The Global Insight
Bulgaria after the EU presidency
- Political and Economic Risk Monitoring
Bulgaria after the EU presidency: An attractive investment destination?
At the end of June, Bulgaria will complete its first presidency of the EU. After 11 years of EU membership, in January the government took over the rotating six-month presidency and since then has hosted and organised the meetings of key EU bodies and inter-governmental forums. For the Bulgarian government, it has been an opportunity to demonstrate the progress the country has achieved since becoming an EU member, as well as to raise its profile in European and regional affairs.
The government was generally successful in carrying out the responsibilities related to holding the EU presidency. However, the increased media attention that came with the EU presidency revealed several failures, alongside the successes of the past decade. Political instability, corruption and weak rule of law perpetuate a governance gap between Bulgaria and its EU partners. Despite repeated pressure from the EU to tackle these problems, they continue to adversely affect the quality of the business environment.
Over the past five years Bulgaria has had three different governments; the volatility of the political party system shortens the average government term.
The government coalition between the centre-right Citizens for European Development of Bulgaria (GERB) and the right-wing United Patriots (OP) has presented a united front over the past six months. But now that the EU presidency is coming to an end, the underlying differences between the two coalition partners will resurface. OP’s nationalist and often anti-Western rhetoric does not sit well with GERB’s pro-EU and pro-business policy orientation. The divisions between the two government parties will be more obvious on issues concerning immigration, minority rights and foreign policy. However, OP tends to also promote populist ideas in domestic economic debates, pushing for increased government spending on welfare, subsidies or aid for various domestic stakeholders, such as farmers or truck drivers. Such proposals will be met with resistance from GERB, which insists on fiscal discipline as a means to fulfilling Eurozone membership criteria.
As a result, government instability will persist, along with frequent reshuffles of the ministerial team. A government collapse before the end of its term in 2021 is likely, especially given the government’s very narrow majority in parliament. Even if the government survives the full term, recurring disagreements will lead to unpredictable policy-making, with diluted policy proposals and frequent policy reversals.
Intra-government divisions further undermine the consensus to tackle long-standing problems such as corruption. Despite persistent pressure from the EU to address pervasive corruption – including through more than a decade of regular monitoring of reforms by the European Commission – progress in this area remains limited. Bulgaria remains among the most corrupt countries in the EU, a position that has notably not improved over the past decade.
For businesses, corruption is often the chief obstacle and deterrent to doing business in Bulgaria. Although at the administrative level corruption has declined over the past decade, at the political level not much has changed since the 1990s. While businesses today are less likely to be asked for small bribes and facilitation payments when obtaining permits or registering a company, increasingly opaque bidding and decision-making procedures in large public procurement tenders and sales of state assets mean that companies looking at these opportunities are facing substantial integrity risks. Such tenders are often rigged to benefit domestic companies with strong links to political parties in government.
Although such practices are not isolated to Bulgaria, Bulgarian authorities have been slow to curb them. Unlike neighbouring Romania, where anti-corruption bodies have indicted more than 1,200 persons on corruption charges over the past year, in Bulgaria for the same period there have been only eight corruption indictments. Anti-corruption institutions in Bulgaria remain weak and lack the resources to effectively tackle corruption.
Reforming the judiciary and law enforcement bodies will be a long process. The current political elite, both in government and opposition, has limited incentives to sustain reforms that would undermine its immunity from prosecution as well as its business interests. While the GERB-led government is generally pro-business and pro-EU, in practice, the pace of reforms is unlikely to accelerate. Businesses will continue to face challenges related to corruption, weak institutions and poor governance, which will reduce the attractiveness of Bulgaria as an investment destination. It is therefore important for businesses to mitigate these risks by taking the right mitigation measures.