Linas Jegelevičius for BNN
As autumn sets in, so does gloom in Lithuanians’ mood – many are bracing for difficult months ahead. Perhaps unprecedentedly nerve-racking and purse–pinched.
«Our sewing company is winding down its activities. The German businessman, who owns it, explained us bluntly the deterioration of Lithuania’s relations with China over Taiwan and now the war in Ukraine are just too much for the company to bear. We relied heavily on exports of Chinese threads and the war in Lithuania’s relative proximity scares the owner,» Edita, a garment designer in the Vilnius-based company, told BNN.
Clothing manufacturers’ revenues are still on decline – as much as 12% from the start of the COVID pandemic in 2020, according to the analysis of the Creditinfo Lietuva credit bureau.
Fabric manufacturing companies are faring a bit better, but both sectors continue to shrink in terms of employment. Although the number of clothing manufacturing companies in Lithuania increased slightly from 1 285 (2019) to 1 341 (2021), the number of employees in this sector decreased by 12 percent during this period – from 1 4803 in early 2020 to 13 068 in late 2021.
Due to the impact of the pandemic, the income of this sector also fell by almost 12% – from 396 million euros in 2019 to 350 million euros in 2021.
«The garment sewing business has lost steam. Lithuanian workforce has become too expensive and then you have the pandemic and the war spillovers,» Edita underscored to BNN.
Once Edita is out of job by turn of the year, she has no idea what she will do next. Her husband works for a state institution, but his salary is less than one thousand euros.
«The prices are exorbitant. Just for the preparation of our two sons for the new school year, we spent over 300 euros. If the state does not extend its hand, we may end up in trouble,» the Vilnius resident confessed.
With electricity and gas prices rising to new record highs, the country’s all industries are facing huge challenges. Trying to shun losses, some companies, like «Solteras» in Panevėžys in the northeast of Lithuania, are already stopping perlite production and consider moving to Poland as a solution.
«Solteras» director Dainius Spirikavičius says that a critical limit has been reached.
«Costs are such that our production loses competitiveness. Gas and electricity have increased in price about ten times. We used to pay up to 20 000 euros per month for gas and electricity, now the bills are about 200 000. We have no other way but to stop the activity,» he told Lithuanian media.
Many trouble-stricken companies, like «Solteras», handle the emergencies on their own. But some other industry sectors ring alarm bells – if the government does not come at the rescue now, it can be too late soon.
Gytis Kauzonas, director of the Lithuanian Poultry Association (LPA), has warned this week that this winter will be critical, as the sheer majority of the poultry industry companies will default on energy bills. He says it is impossible to stop the production because of the millions of live birds in the country’s farms.
LPA requests state support: 0.09 euro cents per kilogram of a broiler and 0.9 euro cents per egg. Another request it has for the liberal-conservative government is to simplify the requirements for state support – after the pandemic years, the financial results many poultry farms see are very poor, he claims.
«This support is needed because egg farmers are being pressured to switch to free-range hens and the entire sector would need over 60 million euros for this. For broilers, it would be about three million euros per year. In addition, subsidies are needed today to offset energy costs. The business is unable to pay all the bills alone and is in a trap,» the LPA head underlined.
He says the poultry sector in Lithuania is disappearing and without state support, the sector may not survive next year, as the price of gas went up ten times, electricity – three times.
Business representatives warn that if the government does not take measures to curb the prices of energy resources, mass layoffs and corporate bankruptcies will begin.
In fact, they have already begun – in the last six months, 1.7 times more Lithuanian companies operating in Lithuania started bankruptcy procedures than in the same period last year, say the latest bankruptcy statistics published by the Lithuanian Department of Statistics.
According to its data, in the first half–year of 2022, 312 companies initiated bankruptcy in the second quarter. Of them, 274 started the procedures in the second quarter.
Yet the largest number of companies for which bankruptcy proceedings were initiated operated in the construction sector: in the first half of this year, bankruptcy proceedings were initiated for 137 construction companies, and in 2021 in the same period – 57.
The number of initiated bankruptcies has almost doubled in the economic entities providing wholesale and retail trade, motor vehicle, and motorcycle repair services: 135 companies announced initiated bankruptcy during this half–year, compared to 64 in the same period last year.
Similar and statistics of establishments providing accommodation and catering services. This year, in the first half of the year, the bankruptcy procedure was initiated for 61 companies, last year – for 33 companies during the same period.
The situation is also difficult in the field of processing production: 53 companies working in this field announced and initiated bankruptcy in the first half of the year, compared to 35 during the same period last year.
According to the data of the Lithuanian Statistics Department, the largest number of bankruptcies initiated in the past six months are in the counties of three large cities: 271 in Vilnius county, 121 in Kaunas, and 83 in Klaipėda.
Economists and organizations protecting business interests are talking loudly that if struggling businesses do not receive state aid, the number of bankrupt companies will only increase, but the general economic situation is not yet as dramatic as it was before the 2008 crisis.
Meanwhile, Swedbank economist Nerijus Mačiulis claims that the increase in the number of bankruptcies should not be surprising. There are at least several reasons for this. In particular, after the end of the pandemic and the end of state support, some companies were unable or unwilling to recover. However, it is more likely that this year some companies were tripped up by the greatly increased energy costs. As the average price of electricity has increased by almost ten times, companies that are highly dependent on it and have not signed long-term fixed price contracts have found themselves in an unenviable situation.
Another reason, especially concerning the second quarter of this year, bankruptcies could already be initiated by companies whose activities were too dependent on trade relations with Russia, he says.
However, according to the economist, with the exception of isolated problematic cases, the overall situation is not dramatic: in the second quarter of this year, more than 50,000 jobs were created. new jobs, the number of unemployed is the lowest in the last 15 years, and the average salary increased by almost 15% this year.
«It is likely that we will see an increase in the number of bankruptcies in the coming years due to declining global demand, the continuing European energy crisis, and problems in Eastern markets. The unemployment rate may increase by one percentage point in the next few years, a slight contraction of the economy lasting several quarters is also likely, but the probability of a deep crisis remains low,» says N. Mačiulis.