By Pavel Ezekiev, executive director of the Bulgarian Investment Agency Bulgaria can offer an individual approach to attractive investors The Bulgarian gross domestic product (GDP) grew in the first quarter of 2005 by 6.2 pct year-on-year, which was the highest growth rate in the last seven years, Bulgaria's National Statistics Institute (NSI) said. The Bulgarian National Bank (BNB) registered 832 mln euro in foreign direct investments (FDI) in the country for the period January to July 2005, down from 975 mln euro for the same period of 2004. However, two events in September drew the attention of analysts. First the EU raised a yellow card to the ambitious programme of the new Bulgarian government for strong growth aimed at raising incomes and achieving living standards comparable with those in the EU. Then came the German elections, which made the position of Germany, the biggest player in the EU and the EU Enlargement process, even more opaque. How are all these trends affecting Bulgaria, now standing at the EU threshold? The record-high economic growth in the first half of 2005 can be put down to strong FDI flows and to growing private consumption driven by record-low interest rates. Neither the NSI, nor the BNB are able to report adequately capital flows because of the large volumes over the last three years. As a result, the two institutions have to update or revise their FDI data several times, and the final figure is reported a whole year after the end of the tracked period. Additional information about current direct investments is available at the Bulgarian Investment Agency, where work is underway on more than 10 certified investment projects with a total value of 400 mln euro for 2005. These projects are not included in the NSI and BNB data. If we add up these 400 mln euro to the 832 mln euro FDI reported by the BNB for the first seven months of 2005, the result is a new record high in Bulgaria's FDI timeline. The real economy and real companies in Bulgaria are reacting most adequately to the best economic situation in the country in the last 20 years. FDI figures for the full 2005 will exceed forecasts. The 6.2 pct GDP growth in the first quarter of 2005 is due to capital investments by Bulgarian and foreign companies in the local economy. If Alan Greenspan were to comment on the Bulgarian economy, he could be expected to say: "The renowned economic stability of Bulgaria for seven years in a row is supported by an impressive fiscal discipline and sound budget management. In this situation, Bulgarian and foreign ivnestors will continue achieving excellent returns on investment thanks to the unique for Europe combiniation of growth, costs and quality." More than two-thirds of the value added generated in the Bulgarian economy is produced by the private sector, which shows that the business and not the state plays the decisive role for the economic climate in the country and the welfare of the people. In 2004 Bulgaria held one of the top ranks among countries in Central and Eastern Europe in terms of attracted FDI per capita. Bulgaria got 2.0 pct of all greenfield investment projects in Europe for the year, thus becoming not only a regional, but a European competitor for such projects. The competition is heated, as Europe is a market of 30 countries with 500 million consumers and a 300-million-strong workforce. Bulgaria can follow the example of Singapore and South Korea in the 1980s, Ireland in the 1990s and the Czech Republic prior to its EU accession in competing for foreign investments by offering specialised skills and an individual approach to attractive investors. Research by foreign experts and the strategies passed by the Bulgarian government regarding improving competitiveness show that educating and training specialists should be the priority. In the current situation of intensive competition for capital and projects, there is a marked trend that industrial investments are heading towards countries with a large internal market, low costs and high labour productivity, such as India, China and Russia. Therefore Bulgaria should rather accent on developing its knowledge-based economy and services industry, where high qualification and state support for innovation can compensate for the relatively small internal market and lower industrial productivity. Just as crucial for improving competitiveness is developing physical infrastructure and improving the conditions for starting up and developing a business (including the administrative framework and administrative services). How can Bulgaria compete with the 25 EU member states (which attract about 200 bln euro in FDI each year) and the 10 other countries in the region (attracting 35 bln euro in FDI annually)? Firstly, the economic and political developments in the EU are increasingly affecting the Bulgarian economy. Therefore the vision of the Bulgarian government is influenced by the concrete road of the country towards the EU. Bulgaria attracted 5.0 pct of the FDI in the region and 2.0 pct of all investment projects in Europe, which gives it an excellent starting position. Bulgaria should aim to maintain and even improve its position regarding the quality of attracted investors. This is possible to achieve. The concrete way in which this can be done is through state support (via the institutions and budget policy) for investors and entrepreneurs. Entrepreneurs are the ones who later on turn into industrialists creating jobs and exports. Whereas entrepreneurs invest in growing their business, existing industrialists invest in meeting the normative standards of the EU. Secondly, comparisons with past and future economic models should be avoided. The world is now a global market with practically no barriers to trade and competition. Under these conditions, Bulgarian producers are competing on the U.S. market directly with companies from South Korea, Vietnam and Israel. The revolution in information technologies has made possible the giant leap of some countries from the status of developing into developed over a single decade, while it took several decades to the USA, the UK and Germany to achieve this in the postwar period. Bulgaria has no choice but to pull its weight behind the intellect of its entrepreneurs, rather than supporting mega companies which find it difficult to adapt to the dynamics of the global market. Thirdly, Bulgaria has occupied a new position in the vision of its political partners and in the priorities of global investment circles over the last four years. The country now holds a central position in the production and trade cycles of leading multinationals such as General Electric, SAP, Schneider, HVB, Unicredito, EON, etc. NATO relies on Bulgaria for its key missions and the EU is treating Bulgaria as its external frontier with the Middle East. FDI flows to Bulgaria in the last three years account for half of the cumulative stock of FDI attracted by Bulgaria so far, and this is due to concrete achievements. On the one hand, Bulgarian partners and investors in the country can rely on a clear legislative framework and support by the state. On the other, investments in Bulgaria are profitable because of the growing market and the predictability of business conditions. Bulgaria will improve its physical infrastructure and administrative services and Bulgarian municipalities will develop the capacity to manage the whole investment process in the future. Bulgarian SMEs will also receive adequate state support for their key role in the economy. Which are the main signals that Bulgaria has to send to its partners and investors in order to guarantee the desired growth rate and integration of key structures? Undoubtedly, Bulgaria's EU accession is the biggest priority. Unfortunately success at the final match does not decide the outcome of the whole championship: the competitors, the state of the playing ground and the competence of the referee all matter. Bulgaria's weaknesses usually overpower its strengths at the final stretch, experience shows. In the current case, Bulgaria is not fighting for the top or second place but is trying to prove categorically the results from the reforms and its commitments. Therefore, Bulgaria's partners and investors will be more interested in the country's resolve to win, rather than in the concrete results of the match. This very resolve and willpower will be the factors that can prolong the credit extended to Bulgaria by political partners and will increase the capital investors channel into the country. (15.11.2005)