SUBJECT: NATIONAL STRATEGY FOR SMALL AND MEDIUM-SIZED ENTERPRISES DRAFT FOR 2021-2027

SUBJECT: National Strategy for Small and Medium-Sized Enterprises Draft for 2021-2027

DEAR MR. BORISOV,

BIA embraces the preparation and implementation of a strategic approach in working with SMEs. Therefore, we want to use this opportunity to express our views on the approach of drafting strategic documents.

• It is noteworthy that so far there is no presented analysis on the implementation and the achieved results of the measures, incl. the current strategy for the period of 2014-2020.
• The draft strategy, which we already had the opportunity to discuss in September 2020, consisted of 348 pages. The published version up for public discussion contains 238 pages, incl. applications, which is a significant improvement but yet remains far from what is considered to be a proper strategy paper. We draw your attention to the fact that the large volume of strategic documents makes their operational use difficult, without actually improving their quality.
• We express, that we have to adopt a unified standard approach for creating strategic documents - both political, analytical, etc. In this regard, we should reopen the debate on the adoption of the Law on Strategic Planning of the Republic of Bulgaria, and thereby shortening the number of strategic documents adopted by the National Assembly and the Council of Ministers as much as possible.

General recommendations

• We have to change the strategic planning philosophy to our favor by orientating it toward our strengths (the essence of actual smart specialization) and leave the low-value sectors in the past, as they will drag us behind.
• Support in the six priority areas (entrepreneurship, market access, finance, digitalization and skills, better regulation, environment) should focus on implementing an effective regional approach and criteria to encourage investment in critical municipalities, places with problematic demographics, and economic profile.
• We have to define specific support conditions to promote social inclusion through new high value-added jobs, integration into global value chains, incl. the supply chains of structurally managing Bulgarian and foreign enterprises, testable (measurable) tools for determining the reduction of greenhouse gas emissions, innovative business models, science-intensive products, services, etc.
• We suggest adding a section, which describes the demarcation with related strategic documents, so that, on the one hand, we avoid duplications of policies and measures, on the other hand, we generate added value to the overall state policy in the field of economic development.

Proposals related to the selection of SMEs receiving financial and non-financial support

• We suggest using existing or creating new methodologies for the evaluation of innovations - products, technological, organizational, business models.
• All key performance indicators (KPIs) have to be assessable and linked to the result, eg.:
  • growth of the sales revenues of the company, above the average in the sector;
  • sales growth in a region above the national average;
  • sales growth in Bulgaria, above the EU average;
  • Similarly, profit, added value, employment (which can be differentiated according to an educational degree), increasing shares in certain markets, reduction of the ecological footprint, innovative products, technologies, business models, or processes.
• Funding more measures related to mentoring, training, and indirect support.
• Grant intensity of 70% ought to be applied only for top innovations projects, the rest should receive - 50% or lower. We should apply the popular Technology Readiness Level and Business Readiness Level in determining the types of measures, objectives, and intensity of the grant.
• More venture funds, equity investments, guarantees, insurance (a good strategy would be BAEZ to reduce premiums at the expense of generated profits).
•  

Measures to promote entrepreneurship and innovation

• Increasing the capacity for innovation management of companies by providing expert assistance;
• Analysis of what the Fund of Funds has achieved so far - the outreach of the already established funds, the number of funded companies, which sectors, what result, what gaps. 

Comments on specific elements of the proposed draft Strategy

1. The posed priorities meet the exact needs of SMEs. The envisaged proposals could be consolidated, which will allow the follow-up of the logical connection between the measures in different preferences.
2. Better regulation and creating a business environment, Area of ​​impact 5.1. "Bulgarian SMEs should be well informed and have at their disposal a single information point and an improved consultation process", p. 14:

• It is not realistic to build a single information portal (hub) that would contain all educational needs of SMEs in terms of valid requirements for the specific sector, activity, used technologies, products, services, regional specifics, the local and external market, etc. Measures for the development of a modern information environment and facilitated access should rather be composed to meet the dynamic needs of SMEs, green and digital development, innovation, integration into global and European value chains, and more. Last but not least, the shortcomings in the physical organization of the databases and information processes cannot be compensated by a simple software solution - it can only upgrade already existing databases and connections.

3. Area of ​​impact "Entrepreneurship"

3.1. We suggest adding the "European Green Pact and the New Industrial Strategy for Europe" to the table on p. 18 that shows the link with relevant strategic documents and intervention policies.

3.2. Measure 1.1 - Promotion of the entrepreneurial ecosystem, Specific actions, "3) Support for active associations for the promotion of SMEs such as industrial, digital and other clusters, cooperatives, production associations, and others in national and regional priority sectors":

• It is debatable whether the procedure will lead to the desired goals. Practices show somewhat the opposite: the numerous ads in support of the clusters led to a ridiculous number of new clusters that received a grant, without any following changes. We should rather implement mechanisms for quality assessment that evaluates which business organization best contributes to achieving the goal. An interesting topic is the capacity of business organizations to provide highly qualified services to SMEs. We have not seen any analysis of the business incubators with conclusions about what works and what does not.
• We highly recommend avoiding any new structures and organizations that increase the administration both in the state and in business associations. There need to be as few mediators as possible between the SME instruments and the SMEs themselves. On the contrary, the merging of administrations and business associations should be encouraged. In economies similar to Bulgaria, there are 20-30 sectoral associations and even fewer clusters. In Denmark, there are 8 clusters, all labeled. There are hundreds in Bulgaria, very few of which are labeled. There are already new forms of business association. We propose to indicate "business associations" in the Strategy, instead of specifying "associations", "clusters", "clubs", "incubators", etc.

3.3. Measure 1.2 Encouragement of entrepreneurial education in schools and entrepreneurial transformation of Bulgarian higher educational institutions:

• Pieces of training in "Entrepreneurship" are practically mandatory for all professions and specialties. As the number of entrepreneurship classes is short, entrepreneurship is encouraged by additional courses.

 4. Area of ​​impact 4 "Digitalisation and skills"

• In our opinion, one of the main requirements for the digitalization of business is the expedited introduction and expansion of administrative electronic services. This point remains unaffected in the draft. Only 20.68% of the administrations have an administrative information system for complex administrative services [1]. The state should set deadlines for the digitalization of its administrative services with specific schedules for each regulatory regime and take into account their importance for both citizens and individuals.
• It is also essential to find solutions for the lack of unified standards, which ensure interoperability. Before companies start building complex digital solutions, it is necessary to ensure the electronification of the communication with the administration at all levels and therefore achieve connectivity and synchronization. The customs service which built their digital system as pioneers set a good example. They prepared the communication protocols afterward and handed them over to the software companies, which in turn developed the software for the end-users.

5. Area of ​​impact 5 "Better regulation"

5.1. Measure 5.4 - Improving the business environment for SMEs: We suggest adding the following text to the section “Identified needs” (p. 51) “Need for a comprehensive review of labor and environmental legislation and elimination of all regulatory requirements that go beyond the relevant European and international rules and standards. An ongoing dialogue on the implementation of proposals from representative employers' organizations, which reduces the regulatory burden. "

6. "Sectoral and regional specialization"

The approach in defining “Sectoral and Regional Specialization” (p. 76) should provide periodic revision and liaison with the Smart Specialization Strategy. Also, Sofia could drop out of the sector specialization, as the representatives of all sectors and subsectors are there (excluding, for example, maritime tourism).

With respect,

RADOSVET RADEV

Chairman of the Board

[1] Report on the state of the administration in 2019, adopted by Decision № 326 of the Council of Ministers of 14.05.2020.