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.

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KRAFT
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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.

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ELINTA/KAUNAS ECONOMIC FREE ZONE
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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