The Other Southwest

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The Other Southwest

Blagoevgrad still lurks in Sofia’s shadow despite its position in the economically affluent Southwest

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The district of Blagoevgrad is part of the richest region in Bulgaria from a statistical perspective - the Southwest, which is also home to the capital. Consequently, Blagoevgrad often gets overlooked and remains in Sofia's shadow. The size of the local economy is incomparable to the capital, which is about 100 km away, but Blagoevgrad district has many advantages. Employment is at a record high, unemployment is low and Blagoevgrad's has two universities, attracting ambitious young people. The local tourism sector is booming and set to expand into new territories.

However, the district of Blagoevgrad has the lowest average wage in the country. And, similarly to other districts, the growth rate of the local economy has been falling behind the national average over the past decade. What makes Blagoevgrad different is that there are no large employers, state-owned enterprises, power plants or military factories to offer high salaries to its population. The economy specializes in low value-added sectors such as agriculture, light industries and sectors which traditionally go hand in hand with modest wages and relatively large grey sectors like tourism. All this brings down the averages for the district.

Modest growth rate

Blagoevgrad's macroeconomic indicators leave the initial impression that the local economy is growing at a much slower rate than the national average. The value of gross domestic product reached 2.7 billion levs in 2017, according to data from the National Statistical Institute (NSI), but that's just 43% above what it used to be a decade ago. Meanwhile, the national average growth rate was 59% for the same period. A similar lag is visible in data for local value-added.

During the past decade, there has been a restructuring in Blagoevgrad's economy, which has moved away from industry to focus more on services. The shift was probably due to the decline of one of the traditional branches of the local economy - tobacco production. In 2017, cigarette manufacturer Bulgartabak Holding cut half its staff at the Blagoevgrad factory. At the beginning of 2019, the production plant officially shut down, leaving the remaining 200 employees jobless.

However, Blagoevgrad's potential in this sector is still intact. "I hope someone will reopen the factory because the base is built and the trained people for these machines are still here," says Romeo Shatev, chairman of the local branch of the Bulgarian Chamber of Commerce and Industry (BCCI).

In services, the undisputed leader is tourism, which is booming. "Before, winter and mountain tourism dominated, but now the sector is expanding towards spa. The mineral springs in the region are a natural resource, and we're still using only a small portion of the ones available. There's a lot of potential for growth here," says Shatev. Services generate 61% of the value-added in Blagoevgrad. Agriculture contributes 10% and was worth 238 million levs in 2017, second only to Plovdiv in size. The area, known for its mild climate, is home to growers of early sprouting vegetable and fruit in Bulgaria and winemaking is also gaining ground.

"We see more and more people opening small wine cellars and investing their money in educating their children abroad, where they learn from wine-making practices in Australia, France and Chile. Which is a good prospect for the region," says Shatev. He claims that sectors such as woodworking, furniture production and sewing also have good positions, even though clothing manufacturers have difficulties due to lack of manpower.

But it is precisely the specialization in these sectors that may explain Blagoevgrad's sluggish economic performance. Agriculture is traditionally the lowest performing sector in the Bulgarian economy in terms of value-added. Branches in light industry also don't operate at large margins, and tourism offers the lowest wages in the district (an average of 532 levs per month in 2017) after transport (505 levs).

Why the low wages?

Despite its universities, the short distance to the capital and its positive business environment, Blagoevgrad district has the second-lowest average wage in the country, according to data from 2018. The average gross monthly salary is 771 levs, whereas Sofia offers twice that. Wage growth is comparable to the national average, but the low base makes catching up difficult.

Average figures, however, are not enough of an argument for a district's development. According to data on average wages by municipality published by the Sofia-based think-tank Institute for Market Economics last year, the Blagoevgrad district's average salary was 691 levs in 2017, but in Blagoevgrad municipality the amount was 809 levs, ranking it 15th among the district centers in the country, with a higher average than other municipalities like Gabrovo, Yambol, Pernik and Haskovo, and in 66th place among all 265 municipalities in Bulgaria. The smaller municipalities in the southwestern part of the district offer lower wages, bringing down the average.

The disparity comes partly from local population distribution. Usually, average wages are highest in a given district's economic center where the biggest employers are. The economic center is also where most of the population is based. The more people live in the center (and get paid high wages), the more the average amount rises in the district. Blagoevgrad municipality is not an exception in terms of the wages it offers compared to other economic centers. Where it does differ is people - only about a quarter of those living in the district reside in its economic center. That is the lowest share among all of the Bulgarian districts, which gives the higher wages offered in Blagoevgrad municipality a comparatively smaller weight in the district's average.

Also, there are no large employers in Blagoevgrad. Usually, big corporations offer better pay, making other companies in their area of operation raise their wages as well to compete for potential employees.

Blagoevgrad's active citizens

Leaving aside the low average wages in Blagoevgrad, the district has some of the best regional economic indicators in the country. Close to three-quarters of the population were economically active in 2018 (152,000 people), and 145,000 of them were employed, which brought employment up to 71%, whereas the national average was 67.7%. Unemployment also fell to 4.8% in 2018, which is below the Bulgarian average.

The restructuring of the local economy from industry to services is also evident in the employment statistics. Over a third of the 89,700 people employed in Blagoevgrad in 2017 worked in manufacturing, down from 41.1% in 2007. Construction has also been also losing ground, with 5,000 people employed in 2017 - half the number ten years earlier.

On the other hand, locals are focusing on economic sectors like transport and logistics, tourism, research and healthcare. The highly profitable (by Bulgarian standards) ICT sector has few representatives in Blagoevgrad - it employed only 700 people in 2017, or 0.8% of all employees in the district. One reason could be the extremely low average wage - 899 levs for a job in ICT, whereas in Sofia or Plovdiv, for example, an employee could easily get several times that amount.

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Young people leaving

Similarly to other regions outside the capital, companies in Blagoevgrad are also facing difficulties associated with retaining employees. The pace of population decline is low compared to other areas in the country like the Northwest. Elderly citizens made up 19.3% of the district's population in 2018, which is the third-lowest share in Bulgaria after Sofia (17.5%) and Varna (18.9%). However, the downward trend is visible. Over the past decade, the population in the district has decreased by 7%. The group of people under 24 years old has shrunk from 32% of the population in 2001 to 23% in 2018.

The city of Blagoevgrad has two academic institutions - The South-West University and the American University in Bulgaria. Together, they have over 12,000 students. Despite that, it looks like most graduates don't choose to stay in Blagoevgrad. Barely a fifth of the district's population has a higher education degree. Comparatively, the national average stood at 27.8% in 2017. According to national statistics, 4,000 people left the district in 2018, 42% of whom headed abroad and a third of whom chose to live in Sofia.

Sofia's long shadow

Over the past 15 years, the total amount of foreign direct investment in Blagoevgrad has risen to 474 million euro, or 1,541 euro per capita. According to an analysis by the Institute for Market Economics, over half of foreign capital flows was directed into the trade sector by the end of 2015 as a result of the advent of modern retail chains. Although this breakdown is a bit old, the amount of FDI in Blagoevgrad did not change significantly over the next two years, indicating a very low probability of a significant shift in FDI structure.

However, Blagoevgrad can be considered a good alternative for outsourcing opportunities considering the abundance of students and the short distance to Sofia Airport and major infrastructure links. "The proximity to the capital provides tremendous opportunities for the development of Blagoevgrad, but they are not used by the local government structures. In my opinion, there is no long-term vision for the development of the district, no initiative, no desire for change," says Simeon Kitanov, chairman of the local branch of the Bulgarian Industrial Association.

Another obstacle to unfolding Blagoevgrad's full potential are the missing sections of Struma Highway. According to locals, they should have been built years ago. "The Struma highway was stolen from us by Sofia," says Romeo Shatev. "The first highway that received full funding from the EU pre-accession funds was Struma. And yet, construction may not be completed by 2023. We're paying for the subway in Sofia, the Trakia Highway and now the Hemus Highway. Why shouldn't the money for the subway be distributed to other infrastructure projects?"

The very fact that Blagoevgrad shares a planning region with Sofia - the Southwest, is to the district's detriment, Shatev argues.

"Sofia increasеs the average macroeconomic indicators for the whole region, as a result of which our access to European programs is limited," Shatev explains. Anyone looking at the macroeconomic statistics can see that the capital is very different and far ahead of the rest of the regions in the country. Consequently, this distorts the numbers for the whole Southwest, as well as the competition for access to cohesion funds, which are allocated on the basis of average GDP per capita. Sofia itself is above the EU average but because it shares the same planning region with other less developed districts, the capital continues to receive the lion's share of European funding for major infrastructure projects such as the subway.

Author: Capital
Author: Capital
Author: Capital
Author: Capital
Author: Capital
Author: Capital

The district of Blagoevgrad is part of the richest region in Bulgaria from a statistical perspective - the Southwest, which is also home to the capital. Consequently, Blagoevgrad often gets overlooked and remains in Sofia's shadow. The size of the local economy is incomparable to the capital, which is about 100 km away, but Blagoevgrad district has many advantages. Employment is at a record high, unemployment is low and Blagoevgrad's has two universities, attracting ambitious young people. The local tourism sector is booming and set to expand into new territories.

However, the district of Blagoevgrad has the lowest average wage in the country. And, similarly to other districts, the growth rate of the local economy has been falling behind the national average over the past decade. What makes Blagoevgrad different is that there are no large employers, state-owned enterprises, power plants or military factories to offer high salaries to its population. The economy specializes in low value-added sectors such as agriculture, light industries and sectors which traditionally go hand in hand with modest wages and relatively large grey sectors like tourism. All this brings down the averages for the district.

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