Branch Chamber Chair Iliya Keleshev: Bulgaria's Machine Building to Face Skilled Labor Shortage after Recovery from Crisis

Novinite Insider » INTERVIEW | Author: Ivan Dikov |November 23, 2009, Monday // 19:00| Views: | Comments: 0
Bulgaria: Branch Chamber Chair Iliya Keleshev: Bulgaria's Machine Building to Face Skilled Labor Shortage after Recovery from Crisis Iliya Keleshev has been the Chair of the Bulgarian Branch Chamber for machine building since its founding in 1991. Interview with Iliya Keleshev, Chair of Bulgaria's Branch Chamber on Machine Building.

You have been the Chair of the Bulgarian Branch Chamber for Machine Building since it was set up in 1991. What happened with the machine building sector in Bulgaria over the last 20 years of post-communist transition? How would you compare the level of machine building in Bulgaria in 1988 and in 2008 – two pre-crisis years?

Until 1989 machine building was a leading sector. Bulgaria was specialized in machine building within the former COMECON and its machine building sector had a huge market. We produced 20% of the electric trucks in the world, as well as trucks, buses, tractors and other agriculture equipment. The production of machine-tools was growing intensively. The total number of those employed in the machine building sector was 450 000.

There were different production echelons – billets – casts, moldings, auxiliary products, end products. A wide network of scientific research and development institutes was created. All of that is long gone, and cannot ever be restored. The conditions and the environment are different. I suggest that we don’t make comparisons to the past because that would sound nostalgic, and there is no place for nostagy.

Unlike many other manufacturing operations, machine building has complex production and technical connections. Once the sector gets into a recession, it is extremely hard for it to recover. This is the reason why in 1995, when the Bulgarian economy had already started growing, the machine building sector continued to declined. Its crisis lasted for 10 years straight until 1999. From then until 2008 it was growing, registering the highest growth in the last 2-3 years. Between 2005 and 2008 some machine building segments grew by 10-15% and even 20%.

In 2006, the export of the sector “Production of Machines and Equipment” grew by 29% compared to 2005. This sector of the Bulgarian economy is export-oriented. The domestic market has traditionally been small for machine producers. 50% of the total output of Bulgaria’s machine-building sector, and 60%-70% of all produced machines are destined for export.

60% of that export goes to other EU states. A total of 143 000 people were employed in all of Bulgaria’s machine building sector in the first half of 2008. The total sales income was about BGN 6 B. The firms were developing and expanding their markets. Unfortunately, all that is in the past.

Which production areas and types of products are the strongest for Bulgaria’s machine-building sector? Are those the old sectors developed before 1989, or are they qualitatively new?

The industrial tradition in the hydraulics has been preserved and developed. It was initially created in Bulgaria for the needs of the production of electric trucks. Its production has been exported internationally for years. The M+C Hydraulic firm from the town of Kazanlak is among the world producers of hydro motors. In 2008, it produced 8% of all hydro motors in the world. Carponi Jsc – Kazanlak and HES Jsc – Yambol are leading hydraulics firms. Other medium and smaller firms were also developing well. There have been some serious investments in technological innovation – Caproni Jsc created a Hydraulics Institute, and new production base – Dzhebel Ltd and Kirkovo Ltd.

Even thought the production of machine-tools is incomparably smaller than it was 20 years ago, in 2007, ZMM Bulgaria Holding Jsc-Sofia, which also includes ZMM Jsc Sliven and Mashstroy Jsc Troyan was among the top ten world producers of lathes. The production of ZMM Jsc Sliven was larger than the one in 1989.

The production of wood-processing machines also received a boost – ZMM Stomana-Silistra, ZMM Jsc – Haskovo, ZMM Jsc – Yakoruda. ZMM Stomana Jsc – Silistra produces over 50 size types of wood processing machines, it used to incorporate 5-6 new types of machines per year, and to export 92% of its production in the EU, USA, Russia, among others, turning into the largest company in its field in Southeast Europe.

In the last two years, the Madara Jsc – Shumen company has seen dynamic development. It works main for KAMAZ-Russia. The economic crisis has affected it as well but its management is actively seeking new market niches. It has organized the production of latest agriculture equipment.

Firms producing equipment for the food industry in the cities of Plovdiv, Stara Zagora, Haskovo, etc, have also seen development.

Bulgaria’s shipbuilding sector has started to regain its positions. After the Varna Shipyard was bought by “Industrial Holding” Jsc, its production was restored and it has seen an upsurge. “Ship Machine Building” Jsc Varna also recovered from its previously dire condition, and is already producing sea vessels.

Some of the formerly unoccupied facilities such as “Besttechnica – Heavy Engineering” Jsc – Radomir, “Radomir Metal Industries” - Jsc have also seen more work.

The foundry sector has stabilized – both export and domestic orders have increased.

Unfortunately, the crisis affected very gravely the machine building firms, and they will probably need years to regain their positions from the fall of 2008.

What has been the effect of the global economic crisis on the machine building in Bulgaria so far? How many people have been laid off because of the crisis?

The crisis has had a devastating impact on the machine building sector in Bulgaria. The total number of employees was reduced from 143 000 in the first half of 2008 to 114 000 a year later. Here we need to point out that some of those employed in the sector “Production of Metal Works” are part of the metallurgy, whereas some are within the machine building sector; the above figure includes the total number of employees in that sphere as a whole.

The greatest matter of concern is the fact that the number of qualified laborers is declining. In the “Production of Machines and Equipment” sub-sector, the number of qualified workers has dropped from 15 030 down to 10 421, whereas the number of machine operators declined from 12 570 to 9 995. It takes many years to create qualified laborers in the machine building sector. Once they leave it, they hardly return to the firm – some go into the gray economy, others go abroad, and still others are re-qualified but don’t come back. There is no data about that but probably no more than 1 in 4 are going to come back when the crisis is over.

For that reason, the state, despite the lack of money in the budget, was supposed to help especially the export-oriented firms to keep their qualified workers instead of sending them to the unemployment bureaus.

As a whole, this costs a lot to the state. It is not by chance that a number of European states did exactly that. Thus, after Bulgaria recovers from the crisis, which will happen when the EU recovers, a number of firms, including structurally crucial ones, will be no more, or they will not be able to recover their production.

Which are the largest and most successful Bulgarian machine building firms on both the Bulgarian and the international market?

It is pretty hard to say who is doing how well right now. But the largest Bulgarian companies in the hydraulics field are M+C Hydraulic Jsc – Kazanlak, Caproni Jsc – Kazanlak, HES Jsc Yambol; special production companies – Madara Group Jsc – Shumen, “Hraninvest-Hranmashkomplekt” Jsc Stara Zagora, Ideal-Standard Vidima Jsc – Sevlievo, CeraTicit Jsc – Gabrovo; the shipbuilding yards in Varna and Ruse, etc.

In some of the sub-sectors, a firm with 200 employees is considered big, in others – average. The crisis is going to lead to changes in the size of the companies in accordance with the respective criteria. It is very hard to say what things are going to look like next year. There are some indicators of the beginning of a revival in the demand on the international market but it is too early to make forecasts.

Who are the largest foreign investors in the machine building sector in Bulgaria? How attractive is the Bulgarian machine building sector for foreign investors? What is needed to make it more attractive?

Profit rates are not high in machine building. This sector requires investments in new equipment and technology. The international market is very competitive. These are the main reasons why, especially in the first 10 years of the post-1989 transition, the machine-building sector was not attractive to foreign investors.

Of course, there are also subjective reasons. Instead of seeking strategic investors for the Bulgarian machine building complexes such as Balkankar and ZMM, the state leaders literally competed in slamming the machine building as a sector which is detrimental to the Bulgarian economy.

Later, there have been changes, and a number of firms have foreign majority owners – CeraTicit Jsc Gabrovo (the former “Instrument” factory), Grammer Jsc – Trudovets, Pneumatika Jsc Kardzhali, formerly Lageren Zavod Sopot – today known as SKF, the Ruse Shipbuilding Yard, Berg Fitting – Montana, Vipom Jsc – Vidin, among others.

Foreigners’ interest in Bulgaria’s machine building increased after 2000, and there have been investments in new kinds of production – such as the German Liebherr in a refrigerator plant in Plovdiv; the American investment for the production of sanitary-household fixture at Ideal-Standard Vidima Jsc – Sevlievo; the Austrian Palfinger Produktion Technik Jsc – Cherven Bryag – crane buidling; the French Montupet Jsc – Ruse – production of aluminum car parts; the Austrian WATTS MTB Jsc – Plovdiv – production of manometers, etc. The construction of car factory started near the city of Lovech with Chinese investments in 2009.

Two years ago during the crafting of a strategy for the development of machine building in Bulgaria, it was suggested, following the example of many other states, that industrial zones should be created as a prerequisite for attracting more foreign investments. It would also be a good idea to direct potential foreign investors to the management of acting firms, who are seeking foreign capital, instead of directing them only towards greenfield investments.

Where are the major markets of the Bulgarian machine builders? How competitive are their products internationally? Where are they compared to neighboring countries, within the EU?

The EU member states are the major market for Bulgarian machine builders – 55%-60% of their export goes there. In the two years before the start of the crisis, the export for Russia, Ukraine, USA are started to increase.

Machine building products are exported all over the world. A year ago, ZMM Jsc Sliven – Bulgaria’s largest producer of lathes used to export its products to 53 countries around the world. Since it is export-oriented, Bulgaria’s machine building will recover from the crisis once the EU, Russia, and the USA recover. As I already mentioned, there are signs of revival on the market.

And it’s not like the managers are sitting around waiting for the crisis to pass. They are constantly seeking new markets. I can’t think of a manager who isn’t. But in machine building it takes years to find new markets. The period for the adopting developing new products is also long.

How do you assess the Bulgarian machine building companies with respect to the incorporating of new technologies, as well as of innovation, research and development? Is there any connection at all between the machine building firms and centers for research and development? What is needed to achieve more in this respect – greater state support or targeted efforts on part of the Bulgarian companies?

Most of the new technologies come to the Bulgarian companies with the deliveries of new contemporary equipment. This was the case in a number of firms over the recent years - “Hraninvest-Hranmashkomplekt” Jsc – Stara Zagora, ZMM Stomana Jsc Silistra, VSK Kentavar-IZ Dinamika Ltd – Dryanovo, Madara Group Jsc – Shumen, Optix Jsc – Panagyurishte, Metal-agro Jsc – Dobrich, TMCo – Debeletz, Tchugunoleene Jsc – Ihtiman, etc.

Despite the crisis, the management of a number of firms have applied and are continuing to apply with projects under the Competitiveness operational program of the EU, and the National Innovation Fund of the Ministry of Economy.

A number of firms are keeping in contact with the technical universities around the country on specific projects. In order to expand and deepen the direct connections between the university specialists and the firms, we are planning to hold a round-table public discussion in 2010. The Branch Chamber held a similar initiative four years ago.

The problem with innovations is very important, and its importance is going to increase over the coming years. There are almost no research and development machine building centers in Bulgaria, the capacity of the firms is almost zero, and without the pooling of their efforts together with the specialists from the technical universities and the Bulgarian Academy of Sciences, any R&D activities will be very hard to carry out. Although it has been slow, the creation of hi-tech parks has been initiated.

Does Bulgaria face a shortage of high-qualified laborers in the machine building sphere? Does it need to import foreign engineers, for example? Do you see import of foreign workers in the coming 10-15 years as a possibility – i.e. is the level of pay in Bulgaria attractive? Who are the potential source countries – the former Soviet and developing states?

There was a serious shortage of skilled labor a year ago. The major shortage was in qualified executers of tasks – welders, machine operators, etc. So foreign workers have been attracted – for example at the factories in Radomir, where there are currently people from Macedonia, Thailand.

The import of qualified laborers is probably going to continue in many of the sectors – despite the layoffs. Even if the pay is high – as it was offered by some companies before the crisis – there will still be a problem until a radical solution of the gray economy is found. Until then, the labor marked will continue to be deformed.

After the recovery, the question about the shortage of qualified labor is again going to become a major issue. The economic crisis and the mass layoffs in the machine building reduced drastically the interest of young people for machine building majors at the technical universities and vocation schools. A number of high schools have profiles in mechanical technologies but they hardly offer any machine-building courses. The problem has been exacerbated by the policies of the Education Ministry with respect to the vocational training. The problems with the qualification of laborers by the education system are complex, and are sufficient for a whole other interview.

What other issues is Bulgaria’s machine building sector facing? What is needed – in terms of state policies or other factors – in order to make it more competitive?

A large number of the problems are similar to the ones faced by other sectors of the economy which have been affected by the crisis – especially the export-oriented industries. Their major problem is the shrunk international market which causes a number of other issues. The inter-company debt has reached frightening proportions. The banks are still lending money but at high interest rates, impossible for the firms.

Thus, at the end of the day there is reduced production, reduced sales income, resorting to reduced working hours, unpaid leaves, and layoffs. Not all firms are having it equally bad. Some – such as NAKMASH Ltd Botevgrad – are registering growth but those are exceptions. The firm has a staff of 40 people who work very efficiently and is preferred by foreign companies as a subcontractor.

Others are keeping their staff even though they are reducing the working hours. But at still other companies the staff may not be on the required level. The major problems for the Bulgarian machine building sector were discussed on October 27, 2009, during a round table with the participation of the Ministry of Economy, Ministry of Transport, and the Employment Agency.

We cannot be satisfied with the state measures for supporting the keeping of the low-skilled personnel especially at export-oriented firms, instead of sending them to the unemployment bureaus. Many managers are asking the logical question of whether the balancing of the budget is the most important thing in time of a crisis, or if it is more important to keep more people in the firms in order to give them work after the recovery. And it is not a question of large sums of money.

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Tags: Branch Chamber on machine building, Iliya Keleshev, Global Financial Crisis, machine building, jobs, unemployment, layoffs, plant, factory
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