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Part 7
Market Adjustment and Financial State of the Privatized Enterprises

The activity of the privatized enterprises is characterized by retaining the principal field of activity, with substantial changes in the organization of labor and production. That is very often a non-financial condition stipulated in the privatization contracts, especially in the services sector.

The production of the privatised enterprises increases. This is a typical phenomenon, resulting from the active role of the new owner in making an optimal use of production reserves, improving production organization and the use of the labor force. In some isolated cases the output has been temporarily reduced for the purpose of repairs, expansion, and other investments.

The new owners introduce and develop additional activities in the enterprise. This process is particularly characteristic of enterprises in the sectors of trade and services. It stems from the new owners' wish to increase revenues as much as possible and secure a good return on investment, as well as from the need to meet the commitment to preserve or increase the number of workplaces in the privatized enterprises, as required in most privatization transactions.

A certain improvement and diversification of the inventory of services and goods produced by the enterprise, both within its main field of activity and in the newly added ones was observed. This seems to indicate that the privatized enterprises are adjusting their activity to the market conditions, i.e. they are flexible and easily adaptable to market conditions.

One of the chief problems of privatized enterprises lies in the instability and uncertain future prospects of state-owned enterprises which strongly mark the micro-environment of the operation of privatized ones. In this respect it is impossible to draw analogies with other countries, insofar as the privatized enterprises are operating in the absence of a stable market environment.

Another major problem is the instability of production connections. The suppliers, when these are state-owned enterprises, frequently change the contracts (there is poor contractual discipline), and their restructuring often changes the output structure, prices and sales volume. All of this tends to destabilize privatized enterprises and impedes their market adjustment. Some privatized enterprises adjust to the situation by building up dealer networks and work with several, rather than a single supplier as a means of countering the instability.

Apart from the outlined, generally positive tendencies in the activity of the privatized enterprises, there are other more unfavorable developments concerning their financial. The high interest rates are pointed out by the new owners as a most serious obstacle to the growth and even the normal functioning of the privatized enterprises, and above all those relying on their own capital, rather than attracting investments from the outside. While retaining their legal and financial independence, after privatization most enterprises find themselves under considerable financial strain related to the servicing of investment loans received at the time of privatization. To most enterprises paying off the loans and the interests on them is the chief characteristic of their financial state. Nevertheless, and partly due to the limited number of privatized objects and the short period under consideration, almost none have been forced into insolvency.

In a number of cases, in relation to the need to secure credit resources, fixed assets of the enterprises are mortgaged or other assets are put up as security. There also appears a certain reduction of the assets with a view to optimizing production reserves and finished products in storage.

Measures are being taken to reduce certain production and other operating costs and to make them commensurate with the respective activity and the revenues it brings. In most privatized enterprises which have retained their independence there lack any substantial additional investments in liquid assets and expenditures on fixed assets. At the same time, however, the incomes from the activity and the additionally revealed resources prove sufficient not only to cover the generally increased operating costs, but likewise the investments required by the conditions of the privatization transactions.

The study proved that the enterprises having access to fresh capitals for the restructuring are in a favourable position. Those are typically the enterprises which are operating on sub-contracting bases, enterprises which are distributors or have been licensed by a foreign company, or are part of a joint venture. Thus, for instance, "Stil" Ltd (Case N 2) holds a licence from Hunter Douglas, the "Yurukov" company (Case N 5) is working for a German company supplying the materials. Those enterprises which have been bought by the personnel or management are experiencing more acute financial problems. As shown by the case studies, the persons who buy enterprises at auctions usually prove to have no connection with them and have never worked there, i.e., we are in the presence of green-field growth - the typical model of private sector expansion in Bulgaria.

Strangely enough, a major problem of privatized enterprises is inadequate labor force supply. Despite the high unemployment, the new owners of the privatized enterprises have difficulties in finding suitable workforce on the labor market. It is clearly necessary to link privatization policy with the labor market policy. The means for preliminary training of the staff of privatized enterprises could perhaps be secured from the Professional Qualification Fund. Information should be provided and negotiations conducted between the authorities under Art. 3 of the TPSMEL and the buyers about the possibilities provided by the active labor market policy - preferential term loans, cost-free hiring of young specialists and qualified workers, the temporary employment program and other schemes. Labor force demand on the part of privatized enterprises has to adjust to current labor force supply. It is possible to set up a department at the National Employment Agency which would be dealing with these problems.


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