Digitization can Increase Bulgarian GDP by EUR 8 Billion by 2025

Politics » DOMESTIC | January 24, 2019, Thursday // 12:12
Bulgaria: Digitization can Increase Bulgarian GDP by EUR 8 Billion by 2025

Digitization can be the next major driver of Bulgaria's growth and so our country can add up to 8 billion euros to its gross domestic product by 2025. And for the entire CEE region, the contribution could be 200 billion euros, according to a report "The Rise of Digital Competitors: How Digitization Can Become the Next Engine of Economic Growth in Central and Eastern Europe" by McKinsey, a global consulting firm, reports Mediapool. 

The report measures the size and growth rate of digital economies at regional level in ten countries: Bulgaria, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia, Hungary, Croatia and the Czech Republic.

The analysis recognizes that between 1996 and 2017 the ten and the Central and Eastern European countries examined in this report reported an average 114% increase in GDP per capita, but in recent years traditional growth engines have started to weaken.

Economies in Central and Eastern Europe, including Bulgaria, are less capitalized compared to more advanced Western Europeans (the capital is 80% lower than in the largest EU countries), labor costs are growing at low and record low levels - an average of 5.2% in 2018 in Bulgaria. In addition, labor productivity lags behind Western Europe.

However, digitization may add an additional GDP per year to Bulgaria by 2025 and lead to a rise in the digital economy's share of today's 5.2% to 16% of GDP after six years, McCain's analysts say.

They point out that today the digital economy in Bulgaria represents a comparable share of GDP in the EU's largest five markets (6.7% vs. 6.9%), but lags behind digital leaders such as Sweden, where this share reaches 9%.

Nevertheless, the digital economy in Bulgaria has grown more than two and a half times faster than in the five major EU markets (8.2% vs. 3.1%) over the last five years, and in fact our country may claim to be a digital competitor. The reasons are that our economy is relatively small and open to other digital competitors and digital leaders and relies on trade (unlike the big Western economies in the EU and their large domestic markets).

The trade-to-GDP ratio in Bulgaria - 131% in 2017 is comparable to 128% for digital leaders and 137% for the CEE region, which is significantly higher than in the big 5 EU markets (67%). Bulgaria, together with the rest of the Central and Eastern Europe region, can use digitization as an effective means of penetrating international value creation chains. The combination of an open market and a focus on digitization has been a successful growth strategy in countries with digital leaders. Their common key features (size, importance of trade and openness) show that Bulgaria is in a very good position to build such a path to prosperity, McKinsey said.

In order to implement these plans, Bulgaria must engage all responsible actors in digital transformation. Businesses need to speed up the adoption of digital tools to increase their productivity and profitability. Also take advantage of digital solutions to study consumer attitudes and set foot on regional and global markets.

The public sector can play an important role in transformation by using digital technologies to achieve faster, smoother processes and services for both companies and ordinary citizens. People should also be active; investing in lifelong learning that will enable them to take advantage of new opportunities in the labor market. They must be more flexible in their careers.

Politicians can support the process on many fronts. They can promote the adoption of technologies from both the public and the private sector. They can improve the start-up ecosystem and the opportunities for digital innovation. They can also help workers by creating mobility programs aimed at "retraining" and "upgrading" workers.

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