Bulgaria to deal with crime and corruption to attract foreign investors

ARTICLES  Bulgaria to deal with crime and corruption to attract foreign investors Sofia Echo. com 2nd - 8th Dec 2005

TO attract large foreign investors, Bulgaria has to put criminals and corrupt people out of business, said US ambassador John Beyrle. Beyrle was addressing a November 28 luncheon hosted by the American Chamber of Commerce (AmCham) in Bulgaria. Economy and Energy Minister Roumen Ovcharov and Deputy Finance Minister Georgi Kadiev also attended the meeting. In order to draw the attention of large foreign investors, Bulgaria has to fulfil six requirements, Beyrle said. Bulgaria offers great opportunities for American businesses, but as you know better than anyone, multi-national companies will go to the countries that offer the best climate for doing business. Investors choose countries - not vice-versa, he said. Bulgaria had many great advantages, including time-to-market and cost efficiency, Beyrle said, and these were part of the reason it had such a rapidly-growing foreign direct investment market.

But the US share of this FDI boom was still low - just 8.3 per cent since 2000. Clearly there is a great deal of headroom for growth, but serious investors expect to see certain conditions in evidence before they are willing to convince their boards to risk shareholder capital, he said. Beyrle listed the first of the six requirements as being the need for greater judicial reform. All experts agree that the legal system has to be made more effective, transparent and fair. For business people this means that contracts need to be respected and enforced; that all companies, Bulgarian, European and American, have to be treated equally; and justice needs to be rendered transparently, in a reasonable amount of time. Some good laws exist on paper, and to maintain its competitive advantage in the region, Bulgaria needed to follow through in implementation and enforcement of the rules. Second, Beyrle said, organised crime and corruption need to be brought under control. They poison the business environment, and erode the trust and confidence between the people and their government that should be the bedrock of a strong market democracy. Investors - like all Bulgarians - wanted to see criminals and corrupt individuals put out of business and into jail. Fighting crime and corruption requires strong political will, perseverance and close co-operation between government and business.

And as long as Bulgaria is perceived as a country that is not serious about cleaning up, a great deal of legitimate business and investment will simply continue to look elsewhere, Beyrle said. A third condition on which investors insisted was a predictable and fair regulatory environment. Said Beyrle: When regulations are adopted without consultation with business, the result is frequently bad, or at least burdensome regulations, which often create backlogs for the regulators and brings the whole system to a standstill. I am told by business people that regulations all too often are enforced selectively, or not at all. American companies that comply with local regulations are often put at a competitive disadvantage because their competitors can ignore the rules. Business is like football - good rules are not enough. There also need to be energetic, watchful and impartial referees. Fourth, both the US and the EU were asking Bulgaria to do a better job protecting intellectual property, in particular, optical media, trademarked clothing and spirits. This is not a victimless crime: it harms American and Bulgarian companies alike. The image of Bulgaria as a haven for pirates also discourages American businesses. American business wants to see a greater effort from law enforcement and government agencies. Bulgarian performing artists, whose works were also stolen by pirates, should demand the same thing, he said.

A fifth condition investors expected was transparency. When privatisations take place, when tenders are issued and deals are made, American businesses want to know that the decisions are reached fairly and openly. They want to be certain that government officials dont have a hidden agenda. They need to be sure that when they sign the deal, that is the end, and not the beginning, of negotiations. Government officials should not participate in decisions where they had a financial interest, Beyrle said. One way to help avoid this conflict is to require that government officials file financial disclosure statements. This is a standard practice in the EU and the US. A system that is free of conflicts between private and public interests, where decision making by government is transparent and fair, will certainly increase Bulgarias competitiveness in attracting American businesses, he said. Beyrle said that the sixth condition was the finalisation of an avoidance of a double taxation treaty. Having to pay taxes on the same income in two countries is a clear disincentive to American businesses.

Beyrle said that at present, all but one of the EU member countries have bilateral treaties against double taxation. The US and Bulgaria are holding talks on the this issue, but in order to conclude the negotiations, Bulgaria needs to change current legislation to allow government tax authorities to have greater access to tax-related financial information. This could be done, with sufficient political will, he said. Beyrle said that bringing more American investment was clearly in the interest of both Bulgaria and the United States. American investment will make Bulgaria more competitive when it enters the EU, and will help Bulgaria raise its standard of living and provide badly-needed social services. A more prosperous Bulgaria will be a more lucrative market for American products and services, a better business partner, and a stronger ally in defending our common interests, Beyrle said.