T C A Government and its agencies have a fundamental lead role to play in providing an environment favourable to business operations and conducive to private investment. This is especially true for small business. In order to flourish and grow P they need an environment that facilitates and enables business start-up, does not hamper them with excessive and costly regulations and facilitates access to finance and business services. M ENTERPRISE POLICY In 2002 the OECD and the EBRD launched the Enterprise Policy Performance PERFORMANCE Assessments (EPPAs) in the framework of the Investment Compact for South East Europe (SEE) Programme. The EPPAs consist of a series of reports covering all countries of South East Europe They assess the quality of government policy O ASSESSMENT for the SME sector and regularly monitor its implementation. The 2004 edition of the EPPAs has been prepared by the OECD and the EBRD in close consultation with the European Commission. Synergies have been created between the EPPA and the European Union Charter for Small Business, covering seven policy C dimensions: BULGARIA • institutional framework; • advisory services; • regulatory environment; • business incubators; and, • tax policy; • entrepreneurship, vocational training T • access to finance; and access to technology. This Enterprise Policy Performance Assessment report is presented as an N independent and constructive contribution to the debate on enterprise policy in Bulgaria, bringing forward the views of the small business sector and providing a set of priority actions and policy recommendations to the government and the small business community. E M T S E MARCH 2005 V N ISBN 92 64 -64 01139-0 I Enterprise Policy Performance Assessment Bulgaria March 2005 The Stability Pact for South Eastern Europe is a political declaration and framework agreement adopted in June 1999 to encourage and strengthen co-operation among the countries of South East Europe (SEE) and to facilitate, co-ordinate and streamline efforts to ensure stability and economic growth in the region. (see www.stabilitypact.org) The South East Europe Compact for Reform, Investment, Integrity and Growth (“The Investment Compact”) is a key component of the Stability Pact under Working Table II on Economic Reconstruction, Development and Co-operation. Private investment is essential to facilitate the transition to market economy structures and to underpin social and economic development. The Investment Compact promotes and supports policy reforms that aim to improve the investment climate in South East Europe and thereby encourage investment and the development of a strong private sector. The main objectives of the Investment Compact are to: – Improve the climate for business and investment. – Attract and encourage private investment. – Ensure private sector involvement in the reform process. – Instigate and monitor the implementation of reform. The participating SEE countries in the Investment Compact are: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Former Yugoslav Republic of Macedonia, Moldova, Romania, Serbia and Montenegro. Building on the core principle of the Investment Compact that “ownership” of reform rests within the region itself, the Investment Compact seeks to share the long experience of OECD countries. It provides region-wide peer review and capacity building through dialogue on successful policy development and ensures monitoring of progress as well as identification of practical steps to implement reform and transition. The work of the Investment Compact has been actively supported and financed by seventeen OECD member countries: Austria, Flanders (Belgium), Czech Republic, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Norway, Sweden, Switzerland, Turkey, United Kingdom and United States (see www.investmentcompact.org). The European Commission (EC) has, through DG Enterprise and Industry, contributed to the funding for this report. The Enterprise Policy Performance Assessments (EPPAs) are an output of the SEE Enterprise Forum, a regional policy initiative sponsored by the Investment Compact for South East Europe. The EPPA reports have been jointly produced by the OECD and European Bank for Reconstruction and Development (EBRD), in consultation with the European Commission (DG Enterprise and Industry), The EPPA reports have been initiated by Declan Murphy, Programme Director of the Investment Compact, and their preparation has been co-ordinated by Antonio Fanelli (Principal Administrator, OECD), Francesca Pissarides (Senior Economist, EBRD) and Edward Tersmette (Desk Officer for the West Balkans, EC- DG Enterprise and Industry). Background research and support for the 2004 Bulgarian EPPA report (2nd edition) was provided by the Sofia based Centre for Economic Development. Petar Stankov provided the first draft. The report has benefited significantly from inputs and comments from Declan Murphy (OECD), Inga Stefanowitz (OECD Consultant) and the assistance of Susan Hodgson (OECD) and Georgiana Pop (OECD). The assessments and views expressed in this report are those of the Investment Compact Team of the OECD secretariat and of the EBRD Office of the Chief Economist and do not necessarily reflect the views of the OECD and EBRD member countries. 3 FOREWORD In all countries the government and its agencies have a fundamental lead role to play in providing an environment favourable to business operations and conducive to private investment. This is especially true for small business. Small and medium-sized enterprises are the backbone of most economies today. In order to flourish and grow they need an environment that facilitates and enables business start-up, does not hamper them with excessive and costly regulations and facilitates access to finance and business services. In this respect there is an urgent need in South East Europe (SEE) to design and implement an effective enterprise policy, as the level of private investment still lags behind that of advanced countries. For these reasons, in 2002 the OECD and the EBRD launched the Enterprise Policy Performance Assessments (EPPAs) in the framework of the Investment Compact for SEE Programme. The EPPAs consist of a series of reports covering all the countries of South East Europe, assessing the quality of the government policy for the SME sector and regularly monitoring its implementation. In 2003 the Investment Compact published nine country reports (separate reports were produced for Serbia and Montenegro, respectively) as well as a Regional EPPA report measuring progress on SME policy implementation in the SEE against a set of good practices and benchmarks. As part of the 2004 EPPA programme the Investment Compact presents the 2004 edition of the Enterprise Policy Performance Assessment for Bulgaria. The format of the report is the same as last year, allowing for a direct comparison of the progress achieved since the 2003 EPPA. The 2004 report has been prepared by the OECD and the EBRD in close consultation with the European Commission, which also provided financial support to the programme. Excellent synergies have been developed between the EPPA and the European Charter for Small Enterprises, with the EPPA providing a set of policy recommendations and priority actions to the government and small business community in those policy dimensions covered by the European Charter. In order to improve the link between the EPPA and the European Charter, the scope of the 2004 EPPA has been expanded. The EPPA reports now cover seven policy areas, adding entrepreneurship, vocational training and access to technology to the previous set of six policy dimensions (institutional framework, regulatory environment, tax policy, access to finance, advisory services, business incubators), bringing their scope closer to that of the European Charter. This Enterprise Policy Performance Assessment report is presented as an independent and constructive contribution to the debate on enterprise policy in Bulgaria, with the ENTERPRISE POLICY PERFORMANCE ASSESSMENT: BULGARIA – ISBN- 92 64 -64 01139-0 © OECD 2005 4 – FOREWORD principal aim of facilitating the reform implementation. The OECD, EBRD and European Commission will monitor progress and seek to provide active support on implementation in partnership with the SEE countries in 2005. Manfred Schekulin RainerGeiger MilenKeremedchiev, Director, Export and Deputy Director National Coordinator of the Investment Policy Department Directorate for Financial Fiscal Stability Pact, Federal Ministry for Economic and Enterprise Affairs Bulgaria. Affairs and Labour of Austria OECD Co-Chair, Investment Compact Co-Chair, Investment Compact Co-Chair, Investment Compact Project Team Project Team Project Team ENTERPRISE POLICY PERFORMANCE ASSESSMENT: BULGARIA – ISBN- 92 64 -64 01139-0 © OECD 2005 5 Table of Contents Introduction......................................................................................................................................7 Scope and Structure of the Enterprise Policy Performance Assessments (EPPAs)........................7 The EPPA Methodology.................................................................................................................8 Part I Overall Assessment and Policy Recommendations Overall Assessment.......................................................................................................................12 2004 Policy Recommendations and Priorities for Action.............................................................15 Part II Chapter I Views of the SME Owners and Managers..............................................................20 1. Introduction.......................................................................................................................20 2. Institutional Framework for SME Policy..........................................................................21 3. Rule of Law and Regulatory Environment........................................................................26 4. Tax Policy for Small Businesses.......................................................................................30 5. Financial Instruments for New and Small Businesses......................................................34 6. Advisory Services for New and Small Businesses............................................................38 7. Business Incubators...........................................................................................................42 8. Entrepreneurship, Training and Access to Technology....................................................44 Chapter II Analysis and Assessment..........................................................................................49 1. Implementation of the Institutional Framework for SME Policy......................................50 2. Implementation of the Rule of Law and the Regulatory Environment.............................53 3. Implementation of Tax Policy for Small Businesses........................................................55 4. Implementation of Financial Instruments for New and Small Businesses........................58 5. Implementation of Advisory Services for New and Small Businesses.............................61 6. Implementation of Business Incubators............................................................................64 7. The Competitive Conditions for Entrepreneurship: Education, Access to Knowledge and Technology......................................................................................67 8. Report on the Implementation of the 2002 EPPA Policy Recommendations...................69 Annex I Information Sources....................................................................................................75 Annex II Web Sites....................................................................................................................77 Annex III EPPA Methodology....................................................................................................78 Annex IV List of Contacts...........................................................................................................81 ENTERPRISE POLICY PERFORMANCE ASSESSMENT: BULGARIA – ISBN- 92 64 -64 01139-0 © OECD 2005 6 - TABLE OF CONTENTS Tables Table 1.1. Relative Importance of Main Financial Sources Accessed by SMEs (2004-2002)...........................................................................................36 Table 2.1. Regions under the JOBS Project...........................................................................64 Table 2.2. JOBS Project Development...................................................................................65 Figures Figure I.1.& II.1.1 Average Ratings by SME Owners and Managers of the Seven Dimensions of Good Practice, 2002-2004.......................13 & 21 Boxes Box 1. Bulgaria and the European Charter for Small Enterprises.....................................14 Box 2. Priority Reform Issues for Action.........................................................................15 Box 3. EPPA Methodology...............................................................................................79 ENTERPRISE POLICY PERFORMANCE ASSESSMENT: BULGARIA – ISBN- 92 64 -64 01139-0 © OECD 2005 7 INTRODUCTION Scope and Structure of the Enterprise Policy Performance Assessments (EPPAs) The 2004 EPPA Country Reports have been prepared jointly by the OECD and the EBRD, in consultation with the EC and with the assistance of a network of South East European and international consultants. In 2002 the OECD Investment Compact and the EBRD launched the Enterprise Policy Performance Assessments (EPPAs) with the aim of producing independent and comprehensive assessments on an annual basis of the enterprise policy carried out by the government institutions in the each of the countries of South East Europe. The country assessment is the result of the elaboration of a number of inputs: insights from entrepreneurs and SME owners, collected through focus group discussions and interviews, contributions from SME experts, policy makers, representatives of the association of private enterprises, international and bilateral organisations dealing with SME issues, desk research and analysis, combined with the experience and judgement of OECD and EBRD experts. The assessment was originally designed to address six policy dimensions, at the core of enterprise policy. Nine EPPA reports, one for each of the SEE country, with Serbia and Montenegro being assessed separately, and a Regional SEE Assessment Report were published by the Investment Compact in 2003 and disseminated throughout the SEE Region. All the reports are available from the Investment Compact web-site: www.investmentcompact.org. The EC General Directorate for Enterprise and Industry joined the OECD-EBRD team in October 2003 with the aim of developing synergies between the EPPAs and monitoring of the implementation of the best practices contained in the European Charter for Small Enterprises, signed by all the SEE countries. The 2004 EPPA Country Reports represent both a continuation and an expansion of the work started in 2002. The scope of the reports have been expanded in 2004 to include a seventh policy dimension covering entrepreneurship, vocational education and access to technologies, thereby better integrating the scope of the EPPAs with that of the European Charter for Small Enterprises. The 2004 framework of research for analysis of the performance of enterprises policy thus consists of the following dimensions of small enterprise policy: (cid:1) Institutional framework for SMEs policy. (cid:1) Rule of law and regulatory framework. (cid:1) Tax policy for small business. ENTERPRISE POLICY PERFORMANCE ASSESSMENT: BULGARIA – ISBN- 92 64 -64 01139-0 © OECD 2005 8 - INTRODUCTION (cid:1) Financial instruments for new and small companies. (cid:1) Business consulting services for new and small enterprises. (cid:1) Business Incubators. (cid:1) Entrepreneurship, vocational education and access to technologies. The 2004 EPPA Country Reports are structured in two parts. Part I includes an overall assessment of enterprise policy, looking at progress made since the publication of the 2002 EPPA report. It also contains an updated list of policy recommendations and a set of priorities for short term action. Part II consists of two chapters. The first contains the insights of entrepreneurs and SME owners and managers, while the second chapter is dedicated to analysis and assessment, including a report on the implementation of the policy recommendations listed in the 2002 EPPA Country Report. The EPPA Methodology The EPPA methodology has been designed to provide insights and assessments of the performance in the implementation of policies to improve the investment environment for small business. The EPPAs have been conducted on a standard basis in all countries of the region and provide a benchmark for (a) highlighting key reform issues (b) measuring private sector insights and assessments of the business environment (c) assessing progress on a country-by-country basis and (d) comparative cross-country review for the SEE region. The policy assessments have been formulated on the basis of the following inputs: Focus group research: Focus group discussions were held with SME representatives. The focus group discussions were guided by a question template, applied to all the SEE countries, derived from extensive case study work on good practice in transition economies, including South East Europe, and OECD country experience (OECD-UNIDO, 1999). Individual SME interviews and expert interviews: Individual SME interviews were used to cross check the focus group research and to provide further insights on key issues in each of the SEE countries. Expert interviews were conducted to cross reference information from the focus groups and individual SME interviews and to contribute to overall views. Desk research: Examination of existing reports, databases, documents, etc. was conducted by country-based experts/consultants, selected for their enterprise policy knowledge and experience, under the supervision of the OECD Investment Compact team. ENTERPRISE POLICY PERFORMANCE ASSESSMENT: BULGARIA – ISBN- 92 64 -64 01139-0 © OECD 2005 Expertise from the OECD, the EBRD and the EC: A team of experts from the OECD, EBRD and from OECD countries has reviewed inputs from focus groups, interviews and desk research and elaborated the country assessments. A detailed description of methodology used in the research is presented in Annex III. 9