Commentary by Jonė Kalendienė, Head of Research and Analysis at the Innovation Agency Lithuania.

When evaluating the development of the innovation ecosystem, Lithuania has risen by five positions in the Global Innovation Index this year, ranking 34th out of 132 countries of the world. This long-awaited and record-breaking leap is due to the consistent growth of the startup ecosystem and the improvement of the national business environment in a positive direction.

The business environment has progressed significantly

Lithuania’s business environment has made a significant change in the Global Innovation Index. In this regard, Lithuania’s position has risen from the 42nd to the 24th place. One of the components of this indicator – the evaluation of policies for doing business – has risen from the 66th to the 44th place, with information gathered through the Executive Opinion Survey conducted by the World Economic Forum. The other component of this indicator is the evaluation of entrepreneurship policies and culture, rising from the 19th to the 9th place. The results are provided by the Global Entrepreneurship Research Association, which conducts surveys of people and experts across countries.

I would argue that there are two reasons for the rise in these indicators. Firstly, this year’s Global Innovation Index follows the results of surveys conducted in Lithuania in 2022, when the war in Ukraine resulted in a considerable mobilisation of society and business, government support and concern for business welfare. Secondly, the Global Entrepreneurship Research Association survey in Lithuania was updated. The results of the surveys are reflected in the Index and indicate how the business environment in Lithuania is rated by Lithuanian businesses themselves, i.e. the actual beneficiaries. It is encouraging that Lithuanian businesses feel the real benefits of changes implemented by the Ministry of the Economy and Innovation, the Innovation Agency Lithuania and other institutions, and that this is reflected in the surveys.

Viewing the country’s score in the overall Index, the past year saw a significant progress in the diversification of Lithuania’s domestic industry, in entrepreneurship policies and culture, in the indicators of gross capital formation and cluster development and expansion, in the indicators of business-funded R&D projects, in legislation and other areas. The great achievement of our country is also the first place in the world in terms of employment of women with advanced degrees.

The startup ecosystem reflects the level of innovation in the economy

Lithuania’s rise in the Global Innovation Index has been significantly boosted by a positive change in the evaluation of innovation resources and innovation output. In the latter, Lithuania rose from the 47th to the 37th place, driven by a significant improvement in one of the components of the indicator, i.e. knowledge impact. It has jumped from the 58th to the 17th place.

This change, and our country’s rise in the Global Innovation Index, is due to two main reasons: the first is that the Lithuanian startup ecosystem has grown unicorns, which continue to successfully raise investments and increase their value. Lithuania ranks first in the Index in terms of the ratio of the value of unicorns to gross domestic product (GDP). The second reason, the relative value of unicorns, was added to the Index this year, replacing two other indicators – the number of new businesses and the number of ISO 9001 quality certificates.
This methodological adjustment makes sense, as unicorns and their value are a much better reflection of the level of innovativeness of the economy than the number of new businesses, most of which have nothing to do with innovative activity and innovation. In terms of the ratio of the value of unicorns to GDP, Lithuania shares the first place with countries such as Estonia, Israel, the USA and Senegal.

With regard to the focus of Lithuanian innovation policy-making and implementation on entrepreneurship, the development of technology infrastructure and the recent spurt and networking of the startup ecosystem, this leading position is expected to be maintained.

The Lithuanian startup ecosystem is today one of the fastest growing in Central and Eastern Europe. We are actively raising new investments and the value of our unicorns continues to rise rapidly. For example, in recent days we have welcomed a major breakthrough, with Nord Security raising a new USD 100 million investment. Dealroom.co’s latest review predicts that PVcase, Kevin., TransferGo, Argyle or CityBee could become new unicorns.

To summarise the results of the Global Innovation Index for Lithuania, we can state that this year’s surge is due to the results of consistently positive processes and change. This has allowed Lithuania to grow in positions where we can stand out in the global context, where we have advantages and can compete. However, there are also indicators in the Innovation Index where we will never be number one or where we are not even concerned about being low because we know it is not important, or even where they are outdated and only replaced by new ones after a while, as this year’s example of including the evaluation of unicorns shows. In any case, this is a positive note about Lithuania for global investors and potential Lithuanian business partners, and sooner or later it translates into tangible economic results.