Bulgaria, Looking to the Next Generation

Bulgaria made the transition from a Soviet-style controlled economy to a fully-fledged European Union member with a market economy within two decades only to find the EU’s banquet table largely empty. With nightly protests in the capital, Sofia, there is uncertainty both on the political and business scene, but there is also a clear desire by Bulgarians to earn their place in Europe.

Like most European countries, Bulgaria has been having a tough time of it lately. Economically, it is labeled the European Union’s poorest member. Politically, its recently elected Socialist-led government has been the target of nightly demonstrations in the capital Sofia, sometimes blocking parliament. And socially, it has seen its population shrink by a staggering 582,000 over the last decade to reach 7.2 million as emigration – particularly of the young and educated – has cut deep. In the mid-eighties its population stood at almost 9 million. That certainly wasn’t the plan when it joined Nato in 2004 and completed its post-Soviet Union journey by joining the EU in 2007. In short, Bulgaria is learning the hard way that your past will always catch up with you, however committed you are to reform. It is also plain bad luck that after two decades of watching its southern neighbor, Greece, feast on the fast-moving EU gravy train only for the single currency to be all but derailed soon after Bulgaria’s accession to the single bloc. Unsurprisingly, funding has been in short supply recently, shorter still as Bulgaria has struggled to up its game to conform to a number of EU standards. In 2008, millions of euros of EU aid were blocked because of delays in tackling long-standing corruption. Two years later, France and Germany prevented the country’s inclusion in the passport-free Schengen agreement, saying the country needed to make “irreversible progress” in dealing with crime and corruption. It would be easy, therefore, to dismiss Bulgaria as a European pauper who reached the banquet it long hungered for only to find its table manners weren’t welcome and the kitchen was closed. That, however, would be to ignore the importance of having former Eastern European bloc countries at the EU table, if for nothing more than to bring a sense of reality to the capitalist carvery. It is also unfairly dismissive of the incredible journey Bulgaria has already made towards European reintegration and the indisputable spirit for change that exists on the streets of Sofia, particularly among a youth keen to be seen on a par with their European contemporaries.

Generation F

Maxim Behar, Chairman and CEO at Communications Group M3 Communications Group, Inc.

Maxim Behar, chairman and CEO, M3 Communications Group, Inc.

Maxim Behar, a one-time journalist and now public relations expert who is CEO of the highly regarded M3 Communications Group, is unwavering in his belief that the daily protests in central Sofia do not so much represent a society in despair as a new generation unwilling to tolerate corruption. “I called it Generation F in my recent book,” he says. “It is a generation that wants only one thing: transparency. On Facebook, Twitter, LinkedIn and right across all social media we’re all used to transparency and we want transparent politics. From that point of view society is changing. Look around the streets: young, intelligent, well-dressed, ambitious, well-educated Bulgarians and they will change the country for sure.” Behar points out that judging Bulgaria can only be done within the wider context of the post-Soviet experience of Eastern Europe and, in particular, the transformation from controlled economies to market economies. “This had never been done in all the history of the world,” he says. Bulgaria is not a different country now, it’s a different planet. None of us could even imagine that the changes would have such a deep effect on the economy. Bulgaria has gone its own way because, unfortunately, for a number of reasons a lot of the reforms were delayed. In Poland, Czech, in part of Slovenia and Croatia, many of the reforms were implemented rapidly – painful, yes, but at the end of the day if you have a fire in the house you try to stop that fire immediately. You don’t delay. In Bulgaria we were trying not to see the fire and were neglecting many of the details of the market economy. At the end of the day, however, in 2013 the country has a fully functioning market economy. The unfortunate thing is that it has come at a time of political instability – which we obviously can observe in many other countries, like Italy, Greece and Spain. I truly believe that economic reform can only be implemented if there is political stability in the country. “But we should not neglect two important points of the reform: the currency board, which means the local currency is monitored by the IMF – meaning hyperinflation isn’t a possibility. In fact inflation is locked between 1% and 3%. I understand this is artificial but it gives huge predictability for foreign investors. The second is the tax policy which is the most favorable in Europe – 10% corporation tax, 10% flat fee for individuals, 5% dividend tax, which is unique in the world. Although it will naturally change soon because in the EU you cannot have a country with such a low corporate tax.” But as far as European Union membership is concerned, Behar is unstinting in his support: “A good thing, a very good thing. But also bad management of expectations. It was a huge disappointment to our society. For 15 years, politicians were talking about the benefits of the EU – based, incidentally, on the Greek example. Not only did entering the EU not bring miracles, it coincided with the onset of the global financial crisis. A lot of people expected change overnight which, in reality, wouldn’t have come even if they had spent billions. And we didn’t enter the EU, we came back into it. The place of Bulgaria, not just as a territory but as an attitude, always was within Europe. Even under the Ottoman Empire. Right now, though, we should work to prove we deserve this place.”

Greenhouses and Fields An information superhighway

Martin Petrov, Business Development Manager

Martin Petrov, business development manager, Sportal Media Group

And that perhaps is the greatest goal for Behar’s Generation F: to prove it deserves its place at the European table, even if the days of banquet are over. More than anything, the country is desperate to shed its “poorest EU member tag”, with an average gross monthly wage of 754 leva (386 euros), and be compared as equals. Or more than equals. Stilian Shishkov and Martin Petrov fit firmly into the latter category. The CEO and Business Development Manager of Sportal Media group are not just leaders in their field locally, but they can claim to be leaders in the regional online media presence, having established a portfolio of 40 website and 45 social media channels in six short years, most of them started from scratch. The group’s annual turnover notched 3.7 million euros in 2012 and their staff has reached 110 employees. Claiming pride of place at their offices is a fully equipped TV studio and their 24/7 sports site sportal.bg attracts, they say, 2.5 million unique visitors a month (20% from outside Bulgaria), an astonishing number given the country’s population. Most interesting, however, is the insight the company gives into Bulgarian culture and media use. “Bulgarians aren’t inclined to pay-per-view, so our revenue is derived solely from advertising, and in this we are the best here,” says Shishkov. “When we develop a product we think of what the market actually needs and we develop it that way. Bulgaria is one of the top countries in terms of broadband access, with fibre optic to the home quite common. There are over 400 ISPs here and the country is small and easily accessible. We were delivering videos seven years ago and this is now central to our business. In fact, we develop and distribute thousands of videos a day. Our news website is on the street when people are protesting. Think of us as a TV.” He makes it sound easy and it undoubtedly isn’t. “No, it’s not easy to do business here, especially with the situation right now,” he says. There are good things. In terms of taxes it’s one of the best places to do business in the European Union, a flat 10%. In terms of connectivity, it’s also good and internet usage is around 50% of the population. And there’s a good level of education. Where it becomes difficult is on the political side. Things need to change, and they have needed to change for years.
“The first thing they need to change is the electoral law. There are fewer and fewer people going to vote because they are so disappointed. We need electronic voting where there will be much greater participation.” An example of political mismanagement, he says, can be seen in a recent law forbidding online advertising from unregistered gaming companies, designed essentially to try to raise taxes in this section. But without the necessary legislation in place to allow gaming companies to become officially registered, it has served to kill off a crucial source of revenue for all Bulgarian media at a time when advertising funding is down. “Over the last 4-5 years, international investments in Bulgaria have dropped significantly,” says Shishkov. “The best years were 2005-2007 when a lot of big American and other international companies were investing in Bulgaria. But this has dropped because of the insecurity. Companies aren’t sure what will happen tomorrow as far as changing laws are concerned. Having good taxes is not enough for a foreign company to invest. A business friendly environment is also important. And it should be an easy country to manage, given its 7 million population. It has a seaside along the Black Sea, there are mountains, there’s a good level of education but the political decision-making has not been good.” Petrov puts it in even simpler terms: “The problem is that successive governments have been unable to follow one strategic direction. If you are driving and you keep turning left and right, you go nowhere. And this is what is happening politically in Bulgaria.” He gave a humorous but apt example. “Just yesterday the first highway connecting Sofia to the Black Sea was opened. It took 40 years to complete, mostly for political reasons. It’s something like 340km long and called the Thracian Highway because it goes through the Thracian Plain. There’s a joke going round that it was named after the Thracians because they built the first kilometer.”
He added, “Business-wise, there are some very talented young people here, particularly in telecommunications. Bulgaria made a mistake 20 years ago when politicians wanted it to become a heavy industrial country producing machinery. We’re simply not going to produce more cars than China, Brazil and Mexico. The country should be driven forward by concentrating on what it has: agriculture, tourism and IT. We should also build good toll roads that will take advantage of our location at the crossroads of so many countries in southeastern Europe.”

Digging for talent

Elena_Dimova

Elena Dimova, HR manager, Aurubis, a copper group and copper recycler.

This isn’t to neglect heavy industry. One such example is mining, which has declined in the post-Communist era but still represents an important sector in the country’s overall economy, particularly its exports, with the mining industry estimated to be worth around 570 million euros annually and employing some 120,000 people. One such employer is Aurubis Bulgaria, which operates the copper concentrate plant in Pirdop, around 80km from Sofia. The original company dates back to 1958 and it was privatized in 1997 as part of the Cumerio group when it was acquired by the German-owned Norddeutsche Affinerie Group. Under Aurubis Bulgaria, its name from 2009, it has become one of the largest copper producers in Europe. The description given by Elena Dimova, the affable and efficient human resources manager for Aurubis’ southeast European presence, gives her own interesting insight into the country, particularly as all but two of the plant’s 800-strong staff are Bulgarian.
“If we compare the Aurubis Bulgarian entity with, let’s say, other multinational companies in the country it’s a little different,” she says. “Firstly, because the first sell-off of the company, in 1997, was very successful and the company has always been owned by strategic investors who made many investments and improvements. Even during the years of crisis, between 2008 and 2011, the plant has never decreased operations. The smelter, which is the main production unit on the site, is currently the biggest in the Aurubis group, which comprises 18 sites.
But what makes the difference between Aurubis Bulgaria and the other plants in the group is the technical side of operations. In other words, the efficiency and the capacity of the plant matters more than the labour cost. For sure, in terms of labour cost we are lower compared to Germany, or Belgium or even Italy, but it is not the major advantage, as it usually is in most multinationals. This is something specific to Aurubis.
Actually, in Bulgaria, the engineering field generally was not considered particularly sexy in the years after the 1990s, in the so-called transition period. Bear in mind that the first multinationals in Bulgaria were sales representative offices, mostly focused on commercial operations. This encouraged people into some form of economics education. But over the last 2-3 years it has become easier to attract people to work in Aurubis, first of all because people see that a career in engineering is something attractive, well paid, and providing good opportunities for growth and development. On the other hand, people would still rather commute daily for reasons of family and schooling. Unemployment in Pirdop is negligible. Compare that to 5-6 years ago when the trend was that of people moving to Sofia – or the other main cities, Plovdiv and Varna – from the countryside.”

Driving the country forward

Dimitrova

Daniela Dimitrova, marketing manager, BMW Bulgaria

There is also a clear mismatch between where many Bulgarians see themselves as far as their European social and financial evolution is concerned and their actual position. It was not just the economy that was controlled during the days of the Soviet Union but much of society too. It’s one possible explanation for the difficulty in getting people to agree to be interviewed and photographed for this article, even after they had agreed to do so. The openness and geniality of those who contributed was in stark contrast to those who flatly refused or who agreed to when originally emailed only to make an excuse or simply ignore follow-up emails. The experience was in stark contrast with all the other countries profiled in this series so far. But there can be no denying that Bulgarians see membership in the European Union as a positive move and an opportunity to raise their living and business standards. And it is precisely those aspirational qualities – not to mention largely virgin markets – which attracted many multinationals to Bulgaria in the 1990s and beyond. BMW is one such example, starting operations in Bulgaria in July 2007 straight after EU entry. There are now five full-fledged and two smaller BMW dealerships in the country as well as two service-only outlets. Sales in the first six months of the year put it seventh in terms of total sales in the passenger car market and the leader in the premium market, as it has been for the last four years. As Daniela Dimitrova, marketing manager for BMW Bulgaria, explains, “Entering the EU gave Bulgarians hope for and expectations of quick and positive changes on different levels – economic, country modernization, raising living standards, and possibilities for personal development within and outside the country. Bulgarians look at the EU membership as a way to quickly overcome internal problems, with the younger considering it as a positive transition of the country.” She is candid, however, about the reality on the streets of Sofia. “Currently the political situation is very unstable. There have been protests on the streets for more than a month and this time it is the young and educated middle class protesting. I believe Bulgarians are tired of the corruption, the media manipulation and influence, and the lack of transparency. People are tired of the increasing difference in the lifestyle of Bulgarians and other EU citizens. The protests are for a normal life, for real life values, for clean and well-established political positions and for a better life for our kids.” She concludes: “I personally believe, nevertheless, that the success of these protests have made Bulgarian politicians learn that being arrogant is no longer an option; that their decisions will be carefully watched from now on; and that there is only one path for Bulgaria ahead… to do its best to become a proper member of the EU.”

Refugees… finding a job!

Sammy and Maher Mahmud

Sammy and Maher Mahmud

Finding a job is crucial for refugees finding their feet in a new country. But in Bulgaria, for most refugees finding a job and making ends meet is an arduous task. The Iraqi Palestinian family, Sammy and Maha Mahmud and their four daughters, buck the trend: they are among the few refugees in Bulgaria who have managed to set up their own business and run it so successfully that they are now self-reliant. On a dairy farm near the village of Ezero, some 15km from the Banya Reception Centre where they lived while waiting for their refugee claims to be decided, the family raises goats and cows to produce milk, cheese and yoghurt. Using traditional skills and knowledge she brought with her from Iraq, and an old family recipe, Maha makes cheese that attracts buyers from around the country. Some regular customers come from as far as Sofia, almost 230 km away, for the coveted Arabic version of white cheese, Djiben abiot. The couple is now planning to buy more land, extend the business and open a professional dairy farm.

Photo credits by UNHCR/G.Sopronyi

[W    aurubis.com     bmw.bg     m3bg.com     sportal.bg     sopronyi.com     unhcr.org]

Published in the hard-copy of Work Style Magazine, Fall 2013