J. Dedela. It is the most difficult in Europe for small and medium-sized businesses to survive in Lithuania
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The Lithuanian business survival rate is the lowest in Europe: more than one in three does not survive the first year, and 7 out of 10 businesses do not reach their five-year anniversary, according to the latest Eurostat statistics. And although the past few years have been positive for the Lithuanian small and medium-sized (SME) sector, it is not enough.
Unlike most of the European Union (EU) countries, Lithuania’s MV pandemic will take its toll. In 2020, the number of employees in these countries grew by 1.4%, last year by another 2.1%, while the added value created by the company increased by 11.2%.
Even the tourism sector, pressed by restrictions related to the pandemic, whose value added shrank by more than a tenth in the first year of the pandemic, managed to recover last year and showed 8.7% growth.
SMEs, which are classified by Eurostat as businesses with up to 249 employees, generated EUR 18.4 billion in Lithuania last year. EUR added value, which accounts for 60.5% of the total income generated by private business. Thus, the importance of MV for the Lithuanian economy remains great.
We can also be proud of the fact that Lithuanians are among the most active business founders in the EU. The latest report released by Eurostat shows that in 2019 the number of new companies, compared to the number of operating companies, reached 19.4% and was the highest in the entire Community.
On the other hand, our country in the EU is also in the lead according to other, not so encouraging, statistics. the number of deaths (excluding mergers, repurchases, separations and other forms of restructuring) in Lithuania reached as much as 22.5%, according to the indicator only Bulgaria surpasses us with 29.5%.
This partly explains why Lithuania is an EU outsider according to the business retention rate. According to Eurostat data, 37% do not survive the first year (EU average 18%), and even 71% (EU 55%) of businesses in Lithuania do not reach their five-year anniversary. For comparison, in Sweden, the Netherlands and Belgium, the absolute majority (9697%) of young entrepreneurs complete their first year, three to five (5962%) in these countries reach their fifth birthday.
Is it necessary that it is unviable to create a startup in Lithuania? By no means. Our country has long been considered a good place for testing new, innovative products: it is a member of the EU, the market is relatively small, the society is educated, receptive to technology, the younger generation understands English and many other advantages.
Estonians may have been faster in the unicorn race, but we also have something to brag about when we join Nord Security at Vinted, and the start-up community is saying more and more that there will be more news.
And international studies confirm that the soil in Lithuania is well suited for startups: in the global ranking of startup ecosystems compiled by Startup Blink last year, we ranked 16th, and we were second in the Eastern European region. Meanwhile, Versli Lithuania calculates that in the first half of last year, the startup’s sales grew 2.6 times, while the export of value-added goods and services increased by as much as 2.9 times compared to 2020. in the first half.
inoma, MV is not only startups. And so far, more is rising for this sector. If at the beginning of the year, taking into account previous trends, 9.6% additional growth of MV was expected, and the number of employees was supposed to increase by 3.5%, then after the start of Russia’s war against Ukraine, optimism decreased.
Areas that are trying to stretch a lot
And although not everything depends on the individual entrepreneur, I have identified three areas where MVs face the greatest difficulties. First, financing: according to the data of the Bank of Lithuania last year, 40% of SMEs that applied for a loan did not receive it. In recent years, it has become increasingly difficult to get a loan for companies whose activities are considered more risky, those with fewer employees and who have not established long-term relationships with financial institutions.
It is true that there are results: the latest statistics of the Bank of Lithuania show that in the first quarter of the year, banks began to finance businesses more actively. The business loan portfolio totaled 423 million. EUR (4.6%) and reached 89.7 million. The euro was boiling before the pandemic, having been equal to
Money alone is not enough to develop and grow a business. The second obstacle for businesses at the moment is the lack of talent: even three to four oil companies confirm that their opportunities to invest are limited by the lack of experienced employees. According to how easy it is to find the right talent on the market, in the 2020s, our country ranks just 117th in the world (in 132nd place, based on the Global Talent Competitiveness Index).
Third, the productivity level of the Lithuanian labor force is only 70% of the EU average. In addition, it seems that the average business expenditure on research and development in Lithuania is only a third of the EU average, without implementing innovative solutions, productivity does not grow.
In the face of war Ukraine’s record inflation and predicted stagnation, it seems even more difficult, biting. On the other hand, they themselves dictate the answers: in order to achieve growth, it is important not only to secure funding and use it wisely, but also to attract and retain talent, increase productivity by investing in research and development. Maybe it’s not a straight road, but the direction is right.
The author of the comment is Justinas Dedela, sales manager of European Merchant Bank
The opinion of the author does not necessarily coincide with the editorial position.
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