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Welcome to the Future: Bulgaria's Industrial Zones - and Why China Is Interested in Them

Thursday, Nov 25, 2010

In June 2010, the Bulgarian government broke the news that it formally invited Chinese authorities and companies to set up and manage a joint industrial zone in Bozhurishte, right outside of Sofia, a development that can well be seen as revolutionary.

The first ever industrial factory in the Ottoman Empire, a state spanning some 18 million square km, was opened in 1833 in Sliven by the Bulgarian entrepreneur Dobri Zhelyazkov. Yet, in spite of that and other industrial sparks in Bulgaria, especially after its National Liberation in 1878, up until the 1950s, it remained a primarily agrarian society with little heavy industry. (In 1891, when the international proletarian movement set foot in Bulgaria, the country had only 3 000 industrial workers in total.)

The Bulgarian heavy industry created by the communist regime (1944/48-1989), which was grossly inefficient and tied with the Soviet and COMECON economies, was largely wiped out in the 1990s by mismanagement, low competitiveness, loss of markets, suspicious privatization deals, lack of investment, to name but a few.

As the worst passed (the Bulgarian crisis of the mid and late 1990s), and Bulgaria has already been integrated to a certain extent with the EU, the authorities and private companies today stand a fair chance of taking advantage of the processes of the global economy by attracting greater FDI. The so called industrial zones – designed to fit both outsourcing and expansion of multinational corporations – appear to be a very attractive way to do that.

These prospects don't seem to have been hurt substantially by the global economic crisis of 2008-2009 – as the global quest for cost-effective labor and production continues – and as the People's Republic of China, the world's primary outsourcing destination of the past decades, is on the verge of becoming a global "outsourcer" itself.

What is more, over the past couple of years, the governments of both Borisov and Stanishev in Bulgaria started to recognize and emphasize the need to create a real export-oriented economy and to generate export-driven economic growth.

The Concept of Industrial Zones in Bulgaria

In the recent years many in Bulgaria started to hope that industrial zones – areas planned for industrial development, logistics, and, in more specific cases, office and business parks – would be the key to the country's economic takeoff.

As the Bulgarian state finances and economy stabilized after the 1990s collapse thanks to the currency board, the eventual completion, more or less, of the structural reforms, the gaining of NATO and EU membership, and the introduction of sinfully (in the good sense) low taxes, hopes have been that Bulgaria's crucial geographic location and its still skilled labor force would drive in more and more foreign investors.

These hopes might have been overstated, with every single small town mayor deciding to set aside a municipal plot and wait for investors to show up. In 2008, the Socialist-led Stanishev government announced a rather interesting plan to set up 100 industrial zones around the country, turning Bulgaria into a largely export-driven economy by 2018. Top government officials have been talking about how Bulgaria offers outsourcing conditions competitive to those of Chindia.

While all that did not really translate into extremely impressive industrial investments in Bulgaria in the past couple of years – largely because of the global economic crisis – it did lead many to realize and state the potential of export-oriented industries.

With the global crisis now winding down and a new set of institutional endeavors, Bulgaria might finally have found the right track for its development of industrial zones. A "National Company Industrial Zones" (NCIZ) was set up in early 2009 to work closely with the Ministry of Economy, Energy, and Transport, and the InvestBulgaria Agency, all of those including a number of technocrats and professionals with education and management experience from Western countries and companies.

In the meantime, a couple of municipalities managed to create functioning zones with state help, while several private industrial zone projects have also developed successfully.

The big question in 2010-2011 is – can Bulgaria create more such pockets of industrial development and expand the existing ones in order to bring in FDI, spur greater GDP growth and exports, and finally start advancing along the lines of hi-tech, innovation, and research and development.

"National Company Industrial Zones" was established in the spring of 2009 with the goal of facilitating the inflow of FDI in the country by offering industrial terrains to foreign firms. Our priorities also include the creation of an innovation and a high-technology center, and this is a solid way to increase the competitiveness of the Bulgarian economy in general. I personally think all industrial terrains are important – they can serve different manufacturing firm requirements in different times. In view of this, if a foreign firm contacts us, through our close work with the Ministry of the Economy, Energy and Tourism, and the InvestBulgaria Agency, we can channel them to locations that are most attractive for them," Kiril Nikolov, CEO of the NCIZ, told Novinite.com (Sofia News Agency) in an interview.

After 2008, the Bulgarian governments and the National Company have decided to modify the initial plan for 100 industrial zones, and to go for the creation of eight major industrial zones around the country and a hi-tech park.

"I think that the current model is much more realistic... Several well developed industrial zone projects are enough, and will do the job rather than dotting the entire landscape with them. At present, the National Company is investing enormous efforts to develop such industrial zone projects including as municipal and state projects," commented in an interview for Novinite.com (Sofia News Agency) Nikolay Brankov, Managing Director of Industrial Developments at SIENIT Holding, a Bulgarian construction company that started five private industrial parks in the past decade.

"Our industrial zones are 100% private; the National Company is 100% state-owned. I can point to the Ruse Municipality, which has managed to set up a 100% municipality-owned industrial zone, on its own, where the municipality was the developer," Brankov explains.

Source: novinite.com