Challenges and Challenges and Opportunities for Opportunities for

the Knowledge Economy the Knowledge Economy in Bulgariain Bulgaria

by Sophia Kassidovaby Sophia KassidovaDeputy Minister of EconomyDeputy Minister of Economy

World Bank KE Conference, Paris 19-22 Feb 2002World Bank KE Conference, Paris 19-22 Feb 2002

Bulgaria Bulgaria - - Stability andStability and GrowthGrowthBulgaria Bulgaria - - Stability andStability and GrowthGrowth

Political stability: consensus on EU and NATO membership Macroeconomic stability

currency board since 01/07/1997: BGN 1=EUR 0.5113 low interest rates: base interest rate around 4.5% low inflation: 4.8% in 2001 (preliminary data)

Dynamic economic growth: 5.8% in 2000 and 4.9% for 2001 (estimate,

source: Ministry of Economy) IMF Program World Bank Country Assistance Strategy 2001--2004 National Anti-corruption Strategy and Programme for its

Implementation Strategy for Energy Sector Development

Ministry of EconomyMinistry of Economy

Macroeconomic Indicators

1996 1997 1998 1999 2000 2001E 2002F

GDP (BGN bn)

14.86 17.62 21.58 22.78 25.45 28.46 30.78

Real GDP growth (%)

-10.9 -7.0 3.5 2.4 5.8 4.5 4.0

Annual inflation (year-end, %)

310.8 578.6 1.0 6.2 11.4 4.5 3.5

Budget deficit (% GDP)

-10.4 -3.0 1.0 -1.0 -1.1 -0.9 -0.8

4.9

Source: Ministry of Finance

GDP Growth: Bulgaria/CEE CountriesBulgaria

4.04.5

5.8

2.4

-6.9

3.54.0

-8-6-4-202468

10

1997 1998 1999 2000 2001E 2002F 2002F-05F

4.98.0

6.0

Pessimistic prognosis Optimistic prognosis

5.85.3

4.64.1 4.0

3.12.2

1.6

0

1

2

3

4

5

6

Bulgaria Hungary Slovenia Croatia Poland CzechRepublic

Slovakia Romania

GDP Growth in CEE Countries in 2001 (%)

Total Tax BurdenTotal Tax Burden ( (% GDP% GDP))

29.5

32.7 32.834.2

32.531.6

32.9

28

30

32

34

36

38

1997 1998 1999 2000 2001E 2002F

Reported (% of GDP) Estimated in the budget framework (% of GDP)

36.4

Source: Ministry of Finance

Personal Income Tax Rates/BracketsPersonal Income Tax Rates/Brackets

10%

15%

20%

25%

30%

35%

40%

45%

1999 2000 2001 2002

HighestHighLowLowest

29%28%

24%

18%

Source: Ministry of Finance

BackgroundBackground

Tradition of excellence in ICT production. Specialization under COMECON (50%) - PCs, processors, peripherals, teleprocessing systems and devices, etc.

In 1989 share of electronics and telecoms -- 25% of industrial production. Sector employed 130,000 people, incl. 8,000 highly qualified engineers.

Bulgaria’s ICT industry suffered seriously after 1990.

Macroeconomic stabilization since 1997 made ICT one of the most dynamic sectors of economy.

ICT InfrastructureICT Infrastructure

Strengths• Telephone penetration rate: 36 phone lines per 100

people• Households with installed telephone lines: 75%• Mobile telephones: 20% of population and

exponentially growing • Cable TV penetration: 48% of population• ISP is liberalized and competitive

Weaknesses• Households with PCs: 8.5%• Regional disparities (i.e. less access in rural areas)• Telecom monopoly

Internet Access DynamicsInternet Access Dynamics

June, 1997 February, 1998 September,1998

September,1999

April, 2000 Septemebr,2000

June, 2001 October, 2001

1,01,9

2,2

3,3

10,4

5,5

8,4

6,8

-1%

1%

3%

5%

7%

9%

11%

Internet Affordability (in $)Internet Affordability (in $)

1,2

0,95

0,59

1,25

0,8

0,240,140,15

0,20,31 0,250,4

1,65

2,0

$0,00

$0,50

$1,00

$1,50

$2,00

$2,50

1997 1998 1999 2000 Q1,Q2 2000 Q3,Q4 2001 2002 Q1

Full dial-up access within an hourly limit Full dial-up access with additional hours

Where Internet is Used ?Where Internet is Used ?

Yes No DK/NA

Home 30,2 64,6 5,2

Friends, relatives 19,8 74,0 6,3

School, university 16,7 75,0 8,3

Work 41,7 53,1 5,2

Public places 46,9 49,0 4,2

Bulgaria - EducationBulgaria - Education

Bulgaria’s secondary education is Bulgaria’s secondary education is

among the best in the world:among the best in the world: 5 5thth in in

the world in the world in sciences, 11sciences, 11thth in in

mathematics (World Bank and The mathematics (World Bank and The

Economist ranking)Economist ranking)

Bulgarians rank second in Bulgarians rank second in

international IQ tests (MENSA international IQ tests (MENSA

International)International)

Bulgarians are among the top Bulgarians are among the top

university students worldwideuniversity students worldwide ( (22ndnd

in the world in SAT scoresin the world in SAT scores))

Many students abroad – Brain Many students abroad – Brain

DrainDrain

ICT in Education

• Growing penetration of ICT in schools - no. of PCs at secondary schools doubled in 2001. Currently - 5,643 computers and 989 computer labs in 1016 secondary schools

• Some 20,000 computers at 48 universities. Average of 11 students per PC

• All universities have access to Internet. 45 (out of 48) have Internet sites

• 6,485 students in ICT + 221 doctoral degree students

Recent Developments in Knowledge Economy

• ICT employment in 2000 increased by 100% yoy• Global crises in IT markets in 2001 did not

significantly affect employment and IT business in Bulgaria

• Outsourcing, incl. by major IT firms is predominant type of IT business

• First signs of following patterns similar to Southeast Asia in assembling and hardware production

Challenges and Potential for Development

• Small level of PC and Internet penetration

• Low purchasing power

• Banking and financial intermediation needs to

increase

• Insufficient venture capital

• Public spending for R&D is increasing – 3.8% in

2001, 4.1% in 2002

…... Potential for Development

• Qualified workforce

• UNDP 2001 TAI (Technology Achievement Index)

measures Bulgaria as a potential technology leader

• Regulatory framework is largely harmonized with the

EU one

• E-signature law is in place

…... Potential for Development

• ICT is a tool to overcome the gap with developed economies

• ICT keeps the economy open and globally integrated

• Political will to support the sector

Future Steps

• Е-government -- efficient and unbiased public administration is conducive favorable business climate

• Tax concessions for big FDI in the sector• Finalize structural reforms

Future Steps

• Technology and Innovation National Strategy under preparation

• Accelerating penetration of ICT in all spheres of the economy and society

• ICT as a tool to bring innovation curricula and teaching and research methods