Linas Jegelevičius for the BNN
Things did not look very good before scathing sanctions against Russia, but now, coupled with war in Ukraine, as well as rough relations with China over Taiwan and the exorbitant energy prices, they look even bleaker for Lithuania.
Until now, Russia was among top-three countries both on Lithuania’s export and import lists. Statistics Lithuania, the country’s chief statistical bureau, told BNN that trade with Russia amounted to over 8 billion euros last year. Most of it, however, consisted in re-exports rather than trade in Lithuanian-made goods.
Nerijus Mačiulis, chief economist at Swedbank Lithuania, estimates that severing trade with Russia could thin Lithuania’s GDP growth by 2 points.
«Some companies will be affected, but macroeconomic effects would be small. If we’re talking about a 2-point slower growth, I think this is a small price to pay to stop the Kremlin’s military aggression,» he told Lithuanian media.
Meanwhile, Russian imports in Lithuania mostly consist of oil, as well as iron, steel, aluminium, fertilisers, timber, plastics, salt. Many Lithuanian industrialists were already complaining about disruptions of the supply chain before war, as well as over high prices of imports, a result of tense geopolitics. For example, on the London Metal Exchange, the price of aluminium has gone up ca 130 percent recently.
Donatas Bepirštis, director of UAB Linoksa, a stainless steel and aluminium product trader in Lithuania, told BNN that the situation with aluminium supply has been «very complicated» over the last year.
«But perhaps the worst thing is not about the price (on the exchange), but the scarcity of aluminium raw material, which, first, is due to the geopolitics,» he said.
But war in Ukraine has shut Russia’s aluminium market to all the EU and Lithuania, too. Completely. The European Union has approved and enacted a fourth sanction package against Russia, which includes an import ban on steel and aluminium. As a result, the prices took another leap to the skies.
«Coupled with the soaring energy prices (energy can account for up to half of the cost of making aluminium, which is why traders nicknamed the commodity congealed electricity- L. J.), this makes things even worse for the end client,» the businessman said.
«Among other things to consider when speaking of aluminium market is China, which is in transition of becoming an aluminium importer. It used to be a major an aluminium exporter before. Many local aluminium part producers are very weary and wary of the situations,» Bepirštis said.
Linoksa product prices have gone up ca 100-115% over the last year. The company buys intermediary aluminium products.
Arūnas Laurinaitis, chairman of the Lithuania-Russia Business Council, says companies with investments in production facilities are in a more difficult position since they cannot unload those investments very fast. Moreover, as Russia has raised barriers for capital leaving the country, it could be impossible.
Economist Aleksandras Izgorodinas says re-exports, or transit goods, are serviced by Lithuania’s logistics sector, which means that Lithuanian carriers will have to look for new markets.
Although Russia was Lithuania’s number one destination for re-exports, the losses could be compensated for by markets in the European Union, he believes. In his words, exports of Lithuanian-made goods amounted to about 600 million euros last year. For comparison, Lithuania’s exports to Germany, the biggest export market, were worth 1.8 billion euros last year.
Egidijus Mackevičius, executive director of Lithuania’s Meat Processor Association (LMPA), told BNN that the country’s meat exporters pulled out from Russia right after Russia’s annexation of Crimea in 2014.
«It was a right decision. The Russian market is ridden by problems and instability. When it comes to China, it is a good market, but we’ve made just initial steps in it. Last year, 700 tons of meat were hauled to China by a single Lithuanian meat processor. But with strained relations between China and Vilnius, the tie has been cut. Our main focus now are stable markets, i.e. the EU and the United States,» the LMPA executive emphasised to BNN.
With the sowing season behind the corner, neighbouring Lithuania is short of roughly one fifth of the fertilisers it needs. The news on Ukraine’s grain export ban, coupled with the closure of the Russian grain market, is exacerbating the situation, with many Lithuanian farmers predicting exorbitant bread prices down the road.
«The first wave of a grain price surge was last autumn. It stood at around 30-50 percent and was due to the disruptions in grain supply, a result of the COVID pandemic. We were expecting a bottoming-out, but the Ukraine war changes things dramatically. As Ukraine and Russia are the largest grain exporters, the war means a direct impact on the market, a very, very tangible one. The daily fluctuations on grain bourses are insane – 5-15 percent, meaning that the price for a tonne of wheat can go up 70 euros daily. Meanwhile, the old harvest is getting expensive too,» Karolis Simas, head of «Agrokoncerno grūdai», a major Lithuanian grain market player, said.
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He says Lithuania will have to import fertilisers from as far away as Canada, Chile and Morocco.
Lithuania’s construction sector depending partly on imports of materials from Ukraine is also looking warily at the geopolitical situation. It is obvious that, in the wake of Lithuanian companies’ severed ties with Russia, out of solidarity with Ukraine, the effects will be felt by some sectors more gruesomely than by others.
Yet most importers agree they could find alternative sources, but at a higher price. Furniture makers have said that some of their materials could become twice more costly.
Even those that do not make the decision themselves may find it impossible to pay their Russian suppliers, as Lithuania’s central bank is planning to impose restrictions on financial transactions. The central bank will not allow its system to be used to make payments to Russian citizens, companies in Russia and companies owned by Russian citizens or entities. There may be around 1,600 Russian-owned companies in Lithuania.
Last week, the EBRD approved a 2-billion-euro aid package to aid people, businesses and countries affected by the war in Ukraine, including the Baltic states. The EBRD may approve additional aid packages later this year, if needed.
In all, there are estimated 250 Lithuanian companies with operations in Russia. The number went down significantly after Russia’s annexation of Crimea in 2014.
BNN ANALYSES | Lithuania braces for triple loss of markets – in China, Belarus, now in Russia
