Thursday, 19th March 2009
Securing the Result of Economic Transition
The Bulgarian economy contracted in the aftermath of the collapse of communism before stabilising around the end of the 1990s. Since the beginning of this decade growth has typically been around 6 per cent per year, with unemployment falling to around 6 per cent. Inflation, which was rampant in the early 1990s, is now more manageable although at 12 per cent last year it was still at an unacceptably high level. With lower growth it should decrease significantly this year. The budget has been in surplus in recent years and the EU estimates it to remain so this year. Gross government debt is admirably low: even Luxembourg has a higher amount of government debt, at 14.4 per cent of GDP compared with Bulgaria's 13.8 per cent in 2008.
The EU believes that Bulgaria will continue to grow in 2009, albeit at around 1.8 per cent. This of course compares favourably with the EU as a whole, which, due to the global recession, is expected to contract by the same amount.
More than half of Bulgaria's trade is with the EU, though it is still very dependent on imports from Russia and Ukraine, especially oil and gas. This energy dependency is problematic, and Bulgaria was badly affected by the Russian decision to shut down the supply of gas this winter, an issue the Presidency discussed with Vladimir Putin recently in Moscow.
We are looking at a commitment of 100 million Euros towards the planning stages of the proposed Nabucco pipeline, which of course passes through Bulgaria. Nabucco is an attempt to diversify the supply of gas, bringing Azerbaijani gas through Georgia and Turkey to the EU. It is highly sensitive and there are doubts as to whether it is achievable.
Foreign direct investment (FDI) in Bulgaria has been rising and reached 6 billion Euros in 2007. FDI has been growing in the light of EU membership, free market reforms and privatisations. However, crime and corruption have arguably deterred investors and remains a crucial area requiring attention. But on the plus side, Bulgaria has a 10 per cent flat rate income tax, the lowest in the EU. Corporation tax is also at a flat rate of 10 per cent.
There is no doubt that inward investment is the key to securing Bulgaria's economic transition from EU neighbour to EU Member. And this is especially difficult but equally valid nowadays as the economic crisis takes hold. But crime and corruption are not the only things to deter potential investors. Investors look for reliability of the essential services such as electricity. Until recently, Bulgaria was a major exporter of electricity to all of its neighbours - but today that export has shrunk towards insignificance. The premature politically motivated closure of 4 units at Kozloduy (KOZ-LA-DWEE) nuclear plant has almost completely removed that possibility. Their combined output of almost 2000 Megawatts was virtually the same as the export potential.
The agreement to close these units was made under duress 10 years ago as a condition of accession to the EU. I understand that 2 of these units could be returned to service but the Bulgarian government is taking steps to ask for more compensation instead - about 1/2 a billion Euros of taxpayers money! But these units could earn that amount in less than 1.5 years. That’s new wealth creation - not a new tax burden.
Now even a good agreement that is 10 years-old deserves a review and this was not a good agreement. I urge the Bulgarian authorities to explore such a possibility - to demand a review that could lead to the inward investment to secure the economic transition that we are promoting today. Of course nuclear safety is of paramount importance and part of any review must address that issue. Do not waste EU taxpayers’ money when the wealth creating answer is in front of us. I know this is wrapped up in the Accession Treaty but paragraph 36 of that Treaty could supply the means to sort out this situation. The article reads ‘….that for a period of three years after accession (Bulgaria joined in January 2007), if difficulties arise which are serious and liable to persist in any sector of the economy or which could bring about serious deterioration in the economic situation of a given area, Bulgaria may apply for authorisation to take protective measures in order to rectify the situation..…..’
I say don’t wait for the next gas crisis or the deepening of this world recession, act boldly and act now in this election year!"
