Country Report: Bulgaria Country Report:

Country Report: Bulgaria

Country Report: Analysis of business development in Bulgaria

Republic of Bulgaria is a recent annexation to European Union along with Romania. The country's economy has come a long way since the leadership of Bulgarian Communist Party to an upper-middle-income country today. According to Wall Street Journal Bulgaria is rising as a promising country in terms of economy. European Commission called Bulgaria as a fully functional market economy in its annual 2002 report. Also the country is expected to join the Euro zone in 2013. A country with a gross national income per capita of U.S.$5,490 in 2010 and economy largely based on private sector can indeed venture high in the international market to attract foreign investors (World Bank Group, 2008)

A brief history of Bulgarian economy will tell us that initially it was dominated by Bulgarian Communist Party (BCP) in the post-World War II period. It followed Soviet Union by shifting its economy from agrarian to industrial type. With the dissolution of COMECON (Council for Mutual Economics Assistance) and political instability in late 80's the success was short lived. Due to sanctions against Serbia and Iraq standard of living fell to 40% during 1990.

Later the reforms such as liquidation of state-owned enterprises, mass privatization, relaxing agricultural policies, strengthening insurance program and decreasing corruption lead to a prosperous start in late 90s. IMF also gave a 3-year loan in 1998 to further liberalize trade. But the recent global financial crisis has hit the entire Europe with a resulting ripple effect of decline in 12% GDP in Bulgaria. However the recent annexation with European Union promises greater stability due to international trade liberalization to an extent that it is predicted that the country might join Euro zone till 2013.

Bulgaria enjoys a strategic geographic position for foreign investors to reach the Central and Eastern Europe, which represent a total population of 853 million. In this analysis of business development in Bulgaria we shall be looking at three aspects.

- What incentives have been given by the government to attract new customers as well as penetrate the existing market?

-Analysis of starting a new business in Bulgaria as compared to Central Asia and Eastern Europe.

- How the depth and breadth of analysis will change depending on the user of the report (e.g. Small and Medium Enterprises, Multinational Enterprises and Independent investors)?

INCENTIVES:

For any country to compete in international market for foreign investors they need to reinforce their policies in two sectors:

1. Attracting new customers:

To start with there is no such country as Bulgaria which enjoys a dynamic and massive foreign investment from international companies e.g. Nestle, Metro, Philip Morris etc. And offer the lowest corporate taxes in Europe to 10% and 0% in areas of high unemployment. It's a member of EU which means that a company in Bulgaria may enjoy the same special business discounts as a company in Germany for foreign investors but almost half the capital to start up a business and same consumers. (Arton Capital, Immigrant Investor Programs 2007)

2. Penetrating the existing market

Bulgaria has fulfilled its legal system according to the needs of EU which means that political situation is stable and the legislature and the judiciary are independent of the parliament. Bulgaria is the most cost productive country as compared to its co-countries in EU in terms of both starting a business and running it. You will find that Bulgaria offers one of the most competitive prices to build up a business. The cost of assets is cheap and there are plentiful opportunities as compared to the Western Europe. The workforce consists of skilled men (52%) and women (48%). Low cost of labor and the propensity of workers with 52% of skilled men and 48% of women provides one of the most tempting incentives for foreign investors to look at. (Arton Capital, Immigrant Investor Programs 2007)

Business ANALYSIS

METHODOLOGY

To ascertain and give an insight to the business development in Bulgaria we designed a survey. The survey embodies a business case in an attempt to establish convenient comparison between different steps of setting a business. i.e. opening a new firm, acquiring building licenses, credit history, paying duty and across the border trade across economies of Bulgaria and Central Asia and Eastern Europe. The reasons for selecting this methodology are because:

a) It provides a transparent medium across respondents and us with use of accurate information about laws and regulations. This reinforces the trust and clarifies any potential misconception of questions.

b) Data can be serene across large models of economy as the methodology is cheap and easily replicable.

b) This methodology decreases the standard error and standard deviation by two tier system. The answers collected are checked under the light of relevant laws and averaged with the irreversible function of "mu."

c) As standard assumptions are used in the data compilation, association and scale are valid across economies.

d) This survey extends assistance in not only highlighting the difficulties in business development but also identifies the step at which new policy forming should be required.

e) This methodology gives an easy tier system of how to rank the countries on isolated clauses of business development.

f) The ranking system in this methodology gives results formulated by the collection of surveys a rather user friendly image which otherwise would have been difficult to understand for entrepreneurs with little statistics knowledge.

However there are limitations to this methodology too. First of all because the collection of surveys is done from mainly the robust capitals of the country, it does not portray the true picture of the entire country's business development. Second limitation is that the surveys are filled from some specific business, data from which cannot be applied to other business setups. Thirdly and lastly the set of issues as explained in the survey cannot exemplify to the fullest the entire issues as seen by a budding business. It should be mentioned that while implying the clauses of survey in forming a result one faced absent values which had to be fixed by extrapolating the already present values.

1) Opening a new firm

According to Doing Business Bulgaria ranked 50 in opening up a new firm in 2010 and 43 in 2011. (World Bank Group 2011) The total number of procedures required to register a firm is 4 in Bulgaria as compared to 6.3 in Eastern Europe and Central Asia. By all procedures it is meant all the obligatory measures, announcements, verifications or petitions for a business to formally start as an independent enterprise. The total number of days required to register a firm i.e. To get all the necessary licenses and permits is 18 in Bulgaria as compared to 16.3 in Eastern Europe and Central Asia. The total cost as percentage of income per capita is 1.6 in Bulgaria as compared to 8.5 in Eastern Europe and Central Asia required for a capitalist to set up and properly operate as marketable and profitable business. (Simeon Djankov 2002)

2) Acquiring building licenses

According to Doing Business Bulgaria ranked 117 in acquiring licenses of new firm in 2010 and 119 in 2011. The total number of procedures required to register a firm is 24 in Bulgaria as compared to 22.2 in Eastern Europe and Central Asia which includes all the legal work from submitting company's specifics to the authorities to completing all the basic requirements to obtain licenses and permits to start a business and getting all essential assessments. It also minutes measures for obtaining connections for basic necessities e.g. electricity, water and land line. The total number of days required to register a firm is 130 in Bulgaria as compared to 250 in Eastern Europe and Central Asia. The total cost as percentage of income per capita is 442 in Bulgaria as compared to 645 in Eastern Europe and Central Asia.

3) Credit History

According to Doing Business Bulgaria ranked 6 in credit history in 2010 and 2011. We shall look at two very basic and necessary pre-requisites to start an enterprise namely the index of local banks to extend loans to foreign investors and the accessibility of credit information. The first index illustrates the ease and transparency with which the law and the banks promote and facilitate loans to foreign investors which was 8 in Bulgaria as compared to 6.6 in Eastern Europe and Central Asia. The second index measures the ease and accessibility of bank histories and credits which is 6 in Bulgaria as compared to 4.0 in Eastern Europe and Central Asia. (Simeon Djankov 2007)

4) Paying Duty

According to Doing Business Bulgaria ranked 95 in paying dues in 2010 and 85 in 2011. The total number of expenses to be paid per year is 17 in Bulgaria as compared to 41.7 in Eastern Europe and Central Asia. Theses expenses include obligatory dues that all Multinational Enterprises, Small and Medium Enterprises and Individual Investors will pay in the form of taxes e.g. property taxes, transaction taxes, vehicle tax and others. Also very important index for investors is total tax on profit which is 4.6 in Bulgaria as compared to 9.8 in Eastern Europe and Central Asia saving a lot of money to be recycled into business again. (Simeon Djankov 2010)

5) Across the Border Trade

According to Doing Business Bulgaria ranked 109 in across the border trade in 2010 and 109 in 2011. The index for clearance for export goods is 5 in Bulgaria as compared to 6.4 in Eastern Europe and Central Asia. All the required official documents -- from the contractual agreement between the 2 parties to the delivery of goods along with monetary requirement for completion. The total time taken to deal with all the legal conduct to export goods is 23 in Bulgaria as compared to 26.7 in Eastern Europe and Central Asia. The total cost to export goods is 1551 in Bulgaria as compared to 1651 in Eastern Europe and Central Asia.

USER OF THE REPORT

Multinational Enterprises:

MNEs play an important role in a two to three fold leap forward in a country's economy. Its importance is felt in local progress and in resolving regional inconsistencies in revenues, production and living standard. However still the Bulgarian economy is dominated by SMEs. A possible explanation could be found in the intention and configuration of these MNEs, slow national development, low assimilation capacity of regions and insufficient government policy. As can be deduced from the above methodology that while initiating a new enterprise might be an easy task but it remains so in illusion because Bulgaria is still lagging behind in next in line tasks such as getting a licenses, paying the debts, giving the taxes and trade across border