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| The Competitiveness of the Bulgarian Economy 2006
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The Region
June 2006
Authors:
Daniela Mineva, Fellow, Economic Program, Center for the Study of Democracy
Dr. Konstantin Pashev, Senior Fellow, Economic Program, Center for the Study of Democracy
Countries' position in the world oldest and most comprehensive annual report on the competitiveness the World Competitiveness Yearbook 2006 of IMD (International Institute for Management Development) were presented several days before the final European Commission report on Bulgaria’s readiness for accession. The report ranks and analyzes how the environment in 61 selected economies creates and sustains the competitiveness of enterprises. It stands out among reputed international ratings with the predominance of more reliable statistical data over the qualitative (survey) data. There are 312 indicators used, covering a broad spectrum of competitiveness issues and classified in four major groups: economic performance, business efficiency, infrastructure and government efficiency.
The survey includes just some of the Southeast Europe countries - Bulgaria, Greece, Romania and Turkey. This year Bulgaria was included for the first time in the report, issued since 1989. The country takes 47th place among the 61 assessed economies, which sets several important issues regarding the competitiveness of the Bulgarian enterprises and the Government responsibilities. Although this rank may seem low, it should be noted that the Bulgarian inclusion in the World Competitiveness Yearbook 2006 is already an evidence of the country’s positive economic development. It has higher rank than economies such as Turkey, Brazil, Mexico, Russia, Argentina, Italy, Poland and Indonesia. Champion among SEE countries is Greece (42nd place), Bulgaria is second ahead of Turkey (51st place) and Romania (which takes 57th place).
Challenges to the business sector
The report shows that the increase of the Bulgarian competitiveness is to a larger degree merit of the Government, than the firms themselves. This is not only surprising, but also alarming, since the enterprises will be the ones subjected to the higher competitive pressure of the European single market. On the other hand this situation is favorable since government efficiency is more difficultly achieved and the firms are more flexible in terms of adapting to the new environment by increasing the quality of corporate governance and use of new technologies.
The low labor cost still remains Bulgaria’s major competitive advantage (we are ranked second among all participants in terms of unit labor cost reduction). It is however accompanied by low total productivity (Bulgaria is ranked 52nd among 61 economies) and deficit of required by the investors specialists. The Bulgarian business also takes one of the last places regarding R&D expenditures (56th place), share of high-technology export (57th place) and currant account deficit (49th place). For comparison the Romanian strengths in the business sector are quite different – the stock market index, compensation levels, remuneration in services professions. One of the major advantages of Greece compared to Bulgaria is the relatively low level of brain drain of well-educated people. Greece also has advantages in the remuneration and entrepreneurship of managers and the overall productivity. The Bulgarian business environment should be improved in several more aspects. The report places the indicators related to the Bulgarian stock exchange as a source of funding at the lowest positions in this group. According to the Bulgarian business the quality of the corporate governance is still also low. This is particularly true in spheres such as the marketing, management of the personnel, motivation and qualification of human resources, audit and accounting practices, ethical business relations, and protection of shareholders’ rights.
Government efficiency, higher than the economic performance, is also observed in Greece, which has better overall rating than Bulgaria. Romania, on the other hand, is on one of the last places regarding its government efficiency – 52nd. It should be noted that Greece most competitive area is its developed infrastructure (33rd place). Regarding its economic performance however it is ranked 4 places behind Bulgaria with its disadvantages being mainly the exports of goods, percentage of labor force and the current account balance. The direct investment flows inward are of great importance to all countries and one of the major achievements to Romania (6th place) and Bulgaria (8th place). One of the most prominent strengths of the Bulgarian economy is the exports of commercial services as percentage of GDP (7th place), which puts us slightly ahead of Greece (9th place). This indicator measured in USD however proves to be a considerable disadvantage for Romania (54th place).
Challenges to policymakers
Bulgaria ranks higher due to the overall ineffectiveness of some leading economies regarding the government policy. Bulgaria’s advantages surprisingly are not the low inflation (we are placed 52nd) and the decrease of unemployment (53rd place). According the report they are rather in the sphere of state governance, particularly the low corporate tax (second place after Ireland). This indicator is also favorable for Romania (9th place). Another advantages are the balanced budget (6th place), and the decrease of the total government debt (5th place, while the change of this indicator places Greece on 32nd place and Romania – on 23rd) The state of the Central government foreign debt as percent of GDP however are highlighted in the report as major strengths of both Romania (9) and Greece (13th place). The administrative and regulative barriers in front of the business remain high. The unfair competition, grey economy, tax evasion, corruption, lack of effective legal proceedings and property protection are among the major competitive constrains of the Bulgarian economy. These or similar issues are not uncommon for our neighbors. The bureaucracy, ease of doing business and the number of days to start a business are major barriers for Greece, while the regulation intensity, tax evasion, discrimination and protectionism sector hampers the business sector activity in Romania and places it among the 59th and last 61st place regarding these indicators.
Conclusions
As a whole we can conclude that the Bulgarian competitiveness compared to the neighboring countries Romania and Greece does not lag behind. On the contrary – according the rankings in two of the major areas – Government Efficiency and Economic Performance, Bulgaria is placed at a higher, although not by a great difference, position. Regarding the development of infrastructure and the Business Efficiency Bulgaria ranks between the two other countries, leaving behind Romania, with considerable advantage however of the Greek infrastructure compared to the Bulgarian and the Romanian ones.
IMD’s World Competitiveness Yearbook 2006 highlights the areas, in which Bulgaria urgently needs to implement adequate measures in order to improve its position: investments in infrastructure and energy efficiency; encouragement of innovations and high-technology export; implementation of long-term national policy for development of human capital, and focusing on the reforms in healthcare and education sectors; resolving the chronic problems with the administrative discretion, red tape barriers in front of the business and corruption.
More information can be found at: www.csd.bg and http://www.imd.ch/wcc/
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