Банкеръ Weekly



The uncertainties surrounding Bulgaria's integration into the European Union (EU) cause disturbance to the local businessmen. Even the greatest optimists realize that after joining the single European market, lots of small and medium-sized enterprises will virtually be swept away. However, there are also branches such as the construction one that wait with impatience for the EU membership of the country. It is easy to understand that, considering the speedy growth of construction services in the Czech Republic, Hungary, and Poland.Perspectives in Bulgaria seem positive, too.The Bulgarian Chamber of Construction forecasts that growth in the construction will go beyond 20% in 2004. The total turnover will probably reach BGN3.7BN which is almost BGN700MN more than in 2003. The significant difference results from the higher prices of construction materials and the initiated implementation of a few large infrastructural projects - the building of a new terminal and flight strip at the Sofia airport, the port of Bourgas, the modernisation of the cross border stations with Romania and Greece... Significant resources were also poured in the repair of roads and the construction works along the Black Sea coast. Moreover, some projects have not even begun - the building of the second bridge on the Danube, the Belene nuclear power plant, the reconstruction of the Plovdiv-Svilengrad railroad, the completion of the highways...The expected growth of direct foreign investments in the sector represents another source of optimism for the constructors. The investments are quite modest now - they hardly amount to 2% of the general investments in the country. It means that foreign construction companies that operate on the local market do not create their own power - plants, units, warehouses, in the country.In factthe expansion in the branch would be much more considerableif the government tried to guarantee a more serious position of Bulgarian companies in the implementation of large projects financed from abroad - not as subcontractors, but as chief constructors. In order to guarantee the equal participation of Bulgarian entrepreneurs in the construction tenders, it should coordinate the tender conditions with the real parametres of the local market, representatives of the chamber claim. There have been a number of competitions in which requirements for annual amounts and turnovers can never be met by any Bulgarian company. The rulers justify themselves by saying that the criteria are placed by Brussels, but in practice they are subject to agreements and political will. It is true that countries like the Czech Republic, Hungary and Poland managed to provide much more favourable conditions for their local companies.Anyway choosing foreign executors does not always guarantee better implementationbecause eventually the task is again fulfilled by Bulgarian constructors, but for less money. The biggest amount of money goes abroad. Foreign companies only send two or three persons to exercise financial control. Everything else is carried out by Bulgarian companies, Simeon Peshov, Chairman of the Bulgarian Chamber of Construction, said. Look at the Trakya highway - the contracts for construction of two lots were won thanks to dumping prices. The European experts estimated that a kilometre of the road cost EUR2.2MN, but the assignment was made at EUR1.2MN - EUR1.3MN. Such low prices logically hurt the quality and then the winning companies do their best to compensate at least part of the difference by finding million reasons to request an increase of the price.There are many examples as the above-mentioned. One of the most recent and scandalous one is with the Austrian company Strabag, which won the tender for the construction of the new passenger terminal at the Sofia Airport. Although under the contract it was obliged to carry out only 70% of the work (with its own machines, personnel, etc.) the entire construction is in fact done by Bulgarian workers. It is true that Strabag is written on their clothes. Regarding the demands for revising the price, they started immediately after the first sod was made and have almost never stopped. According to rumours in the branch, the Government has promised a EUR3MN bonus to Strabag if it succeeds to complete the project within the set term (by August 31, 2005). The high criteria for participation in the tenders are not at all the only hindrance to the participation of Bulgarian construction firms in big infrastructural projects. The other main problemis the ensuring of loansAfter numerous Ponzy schemes in the construction branch went bankrupt in the mid-90s, non-confidence of credit institutions to the sector is easily explainable. There are other complications as well - intercompany indebtedness in the sector is currently around BGN2.38BN and goes up by 12-15% each year. This influences mostly small and medium-sized construction firms, which cannot pay to their suppliers if contracting authorities delay their payments. Expectations for growth in the sector are supported by statistics. Construction industry presently accounts for about 5% of this country's GDP, while the average in the EU is 9 per cent. That means there is still unrealized potential. Mr. Peshov expects that over the next three or four yearswages in the sector will doubleCurrently, the lowest hourly payment in Bulgaria is BGN1.43 for unqualified workers, BGN1.68 for qualified ones, and BGN2.35 for experts. The respective rates in Western Europe are much higher. In Austria, for example, a worker of low qualification gets EUR8.40/h, in Germany's Eastern provinces - EUR8.95/h, and in its Western provinces - EUR10.36/h. But while remuneration in Western Europe exceeds more than ten-fold that in Bulgaria, housing prices in our country are only 50% lower.

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