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

2. 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

3.  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

4.  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

5. 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)

6.  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

7.  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

8.  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

9. 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

10. Global Competitiveness Index - Bulgaria

11.  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

12. Competitive weaknessesCompetitive strengths Low 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

13. 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)

14.  Corruption  Inefficient state administration  Difficult access to finance  Inefficient infrastructure  Undereducated labour force Main Problems for the Business

15. Global Competitiveness Index, ranking (EU- 10)

16. Institutions

17. 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

18. 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 judiciary Ineffective measures - sluggishness, inefficiency, dependency, unpunished crime among high political and economic elites

19. Infrastructure

20. Notable competitive advantages Mobile telephone subscriptions Fixed telephone lines Notable competitive disadvantages 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

21. 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

22. Macroeconomic environment

23. 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 Disadvantages National Savings Buoyant domestic demand Low real interest rates Few savings opportunities, besides bank deposits Inflation Capital inflow, credit growth, convergence to EU levels Wasteful Gov. spending Wage growth outpacing productivity Macroeconomic environment

24. Labor Market Efficiency

25. Notable competitive advantages Flexibility of wage determination Hiring and firing practices Female participation in labor force Notable competitive disadvantages Cooperation in labor employer relations Low productivity Reliance on professional management Brain drain Labor Market Efficiency

26. 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 framework 2012 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 home Significant 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

27. Technological Readiness

28. 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

29. 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

30. Innovation

31. 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

32. 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

33. 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

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