US Embassy in Sofia Commercial Counselor Scott Pozil: Bulgaria Must Define Itself in Terms of Economic Sectors
Interview with Scott Pozil, Commercial Counselor at the US Embassy in Sofia, for the Bulgaria-US Survey of Novinite.com (Sofia News Agency).
Bulgarian-American trade appears to be relatively small in volume. Why do you think that is and what are the perspectives there?
Yes, our bilateral trade is small. It got close to almost USD 1 B in 2008 but has since slipped because of the financial crisis. Over the recent years the trade between Bulgaria and the USA has grown. Certainly, Bulgaria's entry in NATO and the EU will help push the numbers up. But I think that from the perspective of American companies Bulgaria is relatively unknown – or was relatively unknown – it is becoming more known particularly because of these two memberships. I think that's one reason.
The other reason is that Bulgaria has strong ties with EU countries so naturally the bulk of the trade will be with those countries. Though, there is a lot of interaction between Bulgarian and American companies that are based in Europe – so there are some American companies working with Bulgarian companies but those generally are not reflected in the actual trade statistics.
We look at imports and exports based upon what customs reports. That is why those numbers may be lower than the real situation.
You mentioned that much depends on what Bulgaria is known for with American business. As of now, what is it known for?
Bulgaria is starting to appear on the radar screen of many American companies but it takes time. It requires a lot of outreach and education about what the opportunities in Bulgaria are. Also, I think there was quite a bit of investment going on in the middle part of this decade, and I think that also made Bulgaria better known.
I think the areas where trade really has the best opportunities is in the IT sector. A lot of American companies offer great technologies and services that are being used here so there have been some long-standing relationships there. Most of the major American IT companies have a presence in Bulgaria.
Some are even growing their presence through technical support centers and call centers. We haven't seen much in terms of product development but that could happen at some point. So Bulgaria is known for information technologies, and I think that's certainly one area offering a lot of opportunities. Of course, the Ambassador has mentioned this quite a few times in his remarks.
Another area I think is renewable energy, and this is relatively recent. Renewable energy is a major emerging sector in Bulgaria, there is a lot interest here. I think from the point of view of American companies there is a lot of serious interest to invest in this sector. They really want to help built the industry in order to help Bulgaria reach its EU targets of renewable energy – particular in wind and solar but there are also some interesting projects in waste to energy.
Our companies bring a lot of know-how and they want to share it. The industry in Bulgaria is relatively underdeveloped, and I think American companies want to contribute to that development, they are very invested in that, and they want to develop the renewable energy sector as a whole.
What would you say about Bulgarian state regulation in some of these fields? There has been the impression that some crucial American investments aren't happening as quickly as they should be.
I applaud the Bulgarian government for trying to with a strategy on renewable energy. They are committed to that, and to seeing the sector grow. One of the things they have to be careful about is - there has been so much interest – how do you weed out the serous from the non-serious companies that want to do their projects in Bulgaria. I think that's the area the Bulgarian government has been looking at very seriously, and they have come up with some good solutions.
There is still some work to be done but they are on the right track in terms of trying to figure out how the sector can be moved forward, and how these projects can be moved forward. While also realizing the realities of the capacity of the grid to accept new connections to it. So I think they have been taking their time to try to come up with some workable solutions. That doesn't mean that they've found them quite yet, they still need to do some work on that – but they are certainly on the right track.
I hope things will work out because we just want a win-win situation. We American companies to be able to come here and do projects and contribute to Bulgaria's goals, and also provide good sources of power that are affordable to the consumer.
The expectations for really large-scale American investments in Bulgaria appear not to have materialized on the massive scale that many have expected. What do you think are the reasons for that?
There have been some large-scale American investments in Bulgaria. I can give you some examples – AES, Kraft has their center for regional production of chocolate, we still have Ideal Standard, which is the furnishing for bathroom and kitchens, there is Coca-Cola which is heavily invested, and there is Tishman with their Sofia Airport Center.
We've been very vocal on the issue that the Bulgarian government has to have its game. They need to be ready to attract investment into the country. Why do we want to see companies invest here and be successful? This is something we feel is good.
The Bulgarian government needs to be very proactive in terms of attracting investments. This means that they need to provide incentives and good support to companies coming here. That's one of the issues they have to face now.
You know, when investment was coming here a few years ago, it was coming at such a fast rate that there wan't much they had to do but now the competition is more fierce and they have to be more on their game to try to attract investors here. That's going to be a real challenge.
What do you see as Bulgaria's advantages in that respect? The governments in the past few years have advertising all the time the low tax here...
Low income and corporate taxes are not enough. You have to provide a basket of services and incentives of companies to come here, and they have to be confident they will get the support they need once they do come. That's what foreign companies are looking for. The government has to be ready to sell Bulgaria as an investment destination. The investment is not going to come in flowing like it did before.
Companies want to come here. There are a lot of companies that want to set offices in Bulgaria. They feel this is a good geographic location, the infrastructure is good for them, they just need to have the one major reason to come here, and that's where the government has to play a role to give it to them – whether through incentives or support.
There has been quite a bit of American investment in Bulgaria in IT and services outsourcing, not so much in manufacturing. Now the Bulgarian government has a plan for several industrial zones in the country designed to attract manufacturing outsourcing. How do such plans seem from your perspective?
I think that if industrial zones are something that's workable for them, if it is done right, it is certainly a good thing. If there are zones where companies can set up and have incentives, and it is done in a transparent and right way, it is certainly a good thing.
The Bulgarian government has to keep its focus on what is it that gets the companies here, what is the bottom line. You can set up industrial zones, or any kind of structure that you think is helpful to companies.
But at the end of the day the company is going to look at their bottom line, and will say, "This is what I am going to get if I go to Bulgaria; this is what I am going to get if go to Croatia, or Romania," and they will make comparisons and make decisions based on where they think they can get the best deal. I know that other countries have tried industrial zones, and have been successful. So I think that the Bulgarian government just has to be very clear about what it will give to companies and how it will help them.
Such zones also have to be strategically placed. Companies are interested in good geographic locations, they are very strategic so they want to make sure that they set up in the right place where they can have good access to labor and transportation links.
There are some areas of Bulgaria that if you put an industrial zone there, it won't work. You have to really think about that. I know it is difficult because you want to promote investment in the areas where there is high unemployment, which is a good thing to do – but a lot of these companies are looking at infrastructure, location.
Often they would prefer locations where their operations would be smoother because they have more infrastructure that they need rather than make a decision based on incentives.
When we talk about manufacturing, it is important to note that companies can come to Bulgaria to use it as a regional hub. When we talked about product development in the USA and in Bulgaria of products that can be exported, it is a win-win situation.
I think Bulgaria has to think in those terms now. How can we be a hub in the region, what areas can we be a hub in? IT is one of them but there may be other industries. Why can't Bulgaria be a place for foreign companies' regional operations for Central and Eastern Europe?
The government has to be thinking strategically on how to attract those companies that have a regional approach to their business operations and convince them that Bulgaria is a good regional hub for their operations. You need more stories like that to really paint a very positive picture.
Bulgaria has to think bigger. Being part of the EU now is a big deal. There is better access and fewer trade barriers, the government has to take advantage of that.
How do you evaluate the level of Bulgaria's labor resources and talent? Higher education in Bulgaria appears to have more and more problems.
There is a lot of skilled labor in Bulgaria. There could be more, you know, by trying to encourage Bulgarians to come back. I think you have heard this before many times. There is a lot of skilled labor here. I know that educational systems of today have to promote some kind of independent thinking.
I don't know what they do in the classrooms here in Bulgaria but I think that in order to function in the global economy you have to be able to think independently. You have to able to look at a phenomenon and react to it. This is a global education trend of how I as a person can critically think and critically react to a situation, and a lot of the Bulgarians I have met there is one common thread among all of them – they've either studied abroad, or they've studied at foreign universities in Bulgaria where they are given that opportunity so if the education system doesn't respond to that, there could be a problem. Particularly when you get to the university level.
I understand that for the high school level there are exams, you have to teach the material, and you have a system, and you have to respect that. But when you get to the university you really have to come out of your shell and start looking at issues and forming opinions.
That is more important than ever because people are going to ask them what they think about that situation. You can't be successful in this world without that kind of skill so there is work to be done there in Bulgaria. I have told many people here this and everybody is nodding and agreeing.
The Ambassador has mentioned it many times as well. And companies that hire want to be able to go to the university to be able to hire Bulgarians. They want to have relationship with universities, they want to make sure that the students are properly trained so that they can become employees later on. What better thing than having that practical work experience?
In the previous quarter the Bulgarian economy finally registered a year-on-year growth, so looking at Bulgaria's prospects after the crisis – do you think the 3.6% GDP growth forecast of the government is realistic?
We talks a lot about making the right decisions – the Ambassador has talked about that, as have previous ambassadors. If the right decisions are made now, the country will be that better-off down the road.
I think it is safe to say that Bulgaria has made some very good decisions to lighten the impact of the crisis, and it hasn't suffered like other countries in the region. You have a strong peg to the euro, the banking sector has stability. You always have to watch the banking sector in a time of crisis. It is the leading indicator of the economy.
The conservative approach of the government has really reaped some benefits for the country. I think most people will agree with that. I think when we talk about economic growth – it hard to forecast it.
If Bulgaria registers 3.6% growth next year it will demonstrate that the government has made some very good decisions but also that the banks are willing to lend money. It is not just the government. It is the financial institutions and how willing they are to take risks. I was briefing a group of business people here, and they asked me about entrepreneurship and if it has taken off in this country.
I told them that there are a lot of bright young Bulgarians. But you can't expect an entrepreneur to be successful unless they get financing. The caution of the banks is understandable but if you don't take some calculated risks, the economy will suffer. The banks have to think very strategically about how they want to structure their portfolios and how much risk they want to take on new business models.
That's one part of it. The other part when we talk about economic growth we have to look at unemployment. Bulgaria has 10% unemployment. I know in some cities it is much lower than that but if we don't see recovery in some regions outside of Sofia, I don't see how you are going to get that 3% growth. The whole country needs to be a part of the recovery. What happens in Sofia cannot offset what happens in the rest of the country. Those are issues that have to really be looked at.
The third areas are the government policymaking mechanisms. I cannot say what they should or shouldn't do. What I do know is that there are a lot of opportunities as far as infrastructure development projects. If those move forward, and the government is actually able to provide matching funds to EU funded projects, that will certainly help – in transportation, the water sector, IT. If those projects start working, maybe.
Bulgaria has to define itself as far as sectoral development. Is it known an IT, biotech or renewable energy hub? Some of those kinds of labels can help propel the country forward. When you can put your name out and say that Bulgaria is know for this and this, it really makes a difference because it shows development. It reflects well on the country. So Bulgaria has to try to think about that.
The Ambassador has mentioned three areas – IT, renewable energy and transportation – of major areas of focus. They are different from what they used to be but I don't think the focus now is on real estate. The future of the country is not there.
We at the Embassy have a number of programs to promote economic cooperation. We are looking forward to doing an US road show with Ambassador Warlick and Ambassador Poptodorova, and we will probably be going to four cities, I don't know which ones yet, we are working with the Bulgarian government to make that happen. We did a road show four years ago but we want to have one that is very targeted and industry specific as well.
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