 Reform-weary, riddled with crime and corruption and wholly unready for EU membership – it seems the European Commission will have to keep the pressure up on Bulgaria after accession. Nevertheless, private enterprise has been successful, with far faster growth than in western Europe. By JUSTIN KEAY There were few surprises in Bulgaria's October presidential elections: Socialist incumbent Georgi Parvanov won despite low turnout, necessitating a second round against Volen Siderov of the vehemently nationalist Attack Party. Yet the fact Siderov did as well as he did (in a feeble turnout of 41%) confirmed how Bulgarians, like others in reform-weary eastern Europe, are disillusioned with their lot. They have more reason than most. After eight years of reform – first initiated after Bulgaria came to the brink of collapse in late 1997 – the lack of a feel-good factor in this country of 7.5 million is manifest. On the plus side, there have been macro-successes, thanks to the stability generated by a currency board and fixed exchange rate, which takes monetary policy out of the hands of the government. GDP growth in 2006 should be a respectable 5.7% (with much the same expected for 2007) with inflation around 6%. The biggest concern is the current-account deficit, presently around 12%. With EU accession a given, foreign investment has been respectable at around €2bn a year with investors targeting agro-industry and light manufacturing in particular. The tax system has been reformed, and is fairer and more transparent for individuals and companies alike, although many legitimate businesses claim they are being unduly targeted because illegitimate businesses are so hard to trace.
Yet there is a sense that while even Romania has attempted to grapple with the legacy of the past, implementing tough action against corruption and putting senior politicians and others in the dock for graft, Bulgaria has allowed bad old habits to fester. The performance of the government formed after the 2005 elections – a creaky coalition of Socialists, the National Movement for Simeon and the Movement for Rights and Freedoms, the party that represents the Turkish minority – has been unimpressive, in part because ministers report to their own party rather than to PM Sergey Stanishev, but also because with EU membership all but assured, any sense of urgency is missing. The political scene is still evolving: the splintering of the right that allowed Attack to emerge as a protest party has also left a largely unreconstructed Socialist party dominant and unaccountable. Privatisation has slowed to a crawl, and the national airline, regional electricity companies and many other institutions besides remain in state hands.
Bulgaria's big achievement – being given the green light to join the EU in January 2007, together with its neighbour Romania – is clouded by the fact that Brussels and just about everybody else deem it the least prepared country ever to join, with much to do in reforming the judiciary, public administration and other key areas, notably air safety. Organised crime and corruption – at all levels – remain key concerns despite some half-hearted prosecutions against state officials. Ruslan Stefanov of the Sofia-based Centre for the Study of Democracy says this unsettled business environment has very real implications for SMEs and foreign investors. The former because rather than allowing themselves to grow organically, many chose to splinter to drop below the radar of organised crime groups (and the tax authorities); the latter because at some stage they will find themselves having to deal with such leading conglomerates as VIS, SIC and TIM. 'These groups – and others – still dominate the economy, although with Bulgaria in the EU, one would expect them to become more mainstream and legitimate,' he says.
That isn't the only change that observers expect accession to have on Bulgaria's company structure. Many companies – especially SMEs – are expected to fall by the wayside once faced with the new reality. 'I anticipate many bankruptcies over the next two years as such companies realise they must play by new, tougher rules, but in the long run they will be replaced by more transparent companies that play by European rules,' says Maxim Behar, head of the M3 Communications Group, a leading Bulgarian media relations firm. If Bulgaria is to deal effectively with corruption, it urgently needs a legal system that punishes effectively and a value system that makes people realise bribery is wrong. 'For too many people, the expensive car these guys drive or the glitzy clothes their wives wear are more important than questions about how their money was earned,' he says.
With just a few weeks before accession becomes reality, Sofia's key task is to avoid the indignity of having Brussels withhold much-needed funds or take other threatened steps, such as ignoring the decisions of its judiciary if key reforms there are not implemented. The omens do not look good – indeed the quarrelsome coalition may fall apart soon after 1 January once it feels it is not so much on the Brussels radar, succumbing to the reform weariness currently endemic in the region. However observers are cautiously optimistic that the desire to boost growth and improve living standards will enable momentum to be maintained. 'We're late, we're slow but we're moving in the right direction,' says George Prohasky, co-head of influential think-tank the Centre for Economic Development, adding however that the EU will have to continue pressuring Bulgaria. 'History has shown that this country only moves forward when it's prodded – by the IMF, World Bank or EU. Outsiders should keep this in mind if they want to see Bulgaria realise its true potential.'DATA FILE: BULGARIA Population 7.7 million
GDP €20.75bn
Per capita GDP at PPP €6,881
Expected GDP growth 2006 6%
Anticipated end-year inflation 2006 3%
Anticipated BOP deficit/surplus for 2006 -13.7%
Investor information www.investbulgaria.com
Estimated number of days to open a business 30
Transparency International Corruption Perceptions Index position (of 163; 1=least corrupt) 57 Position in the CNBC European Business Investor Attractiveness index, out of 10 5
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