Kamen Kolev, Vice Chairman of the Bulgarian Industrial Association: The State should not be a player on the market but create conditions for doing business

- Mr. Kolev, are there signs of economic recovery from the crisis?
- There are indeed such indications but the process of recovery from the crisis is likely to be difficult and long. One of these indicators is the 56% increase in exports for Q1 2011, compared to the same period last year. In some sectors, exports even exceeded the levels from pre-crisis years. Fair performance in this respect was registered by the electrotechnical industry and the production of metals. Pre-crisis levels are still to be caught up with in the ferrous metals sector which was adversely influenced by the decommissioning of the Kremikovtzi iron and steel works. The production of garments and textiles and the leather industry are still in the process of recovery. It is encouraging that the trade balance for the first three months of the year was positive, standing at BGN 273 mln. The major contribution to the trade surplus was the export of copper and fuels, accounting for 14% and 13% of exports, respectively. Regretfully, the machine-engineering sector as a whole accounted for only 16% of the volume of exports. Clothes accounted for 7% of the volume of exports, compared to 20% in the good years. Some 65% of the total increase in exports was due to the greater quantity of goods exported and around 35% was due to the higher prices on world markets and the international situation. Bulgaria did not have any contribution for that.

- You said that the process of recovery from the crisis will be slow. Why?
- Although exports are growing, it turns out that domestic consumption is decreasing, albeit at a slower pace. In the first quarter of 2011, it fell by 0.5% on an annual basis, compared to Q1 2011. Consumption is a function of incomes, solvent demand and the business environment. It is the main indicator for the formation of the gross domestic product (GDP). Investments as a whole – both public and private – are declining, too. In Q1 2011, they stood at BGN 3.5 bn, compared to BGN 4.2 bn for the same period of last year. Foreign direct investments alone dropped by some BGN 50 mln. The private sector, especially, is not making investments probably because it still feels uncertain about future markets and proceeds. The absorption of money from EU funds, which are the main source of financing, is still inadequate. As of July 1, 2011, Bulgaria has absorbed about 12% of the money earmarked for the current programming period.

- You said that investors are uncertain. What frightens them?
- This uncertainty comes from the general global uncertainty. The reasons that hamper them in Bulgaria are well known. I would mention first the lack of a good infrastructure - roads and ports. Secondly, I would point out the problems that foreign investors face in finding a skilled labour force. Engineers and technical specialists are being sought in quantities that our educational system is not able to provide. Two-thirds of the graduates are managers, economists, lawyers, and there are no specialists to deal with the actual production issues. Bureaucracy, crime, slow legal proceeding have also been chronic problems over recent years. Therefore, we advise our entrepreneurs and foreign investors to resolve trade disputes through arbitration. The informal economy is increasing due to the crisis as well. Every one seeks to reduce the payments to the budget and to the insurance funds. This distorts the market environment in many cases. Businesses share the opinion that the State itself should not act as a market participant. It should only focus on creating a good business environment.

- Which market do you mean?
- The role of the State as an investor should be limited. Investments should be made by private businesses or via public-private partnerships rather than by the State. The pricing of some monopoly services - electricity, water, and gas will be another crucial issue over the next years. In many cases, regulators resort to cross-subsidising. They hold back price rises for the population at the expense of industry. But this reduces enterprises’ competitiveness. In order to spare the difficulties to households, the burden is being shifted to industry. But these high prices do come back to the population through industrial goods. Moreover, electricity prices are expected to rise by about 30% in 2013, when we are expected to start paying for carbon emissions.

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