Estonia, Latvia and Lithuania escaped the worst of the eurozone crisis, making them attractive to foreign investors. That trend is set to grow
Although the Baltics has not been immune to the eurozone crisis, lawyers in the region are optimistic that after a few difficult years things may finally be starting to look up.
“Overall, it’s been a good year – better than last year,” comments Linas Sabaliauskas, managing partner of Triniti’s office in Vilnius. “For all three countries the mood has been rather optimistic, especially compared with other European countries. There’s considerable investment from Russia and the CIS, and a number of Russians are willing to relocate a major part of their wealth to a secure European country, so the prospects are good.”
Last year had its ups and downs, however, notes Toomas Vaher, managing partner of Raidla Lejins & Norcous’s Tallinn office.
“The first half of 2012 wasn’t that strong, but the last few months were much better,” he says. “It was a similar situation to that of 2011, with not so much transactions-related work. As activity picked up in the second half of the year we became more optimistic.”
While things may not have reached the lofty heights of the pre-recession years, Peeter Lepik, managing partner of Lawin’s Tallinn office, also believes that there have been some encouraging signs.
“We definitely saw recovery in 2012 – I can’t say it’s booming, but we’re doing much better,” he says. “We saw growth in M&A and corporate last year, and foreign investment coming in. After falls in 2009 and 2010 activity levels started to rise last year and we’ve seen considerable growth in that area.”
“The M&A market is volatile, but last year we worked on several large deals and there are examples of investors from places like China looking for opportunities here,” adds Sabaliauskas.
Most law firms have noticed an uptick in activity, but it is difficult to know whether this is temporary or more permanent, according to Gintautas Bartkus, managing partner of the Lithuanian office of Baltic Legal Solutions.
“M&A is starting to rise,” he says. “Around half a year ago there was no M&A but there has been more activity recently. It’s still not clear if this is due to approaching the end of the year or a reflection of a general economic trend, but the market is doing quite well.”
Bartkus also cites ways in which the Lithuanian government is trying to attract foreign investors to the country’s banking and finance sectors as it pushes to comply more fully with EU regulations.
“There’s still much to be done in the banking sector and the government is looking to bring in regulations that are much more intensive than those implemented in the past few years. As a result, we expect demand for legal advice in this area to increase,” he says.
One market that was understandably busy last year was dispute resolution and for many firms, a steady flow of disputes-related work was welcome at a time when other areas were suffering.
“Dispute resolution was proportionally a bit bigger for our practice last year,” comments Vaher. “We had quite a few new assignments and there was a steady workflow. Litigation is good like that, in terms of being able to predict its workflow to a certain extent when other areas are more unpredictable.”
Another area that continues to attract the attention of foreign investors to the Baltics is energy.
“Energy has been busy and has been growing a lot,” comments Lepik. “Historically, it’s been very strong in our Lithuanian office, but it’s also a growing sector in Tallinn and Riga, while nuclear is a hot topic right now in Vilnius.”
“Energy is an important topic at the moment and from the beginning of this year the electricity market will be completely open for competition because all Estonian consumers will have to enter into new contracts with an electricity provider, so it will be the start of a free market here,” adds Vaher.
However, as Bartkus notes, political obstacles could threaten the future of Lithuania’s nuclear industry.
“Energy is one of the main industries in our country and there’s a lot of work happening related to energy projects, especially in Lithuania,” he says.
“For example, there’s a project to build a nuclear power plant in Lithuania and there’s a lot of legal work around that. But following the recent referendum, the government will now have to decide what will happen to the project.”
The Lithuanian referendum on the construction of a new nuclear power station took place at the same time as the parliamentary elections on 14 October. Nearly two-thirds – 62.7 per cent – of those who voted vetoed the plans to build a new plant.
“Given the number of people who voted against the project, the new government will need to decide whether the plans will go ahead or not,” adds Bartkus.
Although there has been considerable consolidation among law firms in the Baltic region in the past decade, with the most recent merger between Šarka Sabaliauskas Jankauskas in Lithuania, Latvia’s Treilons & Petrovics and Estonian firm Tamme Otsmann Ruus Vabamets forming pan-Baltic law firm Triniti, lawyers are keen to point out the differences between the three countries.
“If you’re looking at the Baltics from London or New York, say, it may look as if it’s a coherent market but there are actually huge differences,” says Sabaliauskas. “We speak different languages, have different religions and different currencies, so a few years ago it might have been hard to see the value of a pan-Baltic firm.”
As far as Vaher is concerned, the economies in each country have distinct flavours.
“Lithuania is moving forward faster than Estonia, but in Latvia the market has been quite difficult,” he says. “The picture is pretty different across the Baltics in fact: Lithuania is more active in respect of transactional work, and transactional work is proportionally bigger there compared with other Baltic states; Latvia is more passive; and Estonia is somewhere in between.”
Estonia is also attracting interest from other eurozone countries looking for a bit of stability, notes Lepik. “One thing that is important is that state debt in Estonia is the lowest in Europe and that is acting as a kind of signal to other countries to invest in this country, where fiscal policy is rather conservative,” he says.
However, firms recognise that a pan-Baltic offering is what clients are after. “Investors see all three Baltic countries as one,” says Barkus, “so we work together closely with our offices in Estonia and Latvia, like a one-stop shop.”
Sabaliauskas believes that the decision to launch Triniti in late 2011 could not have been better-timed. “We’ve already seen a huge return and market recognition as the name is very easy to remember and we are now acting for some really major clients that we didn’t have before.”
Most lawyers admit that, in spite of some interesting projects, the eurozone crisis has deterred investors.
“The main impact has been that foreign investors are more hesitant, whether we’re talking about the Baltics or other countries in Europe,” notes Vaher.
“The mood is rather cautious across the Baltic region,” agrees Sabaliauskas. “At the beginning of the year everyone was enthusiastic, but people are looking at what will happen with the euro and Greece.”
Estonia joined the euro in 2011, while Lithuania and Latvia are set to take up the currency in 2014. It is not known whether the eurozone crisis or changes to local governments will affect this move.
“Under the previous government it was expected that Lithuania would take up the euro in 2014, but it’s not clear whether the new government will keep the same position – we will see in the coming months,” says Bartkus.
Whatever happens, it is clear that there is still considerable interest
in the Baltics across Europe and that companies from countries such as the UK, Denmark, Norway, Russia, Cyprus and the Netherlands are all investing in the region. The future for the local law firms is looking bright.
Key figures: Estonia
GDP (2011): $22.2bn
Annual inflation (2011): 5.1%
Population (2011): 1.34m
Life expectancy at birth: 75
Unemployment rate (September 2012): 9.6%
Source: World Bank, Eurostat
Key figures: Latvia
GDP (2011): $28.25bn
Annual inflation (2011): 4.2%
Population (2011): 2.2m
Life expectancy at birth: 73
Unemployment rate (September 2012): 14.2%
Source: World Bank, Eurostat
Key figures: Lithuania
GDP (2011) $42.7bn
Annual inflation (2011) 4.1%
Population (2011) 3.2m
Life expectancy at birth 73
Unemployment rate (2012) 12.4%
Source: World Bank, Eurostat
Where to eat in the Baltics
The restaurants and cafés in the capitals of the Baltic countries offer everything from vast plates of potato-based local specialties to a surprisingly wide selection of dishes from various world cuisines.
Restaurant La Provence is one of the best restaurants in Vilnius Old Town serving haute cuisine with a noticeable Mediterranean influence. The menu is surprisingly extensive, considering the quality, care, and exquisite presentation that goes into each dish. The steakhouse Markus ir K° serves probably the best steaks in the Baltics, and is famous for its big portions. The dishes at Markus ir K° are made of fresh and high quality produce. Classic jazz and nostalgic blues are part of Markus ir K°’s ambience, and there’s live piano jazz music on Friday and Saturday nights.
For traditional Lithuanian cuisine Zemaiciai is one the best restaurants, serving good Lithuanian national food. The restaurant is nicely decorated and situated in the vaulted cellar of the Vilnius Old Town.
Marché de Provence is a sister restaurant of La Provence, serving tasty casual but nevertheless intricately prepared dishes from France and the Mediterranean region. A small terrace out the back of the building opens during the summer, and is a popular place to enjoy warm summer evenings.
Restaurant Bergs is part of the luxury small hotel Bergs situated in the Old Town of Riga, thus the restaurant menu offers more to the considerate gourmand. It is decorated in a contemporary style and offers a well prepared French and international cuisine.
Situated in one of the parks of the city centre, BIBLIOTĒKA №1 restaurant combines nature with modern interior design and serves impressive contemporary Latvian national cuisine. The restaurant has a great wine list consisting of exquisite Italian wines. There’s a great terrace with a view to the park, which makes it the best place for lunch or dinner in the summer.
As one of the best restaurants to visit when in Tallinn, Tchaikovsky guarantees a great evening with its beautifully decorated dining room and well prepared dishes. As its name suggest, the restaurant serves classic 19th century Russian cuisine with an obvious French influence. The barely audible classical music completes the ambiance of this unique restaurant in Tallinn.
Linas Sabaliauskas, managing partner of Triniti’s office in Vilnius