Reform Progress

Bulgaria did not have many industrial giants to privatize - no refineries, no chemoical platform, no steel plants or car manufacturers. Thus, the top privatization in Romania, that of the Romanian Commercial Bank to Austrian Erste group, is worth €3.6 billion, while the largest privatization in Bulgariaamounted to €230 million - the sale of telecom operator BTC to investment fund Advent International.

Support for private sector

 Bulgaria, however, surpassed Romania in terms of regulations favoring the business environment development. The reason is that Bulgaria “had the experience of catastrophe, of the fall of a system. Following that moment, it took legislative control to maintain stability and to promote growth in all sectors,” says Levon Hampartzoumian, President of UniCredit BulBank.

 Romania leads in corruption top

 Bulgaria has better scores than Romania in terms of freedom of speech, public services quality, political stability, rule of law, corruption control, and government ability to draft policies for the private sector, according to a World Bank report published this July. Romania has a score of -18, while Bulgaria scores better (-0.05) in this report, with scores from -2.5 to +2.5. Moreover, Transparency International’s report on corruption places Romania as 84th in terms of corrupt countries, while Bulgaria ranks higher, just 54th.

“As far as corruption is concerned, things are relatively the same - it still exists, it is still felt. Bulgaria’s big problem is business criminality... Until last year, a businessman was killed every month, I heard of some 30 businesspeople being shot. In Romania, I have heard about stealing, theft, but not about killings,” says Jean Pierre Vigroux, senior partner of PricewaterhouseCoopers Bulgaria.

 Justice costs

 The Justice chapter has been one of the sensitive points of the pre-accession process to the EU for both Romania and Bulgaria. Both states, however, took steps to reform the justice system in the past two years.

Problems within the judiciary had higher costs for Romania, as the state was forced to pay some €4.5 million in damages to Romanians whose rights were violated. Some 12% of the total complaints with the European Court of Human Rights (ECHR) are coming from Romania, compared to only 2.4% from Bulgaria. Most cases are related to the recovery of properties confiscated by the former communist regime in Romania. Bulgaria has already solved the retrocession issue.

 Health reform - a priority without funds

 Although both governments say the health reform is a priority, funds to revive the system are not to be found in the Romanian state budget or in the Bulgarian one. “The health system in Bulgaria is not functioning very well. Insurance funds are spent by September-October. The state has a monopoly on the health insurance, there is no competition,” according to Ogjan Donev, CEO of Sopharma, one of the two major medicine producers in Bulgaria. However, health spendings are expected to rise in both countries in the follwing years.

“I hope that, in the next two-three years, things will start changing. We cannot go lower than this, I think we are at the lowest level in Europe, so things can only go up,” Donev added.

 Fiscal policies

Bulgaria beats Romania in the field of fiscal juggleries aimed at attracting foreign investors. While Romania introduced the 16 percent flat tax for a more favorable business environment, Bulgaria is about to use a similar strategy by introducing the lowest flat tax in Europe - 10 percent. A first step in this direction was made right after the EU integration, by reducing the profit taxation quota to 10 percent. Europeans are increasingly alert to Bulgarian movements, since ambitions are set to transform Bulgaria into one of Europe’s fiscal paradises. Romania has not made any changes since 2006 regarding general taxation, but competition and other countries’ good results in attracting investments might push Romanian authorities into changing fiscal policies.