Summary

The second edition of “Regional Profiles: Indicators of Development” contains the updated socio-economic profiles of the 28 Bulgarian districts plus four thematic analyses: a typology of districts using neural networks, panel analysis of regional development factors, and economic analyses on local tax policy and regional labour markets.

The updated profiles of Bulgarian districts are based on an improved system of socio-economic indicators at district level. No significant changes were introduced while improving the methodology, i.e. the eight categories of economic and social indicators, as well as the analytical approaches, were generally preserved in order to ensure comparability with previous publications. Nevertheless, drawing on our experience with the first edition of Regional Profiles, several indicators were excluded from the database analysed by the project team; these indicators either had questionable quality at district level or provided limited information for the analytical objectives of the survey. At the same time, on the recommendation of the project's Advisory Board and of experts on regional development, the database was enriched by adding several new indicators in the field of infrastructure, healthcare, the environment, business environment, and social environment, in order to achieve greater comprehensiveness, precision, and objectivity of the analysis. For instance, the infrastructure category now includes a new indicator on the quality of the road surface, while the social environment data now provides a composite indicator of culture at the district level.

As in the previous edition, the socio-economic profiles of the districts are based on the latest data available as at 30 June, 2013. The Regional Profiles seek to outline the most significant changes over the past one year (i.e. since the previous survey), and to analyse the long-term processes in each district according to separate categories.

The profiles of districts as presented here lead to the conclusion that recovery from the economic crisis (2009) is still continuing at varying rates in different districts. Expenditures for fixed tangible assets in 2011, although on the increase in most districts, almost without exception failed to reach their pre-crisis rate (2008). The situation with foreign direct investments is even bleaker, as these have been either completely absent or negligibly low in most districts since the onset of the crisis. Since the beginning of the economic downturn, some districts have even reported a net outflow of foreign capital, i.e. the flows leaving the country are larger than incoming flows.

These negative developments have unavoidably affected the labour market. Despite some signs of revival in 2011 and 2012, regional labour markets have not yet overcome the blow dealt by the crisis. The employment rate in 2012 continued to be lower than its pre-crisis levels while unemployment continued to grow, with labour markets in North Bulgaria generally characterized by a more painful recovery.

In spite of the difficult recovery from the crisis, the majority of local administrations and authorities failed to make the necessary effort to improve the business environment. This is the logical conclusion from the deteriorating ratings given by businesses on the operation of local administrations and the increased corruption perceptions in surveys conducted in May 2013, as well as from the relatively conservative approach towards local taxes and charges. The extent of penetration of electronic services provided at the local level and their usability also continue to be a challenge for local authorities. Only in the districts of Veliko Tarnovo, Vratsa, Lovech, and Sofia (capital city), the use of such services has reached or exceeded 50% of respondents, while in some districts it remains at levels below 10%. At the same time, as a country average, municipalities provide a second generation (out of four) electronic services, which corresponds to the one-way interaction between businesses and citizens, on the one hand, and the administration, on the other. There are only very few districts declaring readiness to provide fourth-generation e-services that allow the execution and validation of transactions between the administration and its clients.

Nevertheless the accelerated absorption of EU funds by municipalities under European Union (EU) operational programmes in 2012 managed to make up, to a certain extent, for the diminishing inflow of foreign investments and the weaknesses in the administrations' work. As to EU funds, the absorption rates are also widely varied between districts. Where municipal administrations are more active, the indicators on road infrastructure and water and sewerage networks have improved significantly. For example the progress made on projects for the construction of water treatment plants funded under the Environment Operational Programme, is clearly visible in the indicator „Share of the population living in settlements with public sewerage systems, connected to waste water treatment plants” which is part of the „Environment” category in our survey. According to this indicator, the districts of Ruse, Stara Zagora, Targovishte, and Haskovo made the most considerable progress in 2012, with the completed construction of treatment plants. With regard to road infrastructure, the latest data on the length of the public road network included in the survey is from the end of 2011. It clearly indicates the completion of the Lyulin Highway, which automatically increases the road network density of Pernik District. In view of the progress and completion of the Trakia Highway during the period 2012-2013, the increased density of the road network in the districts through which the newly built sections of the highway pass will be seen in subsequent editions of Regional Profiles.

The negative demographic trends as a result of the low birth rate and negative population growth continued during the past year. Since 2010, not a single district has reported a positive rate of population growth; in most districts the negative growth deteriorated steadily over the period 2010-2012. At the same time, internal migration data indicates that the majority of regions continue to be net donors of labour force, which, combined with the sustainable negative natural growth rate of the population, results in the rapid depopulation and deterioration of the age structure in most Bulgarian districts. The only districts with positive net migration inflow, i.e. those in which the net inflow of migrants from other districts exceeded outflows in 2012 are Sofia (capital city), Plovdiv, Stara Zagora, and Shumen.

Population ageing and the existing incentives for “draining” the state-run health system have understandably affected the usability of health care, which continued to rise in 2012, too, judging by the increasing relative number of hospitalisations in multiprofile hospitals. Nevertheless, more than one fifth of respondents said that they had had to make unofficial payments for healthcare, while nearly one quarter had travelled outside their district to receive medical treatment. The most common reason for such travel is the lack of specialist doctors in the district. Only residents of the districts of Sofia (capital city), Plovdiv, and Pleven travelled considerably less to receive healthcare services.

No significant changes have been observed in the studied indicators on education during the past year. It is, however, worth noting the higher scores from mandatory matriculation exams in the majority of districts at the end of school year 2012/2013. Both a decrease in the share of students who failed the exam and a slight increase in average scores were observed in the majority of districts.

As to the “Social Environment” category, most districts now report lower ratings in two of the three observed indicators for poverty and social inclusion. The share of the poor below the district-specific poverty line has increased in 18 out of the 28 districts according to the latest NSI survey in 2011 (the data in it refers to the year 2010). The relative share of the population living in households with low work intensity, i.e. where the unemployed and the number of people working part-time prevail, increased in 22 of the districts in 2010. These figures are not surprising and can be explained by the sharp deterioration of the labour market in 2010.

Largely anticipated were also the results on the level of satisfaction with various aspects of life in the districts. For example, respondents across the country have declared the lowest satisfaction with their standard of living and income, which is no surprise, given the effects of the crisis on personal incomes and the fact that Bulgaria remains the poorest country in the EU. Infrastructure and security also received relatively low scores. In spite of the widespread weaknesses in the education and healthcare systems, citizens as a whole are rather satisfied with their education and health status. Housing conditions and social life also receive relatively positive evaluations by respondents.

In addition to the detailed socio-economic profiles of each of the 28 districts in Bulgaria, this year's study also contains four thematic analyses. The first analysis provides updated information on the clustering of districts according to their socio-economic situation and development. Although the results for 2013 are methodologically not directly comparable with those for 2012, Sofia (capital city) again differs significantly from all other districts in the country, which determines its separation in a single cluster this year, too. Meanwhile the districts of Razgrad and Silistra have re-confirmed their worst socio-economic situation; however, in 2013 they were also joined by the Sliven District which in 2012 was in the „poor socio-economic condition” cluster. The most developed districts (apart from the capital city of Sofia) remain Varna, Bourgas, Plovdiv and Blagoevgrad; in 2013, they were joined by the Ruse District. In 2012, the latter was part of the "promising development trends" cluster; the positive trends have obviously yielded results. The Gabrovo District continues to report negative development trends; in 2013, the same refers to Smolyan District.

As a whole, the range of profiles characterized by poor socio-economic conditions or negative development trends is much wider than the range of those with good conditions or trends. In practice, no more than three or four districts in Bulgaria can be said to be in a relatively good condition with less pronounced negative development trends.

Figure 1: Typology of districts according to their socio-economic situation and development

The second analysis in this year's edition seeks to answer the question "What makes some districts richer and more prosperous while others are poorer and lagging behind?" For this purpose, an econometric model was constructed, based on the standard linear production function. The gross domestic product per capita was selected as an aggregate indicator of the degree of development and welfare of Bulgarian districts. On the side of independent variables several indicators were tested for statistical significance that can be used to approximate the main groups of production factors.

As a whole, the results of the econometric model confirmed the importance of human, physical, and entrepreneurial capital for the economic development of any territory. The share of highly educated population, the level of investment, entrepreneurship and infrastructural connectivity of the territory stand out as important preconditions for prosperity: their variation explains close to three-fourths of the variations in welfare measured by means of the per capita GDP.

In view of the importance of employment for the social status and standard of living, the publication also contains a detailed economic analysis of the trends in local labour markets. The analysis of regional data shows that the economic crisis has exerted a much stronger negative effect on the labour market in the northern part of the country. In late 2012, five of the country's districts with employment rates below 40% were in North Bulgaria: Vidin, Vratsa, Lovech, Montana, and Silistra. Some of the poorest regions are here, too: Targovishte, Lovech, and Montana are the only three districts where the average annual income per household member is below three thousand BGN. Among the key reasons for the stronger negative shock from the crisis are the unfavourable demographic situation, lower degree of urbanisation in many of the districts, the relatively low inflow of foreign investment and the inadequate level of development of the economy and infrastructure, which in turn has a negative impact on workforce mobility. On the background of the traditionally low wages in many of the districts in the northern part of the country, an additional negative effect on employment in many districts was caused by the administratively imposed increase of minimum social insurance thresholds by individual economic activities during the years of crisis in the labour market.

The analysis also shows that the labour market in South Bulgaria is more sustainable and better balanced. This can be attributed to a number of factors, among them the higher workforce mobility, better age structure of the population and the fact that the economic leaders are located in this part in the country: Sofia (capital city), Plovdiv, Stara Zagora, and Bourgas. The business community's expectations are also for a faster recovery of employment in the southern part of the country.

This year's edition also contains analysis of local budgets and tax policies at the local level, based on the latest data as of mid-2013. The analysis shows that municipal budgets have managed to deal with the impact of the crisis and to consolidate relatively faster than the central government, which can be explained by both the lack of buffers (i.e. reserves) to which municipalities could resort in case of need, and the municipalities' limited own revenues. The lack of buffers and the limited capacity to finance the gaps opened in the municipal budgets have resulted in spending policies which promptly take into account any problems on the revenue side. In 2012, municipalities even reported a small surplus, although their own revenues continue to be below 2008 levels.

At the same time, analysis of the dynamics in local taxation reveals that municipalities have been conducting a more active tax policy; this, however, has failed to result in changes in the structure of revenues and greater independence. Municipal own revenues do not have much in common with the economic developments in the respective area: real estate is being taxed while profits and incomes barely affect local budgets. In practice, the arrival of a major investor does not automatically generate benefits for the local budget, which reduces the incentive for local authorities to work for a better business environment. It is the lack of incentives for development that is the leading argument for more powers and responsibilities at local level.

Overall, this year's edition of „Regional Profiles: Indicators of Development” is based on a series of discussions with experts in regional development and the experience gained in preparing the 2012 edition, which gives us confidence that the resulting product will be a more in-depth and well-grounded analysis of regional development. This publication is also making a first attempt to complement the descriptive analysis with analysis of the potential links between different indicators, i.e. seek an explanation for the phenomena and trends observed. We hope that the fruit of our labour will be again of interest and benefit both to central and local authorities, and to professionals in regional development, the business community, the media, and civil society.