| Enhancing Fair Competition, Business Integrity and Enterprise|
The main objective of the Economic
Program in 2003 was to support the development of a sound competitive environment,
business integrity and enterprise. Its activities focused on three thematic
areas: informal economy, corporate governance and self-regulation and horizontal
accountability and enterprise.
I. Informal economy
Three years ago CSD opened up the debate
on informal economy in Bulgaria, developing a network of experts and holding
two high-profile international conferences - raising public and the policy makes'
awareness of the problem. Informal economy measures topped the economic policy
agenda in 2003. The Ministry of Labor and Social Policy, Ministry of Finance
and Ministry of Economy proposed their separate sets of measures for reducing
the informal economy in the country.
1. Watchdog: Informal
economy measures topped the national economic policy agenda in 2003. In the
framework of Coalition 2000, CSD developed and tested an informal economy index,
measuring its dynamics in its different forms (labor market, taxes, contraband,
etc.) to assess economic policy impact. The index received wide media and policy
2. Knowledge Sharing: CSD published
two conference books (one in Bulgarian and one in English) and more than 15
articles in leading media on the causes, specific forms, dynamics, consequences
and policy responses of informal economic activities in EU candidate countries.
The books combine a balanced academic and applied policy approach, presenting
challenges for further research and policy recommendations.
The book Informal
Economy in the EU Accession Countries: Size, Scope, Trends and Challenges in
the Process of EU Enlargement contains contributions from more than
20 scholars on the study of informality. It reveals that the principal causes
of informal economy in accession countries and EU member-states are the same
but they have disproportionately larger negative impact on the former, which
is further exacerbated by the institutional transition. Informal economies in
some EU member countries are of comparable size to such in accession countries
although the forms of informality differ. The book concludes that informality
tends to spill over national borders, which makes the problem a matter of European
concern and collective efforts should be applied to find appropriate solutions.
Introducing stricter EU regulations in the softer administrative enforcement
environment in the accession countries might have an adverse effect and push
more enterprises in the informal economy. The Bulgarian
version of the book contains a separate part dedicated to specific problems
in this country - the links of grey economy to contraband, corruption and criminal
activities. In 2003 CSD published more than 15 articles in leading Bulgarian
newspapers on informal economy keeping the public and the professional community
aware of the latest developments in this area in the country.
On the Web
CSD is Google's prime Bulgarian site on informal economy - search words "informal
economy", "grey economy", "criminal economy", etc.
The Economic Program has created a special informal economy page on the newly
re-designed CSD web-site and supports a separate resource page on the Bulgaria
Development Gateway on the issues of informal economy.
The Economic Program held two thematic round-tables on the informal economy
during the year. These events targeted specific issues important to this country.
In search for viable solutions they gathered all stakeholders to the particular
problem ensuring alternative view points and plurality of opinion. The first
round table "Grey
Economy in Bulgaria - Recent Trends" organized on July 23rd, focused
on the informal economy in the IT sector. Representatives of the Applied
Research and Communications Fund (leading Bulgarian IT NGO), BAIT (the Bulgarian
IT companies' association), BASSCOM (the
industry association of Bulgarian software development companies), Bulgarian
International Business Association (BIBA), the Ministry
of Economy, the General Tax Directorate,
the Intellectual Property Department at the National Service for Combating the
Organized Crime and others discussed the latest trends in informality in the
industry. The informal economy in the IT sector is about the average percent
in the country, i.e. 25%. Hidden clause employment and its mirror hidden turnover
are the dominant forms of informality in the sector with some salaries being
three to four times higher than officially disclosed. While contraband channels
seem to be less of a factor, software piracy and new forms of informality (e.g.
money laundering through Internet) appear. The experts concluded that a well-functioning
public-private partnership including international industry suppliers, local
businesses, public and law enforcement administration and NGOs is instrumental
for achieving a sustainable reduction in the share of informality in the sector.
Problems of particular attention should be: (i) improving public procurement
transparency and lowering corrupt transactions, (ii) upgrading tax service and
control and (iii) reducing administrative compliance costs in the official economy.
The second round table "Competitive
Environment and the Informal Economy in Bulgaria" organized on December
18th dealt with the worst economic consequence of the informal economy - unfair
competition - the additional non-market pressure it exerts on official businesses.
Vitosha Research Agency surveys
show that by far unfair competition is defined by entrepreneurs as the single
most detrimental factor to their business, which bends the rules of competition
and creates huge incentives for going informal. The three biggest industrial
associations in the country BIBA, Bulgarian
Chamber of Commerce and Industry and Bulgarian
Industrial Association, which represent jointly more than 70% of the private
sector in the country, shared with public administration, NGO and donor organizations'
representatives outlined their points of view on informality and unfair competition
and proposed measures for dealing with them. Smuggling, contraband and fraud
at import, inefficient customs, public procurement and unclear legislation are
the main sources of gray economic activity.
expanded its domestic and international expert networks in 2003 sharing best
practices in research, advocacy and policy actions. Economic program experts
presented CSD research at two international conferences on informal labor, which
aimed to advise the EU Italian Presidency on EU wide strategy against undeclared
In 2003 Economic Program experts were invited to present Bulgaria's experience
and achievements in countering informal economic activity to the Italian presidency
of the EU. They participated at two international events on undeclared labor
in Europe: (i) a joint DG Research and DG Employment and Social Affairs Seminar
Work: Research on its Changing Nature and Policy Strategies in an Enlarged Europe"
on May 21st in Brussels and (ii) "European Conference on Policies for Employment
and Against Undeclared Work: From Segmentation to Integration of Labour Markets"
on December 12-13th in Catania, Italy.
II. Corporate Governance
Private sector business integrity
is of high importance not only to the separate company but for the overall economic
and social development of the country. Private companies produce currently more
than 70% of GDP and few of them are of size, which might inflict considerable
damage on the economy if mismanaged.
1. Regional Outreach:
CSD was commissioned by the World Bank
and developed a corporate governance community knowledge-sharing tool for NGOs
in Europe and Central Asia countries. It also piloted the first two corporate
governance newsletters to initiate the network's work.
In 2003 CSD initiated a working group under Coalition
2000, which prepared an updated report on corporate governance in Bulgaria.
The report is expected in the beginning of 2004. Recognizing the extensive experience
and resources CSD and the Corporate Governance
Initiative have acquired during their work in 2003 the World
Bank commissioned the economic program team to develop a community knowledge
sharing portal for the ECA region. The portal was successfully launched and
CSD prepared the first two pilot newsletters for its clients. It is intended
to become a clearing house for information and best practices sharing among
expert communities in the region.
2. Awareness Raising: Partnering with Coalition
2000 grantee Integra,
in 2003 CSD took part in promoting ethical standards and self-regulation among
SMEs to curb supply side corruption pressures. Giving practical examples of
accomplished high standards of business integrity to SMEs was the first step
in a coalition building process to promote strong self-governance principles.
In 2003 CSD shifted its corporate governance work towards company self-regulation
and internal ethics rule establishment. For the first time in this country CSD
presented figures on corruption in the private sector - its magnitude and its
specific forms at a round table in June. In December BIBA
invited Economic Program experts to present their findings at an international
conference "Countering Corruption - a Factor for Improving the Business
Climate in Bulgaria", which highlighted that businesses are already aware
of the size and severity of the problem and are taking responsive action. Active
companies are primarily foreign multinationals, which transfer their standard
internal regulations and ethical rules to their local subsidiaries. Home-grown
SMEs remain overwhelmingly unaware of existing conflicts of interest and methods
of dealing with them.
In cooperation with Integra
- Bulgaria, CSD presented to SMEs and the public a model "Code
of Ethics and Social Audit". The publication is intended to aid SMEs
in uncovering conflicts of interest and handling them professionally, avoiding
conflicts with employees and building their own internal system for integrity.
Preventive measures put a long-term downward pressure on supply of corruption
in the economy. Reducing corrupt practices in the private sector levels the
playing field and improves the competitive environment thus raising economic
back to top
Accountability and Enterprise
Contemporary economic development
is increasingly local, cluster and urban in character. Therefore local administrative
governance is imperative to the development of viable national economies. In
big cities where governance is shared among many district administrations horizontal
accountability in administering business regulations is key to creating a welcome
entrepreneurial and business climate.
1. Horizontal Accountability: In 2003 CSD started an initiative
to assist improvement in local administrative governance in Sofia in the area
of licensing, registration and permit regimes by establishing horizontal accountability
and lowering barriers to business. This would require that all 24 Sofia districts
conform to common principles of administrative regulation and business friendly
2. Advocating Change: Together with partners from Coalition
2000 and other NGOs CSD contributed to the introduction of transparency
and accountability in the work of the Sofia Municipal Council by proposing changes
to its new statutes.
In Bulgaria the economy of the capital city of Sofia accounts for more than
1/3 of the country's GDP and hosts about 40% of SMEs. It has one central and
24 district administrations, which often enforce business administrative rules
in substantially different ways. This imposes considerable costs on businesses
in Sofia and hampers the capital city's development. In the end of 2003 CSD
started work on introducing horizontal accountability and common principles
of administrative governance in the 24 districts of Sofia through institutional
and legislative changes. It aims at lowering business transaction costs and
improving the overall business environment in the city.
CSD established a working group on local administrative governance, which comprises
of representatives from the Sofia Municipality,
the Municipal Council, the Bulgarian
Chamber of Commerce and Industry and NGOs to prepare a report on the administration
of licensing, registration and permit regimes in Sofia and propose legislative
and institutional improvements to the City Council. The group has identified
two sets of regimes that impose the highest compliance costs on businesses and
are sources of corruption - (1) regulating commercial activities and (2) regulating
construction and architecture. Members of the group proposed changes to the
City Council’s statutes, establishing the principles of publicprivate partnership
and transparency in the Council’s work. The proposed texts have been largely
incorporated by the Councilors in the new statutes.