ࡱ> ]_^#` A!bjbj 4BAlH O62h h h h h C C C 5555555$7h9z5ZC C ZZ5h h 6Zh h 5Z5f13h \ p"Zx"22560O6L2^c:"c:43c:3$C ! -C C C 55 C C C O6ZZZZ$ Economic Growth Theme Stefan Ivanov, Citigroup Bulgaria Country Officer USAID Closing Ceremony October 10, 2007, Sofia Honorable Ministers, Your Excellencies, Official Guests, Ladies and Gentlemen, Although my task is to talk about Bulgarias economic development, and not about USAIDs achievements in our country, I cannot help but mention, in addition to what we saw in the films, that with its more than 250 programs, which include more than 1,000 individual projects implemented in Bulgaria, USAID significantly contributed to accelerating our economic growth. Of course, I cannot be exhaustive in the limited time I have, but I would like to highlight USAIDs role in the transformation of the bankrupt Bulgarian banking sector into a modern and effective source of financial resources and services for the economy. Instrumental in this process were the bank privatizations, the establishment of the Deposit Insurance Fund, and the modernization of bank supervision. USAID also assisted substantially in: the creation of the infrastructure for the Bulgarian Stock Exchange and Central Depository; the financing of medium-sized, small and micro companies through the Bulgarian-American Credit Bank and the Nachala and Ustoi programs; the establishment of the American University in Bulgaria, of which I am a graduate; and overall in the creation of a better business climate through generating ideas for reform of the legislative and administrative framework, as well as through setting up a multitude of organizations and programs that assisted the state administration and the private sector. In its efforts, USAID has been cooperating successfully with many unaffiliated organizations, like for example AmCham, which will remain active in the country after the completion of USAID programs. But let us go back to the main topic Bulgarias economic development. How fast is our economy growing and what can we expect in terms of economic growth in the future? Since 2004, our gross domestic product has been growing more than 6 percent a year. This is two times faster than the growth rates of the European Union, the United States, and even Brazil which, owing to its abundant natural resources and large area, is considered to be one of the worlds economic engines together with Russia, India, and China the so-called BRIC countries. Can we maintain that growth rate? I am convinced we can, because of the combination of a number of very favorable factors. Each of them is not unique, but taken in their entirety they create an exceptionally fruitful climate for the garden of the Bulgarian economy. As a banker, I would start off with the negative real interest rates (the difference between the interbank interest rate and the inflation rate). During the last couple of years, the real interest rates in Bulgaria were lower than those in the EU countries, USA, the already mentioned BRIC countries, and many others. Just to compare, the real interest rate in Brazil, where I had the chance to work for more than 6 years, is about 9-10 percent - this is one of the main reasons why Brazil is growing half as quickly as Bulgaria. A 3-4 percent negative interest rate in Bulgaria means that even after adding the credit margin, most large, medium-sized, and even some small firms effectively receive free credit. The second factor I would point out is the low labor cost in Bulgaria. At the end of last year, the European Intelligence Unit reported that the average cost of labor for the employer for one working hour, including benefits, equaled $2.20 the lowest among all EU members. Meanwhile, the average labor cost in the EU was 10 times higher. We know that some employers in Bulgaria do not report the full amount of their employees remuneration, but even if we take that into account, the cost of labor in Bulgaria is much closer to that in the Asian tiger countries Taiwan, Thailand, India, and even China than to that in the other European Union members. Another important factor are the low flat taxes 10 percent corporate tax since the beginning of 2007 and 10 percent income tax for individuals starting from 2008. Just to compare, the same taxes are two, three, and even five times higher in some EU member countries. Bulgaria however can and has to do better with relation to its 20 percent VAT. On the other hand, privatization in Bulgaria is largely complete and the former state enterprises are developing fast with the help of investment, new technologies, and market-oriented management practices. Foreign direct investment is growing at a rapid and steady pace and already exceeds 16 percent of GDP, or 4 billion euro last year. Last but not least, our EU membership is connected with the absorption of, I hope, a significant portion of 6.7 billion euro in accession funds allocated for Bulgaria, as well as with the removal of most of the barriers to trade with the other EU members. These factors should lead to new investment in productive projects and also to an increase in Bulgarias international trade flow in the next couple of years. Several weeds, however, grow in the garden of Bulgarian economy and hold back our economic growth: the persistent corruption, which leads to non-market, or at least slower, administrative processes and decisions; the deterioration in the quality of education; the leaking of the labor force abroad, which by far surpasses the return of Bulgarians to their home country and the inflow of foreign workers to Bulgaria. To summarize, I firmly believe that Bulgarias economic growth will retain its high rate of 6 percent during the next couple of years, but some of the factors I mentioned will quite naturally change. The real interest wont stay negative for long and labor cost (and the living standard of the population) should increase as a result of economic development. To be able to sustain rapid economic growth, we should use these next few years to increase labor productivity and to achieve real results in the fight against the negative factors, some of which I mentioned. Only if we succeed in creating a wide base of competitive companies that develop rapidly on the domestic and international markets will we be able to guarantee the countrys long-term economic development. I have seen many examples of successfully and quickly developing Bulgarian companies and I believe we will find the way to lasting, long-term economic development. 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