There's this recurring question I get when someone visits Bulgaria. How come, they ask, it's the poorest EU country and the salaries are so low, and yet there is hardly a vacant spot in all the restaurants, bars, coffees and malls?
It gets something to do with the national character, I think, as well as with the fact that we are more Southern than Central and more Oriental than European. But it also has to do with this color which is as much a part of the national identity, as the White, Green and Red - Gray.
This week a report came out, confirming what many of us know, yet national statistics miss. The FISC committee of the European Parliament has calculated that Bulgaria has the highest share of the so-called informal economy in the EU. To put it simply, Bulgarian GDP would be a third higher than it is now if all of it were in the open, devoid of criminal activity.
To put that in numbers - around 25-26 billion euros each year go under the radar but into people's pockets. Most of that is explained by tax avoidance but also because much of what people get paid is still under the table.
Which tell us a lot. By any possible metric that you can look at - loans, home ownership, vacations, or dining out, Bulgaria is not far from the EU average and if the numbers were all true, it would be above the median in at least some areas. We are, truth be told, somewhat richer than the EU (or even our own institutions) would have us believe.
That is of course, not a new phenomenon, especially in Southern Europe, as Greece can testify. Yet the worrying trend is that the gray economy is growing again. When we boldly implemented the flat tax some 15 years ago, the thinking went - we need to bring in all the money people are hiding, tax them as little as possible, and at the same time make the tax authorities efficient.
Some of that happened. Some of it didn't.
But it was always a deal: you forfeited some taxes, in order to collect others. And Bulgaria still doesn't collect nearly enough tax to ensure its proper self-development: municipalities are cash-strapped, the pension system is underfunded, we give a pittance to those in need, and almost no financial incentives to new investors. The healthcare system gets 5 billion from the budget (funded by our social payments) and it gets another 5 billion paid directly by the people who use it.
Given the state-funded corruption orgy of the past decade, you can't argue we need to pay more. But we're obviously unable to collect everything which is due. The difference is covered by EU funding. And it will probably stay like that for some time. Use that as a guide for your investment strategies.
On Monday evening news broke that Veliko Zhelev, one of the biggest players in the construction business, mainly through his Hidrostroy company, had been arrested. People wondered whether it might be linked to current revelations from the Regional Ministry that roads in the country were missing tons of asphalt.
It turned out not to be the case. Mr Zhelev was released on a 20,000 leva bail and the charge was of physical assault of an ex-employee who got fired for corruption. While K Insights has it that the story could carry some credence - the employee was stealing and he probably did get some sort of beating, the timing of this arrest is curious. While the European prosecution service will not investigate such cases, as we explained in our previous newsletter, it's still worth following this.
Smells like the 90s: Media gets SLAPPed by an Insurance companyYou might remember there was a debate some weeks ago on changes to the Insurance Code. A text was to be added which explicitly provides for immediate payments to claims made through the international Green Card system. This was needed because a Bulgarian insurer had accumulated liabilities, at one point reaching 30 million levs. The participating MPs and representatives of regulators and institutions avoided mentioning the insurer's name. Yet it was widely known - and Finance Minister Rossitsa Velkova obviously knew too - that the company in question was Lev Ins.
Curiously, when the website Mediapool published an article quoting Velkova, it got sued by Lev Ins for 1 million leva.
Call it as you see itThe lawsuit, which easily classifies as a Strategic Lawsuit Against Public Participation, or SLAPP, was immediately denounced by media watchdogs like Reporters Without Borders and the Association of European Journalists in Bulgaria. It is clear that its goal is not to get money from Mediapool, but to intimidate into silence anyone daring to name Lev Ins.
Which, to be honest, smells a bit like the 90s when some other insurance companies were using force to increase their market share.
Elections 2023: are you tired already?Another week, another pre-election poll - this time by Market Links. The results are more or less the same as other big agencies - a statistically insignificant lead by the new reformist coalition WCC-DB over GERB (20.9 to 20.4%), MRF is third with 13.3%, Vazrazhdane on its tail with 11.8 and BSP with a record low of 6.6%. The Market Links data differs from other agencies' data in one way - it indicates that Bulgarian Rise, TISP and the new leftist formation called simply The Left will certainly remain out of parliament.2. Economy:
It was International Women's Day this week and a new study by the Institute for Market Economics published for the occasion highlighted the persistent disparities between men and women on the Bulgarian labor market. According to the study, female employment is higher than male, but pay is still lower, although the gap has been closing in recent years (from 25% in 2000 to 18% now). It is most significant in the financial, health, ICT, manufacturing and culture, sport and entertainment sectors, where women are paid almost a third less than men.
The amount of EU funds for a fair transition of regions away from coal that Bulgaria risks losing if it fails to submit its territorial plans for the coal regions by the end of the year. This will affect the Stara Zagora, Pernik and Kyustendil regions the most. Read more on KInsights next week.
Bulgaria's economic growth for 2022. Despite high inflation and slowing activity across Europe, preliminary data from NSI show a much better result than the anticipated sub-3% rate.
3. Business:Telecom Bulsatcom
After years of peaceful coexistence between the main players on the market, the four major Bulgarian telecoms started a major duel over a proposed 90 million euro deal. On one side was A1 and Yettel Bulgaria, challenging before the Commission for Protection of Competition (CPC) the deal by which Bulsatcom sold its base stations and fixed network to United Group, the company that owns Vivacom and Nova TV. Read the full story on KInsights next week.
After building three plants in Bulgaria, the German Liebherr Group chose a location near Plovdiv as the center of its smart growth, where it will expand its development team to develop more sophisticated software and electronics for the group's products.
The Bulgarian home booking platform for digital nomads is raising 500,000 euro in a pre-seed round led by private equity fund Eleven Ventures. At a valuation of 2.5 million euro, the firm has also attracted interest from the real estate tech fund 3P1 and the Romanian crowdfunding platform SeedBlink.
4. Energy:Energy System Operator director expects 30% rise of solar power in 2024
In 2022, the Energy System Operator (ESO) had connected 400 MW of new renewable energy generators to the grid, compared to a total of less than 1,300 MW of previously available solar capacity mainly built between 2008 and 2012. Of the new plants, 240 MW are large and connected directly to the ESO grid, while the remaining 160 MW are with the electricity distribution companies. These new capacities have on average increased the energy produced by solar by 30% according to ESO director Angelin Tsachev, who spoke at the Energy and Power conference organized by Capital weekly last week. In 2023, the trend is not only expected to continue, but also to accelerate. "Another 700 - 800 MW of new capacity will be connected," Mr Tsachev added.
That would mean another 40% or so growth in renewable energy in the country's overall mix, which would add more than 1.1 million MWh of green electricity per year.
Figure:120 euros per megawatt
Is the electricity price which makes Bulgaria one of the countries with cheaper electricity tariffs in the EU.
5. Watch out for:Date: 31 December
Is the date by which Bulgaria needs to present and defend its Territorial plans under the Just Transition fund (otherwise known as "give up coal fund"). While K Insights hear they have indeed been sent to Brussels, it is highly unlikely they will be approved, unless Bulgaria really commits to lowering its coal use by 2026, of which President Radev is not a great fan. So that's going to be a 800 million euro net loss for 3 Bulgarian municipalities - Kyustendil, Stara Zagora and Pernik.
In an interview with Capital weekly this week, caretaker Defense Minister Stoyanov said that the country had missed the window of opportunity to agree on a "triangular deal" for sending its Soviet-era weapons to Ukraine in return for more modern weapons from a third NATO country. Which is, as already noted, a shameful omission for a country led by military people who were supposed to use opportunities, rather than lose them.
The cooling off in the Bulgarian IT and outsourcing sector following massive layoffs in the technology sector globally is becoming more and more visible. According to data from HR company and career site JobTiger, job postings are down 34% this February compared to the same month last year. So the downward trend continues - in January this year the year-on-year decline was 30%.