The presentation was focused on the following topics:
Economic expansion: which parts of the country grow robustly and which lag behind;
Labour markets: is labour shortage the only game in town;
Education: what is education quality in the regions and is there a feedback loop to labour market performance;
Local taxes: are tax hikes trendy among local authorities.
The IME also presented the country’s leading economic centres – a pilot research effort, made public just a few weeks ago. The study came out of the team’s desire to draw an economic map of the country based entirely on natural economic processes. The analysis highlights the strongest nuclei of the national economy and their pertaining peripheries.
The Regional Differences in Bulgaria and the EU in the Last Decade
The latest Eurostat data show that the differences between the richest and the poorest regions remain significant.
Recent Eurostat data show that the gap between the poorest and richest regions in EU countries is still considerable. In the 2007-2016 period, this gap increased in 12 countries, including Bulgaria, and declined in 9. In almost all cases "convergence" was achieved because the poorest regions have caught up, but because of a decline in the relative wealth of the richest one. The indicator used by European statistics for this comparison is GDP per capita, expressed in terms of purchasing power standard (PPS).
Figure 1 shows the differences in the development of the richest and poorest regions in each member state (as % of the EU average), which has more than one such region within Europe.
Figure 1: Per capita GDP (PPS) as % of EU average, 2016
Source: Eurostat, IME calculations (* Data for the richest region in the UK show the average for all five London regions.)
It is clear that Bulgaria is far from being among the countries with the greatest unevenness in the development of the regions. At the same time, Bulgaria, Croatia and Greece, which has seriously deteriorated in recent years, are the only countries in which the richest region has lower welfare than the EU average.
Change over the last decade
The analysis of the wealth gap in the richest and poorest regions in European countries over the last decade shows that the countries in which disparities decrease between 2007 and 2016 are nine, and we can conditionally divide them into three groups :
Countries in which differences are shrinking because of declining relative development in the richest region and increasing development in the poorest (Austria , Germany and Portugal);
Countries in which differences are declining, but there is a decline in the relative development in both the richest and the poorest regions (Belgium, Finland, Spain, the UK and Greece);
The only country that has managed to achieve some, albeit minimal, upward development of its poorest and richest region, that has lead to more cohesion, is Hungary.
In the vast majority of Member States, the gap between the poorest and the richest regions is widening. We can define four groups here:
Countries in which both the richest and the poorest regions have increased their relative development, but the differences are getting bigger due to faster growth of the rich regions - Denmark , Poland , Romania and Bulgaria;
Countries in which both in the richest and the poorest regions are losing ground compared to average EU levels, but the negative processes are more pronounced in poor regions, so the gap is widening - the Netherlands , Sweden and Croatia;
Countries in which the differences are growing due to an increase in the relative level of development in the richest region and a decline in the poorest - Ireland, France and Italy;
Countries in which the poorest region stagnates and the richest improves its relative level of development - the Czech Republic and Slovakia.
Focus on Bulgaria
Between 2007 and 2016 GDP per capita, expressed in PPS, in the poorest Bulgarian region (Northwest Bulgaria) has increased only slightly - from 27% to 29% of the EU average. For the same period, the increase in Southwest Bulgaria is from 67% to 78% and the average for the country has increased from 40% to 49%. Thus, our country remains last in terms both of the relative prosperity of its poorest region and that of its national values. In 2007, the poorest Romanian region (Northeast) had the same level of development as Northwest Bulgaria. In the following period, however, the increase in this region of our northern neighbour is from 27% to 36% of the EU average compared to the 29% for Northwest Bulgaria.
Of course, some of the observed differences are a consequence of the peculiarities of the administrative divisions of EU countries, as the capitals of many of them are separate statistical regions.
After years of systematic analysis of the Bulgarian districts, the IME took the next step and transferred its efforts to the municipal level.
After years of systematic analysis of the Bulgarian regions, the IME took the next step and focused its efforts on the municipal level. The study "Economic Centers in Bulgaria" raises a number of questions and their answers must be found as soon as possible so that the notion of "regional policy" can aquire a more functional sense.
What are the economic centers?
As "economic centers", our analysis identifies the economically leading municipalities (nucleus) in the country and their adjacent periphery. The importance of these centers for the development of the country's economy is indisputable. Although they occupy only 36% of the territory, they account for nearly 75% of employment and investments in fixed tangible assets and for over 80% of foreign investment and total output.
Importance of the economic centers for the national economy
Source: NSI, IME calculations
It is important to note that this map in no way exhausts the “economically active” regions of the country. With slightly more liberal selection criteria, the centers would have been more, but the focus would have been blurred without sufficient rationale from a research point of view. The municipalities we designate as "economic nucleus" meet at least two of the following three criteria:
they rank among those in which production is highest (all without Sopot);
they rank among the most attractive for workers from neighboring municipalities, viewed through the prism of everyday labour migration (only 5 of the included nucleus do not correspond to this criterion, among which the secondary ones - Pernik and Devnya);
they are distinguished by a high density of the employed in relation to the territory of the municipality (here the exceptions are 7, but they all cover the other two criteria);
Some well-performing municipalities, even smaller ones (such as the resorts Bansko and Nessebar), are excluded from the scope of the survey because they do not meet more than one of the criteria mentioned.
Conclusions from the analysis
The conclusions we can make are many, but only a handful of them can serve as a starting point for policy making:
It is evident that the current administrative-territorial division of the country is far from optimal. The number of municipalities not meeting the initially required population threshold is growing. Limited human and financial resources make it so that local authorities are mere observers of the processes taking place on their territory. Bulgaria needs fewer territorial-administrative units which will better reflect the actial social and economic processes in the country.
The lack of sufficient own funds is an enormous problem, has led to a race towards higher local taxes . However, even clearly identified problems at local level can often not be solved due to the lack of own resources. The revenues of local authorities are more than two times lower than the average for the EU in relation to GDP.
The best way to overcome the gap between taxation and political representation at the local level is to transfer income tax returns back to municipalities via the principle "money follows the ID card". Transferring only 2 percentage points of the personal income tax currently collected will result in additional municipal revenues of around 650 million. This reform will create opportunities both to cover old liabilities and new capital costs while at the same time provoking local authorities to work towards attracting investment, higher employment and wages.
There is no analysis based on daily labour migration data that does not make infrastructure development a top priority. Without good infrastructure (specifically road infrastructure) we cannot expect the working population to be mobile and ready to work 50 or 100 km. away from home. Despite the relative progress over the last decade, there is still much to be done, both in terms of the overall infrastructure development of North Bulgaria and in terms of its connectivity with the southern part of the country, in particular the tunnel under Shipka and the "Black Sea" highway.
Whether there is political will and, more importantly, public interest in such matters remains the key question. The reform of the administrative-territorial division must overcome political interests, and financial decentralization should happen at the expense of, and not in addition to, the existing tax burden to the central government.
We will only achieve real progress when local processes become a determining factor for the financial well-being of Bulgarian regions and their citizens. Only then will local democracy make sense, and it goes hand in hand with something long lost in our country - local identity.