By James M. Gomez and Aaron Eglitis
March 27 (Bloomberg) -- Dalia Markeviciene created one of Lithuania’s largest kitchen designers after the country opened to capitalism in 1991. Now she is seeing the market’s down side.
With sales off by 25 percent, Markeviciene has slashed her 200-person workforce to 60, dropped high-end models and rented space in her Vilnius showroom to other retailers.
“Forget investment, everyone’s thinking only about surviving,” she said. “We’re witnessing panic.”
The Baltic economic crisis, the deepest in the European Union, is hitting entrepreneurship in Lithuania, Latvia and Estonia, former Soviet republics with few large companies to provide employment. The $350-million market value of Lithuania’s largest traded company, TEO LT AB, is smaller than all but one of the Standard & Poor’s 500 Index members. The $6.3 billion value of all Baltic companies is less than last year’s profit of Verizon Communications Inc., the biggest U.S. phone company.
Small business “is extremely important, because that’s where you have the future big companies” in the Baltics, said Anatoli Annenkov, a senior economist at the London-based European Bank for Reconstruction and Development. “That is where you talk about innovation.”
Estonian Economy Minister Juhan Parts, 42, said March 16 in Vilnius that the biggest challenge for all Baltic governments is to alleviate the credit squeeze “to encourage entrepreneurship, so that people will want to start up businesses again.”
Loan Guarantees
EU regulators approved Latvian plans to offer guarantees to companies on March 20, to ensure they can get financing. Latvia will be able to give as much as 500,000 euros ($675,950) per company in 2009 and 2010.
The Lithuanian government has set up a special fund to supply small- and medium-sized businesses with loans, and will use EU structural aid to boost it to 1 billion litai ($360 million) from 275 million litai.
To be sure, the global economic crisis and credit crunch are straining entrepreneurs around the world, said Ben Butters, director of European affairs at Brussels-based Eurochambres, a lobby group. More than 100 million Europeans work at small- and medium-sized enterprises, the European Commission says.
Small companies “collectively are the main employers, job providers and innovators,” said Butters. “They need to be protected.”
Doubling Prices
The global crisis has only exacerbated what was already a recession in Latvia and Estonia and the risk of a contraction in Lithuania. The home-grown credit crunch followed loan growth of about 50 percent a year in each country and a doubling of real- estate prices between 2004 and 2007.
Latvia’s average apartment price plunged 37 percent last year and Lithuanian prices fell 27 percent. They were the two worst markets globally, according to a review by the Manila- based Global Property Guide on its Web site.
The average cost of a one-bedroom apartment in Tallinn was down 25 percent by the end of 2008 from the market peak in the third quarter of 2007, according to the government statistics office.
Latvia’s gross domestic product may contract as much as 15 percent this year, Swedbank AB said on March 18. Estonia’s GDP is slated to fall as much as 8.9 percent and Lithuania’s 4.9 percent, according to their national central banks.
In downtown Riga, Aleksis Karlsons said he had never seen anything like it. Karlsons, whose family owns a sleek boutique hotel that is the centerpiece of their Berga Bazaar outdoor arcade shopping center, said tenants are asking for rent reductions of up to 50 percent.
No Newspapers
“I don’t even read the newspapers any more,” said Karlsons. Real estate prices in the Old Town “have completely collapsed.”
In the three Baltic states, whose combined population of 7 million is less than the population of London, small businesses are especially at risk because they have less cash to buy inventory, expand production or pay salaries, said Jekaterina Rojaka, a former World Bank economist and now a senior analyst at AB DnB NORD Bankas in Vilnius.
“What we are seeing is a plunging, crashing result everywhere, in every single industry,” said Rojaka as she sat at the only occupied table in a Vilnius tea house on March 9. “Small companies don’t have the financial strength.”
In the city center of Tallinn, the Estonian capital, a sign hung on the door of the Kolumbus Krisostomus pub saying the watering hole was closed. Kolumbus used to attract several hundred young Estonian professionals to karaoke nights twice weekly and in 2005 was the venue for a popular reality TV show.
Kairi-Kaia Truusa, the pub’s 42-year-old chef, said the institution was forced into bankruptcy proceedings after monthly revenue dropped by more than half at the end of last year from 1 million krooni ($87,000) in the previous year.
Truusa said as she was leaving the premises one recent blustery day that she hadn’t been paid for at least a month. She can’t start a new business because under Estonian law, company managers are prohibited from doing so until bankruptcy proceedings are complete, which may take months. For now she is cooking for a charity cooperative.
At Dalios Baldai, the Lithuanian kitchen maker, Markeviciene saw only one bright side:
“The attitude to work has changed,” she said. “People cherish their jobs and work harder for their salaries.”
To contact the reporters on this story: James M. Gomez in Prague at jagomez@bloomberg.netAaron Eglitis in Riga, Lia, at aeglitis@bloomberg.net
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