It's the (Export) Economy, Stupid (Bulgarians)!

(Or My 2011 Wish for Bulgaria)

Analysts' statements already have it that 2011 will be a pretty tough election year for Bulgaria filled with scandals and mudslinging in view of the presidential and local elections in the fall coupled with the modest economic recovery and the not so impressive results of the government's efforts against organized crime.

The scandals, of course, already started with the leaked tapes of tapped telephone conversations from May 2010 of Customs Agency head Vanyo Tanov with Finance Minister Simeon Djankov and Deputy Finance Minister Vladislav Goranov that expose a deep conflict between Djankov and Tanov on the one hand, and Interior Minister Tsvetanov on the other, with Tanov also suggesting Tsvetanov pressured him not to inspect certain companies (Billa and Lukoil were explicitly mentioned). All in all, sad evidence that there is a rift in the Cabinet and that the Cabinet – as was most likely – is probably doing some things that the previous Cabinets did and that they shouldn't have.

It remains unclear exactly how, who, why, etc leaked the tapes – even though "educated guesses" can be made – but my topic here is a totally different one. I would like to take a few minutes to talk about what I think really should start to matter in Bulgaria in 2011. Of course, it should have started to matter a long time ago but it is my modest hope that the people of Bulgaria will start to really realize its importance – the export-oriented economy.

Before anybody – Bulgarian or otherwise - might mistakenly get offended by the title, let me point out that the slogan "It's the economy, stupid!" coined during the 1992 elections in the USA continues to describe the key swinging factor in major elections – such as the Obama win of the US Presidency in 2008, for example.

In Bulgaria, "the economy, stupid" factor that swings elections (no political party has won a second government term in Bulgaria since 1989 – if you don't count some parties' presence in different ruling coalitions – which your shouldn't) usually sounds something like "Oh, why are we so deplorably poor, why are the pensions so low, and the salaries so miserable, and, generally, why do we live in the hell on earth?"

Of course, the Bulgarian public loves lamenting its condition and living standards comfortably blaming it all on the corrupt politicians, with hardly ever questioning its own levels of education, cohesiveness, entrepreneurship, or labor productivity – which are all factors that are not absolutely necessarily dependent on the corruption and incompetence of the politicians.

Don't get me wrong – things clearly depend on both the government and the society as a whole. So it is up to both the government and the society as a whole to figure out what really makes sense for the nation in terms of economic policies.

The years before 2009 were years of foreign investment flowing into Bulgaria at a pace never seen before – with the record EUR 9 B of FDI in 2007 and another EUR 6 B in 2008 – and back then the current account deficit and the trade deficit that started to acquire monstrous proportions did not appear to bother anyone for some reason. Since 2009, the FDI downpour in Bulgaria's real estate, construction, banking, and tourism has largely stopped; the domestic consumption collapsed, which led to decline of state revenues and a budget deficit, among a number of other factors, of course.

All these developments lead up to the point where it is absolutely urgent – and finally possible – for Bulgaria and its people and government to figure out that they need to focus all of their efforts on creating an export-driven economy – simply because this is what makes sense for a small nation with negligible domestic market which at the same time has access to enormous foreign markets.

Of course, the shift towards a more export-oriented economy has already started in Bulgaria as a result of the crisis quite "naturally", as a result of the market's "invisible hand." Eurostat data shows that in the first nine months of 2010 Bulgaria registered the highest year-on-year export growth in the EU – 33%, while its imports grew by 9%.

Thus, in the first three quarters of 2010 Bulgaria's exports amounted to EUR 11.3 B, up from EUR 8.5 B in the same period of 2009; its imports were EUR 13.5 B, up from EUR 12.5 B. Bulgaria's trade balance improved substantially even though it is still negative – in January-September 2010 it went down to EUR 2.3 B, from EUR 4 B in the same period of 2009.

So Bulgaria appears to be on the way of starting to close its trade deficit gap – which would be a major achievement for its modest economy, should it happen. What the Bulgarian government, the business sector, and the society at large should really, really, really focus on in 2011 is making it happen.

Judging by the performance of the Bulgarian industrial sector in 2010 – Bulgaria does stand chances to boost its exports in certain engineering and machine building sectors, cars and car parts manufacturing, in pharmaceutical's production, in some defense-related industries, mining, construction materials, raw materials, foodstuffs, clothes and textiles. At the present moment, the Bulgarian exports consist mostly of products with low added value – including scrap iron. But efforts must be focused on both expanding the volume of the exports and increasing the added value of competitive Bulgarian products – just because the higher added value will not come overnight.

If Bulgaria manages to strengthen its export-oriented industries sufficiently – both in terms of quantity and quality – and to couple that with attracting more investments in IT and services, a decent performance of the tourism sector, and a satisfactory progress on all sorts of major infrastructure projects – highways, railways, ports, airports, bridges – which would generate more transit traffic – then the next couple of years could seem quite promising for the country.

To date, however, there seems to be nothing like a national strategy to promote exports based on a careful SWOT analysis endorsed by the government, the business, and the civil society. Instead, Bulgarians as a nation prefer to focus on cheap reality shows of despicable quality, dirty chalga music, and all possible kinds of scandals.

The only state document that made a more prominent mention of creating an export-driven economy that got some publicity in the recent years was a crazy unrealistic plan from 2008 of the Socialist-led Economy Ministry for developing 100 industrial zones in Bulgaria in order to turn the country into an export economy by 2018.

Since the summer of 2010 Bulgaria's current Finance Minister Simeon Djankov has been speaking of how the rising exports will help the country's budget deficit by bringing in more revenues the medium run – even though that effect won't be immediate since exports are not taxed – unlike the imports which were booming before 2008 leading to budget surpluses. While Djankov might end up being right – it is not smart to expect from the Bulgarian business sector to manage purely on its own, led solely by Adam Smith's "invisible hand" to expand exports to a sufficient proportion so as to change the actual well-being of the Bulgarian society.

It just won't work – or at least won't work as well as it should – without the proper realization, backing, and proactive measures on part of the state, business, and society combined.

The Bulgarian nation at present is desperately lacking a unifying national goal; could the fashioning of a real export economy serve as such a goal? This has worked for other nations – both in Europe and in East Asia. With a limited internal market and vast opportunities offered by the access to the markets of the EU, Russia, and Turkey, not to mention more remote markets in Asia, Africa, and the Americas, it makes a lot of sense for Bulgaria to focus explicitly on an export-driven industry eventually to be relying on higher-quality products, with higher added value. Such purposive efforts would simultaneously raise the standards at home in a more healthy way, and could give Bulgarians a unifying goal based on seeking and promoting education and hard work.

So if the Borisov Cabinet realizes the potential and importance of boosting exports and manages to implement at least to some extent such a program, it could reap tremendous political benefits – in spite of the recurring scandals.

Unfortunately, for the time being cheap sensations appear to be a lot more attractive to the Bulgarians than things that really matter – such as economy, industry, science, education. Example in hand comes to mind – in June 2010 when the government broke the news about the project for a joint large-scale industrial zone with China in Bozhurishte near Sofia – Novinite.com (Sofia News Agency) and The Sofia Morning News were probably the only Bulgarian media that focused on this development as the leading news. All major TV stations and newspapers in the country made a big deal out of a case of a 62-year-old lady from Ruse giving birth to twins after in vitro conception. Oh, well.

A real paradigm shift seems to be needed in Bulgaria – because – it's the export economy, stupid (Bulgarians)!

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