Executive Summary

The „Regional Profiles: Indicators of Development” study was carried out for the first time by the IME team and its partners and aims to provide a snapshot of the socio-economic condition of Bulgarian districts as at mid-2012, and their evolution since 2000. The regional profiles of the districts were outlined on the basis of 57 objective and subjective indicators; we have also sought answers to the question what made some districts relatively more developed and prosperous while others remained poorer or underdeveloped.

For this purpose, the first part of the study presents the results of the clustering of districts simultaneously following eight complex-valued indicators, used for measuring both in statics and dynamics. As a result of this method of clustering, nine specific groups of districts with similar profiles were identified . Some of the resulting clusters were largely expected while others certainly surprised the team involved in the study. For example Sofia (the capital city) was understandably outlined as a separate cluster because of its leading position in socio-economic terms. At the same time, other indicators showed that it was one of the two districts with the worst environment for business development. It was quite surprising to conclude that the Gabrovo District formed an independent cluster because of its relatively good socio-economic status, but with very strong negative trends in demography and education.

The resulting clusters are particularly interesting subject for analysis because they bring to the surface certain seemingly subtle similarities between districts. For example the districts of Stara Zagora and Targovishte form a separate cluster because of their favourable business environment and dynamic economic development while at the same time both suffer due to poor natural environment conditions. At the other extreme, there is a cluster covering the districts of Razgrad and Silistra. This cluster is characterised by the most unfavourable demographic developments compared to other Bulgarian districts, and the very poor state of local economy and education. Positive changes in education form a promising trend in this group.

The clustering process within districts leads to some intriguing conclusions. First of all, the resulting clusters are generally not compact within the territorial outlines of a certain district, with a few exceptions (e.g., the a.m. cluster of the districts of Silistra and Razgrad). Second, the proximity to a major centre such as the capital city of Sofia has no immediate positive impact on satellite districts: for instance, the profile of Sofia District shows good development trends while Pernik falls within a profile of poor socio-economic conditions. And last but not least, the range of profiles characterized by poor socio-economic conditions or negative development trends is much wider than the range of good conditions. In practice, no more than three or four Bulgarian districts may be stated as having relatively good conditions with less pronounced negative development trends.

In order to try and find convincing explanations for similarities and contrasts in the socio-economic development of districts, the second part of the publication contains several thematic analyses on topics selected by the team, while the third part presents profiles of each of the 28 districts in Bulgaria. In the first edition of „Regional Profiles: Indicators of Development”, the emphasis is on the following four topics: levels of local taxation; assessment of business environment in the district by local economic operators; assessment of living conditions by people living in the district and analysis of trends in primary and secondary education.

The thematic analysis of the level of local taxes explores how municipalities have taken advantage of the opportunity to set the level of local taxation allowed pursuant to changes in the Constitution and the Local Taxes and Charges Act adopted in 2007. Also analysed is how this partial fiscal autonomy of municipalities has affected municipal budgets and amounts of municipal debts. One of the main conclusions reached by the thematic analysis is that the revenue side of budgets has not undergone major changes since these legislative changes, and the majority of municipalities continue to mainly rely on transfers from the central government.

The second thematic analysis focuses on processes developing in the primary and secondary education and attempts to explain the causes behind the recent deterioration in the quality of education in Bulgaria in, according to internationally recognized studies such as the OECD's Programme for International Student Assessment (PISA). One of the conclusions of the analysis is the trend towards rapid reduction of the numbers of school children/students, teachers, and schools due to negative demographic processes. An important finding is the decrease of the number of school leavers as a result of the deteriorating situation on the labour market post-2008, and the fear that schools will be closed and teachers laid off: on the one hand, higher grades students remain longer at school because of the fewer employment opportunities after the crisis in 2009, and on the other hand, teachers in districts worst affected by demographic processes are prone to giving away higher scores to poorly performing students in order to keep them at school and avoid striking off some classes or even schools, closing-down which would entail teaching staff lay-offs. Another important trend that has been outlined is the declining number of graduates of technical educational institutions, while at the same time the level of practical training of graduates deteriorates too.

The thematic analysis of local companies’ assessment of the business environment in the different districts also leads to interesting conclusions. Thus, despite the relatively high perceptions of corruption in the country as a whole, judging from the authoritative Corruption Perception Index developed by the Transparency International, a survey among local businesses shows that there are considerable variations in corruption perceptions between separate districts. Thus for instance some districts are perceived as relatively "clean" of corruption - Razgrad, Targovishte, and Smolyan. At the other extreme, the districts of Sofia, Pernik and Kyustendil stand, where corruption perceptions are highest. Another finding is the interdependence between businesses' perceptions of corruption and the evaluation they give to local administration performance. In districts where the business community as a whole perceives local administration as being corrupt, it is also prone to give a low score to its performance (speed, competence etc.).

The last thematic analysis focuses on citizens' satisfaction with the living conditions in separate districts. One of the conclusions is that there is no significant causal relationship between the people's well-being as measured by the GDP per capita in each district, and their satisfaction with the standard of living. Interestingly, the top position as to the level of satisfaction with the quality of life is occupied by one of the poorest districts in the country: Razgrad, followed by Burgas and Silistra. Of all the institutions surveyed, the highest performance score is given to schools, with the highest results achieved in Targovishte, Varna, and Dobrich, where the share of respondents who ranked the education system's performance as "good" or "excellent" is over 80 per cent. In contrast to that of schools, confidence in courts of law is lowest among all institutions covered by the survey. This poor performance score was reported by both citizens and the business community. The farthest negative assessments in this respect are for Burgas and Sofia districts.

In addition to the cluster analysis and four analytical reviews on topics selected by the authors, the study also contains the separate profiles of all 28 districts in the country. The profile of each district consists of an overview and commentary on the more notable results and trends in each of the 8 categories of indicators: economy, business environment, infrastructure, demography, education, health, natural environment, and social environment. The analysis of districts reveals a number of common trends inherent for all or most of the Bulgarian districts.

Among the processes which, to a smaller or greater extent affect all districts, is the widespread demographic deterioration, the effects of the economic boom in 2008, the effects of the crisis that started in 2009 and the subsequent shrinking of investment and job opportunities, healthcare issues, deteriorating quality of education, poor penetration of electronic services at local level, and corruption.

These processes, although generally having similar effects on local business and living conditions, actually reveal very different intensities in separate districts. Certainly part of the explanation behind these differences lies in objective factors such as geographical location, availability of resources, starting position and other characteristics of the districts. Another part, however, depends on the efficiency of the central and especially the local government holding most of the tools needed for a lagging district to become prosperous.

Business environment is a typical factor that depends on the general economic developments outside and in the country, and on the conditions for entrepreneurship established by the local administration: local tax rates, efficiency of administrative services, availability of electronic services and the "one-stop shop" principle, curbing of corruption, absorption of EU funds for regional development, proactivity in attracting and retaining large investors. Based on the analysis of collected data, an example in this respect is the capital city of Sofia where the business environment is evaluated as very poor. Indeed, the capital provides more businesses opportunities, but also creates more obstacles: high tax rates, red tape, and corruption.

Infrastructure is also entirely in the hands of the central government and local authorities. Over the past years, opportunities to improve the infrastructure have increased considerably with the availability of European funds for such projects, from pre-accession, Structural and Cohesion Funds. Therefore the rate at which municipalities are able to take up European funds for infrastructure projects (roads, water and sewerage network, regional urban development, etc.) has become a major factor in regional development. The direct connection between the EU funds absorbed and the quality of infrastructure is clearly visible in some districts. A typical example is the Gabrovo District, that is a leader in the absorption of EU funds and holds one of the highest scores in the Infrastructure category.

The analysis of districts shows that most of them report worsening demographics in terms of the rate of natural increase and net migration, population age structure and calculated dependencies. The relationship between districts' demographic development and other key areas such as "Economy" and "Education" is very clearly outlined. Thus for example, in a slowly developing economy we observe a high negative rate of net migration, that in turn leads to a deteriorated rate of natural increase and increasing age dependency because of the reduced number of children and people of working age. The shortage of qualified personnel in the workforce deters potential investors, which in turn leads to a worsening demographic situation and further exacerbates problems in education and economic development. In fact, the only districts reporting positive net migration are Sofia (capital), Varna and Burgas, with the two coastal districts having a more pronounced positive growth after 2007. The districts with the highest rates of net emigration and respectively depopulation since 2001 include Smolyan, Yambol, Vidin, Razgrad, Vratsa, and Sliven.

The issues related to natural movement are even more acute because it determines the population's rate of reproduction. Over the entire reported period (2001-2011) for all districts, except for a negligently small positive growth in Sofia (2009-2010) and Varna in 2009, the population growth rate is negative. Against this background, the age dependency ratio (elderly to working-age people and elderly to children) has also widely deteriorated over the period.                                                                                                

Graph 1: Age Dependency Ratio, 65+/ 0-14, %

Source: NSI

The age dependency ratio (elderly persons to those of working age) in all districts was higher in 2011 compared to 2001, but in many districts it registered a major increase only over the past 1-2 years, while previously it had remained relatively stable, and even slightly improved in some years.

The unfavourable demographic processes in the country reflected on some of the indicators related to education. Generally, the student-teacher ratio is a standard indicator of the quality of education: the fewer the number of children a teacher instructs, the higher the quality of education is expected to be. This indicator should be interpreted with caution and in relation to others. It appears that in many districts the processes of depopulation and the decreasing numbers of school-age children are more intense than the parallel process of schools closing down and teachers laying-off , particularly in the period before 2007-2008. In this way, the student-teacher ratio everywhere was generally improved in 2011 compared to 2000, with this process being particularly pronounced during the period of high economic growth (2004-2007).

An unfavourable trend is noticeable in the academic performance of Bulgarian students in secondary education, judging by the deteriorated average scores from the mandatory school-leaving exams and the increased proportion of failed scores in almost all districts. The inadequate quality of education is an issue often raised by employers in most districts. One of the main weaknesses in secondary education is the slow response of the school system to the needs of businesses in the area. Thus for instance a large number of vocational high schools continue to provide training in specialities which have not been in demand in the respective district for a long time, while at the same time local companies are seeking to employ young people with specialities not currently covered by the education system. Even where such specialities are provided, training often takes place in (morally) obsolete facilities and equipment that is not actually used in real economy, or is of low practical relevance.

As a whole, problems in the quality of education also reflect on the labour market in separate districts. Although the employment rate in all districts was much higher in 2011 than in 2000, (except for Kardzhali), over the past two years jobs have been cut in most districts because of the effects of the economic crisis and the subsequent labour market stagnation. Nevertheless, some districts succeeded in minimising its effects or dealing with its aftermath more quickly than others. For example, in 2011 eight districts reported a trend of increasing employment figures: Blagoevgrad, Veliko Tarnovo, Vratsa, Kardzhali, Pernik, Targovishte, Shumen, and Yambol. Although none of these districts has yet reached the 2009 level of employment, this trend in almost one-third of the districts is promising, indeed.

Graph 2: GDP per Capita, in BGN (2009)

Source: NSI

It should be noted that the widest gaps between districts become evident in the "Economy" category. For instance, the GDP per capita figures show that in Silistra (the district at the bottom of the 2009 rankings) it equals about one-fifth of the GDP in the district with the highest standard of living - Sofia (capital city). The period of economic growth from 2000 to 2008 has greatly widened the gap between the poorest and richest districts.

Besides GDP, large differences (in some cases manifold) between districts are also reported in terms of the size of foreign direct investments and the other major investment indicator - the expenditures for acquisition of fixed assets. When relating their values to the number of population of each district, the considerable variations between the regions are still kept. Thus for example, in 2000 in Vidin District, that traditionally features one of the lowest investment rates, the expenditures for TFA acquisition was the equivalent of less than 4% of expenditures in Sofia District (capital city). In 2010, the expenditures for fixed assets in the Kardzhali region, that in the same year was at the bottom of the ranking, was less than 8% of the same indicator in Sofia (capital city).

The discrepancies are even more pronounced in terms of foreign direct investment (FDI). As regards the indicator included in the study, namely cumulative FDI per capita, the worst performing district in 2000 was Smolyan, with FDI inflow there being less than 1% of that in the Sofia District. Similar differences were observed in 2010, when in the least attractive district investment-wise (Kyustendil) FDI equalled about 1% of that in Sofia (capital city). Overall for the period since 2000, undoubtedly the most attractive areas for investment included Sofia (city) and Sofia (district), the latter being attractive for investment because of the proximity to the capital, the lower real estate prices, and the more favourable local taxation policy. Pernik District is also in the group with relatively high direct investment inflow per capita; it is among the top five according to this indicator, not far behind Varna and Burgas.

The study registered very weak interdependencies between the standard of living in a given district, as measured by GDP per capita and income per member of the household, and local residents' subjective satisfaction with the quality of life in the district. Thus for instance the residents of Sofia (city), where income per capita is more than twice that in the second-richest district of Varna, is ranked fourth according to the level of satisfaction with the standard of living. This list is topped by one of the poorest districts in the country: Razgrad, followed by Burgas and Silistra. This discrepancy can only partly be explained by the different price levels and the generally different cost of living between districts. Naturally, these evaluations are also influenced by the values, needs and interests of people living in different regions of the country.

The analysis also showed no relationship between the quality of life, administrative services, corruption level and all other aspects of life in the districts, on the one hand, and people's desire to relocate permanently from one district to another. Most telling in this regard is Pernik District, whose residents are obviously not satisfied with the working and living conditions there, but still less than 10% responded that they wanted to move to another district. Perhaps the proximity of Pernik to the capital city and the fact that many of its residents work, study and use various services in Sofia would partly explain their reluctance to relocate.

In conclusion, the study „Regional Profiles: Indicators of Development” aims to provide an objective and multifaceted overview of important characteristics of Bulgarian districts and explore the underlying causes of the differences. The authors’ aim was to highlight not only the problems and weaknesses in separate districts, but also to showcase best practices, hoping to trigger an exchange of experience in the area of local authorities' competences.