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CCMI Conference, Sofia, 6-7 October 2008

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1 CCMI Conference, Sofia, 6-7 October 2008
Restructuring of the Bulgarian sector of electrical engineering Dr. Rumen Atanasov Bulgarian Association of Electrical Engineering and Electronics Good morning to everybody! My name is Rumen Atanasov. I am CCMI Delegate, but today at this conference I am in the role of the President of the Bulgarian Association of Electrical Engineering and Electronics. From this position I’ll try to inform you about the situation and the trends in the sector of the Electrical Engineering and Electronics in this country. Bulgaria, Latvia, Lithuania and Slovakia – Comparison of industrial transition models CCMI Conference, Sofia, 6-7 October 2008

2 The Sector of the El. Eng. and Electronics
Employed in the ELECTRA sector as % of the employed in industry share in WGDP and EE sector The leading sector after WW2 The basis of the technology development in the last 60 years It is the leading European industry The most important for the Bulgarian industry, defines the technological level of the whole machining industry. 07/10/08 bassel

3 The Electrical Engineering in Bulgaria has a long history The roots
1878/79 – first electrical lighting system; facilities for telegraph network delivered by SIEMENS 1888/99 – first electrified factories, collieries 1900/02 – first hydroelectric PS with 7 kV transmission line; first thermal PS; tramway in Sofia starts to roll 1909/19 – regular import of bulbs & utility material from Austria. SIEMENS wins tender for first 3000 posts distribution telephone exchange; permanent representation agencies of SIEMENS-SCHUCKERT for HV technique and SIEMENS-RHEINIGER for medical equipment 1920/35 – “Bulgarian Ltd Company for electricity-SIEMENS” inaugurated; regular import of radio receivers; first X-ray device imported; production start of small electric motors, dynamos, transformers, lighting fixtures, cables, bulbs, switchgear; first 320 kVA transformer 1934/45 – construction of automatic telephone exchanges; high-frequency installations; repair workshops for radio sets, telephone and telegraph appliances, el. motors, transformers, heating devices Завършвайки, бих желал да Ви обърна внимание на някои интересни исторически факти, които показват корените на българската електротехника. Виждате, че основите й са поставени от големите западноевропейски фирми, особено SIEMENS. Първите поколения инженери са следвали в Германия, Италия, Франция, Чехия, пренасяйки у нас манталитета на европейския инженер. Електротехническият сектор в България има дълга история и традиции, развивал се е по-естествен начин, никога не е губил връзката си с водещите западни индустрии. Това, по мое дълбоко убеждение, е от изключителна важност и е главната причина тази индустрия да успя да се преструктурира относително успешно и да запази присъствието си на световните пазари. 07/10/08 bassel

4 Subsectors included (acc. NACE codes)
29.41 Manufacture of portable hand held power tools 29.71 Manufacture of electric domestic appliances 31.1 Manufacture of electric motors, generators and transformers 31.2 Manufacture of electricity distribution and control apparatus 31.3 Manufacture of insulated wire and cable 31.4 Manufacture of accumulators, primary cells and primary batteries 31.5 Manufacture of lighting equipment and electric lamps 31.61 Manufacture of electrical equipment for engines and vehicles 33.3 Manufacture of industrial process control equipment Speaking about the sector of electrical engineering, I’d like to precise the scope of the sector. We intend it accordingly the NACE classification as we can see on this slide. Subsectors not included Office technique, computers and other electronic facilities Communication technique 07/10/08 bassel

5 Development in Bulgaria after WW2
Specialists obtaining higher education in Germany, Italy, France, Czechoslovakia available Administrated market of the former Soviet Union orientated development Natural way of development without ill-founded political solutions Presence of some subsectors (electric motors, transformers, cables, batteries) on the free markets Intensive development of specific subsectors in the eighties, licenses from leading companies State monopoly on export and import; sales of manufacturers used to be prerogative of the state Exorbitant industrial development 07/10/08 bassel

6 The period after 1990 Disappearance of administrated markets: internal and COMECON Suspension of supply sources of raw materials, components and elements Drastic decrease in production, closure of enterprises Former state-owned factories performed social functions maintaining redundant personnel Difficult access to capital – as a result loss also of free markets Liberalization of the trade Establishment of many small and micro enterprises, initially in the field of services Start of privatization of the big state-owned factories Different forms of privatization, in many cases owners without ideas about development of the factory – profiting from assets only Restructuring – ownership, markets, products, management 07/10/08 bassel

7 Now 100% private industry The former state-owned enterprises of the electrical engineering industry are utilizing only 30-35% of their previous capacity. Some of them are not-existing anymore. In the last years – new technologies, new equipment (usually second hand). Personnel is optimized. During the last 3-4 years, a process to discover “real owners” of the factories is running A great number of newly established (after 1990) SMEs; new technology, new facilities In the last 5-6 years – investment into new production sites & buildings, new equipment even into some of the former state-owned factories The sector comprises about 590 enterprises, 350 of them – actively operating; 20 are large (more than 300 wplcs), the rest – small and medium Labor force in the sector – about employees Restructuring still not completed, clusters – in highly introductory phase The privatization of the former state factories started in 1997 and … 07/10/08 bassel

8 The most important for the sector - FDIs USD m
Companies 85; Private persons 124 07/10/08 bassel

9 Factories of important foreign investors (former state-owned factories)
ABB: MV&LV switchgear; 250 wplcs HYUNDAI HEAVY IND.: power trafos, tap-changers; 600 wplcs SCHNEIDER: LV breakers (the old one) SPARKY: el. hand tools; 1300 wplcs SET: PCBs; 280 wplcs MHT: magnetic heads; 200 wplcs DZU-VIDEOTON: small household appl’s, el.mech. devices; 650 wplcs NAYDEN KIROV: LV installation products; 300 wplcs AROS QUALITY: small trafos; 290 wplcs 07/10/08 bassel

10 Factories of important foreign investors (green field projects)
ABB: 2 factories; LV, 150 workers.; now 3th LV/MV, 600 wplcs, start May 2009; 4th planned LIEBHERR: fridges, 1500 wplcs; R&D center, 30 eng. SCHNEIDER: new (2nd) factory, LV breakers, 800 wplcs EPIQ: PCB assembling; 2000 wplcs MELEXIS: PCB assembling; 200 wplcs FESTO: sensors for automation; 200 wplcs SIEMENS: HV measurement transformers ARKOMAT: automotive wire harnesses, 600 wplcs NURSAN: automotive wire harnesses CURTIS: el. motor-control for forklifts; 140 wplcs 07/10/08 bassel

11 The success stories of FDI
The sector had a good reputation amongst global leaders: with the start of privatization SIEMENS, ABB, SCHNEIDER, EPIQ, SPARKY, HYUNDAI (well knowing the sector) came to Bulgaria and bought up the state-owned factories Subsequently, a series of green field projects were realized and were successfully developed For the last years - $137 million FDI. This is a very small amount against the background of the total FDI in this country. However, production FDI drive into the country new products and respective markets, new technologies, new management, new industrial mentality Production FDIs are generating a new industry of sub-suppliers in the region, natural clusters Some new, very large and important industrial areas have been stimulated and established in our country In general – all FDIs in new production enterprises are success stories. And yet why? 07/10/08 bassel

12 FINANCIAL STABILITY Currency board since 1997
The Central Bank does not act as a lender to government and commercial banks The exchange rate to foreign reserve currency (EURO) is strictly fixed, 1 € = 1,95583 BGN The Central Bank will issue only one unit of local currency for each unit of foreign reserve currency it has in its vaults The country has not the ability to set monetary policy according to domestic considerations POLITICAL STABILITY Starting the presentation, I’d like to emphasize on some important for the business, in my opinion, national characteristics. Firstly, Bulgaria is in the regime of Currency board since 1997, after the notorious dramatic hyper inflation. The Central Bank is not acting as a lender to government and commercial banks. The exchange rate to the EURO is fixed, 1 € = 1,95583 BGN; initially it was bound to the DM. In general, the country has not the ability to set a monetary policy according to domestic demands. Secondly, we are a NATO member since 2004, all political parties support NATO and EU memberships, no ethnical problems – I’m referring to the situation in the Balkan region. NATO member country since April 2004 EU member country since January 2007 All political parties support NATO and EU membership No ethnical problems 07/10/08 bassel 4

Corporate Tax: % Manufacturing companies in high-unemployment municipalities: % EU TECHNICAL LEGISLATION IN FORCE Transposed directives: LVD, EMC, R&TTE, ATEX, Machinery, lifts, gas appliances, simple pressure vessels, pressure equipment, toys, NAWI, refrigeration appliances, hot water boilers, noise emission, etc. WEEE (effective from ); RoHS (effective from ); Batteries (since 2005) Transitional period - Directives on medical devices Most enterprises ISO9000 certified by TUV, SGS, LR, BVQi In the last years the different governments and political parties were united in the continuous reduction of the taxes and this had any doubt positive impact on the industry and, pay attention, on the income of the state budget with higher tax collecting. 07/10/08 bassel 17

43 Universities; graduates (BA or MA) annually 350 vocational technical colleges, graduates annually Bulgarian students in foreign countries THE LOWEST PRICE LEVEL IN EU !!! The population has, generally speaking, a good basic education. 90% of the population are Christians. A great number of young people emigrated in the last years. I hope and believe that part of the 30 thousand students abroad will strengthen the Bulgarian industry in the future. This should be of paramount care for the state. Further, it is well known that Bulgaria has the lowest laborforce fares in Europe, not only in the EU. 07/10/08 bassel 13

15 Price Level Indices 2005 (%)
Annual average gross wages, EE sector BG, EUR This is EUROSTAT comparison for 2 thousand and five, in 2007 there was relatively fast growth of the salaries, the phenomena is connected to the high level of inflation exited perhaps with wrong economical and political decisions. 07/10/08 bassel 15

16 Monthly emoluments in electrical engineering sector, large cities, EUR, 2006
Position Gross salary Total cost Low-skilled worker 110 136 Skilled worker 190 to 300 236 to 372 Engineer (MSc) 330 to 450 409 to 558 Manager 400 to 500 496 to 620 07/10/08 bassel

17 Productivity rises, but still too unsatisfactory
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18 Labor productivity in 2006 – GDP per employee on PPP basis as a percentage of the EU–27 average
Top 5 states Bottom 5 states Country % of the EU-27 average Luxembourg 183.3 Poland 61.5 Belgium 134.9 Lithuania 58.5 Ireland 132.1 Latvia 52.8 France 125.2 Romania 38.3 Austria 121.1 Bulgaria 35.3 07/10/08 bassel

19 Important el. eng. sub-sectors
Power equipment (transformers, switchgear) Motors, generators, alternators Cables and wires Batteries, start and traction LV apparatus, building installation products Control, measurement and automation devices and systems Industrial electronics, PCBs, electronic modules and systems Automotive parts Lighting fixtures Optical devices Household appliances Sub suppliers (plastics, metal parts, ceramics etc.) 07/10/08 bassel

20 Production and export, EUR m
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21 Production of electric motors, batteries, switchgear
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22 Export of assembled PCBs, € m
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23 Production of electrical household appliances, pcs
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24 Import of electrical household appliances, pcs
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25 Human resources Proportion of the population aged 25–64 with completed secondary education 07/10/08 bassel

26 Proportion of the population aged 25–64 with higher education
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27 University graduates in science and technology per 1,000 population in the age group 20–29
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28 Lifelong learning – proportion of the population aged 25–64 involved in training and education
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29 Number of graduates in electrical engineering subjects, There are 5 technical universities and 65 vocational schools with el. eng. & electronic disciplines Subject Bachelor Master Total Mech. engineering 247 113 360 El. engineering 24 El. devices 130 34 164 El. installation 263 106 369 07/10/08 bassel

30 State economic strategy
According to “STRATEGIC TRENDS OF BULGARIAN ECONOMY”, published July 2007 by the Ministry of Economy and Energy: DELOITTE’S SURVEY - most perspective sectors and competitive advantages in Bulgaria are: IT, outsourcing, electrical engineering and electronics; UNCTAD’S SURVEY 2007/ electrical engineering and electronics is most perspective industrial sector for investments in Bulgaria Sector strategy A “National Strategy for the Development of the Electrical Engineering Industry in Bulgaria up to 2013” was jointly elaborated with the Ministry of Economy and Energy. Yearly Action plans. 07/10/08 bassel

31 R&D expenditures in ELECTRA (% of the GVA)
R&D expenditures, % of GDP n.a. ? 07/10/08 bassel

32 NIF - Projects financed by
Bulgarian National Innovation Policy NIF - Projects financed by NIF Session Projects Submitted Projects Selected Success Rate % Agreed Subsidy ( BGN m) Average Value of the Financed Project ( BGN) 1st session 118 43 36 6,7 2nd session 120 67 56 8,3 3rd session 146 108 74 16,6 4th session 168 102 61 16,9 The National Innovation Fund is a major financial instrument for the promotion of innovation activities in the country. Its strategic objective is to enhance the competitiveness of the Bulgarian economy. The Fund finances projects, including research and/or experimental projects aimed at the introduction of new or improved products and services. The overall activities of the National Innovation Fund (NIF) are administered by the Bulgarian Small and Medium Enterprises Promotion Agency (BSMEPA). The financing of the Fund from the budget increased steadily from 5.5 million levs in 2005 to 7 million levs in 2006 and 12 million levs in The financing envisaged for 2008 is 20 million levs. Over the period 2005–2007, four competitive sessions were held. A total of 320 projects were approved at those sessions in various economic sectors, both traditional and high-tech ones. The table shows that the number of proposals was increasing. The average value of the financial support per project remained more or less unchanged (approximately150,000 levs). Since businesses are required to provide 50 % co-financing, the total resources provided and generated by the Fund for the development of innovative ideas in industry amounted to 50 million levs. This has helped alleviate Bulgaria’s lagging behind the rest of the EU. Projects’ leading sectors ICT % electronics and electrical eng % biotechnologies & food industry % mechanical eng. & metal processing % 07/10/08 bassel

33 Other instruments to promote innovations
Voucher scheme; Techno-starter scheme; Tax incentive scheme; Loan guarantee scheme; Venture capital scheme The National Innovation Council promotes the dialogue between the government institutions in charge of the development and implementation of innovation policy, and the representatives of science, education and business. In October 2007, the National Innovation Council held a meeting dedicated to the financial instruments for promoting innovation applicable in Bulgaria, and the findings and recommendations in the 2006 Annual Report on the Bulgarian National Innovation Policy. Another report presented at the meeting focused on the creation of financial incentives for innovation. It was developed within the follow-up of the Bulgarian–Dutch project on the National Strategy for Science and Technology Development and Innovation and the Programme for its Implementation financed by the Dutch Government. The report suggests the following financial schemes for the promotion of innovation in Bulgaria: Voucher scheme intended to assist enterprises in their efforts to obtain expert assistance in resolving their technological problems. Techno-starter scheme aimed at students, faculty and researchers willing to establish their own technology-based company. The objective is to commercialise the knowledge acquired in research and education. Tax incentive scheme oriented to enterprises which have R&D activities. Loan guarantee scheme aimed at innovative enterprises in order to facilitate their access to financial resources without reducing the financial accountability of the borrower. Venture capital scheme intended for high-tech enterprises with growth potential. Specific measures can be introduced for start-ups. TOP technological institutes with the objective to establish and develop centres of knowledge and excellence in important industrial sectors and to facilitate the interaction between research organisations, researchers and businesses. 07/10/08 bassel

34 But !? Lisbon 2010 BG 2003 Nat’l Str. 2006 Nat’l Str. 2010 R&D % GDP 3 0,43 0,45 0,51 Share of business for R&D 67 22 18,8 23 07/10/08 bassel

35 Social Dialogue Sector councils for social collaboration with the Ministry of Economy and Energy Law on health preserving and safe conditions of work, including a separate system for social dialogue at national, sector, regional, company level Two trade-union partners of the Association. A collective labor agreement is signed for the EE-industry between the sector organizations of employers (NCEEB) and the trade unions Very strange!. The dialogue between employers and trade unions is far more spontaneous and constructive than between business and the state administration. 07/10/08 29/02/08 nceeb bassel 35

36 Thank you for your kind attention
07/10/08 22/04/08 nceeb bassel 36

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