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Victoria Mindova

Alexander Bebov is a partner in the "Balkan Advisory Company," who has worked for JP Morgan, Merrill Lynch, Chemical Bank and Prudential Securities. He holds a Master's degree in Public Administration from Harvard University, he also studied at the University of Maine and the Stern School of Business, New York. He commented on the recent developments in Greece and Bulgaria before GRReporter and gave his views on the repercussions that they may have on the economic prospects of the two countries.

How do you think the political uncertainty in Bulgaria following the resignation of the government will affect the business climate?

The resignation of the government as well as the political uncertainty have a negative impact on both new investments and the market of mergers and acquisitions in general. I definitely think that this uncertainty will continue in the short term. Those who want to sell their companies will wait if the circumstances are not pressing them. Those who want to buy will put an additional risk premium not only for the country but also for the company. Investors prefer to buy at a little higher prices (anyway, the prices in the Balkans are lower than the peaks of 2008) but to be away from the political uncertainty or the phenomenon of streets dictating the rules.

I do not mean that the demands of protesters in Bulgaria are not justified and there should be a corrective in the face of civil society but in the current situation, new investors will wait for the certainty of the investment environment to improve before making the first steps towards the Bulgarian market.

It is not very clear abroad why the people in Bulgaria have been protesting. Do you think that the protests in Bulgaria are a response to the general crisis in Europe or are they a derivative of mistakes of the system of the country?

There are similarities and differences between the crisis in Europe and the developments in Bulgaria. The main differences are that the cuts in incomes in the countries of the European periphery not including Bulgaria started to decrease from a much higher basis. The incomes of Italian, Portuguese or Greek households have been drastically reduced. The crises in these countries has come for different reasons - inflated property prices in Spain and Ireland, the banking crisis in Ireland too, but they are mostly due to padded state budgets. The main effect of the different factors related to these issues has been to drive the people from the countries of the European periphery to go out into the streets.

It is the opposite in the case of Bulgaria. From 1997 onwards, various governments have been doing whatever they can to maintain stable macroeconomic indicators. This has become possible at the cost of low incomes. Over the years, the governments have been maintaining a very strict fiscal policy and meeting the requirements of the currency board, which is the main reason for the extremely good state of Bulgaria’s budget and debt compared with the European Union and even the United States.

The problems in Bulgaria stem from the fact that it remains the poorest country in the European Union. Despite the attempts by various governments over the years and the efforts of the last government as regards infrastructure projects and the absorption of European Union funds, Bulgaria remains a poor country. The riots this winter are just an expression of this dissatisfaction. They started with the high electricity bills for December and January. Then, the spirits were awake and the people began asking, "What is the reason for the high bills?" When the issue grew, it became clear that private energy distribution companies have been hiring close advising firms, paying them big money for their services.

The problem is that the Energy Regulator and various governments have been approving those amounts. This is what has caused the protests in Bulgaria. There are extreme demands like the nationalisation of the energy distributors that I would never support but the issue of transparency and control exercised is very serious.

As you have said, the macroeconomic indicators of Bulgaria are very stable but it has failed to achieve sustained economic growth and attract strong strategic investments despite them. Why is that?
 
I cannot completely agree with you that Bulgaria has not attracted large strategic investments over the years. There are names of strategic investors in the country. The problem is that their presence on the Bulgarian market has not been used to the best advantage in order to attract new investments and to apply the so-called "domino effect". Another problem with this type of investors is that no effective control has been exercised and their activities have not been transparent enough. It is not enough just to attract investments. We must observe whether the investor meets its obligations. In other words, we cannot say that there have been no large strategic investors in Bulgaria, but the approach to them has not been correct.

One of the weaknesses of Bulgaria is that it sold most of its assets at very low prices. Another one is that it did not wait a while before selling them.