Business Environment
Overview Bulgaria is now recognised by the United States and other major international players as having a functioning market economy. But while it is on the road to meeting the criteria for accession to the European Union, Bulgaria’s business environment contains pitfalls for the unwary. Probably as a continuing legacy of communism, many in the bureaucracy are unresponsive to the needs of the private sector, a factor which aggravates another source of criticism, the fact that doing business in Bulgaria is subject to a potentially very frustrating range of regulations. Although Company law has been further aligned with the requirements for EU membership, the EU commission has said that there is a need for the enforcement of legislation on the protection of intellectual and industrial property rights. Navigating the business environment in Bulgaria is best done through a combination of local business connections who have access to the country’s informal networks, and the help of law, accounting, and human resources professionals to keep one on the correct side of the law. Foreigners and Business The European Commission, in its latest report in November 2003 on the progress being made by European Union candidate countries, noted that Bulgaria had made further progress in creating a non-discriminatory regime of national treatment for foreigners performing economic activities in Bulgaria. In late 2003, Parliament approved changes to the Foreign Investment Act. These changes include treating domestic and foreign investors on an equal footing. The changes are also geared to reducing the amount of time spent on administrative issues. Investors with dual citizenship can decide which status to use, that of a local or foreign investor. Foreigners are allowed to take part in all types of companies, with no restrictions. However, constitutional restrictions on foreigners owning land remain in place, though these will fall in 2014 at the latest. In any case, in real life any foreigner who wants to “own” land does so through setting up a local company. The amended act is meant to encourage investments in products meant for export, in agricultural production and in IT, as well as investments that can be implemented within three years or open new jobs. Investment Bulgaria Agency, according to the new law, must issue certificates to investors, categorising the investment as first, second, or third class. The degree of assistance by the state will depend on the class of the investment. Macroeconomic Climate The Bulgarian economy, in recent years, has achieved a high degree of macroeconomic stability, thanks to a good policy mix achieved through the currency board arrangement (put in place in 1998 to stabilise the currency, the mechanism ties the performance of the lev to that of the euro), a tight fiscal stance, and wage moderation. Should the Government continue on this course, sustained growth is possible. However, there are problems. Labour law does not allow much flexibility in the labour market. No notes on the business environment in Bulgaria can be made without reference to the shadow economy. Investigations by the state in 2003 found significantly large sums of income that had been concealed by taxation, failure to pay social security contributions, and obstructions by employers to labour inspections. After the fall of communism and amid the economic traumas of the late 1990s, and to this day, groups believed to be linked to organised crime have carved for themselves a place in certain sectors of the economy. Various observers, including the EC, have noted that the tax administration remains inadequate to its task. Steps are, however, being taken to improve this. At the same time, economic development in Bulgaria has shown positive trends in various areas, including tourism, the capital market, and the banking system. The EC also noted that the Bulgaria had made good progress in adopting new legislation on capital movements and payments. As regards the banking system, which took a very cautious approach after the economic meltdown of 1996-97, the degree of lending in the market, including of small loans, appears to be rapidly on the rise; to the extent of causing concern in some circles that unless caution is exercised, Bulgarians could find themselves in debt traps. Bulgaria also has on its side a relatively well-educated and computer-literate workforce, and, for the time being at least, labour that is more affordable than in Western countries. Infrastructure is also steadily being improved, mainly thanks to foreign – in particular, European Union, funding. Investors often cite the judicial system as a matter of concern. Court actions can take an inordinate length of time and there are continuing suspicions of irregularities in the system. For all the shortcomings, many believe that Bulgaria is a country, which has a lot of potential and with determined effort could overcome obstacles to an improved business environment. Among expatriates, many find Bulgaria a pleasant place to live and work. |
