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Bulgaria, Latvia, Lithuania and Slovakia – Comparison of industrial transition models

Restructuring of the Bulgarian sector of electrical engineering Dr. Rumen Atanasov Bulgarian Association of Electrical Engineering and Electronics. Bulgaria, Latvia, Lithuania and Slovakia – Comparison of industrial transition models CCMI Conference, Sofia, 6-7 October 2008.

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Bulgaria, Latvia, Lithuania and Slovakia – Comparison of industrial transition models

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  1. Restructuring of the Bulgarian sectorof electrical engineeringDr. Rumen AtanasovBulgarian Association of Electrical Engineering and Electronics Bulgaria, Latvia, Lithuania and Slovakia – Comparison of industrial transition models CCMI Conference, Sofia, 6-7 October 2008

  2. The Sector of the El. Eng. and Electronics Employed in the ELECTRA sector as % of the employed in industry share in WGDP and EE sector • The leading sector after WW2 • The basis of the technology development in the last 60 years • It is the leading European industry • The most important for the Bulgarian industry, defines the technological level of the whole machining industry. bassel

  3. The Electrical Engineering in Bulgaria has a long historyThe roots • 1878/79 – first electrical lighting system; facilities for telegraph network delivered by SIEMENS • 1888/99 – first electrified factories, collieries • 1900/02 – first hydroelectric PS with 7 kV transmission line; first thermal PS; tramway in Sofia starts to roll • 1909/19 – regular import of bulbs & utility material from Austria. SIEMENS wins tender for first 3000 posts distribution telephone exchange; permanent representation agencies of SIEMENS-SCHUCKERT for HV technique and SIEMENS-RHEINIGER for medical equipment • 1920/35 – “Bulgarian Ltd Company for electricity-SIEMENS” inaugurated; regular import of radio receivers; first X-ray device imported; production start of small electric motors, dynamos, transformers, lighting fixtures, cables, bulbs, switchgear; first 320 kVA transformer • 1934/45 – construction of automatic telephone exchanges; high-frequency installations; repair workshops for radio sets, telephone and telegraph appliances, el. motors, transformers, heating devices bassel

  4. Subsectors included (acc. NACE codes) • 29.41Manufacture of portable hand held power tools • 29.71Manufacture of electric domestic appliances • 31.1 Manufacture of electric motors, generators and transformers • 31.2 Manufacture of electricity distribution and control apparatus • 31.3 Manufacture of insulated wire and cable • 31.4 Manufacture of accumulators, primary cells and primary batteries • 31.5 Manufacture of lighting equipment and electric lamps • 31.61 Manufacture of electrical equipment for engines and vehicles • 33.3Manufacture of industrial process control equipment Subsectors not included • Office technique, computers and other electronic facilities • Communication technique bassel

  5. Development in Bulgaria after WW2 • Specialists obtaining higher education in Germany, Italy, France, Czechoslovakia available • Administrated market of the former Soviet Union orientated development • Natural way of development without ill-founded political solutions • Presence of some subsectors (electric motors, transformers, cables, batteries) on the free markets • Intensive development of specific subsectors in the eighties, licenses from leading companies • State monopoly on export and import; sales of manufacturers used to be prerogative of the state • Exorbitant industrial development bassel

  6. The period after 1990 • Disappearance of administrated markets: internal and COMECON • Suspension of supply sources of raw materials, components and elements • Drastic decrease in production, closure of enterprises • Former state-owned factories performed social functions maintaining redundant personnel • Difficult access to capital – as a result loss also of free markets • Liberalization of the trade • Establishment of many small and micro enterprises, initially in the field of services • 1997 - Start of privatization of the big state-owned factories • Different forms of privatization, in many cases owners without ideas about development of the factory – profiting from assets only • Restructuring – ownership, markets, products, management bassel

  7. Now100% private industry • The former state-owned enterprises of the electrical engineering industry are utilizing only 30-35% of their previous capacity. Some of them are not-existing anymore. In the last years – new technologies, new equipment (usually second hand). Personnel is optimized. During the last 3-4 years, a process to discover “real owners” of the factories is running • A great number of newly established(after 1990) SMEs; new technology, new facilities • In the last 5-6 years – investment into new production sites & buildings, new equipment even into some of the former state-owned factories • The sector comprises about 590 enterprises, 350 of them – actively operating; 20 are large (more than 300 wplcs), the rest – small and medium • Labor force in the sector – about 20 000 employees • Restructuring still not completed, clusters – in highly introductory phase bassel

  8. The most important for the sector - FDIsUSD m Companies 85; Private persons 124 bassel

  9. Factories of important foreign investors (former state-owned factories) • ABB: MV&LV switchgear; 250 wplcs • HYUNDAI HEAVY IND.: power trafos, tap-changers; 600 wplcs • SCHNEIDER: LV breakers (the old one) • SPARKY: el. hand tools; 1300 wplcs • SET: PCBs; 280 wplcs • MHT: magnetic heads; 200 wplcs • DZU-VIDEOTON: small household appl’s, el.mech. devices; 650 wplcs • NAYDEN KIROV: LV installation products; 300 wplcs • AROS QUALITY: small trafos; 290 wplcs bassel

  10. Factories of important foreign investors (green field projects) • ABB: 2 factories; LV, 150 workers.; now 3th LV/MV, 600 wplcs, start May 2009; 4th planned • LIEBHERR:fridges, 1500 wplcs; R&D center, 30 eng. • SCHNEIDER: new (2nd) factory, LV breakers, 800 wplcs • EPIQ: PCB assembling; 2000 wplcs • MELEXIS: PCB assembling; 200 wplcs • FESTO: sensors for automation; 200 wplcs • SIEMENS: HV measurement transformers • ARKOMAT: automotive wire harnesses, 600 wplcs • NURSAN: automotive wire harnesses • CURTIS: el. motor-control for forklifts; 140 wplcs bassel

  11. The success stories of FDI • The sector had a good reputation amongst global leaders: with the start of privatization SIEMENS, ABB, SCHNEIDER, EPIQ, SPARKY, HYUNDAI (well knowing the sector) came to Bulgaria and bought up the state-owned factories • Subsequently, a series of green field projects were realized and were successfully developed • For the last years - $137 million FDI. This is a very small amount against the background of the total FDI in this country. However, production FDI drive into the country new products and respective markets, new technologies, new management, new industrial mentality Production FDIs are generating a new industry of sub-suppliers in the region, natural clusters • Some new, very large and important industrial areas have been stimulated and established in our country • In general – all FDIs in new production enterprises are success stories. • And yet why? bassel

  12. FINANCIAL STABILITYCurrency board since 1997 • The Central Bank does not act as a lender to government and commercial banks • The exchange rate to foreign reserve currency (EURO) is strictly fixed, 1 € = 1,95583 BGN • The Central Bank will issue only one unit of local currency for each unit of foreign reserve currency it has in its vaults • The country has not the ability to set monetary policy according to domestic considerations POLITICAL STABILITY • NATO member country since April 2004 • EU member country sinceJanuary 2007 • All political parties support NATO and EU membership • No ethnical problems bassel 4

  13. FAVORABLE INVESTMENT CLIMATE • Corporate Tax: 10% • Manufacturing companiesin high-unemployment municipalities: 0% EU TECHNICAL LEGISLATION IN FORCE • Transposed directives: LVD, EMC, R&TTE, ATEX, Machinery, lifts, gas appliances, simple pressure vessels, pressure equipment, toys, NAWI, refrigeration appliances, hot water boilers, noise emission, etc. • WEEE (effective from 01.07.06); • RoHS (effective from 01.01.07); • Batteries (since 2005) • Transitional period - Directives on medical devices • Most enterprises ISO9000 certified by TUV, SGS, LR, BVQi bassel 17

  14. WELL EDUCATED AND HIGHLY SKILLED LABOR FORCE • 43 Universities; 45 000 graduates (BA or MA) annually • 350 vocational technical colleges, 65 000 graduates annually • 30 000 Bulgarian students in foreign countries THE LOWEST PRICE LEVEL IN EU !!! bassel 13

  15. Price Level Indices 2005 (%) Annual average gross wages,EE sector BG, EUR bassel 15

  16. Monthly emoluments in electricalengineering sector, large cities, EUR, 2006 bassel

  17. Productivity rises, but still too unsatisfactory bassel

  18. Labor productivity in 2006 – GDP per employeeon PPP basis as a percentage of the EU–27 average bassel

  19. Important el. eng. sub-sectors • Power equipment (transformers, switchgear) • Motors, generators, alternators • Cables and wires • Batteries, start and traction • LV apparatus, building installation products • Control, measurement and automation devices and systems • Industrial electronics, PCBs, electronic modules and systems • Automotive parts • Lighting fixtures • Optical devices • Household appliances • Sub suppliers (plastics, metal parts, ceramics etc.) bassel

  20. Production and export, EUR m bassel

  21. Production of electric motors, batteries, switchgear bassel

  22. Export of assembled PCBs, € m bassel

  23. Productionof electrical household appliances, pcs bassel

  24. Import of electrical household appliances, pcs bassel

  25. Human resources Proportion of the population aged 25–64 with completed secondary education bassel

  26. Proportion of the population aged 25–64 with higher education bassel

  27. University graduates in science and technologyper 1,000 population in the age group 20–29 bassel

  28. Lifelong learning – proportion of the population aged 25–64 involved in training and education bassel

  29. Number of graduatesin electrical engineering subjects, 2005There are 5 technical universities and 65 vocational schools with el. eng. & electronic disciplines bassel

  30. State economic strategy • According to “STRATEGIC TRENDS OF BULGARIAN ECONOMY”, published July 2007 by the Ministry of Economy and Energy: • DELOITTE’S SURVEY -most perspective sectors and competitive advantages in Bulgaria are:IT, outsourcing, electrical engineering and electronics; • UNCTAD’S SURVEY 2007/2008 - electrical engineering and electronics is most perspective industrial sector for investments in Bulgaria Sector strategy A “National Strategy for the Development of the Electrical Engineering Industry in Bulgaria up to 2013” was jointly elaborated with the Ministry of Economy and Energy. Yearly Action plans. bassel

  31. R&D expenditures in ELECTRA (% of the GVA) R&D expenditures, % of GDP n.a.? bassel

  32. Bulgarian National Innovation Policy NIF - Projects financed by Projects’ leading sectors • ICT - 26.5 % • electronics and electrical eng.- 15.7 % • biotechnologies & food industry - 13.7 % • mechanical eng. & metal processing - 10.7 % bassel

  33. Other instruments to promote innovations Voucher scheme; Techno-starter scheme; Tax incentive scheme; Loan guarantee scheme; Venture capital scheme bassel

  34. But !? bassel

  35. Social Dialogue Sector councils for social collaboration with the Ministry of Economy and Energy Law on health preserving and safe conditions of work, including a separate system for social dialogue at national, sector, regional, company level Two trade-union partners of the Association. A collective labor agreement is signed for the EE-industry between the sector organizations of employers (NCEEB) and the trade unions Very strange!. The dialogue between employers and trade unions is far more spontaneous and constructive than between business and the state administration. 29/02/08 35 bassel nceeb

  36. Thank you for your kind attention 22/04/08 36 bassel nceeb

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