When we talk about businesses that move to free economic zones, we imagine large greenfield investments and spacious production or logistics buildings, but in reality, the advantages of the FEZ are increasingly appreciated by the companies that do not require a large space for their operations. As the example of Kaunas FEZ shows, the choice of such companies is greatly influenced by synergy with other businesses already operating in the area, extremely convenient transportation and, of course, the tax relief.

Drawn by the neighboring technology industry and the airport

UAB SKYCO AE, a design and production company focused on aeronautical products, became one of such settlers representing smaller businesses in the Kaunas FEZ.

The company specializes in design, prototyping and manufacturing services and has a wide range of production capabilities, including the production of metal, composite, plastic products in accordance with aviation quality standards. So, it is no coincidence that when talking about moving to the Kaunas FEZ, the company representatives mention the Kaunas airport – located right next to it – as the first thing that attracted them.

“When we were looking for a new location for our development and further growth, we turned to Kaunas FEZ for several reasons. First of all, it was about the opportunity to make use of such FEZ advantages as well-developed infrastructure and tax benefits. But equally important for us was the neighborhood of potential partners and the concentration of minds in one place. In our field, we often have to use the services of specialized companies for processes that would be uneconomical to develop in-house, so the neighborhood of the technology industry is extremely useful for saving time and other resources. The location of FEZ, which is strategic for our industry, had a great influence on our choice. We settled next to Kaunas airport, where the largest aircraft maintenance companies are concentrated. And this means that better opportunities for cooperation open up. Finally, Kaunas FEZ has a really good transport system, and this facilitates the commute of our employees, suppliers, and customers,” Gytis Leonavičius, director of SKYCO AE, names the reasons for choosing Kaunas FEZ.

In addition to collaborating with the neighboring business, the company builds close partnerships with higher education institutions. This spring, it started cooperating with the Kaunas University of Technology (KTU). The company accepts interns, and it suggests topics for coursework and final theses, trying to ensure that the topics correspond to what is currently relevant in the industry and making sure that the projects are developed toward their practical application.

Since aircraft design/production is inseparable from scientific research and experiments, SKYCO AE joins the ranks of companies focusing on R&D activities in the Kaunas FEZ.

“If one direction of our activity – the design and production of commercial aircraft components – requires applied research, calculations, and tests in certified laboratories, then the other direction – experimental light aircraft projects – requires wider scientific and technical research and experimental work (in aerodynamics, strength of composites and technologies, electric and EDF-type power plants and other areas),” Gytis Leonavičius explains. The company that he leads is determined not only to expand Lithuania’s aircraft design and production capacities in accordance with European standards but also to raise the qualifications of aviation specialists and contribute to turning Lithuania into a North/Eastern European aviation center.

Inspired by foreign colleagues

Changes in another company operating in the Kaunas FEZ – UAB Timbela & Ko – were dictated by the pandemic period. Having worked for many years as a wholesaler of wood products for the garden, home, or homestead, the company faced a decrease in sales at the supermarkets during the pandemic, so it had to look for ways to reach the end user and sell products to them directly.

“That’s how we discovered the path to online commerce, and it proved very successful. In 2020 our sales grew by 73 percent and in 2021 by 93 percent,” Vilius Grigaitis, the CEO of the company, says.

Such a drastic increase in sales forced the company to look for new premises as the number of employees, whose comfortable working conditions had to be ensured, also grew.

“For many years, while driving past the Kaunas FEZ, I kept noticing its rapid growth. While visiting business partners in various countries, I noticed that many of them were also located in business zones that allow industry and warehouses to be effectively separated from residential areas. So, when we started looking for a place to expand, it is not surprising that our eyes turned to the Kaunas FEZ. When choosing the office, the focus was on good working conditions, convenient communication and road network, and sufficient parking space for employees’ vehicles. In 2020, we rented office premises in Kaunas FEZ and when the opportunity arose, we bought one of the offices with a warehouse,” V. Grigaitis says.

Currently, Timbela & Ko focuses on DIY-type assembled products that can be conveniently transported to any country and assembled by the user according to the manufacturer’s instructions.

They place a great emphasis on sustainability. The company uses the FSC® certified Scandinavian timber, which, during the production process, due to very effective engineering solutions, barely leaves any waste. This allows the company to operate sustainably and also to offer competitive prices to its customers.

The product range includes more than 200 different types and sizes of wooden garden or children’s playhouses, woodsheds, containers, storerooms, and other products. 92 percent of the Lithuanian company’s products are exported to Europe (mostly France, Germany and Austria, as well as Italy, Spain, etc.).

An attractive real estate investment

REES, the real estate development and consulting company implementing the FEZ business park project, provides such companies as Timbela & Ko with an opportunity to purchase a business facility, which was implemented as a Build-to-Suit real estate. The company had the idea to develop such business-oriented objects after observing the need that was stemming from the market. As the representatives of the company have said, it is easier for businesses to purchase or rent ~800 – 1,000 m2 premises than the smaller ones of ~300-600 m2. Therefore, it was decided to offer a rational solution – high-quality representative buildings built in a strategically convenient location with convenient transportation and a well-developed and reliably maintained infrastructure.

After the implementation of the first phase of the Kaunas FEZ, a total of five buildings of approximately 600 square meters were built, which can accommodate 8 companies. In the planned second phase of this project, the total area of the buildings that will be constructed will amount to 24 000 m2.

The buyers of REES’s first-stage properties consist of both businesses focused on development and companies that invest in and rent real estate. For example, Adampolis Group is one of the largest groups of companies in Lithuania that sells, rents, and services commercial and non-commercial transport and special technology. In addition to the main activities, one of the companies of the Adamopolis Group works in real estate development. The projects under development are fully customer-oriented, as new real estate is built according to the customer’s needs and then rented. In total, this company owns 3 buildings with a total area of 1,500 m2 in the territory of Kaunas FEZ and all of it is leased.

According to the representatives of Adampolis Group, one of the most important factors that encouraged investment in the Kaunas FEZ was the opportunity to quickly find tenants, and tax reliefs that are given only in the free economic zones. Since the buildings managed by the Adampolis Group are intended for rent, these advantages also attract the attention of future tenants.

Until today, Kaunas FEZ has attracted 53 foreign and local investors who apply advanced technological solutions and create innovative products. From the first investor in 2005, until today, more than 7,800 jobs have been created in the territory of Kaunas FEZ and more than 1.2 billion euros of direct investments have been attracted.

Finnish leader in interior construction Maler Oy comes to Kedainiai Free Economic Zone!

Maler Oy’s investment in Kėdainiai shows that Lithuania’s regions are great sites for smart, highly-automated production. 

“Finding the best combination of conditions according to the set criteria was the main reason why we chose Lithuania. We must also acknowledge the contribution of “Invest Lithuania”, whose support throughout the process was truly indispensable,” says Jan Okker, CEO of Maler Oy. 

The new state-of-the-art factory will use highly-automated production methods to manufacture painted medium-density fiberboard (MDF) moulding and panel production.

“The design of the plant should start at the end of this year. We expect that construction process will start H1 next year, and it would cost at least EUR 5 million”, according to Giedrius Valuckas, a member of the Board of the Kėdainiai FEZ.

Maler Ltd will set up operations in the #KedainiaiFEZ, a ready-to-build industrial site. The company will be looking for industrial planning, painting, and machinery maintenance specialists, as well as sales and back-office employees, to join its team in Kėdainiai.

Although the business associations of Lithuania, like those of every other country, are functioning in an uncertain geopolitical situation, the Free Economic Zones have continued to show excellent results, attracting new investors and smoothly carrying out infrastructure development projects. Turnover of the companies managing the Free Economic Zones has not just returned to pre-pandemic levels, but actually exceeded those levels, and in the near future the FEZ management companies expect to see even greater interest among Lithuanian and foreign companies.

One of the latest trends in FEZ operations is a rapid increase in the establishment of Lithuanian-capital companies at the FEZ. Lina Mockutė, the president of the Lithuania Association of Free Economic Zones (LAFEZ), explains that “several years ago, it was not unusual for the public in general and businesspeople in particular to think that the FEZ were intended more to attract foreign investment, but that opinion is now rapidly changing.” The FEZ continues to attract foreign investors, but more and more Lithuania-based companies are taking a closer look at the FEZ. VMG Grupė is already operating at the Akmenė FEZ. UAB Elastas, providing services and components to companies in the furniture industry, is in the process of establishing operations at the Panevėžys FEZ. Brolis Timber, along with property developers SIRIN, EIKA and Rees, are at the Kaunas FEZ. Vilmers is at the Šiauliai FEZ. And others continue to establish operations at Lithuania’s FEZ.

Even as Lithuanian-capital companies show greater interest in establishing operations at the FEZ, foreign direct investment undoubtedly remains important. Thanks to close cooperation among state and municipal institutions, the FEZ management companies and Invest Lithuania, world-class companies including Continental Automotive Lithuania, Hella and others have established operations in Lithuania. At the FEZ, new jobs are created, projects are brought to life, and all of this contributes to faster growth in Lithuania’s GDP. Companies at the FEZ position themselves as companies creating high added-value, contributing to Lithuania’s economic growth, so even greater cooperation between state institutions and the FEZ would accelerate the process of attracting new investors.

In 2021, the companies operating at the FEZ produced record results; just at the Klaipėda FEZ, the 44 companies with investor status achieved a total turnover of 1.22 billion euro. The total export of companies at the Klaipėda FEZ amounted 594 million euro last year, a year-over-year increase of 24%, amounting to 1.7% of Lithuania’s total export volume. Although much of the jump in last year’s numbers can be explained by post-pandemic imbalances in supply and demand, as well as increasing prices for raw materials, nevertheless practically all of the companies operating at the FEZ demonstrated growth of some kind.

In 2021, the Kaunas FEZ attracted an additional 233 million euro in direct investment, and the companies deciding to establish operations there plan to create an additional 1,600 jobs, along with the existing or already-planned 6,200 jobs. In 2021-2022, more than 50 hectares were sublet to greenfield investors, among them Press Glass, Omniva and Eika Asset Management, in the facilities of which the German pharmaceutical distributor Tamro Baltics will establish its operations.

LAFEZ president Lina Mockutė, also serving as director of the Akmenė FEZ, emphasises the significance of Lithuanian-capital investments. Since 2019, the Akmenė FEZ has attracted more than 250 million euro of investments; this year, the new VMG Akmenės baldai factory will open its doors, creating several hundred new jobs as well as starting the development of a new project for a construction-lumber factory. In 2021, investments to improve transportation and engineering infrastructure related to the Akmenė FEZ exceeded 7 million euro.

Development of the Šiauliai FEZ has accelerated due to synergies with partners and the municipal government, improving nearby infrastructure as well as the FEZ infrastructure itself. Šiauliai has become a centre for attracting investments into the future, because the railway terminal has received investment, the airport has been upgraded, ring roads have been planned, and all of this is integrated into the FEZ. The project for the DPD logistics centre, executed together with the builders BSP, has successfully begun; an impressive 40,000 m² factory for Vilmers has been planned, and construction works have already begun.

PonBike is establishing operations at the Kėdainiai FEZ, where the company will build a bicycle-assembly factory in an area of 12.7 hectares. Due to the changing geopolitical situation, development of certain projects has paused or slowed. Due to increasingly strained relations between Europe and the USA, on the one hand, and China, on the other, as well as increased logistical expenses and longer delivery times, an opportunity has opened for multinational companies to relocate manufacturing projects from China to Europe, where Lithuania’s potential can be put to good use.

At present, the Marijampolė FEZ has leased 87% of its area to investors. New investors have the opportunity to establish operations in an area of almost 10 hectares with engineering and other infrastructure, along with the ability to develop railway access, improving accessibility for companies locating operations there. The Marijampolė FEZ has designed and is preparing another set of plots in an industrial area of more than 12 hectares. In addition, it is planned to broaden the spectrum of real estate services available to Marijampolė’s and regional investors, with standardised production facilities available for lease by mid-size and smaller investors.

In 2021, the turnover of companies operating at the Panevėžys FEZ increased year-over-year by 32%, and profit increased 58%. The last several years at the Panevėžys FEZ have been especially successful, because several companies have planned investment there. Construction of the AQ Wiring Systems factory was completed. The expansion of the Ekornes Lithuania production and distribution centre is being completed. Construction of the modern bakery AR maistas is proceeding. In the near future, development of Arginta Engineering is being planned, and Gedsta NT will begin construction of a rental building.

In 2021, Lithuania’s Free Economic Zones operated successfully, attracting prominent foreign investors. The opportunity to quickly establish operations at the FEZ continues to accelerate the process of attracting companies. Summarising the current FEZ situation, LAFEZ president Lina Mockutė emphasises that it would be a good idea for the national government, in seeking to attract investors, to focus not just on Vilnius, but on Lithuania’s other regions, because that can provide business with effective “green” corridors (rapid establishment of operations) and a more loyal workforce, and can improve conditions for employees. The fundamental advantage of the business organisations operating at the FEZ remains the skill, competence and efficiency of the people there, on which the sustainable development of the country’s economy and the continuing reduction of social inequality depends. Only by working together with national and municipal institutions can even more impressive results be achieved.

Last year, the 44 companies operating in the Klaipėda Free Economic Zone (FEZ) with investor status achieved a total turnover of €1.22 billion – 30% more than in 2020 or the same as in the record year 2018. This year’s outlook is still complicated by uncertainties over energy and raw material prices, the global economic situation and the outcome of the war in Ukraine.

The biggest impetus for last year’s surge in Klaipėda FEZ turnover came from the activities of polymer and energy companies, which are closely linked to global raw material prices. On the other hand, the absolute majority of FEZ investors recorded revenue growth to one extent or another last year.

In turn, the total exports of Klaipėda FEZ companies, which reached €594 million last year, were 24% higher than in 2020.

According to Eimantas Kiudulas, the CEO of Klaipėda FEZ, last year’s results mainly reflect the post-pandemic recovery and certain supply and demand imbalances. Although companies were quite positive about the prospects for this year before the war in Ukraine, new uncertainties about raw materials, energy, supply, inflation, and the general global economic situation have led to a new phase of caution.

“We are not dramatising the situation, but businesses are still trying to understand what is happening and what will continue to happen in the global markets. We are pleased that the strategic direction of research, innovation, higher value-added activities, and sustainability, which our community chose some time ago, is much more resilient to various shocks than traditional manufacturing. However, it is necessary for us, for Klaipėda and for Lithuania as a whole to look even more actively for new ways not only to attract investors to the infrastructure that is already waiting for them, but also to offer the right talent to meet their current and future needs,” comments E. Kiudulas.

Investors operating in FEZs also paid €75 million in taxes (social security, VAT, and income tax) last year – 17% more than the previous year. Klaipėda FEZ investors’ purchases of goods and services in Lithuania last year amounted to €269 million, or 1.2% more than the previous year, and the FEZ investor community earned a total net profit of €106 million – about 3 times more than in 2020.

The number of employees of companies with investor status – around 2,300 – remained virtually unchanged during the year with the entry and exit of several investors. In total, the Klaipėda FEZ has more than 100 companies that employ around 5,000 staff. In addition to the official investors, there are at least twice as many service businesses in logistics, security, maintenance, and other businesses.

According to Žygimantas Mauricas, chief economist at Luminor Bank, Lithuania’s growth in value added in the industrial sector in the EU was second only to Ireland, with the strong performance of the industry driven by rapidly growing investment and the flexibility demonstrated by Lithuanian companies in the face of changing global supply and production chains.

“The industrial sector is also important for Lithuania because these companies are like employers in other sectors – €1 of value added in industry adds €0.85 to other sectors such as transport, IT, financial and business services, construction, agriculture and energy. This makes the development of the Lithuanian industrial sector particularly important for the Port of Klaipėda, which can diversify its activities and partially reduce losses due to lost transit revenues from Belarus and Russia. Interestingly, per capita value added in the industrial sector in the Klaipėda region is higher than in the Vilnius region, and by this indicator the Klaipėda region is only slightly (3%) behind the leading region in Lithuania, Kaunas,” comments Ž. Mauricas.

According to Mr Kiudulas, the ecosystem of service companies is another obvious value of investment attraction – one job in an investor-status company creates at least one service job in the FEZ territory alone.

“Last year, Klaipėda FEZ once again had a year when the all-time support to businesses – €70.5 million – paid for itself faster than in one year in the form of taxes paid alone (€75.3 million). I, therefore, invite the city and especially the state organisations to continue to cooperate in finding new ways to attract talent and investment,” said Mr Kiudulas.

Lithuanian and foreign investors operating in the Klaipėda FEZ, established 20 years ago, have made and planned investments of €782.7 million. The largest new investment and development projects in the Klaipėda FEZ last year were implemented by Rehau, Retal Baltic Films, Roteksas, Elme Metall, Glassbel Baltic, Pack Klaipėda, Capella Baltic, Gelsta, Elektrinio Transporto Sistemos and Orion Global PET.

Marijampolė free economic zone (FEZ) is developing successfully and becoming increasingly attractive for potential investors. The FEZ management company is now offering a land plot almost 10 hectares in area, north of Lietuvos cukrus AB’s factory. This land plot has engineering networks and other infrastructure fully installed, and a railway track can be constructed to improve access to the facilities in the territory.

The street that starts the town’s northern by-pass

Marijampolė FEZ is situated near international transport routes Via Baltica and Rail Baltica.

According to the Master Plan for the Development of Marijampolė Town, another array of FEZ plots (over 12 hectares in area) has been designed and is being prepared for investors by the Marijampolė FEZ operator in the industrial territories in the northern part of the town. It is situated on the other side of the road No 2626, near the plants that are operated successfully by Dovista UAB and Juodeliai UAB. The arrays of the land plots will be connected by a street of Category C which is to become an important public transport artery. According to the concept that has been agreed with the Lithuanian Road Authority, it will be connected to the junction of Gamyklų and Vasaros streets, forming a busy northern bypass of the Marijampolė town that will connect Via Baltica and the road Marijampolė-Prienai-Vilnius. Being developed near Marijampolė, this bypass will enable the movement of transport flows directly from Via Baltica and Rail Baltica in the direction of Warsaw, Klaipėda and Helsinki as well as Vilnius or other Lithuanian-Polish border crossing points.

A ring junction will be constructed on this bypass street near Marijampolė FEZ. An open tendering procedure for this project will be announced soon. A technical design was prepared and delivered to the municipality by the FEZ management company.

A well-founded strategy

According to Simonas Petrulis, Director of the Marijampolė FEZ management company, the range of real estate services in Marijampolė and other regions of Lithuania will soon be supplemented by standard production premises that will be leased to medium and small investors.

‘We expect to be able to tell about this in greater detail at the end of the year’, says Simonas Petrulis.

He stresses that operations of the Marijampolė FEZ management company are consistent and stable even though significant geopolitical developments are taking place in global markets. According to Simonas Petrulis, ‘This is ample proof that we have chosen the right strategy of focussing on the attracting of investors that meet the Western and Nordics standards of transparency and business culture. We have opportunities for and experience in selecting investors that will join the existing family of industrial producers of higher value added and will provide broader job opportunities for local people’.

Importance of collaboration with the municipality

Practical experience of Lithuania and other states shows that land plots complete with requisite infrastructure is a precondition for competing in the attraction of new industrial investors. For this reason, Dovista UAB has chosen Marijampolė – of course, the convenient geographic location of the capital of Sūduva region has played a role, too. The Mayor of Marijampolė Municipality Povilas Isoda, the Council and the municipal administration take sustainable and dynamic long-term decisions that are beneficial for the economic development of both the town and the region.

Marijampolė FEZ management company is the municipality’s non-political long-term partner that has been established on the basis of public-private partnership and is promoting economic development of the region.

1,2OO new jobs

Performance indicators of Marijampolė FEZ are fully in line with the investment and job creation plan agreed with the Ministry of the Economy and Innovation including the stages of the plan‘s implementation. According to Simonas Petrulis, ‘Between 1,000 and 1,200 new jobs will be created in the environment of Marijampolė FEZ by 2027’.

342 people are employed by Dovista’s plant in operation in the FEZ territory. At the beginning of this year, the company announced its plans to invest EUR 5.5 million in the upgrading of production equipment and creating additional 250 jobs in the next few years.

Social responsibility

According to Karolis Jonaitis, Managing Director of Dovista UAB, a window and door producer, Dovista is a socially responsible entity that forms part of a Danish group of companies. It is concerned about both welfare of its employees and improving the environment of the Marijampolė municipality. Dovista is actively contributing to the setting up of ‘Leisure Oasis‘, a recreational space in Mariu Parkas Island. Dovista UAB has allotted EUR 403,000 for this project, with the remaining funds to be invested by Marijampolė Municipality.

Project documentation will be prepared this year, installation of requisite infrastructure will take place in 2023, and completion of the project is planned for 2024, with earlier completion at the end of next year expected.

Best indicators compared with other FEZ

Companies operating in Marijampolė FEZ paid almost EUR 1.3 million in contributions to the State Social Security Fund Board. Compared with other small FEZs of Lithuania, Marijampolė’s indicators such as amount of social security contributions paid, average pay and number of employees are among the best.

The companies contribute to the development of the region both directly and indirectly, which means a contribution to the economy of Lithuania as a whole, through payments to municipal and state budgets made by the FEZ companies and local enterprises servicing them; orders placed by the FEZ companies to local enterprises; personal income tax paid to the state budget; new job creation and spending of the earnings in the municipality and the region.