bulgaria’s eu membership and the competitiveness of the economy project supported by the open...
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Bulgaria’s EU Membership and the Competitiveness of the Economy
Project supported by the Open Society Institute
Sofia, 30 January 2012
Methodology of the Project
Our Goal: • To analyze the impact of Bulgaria’s EU membership on the competitiveness of the
economy • To review the policies for competitiveness improvement
Study Based on: • Interviews with experts and policy makers• Global Competitiveness Report of the World Economic Forum • Analysis by the Centre for Economic Development
Methodology Advantages:• Quantitative approach - Information based on international and national statistics• Qualitative approach – Information based on surveys, conducted among Bulgarian
and foreign companies, and experts’ assessment
Our Approach to Competitiveness = Potential to achieve high productivity, based on an innovative approach to human resources, capital and physical assets
Main effects of the EU membership Experts’ opinion on the role of integration Estimations of competitiveness according to the Global
Competitiveness Reports Main priorities for improving competitiveness
Structure of the Presentation
Improvement and alignment of Bulgarian with European legislation
Positive changes as a result of the targeted integration policies in different fields (regional policy, social policy, trade policy, innovation policy, entrepreneurship, etc.)
European funds, absorbed on the basis of the developed operational programmes
Single Market effects
Main Effects of the EU Membership
Main goal of the integration process: closing the competitiveness gap between the Bulgarian economy
and the old Member States
Main priorities in the current programming period: Building an integrated policy planning and implementation system Efficient participation in the EU policy-making process Improving the transport infrastructure Improving the human capital quality with focus on employment Improving the environmental infrastructure
Impact of the EU Membership on the Bulgarian Economy and its Competitiveness
(according to expert’s opinion)
Higher degree of institutional coordination in the management and implementation of projects
Improved Administrative Capacity Initiated Infrastructure Projects Addressing unemployment and maintaining level of
employment Environment protection
Major successes
Difficulties in measuring achievements Poor coordination of programmes and measures Civil society - not a great contributor to integration
policy’s implementation Absence of adequate practical experience and
administrative capacity and high staff turnover in the administration
Lack of adequate national co-funding of programmes
Existing problems
Improving basic infrastructure Developing human capital and promoting employment Creating value by knowledge-based growth and building
a competitive and greener economy Strengthening the institutional capacity
Major priorities for the next programming period
Estimation of the Competitiveness of the Bulgarian Economy (on the basis of the Global Competitiveness Reports of the
WEF)
Factors for Competitiveness
• Institutions • Infrastructure • Macroeconomic environment • Health and primary education • Higher education and training • Goods market efficiency • Labour market efficiency • Financial market
development • Technological readiness • Market size • Business sophistication • Innovation
Global Competitiveness Index - Bulgaria
2006 2007 2008 2009 2010 2011
70
72
74
76
78
80
82 3.753.83.853.93.9544.054.14.154.2
72
79
76 76
71
744
3.9
4 4
4.1
4.16
Rank (left axis) Score (right axis)
EU membership - positive effect on the competitiveness factors
Most pronounced effect on: macroeconomic environment, labour market, infrastructure, technological readiness, etc.
EU membership results - not immediately visible, i.e. their effect is postponed
General conclusions
Competitive weaknesses Competitive strengthsLow productivity and relatively low competitiveness based mainly on price factors;
Insufficiently favourable business environment;
Deteriorated quality of human resources;
Insufficiently effective state administration;
Existing corruption practices;
Poor quality of infrastructure;
Lack of strategies and clearly formulated objectives at company level;
Stable macroeconomic environment; Favourable tax environment;
Labour market flexibility;
Growing interest in and awareness of the need to implement new technologies and renovate production;
Openness to foreign markets – participation in international networks;
Positive dynamics of quality improvement and implementation of international quality management standards;
Competitive Strengths and Weaknesses of the Bulgarian Economy
Low spending on innovation in processes and products (weak capacity for innovation of companies);
Shortage of financial resources and difficult access to finance, underestimated non-bank finance;
Lack of corporate culture and managerial experience;
Absence of a targeted human resource development policy in the context of modern technology and innovation requirements, etc.
Flexibility, adaptability, ability to improvise;
Improved access to Internet providers, etc.
Competitive Strengths and Weaknesses of the Bulgarian Economy
(Continued)
Corruption Inefficient state administration Difficult access to finance Inefficient infrastructure Undereducated labour force
Main Problems for the Business
Global Competitiveness Index, ranking (EU-10)
EE
CZ
PL
LT
HU
SL
LV
SK
BG
RO
20 30 40 50 60 70 8027
33
51
38
47
39
45
41
79
74
33
38
41
44
48
57
64
69
74
77
2011 2007
Institutions
2006 2007 2008 2009 2010 2011
108
109
110
111
112
113
114
115
116
117 3
3.1
3.2
3.3
3.4
3.5
109 109
111
116
114
110
3.07
3.22
3.28
3.19
3.293.32
Rank (left axis) Score (right axis)
Notable competitive advantages
• Investor protection
Notable competitive disadvantages
• Judicial independence• Efficiency of legal framework in setting
disputes• Efficiency of legal framework in
challenging regulation• Transparency of government policy making • Organized crime• Irregular payments and bribe
Conclusion: Serious problems in judicial system, corruption, crime, policy making
Institutions
Policy measures
Policy documents: Conflict of Interest Prevention and Identification Act (November 2010), Committee for Conflict of Interest Prevention and Identification, Center for Prevention and Combating Corruption and Organized Crime (BORKOR), Law on the Judiciary /2007/
Conclusion: Some progress in the rule of law, political will to fight organized crime and corruption, more efficient interaction between prosecutors and Interior Ministry, better trained young people in the judiciaryIneffective measures - sluggishness, inefficiency, dependency, unpunished crime among high political and economic elites
Infrastructure
2006 2007 2008 2009 2010 2011
60
65
70
75
80
85
90
95
100
105 2.7
2.8
2.9
3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
65
84
95
102
80
87
3.41
2.91
2.79
2.88
3.573.62
Rank (left axis) Score (right axis)
Notable competitive advantages
• Mobile telephone subscriptions • Fixed telephone lines
Notable competitive disadvantages
• Quality of overall infrastructure • Quality of roads • Quality of port infrastructure • Quality of air transport infrastructure • Quality of electricity supply
Conclusion:
• Overall quality of transport infrastructure - in poor condition • Most existing roads, (especially) railways - need significant investment
Infrastructure
Policy measures
Policy documents: National Strategic Reference Framework 2007-2013, OP “Transport” 2007-2013, OP “Regional Development” 2007-2013, National Reform Program 2011 -2015, Priorities for the Development of Bulgaria’s road infrastructure of European and national significance by 2020 (project), Energy Strategy of Bulgaria till 2020 Conclusion: Infrastructure - one of Bulgaria’s national priorities • Political will for timely construction of strategic infrastructure lots (by 2013 - three
highways) • European funding - provided within the OP “Transport” 2007-2013 and OP “Regional
Development” 2007-2013• Delay in the development of projects for rehabilitation and upgrading of major railway
stations• Hard work needed for development of new infrastructure construction projects
Macroeconomic environment
2006 2007 2008 2009 2010 2011
34
39
44
49
54
59 4.8
4.85
4.9
4.95
5
5.05
5.1
5.15
5.2
5.2535
47
54
45
42
46
4.92
5.16
5.21
4.93
5
5.13
Rank (left axis) Score (right axis)
Notable competitive advantages Budget Balance
• Prudent fiscal policy• Reforming government expenditure
Government Debt• Following unwritten rules• Accruing fiscal reserves• Moderate debt increase => more
competitive economy after the crisis
Notable Competitive DisadvantagesNational Savings
• Buoyant domestic demand• Low real interest rates• Few savings opportunities, besides
bank depositsInflation
• Capital inflow, credit growth, convergence to EU levels
• Wasteful Gov. spending• Wage growth outpacing productivity
Macroeconomic environment
Labor Market Efficiency
2007 2008 2009 2010 2011
53
58
63
68
73
78 4.25
4.3
4.35
4.4
4.45
4.5
4.55
73
60
54
5856
4.25
4.42
4.51 4.514.49
Rank (left axis) Score (right axis)
Notable competitive advantages • Flexibility of wage determination• Hiring and firing practices• Female participation in labor force
Notable competitive disadvantages
• Cooperation in labor employer relations• Low productivity• Reliance on professional management• Brain drain
Labor Market Efficiency
Policy measures
Main documents: OP “Human Resources Development”, Updated Bulgaria Employment Strategy 2008-2015, National Gender Equality Promotion Strategy 2009-2015, the Bulgarian "path" to achieve higher labor market flexibility and security, Corporate Responsibility Strategy 2009-2013, National Action Plan for Employment 2011, and others.
Policy Priorities: Consistent with Bulgarian economic trends and restrictions of the budgetary framework2012 Goal: Mitigation of the global economic crisis negative impact
Policy measures for: • Higher labor supply and mobility • Integration of disadvantaged groups • Improved labor market flexibility and security (Bulgarian Flexibility and Security Road) • Regulating the activities of Temporary Employment Agencies and working from homeSignificant role of OP “Development of Human Resources “- Funding to improve knowledge, skills and workforce mobility, employability of vulnerable groups, development of education and training and promotion of social inclusion
Technological Readiness
2006 2007 2008 2009 2010 2011
45
50
55
60
65
70 3
3.2
3.4
3.6
3.8
4
4.2
68
65
53
56
4850
3.213.11
3.65
3.82
4.014.11
Rank (left axis) Score (right axis)
Notable competitive advantages• Internet users• Broadband Internet subscriptions• Internet bandwidth
Notable competitive disadvantages• Availability of latest technology• Firm-level technology absorption• FDI and technology transfer
According to NSI data: • About 90% of businesses have computers• About 84% - Internet access • Use of electronic signature - 46% of enterprises
ICT sector in Bulgaria: • High entrepreneurial spirit • Stable value added• Doubled R&D expenditure
Technological Readiness
Policy measures
Role of broadband services: Increase of broadband service uptake by 10% - translates into an increase of 1.2% in GDP
Policy documents: National Broadband Strategy of the Republic of Bulgaria, Coordination Council on Information Society, Law on Electronic Document and Signature, E-government Concept by 2015, ICT cluster, participation in IDA II for exchange of data between administrations, etc.
Problems: Shortage of IT specialists, low government commitment in the development and use of ICT, lack of investment in staff training, lack of reliable information on the sector, lack of sufficient capital
Innovation
2006 2007 2008 2009 2010 2011
85
87
89
91
93
95
97 2.88
2.89
2.9
2.91
2.92
2.93
2.94
2.95
2.96
2.97
8788
96
9192
93
2.93
2.96
2.91
2.9
2.91
2.94
Rank (left axis) Score (right axis)
Notable competitive advantages • Utility patents per million population • Project-based funding of research activities and
innovation (NIF, NSF)
Notable competitive disadvantages • Low research expenditures - 0.53% of GDP against EU
average of 1.83% of GDP • Imbalanced structure of R&D expenditures: public R&D
funding - twice bigger than private sector contribution • Low level of collaboration between business and
institutes• Unfavorable life-long learning participation score: 1.3%
of population aged 25 – 64, involved in lifelong learning, against 9.7% in EU
• Employment in high-tech services: 8.3% against 14.5% in EU
• Employment in medium-high and high-tech sectors: 5.3% against 6.7% in EU
• Low share of high-tech export: 21.2% against 48.1% in EU
Innovation
Policy measures
Main Policy Documents: National Innovation Strategy (adopted in 2004, needs serious updating), NSRF, NRP 2011-2015, OP “Competitiveness,” other OP Main policy instruments: National Innovation Fund, National Science Fund, OP “Development of the Competitiveness of the Bulgarian Economy,” Innovation Law, Enterprise Europe Network, Voucher Scheme, Technology Transfer Centers, Business Incubators etc. Conclusion:• Measures undertaken – Insufficient as of number, adequacy and financing • Policy documents and implemented measures - Should be better targeted and better
operationalised
• 3 I’s – Institutions, Infrastructure, Innovation + Education
Other priorities Improving efficiency and effectiveness of public expenditures
and public financial management Improving business environment Increasing employment
Main priorities