Lithuania among world’s TOP5 most competitive countries in terms of international trade

2021-06-21
Lithuania among world’s TOP5 most competitive countries in terms of international trade

This year Lithuania rose from the position 31 to 30 among 64 countries in the global competitiveness rankings compiled by IMD, the Swiss International Institute for Management Development. Lithuania ranks highest in international trade competitiveness and rose from the position 7 to 5 in the world.  Lithuania will be able to strengthen its overall competitiveness and exit the average competitiveness segment thanks to the emerging features of the innovative country.

In the Eastern European region, which includes our country, Estonia ranks best – the country has risen from the position 28 to 26. Lithuania is second among twelve other countries in this region. Latvia has climbed by as many as three positions to 38th place this year. Our neighbour Poland ranks 47th in the rankings. The total result of Lithuania this year (30th place) remains within the same range of ranking positions for the last 5 years, when Lithuania’s position ranged between 29 and 33 places.

Switzerland, Sweden, Denmark, Holland and Singapore were rated the world’s most competitive countries in 2021 followed by Norway, Hong Kong and Taiwan. The United States ranks 10th.

“The strong common position of Lithuania’s competitiveness in the region and competitive international trade in the world show that Lithuania is distinguished from other countries in the world as a smart start-up, able to adapt quickly to changing circumstances and benefit from the current situation. We have already taken many of the right steps, so we are relevant globally, and the innovation reform implemented in the country will undoubtedly help Lithuania to overcome the medium-competitiveness segment faster and reach the competitiveness peaks in many other areas,” says Economy and Innovation Minister Aušrinė Armonaitė.

According to the ranking analysis conducted by the Research and Analysis Division of Versli Lietuva, Lithuania’s high competitiveness of international trade is attributed to excellent export diversification (2nd place in the world), high share of business services exports in relation to GDP (6th place in the world), well-rated share of goods exports in relation to GDP (11th place in the world) and good share of total volume of international trade (exports and imports) in relation to GDP (12th place in the world).

This year, a group of public sector indicators contributed the most to a better position in the rankings, with an assessment rising from the position 33 to 31 in a year. It was not possible to achieve a higher overall position due to a sharp fall in the assessment of the group of business efficiency indicators, when the country slipped from the position 24 down to 30. The assessments of the infrastructure (34th place) and economic development (33rd place) indicator groups did not change, although separated criteria also tended to decrease and increase. The UAE (4th place), the Netherlands (3rd place), Hong Kong (2nd place) and Singapore (1st place) are at the top of international trade competitiveness ahead of Lithuania (5th place).

The IMD rankings are based on both statistical information and surveys of business representatives. Statistics often reflect the state of the country in the past, while management surveys allow an assessment of the current mood and attitudes of the business community and reveal competitiveness factors not reflected in the statistics, such as cultural attitudes, management practices or the assessment of the business environment.

The IMD competitiveness rankings assess the ability of countries to create and maintain an environment that helps businesses to be competitive. Competitiveness of countries cannot be measured solely through the level of GDP generated or the prism of labour productivity: GDP reflects the added value generated in the country, but does not reflect the accumulated human capital and physical infrastructure. The favourable or unfavourable business environment also consists of political, social and cultural factors and effective public sector institutions,” says Vytautas Adomaitis, Head of the Business Environment Improvement Group of Versli Lietuva.

According to Adomaitis, the main challenge for Lithuania remains the growth of labour productivity and wider application of innovation with a view to creating a higher value-added economy in the future, not a low-cost labour-based economy. ”The necessary conditions for innovation are the development and attraction of talent and skills, investment and a favourable regulatory environment. These conditions cannot be created without a strong public sector capable not only of identifying problems, but also of implementing the necessary reforms,” points out Adomaitis.

Features of innovative country must emerge

The development and attraction of talent, investments and a favourable regulatory environment are the main features of the innovative country, assessed in the IMD world competitiveness rankings, and strengthening these features in the country would allow increasing Lithuania’s competitiveness in the future.

“Education indicators used in the rating show that the level of total education costs per capita in Lithuania is higher than the level of education costs per pupil or student. This reflects the high cost of maintaining education infrastructure. At the same time, the ratio of pupils and teachers in Lithuania is good compared to other countries. On the other hand, although 55.6% of the population of the country aged 25 to 34 have completed third-level education (post-secondary and higher), the value of this education in both business surveys and international university rankings is not well valued,” suggests Adomaitis.

In his words, the increase in international evaluation of Vilnius University this year is encouraging in the field of higher education. The planned implementation of a transformation of secondary education towards more integrated programmes based not only on the accumulation of business knowledge, but on the development of key competences provides hope that the quality of secondary education will eventually be improved. “When attracting foreign talent, regulation of the employment of foreigners remains an important obstacle in Lithuania – according to this assessment, the country is in 55 ranking place,” notes Adomaitis.

According to the IMD index, the investment environment in Lithuania is not particularly competitive. “In terms of foreign investment, Lithuania’s rating is traditionally the lowest of all the valued aspects (53th place), as not only investment flows are valued, but also accumulated investments, which in Lithuania are relatively small due to its relatively short economic history. Domestic investment opportunities are likely to be limited by restricted access to finance. In terms of financial business opportunities, Lithuania ranks in 43th place,” points out Jonė Kalendienė, Head of Research and Analysis Division of Versli Lietuva.

According to her, this is due not only to the low level of development of the financial market, but also to the difficulty of accessing business credit in banks. On the other hand, business sentiment itself has become less optimistic than before: public attitudes towards entrepreneurs have deteriorated, and uncertainty about the future has increased. “In such circumstances, investment growth should not be expected to be particularly rapid. However, these changes may be temporary due to the challenges in the country and external markets during the pandemic,” says Kalendienė.

In the long term, innovation is important if we want to direct investment towards the creation of higher value; in terms of innovation, Lithuania ranks in 43th place. “Although we have a number of employees in research and development activities, their funding remains low, and business spending on research and development is not rising. As a result, we cannot boast about the high performance of innovative activities – the number of patents, the exchange of knowledge based on scientific and business cooperation. It is clear that there is a lack of incentives and resources for innovative and investment activities in Lithuania,” points out Kalendienė.

A regulatory environment that sets clear and predictable rules, avoids excessive costs and adapts to changing conditions is another feature of an innovation-friendly country. “The overall assessment of the efficiency of Lithuania’s public sector has improved this year. This assessment reflects an improved assessment of policy transparency and adaptation to changed conditions. On the other hand, estimates of bureaucratic burdens on businesses and perceptions of corruption have deteriorated. Another reflection of the regulatory environment and tax system is a large share of the shadow economy, which thrives due to a large variety of business forms and different taxation of these forms,” notes Adomaitis.

In his view, the creation of a tax system conducive to business growth requires not only the abolition of non-growth tax incentives, but also the reduction of the diversity of forms of business and their taxation. This diversity creates incentives to preserve the tax benefits of small businesses, but does not encourage them to grow.

In summary, it can be said that the emerging features of an innovative country will help Lithuania to strengthen its overall competitiveness and to leave the ranks of middle-competitiveness countries.

About the rankings:

The IMD competitiveness rankings have been in place since 1989 and are being presented for the 33rd time this year. Lithuania has been evaluated and compared with other countries in the world since 2007. The IMD partner in Lithuania is the entrepreneurship and export development Agency Versli Lietuva, which provides statistical analysis and assists in conducting the survey of Lithuanian business executives.

For more information about the 2021 IMD world competitiveness rankings visit: https://www.imd.org/centers/world-competitiveness-center/rankings/world-competitiveness/

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