Optimism even in the face of a pandemic: this year more companies have been established in Lithuania, profits have increased Business

3 percent more startups

In the analysis of Lithuanian entrepreneurship trends carried out by the Versli Lietuva agency, it was noted that at the beginning of this year, there were 87.1 thousand companies – that is 2.3 thousand. over a year ago. In total, 9,951 new companies were registered in the three quarters of this year, which is 287 (3%) more than in 2019.

“The situation of the enterprise and the start-up has not deteriorated despite the impact of the first wave of COVID. The popularity of small communities continued to grow, their number among all operating companies increased by 24%. The popularity of limited liability companies has increased and the number of sole proprietorships has decreased, ”said Vadimas Ivanovas, head of the Research and Analysis Department at Verslios Lietuvos, at a remote press conference on Wednesday.

It is estimated that the number of sole proprietorships decreased by 6.9 percent. and this is associated with an increase in the popularity of small communities.

The vast majority of operating companies (82.4%) were very small with 0 to 4 employees and small with 5 to 9 employees. By economic sector, the majority of companies (76.1%) operated in the service sector, less (11.0%) in industry, construction (10.3%) and agriculture (2.6%) .

According to V. Ivanov, the tendency to create new businesses even in the face of the crisis can be determined by various reasons. The first is the discovery of new niches and services that until now were not necessary.

“We really have a lot of successful companies that grew in the quarantine and post-quarantine period,” he explained.

The number of bankruptcies has decreased

True, this trend may also indicate the fact that business owners who see that existing businesses will not be saved are building new ones to relocate the business and manage debt.

“Nor would I rule out that possibility, but now it is difficult to say what the trend is, since the decline in companies has decreased significantly, about 40 percent compared to last year. But closing a company is a very complicated and long procedure. The downsizing of companies has decreased only because it has become more difficult to do so and there is no possibility of doing it by remote means, “said V. Ivanov.

It is estimated that in 2020 1.6 thousand were discharged in the first half of the year. Legal persons.

According to V. Ivanovas, the survival rates of companies are decreasing and in 2019 already reached 50.5 percent. However, the situation is not considered bad due to the start-up indicators.

“Intensive establishment of companies, test of business ideas and possible failure indicate positive things. Entrepreneurship among the population of Lithuania is growing and more and more people are trying to do something. Maybe not everyone is lucky, but after a couple from failures, competencies have increased and other businesses can be much more successful and have great growth potential, “he explained.

Decline and self-employment

When looking at the situation of the self-employed, it can be seen that in the second quarter of 2020, the number of self-employed in the national economy decreased by 0.5% during the year, while total employment decreased by 2.2%. – the biggest negative impact was on employees.

“Most likely, the support measures introduced to the self-employed have contributed to this and have helped them survive, at least to some extent, to offset the losses in the second quarter of this year,” he believes.

It is observed that the greatest decrease in the number of self-employed was observed in the construction and commerce sectors.

“The number of self-employed workers has been steadily declining in recent years. This is because the economy is growing, wages are growing and the motivation to remain self-employed is decreasing ”, he is convinced.

GDP declined and earnings grew more slowly

In the environment of the COVID-19 virus, the growth of the Lithuanian economy in 2020 is negative, but the decline in economic activity is much less than expected at the beginning of the year.

In the first semester of the year, our country’s GDP decreased by 1.2%, so far the greatest drop was observed in the second quarter, when it reached 4.6%. According to preliminary data, the GDP indicator for the third quarter has decreased by 1.7%.

“The impact of the first wave of the virus on the Lithuanian economy was mitigated by the financial support of the state to companies in the domestic market, and the growing profits of commercial companies since 2010 has allowed them to accumulate a sufficient amount of financial reserves. . The fact that the economic recession in Lithuania’s main export partners was less than the European Union average also contributed to improving the situation, as well as the fact that the structure of Lithuania’s exports is characterized by a large proportion of essential consumer goods. However, the second wave of the virus causes a lot of uncertainty both in Lithuania and in the international environment, which is why the drop in Lithuania’s real GDP in 2020 is still projected to be around 2 percent, “said V. Ivanov.

According to the calculations of Verslios Lietuvos, in the first half of 2020, even during the COVID-19 virus pandemic, Lithuanian companies managed to increase their profits. Non-financial corporations profit before tax increased 2.4% in the first half of the year. per year, by comparison, in 2019, earnings growth reached 10 percent.

“Yes, the economy contracted in the first half of this year, but corporate revenue did not decline as fast as costs. Companies were able to increase profits compared to the first half of last year. Despite the loss of revenue , Lithuanian companies were able to optimize costs, which was probably due to government incentive measures and the profit was higher this year, even higher than last year, ”explained V. Ivanov.

The extent of the impact of COVID-19 is determined by the sector

Verslios Lietuvos’ analysis showed that in the first half of this year, the decline in economic activity was mainly due to the difficult situation in the manufacturing and services sectors.

“The manufacturing sector was the most affected by the shock caused by the pandemic in foreign markets, and the negative changes in the service sector were determined by trends in the domestic market after the introduction of activity restrictions. Analyzing the service sector, we see that the greatest impact is in the activities of wholesale and retail trade, transport, accommodation and restaurant services ”, said V. Ivanovas.

These trends are also reflected in the Sodra data: the greatest decrease in the number of insured people is observed in accommodation, food services (-12.4%) and administrative and support services activities (-7.6%) .

“We see that it has been difficult to recover from these activities after the first wave of the pandemic, so the second wave represents the greatest risk for them. These activities are likely to face a higher probability of bankruptcy even with support programs. Of course, the second wave of the virus may have more negative consequences for the Lithuanian economy as a whole: the deterioration of business expectations and wasted profit reserves may lead to different business decisions than during the first wave of the pandemic ”, predicts the head of Business Lithuania’s Research and Analysis Department.