/ world today news/ Recently, preliminary data of the BNB came out, according to which direct investments in our country for the period January-June 2016 fell by 179.5 million euros, or by 18.7% compared to the same period last year.
What will this decline lead to and can this negative trend be overcome? BGNES turned to the economists with these questions.
Prof. Gancho Ganchev, economist:
This is a very unfavorable fact – it is obvious that in the long term we cannot have economic growth without investment, as the production potential of the country is declining. Hence the slowdown or zero growth.
The question of investment is very important. The main reason for the low level of investment is the problems in the banking sector. Banks refrain from lending. A stress test was recently done that gave good results, but they are a double-edged sword. The high capital adequacy and high liquidity in our banks, which are many times greater than these indicators of the banks in the European states, also have a reverse side. This means low profitability and its compensation with high interest rates on loans.
It is obvious that in recent years there has been a very large difference between the interest rates on deposits, which are almost zero, and the interest rates on loans, which are very high – on the order of 7-8%, which limits lending and complicates the investment process.
Yes, there is bank reinsurance. And I don’t share the opinion of those economists who claim that high capital adequacy and liquidity make our banks better. Well, by all indicators, these so-called “dead money” does not circulate, does not enter and exit the circulation of economic activities, to define it as a good thing. After all, their job is to finance, to credit the investment process, the trade, so if they don’t do that function, what does it matter that they are liquid?
The problems lie in the financial sector and, according to some analysts, the behavior of the banks in our country is related to the stress test itself. Because they have sought to maintain high performance and have refrained from lending. Eventually, we can hope that after the stress tests there will be a revival in the banking and credit system, with credit growth. But in general, revitalizing the investment process also requires greater confidence in economic policy, as well as a clearer strategy to orient businesses in the direction of investment.
Mitko Hitov, Doctor of Economics, lecturer at UNSS:
The decline of investments in the first six months of this year is undoubtedly due to the conclusion of the previous reporting period in line with European funds. Last year, as the last for the period, maximum volumes of Euro funds were absorbed, including in the line of investment construction. And during this one, at the beginning of the new program period, when the approved programs have not yet entered an active phase of implementation, there are also no serious volumes to be registered by the statistics.
The modern model of economic development suggests two paths for its implementation: monoculture or investment interaction between developed and developing economies.
Currency wars are currently taking place around the world: each of the major economies seeks to devalue their currency in order to make their goods more competitive in international markets. Such a policy is pursued by China, Japan, Germany (through the euro-Belarus), Great Britain. Even Americans don’t mind having a weaker national currency to cut their trade deficits.
In these conditions, it can be safely claimed that the Bulgarian lev is the most stable currency in the world, and its strength has been continuously increasing for 18 years. What does this mean? It is becoming cheaper for merchants to import their goods from abroad (we see that almost all agricultural products in the markets and shops are now imported – note), for citizens it is becoming more and more profitable to travel for their holidays abroad instead of to use the Bulgarian resorts, for example. It is increasingly attractive for young people to study at a Western university instead of enrolling in a higher education institution in their homeland, which is of course a path to safe emigration.
The other side of the coin is that inside our country it is becoming more and more unprofitable to produce anything, i.e. to invest and think positively and creatively on the business side. In such conditions, citizens and entrepreneurs prefer to keep their money in banks, which temporarily improves the indicators of the latter, but in the long term is a time bomb. Because banks were created to lend to economic activity.
This is not the situation in Romania, which is constantly presented to us as a positive example of economic development. I remember how appallingly poor our northern neighbor was a quarter of a century ago, compared to the then situation in our country. Another example is Poland, which is the only country in Europe that did not register declines during the first wave of the global deflationary crisis in 2009. There, local authorities also have the freedom to conduct a flexible monetary policy, which is lacking in our country.
If we try to attract investment from outside (so-called foreign investment – note), we face the same problem again. In the competition with other developing markets, we lose completely because we are unable to maintain the necessary proportions between labor productivity and the cost of labor power. In other words, our inflation, which is higher than that of developed economies, is not “removed”, it is not “leveled” through the mechanisms of monetary policy, and the business climate in our country is becoming more and more unattractive for foreign investors . Some light in the tunnel gives us the fact that a serious outflow of investment is starting from China, and in this situation we can hope that some of these flows can find a port here.
The problem is, however, that due to the lack of any job prospects, more and more Bulgarians of working age are leaving the country. Statistics show that in just one year more than 10,000 children leave school due to the emigration of their parents. People remain in our country who, for one reason or another, are unable to seek their happiness outside of it. As a result of these trends, the ethnic composition of the population is also changing, which causes the anxiety of the ethnic Bulgarians. In these conditions, a palliative solution would be to bring in several hundred thousand Ukrainians, for example, to settle in the deserted territories. Because it must be clear that sustainable economic development can be counted on in the long term only if there are people, at that – of working age, inhabiting a certain territory, with a minimally required population density. Of course, other conditions are necessary, but this is the most important.
I believe that cardinal changes are necessary, both in the country’s economic policy and in the personnel potential to implement them. Because it is obvious that the politicians at the top, who got us into such a state, have no way to find the inner strength and will to deny themselves and the ideology they profess in order to start serving the Bulgarian national interest. To a large extent, the deficit is in those in charge – in their place should come people with a different mindset, with training, with experience, who can offer flexible and accurate solutions. Otherwise, we are in for a free fall…economically and mentally.
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