists (it reached 12.1 percent). In 

2011, the tourist flow grew by 19.5 

percent. In the first half of 2013, 

this growth, according to the Lithuanian 

State Department of Tourism, 

will reach 8-10 percent. In 2012, 

the country's income derived from 

domestic and inbound tourism 

amounted to 5.2 billion Litas, or 4.5 

percent of GDP, and compared to 

2011 had increased by 10 percent. 

According to the Lithuanian Department 

of Statistics, there were 

370,971 guests who stayed at accommodation 

establishments in Vilnius 

during the first half of 2013 (at hotels 

and guesthouses 335,564 guests, i.e. 

5.4 percent more than the same period 

in 2012). Compared to the same 

period in 2012, their number had increased 

by 6.9 percent. 

80.3 percent of all guests that 

stayed at hotels and guesthouses in 

Vilnius were foreigners, of which the 

majority was accounted for by Russians 

(16.2 percent), Belarusians (15.7 

percent), Poles (13 percent), Germans 

(8.8 percent) and guests from 

the United Kingdom (4.8 percent; 

and the number of Brits that arrived 

during the first half of 2013 was 23.3 

percent higher than the same period 

in 2012). Accordingly, hotel 

occupancy rates have improved. 

During the first half of 2013, the occupancy 

of rooms at hotels in Vilnius 

reached 57.1 percent (in comparison, 

it was 55.6 percent during the first 

half of 2012). 

Enhancement of attractiveness 

Consequently, the statistics are favourable 

for both Vilnius and the 

rest of Lithuania. Its tourism development 

was referred to as a success 

story at the British Tourism Association’s 

annual meeting, where Vilnius 

was voted as the second most attractive 

capital city for British tourists 

by price – quality ratio. Lithuania 

was also named as a country attractive 

for tourism and was included in 

the list of countries recommended 

to be visited this year by The New 

York Times and VirtualTourist.com. 

According to Raimonda Balnienė, 

Director of the State Department of 

Tourism, Lithuania will be represented 

this year at eleven international 

tourism exhibitions (in New York, 

Dublin, Utrecht, Berlin, Moscow, 

Kiev, Minsk, Frankfurt, Saint Petersburg, 

London and Barcelona). 

Likewise, the State Department of 

Tourism in conjunction with Lithuanian 

embassies is arranging events 

for business and the media with the 

aim of introducing Lithuanian tourism 

possibilities in various countries. 

Over the course of this, along with 

all seventeen B2B (business to business) 

opportunities, special publicity 

campaigns will be implemented 

for the first time in Germany, Poland 

and Russia. Outdoor banners, 

daily-newspaper supplements, advertisements 

in the cinema and public 

transport are to be booked and 

various events are to be organised 

for the purpose of advertising Lithuania. 

Around 200 foreign journalists 

were brought to the country last year 

and 300 cognitive tours are planned 

for media representatives this year. 

Tourism representative offices have 

country. By way of diverse surveys, 

it has been found that a guest arriving 

for a conference stays around 

four days and spends around 3,000 

litas in Vilnius. An ordinary tourist 

stays for a shorter period of time 

and leaves a bit more than 1,000 litas. 

Hence, it pays off for the state to invest 

in conference tourism, which 

Lithuania is doing quite successfully. 

For example, it performed well during 

its presidency of the EU (at the 

beginning of November at Litexpo, 

it hosted an international European 

Commission ICT conference, which 

was attended by over 4,000 people). 




Still, so far both Lithuania and its 

capital city are not being advertised 

much as a place suitable for business 

tourism. Although the country finds 

itself in a good geographical location 

and belongs to a safe and economically 

strong political union, transport 

connections to it could be better, 

since, according to R. Balnienė, 

reachability is extremely relevant for 

every country’s tourism. The assortment 

of flight connections between 

Lithuania and foreign locations is 

quite modest. According to M. Rutkauskas, 

the chicken and egg principle 

is manifest here (which comes 

first?) – should the number of flight 

directions be increased so that more 

tourists would come or should more 

tourists be attracted so that more 

flights would appear? Seemingly, it 

would be most logical to develop and 

advertise Vilnius as a hospitable city 

conducive to conference tourism, 

simultaneously promoting the improvement 

of transport connections 

to it. 

Working in a consistent and focused 

manner, results may be expected 

after some three or five years. 

Air connections to the capital city 

of Lithuania are already gradually 

increasing (for example, on 4 November 

a direct Vilnius-Saint Petersburg 

flight was launched by Polet 

Airlines). The Lithuanian tourism 

representative office in London is organising 

a London-Vilnius car rally 

in spring 2014 in order to prove that 

Lithuania can be easily reached in 

various ways. 

One more issue relating to conference 

tourism is insufficiently developed 

infrastructure. Litexpo is 

perhaps the only centre in Lithuania 

where high-level events (including 

events with a cross-border dimension) 

can be arranged. Although 

there is a sufficient amount of space, 

the centre’s infrastructure needs to 

be improved and upgraded so that 

Litexpo can acquire the rank of an 

international congress centre. In this 

context, the old (first) chambers, 

built in 1986, have been planned to 

be reconstructed and a study is being 

conducted with regard to the con- 

struction of a hotel next to Litexpo. 

When it comes to improving transport 

to and from the city centre, it 

should be noted that the Vilnius City 

Municipality is planning to build a 

bridge to connect Litexpo to Vingis 

Park and to one more Akropolis 

shopping centrer. 

Lithuania participates in tourism 

conferences all across the EU. Barcelona, 

Milan, London and many German 

cities have traditionally been 

strong European conference tourism 

centres. All of them have excellent 

infrastructures and transportation 

systems, and tourist flows to them 

are continuing to grow. True, both 

ordinary and conference tourists 

may not be very willing to go to the 

same places again and again, so there 

may be other possibilities to open 

up for other European and Lithuanian 

cities. In this context, it should 

be noted that among cities lying on 

the Eastern coast of the Baltic Sea, 

Vilnius, with its infrastructure at its 

disposal and Litexpo, look the best, 

even though Riga has better transport 

connections to the world. 

Strategy is necessary 

As the number of tourists grows, the 

capital city of Lithuania should also 

prepare itself for servicing tourists 

better. When more than 3,000 guests 

come to Vilnius, it becomes complicated 

for the city to service such 

quantities properly. Therefore, it is 

necessary to develop the network 

of hotels and restaurants and to improve 

city transportation. Many different 

institutions have mentioned 

conference tourism as a priority in 

their programming documents and 

strategies, but still no single unified 

strategy exists where concrete tourism 

development guidelines and 

stages are specified. 

It would probably be meaningful 

if the Ministry of Economy, the State 

Department of Tourism, Vilnius 

City and the associated structures 

of hotels and restaurants (of course, 

including Litexpo) start creating a 

joint vision all together. One would 

also hope and expect that proper 

attention would be devoted to conference 

tourism when planning 

the EU structural support for the 

2014–2020 programming period, as 

well as in the tourism development 

programme that is currently being 

prepared. 

Lithuania is a promising market 

for tourism. Further success in this 

field may be only expected if the development 

of both traditional and 

conference tourism (especially of infrastructure) 

is promoted in a coordinated 

manner, so that the country 

could offer foreign guests a comprehensive 

package of services. 


INTERVIEW 

INTERVIEW 

You will not get fresh 

ideas about constitutional 

freedom from major 

powers like the United 

States, China or Russia 

dare to peer beyond the five-year 

horizon. I must make it clear that in 

such cases not so much possibilities 

of specific events are predicted, as 

of the trends, which will have major 

impact upon the lives of humans and 

the planet. It is rather negative trends, 

not positive ones that are normally 

sought for in the future, so that possible 

issues and risks are known well 

in advance. A commonplace example: 

George Orwell’s classic novel “1984” 

was a “self-preventing prophecy” that 

stirred millions into action, working 

to prevent the author’s vision from 

coming true. 

David Brin: Why Do We Need 

to Forecast the Future? 

David Brin is an American scientist and author of science fiction; he has received Hugo, Locus, John 

W. Campbell Memorial, and Nebula Awards. He has shared his insights about future with corporations 

such as Google, Procter & Gamble, and SAP, with NASA, and even the United States Department 

of Defense. He usually asks questions and does not give answers to his clients, since the skill 

to ask relevant questions is of paramount importance. 

You have consulted a few of 

the world’s largest corporations. 

What can be 

predicted about the future 

by a writer that can’t be predicted 

by corporate executives earning 

tens of millions of dollars? 

All human civilizations invested 

heavily in prediction of the future. In 

the past, to forecast the future, shamans 

read goat entrails or watched 

the distribution of the stars. This process 

has changed today, yet shamans 

have survived under different names, 

from stock market analysts to politicians 

and business leaders, whose job 

is to appraise possible scenarios of the 

future as accurately as possible in order 

to employ available opportunities 

and resources accordingly. Besides 

being a writer, I have been trained 

as a scientist, and I tend to distrust 

those professions since their predictions, 

as often as not, are based on intuition, 

not science. But, as is known, 

even science can be murky as it looks 

ahead, while intuition sometimes tells 

a lot more. 

The answer to the question why 

my predictions are appreciated by 

corporate executives earning millions 

of dollars is rather simple: they rarely 

What are the most common questions 

asked by representatives of 

the largest corporations? What 

are they trying to learn from you? 

Do they want to know predictions 

about the evolution of technology, 

or do they want to learn how 

new technology might influence 

people’s lives and lifestyles in the 

future? 

In the near term, they always want 

hints about business opportunities 

and dangers. For example, what 

trends might make the current motif 

for cell-phones obsolete? Will rising 

world education levels, decentralization 

of skills (when anyone may do 

anything), and the rise of desktop 

manufacturing (for example, 3D 

printers) mean the return of cottage 


INTERVIEW 

INTERVIEW 

industry, replacing large-scale manufacturing? 

Will biological synthesis 

follow its own Moore’s Law pattern, 

the way computers have, leading to 

an Internet of organic chemistry? 

The biggest forces are social. What 

will happen when the 20th century‘s 

relentless drive to “professionalize 

everything” comes to an end? Will we 

see a rising era of amateurs who won’t 

have a thorough understanding of 

anything because half of the work will 

be done by computers? Will ubiquitous 

cameras – getting smaller, faster, 

cheaper and more mobile each year – 

lead to a Big Brother state, to the 

increasing proliferation of pictures 

on Facebook, or to hyper-empowered 

individualism? And if all individuals 

will be able to get a live view of any 

of the remotest corners in the world? 

Will this lead to tyranny by mobs, 

when someone is wrongly accused 

and he or she is watched by the enraged 

who seek to do away with him 

or her? Or maybe the world will just 

become a safer place to live? 

Paradoxically, I do not offer answers, 

only a lot of questions to my clients. 

It is the skill to ask relevant questions 

that is essential. 

Is it possible to state that the vitality 

of a corporation directly depends 

on its ability to identify how 

the world will change over the next 

decade? Is knowledge of the future 

important to individuals? 

Kings rule. Then comes the time for 

them to die. We strive to learn how 

the world will be changing but we’ll 

never know it for sure. Corporations 

may corroborate their predictions by 

collecting and analyzing Big Data, by 

engaging in activities ranging from 

social modelling to artificial intelligence. 

However, no matter how 

effective these predictions are, sooner 

or later they are doomed to fail and 

corporations to collapse. And there is 

just one trait that helped corporations 

and human beings survive for thousands 

of years. That trait is resilience. 

There is just one trait that 

helped corporations and 

human beings survive for 

thousands of years. That 

trait is resilience. 

It is not enough to have knowledge 

of the future; one must be resilient to 

survive. 

It is only natural that both small and 

large corporations aspire to know the 

future. It is capacities and resources 

made available for the search of the 

future trends that make a difference. 

What do you think about the vision 

that in the year 2050 nobody 

will be able to lie, because a sensor 

embedded in the clock or in any 

other part of the “body” will work 

as a lie detector, and consequently 

mendacious populists will lose any 

chance to win elections? 

My 1980 novel “Sundiver” dealt glancingly 

with a future in which it became 

difficult to lie, because all citizens 

could track lies and deceptions. 

Recent scientific work suggests that 

something like this may be coming. 

In which case, we will have to decide 

what kind of society we want when 

such technologies are around. We 

have several options. If we try to ban 

the technologies, that will only ensure 

that in the end only governments 

and, for example, secret services will 

get them. Or we may all grab these 

methods and then use them against 

each other, dissolving into a morass of 

accusations and recriminations. A war 

of all against all. Statistically, a person 

tells a lie three times in a 10 minute 

conversation. The third option is to 

use such technologies by cultivating 

a general social norm of forgiveness 

for small mistakes… because we will 

all need it. Catching dangerous or 

malicious lies, we may also forgive and 

shrug-off the inevitable foolish exaggerations 

and slips of the tongue that 

are deeply part of human life. 

In your opinion, what changes are 

there in store for us before, say, 

2050? People with artificial body 

parts and cyborgs all around? A 

world without disease and with 

immortality? How about a vision 

where everyone is living in a virtual 

world, where androids do all 

the work in the “real” world? 

The most spectacular change awaiting 

all of us in the future is the ability to 

process information. The amount of 

knowledge accumulated by mankind 

is enhancing at a breakneck speed; in 

a few decades, the rate of knowledge 

accumulation will be hardly conceivable. 

Just one technology – artificial 

intelligence – could arrive from any 

of six different directions making 

acceleration of knowledge accumulation 

even faster. Is our brain capable 

of handling such amounts of information? 

Some researchers propose 

that human intelligence will develop 

alongside the increasing amounts 

of information in order to be able 

to process it. But if our brains fail 

to handle information, we’ll need 

help – the organic brain will be either 

supplemented with technical gadgets 

or linked with external components, 

such as computers, etc., much as 

our ancestors did when they added 

another layer – when mutation and 

evolution gave them the spectacular 

prefrontal lobes, and it was their way 

to survival. 

Which of the currently emerging 

technologies will lead to major 

changes in how we work, how we 

consume, and how we produce 

goods? 

Desktop fabrication will probably 

not eliminate manufacturing, massproduction 

and delivery systems. But 

it will become a commonplace factor, 

when people can upload design patterns 

and create their own small parts 

or machines and print these using 

3D printers or similar technologies. 

Even factory-produced items will 

undergo change; they will be personally 

tailored to the needs of particular 

customers, being more unique and 

individual. Impatience with old-fashioned 

delivery systems may provoke 

the return of pneumatic tube transport 

for small or medium-scale packages. 

If asteroidal resources become 

available, all metals will plummet in 

price, including gold and platinum. 

The late 20th century obsession with 

efficiency in production and delivery 

improved profit margins and quality 

in many industries, like automobiles. 

Mere efficiency, however, is not 

enough, therefore dependence on 

trans-oceanic shipping will reduce, 

and local self-sufficiency will be a 

counter trend of real value. 

Let’s go back to the year 2050. 

What cars will we drive then? 

Some people say that we’ll have 

better perfect batteries for electric 

cars, others say that the future belongs 

to hydrogen powered electric 

It is rather negative 

trends, not positive 

ones that are normally 

sought for the future so 

that possible issues and 

risks are known well in 

advance. 

cars. What is your opinion? Maybe 

we won’t have cars at all? 

I portray hydrogen powered cars 

being used by 2050 in my novels 

EARTH and EXISTENCE. There 

are real potential advantages… but 

not in the near term. The required 

infrastructure, if we copy gasoline 

distribution, would be insane. Hydro- 


INTERVIEW 

INTERVIEW 

You will not get fresh 

ideas about constitutional 

freedom from major 

powers like the United 

States, China or Russia. 

On the other hand – just 

give a glance at how tiny 

Iceland is experimenting 

with governance. 

gen will make sense only when solar 

power becomes so plentiful that you 

fill your tank at home. 

The big news has been the spectacular 

improvement in electric cars. The 

motors and control systems were 

more than ready and battery improvements, 

including super-capacitors, 

are clearly on the horizon. 

Many science fiction authors speak of 

the self-driving car, indeed, Google 

driverless cars are already running on 

our streets. Science fiction tales envisioned 

that it would require “smart 

roadways” with embedded cables and 

centralized computer control. But 

onboard vision and analysis systems 

have progressed to the point where 

cars can see us, anticipate trouble and 

avoid accidents. The implications are 

astounding. 

Another tough question – oceans 

and human future. Will we have 

cities underwater? Will we be able 

to get our hands on the resources 

lying deep in the oceans? Or maybe 

asteroid mining is the future? 

Asteroid mining is a dream that 

only a few of us shared in the 1980s. 

Dreams of underwater cities and 

ocean settlement go even farther 

back. Both frontiers offer the potential 

for spectacular benefits that might 

enrich human society far beyond any 

memory of poverty, if we do it rightly. 

Both must overcome serious obstacles 

that modern technologies can’t 

negotiate. 

In accessing the vast resources from 

asteroids – which include almost 

everything we currently tear out of 

the Earth through mines – we must 

first decide to be ambitious. To become 

again a civilization that invests 

boldly in space. Sadly, that dream 

has been almost crushed by cynicism. 

Even exploration of the outer 

space has become an almost forgotten 

thing. The sea is an immense problem 

and opportunity, and to reach 

the treasures hidden in the depths 

of oceans we must apply plenty of 

science and environmental effort. The 

danger is that we might cause much 

harm, deliberately or unintentionally, 

seeking benefits. About 75% of 

the ocean floor is “desert” areas, poor 

in nutrients and almost barren of 

life. Ways may be found to “fertilize” 

some stretches, creating new fisheries 

and removing greenhouse gases from 

the atmosphere in an effort to stop 

climate change. This, however, requires 

formidable research so we may 

forecast an impact of such actions. 

With the beginning of the Space 

Race between the United States 

and the Soviet Union, many science 

fiction writers predicted that 

by the year 2000 we would have 

colonies on the Moon, and a lot 

of people would be living in space 

stations orbiting Earth. That didn’t 

happen. Why? 

When the year 2001 came around, I 

had to answer many questions like: 

“Where are the moon bases we were 

promised?” But watch again the classic 

film by Arthur C. Clarke and Stanley 

Kubrick, 2001: A Space Odyssey”. 

It portrayed a civilization that by the 

year 2001 had made greater leaps in 

spaceflight than we’ve achieved. But 

society had progressed much less on 

a human plane. It conveyed a world 

commanded by patronizing, smug 

white-male-American bosses who 

operated in habitual secrecy. Now, 

you may claim that was accurate! But 

put aside the reflex. Today’s world – 

for all its flaws – is far more open and 

diverse. Neither the story writer nor 

the film director expected or imagined 

such changes. 

Though we don’t possess space technologies 

to travel in the solar system 

today, most of the world’s children 

now can get access to education, live 

in homes with sanitation and electricity. 

If we have wisdom to keep on 

improving society, we will, sooner or 

later, conquer the solar system filled 

with opportunities and wonders 

Last but not least, the most important 

question for us – what kind 

of future do you predict for small 

countries, such as Estonia, Latvia 

and Lithuania? 

Globalization has been a mixed blessing. 

Great positive benefits followed 

the wave of export-driven development 

as any nation of the world, not 

only successive ones, had a chance to 

work hard and send their children to 

school. This has lead to a spectacular 

growth of a world-majority middle 

class, and those educated children 

will demand more improvements in 

society still. 

Globalization also carries dangers: 

ecological, ethical, and a risk of 

cultural homogenization as regional 

and local differences are drenched 

in a Standard International Culture. 

Corporate consolidation makes competition 

difficult for small countries 

or small businesses or individuals. 

Oligarchy is a mistake that plagued 

every society across 6,000 years. 

But we have seen that there will be 

opportunities, too. Smaller nations 

– like individuals – must be agile. 

Opportunities may be sudden and 

short-lived, the way Finland strode 

across the world stage of telecommunications 

for a time. You must 

not miss them. More often, there will 

be opportunities for alliances our 

parents could never have imagined. 

A Lithuanian artists’ collective might 

collaborate with a consortium of independent 

neural-interface designers 

in San Diego, plus fabrication experts 

in Malaysia, and create a new kind 

of passenger seat for Google automobiles 

without ever learning of the 

identity of the original designer… an 

artificial intelligence residing in one 

of Google’s laboratories. 

Small countries will probably also be 

the drivers for innovation in governance. 

You will not get fresh ideas 

about constitutional freedom from 

major powers like the United States, 

China or Russia. Just give a glance at 

tiny Iceland experimenting with governance. 

One always ought to search 

for new ways how citizens could exercise 

sovereignty, creative freedom, etc. 

Survival is possible not only owing to 

state-of-the-art technologies, but also 

to high culture that is able to reach 

out globally. 

Thank you. 


ENTERTAINMENT 

ENTERTAINMENT 

Business Trips to the Baltic 

Countries: Two Birds With One Stone 

Riga, due to become European Capital of Culture in 2014, promises to offer about 50 

events aimed at attracting art and entertainment lovers. Meanwhile, every year Vilnius 

and Tallinn bring crowds of tourists from abroad to their annual music, theatre, film 

events and festivals reviving the Baltic tradition. A growing number of foreigners who 

visit the Baltic countries for business are eager to come back again with their families. 

Next year, plan your business trips and conferences in the capital cities of the Baltic 

states to make them both useful and fun. 

by Monika Baltrušaitytė 

TALLINN MUSIC WEEK 

INCLUDES A FULL RANGE OF 

DIFFERENT STYLES – FROM 

FOLK AND INDIE TO JAZZ 

AND PUNK. 

planning a business 

trip, it’s worth 

“When 

looking into the 

events happening in the country,” 

said Rasa Martens, a famous Lithuanian 

entrepreneur and tourism 

business expert. “I think this is necessary 

and useful, as you can combine 

work, leisure, broaden your horizons 

and get to know the cultures of other 

countries. You must get to know the 

city, rather than sit in a hotel room 

and wait for the next day. Of course, 

not everyone loves art, but I have 

never met a person indifferent to 

music, excluding those who are not 

interested in anything at all, and who, 

upon arrival in a foreign country, 

head straight to the hotel.” 

R. Martens believes that foreigners 

coming to the Baltic countries 

are mostly fascinated by their people, 

the comfort and by our old towns. 

“All the world knows about the Soviet 

legacy of the Baltic countries, but I’m 

pleased that entrepreneurs who came 

expecting to see a sorry state of affairs 

leave the country satisfied, and then 

come back again. The organization of 

conferences and inclusion of cultural 

programs is a new opportunity for 

businesses to get to know the countries, 

and a good method of promotion for 

the country.” 

To the library, after the opera 

In 2014, after a five-year preparation 

and 24 million euro investment, 

Riga will become European Capital 

of Culture. The Force Majeure cultural 

program prepared for residents 

and tourists includes 127 large projects 

and will not only attract art lovers 

but also entrepreneurs coming to 

the Latvian capital city for business, 

the organizers say. Riga will host 

500-600 events in 2014. The cultural 

virus will spread throughout the city, 

which will be converted into a fun 

leisure venue with the help of artists. 

You will certainly have many 

things to do upon arrival in Riga 

during January 17-18. The opening 

of the European Capital of Culture 

will solemnly start with Richard 

Wagner’s contemporary opera Rienzi 

at the Latvian National Opera on 

January 17. 

A “Book lovers’ chain” on January 

18 should be of interest not only to 

fans of culture, but also to random 

passers-by. People are going to link 

the old National Library to the new 

library building. Books will travel 

from hand to hand to reach the new, 

modern library, named the “Light 

Castle”. 

This impressive building was 

designed by an American-Latvian 

born architect, Gunnar Birkerts, 

BALTIC TRADITION OF THE NIGHT OF THE 

BONFIRES ON A RIGA BEACH. 

known on the other side of the Atlantic 

as the designer of the Corning 

Glass Museum and the Law Library 

in Michigan. A huge building 

reminiscent of Himalayan peaks, it 

attracts the eyes of curious tourists. 

The shape of this modern architectural 

monument embodies the mystical 

Glass Mountain and the Light 

Castle – symbols of Latvian folklore. 

A legend says that the Light Castle 

sank in an ancient lake and will only 

emerge from the depths when the 

Latvians are again the masters of 

their land. The “Book lovers’ chain” 

will intersect the Daugava River and 

symbolically repeat the Baltic Way 

of 1989 significant in Lithuanian, 

Latvian and Estonian history. 

1914 Exhibition - history of the 

First World War in new colours 

All the upcoming events in Riga in 

2014 are divided into six thematic 

lines by their type. One of them is 

called Liberty Street, with the most 

interesting event – the 1914 Exhibition 

– to be opened at the Latvian 

National Museum of Art in January. 

It is dedicated to the centenary of 

the First World War. It will display 

non-traditional historical and personal 

reflections of European artists 

on the First World War theme and 

look at it from a different angle. 

The French poet Paul Valery wrote 

that “history is the most dangerous 

chemical product invented by the 

mind: it gives birth to dreams, false 

memories, intoxicated people, rubs 

salt on the wounds, disturbs sleep 

and makes the nation arrogant and 

intolerable”. 

“Memories and experiences of certain 

historical events are commemorated 

in artworks. The programme 

of the European Capital of Culture 

in 2014 is unthinkable without the 

topics of war, power and freedom”, 

said Diāna Čivle, Riga 2014 project 

manager. She reassured that the exhibition, 

like a good, engaging film 

aided by visual media and installations, 

will help to move the spectator 

back into the past and learn the 

true history of the war and see its 

consequences. 


ENTERTAINMENT 

ENTERTAINMENT 

Baltic tradition of the night 

of the bonfires on a Riga beach 

No matter what, opera, contemporary 

art and modern architecture 

impress everyone. You can have a 

different yet thoughtful and interesting 

way to spend some time in Riga: 

the traditional bonfire night will 

invite you to give a farewell the summer 

on August 25, 2014. In ancient 

times, bonfires were lit on the Baltic 

Sea coast to warn ships of potential 

dangers. Now the festival has been 

revived to new life, and its main 

objective is to save the Baltic Sea. 

People gather together on bonfire 

night and not only relax, but also 

discuss the pollution and ways to 

reduce it and save the sea. 

Every year, its mystique not only 

charms the locals but also foreigners, 

with wild dances, concerts and 

games replicating ancient traditions 

in the light of bonfires. Hydrobiologists 

install aquariums, displaying 

the sea creatures for residents and 

even offering to listen to a snail’s 

heartbeat. This night has already 

been celebrated for twenty years in 

Finland and Estonia, and is becoming 

increasingly interesting and impressive 

in the Baltic Sea countries, 

especially in Latvia. 

Tallinn Music Week, for fans 

of various music styles 

If you are going to visit Tallinn in 

April next year, squeeze in some 

time for Tallinn Music Week – one 

of the largest music festivals in the 

Baltic and Nordic countries, to start 

on April 27. This event will bring 

together more than 200 musicians 

from all over Europe, making it a 

great opportunity for coming to the 

Estonian capital city in early spring 

and watching performances in the 

most unexpected places, while having 

a good time in Tallinn’s top clubs 

and concert halls for three days. 

The Music Festival menu includes 

a full range of different styles 

– from folk and indie to jazz and 

RASA MARTENS BELIEVES THAT FOREIGN- 

ERS COMING TO THE BALTIC COUNTRIES ARE 

MOSTLY FASCINATED BY THE PEOPLE. 

punk, from classical to metal. It will 

not only present everyone’s favourite 

performers but also new talents. In 

addition to the abundance of concerts, 

there will be a lot of famous 

musician debates and food tastings 

in cosy Tallinn restaurants. The 

Guardian wrote about this festival: 

“Tallinn Music Week suggested the 

Baltic states will be the next region 

to burst on to the European music 

scene. This is no ordinary music festival, 

and Estonia is not an ordinary 

country”. 

The famous Tallinn Jazzkaar – 

for the most demanding jazz lovers 

Jazz aficionados visiting Tallinn on 

April 18-27, 2014, will have the opportunity 

to attend the largest Baltic jazz 

festival – Jazzkaar. Every year, the 

festival team creates an interesting 

and unique program of events, making 

it the most famous jazz festival 

in the Nordic countries. The tenday-long 

Jazzkaar attracts the most 

well-known jazz artists from around 

the world and all of Tallinn is filled 

with miraculous jazz sounds. 

Jazzkaar has already been visited 

by stars such as Bobby McFerrin, 

Angie Stone, Chick Corea, Dianne 

Reeves, Jan Garbarek, Richard Bona, 

John Scofield, Charles Lloyd and 

many other jazz musicians. For 

those who cannot come to Jazzkaar, 

the festival team also organizes 

seasonal jazz festivals: Winter Jazz, 

Autumn Jazz and Christmas Jazz. 

The latter lasts two weeks and is 

famous for its cosy, festive and intimate 

atmosphere. 

“I would love to have some business 

affairs in Tallinn”, said R. Martens. 

“Events like the Jazz Festival 

and Tallinn Music Week, are very 

tempting to me. If I could combine 

my business trips, I would definitely 

go there. In terms of culture, Tallinn 

is very strong” 

Kaziukas Fair – key 

to Lithuanian tradition 

Visitors to Lithuania in 2014 will 

also have plenty of opportunities 

to combine business affairs with a 

cultural program. 

The exclusive festival embodying 

the Lithuanian culture and 

old traditions is the Kaziukas Fair, 

taking place every year on Casimir’s 

Day, March 4, in Vilnius. For a few 

days, people sell their arts and crafts, 

which are not only eagerly purchased 

by locals but also by foreigners 

visiting the capital city. 

Kaziukas dates back to the 17th 

century, and Palm bouquets (called 

verbos) made of dried flower blossoms 

and herbs are one of its main 

specialties (it is a must buy for 

everyone) along with earthenware 

pots, wicker baskets, cracker necklaces 

and many other items crafted 

by talented folk artists. And you will 

not go hungry while choosing your 

souvenirs. You can savour traditional 

Lithuanian meals, and be sure to 

taste the heart-shaped honey cookies 

called the Heart of Kaziukas, not to 

mention the Lithuanian culinary 

masterpiece – a tree cake (šakotis). 

“I believe the Kaziukas Fair is a 

good atmosphere to feel the spirit of 

the country. It doesn't matter that it 

has already become a popular phenomenon 

and that it doesn't have so 

much art. Most people arrive without 

going deep into our culture, while this 

fair helps to understand our spirit 

and transmit good energy”, said Rasa 

Martens about the Kaziukas Fair. 

Singers from around 

the world unite at 

in the Vilnius Song Festival 

Another no less important event 

cherishing the Lithuanian tradition 

and culture for many decades is the 

Lithuanian Song Festival, which 

will be called Here Is My Home in 

2014. The festival takes place every 

four years, and this time it will bring 

together more than 35,000 participants 

from Lithuania and foreign 

countries. The event attracts a variety 

of artists – singers, dancers, composers, 

actors, writers, folk artists, 

painters and choreographers. The 

opening concert will be held in the 

Cathedral Square on June 28. It will 

then be followed by a presentation 

of the Baltic tribal costume collection 

in the Rulers Palace, a kanklės 

(a traditional Lithuanian musical 

instrument) afternoon in St. John's 

Church, a Copper Brass Concert in 

Kalnų Park and Žalgiris Stadium, 

and a host of other exciting events 

that are really worth a visit. 

The Lithuanian Song Festival is a 

national cultural phenomenon with 

a spirit comparable to the ancient 

Greek Olympic Games. In 2003, 

the Estonian, Latvian and Lithuanian 

Song and Dance Celebration 

tradition was recognized as an Oral 

and Intangible Cultural Heritage of 

Humanity by UNESCO. 

Klaipeda Sea Festival – 80 years 

On July 25-27, the Lithuanian port 

city – Klaipėda – will host the 55 th 

Sea Festival, celebrating its 80 th 

anniversary this year. During this 

anniversary, the organizers promise 

to carefully explore the history of 

the celebration and bring to life the 

most successful projects of the last 

eight decades. 

The festival will buzz for three 

days and three nights and will not 

disappoint people with different 

tastes: the programme is abundant 

with events and generally everything 

What else is there to do? 

In Riga: 

Comedian Russell 

Brand show in Riga 

Congress Hall. 

22 February 2014 

Amber During the 

Ages exhibition in the 

Latvian Museum of 

Natural History. 

15 January 2014 

Opening of the former 

KGB building. 

30 April 2014 

Creative event, 

Potato Opera. 

1 May 2014 

Arturs Maskats 

opera, Valentina. 

5 December 2014 

In Tallinn: 

Tallinn Christmas Fair. 

21 November 2014 – 

8 January 2015 

Tallinn Maritime 

Days. 

18-20 July 2014 

your heart cares for – from exclusive 

sea ceremonies, entertaining concerts 

and street theatre performances, to 

venturesome sports and a large fair. 

Dalia Grikšaitė, the PI Klaipėdos 

Šventė creative director, says that 

creating a good impression about the 

only Lithuanian port city and maritime 

cultural centre is a matter of 

honour for Klaipeda residents. “The 

success of the festival has been around 

for eight decades, and every year it attracts 

thousands of visitors to the sea, 

indicating that Klaipeda has correctly 

chosen the heading of the feast. It is 

always a delight or even pride to be 

the nationals of a maritime country – 

both during the interwar period and 

today”, she said. 

WELCOME! 

Tallinn’s Old Town 

Days. 

31 May – 7 June 2014 

The 26th Estonian 

Song Festival and the 

19 th dance festival 

“Touched By Time. 

Time To Touch”. 

4-6 July 2014 

BMX and skateboarding 

competition 

week. 

27-29 March 2014 

In Vilnius: 

Cinema Spring film 

festival. 20 March – 

3 April 2014 

Street Music Day. 

3 May 2014 

Scanorama film festival. 

November 2014. 

World 1st division ice 

hockey championship. 

20-26 April 2014 


ENTERTAINMENT 

ENTERTAINMENT 

Latvian Armoured Cars for Dictators 

The dismal days when the mafia and sheikhs were driving black Mercedes cars have ended. 


Now, if you want to stand out you need an armoured 

Dartz all-terrain vehicle, so that losers 

can die of envy eyeing your luxury and so 

that enemies and deceived business partners 

can't hunt you down with missiles and mines. 

The good news is that in order to buy such a car, you 

don’t need to travel to the other end of the world or to 

look for a dictator who is selling his property for a mere 

trifle as the gallows approaches. It is sufficient to just get 

to Riga. 

The Dartz company is headquartered in the Russo- 

Baltique factory, which used to manufacture armoured 

vehicles for the Russian tsars in the old days and also 

contributed to the invention of the helicopter. As the 

company’s representatives say they do not care at all 

about what your requirements are, since they are ready 

to implement all of them and surprise you. Still, no work 

will commence unless you open up your wallet and show 

them that no winds are blowing through it. How much 

should you have? Well, if your option is not a basic version, 

then there should be at least 1 million Euro in your 

pocket. 

When cooperatives were allowed to be founded in the 

Soviet Union in 1988, this offer was immediately snatched 

up by Leonard Yankelovich, thus giving birth to the Dartz 

company. According to the founder and current company 

representative, the inspiration to create armoured cars 

arose after heavy vodka drinking following all the best 

traditions of the Russian mentality. An interesting thing 

about this whole miraculous story is not only that Leonard 

himself boasts that he has never been a car mechanic 

of any kind (and therefore knows little about machinery), 

but also that he has no driver’s licence, which means that 

he can't drive any of the steel horses that he creates. 

Art 

Each product made by Dartz is art, which Leonard 

considers to be tantamount to the famous Fabergé eggs: 

not everybody is so rich and not everybody can show real 

appreciation for a luxurious armoured car in terms of art. 

Besides, all the cars are different. If the owners of two luxury 

Bugatti Veyron cars ever met, the differences between 

their cars, in most cases, would be colors, whereas in the 

case of a Dartz, several different accessories and options 

exist and much more is available for an extra amount of 

money. So the buyer that Leonard is aiming at is something 

between the rapper Lil Wayne and a Saudi Arabian 

prince, though both extremes are possible. 

Quite recently, the rapper Kanye West and his lovely 

wife Kim Kardashian decided to renew their car fleet. The 

DARTZ Prombron Iron Diamond, which was assembled 

based upon the Mercedes-Benz G-Class, cost the rapper 

290,000 Euro. Twice this amount was spent on the car’s 

extra armour and its salon interior. But because he could 

not manage to reach agreement with his wife on the desired 

colour, the rapper decided that he would buy two cars with 

the same set of equipment instead. After the purchase, 1.7 

million Euro dropped into the Dartz bank account. 

A Dartz Prombron can often be seen on the big screen. 

For instance, in the movie “A Good Day To Die Hard”, this 

all-terrain vehicle was used to hunt down Bruce Willis all 

through Moscow. Whereas in an impressive 2012 cinema 

masterpiece, this gold-plated car was driven by the Wadiyan 

dictator and all-beloved repressor, Aladeen. If it is 

namely a golden Dartz car that you want, the price starts 

at 350,000 Euro. 

Equipment 

Each Dartz car can be primarily chosen as a pseudo-sedan 

or a pseudo-platform van. As previously mentioned, 

the choice of optional equipment is almost unlimited; you 

just have to have the money. For instance, only one Dartz 

in the entire world has a jacuzzi, whereas another has a 

royal-style bed. In the meantime, other owners of these 

cars want as much armour as possible, so that even an indirect 

nuclear explosion would cause the least amount of 

damage possible. All the cars are also equipped by default 

with a black box – just like on aircraft. So, should the armour 

happen to be breached, the boss’s last swear-words 

will surely be recorded. 

The most expensive Dartz car sold with the greatest 

number of accessories went to China – it cost its owner 

5,000,000 Euro. 

According to the company’s representatives, Russians 

always buy black cars, Arabians white cars, whereas golden, 

glittering and shimmering cars are chosen by rappers. It 


ENTERTAINMENT 

Holidays are simply wonderful! 

Start planning your 

summer holidays now. 

RUSSO BALT WAGON FACTORY - BTAZ - DARTZ - 

SUPPLIER FOR TZARS, ADMIRALS, GENERALS 

AND DICTATORS SINCE 1869. 

is namely for them that special golden alloy wheels whose 

shape resembles AK-47 ammunition are manufactured. 

It is also worthwhile mentioning that this armoured 

all-terrain vehicle is not only one of the safest in the world 

but also the fastest. The maximum speed is 180 km/h 

(about 110 mph) which is an excellent result for a tank 

weighing 4 tons. 

Armour 

A separate topic here is the car’s protection, which exists 

in several options, starting with the lightest level, B2, 

and ending with the most complex, B7+. Moreover, the 

car can be equipped with cameras pointed in all directions 

as well as various explosive sensors. And, if it’s really 

necessary, even an anti-missile defence system. 

Unlike those made by other manufacturers, this car is 

delivered already shielded and protected and, therefore, 

much safer than those that, just after having been manufactured, 

are fitted with armour plating. Armour technology 

was devised in the Soviet Union called The Capsule: 

first a kind of armoured capsule for the passengers is constructed, 

and then it is surrounded with the car’s components. 

The weight of a “Dartz” car manufactured with all 

possible protection reaches 8 tons. 

Even the bulletproof glass selected for the car is special 

– it’s the same type that’s protecting tourists from the 

odour of Lenin, who is lying in Red Square. 

Do you still doubt whether it's worth buying one? 

New: 

ITALY 

TURKEY 

SPAIN 

GREECE 

BULGARIA 

EGYPT 

Prices from 

795 LTL 

EACH CAR BUYER GETS 

A GOLDEN PISTOL AND A 

SMALL GOLDEN BOTTLE 

OF VODKA AS A PRESENT. 


nordea.lt 

Best bank in the 

Nordics & Baltics

BA_galutinis

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