News

November 16, 2022

Since 2012, the Institute for Market Economics has been presenting its unique study on the social and economic conditions of the regions in Bulgaria, which is unparalleled in its scope and depth. The Regional Profiles cover 68 indicators that depict the real picture in the country's 28 regions.

All data and materials can be found at www.regionalprofiles.bg. Over the past decade, numerous challenges have been reshaping the economic and social landscape of the country, including investment and growth slowdown, the pandemic and subsequent recession, rapid recovery, political instability, the war in Ukraine, and an energy crisis in Europe. These periods have had different manifestations at the local level, testing the potential for local coping and response, allowing some regions to progress in their development, but ultimately, differences between regions persist, and the gap between the capital and the provinces, large and small, developed and poor, does not significantly narrow. On a broader scale, economic imbalances between Northern and Southern Bulgaria are predetermined by the smaller scale of economic centers in the north and weaker connectivity.

Almost every region distinguishes itself with successful performance in a specific area - for example, education in Smolyan, healthcare in Pleven, investment activity in the Sofia region, and several regions show potential for overall development improvement. The unfolding of this improvement into tangible and lasting enhancements in people's lives and the business environment depends on both the processes in major economic centers and their periphery, as well as the development of secondary economic centers that still lag behind.

In addition to Sofia (the capital), Plovdiv, Varna, Burgas, and Gabrovo, which have consistently performed well overall, the latest edition includes Stara Zagora, Veliko Tarnovo, and Ruse, which have fared relatively well through the challenges of the pandemic.

However, the greatest challenge lies in the demographic situation. The 2021 Census shed light on the severe demographic problems facing the entire country, including the capital. Data on the working-age population (15-64 years) further reveal a deep contraction of human capital - 20 out of the 28 regions have lost at least one-fifth of their workforce. While the decline in natural population growth reflects long-term processes that require vision and time for mitigation, mechanical population growth can be influenced by short-term policies.

However, the lack of adaptation to the declining population, despite being an ongoing process for years, continues to directly impact the provision of public services (education, healthcare, public order, culture, etc.) and the ability of the private sector to employ workers. The problems faced by local authorities due to demographic trends will further deepen in terms of higher costs, the need for optimization, and adaptation to new realities. To enable such adaptation, more local resources and freedom in implementing regional and municipal policies are necessary.

The regions in the country have different economic profiles that predetermine their different development trajectories. Regions with developed industries and strong penetration of digital services tend to have better performance. There are successful examples (such as a group of municipalities in the Srednogorie Regions) that demonstrate there are no insurmountable barriers to local economic and social transformation.

We expect to soon see data showing a new region in Northern Bulgaria that will experience significant improvements in the quality of life and become a dynamic economic hub that spills over its influence into peripheral areas - a process that already allows several smaller centers in Southern Bulgaria to retain and attract people and investments.

This depends on various national-level policies, but also on the powers, capacity, and financial independence of local authorities.

Video of the event (Facebook): https://fb.watch/gQzbnzLsLh/

Presentation from the event: https://ime.bg//var/images/Presentation_ALL.pdf

Summary of the study: https://www.regionalprofiles.bg/var/docs/RESUME_RegionalProfiles2022.pdf

Annual report: https://www.regionalprofiles.bg/var/docs/Reg_Profiles_BG_2022.pdf

Data: https://www.regionalprofiles.bg/bg/data/

The "Regional Profiles: Development Indicators" project is supported by the America for Bulgaria Foundation.

INVITATION

to the presentation of the research by IME

Regional Profiles: Development Indicators 2022

When: 11:00 AM – 12:00 PM / November 16, 2022 (Wednesday) Where: Live at the BTA Press Club | online on the IME and Regional Profiles Facebook pages

For over ten years, the Institute for Market Economics has been presenting the most comprehensive and in-depth study of the social and economic conditions in the regions of Bulgaria.

IME's Regional Profiles cover 68 indicators that depict the real picture in the country's 28 regions and contribute to a deeper conversation about regional development and the challenges facing local authorities.

This year, the focus of the presentation is on the actual demographic conditions at the local level, based on the latest population census.

During the presentation, we will also address the following questions:

How did the pandemic impact the regional landscape of economic development, and what is the role of local authorities in transforming the economy? Did the disparity between regions increase, and what are the driving economic forces in different areas and settlements? What are the trends in employment, unemployment, and incomes, and why have some regions lost a quarter of their population in a decade? Did the pandemic affect the outcomes of the educational system, and how did the healthcare system respond to the extraordinary circumstances? Where is crime the highest, and has the cultural life at the local level recovered? What is the potential, and what are the prospects for the regions?

All analyses, data, and other materials related to the research will be published on the dedicated website: www.regionalprofiles.bg

You can follow the event online on the BTA page.

We look forward to your presence!

The IME Team

The "Regional Profiles: Development Indicators" project is supported by the America for Bulgaria Foundation.

On November 16, 2022, the IME will present "Regional Profiles 2022." The examination of the gross domestic product (GDP) of the regions and the gross value added in different sectors of the economy highlights the differences between the north and south, as well as the distinct development trajectories of the regions in Bulgaria. In 2020, Sofia (the capital) had a GDP slightly above BGN 51 billion, which accounts for 43% of the country's total. In the south, the economy of Plovdiv (with a GDP of BGN 9.8 billion) stands out, traditionally contributing more than half of the gross product of the South-Central region. In the southeast, Stara Zagora (BGN 5.1 billion) temporarily surpasses Burgas (BGN 4.6 billion), which was hit especially hard by the pandemic. Combined, the economies of Stara Zagora and Burgas are practically equal to that of the Plovdiv region.

In the north, Varna (BGN 7.3 billion) remains an undisputed leader, despite experiencing a decline in the services sector during the pandemic. It maintains a strong industrial presence on the outskirts of the coastal city. The economy of Varna contributes slightly over a quarter of the gross product of the entire Northern Bulgaria. Veliko Tarnovo weathered the crisis relatively well and almost caught up with Ruse, both at levels around BGN 2.7 billion. These two regions have been competing in terms of economic scale for decades, with Ruse taking a slight lead in recent years. The smaller scale of economic centers in Northern Bulgaria, except for Varna, along with weaker interconnectivity between them, largely contributes to the difference between Northern and Southern Bulgaria.

The gross value added per person [1] across regions varies from nearly BGN 35,000 in Sofia (the capital) to just under BGN 8,000 in Silistra. Sofia's economy significantly differs from all others, being heavily dominated by the services sector, which accounts for 86% of the added value in the capital. Second in the country, with BGN 15,000 per person, is the Sofia region, encompassing industrial enterprises in the immediate outskirts of the capital, as well as a significant portion of mining and metallurgy in the Srednogorie region. Besides the capital and the industrial regions, Stara Zagora and Vratsa also play leading roles [2] in industry, with a high GDP per person of around 14,000-15,000 BGN, thanks to the high value-added created by energy companies. Another leader, besides the capital and industrial areas, is the Varna region, where the service sector prevails. Agriculture contributes over 10% of the added value in relatively smaller and poorer regions, mostly located in the northern part of the country.

"Regional Profiles 2022" clearly demonstrate that while the impact of the pandemic and the subsequent economic recovery is visible on the regional map, the existing significant differences between regions persist. Against the backdrop of prolonged political instability and entirely new economic challenges at the end of 2022, the development and unlocking of regional potential will be of immense importance. Local authorities need to be exceptionally active and work towards transforming their economies to achieve higher productivity and competitiveness. This includes attracting investments, developing industrial sites, collaborating with educational institutions, supporting investments in human capital, fostering regional partnerships, and thinking beyond conventional administrative boundaries. In these efforts, municipalities require support, particularly through tangible steps for financial decentralization and increased local resources.

To learn more about "Regional Profiles: Development Indicators 2022," please visit the website www.regionalprofiles.bg or attend the event organized by IME on November 16, 2022, at BTA.

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[1] The team at IME has calculated the gross value added per person based on the results of the population census. The official results indicate a population of just over 6.5 million people in the country in 2021.

[2] A relatively high share of the industry is observed in Gabrovo due to the traditions of the manufacturing industry, as well as in Kardzhali and Pazardzhik, where alongside the manufacturing industry, there are also successful enterprises in the mining industry, specifically in Krumovgrad and Panagyurishte, which showed good results in 2020.

After focusing on the educational structure of the population based on the latest census data last week, today we will look at the main findings regarding labor market conditions. Since the standard issue by the National Statistical Institute (NSI) does not include detailed data for municipalities, we will concentrate on the details for the regions and the differences between age groups.

• In line with the overall negative demographic trends, the labor force (employed and unemployed) contracted in 2021 to 2,954 thousand people, a decrease of over 350 thousand compared to a decade ago. Economically, this poses serious challenges to long-term growth and emphasizes the need for a transformation towards high-value-added production and services, given the increasing expected labor shortages.
• Both genders show divergent dynamics. While there is a decrease of 0.4 percentage points among men to 48.5% in terms of labor force participation, there is an increase of 0.6 percentage points among women to 42.3% within the decade. This mainly reflects the changing labor market structure and the growth of employment in services. With both genders, but especially among men, the activity level is significantly below the levels of previous censuses, assuming that data from the country's socialist period is accurate. In terms of regional analysis, the highest activity is in Sofia (79%), while the lowest is in Kardzhali (54%).
• The employment structure of the population aged 15-64 is similar, with the capital city (75%) leading, followed by Gabrovo (68%) and Varna (65%). The significant discrepancies with the estimates from the Labor Force Survey (LFS) for some regions are striking. According to the LFS, the employment rate in Veliko Tarnovo was 72% for 2021, while the census reports it as 62%, a difference of 10 percentage points. This confirms that the census significantly improves the quality of data and enhances understanding of labor market processes.
• The manufacturing industry continues to be the main source of employment, with 474 thousand employed individuals during the census period. However, trade is catching up with 418 thousand individuals.
• The census registers an unemployment rate of 10.1% for the population aged 15-64. These data cast doubt on the registered unemployment rates reported by the Employment Agency and the NSI's own Labor Force Survey, which indicate nearly half the rate. This difference is most likely a result of underreporting unemployment among young people aged 15-24, who have the highest share of unemployment according to the census, as well as specific questionnaire characteristics.
• The data reaffirm that secondary education is crucial for labor market integration, as the unemployment rate among individuals with secondary education is three times lower than that among those with primary education, and four times lower than that among those with no education or only elementary education. Regionally, there is some reshuffling among the areas with the most serious unemployment problems, with Vidin remaining the leader at just over 20%, followed by Silistra and Targovishte at around 18%. This points to serious issues with qualifications and skills in Northeastern Bulgaria.

Overall, the presented data on the economic status of the population and labor force participation in the census reshuffle some commonly held perceptions. However, even more beneficial would be the breakdown at the municipal level, which would allow for the identification of local economic centers and employment magnets.

On November 16, 2022, the Institute for Market Economics (IME) presented the latest study "Regional Profiles: Development Indicators 2022" at the Bulgarian News Agency (BTA). The study includes an overview of the economic and social development of all 28 regions in Bulgaria, examined through 68 specific indicators. The state of the justice system by region is just one of the topics covered in the profiles, as it is of significant interest in the context of the current political crisis, the difficulties faced by parliamentary parties in forming a government, and the expressed ambitions of some of them to prioritize judicial reform.

The statistics on crimes against persons and property (assuming they are the basis for providing the public service of "justice") in recent years show a significant decline. The number of registered crimes is nearly half between 2010 and 2021 (from 17 per 1000 population to 9.8 per 1000). The number of crimes registered in the first year of the COVID-19 crisis remains at a very similar level in 2021.

Regionally, data on registered crimes against persons and property show significant differences, ranging from 13.6 per 1000 population in Montana to 4.5 per 1000 population in Smolyan. Higher crime rates are observed in some regions of northwestern Bulgaria, as well as in more densely populated and larger regions. The differences between individual regions are due to various factors, primarily social and economic development and demographics.

The clearance rate of crimes also varies between regions, with the highest rate in the Gabrovo region, where nearly 75% of all registered crimes are cleared, and the lowest rate in the capital, where only one-third of crimes are cleared in 2021. Once again, we see that clearance rates are relatively lower in larger regions, while in regions with lower crime rates, the overall clearance rate is higher. On average, 51.7% of registered crimes against persons and property were cleared in 2021.

The workload of criminal judges reflects the functioning of the judicial system. The decrease in workload between 2010 and 2021 is slight, with each judge handling an average of about 9-10 cases per month. During the COVID-19 crisis in 2020, the workload is slightly lower, but in 2021, it again reaches around 9 cases per month.

At the regional level, significant differences are observed again, with a four-fold difference between the most heavily loaded judges in Kyustendil and the least heavily loaded judges in Smolyan. Except for the Varna region, judges in smaller, less populated regions have relatively lower workloads. A high judge workload does not always imply limited access and low quality of justice, as a large number of cases per judge in the long term often correlates with higher qualifications, increased efficiency, and more in-depth judicial practice due to exposure to a greater variety of cases. However, the threshold beyond which the number of cases becomes excessive, and quantity adversely affects the quality of justice is the subject of further, more in-depth analysis.

In conclusion, we should note that the significant differences at the local level in the quantity and quality of services provided in the justice field also lead to varying perceptions among citizens regarding protection. Perhaps it is time for judicial reform plans to include, in addition to crucial provisions for the rule of law and fighting corruption, measures that are understandable to citizens and will improve freedom for people and businesses while enhancing protection and the quality of life in the regions.

The economies of the municipalities in Sofia (province) are closely linked to that of the capital city. While the city itself focuses on services, the peripheral municipalities specialize in various industrial and transportation activities. Significant differences in the levels of economic development are observed within the province, with the leading municipal economies being those of the Middle Mountains region and the industrial municipalities near Sofia. This combination leads to favorable conditions in the local labor markets, but significant demographic challenges are present, similar to almost the entire country.

• Diverse economies in Sofia

The municipalities within Sofia (province) have highly diverse levels of economic development, which is expected given its large geographic scope and different models. Broadly speaking, two centers emerge. One consists of the municipalities in immediate proximity to the capital city, such as Bozhurishte (21.5 thousand leva of value added per person in 2020), Elin Pelin (18.6 thousand leva/person), Kostinbrod (13.2 thousand leva/person), and Botevgrad (12 thousand leva/person), which have far surpassed the other municipalities in terms of economic development, with less than 5 thousand leva value added per person. The other center is the Srednogorie region. Although data on value added is lacking due to confidentiality, various other indicators (such as average salaries) indicate that Pirdop, Chelopech, and Mirkovo are among the most developed municipalities not only in the Sofia region but also in the country as a whole.

In contrast to the capital city, where services are the main driver of development, Sofia (province) owes its significant economic growth to a strong industry during the pre-crisis period. This is particularly true for Bozhurishte, where investments in the manufacturing industry have led to one of the fastest employment and income growth rates in recent years. A similar development model can be observed in Kostinbrod and the geographically more distant Botevgrad, where some of the leading industrial enterprises in the country operate. On the other hand, Elin Pelin concentrates a significant portion of logistics in Western Bulgaria, thanks to its proximity to both the highway and its excellent connection with Sofia city. Some of the municipalities closer to the capital city, such as Svoge, Ihtiman, and Slivnitsa, primarily serve as a source of labor force, as evident from the high daily labor migration. The clear division between the service-centered focus in Sofia and the strong industry in the surrounding municipalities and the Middle Mountains region demonstrates the need to think beyond the boundaries of provinces and municipalities towards integrated economic units.

• Focused investments

When examining the distribution of investments in the region, we encounter a lack of data on the leading economies of the Middle Mountains region. Otherwise, Chelopech, Pirdop, and Mirkovo would have ranked among the leaders in terms of foreign capital and expenditures on long-term assets. Outside of them, nominally, the leader in Foreign Direct Investment (FDI) in the province is Elin Pelin, which had attracted a total of 414 million euros of foreign capital by the end of 2020, followed by Botevgrad with 256 million euros and Bozhurishte with 228 million euros. Apart from these three municipalities (and the Middle Mountains region), there is also a significant presence of foreign investments in Kostinbrod, where the volume reaches 86 million euros. As expected, most of the invesmtnet is concentrated in industrial production, and in Elin Pelin - also in transportation and logistics. Weighted by population, Bozhurishte is the leader in FDI in the province, with 23.6 thousand euros per capita, followed by Elin Pelin (17.7 thousand euros per capita), with both municipalities being among the top 10 in the country in this indicator. The year of Covid-19 is characterized by small changes in the volume of investments, with the exception of Kostinbrod, where a decrease of 16 million euros is observed.

From the perspective of current investment activities, the highest expenses for the acquisition of fixed assets in 2020 were realized in Botevgrad (165 million leva), Elin Pelin (154 million leva), and Bozhurishte (60 million leva). However, it is important to note that while the Botevgrad case represents a one-time large investment, in the other municipalities, the expense levels for machinery, land, and buildings are relatively constant and rhythmic. As for expenditures related to European funds, almost all municipalities in the periphery of the capital city are characterized by a low absorption rate. An exception is Kostinbrod, where from the beginning of European investments in the country until mid-2021, 5.4 thousand leva per capita have been spent - one of the highest amounts in the country, mainly due to the construction of waste treatment facilities.

• The uneven labor market

Just like with macroeconomic indicators, significant differences can be observed among the individual municipalities in the composition of Sofia (province) regarding the labor market. This is most evident in terms of the employed population aged 15 and above, which varies from an impressive 81% in Chelopech to a mere 11% in Anton. It is noteworthy that municipalities with high local employment are also those with active local economies and high investments - in Botevgrad, Bozhurishte, Pirdop, Elin Pelin, and Kostinbrod, the share of employed individuals exceeds 40% of the working-age population, while in the remaining municipalities, it is below 25%. It is important to note that this indicator does not include those who work in neighboring settlements, which means that the actual employment in areas closely connected to the capital is higher. In terms of dynamics, most municipalities experienced a contraction of their local labor markets in 2020, with more severe cases seeing a decline of around 3-4 percentage points in the employment rate. An exception is Bozhurishte, which continued to add new jobs even during the pandemic year.

The positive influence of Sofia on local labor markets, despite the significant differences in employment, is also reflected in the low unemployment rate in most of the province. In 2021, the unemployment rate according to the Employment Agency was below 5% in 10 municipalities, and only Dolna Banya and Pravets had rates above 10%, both showing a clear downward trend compared to the previous year. Almost all municipalities in the province (except for Bozhurishte, Botevgrad, Anton, and Chelopech) registered a decrease in unemployment compared to the pandemic year.

Sofia (province) includes municipalities that traditionally rank highest in the country in terms of wages. The traditional leader in this indicator is Chelopech, where the average gross monthly salary for employees exceeded 2,600 leva in 2020. Salaries are also high in Pirdop - over 1,900 leva, as well as in Elin Pelin (1,600 leva).

• Educational Achievements

Despite the fact that good students from Sofia (the capital region) often choose to attend leading schools in the capital instead of studying in smaller municipalities, most of them achieve relatively good results in school education. This is particularly evident when reviewing the data from the national external evaluation after seventh grade, where for the 2021/22 academic year, most municipalities (except Anton) scored above 40 out of 100 possible points in the Bulgarian language and literature exam. The results in mathematics are not as conclusive, as no municipality achieves an average score above 50 points. However, this significant difference between the Bulgarian language and mathematics is a widespread problem, typical for almost all municipalities in the country. In the state matriculation exams, most municipalities in the region achieve high results, with the exception of Ihtiman. At this stage of education, however, the competition from elite high schools in Sofia has an even greater effect in attracting the best students. It is also notable that the wealthy municipalities in the Srednogorie region manage to attract many teachers, and the teacher-student ratio there is one of the most favorable in the country.

• Demographic Challenges

Similarly to almost all municipalities in the country, those in Sofia (province) suffer from significant demographic problems. However, the pandemic has led to a significant influx of population into the municipalities surrounding the capital. In 2020, all parts of Sofia (province) experienced a significant positive mechanical growth, reaching up to 190‰ in Gorna Malina and 152‰ in Bozhurishte. The effect of the pandemic is rather temporary, as in 2021, almost all municipalities start losing population again due to migration processes. Chavdar and Chelopech are exceptions, maintaining significant positive mechanical growth last year as well. From the perspective of the natural population dynamics, all municipalities have a negative natural growth rate, and according to the latest data, only in Ihtiman and Pravets is the coefficient below 10‰, while in five municipalities it has exceeded 20‰. At the same time, municipalities along the border with Serbia have one of the most aged populations in the country.

Author: Adrian Nikolov

The presence of a school in each municipality is considered crucial for its existence. There are many reasons for this - we associate schools with children, future, and prospects, while their absence implies aging, stagnation, and lack of opportunities. Education is a key public service with a central role in municipal budgets, management, and life. However, data from the 2021 census show that over the past ten years, almost all municipalities in Bulgaria have experienced a decrease in population, with some seeing a decline of over 30%. This inevitably means a decrease in the number of children in their school years. How will this affect the provision of educational services?

In recent years, the number of municipalities with only one school has increased from 38 in the 2017/2018 academic year to 44 in the last academic year. These account for 17% of Bulgarian municipalities. Population decline is the main, although not the only, reason for the decrease in the number of schools in municipalities. Another significant reason is the financial model that incentivizes fuller classrooms and, consequently, fewer and larger schools. This, in itself, is not necessarily a bad thing - larger schools in Bulgaria can concentrate more resources, which can be directed towards achieving better results and improving the educational environment for children.

How are these municipalities distributed across Bulgaria?

The majority of municipalities with one school are located in the Sofia region, as well as in northwestern Bulgaria. The proximity to Sofia allows families with young children to move to the capital in search of better education, while in Northwest Bulgaria, the demographic crisis is most severe. We must note that a lot of these schools are part of the "protected schools" mechanism, which guarantees that they will not be closed if there is no other school nearby providing the same service. This means that municipalities with one school that is protected will keep it in the future.

If the demographic trend does not reverse, there will soon be municipalities in Bulgaria without any schools. Which ones are most at risk? According to our assessment, these are the municipalities of Novo Selo, Suhindol, and Alfatar. They have only one school each, all of which are unprotected and with fewer than 100 students. The schools in Suhindol (90 students) and Novo Selo (63 students) are average-sized, and during the last academic year, a total of 11 students completed their secondary education there. The school in Alfatar is primary, with 98 students. The future of these schools is at risk, especially if the municipalities do not have the financial capacity to support them. Considering that these are relatively small municipalities in terms of population - according to the latest census in 2021, there are respectively 2,000 people in Suhindol, 2,278 people in Alfatar, and 2,375 people in Novo Selo - we can assume that the municipality has limited ability to sustain a significant public service with its resources for an extended period.

In the next category, we have Bregovo, Kula, Vetrino, Hitrino, and Letnitsa - again, municipalities with one unprotected school, but with 100 to 200 students. For them, it will be crucial to how the school network develops in neighboring municipalities and whether they can attract students.

At the moment, this problem does not have a visible dimension or a clear solution, but it is important to consider the criteria that a self-governing community and territory should meet - as mentioned earlier, some municipalities do not meet the formal population criterion according to the law on the administrative-territorial organization. And soon, there may be municipalities that will not have anyone to provide their most essential public service.