Vaida Markevičienė: ‘Lithuania's economy will gain new acceleration’
Ambitious steps to implement strategical changes in the state’s governance and to promote the national economy are not simply set out in planning documents. The promotion of public and agricultural sectors in an effective, sustainable and responsible manner, reinforcement of the resistance of the financial market and the growth of capital markets are already being implemented by the Ministry of Finance of the Republic of Lithuania. The Government made the decision to merge four national promotional agencies more than a year ago: UAB Investicijų ir verslo garantijos –INVEGA (Guarantees for Investments and Business), Viešųjų investicijų plėtros agentūra – VIPA (Agency of Expansion of Public Investments), Valstybės investicijų valdymo agentūra – VIVA (Agency for Management of State Investments), and the Fund of Guarantees for Agricultural Investments. This is to create a unified promotional institution of a new quality, and the Ministry of Finance representing the state became the institution’s shareholder.
Vaida Markevičienė, Vice Minister of Finance, talked about the purpose of that merger, the expectations set for the new national promotional agency by the shareholder, and the benefits for the Lithuanian companies, public and agricultural sectors. According to her, the more effective institution will help companies and the agricultural and private sectors to implement their investment plans more rapidly, to generate greater value for the companies’ employees, local communities and national economies.
What was the purpose of the decision to merge INVEGA, VIPA, VIVA and the Fund of Guarantees for Agricultural Investments?
The idea to merge national promotional agencies was present in the programmes of this and previous governments; however, this political solution could not be achieved sooner. The main reason for merging the national promotional agencies was lack of investments in the areas of strategical significance for the state in Lithuania. Besides, we see that business is mainly funded from its own resources, and that is how we are distinguished in the European Union. To enable faster development of our economy and to direct sufficient investments into the areas important to the state, it is important to have one strong financial institution. Such examples are manifested in other countries: France has one national promotional agency BPI France, Germany has KfW, while in Lithuania there were three financial institutions – and one more appeared during the Covid-19 crisis. The services provided by these institutions were overlapping in some respects and sometimes the gaps in the market could not be filled by any of them. Therefore, following good international practice, merging of all the institutions would achieve a wider scope of service provision. It is considered that the national promotional agencies will be able to increase the leverage effect by almost two times. This means that by attracting private investors they will double their capacities, thus enabling expansion of the activities into wider areas and providing more opportunities for business.
When the present economics are global, the challenges that we encounter are intersectoral and it is already impractical, complex and inconvenient for customers to have different ‘drawers’ for each financial institution. It could be stated that even greening solutions or renewable energy do not simply fall in the field of energy but are also closely related to competitiveness. It is much more convenient for a business to come to one institution to receive the whole scope of financial services to the same standard.
What are the expectations of the Ministry of Finance for the strategical work directions of the institution?
As a shareholder, the Ministry of Finance has the expectation that one consolidated national promotional institution will work professionally, and be autonomous and politically independent. We want the institution to have an economic logic and to be able to decide which projects to finance according to their payback. The funds invested by the institution in certain projects or companies have to make a return and ensure long-term and sustainable work by the institution.
With regard to specific sectors, the institution would have to direct the money to the areas that Lithuania gives priority to, for example the green deal that is important for Lithuania and the European Union. This area has significant potential for national projects, and opportunities for companies to develop. Of course, the green deal became even more important when russia started the brutal war in Ukraine, when we realised how the fluctuating prices of resources could affect businesses and residents. Therefore, it is important to accelerate the investments into renewable energy to assure business competitiveness and our geopolitical safety.
Another relevant area is digitisation, which was accelerated during the Covid-19 pandemic. Now we have many digital businesses that need support to be able to compete in the global economy. New areas of possible performance became evident, e.g. developmental cooperation, the area where the institution could act together with international partners in restoration works for Ukraine. Essentially, the national promotional institution should act as a catalyst between the ministries with sectorial priorities, market participants and the financial sector. When all these aspects are united, the result will enable additional financing in the important areas.
What is the benefit of the consolidated united national promotional institution for participants in economics – business, public and agricultural sectors?
With regard to the benefit for business, the institution will ensure that businesses could access all the financial services provided by the state in one place. Until now, a company operating in the agricultural sector for example, has had to access services from three or four institutions. If such company had wanted to invest in renewable energy, it would have applied to VIPA. If they had been thinking about expansion, they would have applied to INVEGA and the Fund of Guarantees for Agricultural Investments. For difficulties encountered during the pandemic, VIVA would be the entity to apply to. This is neither convenient nor sustainable. One consolidated company will make sure that all the services are available in one place and to the same standard. Such a system is more comfortable for business and will assure a wider scope of services. Because of numerous national development institutions, several tools were present in certain areas, while in others no state financing was available. The consolidated institution with one strategy will be able to fill the market gaps more effectively and respond to business needs.
With regard to the benefit to the state, the institution will also provide services to participants of the public sector in the financially redeemable areas. In general, the institution, with the help of these services, will assure that the Lithuanian economy could grow more rapidly and induce development of higher value-added economics. Lithuanian businesses have been mainly financed from their own resources, which means that companies have to accumulate sufficient reserves to be able to invest. When access to financial instruments through the national development institution is assured, companies will be able to realise their investment plans earlier and thus create greater value for their employees and the state in general.
What influence will the national development institution have on the Lithuanian financial and capital markets? Why is it important for everyone?
The national promotional institution will operate in the areas where the market is not operating. Its main task and purpose is to fill the market gaps and to create opportunities in the areas where these are not created by private sponsors. In essence, businesses can accumulate funds for their investment projects or they may refer to the traditional financers – banks. In addition, businesses can participate in capital markets by including their shares in the list of exchange trade in the market by including their own capital, lending or by issuing debentures. The Lithuanian capital market is very shallow; we are probably among the worst compared to the market’s development in Europe. This means that businesses have limited opportunities to invest, using their own resources or bank financing. The developed capital market would create more opportunities for businesses to implement their own investment projects – to access financing when it is needed, to have an alternative when banks lend less for reasons of the economic cycle, and thus implement their investment projects faster.
Besides, the developed capital markets help the residents because they can invest their money and receive a certain financial return. The national promotional institution will help to develop capital markets through two channels. First of all, the national development institution already has measures to help businesses access the capital market, for example the measure that compensates part of the expenses incurred when a company wants to become an exchange company in the market or to borrow by issuing debentures. Moreover, the national development institution and its Baltic partners are establishing the fund that would invest in the companies that decide to become exchange companies in the market and thus encourage other institutional or major investors to invest and grant capital for joint stock companies. Another channel where the national development institution will be able to finance itself by attracting financing in the market is issuing debentures, and thus enabling and increasing the volume of the market or encouraging investors and companies to use the same mode to attract money.
What advantages will be experienced by the national promotional institution from building relations with institutional investors?
With regard to the scope of the national promotional institution, when four institutions are merged they will be able to develop their activities faster and attract more funds from the market and from the institutional investors. Until now, each of the institutions has been cooperating with the market participants and the institutional investors, but their portfolios were much smaller and the capacities to attract big investors were more difficult, or their participation was of smaller volume. One entity with a huge portfolio and a very wide scope of activities will become a stronger, more reliable and desirable partner for market participants to invest with a national promotional institution. For institutional investors, it will encourage international financial institutions to join the institution and to create more certain financial instruments jointly.
What would be your vision for success – how should a successful national promotional institution distinguish itself?
The main success indicator of the national promotional institution is, of course, satisfied customers who could receive all the services needed in one place, conveniently and at the right time. Such services can be provided only by the institution whose employees are competent, motivated and see meaning in the work they do. Therefore, I hope that the institution’s employees are able to realise their potential, while companies and residents should use the services of the national development institution to achieve their goals.
The basis for success of the national promotional institution is a strong partnership and cooperation between the national development institution, ministries, business and private market participants. Only when these details are joined into one, we will assure the new acceleration of the Lithuanian economy and generation of more added value.