Банкеръ Weekly

Briefs

NEW-STYLED OLD LAW TO ENCOURAGE INVESTORS

Bulgaria should bring its legislation in compliance with that of the European Union (EU) in order to cease being in Europe only as a geographical location. This is something like sine qua non (Latin), meaning something absolutely indispensable. The Foreign Investment Act, passed in 1997, is one of the laws, without whose radical reshaping harmony with the EU is impossible. Two years and nine months remain till the year 2007 when Bulgaria is expected to officially join the EU. But foreign investment in this country - slightly above USD6BN - is really trifling as compared to the external capitals attracted into the Czech Republic, Poland and Hungary, whose aggregate amount exceeds BGN110BN. Even Romania - the country with which we most often seek comparison to our advantage - is ahead of us with foreign investment of USD9BN.Nevertheless, the new law that will soon supersede the currently effective one will be called Promotion of Investment Act. It would sound even more truthful if the synonymous name encouragement of investors act was used, because big western companies lack courage to invest in Bulgaria. The above-mentioned figures are indicative of that. According to the new stipulations, domestic and foreign investors will be already treated on an equal footing when applying measures for their encouragement. Some of the first provisions in the draft bill read: a Bulgarian natural person permanently residing abroad who has a second citizenship as well, may choose if he/she would enjoy the statute of a native of this country or of a foreigner under that law. This could mean several things. One of them, for instance, is giving a green light to unimpeded return of exported capital in the form of foreign investment. This has been effected so far through dummies, but now the return of money will be considerably facilitated. The encouragement spirit of the law is also evident from the expectations of foreign business and a number of Bulgarian MPs for revoking the restrictive regime for foreigners and firms with foreign participation regarding deals in land and real estates. The bill is to be heard on second reading in Parliament when a heated debate on that issue is expected. In the initial draft the bill projected a restrictive regime, proposed by the Ministry of Defence and the Ministry of Internal Affairs. Under the provisions, a foreigner had to ask for a permission from these two ministries in case he wanted to purchase land or real estate on territories of importance to the national security and defence (e.g. in the border regions). These regions were included in a special list, representing a State secret. This meant that each foreign investment in such property should pass through the two power ministries. However, representatives of foreign business in Bulgaria qualified that regime as discriminatory and the Parliamentary Economic Commission ultimately rejected it. The requirement to foreign natural persons for a permanent residence permit in Bulgaria in order to carry out economic activities in this country will certainly be eliminated, too. The Foreign Investment Agency with the Council of Ministers shall be transformed, or more accurately, renamed into Bulgarian Investment Agency. The new old structure will be subordinated to the Ministry of Economy. It will have the statute of an executive authority and will coordinate the activities of state bodies. And what functions will it perform? Under the law - the state's policy in the sphere of investments, of course if there are such. Moreover, it will issue class certificates to investors according to instructions of the Minister of Economy. Deputy Premier and Economy Minister Lidiya Shouleva will hardly vow that administrative barriers in front of foreign investors would be lifted. Under the new legislative document, investors will be included in three categories, depending on the amount of their investments in the country. But as per old Bulgarian tradition, the criteria for their grading will be set in regulations for application of the law and not in the act itself. Third-class investors - the smallest which fall into the scope of this law - are those implementing projects worth between NGN10-50MN. Special informational and consulting services are planned for them: they will be presented information prepared in advance, as well as processed information about potential partners in the country and about all administrative procedures for the fulfilment of the investment project. The second class will include companies intending to invest between USD50-100MN. Much more extras lie in store for them, e.g. individual informational, consulting and administrative services in front of all central and regional administrations of the bodies of executive power. The all services at one desk principle will be introduced, too, which should mean elimination of needless bureaucracy. Certificates to that category of investors will be issued by the head of the agency. The biggest fish will be ranked in first class. In order to be included in that group their investment should exceed the huge amount of BGN100MN. In addition to the relief granted to the first- and second-class companies they will enjoy the state's financial support for the construction of the infrastructure they need for their business. The funds for that purpose will be projected in the National Budget Act. First-class investors will also have the opportunity to ask from the agency limited property rights on a real estate that is private or municipal property. Such limited property rights may be granted by governors as well, at that without inviting a tender or contest, after coordination with the ministers of economy and of regional development and public works. Unlike the presently effective law, the new act gives quite broad rights to governors in the sphere of investments. In fact, there are quite a lot of vague issues concerning these limited property rights. According to the Bulgarian Chamber of Commerce and Industry (BCC) for example, the law does not oblige competent bodies to accept the agency's decisions for granting property rights on private, state-owned and municipal estates. With a view to Bulgaria's future accession to the EU, the act will obviously encourage mostly investments in the production of commodities, intended for export. Processed products, agricultural goods, high-tech products (computers, software, know-how, etc.) follow. Companies which create more working positions, modernize and expand the existing enterprises, as well as those that intend to realize their projects within three years, will be encouraged, too. However, all details are yet to be considered and clarified during the second reading of the draft bill in Parliament. There will be long exercises in rhetoric, voting by other deputies' cards in a half-empty plenary hall, roll-call of quorum... This will inevitably influence the quality of the final outcome, i.e. the promotional features of the law. Therefore, we could say - on the courage of the act's addressees, the investors.

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