BOZHIDAR DANEV: PART OF BULGARIA’S FUEL SECTOR LIES IN THE GREY ECONOMY

Unusually low fuel prices in Bulgaria are probably the result of cartels, or contraband, Bozhidar Danev told EURACTIV.com in an exclusive interview, saying the authorities have  so far been unable or unwilling to address the issue.

Bozhidar Danev is Executive Chairman of the Bulgarian Industrial Association (BIA) and Vice President of BusinessEurope, the EU largest employer’s association.

He spoke to EURACTIV’s Senior Editor, Georgi Gotev.

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Bulgaria is at the centre of attention with the Bulgarian Presidency of the Council of the EU. If I am not wrong, you are the first Vice President of BusinessEurope of Bulgarian nationality. Could you describe the interests for which you stand for?

Indeed, it is an honour for me to be the Vice President of an organisation with over 40 million members from across the EU, in which participate the biggest national business and employers’ organisations in Europe.

We stand for a competitive economy, which respects all social partnership standards, job creation and in general for prosperity. In its 60 years of existence BusinessEurope has had its contribution for Europe’s prosperity.

The EU Presidency is putting Bulgaria under the spotlight. Many press reports speak of poverty and corruption. Do you think this is fair?

I think this is fair. Indeed, Bulgaria is a very poor country, if we compare the GDP per capita with the other EU member states. Not only Bulgaria ranks last, but it is at a huge distance from the leading EU countries.

It takes a long answer to say why. But when you have very little production, when the country’s GDP cannot guarantee high incomes, this leads to stagnation. Moreover, since our membership to the EU, we have 3 million nationals who have left the country. Out of the four freedoms, which are the prerequisite for a prosperous economy, one of those freedoms has led to the draining of a huge part of the human resources, moreover, most of these people are highly qualified professionals.

Unfortunately this process has not stopped. To the contrary, it looks like there is a new wave of migration in the health sector, staring from the nurses until the most qualified medical specialists. And the whole process is unlikely to stop until serious discrepancies in salaries persist.

Maybe it is high time for Bulgarian employers to start paying better their employees?

For increasing the wages, we would need to increase the GDP…

So it’s a chicken and egg situation?

No, you simply cannot eat something before you have produced it.

And maybe the productivity in Bulgaria is too low.

Yes. But I would like to say that Bulgaria employers have been raising wages in recent years by 7 to 10%, while the productivity has increased only from 1 to 3%. The Bulgarian employers are well intentioned, they are ready to raise wages, especially when they are faced with this penury of human resources.

Another way to solve the issues is to attract more foreign investors, but it looks like this wave has stopped…

This is the key. If you look at Bulgaria’s economic indicators, you will see a stable increase, overall stability, but at the same time you will notice the decrease of foreign investment.

And here, we come to your question in the beginning: why corruption is widespread, why there is no justice. And then we come to the honest answer: this is why we have no foreign investment.

Unfortunately, even as an EU member, Bulgaria has made almost no progress at all in this respect. The reasons for the lack of foreign investment are the deficient judiciary, the corruption environment and the shortage of human resources.

In which fields of the economy Bulgaria is the most successful?

In recent years, these are the sectors in which no big financial investment but skills are required. Economic data show these are the sectors of IT and electrical engineering, and to a certain extent the pharmaceutical sector. This shows that there is potential, but that it cannot develop due to conditions I mentioned.

Moreover, the European economy is picking up which helps growth in Bulgarian exports. Also, there are some international factors. Bulgaria’s armament industry has increased its exports thanks to the international circumstances. Tourism has also greatly benefitted from outflows from such traditional destination such as Egypt and Turkey.

But there are also international circumstances with negative effect on Bulgaria’s economy. How big are the losses from the sanctions on Russia?

Only 3% of Bulgaria’s exports are with Russia, I would call the losses marginal. Those who say the losses are huge are perpetrating political legends.

How important is the fuel sector? 

Speaking about the growth of the Bulgarian economy, the country has had several lucky years, the last 4-5 years having been happy years indeed for its access to the European and world markets.

You are aware that in the last four years the price of crude has collapsed from $140 a barrel to $50-60 as it is now. Bulgaria is a big importer of oil and petrol resources. The lower prices have been very beneficial for the Bulgarian economy, and if you go deeper in the analysis of the GDP growth of Bulgaria, you will notice that this growth is a result of the reduction of the trade deficit.

And the trade deficit declined primarily because of the collapse of oil prices. From over 5 billion [leva] of import of petrol products, the figure went down to roughly 2.5 billion.

What does Bulgaria make of this petrol, apart from internal use for transport?

A lot of this oil is transformed into products which are re-exported. But you asked me a question about monopolies. No, there is no monopoly in the fuel sector in Bulgaria. It is known that roughly 40% of the market is held by Lukoil, and the remaining 60% are held by other producers and by other traders. Of course, this is a very sensitive market, and according to data by the customs there are still huge grey flows, which means huge losses for the budget, in terms of excise and VAT.

Many Bulgarians think there is a cartel which keeps fuel prices high…

The Commission for Protection of Competition (KZK) has repeatedly investigated alleged cartels, but is still unable to provide an answer. Us, who are from different sectors of the economy, we have our doubts, but the state institutions are silent.

Maybe you are aware that the deputy chief of the National Assembly Vesslin Marehski was able to sell at much lower prices compared to other retailers. [Editors’s note: Marehski is a maverick politician, leader of the Volya party, and a businessman who gained notoriety by selling medicines and fuel at prices well below the national market average.]

One explanation could be that this could be contraband fuels, you mentioned yourself the grey flows…

But Mareshki was investigated by KZK, as others have been investigated, and it was said again that there are no cartels. So it’s either Mareshki, who imports contraband fuels, or the other players who are in a cartel. The truth also could be somewhere in the middle. But to our greatest regret, the Bulgarian institutions are incapable of providing an answer, and of being useful for the Bulgarian economy.

Regarding air quality, Bulgaria is the only EU country sentenced by the European court of justice for failure to fulfill its obligations for air quality. Is this because of industry?

No, this is a period well behind us. There is huge progress in cleaning the environment and stopping polluting productions. Bulgaria could be proud for this achievement.

But you say industry keeps it safe?

I can confirm that ecological norms are respected by big industry entreprises, including those who were serious polluters ten years ago. The only issue is how will the energy sector re-structure in order to comply to the new requirements which will enter into force in 2020.

So it’s the population who is mainly responsible for air pollution?

Bulgaria is a poor nation with an important part of its population who are marginalised, who don’t want to work, who have no education, and use highly polluting heating sources.

You refer to the Roma?

No, I couldn’t single out the Roma. But in Bulgaria there are several hundred thousand people who don’t wish to work, and despite the fact that work is offered to them, they find other ways to exist.

But the other issue, and nobody mentions it, is that nobody in Bulgaria tries to find a solution to making sure there is parking space for cars. The pollution cars create from tires which are never cleansed, are also responsible for the poor air quality. Another issue is the import of old cars from Europe, which is necessary to satisfy the needs of people with lower income. But I hope these are growing pains.

Having said this, I don’t want to sound optimistic, because despite the promises of the Sofia authorities that several big parkings would be built, nothing is happening. Even worse, new buildings are being built, but most have no parking space whatsoever.

With such low income in Bulgaria, why aren’t there social protests?

This is because there are huge financial flows which are being distributed among large parts of the population. One of these flows stems from payments to land owners from those who use their lands for agricultural production.

There are several tens of thousands of land owners in Bulgaria, maybe even hundreds of thousands. Bulgarians don’t wish to sell their land, and they don’t want to work their land either. So they lease their land.

The dividends on an yearly basis can be evaluated: for over 4 million hectares the lease is at 400-500 leva, this means 2 billion leva of non-imposable income which creates a social cushion. And if you add the three billion of remittances coming from the Bulgarians abroad, it makes a total of 5 billion per year, which although it is not taxed, helps alleviate social tensions.

So maybe Bulgaria is not the poorest country?

In any case, Bulgaria doesn’t account those incomes. And let’s not forget that 95% of people in Bulgaria own a home. The purchasing power should be seen against the background of such factors as well.

How about the EU Presidency? Is this a positive factor?

Yes, categorically. For the first time, Bulgaria is in the spotlight, Bulgaria is the organiser of big international meetings, and with its highlight on the Western Balkans, new possibilities for infrastructure projects are taking shape.

The issue is that in terms of infrastructure Bulgaria is still cut from the rest of Europe. And I’m not even mentioning that Bulgaria is not part of Schengen and the Eurozone, which could profit enormously its economy.

North-West Bulgaria is the EU’s poorest region. What could be done about it?

Again, it’s about infrastructure. When there is no infrastructure, it’s not realistic to expect foreign investment or any other miracles. This region is depopulated, and if you look at the Bulgarians who left for abroad, a very big part is precisely from there.

But if you go to the centre of towns in that region, you will see everybody drinking coffee and nobody working. And if you offer them work, they are reluctant to accept it, because they live from remittances or money they get from leasing their land.