Cities and regions are essential for a country’s economic development. In recent years, regions have been attracting more investment, creating new employment opportunities and making Lithuania more appealing to foreign investors. Regional businesses’ contribution to Lithuania’s tax collection is significant and growing. Last year, the total revenue collection of the state and municipal budgets reached EUR 17.34 billion, 9.1% more than the previous year.
According to the State Data Agency, Lithuania’s regional economies have grown at an average rate of around 3–4% in recent years. Traditionally, Vilnius and Kaunas have been the leading regions with the highest gross domestic product growth.
However, some smaller regions have shown exceptional performance in certain sectors, such as drawing more foreign investment or developing innovation in agriculture, logistics or industry. For example, investments in Free Economic Zones (FEZs) in regions such as Klaipėda, Panevėžys and Marijampolė have contributed significantly to economic expansion and job creation.
Looking at regional development in Lithuania, certain regions stand out for their success in attracting investments and creating a favourable environment for small and medium-sized enterprises. According to data from the State Data Agency and the Bank of Lithuania, among non-metropolitan areas, Kaunas, Šiauliai and Panevėžys have recorded the highest growth rates in recent years. Meanwhile, Mažeikiai, Klaipėda and Marijampolė have distinguished themselves in terms of investments attracted and investment amounts per capita. Notably, Marijampolė recorded the highest growth in foreign investments per capita, reaching 49.4%. It was closely followed by Telšiai (46.6%) and Kaunas (23.8%).
Investors are discovering the regions
One key driver of regional success is government incentives and the expansion of FEZs. There are currently seven FEZs in Lithuania: Kaunas, Klaipėda, Panevėžys, Šiauliai, Akmenė, Kėdainiai and Marijampolė. The main goal of these zones is to promote investment, business expansion and employment creation in these regions.
Lithuanian FEZs have attracted significant investment in recent years and created thousands of jobs. For example, the Klaipėda FEZ employs more than 5,000 people, and the annual turnover of companies operating in the zone exceeds EUR 1 billion. The Kaunas FEZ is also notable for its successful projects: major foreign and local investors are based here, and the zone secured several new major projects in 2023. Today, the Kaunas FEZ estimates that businesses have invested more than EUR 1.5 billion. Similarly, the Panevėžys FEZ has experienced growth in recent years, particularly in the manufacturing and technology sectors.
According to the State Data Agency, the capital region has seen the greatest share of foreign investment in recent years from Germany, Estonia, Sweden, the Netherlands and the United Kingdom. In the Central-West region, Polish investment accounts for around 13.1%, the Netherlands 10.5%, Germany 9.8% and Switzerland 8.3%.
Notable foreign investors include names such as Continental, Hella, Hollister and UPS.
Success stories can be seen in almost every region. For example, Jonava has established new manufacturing and logistics companies, while Kėdainiai has become a model centre for biotechnology and agricultural innovation.
Government incentives
The establishment of FEZs is one tool used to attract foreign businesses to settle in Lithuania. The country’s convenient geographical location, tax incentives and availability of skilled workers make it appealing to foreign companies. Lithuania also offers a variety of other incentives, not only for foreign investors but also for local businesses.
Newly established businesses can qualify for corporation tax relief, allowing small businesses to be fully exempt from corporation tax in the first year of operation. Additionally, research and experimental development companies can benefit from various incentives. These include reduced corporate tax rates, accelerated depreciation and cost deductions.
Companies investing in technology upgrades can benefit from tax relief. If the investments are aimed at increasing production or service capacity, implementing new processes or modernising existing ones, they can reduce their taxable profits by up to 100%.
How to maintain sustainable growth
In my view, if regional growth is to be dynamic and sustainable, it is essential to focus on long-term strategies that include both economic and social aspects.
Businesses should invest in technology and digitalisation to optimise processes, reduce costs and create high value-added products or services. However, it should be borne in mind that the use of such technologies should be a sequential rather than a one-off solution. Innovation opens up opportunities to expand markets and strengthen exports.
However, it is not only technological solutions that are important, but also their management. Modernising the labour market, developing new skills and improving social infrastructure are other important priorities that should not be neglected.
I believe that it is very important to invest in the qualification and training of the workforce in order to produce the necessary specialists who will contribute to the strength of the regional economy. There is a shortage of specialists in Lithuania’s regions, and local business initiatives to attract talent and cooperation with universities, vocational schools and training centres could help fill this gap.
Regional businesses should cooperate more among themselves and with foreign partners. Participation in business associations and accelerator programmes can help to gain new knowledge, contacts and markets.
