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Direct Foreign Investment in the Transition
Period: The Case of Bulgaria Project Sponsored by the International
Center for Economic Growth
SOFIA, APRIL 1993
Contributors:
Daniela Bobeva, Coordinator, Economic Program,
CSD
Blagovest Georgiev, Professor of Sociological
sciences, Sofia University
Sashto Stoyanov, Department of Sociology, Associate
Professor, University of National and World Economy
Boyan Guselev, Center for the study of Democracy
Tihomir Bezlov, Center for the Study of
Democracy
Translation:
Velislava Gurova
Sophia Kasidova
Editor:
Sashto Stoyanov
Graphic Design:
Tihomir Bezlov
Compared with the other central and eastern European
countries - Hungary, Czech and Slovak republics and Poland, foreign
investment turns to be a new phenomenon for the Bulgarian economy.
Thus the public opinion on it is in a process of forming. The role
of researchers, different studies, the mass-media and foreign
investors, themselves, in inspiring public support and acceptance
of foreign investment is of great importance. This will contribute
to the success of investments that have been made as well as to
their further attraction to the country.
A brief overview on the press shows the existence of
two types of information - articles and writings introducing the
country as an unattractive site for foreign investment and their
volume as rather inconsiderable. On the other hand there are
successful examples for some companies in the country. The number
of the analytical articles and scientific publications that throw
light on the necessity of foreign investment is insufficient. There
is a lack of information depicting the experience of the other
countries in this field - the means of public policy for promoting
investment, data on the state of the international credit markets,
etc.
In April 1993, the Center for the Study of Democracy
(CSD) conducted its second public opinion poll on the Privatization
and Economic Reform. It was sponsored by CIPE and ICEG and included
a set of questions related to foreign investment. The sample (N =
2000) is nationally representative and the sample methodology
employed: two stage cluster sample. Information was collected by
face-to-face interviews.
A similar method and questionnaire were employed in
a survey on Privatization conducted in 1992. This makes a
considerable portion of the data from both surveys comparable
enabling the exploration of some tendencies. The issue of foreign
investment has been addressed several times in the surveys
conducted by CSD over the past three years. The present analysis
draws on those previous surveys, as well as on the one conducted in
April, 1993.
1. PUBLIC OPINION (PO) IN BULGARIA: GENERAL
REMARKS
For a better understanding of public opinion in
Bulgaria with respect to foreign investment certain general public
opinion characteristics as exemplified in polls should be taken
into consideration:
(1) PO in this country is to a considerable degree
conservative and inert. Conservatism and inertia
extend predominantly over politically related issues, and that
usually brings about a marked split of the public on many strategic
problems of post-communist transformations. These characteristics
could be explained in several ways, but the dominant implication is
that practical level experience is usually derived from socialist
values, while the just-emerging frame of reference still has a
limited empirical background.
(2) The opinions of many social groups are highly
controversial, i.e. the split of the public on the societal
level is often reproduced on the personal level. New realities are
unproblematically combined with the old ideals. Many find the
explanation in the near past when basic non-ideological landmarks
were destroyed and in the instability of the newly-emerging
ones.
(3) Political polarization is a determining
factor. Party affiliation has a strong influence on all
non-political issues. Very often, political attitudes override
people's immediate economic interests.
(4) Another PO feature is etatism. As in
other East European countries, a considerable portion of the
population (some 45-55 per cent) favor state intervention in the
economy. Most polls show that the public in general has a
predominantly leftist value orientation.
(5) PO tends to be very sensitive to the actual
positions of public officials in the power hierarchy. Even
newcomers on the political scene receive high confidence scores as
soon as they come to power.
2. STRUCTURE AND DYNAMICS OF PUBLIC ATTITUDES TO
FOREIGN INVESTMENT
Unlike Hungary, Poland, Czech Republic, and
Slovakia, foreign investment in Bulgaria is, at least until the
present moment, quite scarce. This makes the problem of risks and
public attitudes theoretical rather than practical. Nevertheless,
PO in the country on the issues of foreign investment is in many
cases better structured than opinions on other elements of social
and economic policy. The basic indicator for that is the portion of
people who "Don't know". The examination of "Don't know"
rates shows that they are about 30 to 50 per cent in questions on
privatization techniques, relations with the CIS, etc. while the
respective rates in questions dealing with foreign investment are
about 16% - 23%.
The first PO data on foreign investment that could
be treated as initial basis, come from CSD's post-election survey
of the summer of 1990 1. Results from the survey are in
many respects symptomatic. To the question of whether the country's
economy can recover without foreign investment 26.3 per cent say
"Yes" and 52.1 "No" (21.6% "Don't-knows"). It could be assumed that
the configuration has remained unchanged over the ensuing
three-year period. The following distributions were obtained on the
question whether the country needs foreign investment:
|
spring
|
spring
|
fall
|
spring
|
fall
|
|
19902
|
1991 3
|
1991 4
|
1992 5
|
1992 6
|
Yes
|
65.9%
|
62.6%
|
62.0%
|
63.0%
|
65.1%
|
No
|
18.0%
|
20.4%
|
19.5%
|
16.9%
|
16.9%
|
DK
|
16.1%
|
17.0%
|
18.5%
|
20.1%
|
18.0%
|
Data in the table show, a strong positive attitude
towards foreign investment throughout the entire three-year
period.
A point of interest would be to compare the opinion
of the country's business elite. Although foreign investors are
seen as competitors, the attitude to foreign investment is quite
positive. 28.8% of the 1200 interviewed think that foreign
investment would only have positive effects, 61.7% think the
effects would be both positive and negative, and only 4% think
foreign investment would have only negative social and economic
effects.
3. EXPECTED EFFECTS FROM FOREIGN INVESTMENT
Most generally attitudes towards foreign investment
could be assessed by the perception of the public of the expected
results from its operation in the country. To the
1. During the 1990 elections the Bulgarian Socialist
Party, former Communist Party, won more than 50 per cent of the
seats in Parliament.
2 CSD survey December 1990
3. CSD survey April 1991
4. CSD survey Noblemen 1991
5. CSD survey March 1992
6. CSD survey September 1992
7. CSD survey Noblemen 1992. This sample consists of
600 state enterprise managers and of 600 owners of private
firms.
Question of whether foreign investment will be
potentially dangerous to the country in April 1991, 35.7% answered
"Yes" and 45.0% "No". The same question was posed in the fall of
the same year 8, and 32.9% gave positive responses and
44.2% negative. The respective distributions of March 1992 are
30.1% and 41.5%.
As far as the potential dangers are concerned, the
evident increase of the amount of foreign investment flowing into
the country has not influenced significantly people with negative
attitudes. Public distrust and criticism are in this respect
consistent with the general tendencies of PO. A considerable
portion of the population has a negative attitude towards all
changes. The assumption is that changes have the single purpose to
benefit the West. In September 1991 16.0% agreed completely with
the statement "The West is only taking advantage of us", 15.8%
agreed somewhat, 49.9% did not agree, and 19.3% were not sure.
It is interesting to examine employees' expectations
as to the consequences from potential buy-outs by foreign
companies. The April 1993 survey shows that 24.8% expect staff
cut-downs, 17% expect a wage increase, 15.6% think that labor
discipline will improve, and 14% think quality will improve.
According to employees significant changes in the production
process will be introduced if the enterprise is bought by a foreign
investor. Most of them expect positive effects in the economic
situation of the enterprise: labor optimization, reducing bloated
staff, improving work discipline. On the personal level, however,
some employees expect negative effects. The fears of mass layoffs,
labor intensification, etc. are all reasons making the work in a
foreign company a low preferred alternative,
Answers to the question "Whose property would you
like the enterprise you work in to be?" are as follows:
- state-owned 34.7%
- it does not matter 23.2%
- private (Bulgarian) 8.1%
- employees as shareholders 6.8%
- with foreign participation 6.2%
- private, sole proprietor 4.4%
- cooperative 4.4%
- other 5.0%
- DN 7.2%
8. CSD survey November 1991
An important indicator of the effect from foreign
investment is its estimated impact on the power structure of the
economy at present and in five years time. An attempt to indicate
public perceptions and future expectations of the relative
influence of different groups was made with the question: "How
would you assess the influence the following groups have in the
economy (at present/ in five years time)?". The respective
distributions obtained are as follows:
|
Now
|
In 5 Years
|
Now
|
In 5 Years
|
Now
|
In 5 Years
|
Now
|
In 5 Years
|
Big
|
Big
|
Average
|
Average
|
Small
|
Small
|
DN
|
DN
|
Bankers
|
42.9%
|
51.9%
|
17.0%
|
9.0%
|
8.5%
|
2.6%
|
30.7%
|
36.5%
|
Public Officials
|
37.7%
|
21.8%
|
17.3%
|
18.8%
|
13.5%
|
18.6%
|
31.5%
|
40.1%
|
Black Marketeers
|
55.6%
|
21.2%
|
11.0%
|
10.6%
|
10.8%
|
30.1%
|
38.2%
|
22.6%
|
Politicians
|
51.9%
|
33.3%
|
16.2%
|
19.6%
|
9.0%
|
11.1%
|
22.9%
|
35.9%
|
Foreign Investors
|
15.7%
|
39.0%
|
13.3%
|
13.9%
|
31.3%
|
6.8%
|
39.7%
|
40.3%
|
The role of foreign investors according to the
public is insignificant at present. Only 15.7% think it is
significant. The dominant roles in the economy are attributed to
black marketeers (55.6%), politicians (51.9%), bankers,(42.9%).
Most people expect a radical change in the situation
in five years. Bankers will supposedly assume a dominant role,
while the influence potential of black marketeers, politicians and
public officials is expected to fall in relative terms. The public
expects a most serious change in the role and influence potential
of foreign investors: they will be the "second power" in the future
power structure of the economy.
As the comparison between the opinion of the general
public and the business elite on the present role of foreign
investment in the country shows, the latter give greater importance
to foreign investors. 12.9% think foreign capital already has an
important role, 20.6% think it is of average importance, and 55.1%
think its role is yet insignificant.
PO polls on foreign investment have registered a
phenomenon typical of other debates on economic issues. Whenever
the question is posed in abstract terms, e.g., "Is foreign
investment necessary for Bulgaria?" or "Do you approve of
foreign investment coming to Bulgaria?", then positive
attitudes account for some 60%. If, however, questions address the
personal level, the situation changes significantly, and tolerance
falls abruptly.
The data of CSD's fall 199110 survey are
quite indicative in this respect. The distribution on the question
"Should foreign citizens be granted ownership rights?" is as
follows:
Yes, they should 35.4%
No, they should not 41.9%
DN 22.7%
The distribution on the question "Should foreign
citizens be allowed to purchase land?" is even more
indicative:
Yes, they should 9.7%
No, they should not 66.7%
DN 23.6%
The same questions were included in the spring 1992
survey 11 , and the similarity of the results prompts
the assumption that PO is in this respect relatively stable. The
distribution on the first of the above questions (of foreign
citizens' ownership rights) are the following:
Yes, they should 22.3%
No, they should not 64.4%
DN 13.3%
And on the second on land ownership:
Yes, they should 8.7%
No, they should not 77.7%
DN 13.6%
Considering the above data, one should have in mind
that, unlike Poland, Hungary, Czech Republic, and Slovakia, there
have been practically no significant purchases of property, or even
stated intentions for such purchases. It should also be noted that
despite the negative PO attitude to the possibility for foreign
citizens to become owners, the Bulgarian Law in Foreign Investment
(adopted in 1992) is perhaps the most liberal in Eastern
Europe.
10 CSD survey Nobember 1991
11 CSD survey March 1992
4. DIFFERING OPINIONS ON FOREIGN INVESTMENT
PO on foreign investment is not homogeneous.
Different social groups hold differing views on the issue.
Basically PO on foreign investment is conditioned by education,
occupation and ethnic background.
First, attitudes towards foreign investment are
better structured among men: 18.7% do not express an opinion, while
among women this share is 29.4%. Women have made progress in this
respect, however, as far as in March of 1992 about 36.2% did not
express a definite opinion.
The majority of the group of ethnic Bulgarians does
have a definite position on the issue, whereas the majority among
ethnic minorities has not formed its attitude yet. Only 19.3% of
the Bulgarians do not have an opinion, while among ethnic Turks the
percentage goes up to 52.2%, among Pomacks it is 57.1%, and 48.5%
among Gypsies.
The higher the level of education and training, the
more active and informed people are. Only 6% of those holding
university degrees do not express a definite opinion on foreign
investment, whereas the percentage among those without education
(people with less than 4 years of schooling) is 74%.
The negative attitude to foreign investment is more
widespread among older people. Young people aged 20 and under are
the most optimistically minded - 61% think foreign investment would
have beneficial effects. The share of those who favor foreign
investment among the population aged 20 to 30 is almost the same,
among those aged 31 to 40 it is 58%, 41 - 50 44.8%, 51 - 60 36.5%.
and those above 60 - 27%.
Evidently, demographic characteristics are strongly
interrelated with the opinions on foreign investment. Positive
attitudes towards foreign investment are delimited to specific
population groups. It is highly unlikely for ethnic minority groups
or lower-education groups to assume a more structured attitude in
the near future, given the already demonstrated tendencies.
Second, social status is another major factor in the
formation of an attitude to foreign investment. Those who identify
themselves as belonging to the upper class are most in favor of
foreign investment - 80%, with only 20% holding the opinion that
would be potentially dangerous. Among workers the respective ratio
is 35.9:37.9, and among the middle class it is 61.4:26.3.
Those who have started their own business understand
better the need for foreign investment than employees in state
enterprises. 75% of private entrepreneurs and a mere 34% of state
sector employees favor foreign investment Those who express a
positive attitude to the development of the private sector are also
extremely supportive of the in-flow of foreign investment,
considering it a force promoting private initiative and
entrepreneurship, a vehicle for expanding the private sector in the
economy, and a decisive factor for the success of economic reforms.
73.9% of those who favor full privatization of the economy have
indicated that foreign investment would only have positive
effects.
Household incomes are another, be it indirect
factor, for the formation of public attitudes towards foreign
investment. 81.3% of those whose financial conditions have improved
and only 23% of those whose conditions have deteriorated think
foreign investment is useful. These attitudes are preconditioned by
the overall negative attitude to the changes in the economy, rather
than by a well-formulated position on the issue of foreign
investment.
Third, PO on foreign investment is defined within
the context of the general attitude towards the economic reforms.
Those in favor of a market economy, privatization, the land reform,
etc., are to a large extent supportive of the idea of a massive
inflow of foreign investment. 62% of those who consider free market
economy the right reform alternative think foreign investment is
beneficial and only 26% think would be potentially dangerous.
Conversely, only 26.2% of those disproving of a free market economy
are in favor of foreign investment and 54.3% think would be
potentially dangerous.
A similar relationship is observed in distributions
on the question "Are you satisfied with the economic reforms in
the country?"
|
Foreign investment is useful
|
Foreign investment is dangerous
|
Very satisfied
Somewhat satisfied
Somewhat dissatisfied
Completely dissatisfied
|
67.9%
65.1%
47.9%
35.6%
|
25.0%*
25.1%*
32.8%*
43.4%*
|
* The remainder (to 100%) have not expressed an
opinion. CSD April, 1993
Only 31.8% of those who think that things have gone
worse after the 10th of November 1989, favor foreign investment,
compared to 64.9% of those who think conditions have improved.
Fourth, PO on foreign investment is very much
dependent on political affiliations. This is also a general
tendency of PO and attitudes in the transition period. Those who
oppose the new political system are much more negative towards
foreign investment as it is part of the system they do not approve
of in principle. A mere 25% have said that foreign investment is
useful. 60% of those in favor of the new system are also in favor
of foreign investment. The political tinge in all PO matters is
even more evident if the question whether socialism has future in
this country is posed. 61.5% of those who have respond positively
to this question consider foreign investment dangerous. Of those
who reject socialism completely only 19% think foreign investment
is potentially dangerous to the country.
The natural conclusion to draw is that those most
closely connected with socialism and communism, former socialist
(ex-communist) party members are the most distrustful of foreign
investment.
Which political party would you vote for?
|
FI is useful
|
FI is dangerous
|
Union of democratic forces
|
67.1%
|
20.0%*
|
Bulg. socialist party
|
24.1%
|
58.2%*
|
Agrarian party
|
36.8%
|
41.2%*
|
Bulg. business block
|
53.0%
|
33.3%*
|
Buig.social democratic party
|
78.6%
|
14.3%*
|
- The remainder (to 100%) have not expressed an
opinion.
CSD April, 1993
The political stratification of PO on foreign
investment is strongly influenced by the political platforms and
the direct action of parties and their leaders. Some parties still
can hardly accept the fact that foreign investment is necessary for
the recovery of the economy and for the development of the private
sector. Along with the delusions that we "will manage on our own"
and the nostalgia for the idealized past, negative attitudes
towards everything new accumulate in a large share of the
population. They will probably grow stronger as dissatisfaction
with reforms rises. It could therefore be assumed that political
factors will continue to play an important role shaping PO on
foreign investment. The possibility of heated political debates
that could considerably influence the current liberal policy to
foreign investment should not be rejected.
5. PUBLIC OPINION ON THE PREFERENTIAL TREATMENT OF
DOMESTIC AND FOREIGN BUSINESS
PO on the treatment of investment in this country
reveals general views and an overall acceptance towards investment.
As a rule, those who disapprove foreign investment do
not accept preferential treatment as an option. What
is more important is that the majority of those in favor of foreign
investment are also opposed to preferential terms.
The general attitude of the public is not in favor
of protectionist trade or tax policies. As much as 98% of the
businessmen polled consider that domestic business should not be
given advantages over foreign business. However, the majority of
the respondents are also against giving any preferential treatment
to foreign capital.
Only 24 % of the "business elite" support the view
that tax breaks should be granted to foreign investors; 20 % favor
interest rate subsidies, 12% are for preferences for payment of the
rent, 23% favor preferential treatment of foreign firms in the
privatization process.
The only subsidies which are supported by the
Bulgarian business elite is in the promotion of foreign investment
in some underdeveloped regions of the country, in conformity with
the regional policy of the State.
The "business elite" study indicates that the degree
of approval for foreign investment also differs between different
sectors of the economy. Generally speaking, the public's view is
that foreign investment should be restricted as far as transport,
power supply, radio and television are concerned. For these
sectors, the negative ratings are twice higher than the positive
ones. The inflow of foreign investment in heavy industry is
generally supported.
6. ATTITUDES TOWARDS FOREIGN INVESTMENT WITH
DIFFERENT COUNTRY ORIGIN
Reviewing the expectations and attitudes of the
public towards foreign investment, we should touch upon another
very important aspect - the differential attitude towards foreign
investment depending on its national origin.
The studies show that throughout 1990-1992, the
public maintained a relatively realistic view about the national
origin of foreign investment prevailing in the country. The
question: "Which country do you consider is most actively
involved in Bulgaria's economic life?" produced the following
distribution:
|
1990
|
1991
|
1992
|
Germany
|
23.9% 23.2% 24.5%
|
USA
|
16.1% 17.3% 5.9%
|
France
|
10.5% 5.3% 6.0%
|
Japan
|
6.5% 1.3% 2.3%
|
The table above shows that according to the public
the prevailing investment is from Germany, and that coincides with
the official data by 1992. This can be explained by the fact that
during the 1980s Germany was Bulgaria's second most active trading
partner after the CMEA member-countries. The list above, however,
omits Austrian investment which also has a considerable share in
the Bulgarian economy.
The favor of German investment could be attributed
to the fact that Germany has maintained traditionally good
relations with Bulgaria ever since the latter's liberation from
Ottoman domination in 1878. It should also be noted that the
positive attitude towards German investment remains stable and
favorable throughout the whole period under review.
On the preference side the situation is similar.
Below following is the distribution to the question:
"What country would you prefer the foreign
investment to come from?" (multiple answers are accepted):
Germany 42.3%
U.S.A. 35.2%
France 18.7%
Britain 18.1%
Japan 17.0%
Austria 11.1%
Italy 10.5%
CSD November. 1992
The U.S.A. appear as the second most preferred
country and, just like Germany, it has been positively evaluated by
a constant share of respondents over the past three years. This
fact should rather be attributed to the leading position which the
US has on the world scene and to the proliferation of American
consumer culture than to its real economic presence in this
country.
French investment ranks third in the mind of
Bulgarians. From the third position downward, the shares are
usually smaller than 2% and the overall picture is rather
inconstant and diverse - Austria, Italy, Greece and the Arabian
countries (taken as a whole) often change their places.
The investor's national origin influences the
opinion of the "business elite" as much as the public, in general.
Bulgarian businessmen prefer to do business with partners from the
developed countries, among which Germany ranks first followed by
the U.K. and France; the US and Japan rank fourth. Bulgarian
businessmen demonstrate lowest interest and confidence towards
Romanian businessmen (only 12.2% of the respondents), Arabian
(25.6%), Turkish (31%), Russian (31)% and Greek (36%).
The assessment of what impact FI from different
countries would have varies considerably. The table below shows the
distribution to the question: "What in your opinion would be the
effect, if FI from the countries listed below flows into the
country?"
Country
|
Positive effect
|
Negative Effect
|
Germany
|
72.8%
|
0.9%
|
France
|
53.7%
|
1.8%
|
USA
|
50.8%
|
4.6%
|
U.K
|
47.7%
|
3.9%
|
Italy
|
41.2%
|
4.8%
|
CSD November, 1992
The "business elite" approves of investment coming
from the above countries. Assessments of different countries vary
by geopolitical orientations. The country-to-country differences
are determined by the experience of the Bulgarian business
community and its contacts with foreign partners. In this respect
Germany is best known. Respondents consider all countries listed in
the table above highly effective economies with advanced
technologies, industrial culture and qualified labor force. And
that preconditions a generally positive attitude towards the
respective countries.
Political affiliation also influences people's
attitude towards the national origin of foreign investment. The
supporters of the UDF are more positive towards investment coming
from the US, while BSP supporters are more tolerant towards Russian
investment.
Political affiliation does not influence
substantially the attitude towards German investments. Some 84% per
cent say the inflow of German investment in the country would only
have positive effects. Public opinion towards US investment is also
stratified on political grounds. Less than 2% of UDF supporters
believe that US investment will have a negative impact on the
economy, as against 7 % of BSP supporters. In April 1993, despite
the rift between the UDF and MRF, the UDF followers (36%) showed
the greatest support (in relative terms) for Turkish investment as
compared to the other political groups (10 % of BSP
supporters).
7. PRIVATIZATION AND FOREIGN INVESTMENT
The state of the Bulgarian economy gives no grounds
to believe that it will prove attractive for foreign investors.
Adding the unstable political situation, the rapidly changing tax
legislation, the badly performing state-owned enterprises etc., it
seems unrealistic to expect that foreigners will show interest in
state-owned enterprises.
Nevertheless, the data on partnerships with foreign
participation (under and above 50%) indicate a growing interest in
investing in this country. Their total number exceeded 3 500 by the
end of February.
A considerable part of foreign investment inflows
rather takes footholds, creating a new market environment and new
economic units (the so cold "green field investment"), than setting
up joint partnerships with Bulgarian participation. The lack of
privatization space for foreign investment has led to the inflow of
many but small-sized investments. Importing mainly consumer goods
and services, they have taken the "cozy niches" of the still
non-satiated market. Their impact on the general development of the
market in terms of competition and quality of goods is still
controversial. However, it is difficult yet to conclude that
foreign investment has so far encouraged the restructuring of the
economy, influenced the recovery of the economy, or conditioned the
improvement of technologies.
Privatization is one of the basic mechanisms for the
inflow of foreign capital, particularly when large capitals are
concerned. The participation of foreign companies in the
privatization process is preceded by preliminary investment
estimates, considerable part of which are devoted to establishing
contacts and analyzing the state of the enterprise subject to
privatization.
The information which state enterprises provide
about the interest they have attracted is of considerable
importance for outlining the privatization expectations,
particularly among decision-makers. The results of the survey
conducted by the CSD among 600 state-owned enterprises in all
branches of the economy shows that foreign partners have declared a
privatization interest in 34,5% of the surveyed enterprises,
Bulgarian private firms in 32,7% of the enterprises, and Bulgarian
state-owned enterprises in 5.6% of the enterprises.
According to the managers of 11.4% of the
state-owned enterprises, foreign companies are ready to buy the
whole unit. Foreign buyers have declared their willingness to
participate in the privatization of 23.1% of state-owned companies
through buying parts of them. It is worth noticing that only 30.1%
of the surveyed enterprises have not attracted any interest on part
of the foreign investors, whatsoever. Foreign companies hesitate
about the privatization of 13.8% of the enterprises.
Has your enterprise attracted any privatization
interest on part of the following types of buyers?
|
FOREIGN
|
BULGARIAN PRIVATE
|
BULGARIAN STATE
|
Ready to buy in whole
|
11.4%
|
7,2%
|
1.8%
|
Ready to buy parts of the enterprise
|
23.1%
|
25.5%
|
4.2%
|
Still hesitate
|
13.8%
|
9.5%
|
5.7%
|
No interest at all
|
30.1%
|
33.2%
|
57.8%
|
The enterprise won't be privatized
|
6.2%
|
8.2%
|
7.9%
|
No answer
|
15.4%
|
16.3%
|
22.6%
|
CSD November, 1992
Obviously, foreign investors and Bulgarian private
firms will be the major agents and competitors on the privatization
scene. While Bulgarian buyers are more interested in the
privatization of parts of the enterprises, foreigners are ready to
buy larger privatizable units in whole.
It turns out that the privatization of state
enterprises attracts some interest, too. Its realization, however,
depends on the pace of privatization, on the techniques employed,
on the competitiveness of home buyers, and on the state policy
towards the units concerned. The results of this study show that 8%
of the state enterprises will not be privatized, according to their
managers.
8. THE MOST ATTRACTIVE ENTERPRISES FOR FOREIGN
INVESTORS
The results of above cited survey show that light
industry is the most attractive. Foreigners are ready to buy 35.9%
of the surveyed light industry enterprises, either entirely or
partially. Buyers are hesitating about 21% of them and only 24.9%
have not attracted any interest whatsoever. Considerable foreign
participation in the privatization of the tourism industry can also
be expected. Fifty percent of the surveyed 22 tourist companies
have real chances to be purchased by foreign companies; 6 may be
bought only partially; no information is available about 3 of them
and only 2 are of no interest to foreign buyers.
Judging by the results of this survey, privatization
of the heavy industry sector also has its chances. Foreign
companies are ready to buy 8.3% of the enterprises in the heavy
industry entirely and 25% partially. The following branches have
proved most attractive to the foreign investor: light industry,
tourism industry and heavy industry.
Unlike foreign buyers, Bulgarian firms are most
interested in the privatization of tourist facilities (private
firms are ready to buy 80% of the surveyed tourist companies),
banking (respectively 55.5% of the surveyed banks), public utility
services (55.4%), trade (43.8%) etc. Obviously, industrial branches
and larger capital-consumers are yet not attractive alternatives
for the Bulgarian investor. This is due to the fact that the
private sector still has a moderate investment potential and that
Bulgarian capital is more attracted by sectors with small risk and
faster return on investment. The survey confirms the assumption
that Bulgarian buyers will be less competitive than the foreign
buyers in the process of privatization.
It is logical enough to suppose that the most
profitable and best-performing enterprises will be the most
attractive assets of privatization. The interest of foreign buyers
wanes with declining degrees of utilization of facilities. There
are foreign buyers for 50% of the enterprises with the highest rate
of facility utilization. But there is also keen interest in a
considerable share (27.5%) of the enterprises with low degree of
utilization of their production capacities.
The situation is quite the same as far as bankrupt
enterprises are concerned. Foreigners are willing to buy entirely
or partly 34.4% of the worst performing businesses and 33.4% of the
most profitable surveyed state-owned enterprises. It is probably
the lower price of firms in bankruptcy that hightens the buyers'
interest in them. On the other hand, one could suppose that
voluntary bankruptcies have had some impact on this seemingly
illogical situation too.
Foreign buyers are most interested in buying
export-oriented enterprises. Foreigners show interest in almost
half of the monitored enterprises producing for the foreign market
(45.5%) and only in 20% of those oriented entirely towards home
markets. Bulgarian buyers, on the other hand, have greater interest
for companies working for the home market.
The size of the privatizable unit is of considerable
importance when choosing among privatization techniques, character
and number of participants. Unlike potential Bulgarian buyers, who
are ready to participate in the privatization of 23.2% of the
big-sized enterprises (employing over 1000 people), the number of
foreigners willing to do so is 40.0%. Foreign investors are
interested in just one-fifth of the small-sized enterprises (less
than 100 employees).
9. MOST UNATTRACTIVE ENTERPRISES FOR FOREIGN
BUYERS
Foreigners are not willing to take part in the
privatization of the agricultural sector. Public utility services
and construction rank second as least attractive sectors, and
transport comes third. These are branches of more or less regional
character and therefore unattractive for foreign investors. Their
revitalization requires state investment, mainly. In some
countries, Greece and Romania for instance, the inflow of foreign
capital in agriculture, transport and energy supply is encouraged
by preferential credit policy, tax allowances etc.
Substantial foreign investment and buying of small
enterprises, including those working for the home market, can
hardly be expected. Turkish and Greek investors make an exception
in this respect, as it will be illustrated further below.
The results of the survey show that Bulgarians
maintain a specific opinion towards investment coming from
neighboring countries. Such investments are growing rapidly and
account for the largest share of foreign investment registered last
year.
10. INVESTMENT FROM THE BALKAN COUNTRIES
Bulgarians, in general, are relatively well-disposed
towards foreign investment, but grow critical towards investment
coming from neighboring countries. The distributions in the table
below give an idea of the specific attitude of Bulgarians towards
their neighbors.
What is your attitude in general towards the
following countries?
|
very good
|
rather good
|
rather bad
|
very bad
|
MACEDONIA
|
23%
|
53%
|
6%
|
2%
|
GREECE
|
21%
|
53%
|
11%
|
5%
|
RUMANIA
|
8%
|
41%
|
28%
|
11%
|
TURKEY
|
12%
|
32%
|
35%
|
15%
|
YUGOSLAVIA
|
7%
|
32%
|
33%
|
19%
|
April 1993 Survey
The BSP supporters have a predominantly negative
disposition towards Turkey, while the UDF have a similarly negative
disposition towards Yugoslavia. Stratified by ethnic background,
Bulgarians have negative feelings towards Turkey, while the Gypsy
minority has similar feelings towards Romania. It is worth noting
that throughout the last three years the Bulgarians' negative
attitude towards Turkey has declined substantially, especially
since the summer of 1992. This situation comes as a natural
consequence to the 500-year Ottoman domination over Bulgaria which
ended in 1878. Attention should be paid to the impact of the
military and the ideological antagonism between the two countries
during the years of communist rule as well as to the existence of a
considerable Turkish minority in this country - 9,7% of the
population according to the latest population census (December
1992). At present, Bulgarians' attitude towards Turkey is formed by
the ethnic relations in this country. The last three years have
witnessed a further improvement in the relations between Bulgarians
and Turks, which has contributed to reducing the earlier suspicions
towards Turks and Turkey.
A large number of Bulgarians (mostly BSP supporters)
still have strong reserves towards Turkey. It was the Bulgarian
Socialist Party that imposed foreign investment restraints of a
minimum US$ 50 000 in the first draft of the Law on Foreign
Investment which, in turn, affected the interests of smaller
potential investors from Turkey to the greatest extent. Backed by
the BSP majority, the Parliament voted a paragraph in the new
Constitution forbidding foreigners to buy land in Bulgaria. This
action was prompted by the wide spread socialist thesis that the
Turks were ready to buy land in border regions.
The "business elite" survey shows that the attitude
of Bulgarian private entrepreneurs and managers of state-owned
companies towards potential investment from neighboring countries
is less dependant on geopolitical orientations than public opinion,
in general.
The distributions to the question "If you had an
opportunity to choose between different partners, to what extent
would you trust" are as follows:
|
great
|
moderate
|
small
|
none
|
Representatives of Greek firms Representatives of
Turkish firms Representatives of Romanian firms (for comparison
American firms)
|
9,6% 5,6%
1,3% 29%
|
29,4% 25,2%
10,9% 31,2%
|
24,9% 26,6%
18.1% 8,6%
|
18,3% 24,6%
43,7% 6,2%
|
CSD. November 1992 Survey
In the eyes of Bulgarian businessmen companies from
Balkan countries do not enjoy great respect. They are much less
favoured as partners than those from the US and Western Europe.
Nevertheless, Bulgarian businessmen favour Greek companies much
more than Turkish ones. In this respect Greece has another
advantage over its competitor, Turkey - Greek capitals are
preferred. According to the Bulgarian "business consequence to the
500-year Ottoman domination over Bulgaria which ended in 1878.
Attention should be paid to the impact of the military and the
ideological antagonism between the two countries during the years
of communist rule as well as to the existence of a considerable
Turkish minority in this country - 9,7% of the population according
to the latest population census (December 1992). At present,
Bulgarians' attitude towards Turkey is formed by the ethnic
relations in this country. The last three years have witnessed a
further improvement in the relations between Bulgarians and Turks,
which has contributed to reducing the earlier suspicions towards
Turks and Turkey.
A large number of Bulgarians (mostly BSP supporters)
still have strong reserves towards Turkey. It was the Bulgarian
Socialist Party that imposed foreign investment restraints of a
minimum US$ 50,000 in the first draft of the Law on Foreign
Investment which, in turn, affected the interests of smaller
potential investors from Turkey to the greatest extent. Backed by
the BSP majority, the Parliament voted a paragraph in the new
Constitution forbidding foreigners to buy land in Bulgaria. This
action was prompted by the wide spread socialist thesis that the
Turks were ready to buy land in border regions.
The "business elite" survey shows that the attitude
of Bulgarian private entrepreneurs and managers of state-owned
companies towards potential investment from neighboring countries
is less dependant on geopolitical orientations than public opinion,
in general.
The distributions to the question "If you had an
opportunity to choose between different partners, to what extent
would you trust" are as follows:
|
great
|
moderate
|
small
|
none
|
Representatives of Greek firms Representatives of
Turkish firms Representatives of Romanian firms (for comparison
American firms)
|
9,6% 5,6%
1.3% 29%
|
29,4% 25,2%
10,9% 31,2%
|
24,9% 26,6%
18.1% 8,6%
|
18,3% 24,6%
43.7% 6,2%
|
CSD. November 1992 Survey
In the eyes of Bulgarian businessmen companies from
Balkan countries do not enjoy great respect. They are much less
favored as partners than those from the US and Western Europe.
Nevertheless, Bulgarian businessmen favor Greek companies much more
than Turkish ones. In this respect Greece has another advantage
over its competitor, Turkey - Greek capitals are preferred.
According to the Bulgarian "business
A survey conducted in Greece by the Center for
European Research (EKE) showed that 5,000 Greek companies were
actively operating in Bulgaria by the beginning of 1993. In these
terms, Bulgaria accounts for the main bulk of Greek investment on
the Balkans. Asked "Which sector in Bulgaria do you consider is
most advantageous for investment?”, 32% of the respondents singled
out the tourism industry, 27% trade, 13% agriculture, 12% light
industry, 4% both heavy and military industry and 8% other sectors.
The survey shows that Greeks prefer to invest in branches with by
rapid rate of return and small risk. They are obviously oriented
towards the "green field investment" approach and the explanation
to this should be sought in the slow pace of privatization in
Bulgaria.
B. TURKEY
The Bulgarian "business elite" survey of November
1992, shows that Turkish companies are willing to participate in
the privatization of light industry enterprises (48%), heavy
industry units (23%) and tourist facilities (12%). Sixty-three per
cent of the respondents favor profitable enterprises and 29%
money-losing ones. What characterizes Turkish companies, in
contrast with the general trend, is their interest in the
privatization of agricultural enterprises. About one-fourth of the
surveyed agricultural units, have attracted the interest of
potential Turkish buyers. According to their interest in Bulgarian
companies, Turkish investors rate after Germany and Greece but come
before the US.
Although Turkish businessmen favor investment in the
developed industrial infrastructure, they still prefer "green field
investment". Turkish investors in Bulgaria register companies with
100% Turkish stake, primarily. This is probably due to the negative
attitude towards Turkish investment which still prevails among
Bulgarians. Turkish business is most often engaged in bakeries,
shops, small restaurants and sweet shops. As a whole, investments
from this country are small in size. Turkish companies in Bulgaria
are almost entirely located in areas populated by the Turkish
ethnic minority. Potential Turkish investors are also interested in
enterprises, set up in these regions. There are several
explanations to this fact. Communication in Turkish is an advantage
for such firms. Besides, they meet with a more amiable attitude
among ethnic Turks. On the other hand, Turkish investors are part
of the emigrants who left Bulgaria during 1950-1951 and 1969-1978
and are now coming back. Those who emigrated in 1989 have preserved
their Bulgarian citizenship.
The former Turkish President Turgut Ozal and other state officials have so far
repeatedly stated that Turkey will encourage investment in Bulgaria. The Turkish side
has recently promised a credit line for Bulgarian ethnic Turks willing to buy land and
immovable property. The Turkish government has developed and put in action an
investment project for regions of compact ethnic Turkish population in Bulgaria. These
regions are seriously affected by the economic crises and unemployment which forces
the population to emigrate to Turkey. To stop the emigration surge, Turkey is
developing a program which will be financed by the foreign-trade Eximbank. This
program aims at facilitating Turkish investment in North- and South-Eastern Bulgaria.
The other Balkan countries had, just like Bulgaria, centrally-planned economies with an
insignificant share of the private sector. Neither Rumania nor Albania, nor Macedonia
or new Yugoslavia will be capable of investing in Bulgaria in near future. Nevertheless,
a significant number of joint companies have been registered. Bulgaria's trade with
Macedonia and Albania has invigorated a lot and Bulgarian-made commodities now
accoum for the largest relative share of imports in both countries. The UN embargo
against Serbia and Montenegro halted the progress of Bulgarian-Yugoslav trade. An
outflow of capitals from Yugoslavia can be observed today. It is most likely that
Yugoslav embargo-busters are now operating in Bulgaria but there are also signs of
another process - Serbian citizens and firms transfer their hard-currency savings in
Bulgarian banks as a consequence of chain bankruptcies in Belgrade.
Trade constitutes a major interest to Turkish and Greek companies. The expected
privatization generates an interest in the light and heavy industries. Bulgaria's qualified
and cheap labour force, and small transport costs highten this interest even further. These two countries conduct investment promotion policies towards Bulgaria - some EC programs have been launched in Greece. No matter what the amount of investment from these neighboring countries is, the public opinion will remain rather sensitive on
it.
CONCLUSION
Although Bulgaria still lacks great inflow of foreign investment, the public perception
of it has already been formed. Low educated groups and ethnic minorities are less
prepared to express a definite opinion on foreign investment. Public opinion in general
is friendly and positive towards foreign capital but it differs among the different
population groups. Political affiliations and geopolitical orientations dominate in the
assessment of foreign investment.
Foreign investors' high interest in the privatization of Bulgarian state enterprises,
bankrupt ones included, is quite surprising. This interest is strongly affected by the
delay of privatization and the bureaucratic obstacles that stand in the way of foreign
capital. With the help of an efficient institutional system and promotional state policy,
the foreign investor's interest can become an economic reality.
SURVEYS EMPLOYED:
CSD December 1990, sample (N = 1000), nationally representative. Sample
methodology employed: two stage cluster sample. Information was collected by self-
completion questionnaire.
CSD survey April 1991, sample (N = 1200), nationally representative. Sample
methodology employed: two stage cluster sample. Information was collected by self-
completion questionnaire.
CSD survey November 1991, sample (N = 900), nationally representative. Sample
methodology employed: two stage cluster sample. Information was collected by face-
to-face interviews.
CSD survey March 1992, sample (N = 1500), nationally representative. Sample
methodology employed: two stage cluster sample. Information was collected by face-
to-face interviews.
CSD survey September 1992 , sample (N = 1500), nationally representative.
Sample methodology employed: two stage cluster sample. Information was collected by
face-to-face interviews.
CSD survey November 1992. , sample (N = 1200), nationally representative.This
sample consists of 600 state enterprise managers and of 600 owners of private firms.
Information was collected by face-to-face interviews.
CSD survey April 1993, sample (N = 2000), nationally representative. Sample methodology employed: two stage cluster sample. Information was collected by face-to-face interviews.
|