Back where he belongs

Back where he belongs

Having helped post-Soviet Lithuania to get on its feet, Mantas Nocius now wants to take it through the next crucial stage of economic development. Colin Donald meets the Enterprise Lithuania head

Aged 48, he seems a bit young to be a “founding father”, but Mantas Nocius was present at the creation of Lithuania’s modern economy. Two decades have passed since he, as a bright young economist in government service, helped shape the newly independent nation. Now he’s back, recently appointed as head of inward investment agency Enterprise Lithuania, with a brief to spur on the Baltic’s largest economy as it readies itself for euro accession in 2015.

Back in the day, fresh out of university, Nocius’s job was to help shape health policy and liaise with foreign governments eager to help the upstart ex-Soviet nation.

Since then Nocius has worked as head of the World Bank’s Lithuanian office and as an adviser to the Prime Minister, and head of inward investment agency Invest Lithuania,
as well as in senior private sector roles.

Most recently he was as senior consultant for Deloitte.

He sees his new task as spreading the gains of Lithuania’s growing prosperity throughout the regions, dispersing it more evenly amongst the country’s three million-strong population.

“I was with Deloitte for just over three years. I would have liked to stay there a bit longer but then this job became free,“ he says ruefully. “Life has its own ways of working out.”
Enterprise Lithuania has a budget of LTL 24 million (€7.24m) and a staff of 50 people, 10 of them in support roles. Its budget allows it to deploy a small army of expert private sector consultants to further its ends.

What are these ends exactly? Mantas defines success for the agency – and for Lithuania – as “establishing the country‘s image in its main markets, creating international brands, competing in niche markets with manufactured goods and services, improving the business environment, and [exploiting] the new opportunities opening in East Asia”.

Although the country’s problems have been much discussed since the Europe-wide financial crash, Nocius is clear about Lithuania’s strengths, and takes pride in its rapidly growing economy, at 3.4% one of the strongest in the EU. One of these strengths is a strong manufacturing sector – comprising 23% of GDP, well above the 20% seen as the continent-wide goal for 2020 set by the EU.

Manufacturing (mainly food, chemicals, furniture) and strong exports of these goods have been the main drivers of a rapid recovery after the real estate bust, a healthy sign, according to Nocius: “Lithuania can move further, creating more manufacturing jobs in its regions, resolving a number of social problems and reducing emigration.”

Brisk, articulate and formidably focused, Mantas Nocius is a man on a mission. His discourse is free of the latest economic development jargon which many practitioners deploy to deflect from their lack of actual impact. Nocius has taken over the leadership of an organisation that, he says, is “doing pretty well”, and seems impressively focused on measurable results.

“When I looked at the Enterprise Lithuania budget figures I was really happy about it. Most of the money is EU funds and I think with this amount of money we can get really good reviews. It’s less than US$10m, but you can do a lot with that.”

The agency, he says, is distinguished by the quality of its talent, many of which are young and confident, just as he was back in the heady days of the 1990s. Retention is generally good. Nocius sees the importance of retaining and developing the next generation of economic leaders, which starts with paying them well. The overall approach seems to be working, in tandem with the foreign direct investment body Invest Lithuania, sister to Enterprise Lithuania, which Nocius headed from 2009-2012. The former agency can take much of the credit for attracting big name foreign investors. Individually and collectively they have made a significant difference to the way the country sees itself in economic terms.

Companies choosing Lithuania over its many competitors include Barclays Bank, Ryanair and the UK credit management company Call Credit, mainly to the main cities, Vilnius and Kaunas. Swedish home goods retailer Ikea is another big catch.

“We participated in getting Ikea to open a store in Vilnius which was a bit unusual, normally foreign direct investment agencies don’t work with retailers but here was a bit of a special case, because it’s a bit of a symbolic thing to have Ikea here. They were initially reluctant because they considered the market was too small.

“Perhaps it’s a rumour but now I am hearing they are selling out in Vilnius and are having to restock, because there are plenty of people coming from Belarus and Latvia. But this should not be a surprise as Lithuanians used to go to Warsaw Ikea which is 500 kilometres away!”

However Nocius’s vision amounts to more than chalking up names of blue-chip foreign firms encouraged to take advantage of Lithuania’s favourable business conditions, relatively cheap labour included. In a highly competitive world, outsourced international companies will come and go. Far more important, he suggests, is to increase business activity to confront the country’s enduring pockets of poverty and diminish the costs of provincial Lithuania’s endemic social problems. These exist, he says, not in any particular blighted region, but in small clusters of poverty often close to abandoned factories throughout the country’s 65,000 square kilometres.

“We have to admit that regional development is really very important. You can take a different approach from some other countries, where it is considered that we should just leave regions to sort their problems out as people will be able to move to the capital city or somewhere else if they want to grow.”

This option is tempting, he says, because “it’s really difficult to deal with small companies in small towns. The people are not as sophisticated or as dynamic [as in the cities] and indeed if you look at it from a purely business perspective it’s difficult to find an economic justification. It’s easier to build up companies in Vilnius and Klaipeda and they will generate exports and so on. But you should factor in the social costs arising from the lack of opportunities outside of the cities.”

Nocius tallies up the main costs as a steady outlay of unemployment benefit, in the costs associated with poor health, much of it alcohol-related, and of course emigration. Although the workplace presence of tens of thousands of bright and motivated young Lithuanians is a highly noticeable benefit to countries like the UK, this seepage of youth and talent he says is a “significant issue” from which Lithuania suffers even more so than the other Baltic States on a per capita basis. Nocius wants to tackle the problem head on; first of all by understanding what it is that draws people away.

“In some respects emigration is just the natural outcome of EU accession, but there is also a psychological factor to it. Some people think that if they were living in the UK or Ireland or Finland that they will find a better life, and then somehow they are ready to work harder than they would work at home in Lithuania, for longer hours, in an apartment they are sharing with four other people. But if they were able to agree to the same conditions here, they could have a better life here as well. Somehow we need to understand and address this psychological factor.“

Free movement and the draw of other EU countries – exacerbated during the 2008 economic crisis when unemployment hit 19% – is not just the cause of a Lithuanian brain-drain, it also serves, he says, to dilute Lithuania’s work ethic at the lower end of the social scale, which already suffers from what he calls “voluntary unemployment”; circumstances in which “some kids grow up in families where their parents are unemployed and they cannot imagine their life in a different way”. According to Nocius there are too many rural Lithuanians who can adopt a lifestyle of doing very little most of the time, who can get away with occasionally “earning enough to buy a 10-year old BMW” by taking  months of work on the building sites of London or elsewhere.

“Enterprise Lithuania’s job is to help government find ways to deal with these situations. Not all of our recommendations will be implemented because there are of course elections to be won and so on, but if even a third of what we come up with was brought to life, that would be a great result.”

All of which makes the point, that to Mantas Nocius “regional development” means a fundamental rethinking of how Lithuanians relate to their society, and is not just a euphemism for handing out European money to subsidise continuing poverty and under-performance. His role model appears to be Finland – often cited as a pioneer in confronting tough social problems. And it’s not that he is against subsidies in themselves, it’s more that he thinks they have to be exceedingly well targeted to be effective.

“Look at Finland’s example and their efforts to deal with regional development. They support small businesses in small villages, and if you go to those villages you can see the results, people seem happy and business is booming. About the worst thing you can do is just to pour money in. It could work in terms of the short-term political cycle, but in the longer term it’s not sustainable. We warn politicians against doing these things.

“I think plenty can be done to help people in the countryside without pouring in subsidies. This may just be engaging with people directly, explaining to them how to deal with the banks, and perhaps even walking them to the bank personally. We help them to get their first loans and offer consultancy services that help remove barriers for businesses.”

What sort of barriers exactly? “It sometimes happens that the local council in small towns is staffed by businessmen who don’t like competition and are not so keen on new companies coming into the area, and a little pressure from central government, for example if the Prime Minister says that the region should receive some new investment, that can work well.”

From the way he describes it, Nocius seems to be suggesting a change in the relationship between the agency and its clients, from the traditional vertical, top-down donor-beneficiary relationship to more of a peer-to-peer partnership, one in which Enterprise Lithuania helps secure training and bank guarantees, but which acts more as a facilitator of a process whereby businesses are encouraged to learn from each other. The agency’s experienced staff will, for example, organise inspirational presentations for clients from other businesses who have managed
to flourish.

“We should trial different things in different places, identify the problems and try to work out solutions, and see how it works. If you try and do everything at once, the risks are too big. If something isn’t working, you try something else, but if you try and do everything at once, you are left with nothing.”

All of which has to bring results, on which he is prepared that the agency is judged. Nocius claims to have credible evidence that companies who get advice from Enterprise Lithuania are already more than 10 times less likely to “go under” than those who don’t.

“Because we don’t have that many people we subcontract private sector consultants which can be a big challenge because you have to supervise them well. I’m not telling you they are lazy, but if you cannot formulate exactly what it is they are supposed to do, they will chose the easiest way. You can hire McKinsey, Bain or BCG, but it won’t change this situation.”

This all sounds like a departure from the more common public sector practice of splashing out taxpayers’ money on these fancy consultants in order to duck responsibility. Economic development quangos (quasi-autonomous-non-government-organisations) the world over tend to be defined by this kind of bureaucratic buck-passing. As the unspoken priority is the preservation of the quangocrats’ own well-paid jobs, they tend to avoid exposing themselves, keeping their key performance indicators and goals open to interpretation, while surrounding themselves in clouds of development mumbo-jumbo.

An hour or two spent in the company of Mantas Nocius demonstrates that this is not his style, which instead suggests a tendency to cut to the chase. He sets himself an admirably high bar. “We aim at measurable results in two or three year’s time.

“The crisis was tough, but even then it was not as bad, say as the one that Finland faced after the breakup of the Soviet Union where you could see all the empty shop windows and trash on the streets.

“After we regained our independence in 1991 everyone thought we could be like Sweden within 10 years, so there was some disillusionment. But people in Lithuania are still dynamic; they are still hungry and are ready to work really hard. They are not spoiled.

“It’s clear that Europe has to be more competitive. We cannot just sit back and have long holidays. Lithuanians in particular are able to bring in a bit more hunger as in order to
be respected we have to work harder to be smarter.“

A high profile figure, not least because of his work as an adviser to the controversial prime minister Gediminas Kirkilas (2006-2008), Nocius agrees that he is “putting his reputation on the line” in his efforts to make a difference to Lithuania’s economy. He is prepared to risk being called a failure if he doesn’t.

“People are not stupid. If we fail, people will at least see that we made a real effort. I am not thinking about failure, as that means you will be predetermined for it, but at the same time, it’s not something you should be afraid of”.

Mantas Nocius could have opted for an easy – also better paid – life as a senior consultant for Deloitte, a back seat driver on Lithuania’s bumpy journey towards the prosperity that he and other young technocrats envisaged in the post-liberation years.

It’s better for all concerned that he now has the wheel in his hands.

Looking back on the last days of the empire

Like many young citizens of Soviet Lithuania, Mantas Nocius’s first “job” was in the Red Army, and “being conscripted into the enemy army ain’t much fun” he tells BQ Baltic. The best day, he remembers, was 27 May 1987 when solo teenage German pilot Mathias Rust penetrated five “impassable” rings of Soviet air defence to land his Cessna in Red Square. “That was the first sign that the Soviet Empire was starting to crumble and it might be the beginning of the end.”

He was right. Four years later, in the aftermath of liberation, the fluent English-speaking
economics graduate from Vilnius University embarked on the “big adventure” of preparing
Lithuania’s emergence as an EU member state. His focus was in public health.

He then spent 12 years with the World Bank, in energy and infrastructure, then for seven years as country manager. The World Bank was the biggest lender in Lithuania, lending more than half a billion dollars, “a large amount of money in those days”.

Nocius remembers fondly this first stage of Lithuania’s transition to the open market economy. The financial markets were closed to this new player, and until 2002, the Bank was the largest single lender to the country. In the early stages its interest rates were often more than 700 basis points lower than of the other lenders.

As well as being lender of last resort, the World Bank was also a mentor for sweeping structural reforms. “It was a great time. Usually IMF and World Bank advice works well in small and open economies. It’s much trickier to advise bigger countries like Argentina where people have a cultural or traditional dislike of international advisors.

“It was convenient for the Government to say ‘we don’t want to do this but the IMF or the World Bank is pushing us to privatise the state owned banks’”. T

hat example was one of his proudest achievements transforming the quality and transparency of loan decisions, and removing the risk of political interference. Countries that did not do this, like Slovenia, have lived to regret it.