Transcript Document

Stagnation or progress of SME in
Bulgaria from the point of view of
the Foreign Investment
Vladimir Penkov
Executive Managing Partner of Penkov, Markov and Partners
and
Vice-President of the Bulgarian Chamber of Commerce and
Industry
June 2005
Penkov, Markov & Partners Attorneys at Law
No. 1
1.
ECONOMIC ENVIRONMENT
МACROECONOMIC ENVIRONMENT
 STABLE RISE OF GDP IN EXCESS OF 5% ANNUALLY
 DEVELOPMENT OF LABOUR MARKET AND REVENUE
 RISING NUMBER OF EMPLOYED UNDER LABOUR
AND OFFICIAL CONTRACT
 CONSIDERABLE IMPROVEMENT OF
UNEMPLOYMENT RATE
 STILL LOW INCOME LEVEL
 STABLE INFLATION RATE
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 2
GROSS DOMESTIC PRODUCT
45
40
42
35
30
25
GDP in
BGN mln
20
15
10
5
0
2000
2001
2002
2003
2004
2005
7,00%
6,00%
5,00%
5,5%
4,00%
Growth
Trend
3,00%
2,00%
1,00%
0,00%
2000 2001 2002 2003 2004 2005
June 2005
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* Source – see last page
No. 3
Economically active population (mln persons)
3.41
3.4
3.39
3.38
3.37
Active population
3.36
Trend
3.35
3.34
3.33
2001
June 2005
2002
2003
2004
2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 4
Average annual inflation
700%
6%
5%
600%
5%
500%
4%
Inflation
400%
3%
Trend
300%
2%
200%
1%
100%
0%
1997
0%
2000
June 2005
2001
2002
2003
2004
2001
2002
2003
2004
2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 5-1
Balance of payment (as compared to GDP)
6
4
2
0
-2
-4
-6
-8
7,5
-10
-12
-14
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 5-2
Trade in mln US dollars
600
500
Import
400
Export
Line 2
300
Poly. (Line
2)
200
100
0
'88
June 2005
'89
'97
'98
'99
'00
'02
'03
'04
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 6
2. DEVELOPMENT STRATEGY
NATIONAL POLICY FOR DEVELOPMENT OF
SME
 SME AGENCY
 SME ACT
 STATUTORY PROVIDED PREFERENCES FOR SME
 NATIONAL STRATEGY FOR DEVELOPMENT OF SME
IN THE 2002-2006 PERIOD
 ACCESSION OF BULGARIA TO THE EUROPEAN
CHARTER FOR SME
 EASIER CREDIT EXTENSION
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 7
SME DEVELOPMENT STRATEGY
 SIMPLIFICATION OF ADMINISTRATIVE ENVIRONMENT
–ONE-STOP SHOP SERVICE
–TACIT AGREEMENT
 IMPROVEMENT OF FINANCIAL ENVIRONMENT
 ENCOURAGEMENT OF INNOVATION AND TECHNICAL
PROGRESS
 EUROPEANIZATION AND INTERNATIONALISATION OF SME –
(SUBCONTRACTOR NETWORK)
 IMPROVED ACCESS TO INFORMATION SERVICES
ENCOURAGEMENT OF ENTREPRENEURIAL SPIRIT
TAX PROVISIONS
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 8
SME INFORMATION SUPPLY
 EASIER ACCESS TO INTERNET - LOW PRICES AND
ALTERNATIVE OPPORTUNITIES FOR NETWORK CONNECTION
 E-GOVERNMENT
 INFORMATION AND CONSULTATIONS FROM ORGANIZATIONS
INDEPENDENT OF THE GOVERNMENT
 SPECIAL INTERNET PORTALS IN SUPPORT OF BUISNESS OPPORTUNITIES FOR FREE INFORMATION AND
ADVERTISEMENT
 INTRODUCTION OF ELECTRONIC DOCUMENT AND
ELECTRONIC SIGNATURE
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 9
IMPORTANCE OF SME FOR THE
BULGARIAN ECONOMY
 INCREASING SHARE IN GDP
 SHARE IN THE GENERATION OF ADDED VALUE
 GENERATOR OF EMPLOYMENT OPPORTUNITY
 INCREASED LABOUR PRODUCTIVITY
 RELATIVELY SMALLER SHARE IN FOREIGN
DIRECT INVESTMENT
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 10-1
RELATIVE SHARE OF DIFFERENT SME TYPE BY
NUMBER OF EMPLOYED
NUMER OF EMPLOYED
2000 2001 2002 2003 2004
Up to 10
92,3%
91,9%
91,1%
90%
88%
From 11 to 100
6,7%
6,1%
6,9%
9%
11%
More than 100
1%
1%
1%
1%
1%
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 10-2
ELECTRONIC READINESS OF
BULGARIA
Internet spread
Computer coverage
80,00%
50%
40%
30%
20%
10%
0%
BG
EU
60,00%
BG
EU
40,00%
20,00%
0,00%
'02
'03
'04
'06
'02
'08
'04
'06
'08
Computer skills
Schools with Internet
100,00%
100,00%
80,00%
60,00%
80,00%
BG
EU
40,00%
20,00%
0,00%
BG
EU
60,00%
40,00%
20,00%
0,00%
'04
June 2005
'03
'06
'08
'04
'06
'08
Penkov, Markov & Partners Attorneys at Law
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No. 11
Employment situation (in mln persons)
2,5
2
Total number of
employed
Public sector
1,5
Private sector
1
SME
0,5
0
2000
June 2005
2001
2002
2003
2004
Penkov, Markov & Partners Attorneys at Law
* Source - see last page
No. 12
Foreign debts in EUR
14
12,5
12
Public Sector
10
Private Sector
8
6,5
6
6
Total Foreign Debt
4
Trend (total foreign
debt)
2
0
2001
June 2005
2002
2003
2004
2005
Penkov, Markov & Partners Attorneys at Law
* Source - see last page
No. 13
Currency reserves at the National
Bank in EUR and BGN
14
12
12
10
8
mln EUR
mln BGN
6
6
4
2
0
1998
June 2005
1999
2000
2001
2002
2003
2004
2005
Penkov, Markov & Partners Attorneys at Law
* Source - see last page
No. 14
CREDIT RATING - ACHIEVEMENT OF
INVESTMENT RATING - LEVELS
Standard & Poor’s credit rating
BBB-
Japan Credit Rating Agency
BBB
Moody’s on Bulgarian currency debts and debts on
securities in national currency
Ba1
FICH IBCA International Rating Agency
BB
June 2005
(positive
outlook)
Penkov, Markov & Partners Attorneys at Law
* Source - see last page
No. 15
BANK FINANCING OF SME
 GROWING INTEREST OF BANKS IN CREDITING
SME

EXHAUSTION OF LARGE CREDIT OPPORTUNITIES

GROWING INTEREST IN THE VERY SME

IMPROVED QUALITY OF INVESTMENT PROJECTS

EXPANSION OF MANAGEMENT SKILLS
 ABOUT HALF AND MORE OF THE SHORT-TERM
AND LONG-TERM CREDITS IN 2004 WERE EXTENDED
TO SME
 BANK FINANCING – STILL INSUFFICIENT COVEREAGE OF
SME NEEDS OF FUNDS
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source - see last page
No. 16
Bank Credits for SME
• In the 2001-2004 period
larger Bulgarian banks
extended more than
46,000 credits to SMEs to
the total value of more than
BGN 2.0 billion (this figure
does not include the credits
of some large banks such
as Bulbank, Post Bank and
DSK)
• BNB - change of policy as
regards the restriction of
credit extension
1400
1200
1200
1000
800
Credits in
BGN mln
600
400
200
June 2005
20
05
20
03
20
01
0
Penkov, Markov & Partners Attorneys at Law
* Source - see last page
No. 17
Deposits and credits measured by GDP dynamics
80,00%
72%
70,00%
65%
60,00%
Bank assets in % of GDP
43%
Deposits in non-financial
institutions in % of GDP
Credits in % of GDP
40,00%
40%
Commerical credits in %
30,00%
32%
53%
50,00%
20,00%
10,00%
Credits for private
persons in % of total
Credits in % of bank
assets
0,00%
2001
June 2005
2002
2003
2004
2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 18-1
PARTICIPATION OF SME IN PUBLIC
PROCUREMENT - 1
 RELATIVELY SMALLER SHARE OF PARTICIPATING
IN PROCEDURES ON AWARDING UNDER THE PUBLIC
PROCUREMENT ACT (PPA)
 RELATIVELY SUCCESSFUL EXECUTIONS OF
CONDITIONS UNDER PPA BY SME
 PREFERENCES UNDER PPA - VALID UNTIL 2007
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 18-2
PARTICIPATION OF SME IN PUBLIC
PROCUREMENT - 2
 OBSTACLES FOR SME PARTICIPATION IN AWARD PROCEDURES
UNDER THE PUBLIC PROCUREMENT ACT (PPA)
• ENORMOUS NUMBER OF DOCUMENTS TO PRESENT AND LACK OF QUALIFIED
STAFF TO PREPARE THEM
•
HIGH GUARANTEES FOR PARTICIPATION AND EXECUTION
•
SHORT TERMS FOR PREPARATION
• INSUFFICIENT PRECISION IN FORMAULATION OF CONDITIONS FOR
PARTICIPATION
• INEQUALITY FROM THE POINT OF VIEW OF THE VAT ACT AS COMPARED TO
FOREIGN INVESTMENTS
•
LACKING SUBCONTRACTOR NETWORK
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 19
Unemployment, average annual
30.0%
25.0%
20.0%
15.0%
11%
10.0%
registered
latent
trend
5.0%
0.0%
2000
June 2005
2001
2002
2003
2004
2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 20
Revenue
600
500
Income total/private person
400
Income total/person
300
Costs total/private person
200
Costs total/person
100
0
2001
June 2005
2002
2003
2004
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 21
Savings in % compared to GDP
30
26
25
20
Savings
Trend
15
10
5
0
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 22-1
FACTORS OF STABILITY AND
ENCOURAGEMENT - 1
•
POLITICAL STABILITY - NATO MEMBERSHIP,
EXPECTED EU ACCESSION – 2007
(SIGNING OF THE ACCESSION TREATY ON APRIL 25, 2005)
•
FINANCIAL STABILITY
•
CURRENCY BOARD
• WELL-EXPRESSED LEGAL BASIS (COMPANY LAW, TAX LAW, COMMERCIAL
AND CONTRACTUAL LAW, COMPETITION LAW, CURRENCY AND CUSTOMS LAW,
LABOUR LAW)
•
LIBERAL PROVISIONS FOR FOREIGN TRADE
•
LAND OWNERSHIP
•
LEGAL GUARANTEES (MORTGAGE, MORTAGE LENDING LAW)
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 22-2
FACTORS OF STABILITY AND
ENCOURAGEMENT - 2
•
INTERNATIONAL ACCORD PRIORITIES
•
DEVELOPED PRIVATIZED BANKING SYSTEM
•
LIBERAL CURRENCY PROVISIONS AND FREE TRANSFER OF PROFIT
•
GOOD HUMAN POTENTIAL
•
IRREVERSIBILITY OF CONDITIONS OF FREE MARKET ECONOMY
• THE EU REPORT OF OCTOBER 2002 ESTABLISHED THAT THERE
WAS A FUNCTIONING MARKET ECONOMY IN BULGARIA
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 23-1
PROBLEMS THAT BULGARIA SHOULD
SOLVE - 1
 UNEMPLOYMENT AT ABOUT 450 000 OR 12 PER CENT, BUT
SOME 300 000 LATENT UNEMPLOYED
 SHADOW ECONOMY ESTIMATED AT ABOUT 40 - 50 %
 PRIVATISATION IN THE INFRASTRUCTURE AREA TOO SLOW
 THE INVESTMENT CLIMATE IS STILL IN THE PROCESS OF
DEVELOPMENT (THE TAX SYSTEM HAS TO ENCOURAGE THE
COMPETITIVENESS OF THE ECONOMY MORE INTENSELY)
 UNSATISFACTORY CONDITIONS FOR CREDITS ON SITE
(INTEREST RATE AT 10 – 12%)
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 23-2
PROBLEMS THAT BULGARIA SHOULD
SOLVE - 2
 NOT UNIFIED JUDICIAL PRACTICE IN THE FIELD OF
COMMERCIAL AND COMPANY LAW, SLOW JUDICIAL
PROCEDURES
 SLOW TRANSFORMATION OF JUDICIAL DECISIONS
 INSUFFICIENT PROGRESS IN THE FINANCIAL SECTOR
 MANY PERMITS, PLENTY OF BUREAUCRACY
 CORRUPTION AND CRIME
 INSUFFICIENT TRANSPARENCY WITH LARGE PROJECTS
 LACK OF PROJECTS FOR ABSORBTION OF EUROPEAN
FUNDS
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 24-1
A VIEW OF PROTECTION OF FOREIGN
INVESTMENTS - 1
 Inviolability of private property stated by the
Constitution
 Well-expressed general mortgage insurance law
 Supremacy of international accords and agreements
 Only strictly regulated cases of property confiscation
under condition of full compensation; opportunities for
legal defence
 EU citizens may acquire land ownership;
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 24-2
A VIEW OF PROTECTION OF FOREIGN
INVESTMENTS - 2
 Legally provided right to free investment and
commercial activity
 Equality of foreign investments
 Free transfer of profit
 Preserving property until full payment of
price is legally permitted
 Foreigners may be appointed managers
without limitation
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 25-1
TYPES OF SPECIAL PLEDGES AND
GUARANTEES USED IN PRACTICE - 1
 PLEDGE OF WHOLE ENTERPRISES
 PLEDGE OF SHARES IN LIMITED LIABILITY COMMERCIAL
COMPANIES
 PLEDGE OF SHARES IN JOINT-STOCK COMPANIES
 PLEDGE OF MATERIAL ASSETS
– raw materials, materials, goods, produce under production
 PLEDGE OF RECEIVABLES
– Contractual receivables, receivables on shares, receivables on bank
accounts
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 25-2
TYPES OF SPECIAL PLEDGES AND
GUARANTEES USED IN PRACTICE - 2
 PLEDGE OF FUTURE RECEIVABLES
 NORMAL MORTGAGE LAW
 MORTGAGES
 RISK INSURANCE POLICY
 THE SPECIAL PLEDGE IS REGISTERED IN A UNIFORM,
TRANSPARENT CENTRAL REGISTER WITH THE MINISTRY OF
JUSTICE
 THE SPECIAL PLEDGE LAW PERMITS DIRECT EXECUTION
WITHOUT THE TIME-CONSUMING COURT TRIALS
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 26
LUCRATIVE TAX PROVISIONS
 15% COPORATE TAX WITH A TREND TO DROP IN THE NEXT TWO
YEARS TO 10 -12.5 %
 20% VAT WITH A TREND TO DROP TO 18 %
 REDUCTION OF AMMORTIZATION TERMS TO 2 YEARS
 ALL OR PART OF THE COSTS ARE EXPECTED TO BE
RECOGNIZED AS INVESTMENTS
 ALL INVESTMENTS UP TO BGN 500 ARE CONSIDERED COSTS
 TAX PREFERENCES FOR OPENING NEW JOBS
 PREFERENCES FOR SPARSELY POPULATED REGIONS
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 27-1
Direct foreign and Bulgarian investments in
EUR mln
7000
6000
5000
Total
privatisation (foreign)
greenfield (foreign)
Bulgarian investments
4000
3000
2000
1000
0
2000
June 2005
2001
2002
2003
2004
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 27-2
Foreign direct investments in mln US
dollars
4000
3500
3000
Investitions
2500
Trends
2000
Expon.
(Investitions)
1500
1000
500
0
Total 1992-2005
• Austria – 1666
• Greece – 1034
• Netherlands – 928
• Germany – 915
• Italy – 716
2004
• Austria – 927
• Czech Republic – 376
• Netherlands – 341
• Germany – 252
• Greece - 157
'99 '00 '01 '02 '03 '04
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 28-1
Foreign direct investment and total capital
formation in mln US dollars
6000
5000
Direct investments
4000
Formation of
capital
Trend (formation of
capital)
Trend
(investments)
3000
2000
1000
0
1998 1999 2000 2001 2002 2003 2004
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 28-2
Foreign direct investments in % of GDP
10
9,2
9
8
7
5,6
6
5
5
4,4
4,1
4
3,9
3,1
3
2,2
2
1,2
1
0
Bulgaria
June 2005
Romania
Estonia
Czech Rep.
Slovakia
Croatia
Hungary
Poland
Slovenia
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 29
GOOD CONDITIONS FOR DEVELOPMENT OF JOINT
SME VENTURES WITH FOREIGN COMPANIES
 HIGH GROWTH PERCENTAGE AROUND 5 %
 LOW INFLATION
 NUMEROUS MARKET NICHES
 GOOD LINKS ON LAND, BY SEA AND AIR
 15 % CORPORATE TAX - WITH A TREND TO REDUCE
 WELL-EDUCATED SPECIALISTS
 LOW LEVEL OF SALARIES
 UP TO 2007 PREFERENCES FOR PUBLIC PROCUREMENT
 IN SOME REGIONS - PREFERENCES AND STATE SUPPORT
 AMENDMENTS WERE PASSED TO THE BULGARIAN CONSTITUTION
ALLOWING THE ACQUISITION OF LAND BY FOREIGNERS
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 30-1
Workforce costs (USD)
140
120
100
Workforce costs
80
60
Trend
40
20
June 2005
20
04
20
03
20
02
20
01
20
00
19
99
19
98
0
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 30-2
Average hourly wage in USD
8
7
6,52
6
5,73
4,92
5
Hungary
Czech Rep.
Poland
Bulgaria
4,6
3,99
3,51
4
3
2
1,34
1,03
1
0
2001
June 2005
2002
2003
2004
2005
2006
2007
2008
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 31
PROBLEMS
• FUNDS
• MARKETS
• GOOD CREDIT CONDITIONS
• SHADOW ECONOMY – ABOUT 40 – 50 %
• TRANSFER OF TECHNOLOGIES
• LACKING SUBCONTRACTOR NETWORK FOR INFRASTRUCTURE
PROJECTS AND OTHER LARGER SUPPLY PROJECTS
• INFORMATION ABOUT CRITERIA OF INTERNATIONAL FINANCIAL
PROJECTS
• TRAINING (MANAGERS, BUSINESS ECONOMY)
• BUREAUCRACY AND TOO MANY PERMITS
• COMPETITIVENESS
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 32-1
PROJECTS FOR ENCOURAGEMENT OF JOINT
SME - 1
 ACTIVATION OF JOINT VENTURES AS THE EFFICIENCY OF
THESE COMPANIES DOUBLES FROM THE VERY FACT OF
BETTER ORGANIZATION AND MANAGEMENT
 PARTICIPATION OF JOINT VENTURES IN INFRASTRUCTURE
AND OTHER MAJOR PROJECTS AS SUBCONTRACTORS
 TRAINING OF MANAGERIAL STAFF AT MEDIUM AND TOP
LEVEL - USE OF PROVIDED FUNDS
 SUPPORT OF FOREIGN CONSULTANTS AND
ENTREPRENEURS FOR ESTABLISHMENT OF CONDITIONS FOR
PARTICIPATION OF BULGARIAN COMPANIES, AS WELL AS WITH
FOREIGN PARTICIPATION IN THE EU FINANCIAL PROJECTS
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
No. 32-2
PROJECTS FOR ENCOURAGEMENT OF JOINT
SME - 2
 SUPPORT FOR DEVELOPMENT OF DATABASES AND DRAFT
OF BUSINESS PLANS FOR EXTENSION OF CREDITS
 ENCOURAGEMENT OF GROWTH AND ENHANCEMENT OF
COMPETITIVENESS OF SME BY EXPANSION OF SPECIALISATION
AND TRANSFER OF TECHNOLOGIES FROM ABROAD
 ENCOURAGEMENT OF ENTREPRENEURSHIP BY TRAINING
AND IMPROVING THE BUSINESS CLIMATE FOR PRIVATE
ENTERPRISES
 IMPROVEMENT OF OPPORTUNITIES OF SME ACCESS TO
SERVICES, PROGRAMMES, NETWORKS AND FINANCIAL
SOURCES OF THE EU
June 2005
Penkov, Markov & Partners Attorneys at Law
* Source – see last page
This report is based on data of the National Statistical
Institute, the Small and Medium-sized Enterprises Agency,
the Bulgarian National Bank, the International Monetary
Fund, the Bulgarian Investment Agency, the Ministry of
Labour and Social Policy, the Ministry of Economy, the
Bulgarian Chamber of Commerce and Industry and various
commercial banks. The data for 2004 has not been finally
confirmed by the National Statistical Institute, at which we
have only forecast data for 2005.
This report constitutes the author’s own analysis and
does not thereby bind any institution.
June 2005
Penkov, Markov & Partners Attorneys at Law