KAUNAS: OPEN FOR BUSINESS

UNCLAS VILNIUS 000063 SIPDIS E.O. 12958: N/A TAGS: ECON XS LH SUBJECT: KAUNAS: OPEN FOR BUSINESS ¶1. Summary: Ambassador traveled to Kaunas January 27 and met with the Mayor, local business leaders from Kraft and UPS-operator Elinta, and representatives from women's issue NGOs (septel). Kaunas is the second largest city in Lithuania and is billing itself as a pro-growth, high tech region in Eastern Europe. It touts one of Lithuania's two Economic Free Zones, where both Lithuanian and foreign businesses can enjoy the same growth-friendly tax structure. End Summary. ¶2. Kaunas Mayor Andrius Kupcinskas opened the day by welcoming the Ambassador and highlighting the economic opportunity available in Kaunas. He noted that his city is in a unique spot because it sits at the crossroads of the planned "Via Balta" highway from Tallinn to Warsaw, and the main highway bisecting Lithuania, from Vilnius to Klaipeda (A2). Kupcinskas also called attention to the proposed 15,000 seat basketball arena scheduled for completion in early 2011. He said he hopes to attract an NBA caliber team to participate in a tournament celebrating its opening some time next year. -------------- KRAFT -------------- ¶3. After meeting with the Mayor, Ambassador toured the Kraft facility and sat down with its leadership to discuss the current investment climate in Lithuania. Managing Director Gintaras Rimselis and Manager of Corporate and Government Affairs Rasa Bagdoniene described the GOL as having good intentions but said more attention must be paid to laws and regulations already on the books. For instance, they pointed out that firms operating in Lithuania must remit payment to raw material suppliers within 30 days. This is well meaning but dis-incentivizes suppliers to operate on credit and does not take into account business cycles affecting the ability to pay. ¶4. Bagdoniene said she thinks the GOL needs to empower the "mid-level bureaucrats" to make the necessary pro-growth changes called for by the GOL leadership, something not currently happening. She characterized decision-making by the government at the local level as therefore, slow. Both Rimselis and Bagdoniene expressed appreciation for Embassy's role in promoting business growth and corporate ethics, and encouraged us to continue. -------------- ELINTA/KAUNAS ECONOMIC FREE ZONE -------------- ¶5. Ambassador also met with jack-of-all-trades entrepreneur Vladas Lasas and his team at Elinta, an umbrella company established in 1991 which serves as the UPS operator for Lithuania, an electronics system development company, and a marketing/developer for Lithuanian based e-commerce. Lasas says he deftly uses his UPS business to deliver other Elinta developed products to European and world wide customers. ¶6. Elinta is also well positioned for growth because it is situated in the Kaunas Free Economic Zone, a 500 hectare plot of land outside Kaunas, very close to the crossroads of the proposed Via Balta and A2 (see para 2). There are currently six companies operating in this zone, though none are American. These companies enjoy: -- Six year exemption from corporate income tax and a 50 percent reduction during the following 10 years, if the company invests more than USD 1.2 million; -- Exemption from the real estate tax; and -- A 50 percent discount on land leases. ¶7. Elinta also serves as the headquarters of the Kaunas Free Economic Zone and Lasas emphasized that he is actively looking for U.S. investors for the Zone. DERSE