News

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Last week we commented on the data on population dynamics and the fact that 51 municipalities are experiencing population growth in 2020. Now we will focus on the factors of change in the country's population, looking at natural and mechanical growth in 2020. The year of the pandemic brought serious changes to the demographic processes in the country. On one hand, we have record mortality, which further worsens natural growth. On the other, the country reports positive migration for the first time since the beginning of the transition. Hence the reversal of mechanical growth.

During 2020 all districts in the country experienced negative natural growth. On a municipal level, only one municipality manages to remain above zero – Tvarditsa, which has very low natural growth (by 4 people). The Nikolaevo municipality is also an exception, in that its natural growth is exactly zero. All other municipalities are on the negative side of the equation - their population is declining due to the natural processes. Big municipalities, as expected, are heading the list by absolute population drop due to natural causes. What is more worrying is the sharp worsening of their indicators last year.

Sofia municipality reports negative natural growth of the amount of 4613 people, while in recent years this indicator had shown a decline in the margin of 2500 people. This represents an almost doubling of the negative natural growth in the capital. In Plovdiv, the worsening is similar – from a common decline due to natural causes with 700-800 people per year to 1726 people during 2020. The reason can be found in the high mortality, which grew with 2000 people in Sofia municipality, and with almost 800 people in the Plovdiv municipality. Generally, the differences by municipalities in the coefficient of natural growth remain – the big municipalities with strong economies stand significantly better compared to to the depopulating regions in the country. Nonetheless, the worsening natural growth of 2020 is ubiquitous, reflecting the difficult year.

The positive news in 2020 is the reversal of migration and the positive mechanical population growth in the country. Overall, the population grew by 30 715 people as a result of positive mechanical growth – mainly driven by the return of Bulgarians in the country during the first months of the pandemic. A total of 205 municipalities report positive net migration in 2020 - unprecedented in the new history of the country. For a comparison, in 2019 their number did not exceed 100. The big surprise comes also from their breakdown. The biggest losers are traditional leaders in migration – the big cities. Sofia municipality lost almost 16 thousand people, Plovdiv – over 4 thousand, and Varna – over 2.3 thousand people. While big cities are losing, their periphery is winning. The periphery of Sofia, Plovdiv and Varna is the biggest winner of the 2020 migration.

The Rodopi municipality has the greatest mechanical growth of 2642 people as a result of the migration. The second place is taken by Kostinbrod municipality, with mechanical growth of 2269 people. The top 10 in mechanical growth consist almost entirely of peripheral municipalities of the big centers. Similar is the situation in most district centers – in Burgas, Ruse and Stara Zagora a decline in the regional center and growth in the peripheral municipalities can be observed. Meanwhile in Gabrovo, all are reversing the tendency and mark positive mechanical growth, including the district center Even in the northwest the small and depopulating municipalities report small positive mechanical growth. The coefficient of mechanical growth, however, confirms that the change is most distinct around the three big economic centers.

The immense change in mechanical growth is a result of two processes. The first is the return of Bulgarians from abroad in the beginning of the pandemic and the positive migration in the country. Albeit to different extents, this return is observed in the entire country. The second process is internal migration, which in the year of the pandemic is from the big city to the small populated location. This is as much a real change, as it is a formalization of a previously unreported reality. A detailed look at the case of the villages in the Gabrovo district confirms this – mixed registrations of people, who are already in the particular village and a real settlement of others from the big city. Both processes looked unthinkable prior to the pandemic. And although the periphery is winning at the expense of the big city, it is  important to consider strong economic centers in a wider sense – nucleus and wide periphery, which both hold potential for change.

Last week, the IME published data on salaries by municipalitiy for 2019. Traditionally, the topic provoked comments about the division along the axis of the private-public sector. Today we publish detailed data on salaries in the private and public sector by municipalities. The data refer to the average gross monthly salary of employees.

The detailed data on salaries show that the private sector plays a leading role in almost all municipalities in the “top 20” by size of the average salary in the country. Only in the municipalities with a very strong energy sector is the situation different – high salaries come from the public sector in Kozloduy and Radnevo, while in Galabovo they are high in both the public and private sector. For all others in “top 20” – be it Chelopech, Pirdop and Panagyurishte in the Srednogorie or the industrial Devnya, Bozhurishte and Maritsa close to the big cities, the private sector generates higher salaries.

In reality, the leaders among the municipalities by salaries in the private sector are not that different from the common ranking for Bulgaria. Chelopetch [1], Pirdop (1,984 BGN) and Sofia municipality (1,794 BGN) take the leading three places. The last two report good growth of around 10% for 2019. After them come Galabovo (1,762 BGN), Devnya (1,700 BGN), Suvorovo (1,623 BGN), Elin Pelin (1,544 BGN), Panagyurishte (1,488 BGN), Bozhurishte (1,436 BGN) and Beloslav (1,420 BGN). The impressive strong growth in Elin Pelin (18% in 2019) reflects the possibilities in the wide periphery of the capital.

20 municipalities register average gross monthly salary in the private sector under 600 BGN. in 2019. These are almost entirely very small municipalities, such as Tran and Batak, where employees in the private sector are usually few, while manufacturing plants are either totally absent, or in spheres where manual unskilled labor and low pay are predominant. And while these 20 are rather marginal examples, another 53 municipalities report average gross monthly salary of the employed in the private sector between 600 and 700 BGN. Among them are many municipalities with a diverse profile, but also many resort municipalities – Velingrad, Tsarevo and Separeva banya are part of this group.

The ranking by salaries in the public sector looks very different. The first three places [2] for 2019 are taken by the familiar Kozludui (2,722 BGN), Radnevo (2,045 BGN) and Gylybovo (1,688 BGN). The big municipalities follow suit – Sofia (1,582 BGN), Varna (1,393 BGN) and Plovdiv (1,333 BGN). “Top 10” for salaries in the public sector is closed by Devnya (1,332 BGN), Belovo (1,296 BGN) and Burgas (1,285 BGN). The specifics of the salaries in the public sector – with a big role of the administration and spheres such as education, suggests closer pay-levels in the majority of the municipalities. Only 16 municipalities report average gross salary in the public sector under 800 BGN. in 2019.

This distribution implies that in most Bulgarian municipalities the average public sector salary overtakes the one in the private sector. In 56 municipalities the private sector salary exceeds the one in the public sector – in the Srednogorie and the industrial municipalities around the big cities the difference is 1.5-2 times higher in the private sector. In the other 209 municipalities, however, the average public sector salary is higher, and in two cases it is equal to the one in the private sector. The difference in some of them – Kozloduy and Radnevo for instance, can also reach up to twice the size, but this time in favor of the public sector.

Besides the capital, where the private sector leads in salaries, among the big municipalities the public sector remains superior. In Plovdiv and Varna municipalities, for instance, the private sector salary equals 80-82% of the one in the public sector. There are several reasons for this. On the one hand, the industry with higher salaries is resettled in the periphery of these cities, thus on the territory of neighboring municipalities. At the same time these municipalities have very strong social functions, and concentrate high-paying public institutions. Salaries in education and healthcare in Varna, for example, are among the highest in the municipality, while 2019 saw an overtaking ascent of teacher salaries.

[1] The data for the average salary in the private sector in Chelopech municipality are strongly confidential. Nonetheless, aware of the high average salary in the municipality, and of the pay-levels in the public sector, we can confirm the primacy of municipality Chelopech. Municipality Mirkovo remains the only one outside the ranking, as in this case the data are confidential as much for the average salary in the private sector as for the entire municipality. Most likely, in consideration of the available data, municipality Mirkovo would be among the leaders in the country.

[2] The data for the salary in the public sector is confidential for the municipality of Sopot. It is possible that the average salary in the public sector in Sopot – due to the presence of a very big public company, is among the highest in the country.

Recommendations of international organizations to Bulgaria more often focus on problems at the national level - from corruption through the judiciary to the quality of lawmaking. A newly published analysis by the Organization for Economic Co-operation and Development (OECD) instead focuses on the specifics of local government, the challenges of decentralization and the growing inequality between different parts of the country and the capital.

In the first place, the analysis posits that Bulgaria has achieved significant progress in its socioeconomic development in the three decades after the fall of the socialist regime. As expected, this also comes with the transformation of the over centralized institutions to the multi-level system of government and decision-making. Nonetheless, OECD analysts denote that despite the shortening distance with the economic development of the EU, the country still trails behind, and continues to struggle with significant issues such as income inequality and poverty.

Among the worrying tendencies set out in the report, are the deepening socioeconomic differences among the different parts of the country relative to the average European level after Bulgaria’s entry into the EU, despite the big investment in regional development, financed by the cohesion funds. The analysis describes the case of Bulgaria as an “island of prosperity”, in which there is a small well-developed territory and a backward periphery - the big developmental differences between the capital and the other regions. This also applies to the entire southwestern planning region, which concentrates almost 50% of the national GDP, with a tendency for the share to grow; the same applies to Sofia (capital). The authors denote the development of Plovdiv, Varna and Burgas as alternative economic centres, balancing out the capital, but beyond them the rest of the country remains behind in terms of development.

As a whole, the report contends that regional development has achieved “mixed success”. According to the authors, the country put effort into the adoption of a more integrated approach to regional policy, but this effort was hampered on the one hand by the economic problems following the 2008 crisis, and on the other - by the deepening social and demographic problems of a number of regions. Another problem which stands out is the centralized (“top-down”) approach towards the development of regional policy, which often excludes the regional government from the process.

The analysis accentuates the condition that despite the programs and strategies for decentralization, Bulgaria remains strongly centralized. The municipalities - regarded as the only level of real decentralization - realize only 20% of the public expenses (or 7% of Bulgarian GDP). This contrasts sharply with the EU average of 34% (15% of GDP). Fiscal decentralization is considered the weakest link of the decentralization process, although deficits in the political and administrative decentralization can still be observed.

Low fiscal autonomy and restricted municipal budgets create a critical challenge to local governments. They hamper the delivery of quality services, investment and their independent development.  Especially considering the fact that municipal spending is defined largely by the central government. Furthermore, the analysis perceives problems in the administrative capacity and the democratic process on the local level.

On a general level, the OECD authors recommend some steps for the achievement of real decentralization, better regional development and improvement in the activity of the local government:

●       Transitioning to an integrated local-level approach to regional politics. According to the analysis, regional policy should take into account the particularities of the different districts in the country, and focus on the decision-making process of local governments. An emphasis is put on the quality of the decision-making process, the transparency and the coordination between the local governments.

●       Improvement of the municipal decentralization: greater capacity and resources and better municipal governance. The authors indicate a necessity to reform the current goals of municipal decentralization and the measures for their achievement. Significant are also the improvement of the coordination mechanisms between the different governmental levels, more effective administrative decentralization, an increase in the fiscal decentralization and responsibility of the local government.

●       Reform of the local government with the goal of increasing the capacity and the achievement of the regional aims. The report regards as necessary the clarification of the roles of the different levels of local government. According to the authors, the districts should operate as deconcentrated territorial administrations, whose role is vertical and horizontal integration and control over the municipalities, but not the direct management of regional development.

A big part of the OECR report’s conclusions coincide with the ones made by the IME within the year-long work of the Institute in the sphere of local government and regional development. More for the current recommendations of the IME for real decentralization can be found on the specialized website for fiscal decentralization dvenasto.bg

Catching up with the average European standard of living, labor productivity and level of economic development has been the main goal of Bulgaria for more than three decades. However, different regions of the country are moving towards this goal at different rates. These differences are clearly seen in the newly published Eurostat data on the size of GDP per capita in European regions.

In order to assess the convergence to the average European levels, we take the difference/margin of the different districts and regions for planning from the average EU level. An important distinction in this year’s data is that Brexit is already a fact – “EU average” now applies to the 27 member countries without the United Kingdom. From a practical standpoint this means that the poorer EU members “get richer” compared to the EU average, because the United Kingdom was among the richer states and net sponsors of the European budget, hence its leave pushes down the average figures.

In the comparison of the different planning regions, the southwestern region is the clear leader, as it contains the capital. For the nine years from 2010 onwards, the region has gotten close to the EU-27 average figures with 12 points, to 47% of the European average GDP per capita. In the other three remaining regions – northern central, northeastern, southern central – the convergence rate is the same – by 6 points, in the northwest – by 5. This implies that, compared to the EU average, the regions are developing with a relatively even speed. Interesting is the trajectory of the southeastern region, which in different parts of the decade remains second-place, but has been losing speed in the last two years. It is important to mention that regions outside the southwestern are grouped very close to each other, between 17 and 22% form the average EU-27 level; in other words the different developmental rates of the regions might look big from the point of view of Bulgaria itself, but in comparison to the entire EU the differences between them remain miniscule.

The presented data up to here concern the nominal GDP; it describes the “raw” distribution of the GDP per EU regions, and has been chosen for this analysis due to the data accessibility on a local level, presented a bit further on. The more standard comparison uses the so-called purchasing power standard, which incorporates he price differences of products and services in different countries.

In terms of purchasing power standard, the planning regions have demonstrated similar dynamics, but different distances from the average European figures; in 2019 the southwest region already covers 89% of the average EU-27 figures, the northwest – only 32%.

On a local level, regional differences in the catching-up towards the average European levels of economic development are more distinct. Without the rest of the southwestern region, Sofia reaches 57% of the average for the EU-27 level, in Stara Zagora, mostly due to its energy complex – 29%. The leading economic centers stand out, mostly Varna and Burgas. The differences in growth are not surprising – the energy centers most rapidly melt down the difference with the average GDP per capita, followed by the capital driven mostly by the digital export-oriented services and the strong industrial districts – Plovdiv, Gabrovo, Ruse, Varna. What is worrying, however, is that 5 districts – Silistra, Sliven, Stara Zagora, Pernik and Dobrich – have gotten closer to the average EU level of GDP per capita with only 2 points in the span of eight years.

It is important to note, however, that the current catching-up rates – in a period, which we cannot define any differently than as a strong economic uptake with record high indicators of the labor-market – in no way are sufficient for catching-up to the average European levels in the near future. Despite the fast growth of the digital sector and the restructuring of production with higher added value in a series of industries, the convergence towards the average EU-27 is to a large extent a game of catching-up growth; maintaining the relationship is not enough. This, of course, does not mean that the nominal economic development and wellbeing of the population has not improved; on the contrary.

The presented data do in no way account for the 2020 economic crisis and the way in which it affected the Bulgarian regions and the EU as a whole. It is very likely that in 2020 we are to report smaller differences between the leading and weaker economic districts of Bulgaria, as the main economic centers experiences harder hits, but also a mute “convergence” to the average for the EU-27 due to the more serious damage, inflicted on the big western European economies. These effects are however going to even out relatively quickly in the process of normalization after the crisis; in the end, convergence is a lengthy process, which takes many decades to complete.

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As part of the presentation of the new “Regional profiles 2020”, during the week the IME conducted a focused discussion over the development of south Bulgaria. The entire conversation can be traced here, and the presentation is available here.

Unlike the economies of North Bulgaria, where a few economic centres of relatively equal weight compete, to the south Sofia makes up more than half of the entire economy. Its GDP reached 51 billion leva during 2019, and almost 55 billion if we add the contribution of the municipalities in the surrounding area, integrally linked with the capital. The industrial economy of Plovdiv dominates the South central region with 9.6 billion leva GDP. In the Southeastern region, a particular balance between Burgas and Stara Zagora is observed, with 5.5 and 5.1 billion leva GDP respectively.

The distribution of the primary economic activities is, however, quite different. Although the capital continues to prevail with 5.8 billion leva gross value added in manufacturing, the other leading areas are not that far behind - Plovdiv recorded almost 3 billion leva gross value added in manufacturing for 2019, while Stara Zagora – 2.5 billion leva. To a large extent, this can be attributed to the critical role, which investment and the development of the manufacturing industry have played for the economic progress in almost all regions outside the capital in the last decade.

Conversely, the capital is even more dominant in the service sector, where gross value added reached 38.4 billion leva in 2019, while in the second district, Plovdiv amounted to only 5.1 billion leva. Such a concentration in services is not surprising - ⅕ of the population of the country live in the capital, and those have the highest incomes and purchasing power. Moreover, almost the entire ICT and outsourcing sectors are concentrated in Sofia. These activities are not only the most rapidly growing ones in recent years, but also those which provide the highest average salaries in the Bulgarian economy. It is exactly these types of services which have the potential to turn into an engine for growth for some other regions as well, especially those with more favorable labor force structure.

If we can talk about development on “two speeds”, then the mountainous regions of south Bulgaria fall greatly behind from the dynamic economic development processes since 2014. It is not that they have not demonstrated significant improvement in most indicators, from unemployment, through household income, to investments, but these do not amount to growth comparable with the one of Sofia or Plovdiv.

Differences of economic development can also to a large extent be attributed to the structure and particularities of the labor force. The regions, where high technologies break through most easily also cluster the most people with higher education, while in the ‘industrial’ sectors predominate workers mostly with secondary and professional education. Serious economic problems also feature in the regions where citizens with secondary and lower education make up the majority of the labor force - in 2019 they exceeded 20% in Sliven, Kardjali, Yambol and Pazardjik.

The speed of economic development has an impact on the demographic dynamics, particularly that of internal migration. This is the reason why Plovdiv, Burgas and Sofia have recently featured positive coefficients of mechanical population growth rate, while Sliven, Smolyan, Kyustendil and Yambol gradually depopulate due to migration toward the more dynamic economic centres of the country or abroad.

Finally, we cannot omit last year’s Covid-19 crisis, which affected unevenly the regions of south Bulgaria. Despite there being no intact regions, the ones where manufacturing and high technology weighted more heavily overcame the temporary shock of the first months quicker. In contrast, the problems of the regions more reliant on tourism and the manufacturing industries with lower value added have been aggravated, especially if we consider the state of the labor market.