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Saturday 16.12.2017 | Name days: Alvīne

Black economy kills Lithuania’s small business in hinterlands

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULinas Jegelevičius for the BNN

Are Lithuanians not enough entrepreneurial? This is to put it mildly, as the Eurostat statistics has thrown Lithuania in that regard to the very bottom of the EU index of entrepreneurialism – only a meager 9.7% of the compatriots work for themselves. The actual level of the self-employed, some Lithuanian economists insist, is a lot higher, but is overshadowed by black economy.

Far behind Western Europe

«The pretty low numbers reflecting the level of entrepreneurship in the country shouldn’t catch anyone off guard. Only for a couple dozen years, since the restoration of independence in 1990, Lithuanians are able to run their own business. The respective figure in Western Europe hovers around 30%, but let’s do have in mind most of the businesses there are being handed over from one generation to another,» Romas Apulskis, president of Lithuania’s Legal Business Alliance, told BNN.

Obviously, the local business peculiarities should also be taken into account, he agreed, and Lithuania by no means is a business haven.

«We still lack the skills, know-how and business ethics in comparison with the West. The shortage of initial capital to take business off the ground, comparably small market and the inconsistency of business legislation are among the other drawbacks. But I reckon all of them can be overcome over time,» said the LLBA president.

A motley Poland

If one whenever was driving from Poland through Lithuania had definitely to notice the stark contrast of the landscape on both sides of the border.

No, I’m not talking about the lusher greenery and brighter blooms in a usually warmer Poland. I have in mind the abundance of the mom-and-pop stores dotting the sidewalks of small Polish towns and rural settlements. One will hardly spot them on the Lithuanian side, a distinctive difference between the two countries.

«Indeed, that’s how it is. Despite the similar history of the past century, the Poles are keen on taking a private initiative,» agreed Jonas Mazaliauskas, a small businessman in Alytus, a near-border city in southern Lithuania.

But the Polish entrepreneurial exuberance doesn’t surprise economist Nerijus Mačiulis, who says is partly a result of a whole lot denser population on the Polish side.

There are as many as 13 times more inhabitants in Poland than Lithuania; therefore focusing a business on the domestic demand is considerably easier in Poland.

Importantly, the population in Poland is spread evenly, meanwhile, the rural reality in Lithuania is starkly different-people-less and those dwelling in the hinterlands are often jobless and rely on welfare allowances.

Around 18.9% of Poles is estimated to be self-employed and the Greeks in that regard are on top of list at 31.9%, with the Italians being runners-up at 23.4% and the Portuguese taking the third position with 21.1% of locals toiling on their own.

Africa’s Benin doesn’t set an example

But Ausra Maldeikiene, a prominent economist and associate professor at Vilnius University, insists that the real number of self-employed Lithuanians is likely similar to that one in Poland. What sets Lithuanians apart is the bulky part of small business submerged in the depth of black economy.

«Tax system in Lithuania works for the rich, not small traders. Until we don’t see a turnaround, the stats of self-employment won’t inch up,» she said.

On the other hand, the large number of entrepreneurs doesn’t necessarily means prosperity of the country.

In some African nations, the numbers of private businessmen are very high- nearly 90%, for example, in Benin- but no one would dare put it as an example of entrepreneurship.

Bootleg goods rule in hinterlands

The real scope of shadowy economy is particularly astonishing in rural Lithuania, where contraband rules.

Across the Lithuanian and Russian border and nearby vicinities samagonas (the Lithuanian name for home-made vodka) is sold in the broad light and the «hubs» of the trade are known within a dozen kilometers. But the booze peddlers are relatively safe until they break some unwritten rules, like compromising the quality of the product or selling it to minors. Behind the success is the staggering difference in price: one can get a liter of samagonas for LTL 8-12 (EUR 2.3-3.5), while as much of vodka in a nearest store is thrice costlier.

«No exaggeration, but I really don’t think that most of the seniors out there drink anything else from the shelves of a store. The bootleg vodka perfectly does the job, alike the contraband cigarettes for the local smokers, » Žydrūnas Pilitauskas, editor-in-chief of а newspaper in Plungė, a sleepy town in northwestern Lithuania, told BNN. «Ironically, in a small town like ours all knows who is who and, sure, local police is aware of the booze peddlers. The thing is no one wants to conflict with one another in small town like ours over what is widely accepted- relying on the contraband and hand-made vodka.»

Crisis aftermath still around

Behind the contraband and samagonas lies a grave economic situation in the Lithuanian provinces.

«I really don’t think that the downturn has left us. I just don’t see any economy recovery signs around. There are no investments, no new jobs are created and no wages are raised. As the black market remains very strong, small business shrinks. Look, the number of small stores is on the decline,» Arūnas Tarnauskas, director of JSC Gulbelė, managing a chain of small-sized stores, told.

Apulskis, from the Legal Business Alliance, concurs that the regions are still gripped with the tensions stemming from the lingering crisis, long overcome by the big cities.

«Unfortunately, we’ve been increasingly hearing of small businesses going bankrupt in the hinterlands. For that not only the demographics is to be blamed, but the strong black market, too,» the Alliance president noted.

It brings down a couple dozen tax-paying small stores in every municipality every year, he drew a comparison on the depth of the black market in the country.

Ref: 020/

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