Банкеръ Weekly

Briefs

INDUSTRIAL ZONES ARE THE SALVATION

LESS THAN 30% OF INVESTMENTS ARE IN PRODUCTION. IT'S REALLY SAD THAT BULGARIA IS SOMETHING LIKE A TRANSIT RAILWAY STATION FOR FOREIGN CAPITAL.

Stoyan Stalev was born in Sofia in 1952. He graduated from the German Language School in the capital city and afterwards got a diploma from the Law Faculty of St. Kliment Ohridsky Sofia University. Defended a doctor's degree in law.
Before overtaking the position of InvestBulgaria Agency's Executive Director he was Bulgaria's ambassador to Turkey in the 1998-2006 period. From 1991 till 1998 he was our country's ambassador to Germany. From February 1997 till May 1997 Mr. Stalev was foreign minister during the take-care cabinet of Stefan Sofiyanski. In the 1990-1991 period he was legal adviser to the then Bulgarian President Zhelyu Zhelev. From 1981 to 1991 he worked as a research associate and an associate professor in the Law Institute with the Bulgarian Academy of Sciences.
Mr. Stalev is fluent in German and speaks English, French, Spanish and Russian. Married, with two children.

Mr. Stalev, comparisons such as a quick cat or the tiger cub in the Balkans are often used when speaking about the investment prospects facing Bulgaria. Do you make such animalistic associations regarding this country's opportunities to attract foreign capital?
- Comparisons are always somewhat misleading. Bulgaria should be searching its unique place in the region, especially in the battle for attracting foreign investors. The country really has positive characteristics. It's a small state with a society with a global mind-set, open to the world. On the other hand, Bulgarians are too great individualists, but most of the experts are highly qualified and easily adaptable. The Bulgarian political system is functioning comparatively well, democracy is developed, and there is freedom of speech. I am enumerating all these positive characteristics because they are decisive for foreign investors' choice.
If we have exhausted the praises for Bulgaria let's say what the problems are, because investors are timid animals as we know.
- There are problems of course. It's a fact that infrastructure in our country is not adequate. Therefore, we may not declare ourselves the tiger cub in the Balkans. That holds true as well about telecommunications, INTERNET links, etc. Institutions in Bulgaria do not work synchronically and there is no good coordination between local and central bodies of power. Administration and legislation are moving extremely slow.
The country has also very serious demographic problems which reflect on investments as well. Over the last 15 years Bulgaria has lost more than 1 million experts who have flown abroad. We have over 35,000 students each year in the EU member countries. But we are not doing anything to attract them back. Therefore, I believe the attraction of foreign investors here is mostly connected with the return of young Bulgarians into the country.
The tax laws for 2007 are currently under draft. Do you have specific proposals to the Finance Ministry regarding the corporate tax rate? Because if we draw a parallel with the countries in the region such as Serbia, Montenegro, and Croatia, it becomes clear that the profit tax rates there are more competitive.
- That's right. But it's also true that unlike these countries Bulgaria will join the EU in just a few months. Moreover, we cannot be compared with them regarding both political stability and foreseeability of the economy. And these factors are unconditionally advantages to any country. Bulgaria should have a structured taxation system and a certain level of tax proceeds. Within the EU, however, our country has the lowest profit tax rate which will be probably reduced to 12% as of January 1, 2007. Finance Minister Plamen Oresharski assured of that. I think the tax medium in Bulgaria is favourable to the entrance of foreign capital. Perhaps quicker servicing when refunding value added tax (VAT) should be considered. There are also certain problems connected with VAT-exemption of some export deals.
The latest statistical data show that one more time we have broken investment records. What are the tendencies?
- Investments worth EUR1.2BN have been registered for the first six months of 2006, up from EUR710MN for the same period of 2005. That is a fair increase of investments which is also due to expectations of Bulgaria's future EU-membership. Each investor wants to occupy a certain position here. I would like to underline that international markets and investors are much more optimistic about this country's development than ourselves.
Isn't it disturbing that the bulk of investments in Bulgaria are connected with export-oriented productions?
- Indeed, the distribution of investments according to sectors is not satisfactory. Most of the foreign capitals are in banking, telecommunications, services, leisure industry, real estates, etc. And less than 30% of the investments are in the sphere of production. For that reason the future amendments to the Investment Act will stipulate certain measures for promotion (on the part of the State) of investments in the production on the goods that could be exported.
Bulgaria may find its niche as a sub-supplier for the automobile industry, power engineering and all kinds of electronics and electrical engineering connected with power industry. It is important to direct towards Bulgaria investments in the sphere of research and development activities, and in software and hardware, as they bring a higher surplus value.
What instruments for State support to investors could be stipulated in the law?
- Encouragement of the establishment of the so-called industrial zones is the main instrument. There is a lot of state-owned and municipal land which has not been used efficiently so far. The funds and efforts, including the money from the Cohesion Fund, should be mainly directed to the establishment of industrial zones on the plots of land, owned by the big municipalities. Further, the municipalities may rent part of these zones to firms for the establishment of production capacities. There should be also additional incentives for opening of new working positions and for the appointment of certain categories of experts and their requalification.
Why mainly the so-called mobile productions (that could be moved within just a few days to a country with a more favourable investment climate) come to Bulgaria?
- It's sad indeed that Bulgaria is sometimes like a transit railway station for investors. Investments in services and light industry productions are more mobile, and they have been the main centre of attraction for foreign capital in recent years.
It sounds like a cliche, but aren't the bureaucrats those who chase investors away? Isn't it high time for the administration to begin working at a single desk?
- Administration will be always necessary because environmental protection, various town planning projects, etc. are being watched, too. However, the administration should be quick, transparent and flexible. It is not obligatory for its decisions to be always to the taste of investors, but they should be right and competent.
Do you think that free trade zones have a future in Bulgaria? Their establishment was among the nine measures of priority importance in the programme of former premier Simeon Saxe-Coburg-Gotha, but nobody speaks about them anymore?
- Investment priorities change with Bulgaria's EU-accession and free trade zones are not among them. The EU policy does not encourage the establishment of such zones and as our country will become a part of Europe's single market it should observe its rules. However, along our borders with third countries, especially with Turkey as a big economic partner we have a sufficiently well-developed network of duty-free establishments.
What are your forecasts about the level of foreign direct investments by the year-end and in 2007?
- There will be dynamics and a considerable increase of investments in 2006 due to Bulgaria's rising popularity as the EU's border, opening new regions along the Black Sea basin, the Middle East and Turkey. Leisure industry and investments are walking hand in hand. Therefore, they are the two spheres towards which the efforts should be directed. For the entire 2006 the volume of investments will probably increase by some 60% from last year.
That is important because it is the foreign direct investments that are like a medicine, curing the deficit in the current account of the balance of payments.
- That's right. And the budget years that follow won't be easy. From now on we have to organize the absorption of EU funds very well in order to avoid jolts after the accession. That is why many of the incentives to foreign investors are projected to come under the EU funds, including those for construction of infrastructure, industrial zones, creation of working positions, etc.

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