Bulgaria’s EU Membership and the Competitiveness of the Economy Project supported by the Open Society Institute Sofia, 30 January 2012

Bulgaria’s EU Membership and the Competitiveness of the Economy

Project supported by the Open Society Institute

Sofia, 30 January 2012

Methodology of the Project

Our Goal: • To analyze the impact of Bulgaria’s EU membership on the competitiveness of the

economy • To review the policies for competitiveness improvement

Study Based on: • Interviews with experts and policy makers• Global Competitiveness Report of the World Economic Forum • Analysis by the Centre for Economic Development

Methodology Advantages:• Quantitative approach - Information based on international and national statistics• Qualitative approach – Information based on surveys, conducted among Bulgarian

and foreign companies, and experts’ assessment

Our Approach to Competitiveness = Potential to achieve high productivity, based on an innovative approach to human resources, capital and physical assets

Main effects of the EU membership Experts’ opinion on the role of integration Estimations of competitiveness according to the Global

Competitiveness Reports Main priorities for improving competitiveness

Structure of the Presentation

Improvement and alignment of Bulgarian with European legislation

Positive changes as a result of the targeted integration policies in different fields (regional policy, social policy, trade policy, innovation policy, entrepreneurship, etc.)

European funds, absorbed on the basis of the developed operational programmes

Single Market effects

Main Effects of the EU Membership

Main goal of the integration process: closing the competitiveness gap between the Bulgarian economy

and the old Member States

Main priorities in the current programming period: Building an integrated policy planning and implementation system Efficient participation in the EU policy-making process Improving the transport infrastructure Improving the human capital quality with focus on employment Improving the environmental infrastructure

Impact of the EU Membership on the Bulgarian Economy and its Competitiveness

(according to expert’s opinion)

Higher degree of institutional coordination in the management and implementation of projects

Improved Administrative Capacity Initiated Infrastructure Projects Addressing unemployment and maintaining level of

employment Environment protection

Major successes

Difficulties in measuring achievements Poor coordination of programmes and measures Civil society - not a great contributor to integration

policy’s implementation Absence of adequate practical experience and

administrative capacity and high staff turnover in the administration

Lack of adequate national co-funding of programmes

Existing problems

Improving basic infrastructure Developing human capital and promoting employment Creating value by knowledge-based growth and building

a competitive and greener economy Strengthening the institutional capacity

Major priorities for the next programming period

Estimation of the Competitiveness of the Bulgarian Economy (on the basis of the Global Competitiveness Reports of the

WEF)

Factors for Competitiveness

• Institutions • Infrastructure • Macroeconomic environment • Health and primary education • Higher education and training • Goods market efficiency • Labour market efficiency • Financial market

development • Technological readiness • Market size • Business sophistication • Innovation

Global Competitiveness Index - Bulgaria

2006 2007 2008 2009 2010 2011

70

72

74

76

78

80

82 3.753.83.853.93.9544.054.14.154.2

72

79

76 76

71

744

3.9

4 4

4.1

4.16

Rank (left axis) Score (right axis)

EU membership - positive effect on the competitiveness factors

Most pronounced effect on: macroeconomic environment, labour market, infrastructure, technological readiness, etc.

EU membership results - not immediately visible, i.e. their effect is postponed

General conclusions

Competitive weaknesses Competitive strengthsLow productivity and relatively low competitiveness based mainly on price factors;

Insufficiently favourable business environment;

Deteriorated quality of human resources;

Insufficiently effective state administration;

Existing corruption practices;

Poor quality of infrastructure;

Lack of strategies and clearly formulated objectives at company level;

Stable macroeconomic environment; Favourable tax environment;

Labour market flexibility;

Growing interest in and awareness of the need to implement new technologies and renovate production;

Openness to foreign markets – participation in international networks;

Positive dynamics of quality improvement and implementation of international quality management standards;

Competitive Strengths and Weaknesses of the Bulgarian Economy

Low spending on innovation in processes and products (weak capacity for innovation of companies);

Shortage of financial resources and difficult access to finance, underestimated non-bank finance;

Lack of corporate culture and managerial experience;

Absence of a targeted human resource development policy in the context of modern technology and innovation requirements, etc.

Flexibility, adaptability, ability to improvise;

Improved access to Internet providers, etc.

Competitive Strengths and Weaknesses of the Bulgarian Economy

(Continued)

Corruption Inefficient state administration Difficult access to finance Inefficient infrastructure Undereducated labour force

Main Problems for the Business

Global Competitiveness Index, ranking (EU-10)

EE

CZ

PL

LT

HU

SL

LV

SK

BG

RO

20 30 40 50 60 70 8027

33

51

38

47

39

45

41

79

74

33

38

41

44

48

57

64

69

74

77

2011 2007

Institutions

2006 2007 2008 2009 2010 2011

108

109

110

111

112

113

114

115

116

117 3

3.1

3.2

3.3

3.4

3.5

109 109

111

116

114

110

3.07

3.22

3.28

3.19

3.293.32


Notable competitive advantages

• Investor protection

Notable competitive disadvantages

• Judicial independence• Efficiency of legal framework in setting

disputes• Efficiency of legal framework in

challenging regulation• Transparency of government policy making • Organized crime• Irregular payments and bribe

Conclusion: Serious problems in judicial system, corruption, crime, policy making

Institutions

Policy measures

Policy documents: Conflict of Interest Prevention and Identification Act (November 2010), Committee for Conflict of Interest Prevention and Identification, Center for Prevention and Combating Corruption and Organized Crime (BORKOR), Law on the Judiciary /2007/

Conclusion: Some progress in the rule of law, political will to fight organized crime and corruption, more efficient interaction between prosecutors and Interior Ministry, better trained young people in the judiciaryIneffective measures - sluggishness, inefficiency, dependency, unpunished crime among high political and economic elites

Infrastructure

2006 2007 2008 2009 2010 2011

60

65

70

75

80

85

90

95

100

105 2.7

2.8

2.9

3

3.1

3.2

3.3

3.4

3.5

3.6

3.7

65

84

95

102

80

87

3.41

2.91

2.79

2.88

3.573.62


Notable competitive advantages

• Mobile telephone subscriptions • Fixed telephone lines


• Quality of overall infrastructure • Quality of roads • Quality of port infrastructure • Quality of air transport infrastructure • Quality of electricity supply

Conclusion:

• Overall quality of transport infrastructure - in poor condition • Most existing roads, (especially) railways - need significant investment

Infrastructure

Policy measures

Policy documents: National Strategic Reference Framework 2007-2013, OP “Transport” 2007-2013, OP “Regional Development” 2007-2013, National Reform Program 2011 -2015, Priorities for the Development of Bulgaria’s road infrastructure of European and national significance by 2020 (project), Energy Strategy of Bulgaria till 2020 Conclusion: Infrastructure - one of Bulgaria’s national priorities • Political will for timely construction of strategic infrastructure lots (by 2013 - three

highways) • European funding - provided within the OP “Transport” 2007-2013 and OP “Regional

Development” 2007-2013• Delay in the development of projects for rehabilitation and upgrading of major railway

stations• Hard work needed for development of new infrastructure construction projects

Macroeconomic environment

2006 2007 2008 2009 2010 2011

34

39

44

49

54

59 4.8

4.85

4.9

4.95

5

5.05

5.1

5.15

5.2

5.2535

47

54

45

42

46

4.92

5.16

5.21

4.93

5

5.13


Notable competitive advantages Budget Balance

• Prudent fiscal policy• Reforming government expenditure

Government Debt• Following unwritten rules• Accruing fiscal reserves• Moderate debt increase => more

competitive economy after the crisis

Notable Competitive DisadvantagesNational Savings

• Buoyant domestic demand• Low real interest rates• Few savings opportunities, besides

bank depositsInflation

• Capital inflow, credit growth, convergence to EU levels

• Wasteful Gov. spending• Wage growth outpacing productivity

Macroeconomic environment

Labor Market Efficiency

2007 2008 2009 2010 2011

53

58

63

68

73

78 4.25

4.3

4.35

4.4

4.45

4.5

4.55

73

60

54

5856

4.25

4.42

4.51 4.514.49


Notable competitive advantages • Flexibility of wage determination• Hiring and firing practices• Female participation in labor force


• Cooperation in labor employer relations• Low productivity• Reliance on professional management• Brain drain

Labor Market Efficiency

Policy measures

Main documents: OP “Human Resources Development”, Updated Bulgaria Employment Strategy 2008-2015, National Gender Equality Promotion Strategy 2009-2015, the Bulgarian "path" to achieve higher labor market flexibility and security, Corporate Responsibility Strategy 2009-2013, National Action Plan for Employment 2011, and others.

Policy Priorities: Consistent with Bulgarian economic trends and restrictions of the budgetary framework2012 Goal: Mitigation of the global economic crisis negative impact

Policy measures for: • Higher labor supply and mobility • Integration of disadvantaged groups • Improved labor market flexibility and security (Bulgarian Flexibility and Security Road) • Regulating the activities of Temporary Employment Agencies and working from homeSignificant role of OP “Development of Human Resources “- Funding to improve knowledge, skills and workforce mobility, employability of vulnerable groups, development of education and training and promotion of social inclusion

Technological Readiness

2006 2007 2008 2009 2010 2011

45

50

55

60

65

70 3

3.2

3.4

3.6

3.8

4

4.2

68

65

53

56

4850

3.213.11

3.65

3.82

4.014.11


Notable competitive advantages• Internet users• Broadband Internet subscriptions• Internet bandwidth

Notable competitive disadvantages• Availability of latest technology• Firm-level technology absorption• FDI and technology transfer

According to NSI data: • About 90% of businesses have computers• About 84% - Internet access • Use of electronic signature - 46% of enterprises

ICT sector in Bulgaria: • High entrepreneurial spirit • Stable value added• Doubled R&D expenditure

Technological Readiness

Policy measures

Role of broadband services: Increase of broadband service uptake by 10% - translates into an increase of 1.2% in GDP

Policy documents: National Broadband Strategy of the Republic of Bulgaria, Coordination Council on Information Society, Law on Electronic Document and Signature, E-government Concept by 2015, ICT cluster, participation in IDA II for exchange of data between administrations, etc.

Problems: Shortage of IT specialists, low government commitment in the development and use of ICT, lack of investment in staff training, lack of reliable information on the sector, lack of sufficient capital

Innovation

2006 2007 2008 2009 2010 2011

85

87

89

91

93

95

97 2.88

2.89

2.9

2.91

2.92

2.93

2.94

2.95

2.96

2.97

8788

96

9192

93

2.93

2.96

2.91

2.9

2.91

2.94


Notable competitive advantages • Utility patents per million population • Project-based funding of research activities and

innovation (NIF, NSF)

Notable competitive disadvantages • Low research expenditures - 0.53% of GDP against EU

average of 1.83% of GDP • Imbalanced structure of R&D expenditures: public R&D

funding - twice bigger than private sector contribution • Low level of collaboration between business and

institutes• Unfavorable life-long learning participation score: 1.3%

of population aged 25 – 64, involved in lifelong learning, against 9.7% in EU

• Employment in high-tech services: 8.3% against 14.5% in EU

• Employment in medium-high and high-tech sectors: 5.3% against 6.7% in EU

• Low share of high-tech export: 21.2% against 48.1% in EU

Innovation

Policy measures

Main Policy Documents: National Innovation Strategy (adopted in 2004, needs serious updating), NSRF, NRP 2011-2015, OP “Competitiveness,” other OP Main policy instruments: National Innovation Fund, National Science Fund, OP “Development of the Competitiveness of the Bulgarian Economy,” Innovation Law, Enterprise Europe Network, Voucher Scheme, Technology Transfer Centers, Business Incubators etc. Conclusion:• Measures undertaken – Insufficient as of number, adequacy and financing • Policy documents and implemented measures - Should be better targeted and better

operationalised

• 3 I’s – Institutions, Infrastructure, Innovation + Education

Other priorities Improving efficiency and effectiveness of public expenditures

and public financial management Improving business environment Increasing employment

Main priorities

THANK YOU FOR YOUR ATTENTION!