News

Yavor Aleksiev

It is widely accepted that the development of e-services and the restriction of direct contacts between businesses and the administration is one of the most effective ways to reduce both corruption and administrative burden on business. Contemporary electronic interaction reduces the risk of lost documents, delayed permits and off the table pressure from administration on business or vice versa. Although successive governments have (at least seemingly) made attempts to accelerate the adoption of e-government at national and local level, the results remain unsatisfactory, especially considering the money spent for this purpose.

For the purposes of the third annual edition of the study “Regional Profiles: Indicators of Development” the IME carried out two separate surveys, which included questions regarding the quality and scope of e-services, offered at the local level:

A sociological survey among businesses that took place in May 2014 and included 1680 companies from the entire country. Among various questions regarding the effect of various business environment factors on the local level, the survey included questions that evaluate the performance of local administrations and the scope and quality of e-services.

A survey among municipalities, which started in March 2014 and ended in May 2014. Local municipalities were sent a list of questions, according to the stipulations of the Public Information Procurement Act, and provided information about the levels of key local taxes and fees, as well as their level of implementation of “one-stop-shops” and the scope of e-services they provide. In 2013 we received answers from 226 municipalities, and in 2014 – from 28 more, which brought the total number of municipalities to 254.

The overall impression is that although municipalities state higher levels of readiness for “one-stop-shop” and e-services, progress is slow, and businesses usually only take opportunity of the simplest and most straight-forward ways of online communication. This may be the explanation behind the lack of clear statistical correlation between the scope of e-services, offered by municipalities, and businesses’ assessment of their quality.

E-services

In 2013 and 2014 the highest relative share of municipalities describe the e-services they offer as being of the third level (Interaction). This means that business customers may not only find information and download forms, but also send letters, forms and other documents via the internet; however, the administration is not obliged to answer him in the same way. Despite that, in both years more than 50% of municipalities only provide e-services from the first and second levels (56.6% in 2013 and 51.9% in 2014). This means that in most cases municipalities only have a website that businesses can use in order to receive information that has already been uploaded, or download some of the forms and documents they need, without having to physically visit the municipality.

Only 10 municipalities in 2013 and 14 municipalities in 2014 declare that they provide the highest level of e-services. A curious fact is that some of those that stated they provide e-services of the highest level in 2013 actually revised their estimations lower in 2014 (e.g. Petrich and Dobrich-city). This leads to the conclusion that some employees in the administration answer the questions incorrectly.

Graph 1: Development of e-services at the local level (municipalities’ self-assessment), number of municipalities

Source: IME survey among municipalities, 2014

One-stop-shops

Similar tendencies can be observed with regard to municipalities’ readiness of implementation of one-stop-shops. In 2013 and 2014 this type of administrative service is in its “basic”, or “developing” stage in respectively 49.1% and 49.6% of municipalities. This suggests that businesses have to come in contact with different administrative bodies or in the best case (in the “developing” stage) – to establish the initial contact at a single access point, but afterwards still have to visit structures and departments.\

The number of municipalities, which declare “excellent” readiness for the implementation of one-stop-shops, are 51 in 2013 and 52 in 2014. This means that these municipalities have a single access point for all different purposes and contact may be established in a variety of ways, including online.

Graph 2: Level of implementation of one-stop-shops (municipalities’ self-assessment), number of municipalities

Source: IME survey among municipalities, 2014

The evaluation of business

In all three annual surveys among businesses for the purposes of the study “Regional Profiles: Indicators of Development”, businesses have given a positive evaluation of the quality of local e-services. Despite that, average ratings have been decreasing – from 3.90/5.00 in 2012 to 3.54 in 2013 and 3.40 in 2014. The ratings are according to the scale from 1 to 5, where 1 means “very low quality” and 5 means “very high quality”.

It is worth noting that the share of companies that use e-services is gradually increasing – from around 30% in 2012 and 2013 to 38.6% in 2014. This is due mostly to the growing number of small and medium enterprises, which choose online communication and may be part of the explanation behind falling average ratings – e-services are being used by more and different types of enterprises, while their scope and quality is progressing relatively slowly.

Just like in previous years, there’s a clear correlation between the size of enterprises and the types of e-services they use. For example, micro- and small enterprises usually use services of the second and third levels, while bigger enterprises are inclined to use services of the third and fourth levels.

Graph 3: Types of e-services, used by businesses, %

Source: IME survey among businesses, 2014

Although businesses from all districts rate e-services positively, there’s no clear statistical correlation between the scope of e-services, offered by municipalities, and businesses’ assessment of their quality. In districts such as Varna and Stara Zagora, where many municipalities consider their e-services as highly developed, businesses rate them relatively low and below the country’s average. The district of Burgas receives the highest rating for e-services, despite the fact that only 4 of the 13 municipalities declare a third of fourth level of e-services development.

Graph 4: Businesses’ assessment of the quality of e-services, provided by local administrations; the ratings are according to the scale from 1 to 5, where 1 means “very low quality” and 5 means “very high quality”

Source: IME survey among businesses, 2014

The analysis of the data from IME’s surveys among businesses and municipalities indicate that progress in both the implementation of one-stop-shops and e-services is relatively slow. In many cases businesses don’t take advantage of all new possible ways of communication. This leads to the conclusion that there may be insufficient information about the availability of such services, and their advantages in comparison to traditional ways of communication between local administrations and businesses. There’s also a tendency of falling average ratings in regard to the quality of the e-services that local administrations do actually offer. The latter might be the result of their growing popularity among small enterprises, which usually use e-services of the first and second levels.

Yavor Aleksiev

Labor market data show positive developments in the second quarter of 2014. Although the economic activity of the population is increasing, compared to the period from April to June 2013, there is a decline in the unemployment rate (from 12.9% to 11.4%) and a rise in the employment rate (from 47.0 percent to 47.9 %) of the population over 15 years of age. These data were largely expected, given the positive signs of increasing economic activity and the gradual decrease in the number of discouraged workers in the last few quarters. The decline in the ratio of long-term unemployment is undoubtedly positive news – it fell from 7.2 to 6.6 percent on an annual basis. This suggests that some of the people, who gradually returned to the labor market over the past year and a half in search of a job, were able to find one.

The rise in the number of people employed in Q2 2014 (39.6 thousand) is practically the same with the one observed in Q1 2014 (39.1 thousand). These data are undoubtedly positive and imply a continuing trend of job creation. Even so, the pace of the recovery is still relatively slow, with regard to the number of jobs lost during the crisis. In May 2014 we estimated that if this pace of job creation continues, the economy will need 8 years to recover the number of jobs lost since Q1 2008. This could happen[1] somewhere in the end of 2021 and the beginning of 2022. Bearing in mind the slowing down of the European economy and the deterioration of the macroeconomic perspectives of the business environment in Bulgaria in the short term, the persistence of this trend looks unlikely. In order to keep up the current quarterly job creation, the economy will have to generate a total of 73 thousand jobs in Q3 2014. At the same time, the low economic activity[2] of young people and the problems that they share with people with technical education trying to enter the labor market, continue to be a cause for concern. Both are the result of the structural problems of the Bulgarian labor market that render these two groups, together with the low-skilled workers, the most vulnerable to potential shocks in the recovery that is taking place.

Regional Overview

In Q2 2014 the number of people employed rises in 14 of the 28 districts in the country. A significant part of the annual rise is due to positive developments in Sofia (capitol). In Q2 2014 the number of people employed there has increased by 19.8 thousand. Notable annual increases are also registered in Plovdiv (11.4 thousand), Haskovo (7.8 thousand), Burgas (6.7 thousand) and Veliko Tarnovo (6.5 thousand). A positive recovery trend is also evident in Varna, although its pace remains moderate and below expectations.

Four out of the five districts in the South Central region of the country register at least 6^th consecutive quarter of an annual increase in the number of people employed. These are Plovdiv, Haskovo, Kurdzhali[3] and Pazardzhik. The only exception is Smolyan, where the number of people employed drops slightly in comparison to the same period of last year.

Since the start of the year the number of people employed is yet to register annual increases in ten of the country’s districts – in some of them these negative trends are long-term. For example Q2 marks the 7^th consecutive quarter of decrease in Silistra and Stara Zagora and 5^th and 6^th in Blagoevgrad and Ruse – respectively.

It is evident that the Southern Central region of the country continues to be at the forefront of the labor market recovery in the country. Separate districts from the South East and the South West regions of the country (like Sofia and Burgas) have also contributed. Labor markets in the North West region remain in deep crisis, while the North Central region shows some signs of improvement. A more significant increase in the number of people employed is evident in North East Bulgaria, with Varna and Shumen showing the largest improvement and Targovishte finally breaking a negative trend of nine consecutive quarters of falling number of people employed on an annual basis in the period October 2011 – December 2014.

Yavor Aleksiev

The data on household income level dynamics[1] in the last 10 years indicate a growing gap between the capital and the poorest districts in the country. Tha annual average growth rate of income levels in the period 2004-2013 is 12.79% in Sofia (cap.), compared to a national average of 8.50%. Income rises the most slowly in Lovech – by just 2.90% annually.

The statistical effect of the significant average annual rate of increase of income in the capital, together with the large and growing number of its population, is that in the period 2004-2013 there are only six districts in the entire country in which the average annual rate of income level increase is faster than the national average. Apart from Sofia (cap.) these are Plovdiv, Stara Zagora, Pernik, Pleven and Yambol. In the other 22 districts of the country the annual average rate of household income increase is lower than the national average, despite the fact that income levels themselves are higher than the ones in some of the before mentioned six districts.

Graph 1: Average annual growth rate of the total income per household member in the period 2003 – 2014, %

Source: NSI, IME’s calculations

When will the other districts catch-up?

If the annual average rate of increase of income levels in the period 2004-2013 stays the same in the future, catching up with the capital would be impossible,

With this in mind, in order to illustrate the gap between the capital and the rest of the districts, we presume that income levels in separate districts continue to rise with their annual average rate for the period 2004-2013, while at the same time income levels in Sofia (cap.) stay on their 2013 levels.

Graph 2: When the rest of the country’s district will catch up to the capital

Source: NSI, IME’s calculations

If income levels in Sofia stopped rising in 2013 the first districts that would catch-up to the capital are Pernik (2016), Pleven and Stara Zagora (2017). A few years later come Plovdiv (2018), Varna, Gabrovo and Yambol (2019). The last districts to do so would be Vidin (2033), Sliven (2039) and Lovech (2044).

This dynamic is, of course, highly conditional, but it provides a good overview of the degree to which income levels in different districts lag behind the ones in the capital.

It is important to note that the annual average rate of income growth depends mainly from the condition of local labor markets, which is due to the fact that income from working salaries generates more than 50% of the total income of Bulgarian households. The demographic structure of the population in different districts is also important – the larger the share of senior citizens in a district, the larger the share of income from pensions. For example, pensions account for just 14.1% of household income in Sofia (cap.) and 32.0% in Vidin. The large share of income from pensions generally suggests not only a lower income level base, but also a slower growth, due to the administrative character of their initial setting and follow-up increases.

At this stage there are no signs that these tendencies will change any time soon. What’s more – the continuing rise of income levels in the midst of the economic crisis and the recovery that followed, coupled with the traditionally high economic activity of the local population make the gap grow even faster than in previous periods.

An IME study into the main factors, determining economic development, measured as GDP per capita, shows that the leading from statistical point of view prerequisites for faster growth are the quality of human capital, local infrastructure and entrepreneurship. The gap between income levels in Sofia (cap.) and the other districts may be narrowed only by increasing efforts to attract foreign investment, improved education, infrastructure development and the facilitation of a business-friendly regulatory environment.

Zornitsa Slavova

For the purposes of the third consecutive edition of “Regional Profiles: Indicators of Development” the IME acquired data about the condition of the road network at the district level. These data are collected by the Road Infrastructure Agency (RIA), which evaluates the condition of the republican road network (highways, first, second, and third class roads) using a three-staged scale – good, average and poor.

In 2013 39,6% of the roads are in good condition, a decrease of 0.7% compared to last year. At the same time the data vary significantly between different districts. The condition of the road network is best in Sliven – 79.3% are in good condition, and only 14.4% are in poor condition. There are 5 more districts where over 50% of the roads are in good condition – Stara Zagora (53.4%), Pazardzhik (52.6%), Targovishte (52%), Blagoevgrad (51.9%) and Yambol (50.3%). At the other end is Vratsa, where only 17.9% of the roads are evaluated as being in good condition, and as many as 44.2% are classified aspoor.. in the quality of the road network in Vratsa keeps decreasing. In 2012 26.7% of roads were classified as good - a drop by 8.8%, which is the second largest after Haskovo, where the part of roadsin good condition decreases by 10.4%, thus dropping to 33.6% in 2013. Among the districts with a relatively low share of roads in good condition are also Montana (29.1%), Ruse(29%), Sofia district (28.6%), Burgas (27.1%), Veliko Tarnovo (25.7%) and Kardzhali (25.5%).

The biggest increase of the share of roads in good condition is observed in Shumen – from 19% in 2012 to 36.3% in 2013 or 17,3 p.p. increase. A continued rehabilitation of 40.5 km of the I-7 road Shumen – Veliki Preslav – Varbitsa is expected In 2014. This will improve the share of roads in good quality even further. The construction of the ‘Hemus’ highway is also progress, despite problems.

Overall, half of the districts have their share of good quality roads increasing, and the other half – decreasing. The map above shows that the share of roads in good condition in Southern Bulgaria is higher. Te total share roads in good condition to the north of Stara Planina is 36.4% while south of the mountain it reaches 45,1%. This is mostly due to the fully built “Trakia” highway and the fact that most big infrastructural projects concentrated in Southern Bulgaria.

The poll, which was conducted in May 2014 for the “Regional Profiles: Indicators of Development” study, shows that one of three companies claim that the quality of infrastructure in their district has a negative influence on their business. The worst resulsts are in Vratsa, where 58.3% of entrepreneurs state that they suffer from low quality infrastructure. This also holds true for about half of companies in other districts – Gabrovo (51.7%), Silistra (48.3%) and Montana (46,6%)– also districts in the northern part of the country.

Building up a good infrastructure has been a priority of the last few governments. The lack of quality roads and convenient transport connections between districts can seriously interfere with their further economic growth.

Yavor Aleksiev

In June 2014 the IME organized six regional roundtables focused on important issues of regional development. The first three events were held in Blagoevgrad, Plovdiv and Stara Zagora in the second week of June. The main impressions of the IME regarding South Bulgaria are available here. The meetings were attended  by a number of local businesses and NGOs as well as local and regional authorities. The round tables were organized with the active support of the Bulgarian Chamber of Commerce and Industry (BCCI). The series of roundtables is part of the preparation of the forthcoming third edition of the "Regional Profile: Indicators of Development", published with the financial support of the "America for Bulgaria".

The economic recovery in Northern Bulgaria continues to be barely noticeable. In some places (such as the Silistra District) even increasingly negative trends are observed. With regard to the labor market sustainable improvement is noticeable only in Northeastern Bulgaria, especially in the districts of Varna and Dobrich. Despite positive trends in these two districts and generally positive expectations that were shared by businesses in a survey, conducted by IME in May, employers' organizations are skeptical about further recovery in the labor market this year. They point out four main reasons:

• continuing uncertainty about the "South Stream" project;
• geopolitical crisis in Ukraine, which is a leading export market for many companies in the North East and the North Central Region;
• potential adverse effects of bad weather on agricultural production;
• expectations for declining flow of tourists from Russia and Ukraine, resulting in a weaker tourist season

The continuing political instability and the populist rhetoric of some parties in Parliament have a strong negative impact on foreign investments. As a result, some investment projects in the industrial sector in Gabrovo have been frozen or terminated. Another serious problem for Gabrovo is the lack of appropriate municipal land, which can be used to attract potential investors. According to representatives of both local business and local government, in many cases the ownership of such lands is not settled, or they are already taken-up by old factories, which although privatized, have not been active for years. Communication between the municipality, potential investors and the current owners of such lands and factories is very difficult, which prevents their sale/rent and use.

Local administrations are very concerned about the potential suspension of some European programs. A recent example is the municipality of Troyan (Lovech), which just a few days ago had to borrow 5 million BGN to settle payments with the companies implementing the project for the city’s integrated water cycle. Suspension of funds under OP "Environment" can have negative consequences on the financial state of this and other municipalities in the region.

The effect of the opening of Danube Bridge-2 is assessed as positive, but the poor condition of the road network in much of the region and the lack of highway roads in the Northwest and the North Central region of the country hamper further potential benefits of the facility.

The lack of adequately educated young staff is a serious problem, especially in areas such as Vratsa and Veliko Tarnovo. There are no examples of successful collaboration between local businesses, local governments and educational institutions. Educational equipment is outdated. Another serious problem is the lack of strategic investors and large companies in the North West region of the country, with the notable exception of NPP "Kozloduy".

There is a positive attitude towards the idea of ​​increasing the financial authority and independence of municipalities (e.g. retaining some part of the personal income tax) in order to provide additional incentives for local governments to attract investment.

Yavor Aleksiev

In May 2014 The IME conducted a nationwide survey of 1680 companies for the purposes of the forthcoming third edition of the study "Regional Profiles: Indicators of Development".

The survey included questions assessing the expectations of enterprises about future investment and income dynamics, as well as their expectations of hiring or releasing employees. The results we obtained are in line with the consensus of a recovering labor market and point to more jobs and higher investment activity over the next 12 months.

Main findings

During the same period of last year businesses expected increases in the number of employees in only 10 of the country’s 28 districts. Our latest survey shows that this year annual employment is expected to remain stable or increase in practically every district of the country.

A significant increase of employees is expected in nine districts, including three in the Northeast region (Varna, Targovishte and Shumen), one in the Southwest (Kyustendil), three in the South-central region (Pazardzhik, Plovdiv and Haskovo) and two in the Southeast region (Sliven and Burgas).
The group of districts in which businesses believe that the number of employees will remain stable or will register insignificant increases includes Veliko Tarnovo, Stara Zagora, Razgrad, Pleven, Pernik, Gabrovo and Blagoevgrad.

These expectations are in line with three main trends that the IME pointed out in the summer of last year:

• The labor market recovery in 2012 and 2013 was lead by the South-central and South Eastern regions of the country; in view of the expectations of businesses this trend is likely to continue in 2014 and 2015.
• The labor market in Southern Bulgaria is recovering much faster than the northern part of the country; there are no districts in the Northwest and North-central regions of the country with clearly defined positive employment expectations.
• The increasing economic activity in the district of Varna will most likely facilitate job creation in Shumen and Targovishte in the second half of 2014 and the first half of 2015;

Main factors affecting business

Enterprises point to both credit accessibility and EU funding as leading business environment factors. Both of these enjoy a more positive assessment by larger companies (those with over 50 employees), but the perception among micro firms and small firms is also mostly positive. At the same time, despite the high average rating of EU funds, 32.5% of respondents could not evaluate their effect.

In line with results from previous studies as well as other IME labor market analyses, the local labor market comes forward as the leading negative business environment factor. Businesses in Sofia (district), Dobrich, Pernik, Vratsa and Sliven find it the most difficult to find suitable employees.

Business environment factors such as infrastructure and the quality and speed of administrative services are considered somewhat neutral. In turn, the size of the domestic market (domestic consumption) is a problem especially for micro-firms and small enterprises.

Additional information about the IME survey among businesses will be posted on the website of the project "Regional Profile: Indicators of Development" in the coming weeks.

Yavor Aleksiev

Over the past week, the Institute for Market Economics (IME) organized its first series of round tables throughout the country (June 9^th-12^th), focusing on current issues of regional development. The first three round tables were held in Blagoevgrad, Plovdiv and Stara Zagora and included representatives of local businesses and NGOs, as well as representatives of district and municipaladministrations.

Main impressions from Southern Bulgaria

The Southern Central and the Southeast regions continue to be the main drivers of the economic recovery of the country in 2014. Several districts (like Pazardzhik, Plovdiv and Sliven) enjoy increased investment interest and rising employment in 2013, as well as in the beginning of 2014. The economic recovery of Burgas is also well underway – a strong summer season may result in annual employment levels surpassing those before the crisis. The labor market in Southeast Bulgaria remains subdued, which has a negative effect on the economic recovery of Blagoevgrad, Pernik and Kyustendil. Sofia (capital) is the only district that registered positive tendencies in 2013 and the first quarter of 2014.

Positive tendencies:

• Increasing investment potential and stronger interest towards the IT sector in Plovdiv;
• Postponement of planned staff cuts in leading companies in and around Stara Zagora, despite continuing economic uncertainty;
• Positive effect of putting the Trakia Highway into operation on economic activity in the districts of Yambol and Sliven;
• ncreasing investment activity in one of the country’s poorest districts – Silven, coupled with tendencies for an increasing number of jobs in the second half of 2014;
• Positive business expectations regarding employment, investment and revenue levels in most Southern districts, including some of the poorest ones;
• The local administration in the district of Plovdiv realizes the extent of missed opportunities for more active participation in the Operational Programs of the EU – measures have been taken to esure higher EU funds’ absorption and there are, in our opinion, realistic expectations for improving effectiveness in the near future;
• There is a prevailing positive attitude towards the idea of increasing the financial authority and autonomy of municipalities (for instance, through the retention of a part of the income tax, paid by employees in their jurisdiction), which aims to create additional incentives for local administrations to attract investment.

Negative tendencies:

• The lack of adequately qualified workforce (for both local and international businesses) is a problem that to a vast extend defeats two of the main competitive advantages of the Bulgarian economy – low taxes and low labor costs;
• Although in some places (Blagoevgrad) there are recent examples of successful cooperation between local businesses, educational establishments and the local administration, the postponed adoption of more up-to-date legislation in the educational field hinders the synchronization between labor market needs and the educational system;
• Businesses are negatively affected by the continuing political crisis;
• Local administrations are seriously concerned about the prospect of a potential freeze of funds under some European programs;
• The uncertainty in the energy sector is a problem of particular importance to businesses in some districts (especially Stara Zagora);
• The lack of strategic investors in some districts of the country (like Blagoevgrad) and newly opened enterprises is a serious issue. The prevailing impression is that the vast majority of foreign capital is attracted by a drive for quick returns, which does not give opportunities for long-term economic development and income increase.

During the next week the IME will organize a series of round tables in Varna, Gabrovo and Vratsa:

Monday, June 16, 2014 Varna

• Presentation of the study "Regional Profiles: Indicators of Development" with a focus on the development of Varna and the Northeastern region, followed by a discussion
• Location: Varna Radio Concert Studio
• Start: 9:45

Wednesday, June 18, 2014 Gabrovo

• Presentation of the study "Regional Profiles: Indicators of Development" with a focus on the development of Gabrovo and the North Central region, followed by a discussion
• Location : Technical University - Gabrovo , Library Hall
• Start: 9:45

Thursday, June 19, 2014 Vratsa

• Presentation of the study "Regional Profiles: Indicators of Development" with a focus on the development of Vratsa and the North Central region, followed by a discussion
• Location: Chamber of Commerce and Industry Vratsa
• Start: 9:45

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The events will be held in Bulgarian.

Join us! For more information and registration:
Vessela Dobrinova | vessela@ime.bg | (+359 2) 952 62 66

The series of round tables is a part of the preparation of the forthcoming study “Regional Profiles: Indicators of Development 2014”, carried out with the financial support of the “America for Bulgaria” Foundation.