19 Economic Program

In year 2001 the work of the Economic Program focused on the following major issue areas:

• Building critical advocacy capacity for corporate governance reform in . The successful completion of the project Transforming Business Practice through Corporate Governance brought the Corporate Governance Initiative (CGI) to a stage at which it is widely recognized as the major nation- al advocate of reform. The efforts of CSD also aimed at including the in this process through the project Corporate Governance Reform and the Mass Media: Building Critical Advocacy Capacity in Bulgaria. • Enhancing the business environment for foreign direct investments. Special efforts to bridge research and policy were made through the project The Impact of European Union Enterprise Relocation on Inter-Firm Relations in Bulgaria. In cooperation with partners from other Balkan countries CSD assist- ed the Applied Research and Communications (ARC) Fund in the implemen- tation of the project Foreign Direct Investments in Balkan Countries: Alternatives to Reduce Existing Barriers. • Exploring the frontiers of the new economy. CSD was at the center of the national effort to join the World Bank initiative of a Global Development Gateway which puts the internet at the service of the goals of development by completing the preparatory stage of the Bulgarian Development Gateway.

I. Building Critical Advocacy 1. Transforming Business Practices Capacity for Corporate Governance through Corporate Governance Reform in Bulgaria (CGI)

In year 2001 CSD continued to serve as The specific context of the business the Secretariat of the Corporate Gover- environment in Bulgaria and the need nance Initiative which also includes the for comprehensive measures toward Association of Industrial Capital, the acceptance of the principles of corporate Association of Voluntary Pension governance in Bulgarian companies Funds, the Center for Economic have determined the approach followed Development, the Investors’ Union and by the CGI team on this project, com- the Securities Holders Association, all pleted in April 2001. The main activities working together to change corporate included: a) monitoring the state of cor- governance practices and introduce porate governance in the country and standards and procedures ensuring the impact of the activities undertaken transparency and accountability within CGI; b) consensus and coalition (www.csd.bg/cgi). building; c) cooperation with partners 20 from other countries facing similar chal- shareholders’ rights, 3.47 on composi- lenges; and d) dissemination and advo- tion of boards and boardroom practices, cacy for further reform. A task Force of and 3.43 on disclosure of information. experts held 12 meetings aiming at elab- orating the corporate governance indi- The Corporate Governance Assessment cators in Bulgaria for the purpose of Report is an effective advocacy tool improving the quality of national corpo- for better understanding of the issues rate sector data. The Task Force devel- by the public, which can also serve as oped a set of indices to measure the an important resource for the interna- progress in reforming the legal frame- tional business community. CGI intends work for corporate governance, the effi- to replicate it in order to track the ciency of the relevant institutions and changes and trends in the course of the corporate governance practices in corporate governance reform in the Bulgaria. A pilot monitoring survey of Bulgaria. Bulgarian publicly traded companies was carried out, designed together with Corporate Governance Guidelines experts from the National Securities for Bulgaria Commission, the - and the Association of Building on the work already done and Industrial Capital in Bulgaria and con- in line with the 1999 CGI a Policy ducted with the help of Vitosha Recommendation Paper entitled Research. Corporate Governance Guidelines for Bulgaria was drafted; it focuses on the Corporate Governance Assessment following issues: Report • responsibilities and motivation of On the basis of the survey results CGI boards; experts drafted a Corporate Governance • role of the judiciary and improvement Assessment Report which was discussed of judicial practice; at a Policy Workshop held at CSD on • promotion of capital market develop- April 18. The report provided an over- ment and role of institutional view of the general framework and par- investors; ticular dimensions of the corporate gov- • residual state shareholding. ernance in the country; it contained information unavailable up to that time The Guidelines include practical meas- to the professional community and the ures for the promotion of a culture of media. With regard to the legal and compliance with the existing regula- institutional framework the index of tions and appropriate disclosure of corporate governance was assessed at information. The set of policy instru- 3.26 (on a scale of 1 to 5) covering the ments which need to be developed or role of the judicial system, capital mar- elaborated should focus on regulation ket development and efficiency of its and enforcement along with dissemina- institutions, and above all the extent in tion and education. which the existing legislative frame- work facilitated or constrained proper Corporate Governance Policy governance. The internal factors of cor- Workshop – April 18, 2001 porate governance as well as company practices received a lower rating – the The Policy Workshop was the main public value of the index was 3.11 as a whole, event in the project. It brought together including 2.42 on protection of minority more than 30 experts - representatives of 21 government agencies (ministries, Privati- 2. Corporate Governance Reform and zation Agency, Center for Mass Privati- the Mass Media: Building Critical zation, Foreign Investment Agency), busi- Advocacy Capacity ness associations (Bulgarian Chamber of Trade and Industry, Bulgarian Industrial CSD’s work in year 2001 aimed at Association, Association of Industrial launching a network of corporate gover- Capital in Bulgaria, Association of Private nance advocates in the mass media, giv- Pension Funds), development organiza- ing publicity to the efforts undertaken tions (World Bank and USAID), academics so far in the course of the reform and and journalists from the mass media. The creating a wide constituency and public workshop provided a practical framework opinion in favor of implementation of for consensus building among all parties corporate governance principles in busi- involved in the implementation of modern ness. For this purpose CSD’s efforts corporate governance principles in focused in particular on: Bulgaria. All the participants agreed on the • assessment of the capacity of the role to be played by key actors in this Bulgarian mass media to advocate process – the government, Stock Exchange, corporate governance reform; the business community, the shareholders’ • training a significant number of jour- associations and the media. The discus- nalists to cover developments in cor- sions which took place helped prepare the porate governance and disseminate final version of the Corporate Gover- the ideas and the know-how formu- nance Guidelines for Bulgaria. lated in the course of previous pro- jects within CEI; Dissemination and Advocacy • providing these journalists with tools necessary for conveying their mes- In the period under review CSD paid a sage to the public. special attention to dissemination and advocacy of the need for corporate A preliminary assissment of the cover- governance reform and used all available age of corporate governance reform was means for this purpose. The web site of instrumental for the success of the pro- CGI (http://www.csd.bg/cgi/) was reg- ject. A survey of about 100 print and ularly updated to cover current acti- electronic media was conducted to vities and events - it contains the final assess the capacity for corporate gover- version of the Policy Recommendation nance advocacy, including journalists Paper, legal and other documents, publi- responsible for editorial policies as well cations of CSD and CGI, such as summa- as reporters. This study helped formu- ry reports, draft documents, press releas- late the major issues for discussion and es, etc.; in addition, it provides links to the forms and methods of training. A set the websites of partner organizations to of materials on corporate governance facilitate access to relevant information. for the seminar is available on the CSD website. The CGI activities received broad cover- age in the specialized economic and The central element of this project was a financial press. Articles on the project training seminar organized by CSD for outputs were published in specialized representatives of the national and daily and weekly newspapers with regional print and electronic media and national distribution, namely Dnevnik held in Sofia on November 20-21, 2001. Daily, Demokratzia Daily, Pari Weekly, It had five sessions, each of which Pari/Capital Market Weekly, Kapital devoted to a major issue area of corpo- Weekly, etc. rate governance (corporate governance 22 and the relationship between sharehold- ers and management, corporate gover- nance and capital markets, corporate governance and governing bodies, cor- porate governance and disclosure of information, etc.). Experts who partici- pated in previous projects on corporate governance and representatives of the relevant state bodies (Professor Bistra Boeva, Chair of the Department of International Economic Relations at the University of National and World Economy, Professor Stefan Petranov of Sofia University who is also Chairman of the Board of Directors of the Zlaten Lev Investment Fund, Mr. Manu Moravenov, Director of Trading Surveillance at the Bulgarian Stock Exchange, Professor Plamen Chipev of the Economic Institute of the Bulgarian Academy of Science, Ms. Ralitsa Again, Chair of the Parliamentary Subcommit- tee on Capital Markets and Securities and Professor Margarita Alexandrova, Member of the State Securities and II. Enhancing the Business Exchanges Commission) made presen- Environment for Foreign Direct tations or moderated the discussions. Investment The participating journalists had the opportunity to share their ideas about CSD has an established track record in how the issues under consideration promoting foreign direct investment could be brought to the attention of a since the beginning of the 1990s. In year larger audience. 2001 it was involved in two projects on this subject in which it worked with The final phase of the project included partners from such countries as France, publication of a series of articles in a , Albania and Macedonia. number of print media, namely the national papers Zastrahovatel Weekly, Pari 1. The Impact of European Union Daily, Pari Weekly, Ikonomicheski Zhivot Enterprise Relocation on Inter-Firm Weekly, the regional Nov Zhivot Daily and Relations in Bulgaria Cherno More Daily, broadcasts of the Bulgarian News Agency, Bulgarian This project has had the following objec- National , etc. As a whole, the tives: a) to explore the impact of cross- involvement of the representatives of the border capital flows on inter-firm rela- media in the project should contribute tions in Bulgaria; and b) to outline the toward a greater clarity of the language increasing role of FDI from EU member- of corporate governance and lead to bet- states in helping accession countries ter understanding, creating a constituen- meet the Copenhagen criteria for EU cy for corporate governance reform and enlargement. To accomplish these objec- bringing life to the principle of trans- tive the project team, led by Dr. Vesselin parency and disclosure of information. Minchev of the Bulgarian Academy of 23

Science and Petkan Iliev of the resentatives of NGOs, consultants, local University of National and World private enterprises and foreign compa- Economy, studied the structure and nies doing business in Bulgaria. The dis- motives of foreign investors in the coun- cussion at the workshop provided sig- try, the characteristics and evolution of nificant material for further analysis trans-European equity cross-border was which further done in the research activities in Bulgaria parallel to the papers by the project team. negotiations for EU accession and the characteristics and evolution of trans- The dissemination of the research find- European non equity cross-border activ- ings included a presentation at the ities in Bulgaria (including subcontract- annual conference of the Center for ing, licensing, franchising, management Economics Research and Graduate and turnkey projects). The following Education – Economic Institute (CERGE tasks were undertaken: -EI) grant recipients in Prague, held on July 22 and 23, 2001, and publication of • macroeconomic, geographical and the research papers on the web site of branch structure statistical analysis of CSD. The project received coverage in outward FDI flows from EU to the ; its outputs Bulgaria; will be used in the preparation of teach- • analysis of the policies for attracting ing materials in economics, business FDI flows to Bulgaria; administration and European studies. • econometric analysis of the determi- nants of the distribution of FDI entry; 2. Foreign Direct Investment in • qualitative analysis and identification Balkan Countries: Alternatives to of the types of European companies Reduce Existing Barriers operating in Bulgaria (companies- leaders and companies-followers); This was an on-going sub-regional pro- • qualitative analysis and identification ject with Applied Research and Com- of the company strategies in the dif- munications Fund’s participation in ferent regions of Bulgaria (“resource which CSD provided expertise and seeking“, “market seeking” and “effi- which was completed in the spring of ciency seeking“ strategies). year 2001. Following up on the project activities for year 2000 which included a As the available information and analy- planning and coordination meeting in sis of the motives and strategies of the Sofia, design of the macroeconomic foreign cross-border initiatives in the indicators for FDI, analysis of the legal country are still insufficient, a survey of framework and a survey of the large 100 EU-based investors in Bulgaria was and medium-size foreign companies carried out to explore equity and non- doing business in Bulgaria, the project equity cross-border ventures as well as team undertook a number of case stud- different types of non-equity contractu- ies and analyzed the environment for al arrangements and the preferred FDI. forms and networks of the inter-organi- zational relationships between the EU- The project team carried out an analy- based MNCs and local enterprises. sis of the survey results which served as a basis for the Bulgarian Country The findings of the field research and Report on Foreign Direct Investment. their initial analysis were reported at a At a workshop, held on March 9, 2001, workshop, held in Sofia on April 25, business, government, media experts 2001, to policy makers, academics, rep- and academics discussed a draft of this 24 report and proposed policy measures was to assess the potential for develop- aimed at reduction of the existing bar- ment of such a gateway in Bulgaria as riers and attracting foreign capital. well as its likelihood of success and potential impact on social and economic On the basis of the country reports pre- development. CSD provided the overall pared by the institutions participating in management of the project in which a the project (Institute for Development number of interested parties (donor Research and Alternatives and Institute organizations, foreign and local busi- for Contemporary Studies, Albania, nesses, government agencies and NGOs) ARC Fund, Bulgaria and Forum-Center formed a coalition in pursuit of common for Strategic Research and Alternatives, developmental goals. Macedonia) a comparative study of the barriers to FDI in the Balkan countries The work included assessment of the was prepared by the project coordinator needs for a Bulgarian Development (IDRA) and reported to a Balkan Gateway (a study of what the stake- Conference on Foreign Direct holders expect from it as well as what Investment, held in Tirana on October they could contribute to it), drafting a 22 and 23, 2001. business plan for launching and sustain- ing the BDG (defining the potential user III. Exploring the Frontiers of communities, their key characteristics “The New Economy” and and information needs, suggest country E-Development through the specific content/services and possible Bulgarian Development Gateway content suppliers, proposing an imple- (BDG) mentation strategy, organizational structure and financial plan) and creat- The Bulgarian Development Gateway ing a special demo site to be tested and (www.bulgaria-gateway.org) represents evaluated by users. The project team the Bulgarian contribution to the World solicited broad feedback on all the pre- Bank initiative of creating a Global liminary elements of the strategy, the Development Gateway as a network of potential gateway objectives and con- country development gateways. The tent components. goals of this initiative are: a) to facilitate the establishment of a virtual community Partnership Building of government, civil society and private sector organizations with common inter- A major element of the preparatory stage est in promoting competitive markets was forging a partnership which would and democracy in a business-friendly be able and willing, one the one hand, to environment; b) to empower the local contribute to the BDG and, on the other development community to use the inter- hand, to take advantage of the opportu- net as a low-cost tool for knowledge-shar- nities presented by the Gateway for fur- ing, networking and collaboration; c) to thering the goals of the individual partic- assist this community by providing links ipating partners. The work in this respect to ideas and good practices, information began with two coordination meetings of about development activities and trends, the BDG Steering Committee, devoted to funding and commercial opportunities; the broad issue of IT for Development and d) to increase global access to locally- and co-organized with UNDP – one with generated development knowledge. representatives of the government, NGOs and the donor community held on In the year under review the preparatory February 15, 2001 and one with represen- stage of the BDG was completed. Its goal tatives of the private sector and business 25 associations, held on March 8, 2001. The ment agencies (Ministry of the Economy, participants in these meetings gave their Ministry of Transport and Communica- support to the idea of a BDG and tions, Ministry of Education, etc.). expressed their willingness to contribute Partnership agreements (Memoranda of in their respective fields of activity. Understanding) were signed with dozens of potential Gateway stakeholders. The To guarantee the success of the initiative BDG management team benefited from CSD worked with individual Gateway the help of the consulting missions of partners, including foreign and interna- World Bank experts (Dr. George tional donor organizations (the World Sadowski in February-March and Bank, UNDP, the European Professor Elias Karayanis in July 2001) as Commission, the US Agency for well as the visits of representatives of the International Development, etc.), pri- Global Development Gateway team vate sector entities and business associ- (Mr. Oleg Petrov in February and ations (Bulgarian Association of Ms. Denisa Popescu in August 2001). Information Technologies, Bulgarian American Enterprise Fund, Bulgarian CSD paid a special attention to partner- Chamber of Commerce and Industry, ship building with other countries’ devel- Bulgarian Industrial Association, Bulga- opment gateways. It hosted a workshop rian Telecommunications Company, for the country development gateway Microsoft, Cisco, Hewlett Packard, etc.), teams from Southeast Europe on July 6-7, NGOs whose activities are related to the 2001 in Sofia. Experts from Romania, issues of development (CED, EPI, Open Moldova, Croatia, Poland, Azerbaidjan, Society Fund, etc.) and relevant govern- Georgia and Bulgaria shared their experi-

Form left to right: Mr. Thomas O’Brien - World Bank Mission Resident Representative, CSD President Dr. Ognian Shentov, and Dr. Boyan Belev - CSD Economic Program Coordinator at the Sub-Regional Workshop of CDG teams from Southeast Europe in Sofia on July 6 and 7, 2001. 26 ence on planning and implementation of coalition was established in mid-1999 to the preparatory phase of the Gateway; promote the use of the internet as a tool they discussed major challenges and pos- for accelerated economic development. It sible common strategies concerning not provides an excellent platform for com- just this phase but also the next stage of bining the interests of various stake- the implementation per se of the Country holders. Based on a distributed content Development Gateway. model, the BDG will consist of two fully functional parts (mirror sites) in Bulgarian Conceptualization of the Country and English, hosted respectively on a local Development Gateway for Bulgaria server and on the central GDG server. The BDG will be built upon two parallel ta- The BDG Task Force prepared a Needs xonomy trees and divided into three main Assessment Report which analyzed the components: background content, deve- need for a country gateway among lopment issues and interactive part. Bulgarian development stakeholders. After holding in-depth interviews with Prototype Development representatives of the relevant govern- ment agencies, private business, NGOs A technical team of the BDG worked on and donor organizations the Task Force developing a prototype on the basis of came to the conclusion that a BDG was which the implementation of the both needed and feasible; the work on Gateway could be based. In close coop- this report also highlighted the expecta- eration with the Global Development tions of the Gateway partners and their Gateway technical team it provided a potential contributions. solution to the complex problems involved in design, template building The Task Force also drafted a Business and web hosting - two parallel servers Plan for the BDG after extensive consul- (one nationally based at Bulgaria Online tations with the individual Gateway and one at the World Bank) are to be partners. Upon its implementation the used. With regard to content design the Gateway is expected to become a point of possible architecture of the BDG was association of development stakeholders agreed upon in May 2001. Updates of in Bulgaria, a forum for cooperation the topics resources on the main gate- among the most active civil society insti- way server were regularly carried out. tutions, private sector interests, public In order to accomplish these tasks the figures and government and internation- technical team held two workshops – al agencies in Bulgaria, a permanent one portal site building involving framework under which different organ- experts on building portal sites, data- izations and individuals can promote base management, e-security, server developmental programs or projects in management, etc. (June 25, 2001) and the field of development. The BDG one on the content strategy involving should help overcome the digital divide experts and content provider partners and existing knowledge gaps as well as for the Gateway (June 29, 2001). introduce good governance based on public-private partnership within the On July 31, 2001 a public presentation of development community. the Bulgarian Development Gateway prototype took place. The Gateway part- The implementation of a CDG in Bulgaria ners expressed their approval for the will be based on an already existing struc- parameters of its design and for the ture – the Internet Alliance for Economic implementation strategy chosen by the Development (www.online.bg/iaed/). This BDG team. 27