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One of the strongest local economies before the crisis, Varna, maintains its leading position during the pandemic period thanks to its diversified economy. However, there are serious inequalities in the levels of economic development between the regional center of Varna, the industrial hub of Devnya, and the other municipalities within its composition. The labor market in the region suffered a heavy blow in 2020, although there are signs of recovery in 2021, especially in terms of unemployment. Like many other parts of the country, migration processes have reversed during the pandemic year, leading to an outflow of population from the major city to the surrounding municipalities.

Contractions in the economies of Varna

Despite their more diverse local economies and significantly less dependence on revenue from summer tourism compared to neighboring Burgas, the municipalities of Varna face significant economic problems in the pandemic year of 2020. Out of the twelve municipalities in the region, only three experienced growth in per capita value added compared to 2019 - Avren, Aksakovo, and Dolni Chiflik, with Aksakovo being among the larger municipal economies. On the other hand, the most significant contractions occurred in Beloslav (-45% within a year), Byala (-40%), and Suvorovo (-39%), primarily due to the disruption of international trade and the consequently reduced activity in the Varna ports, as well as a decline in international tourism. There is a significant decline in value added in the industrial municipality of Devnya (-11%), while the contraction in the regional center is less severe, at -1.9%. The negative trend is also evident in the change in GDP per capita in the region as a whole, with the indicator decreasing by 5% in one year.

Despite the disruptions, there have been no major rearrangements in the economic weight of the individual municipalities within Varna in 2020. The regional center remains the largest local economy with a total value added of 3.4 billion leva in the pandemic year, followed by Devnya with 429 million leva, Aksakovo (175 million leva), and Beloslav (62 million leva). The significant differences in the economic development of different parts of the region become more apparent when examining the value added per capita. While in Devnya it is 50 thousand leva per person, comparable to the strongest energy and processing centers in Bulgaria, in Varna it is 10 thousand leva per person, and in Aksakovo - 8 thousand leva. The lowest level of economic development is found in the municipality of Dalgopol, with only 924 leva of value-added, followed by Dolni Chiflik (1.7 thousand leva) and Avren (1.8 thousand leva).

Focus on investments

While in most regions the regional center attracts the largest share of foreign investments, in the case of Varna, the largest volume of foreign capital is in the municipality of Devnya. In 2020, foreign direct investments (FDI) in the industrial center amounted to 774 million euros, compared to 611 million euros in the municipality of Varna. These two municipalities concentrate almost all foreign investments in the region, with only Byala exceeding 10 million euros FDI among the others. Thanks to its special position within the region, Devnya has the highest foreign investments per capita in the country (among those for which data are not confidential) - 91 thousand euros per person, while in the municipality of Varna, this volume is 1,779 euros per person. However, in 2020, there was an outflow of foreign capital from the region, with a noticeable decline in the regional center by 24% compared to the previous year, and a decrease of 5% in Devnya.

The pandemic year also brought a significant contraction in the current investment activity of non-financial enterprises in the municipalities of Varna. Capital expenditure per capita in Devnya decreased by 18% compared to the previous year, and in Varna, it decreased by 13%. Similarly to foreign investments, capital expenditure is concentrated in these two municipalities - 699 million leva in Varna and 114 million leva in Devnya. Thanks to this, Devnya ranks first among all municipalities in the country with 13.4 thousand leva of capital expenditure per capita, with the necessary caveat that data for the municipalities in the Srednogorie region and some mining centers are confidential, and they are likely also among the leaders.

Unlike the southern coastal municipalities, those in the Varna region attract a relatively small volume of European funds, with Beloslav being the regional leader with 2.6 thousand leva per person for all programming periods. The Varna municipality has attracted 1.4 thousand leva per person, and most municipalities in the region range from 1,000 to 1,200 leva per person. The most likely reason for this is the greater focus of local authorities on private investments compared to European programs.

The decline in employment

The rapid deterioration of the economic situation inevitably hurts the labor market in the municipalities of Varna. Since there is no data on full employment at the municipal level, we rely on the number of employees under labor and service relationships from the entire population aged 15 and over. As expected, the largest decline in the number of employed individuals in the working-age population is observed in the municipalities where tourism plays a leading role since many hotels and restaurants abandoned traditional summer employment in 2020. Consequently, the share of employed individuals in the working-age population in Byala decreased by a significant 5 percentage points compared to the previous year, while in Avren it decreased by 4 percentage points. The decline in the regional center, Varna, is 3.3 percentage points, which is among the more significant declines in the major cities in the country.

The fall in employment is accompanied by a significant increase in unemployment in most municipalities, with rates reaching 21% in Dulagpol, 15% in Dolni Chiflik, and 13% in Avren by the end of 2020. It is important to note that these municipalities already had high unemployment rates before the crisis. However, the impact of the crisis is short-term, as data from the Employment Agency indicate a decline in unemployment in all municipalities in 2021, reaching 3% of the working-age population in the regional center and 6.2% in Devnya. In terms of the size of the local labor market, Varna has the highest number of workers with 96,000 people in 2020, while all other municipalities have fewer than 5,000 employees. The most active local labor market is in Devnya, where 58% of the population aged 15 and over are employed.

Educational inequality

The future of the workforce in Varna largely depends on the outcomes of the educational process in the region. Similar to other strong economic centers, there are significant differences in achievements between the major city and the surrounding municipalities. For example, if we look at the results of external assessments after the seventh grade, the municipality of Varna is among the top performers in the country, with an average score of 52 in mathematics and 67 in the Bulgarian language. However, the other municipalities in the region fall far below this level, especially in terms of mathematics, which is an important requirement for the ambitions of developing a digital economy. Similar disparities can be observed in the results of the high school graduation exams. While Varna achieves an average grade of "Good" (4.52) in Bulgarian Language and Literature, most other municipalities receive grades below the "Average" (3.5). Additionally, some municipalities face significant challenges with school dropout rates. For example, in the pre-high school phase of education, 9% of students in Avren and 6% in Devnya drop out of school, making their future integration into the labor market particularly difficult.

The demographic magnet of Northern Bulgaria

The regions in Northern Bulgaria are experiencing pronounced negative demographic processes, with the fastest-aging regions losing between 1/5 and 1/4 of their population over the past decade. However, Varna is an exception to the trend north of the Balkan Mountains, as the region had been a magnet for population even before 2020, often attracting younger residents. In the pandemic year, however, the trends within the region are changing, with the regional center losing population due to migration processes, while all other municipalities experience significant growth driven by both outflow from the city of Varna and the return of Bulgarians from abroad during the COVID-19 pandemic. In relative terms, the most significant growth is observed in the municipality of Suvorovo, where the population increased by 10% or more than 753 individuals in 2020, followed by Aksakovo and Avren, which experienced growth rates of over 9% or 2,869 and 2,000 individuals, respectively. Meanwhile, the population decline in Varna due to emigration is 0.7%.

However, the excess mortality in 2020 also leads to a rapid deterioration of natural processes, with all municipalities except Vetrino experiencing a worsening natural population growth. This is most evident in Vulchi Dol and Beloslav. There are significant differences between the municipalities in the region, with natural population growth ranging from -21.7 per thousand in Vetrino to -19.9 per thousand in Vulchi Dol, and -3.3 per thousand in the regional center, which comes closest to a balance between mortality and birth rates.

Author: Adrian Nikolov