EVENTS ANALYSES INTERVIEWS

CONNECT2(171) 2016

1executive's remarks

It is my pleasure to address you in my capacity as the acting AmCham executive director as of Dec. 12, 2016. This year-end issue brings to focus the changes in AmCham leadership that took place during the last month. After 14 years of memorable service, Valentin Georgiev has stepped down as an executive director of AmCham and we all wish him well in his future endeavours (more on pages 4 and 42).

I am delighted to share with you that during my term in AmCham of ce I will do my best to develop further Chamber’s policies and business practices. In 2017 we will mark 22 years of presence in Bulgaria, with more than 340 members in all major industries. We will continue working hard to ful l our mission and goals. We will aspire towards an even higher membership engagement and will dedicate our activities to matters of importance to you – our members – based on your input and constructive feedback.

Among AmCham key strategic events during the next year will be our business luncheon with the government and the forum on e-government with special focus on e-procurement and e-health.

AmCham 2017-2018 policy agenda envisages update of AmCham White Paper focused on education and human capital, sustainable business environment, rule of law and law enforcement. The Chamber will establish a regular dialogue and collaboration with relevant authorities to promote and deliver on AmCham priority areas.

Bulgaria is in a complex political and economic environment that will develop and change further in 2017; our current issue sheds more light at the processes in the country and worldwide. Our editorial team has collected the forecasts of respected Bulgarian economic analysts who remain moderately optimistic in shaping up the perspective for economy growth and business environment (pages 20-27).

In our efforts to foresee what the next year would be, we cannot escape mentioning the Oxford word of 2016 year - “post-truth,” as in “relating to or denoting circumstances in which objective facts are less in uential in shaping public opinion than appeals to emotion and personal belief.” By all accounts we appear to have entered an era that is unprecedented in modern political history.

What is certain and beyond doubt is that Christmas is on our doorsteps, bringing hope and faith in the near-term future. The AmCham team wishes Happy Holidays to all of you and a joyful New Year!

Sincerely Yours,

Alex NestorActing Executive Director

DEAR MEMBERS AND PARTNERS,

2017 in Forecasts of Leading

Opinion Makers

chamber news . . . . . . . . . . . . . . . . . . 4-5standpoint

Divided We Fail . . . . . . . . . . . . . . . . . . .6

analysis

Health Care and Agriculture: What Did the Government Achieve? . . .8

tendencies

Budget 2017 Hostage to Unusual Political Situation . . . . . . . . . .10interview

Bozhidar Danev: State Creates Chaos, Feeds Corruption, Hampers Business . . . . . . .14cover story

What to Expect from 2017 . . . . . . . . . .20Latchezar Bogdanov, Industry Watch Group: 2017: Moderate Optimism Despite Political Crisis . . . . .20Georgy Ganev, Center for Liberal Strategies in Sofia, Bulgaria: Economic Activity Very Likely to Accelerate Next Year . . .21Desislava Nikolova, Institute for Market Economics: Political Crisis Creates Huge Risks for Budget in 2017 . . . . . . . . . . . . . . . .22Georgi Angelov, Open Society Institute: Prospects for 2017: European Fund Absorption in Risky Environment . . . .23Martin Dimitrov, MP: Bulgaria May Enter Disturbing Cycle of Parliamentary Elections Every Next Year . . . . . . . . . . . . . . . . . . . . . .24Lyubomir Datsov, Financier: Budget to be Stable if Politicians Keep Current Taxation System Unchanged . . . . . . . .25Antoniy Todorov, New Bulgarian University: Bulgaria Not Divided Between West and Russia . . . . . . . . . . .26Professor Antoniy Galabov, New Bulgarian University: Partial Political Stabilization Is Possible in Second Half of 2017. . . . . .27

Content

Business Connect

Board of Directors of the American Chamber of Commerce in Bulgaria

President Ms. Krassimira Chemishanska Amgen BulgariaTreasurer Ms. Stanislava Taneva Citibank Europe Plc, Bulgaria BranchMembers Mr. Iravan Hira Hewlett Packard Enterprise Bulgaria Ms. Iva Todorova IBM Bulgaria Mr. Venislav Iotov AIG Europe Limited (Bulgaria Branch) Mr. Petar Ivanov Microsoft Bulgaria Mr. Stoyan Ivanov The Coca-Cola Company Bulgaria Mr. Sergey Koinov AG Capital Mr. Olivier Marquette AES Bulgaria Mr. Solomon Passy Atlantic Club Bulgaria Ms. Zlatina Ruseva-Savova Individual member Mr. Plamen Zhechev Cisco Systems BulgariaEx-Officio Member Ms. Maria Galindo Senior Commercial Officer, U.S. EmbassyActing Executive Director Mr. Alex Nestor

3content

3M Bulgaria EOOD . AA KRES EOOD . AbbVie EOOD . Abrites . Accedia . Actavis Bulgaria EAD . Adecco Bulgaria Ltd. . ADM Bulgaria Trading EOOD . Advance International Transport EOOD . AES Corporation . AFA OOD . AGORA-IN Ltd. . AIG Europe Limited (Bulgaria Branch) . AIMS Human Capital . Albena AD . Alcomet AD . Alcon Bulgaria EOOD . ALD Automotive OOD . All Channels Communication . Alliance One Tobacco Bulgaria . Allied Pickfords Bulgaria . America for Bulgaria Foundation . American College of Sofia . American English Academy . American Research Center in Sofia . American University in Bulgaria (AUBG) . Amgen Bulgaria EOOD . Amway Romania Marketing Srl. . Anglo-American School of Sofia . AON Bulgaria . Apis Europe JSC . APOLO Ltd. . Architect Nikolay Mihaylov Galabov . Architectural Agency Kadinovi Bros LTD . Arexim Engineering . Ashtrom International Ltd. . Association Srednogorie Copper Industrial Cluster . Astra Zeneca Bulgaria EOOD . AT Engineering 2000 Ltd. . Atlantic Club Bulgaria . Atos IT Solutions and Services EOOD . Attica Eva AD . August Research . Auto Bavaria Ltd. . Auxionize Jsc . AVAir Ltd. . AVON Cosmetics Bulgaria . AW-Tronics LLC . Axway Bulgaria EOOD . Baker Tilly Bulgaria . Balkan Star Automotive EOOD . Ballistic Cell Ltd. . Baxter Bulgaria EOOD . BG Radio . BICA International Ltd. . BLVD Ltd. . BMG Ltd. . BMW Vertriebs GmbH - Branch Bulgaria . BNP Paribas S.A. - Sofia Branch . Bojinov & Bojinov . BOYANOV & Co. . Braykov's Legal Office . British American Tobacco Bulgaria . Brown-Forman Bulgaria Ltd. . Bulgarian Charities Aid Foundation (BCAF) . Bulgarian Executive Search Association . Bulgarian International Television . Bulgarian Property Developments EOOD . Bulgarian Tennis Federation . Bulgarian-American Commission for Educational Exchange Fulbright . Bulgarian-American Credit Bank . BulPros Consulting JSC . Bulstrad Life Vienna Insurance Group . Business Intellect Ltd. . Business Park Sofia EOOD . C3i Europe EOOD . CAD R&D Centre Progress Ltd. . Castello Precast OOD . Center for the Study of Democracy . CEZ Bulgaria EAD . Chaos Software ltd. . Cheque Dejeuner Bulgaria Ltd. . CheckPoint Cardio . Cibank JSC . Cisco Systems Bulgaria . Citibank Europe Plc, Bulgaria Branch . Cleves . CMS Cameron McKenna LLP - Bulgaria Branch . Coca-Cola Enterprises Services Bulgaria EOOD . Coca-Cola HBC Bulgaria AD . Coface Bulgaria Credit Management Services EOOD . COLLIERS International Bulgaria . Comverse Bulgaria . Congress Engineering Ltd. . Contitrans M Ltd. . ContourGlobal Maritsa East 3 AD . Curtis / Balkan Ltd. . DA Travel Ltd. . Danailov, Drenski, Nedelchev & Co. . Delchev & Partners Law Firm . Deloitte Bulgaria EOOD . denkstatt Bulgaria OOD . Dentsu Aegis Network Bulgaria OOD . Deutsche Bank AG . Devin AD . DHL Express Bulgaria Ltd. . Diamed Ltd. . Dimitrov, Petrov & Co. . Djingov, Gouginski, Kyutchukov, & Velichkov . Dobrev & Lyutskanov Law Firm . Dr. Greenberg Medical Center . Drujba Glassworks SA . Dundee Precious Metals Inc. . DuPont Bulgaria EOOD . Economedia . EcoPack Bulgaria AD . Edenred Bulgaria . Ekoterm Proekt EAD . Ekotoi - Service Ltd. . Ekzotika EOOD . EL-A-Project Ltd. . Electron Progress EAD . Eli Lilly and Company . Eltrak Bulgaria Ltd. . eMAG . EMC Computer Systems Austria GmbH . Emerson Process Management . EnergoService AD . Engineeringservice Sofia Ltd. . Enterprise Communications Group OOD . EOS Matrix Ltd. . EPAM Systems Bulgaria . EQE Control OOD . Ernst & Young Bulgaria EOOD . ESRI Bulgaria Ltd. . Eurobank Bulgaria . European Bank for Reconstruction and Development (EBRD) . European Trade Center EOOD . EVS Translations Bulgaria . Expat Capital . Experian Bulgaria EAD . FairPlay International . Fama Consulting OOD . Flying Cargo Bulgaria Ltd. - Licensee of FedEx . Force Delta Ltd. . Forton AD . Foundation Glob@l Libraries - Bulgaria . Founders Foundation . Galardo Real Estate . Garitage Investment Management EOOD . Gasstroymontaj Jsc . General Electric International . Georgiev, Todorov & Co. . Geostroy AD . Geotechmin OOD . Geotrading AD . GfK Bulgaria, Market Research Institute EOOD . Gi Group . GIFTA . Grand Hotel Sofia . GSK . GTC Bulgaria . Gugushev & Partners Law Office . Harley-Davidson Sofia . Helios Power Jsc . Hewlett-Packard Enterprise . Hilton Sofia . Holzindustrie Schweighofer . Honeywell EOOD . Hotel Marinela Sofia . HP Inc Bulgaria EOOD . Hydroenergy Company JSC . IBM Bulgaria . ICAP Bulgaria JSC . IDC Bulgaria . Ideal Standard - Vidima AD . IIA Bulgaria . Imperial Tobacco Bulgaria EOOD . Industrial Holding Bulgaria . Ingram Micro SSC EMEA EOOD . InterConsult Bulgaria Ltd. . Interlang Ltd. . International Legal Advice center - ILAC . Intertek BA . Intracom Bulgaria EAD . Investbank JSC . Investor BG AD . IP Consulting Ltd. . Japan Tobacco International Bulgaria . Jobs.bg EOOD . JobTiger Ltd. . Johnson & Johnson Bulgaria EOOD . Junior Achievement Bulgaria . KAI Group . Kalamaris Group . Kambourov & Partners Attorneys at Law . Kamenitza AD . Katilin Popov Enforcement Officers . Kempinski Hotel Grand Arena Bansko . Kinstellar . Kolcheva, Smilenov, Koev and Partners Law Firm . KPMG Bulgaria OOD . LANDMARK Property Management AD . Law Firm McGregor & Partners . Lexim Sofia Co. Ltd. . Lindner Immobilien Management EOOD . Lirex BG Ltd. . M3 Communications Group, Inc. Hill+Knowlton Strategies Partner . Maria Vranovska, MD, MBA . Mars Incorporated Bulgaria EOOD . Marsh LLC. . MBL| Part of the CBRE Affiliate Network . Medical Center AmeriMed . Megatron EAD . Mellon Bulgaria EAD . Merck Sharp & Dohme Bulgaria . MetLife Europe Ltd. - Bulgaria Branch . Microsoft Bulgaria . Miltech Ltd. . Minstroy Holding Jsc . Mnemonica . Mobiltel EAD . Monbat Plc. . Mondelez Europe Services GMBH - Bulgaria branch . Moten Sport . Moto-Pfohe Ltd. . Mr. Alex Nestor . Mr. David Hampson . Mr. Jean Talmon . Mr. Kalin Kostov . Mr. Nikolay Ouzounov . Ms. Kalinka Kovatcheva . Ms. Margarita Radeva, CPA . MTAC . Municipal Bank Plc . Musala Soft AD . Mylan EOOD . National Network for Children . NDB Ltd. . Nemetschek Bulgaria . NEXTDOOR Ltd. . Novacon Bulgaria Ltd. . Novotel Sofia . Oiltanking . On Bulgaria Ltd. . Oracle East Central Europe Limited - Branch Bulgaria . Orak Group Europe Ltd. . Orbit Ltd. . Panchim Ltd. . PANDA - IP Ltd. . pCloud . Pedersen & Partners . Penev LLP . Penkov, Markov & Partners . Pfizer Luxembourg SARL Branch Bulgaria . Philip Morris Bulgaria EOOD . Philips Bulgaria Ltd. . PPD Bulgaria EOOD . Premier Luxury Mountain Resort . Premier Tours Ltd. . Prestige 96 AD . Provident Financial Bulgaria Ltd. . PSG Payroll Services Ltd. . PwC Bulgaria . Quintiles Bulgaria Ltd. . Radisson Blu Grand Hotel . Raiffeisen Investment Bulgaria EOOD . Raiffeisenbank Bulgaria EAD . Red Devil Catering Plc . Refan Bulgaria Ltd. . Regus Bulgaria Ltd. . Renault Nissan Bulgaria SRL . Right Rental Ltd. . RSM BX Ltd. . S&T Bulgaria EOOD . Sanofi - Aventis Bulgaria EOOD . Santa Fe Relocation Services . SAP . Sb Accounting and Consulting . ScaleFocus . Schenker EOOD . Schneider Electric Bulgaria . SECTRON . Sensata Technologies Bulgaria EOOD . Shell Bulgaria EAD . Sherita M Ltd. . Siemens EOOD . Siemens Healthcare EOOD . SIENIT Holding . Silver Ridge Power . Sitel Bulgaria EOOD . Sodexo Pass Bulgaria EOOD . Sofia Airport Center EAD . Sofia Hotel Balkan . Sofita Translation Agency . Sogelife Bulgaria IJSC . Sopharma AD . Sopharma Trading JSC . Sportal.bg JSC . Stanton Chase International Bulgaria . Stefan Dimitrov, Norman Realestate Co. Ltd. . Sterling Serviced Office Group . Sunfoods Bulgaria EOOD - Development Licensee of McDonald’s in Bulgaria . Sutherland Global Services Bulgaria EOOD . Synchron-S OOD . Tavex EOOD . TBI Bank EAD . Techceramic-M . TechnoLogica EAD . Telelink EAD . Telenor Bulgaria . TELUS International Europe . The Coca-Cola Company Bulgaria . Titan Zlatna Panega Cement . TMF Services EOOD . Tocheva & Mandazhieva Law Office . Uber Bulgaria EOOD . UniCredit Bulbank . UniCredit Leasing EAD . Unimasters Logistics Plc . Unique Estates . United Bulgarian Bank . Veolia Energy Bulgaria EAD . Videolux Holding / Technopolis . VIP Security Ltd. . VISA Europe . Visteon Electronics Bulgaria . Vitosha Soft Ltd. . VIVACOM . VMware Bulgaria EOOD . VSK Kentavar - IZ Dinamika EOOD . VUZF University Higher School of Insurance and Finance . Walltopia Ltd. . Welcome to Bulgaria . Westinghouse Energy Systems Bulgaria Branch . Woodward Bulgaria EOOD . World Courier Bulgaria Ltd. . World Transport Overseas Bulgaria Ltd. . WorleyParsons Nuclear Services JSC . Xerox Bulgaria Ltd. . Xogito Ltd. . Yatoto . Zlatina Ruseva-Savova, LL.M., MBA . Zobele Bulgaria EOOD .

memberscradle

We Say Goodbye to the Hottest Year . . . . . . . . . . . . . . .28

advice corner

Dynamic IP Addresses Can be Personal Data . . . . . . . . . . . . . .32

Supply Chain Security: Managing Risks, Corporate Social Responsibility and Brand Reputation . . . . . . . . . . . . .34

Tax Incentive For R&D in Bulgaria Proposed . . . . . . . . . . . . . . . . . . . . . . .35amcham events

US Must Redefine Globalization, Pundits Say . . . . . . . . . . . . . . . . . . . . .36

new members . . . . . . . . . . . . . . . . . . . .38Cleves, Economedia, IIA Bulgaria, Oiltanking, BLVD Ltd.amcham events

AmCham Launches Digital Working Group . . . . . . . . . . . .39AmCham Donations Top 56K in 2016 . . . . . . . . . . . . . . . . .40AmCham Executive Director Valentin Georgiev Steps Down After Memorable Service With AmCham. . . . . . . . . . . . .42

4

Alex Nestor Becomes Acting

Executive Director

AmCham Executive Director Valentin Georgiev Steps Down after Memorable Service with AmCham

After 14 years of service with the Chamber, Execu-tive Director Valentin Georgiev announced his deci-sion to step down at the year-end AmCham General Assembly held on Dec. 8, 2016, at the Radisson Blu Grand Hotel. Alex Nestor has assumed the position of acting AmCham executive director. Three new members of the AmCham BoD were elected for the three vacant seats.

In a moving address to the audience Georgiev said:“After exciting and memorable 14 years of service with the American Chamber of Commerce, I am bidding farewell to AmCham to pursue other career opportunities. During my tenure the Chamber has developed success-fully and I am proud that it has had so many great accom-plishments such as the successful conclusion of the Treaty for Avoidance of Double Taxation between the United States and Bulgaria, and events related to Bulgaria’s ac-cession in NATO, U.S.-Bulgaria economic partnership,

Joint Training Facilities, U.S.-EU economic relations, TTIP, and Rule of Law.”

He also praised the remarkable interaction with the AmCham members throughout the years.

Georgiev’s tenure was recognized by Solomon Passy, David Hampson and the rest of AmCham board members.

The newly elected members at the BoD are: Iva Todorova, government and regulatory affairs executive with IBM Bulgaria, enters her rst term. Venislav Iotov, general manager, AIG Europe Lim-ited, enters his second term.Plamen Zhechev, enterprise and public sector man-ager, Cisco Systems Bulgaria, enters his second term.Alex Nestor, BoD member and vice president nished his third mandate at the AmCham BoD

(2009-2013; 2014-2016). In his address to the audi-ence Nestor vowed to continue the development of best AmCham policies and business practices in the interim term in of ce.

Read more on page 42

Valentin Geor-giev gets St. Nicolas small plastic statuette as a symbol of recognition for his service on behalf of the AmCham BoD.

Alex Nestor gets a certi cate of appreciation and a painting for his tenure at the BoD.

Solomon Passy and David Hampson acknowledged the memorable years of AmCham management with Valentin Georgiev.

chamber news

5

Chamber Events

By Daniel Corcoran, International General Counsel of Marchex, Inc. and Mitko Karushkov, Partner, Head of Technology Media and Telecom-munications, Kambourov & Partners, Attorneys at Law

The European Court of Justice answered an open question about the nature of dynamic IP addresses and how they may

be considered personal data on Oct. 19, 2016. It is in the context of rapidly advancing sorting and identifying technology, combined with an abundance of individual data points today, that the Court considered the case of Patrick Breyer v. Federal Republic of Germany.In practical terms, the judgment of the Court means that when a

person accesses online content made available to the public by an online media service pro-vider the “log le data” of such access shall have the regulatory nature of personal data. The key point here is the access to have been made through a dynamic IP address.

Read more on page 32

Dynamic IP Addresses Can be Personal Data

Guests choose among silent auction items that were at display during the Thanksgiv-ing community dinner at Marinela Hotel.

AmCham Donations Top 56K in 2016The 14th annual AmCham Thanksgiving Community Dinner on Nov. 22, 2016, raised 52,770 Leva from open bid, silent auction, raf e and scholarships donated by various companies. AmCham’s fund-raising for charity initiatives and projects has reached 56,400 Leva in 2016.Among the biggest scholarship con-tributors during the Thanksgiving were: ContourGlobal Maritsa East-3 that provided 15,000 Leva, Amgen Bulgaria gave 10,000 Leva and another 2,000 Leva were donated by Fama Consulting. AES, Congress Engineering and Telenor successfully outbid numerous silent auction items, among the other active bidders.

Read more on page 40

US Must Rede ne Globalization, Pundits SayA revival of the liberal democracy, unity in the EU and NATO, going out of the trap of populism clichés are key factors to avoid crises of destructive nature, concluded the participants at the discussion “2016 Presidential Elec-tion: So a Perspective” organized by the American Chamber of Commerce on Oct. 26, 2016.American residents in Bulgaria, lead-ing political scientists and journal-ists analyzed the U.S. presidential campaign between Hillary Clinton and Donald Trump. The participants shared expectations about the impact of elections in Bulgaria and world-wide.

Read more on page 36

Prominent Bulgarian political analysts con-ferred with Americans residing in Bulgaria on the outcome of the 2016 US election.

6standpoint

By Chris Karadjov

On Dec. 6, 2016, almost a full month after his unprecedented success at the polls, President-Elect Donald Trump marked another important milestone. During his second thank-you tour, at a stop in Fayetteville, North Carolina, he delivered a speech that did not men-tion an enemy or scapegoat for the rst time since his campaign began in June 2015. He talked about healing divisions, achieving unity and accomplishing even the loftiest national goals with joint ef-forts.

The GOP and Democratic establish-ment gures in Washington, DC, alike hope very much against hope that the populist and opportunist, non-ideological except for isolation-ism and protectionism, anti-system (“Drain the swamp!”), reality-television gure of the campaign will morph

into a more or less predictable leader with policies that can be pinpointed and argued against – or agreed with. Trump himself has been substantially more conciliatory since the elections; he said that he takes President Obama’s advice “seriously” and will consider his recommendations and expertise. At the same time, he continues to rough up some feathers, for instance, by his controversial call to Taiwan’s president, or Tweeter pronouncements about “millions of fraudulent voters” in California. One thing is certain – he has been a game-changing agent and it is never boring when he is in the fray (if that is a good thing at all).

Like so many pundits, I failed to “pre-dict” Trump’s electoral win. I do not feel particularly ashamed of this, since forecasting the elections is one of the most challenging tasks for anyone. As this issue of the magazine goes to print,

Divided We Fail

US President Barack Obama (R) and President-elect Donald Trump (L) meet in the Oval Of ce of the White House in Wash-ington, DC, USA, Nov. 10, 2016.

7standpoint

the president-elect keeps on announc-ing his Cabinet picks and staff appoin-tees; some of them have created much controversy (General Michael Flynn for national security advisor, Steve Bannon for a top White House aide, Tom Price for secretary of health, to name but a few), some have raised eyebrows (Ben Carson for HUD secretary), some will need unorthodox Congressional action (General James “Mad Dog” Mattis for secretary of defense); the most impor-tant position – secretary of state – has been slated for Exxon Mobil’s Rex Tiller-son, setting the stage for perhaps the larg-est nomination ght with the lawmakers.

Whether one likes it or not, the “normali-zation” of Donald Trump has been under way since his victory speech in the wee hours of Nov. 9, 2016. Realisti-cally speaking, even though America may be split and half of the electorate bitter, there is not much alternative. Pending some major and utterly unexpected surprise at the recounts or elsewhere

(I learned never to say never!), on Jan. 20, 2016, the United States will have a sworn-in president that has been pre-dicted only in cult classics like “Back to the Future,” satirical cartoons like “The Simpsons,” or by die-hard support-ers, family members and people who would like to utter anything as long as it goes against the conventional wis-dom (or facts).

The undeniable fact is that the transi-tion in DC is going on full steam. Actu-

ally, it is going on in New York City, New Jersey and Florida, where Trump is hold-ing his consultative meetings in various properties he owns. These casting calls make for a busy time for him and his clos-est aides, no doubt.

On Dec. 7, Time Magazine announced that Trump had been picked as a Man of the Year for 2016,

albeit under the sub headline “Presi-dent of the Divided States of America.” He immediately acknowledged this as “a great honor,” seemingly ditching the line about the mainstream media that are “unfairly” hounding him. Trump added that the divisions have existed long before he came up as a candidate, and de nitely before his election. Be this as it may, but he certainly did an enormous job at highlighting, foment-ing and exploiting the ssures in the U.S. society. Some fear the damage done by the divisive campaign may be irreversible. Some are cautiously opti-mistic. Some are outright happy with the outcome.

Rightly or wrongly, Trump is also the person who can help patch up the schisms or exacerbate the discord. A house divided cannot go on for much longer, to paraphrase one famous presi-dent. Soon we will know what 2017 has in stock for all of us.

Th e divisions have existed long before Trump came up as a candidate, and defi nitely before his election

US President-elect Donald Trump (2R), his wife Melania Trump (R), Vice President elect Mike Pence (L) and Senate Majority Leader Mitch McCo-nnell (2L) walk to a meeting in the Major-ity Leaders of ce in the US Capitol in Washington, DC, USA, Nov. 10, 2016.

8 analysis

Health SectorWith the resignation of the second government of Boyko Borissov and Health Minister Petar Moskov, the healthcare reform – or, rather, the attempt at reform - also came to an end.

Despite the ambitious goals he put for himself, two years later the minister failed to deliver policy continuity, or to reach any agree-ment between doctors, experts and contractors.

The so-called “Moskov reform” can be summarized as a series of administrative measures, aiming only scal effects.

Basically, all major health laws were amended. The problem is that no thought was given to achieve policies that will actually deliver better access to treatment, higher quality health care, more satis ed patients and doctor alike.

In short, the ideas of the Health Ministry were focused on introduc-ing two health packages – primary and secondary, on limits on medi-cal activities through xed budg-ets for all hospitals, introducing ngerprints for patients, nationali-

zation of the health fund, waiting listings for treatment. As for prescription drugs policy Moskov’s ideas involved concessions from the pharmaceutical industry, xed limit of co-payments for medica-tion, which were all met with great disapproval.

The proposal for dividing the health packages into primary and secondary was the most criticized one. The idea was the primary package to include serious illnesses

that require immediate hospitaliza-tion, and the secondary – condi-tions that allow planned hospitali-zation which means waiting lists.

Virtually everyone attacked this idea from its start. Despite the harsh criticism, a Constitutional Court ruling and all the unrest, Moskov did not give up on his pro-posal and made some concessions so it can be adopted. In the end, some 200 clinical pathways were included in the primary package, and 60 – in both packages. Only three care pathways went into the secondary package, which natu-rally made everyone wonder what was the point of the entire reform.

The adoption of National Health Map didn't go easily too. In practice, it limits opening of new hospitals. Although in the ideal this should stop the proliferation of un-derperforming medical facilities, it also limits the access to health care.

The controversial ngerprinting required for hospitalization raised criticism from health professionals, privacy advocates and public at large. Its aim was to act as a mecha-nism to control spending, and although it was introduced in the hospitals in November, it is only a matter of time to see whether it will be kept by the next government or not.

Agricultural SectorDuring its two years of govern-ment the Cabinet made signi -cant changes to the direct pay-ments system, i.e. subsidies for arable land. Now farmers can ap-ply for nancial aid only if they have legal basis to use the land, that is, a property deed or lease.

Farmers with animals will now have priority in the procedures for renting municipal pastures.

What's left un nished is the ambitious project of Land Law which should unite the numer-ous sector regulations (that were often amended in the past two years).

The Ministry of Agriculture man-aged to also prepare an updated balance of arable land for 2015, and analysis on land-use re-gime. The ministry introduced an irrigation strategy which was included in the Rural Develop-ment Programme. Unfortunately, the aid for investments in irriga-tion and drainage systems hasn't started yet.

The Ministry also completed the old Rural Development Pro-gramme 2007-2014 and started working on measures included in the new Rural Development Programme 2014-2020.

Health Care and Agriculture:

What Did the Government Achieve?

With the resignation of the second government of Boyko Borissov, it

is time to evaluate its work

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10tendencies

By Marina Tzvetkova

Budget 2017 happens to present an unu-sual situation: while the government is showcasing it, the ministers are resign-ing. Criticism against next year’s public nances is coming seemingly from

every quarter. Requests for additional spending are countless. In other words, the state’s nancial plan for next year has turned into a political arena of elec-tion demagoguery.

That is a signal that the stability of the 2017 budget is quite fragile. The state’s nancial framework has never been adopted in such a compli-cated political situation in Bulgaria’s

most recent history. Therefore, moder-ate economists say that instead of the parliament’s adopting the 2017 budget, the government had better use 1/12th of the 2016 budget per month.

Such a possibility is provided in the law but by de nition it makes the economy and the different budget areas stagnate additionally, as they actually operate “in the nancial past.” Bulgaria has been in such a situation only once – in 1997 – when the government followed the old budget until a new parliament was elected. The good thing in such a case is that the public nances are practi-cally insured against unwise spending ideas and political populism. While the political crisis is under way, the govern-ment can only operate within strict scal

Budget 2017 Hostage to Unusual

Political Situation

The state’s fi nancial plan has inevitably become part of the political

crisis and received harsh criticism

Despite the political crisis, the parliamen-tary majority approved the 2017 budget of outgoing Finance Min-ister Vladislav Goranov without substantial changes

11tendencies

limits.

It is also true that the budget procedure starts in February or March and ends with the adoption of the budget in December. This suggests con-sistency, nancial continuity, estimates and forecasts that are sustainable in time.

No rapid movementsDespite the complex situation the 2017 budget is seen as the “necessary evil” mainly by employers and businesses. The opposition has demanded at least two radical changes that may have a long-lasting effect on the budget’s nan-cial health. First, the Bulgarian Socialist Party has suggested a revocation of the 10-percent at tax, which has been in effect for nine years, and its replacement with a progressive income taxation schedule that will affect largely the mid-dle class, that is, the people with in-comes of 1,000 Leva a month and more. Second, the National Front (the third

largest political power at the presidential elec-tion) has declared that the pension minimum should jump from 160 Leva to 300 Leva a month.

These proposals, how-ever, are costly – no matter how pleasing to the voter’s ear they may be. The losses for the budget from the intro-

duction of differentiated income taxa-tion and the double increase in pensions alone may amount to some 2.7 billion Leva by some estimates.

The principal employer organizations have called on the political powers to avoid populism, stating that stability is a priority for both businesses and the state. The administration should keep on working, because the economy cannot do without the daily work of a competent and non-partisan administra-tion.

“We need political succession, stability of the government, hence the economy of the country, and maintaining a stable economic climate to ensure that the fragile trend to economic growth is preserved,” reads a joint statement of the Confederation of Employers and Industrialists in Bulgaria, the Bulgarian Chamber of Commerce and Industry, the Bulgarian Industrial Association and the Bulgarian Industrial Capital Asso-ciation.

By the will of the outgoing governmentThe 2017 budget guarantees preserving one of the lowest taxation rates in the European Union; the budgeted revenue is realistic and achievable and secures the necessary nancing for sectoral policies without accumulation of new de cits and debt increases.

The authors of the budget said it gave reason for moderate optimism and was feasible. If the economic growth fore-casts are exceeded, every additional lev of revenue will be used for reducing the de cit to zero in the coming years,

Th e 2017 budget guarantees preserving one of the lowest taxation rates in the European Union

Since fall, the international nancial institutions have in-creased their growth forecasts for Bulgaria in 2016 and 2017.

The most optimistic forecast is that of the International Mone-tary Fund, which has raised its expectations for growth in 2016 from 2.3% to 3%. The fund projects that next year the Bulgar-ian economy will grow 2.8% The European Bank for Recon-struction and Development raised its 2016 projection from 2% to 2.5%. Italy’s UniCredit Group revised its 2016 forecast from 3% to 3.4%.

In early November the European Commission (EC) also improved its forecast for Bulgaria’s economic growth in 2016 and 2017. The commission expects a smaller budget de cit for both years. As concerns government debt, it is expected to decrease as a result of the low primary budget de cits and the improved conditions for debt nancing. The EC notes the good performance of export in 2016, supported by the stable demand from European Union trade partners and the strong tourist season, so the current account is projected to show a surplus of 2% of GDP in 2016. The positive trends on the labor markets are expected to persist and the employment growth forecast has been raised since spring. Unemployment, combined with the expected reduction in the workforce, is projected to drop to 7.1% in 2017 and to 6.3% in 2018.

View from abroad

12tendencies

outgoing Finance Minister Vladislav Goranov said.

In his words the biggest challenge when the budget was drafted was to provide suf cient nancing for priority sectors, i.e., education, defense, healthcare and the energy ef ciency program, while decreasing the de cit and preserving

the taxation rates.

Goranov said that the budg-et secures enough resources to guarantee the normal functioning of the state and institutions. In his words the budget is conservative, feasible and compiled in the conditions of a growing economy.

The nancial plan of the outgoing government

provides for additional resources for education, healthcare and security.It envisages an 8-percent increase in teachers’ salaries. To make that possible, an additional 230 million Leva is budg-eted for educated as compared to 2016, or a total of 3.35 billion Leva.

The biggest rise – by some 825 million Leva or 25% year on year – is planned in the defense and security budget. A part of the funds are envisaged for serving NATO commitments. Some 7% more money is allocated to healthcare.

The 2017 budget is expected to be bal-

anced or even show a surplus. The scal reserve at the end of October stood at 14.2 billion Leva, compared to 7.5 billion Leva in October 2014.

Revenue in 2017 is budgeted to amount to 35.44 billion leva and spending, to 36.77 billion Leva. The state relies main-ly on value added tax for the revenue: as much as 8.78 billion Leva is expected from it in 2017.

Unemployment is forecast to stand at 8.1% in 2016. The Finance Ministry projects a drop in unemployment to an average of 7.3% next year. The higher retirement age and longer pensionable service period will have a containing effect on unemployment. In 2019 unem-ployment is expected to drop to 6.5%.

The incomes of the employed will continue growing: labor expenses are expected to rise by 2.5% in real terms between 2016 and 2019. De ation is pro-jected to stand at 1% in 2016 compared to 1.1% in 2015. It is only in 2017 that the economy will return to in ation, which is expected to reach 1.5%.

Lending to the real sector will see an insigni cant growth of 0.2% in 2016. That will be mainly due to household lending, while loans to companies are expected to register no rise. In 2017 however private lending is projected to increase by a total of 3%.

GDP growthDifferent assessments show that eco-nomic growth in 2016 will range be-tween 1.8% and 2.5%. Real GDP growth is expected to remain relatively stable in 2018-19: after slowing down to 2.5% next year, it will speed up to 2.7%. Do-mestic demand will be the main driver of growth, as it is projected to rise 1.5%, government nanciers say.

Investment will also contribute to growth: in the rst half of the year it rose 7.1% but it is expected to slow down to 3.7% by the end of the year due to the drop in government capital expenses. Export will support growth by just 0.6%. The reason is that export to third countries has seen a substantial

The budget provides for more money for education and an 8-percent increase in teachers’ salaries

Diff erent assessments show that economic growth in 2016 will range between 1.8% and 2.5%

13tendencies

drop by some 15% due to the decrease in commodity prices on global markets. The Finance Ministry expects that total export this year will rise by just 4.4% and slow down to 3.9% in 2017.

International commodity prices are pro-jected to increase in 2017 with crude oil seeing the most rapid rise. The Finance Ministry also expects that foreign direct investment will continue rising gradu-ally, reaching an annual average of 3.7 to 3.8% of GDP until 2019.

Payment changesThe minimum wage is projected to increase by 40 Leva, reaching 460 leva a month from the beginning of 2017, or 9.5% above its current level. It is expect-ed to remain unchanged until the end of 2019. Pensions will be raised 2.4% from July 1.

As expected, the pension contribution to the National Social Security Institute will increase 1 percentage point from 2017. The same hike is projected in 2018 for the purpose of reducing the shortage in the state social security budget and the need for subsidizing it from the state budget.

Contributions to the pension fund of the military and Interior Ministry employ-ees will rise 20 percentage points from next year.

From Jan. 1, 2017 the pensionable service period will start rising by two months a year until it reaches 35 years

and eight months for women and 38 years and eight months for men in 2019.

A little better than 2016 but still not good enough.That is how the President of the Confed-eration of Independent Trade Unions in Bulgaria (CITUB), Plamen Dimitrov, de ned the 2017 budget.

He said that the policy improvements were too timid, with increases of just 5 or 6% in some sectors.

“We have selective policies in the budget. The unemployed, the pension-ers and the most vulnerable on the labor market will not get much form the new budget,” Dimitrov said.

He added that the number of the work-ing poor is increasing. Some 675,000 people currently receive a wage of 420 to 630 Leva a month, which keeps them caught in the trap of poverty. There is a staff shortage on the labor market and the only outcome from such a situation is an income rise, Dimitrov believes.

A person in a four-member household needs a little less than 560 Leva a month to lead a normal life. Two parents with a child need at least 1,600 Leva a month to live properly by the Bulgarian stand-ards, CITUB’s leader said. The poverty line will rise by another 15 leva next year and now the poverty threshold is 300 leva.

“Our main criticism against the budget is connected with the minimum work-ing wage, which cannot stay frozen in the next two years as the Finance Minis-try suggests. Instead, it should rise by at least 50 leva every year,” Dimitrov said.

Most forecasts show that the 2017 budget implementation will be the responsibility of a caretaker nance minister until a new government is appointed following a parliamentary election in March or April next year. One of the main roles of a caretaker nance minister is to ensure stability of

the state nances and not increase the de cit. That suggests a policy of care for the state nances despite the politi-cal crisis.

Plamen Dimitrov, President of CITUB: The unemployed, pen-sioners and people with low incomes will not get much from the new budget.

14interview

Mr. Danev, what is your forecast for the state’s nancial health next year? Do you think the govern-ment’s budget will secure the pro-jected economic growth in 2017?

The state’s nancial health is satisfactory, but it is de nitely not very good or excel-lent. Bulgaria cannot yet restore the credit rating it lost two years ago in connection with the KTB crisis. Until we restore that credit rating, we cannot say our nancial health is good and the price of the nancial resource for Bulgaria will remain too high.

Nevertheless, I believe that the scal re-serve is currently managed well, payments are duly settled, there is no threat for the nancial health and I believe that in about

a year we will be able to restore our credit rating. Unfortunately, Bulgaria has again projected a substantial budget de cit of 1.4% for next year. It is well known that when a country admits a budget de cit, there are doubts about its nancial health. As for the planned growth – yes, it will be

State Creates Chaos,

Feeds Corruption, Hampers Business

Bozhidar Danev:

15interview

easily achieved. The budget is too cautious and conservative. I am even surprised that the projected growth is 2.6% only, given that this year’s growth is expected to be 2.7 to 3%. These modest GDP growth rates speak of lagging development, since this year’s growth and the growth projected for next year are far from the levels in Cen-tral and Eastern Europe. At any rate 2.6% growth is highly insuf cient four years after the economic crisis.

Note that in 2016 we have had minimum GDP growth and we have managed to bridge the budget gap and even see a surplus. There are no analyses whether that is the result of cancelled expenses that have been transferred for next year or the result of imported in a-tion and increased domestic consumption. That is prob-ably the reason why [Finance Minister] Goranov does not project at least 3% growth for next year. I do not believe the political talk that 3.4 billion

Leva of the surplus is the result of pre-vented contraband, since we have not seen a single smuggler brought to court. There is a certain discrepancy between talking and gures.

How does the state hamper and how does it help Bulgarian busi-nesses?

It is easier to say how the state hampers businesses. They have been fooled for years that there will be electronic govern-ance. For so long we have been spending money on that and there are no visible results yet. When the prime minister visited Estonia during his previous term he said that in six month’s time Bulgaria would have e-governance but we still remain well behind the other countries, including Estonia, the Czech Republic and Poland, in introduction of e-services. That is a huge obstacle, because the lack of e-governance puts businesses face to face with the administration and makes them liable to corruption pressure. The administration – armed with all possible regulatory regimes – practically hampers businesses. It has turned its of ces into a kind of cash boxes.

Of course, the state is a vague notion but the obstacles it puts to businesses are quite measurable. For instance, this year we have registered an 11.6-percent increase in budget revenue and another 7.6% is envisaged for 2017. That means that fees are turning into a second tax burden. They already make up 4.5% of the budget rev-enue, while their share in Slovenia is just 0.2%. You can see how the state and over-regulation affect the Bulgarian economy. There is good reason why Bulgaria contin-ues losing positions in all rankings.

Another obstacle is the inef cient judicial system and the persistent lack of reforms. Litigation is a huge problem for busi-nesses. The high court fees practically do not allow Bulgarian businesses to get justice. Not to mention the speed justice is delivered. So an unreformed system cannot be expected to protect the property of businesses, nor allow them to operate successfully with that property.

Another sign of the existing problems is the collapse of investment in recent years; most investment is public and there is almost no foreign investment: it has slumped from 8 billion Leva to less than 1 billion Leva.

So we can say there is worsening and even stagnation in the business environment and that the main reasons for that are the lack of electronic governance and the unreformed judicial system. An additional obstacle is the lack of reforms in education. We have lost one of our main competitive advantages, that is, the quality human resource. We do not have enough people that can utilize investment. They lack the necessary skills and competences.

Last but not the least, the state has some overwhelming legislative output. In 2015 alone there were 395 legislative amend-ments proposed, given that the National Assembly had 120 working days. Some such bills are made within hours, on the spur of the moment, and become law the next day without any impact assessment, which is an inadmissible practice for a modern economy. That inde niteness creates uncertainty and unpredictability; it does not help the business environment in a way to make us expect a better future.

Some bills become law without any impact assesment, which is inadmissable practice

16interview

There is interference on the part of the executive powers even in contractual relations, which additionally creates mistrust. For instance, a few months ago [Prime Minister] Borisov probably had a good reason to cancel two huge public contracts but what is the result? What are the

consequences? That interference of the executive authority in business relations is quite stressful.

In addition, we have an unreformed energy sector, where the decisions are mainly political and have resulted in huge distortions with time. At the same time the energy system is at the basis of the eco-nomic pyramid. When the energy sector does not function properly, it shakes the foundations of the whole economy.

I cannot help mentioning the topic of pub-lic tenders: how they are held, why only selected companies have a success rate of 90% or 95% etc. That de nitely speaks of corruption. On the other hand, no one has been effectively punished for abuse of

of ce.

All that creates mistrust, which affects the investment climate. What’s more, over the past one year investment has not only collapsed but we have even witnessed an out- ow of capital, which adds to

the negative picture.

On the whole, the state cre-ates chaos and unpredictabil-

ity in the economy and does not help busi-nesses operate smoothly and naturally.

Which sectors can help the Bulgar-ian economy grow? Do you think they should be treated as priority sectors?

The Bulgarian Industrial Association professes liberal economic views, so we believe that any prioritization creates conditions for inequality. That is, when we speak of priority sectors we should not mean arti cial administrative protection-ism but creating conditions for the full development of their potential.

I expect priority development of sec-tors where the state cannot interfere too much. Such for me is the IT sector. What is speci c for it is that it is less capital intensive and well positioned on the international markets; it does not depend on the state and public awards do not in uence it as much as they in uence other economic sectors. The role of the state is in the area of education, because there are no trained specialists. Busi-nesses have started establishing their own training facilities. There are several IT academies already that teach people the necessary skills and competences that businesses need.

Most talk of reforms in education is too naïve. The state has the most powerful instrument – nancing – but universi-ties continue producing specialists the economy does not need now. The gap is dramatic. Not to mention curricula, which, as a result of the profoundly wrong application of academic au-tonomy, reproduce the status quo and conservatism. That is why education facilities cannot adjust to the technologi-cal challenges of the global economy.

Another sector that has potential to grow is agriculture but, unfortunately, here the state has caused quite a lot of damage too. The lack of a comprehensive vision for the development of agriculture, as well as constant injection of subsidies worth more than 2 billion Leva a year in separate subsectors, has resulted in its uneven development. Currently Bulgaria produces 4.5 to 5.5 million tons of grain, compared to 10 million tons produced in the benchmark year 1982. Tomato production is 8 times smaller despite the subsidies. Fruit production is 5.6 times smaller.

Remember that agriculture is the basis of the food-and-beverage industry, which in turn feeds the travel sector – another promising industry for Bulgaria. As a result of this Bulgaria accumulates trade de cits due to the huge import of agricultural produce and products of the food-and-beverage industry, because it does not have enough own production to feed tourism, so it imports the necessary products.

Why are public tenders won by selected companies?

Th e gap between education and needs of business is dramatic

cover story

18interview

So these are the three sectors that have huge potential for growth and should be encouraged: information technology, tourism and agriculture.

Many experts believe that the European funds are the only fresh resource for the Bulgarian economy. They also say that the EU funds are the only generator of economic growth. Do you agree?Regretfully, European

nancing has produced both bene ts, mainly for the development of infra-structure, and serious damage, mainly to public morality. That nancial doping has brought about a negative change in the value system of the public and of businesses in particular. Bulgar-ian businesses prefer to absorb those funds through lobbyist connections with politicians, because the bulk of the funds are non-recoverable. So I am look-ing forward to the year 2020, when the nancial doping will stop and Bulgaria

will have to create a normal nancial environment that does not depend on politicians portioning out that nan-cial doping. That is an environment in which those who have the skills and courage to take a risk succeed.

Do you think there are more hid-den dangers in the energy sector? What developments can be ex-pected?

The energy sector is a mine eld of dan-gers planted by politicians. The biggest problem is the shelved energy projects on which huge resources have been spent. It is a pleasing fact that we are starting to realize the necessity to try and revive those assets in one way or another but that is again happening with too much interference by politicians: they want to sell reactors, they want to privatize as-sets. Leave that to experts, to businesses, they will nd more intelligent solutions! Unfortunately, the politicization of deci-sions leads to huge distortions that are hard to cure.

Another hidden danger in the energy

sector is coal mining, which is doomed to failure due to the common policy of carbon emission reduction. In the next ve or six years coal-mining will have

to reduce capacity and, respectively, lay off workers. That entails a serious social problem, because there are thousands of people employed in coal mining, even whole families. Whole towns and vil-lages are dependent on that production.

What are the most urgent decisions in the area of income policy and labor market?

The economy is at the basis of every-thing. We are too hypnotized by the income topic, while we should rst focus on economic development that generates the incomes. We have no reforms in administration, no reforms in education and no reforms in the area of security, where a huge part of the public funds are directed. We have a highly deformed labor market, where certain subsystems are created for the sole purpose of absorbing funds under different programs the effect of which can be hardly projected, monitored and established.

The income policy at this point should be aimed at reaching the average level in Central and Eastern Europe. It is the economy that should reach that level rst, though.

I underscore that the urgent decisions should not be taken in relation to the income policy. Urgent decisions are needed in the unreformed systems, so as to ensure the development of the economy, which in turn will provide the possibility for income growth.

Currently there are several thousand vacant jobs. What the minister of edu-cation has forecast – that after 2020 a large part of the students will be from a certain ethos, with another education and another culture – means that Bul-garia may be doomed to impossibility for positive future development. We should be very cautious and long-sighted and try to solve the problems on the labor market by developing the economy and not through political mimicry in search of good election results.

In 2020 fi nancial doping will stop and Bulgaria needs to have normal fi nancial environment

20cover story

At the end of the year economists traditionally make forecasts for the new one. What will happen with the Bulgarian economy, growth, nancial system, labor market etc. are all topics that interest and impact each and every one of us and the public as a whole.

People want to know what is in store for them. They want to have a look into the future. AmCham Magazine asked several leading economists about their expectations for the year 2017.

Of course, making economic forecasts in a complex political environment is a tough task. The more so that Nov. 13, 2016 is likely to prove a symbolic date for the Bulgarian political system.

We can quite safely summarize that the economists remain “moderately optimistic”: they do expect that Bulgaria’s economy will continue growing at a steady rate. The main drivers of growth until 2018 will remain private consumption and investment, supported by a continued rise in employment and a slight increase in incomes.

Investment remains a challenge, which is an important condition for faster growth. There are hopes that the absorption of European funds will speed up.

Following are the forecasts of some of the most respected Bulgarian economic analysts made especially for the AmCham:

What to Expect from 2017

Despite the political crisis, the dynamics in the pri-vate sector give reason for moderate optimism about 2017. GDP growth in 2015 and 2016 will be above 3%, which is among the highest rates in the European Union. The export-oriented industries will continue performing well even in an environment of consider-ably reduced prices of key raw materials. Given the signs of higher in ation in the next few years, some exporters will increase their revenue even more. Foreign direct investment has shown a noticeable increase in 2016 and we can expect a similar trend in 2017 too. We should note that in the past three years growth has happened despite the considerable decrease in the debt of the private sector, which has covered external debt worth 6 billion Euro, or some 14% of the GDP.

The banking sector – troubled by problematic loans before 2009, the crisis of 2014 and the expected review of assets – was extremely conservative until recently. It is only in the past few quarters that there has been a revival in lending: mainly to households for the time being but very likely to companies in 2017.

We should not forget that there have been almost no European funds to support growth in 2016 and that the programs are yet to gradually get started, channeling resource to enterprises. Increased employment and overall labor market security will encourage both wage growth and consumption con dence, which are the two factors suggesting a rise in domestic demand. All that gives reason to expect the opening of new jobs and overall growth of the economy by about 3%.

Of course, the forecast does not take into account the potential risks arising from the political crisis. Any populist move that could threaten the budget stability, the business environment or taxation predictability would be a brake on private sector development.

Latchezar Bogdanov, Managing Partner, Industry Watch Group

2017: Moderate Optimism Despite

Political Crisis

21cover story

No serious reasons exist for the time being to expect that real economy growth in Bulgaria will slow down in 2017. If the environment remains similar to that in 2016, most probably growth will be between 3-3.5%. Employment will continue rising but the shortage of quali ed staff will become more and more evident. We can say that in respect to quali ed labor Bulgaria has already reached full employment

and that will be an increasingly serious obstacle to growth.

Given that baseline scenario, the overall price level is dif cult to predict. In 2016 the con-sumer price index shows slight de ation but the GDP de ator shows slight in ation. Most probably there will be no serious change in this dynamics in 2017.

The global developments suggest slight changes in the import and export of goods and ser-vices, i.e. preserving the current account surplus. Since there are no plans to oat new public debt issues on the international markets, we can expect a slighter movement in the nancial account than in 2016. That means that under the baseline scenario international reserves should continue growing but at a slower pace.

That baseline scenario may fail to materialize in two directions. If banks – having accu-mulated liquidity, passed the review of assets and the stress tests and having ful lled the recommendations – decide to take a more aggressive approach to lending, economic activity in 2017 is very likely to get a boost, especially in terms of capital formation. That may send the price changes into positive territory and also worsen the trade balance as a result of the increased import of investment goods.

Conversely, if political insecurity complicates the situation for business decision-making and brings about populist irting with the budget de cit, new borrowing and increasing the highly inef cient state spending, that may considerably slow down the positive macroeco-nomic dynamics and even reverse them. The drop would be even larger if added to such an unfavorable development is a possible increase in global energy prices. That will inevitably affect employment and worsen the economy’s external balances as compared to 2016.

Georgy Ganev, Program Director, Economic Research, Center for Liberal Strategies in So a, Bulgaria

Economic Activity Very Likely

to Accelerate Next Year

22cover story

Bulgaria has again entered a period of political cha-os which – as we saw during the 2013-14 political crisis – takes a heavy toll on the budget. Even dur-ing the economic crisis in 2009-11 the budget did not accumulate such de cits as the ones reported in the following three years of interim governments and early elections. The huge risk now is for 2017 to turn into another year of unwise public spend-ing and large de cits.

The risks for the 2017 budget are not exhausted with the political situation in this country. Most of the international organizations have already reduced their forecasts for economic growth in Europe and the world next year, which will inevitably affect growth in Bulgar-ia. The rst negative signals for the economy are already here.

Despite the continuing economic growth of more than 3%, labor market revival has come to an end already. For the rst time in two years and a half employment did not see a rise in the third quarter of 2016. On the contrary, the number of the employed decreased rap-idly, by more than 50,000, year on year. Obviously the labor market has reach its peak and no further improvement can be expected given the existing labor resource.

That is so because the structural problems of the labor market in Bulgaria have deepened substantially for the past few years. A recent survey of small- and medium-sized enter-prises shows that more than 70% of local enterprises name staff shortage as the major obstacle to their business. About a third of all enterprises in manufacturing cannot expand their operations due to lack of quali ed workers.

The economic growth of Bulgaria would be much higher if it had well trained, mobile and skilled workforce. The shortage is visible in the whole range of activities: senior engineer-ing and IT specialists, medium and high-level managers, technical specialists (lathe opera-tors, welders, machine operators etc.), medical personnel, teachers etc.

The big question mark now is the political situation and the way in which it will affect investment, consumption, the budget and the economy as a whole. When there is political instability, investments are put off or cancelled.

The European funds in turn, though just a small part of the total investment in the Bulgar-ian economy, are also harder to absorb when there is no standing government.

With all that in mind, the year 2017 is very likely to see a series of postponed investment projects, more conservative consumption, worsened international environment and de-layed economic growth. We expect that growth next year will not exceed 2%.

Desislava Nikolova, Institute for Market Economics

Political Crisis Creates Huge Risks

for Budget in 2017

23cover story

In 2015 and 2016 Bulgaria saw the highest eco-nomic growth since the beginning of the crisis in 2009. After years of stagnation in employment and growing unemployment the situation has changed radically: unemployment has fallen and businesses now often complain of staff shortages. The govern-ment budget has registered a surplus for the rst

time after eight years of chronic de cits and growing debt.

The good economic results in 2016 were achieved despite the weak absorption of Euro-pean funds, the lack of lending and the large budget surpluses that take resource out of the economy. The absorption of European funds from the new program period however is gradually speeding up and now that the review of banks’ assets has been completed lend-ing is starting to revive. The budget should also normalize, i.e. revenue should balance spending.

In other words, at the end of 2016 and in 2017 we will have several additional factors sup-porting the economic development and we can expect that the trend of the past two years will be preserved.

The risks, however, are increasing: neighboring Greece still has problems, the Turkish currency has collapsed after the coup attempt and Europe is at the crossroads after Brexit and the election of Trump in the United States. There are also upcoming elections in key countries on the continent.

The main question is how long the internal political crisis in Bulgaria will last: the longer the crisis, the worse it will affect the economy.

Georgi Angelov, Senior Economist at Open Society Institute

Prospects for 2017:

European Fund Absorption

in Risky Environment

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24cover story

Bulgaria has been in a situation of political instabil-ity since the presidential election. The main thing that will determine the environment next year, including the business environment, is the 2017 budget. There is a substantial risk of ungrounded populist proposals. Personally, I am concerned by what is going on in Romania. It is an example of good judicial reform and ghting crime and a very

bad example of budget policy recently. It is governed by something like an expert care-taker cabinet with a functioning parliament, and between rst and second reading of next year’s budget the lawmakers opened huge gaps in the state nances due to populism; they increased various spending items without providing for adequate revenue and introduced differentiated VAT rates. Therefore, the growth next year is projected to drop by half from the 5.5% expected for 2016. I am worried that this may happen here as a result of similar populist models.

The future of the Belene project remains a key question. GERB’s position is that Bulgaria should buy the reactors and look for an investor to build the plant, while the Bulgarian Socialist Party (BSP) says it is the state that should build it. Those two positions may com-bine in a possible future GERB-BSP government and lead to the construction of Belene. That will destroy the business environment, because it will produce huge gaps in the public nances, no matter how adamant they are that no money will be allocated from the budget.

The third important question is what the next government will be like. I can see a few op-tions but, regretfully, they are all bad. From today’s perspective, the government after an early parliamentary election can be formed by a GERB-BSP coalition or by a coalition be-tween the BSP and the Movement for Rights and Freedoms, which is disturbing. It means the 10-percent at tax on personal incomes may be revoked. That would result in serious instability of the tax environment: it would not provide additional budget revenue, as suggested, but further frighten investors – both Bulgarian and foreign. Such a measure is just a step away from revoking the at tax for companies. That would jeopardize the rst results of the economic growth that has started this year and increase the gray economy.

The reason is that the BSP is returning to its roots: left ideas and even nationalization talks. That probably attracts voters but it has grave consequences for the state.

There is a danger of continuing political instability and entering a cycle of parliamentary elections every next year. From the viewpoint of the next parliamentary election, a new sensible right-wing project has a chance to change the political perspective. Such a project may tip the balance in the political space and have an effect on the future state govern-ment.

The situation in Bulgaria is such that nothing should be excluded as a possibility, given that an unfamiliar person ran for president, was recognized as an option for protest vote and won the election. The bad thing is that both positive and negative scenarios are pos-sible. That naturally re ects the strong vote against the status quo on a global scale. After Donald Trump was elected as president of the United States, similar signs appeared a week ago at the primaries in France, where Francois Fillon became the candidate of the Right. The problem is that the vote against the status quo in Bulgaria may degenerate into populism.

Martin Dimitrov, MP:

Bulgaria May Enter Disturbing

Cycle of Parliamentary Elections

Every Next Year

25cover story

MERRY CHRISTMAS AND GOOD LUCK TO THE

AMCHAM COMMUNITY!

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As in previous years, the international environment will be crucial for the development of the Bulgarian economy. Inter-nally, the labor market shortfall will be most acute and will be the main limitation to higher economic growth. The low level of overall investment in recent years is a huge challenge, although there has been a change in the economy’s structure. The internal and external economic and political risks further complicate the business environment. In this light, economic

growth of more than 3% a year in the next three or four years will be a fortunate concur-rence of circumstances, rather than something driven by objective factors.

It will be good if there is political commitment to keeping the current taxation system un-changed and reducing bureaucracy. To avoid the word “reform,” I would say that better investment management and improved ef ciency of public spending are the only chance for the budget, since the possibilities for management on the basis of quantity criteria have been exhausted. All that will be hardly seen in 2017, but a clear economic and political horizon adequately addressing the mentioned challenges will be a good foundation for the positive development of the economy in the coming years.

Lyubomir Datsov, Financier:

Budget to Be Stable If Politicians Keep

Current Taxation System Unchanged

26cover story

A lot of events in the past few years have raised anxiety in the Bulgar-ian society about its future. Brexit and the migrant crisis in Europe threaten the collapse of the Europe-an Union. The increased imperial ambitions of Turkey under Erdog-an and Russia under Putin threaten the established borders and the international order and security. Trump’s election in the United States is interpreted as a threat of isolationism in America. Finally, the election of General Rumen Radev as Bulgaria’s president was quali ed by some observers as vic-tory of the “pro-Russian candidate” who is ready to change radically Bulgaria’s geopolitical orientation.

Ruling societies by fear is not an invention of the 21st century but to-day that is much easier. Although all the events and situations men-tioned above have occurred and thus bear a lot of risks, the question is whether they really have the potential to develop into something menacing.

The collapse of the European Union is seen in Bulgarian as a risk with huge negative consequences for. Even the Bulgarian Euroscep-tics admit that despite its shortcom-ings the EU is good for Bulgaria, as it means European funds, pressure on the government, free movement

across borders and joint defense against external threats. A politi-cal party setting itself the goal of quitting the Union will hardly be successful in Bulgaria in the near future. On the contrary, most Bul-garians are concerned by the Brexit and think it is a bad decision for both the Brits and all Europeans. A new Bulgarian government will hardly support any anti-European actions; the most it may do is revise the division between national and supranational level of European government.

The majority of politicians in Bulgaria are trying to introduce the threats and risks coming from Tur-key or Russia as the main topic of political debate. Historically, both countries have played different roles in Bulgaria and today most Bulgarian nationals still see them as a source of threat: Turkey, though a NATO ally, presents a much more immediate risk. In a more general plan, however, those risks do not concern the wide public, so mobi-lizing them in the political debate is mainly in the interest of differentia-tion and the ghts for international legitimization of the various ele-ments of the political class.

Many people in Bulgaria also see a risk in America’s isolating itself and stopping playing an active role in international affairs. The United States and the European Union are considered international guaran-tors of the existence and success of parliamentary democracy in Bulgaria, as well as an external factor of pressure on the Bulgarian government when it deviates from the core principles of democratic

government.

Such risk, however, is also exag-gerated. Most people in Bulgaria believe that Trump will not ally himself with Putin against the in-terests of the European Union and Bulgaria; neither the United States is likely to cut its ties with Europe. In today’s world America does not have a closer and better matched political and moral ally than the European Union.

Finally, Radev’s election as presi-dent will hardly lead to radical changes in Bulgaria’s geopolitical course. First, he made his career af-ter 1989 (he was 26 years old then). Secondly, the Bulgarian president’s presence in foreign policy is not in-dependent form the government’s policy. Thirdly, there is no such choice facing Bulgaria: the geopo-litical orientation after 1989 has been towards the European Union and the United States; it is with them that today’s Bulgarian society shares common views and goals.

Bulgaria does not have – nor is it likely to have in the near future – a political actor who has the courage to propose quitting the European Union and NATO and joining the Eurasian union, the Shanghai agreement or the Russian joint defense agreement. There is no such risk in reality. There may be a change in foreign-policy talking but not in foreign-policy acting. Only in the event of a major disagreement on an important issue between the European Union and the United States can Bulgaria be expected to take the European, rather than the American side.

Bulgaria not Divided

Between West and RussiaChanges are possible in foreign-policy talking

but not in foreign-policy acting

Antoniy Todorov, Professor at New Bulgarian University

27cover story

The next year will be one of transformations that will not lead to a new level of stability. The Bulgar-ian society remains highly strati ed in terms of life quality, not only in terms of incomes, standard of living and access to services. The level of solidar-ity remains critically low. The presidential election highlighted for the rst time the deepening division in relation to Bulgaria’s Euro-Atlantic path. Under these circumstances no clear majority is possible in the next parliament.

The rst months of the New Year will be marked by the development of the political crisis. Its scope will depend on the decision to be taken for amendments to the Electoral Code that will become effective before the upcoming extraordinary parliamentary election. If the parliament tries to pass amendments re ecting the referendum question, that will cause substantial dif culties in the election and the forma-tion of the next National Assembly. If the majority abstains from such amendments, the risk of a new wave of protest will increase and that will aggravate the political uncertainty.

The majority in the next parliament (given that between six and eight political parties have a chance to be elected) will by necessity be a coalition one, without a clear ideological pro le and achieved after long consultations. It would not undertake radi-cal reforms in the nancial or economic sphere but, depending on the weight of the openly populist fac-tions in it, it could put to review some of the provi-sions of the 2017 budget. Depending on it pro le, the next majority may increase social spending and, accordingly, the budget de cit, at the expense of planned investment in infrastructure and security.

GERB preserves its potential of a largest political party but without a strategic partner in government. The formation of a steady majority around GERB will require compromises concerning the representa-tion of the traditional Right and national-populist organizations. A harder to achieve and rather situ-ational majority around BSP seems possible but it will be based on a combination of social and nation-al populism and have an openly revanchist pro le. Under this scenario, more substantial changes are possible, which will affect the investment climate.

The populist parties are grouped in two large areas

dominated by nationalistic and leftist appeals and platforms. The presidential election showed that the left social populism, which managed to mobilize the periphery of the nationalist vote, dominates for now. However that balance may change depending on the development of the migration process and the foreign policy situation.

No matter how the political crisis develops, the ad-ministrative structures will slow down their opera-tion and not take initiative for at least a quarter after the next government is formed. There will be at least half a year during which the planned measures for continuing the administrative reforms will be put on the backburner. That may affect the economic situ-ation, mainly in the area of investment. Important decisions are also to be taken in relation to sectors like energy and security, as well as in relation to fuel prices. The political situation in the middle of next year will have a more pronounced impact on the business climate in Bulgaria than it has at the end of the coalition government of GERB and the Reformist Bloc, which is backed by the Patriotic Front.

Partial political stabilization can be expected in the second half of 2017, including under the pressure of Bulgaria’s pending presidency of the Council of the EU. The elected 44th National Assembly will inherit the risks of early termination of the term as a result of the un nished process of political consolidation and changes in political representation. That may lead to a certain slowdown in economic growth and delay of the necessary reforms, which in turn may generate new social protest energy.

Professor Antoniy Galabov, Sociologist, New Bulgarian University:

Partial Political Stabilization Is Possible

in Second Half of 2017

28cradle

By Chaika Christova

2016 will be marked as the hottest year in decades in many aspects. Literally, it has been the year with the highest global temperatures – higher than the record-breaking 2015. The Arctic is 2 degrees hotter than normal, some of the severest storms happened (due partly to the ris-ing global temperatures), CO2 of cially passed the symbolic 400 ppm mark, never to return below it in our lifetimes, according to scientists. It is as if Mother Nature was urging to exhilarate the breakthrough, achieved with the Paris Agreement from Dec. 12, 2015.

“Anthropogenic climate change is now in full swing, our global average tem-perature already having increased by 1°C from preindustrial levels,” reads a November article in journal Science. “We now have evidence that, with only a ~1 degree Celsius of warming globally, major impacts are already being felt in natural systems,” says study lead author Brett Scheffers, an assistant professor at the University of Florida.

His team of researchers from 10 countries found that more than 80% of natural processes that form the foundation for healthy ecosystems already respond to climate change, “with no ecosystem on Earth being spared”. Species are chang-ing genetically in order to adapt, reshape appearance and size, migrate to cooler regions or just vanish... Nobody has ex-pected that quick response, scientists were expecting those processes to take decades.

What does that mean? Well, less sh, bad crops, more pests and deceases, that equals to less food, produced with more resources... and “increasingly unpredict-able future for humans”.

Scientists suspect it also exists a different

adaptive mechanism in plants, that ghts and compensates the anthropogenic effect

on nature. They have noticed that the increase in CO2, the most important of the greenhouse gases that cause the hike in global temperatures, has plateaued since 2002. It took them time, statistical data scrutinizing and complex models creating in order to identify the possible “carbon sink,” as they call it.

"We believed one of the planet's main carbon sinks had unexpectedly strength-ened. The question was: which one?" says Trevor Keenan, lead author of a multi-institutional study of the Depart-ment of Energy's Berkeley National Laboratory in University of California, published also in November in the jour-nal Nature Communications.

Researchers have found out that some of the land plants have increased their photosynthesis between 2002 and 2014 in the CO2-rich atmosphere; this in turn leads to more uptake of the greenhouse gas during the day and exhaling less of it during the night.

We Say Goodbye to the Hottest YearHumanity must survive the next 100 Years in order to fi nd a new

home in the universe

Droughts and forest res are the dreadful

companions of climate change, both leaving deserts behind.

U. S. Department of Agriculture

29cradle

“But we don't know exactly where the carbon sink is increasing the most, how long this increase will last, or what it means for the future of Earth's climate," Keenan says.

The increased photosynthetic activity is not enough to stop climate change, just to slow it a bit. Besides, it has happened during the decades when global tem-peratures were decreasing. Now they are rising and no one can predict whether the CO2 sinks will not turn into ampli -ers of the greenhouse gas.

GMOs not only as Frankenfood

It is a fact that plants consume about 25% of human carbon emissions during pho-tosynthesis – they take up CO2 from the atmosphere and convert it into biomass, which we use for food, fuel and ber; and also in oxygen for the atmosphere. But the nature's system is slow and inef cient.

Another team in the same Berkeley lab, together with the University of Illinois researchers, boosted the expression of

three genes engaged in the process and managed to enhance photosynthesis, becoming some 20% more ef cient, resulting in the production of more food. The research is funded by Melinda and Bill Gates Foundation, hoping that the practical results – when and if any – will be made freely available to farmers in Africa and South Asia, so they can feed the people there.

A team from the Max Planck Institute (MPI) for Terrestrial Microbiology in Marburg, Germany have gone further, assembling synthetic pathways for CO2- xation, different from the natural one.

They used 17 enzymes from nine organ-isms, which were not only plants. Tobias Erb, the leader of the study calls the new carbon cycle “CETCH cycle” – because it catches the CO2 20 times more ef ciently than the natural Calvin cycle – at least in the lab.

According to Erb, this opens the door for many future applications. “These could include the introduction of synthetic CO2- xation cycles into organisms to bolster natural photosynthesis, or say, in combination with photovoltaics, lead the way to arti cial photosynthesis, this might at the end jumpstart the design of self-sustaining, completely synthetic carbon metabolism in bacterial and algal systems”, he says.

CO2 turned to stone

This is the way nature does it, but it takes

White ice re ects Sun rays, but when melt-ing, the darker seawa-ter absorbs more solar energy, adding to the global warming. Ice-bergs in southernmost continent Antarctica are melting. The same happens in the Arctic.

By Jay R

uzesky, Unsplash.com

30cradle

millennia. Scientists in the world's big-gest geothermal power station Hellis-heidi in southwest Iceland have worked since 2007 on the CarbFix project, trying to lock CO2 away by pumping it under-ground and making it react with basaltic rocks. Their efforts nally succeeded. Their radical new approach is described in November in the journal Science: the mix of carbon dioxide with water has been injected into basaltic rock and there it has solidi ed into veins. In less than two years 95-98% of the slurry turned into stone with no dangerous byprod-ucts. According to reports not only CO2, but also hydrogen sul de (the other im-portant greenhouse gas) may be injected and solidi ed.

Many more eco-friendly and sustainable technologies of living and producing have been forged and are being imple-mented, in order to mitigate the man-made effect on climate. Enormous re-gional, national and global political effort is put in the aim to keep the Earth and reverse the ill, done by the industrializa-tion. But the time is ticking as a bomb...

According to the renowned physicist and cosmologist Stephen Hawking,

the mankind has 10 centuries to nd a new home among the stars

“I don’t think we will survive another 1,000 years without escaping beyond our fragile planet,” he is cited to say in No-vember in a speech at Oxford University Union. Mankind has to “continue to go into space for the future of humanity,” the 74-year-old Cambridge professor said.

While relying on technology to ensure mankind's survival, according to Hawk-ing the same technology, the ravages of climate changes and the nuclear terror-ism, together with extraterrestrial perils are dooming the life on Earth. The key, he noted, was surviving the precarious century ahead in order to be able to leave the planet.

Hellisheidi geothermal power plant emits 40,000 tons of carbon dioxide and 12,000 tons of hydrogen sul de per year. The CarbFix I pilot CO2 in-jection site is connect-ed to the power plant via a pipeline that injects CO2 and H2S gases into a basaltic storage reservoir about a quarter mile below surface.

By Jesús Rodríguez Fernández

Stephen Hawkins: The key is surviv-ing the precarious century ahead in order to be able to leave the planet.

By John Cairns –

The Bodleian Libraries, CC B

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By Daniel Corcoran, International General Counsel of Marchex, Inc. and Mitko Karush-kov, Partner, Head of Technology Media and Telecommunications, Kambourov & Partners, Attorneys at Law

What is new

The European Court of Justice (“the Court”) answered an open question about the nature of dynamic IP addresses and how they may be considered per-sonal data on Oct. 19, 2016.

It is in the context of rapidly advancing sorting and identifying technology, com-bined with an abundance of individual data points today, that the Court consid-ered the case of Patrick Breyer v. Federal Republic of Germany.

In practical terms, the judgement of the Court means that when a person accesses online content made available to the pub-lic by an online media service provider the “log le data” of such access shall have the regulatory nature of personal data. The key point here is the access to have been made through a dynamic IP address.

Background

An IP address is essentially an identi- er related to a device, whether a com-

puter or phone. This address is used by electronic communications networks or Internet service providers to allow ac-cess and deliver services. An IP address

can be static or dynamic. The static IP address is often a single identi er that may be assigned to a device; its persis-tent nature allows for easy identi ca-tion of a device and an individual and is mainly considered personal data as a result.

The European Court of Justice already stated in 2011 that IP addresses “are pro-tected personal data because they allow those users to be precisely identi ed”. This statement of the court, however, addressed the IP addresses from the perspective relating to Internet service providers.

The extension made by the 2016 judge-ment of the Court is that now it will be online media service providers, which shall consider the dynamic IP addresses as personal data.

The dynamic IP addresses are constantly changing and may be less easy to as-sociate with a device and therefore an individual. This approach would appear to be an effective means of masking the device or individual and therefore avoid collection of personal data in the process of providing services.

The status of Dynamic IP addresses as of 2016

In the case ruled by the Court in 2016 Mr. Breyer challenged the German govern-ment’s practice of logging the dynamic IP addresses of persons accessing its websites. It was claimed that this col-lection amounted to the improper use of personal data: dynamic IP addresses when combined with additional informa-tion, could be used to identify an indi-vidual.

The question before the Court was whether the European Directive must be interpreted as meaning that an IP ad-dress which an online media service pro-vider stores when its website is accessed already constitutes personal data for the service provider if a third party (an

advice corner

Dynamic IP Addresses

Can be Personal Data

33

access provider) has the additional data required in order to identify the person accessing the website.

The Court relied on a fact-based ap-proach in considering the nature of

the data and also clari ed whether online services pro-viders have the opportunity of potentially identifying an individual and whether it has the legal and practical means to do so with ad-ditional data from a third party.

The Court ruled that dy-namic IP addresses may constitute ‘personal data’

where a third party possesses additional data relevant to identify the individual and this third party (e.g. Internet service provider) can be legally and practically asked to provide this additional data. The combination of data must be by a “means likely reasonably to be used to identify”’ the individual.

Practical aspects

Online content operators, providers of mobile apps, third party cookie IDs should review and possibly adapt their practices and contractual frameworks from the perspective of the Court ruling. It is irrelevant whether these companies/ organizations are private, public or gov-ernmental.

Individuals accessing public online con-tent should be aware that traveling with their laptop away from home/ of ce or selecting a random connectivity network on their device would lead to their poten-tial identi cation.

EU Member states shall need to com-ply their regulations and rulings with regards to the dynamic IP addresses.

Approach in the United States

As a point of comparison, in the US, the Federal Trade Commission (“FTC”) has provided some guidance through public speeches and statements. In April of 2016, Jessica Rich, Director, FTC Bureau of Consumer Protection wrote: “We

regard data as “personally identi able,” and thus warranting privacy protec-tions, when it can be reasonably linked to a particular person, computer, or device. In many cases, persistent identi- ers such as device identi ers, MAC

addresses, static IP addresses, or cookies meet this test.”

The FTC has avoided making any formal or strict characterization of browser and device identi ers as “personally identi -able” information for purposes of Section 5 of the FTC Act. A number of Federal Courts have ruled in ways that would make such a statement dif cult.

Nonetheless, recent pronouncements and evolving guidance reinforce the statement about linkage to speci c indi-viduals. In its 2012 Report on Protecting Consumer Privacy in an Era of Rapid Change, the FTC concluded that privacy protections apply “even if the individual pieces of data do not constitute Person-ally Identi able Information, “as long as the consumer data “can be reasonably linked to a speci c consumer, computer, or other device”.

Similarly, in the FTC’s 2013 amendments to the Children’s Online Privacy and Protection Act, the FTC de ned “per-sonal information” to include “persistent identi ers," such as IP addresses, but only when such persistent identi ers are used to track users over time and across websites or online services.

Essentially, the FTC can be expected to analyze the facts: In cases where the IP address can be combined with other in-formation to recognize a speci c user, the IP address would likely be treated as per-sonally identi able information. How-ever, Ms. Rich con rms that no change has been made to the FTC position “all forms of personal information don’t need the same level of protection” and that the protections should be “appropriate to the risks”.

This exibility allows providers to con-sider the facts and purposes; In the US, companies should be able to handle IP addresses and other persistent identi ers differently than other more transparent types of personal information (such as names and addresses).

advice corner

Access to public content would lead to user identifi cation

34

By Tatyana Takeva-Pountcheva, Intertek Programs Manager

Have you ever looked at a label of food products, clothes, electrical equipment and wondered "Where was this actually produced?" I am sure you did and please, be welcome to the new world of supply chains.

Think for a moment of your company's supply chain and what you know about it. Is it a distant place where somebody does something to help you meet customer re-quirements, but you do not know who does what? Do you know where your supply chain actually is and how secure it is so that you could rely that it will function as needed to ensure your company keeps its market position conti-nuity of its business? Have you ever wondered what your supply chain security is?

Well, most probably you did. But maybe there are companies that need to focus more of their management efforts on ensuring the security of their complex sup-ply chain, because suppliers are part of the same system in which companies deliver products and services to their customers. These systems are interconnected. So are the risks to these systems.

Risks do exist in any supply chain and could be related to social responsibility challenges, qual-ity and safety gaps, legal and regulatory compliance, security

problems, weather conditions and natural disasters, or terror-ism. The tricky point is that once any of these risks appears in the supply chain and leads to a com-promising event, it will be your company's image in the headlines

of the news-papers, brand name damaged, customers and nancial result

that may be strongly im-pacted.

Some global companies

already have learned from experi-ence how far this can go. They have lost in terms of brand repu-tation, customers' satisfaction, credibility and of course, millions of dollars.

Security of supply chains can be easily compromised, as long as not all risks relevant to it are identi ed, assessed and properly managed to assure the re-quired level of transparency. Supply chains scope and reach is usu-ally so broad and sometimes expands over countries and continents, hence the process and analysis of risks gets complicated by the necessity to consider various different local speci cs: cultural, legal, environ-mental, political, economic, etc.

Based on proper supply chain related risks identi cation and assessment, proactive Risk Man-

agement also includes measures aimed to ensure adequate opera-tional control of risks to avoid undesired effects of their realiza-tion. Some steps aimed at effec-tive management of risks related to brand reputation of an organi-zation are:

Examination of the level of compliance of your suppliers with the Social Responsibility related requirements to mitigate the risk of brand image disrup-tion, which can be caused by severe social problems found at your suppliers like, child labor, discrimination, risks to health & safety of workers, excessive working hours, non-payment of legal wages and other social problems)

Assurance of the quality of products (products produced under the good manufacturing practices; Reliable Equipment & Machinery, Sustainable processes, Six Sigma Solutions; Reliable stock levels and delivery terms;

Quali ed per-sonnel, etc.)

Ensuring security of pro-duction/ deliv-eries (personnel security, plant security (access control, con-tainer storage

control, visitors control, informa-tion access control and export logistics assurance)

The adoption of proactive ap-proach to ensure supply chain security through risk manage-ment is not easy but, we should start from somewhere and start before it's too late.

advice corner

Supply Chain Security: Managing Risks,

Corporate Social Responsibility and

Brand Reputation

Companies need to secure complex supply chain

Met CSR requirements avoid risk of brand image disruption

35

By Milen Raikov, Partner and Irina Yaneva, Attorney-at-law, Senior Consultant, Ernst & Young

Research and development (R&D) activities are a key driver boosting the development of the Bulgarian economy, increasing its competitiveness and establish-ing the country as an attractive destination for high added value investments.Throughout 2016, the countries in Europe continued to develop and enhance their national R&D incentive measures. As an example, as of 1 August 2016, with a view of increasing its attractiveness, Romania applies fully exemption of salaries of employees engaged in performing R&D related tasks. Following the same path, Turkey has undertaken a reform of the tax treat-ment of individuals and companies engaged in R&D. In the course of the reform, a number of measures have been enacted, including a partial exemption from income tax (from 80% to 95%) for individuals en-gaged in R&D, as well as an exemption from corpo-rate tax on pro ts realized by enterprises as a result of R&D activities performed in high-tech parks. In addi-tion, Turkey has increased by 50% the expenses eligible for deduction, resulting in a total deduction of 250% of R&D expenditure.In contrast to the trends in the neighboring countries, Bulgaria remains the only EU Member State in Central and Eastern Europe (CEE) without an effective tax regime promoting R&D activities. Worldwide, various measures stimulating R&D are applied, some of which consist of:

Subsidies; Loans granted by the state or secured by state guar-antees; Free-of-charge or preferential use of infrastructure;

Tax relief in the form of exemption from VAT or social security obligations; or a preferential corporate tax treatment, including the opportunity of an additional deduction of R&D expenses.Most commonly applied measures in the EU Member States entail preferential taxation of corporate pro ts resulting from R&D. According to a comparative study, over 90% of the EU Member States have introduced a preferential tax regime, often in combination with other tax incentives. Countries as Cyprus, Malta, Belgium, the Netherlands and Luxembourg apply the so-called “Patent box” regime. Under the “Patent box” regime,

a signi cant portion of the pro ts generated from the exploitation of an already developed product would be exempt. However, this regime has been criticized mainly for its insuf cient effectiveness in stimulating R&D at the stages prior to the creation of a product. Moreover, this tax incentive has been exploited for tax avoidance purposes.On a country level, in the EU the most widely ap-plied R&D tax incentive is the additional deduction of expenses from an enterprise’s corporate tax base, also known as “Super Deduction”. Such regime has been in-troduced in most of the CEE countries: Romania (150%), Croatia (175% – 250%), Slovenia (200%), Slovakia (125%), Czech Republic (210%), Hungary (200%) and Greece (130%). The implementation of the said tax incentive allows a signi cant reduction in the effective corporate tax rate in the respective jurisdictions.Recently, Automotive Cluster Bulgaria proposed a tax relief in the form of additional corporate tax base reduction amounting to the actually incurred R&D ex-penses. It allows a double deduction of the eligible R&D expenses for tax purposes. The proposed measure is in accordance with the EU law and state aid restrictions and it could be easily introduced. Unlike other tax in-centives, the Super Deduction of R&D expenses can be successfully applied considering the growing interest of multinational enterprises in reallocating R&D activities in Eastern Europe. For Bulgaria, it would be a dif cult task to become an attractive destination for R&D projects and activities solely relying on its low corporate tax rate.Considering the results achieved by other countries in the region, the introduction of a targeted R&D tax incentive in Bulgaria will contribute to:

Achieving an overall positive scal effect stem-ming from increased investments and employment of highly quali ed personnel which in turn results in higher wages subject to personal income tax taxa-tion, social security contributions and indirect taxes from increased consumption; Minimal negative scal impact in a short run (limited to revenues from corporate tax); Improving Bulgaria’s reputation as a R&D destination; Focusing the application of the tax relief to R&D at the stage of prototyping, piloting, testing and vali-dation of new or improved products, processes or services and commercialization of products and services in the four thematic areas delineated in the Innovation Strategy for Smart Specialization, adopted by the Council of Ministers in Bulgaria.

The overall positive impact of introducing such tax incentive for R&D is expected to materialize in growing R&D investments, development of R&D centers and attraction of high-tech enterprises which maintain high salary levels and contribute to signi cant increase in social security contributions and taxes on consumption collected by the state.

advice corner

Tax Incentive For R&D in Bulgaria

Proposed

36amcham events

A revival of the liberal democracy, unity in the EU and NATO, going out of the trap of populism clichés are key factors to avoid crises of destructive nature, concluded the participants at the discus-sion “2016 Presidential Election: So a Perspective” organized by the American Chamber of Commerce on Oct. 26, 2016.

American residents in Bulgaria, lead-ing political scientists and journalists analyzed the U.S. presidential campaign between Hillary Clinton and Donald Trump. The participants shared expec-tations about the impact of elections in Bulgaria and worldwide. The U.S. campaign clearly shows the

need for rede ning of globalization, said political analyst Ognyan Minchev, director of the Institute for Regional and International Studies.

“As Clinton stated during her cam-paign, there is a vacuum in the Ameri-can leadership which is in crisis after the two terms of George Bush, who involved the United States into an excessively focused intervention in Iraq,” Minchev said. Alternative circles of world power penetrated into this vacuum while President Barack Obama was trying to restore the “soft power” of America, but at the same time sent a message that the United States can do anything “to the limit of military force use.” According to Minchev this message led to a controversial result as “rampant global village boys became even more violent and beyond control.”

The analyst further said this is a whirl-pool situation that absorbs enormous energy and causes bloodshed, which is dif cult to prevent and deal with. The problems in the Middle East are escalat-ing; there are multiple crises in Europe and a faster-than-expected revival of the Russian and Chinese power.

Trump campaign is propaganda of a

US Must Redefi ne Globalization,

Pundits Say

Analysts shared expectations about

the impact of elections in Bulgaria and

worldwide.

From left: Eric Halsey, Kenneth Lefkowitz, David Hampson.

37amcham events

modernized version of isolationism in economic, commercial and immigrant sense, the participants said further.

They agreed that should Hillary Clinton win, the United States will develop a more reasonable vision of global rela-tions. The international integration and alliances are threatened and much care is needed in that respect, said Daniel

Smilov, program director, Center for Liberal Strate-gies. The rst consequence of populism is undermining the accord within the Euro-pean Union.

“Brexit caused real damage that was not only rhetori-cal, but started a process of disintegration that will be

dif cult to reverse,” said Smilov.

According to the U.S. participants in the discussion the GOP would have a dif- cult task to rebuild its image and over-

come Trump’s isolationist messages.

“I hope after these elections the Con-gress will adopt new policies on im-migration,” said journalist Eric David Halsey. “The United States needs a modern system that accepts more people, processes faster requests for ap-plications and solves problems with the demand for quali ed immigrants.” Cur-rent impediments do not allow technol-ogy developers, including Bulgarians, to gain U.S. experience and strengthen their quali cations.

America needs infrastructure devel-

opment, but the future growth lies in technology and this is the eld the next president has to work in, said David Hampson, managing partner of Tech-nology Transfer. He gave as an example the program National Network for Man-ufacturing Innovation – a public-private partnerships between the U.S. industry, universities and public administration in the eld of science and technology. According to Hampson such programs will create tremendous economic growth and numerous quali ed staff.

Other participants in the discussion included the moderator Ralitza Ko-vacheva, program director, Bulgar-ian International Television, Kenneth Lefkowitz, managing partner, New Eu-rope Corporate Advisory, and journalist Ivo Indzhev.

Populism is undermining the accord within the EU

Ivo Indzhev, journalist.

Alex Nestor, AmCham enquired about the im-plications for business after the elections.

Daniel Smilov, Center for Liberal Strategies.

38

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www.economedia.bg 20, Ivan Vazov Str.

1000 So a

IIA Bulgaria is the exclusive repre-sentative in the Republic of Bulgaria of the International Institute of Inter-nal Auditors – a global association of the internal auditors, established in 1941 and uniting more than 170

000 professionals throughout the entire world. IIA Bulgaria is established in June 2003 and as of today it has more than 550 members – professionals in the elds of internal audit, nancial control and risk management in all business elds. The mission of IIA Bulgaria is to encourage and support the develop-ment of the internal audit in Bulgaria in its capacity of professional organization representing and develop-

ing the internal audit theory and practice. In carrying out its mission the IIA Bulgaria:• Advocates the internal audit as prestige and re-spected profession in Bulgaria;• Provides high quality professional education and opportunities for development of the internal audi-tors;• Promoting and supporting The IIA global certi ca-tion programs in Bulgaria;

Contacts:Dimitar Neshev, CEO

Tel.: + 359 2 986 628097A, Graf Ignatiev Str., . 3

1000 So a

Oiltanking is one of the world’s leading independent storage partners for oils, chemicals, gases and dry bulk. Oiltanking owns and operates 81 terminals in 23 coun-

tries with a total storage capacity of 21 million cubic meters. Through years of experience, Oiltanking has become a well-known and appreciated partner for professional storage and tailor-made services to meet our clients’ wishes and requirements. The company has become the world’s second-largest company in this competitive eld. Its clients include private and state oil companies, re ners, petrochemi-cal companies, and traders in petroleum products

and chemicals. To further improve our shareholders value we continue to employ a strategy of controlled growth of our tank terminal-based service network through acquisitions, new buildings and upgrading of existing facilities. Oiltanking Bulgaria is established in 1999 and operates a terminal for chemicals storage at the Port of Varna-West with a total capacity of 24,000 m3 – a vital connection between 3 of the big-gest Bulgarian chemical producers.

Contacts:Alexei Lisan, CEO

Port Varna West9160 Devnya

new members

39amcham events

AmCham Launches Digital Working Group

AmCham launched a new Digital Working Group on Nov. 9, 2016. Plamen Zhechev (Cisco), chair of the group and Valentin Georgiev, executive director, moderated the meeting with some 20 member compa-nies attending the initial meeting. The participants suggested that the primary goals of the group should be to initiate and sustain a structured dialogue with the institutions and provide technological expertise and know-how on digital issues.

BLVD Ltd. is the sole owner of the opened in 2013 5-star Sense Hotel So a, a member of Design Hotels, with its great location on Tsar Osvo-boditel Boulevard, a few steps from the Parliament. This is So a's rst upscale design hotel, balancing luxury and superb design with world class service. The hotel has 71 rooms and suites - spaces that

are balanced, organic and alluring. The hotel also includes two conference rooms suitable for different type of events as well as an exclusive SPA area with indoor stainless steel pool, two smaller pools with hot

and salty water, sauna, steam bath and gym. Unbeatably located on the highest 9th oor are the Rooftop bar and Gastro bar– offering relaxing atmos-phere, unique spacious terrace, endless feeling of sky and stars with a 3600 magni cent views over So a along with premium spirits & wine collection and deli-cious Gastro Bar highlights.

Contacts:Elitza Velichkova

General ManagerTel.: +359 (0) 700 20670

16, Tsar Osvoboditel Blvd.1000 So a

Ivaylo Taskov, CFA is a US citizen and a nancial professional with strong relations to leading US and Bulgarian companies; a member of the CFA Insti-tute and the New York Society of Security Analysts (NYSSA). He manages Global Financial Consulting (GFC) since 2006, which was the project manager for a structured shopping mall development investment with an Irish investment fund. In 2008 GFC was ap-pointed as one of the primary developers for AES So-lar–Bulgaria. Throughout this partnership GFC devel-oped 5 photovoltaic projects, totalling over 22MWp, and constructed a 2.64MWp PV Park, later sold to Global Biomet Ltd. I. Taskov had a 2-year mandate as Commercial Director of Ecostroy, Albena AD’s

daughter construction company and managed the White Lagoon project with Thomas Cook Scandina-via. GFC is a member of the Bulgarian Construction Chamber and is a subcontractor to leading Irish gen-eral contractors in wind power developments in SW Ireland and student residential facilities in Dublin.

Contacts:Ivo Taskov, CFA

Global Financial Consulting Tel.: +359 2 986 985596 G.S. Rakovski Str.

new members

40amcham events

The 14th annual AmCham Thanksgiving Community Dinner on Nov. 22, 2016, raised 52,770 Leva from open bid, silent auction, raf e and scholarships donated by various companies. AmCham’s fund-raising for charity initiatives and projects has reached 56,400 Leva in 2016.

The funds from the dinner were des-ignated for “Get Ready To Succeed” program and “We Can” fund of BCause Foundation. The auction and raf e items were raised for scholarships in favor of orphan students in secondary schools and universities.

The collected money for scholarships included the raf e contributions from the July Fourth celebration in the amount of 3,644 Leva.

ContourGlobal Maritsa East-3 provided 15,000 Leva, Amgen Bulgaria gave 10,000

Leva and another 2,000 Leva were donat-ed by Fama Consulting. AES, Congress Engineering and Telenor successfully outbid numerous silent auction items, among the other active bidders.

Thanksgiving greetings came from Venislav Yotov, AmCham vice president, Eric Rubin, U.S. ambassador to Bulgaria, Elitsa Barakova, BCause Foundation, Ani Halvadjian, goodwill ambassador of “Get Ready To Succeed” program, and moderator David Hampson. Live music performance by Angel Zaberski Trio added to the genuine Thanksgiving atmosphere.

The U.S. ambassador said that there is a real surge in CSR initiatives in the last 20 years during the AmCham presence in Bulgaria. “AmCham businesses are criti-cal part of trade and investments ow in the country,” the diplomat added.

AmCham Donations Top 56K in 2016AmCham Donations Top 56K in 2016

Martina Strong, U.S. DCM, Olivier Marque-tte, AES Corp, and Dr. Rumyana Atanassova, Technology Transfer.

Venislav Yotov, AmCham vice-president, associated the Thanksgiving tradition with Bulgarian ritual of forgiving, all of it relating to the essential human values.

41

“Giving is a key word and a key action of a man, especially during the traditional Thanksgiving holidays. In Bulgaria the feast is very similar to the ritual of asking for forgiveness around Easter,” Yotov said.

Works of art and other items were auc-tioned during the open bid. “Winter Sea-son” by Tsviatko Donchev painting from BNP Paribas S.A. - So a Branch went to Amgen Bulgaria for 2,000 Leva. “Fla-mingo” by the painter Gala Koleva from Galas Art Gallery was acquired for 1,500 Leva by Garry Levesley, ContourGlobal Maritsa East 3 AD. “In the Rain” by the painter Vladimir Penev was outbid for 3,000 Leva by Nikoleta Andreeva.

AmCham kindly thanks the main spon-sors of the event ContourGlobal Maritza East 3, Philip Morris Bulgaria and Tel-enor Bulgaria, as well as the supporting sponsors Abrites, The Coca-Cola Com-pany and Japan Tobacco International.

amcham events

Contributors

Kristian Gedov, Con-gress Engineering, outbid several silent auction items.

Eric Rubin, US Ambas-sador to Bulgaria, thanked the business for its generosity.

David Hampson thanks Garry Levesley, executive director of ContourGlobal Maritsa East-3.

42amcham events

Alex Nestor Becomes Acting Executive Director, Three

New Members Enter AmCham BoD

AmCham Executive Director Valentin

Georgiev Steps Down After Memorable

Service With AmCham

Iva Todorova, IBM.Plamen Zhechev, Cisco Systems Bulgaria. Venislav Yotov, AIG Europe Ltd.

Alex Nestor has a Canadian citizenship and currently resides and works in Bulgaria. He has thirty years of international experience in Canada, USA, Bulgaria, Russia and Kazakhstan. Held various executive positions in public affairs, corporate PR, project management, engineering, construction in the mining, metallurgical, petrochemical and nuclear industries. Alex is well connected, maintaining a wide network of government of cials, politicians across the entire spectrum, the business community, NGOs and the media in the country, and worked with ve consecutive governments in Bulgaria.Fluent in English, Polish, Italian and Russian.

43amcham events

Krasimira Chemishanska, Am-Cham President, presented the Annual Report of the Board of Directors for 2016 and AmCham policy agenda for 2017-2018. The latter envisages update of Am-Cham White Paper with focus on human capital, sustainable business environment, rule of law and law enforcement. The Chamber will establish a regular dialogue and collaboration with relevant authorities to promote and deliver on AmCham prior-ity areas. Among AmCham key strategic events in the next year will be business luncheon with the government and a forum on e-government with special focus on e-procurement and e-health.

Members approve auditor’s report and budget 2017.

Zlatina Ruseva-Savova of the eponymous law of ces elaborated on her success story as a co-chair of the Public Procurement and EU Funding Advisory Commit-tee.

44amcham events

Stanislava Taneva, AmCham Treasurer presented the nancial statements of the auditor for 2015 EY Bulgaria. The Assembly approved the budget for 2017.

Alfa Research Agency announced the results of 2016 AmCham Membership Satisfaction Survey with a satisfaction rate varying from 36% to 79% - the highest one in “level of communication and support received from AmCham Bulgaria” (79%) and the lowest one in “Investment promotion” (36%). 85 members companies from 25 industries took part in the survey.

Martina Strong, U.S. deputy chief of mission

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The Aluhall is with its classic shape, free interior space and modular character very versatile. This hall offers a wide range of possibilities, from corporate and private parties, fairs and exhibitions, sports and cultural events, festivals and parties, over industrial applications such as storage, commercial and working space to sports applications like the covering of swimming pools, horse tracks, hockey fields, … In short, flexibility at its best!

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