BIACG is Division of MTTI


1995 - 1997

Since 1991 several ambitious privatization programs have been made in Bulgaria. However, despite cabinets’ statements, privatization in the country lags behind that in Central and Eastern Europe and foreign investments are too small despite the fact that in the former Eastern bloc Bulgaria was the first one to change its legislation / Edict 56 - 1989/ and allow foreign investments.

Notwithstanding the ambitious privatization programs of the different governments and the liberal acts regulating foreign investments, the share of big and middle-sized enterprises, where more than 67% / necessary for entire control/ is privatized, is less than 5%.

There are three stages of privatization in Bulgaria:

  • restoration of land and town property to the former owners and their inheritors
  • cash sales of state assets
  • mass / bond / privatization

Restoration - results and problems

The first successive privatization program in Bulgaria was completed by the restoration of town property. By September 1996 almost 90% of the submitted applications were considered and the respective decisions were issued. Over 22 thousand sites of the total amount of USD 200 m were given back to the former owners and their inheritors. Almost half of them were shops. Town restoration lead to important economic results - conditions of explosive growth in private trade and services were provided. At accelerated rates the ineffective state commercial and service firms that were unable to pay the market -determined rents withdrew from the market and the restored trade sites were rented by private entrepreneurs.

The land property problems are not so easy to be solved out. After 7 years of reforms restoration of land is at a deadlock and still there is no decision of the problem for almost half of the agricultural land. According to National Statistic Institute data totally 55,148 m ha arable and uncultivated land is subject to restoration / Sept 1997 /. Of them: 35,810 m ha /64.9% / have renewed property rights and only 6,329 m ha have notarial acts for property.

The impeded restoration of land is due to the increasing political contradictions which on their part reflect the great practical difficulties of the process. To prove property rights appeared to be much more difficult for agricultural and uncultivated land than for town property. The creation of the right cadastral project seemed to be a long and difficult process. The lack of market for sale and lease of land / no interest shown by owners and inheritors / for the period 1992 - 1995 played the main role for decreasing the arable land by 13% and of orchards and vineyards - by 27%. The small size of farms, the restricted consumption of agricultural products, the limitations on prices and export as well as the great expenses for concluding contracts and the fact that most of the inheritors live in towns explain the owners’ lack of willingness to speed up the process.

The lack of interest on the part of owners and inheritors of agricultural land to invest in farming as well as the attitude of the former socialist government to the agricultural co-operatives which were viewed upon as potential supporters in the political elections and not as independent economic units contributed to increasing the number of these co-operatives.




Arable land / in % /













*** According to National Statistic Institute /NSI/ data

Even if the new cabinet of Ivan Kostov undertakes now a stable political engagement to complete quickly the land restoration process and to develop the land market, under the existing circumstances considerable results shouldn’t be expected in short terms. In this context agricultural problems lie ahead in Bulgaria.



According to cabinet’s data by September 1997 the total percentage of the privatized state assets is about 30% / according to World Bank (WB) criteria it is 18% /. Of them 17% through cash privatization and 13% through mass privatization / according to WB criteria respectively 5% through cash privatization and 13% through mass privatization /. The expected revenues from privatization till the end of 1997 are expected to be about BGL 992 bn or USD 350 m and the state assets at the end of 1995 are estimated at about USD 8,5 bn.


Cash privatization

According to NSI data the information for cash privatization for 1995 - 1997 is as follows / in USD m /:





Deals’ payments




Debts assumed




Debts paid


13,512 1,129


Investments contracted




The privatization deals made by economic branches for 1993 - 1997 are as follow:

Economic branch

Relative share

Number of deals made

























From the USD 22.3 m debts taken in 1997 USD 1 m was already paid. 583 are the expected privatisation deals for whole enterprises and the priorities are in chemical industry, mining industry, light and food industry, machine building, transport, tourism, agriculture and tourism. BGL 602 bn are the expected revenues from privatization / June - December 1997 /, of them BGL 220 bn are expected from the speeded privatization of 30 enterprises / see Application 1 /.

It is admitted that the cash privatization program is not developing successfully because the interest of foreign investors is limited as well as their access to the market. Besides, privatization was halted by the insignificant funds of the Bulgarian population, / lack of developed and functioning finance and credit system / the low degree of development of the capital markets. The government has not yet well realised the necessity of developing two parallel processes of privatization and lending credits to the small and middle-sized firms. A concentration of efforts only on privatization without giving a chance for econonic mobility to those who are less wealthy could lead to an invincible crash among the various strata of society.

The lack of sufficient information about the different enterprises as well as the insufficient exchange of practical experience and knowledge for the process also contribute to the privatization failure.

The major participants who do not have much interest in speeded privatization resist the process. This concerns the respective ministires, the employees in the enterprises, the municipalities and as well as the private firms that still can control the processes at the entrance and at the exit of state companies.

The different ministries are not interested for two main reasons: the privatization will probably limit their control over firms in the branch, moreover - it is easier to gain political influence by means of labour than by direct contact with society. The tendency which was very well expressed by Zhan Videnov’s cabinet keeps dominating in Mr. Kostov’s cabinet too. The entire innovation in the ruling cadres of economy could additionally slow down privatisation and replace the private companies at the gateway from “ red “ to “ blue “. Secondly, a great number of government officials are members of the Borad of Directors of state enterprises hence their incomes exceed their ordinary salaries of state officials. The municipal councils also were not interested in selling property since they had to pay almost the entire amount of their profit to the state budget, this was chaged after the state transformed these conditions and as a result the greater part of the gains will remain in municipalities.

The managers who in fact have control over the enterprises after the privatization are threatened to be dismissed and removed from the leading posotion of the company or at least deprived ofsome special favours and in some cases - from accsess to grants and gredits. The workers themselves have reasons to be afraid of losing their jobs during privatization.

 Mass privatization

At the first privatization wave of the total 85 m shares offered for sale of 1050 privatization sites 61 milion shares / 72%/ were bought by 81 lisenced privatization funds, 9 million /10%/ - by citizen, and 15 m shares /18%/ wern’t sold. 725 privatization sites /69%/ have 100% private property. From 6 million citizen 3.6 m became owners; from them 3.3 m bought privatization bonds and 0.3 m receive preference bonds. At the second wave of privatization / the beginning of 1998 / about 2400 privatization sites are expected to be given. The shares of the enterprises undergoing privatization will be sold at the stock exchange by investment mediators and auctions. Investment bonds will be used for buying at the stock exchange, at centralized auctions, at the cash and workers-managers’ privatization.

Privatization is impeded by the high degree of political instability as well. Sine 1990 seven cabinets have changed and each one of them had its own and entirely different approach to privatization. These differences lead to frequent changes in legislation and to constant innovations in institutions and their staff. Since 1992, when the Privatization Agency /PA/ was established, its managers have changed seven times and its supervising council suffered frequent changes. More frequent are the changes in specialised departments including the higher levels as well. These changes breach the succession: there are some new officials who cancel deals that have already been approved or try to change the clauses of deals that are already been completed. The PA’s weak political positions cause some troubles: it is exposed to pressure from the Council of Ministers and the Parliament which is usually exercised by the Supervisory Council. In some cases the Council of Ministers cancels or delays deals approved by the Privatization Agency. The complex and long procedures that the Privatization Act requires also leads to slowing down of deals.

From the experience gained through the five years of divestment of state property can be concluded that the process moves slowly and mainly small and middle-sized enterprises are sold in the country. Probably next year in the Privatization Agency there will be a special department to co-ordinate the activities of all institutions that have the right to privatize as well as the work of the foreign advisers and the stock exchange.

The main problems of privatization include:

  • the lack of enough interest from the direct participants in the privatizaion process - the foreign investors, the state, the manager teams and workers.
  • the lack of simultaneous approach to privatization and stuctural reform together with encouragement of private business and the ensuring the social activities (now provided by the state) under the new conditions.
  • the lack of possibility for sufficient funding of the process - a decreased interest of the foreign investors, lack of internal source, the external country’s debt.


A basic problem is the financing of privatization and the state officials’ attitude towards the process.


Foreign investments

According to Foreign Investments Agency data for 1995 - 1997 the direct foreign investments are as follow:

USD 164,559 m 1995 527,470 m / totally with accumulation/

USD 303,450 m 1996 830,919 m

USD 412,600 m 1997 1,243,519 m


The biggest foreign investors in Bulgaria are:

Belgium - 251,627 m January 1991 - September 1997

Germany - 233,437 m - “ -

Holland - 92,551 m - “ -


According to number of investments:

Turkey - 1525 January 1991 - September 1997 24 place by volume

Greece - 1221 - “ - 8 place

Syria - 635 - “ - 35 place


The low level of foreign investments in Bulgaria / despite the favourable legislation/ is due to a lot of problems. It is important that geographic, demographic and cultural factors impede the attraction of foreign investments. Bulgaria has a small internal market / there are artificial attempts to “break” the bridge to Russia / with low solvency and in cultural and geographic sphere is far away from the countries from the Organization for economic development and collaboration /OEDC /. In comparison to many countries with transitional economy Bulgaria has limited natural resourses and a comparativaly poor developed infrastructure and communications. Important re-stucturing requiring considerable innitial investments at the conditions of increased risk is necessary for achieving international competition capability. A major political problem for Bulgaria is the mixing of Russia’s, US’ and Europe’s interests on the Balkans. Foreign inverstors consider that the political risk in the region is still too big.

The inquiry from 1995 shows that 35% of the managers of the mixed associations in Bulgaria do not intend to enlarge their activi6ties and 31% WOULD NOT RECCOMEND THEIR PARTNERS to invest in Bulgaria at all.

Despite these conditions there are circles that show their interest to Bulgaria. Bulgarian work force is the most attractive for foreign investors - it is considered to be the best qualified, strongly motived and too cheap in comparison to the countries with transitional economy. The easy access to our internal market, the preference access to the big Russian market as well as the direct link between Europe and Asia are also very attractive.

The constantly high macroeconomic instability which increased at the beginning of 1997 undoubtly is another main reason for aggravating the investment opportunities / most of the foreign investors show also a number of other reasons/. Private investors complain most often of the constant changes and the lack of lucency in different decrees, procedures, acts, cabinet’s engagements together with bureaucracy obstacles and corruption among state officials.



Privatization and enlargement of foreign investments have common problems which show ambiguitly and sometimes unclear attitude towards Bulgara’s state officials. This attitude can be understood only in some occasions but the present economic situation requires a more decisive approach.


November 19, 1997 BIACG

Bulgarian Information Analytic and Consulting Group is division of MTT International and offers chronological and thematic analyses concerning the political economic aspects of the Bulgarian reality. In addition to the summary of the analyses presented in the bulletin we can provide the full size analyses if requested.

BIAC Group offers also analyses and consultations on topics connected with Bulgaria which are of interest for the client as well as translation of articles from the Bulgarian press.

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