News

Yavor Aleksiev

On June 29th 2017, representatives of the Institute for Market Economics (IME) took part in a forum hosted in the city of Ruse, focused on socio-economic analysis on the status of the Danube municipalities. While the forum itself was dedicated to the Celebration of the river Danube, a great deal of ideas were discussed - mainly concerned with infrastructural, international projects, changes in regulations and initiatives as well as improving the competitiveness of the local economy.

Some of the main problems facing the local municipalities are the low level of infrastructural development, which directly influences investment activity and labor migration among different regions. As a result the main social consideration is migration, which remains high.

The primary goal of this article is to investigate the economic and social conditions of the Danube municipalties.

Economic Zones and Income

Along the Danube river three main economic centers are formed – Ruse, Kozlodui and Pleven. The average per capita income has a rather slower growth than the national average, this is particularly true for the municipalities which form economic zone “Kozlodui”. However, upon a closer investigation one would clearly see that the average wage there is higher than the average national wage in 2015 data (BGN 1,465 gross monthly wage), primarily because of the higher wages of those employed at the ‘Kozlodui’ Nuclear Power Station. Wages in Ruse (BGN 719) and the neighboring municipalities are much closer to the national average ones (BGN 878) compared to those in Pleven (BGN 666). Their growth however is falling behind the country average mostly due to the effect of the capital on the country average.

Demography

Between 2000 and 2016 the population of the Danube municipalities fell by nearly a quarter - twice faster compared to the national average. The only municipality where the negative trend is less pronounced is Ruse where the decrease is 11%. Other district centers like Vidin and Silistra have lost about a third of their population. Furthermore, in smaller municipalities like Bregovo and Nikopol the decrease is surpassing 40%. In 2016, around 60% of the Danube population was living in Ruse, Vidin and Svishtov. Aside fro the negative population growth, there are also negative migration trends. Despite this in some municipalities there are positive migration dynamics, but those are not sufficient to reverse the overall trend.

Investments

The key problem for the development of the region is the apparent lack of foreign direct investments (FDI). In the 23 municipalities along the Danube live almost 7% of the population of Bulgaria, but the amount of FDI in late 2015 was just 1,75% of the country total. Nearly 75% of all FDI are concentrated in Ruse municipality but ii is still about one third less compared to the country average EUR 3,000 per capita (accumulated at the end of 2015).

Examples of investors with growing revenue and number of employees are certainly not absent, but they are concentrated in the industry of Ruse municipality. Another important measurement of investment activity – the expenditures for obtaining long term material assets has an underlying slow but steady growth. However, in 2015, it remained 11% lower compared to 2011 results as well as below the country average.

Education and labor market

The labor market is quite fragmented. Despite three consecutive years of downward trend, unemployment remains high, peaking at 14,21% in 2016. Almost half of the Danube municipalities have reached serious unemployment levels of over 25% and in some cases, six to be precise, over 30%.

The lowest unemployment levels are in Ruse municipality (4%), while the highest one is in Dimovo municipality, which has a staggering 59% unemployed. Despite the free manpower in many of the smaller municipalities, daily labor migration remains relatively limited, which could be linked to the educational profile of the population on one hand and with the ever worsening state of the infrastructure on the other. The daily labor migration among the municipalities is estimated to be around 6% of the employed, compared to a country average of 8%.

Adrian Nikolov

When it announced the 2017 matriculation results, the Ministry of Education highlighted the decrease of failed students compared to the previous year. Truly, there is something to write home about -  the number of the failed students in 2017 has dropped from 4189 to 3887. In general, this decrease amounts up to 1% of the total number students. However, this downward trend is only compared to last year outcome. In reality, 2017 marks the second worst performance in the record of matriculation exams in Bulgaria.

Much less attention was payed to the slight fall in the average exam results – from Good 4.17 to Good 4.13. Despite the fact that this is a continuation of a relatively stable trend towards a decrease in the average results in the past years, a decrease of four points is not as much a sign of decreasing quality of education as it is of the higher difficulty of the particular exam and a confirmation of the lack of significant improvements in quality. The weak performance of the students could also be explained with improvements in mechanisms sanctioning cheaters – in other words the newer grades represent the real capabilities of the students much better compared to years ago.

Aggregated data point to even more curious trends on the local level, because of this we will investigate those trends on the basis of data provided by the Ministry of Education on the district level level.

The map shows the “fail” grades in the districts as  percentage from the total number students who sat the exam. The uneven distribution of the quality of education is obvious here, and it cannot be captured in the national average. For example in the capital a mere 2% have failed, while in Yambol and Kardjali one fifth were unable to pass the exam. A positive example is Smolyan, where the results have improved significantly over the years as a result of long-term policies aimed at improving the quality of education.

The dynamics of failed grades on the matriculation exam come as a clear result from the improvements in cheating control - in regions like Kurdjali, for instance, where there were only 3% failed students in 2014, but in the following three years their number has grown more the six times. A similar trend, but with smaller variance can be observed in Yambol, Pazadjik, Silistra and Sofia regions. An interesting outlier is Montana, where the share of failed grades has halved within a year. The regions with traditionally high results and high quality education– Sofia-city, Plovdiv, Varna, Burgas do not mark any significant shifts in the past years.

Shifts in the average grades follow closely the failed grade trends. However, there is some evidence of deepening inequality in the quality of education between the diffrent regions – the leaders improve their performance while the worse performers show a trend towards decreasing results. Generally, new data point to stagnation and lack of any significant change within the school education system.

District-level results from the latest matriculation exams do not point only to negative  conclusions – the dynamics of the failed grades, for example hint that the current form of examination is getting better to achieving a realistic representation of the actual quality of the district educational systems. They also underline the need for reform of the system of financing and the school network, without which the inequality of education quality will continue to widen.

The quality of education in Bulgaria can be measured in several different ways. The education system itself has independent assessmentс for all students following each of its three stages. Apart from that, Bulgaria takes part in several international sturdies of educational achievement, PISA and TALIS among them. In broad terms, they point out that in a comparative context the quality of education provided by the Bulgarian educational system is on an average level compared to other countries and does not change significantly over the years.

The country level analysis - especially a country like Bulgaria, where there are considerable regional differences – however, often hides the inherent inequalities and the broad range of the level of educational attainment within the country. Because of this, here we will examine the performance of the students in the different municipalities in the country.

The quality measurement used is the performance of the students on the compulsory exam in Bulgarian language and literature held after the seventh grade. This indicator is chosen because it covers the entire country. This allows for a perfect comparison, as the tests used are the same for all students in the same year.

There are significant differences between the municipalities. While in Novo selo, Vidin district, the average result is barely 7.9 out of 65 points, in Zlatitsa, Veliko Turnovo district - 10.2, the seventh grade students in Zlatograd, Smoyan district achieve an average result of 39.8 and in Smoyan itself - 39.7. These extreme differences are probably not only the result of low teaching quality, but also of random variations and the relatively small number of students in these municipalities. Nevertheless, there is an obvious proportional relationship between the size of the city or town and the mean result of the external evaluation, i.e. larger municipalities generally achieve higher evaluation results. The reason behind this is most likely not only the concentration of better schools and teachers in those municipalities, but also the fact that better students are choosing schools in the bigger cities. The opposite conclusion however cannot be made for smaller municipalities, at least not with high certainty – they achieve both good and bad results, but the lower ones are predominant compared to the bigger municipalities.

The results indicate that the quality of the education is quite uneven between the municipalities – the schools in the smaller ones are incomparable in terms of education quality and attainment with the ones in the big cities. Should it even be assumed that the family and social background in smaller municipalities  offer a worse start to students it is obvious that the schools do not manage to overcome these deficits but rather maintain them. 

There are at least two solutions to this problem. The first option is to intentionally direct human and financial resources with to municiaplities with bad results. The current financing system, however, already distributes financial resources unevenly and gives priority to places where assessments show weak results;despite that the differences in quality remain significant. Redirecting  teachers to smaller cities on a large scale seems hard to achieve even if there is  financial motivation, given the advancement opportunities and living conditions in smaller cities and towns.

For years now such redirecting of highly-educated young people to schools in poorly developed, minority-dominated and rural communities has been done  by the “Together in class” program. Notwithstanding that the program creates good conditions and motivates young teachers, which are an ever rarer sight in the educational system, its scope at this stage is way too narrow (according to the website of the program for the 2016/2017 school year there are 170 young teachers that participated in it) in order to lead to a systematic change in the quality of the education in underachieving areas. Should its approach be taken up and replicated on a much larger scale though, it could provide a solution to the education quality issues.

The second option is to consolidate schools. Statistical analysis on the school level indicates that schools where more students are taking the after-seventh-grade exam achieve higher scores (the effect is 0.15 points per student taking the exam). The consolidation of the school system will lead not only to the provision of access to higher quality education to more students, but also to a reduction of costs for maintenance  of school buildings and staff in places where low-quality education is provided. The present system of secondary education funding hinders this process as unified cost standards are allocating more resources exactly to students in smaller municipalities. Apparently, however, larger the larger per-student payments in these municipalities cannot guarantee better education, but has the opposite effect – it artificially supports schools with poor quality teaching.

Yavor Aleksiev

The latest data on European regional development clearly show that Bulgaria is by far not the only country where regional differences are not only significant, but are also becoming greater. There are basically no countries which manage to simultaneously increase the wealth in their poorest and richest regions, while at the same time achieving a meaningful internal convergence.

A brief look on Bulgaria

The differences between the poorest and richest Bulgarian region (Northwest and Southwest) remain significant. While GDP per capita (expressed in purchasing power standard) of Northwest Bulgaria is barely 29% of the EU average, Southwest Bulgaria has reached 76%, primarily due to the development of the capital city. The gap between the two regions widened primarily in the 2006-2010 period, when the indicator for Southwest Bulgaria increased from 59 to 77% of the EU average, while the increase in Northwest Bulgaria was only from 26 to 28%. In 2015 the country average reached 47 % of the EU average, but all regions, except the Southwest, remain far from this rate. The closest to it are the Northeast and Southeast regions (39%).

Regional differences in Europe

The first figure shows the poorest and richest regions in each of the countries that have more than one region in Europe and for which Eurostat published comparable data for 2015. The average value for each country is also shown.

Fig.1 GDP per capita (PPS) as % of EU average (2015)

Source: Eurostat, IME calculations

In percentage points the difference varies from 512 pp in the UK to barely 4 pp in the Croatia, while in Bulgaria the difference is 47 pp – the sixth lowest in the EU.

Change in the 2006-2015 period

During the 2006-2015 period regional differences decreased significantly (by more than 10 pp) in 6 out of 21 countries with comparable data and increased significantly (more than 7 pp) in 7 countries, Bulgaria among them. We should mention that in most of the countries with diminishing differences (Belgium, Portugal, Greece and even Romania) this process is due to the decrease of the relative wealth in the richest region and not because of faster economic development in the poorest one. In Austria the dynamics is bipolar – there is a clear wealth increase in the poorest region and a mild decrease in the richest one. Only in Germany there is a clearly visible convergence process – the richest region maintains its level of wealth (without increasing it), and the poorest one slightly improves its position.

Fig.2 Increasing and decreasing differences (2015/2006), pp

Source: Eurostat, IME calculations

In the countries where there are deepening differences between the poorest and richest region (shown in red, including Bulgaria), the reason is usually in the faster development of the wealthiest region, but we can still differentiate two groups:

• In Sweden, Denmark, France and the UK the wealth of poorest region has decreased, while GDP per capita in the richest one has increased;
• In Bulgaria, Poland and Slovakia the wealth of both the poorest, and the richest region has increased, but the difference has widened due to the faster development of the richest one.

An alternative look at the differences

In the same time, there are only four countries in the EU where the difference between the poorest and the richest region is greater than that in Bulgaria – the UK, Slovakia, the Czech Republic and Belgium. More than two times greater differences can be seen in Italy, Germany, Hungary, Poland and France. The smallest differences are observed in Croatia, Slovenia, Romania and Portugal.

Fig.3 Difference in GDP per capita (PPS) between the richest and the poorest region in EU countries

Source: Eurostat, IME calculations

The English version will be available on April 7th, 2017.

On March 16th, 2017 the IME presented the study "Regional Profiles: Indicators of Development" in front of Bulgarian students for the first time.

A special focus was put on issues related to poverty and inequality at the regional level. Apart form IME's Desislava Nikolova, PhD and Yavor Aleksiev, the panel also included prof. Neno Dimov form the Sofia Univercity and Aleksander Tsvetkov PhD form "Regiostat". 

The presentations are available in Bulgarian here:

• Poverty and Inequality - Measurment and Interpretation
• Poverty and Inequality in Bulgaria

The negative demographic processes over the last decades have lead to a significant decrease of the population in a number of Bulgarian municipalities. This ongoing process makes the question of a territorial-administrative reform more and more topical with each passing year.

The first rule of Article 8 of the Law for the Administrative-Territorial Structure of the Republic of Bulgaria foresees a minimum of 6000 people for the establishment of a new municipality. This requirement is not applied to already existing municipalities, which can be seen on the applied map.

Municipalities with less than 6000 inhabitants

In 2015 there are 69 municipalities that fail the above mentioned initial requirement for establishing of a municipality, while in 2000 those were only 32. The majority of these are situated in the border regions – a clear concentration of such municipalities can be seen in Northwest Bulgaria. In addition, there are 16 municipalities where the population is above 6000 but less than 7000 people. In most of these there is a clear tendency of decreasing population, with the exception of Nikola Kozlevo, Primorsko, Kuklen and Mineralni Bani.

The question whether the requirements for establishing a new municipality should not apply for already existing ones remains open, but it leads to a number of problems, such as:

• Turning many municipalities and municipal enterprises into a major  employer, which creates obvious risks for the local democratic process;
• Inability to apply adequate policies (including successful realization of European projects) due to lack of administrative capacity and enough funding;
• Reaching exceptionally high levels of the ratio between number of municipal workers and the local population.

The regulatory framework has a number of loopholes that allow the establishment of smaller municipalities (Article 8 in relation to Article 9 of the Law for the Aadministrative-Tterritorial Structure of the Republic of Bulgaria ), which basically limits the process to an expression of will of the local population (followed by a referendum) and a decision of the Council of Ministers. Such was the case with the newest Bulgarian municipality – Surnitsa.

There is also a requirement for a distance not higher than 40 km. of the populated places from the municipal center, as well as for proving the ability to finance the expenses of the particular municipality in an amount not less than half of the country average according to data from the last annual report for the execution of municipal budgets. The last rule is also not applied by the majority of the existing municipalities, as in the anecdotal case of the smallest Bulgarian municipality in terms of population – Treklyano. Its own revenues are about BGN 70,000 per year, 45,000 of which come from renting land and property. The yearly expenses of the municipality are almost 10 times higher.

In the light of a  future and much needed  territorial-administrative reform all these requirements will have to be changed. Due to the condition of proving financial capabilities, the process of financial decentralization should be given a priority and its effects should be considered before respective changes in the law are made. This will show which municipalities can finance themselves, at least to a certain point, and which need additional financial support.
In any case the rule for distance not higher than 40 km. from the municipal center should be revised, while the lower limit of population number should be set high enough so it can guarantee the sustainability of the new borders.

The consolidation of municipalities cannot be seen as a panacea for problems of the regional development but the current fragmentation makes it impossible to implement  adequate regional policies in more and more of the country’s regions.

The negative demographic processes over the last decades have lead to a significant decrease of the population in a number of Bulgarian municipalities. This ongoing process makes the question of a territorial-administrative reform more and more topical with each passing year.

The first rule of Article 8 of the Law for the Administrative-Territorial Structure of the Republic of Bulgaria foresees a minimum of 6000 peoplefor the establishment of a new municipality. This requirement is not applied to already existing municipalities, which can be seen on the applied map.

In 2015 there are 69 municipalities that fail the above mentioned initial requirement for establishing of a municipality, while in 2000 those were only 32. The majority of these are situated in the border regions – a clear concentration of such municipalities can be seen in Northwest Bulgaria. In addition, there are 16 municipalities where the population is above 6000 but less than 7000 people. In most of these there is a clear tendency of decreasing population, with the exception of Nikola Kozlevo, Primorsko, Kuklen and Mineralni Bani.

The question whetherthe requirements for establishing a new municipality should not apply for already existing ones remains open, but it leads to a number of problems, such as:

• Turning many municipalities and municipal enterprises into a major employer, which creates obvious risks for the local democratic process;

• Inability to apply adequate policies (including successful realization of European projects) due to lack of administrative capacity and enough funding;

• Reaching exceptionally high levels of the ratio between number of municipal workers and the local population.

The regulatory framework has a number of loopholes that allow the establishment of smaller municipalities (Article 8 in relation to Article 9 of the Law for the Aadministrative-Tterritorial Structure of the Republic of Bulgaria ), which basically limits the process to an expression of will of the local population (followed by a referendum) and a decision of the Council of Ministers. Such was the case with the newest Bulgarian municipality – Surnitsa.

There is also a requirement for a distance not higher than 40 km. of the populated places from the municipal center, as well as for proving the ability to finance the expenses of the particular municipality in an amount not less than half of the country average according to data from the last annual report for the execution of municipal budgets. The last rule is also not applied by the majority of the existing municipalities, as in the anecdotal case of the smallest Bulgarian municipality in terms of population – Treklyano. Its own revenues are about BGN 70,000 per year, 45,000 of which come from renting land and property. The yearly expenses of the municipality are almost 10 times higher.

In the light of a future and much needed territorial-administrative reform all these requirements will have to be changed. Due to the condition of proving financial capabilities, the process of financial decentralization should be given a priority and its effects should be considered before respective changes in the law are made. This will show which municipalities can finance themselves, at least to a certain point, and which need additional financial support.

In any case the rule for distance not higher than 40 km. from the municipal center should be revised, while the lower limit of population number should be set high enough so it can guarantee the sustainability of the new borders.

The consolidation of municipalities cannot be seen as a panacea for problems of the regional development but the current fragmentation makes it impossible to implement adequate regional policies in more and more of the country’s regions.