📝 An attempt will be made in parliament to form a government. But in the meantime, there are many issues that need to be addressed in order to improve the conditions for doing business and not to be surprised by a new wave of COVID-19 in the autumn or winter. With questions about what should be done in support of Bulgarian business, we turned to Violina Nakova, President of the Union for Private Economic Enterprise.
– An attempt will soon be made to form a new government of Bulgaria. What are the most pressing business issues that it needs to address?
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One of the most pressing issues for business continues to be overcoming the economic consequences of the Covid crisis. The new government must continue to work on future measures in the event of a new wave in the autumn and winter. Horizon must be worked with, because decision-making and piecemeal measures under the pressure of short deadlines prevent them from being sufficiently precise and properly addressed to the businesses really affected, so as not to distort the market. One of the main problems of business in connection with the crisis is the lack of predictability. There is no way for a company to plan its current and investment activities and create security for its staff if it does not know what lies ahead. That is why it is very important to work towards creating clear criteria for new business support measures. This does not mean that the measures implemented so far have not worked. The Union for Business Initiative, as a nationally representative employer organization, conducted a study among its members on the economic consequences of the Kovid crisis for micro, small and medium-sized enterprises and to evaluate the implemented state support programs. Over 15% of respondents said that without the help of the state they would not have coped with the crisis and their business would have gone bankrupt, and almost 31% described the role of u as significant, but also found other marketing and management solutions. When we talk about micro, small and medium enterprises, the position of the SSE is that the Bulgarian Development Bank has an extremely important role in their financing and growth, if managed effectively. The new government must focus its efforts on this, and the issue of privatization does not arise at all.
– Do you approve of the new format of the 60/40 employment retention measure? In your opinion, what business support measures should there be in the next wave of COVID-19 in the autumn and the introduction of new restrictive measures?
– The new version of the 60/40 measure was the optimal one given the many constraints under which it was developed. On the one hand, these were budgetary constraints, on the other hand, those related to the duration of the notification procedure of the measure, if it had been substantially revised. The SSE supported this measure because it is needed by businesses now, not in 3, 4 or 5 months. According to the survey among our members, only 30% of those who benefited from support measures completed the procedure within 1 month, while in the remaining cases delays of the order of 2-3 months were reported, as well as such over 6 months. However, in times of economic crisis, the time factor is essential, with 15% of those surveyed saying that aid was too late, but they were able to find other ways to deal with the crisis. The economic recovery process has begun, but it is not proceeding at the same pace in all sectors affected and in all categories of enterprises. This means that the approach needs to change, especially since the health crisis is not yet under control. The government, together with the social partners, must develop clear and easy rules to support business in the event of a new wave.
– MPs in the new parliament are expected to put taxation on the public agenda. Do you think it is appropriate to introduce more differentiated VAT rates? Should the lower VAT rate for restaurants remain after the end of 2021? Do you think there should be changes in the taxation of citizens’ incomes and corporate profits?
– These are issues that are essential for any economy, and not only in the context of making our country attractive for foreign investment, because the business environment includes many different factors, not just tax policy. In the UPEE we look at this issue with special attention. In the study I mentioned to you, we asked our members about this topic. Almost 62% of respondents express a preference for the current tax system – a flat tax. It is noteworthy that, although they are mostly micro and small enterprises, they have not expressed a preference for a progressive tax system. Interestingly, some of the participants in the study stated that they prefer a patent tax. These are companies that have a very characteristic profile – mainly micro-enterprises of sole traders or self-employed persons, for whom it is very important to be able to correctly forecast their costs in order to be able to manage their business. At the same time, their turnovers are normal and rarely go beyond the defined limits. Increasing business activities within the scope of patent taxation would simplify the business environment in terms of taxation. The Business Initiative Union supports the implementation of a flexible tax policy providing for various tax incentives for SMEs. According to the European Semester, the promotion of investment must be an important priority in the tax policy of nation states and national governments can do more to increase investment through their tax policies. For example, we received from business associations that are members of the Union for Business Initiative, motivated proposals for deducting VAT on the purchase of electric vehicles and hybrids with the possibility of direct charging from the electricity grid (Plug in hybrids). The fact is that at the moment in Bulgaria with regard to electric cars is applied a very wide range of regulatory incentives – exemption from vehicle tax, free parking in paid parking areas in large municipalities, deferral of payment of the so-called ” eco tax”. Taking an occasion from this example, I will summarize that the tax policy of the state should be synchronized with the commitments under the Green Pact and the set goals for achieving a carbon-neutral economy. The lower VAT rate for restaurants was accepted as an anti-crisis measure, ie its horizon is precisely as such a measure. Whether it should be extended or not can only be shown by analyzes of the results of its implementation and the current state of the sector. Differentiation of VAT in relation to some goods and services is possible, but after a wide expert discussion and precise analysis.
– There has been a discussion for a long time about how the minimum wage in the country should be determined. In your opinion, should the practice of recent years be increased every year by BGN 40-50? Or should a formula be found to determine u – for example, a percentage of the country’s average salary?
-The Union for Business Initiative has repeatedly argued that the administrative determination of the minimum wage for the country is not the right decision. A mechanism is needed to do this in accordance with the ratified Convention 131 for setting the minimum wage of the International Labor Organization. The administrative definition of the minimum wage does not provide sufficient guarantees to take into account all the necessary factors set out in Convention 131, including the requirements for economic development, productivity levels and the desire to achieve and maintain a high level of employment.
– Increasing incomes and economic growth can be achieved by attracting more foreign investment. How can more foreign companies be attracted to Bulgaria and what is the SSE doing about it?
– The Bulgarian economy and business environment must be secure, stable and predictable in order for our country to be attractive for foreign and domestic investments. The Union for Business Initiative maintains relations with a number of foreign organizations and with foreign investors who have investment intentions in Bulgaria. Our role as a nationally representative employers’ organization is to assist in presenting the investment climate in Bulgaria, the opportunities that our country can offer and connecting these investors with Bulgarian partners. Our partnership with Mr. Dan Chaumont, with whom we are working on several strategic investment projects in new technologies, is extremely fruitful. The low level of domestic private investment also remains a problem, especially in the micro and small enterprise segment. It is extremely unfortunate to see how Bulgarian companies with growth potential prefer to invest in expanding their activities not in the country, but in, say, a neighboring country. In our opinion, there is a lot of work to be done to encourage domestic private investment, because that is the only way we can talk about real growth. However, in order for our economy to follow the path of innovation, the manufacturing sector must first be renewed and modernized with equipment.
– Bulgaria’s Recovery and Sustainability Plan (SDR) is due to be presented in Brussels soon. What should the funds that Bulgaria can receive be used for? What are the main priority areas that should receive funding?
– The topic we discussed is directly related to PVU. In our opinion, it is necessary to find a balance and complementarity on the one hand between the Plan and the operational programs, and on the other hand between the ways of financing – grant schemes and financial instruments. In the Bulgarian economy there are huge differences between micro and small enterprises on the one hand and medium and large enterprises on the other, as well as between enterprises from different economic activities. It is necessary to expand the accessibility of SMEs to IEDs and operational programs, for example by maintaining a percentage of the planned resource for micro and small enterprises. For micro and small enterprises, the successful use of financial instruments is only possible for businesses in fast-growing sectors, such as the IT sector. For more traditional, low value-added economic activities, the use of grant support is absolutely necessary. Otherwise, these companies will not be able to start their transformation and modernization. In addition, we believe that the application procedures should be simplified within the limits of what is acceptable under the European framework. This will allow micro and small enterprises to handle applications under the schemes on their own.
– Businesses are complaining about the administrative burden in the country. In your opinion, what can be done to reduce u, in which areas should e-government be introduced faster?
– The presence of well-functioning at all levels of state and municipal administration e-government is a major factor in improving the business environment in the country. Counter administrative services must be kept to an absolute minimum. Of particular importance is also the synchronization of the systems of the various institutions, which will significantly reduce the time and resources spent on services by businesses and citizens of their administrative responsibilities. The development of e-government, the digitalization of the state and business raise another important issue – to ensure the necessary level of cybersecurity.
– The problem of cybersecurity is becoming increasingly important. Recently, Russian hackers blocked many Western companies’ access to their data. And then they demanded a ransom to recover their data. Can anything be done to prevent such cases with companies in Bulgaria?
– Digitalization and high technologies are a strategic priority for SSEs and we consider cybersecurity as key to the sustainable digitization of Bulgarian business. For 3 years we have been partnering with the European Cyber Security Association (ECSO) in a number of initiatives aimed at improving the “cyber hygiene” of businesses. Through this partnership we try to be a bridge between European know-how and the many opportunities that the Bulgarian market has. We strongly believe that cybersecurity is an important priority not only for the state but also for private business, and the synergy between these two systems – public and private, is absolutely mandatory and can only be achieved through public-private partnerships. This is the view of our European partners. I am glad to share that these views of ours have been heard and we are now finding a growing understanding from the state on this subject. On the other hand, in order to be protected in cyberspace, Bulgarian companies must trust quality and trusted companies. That is why the SSE, together with ECSO, launched in Bulgaria the initiative “Cybersecurity, made in Europe”. It aims to honor quality and trusted cybersecurity companies, as well as to help our members reach new European markets.
Our guest
Mrs. Violina Nakova has been the Chair of the SSE since June 2021, having previously held the position of Executive Vice-Chair of the Union. She has extensive experience in the field of economics, finance and project management as a member of the Management Board of the Bulgarian-Chinese Chamber of Commerce and Industry and in private business. She has a master’s degree in economics from the University of National and World Economy.