Bulgaria’s EU presidency overshadowed by corruption and crime

By Robert Seiler

Influential Bulgarian businessman Petar Hristov, who had assisted with the dismantling of a kidnapping ring and who was closely tied to senior members of Bulgaria’s ruling GERB party, was shot in broad daylight on the 8th of January in an upmarket area of Sofia, the Bulgarian capital.

This fatal shooting, coming six days after Bulgarian President Rumen Radev vetoed anti-graft legislation and seven days after Bulgaria assumed the rotating EU presidency, puts the spotlight back on Bulgaria’s unresolved problems with corruption and a difficult investment climate.

Bulgaria has frequently been singled out as the most corrupt EU country. Graft is widespread and inefficiently prosecuted. More than 1 out of 5 Bulgarian adults confess to having given a bribe in the past year, ranging from the €3 fee drivers pay for bogus “mandatory disinfections” when crossing the border to vote-buying schemes targeting the minority Roma population. Other scandals involve the highest echelons of the Bulgarian government, including some implicating Prime Minister Boyko Borisov and his party.

Even the recently-renovated National Palace of Culture, the venue chosen for the EU leaders’ summit scheduled for May 2018, is tainted by allegations that its former director embezzled nearly €1.7 million of funds earmarked for the Bulgarian Presidency of the Council of the EU.

These lingering problems have significantly impacted Bulgaria’s economy, as well as its relationship with its international partners and investors. The Bulgarian GDP continually lags behind that of its peers. This underperformance is in part due to the estimated 15% shaved off of the country’s GDP by skimming. Doing business in Bulgaria can involve unexpected barriers and swift reversals of fortune, especially for foreign companies. UK-based property company East Balkan Properties discovered this firsthand when their Bulgarian tenant abruptly stopped paying rent after ten years and sued East Balkans on the grounds that their agreements were invalid.

Difficulties conducting business in Bulgaria as a foreign company range from widespread bureaucratic inconvenience – firms spend more time completing tax forms in Bulgaria than in any other EU country – to tenders awarded under extremely dubious circumstances. When chemical fertilisers plant Himko A.D. was privatised, the tender was awarded to controversial Bulgarian businessman Delyan Peevski over Indian group ANJ; the latter alleges that they were asked for a €1 million bribe to secure the deal. It’s no wonder one Bulgarian MP once quipped that “Other countries have the mafia…in Bulgaria, the mafia has the country”.

Due to this climate of pervasive corruption, Bulgaria and Romania have remained under special EU supervision under the Cooperation and Verification Mechanism (CVM) scheme years longer than initially intended. European Commission President Jean-Claude Juncker has recently made a distinction between ‘the Romanian case’ and ‘the Bulgarian case’ and suggested that Romania may be ready to exit the CVM before Bulgaria. Despite having long since met the technical requirements for joining the Schengen zone and having Juncker’s public support, Sofia’s lack of meaningful reforms have barred the country’s access to the passport-free area.

The lagging economy and extensive corruption are frequently cited by the estimated 43 percent of Bulgarians who intend to leave the country. One eighth of the population has voted with their feet and left Bulgaria over the last 15 years. Many of these emigrants are skilled workers whose mass exodus has left behind a shortage of qualified labour in Bulgaria. The shortfall is particularly acute in certain sectors, such as medicine: between 2009 and 2016, Bulgaria lost 20% of its doctors, and 80-90% of Bulgarian medical students intend to emigrate after completing their studies. This brain drain is increasingly costly; by 2030, GDP per capita in Bulgaria may be 3-4% lower because of it.

This shortage of skilled labour, particularly in critical sectors like the IT industry which has seen remarkable growth in neighbouring Romania, is one of a number of factors which discourage foreign investment in Bulgaria. It effectively offsets the attractiveness of low wages and the second-lowest personal and corporate tax rates in the EU. Much like Transparency International, investors highlight state discrimination against foreign investors and an opaque and frequently changing legal framework, exacerbated by a weak judiciary, as the main reasons prompting prompt businesses to prefer trading with Bulgaria rather than actually invest in the country.

While these problems have existed and been acknowledged for years, Bulgaria’s first term holding the EU presidency has put the country and its shortcomings under additional scrutiny, particularly given the contentious Brexit negotiations, increasing threats to the rule of law in member states such as Hungary and Poland, and the need to agree on the migration package before the presidency passes to Austria on July 1st.

Hristov’s shooting, along with the attempted murder of a senior tax official in late December, recalls a long history of contract killings in Bulgaria. It also raises concerns that this type of organized crime, which in 2008 was so significant as to prompt EU warnings, might be on the rise again after having dropped off sharply following the arrest of five key gang members in 2010.

Bulgaria’s failure to promptly take a significant domestic issue off the table, combined with two mafia-style shootings in the span of three weeks, puts extra strain on an EU presidency whose readiness to deal with the multitude of challenges facing the 28-nation bloc is already being questioned.

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