Structure of the Economy

Lithuania Table of Contents

After the Soviet Union took control of Lithuania's economy, it developed both light industry and heavy industry to tie Lithuania into the Soviet system. As a workshop for Moscow's military-industrial complex, Lithuania reaped significant rewards. Its people enjoyed one of the highest standards of living in the Soviet Union, similar to those of Estonia and Latvia. Especially on farms, goods became visibly more abundant and life grew more comfortable during the early 1970s. The reason was simple: Brezhnev's regime in Moscow reversed policies of farm exploitation and began subsidizing farmers instead. But a chronic shortage of necessities, the poor quality of goods, and the absence of many services kept the standard of living only at East European levels--not at those of the West.

During their control of Lithuania, Soviet officials introduced a mixed industrial-agricultural economy. In 1991 industry produced about half of GDP; agriculture and trade each supplied about one-quarter.


Lithuania's industrial sector produced 51.3 percent of GNP in 1991, but industrial production has subsequently experienced declines--by a reported 50 percent in 1993, for example. The sector employed 38 percent of the labor force in 1992.

Under Soviet rule, most economic activity was centrally managed from Moscow; Lithuania managed only 10 percent of its industrial capacity. Many industrial firms worked for the military. According to President Algirdas Brazauskas, who for many years had managed Lithuania's industries as the communist party's secretary for industry, Lithuania had a leading position as a maker of electronics for military and civilian use, and it had been a major supplier of specialized military and industrial technology to the Soviet Union.

In 1985, the year Gorbachev came to power, Lithuania accounted for just 0.3 percent of the Soviet Union's territory and 1.3 percent of its population, but it turned out a significant amount of the Soviet Union's industrial and agricultural products: 22 percent of its electric welding apparatus, 11.1 percent of its metal-cutting lathes, 2.3 percent of its mineral fertilizers, 4.8 percent of its alternating current electric motors, 2.0 percent of its paper, 2.4 percent of its furniture, 5.2 percent of its socks, 3.5 percent of underwear and knitwear, 1.4 percent of leather footwear, 5.3 percent of household refrigerators, 6.5 percent of television sets, 3.7 percent of meat, 4.7 percent of butter, 1.8 percent of canned products, and 1.9 percent of sugar.

Lithuania's key industrial sectors include energy (especially electric power generation), chemicals, machine building, met-al working, electronics, forestry products, construction materials and cement, food processing, and textiles (see table 27, Appendix). The country also has a ship-building capacity, with drydocks in Klaipeda for construction and repair of ocean-going fishing vessels. It has a large cement works and an oil-refining plant with an annual capacity of refining 11 million tons of oil. In the past, both facilities produced largely for export. Lithuania's electric energy comes from hydroelectric and thermal power plants fueled by coal and oil in Kaunas, Elektrenai, Mazeikiai, and Vilnius, as well as a nuclear power plant at Ignalina (see fig. 13).


The agricultural sector contributed 24.0 percent of GDP in 1992 and employed 19.0 percent of the labor force. Lithuania's agriculture, efficient by Soviet standards, produced a huge surplus that could not be consumed domestically. Traditionally, Lithuania grew grain (wheat, rye, barley, and feed grains), potatoes, flax, and sugar beets, and it developed dairy farming, meat production, and food processing. About 48 percent of the arable land was used for grain, 41 percent for forage crops, 5 percent for potatoes, and 3 percent for flax and sugar beets. Crops accounted for one-third and livestock for two-thirds of the total value of agricultural output. Lithuanian agriculture, which was collectivized during the early years of Soviet rule, became relatively efficient in the late 1950s when Moscow granted the communist leadership in Vilnius greater control of agricultural policy. Lithuanian farm workers were 50 percent more productive than the Soviet average but much less productive than their Western counterparts. Similarly, Lithuanian crop yields and milk production per cow, although very high by Soviet standards, ran either equal to or much below the yields obtained by Western farms. But even in Lithuania, one-third of agricultural production came from private plots of land and not from collective or state farms. Nevertheless, Lithuanian agricultural production was high enough to allow the export of about 50 percent of total output.

Significant reforms were introduced in the early 1990s, particularly after the restoration of independence, to reestablish private ownership and management in the agricultural sector. Although Lithuania succeeded in privatizing more agricultural land than Estonia or Latvia, agricultural production decreased by more than 50 percent from 1989 to 1994. One problem is that farms were broken up into smallholdings, averaging 8.8 hectares in size, often not large enough to be economically viable. A serious drought in 1994 further reduced agricultural output and cost farmers an estimated 790 million litai in production.

Energy and Minerals

Lithuania receives more than 87 percent of its electricity from the Ignalina nuclear power plant. But Lithuania is highly dependent on fuels imported from Russia, and this energy dependence plagues Lithuania's industries. The trading relationship is unstable because political factors determine whether or not the supply will be interrupted. Energy use in Lithuania is inefficient by world standards, given Lithuania's level of economic development. In 1991 about one-half of the electricity produced at the 5,680-megawatt Ignalina nuclear power plant was exported to Belarus, Latvia, and Kaliningrad Oblast in Russia. But, partly because of reduced demand in the former Soviet republics and partly for political reasons, Lithuania's electricity exports declined substantially from 1991 to 1994.

Lithuania has large processing facilities for oil, which can be exported to the West through Ventspils (Latvia) or the new Lithuanian transport and storage facility at Butinge. Butinge is equipped with modern technology and was constructed by Western firms with funding provided by international financial institutions. This facility may allow more intensive utilization of the oil-processing facility at Mazeikiai, which has an annual capacity of 12 million tons, one of the largest in the Baltic region. Mazeikiai needs upgrading to operate profitably.

With the exception of forests and agricultural land, Lithuania is poorly endowed with natural resources. It exports some chemical and petroleum products, but its only significant industrial raw materials are construction materials, such as clay, limestone, gravel, and sand. Its peat reserves total about 4 billion cubic meters. There are moderate oil and gas deposits offshore and on the coast. In 1993 recoverable oil reserves were estimated at 40 million tons on the coast and 38 million tons offshore.


Lithuania may develop an important tourism industry if investments are made in its infrastructure to bring facilities up to Western standards. The resort town of Neringa was famous during the Soviet period for its excellent seaside climate. But Neringa fears the effects of too much foreign influence and wants special protection from an expected onslaught of foreign investors, most of whom come from Germany. In Vilnius and other cities, there is a shortage of quality hotels. State-owned hotels, of which there are still many, tend to provide inferior accommodations and service.

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Source: U.S. Library of Congress