Minister of Economy Lachezar Borisov: We are developing a scheme to support companies
Measures under the React EU initiative will be launched next yearVentsislav Genkov
We are not shutting down the economy; deliveries, manufacturing and the industry are safe. More relief for closed businesses is coming. Starting this week, workers placed on unpaid leave because of the new restrictions will be able to rely on BGN 24 a day from the government through the Ministry of Labour and Social Policy and the National Employment Agency, as long as they have been paying social security contributions as full-time employees.
Minister Borisov, are there plans for more financial support for businesses forced to close in the wake of the government's latest measures to combat the spread of the novel coronavirus?
We are going to do whatever we can in the next three weeks to build on all the existing measures and to help everyone in need of assistance. Public health is a prerequisite for a healthy economy. The new wave of measures strikes the right balance between freedom of economic activity and strict mitigation steps to fight the pandemic. We are not shutting down the economy; deliveries, manufacturing and the industry are safe. More relief for closed businesses is coming. We are working on directing BGN 156m of available financial resources under Operational Programme “Innovations and Competitiveness” towards that exact purpose and on finding other mechanisms to expand the assistance. We are developing a scheme that would inject liquidity into the businesses that will be required to close. Starting this week, workers placed on unpaid leave because of the new restrictions will be able to rely on BGN 24 a day from the government through the Ministry of Labour and Social Policy and the National Employment Agency, as long as they have been paying social security contributions as full-time employees. The sums will be paid out directly to the employees. The measure is expected to help 50,000 people and has a budget of BGN 50m.
How much money has the government spent on relief efforts for businesses and citizens in connection to Covid-19? Do you have plans for new measures?
So far, the Ministry of Economy and the Ministry of Labour and Social Policy have invested over BGN 1bn in the Bulgarian economy. When it comes to my ministry in particular, the Bulgarian Development Bank (BDB) has expanded its business-oriented programme following a notification from the European Commission (EC). Small and medium-sized enterprises will now be able to take out loans of up to BGN 1m, while large enterprises will be granted loans of up to BGN 2m under preferential terms. Over 900 companies have already been supported by the BDB with a total of nearly BGN 130m, while more than 22,000 natural persons have received a combined BGN 94m in loans. Over 21,000 micro and small enterprises have been granted a total of BGN 173m under Operational Programme “Innovations and Competitiveness”. I have issued an order for the remaining 6,000 projects submitted by companies under the programme to receive consideration for a second time. Nearly BGN 18m in financial support is about to be paid out in full under the Investment Promotion Act. The medium-sized enterprises procedure, which is worth BGN 200m, is also under way. Within a week, we should have an announcement of the ranking, after which companies can expect payments upon realisation of their projects. We have also sent invitations to businesses to participate in an existing procedure aimed at improving production capacity. We are now willing to exceed the original scope of the procedure by BGN 68m in order to bolster our GDP structure in terms of investments. Next year, we will be launching measures under the React EU initiative. Those will relate to digitalisation and restoring Bulgarian businesses' potential for growth, digital and green innovations. Those will be the points of emphasis early next year. Of course, we are also going to be focusing on the Recovery and Resilience Facility, the money under which will be committed within the first two years of it becoming operational, for a maximum transformational impact on the Bulgarian economy.
When will the digital export hub, which the government is creating with input from businesses, be ready?
This is an idea that can really help businesses as they need softer measures in addition to government intervention. Back in March, when in partnership with the Bulgarian industry we managed to mobilise factories to make the bulk of the personal protective equipment medical professionals and regular citizens needed, we set up a special section on the website of the Bulgarian Small and Medium Enterprises Promotion Agency (BSMEPA) that presented a database of the companies. We then decided to build on that idea by establishing an export hub that would be about more than only products made for Bulgaria and would include information about export products as well, with the participation of employers and businesses interested in the idea, of course. We are also mulling a digital platform to be established in association with the BSMEPA, but the first step is to create a hub with detailed information. Our trade representatives have suggested that we do versions in several languages, which will facilitate the global economy's access to products made in Bulgaria.
We are fast approaching the end of the year. What is your assessment of the Bulgarian economy in 2020?
The Bulgarian economy is doing well in comparison to the rest of the world. Whereas some European countries recorded declines in the first quarter of 2020, Bulgaria recorded growth. The second quarter was weak for economies across the board. In Bulgaria, the slump was about 8.5-8.6% year-on-year. During that period, we did about 50% better than the average for the European Union. In some countries GDP fell by about 20%. We now have preliminary figures for the third quarter and compared to the previous periods we are doing a bit worse than the rest of the Member States. But that was also the time during which economies rebounded. Keep in mind that Bulgaria had not registered such significant loses during the first two quarters as those economies, which is why growth was comparatively smaller for us. Talking about the second quarter, the downturn in Bulgaria stemmed from investments, as imports and exports offset each other in the figure of net exports. Consumption remained steady. The third quarter continues the trend of steady consumption and even shows serious growth. This means that the government's measures were successful. The third quarter of 2020 shows that consumption grew 9.3% year-on-year, and 9.8% adjusted for inflation, compared to the previous three months. The good news from the third quarter is that investments showed signs of recovery as well. Their growth in the GDP structure for that period, compared to the previous one, is 4.3%, adjusted for inflation. We are falling behind on exports, but I expect those figures to improve in the final quarter too. I hope that Bulgarians show solidarity with the medical professionals and follow the mitigation measures so that we can avoid closing entire manufacturing and industrial facilities.
What will be the driving force behind the improvement in exports that you expect at the end of the year?
I anticipate exports to recover in the fourth quarter after dropping by 22% in the third, compared to the same period of 2019. This means I expect a smaller decline in the fourth quarter because the industry is working. The Bulgarian industry is exporting, we have investments in that area and we are geared towards exporting, but we are dependent on the EU for 75% of it. My hope is that our main trade partners will not struggle so that we are not forced to revise exports and our capacity. I am referring to traditional markets where we strive to regain our export positions. Consumption is rising and even exceeding levels from the pre-crisis year.
Which forecast for a slump in the Bulgarian economy do you expect to come true - that of the EC or that of the International Monetary Fund (IMF)?
Our ambition has always been for the slump to be around or below 5% on an annual basis at the end of 2020. A bit more optimism can be found in the autumn macroeconomic forecast of the Ministry of Finance.
You have announced the certification of BGN 750m worth of investment projects so far this year. How do you plan to secure more foreign investments over the next year?
First and foremost, we changed the regulatory framework and more specifically the regulations for applying the Investment Promotion Act. Because of these changes, grants of up to €37.5m can now be given to strategic investors without us having to notify the EC. I believe that in addition to making negotiations with major investors easier for the administration, this change has a marketing effect at a time when the Bulgarian economy received a good assessment in the EC forecast and the government was praised by the IMF for its policies. The country's credit rating actually improved during the crisis. The investment projects certified so far are worth a combined BGN 750m and will create over 3,500 jobs. The number for 2019 was BGN 420m, which shows that investment interest in Bulgaria increased in 2020. We are also in talks with several major investors, but final decisions on those can be expected in 2021. As for projects to be certified at the end of the year, we are working on two of those. They are primarily in the area of construction and future development of a tourist environment in a park area - an entire complex. One of the investments is worth €80m, while the other - BGN 100m. If we manage to certify those by the end of the year, we are going to close in on BGN 1bn of investments in the Bulgarian economy certified under the Investment Promotion Act in 2020.
What type of investors is Bulgaria looking for?
We are currently negotiating with a big high-tech company involved in the car-making industry, although not the making of end products. I hope that the investors make their final decision in the first quarter of next year. Bulgaria is on the investment map. We are interested in high-tech manufacturing capacities and services. This year's data for certified projects shows investments in precisely those two sectors. This is important to us as we need to build an economy that makes products with higher added value so it can propel our social state in the future.
You have talked about electric car batteries. What is the current state of that idea?
This is going to be a growing focus of the car-making industry - transitioning towards electric vehicles. The sector itself is undergoing a transformation. We are already making electric lorries in Plovdiv, where together with investors we plan to launch production of car batteries as well. We are also going to broach the topic of carbon-neutral industrial zones. The Bulgarian economy needs to move in that direction, which is also the goal of the Recovery and Resilience Facility, whose pillars are being discussed with businesses at present.
Has the pandemic hit arms manufacturers?
The pandemic has not hurt companies in the arms industry, but in the past year or two we have seen some decline in the production of ammunitions and military equipment. And yet, I signed about 100 export permits in one day so the industry is maintaining good levels and we have managed to generate no small amount of exports. I believe the total volume can exceed BGN 1bn by the end of the year. That was last year's number as well.
Are we expanding the map of markets where we sell?
Yes. We have extremely innovative companies involved in the production of silencers and armoured vehicles. Bulgaria is one of the best producers of bulletproof vests for the army and the police. These are products that are gaining ground for Bulgarian manufacturers on the international stage. Many factories are adjusting to new technologies based on NATO standards instead of the old, Russian ones.
Lachezar Borisov has a PhD in Economics and was appointed as Minister of Economy in 2020, having served as Deputy Minister of Economy between 2017 and 2020. He has a degree in macroeconomics from the University of National and World Economy (UNWE), Sofia. His second specialty is in accounting and finances, earned at the UNWE Institute for Postgraduate Studies. He has published scientific articles on antitrust law and market economy models, on national balance of payments, and on bank efficiency in mergers and acquisitions.