Grouping for Growth

Economic News

22 Jul 2010
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Last week's South-east Europe Economic Forum (SEEF) in Sofia turned the spotlight on a region that is currently experiencing sustained growth and rising foreign direct investment (FDI). Yet it also highlighted the need for some growth in the numbers of small- and medium-sized enterprises (SMEs), if countries such as Bulgaria are to reach the economic levels seen elsewhere on the continent.



The region grew at a brisk 5.4% in 2004, and received FDI inflows of roughly 8bn euros - with another 9bn euros expected in 2005. Bulgaria alone has received over 7bn euros in 2001-05, up from just 3bn euros in 1996-2000. The bullish FDI trend is evidenced by the fact that the country's FDI inflows represented almost 11% of its GDP in 2004, well ahead of Romania's 7.7% and Bosnia Herzegovina's 6.9%.



Overall, except for Greece - the only South-east Europe (SEE) country already in the EU - and Moldova, which is lagging far behind with FDI at a trifling 0.3% of GDP, all countries in the region have attracted significantly larger FDI inflows in 2001-05 than in 1996-2000.



However, participants to the SEEF concurred to say that with a share of private value-added much lower than in the EU, and four times fewer SMEs than in the EU proportionally to the size of their economies, the SEE countries still have a lot of room for improvement.



In addition, most countries in the region still have a lot of work to do to increase their citizens' purchasing power - a major cause of emigration from Bulgaria. This thorn in the country's side was underlined by Deputy Social Minister Dimitar Dimitrov this week: according to the latest national census, nearly 8000 Bulgarians are willing to leave their motherland each year in search of better-paid jobs. Indeed, Bulgaria's average monthly wage was 167 euros in September, while it was only 107 euros in the booming hotel and restaurant business, according to official data.



Meanwhile, in its October Monitoring Report on Bulgaria's progress towards EU membership, the European Commission (EC) laid out five areas of serious concern, the most pressing of which was the need to clamp down on corruption and organised crime. While the government seems committed to do so, pundits underlined it might be easier said than done.



At the forum, Bulgarian Minister of Economy and Energy Rumen Ovcharov tried to address some of these issues by speaking on policies aimed at improving the competitiveness of SMEs. The minister said that in supporting these enterprises' competitiveness, it was necessary to ease the administrative burden, and especially to simplify the tax system. Achieving this objective should also encourage more unregistered businesses to move out of the "grey economy", a major plague of the region's markets.



In addition, Ovcharov declared that his government was intent on bringing entrepreneurs and managers into the drafting of new legislation of concern to their businesses, so that they could become involved in the process, not only informed afterwards.



The conference was also noteworthy for a meeting of two high-profile decision makers in the Bulgarian energy field - LUKoil Bulgaria head Valentin Zlatev and Bulgarian Minister of Economy and Energy Rumen Ovcharov, who sat down at the same SEEF tribune. A day later, they concluded an agreement through which LUKoil Bulgaria will artificially tether fuel prices on the domestic market for six months, thus greatly relieving strangled businesses and individual consumers.



LUKoil is prepared to operate at almost zero profit to ease some of the financial impact of rising oil prices on Bulgarian consumers, said Zlatev after meeting Ovcharov.



The news came just a week after Bulgaria officially became a part of the European energy market. On October 25, Ovcharov signed a treaty in Athens establishing the Energy Community of South-east Europe. Running for 10 years, the community's founding document creates the largest common market in the world, encompassing about 500m consumers.



Also speaking at the opening session of the SEEF was Bulgarian Prime Minister Sergey Stanishev. He put businesspeople at ease from the onset by declaring that his government's role was merely to ensure political and economic stability, to develop the infrastructure and to facilitate business. He also underscored the leading role of business in fostering regional integration.



Another key plank of the forum's programme was the development of a knowledge-based economy in the SEE region. While participants recognised that this objective required both the creation of knowledge through research, and actual technological innovation to lift business competitiveness, the president of Montenegro, Filip Vujanovic, underlined that the evolution towards a knowledge-based economy would stem not only from research and development, but also from training, management and know-how, and called for deeper co-operation in these domains.



Elsewhere, the Minister of Communications and Transport of Bosnia Herzegovina said that the SEE region was reaching the end of its recovery and transition process and starting a new stage of development.



It remains to be seen whether the countries of the region will prove able to complete their EU accession processes and truly bridge the gap with the Union, but in Sofia last week, there were some positive signs that they may well do so in the not-too distant future.

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