Emerging Europe Summer 2018 by Emerging-Europe

Summer 2018

Exodus: Halting the population decline Emerging Europe Awards: Rewarding the regionâ&#x20AC;&#x2122;s brightest and best A View From: Washington, London & Vienna Life in Transition: Working better, working smarter Outlook on Bulgaria: Emerging Europeâ&#x20AC;&#x2122;s surprise package

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INBRIEF Hungarian Prime Minister Viktor Orbán sealed a third term in office as his Fidesz party won a supermajority in parliamentary elections, allowing him to make constitutional changes. Fidesz won 133 of the parliament’s 199 seats, the minimum required for the supermajority, despite winning slightly less than 50 per cent of the vote. The Hungarian electoral system was altered during Mr Orbán’s first term in office, and hugely favours his party. Armenia’s prime minister, Serzh Sargsyan, resigned on April 23 following days of massive street protests. Residents of the Armenian capital, Yerevan, poured out on the streets to celebrate after Mr Sargsyan announced his resignation in an online statement. Hundreds of uniformed soldiers had earlier joined anti-government demonstrators, the 11th consecutive day of protests over an alleged power grab by Mr Sargsyan, a former president of Armenia who amended the country’s constitution in order to transfer more power the the country’s prime minister, only to take the job himself. Robert Fico resigned as prime minister of Slovakia in March, leaving his deputy Peter Pellegrini to form a new government. Mr Fico was forced to resign in the wake of mass anti-corruption protests which followed the murder of a young journalist Ján Kuciak and his fiancée Martina Kušnírová at the end of February. Before his murder, Mr Kuciak had reported on how the ‘Ndrangheta, an Italian crime syndicate, may have bought farmland in Slovakia to collect European Union subsidies with the help of Slovak officials. While prosecutors have said that the murders of Mr Kuciak and Ms Kušnírová were almost certainly carried out by a contract killer, no arrests have yet been made. Azerbaijan’s president, Ilham Aliyev secured a landslide victory in a snap

presidential election that was boycotted by the country’s main opposition parties. Mr Aliyev took 86 per cent of the vote in an election the International Election Observation Mission of the Organisation for Security and Cooperation in Europe (OSCE) called ‘restrictive.’ Mr Aliyev, 56, has led Azerbaijan since 2003. He succeeded his father, Geidar Aliyev, who ruled Azerbaijan first as Communist Party boss and then as a post-Soviet president for the greater part of three decades. This new election victory offers the president a further seven years in office. Ukraine’s economy grew by 2.5 per cent in 2017, the second year of modest growth, according to the World Bank’s latest Ukraine Economic Update. Growth in manufacturing, services, and construction was robust, but weaknesses in the agriculture and mining sectors, together with delays in key reforms to further strengthen investor confidence contributed to the modest overall growth performance. “Decisive measures in the next few months to complete pending reforms to bolster investor confidence and safeguard macroeconomic stability are required,” said Satu Kahkonen, World Bank country director for Belarus, Moldova and Ukraine. Polish and US officials formalised an agreement for Poland to purchase Lockheed Martin's Patriot PAC-3 MSE missiles and related support equipment. Poland joins the US, Qatar, Japan, Romania and the United Arab Emirates in signing an agreement to procure the PAC-3 MSE system. The European Union’s latest report on the current situation in Moldova with regards to its commitments under the EU-Moldova Association Agreement (AA) made it clear that unless more is done to fight corruption, the country may lose out on

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up to 100 million euros of macro-financial assistance. The report assessed the eastern European country’s progress made since the last EU-Moldova summit in March 2017. “Corruption still remains widespread, and independence of justice, law enforcement as well as national anti-corruption authorities need substantial improvement,” read the report. The World Bank Group and Sexual Violence Research Initiative (SVRI) has awarded a 99,500 US dollars prize to an Armenian technology business foundation to help reduce incidents of gender-based violence (GBV). The award, part of the 2018 Development Marketplace for Innovation to Address Gender-Based Violence, will support the Armenian Enterprise Incubator Foundation (EIF) to deploy mobile applications and digital technologies that empower women with real-time expert support and information, and that collect critical data needed to inform policy on a larger scale. The award will also enable EIF to promote dialogue among stakeholders in the field of GBV and ICT professionals. A Romanian court ruled that a 63-yearold man is dead despite what would appear to be convincing evidence to the contrary: the man himself appearing alive and well in court. Constantin Reliu asked the court in the town of Barlad, in north-eastern Romania, to overturn a death certificate obtained by his wife after he had spent more than a decade in Turkey, during which time he was out of contact with his family. The court told him he was too late, and would have to remain officially deceased. “I am officially dead, although I’m alive,” a bemused Mr Reliu told local media outlets. “I have no income and because I am listed dead, I can’t do anything.” •

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FROM THE EDITOR Open the Borders

Emigration is the elephant in emerging Europe’s room. With the catastrophic numbers of people leaving the region (at least from some parts) speaking for themselves, the reaction of governments has been by and large conspicuously muted. Even in countries where there has been an attempt to address the issue, such as Poland, the resulting policies (most notably the 500+ programme, which makes relatively high monthly payments to families with two or more children) have been populist, aimed more perhaps at winning votes in the present and less about redressing the demographic imbalance in the longterm. Besides, the demographic deficit is a problem that will need to be dealt with in the here and now as much as in the long-run. Several countries in emerging Europe are already facing a shortage of workers. While this will help to boost wages and as I wrote in the previous issue of Emerging Europe magazine, the region certainly needs a pay rise – if investors begin to find recruiting workers difficult there is a strong

possibility that growth could slow. When Western Europe has faced shortages – at whatever level of the value chain – it has traditionally turned to migrants. In recent years (as anyone who has visited relatives in a UK hospital recently will know) these migrants – both skilled and unskilled – have come from emerging Europe. The emerging European region itself appears to be less keen on migrants, at least from some parts of the world. Ukrainian Christians, be they Orthodox or Catholic, are welcome (or at least tolerated) in Poland, the Czech Republic and Slovakia, Muslim Turks and Syrians much less so. Viktor Orban’s third successive election victory in Hungary (a victory won on the back of a nasty, anti-migrant campaign) likewise does little to suggest that attitudes will change anytime soon. For all that, migration, as we report in our special feature on the demographic challenge facing emerging Europe (on pages 42-45), is not a panacea for labour shortages. Dealing with the demographic challenge

will require a multilateral approach involving the European Union, local governments, business, civil society and universities. Large parts of the emerging European public will also need to contribute: the days of retiring at 50 on special pensions will have to come to an end. The Silver Economy will have an increasingly important role to play in ensuring that the region’s growth continues and that the path to convergence with Western Europe remains clear.

CRAIG TURP

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PUBLISHED BY Emerging Europe Limited WeWork Aldgate Tower, 2 Leman Street London E1 8FA, United Kingdom

CORRECTION In the previous issue of Emerging Europe we mispelt the name of the Georgian Finance Minister, Mamuka Bakhtadze. We apologise.

T +44 20 3808 8558 W emerging-europe.com E newsroom@emerging-europe.com Head of Content Strategy & Publishing Andrew Wrobel a.wrobel@emerging-europe.com Editor-in-Chief Craig Turp c.turp@emerging-europe.com Editorial team Claudia Patricolo c.patricolo@emerging-europe.com Shakhil Shah s.shah@emerging-europe.com Juliette Bretan j.bretan@emerging-europe.com Tamara Karelidze t.karelidze@emerging-europe.com Yoan Stanev y.stanev@emerging-europe.com Jerry Cameron j.cameron@emerging-europe.com Contributors Linas Jegelevičius Frédéric Schneider Nikodem Chinowski Graphic Designer Radomir Dikosavljevic Video Editor Piotr Dobroniak Photographer Sabrina Bouchaala For advertising and commercial partnerships contact Commercial Director Emiliano Ramos e.ramos@emerging-europe.com

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TABLE OF CONTENTS FOR STARTERS

CURRENT AFFAIRS

In search of emerging Europe’s Macron, on pages 36-37

BUSINESS

Innovation and more, on pages 58-59

LIFE IN TRANSITION

A Balkan success story, on pages 78-80

Food for thought

The Emerging Europe Awards

A view from…

Serbia’s Road to the EU Goes via Kosovo

Emerging Politicians

The Emerging Europe Ranking: Starting a Business

Where is our Macron?

Cambridge Analytica Tried to Recruit Me

Emerging Europe’s Demographic Challenge

There Are Nearly 1600 Cryptocurrencies Worldwide. And Almost No Regulation

Some of This Content is Now Available In Your Country

Wearing Emerging Europe

Creating Places to Both Work and Live

Made in Emerging Europe

Sir Suma Chakrabarti On...

The Future of Work

Decades of Transition: Results, Problems, Challenges

Avoiding the Middle-Income Trap

FinTech–Opportunity or Threat?

United in Content

We Are Aware Society is Ageing, Yet We Do Nothing

EBRD: Country Reports

Green economy at the Heart of EBRD’s Mandate

Crediting Ukrainian Business – Which Collateral to Choose? 10

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OUTLOOK ON BULGARIA

Everything you always wanted to know about Bulgaria is in our outlook, pages 90-118

To invest or not, on pages 110-113

AFTER HOURS

How to spend 48 hours in Klaipeda, Lithuania’s Baltic capital. See page 134

Bulgaria in brief

Maintaining Relationships

For Aerospace Investors, the Glamour is Back

Energising Industry

100

World Leader: Bulgarian Outsourcing

102

Bulgarian Agriculture and Agribusiness

103

Bulgarian Auto: Ripe for Investment

104

Unsustainable Tourism?

106

Easier Than Ever: Getting to Bulgaria

107

Breaking Records: An Outlook on the Bulgarian Real Estate Market

108

Is Bulgaria Really as Corrupt as the Headlines Would Suggest?

110

Feeling Good: FDI in Bulgaria

114

Domestic Demand Still Driving Growth

116

Early Election? Bulgarian Politics

117

Staying Positive: Bulgaria in the EU

118

Bulgaria's EU Presidency: Expansive

122

Arts

124

Post-Soviet Vision: The New East

126

What is Abkhazia?

128

Emptying Abkhazia

132

48 Hours in Durrës: Albania’s Coastal Gem

134

48 Hours in Klaipeda: Lithuania’s Baltic Capital

136

Bringing Polish Flavour to the World

138

Life in Belarus

140

Can’t We All Be Happy? 11

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FOOD FOR THOUGHT A European Generation of Sleepwalkers?

Photo: Aspen Institute Romania

By Mircea Geoana President of the Aspen Institute Romania

In the most commented upon part of his speech in April to the European Parliament, France’s President Emmanuel Macron used the “generation of sleepwalkers” historic metaphor in describing the current

risks facing today’s Europe. He is right, if only partially. Right, in the sense that there is a temptation towards an authoritarian, illiberal Europe. And that some leaders in emerging Europe have - or are about to - succumb to it. And with the horrific communist experience still fresh, this detour from liberal democratic principles is even more difficult to grasp or accept. If this is a clear dead end for Central European nations, Western EU countries have also their share of selective amnesia. When it comes to Russia and its renewed aggressiveness, a growing number of leaders in Europe have the illusion that appeasement - and not containment - is the way to go in dealing with Moscow. That bilateral political or economic deals are preferable to a united European and Transatlantic front. Dealing with the humanitarian and geopolitical crisis in Syria and the

greater Middle East is another case of the dystopian view of the role of Europe in shaping the new world order. The obligation of mutual solidarity is almost non-existent in the case of the refugees coming to our shores from Syria or Afghanistan. Perception of risk and opportunity differ with geography more than the weather forecast. Narrow national or regional historical memory and selective amnesia are not new to politics and public sentiment in Europe. In fact, they were the root cause of centuries of war and devastation and the main reason for the very birth of the unique European experiment after World War II. Waking up from this collective sleepwalking streak in Europe is what the French president was actually calling for. Not only in Budapest or Warsaw but everywhere else where is doubt or temptation that we would be better off playing it alone and not together in Europe.

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Victor Orbán & European Democracy

Photo: Geopolitical Futures

By George Friedman Founder and chairman of Geopolitical Futures

In Hungary, as in the rest of Europe, there are two broad factions. One emerged in the 1990s, following the fall of the Soviet Union and the signing of the Maastricht Treaty. It was a period of enormous hope, in which the deep seated economic, social and ideological problems of Europe appeared to have disappeared. It was an obvious delusion, since centuries of pain are not abolished by good will. Still, the fantasy of a single European reality remained intact, afloat on a sea of prosperity. The year 2008 revealed that there were several Europes and indeed, that the over 50 nation-states that made up Europe retained the power and will to shape their own destinies. There were those nation-states like Germany that benefitted greatly from the EU’s institutions, and others, like Greece which benefitted much less. But Germany’s course was decided in Berlin, Britain’s in London and Hungary’s in Budapest.

The ideological split in Europe did not divide neatly by borders. There were those who felt that the EU, and the ideological principles that seemed so vibrant in 1992, must be at the center of all European nations. There were those who felt that the nation-states — also a foundation of Maastricht, had to have the right to determine their own destinies. The battle ground was over what national self-determination, the foundation of liberal democracy meant. For advocates of 1992 it meant that national self-determination had to be shaped by their principles. For sceptics of 1992 they felt that national self-determination could not be bound by that. Viktor Orbán was the among the first who made the latter claim. The most popular leader in Hungary, he recently won another election on an unambiguous platform of nationalism. His opponents, fragmented and ineffective, felt that his election was illegitimate. They cited various reasons but the true reason was that a person with his values could not be permitted to be a European leader regardless of the vote. Two factions have arisen in Europe: a nationalist faction seeking to return power to Europe’s capitals, and a Europeanist faction committed to pan-European liberal democracy. It is the paradox of this faction that in election after election, from Brexit to Budapest, they now have to challenge the legitimacy of the electoral process in order to delegitimise the fragmentation of Europe. They claim that the winners must have lied, been corrupt, or their supporters ignorant. In their view a vast army of the ignorant threatens European enlightenment. The dread that democracy is threatening liberalism has swept the supporters of the EU. Since they must support democracy, they must delegitimise the outcomes that frighten them.

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Emerging Europe

on the global stage

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There are great things happening in the countries of central and eastern Europe, but the world doesn't often get to hear about them. That is why we're launching The Emerging Europe Awards to highlight best practice and promote social and economic growth in the region. The inaugural edition takes place at the headquarters of the EBRD in London on 22 June. In the world's financial capital, the diverse achievements of cities, regions, businesses and organisations in emerging Europe will be brought to the attention of the international investment community. 15

The Best of

Emerging Europe

The categories of the Emerging Europe Awards are designed to acknowledge local authorities, businesses and initiatives which have demonstrated excellence in three main areas: raising awareness, social progress and economic development. The winners will be chosen by juries made up of senior figures who know the category in question well, and will be announced during the Awards ceremony in London.

investors. From this study, a full report will be published which will present the strengths and weaknesses of these crucial agencies across the region. City FDI Promotion Strategy of the Year

Here's a lowdown on each of the categories:

National Investment Promotion Agency (IPA) of the Year

It's the all-important job of the IPAs to help attract investors to their respective countries and to make sure that these investors get all the knowledge and information they need to make an informed decision. In essence, they must be a welcoming and resourceful one-stop-shop. Emerging Europe specialists are undertaking a comprehensive analysis of each of the IPAs, assessing their communications channels to see how they present their country to international investors, analysing enquiries made to the individual IPAs, and garnering feedback from recent

It's no less important for cities to attract FDI investment, thereby creating jobs for their inhabitants, improving prospects for their young people, and raising the living standards of the entire city. Competition between cities is intense, both in their own countries and on an international level, so their strategies for achieving maximum investment need to be well-crafted and specific to their strengths and opportunities. This category assesses the creativity, effectiveness and success of those strategies. Tourism Campaign of the Year

The emerging Europe region has a culture that is rich and diverse, with a

history no less exciting — you could travel for years without seeing even a fraction of what there is to be seen. In such a competitive climate, tourism campaigns have to stand out and grab one's attention. They have to break out of the shadow created by top European destinations such as Paris and Rome. The emerging Europe region offers attractions off the beaten track – there’s a lot to discover that’s unconventional and unique. We’re looking for campaigns that capture this spirit, and that get the message out in many languages and through different platforms. Young Empowerment Initiative of the Year

The emerging Europe region's richest resource is its young people. Well-educated and with a wealth of knowledge they are eager to share, and you would be hard-pressed to find any other area on the globe where the upcoming generations are so talented, motivated, creative and ambitious. They are hungry for the ability to compete with global markets but sometimes they need support, and this category recognises initiatives which help to give youth a voice and a platform from which they can be seen and heard. We’re looking for initiatives that help shape the leaders, creators and entrepreneurs of tomorrow.

Equality-Friendly Initiative of the Year

If central and eastern Europe is to reach its full potential, the ground must be level for everyone, regardless of gender, ethnicity, religious belief or sexual orientation. We all have something to learn from people with different cultures and alternative viewpoints. Inclusiveness leads to more ideas and initiatives across a wider audience and is beneficial to both the workplace and the community. In this regard the region still has some way to go, which is why we are shining a light on projects which teach tolerance and open-mindedness.

Renewal Project of the Year

Years of neglect and under-investment across the region during communist times, and the lack of resources to renovate them since, have left many projects and locations in desperate need of restoration. Yet things have been changing in recent years, led by ambitious municipalities and resourceful developers, resulting in fantastic projects of renewal. We want to bring these projects to the attention of a wider audience, thereby providing inspiration to others to do the same. Social Impact Start-Up of the Year

If emerging Europe is to truly reach its full potential, the region needs strong companies which are not only preeminent in their local markets, but are also strong on the international scene, selling or distributing to markets across the world. One of the upsides of globalisation is that when a company has a good product or service, with the ambition and resourcefulness to back it up, the world is literally its oyster. This category recognises and rewards companies for whom open borders are invitations to succeed. FDI Project of the Year

Research & Development Programme of the Year

It's no longer enough for emerging Europe economies and businesses to copy the methods and ideas of others in their efforts to catch up with their western counterparts. They need to come up with ideas for themselves. The importance of R&D in the future economic landscape of the region cannot be over-stated, which is why we are highlighting programmes which stand out from the crowd and are helping to raise the region to a higher level of enterprise.

Global Market Champion of the Year

This is the golden age of start-ups, and in this field, while their more established counterparts in the west got a headstart, newcomers in central and eastern Europe have been gaining ground rapidly. Technology does not respect national borders, so a start-up in Ukraine or Serbia can now expect to find buyers and investors anywhere on the globe. The future is bright for emerging Europe in this field: most start-ups are geared towards making money, and thereâ&#x20AC;&#x2122;s nothing wrong with that. But this category looks for enterprises which make bettering society and working for the common good their main objectives.

Foreign direct investment has been the fuel powering the engine of growth in the CEE region over the last few years. While itâ&#x20AC;&#x2122;s essential that businesses nurture their own capital and that regional companies expand across the goal, FDI remains an integral part of the economies of emerging Europe. But smarter and more sustainable development is now key. This category assesses recent investment projects which have had a real, positive impact on the country or local area in which they have been implemented or completed.

Emerging Europeâ&#x20AC;&#x2122;s Contenders sleepy BOTTLE

version 1 for light backgrounds

version 2 for dark backgrounds

These are the countries, regions, cities, companies and organisations making emerging Europe the dynamic, increasingly successful place it is. Not all will take home an Emerging Europe Award on June 22, but they are all doing great things. For a complete list of nominees, please go to awards.emerging-europe.com/nominees

SAVE. PLAY. LEARN.

Award-Winning Design Claudia Patricolo The story behind the Emerging Europe Awards trophy

ing Europe Awards. “And it has a striking simplicity and elegance.” “The 23 lines, not yet perfect, not ideal, but aspiring to be better, represent the 23 countries of Emerging Europe, each with their challenges and obstacles but all quickly pushing on with pride and hope towards the future,” says Andrew Wrobel, head of content strategy and publishing at Emerging Europe. “At the same time, the lines are interlaced and interweaved, just like the region’s history,” he adds. “Borders have moved north and south, east and west. But most importantly, these countries have drawn together, because they believe that their strength lies in being united and supported by each other. It is the only way for them to be able to prosper.” Barbara Szőke and Bálint Szalai’s design was chosen out of nine submitted by students from six emerging Europe countries.

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Two Hungarian students from the Moholy-Nagy University of Art and Design in Budapest, Barbara Szőke and Bálint Szalai, have won the Emerging Europe Awards Trophy Contest. “First, we did some research about the organisation's activities. Based on this, we shared Barbara Szőke & Bálint Szalai ideas and set off in one direction, but somehow -we felt it was not the form that we imagined. Luckily, we had the courage to resume the idea and find the& ultimate solution. was a good Glass Design Product Design MA It students tool for turning our thoughts into form,” Ms -Szőke tells Emerging Europe. “I believe designing is like being in a playMoholy-Nagy of Art and Design ground and University playing with different toys. BarBudapest, Hungary bara has already successfully participated in some competitions to design awards, and it is always fascinating to conceive a new one. Nevertheless this project was our first cooperation, which proved to be a good experiment for us,” Mr Szalai adds. “The idea behind the design is excellent and it ref lects everything the awards are about,” says Richard Stephens, director of the Emerg-

Hello! We are...

Barbara Szőke and Bálint Szalai

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The Emerging Europe Lifetime Achievement Award: Günter Verheugen

Photo: Günter Verheugen

Günter Verheugen, the laureate of the Emerging Europe Lifetime Achievement Award, is the former European Commissioner for Enlargement (1999-2004), Vice-President of the European Commission and Commissioner for Enterprise and Industry (2004-2010). An enthusiast of the European Union’s eastwards expansion, he was tasked with overseeing the EU’s enlargement process and consequently presided over the accession of ten new member states in 2004.

“On May 1, 2004 - in other words 59 years after the end of the Second World War - Yalta and Potsdam will finally be laid to rest. It is a great historic moment for us all, not least because, in so doing, we shall be making good a great debt to [the] nations of Central and Eastern Europe which began in Germany. If Bulgaria and Romania also come to join our ranks in a few years’ time, the profound historic significance of this enlargement will have been fully realised. For this enlargement is more than just another stage in the history of European integration. It is a great commitment for the future, a commitment for a Europe of peace, stability and security, for a Europe of equal opportunities, for a Europe which is strong in values, for a

Europe which is strong in its diversity, with living traditions and cultures, for a Europe which offers its inhabitants a secure homeland and represents assistance and hope for other nations. Now, with the impending enlargement, we can really concentrate on accomplishing the European idea of justice between people and nations, an idea to which Europe only began to give form as a reaction to the enormous human suffering caused by two world wars and the scourge of Nazism. The year 1989 was one of radical change that finally drew a line under Yalta and Potsdam. The opportunity arose for a new beginning, for the real unification of a large part of Europe. Nineteen eight-nine was only 15 22

years ago, but the face of our continent could hardly have changed more fundamentally than in this historically short period of time. And once again it was above all the people of Poland and other Central and Eastern European countries who rolled up their shirtsleeves and set about renewing their societies in order to offer themselves and us a new future. From the very outset, the reform objectives of all the Central and Eastern European States also included equal membership of the EU. And who was it who in those early years repeatedly stated loudly and clearly that they too belonged, they too were also a part of Europe, albeit the forgotten part? Who was it who strove so resolutely to secure their rightful place in European integration? It was the Poles, the Hungarians and the Czechs. They knocked at the door of the Union and, in 1993, after four years of insistent knocking, the Union finally decided in favour of the membership option and formulated the conditions for EU membership. This is a historical milestone. It lies in the certainty that we all, the 25 peoples of 25 states, henceforth belong together, for better or for worse, and that this belonging together is in order to serve a shared greater objective: the prosperity of our continent in peace and stability.” Excerpts from Günter Verheugen’s speech in Szczecin, Poland, on March 4, 2004, two months before ten countries, including eight emerging Europe nations, joined the European Union.

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From Our Correspondents From Our Special Correspendents: Cultural nuggets from our team across emerging Europe.

Craig Turp

ing to and, in Bulgaria, how you consent. Bulgarians shake their head to mean ‘yes’, and nod to mean ‘no’. Arguably the most feasible theory explaining this is that it was a way for Bulgarians to mislead their Ottoman overlords. The Turks would ask the Bulgarians if they would give up their Orthodox faith, holding knives to their throats. If the tortured shook their heads, they would be executed. Therefore, the Bulgarians decided amongst themselves to reverse the meanings of the head gestures – shaking the head to mean ‘yes’ and nodding to mean ‘no’. Thus, seemingly, they would agree to change their faith, but deep down they would express their refusal.

Consent is vital. Especially in a world with scandals, such as Cambridge Analytica. You must know what you are consent-

While I was walking in the streets in Hungary this Easter, finally enjoying the

Romanian grandmothers have a certain propensity to overdress their young charges. It's all to do with protecting them from the dreaded curent (draughts), which in this part of the world are thought to be responsible for all sorts of nasty illnesses. As such, on a recent unseasonably warm day (well over 20°C), we heard a grandmother order her young grandson to put his thick winter hat on as he left school. "But why?", protested the child, "it's really hot. I'm really hot." The grandmother's answer? "I know dear, but it's still March." There you have it. It's not the temperature that counts, but the date.

Yoan Stanev

sun and the warm temperatures, a group of guys my age suddenly started to whistle and tell dirty jokes. “Boys”, I thought, “no matter in which country you live, they are all the same.” In fact, it was just an old Hungarian courtship tradition. On Easter Monday, the men ask women permission to “wet them,” sprinkling perfume and reciting sexual poems. This old habit originally involved young women of marriable-age who would be happy to be “sprinkled” by as many potential suitors as possible. In return, they gave the men decorated painted eggs. Learning about different cultures is the best part of living abroad, so I fully enjoyed this particular tradition. My three “suitors” a little bit less, as they received an ugly Picasso-style painted egg. Claudia Patricolo

Current Affairs

The parliament building in Yerevan, Armenia. The building was the focus point of vast public demonstrations against the election of former president Serzh Sargsyan as the countryâ&#x20AC;&#x2122;s new prime minister. He resigned on April 23.

CURRENT AFFAIRS

A VIEW FROM... ANDERS Ă&#x2026;SLUND

Anders Ă&#x2026;slund is a senior fellow at the Atlantic Council in Washington and the author of two books about Ukraine.

Washington Kyiv. The new conventional wisdom is that four years after Maidan, reforms have stalled in Ukraine and corruption has consumed the leadership. But this picture is hardly true. Certainly, the economy has stabilised, but economic growth stopped at 2.1 per cent last year. Yet a broad reform agenda is still proceeding, though everything is contentious. The most striking impression from one week of intense meetings with senior policymakers and businessmen in Kyiv is that every issue is contested. The many conf licts slow down the speed with which things move forward, but they also block reversals.

Open and transparent Ukraine is a remarkably open and transparent society, making it easy to figure out what is going on, while the drama is multifaceted and complex. Nobody seems to be afraid. A lively and competent civil society usually starts the criticism and comes up with concrete reform proposals. The Cabinet of Ministers is divided on almost every issue between reformers and those preferring to make money on government. Wealthy businessmen dominate the parliament, but even so the parliament promulgates surprisingly reformist laws. Ukraine has not

stopped. It is fighting its internal battle over reform or corruption. The political options remain open. Ukraine is scheduled to have presidential elections in March 2019, and parliamentary elections in October 2019, though the latter can be moved forward. President Petro Poroshenko wants to stay on for another term, but the latest poll put his rating at a miserable 12.7 per cent, while former Prime Minister Yulia Tymoshenko leads all polls, though only with 15.2 per cent. Ukrainians keep all institutions apart from the military and the church - in low esteem. Kyiv is a lively place. Few places have so

CURRENT AFFAIRS

many protests, because there is a lot to protest about. Last October, a major public manifestation in Kyiv set the political agenda for the current debate. Ukrainians oppose corruption and demand the rule of law, which tops the political agenda. Therefore, the first popular demand is the establishment of an independent corruption court, the second is for proportional parliamentary elections, and the third the abolition of parliamentary immunity. The divide is clear On September 15 last year, Poroshenko made an impressive speech on foreign policy at the annual Yalta European Strategy Conference in Kyiv, but when responding to a question about the formation of an independent anti-corruption court, he stated it was necessary. He preferred an anti-corruption chamber within the ordinary court system, but presently the courts are pervasively corrupt. The next day, Prime Minister Volodymyr Groisman stated softly that he did not oppose an independent anti-corruption court. The divide was clear to all. In parallel, Ukraine was pursuing a complex judicial reform. A civil society body evaluated that one-quarter of the more than 114 new Supreme Court judges had tainted integrity, but even so last November the president swore in all but one of them. Apparently, corrupt behaviour did not preclude anybody from being appointed to the Ukrainian Supreme Court. The botched judicial reform has con-

vinced Ukraineâ&#x20AC;&#x2122;s reformers and the international community that the formation of a truly independent anti-corruption court is vital. Just before the Christmas holidays, Poroshenko submitted his much delayed proposal to parliament. Three weeks later, the International Monetary Fund, the World Bank, and the European Union each presented very similar criticism of the draft law. It would not make the judges independent, sufficiently many, or give them the relevant jurisdiction. Poroshenko passed on the responsibility to parliament. On February 28, the parliament voted for the draft law on the anti-corruption court with a large majority. The question is whether the parliament, through its amendment, will make the court truly independent. Reform is possible In January the Ukrainian parliament, to general surprise, also passed a draft law on proportional elections in a first reading, showing that reform is possible. The reason for the strong demand for the abolition of parliamentary immunity is the many dubious businessmen in the parliament who hide there from prosecution. The international community maintains strong leverage in Ukraine. Unless the country receives IMF financing, it can hardly get through 2018 without a major depreciation of the Ukrainian hryvnia, which would be devastating in the 2019 elections. Politically, Ukraine needs Western support against Russian military aggression. This is well under-

stood in Kyiv. As usual, the IMF has a brief but firm reform agenda. Its foremost demand is an independent anti-corruption court, followed by an alignment of domestic gas prices with international prices. Next comes the legalisation of private sales of already private agricultural land. Macroeconomic policy, the traditional IMF focus, is much less controversial, since the central bank and the ministry of finance remain bastions of reform. Stability takes hold The battle for and against reform is going on every day. Macroeconomic stability has taken hold and can be defended, and Ukraine has proven that it can stand up against Russiaâ&#x20AC;&#x2122;s military aggression. But the victory will not be safe until rule of law has been established so that Ukrainians can trust their property rights to home and land. The West cannot reform a country without domestic support, but in Ukraine there is strong popular support for sensible reforms. The West needs to offer sufficient conditional support and engagement to the good causes so that the balance can tip to victory for the reformist circles. In Ukraine, Europe and the West can stand up and deliver or fail. This is the joint front against corruption, state capture, and Russian aggression, all in one. The West had better win this battle, but then it needs to engage fully, offering more financial support, albeit with strict conditions.

CURRENT AFFAIRS

RICHARD GRIEVESON

Richard Grieveson is an economist at the Vienna Institute of International Economic Studies (wiiw).

Vienna Several issues are set to make negotiations for the EU’s next Multiannual Financial Framework (MFF), which will run from 2021 to 2027, even more difficult than usual. First, Brexit will blow a hole of at least 7-8 billon euros per year in the budget (in gross terms, around 12 per cent of total national contributions to the budget came from the UK in the five years to 2016). Second, many wealthier countries in Western Europe, including Austria, are less inclined to send big transfers east owing to concerns over the rule of law, corruption and refusal to participate in refugee relocation schemes. French president Emmanuel Macron wants to introduce more conditionality in EU fund payments, targeting countries engaged in tax or social dumping. Third, there are grumblings about the targeting of EU funds: some would like to reduce spending on the common agricultural policy (CAP), for example. In 2016, 42 per cent of total expenditure from the EU budget was on

‘sustainable growth: natural resources,’ mainly subsidies for agriculture. Fourth, some are hopeful of finding new ways to generating more revenue, such as greater tax-raising powers at the EU level. In 2016, only around 14 per cent of EU revenue came from its ‘own resources’ (mostly customs duties). All of these issues create divisions between member states, but perhaps the most serious is how to fill the post-Brexit budget gap. It is far from assured that all other wealthy countries will simply increase their own contributions. France and Germany have accepted that they will need to do so. However, Austria, Sweden, Denmark and the Netherlands—the so-called ‘frugal four’—have rejected this. If the UK gap isn’t filled, EU-CEE will lose out. For the bloc’s newer member states, the EU budget is a big deal and a key contributor to economic growth. Something has to give. Many see the position of the frugal four as an initial bargaining

There is no description.

position, which will eventually result in the typical EU fudge that allows everyone to claim victory in front of their domestic media and electorate, while also preserving transfers to EU-CEE at something close to current levels. It may well be that Austria and its allies eventually back down and explain to their populations that they had to under German pressure. Crucially for Austria (less for the rest of the frugal four), if transfers east are cut and growth dips in EU-CEE, the domestic economy will be hit hard: Austria has extensive trade and investment links with EU-CEE. The EU is famous for being able to find space for compromise, even with apparently irreconcilable positions. In the case of the EU budget, however, as for many other intra-EU debates in recent years, this appears to be have become more difficult. Hopes that following the UK’s exit from the EU, negotiations within the bloc would become easier have already been forgotten.

CURRENT AFFAIRS

London Central and eastern European governments should start viewing their émigré compatriots in the United Kingdom as conduits of diplomacy and not only as a long-lost workforce. They should empower their respective communities in Britain to strengthen political, economic and socio-cultural between the region’s counties and the post-Brexit UK. There are around one and a half million central and eastern Europeans from EU countries currently living and working in the United Kingdom, most of whom come from Poland, Lithuania, Latvia, Slovakia, Hungary, and the Czech Republic (the A8), but also many from non-EU countries. In the run-up to Brexit vote, these for the most part motivated and upwardly mobile individuals, have become political scapegoats in the UK. In their countries of origin, their departure (despite ongoing remittances) has been bemoaned as a brain drain and many CEE governments have implored them to ‘come back’. While many CEE (EU) nationals

may migrate to the UK before the expiry of their Treaty rights in December 2020, in the medium to long-term Brexit will undoubtedly mean that fewer people will move. However, the ones already in the UK are here to stay (as evidenced by the work of the Centre of Migration Research at University of Warsaw). However, seeing EU migration as a zero-sum game is not only wrong by also counter-productive from the perspective of the region’s countries. Most CEE migrants in Britain operate in what sociologists call transnational spaces. Namely, they live and work in the UK while retaining strong familial, cultural and often professional links with the sending countries. They are taxpayers in the UK, but send a vast amount of money to the region through remittances. They are fairly well socially integrated into the UK, and serve as informal ambassadors of their homelands. Many are moving back and forth between the region and Britain. For the around 1.5 million that will become eligible

ROCH DUNIN -WĄSOWICZ

for Settled Status in the UK post-Brexit these physical and symbolic exchanges will carry on as robustly as now. Hence, CEE governments need to empower the migrants’ civil society in the UK to reap the benefits of their strong standing in Britain multicultural society in the future. While the UK may be leaving the EU, its youth is largely pro-European (as evidence by LSE’s Generation Brexit), and Britain is unlikely to sever ties with the EU drastically, and it may even return to the fold in one way or another in a not-so-distant future. And since the Europeanised reality of Britain’s society is here to stay, for the countries of central and eastern Europe these are and will be their migrants that can help facilitate close relationships with the post-Brexit UK.

Dr Roch Dunin-Wąsowicz is a sociologist and a research officer at Generation Brexit (www.generationbrexit.org) - London School of Economics and Political Science.

CURRENT AFFAIRS

Serbia’s Road to the EU Goes via Kosovo Craig Turp The EU Summit on the Western Balkans, to be held in Sofia on May 17, was meant to be the showpiece event of Bulgaria’s presidency of the European Union. It may still have an impact of the future of region, but recent events in Kosovo have placed a cloud over both the summit and the EU’s entire Western Balkans strategy.

there will be no membership of the European Union until an accommodation is reached with Kosovo, the former Serb province which declared independence in 2008. Serbia’s ongoing refusal to recognise the independence of its former province - something endorsed by most, though not all, EU states - is just one example of intractable regional disputes that threaten the Western Balkans’ EU integration. A credible perspective The European Commission’s strategy sets out what it calls “a credible en-

largement perspective for the Western Balkans.” It confirms the European future of the region as a geostrategic investment in a stable, strong and united Europe based on common values. It spells out the priorities and areas of joint reinforced cooperation, addressing the specific challenges the Western Balkans face, in particular the need for fundamental reforms and good neighbourly relations. “Investing in the stability and prosperity of the Western Balkans means investing in the security and future of our Union,” said European Commission President Jean-Claude Juncker. “Although there will be no further en-

Photo: BigStockPhoto

he language used by the European Commission in its latest Western Balkans strategy, published earlier this year, was as diplomatic as you would expect from an organisation that takes great pride in trying to appease just about everyone: “A strong and sustained political will is necessary to reach consensus on the substantive reforms necessary on the rule of law, and the economy, to promote reconciliation. This needs to be underpinned by comprehensive normalisation of relations with Kosovo.” While making no mention of recognition, the message for Serbia was clear:

Photo: BigStockPhoto

CURRENT AFFAIRS

largements under this mandate, this strategy charts a European path ahead for the Western Balkans. With strong political will, real and sustained reforms, and definitive solutions to disputes with neighbours, the Western Balkans can move forward on their respective European paths. Whether this is achieved will depend on their objective merits. The European Commission will be rigorous but it will also be fair. We have a clear message: keep reforming and we will keep supporting your European future.” 2025? While the Commission’s strategy covers all six Western Balkan states, Montenegro and Serbia – which have both already begun formal accession talks – have been singled out as the only two countries currently capable of full EU membership by 2025. Indeed, the strategy explains the steps that need to be taken by Montenegro and Serbia to complete the accession process by 2025. Montenegro needs to achieve concrete results notably in the area of rule of law and the fight against corruption and organised crime. For Serbia, that means an accommodation with – if not outright recognition of – Kosovo. Two incidents either side of the release of the Western Balkans strategy have thrown Serbian-Kosovan relations into a renewed period of tension, however. In the first, Oliver Ivanović, a prominent Kosovo-Serb politician, was assassinated by unknown perpetrators on January 16 in North Mitro-

vica. Then, at the end of March, Marko Đjuric, Serbia’s chief negotiator in Kosovo, was arrested in Mitrovica and deported from Kosovo. “Both incidents show the fragility of the situation in Kosovo,” said Milan Antonijevic, from the Belgrade-based Lawyers’ Committee for Human Rights (YUCOM). “The government in Pristina needs to show some good faith – investigating these incidents properly would be a start. They have to win the trust of the Serb population of Kosovo, because people in the Serb areas are frightened.” Mr Antonijevic was one of a number of senior figures from Serb civil society who met with Serb President Aleksandar Vučić in the wake of Mr Đjuric’s arrest and deportation. “The most positive thing we took from the meeting was the fact that the president is aware of how important it is to avoid a frozen conflict in Kosovo,” he told Emerging Europe. “Preservation of the current situation would be the worst possible outcome for the Serbs who live there. Any kind of step forward within the framework of negotiation will benefit the Serbs: their human rights, their protection. The closer we get to signatures on a final agreement the better it is for Serbia, and the better it is for Serbs in Kosovo.” No clear path Kosovo itself is viewed by the European Commission as having the opportunity to make sustainable progress through the implementation of the Sta31

bilisation and Association Agreement which entered into force in April 2016. However, that the Commission’s strategy neglects to outline a clear path to membership for Albania, Bosnia, Kosovo and Macedonia has been criticised in some circles. “Kosovo, as an integral part of the mosaic making up the Western Balkans, needs to be treated as an equal with the other five partners in the region, in the European Union's plans to enlarge in this non-EU pocket of Europe,” said Bekim Collaku, chief of staff to the president of Kosovo and a former minister for EU Integration. Milan Antonijevic believes that Kosovan civil society has a role to play. “In Serbia we have organisations who are ready to discuss any outcome,” he says, “even if it means being called traitors. I was first called a traitor 20 years ago. This is not something which is true about the Kosovan side.” With regards to the other Western Balkan states, the Commission views Albania and Macedonia as having made significant progress on their European path and the Commission is ready to prepare recommendations to open accession negotiations, on the basis of certain conditions being fulfilled (in Macedonia’s case this includes resolving its dispute with Greece over the name Macedonia, something it currently appears set on doing, despite opposition amongst large sectors of Macedonian society). Bosnia, with sustained effort and engagement, could become a candidate for accession. It submitted its application in 2016. The Sofia summit (which Spain, worried about Catalonia, may yet boycott: it does not recognise Kosovo nor the EU’s Western Balkans Six format) offers a real chance to the countries of the Western Balkans to set about fostering a lasting commitment to mutual trust and cooperation. The future of the region may not be decided at the summit but it will at least focus minds – particularly in Belgrade and Pristina - on the next steps that all countries must take in order to create the conditions under which they can begin to finally move forward. •

CURRENT AFFAIRS

Emerging Politicians Eva Maydell

Eva Maydell is a member of the European Parliament. She is President of the largest organisation of associations and civil societies in Europe - European Movement International, ambassador of the European Commission´s e-skills for jobs initiative and co-founder of Education Bulgaria 2030. Eva´s work has been recognised by the Financial Times, which included her in the "New Europe 100", ranking the CEE´s brightest and best who are changing the status quo through their ideas and innovative solutions.

Since Bulgaria became a member of the EU, remarkable progress has been made towards building a modern European country with a strong economy and a balanced budget. Bulgaria is also manifesting its capacity to be a key player in European politics, especially with the ongoing Bulgarian Presidency. I am convinced that the government has the ability and the willingness to deliver long-lasting solutions and concrete results. One of the most important priorities of the Presidency is to put back on the agenda the situation in our closest neighbouring countries from the Western Balkans. By prioritising regional cooperation and developing good neighbourly relations with the Balkan countries, we hope to be able to engage them as a reliable partner on topics of great importance such as security, migration and connectivity. The Bulgarian Presidency is also a chance for European nations get to know more about Bulgaria beyond the clichés. While there are still a lot of challenges to overcome, the government is doing an excellent job to these ends and I am sure that Bulgaria will leave its mark in the history of the EU via successful management of EU politics. It is worth pointing out that the EU’s approval rate in Bulgaria is among the highest, because Bulgarians see and live the Union’s positive outcomes every day. Nevertheless, Bulgarians do not take EU membership for granted but we value the freedom and responsibilities it carries. I am a passionate European and my projects are mostly related to quality education, successful digitalisation of the EU, and the creation of a more competitive business environment. Being optimistic about our European future in this fast-changing world, I think we should re-invent Europe, as we have been always doing. It is our common responsibil-

ity to ensure a more secure and prosperous European Union. As a member of the European Parliament and President of the European Movement International, I would like to steer the debate, to make sure we hear out the authentic ideas of citizens and implement them in our work. The EU has to become a true citizens’ union because Europe’s future will be very much built on the opinion of its people. In this regard, we should take a closer and more targeted look at what is important for people. It would be great to engage young people in the European project. This will be my personal project in the near future. Through a reformed educational system, we will give young people opportunities to achieve more. In today’s Europe there should be no boundaries in education. The creation of new skills is of utmost importance because we should respond to the demands of the dynamic European economy of tomorrow and provide young people from different backgrounds with the right skills. In order to do this, we will need to be more f lexible, highly computer-literate and cognisant of the business potential new technologies provide. I also would like to see also more women taking leading positions in science, politics and technologies. The generation now is the most-connected and has more opportunities to drive change than any other generation before. We need to use this empowerment. I experience and live politics through its European dimension. Being passionate about Europe, all my efforts are concentrated in making the project more ambitious. Europe is the most attractive place to live worldwide and we should be really proud of this fact. It is important however to know how the EU resonates locally and what concrete results its policies bring to the citizens. We should regain trust and restore people’s confidence in our common future. •

CURRENT AFFAIRS

Vladimir Jokić Vladimir Jokić was elected president of Kotor Municipality in February 2017. He is the youngest president of the municipality in the modern history of the city. Born in the city he graduated from the Law Faculty of the University of Belgrade, he practiced and trained at Ernst & Young Belgrade in 2012 on work related to labour, economic and tax law. From 2010 to 2014 he worked as a lawyer in the Petkovic advocacy office in Belgrade where he specialised in the fields of economics and sport. Since 2012 he has been a co-owner of the ABPM Sport Agency, which provides consultancy in sports, law and economics and develops internet start-up projects.

Managing politics in your twenties, although not uncommon, is still rare in Western societies, especially when somebody in his late twenties takes over the function of Mayor of one of the country's most important cities. The rule is that a person first demonstrates his abilities in society through his profession. After that, through political action for the general good, he can repay his debt to society. The situation in Montenegro is unfortunately such that if my own generation or those near to it do not take the initiative, the final breakdown of an already collapsing society may happen. In my case, dealing with formal politics, through activities in the political party and electoral processes, was a logical sequence after informal but essentially political activities - public activism, blogging and other types of political engagement. Political, social activism, the struggle for the democratisation of society and the establishment of a legal system through the strengthening of institutions in a country which never in its history saw a democratic change of power and has been in the hands of a single man for 28 years - Milo Djukanovic and his Democratic Party of Socialists – is, in my deepest belief, the obligation of every citizen. For all these reasons, I decided to formalise my political struggle through activism in the Democrats. After the elections in October 2016, as the president of the strongest party in Kotor, I was elected the youngest mayor in the modern history of the city. Nevertheless, being a mayor who opposed the central government brought enormous difficulties in the functioning of the local administration. Kotor is a city that represents Montenegro's gateway to the world and is a UNESCO protected site. My mission is to strengthen its position as the country's most valuable city (70 per cent of the country's cultural heritage is located in Kotor) and as a meeting point of the region and the rest of the world. In April, Kotor was visited by representatives of Québec, Brussels, Kyoto, Vienna

and other World Heritage Cities, while the mayors of Dubrovnik, Mostar and Ohrid accepted my invitation. Finding the balance between the development and preservation of natural and cultural heritage, which by the rating of the world is of a unique value, is certainly one of the biggest challenges that I’m facing. Smart planning, sustainable development, creative industries and the development of a knowledge-based society are the basic directions on which we plan the strategic development of Kotor, in order to create the conditions in which the citizens of Kotor will feel equally satisfied performing their daily activities as investors will through their businesses. Only if both sides are satisfied we can say that we are all benefiting. Being recognised as a leading destination for cruise ships, we offer our guests a quality experience while trying to fulfil the expectations of both citizens and tourists with appropriate infrastructure, which is not an easy task knowing that the city's infrastructure was planned for twenty thousand inhabitants: Kotor was visited by over half a million cruise ship tourists last year. Such an interest is understandable in the light of the fact that Kotor is a UNESCO city located in one of the 25 most beautiful bays of the world with its fortress of St. John being further proclaimed part of the UNESCO heritage. Having all this in mind, I will not be immodest when I say that being the first citizen of Kotor, a city with two millennia of history, is the greatest privilege in all Montenegro. Openness to the world, and the greatest commitment to strengthening institutions, rules, procedures and a legal system based on fairness are the values of the public policies I represent. I believe that such activism shall leave a mark and change the paradigm of Montenegrin politics in such a way that the main motive for dealing with the politics of new generations will be the obligation towards the development of society and responsibility towards citizens. •

CURRENT AFFAIRS

The Emerging Europe Ranking: Starting a Business Shakhil Shah Whether you are an international company looking to start a business abroad or a local investor trying to start your own company, it is important to know the basic processes and times needed to do so in any country. Always looking to do our bit to help, we at Emerging Europe have created our own ranking system designed to show which countries in our region make it easiest to start a business. Foreign direct investment is important for all economies to grow and expand. Not only is it important for the receiving countries, but also for the companies looking to start businesses and expand their operations abroad, to take advantage of untapped markets, lower operating costs or purely to enter a new market. In many ways starting a business in a new country can be quite daunting task even for the most seasoned of companies. Having waded through a number of reports on the subject, we have come up with our own ranking on just how easy starting a business in emerging Europe really is. Methodology Our rankings are based on the World Bank Doing Business Report 2018 (DB 2018) and Transparency Internationals Corruption Perceptions Index 2017 (CPI 2017). We have taken the Starting a business data from the DB 2018 report, which covers areas such as the number of procedures needed to start a business, time (in days that it takes to start a business), the cost (per cent of income per capita that is needed to start a business), and the minimum capital (per cent of income per capita) needed to start a business. In addition to that we looked at the scores that the countries in the region received from the CPI 2017 report, which ranks 180 countries and territories by their perceived levels of public sector corruption according to experts and businesspeople, and which uses a scale of 0 to 100, where 0 is highly corrupt and 100 is very clean.â&#x20AC;?1 We allocated 80 per cent of our weighting to the starting a business data as it covers four elements that are vital to starting a business and 20 per cent to the CPI 2017 score. Thatâ&#x20AC;&#x2122;s how we came up with our results. It is worth noting at this stage that whilst only the starting a business data was looked at from the World Bank report, it is still important for potential investors to look at the data as a whole, as the report provides information on

various areas, many of which are also valuable to starting a business. EU offers few guarantees The top four countries in our ranking: Estonia, Georgia, Latvia, and Lithuania have seen no change to their positions or scores since last year. A number of countries, including Ukraine, Macedonia, Azerbaijan and Poland actually saw significant drops in their ranking compared to the data from the previous year, dropping by eight, five, four and three places

respectively. The Czech Republic, Moldova and Belarus saw their rankings go up (by five, four and three places respectively), mainly due to changes that they made to the process of starting a business over the course of the year. Perhaps most surprising about our findings is the fact the majority of EU members in the region scored lower than those that are not a part of the EU. Of the 11 emerging European countries in the EU, only four rank in the top ten. Bosnia, by quite some distance, remains the most difficult place in emerging Europe to start a business.

Estonia has taken the top spot two years running, scoring highest in the CPI 2017 as well as having one of the best scores for the region in the DB 2018 report for starting a business, just behind Georgia, the region's highest scorer.

CURRENT AFFAIRS

Country

Transparency International: Corruption Perception Index Score 2016

World Bank Doing Business 2017: Starting a Business (DTF Score)

Score for Emerging Europe Starting a Business Ranking 2017

2017 Results

Score for World Transparency Bank Doing Emerging Europe Business International: Starting 2018: Corruption 2018 a Starting a Perception Results Business Business Index Score Ranking (DTF 2017 2018 Score)

Estonia

95.13

90.1

95.15

90.32

Georgia

96.13

88.3

97.84

89.47

Latvia

94.15

86.72

94.11

86.89

Lithuania

92.99

86.19

93.05

86.24

Slovenia

91.42

85.34

91.48

85.38

Kosovo

95.54

83.63

95.67

84.34

Belarus

92.91

82.33

92.91

83.13

Armenia

96.07

83.46

94.47

82.58

Serbia

91.67

81.74

92.57

82.26

Macedonia

98.14

85.91

93.94

82.15

-5

Azerbaijan

97.74

84.19

94.36

81.69

-4

Czech Republic

86.86

80.49

87.44

81.35

Romania

89.48

81.18

89.67

81.34

Montenegro

90.07

81.06

90.07

81.26

Moldova

91.96

79.57

93.76

81.21

Albania

91.73

81.18

91.49

80.79

-3

Slovakia

88.62

81.1

86.95

79.56

-2

Hungary

87.28

79.42

87.6

79.08

Croatia

85.56

78.25

86.39

78.91

Ukraine

94.4

81.32

91.05

78.84

-8

Poland

84.22

79.78

82.78

78.22

-3

Bulgaria

86.82

77.66

85.37

76.9

Bosnia and Herzegovina

65.09

59.87

65.09

60.33

Of the 23 countries in the region, according to the DB 2018 only four made changes to the process of starting a business. All four made positive changes: CZECH R EPUBLIC

✓✓ Starting a business The Czech Republic made starting a business less expensive by introducing lower fees for simple limited liability companies.

KOSOVO ✓✓ Starting a business

Kosovo made starting a business easier by simplifying the process of registering employees.

MOLDOVA ✓✓ Starting a business

Moldova made starting a business easier by removing the requirement to register with the Social Security Fund.

SER BIA ✓✓ Starting a business

Serbia made starting a business easier by reducing the signature certification fee and increasing the efficiency of the registry, reducing the time for business registration. Information taken from the World Bank Doing Business Report 2018

According to Transparency International’s Europe and Central Asia: More Civil Engagement Needed analysis quite a few countries in emerging Europe saw their scores drop, for various reasons. These included a rise in authoritarianism, an increase in pressure on the justice system and backsliding on anti-corruption efforts. “In Poland, government bodies took over the management and distribution of vital funds for non-government organisations. Similarly, in Romania, the government put forward a bill which imposes disproportionate reporting requirements on NGOs.” 2 There was better news from Albania: “Over the last six years, Albania, which scored 38 on the recent Corruption Perceptions Index, experienced some improvements with the passage of a ground-breaking judicial reform package – the first of its kind in the region. This milestone may be attributed to the recent European Union enlargement strategy and the efforts Albania is taking to try to join the EU.” 3 Meanwhile, Kosovo still has a long way to go to halt corruption. “While freedom of speech and association are not restricted by any obscure legislation, the voices of NGOs and media are simply not heard across the country.”4 Georgia, usually a leader in anti-corruption among non-Baltic, former Soviet Union countries, secured a score of 56. “While Geor-

gia experienced some important legal improvements, including the introduction of a verification procedure for public officials to declare assets, as well as stronger protections for whistle-blowers, it also saw some setbacks. Limited enforcement of anti-corruption laws and regulations, as well as a serious lack of judicial independence hinder forward progress across the country. In addition, multiple allegations of corruption against inf luential politicians were never investigated. This coming year serves as an important opportunity for the government to implement some essential reforms, including the establishment of a much-needed independent anti-corruption agency.”5 — 1

https://www.transparency.org/news/feature/corruption_perceptions_index_2017 2 https://www.transparency.org/news/feature/europe_ and_central_asia_more_civil_engagement 3 https://www.transparency.org/news/feature/europe_and_central_asia_more_civil_engagement_needed_part_II 4 https://www.transparency.org/news/feature/europe_and_central_asia_more_civil_engagement_needed_part_II 5 https://www.transparency.org/news/feature/europe_and_central_asia_more_civil_engagement_needed_part_II

CURRENT AFFAIRS

Where is our Macron? Thibault Muzergues

If central and eastern European liberals want their own Macron, they need to get out of their comfort zones.

here is our Macron? As a Frenchman working with political parties across Europe, this is a question that often comes back from my interlocutors. Urban liberals from central and eastern Europe, in particular, are eager to find an answer to this question. With governments in the region often dominated by different brands of conservative politicians or parties tainted by corruption scandals, these urban creatives seem to be the first to get frustrated by the lack of a Macron-like movement sweeping everything in its passage and replacing an old, compromised political system with a brand new conundrum. With the equally spectacular rise of Ciudadanos in Spain as a credible ruling party currently topping the polls, they may soon add “Where is our Albert Rivera?” to voice their frustration to the ruling elites in their country. Not that the region is lacking would-be En Marche! or Albert Riveras. From Latvia’s Kustība Par to Romania's USR – without forgetting speculations around the possible candidacy of Okean Elzy’s Svyatoslav Varkachuk for the Ukrainian Presidency next year – there seems to be a new political force emerging in almost every country. The creative class However, despite widespread dissatisfaction of the electorate with the current political offer in many countries (as the preoccupying statistics of

electoral participation tend to show), these new parties are struggling to create space for themselves in the political system: the two most successful attempts so far have been in Poland and Romania, where Nowoczesna and USR managed to get 7.6 per cent and 8.9 per cent of the vote respectively, in their first attempt at legislative elections in 2015 and 2016. While these results were encouraging (for a while, it seemed that Nowoczesna was on track to become the main opposition party in Poland), both were soon faced with numerous challenges that have considerably slowed down their growth. In fact, no other new urban party, from Progressive Slovakia to Kustība Par or Momentum, seems capable today of winning much more than 5 per cent of the vote. Is this all to say that these parties have potential only in Western Europe? In my book, la Quadrature des Classes1, I argue that the rise of liberal, urban parties very often corresponds with the rise of the urban creative class and their break from the old left. This is exactly what happened in France, where Emmanuel Macron provided an alternative for the Parisian 'bobos' who could no longer support the Socialist Party. The reason Macron and Rivera have been able to reach a critical mass of support is that the creative class in both France and Spain was both numerous and in demand of change – a change that both leaders could deliver. One doesn’t find such conditions in central Europe – with the possible exception of Poland, where a relatively large urbanite population temporarily gave 36

Nowoczesna the impetus needed for electoral advantage after the scandals suffered by Donald Tusk’s Platforma Obywatelska produced a vacuum for a new liberal force to emerge. Even in this case, however, the movement was limited, for structural reasons. Europe’s Ohio As I argue in the Quadrature des Classes, the creative class is much less present in central and eastern Europe than in western Europe, for reasons that are economic (the economic development of Western Europe in the 1990s has helped creatives take over whole chunks of the economy, while central Europe was busy trying to transition from a planned to a market economy) as well as cultural (the long-term success of the 1968 cultural revolution in the West is certainly to be attributed to the rise of the creative class and its cult of individuality, creativity and diversity, while in communist Europe the movement was crushed). In addition, with the continuing migration of many creatives from central Europe towards north-western Europe, the creative class is much weaker in the east of the continent than in the west. In this way, the situation seems quite similar to the United States: in coastal Europe, the creative class has reached a critical mass that allows it to build majorities, while continental Europe remains more conservative and suburban – in other words, if France is Europe’s California or Oregon, Poland would be its Ohio. This should not, however, lead us

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to conclude that the attempts of the creative class to build new parties in emerging Europe are doomed to fail: if anything, Nowoczesna and USR’s early electoral successes provide examples that the potential is there. But it needs to take note of the realities on the ground, rather than the sole wishes of the urban elites: being more suburban and working class (two of the four other classes I describe in my book), central Europe is certainly a more difficult terrain than Atlantic Europe, but it doesn’t mean that a 'liberal' project is doomed to failure. Reconnection Just as Ohio and Pennsylvania have voted Democrat in the recent past (and can well vote again in this direction soon), Poland and Hungary have the same potential to take a different political path – but if they want to succeed,

these liberals need to (re-)connect with the suburban middle class that is a key electorate in almost all of our countries: this is what Macron did to secure a majority of the French electorate in the French presidential election, and what Albert Rivera is currently doing by building his creative-middle class coalition around the issue of safeguarding the unity of Spain. In order to build this coalition, emerging parties in central and eastern Europe need to get out of their tribal lands – the region’s city centres are way too small to imagine mobilizing a majority, and too many new party leaders have behaved like the caricature of the urban intelligentsia, capable of changing the world over a cup of coffee, but totally defenceless when it comes to connecting with the actual life of real citizens. This makes them an easy target for their conservative counterparts, and if the examples of Macron and Ri37

vera show something, it is that elections are won not by lecturing one’s voters about liberal values, but by engaging them, understanding them and answering their preoccupations. If they are to mimic the success of En Marche!, emerging urban parties must therefore open themselves to the realities of their countries, and yes, allow themselves to be changed by them. Power comes at this price, but if, in the words of French king Henry IV, “Paris was worth a mass,” electoral success is surely worth the price of a train ticket from Bratislava Central to Banská Bystrica. • La Quadrature des Classes (edited by Bords de l’Eau/Marque Belge) will be published in French in May 2018. An English-language version is currently in the works. 1

Thibault Muzergues is a politologist and political parties specialist, and author of La Quadrature des Classes.

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Cambridge Analytica Tried to Recruit Me Rupert Wolfe-Murray

Did Cambridge Analytica nobble the Romanian parliamentary election of December 2016 in favour of the Social Democrats (PSD)? If they did, they did so without me.

utside the media organisations are thousands of people like me (freelance writers, PR consultants) clamouring to get stuff published. We’re offering ideas for articles or TV programmes and trying to promote things. “Go away,” is the universal reply from the media, “we’re very busy and important and you’re not. Piss off. We set the news agenda and your pathetic pitch doesn’t fit. Go and buy some advertising.” What the freelance writer needs to do is keep an eye on the media and see if he (or she) can add something to the latest news story. Trouble is the media’s revenues have been taken away by the likes of Facebook and Google so the Guardian, for example, pay the same pittance (£80) for a long feature article as they did in the 1990s. It’s so hard to make a living out of journalism that I gave up trying years ago. But sometimes a news story comes up where I really do have something to say and the first part of this article is my take on the Cambridge Analytica scandal. The bastards tried to recruit me and I look back now with a sigh of relief that I managed to dodge that particular bullet. I mentioned it on Facebook, spoke to the Associated Press and for a day my story was all over the Romanian news (I got my fifteen minutes of fame). Then Emerging Europe asked me a simple question that resulted in this following article. They asked me “what happened?” This is the story of what happened.

Cambridge Analytica tried to recruit me I’m grateful to Cambridge Analytica for reinforcing a valuable lesson: the importance of having my own code of ethics. Without this I could have been sucked into all manner of corrupt opportunities that came my way in Romania, where I worked for 17 years. The main rule of my ethical code is to refuse work from companies that seem dubious, or that involve doing things I’d have to lie about. So when Mark Turnbull, one of the directors of SCL, the company that owns Cambridge Analytica, asked me to work with them on Romania’s 2016 election my suspicions were raised. Who would the client be? I asked, and what would the work involve? He told me the client would be PSD, the most dubious political party in Romania. They were pitching to be their election fixers and I could be part of the team. In an email dated 3rd August 2016, Turnbull described the job: “What we have offered is to embed a two-person team into the current campaign team — a political strategist and a communications specialist, but effectively with similar skill sets/roles — to provide ongoing strategic advice and assistance across the campaign (branding, copywriting, PR, media relations, digital outreach etc) over the next 2-3 months.” I told him there was no way that I’d 38

work for a Romanian political party. I’d spent 17 years building up a good reputation as a problem solver and PR consultant, and I didn’t want to throw it all away. And that was the end of our conversation. But the PSD party went on to win the Romanian elections (in December 2016) where they have caused outrage by undermining anti-corruption laws in order to stop investigations into their rich supporters. The leader of the PSD party is barred from office for criminal charges of corruption. By this time I had moved to Liverpool where I set up shop as a PR consultant. My foreign work experience didn’t count for much in the UK so Mr Turnbull’s offer was a tempting one, but I knew that association with these people could taint my reputation. The Channel Four Expose Then I saw Mark Turnbull on Channel Four News. His colleague, Alexander Nix, talked about an undercover operation in an East European country that was so secretive that nobody even knew they were there. I realised with a shock that the country they were referring to was perhaps Romania, and that I could have been part of an undercover team to subvert democracy. At that moment I felt like I had dodged a bullet. My next thought was that I had to share my experience with people in Romania, so at least they would know who had been trying to target them.

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What’s the best way to inform people in a whole country about something like this? Facebook of course, where I have hundreds of personal connections with Romanians. Problem is that I only used the platform to post personal stuff, and share links, and don’t usually get much feedback. Also, I was considering deleting my Facebook account due to their role in this scandal, and so it came as a real surprise that when I told this story in a short post I came across some of the most interesting people I’ve ever met on the platform. Several highly intelligent Romanians that I’d barely heard from until now – including journalists, political analysts and financial experts – replied with brilliant insights into the opaque world of Romanian politics and the role of Israeli fixers in the last election. I also emailed Mark Turnbull to ask if they’d got the job on the last Romanian election and, to my surprise, he quickly replied. He said they’d never worked for a Romanian political party. The head of PSD, Romania’s ruling

party, also denied the connection. This doesn’t mean it’s not true as Cambridge Analytica themselves said on Channel 4 that their role in the un-named East European election was through a subcontractor. Whether or not they influenced the last Romanian election isn’t really the main point here. The key issue is that companies like this, which use military-grade psychology to manipulate whole populations, are allowed free reign across the world to coerce, deceive, blackmail and enable the highest bidder to win. Carole Cadwalladr, the journalist who first uncovered the Cambridge Analytica story, wrote “we are in the midst of a massive land grab for power by billionaires via our data. Data which is being silently amassed, harvested and stored. Whoever owns this data owns the future.”

becomes. After reading all about it, and chatting with Romania’s intelligentsia on Facebook, I felt like my brain had been fried. I had to go to bed in order to process it all. But now I feel safe behind the protective wall of my personal ethical code. It has enabled me to avoid the wrong decisions when working in Albania, Bosnia, Romania and Tibet. I’ve also used it to avoid the temptation of beautiful young women in poor countries who offer their bodies for hire, as I’m aware that the promise of secrecy would be undermined by my own knowledge of what I’d done. •

Saved by my ethical code

Rupert Wolfe Murray is a travel writer, PR consultant and author of 9 Months in Tibet. He lives on a houseboat on the River Thames. He blogs at wolfemurray.com

The more one looks into the details of this story the more complicated it

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Warsaw’s business district. Despite continued concerns over the Polish government’s proposed judicial reforms, the country’s economy remains buoyant, and growth strong.

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Emerging Europe’s Demographic Challenge Craig Turp Across emerging Europe countries are haemorrhaging people. A lack of opportunity at home and the lure of Western Europe – made accessible by European Union membership – has seen millions from all walks of life, particularly rural areas, pack their bags and leave. Few have returned. While addressing the issue should be a priority for the region, not a single government has yet been brave enough to tackle the problem head on.

ver the next three decades emerging Europe will face two major demographic challenges: rapid population decline and rapid population ageing. These trends will, in an increasingly economically interdependent world, mean that governments will need to simultaneously deal with a shortage of labour and a strain on resources. Nowhere highlights the problem as starkly as Romania. Long suspected as being catastrophic, the full scale of the country’s demographic disaster was revealed in February of this year when the Immigrant Integration Research Centre released its latest estimates, according to which as many as 3.4 million Romanians have fled the country since it joined the European Union in 2007. The figure represents 17 per cent of the country’s total population. The exodus is unprecedented anywhere in Europe during peacetime. Over the same period, worldwide only war-torn Syria has seen a higher percentage of its citizens emigrate. Alex Mihaileanu, a journalist and IT consultant, recently left Romania for the UK. His reasons for doing so are typical: it is not about poverty or politics, simply opportunity. “I didn’t leave because I hated some-

You can leave the country, but the country refuses to leave you thing about Romania,” he tells Emerging Europe. “I have a three-month contract with an IT company, with a possibility to extend for another six months, and so on. I’m still struggling with UK bureaucracy, which I find worse than in Romania.” “I’m still pretty much connected to what happens back in the country. Not as connected, because I spend eight hours a day in the office and I don’t do Facebook at work. But I think that for a regular, well-informed middle-class Romanian immigrant, there isn’t such a big difference when it comes to staying in the country or moving abroad. Romanian politics will annoy you just the same, and the news will follow you everywhere you go. You just don’t have 42

as much time on your hands to think about it. That’s basically the first lesson you learn when you move: you can leave the country, but the country refuses to leave you.” Radu Mihail sits in the Romanian senate for the opposition Save Romania Union (USR) as a representative of the country’s diaspora. He believes that successful people living abroad should be seen as an asset. “We have a huge force out there which can change Romania,” he tells Emerging Europe. “We need to view the diaspora as an asset. We need to convince them that they are able to make a difference and modernise the country. These people are entrepreneurs, skilled professionals. There are many Romanians who are willing and able to help develop the country. That may not necessarily mean coming back. There are other ways. They can fund businesses at home through local partners, supplying know-how. They could act as mentors, they could finance specific local infrastructure projects.” In 2016 the technocratic administration of Dacian Ciolos set up a diaspora start-up programme to help Romanians abroad do just that. “We have yet to see any results of that programme,” says Mr Mihail, “but one of the things we do when we travel

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abroad to meet with Romanians living in other countries is to inform them of its existence. Likewise, a number of business leaders have set up a fully private initiative called Repatriot to help people who want to come back to Romania and set up businesses. So there are things happening, but we need to give them a boost. Our role as politicians is to act as a catalyst and put these initiatives into legislation which will mean that they can happen easily.” The lure of the big city In Lithuania, emigration accounts for around 80 per cent of the population decline over the past decade, and Lithuania now has one of the highest emigration rates in the European

Union, particularly from rural areas (the capital Vilnius has seen its metro-area population grow steadily since 1992). Throughout the country birth rates have also dropped sharply: so suddenly in fact that some demographers have called it a ‘demographic shock.’ Eurostat predicts Lithuania will have fewer than 2.5 million inhabitants by 2030, with half living in Vilnius or the surrounding area. In 1990 Lithuania was home to 3.7 million people. Now, vast areas of the country risk being entirely depopulated. In her recent landmark study of Lithuania’s demographic decline, Rūta Ubarevičienė, a researcher at Delft University of Technology in the Netherlands and a member of the Lithuanian Social Research Centre, suggests that 43

cities in central and eastern Europe have become winners while rural areas have declined. “Indeed, only the major cities - capital cities in particular - are the winners,” she tells Emerging Europe. “There is a clear trend of depopulation outside the metropolitan regions, although it is difficult to predict the long-term trajectory of their development. In Lithuania – and I believe that the same is true in other countries - there is more and more concerted action towards the declining regions. So far, most of this has been at the level of ideas and developmental strategies. The goal is to bring people to those regions and reduce emigration. However, it is difficult to predict whether the natural capitalistic processes of metropolisation or

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spatial planning policies and initiatives directed towards deconcentration can win out.” Business is doing it for itself That there is a problem across emerging Europe is clear. Less obvious are measures to combat the decline. “Business is talking about emigration and it is one of the biggest challenges for FDI in central and eastern Europe,” said Anne-Marie Martin, CEO of COBCOE, the Council of British Chambers of Commerce in Europe. “Every event I have moderated at related to CEE has flagged shortage of people and lack of access to adequate talent/skills as being a major challenge.” “Governments need to tackle this both educationally and socially. Create an environment worth staying for - good quality of life, adequate social infrastructure and profiling of markets based on quality, value and capability rather than low cost environment to be exploited. Business is doing it for itself rather than waiting for government to do so”, she told Emerging Europe. When western Europe has in the past faced shortages of people it shipped in migrants. For a number of reasons this does not appear to be an option in much of emerging Europe, at least not in the current political climate. Viktor Orbán’s latest victory in the Hungarian parliamentary election, in which his Fidesz party, which campaigned on a message of hatred towards migrants, demonstrates that. The EU’s Ageing Report suggests that Hungary – which has one of the EU’s lowest birth rates - may lose almost a quarter of its working-age population by 2060. "There are 65 million refugees and migrants worldwide,” said Sean Hinton, director of the Open Society Economic Advancement Program and CEO of the Soros Economic Development Fund. “That is a whole nation of stateless people. These people should not be treated as victims, but instead as economic actors." Since Ukrainians were granted visa-free travel to the European Union

last year almost one-in-ten have left the country to look for work in central Europe, mainly in Poland, the Czech Republic and Slovakia. Indeed, all three countries have put provisions in place allowing the temporary employment of Ukrainian workers. And the effects have been striking: according to Eurostat more than 75 per cent of new immigrants in Poland came from Ukraine in 2016, along with 40 per cent in the Czech Republic and 30 per cent in Slovakia. However, research by the Vienna Institute for International Economic Studies (wiiw) has shown that 44

Ukrainian emigration is short-term, with most going only for a few months to make some extra money. Few Ukrainians in Poland, for example, stay for more than a year. Such guest workers, suggests wiiw’s Richard Grieveson, do not represent a long-term solution to central and eastern Europe’s demographic crisis. Who will pay our pension? The effective economic old age dependency ratio is an important indicator used to assess the potential impact of ageing on social expenditure, partic-

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Sofia-based think tank that provides economic research and interdisciplinary analyses of economic and socioeconomic trends in Bulgaria and South Eastern Europe. He sees a possible solution in making sure older people stay active in the economy for longer. “With a rate of economic activity slightly over 4 per cent, people aged 65 and over could be seen as untapped potential for the emptying local labour market,” he says. “Admittedly, extremely low pension levels in general, with a minimum pension of around 100 euros as of January 2018, force elderly people to continue working in the shadow economy or at least get involved in doit-yourself activities to supplement the limited resources they receive from the public pension system. If there were incentives at both the national and local levels for retaining and employing those of retirement age, there would also be a positive impact on a number of other aspects of the silver economy – such as health care and nutrition, leisure and wellbeing.” No quick fix

ularly relevant for pay-as-you-go pension systems. This indicator is calculated as the ratio between the inactive elderly (aged over 65) and total employment. The ratio is projected to rise significantly across the EU from 41.5 per cent in 2013 to 64.5 per cent in 2060. In Bulgaria, Croatia, Poland, Romania and Slovakia the ratio will exceed 75 per cent. Bulgaria’s demography has been an issue for more than three decades. The country’s population reached its peak in the mid-1980s, when it was just shy of 9 million. Since then it has shrunk to 7.1 million, and it is only a matter of

time before the country’s population drops below the 7 million threshold. A number of studies rank Bulgaria among the fastest shrinking nations in the European Union. Baseline scenarios from the Bulgarian National Statistics Institute predict a further decline of approximately 7 per cent by 2030, while Eurostat’s latest estimates, published in the summer of 2017, include the alarming prediction that Bulgaria’s population could have dropped to under 6 million by 2040, and to just 4.5 million by 2080. Yasen Georgiev is executive director of the Economic Policy Institute– a 45

There is no panacea for the demographic challenge emerging Europe is facing. A number of measures will need to be put in place, some tough choices made and unpopular decisions taken. Rural regions will need more cash. The various diaspora will need to get a lot more involved in developing their home towns and villages beyond sending remittances, and governments will need to help facilitate such involvement. Migrants will need to be welcomed. The age at which workers can retire will have to increase. Ultimately, young people will need to feel that they are in a position where they can fulfil their potential at home, be that in city, town or country. Population decline will be emerging Europe’s biggest challenge of the next two or three decades. The evidence so far suggests that it is not up to meeting it. •

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There Are Nearly 1600 Cryptocurrencies Worldwide. And Almost No Regulation Claudia Patricolo Virtual currencies and blockchain technology have a lot of potential. They are not of systemic importance yet, but are rapidly evolving. At this stage of the innovation cycle, we should not stifle innovation. But our approach must not be passive, since this technology and its applications will evolve rapidly.

echnologies like blockchain can help reduce costs while increasing trust, traceability and security. They have huge potential for making social and economic transactions more secure online by guarding against an attack and removing the need for any middleman. That is the view of Vice-President for the Digital Single Market Andrus Ansip. But not everyone shares this optimism. Some countries are openly against cryptocurrencies and others have discouraged the use of them, claiming that investing in virtual money is as same as gambling. Some definitions From teenagers becoming millionaire thanks to Bitcoin, to the use of vir-

tual money to found start-ups, there is a lot of misinformation about what this complicated and fast-moving technology is. According to last year’s HSBC research report, Trust in Technology, 59 per cent of consumers polled said they'd never heard of blockchain technology. Until now only governments and banks have used ledgers to maintain databases of account transactions and records of land ownership. But while these were centralised and blackboxed, blockchain is a decentralised and transparent system. There are no middlemen. Every user holds a copy of the ledger. “Anyone can request that any transaction be added to the blockchain, but transactions are only accepted if all the users agree that it is legitimate. This work is called mining. Anybody 46

can become a miner and compete to be the first to solve the complex mathematical problem of creating a valid encrypted block of transactions to add to the blockchain. There can be no fake ledger because all users have their own genuine version to check against,” said Philip Boucher, a member of the Scientific Foresight Unit (STOA) at the European Parliament. When it comes to cryptocurrencies, Bitcoin is best known, and most popular. According to Boucher, in 2014 the European Banking Authority highlighted several risks presented by blockchain based currencies. It also dismissed their immediate benefits, notably fast, secure and cheap transfers, as irrelevant in the EU, where conventional transfers are already relatively fast, secure and cheap. They also offer little consumer protection, and open up possibilities for engaging in illegal activities such as tax evasion and the sale of unlawful goods. An opportunity for Belarus This could explain why many countries are so against the technology. Only one has actually legalised blockchain. Hoping to attract more foreign investment, the president of Belarus Alexander Lukashenko last December signed a decree on the development of the country’s digital economy, thus making Belarus the first world’s jurisdiction with overall legal regulation of businesses based on blockchain technology. “The main goal of the document is

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to create such conditions that would make world class IT companies want to come to Belarus, open representative offices, development centres and creating popular products for the world. The second goal of the decree is investment in the future,” Mr Lukashenko said. Multiversum, a blockchain development company based in Budapest but registered in Minsk is one investor that has taken Mr Lukashenko up on his offer. Launched in Hungary only a few months ago through an ICO (Initial Coin Offering), in a few weeks it was able to raise over 6 million euros to finance its operations. The company aims to create a better, faster and more efficient blockchain than those which currently exist. “Existing Blockchain technology is slow and expensive,” said the founder of Multiversum Andrea Taini. “We want to create rational databases able to find old data without altering performance. We are also developing a ledger branch using horizontal and not vertical scalability.” “In Belarus we have a legal framework to refer to,” he tells Emerging Europe. “There is a lack of knowledge worldwide and confusion between what coins are, what is the difference between coins and tokens, or what the distinction is between security and utility coins.” “Of course, Belarus has other problems”, he underlines. “For example taking money out of the country is difficult because we always need to ask for permission from the central bank. We established an office in Budapest and one in Vilnius so that within the European Union we have some free tax zones. The central banks in Lithuania and Hungary have better international bank integration”. Lack of regulations “Belarus made a wise move”, comments Marek Kirejczyk, Lead Blockchain Developer at Ambrosus, a Polish company which aims to improve global supply chains by creating a trusted ecosystem where product provenance

can be reliably recorded. “I think the first countries which regulate blockchain and cryptocurrencies will attract a lot of crypto-business. How to regulate them is another question, and I think that here we will see evolution rather than a revolution,” he tells Emerging Europe. Pavel Bykov, director at the Faunus affiliate network and expert in the field of blockchain, believes that worldwide adoption of cryptocurrencies will have a positive effect. He sees the need for regulation, but not as restrictive as some governments are proposing. “I believe that governments are capable of making cryptocurrencies better by eliminating the harmful practices involving them. And do not forget about the blockchain technology applications beyond payment systems. In the end, it’s all for the greater good,” he says. “It is hard to judge which jurisdiction has so far implemented the best laws regarding cryptocurrencies as there is a fine line between too much regulation which protects investors and too little regulation where investors are not protected enough,”, adds Luka Gubo, CEO at Blocktrade.com, a Slovenian trading facility for crypto-assets and crypto-traded indices. “With ICOs in particular it is extremely hard to write legislation that would allow start-ups to flourish without being too much of a systematic risk for investors,” he continues. A crypto heart According to Pavel Bykov, the Czech Republic is considered to be the crypto heart of Europe. “Walk around Prague and you’ll 47

stumble upon dozens of businesses accepting Bitcoin as payment. There’s also a very distinctive community of crypto developers here. Trezor, WBTCB, NakamotoX. All these projects are Czech-based,” he says. In Ukraine, the Ministry of the Economy recently offered to invest in the most promising startups. They offer full support during ICO and about 10,000 US dollars for 5 per cent equity. “This initiative has both advantages and disadvantages. One of the cons is the unclear scope and quality of that kind of support. At the very least, the project demonstrates good faith,” crypto industry insider and CEO of Remme, Alex Momot, tells Emerging Europe. Asked why Eastern Europe has been so keen to adopt bitcoin technology in comparison with other parts of the world, Pavol Magic, CEO of Bitcoin, recognises the great potential of the region. “Central and Eastern Europe have always been close to technology in general,” he says. “The region has a significant presence in the global antivirus business.” A dangerous game How delicate is the bubble? Buying cyrptocurrencies has been referred to as gambling rather than investing. Bitcoin’s value exploded from 1000 US dollars in January 2017 to 17,000 US dollars at the end of the same year. It is now back down at 6,600 US dollars. Andrea Taini believes that it is just like gambling. “An investor needs to know that he/she can lose everything,” he says. •

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YEREVAN:

THE CITY OF SUN CELEBRATES ITS 2800th ANNIVERSARY Yerevan, one of the most ancient cities in the world, was founded in 782 BC by Urartian King Argishti I. The foundation is evidenced by a cuneiform inscription discovered during archaeological excavations in the Erebouni fortress. The name Yerevan derives from the name of Erebouni. Being well located at the crossroads of trade routes, the fortress soon developed into a city with palaces and temples.

bank of the Hrazdan River. The original settlement consists of four cultural and ancient layers built one on top of each other at depth of 4m. The first layer is late Neolithic (35003000 BC), the second layer is early Chalcolithic (3000-2700 BC), the third layer is middle Chalcolithic (2600-2300 BC) and the fourth Chalcolithic (2300-2000 BC). A second historic site is Karmir blur, situated in the south-western part of Yerevan, south of the Hrazdan River gorge. In the territory of Karmir blur the Urartian king Rusa II (685645 BC) founded the Teishebaini (Karmir blur) fortress. It was dedicated to Teishebaini - the second most powerful Urartian god. Systematic excavations of Karmir blur began in 1939. The ancient settlement covers more than 40 hectares and consists of a pre-Urartian settlement, and the Urartian city with its citadel.

The modern city of Yerevan, with its 1.3 million population, is the economic, political and cultural centre of Armenia. It has incorporated the glory and history of the 11 historical capitals of Armenia to become the capital of all Armenians. This year, Yerevan is celebrating its 2800th anniversary. Alongside numerous festivals being held throughout the year, major celebrations of will take place on 29-30 of September.

While Yerevan is 29 years older than Rome, it is today a modern city whose current image was formed in the mid-20th century. Overlooked by the snow-capped Mount Ararat, the capital has a bewildering number of historic buildings, not to mention a clutch of excellent museums. Yerevan gets its pretty pink hue (and moniker) from the rosy volcanic rock that was used to construct many of the cityâ&#x20AC;&#x2122;s buildings. In Yerevan history lovers can find the Shengavit fortified settlement, one of Armenia's most famous archaeological monuments, dating back to the early Bronze Age. It is situated in the south-western part of the city, on the left

Erebun, in the south-eastern part of Yerevan, on the top of the Arin-fortress hill, is one of the most famous archaeological sites in the region. It is one of the huge Urartian citadels built along the northern border of the Urartian state. According to inscriptions, Argishti the First constructed the Erebuni city-fortress in 782 BC. It was opened as a museum-reserve in 1968 and the opening was dedicated to the 2750th anniversary of Erebuni-Yerevan. In the vaults of the museum there are more than 10936 ancient objects.

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YEREVAN RANKS:

Fitch Ratings has affirmed Yerevan’s LongTerm Foreign- and Local-Currency Issuer Default Ratings (IDRs) at B+ with stable outlooks. The ratings factor in the city’s capital status, satisfactory budgetary performance, supported by steady transfers from the central government, and zero debt. Yerevan is likely to benefit from economic recovery in Armenia. Fitch expects full-year growth of the national economy at 3.6% in 2018. As the country’s capital and most populated city, Yerevan is Armenia’s largest market with a developed services sector. QUALITY OF LIVING SURVEY

Yerevan has been ranked 172nd among 231 cities in Mercer’s 19th annual Quality of Living survey. The ranking is based on certain criteria, such as a city’s political stability, crime levels, economic environment, personal and cultural

freedom, health services, education standards, transportation, housing, environment etc. Yerevan left all its regional neighbours (except Istanbul, 133rd) behind – Tbilisi (187th), Baku (196th) and Tehran (199th). Yerevan offers a clean and safe urban environment with rich cultural and historical heritage, warm hospitality and favorable climate. Yerevan is a city that has lots to offer, in terms of living, visiting and doing business. The fact is supported by the continuously rising number of investors who come to invest, create and settle in the city. The most exciting investment projects which attract potential foreign investors are in the tourism industry. Thanks to its rich cultural-historical heritage and uniquely warm hospitality, every year this ancient city is attracting increasingly more visitors from around the world turning into an emerging destination of city tourism with its modern vibes. Yerevan Municipality, in cooperation with the private sector, is developing investment proposals for small business .Get acquainted with investment projects at www.yerevan.am/en/investment

Don't miss an opportunity to #VisitYerevan during #EVNfestivals2018 Over the last five years, Yerevan has been developing event-tourism in the capital. Yerevan’s winter festivals run from December to January and include Christmas markets, ice-shows and many open-air events, while the city is decorated with wonderful Christmas illuminations. In spring jazz-lovers are welcomed to Yerevan on 30 April, when every year the city celebrates International Jazz Day. For wine gourmands Yerevan wine days are organized on 4-5 May. Then there are the many festivals held during the #Yerevansummerfest, which is organised during summer and consists of 60 cultural, sport and tourist events including the Yerevan with Flair food festival on 10 June, Yerevan water and Yerevan watermelon festivals in July, Yerevan TarazFest traditional costume festival on 4 August, Yerevan BeerFest on 1819 August. Since the 1960s Yerevan has every autumn celebrated Erebuni-Yerevan city day. This year the main celebrations of Yerevan's 2800th anniversary will be organized on 29-30 of September. WELCOME TO YEREVAN AND LET'S CELEBRATE TOGETHER!

www.yerevan2800.am

Email: tourism@yerevan.am Phone: +37411-514-230

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Some of This Content is Now Available In Your Country Jerry Cameron New European Union rules have made accessing geo-blocked content online easier. However, with some restrictions remaining, VPNs and other such services will still have their place, at least for a while.

ince April 1, Europeans have been able to access the online content that they have subscribed to at home, wherever they are in the EU. The aim of the new rules is to ensure that Europeans who buy or subscribe to films, sports broadcasts, music, e-books and games in their home Member State are able to access this content when they travel or stay temporarily in another EU country. “The end of geo-blocking means wider choice and consequently better deals for consumers and more opportunities for businesses,” said Lilyana Pavlova, Minister for the Bulgarian Presidency of the Council of the EU. “The Bulgarian presidency attaches great importance to the digital economy. I want to compliment previous presidencies, the European Parliament and the European Commission for the collective success in taking forward the European Digital Single Market.” Less conventional platforms “It’s about time,” Andrei Cernahovschi, an advertising executive who splits his time between Paris and Bucharest, tells Emerging Europe. “We have become fed up with seeing the words ‘This Content is Not Available in Your Country’ appear on the screen. All that does is drive people underground in order to find the same content on what you might call ‘less conventional’ platforms.”

“It was never about piracy in the normal sense of the word,” says Mr Cernahovschi, “We simply wanted to be able to watch programmes at the same time as people in Western Europe. In Romania we would often be forced to wait for months, sometimes years to see shows broadcast. No wonder many consumers went underground. We felt that we were being penalised for being Romanians. It had far more to do with equality. I guess you could call it a human rights issue!” The new rules do not entirely address Mr Cernahovschi’s concerns, however. A customer who has signed up to – for example – Netflix Poland will be able to access that content wherever he or she is in the EU, but will still only have access the content Netflix has made available in Poland. English Premier League football fans living abroad will still have to rely on local broadcasters to watch their teams play: they will continue to be prevented from purchasing subscriptions from UK broadcasters. Also, the rules do not set a time limit for the use of the portable streaming feature, which could be something to watch for from the various service providers. The holy grail for many Brits living abroad, the BBC iPlayer, will also be off limits, at least for now. The guidelines are not binding for free digital content platforms, which can choose to opt-in to the new regulations or carry on as before. That, of course, includes BBC iPlayer. 50

"We are interested in being able to allow UK licence fee payers to access BBC iPlayer while they are on holiday, and welcome the EU regulation to help make this feasible," said the broadcaster in a statement. "There are complex technical issues to resolve which we are investigating and it will be dependent on what legislation is in effect in the UK in the future." Digital Single Market Andrus Ansip, the European Commission’s vice-president for the Digital Single Market, believes that the new rules are another example of the Commission delivering for ordinary people: "Europeans are starting to feel the benefits of the Digital Single Market on the ground,” he says. “They can now travel across borders with their favourite video and music streaming services – and with no roaming charges.” Mr Ansip also confirmed that geoblocking when shopping online – the annoying practice which prevents some distributors from sending goods to certain EU countries - will also be a distant memory. Then there is the personal data of Europeans, which will also be better protected when GDPR takes effect in May. Mr Ansip was speaking at Digital Day 2018, a now annual event which brings together ministers, representatives of EU countries, industry, aca-

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demia and civil society representatives together to encourage cooperation in artificial intelligence, blockchain, eHealth and innovation. "This year's Digital Day is the perfect moment to recognise what we have achieved but to also encourage EU Member States to move forward quickly with the legislative proposals still on the table. We need to prepare our digital future together; we need to do more, joining forces and resources to grasp the opportunities offered by technologies such as artificial intelligence and blockchain." Providers of online content services will also benefit from the new rules. They will be able to provide cross-border portability of online content to their subscribers without having to acquire licences for other

territories where their subscribers stay temporarily. No borders There is no doubt that, removing the boundaries that prevented Europeans from travelling with digital media and content subscriptions is, as Mr Ansip suggests, yet another success of the Digital Single Market for citizens, following the effective abolition of roaming charges that consumers all over Europe have enjoyed since June 2017. These new rules directly respond to new behaviours and habits amongst European citizens using new technologies. For example, consumer spending on video subscription services rose by 113 per cent per year between 2010 and 2014, and the number of us51

ers by 56 per cent between 2014 and 2015. It is also estimated that at least 29 million people, or 5.7 per cent of consumers in the EU, could make use of cross-border portability, and many more in the future â&#x20AC;&#x201C; up to 72 million people by 2020. In addition, almost 60 per cent of young Europeans say that being able to travel with their subscriptions is an important factor in choosing to subscribe to online services. However, while the new rules are welcome, it is also abundantly clear that more will need to be done to satiate the demands of todayâ&#x20AC;&#x2122;s young consumers who want to be able to watch anything, anywhere, anytime. â&#x20AC;˘

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Wearing Emerging Europe Amelia Turp-Balazs If what you eat is what you are, what you wear is what you would like to be. Clothes represent projections of our relationship with the world and with ourselves, a means to show others who we are, but mostly who we would rather be. Increasingly, that means emerging European.

Photo: Courtesy Dialog Textil

ter the gloom of communism, when a simple pair of jeans smuggled behind the Iron Curtain by a relative who had fled west represented nothing less than an icon of freedom, central and eastern Europe

has of late become a hotbed of fashion. The regionâ&#x20AC;&#x2122;s time has come. However, while there is a vast reservoir of creativity and potential in emerging Europe, it is still for manufacturing clothes designed elsewhere that the region is best known. 52

Romania, for instance, is known

the seamstress of Europe because of its know-how and production volume. It is estimated that almost 80 per cent of the countryâ&#x20AC;&#x2122;s capacity (made up of 5,400 factories) works for foreign brands, from high street retailers as

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all over Europe to luxury collections presented during the fashion weeks in Paris or Milan. Hugo Boss, Moncler, Prada, Akris, Stella McCartney, Agnes B, Missoni, Dries Van Noten and many other top labels work or have worked in Romania, not to mention the usual suspects like Primark, H&M, Zara, Massimo Dutti, United Colors of Benetton, Stefanel and tens of other high street retailers. Targeting the higher end Since Romania joined the EU, salaries have been climbing continuosly. Even so, workers in the textile sector are amongst the lowest paid in the whole economy, which leaves factories always short of personnel. The Romanian textile and clothing industry employed around 180,000 people in 2016 and yet the number has been decreasing by the thousands every year. Factory managers complain that the government does not encourage the industry at all, supporting instead the fields of IT and FinTech. Heavy taxes paid for each employee – 65 per cent weaken their margins, already low in an industry where labour is the highest cost. According to a report by CreditInfo Romania, the profits generated by the textile and clothing domain dropped by nearly 5 per cent in 2016 as compared to 2015, from 811 million lei to 785 million lei. Increases in the cost of labour and energy are to blame. Bernard Cheere, a former CEO of Artifex, a factory with 900 employees, believes that Romanian textile capacity is shrinking due the low positioning of the industry versus the European market. “The way that labour costs have evolved means sales at the low and medium end of the market are no longer possible,” he tells Emerging Europe. “The market and the industry must evolve so that they can serve the higher end of the market. We should take business from retailers or brands manufacturing in Portugal, Italy or Photo: Courtesy Reserved

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France. Secondly, the erosion of qualified labour, as well as ageing, are also problems. But this is a global phenomenon for all types of industries.” The fashion manufacturing sector is extremely volatile, so retailers can easily place their orders in any country offering them better conditions. Bulgaria has become an interesting place in this respect, as its manufacturing prices are better than Romania’s for certain types of clothing. Secuiana, a renowned menswear producer from Romania, has even started making its jackets in Bulgaria. Making of a pair of trousers costs 1-1.50 euros less in Bulgaria, even though salaries are higher than in Romania. The taxation of labour, however, is far lower. Competing with the heavyweights As for high street fashion brands, the label which currently strikes the highest note around Europe right now is Reserved, owned by the Polish group LPP. The company (which also owns the Cropp, House, Mojito and Sinsay labels) has made its mark all over emerging Europe and it is now well represented in Western Europe and in the Middle East. In fact, Reserved is almost certainly the only brand from a former communist country which has so far opened a shop on Oxford Street, still London’s best retail address. The last five years have been very important for Reserved. In 2013, the brand was present in only 11 countries, all in CEE: Poland, Russia, the Czech Republic, Slovakia, Lithuania, Latvia, Estonia, Hungary, Ukraine, Bulgaria and Romania. Today Reserved is known not only in Europe, but also in the Middle East (United Arab Emirates, Egypt, Kuwait, Qatar) and in Western Europe. In 2014 it opened its first store in Germany. “Since then, the number of showrooms of our flagship

Growing a fashion brand is a costly business brand has grown to 19 in Germany, and we plan to open more. In 2017, we also made an important decision to enter the extremely demanding British market. In September, in the heart of London, on prestigious Oxford Street, we opened our first store,” Przemysław Lutkiewicz, vice-president of the LPP Management Board told Emerging Europe. Reserved is LPP’s flagship brand and its stores constitute more than half of the surface area of all of LPP’s showrooms, which last year exceeded 1 million sq m. But it doesn’t stop here. “We will continue further expansion this year,” Mr Lutkiewicz says. “We plan to open Reserved stores in Slovenia and Kazakhstan, while our brand will also be launched in Israel, as a franchise. It is true that the Polish market is still the most important from the point of view of the size of the collection, sales or the number of stores, but sales from outside the country now account for almost half of the entire volume.” How does Reserved compete with heavyweights, such as H&M or Zara? “H&M and Zara are worthy rivals. However, it is not our primary goal to compete with those who have much more experience in the market. I think that LPP, along with its five brands, is currently in a different place altogether. Please do not forget that our company has been on the market for only 25 years. H&M celebrated its 70th anniversary last year,” adds Mr Lutkiewicz. 54

Catching up “Our objective is to help clients express their emotions and make their dreams come true through their appearance. We strive to meet their expectations and satisfy needs in this area and we try to focus our energy here. At the moment we are 35th in Europe as far as clothing companies are concerned, and we realise that the top ten are still far away. However, we are convinced that when we look at our business from the perspective of a customer’s needs, our position in that ranking will gradually change in our favour. That is our strong belief,” Mr Lutkiewicz concluded. Growing a fashion brand is a costly business, according to Bernard Cheere. “I personally believe that the local brands are limited when it comes to international expansion whereas they might find a good response on the local market. The investment to promote and develop a brand are very high,” he says. However, Reserved is just one example which proves him wrong, an exception to the rule perhaps, but creativity in CEE should not be ignored. Demna Gvasalia, a young Georgian, is the creative director of Balenciaga and head designer of Vetements, having previously worked with Maison Margiela and Louis Vuitton. The Georgian designer is the new kid on the block of the fashion industry and his collections are awaited at fashion shows with excitement because of their anti-glamour and gritty attitude. So while it is clear that emerging Europe still has a lot to do in order to catch up, it is equally clear that it has all the tools it needs to make it big in fashion. •

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Photo: Courtesy Reserved

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Creating Places to Both Work and Live Claudia Patricolo

Both workplaces and workers are changing rapidly throughout all of central and eastern Europe. Architects and human resource departments are constantly trying to develop the workplaces environment in order to retain as many qualified people as possible.

place of work is far more than a property. It is a living environment that helps individuals and businesses craft and experience a better fusion of life and work. A workplace that is powered by the human experience goes beyond a work-life balance. It drives how people feel about their place of work. How empowered, engaged and fulfilled they are, it’s the purposeful fusion of life and work based on authentic human experiences. So writes Marie Puybaraud, global head of research at JLL Corporate Solutions, in a new report, Workplace Powered by Human Experience. According to JLL, there are many key factors shaping the office market industry today. Most important has been the evolution of a dynamic workforce which did not exist before: 80 per cent of all employees during the 1980s worked for the same employer for up-

wards of 15 years. Today, 60 per cent of the workforce switches employers after only four. Secondly, flexibility in spaces: 54 per cent of employees work from home at least once a month and 60 per cent say access to external co-working spaces has a positive impact on their engagement and productivity at work. “Traditional office spaces are an issue today. Flexible workspaces offer a formal relief both to set companies and for individuals. On the other hand they can be restrictive for companies that may want to expand quite rapidly,” JLL research director for central and eastern Europe, Kevin Turpin tells Emerging Europe. No more boxes According to a JLL survey conducted in Poland and in the Czech Republic, the majority of people aged be56

tween 25 and 35 are looking for more flexibility and the possibility to work from home or other locations. They no longer want to work in boxes. “It is not only where but when. Sometimes employees would prefer more flexibility around the time they start. They might work 10 hours per day but not within the usual shifts,” Mr Turpin adds. The working environment is also very important, with 80 per cent of the people surveyed saying that they would like to see their potential new office before signing a contract with a company. “It needs to be an inspiring place, they need to see themselves working there,” says Mr Turpin. “What this means is that millennials are more demanding, they want healthy options, things to do in and around the office other than work, free Wi-fi everywhere in the building and mobile access,

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which can sometimes be restricted for security reasons. They need to feel identified with the purpose and values of the company, not just a number in a grey box.” When it comes to furniture, comfort is the most important thing: adjustable desks, sofas, hammocks. But while it is easy to think this way for start-ups and small companies, it can become a significant investment for larger companies which have to deal with four or five different generations working in the same space, all with different needs. Labour shortages “The office markets in the region are growing, especially in core cities like Warsaw, Budapest, Bucharest, Prague and Bratislava,” Mr Turpin says. In fact, 2017 was a good year for the office market with low vacancy rates (Bucharest at 9 per cent, Budapest at 9.2 per cent and Warsaw at 14 per cent) and growing demand for large spaces, new, high-quality deliveries, and a large number of new leases. “Outside of the core capital city markets there are a number of well performing regional markets, particularly in Poland, such as Kraków and Poznań, but there is also a huge demand in general for office space across most of emerging Europe,” adds Mr Turpin, underlining the existence of different stages of maturity which make - for example - Budapest a more developed market than Bucharest or the Balkans. “Shortage of labour is an increasingly common problem, as well as meeting deadlines for demand in some markets. Planning processes can be sometimes long and difficult, but these can also depend on the political factors that play a different role and strategy in each country. These factors are driving the need for companies to look more closely, amongst other things, at the attractiveness and functionality of their

workplaces towards their employees and also the forward planning of their property related decisions.” he says. In Hungary for example, the office market is growing fast but labour shortages make it difficult to keep to construction deadlines and to estimate development cost. “There are good financial conditions for developers, and a lot of new office buildings are currently being built, and there is competition for tenants. Many older office buildings are also being renovated in order to keep tenants,” Edina Hornok, head of sustainability consulting at DVM Group tells Emerging Europe. Croatia is also experiencing the same issues, according to Petra Škevin, CEO at HPB-nekretnine (part of Croatian Postal Bank Group focused on real estate appraisals) and President of the Croatian Green Building Council. “Today, the biggest challenge for construction companies is to find a sufficient number of skilled workers. Due to this, the price of construction work is increasing,” she says. “Anyway, the market is very lively, especially the residential market. Demand is increasing and so are prices. Good tourist numbers have also boosted the development of hotels and hospitality properties along the Adriatic coast. Unfortunately, for the rest of continental Croatia the market is very poor or simply does not exist due to limited economic activity and the decreasing of number of citizens,” she adds. Not enough green “The greenest office buildings are mainly those occupied by the IT industry, which finds it very challenging to keep employees in Croatia,” Mrs Škevin tells Emerging Europe. Until now there have been few certified green buildings in Croatia as many offices are leftovers from the 57

days of socialism, design according to the architectural standards of the day, but today often poorly maintained and in less than prime condition. “We have a few projects under construction which are going to have a green building certificate,” Mrs Škevin continues. “Inter IKEA is developing a Designer Outlet Centre near Zagreb, while GTC is building the Matrix Office Park in Zagreb which is going to be the first LEED Gold certificated project in Croatia. We are very happy that the big real estate commercial projects in Croatia are realising they need to be green, a sign that awareness regarding sustainability is increasingly part of the real estate industry.” What millenials want Romania also needs to keep up with the current trends in order to continue being an ideal destination for foreign investors. According to the Romanian real estate consultancy company Crosspoint, unlike other countries in the region (such as Slovakia or Hungary), where the office market is concentrated mostly in the capital cities, a lot of Romania’s smaller regional cities, like Timisoara or Cluj-Napoca, have growing office markets, primarily thanks to the development of the ICT sector. “Like never before, the attention of employees and employers is being focused on the working environment,” said Codrin Matei, managing partner, and head of office agency, capital markets and business development at Crosspoint. “These are important retention factors for talent, especially in the digital and IT field. As such, we expect a growing number of projects to include flexible co-working solutions. Developers must understand the need for flexibility, for community or socialisation and we recommend they include leisure areas and shared working places from the very early stages of their designs. This is what millennials want.” •

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MADE IN

Emerging Europe

Pipistrel’s Electric Plane

After electric vehicles, electric taxis and electric busses, here comes the electric airplane, developed by the Slovenian ultralight plane maker Pipistrel, founded in 1989 as the first private aircraft producer in former Yugoslavia. The aircraft has been developed for personal transportation in big cities for US ride-hailing company Uber. According to the Slovenian Investment Promotion Agency, the innovative aircraft is expected to be presented at Expo 2020 in Dubai. There will be no environmental pollution, no more heating of the atmosphere and no more noise as the main pre-flight checks are done in near silence and the motor is switched off. Such transportation will significantly reduce travel times, especially in major cities. During a recent test flight at Jandakot Airport near Perth in Australia, the plane covered 80km during a 50 minute flight. It departed with a 97 per cent charge and returned with 52 per cent of battery remaining. Based on those figures, energy consumption was just 9kwh, or less than 3 US dollars worth of grid power.

Danube Sneakers Danube Footwear is one of an increasingly large number of Romanian

start-ups looking to update and upgrade perceptions of Romanian design. Made in Romania proudly adorns the tongue of their sneakers, complete with a flag: for Lidia Cremenescu and Mario Georgescu, who set up Danube in 2016 (having created their first pair of sneakers as part of a university project) Made in Romania should be a badge of honour. Why the name Danube? “The Danube is an iconic landmark,” they say. “The Danube river crosses Europe from West to East, connecting countries and cultures. This shaped our vision of bringing together local communities through skateboarding. The mission which will always guide the label’s actions is to produce high-quality footwear for skateboarders and like-minded communities.” Cremenescu and Georgescu currently produce four models: two high-tops and two low-cut, available in three colours. This year they plan to release a new range. The sneakers – which sell for 390-425 lei (83-92 euros) – are currently available online at danubefootwear.com and a couple of specialist skate shops in Bucharest. In time, they will be available across Europe. Skateboarding makes its debut as an Olympic sport at the 2020 games in Tokyo. Romania’s team might just be wearing Danube.

Vostok-Europe Vostok-Europe was founded in 2003 when two Lithuanian companies, Vilnius Koliz and Chystopol Watch Factory Vostok, joined forces to create a watch series that would still embody the quality of both brands but be of modern design. Over the years Vostok has been gaining recognition and developing on the brand. In 2011 it adopted the slogan For Going to Extremes. That same year they became the official watches for the Free-Div58

ing World Championships, and the Enduro Rally in Lithuania. In April of 2013, Vostok launched one of their watches, the Lunokhod, to the border of the stratosphere (16,660 metres). The watch survived the -44 degree Celsius temperarturs, the 88 mB vacuum and 1,200 mkR/h radiation levels. In

addition to this fine feat, the watches have attracted some great ambassadors, such as fitness model and bodybuilder Lazar Angelov, and Žydrūnas Savickas, who is considered one of the greatest strongmen of all time.

4F 4F are a Polish sportswear company part of the OTFC Group which has been operating in the retail sector for over 20 years. The brand has gained popularity through its partnership with the Polish Olympic Committee, the Polish Ski Federation, the Polish Biathlon Association and the Polish Association of Athletics Federation. In 2010 4F showcased the brand by sup-

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Kodisoft’s Interactive Dining Table plying the Polish Olympic team at the Vancouver Olympics with their apparel, and again at the 2012 London Olympics and 2014 Olympic Winter Games in Sochi. The brand offers a wide range of sportswear, ranging from undergarments and footwear to swimming and skiwear as well as anything in between. They also produce tents, sleeping bags and travel accessories and luggage. 4F owe their success to producing high quality goods which they believe can compete with the most famous global sports brands. In addition to their success with the Polish Olympic teams, 4F also supplied the Croatian, Latvian and Serbian athletes with apparel during the 2016 Olympics in Rio de Janeiro. More recently they even prepared clothing lines for the Latvian, Croatian, Serbian and Polish teams at the PyeongChang Winter Games in 2018.

Kodisoft, based out of Kyiv, Ukraine have developed what they call Interactive Restaurant Technology (IRT). These are interactive multi-touch tables designed for the HoReCa industry, airports, and shopping centres. The idea behind the tables was to create a state-ofthe-art ordering system with integrated entertainment and a new way of communicating. The table boasts 4K resolution, can handle multiple users touching the screen at any time and is made of durable materials. The table offers users multiple

Chocolette Confectionery Chocolate, one of life’s guilty pleasures. Imagine a world where you could eat chocolate without feeling the guilt of consuming a lot of calories. That is exactly what Chocolette have done. The Latvia-based chocolate manufacturer have developed a range of chocolates called RED that have low calories. The company asserts that one piece of dark chocolate has no more than 17 calories, equivalent to that of a slice of apple. They have been able to reduce the amount of calories in their dark chocolate by 45 per cent and in milk chocolate by 35 per cent. Their chocolate bars are produced without any sugar and they only use natural sources to sweeten their products (such as erythritol, polydextrose, inulin and maltitol). In addition to the sweeteners, the cocoa products (cocoa and cocoa butter) used in the chocolate are sourced from the best suppliers in the Ivory Coast, while the milk is sourced in Germany. •

Photos: Kodisoft promotional photos

ways to pay for their meals and services, including contactless payment methods. Not only can a customer order their meal or drinks using the table they can play games, access social media and interact with other customers in the restaurant. In addition to this IRT offers restauranteurs a fully integrated system where they can connect and monitor everything from orders to staff management. The first restaurant to use the technology was opened in Cyprus in 2012, followed by a second in August in 2013 in Dubai.

Life in Transition

In partnership with

Amman, capital of Jordan. The country is the first in the Middle East to host the European Bank of Reconstruction and Developmentâ&#x20AC;&#x2122;s annual meeting.

Sir Suma Chakrabarti On... Ahead of the European Bank for Reconstruction and Development’s Annual Meeting and Business Forum in Jordan, Sir Suma Chakrabarti, the bank’s president, spoke to Andrew Wrobel about the challenges emerging Europe is facing.

ON THE DELIVERY OF THE UN SUSTAINABLE DEVELOPMENT GOALS We still have a huge way to go to hit those goals and we have only 12 years to do it. We now know that these goals can’t really be financed by grant aid alone or by the domestic public resources of countries that are amongst the poorest in the world. It requires us really to try to help get private sector financing and that’s where the EBRD comes in. The EBRD has been doing that, this is our business model [and] our mandate. Our mission is to crowd in private financing. Our shareholders over the years have on four occasions asked us to go to new geographies to bring that business model to work there too. So now is a very important time to discuss in

the framework of the international system – is it going to do enough to hit the SDGs, and within that what can the ERBD do more, both within our existing region but also maybe in other places too? ON THE DEVELOPMENT OF THE PRIVATE SECTOR Every year year between 70 and 80 per cent of our investment goes into the private sector. In some countries it can be nearly 100 per cent; for instance in Turkey, 97 per cent of our lending is directed to the private sector. In other countries, for instance in the Western Balkans, there is still a fairly large share that goes to the state, for instance for infrastructure projects. We would like to reduce that share – but not reduce the over62

all amount of lending. We would like to flip the share much more =towards the private sector in a region such as the Western Balkans, where there’s been a lot of conflict in the past, the state is a guarantor of peace and stability, and remains a very important economic actor and therefore also a borrower of resources for multi-nationals like the EBRD. But in some other countries, I think one really has to question whether they’re doing enough to really improve the investment climate and really attract private sector investment. ON INNOVATION [In] many countries of emerging Europe, there has been a huge braindrain and it’s really important to try and develop an attractive climate and

LIFE IN TRANSITION

system whereby the best brains in the country want to stay and offer their ideas there. Secondly, many countries have tried to innovate through offering tax regimes that are very attractive to try and get innovators to stay, and actually to incentivise them to innovate. I think those sorts of ideas have really not yet taken off fully in our countries of operations. When the EBRD tries to attract this business ecosystem that we need in countries of operations, whereby you have research and development linked to universities, you see this, of course, in Israel, which has been a massive example of this, or the United States, or India – but you don’t see this in our traditional region very much. So that’s one of the things that we should be trying to encourage, more of this linkage between the university sector and businesses, clusters, to try and get innovation off the ground.

ON ONE BELT ONE ROAD We’re very involved with the initiative and I think it has the potential to become a rather major driver of investment, growth and integration between many countries – we happen to invest, of course, in many of those countries and [the initiative offers] the opportunity to really improve the standards of investment. It’s a symbol of partnership between East and West, but at a hard-headed level it’s really fundamentally important in terms of raising policy of investment, across the whole new silk road. I’m very pleased that we’ve already been involved in some projects, and there’s more in the pipeline to come.

800 million to a billion euros a year in this region, and we are focused very much on energy, infrastructure, and of course soft-connectivity as well, which is very important, because it’s not just about the big bricks and mortar or the tarmac, it’s also about the regulatory barriers, the obstacles that prevent actually the countries coming together, so our Annual Meeting in Sarajevo next year is a crucial one on that journey on the EU approximation process. INVESTMENTS IN THE MIDDLE EAST This is a region that has enormous challenges, development challeng-

ON COLLABORATION WITHIN THE REGION Integration is one of our six transition qualities, and we have pushed this very hard because many of our economies are quite small to really grow just by themselves. So one of the best ways for them is to integrate more into a regional economy. It’s also important if you look at the more advanced economies in emerging Europe, many of them have [for example] been low-cost providers down the supply chain for the automotive sector in Germany [and have] been linked very much to it. What has not happened enough is integration between those economies in eastern Europe economically. In the long-term integration brings cross-border ideas, goods, services, much lower costs – it’s really good for the economy, generally, to do this. So I fully support your push on this, actually, I think you’re doing a great job, Emerging Europe, in going for this – it’s something we want to really see happen much more.

Photo: Sir Suma Chakrabarti (courtesy EBRD)

ON THE WESTERN BALKANS More Europe is good for the [countries’] development, their growth, their transition to market economy, but we also think it’s good for their political stability, to move towards a region – and it’s great for improving all the things that are in the [World Bank] Ease of Doing Business survey in terms of investment, climate, improvement and good governance. We’re investing somewhere between 63

es, it has one of the biggest issues of youth unemployment, of matching young people to jobs. It has not been achieving anywhere near its growth potential in the last 20-30 years. And it needs a big push in private sector development. The EBRD has the skill-set, again, to push very hard. And I’m very proud that we come to this first Annual Meeting in the Middle East in Jordan in May, with already more than 6 billion euros of investment in not quite six years [in the SEMED region]. •

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The Future of Work Claudia Patricolo The labour market is tightening, meaning that attracting the right talent will become an increasingly important issue for businesses. Many factors are affecting the demand for jobs and skills, such as the digital revolution, globalisation and demographic changes (including high migration flows). Besides, the financial and economic crisis crushed the Lisbon Strategy’s willingness to increase the EU’s employment rate to 70 per cent by 2010.

s PwC’s report The Untapped Potential on the European Labour Market explains, the supply of labour does not only matter at the micro-level, but the performance of entire economies hinges on the ability of businesses to find the right workers to fill their vacancies. Many European countries are failing to entirely exploit the potential of the labour market, meaning that young generations, older people and women are not always contributing all they can towards economic development. Youth unemployment has risen sharply in most European countries. Engaging youth in the labour market is not only beneficial for national economies, but young workers also benefit from it. PwC research shows that lifetime earnings for those who have been long-term unemployed in their youth is reduced by approximately 50,000 euros. Consequently, these young people will also receive lower pensions. “An important and growing number of youth who have exited the education system are not (or no longer) looking for work and thus are not included in the official unemployment statistics,” writes Stefano Scarpetta, OECD’s Directorate for Employment, Labour and Social Affairs. “While some may have chosen to withdraw from the labour market and

stay on in education because of the depressed labour market, for many young people inactivity is the result of discouragement and marginalisation, which tend to reflect the accumulation of multiple disadvantages, such as lack of qualifications, health issues, poverty and other forms of social exclusion,” he explains. Investing in youth But investing in youth has been a key policy priority everywhere. In 2012 the youth unemployment rate was 23.7 per cent (within EU member states) while in 2018 it dropped to 7.1 per cent, with many central and eastern European countries scoring below the average (the Czech Republic, Hungary, Poland, Estonia, Slovenia, Bulgaria and Romania). “Thanks to strong growth and a dynamic job market in most central and eastern European countries, youth are benefiting from new opportunities and rising incomes,” Mark Keese, Head of Skills and Employability Division at the OECD tells Emerging Europe. “However, just getting a job is not all that matters for young people. Job quality, including a good alignment between the skills that young people possess and those required in their job, is also crucial. Some skills mismatch early in a young person’s career 64

may be expected but, if it persists, the costs can be high for individuals (lower wages and lower satisfaction), firms (lower productivity and higher turnover) and the economy (‘wasted’ or ‘unused’ investment in education)”, he adds. “Along with significant economic growth the unemployment level, including unemployment amongst youth, has significantly reduced during the past few years in eastern Europe,” the Latvian Minister of Finance Dana Reizniece-Ozola tells Emerging Europe. In Latvia, total unemployment has declined, including unemployment amongst the youth. Traditionally higher, young unemployment has been reduced from 36.2 per cent in 2010 to 17 per cent in 2017. “Although the unemployment indicators are now low, in the long-term we can see that a lack of employees will become increasingly relevant. Of course, the simplest way to solve the issue of insufficiency of employees is to bring in guest-workers, however, while local human resources are not being fully used, there are no grounds to make use of it. Firstly, significant structural reforms in the field of education must be carried out and further economic development and overall growth in the level of life must be ensured,” she adds.

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Photo: BigStockPhoto

The educational challenge Not only is there a lack of trust in the labour market, but also the conservative educational system can be considered as one of the reasons behind the high youth unemployment rate, as professional education is not in line with recent labour market needs. “The problem stems from the less flexible educational system compared with dynamic changes in skill needs due to intensive technological development,” notes Professor Iskra Spasova Beleva, deputy director of the Economic Research Institute at the Bulgarian Academy of Science. In fact, the three top performers on the PwC index (Iceland, Sweden and Norway) have some labour market features in common: a dual education system in which students are offered the opportunity to undertake an apprenticeship alongside their formal classroom education, a strong engagement of businesses in youth and schools, and a focus on social inclusion. “Another big challenge is the increasing inactivity of youths due to low

incentives for labour market participation. There are many studies on the topic, trying to answer why that is so, however, the efficiency of respective policies is not sustainable. Entrepreneurship is one of the most important drivers of job creation, but young people are underrepresented in it. Why is that so? Is it because the world of capital is highly monopolised or there are other factors?”, she tells Emerging Europe. “A stable and modern education system is the basis of mitigation of unemployment amongst youth. However, the education system is conservative and difficult to change,” Minister Reizniece-Ozola says. “During the past few years Latvia has carried out significant structural changes in the approach of education in order to develop and introduce such general education content and approach to learning that would develop the knowledge, competencies and habits important for the life in the 21st century. Significant resources are invested in the development of vocational education institutions and

higher education by improving the infrastructure and study content, and adjusting new specialists for the needs of the labour market.” But what maybe five years ago was seen as a challenge today represents an opportunity. “As job opportunities for young people dried up in CEE countries, it also led to many more of them to decide to stay on longer in school and obtain additional qualifications. Now that the labour market recovery is underway and new job opportunities are opening up, this extra time spent in education should help young people get off to a better start. Hopefully labour markets in the CEE region will be more resilient to any future economic shocks and the impact on youth unemployment will be more moderate,” Mr Keese says. At the same time, Bulgaria, after 10 years of building up a modern and efficiently working labour market, is still looking at the free movement of people as the highest challenge. “The opportunities for youths to travel, to study and to work in other

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countries is a personnel advantage. But it could turn in national advantage only in case we have back these people”, Mrs Beleva comments. Digital skills for a digital world The digital revolution (meaning the new digital technologies such as data analytics, artificial intelligence, 3D printing, cloud computing, IoT, robotics) is also affecting the labour market. According to the latest OECD research 14 per cent of all jobs across 32 OECD countries have a high risk of automation and a further 32 per cent of jobs may experience significant changes to how they are carried out. “In some of the CEE countries these risks are even higher as, for example, more than 30 per cent of jobs in the Slovak Republic are at high risk of automation. However, these estimates are subject to considerable uncertainty. Moreover, not all jobs that are technically automatable will disappear. Other jobs will also be created and so employment in total may continue to rise,” Mr Keese says. The tendency is clear: there is a lack of specialists and adult learning will be a crucial aspect. Most workers will need to train to adapt to significant change in the way they work, including to work with new technologies. Unfortunately, according to Mr Keese the likelihood of participating in any type of training, on-the-job and outside the job, is found to be significantly lower among workers in jobs at risk of being automated. But how can new modes of work live together with traditional institutions and industries? “Digitalisation and the emergence of new business models have led to rapid growth in new forms of work in the so-called platform economy. This includes online gig work (which is carried out entirely online and of-

ten globally) and work-on demand via web-based platforms (which is carried out offline and locally)”, Mr Keese says. “The flexibility of gig work in terms of how much to work and where this work takes place offers new opportunities for people to find work and to combine work with family and other personal responsibilities and in66

terests. It also potentially enables traditional businesses, including smaller ones, to offer more services or to obtain more specialised services via the web than was possible previously. It can therefore expand their business opportunities and enhance their productivity.” However, employment and social

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protection regulations are required, including a clarification on how gig workers are classified with respect to employment protection legislation; improving social protection coverage for independent contractors; and removing restrictions that competition law may place on the rights of gig workers to collectively organise.

The positive side of migration The notion that “immigrants are taking our jobs” is spreading worldwide. Not only when it comes to refugees but also concerns intra-mobility as Western and Northern European countries are afraid that migration flows from the East will take 67

away the jobs of local workers. The usual clichéd concerns about doctors cleaning tables in a cafe because of the lack of recognition of their qualifications contributes to this fear. In fact, as reported by Bruegel’s report People on the Move: Migration and Mobility in the European Union, 22 per cent of immigrants to Europe are over-educated for the jobs they do, compared to 13 per cent of natives. Moreover, a good majority of immigrants obtained their degree prior to immigration, meaning that in most cases the host country is benefiting from an education paid for by others. “Nothing is perfect under the sun”, says Mrs Beleva. “From this point of view the competitiveness among the labour force given the free movement of people, goods and capital should be valid irrespective whether local people or emigrants are concerned. These are the rules of fair play in a market.” “However, in many countries the national labour markets are protected by different policies. But if investments in less developed countries are stimulated so as jobs can be created there, this may be an efficient way to slow down emigration from CEE to the West,” she adds. According to the European Investment Bank, intra-EU mobility is a largely untapped resource of higher employment and higher growth as it contributes to improving labour allocation within the EU, helping reduce unemployment in times of crises. “The labour force continues to shrink because of population ageing combined with emigration. Recent economic and labour market developments have been positive. Unemployment rate is 6.1 per cent and the youth unemployment rate is 11.6 per cent, but structural problems remain. As the economy is undergoing structural changes, it is essential to tap into the unused labour potential”, Mrs Beleva says in regards of Bulgaria. •

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Decades of Transition: Results, Problems, Challenges Ivan Mikloš

fter the fall of communism almost 30 years ago everything looked to be clear. A system built on the principles of a command economy and repressed authoritarian politics had totally failed and the only alternative seemed to be liberal democracy and a market economy. In principle everything has moved in this direction for almost three decades, and we can say that the transition of the CEE countries has been a successful story. But at the same time there are significant differences amongst them. Those that carried out more reforms and integrated themselves in to the European Union were also more successful economically, and as a result of this they were able to increase the quality of life and standard of living of their citizens. The most complex indicator of reform success is convergence progress. It shows how quickly countries are converging to the EU average by GDP per capita in purchase parity power (PPP). The most successful convergence countries are Poland, Slovakia and the three Baltic states (Latvia, Lithuania and Estonia). While average convergence progress in these five countries was 22.8 per cent between 2003 and 2016, in the Czech Republic it was 12 per cent, Hungary 6 per cent and Slovenia made no progress on convergence at all in this period. Croatia’s rate was 6 per cent and Serbia 8 per cent.

It would appear that there are three important preconditions for higher convergence progress – start position (from a lower level is easier to grow quicker), reforms and EU membership. But what kind of reforms are a precondition for success? I think there is sufficient empirical evidence which demonstrates that reforms built on sound and sustainable public finance, and institutional and structural reforms based on openness, free and fair competition, economic freedom, property right protection and the rule of law will produce results. Countries that carried out more liberal reforms and integrated themselves in to the EU (and many of them also to the Eurozone) achieved much better results than countries in which these kind of reforms are missing (such as Hungary). In the first years after the fall of communism Hungary was economically (by GDP per capita) in third place among post-communist countries (behind Slovenia and the Czech Republic). Today it is also behind Poland, Slovakia, Latvia, Lithuania and Estonia). Slovenia was overtaken by the Czech Republic and achieved the smallest convergence progress among all CEE countries. What is the biggest challenge facing CEE countries now? I think they are facing a double trap – illiberal democracy and middle income. These two traps are interconnected and they can be a real threat to 68

positive future perspectives. Liberal democracy is under the threat in many places, not only in CEE countries, but nowhere in Europe is this trend now more visible than in Hungary and Poland. Especially in Hungary where newly re-elected PM Viktor Orbán is openly declaring that he is building an illiberal democracy in his country. The problem is that this kind of system is destroying free and fair competition (and thus threatening freedom) not only in the political arena but in principle also in economy. The results are corruption, clientelism, nepotism and as consequence of this (at least from the middle and long term perspective) the economy cannot be competitive enough and cannot also solve the problem of the middle income trap. Corrupted state capitalism simply cannot be competitive in conditions of growing global competition. Another problem connected with this kind of system is that it is also putting the position of these illiberal regimes inside of EU at risk, and as I have already mentioned EU integration is an important precondition of success. For instance, in all these countries money from the European structural and cohesion funds create a significant part of public investment (in Slovakia for instance it is around 80 per cent). Currently, the threat to liberal democracy is the most visible in Hungary and Poland but there are also some warning signals from the Czech Re-

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Photo: BigStockPhoto

public and Slovakia in this regard. What about the middle income trap? Even successful CEE countries built their success on being highly competitive in mass industrial production (like the automobile industry in Slovakia, for instance). As these countries grow they are slowly losing competitiveness in this area in comparison with cheaper countries, and the only possibility for them to sustain high growth is restructuring their growth model to one driven by innovation. To be successful in this process there are four necessary preconditions – sound and sustainable public finance with low debt and deficit, a permanently improving business environment, effective and improving public administration and public service and developed knowledge economy with high quality education,

science and research. For successful restructuring all these fiscal, structural and institutional reforms are necessary – not as temporary short-term effort but as permanent development. The situation now is even more complicated because we are facing new challenges not only in the region and in the framework of the EU, but also globally. After the global financial and economic crisis of 10 years ago the world is in new situation which has created new threats for liberal democracy and open society. Indebtedness has reached very high levels and in comparison with slow growth seems to be a real problem. In this situation, especially alarming is the threat of a new global trade war. It could be a disaster for the whole world but the most serious consequences will be for small, open econ69

omies like the CEE countries. Therefore the most important challenge that countries in the region now face is how to save liberal democracy and open society, how to protect free and fair competition in economy and politics, how to remain responsible and reliable partners in the European Union and Eurozone, as well as in NATO. A new, strong, and liberal leadership is needed now more than anything else. And not just in CEE: it is needed everywhere. •

Ivan Mikloš is a former deputy prime minister and minister of finance of Slovakia; in 2014, he was named the top business reformer by the World Bank’s Doing Business Report.

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Avoiding the Middle-Income Trap Jerry Cameron Emerging Europe takes a closer look at this year’s EBRD Transition Report, and hears from the bank’s chief economist, Sergei Guriev.

The EBRD’s 2017-18 Transition Report confirms what a many of us who cover the emerging European region have thought for some time: that the time has come to focus less on low cost and more on creating unique, high-value propositions and innovation. The report focuses on the challenge of sustaining growth, with particular reference to the experiences of middle-income economies. The analysis in this year’s report builds on various

existing country-level, industry-level and firm-level datasets, as well as unique data on upgrades to road infrastructure and the performance of EBRD-supported infrastructure and energy projects. The report also provides an overview of progress in the area of structural reform and introduces a new assessment of the progress made by the countries of the EBRD region in their transition to sustainable market economies. 70

The middle-income trap The report finds that middle-income economies tend, on average, to experience a slow down in productivity growth at income levels of between one-third and two-thirds of that of the United States. Furthermore, in many economies in the EBRD region, growth is lagging behind that of comparable middle-income countries elsewhere in the world. Having exhausted

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Sergei Guriev

the advantages that used to underpin their strong growth performance in the past – almost without exception low cost labour - the countries of the EBRD region now require a new growth model. That model needs to be based on innovation, going beyond the importing of technology. The analysis in the EBRD’s report shows that the recent slow-down in the region’s productivity growth partly reflects the fact that the region is home to many small firms, which remain small and relatively inefficient. Increased competition from imports, access to export markets and integration into global value chains can all encourage firms to raise efficiency levels through innovation and investment in modern capital stock. Sergei Guriev is the EBRD’s chief economist and the lead author of the Transition Report. He agrees that central and eastern Europe needs to move away from the low-cost model towards competitive cost and high-value, with economies based on innovation and ideas, not cheap labour. “Yes, most of the emerging Europe countries have exhausted the potential of the growth model based on cheap labour,” he tells Emerging Europe. “As we show in the report, subtitled Sustaining Growth, this has resulted in major slowdown in central and eastern Europe (CEE) in recent years. While

prior to 2008 CEE countries have done really well in terms of catching up with their advanced peers, after the global financial crisis they have needed to find a new growth model, based on innovation, productivity growth, investment in sustainable infrastructure, financial development and green growth.” And how does the EBRD help? “The EBRD is at the forefront of the debate providing advice to CEE policymakers and investing in projects that help switching from the old growth model to the new one - such as investment in innovative companies, in sustainable infrastructure, in renewable energy, in local currency and non-bank financial instruments, in integrating CEE firms in to global value chains and improving their corporate governance,” added Mr Guriev. Key infrastructure Countries must not ignore the need to invest in infrastructure. The report estimates that investment in infrastructure accounts for around 40 per cent of all capital needs in the EBRD region. Over the next five years, the region needs to invest 1.9 trillion euros in infrastructure in order to support its growth. Evidence suggests that improvements in market access generate new trade links and broaden the range of products available to consumers,

while the resulting rise in employment can reduce emigration from previously isolated regions. As such, in addition to contributing to competitiveness and integration, transport infrastructure can also help to create opportunities for income growth in historically disadvantaged regions. “Our analysis shows that CEE countries need to invest about 5 per cent of GDP every year in infrastructure to sustain their projected growth rates,” said Mr Guriev. Where this investment should go is at the behest of local governments, the report concludes. It states that specific infrastructure projects should be decided on within the context of each country’s economic environment and needs, taking account of any spillover effects for other sectors. The cost of expanding networks varies from sector to sector, as does the time required for construction, so the order and composition of upgrades could have an impact on the delivery of benefits in the short term. Coordinating investment across sectors and regions can be important in terms of optimising the impact of upgrades. Going green Despite significant progress since the 1990s, emission levels across the EBRD region are still substantially higher than those seen in comparable emerging markets elsewhere in the world, raising concerns about the long-term sustainability of growth. Stronger policies are needed in order to meet the commitments made under the Paris Agreement, starting with the elimination of energy subsidies. The carbon intensity of the EBRD region’s energy sector has declined substantially since 1992, and contin-

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ues to remain at the level of 1992, despite an upward trend since 2009. In most countries, carbon intensity has either decreased since the early 1990s or remained more or less constant. However, many countries’ energy sectors are still among the most carbon-intensive on the planet. Emerging European nations Bosnia, Estonia, Poland and Macedonia were all (in declining order of carbon intensity) in the top 20 economies worldwide in terms of the carbon intensity of their energy sectors. “CEE countries are still polluting more than non-transition countries at the same level of development,” said Mr Guriev. The EBRD report shows that while efforts to tackle climate change are sometimes regarded as coming at the expense of economic success, at least in the short run, there are several studies which point to win-win opportunities when it comes to environmentally friendly behaviour and growth. One shows how improving the average company’s green credentials correlates directly to an increase in labour productivity. In the CEE region, this effect is most evident in Hungary and Poland. Customer pressure also plays a role. If customers voice concerns about a company’s emissions or request related data, that will encourage the firm to act in an environmentally friendly manner. At the other end of the scale, state-owned firms tend to be less environmentally friendly, perhaps because they enjoy greater monopoly power. For firms in central Europe, the single most important determinant of climate friendliness is the presence of R&D facilities on site.

Growth will not be without challenges The report recognises that realising the region’s green growth potential will not be without challenges. It will require determined, far-sighted management and a willingness by the private sector to embrace the low-carbon economy. It will also require better policies on the part of governments. The private sector will look to governments to provide a business environment that is conducive to low-carbon investment. This should start with the removal of energy subsidies and the introduction of appropriate pricing of carbon emissions, but also include regulatory measures (such as efficiency standards) to encourage energy saving, policies to promote renewable energy, and the use of subsidies to promote low-carbon technology. In addition, more comprehensive social safety nets and retraining opportunities may be required in order to soften the structural impact of transition to a low-carbon economy. With the right policies in place, investment will start to flow to cleaner, more sustainable and more productive firms. Reviewing the transition concept The EBRD last year reviewed its transition concept in light of the challenges that countries currently face in trying to achieve sustainable growth. As the report points out, under this updated interpretation of transition a sustainable market economy should be competitive, well governed, green, inclusive, resilient and integrated. Looking at reform efforts across the region over the past year, it is noticeable that

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many relate to competitiveness and resilience. Improving the competitiveness of businesses and sectors and strengthening financial systems seems to be a concern for many countries in the region. In addition, some have implemented reforms in order to improve aspects of governance – an area where the EBRD’s new transition scores suggest that numerous countries have room for improvement. The report’s scores and rankings of individual countries vary across qualities. For example, Slovenia is ranked fifth to seventh in terms of being well governed, resilient and integrated, but second or third in terms of being competitive, green and inclusive. In general however, the best performing countries are in central Europe and the Baltic States. Estonia, Latvia and Slovenia are consistently among the top scorers in the EBRD region. It should also be noted how Bulgaria and Romania perform well overall, but are weak when it comes to good governance and inclusion, as are the countries of the Western Balkans. In addition, Albania, Bosnia and Herzegovina, Macedonia and Kosovo are all ranked in the bottom third in terms of how green their economies are. In eastern Europe and the Caucasus (EEC), countries’ performance is similarly mixed. This region is weak when it comes to resilience, but two or three countries stand out on account of their performance in other areas. For instance, Georgia performs well in terms of good governance and integration relative to other countries. Meanwhile, Armenia, Belarus and Ukraine all stand out in the area of inclusion, but Ukraine faces considerable challenges in the area of good governance. •

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FinTech–Opportunity or Threat? Shakhil Shah

Photo: BigStockPhoto

In a digitised world, the use of technology is increasingly taking over the way we go about our daily lives. People are using a mindboggling array of applications and programmes to deal with almost everything. The opportunities for the FinTech industry are enormous, but risks remain.

he financial services industry has expanded exponentially over the past few years, and there is no sign of growth slowing. From the introduction of mobile pay-

ments, online banking, cryptocurrencies as well as the processing of personal data, the question that now arises is whether using these digital systems when going about our daily business a blessing or a curse. 74

“Like any revolution, there is an element of unpredictability, and the FinTech evolution is no different,” says Sam Tidswell-Norris, Principal at Motive Partners. “FinTech is touching people and businesses in all areas and

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sectors around the world and whilst we encourage change and innovation, it is crucial that we mitigate against the potential for technology to be used as a tool for bad practise.” According to Mr Tidswell-Norris several elements are contributing to the development of FinTech. One such element is the economic underperformance of banks. As Mr Tidswell-Norris explains it, “banks are finding it hard to earn their cost of capital, and are having to look at new business models. Moving from the model of deposits on file and moving towards SAS models, or annual revenue per user models or click fees like those used by technology companies.” He adds that banks need to evolve quickly if they want to continue to be competitive. All power to the customer With the development of FinTech, banks need to embrace the technology and will potentially start operating across a number of different sectors and not be limited to financial services. Another issue is the use of blockchain technology. Poland’s PKO Bank BP recently announced the implementation of blockchain technology to their services. “Blockchain meets the key requirements for durable media, guaranteeing confidentiality and integrity of the documents delivered to clients, which additionally increases the attractiveness of this technology for the banks,” said Grzegorz Pawlicki, director of PKO Bank Polski’s innovation bureau. Another variable according to Mr Tidswell-Norris is customer empowerment. Since the 2008 economic crisis there has been a shift, and customers have stopped trusting banks. They are

now dictating what and how things are used. Risks Michele Daryanani, a cyber thought-leader, explains what he believes to be the risks associated with FinTech. First of all the risks from third-party service providers (for example cloud vendors) needs to be addressed. According to Mr Daryanani, there is an element of operational risk around third party governance. Then there is procyclicality which could emerge from a number of sources, which could lead to systemic risks. This is particularly important when there is a concentration in platforms or market segments. Another risk that he discusses is posed by cross border legal and regulatory issues which need to be taken in to account. In particular when it comes to big data computation and complexity of algorithms, the opacity of these make regulatory disclosure more challenging. “Legislation is progressing inherently slower than technology - such as cryptocurrencies,” Mr Daryanani adds. Most cyber security experts would agree that one key issue surrounding FinTech or any form of technological advancement is cyber risk. The more you move to a digital world, the more you need to ensure your cyber controls are up to scratch, without leaving yourself open to the risks of security breaches. Advantages Even while acknowledging all the risks mentioned above, there are sever75

al advantages to using FinTech. These include the fact that it is more efficient, faster and generally provides and improved experience for clients and end users. We no longer have to be at the mercy of banks to deal with international transactions or payments, everything can be done via your computer or smart phone in a matter of seconds. “Where money and people’s livelihoods are concerned there is inevitably a heightened risk. However, where ‘right touch’ regulation is applied correctly to enhance progressive innovation, the potential for positive change is vast. Broadly speaking, enabling technology has the power to provide more transparent and inclusive, faster, cheaper and better services for consumers and SMEs in emerging Europe and beyond,” says Mr Tidswell-Norris Emerging Europe Emerging Europe has been developing and embracing FinTech for quite some time and in some instances companies in the region are world leaders in their adoption/application of technology. The region as a whole has embraced the adoption of digital services in the financial sector. “Given recent regulatory directives, emerging Europe is undoubtedly a burgeoning FinTech hub. Many countries in the region are well developed in terms of their innovation capabilities in the Financial Services sectors, open to new data regulations and open banking initiatives. Taking Poland as a leading example we see a particularly strong banking and payments sector, and institutions such as Alior Bank (Poland) and RBI (Central & Eastern Europe) are setting international precedent in their approach

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and adoption of financial technology,” says Mr Tidswell-Norris. He also adds that Lithuania is a market leader. “It is attracting global talent in line with their governmental support and establishment of Europe’s first international blockchain centre.” In addition, emerging Europe offers start-ups and investors easy access to the EU market place. A great example of this can be seen in Lithuania, where regulatory procedures are developing quickly to offer investors better access to the EU. “The FinTech market is very dynamic, and the players are aggressive, so being the first to implement an idea is an invaluable asset,” says Mantas Katinas, managing director at Invest Lithuania. “Lithuania can offer startups from non-EU countries access to the European market faster than other EU members.” Some of the world’s most popular FinTech services stem from roots in emerging Europe, for example TransferWise, founded in 2015 by Estonians Kristo Käärmann and Taavet Hinrikus. Ultimately there is no escaping the advancement of FinTech. However, the most important element according to Mr Tidswell-Norris is trust. “This is becoming a more and more important aspect. Banks used to believe that they had it easy, they had the distribution, the capital to invest, they had the trust of the consumer and there were barriers to entry due to regulations. Nowadays, that trust has shifted, the technology companies have the trust. It is creating an enormous shift, trust is going to be an important factor in the evolution of this industry. It is also an important factor between nations.” • 76

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United in Content Andrew Wrobel Emerging Europe speaks to Dragan Šolak, an entrepreneur who has built a Balkan success story and is significantly contributing to the economic development of the region.

Photo: A control room at United Group's network and television operations

ragan Šolak, group chairman of the board at United Group, gives a precise answer when asked how he turned a small cable company he started in his hometown in Serbia in 2000 into the leading cable and media provider in the region of Former Yugoslavia. “We always had a clear strategy: to give customers in this region – with its tremendous development opportunities - the services they really need and want. This includes a great variety of TV programming, innovative customer experience, as well as fast, reliable broadband, the best movies and shows from around the world, but also fantastic local content. And it was important to offer these services in the right bundles, at the right price and the highest quality,” he says.

Photo: Dragan Šolak, Group Chairman of the board at United Group

Power of new technology Mr Šolak, who began his career in the 1990s in the film production and distribution business, says new technologies and the rise of the internet presented him with a real entrepreneurial opportunity to launch his cable company. “Coming from a content production and distribution background, I saw an opportunity to deliver content straight to the consumer. And the development of so-called DOCSIS technology, which allows the addition of high-bandwidth data transfer to cable TV systems, enabled us to include internet services and interactivity in the mix.” The company, which expanded by launching new services and adding assets in a number of new markets, was eventually named United Group, with Mr Šolak assuming the role of group 78

chairman of the board. In his current role, he is involved in all aspects of the business and is responsible for the overall strategic leadership of the group, and he has sound advice for businesses in emerging Europe. “Never label yourself, your company or your environment,” he says. “It can only limit your potential. Think globally and set the highest standards for you and your team, regardless in which market you operate. Follow your dream and there won’t be any obstacles to creating great things. Where others see limitations and problems, you must find opportunities.” He says that he also received support early on from renowned international investors, who wanted to work with the company to bring world-class telecommunications and media services to the region.

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“From the outset, I made sure that United Group was equal to global business standards and governance. This not only helped us to offer very competitive products and services but also to foster strong partnerships with internationally renowned investors and attract some of the best talent in the market. From the start, we partnered with the Southeast Europe Equity Fund, and then in 2004, the European Bank for Reconstruction and Development joined our ranks. Mid Europa Partners invested in 2007,” he adds. “United Group’s channels are operating under the umbrella of the European law as they comply with the European Union's audiovisual media services directive,” he says. A regional leader And since 2014, United Group is majority-owned by KKR, a leading global investment firm. Mr Šolak remained significantly invested in the business and kept his position. Today, with its fibre and cable networks, United Group operates in six markets and reaches about 1.75 million households - an increase of one million since 2011. The company provides communications services to support the growth of over 50,000 businesses in the region. It employs more than 3,400 people and has revenues in excess of 500 million euros. Looking ahead, Mr Šolak says, “we don’t see any limits to what we can achieve.” “We see how the global broadcasting industry is going through a significant transformation, given that the internet and the boom of mobile devices such as smartphones and tablets offer viewers much more flexibility in when, where, and how they view content such as shows, sports events, and news programmes. So to innovate and grow successfully, we must listen and adapt to our customers’ needs and demands.” Relying on local talent Mr Šolak says it was also important

Photo: A customer using United Group's TV platform EON, which offers both local and global content

to create an unique culture to attract the right people and keep them with the company long term. Alongside him, there are two other people on the management board who were there from the very start, vice-president operations Violeta Vasiljevic and United Group CEO Victoriya Boklag. “An entrepreneurial culture attracts the kind of talent that is essential for a 79

business to grow, and we have definitely thrived on it. We have always placed great importance on identifying, guiding, and developing talent across our company and in all the markets we operate in.” According to Mr Šolak, the company has strived to be a meritocracy since the beginning, where work and achievements determine the career of

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Photo: A showroom presenting the different offerings of United Group

employees, regardless of their nationality, religion or gender. Currently, over 40 per cent of the company’s senior team are women. “Our customer-centric philosophy has been key to our success and some of our recent innovations highlight our commitment to constantly adapt our offering and anticipate the business drivers of the future,” Mr Šolak says. “For example, last year we launched a video multiscreen service to allow customers to access content at their convenience across a variety of platforms. And as part of our commitment to improve productivity and efficiency and develop the digital services of the future, we established United.Cloud in 2016 — a technology innovation and software development centre with offices in Slovenia and Serbia. It is home to a team of more than 65 developers, many of whom have coding capabilities.” Mr Šolak believes that producing high-quality local content is also vital part of the company’s strategy. “Despite the rise of global media players such as Netflix, we understand local audiences want to watch shows and movies telling stories that reflect

their lives and experiences. And we aim to ensure that our content has the same production values and quality as international offerings. One great example is the most-watched talent show in the region that we produce, with a total audience of over 30 per cent in the countries where it is broadcast.” United Group has invested to increase its local production capabilities to boost the percentage of owned content on its channels. Mr Šolak is certain that it is this combination of the best local and global content that has helped United Group build a loyal base of customers. Building the backbone “If you look at United Group’s customer churn rate, it is only seven per cent, compared to an average of about 14 per cent for our Western European peers. I believe that our territories are actually very similar from both a cultural and social perspective, and our home-grown content is popular across the whole region — in 2017, United Media channels in Serbia, Croatia, Bosnia and Herzegovina were among the top two pay TV channels viewed 80

and in Slovenia in the top ten pay TV channels viewed." Still, Mr Šolak isn’t complacent; he continues to see opportunities. “The region’s economy is growing and customers are becoming more connected. As the central focus of our business is to meet our customers’ needs, we have built out a diversified business that offers a range of highly popular products in each of these markets,’’ he says. But he adds that it’s important to him that United Group also gives back to the region that has supported it. “We’re not only proud that we have shown how an enterprise can thrive in the region and the positive impact it can have. But also that we played an important part in developing the backbone of the region’s digital infrastructure, helping to boost connectivity and creating new opportunities for local business. We’ll continue to create jobs in the region and we are investing more in developing local content that is helping the region’s creative ecosystem to flourish. All that will help to showcase the economic opportunities in this region to the rest of the world,” he says. •

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We Are Aware Society is Ageing, Yet We Do Nothing Radoslaw Antczak

The population is ageing all over the world. It’s so obvious a fact, that people – on hearing such a statement – usually just nod and carry on. We do not always realise how recent this phenomenon is.

ntil the 1980s, the share of people aged 60 years and over accounted for around 7.5 per cent of the world’s population. Since middle of that decade, the share of older people has been growing, reaching 12 per cent in 2015. Further growth is expected, and in 2050 those over 60 will account for 21 per cent of world’s population. Emerging Europe is no different. The share of older people in 2015 exceeded 25 per cent in a majority of countries in the region, especially in those which are EU members. Only in Albania and Macedonia was the share below 20 per cent. It is expected that those shares will grow significantly and will reach between 33 per cent and 36 per cent in most of the CEE countries in 2050 (in Poland and Slovenia closer to 40 per cent). In 2015, among 20 European countries with the highest share of older people, eight were from Eastern Europe. According to the United Nations, in 2050 there will be 12 CEE countries among the top 20. What this means is that in 2050 there will be approximately twice as many older people aged 60 or above than under-18s in a majority of CEE countries (with the exception of Russia, Belarus, Lithuania, and Serbia). At the end of the communist era, CEE countries boasted young societies, with a much lower share of older people compared to Western Europe, yet convergence in this area happened surprisingly fast. In terms of demographic structure, most of the CEE countries already are – or will soon become – similar to the countries of Western Europe. Old Before Rich Yet Central and Eastern Europe is unique. Demographic changes – increase of life expectancy, sharp fertility decline and rapid net emigration – have been hap-

pening alongside political, economic and social transformations, from the fall of communism, to the opening of the global economy (Botev, 2012)(1). However, contrary to Western Europe, which “became rich before it grew old – Central and East Europe is growing old before it had the chance to become rich.” (Hoff, 2008)(2). This situation has far more important consequences. Older people in Central and Eastern Europe may become a burden for their societies, especially for pension and healthcare systems. In a majority of these countries current contributions are used for current pensioners, and a decreasing share of the working age population will put this system in danger. Healthcare spending is much lower (as a share of GDP) than in Western Europe. Public care institutions are not developed. Accumulation of private capital, which might be used to maintain current living conditions in old age, is very low. The silver economy is already adjusting to demographic trends, offering mobile phones which are easy to use and come with big fonts, trips for seniors, and several different products and services dedicated to older customers. Resource or Burden? Despite this, we do not observe any action being taken by states to fight the challenges of population ageing. Fertility rates are low and social benefits for families (such as the 500 plus programme in Poland) can play only marginal role and only in the long term. Migration to Eastern Europe is very low and is likely to stay low (zero?!) due to the anti-immigrant political agenda. The number of nurses and geriatricians will stay low, and the complex medical needs of older people will not be met by the healthcare system. Policies for old age are developed, discussed, and put into a drawer. Older people, despite being high on the political agenda, are still perceived rather as a burden, not a resource. 81

Photo: BigStockPhoto

We are not talking about the distant future here. It’s not science fiction – it’s just 30 years from now. Many of those reading these lines (the majority?) will expect to live that long, hence they will have a chance to experience a world where every third person will be old. We still think “a solution will appear.” The figures are inexorable, though. There will be no “something,” there has to be someone decisive and courageous to increase further the statutory pension age, to increase healthcare expenditure (hence – taxes), and to invite migrants. Who will it be? • — United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision. Botev, N. (2012). Population ageing in Central and Eastern Europe and its demographic and social context, European Journal of Ageing 9(1): 69-79. Hoff, A. (2008). Population ageing in Central and Eastern Europe as an outcome of socio-economic transition to capitalism, Socialinis Darbas 7(2): 14-25. Radoslaw Antczak is an Assistant Professor at Warsaw School of Economics. His research interests include well-being of older people, survey methods, and analysis of material well-being.

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EBRD: Country Reports ALBANIA: ACCELERATING EUORIENTED REFORMS Matteo Colangeli, Head of Albania, EBRD

Albania is moving forward on its path towards an ever-closer relationship with EU and the EBRD is committed to support the country in this process. A huge step forward was taken on April 17 when the European Commission recommended starting talks with both Albania and neighbouring Macedonia to join the EU. The EBRD is committed to supporting the country in this process. Accelerating EU-oriented reforms, especially in the fields of public administration and the rule of law, continuing to improve the business environment and sustaining the reform momentum in the power sector are key priorities to maintain the country on its positive economic trajectory. Growth of 3.8 per cent is expected in 2018, at the same level of last year, on the back of private domestic demand and major construction works on large energy-related foreign direct investment, such as TAP. Monetary policy remains growth-supportive, and the pass-through from lower interest rates to an increased pace of credit lending is expected to rise gradually, in line with the ongoing efforts to tackle NPLs in the banking sector. The EBRD has invested over 1 billion euros in Albania to date, in more than 80 projects across all sectors. The Bank’s portfolio currently amounts to 435 million euros, pri-

marily concentrated in infrastructure and energy projects. This year should see the closing of the EBRD project financing for TAP, which is set to become one of the largest ever extended by the Bank. TAP represents a unique opportunity for Albania to establish a gas market and potentially become an entry point for Caspian gas not only to Italy but also to its neighbours in the Western Balkans. The Bank is actively supporting the development of this industry in Albania and, in co-ordination with other donors and stakeholders, is working to provide a comprehensive program of technical assistance to the newly established transmission system operator. BELARUS: RE-ESTABLISHING A NATIONAL BRAND Alex Pivovarsky, Head of Belarus Resident Office, EBRD

Belarus is one of the best kept secrets in Europe. Beautiful forests stretch for hundreds of kilometres across the country, peppered with blue glacial lakes and rivers with crystal clear water. Idyllic hamlets, beautiful cathedrals and old castles, which date back to the glorious days when the Radziwill family governed the land… Well, the country is not a complete secret any longer as it is rapidly pursuing greater openness and establishing closer ties with the rest of the world. Since the introduction of visa-free entry for tourists, tens of thousands of people have visited this hospitable European state. 82

Indeed, great road infrastructure and wonderful landscapes make Belarus a desired destination for eco-tourists. However, the country is attractive not only because of its nature and history. Its private sector has grown over the past decade, and the government is making efforts to liberalise the business environment and establish good conditions for foreign investors. As Belarus looks to attract FDI and find new markets for its products, the country has deepened its engagement with international financial institutions like the EBRD. The EBRD has also increased its operations in the country over the last two years. The newly adopted EBRD country strategy for Belarus allows the Bank to work in a variety of sectors and areas from privatisation of state-owned enterprises and banks, where the EBRD provides expert advice and pre-privatisation support, to supporting modernisation of key national and municipal infrastructure players. In early April 2018, the EBRD provided a 42.5 million euro sovereign loan for the completion of the outer ring road in Minsk, which will enable better interconnections around the Belarusian capital and improve links between the country’s major highways. The EBRD provides comprehensive support to prepare the upgrade of a section of the major M10 international transport corridor under a public-private partnership concession scheme, for the first time in Belarus. The Bank is also scaling up operations in the municipal sector. Recently signed projects will help modernise water supply and wastewater management in several towns with a total population of over 400,000 people.

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BOSNIA AND HERZEGOVINA: BUILDING ROADS TOWARDS THE FUTURE Ian Brown, Head of Office Bosnia and Herzegovina, EBRD

The last year ended with good news for Bosnia and Herzegovina. After years of political stalemate parliament finally voted in favour of a measure which will secure the financing of critical infrastructure investment by the EU and international financial lenders like the EBRD. The decision was not just welcomed by the international community – it was swiftly followed up by action: On February 9, the International Monetary Fund said it was unlocking the second tranche of around 75 million euros of a three-year loan that had been frozen for a year while Sarajevo failed to make the required reforms. Only two weeks later, the EBRD used its 2018 Western Balkans Investment Summit in London to unveil an ambitious investment programme of over 700 million euros for the period 2018-2020 for the development and modernisation of the road infrastructure in Bosnia and Herzegovina. At the heart of the plan is Corridor Vc, the motorway section which will integrate the country into the wider European transport network. The challenge now is to translate the new momentum into concrete results which will support the growth of the country’s economy in a way that really benefits its citizens. The EBRD expects growth in the economy of three per cent in 2018, subject to the continuation of a comprehensive reform agenda that was agreed between the local authorities and international lenders and partners of Bosnia and Herzegovina. The reform agenda is addressing six areas: Public Finance, Taxation and

Fiscal Sustainability; Business Climate and Competitiveness; Labour Market; Social Welfare and Pension Reform; Rule of Law and Good Governance; and Public Administration Reform. The EBRD is supporting this effort as a long-standing partner of Bosnia and Herzegovina. To date, the Bank has invested 2.1 billion euros through 148 projects benefitting all sectors of the country’s economy according to their potential and needs. THE EBRD IS BOOSTING THE JORDANIAN ECONOMY Heike Harmgart, Director for the Eastern Mediterranean Region, EBRD

Over the last 10 years, Jordan has put a number of important structural reforms in place that have improved the business climate and helped pave the way for more sustainable economic growth. The country’s progress on the privatisation of state owned enterprises, market liberalisation, the introduction of social protection systems and reforms to subsidies have made Jordan more attractive to both foreign and domestic investors. More needs to be done and the government is working together with multilateral development agencies, including the EBRD, to achieve this goal. The EBRD has been committed to the development of the Jordanian economy since it began investing in the country in 2012. The EBRD has invested over 1 billion euros so far, with 88 per cent of that total going to the private sector. The Bank’s work in Jordan focuses on supporting sustainable energy, especially in the solar and wind sectors, direct and indirect financing for small businesses and promoting infrastructure reforms. The EBRD’s engagement in Jordan’s renewable energy sector began 83

in 2012 when it started to work closely with the government to help address energy shortages. At that stage Jordan imported 97 per cent of its energy despite having a clean energy source in abundance – the sun. Jordan established a regulatory framework for the burgeoning renewable industry which allowed the EBRD to roll out a major renewable energy programme and attract financing from foreign investors. Renewables make up 45 per cent of the Bank investment in the country and its financing has developed more than 1.1 GW of generating capacity in Jordan. In line with its Green Economy Transition approach the Bank has also invested in energy efficiency via credit lines to local banks. The Bank has invested in the Abdali Mall project in Amman, which has placed a high priority on efficient use of energy and water recycling. The Bank also invested in the Ayla Oasis Project in Aqaba which was designed to use renewable energy produced on site, leading to significant energy and water savings as well as reducing carbon emissions. A YEAR OF CHANGE AND POSSIBILITY IN LEBANON Gretchen Biery, Head of Office in Lebanon, EBRD

The past few months have been a turning point for Lebanon and the EBRD’s activities in our newest country of operations. In May, Lebanon held its first parliamentary elections since 2009, a notable development in a complex region. And no fewer than three major international conferences about Lebanon have been held so far in 2018, seeking ways to stimulate the country’s economy, support its security and

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help it deal with the consequences of the Syrian refugee crisis. In March, forty countries took part in a Lebanese security conference in Rome, attended by United Nations Secretary General António Guterres who told the media: “This is the moment in which the international community needs to express its full support for Lebanon.” The international community met again in April for the CEDR E Conference in Paris, where Lebanon received over 10 billion US dollars pledges from countries and multilateral institutions for its capital investment plan (CIP) that provides extensive opportunities for financing from international financial institutions (IFIs) and the private sector. This includes the EBR D pledges of 1.1 billion US dollars in support of the country’s economic growth, job creation and private sector investments in partnership with others. The CIP ref lects Lebanon’s core infrastructure requirements, which will necessitate substantial public and private investment. Lebanon’s passage of the Public Private Partnership (PPP) Law in late 2017 will help facilitate critical private sector engagement in the CIP. The third conference was held in Brussels to help Lebanon cope with an estimated 1.2 million Syrian refugees, who now account for around a third of Lebanon’s population. The crisis has strained labour markets, public infrastructure, government finances and social cohesion in the country. The EBRD is already responding to the refugee challenge with projects to promote small and medium-sized enterprises and to strengthen essential public services in Jordan and Turkey. It will now be able to extend this response to Lebanon as it became an EBRD country of operations in 2017.

MOLDOVA: MORE GOOD NEWS THAN JUST GOOD WINES Angela Sax, Head of Office Operations, Moldova

Considerable progress has been made recently in the Moldovan banking sector. The national bank is successfully tackling the financial system vulnerabilities. With more transparency, lenders are gradually regaining trust of both investors and retail customers. The ultimate sign of confidence in the recovery of the sector is Banca Transilvania’s investment in Victoriabank earlier this year. The first time in a decade a foreign bank has entered the Moldovan market. The Romanian lender clearly acknowledges the massive efforts leading to notable improvements at their new Moldovan family member. Buying into Moldova’s third largest bank was an opportunity not to be missed. Together the EBRD and Banca Transilvania now hold a controlling stake of about 70 per cent in Victoriabank. Our current focus is on restoring good governance and risk management. Once this is accomplished, we will proceed with an ambitious development plan. The EBRD plans to resume its lending to the bank and continue supporting the Moldovan businesses with access to finance. You could argue one swallow does not make a summer. Nevertheless, after the financial scandals tarnished Moldova’s reputation, we see the arrival of a strong strategic foreign investor as a turning point for the whole banking system. This is also expected to serve as an impetus for the sale of the blocked shares in Moldova Agroindbank and Moldindconbank – 41 per cent and 64 per cent of the banks’ shares, respectively. Being the country’s two 84

largest banks, Moldova simply needs them to work in a sound, transparent manner. It is hardly a secret that the EBRD is exploring opportunities to participate in the shareholding of Moldova Agroindbank. This reinforces our strong and continuous commitment to the country. We are indeed the largest single investor here and started working in the country shortly after it declared independence in 1991. Since then we have supported the economy with over 1.2 billion euros through 120 investments across the financial, agricultural, energy, infrastructure and manufacturing sectors. TURKEY: THE POWER OF POSITIVE THINKING Arvid Tuerkner, EBRD Managing Director, Turkey

Turkey’s strong fundamentals are no news. They also rarely make the news. It’s almost a cliché to state that Turkey is at the crossroads of key markets – the European Union (EU), eastern Europe, Central Asia and the Middle East. Its strategic geographical location is not only a boon for trade – the country’s great climate and culture also makes Turkey a wonderful tourist destination. The economy is extremely resilient. In 2017 the country registered the fastest growth rate among G20 countries. It is likely to moderate in 2018 but it will continue to impress. Turkey’s demographics are favourable. Half of its 80 million-strong population is under age of 30. The recent arrival of three million Syrian refugees is a largely untapped economic potential. Public finances are sound. The banking sector is strong and has well established international banking relations. The remarkable entrepreneurial

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spirit of the people fuels the country’s thriving private sector which is comprised of companies big and small, all willing to innovate, grow at home and abroad, create jobs and grow again. The EU remains a strong partner and an anchor for reforms. Call me biased, but these fundamental strengths have underpinned the EBRD’s successful strategy here. We have been here for almost 10 years and have invested over 10 billion euros – overwhelmingly in the private sector. Turkey has been our number one market since 2014. The Istanbul office is our largest (and we also have one in Ankara). But we are also here to boost Turkey’s strengths. We combine our investments with support for crucial reforms. They range from promoting energy efficiency and renewables to competitiveness, deeper capital markets and Turkish lira financing. We make sure that our investments create opportunities for those who cannot easily access jobs or affordable financing, including women, young people, refugees and those living in more remote regions. UKRAINE: MAINTAINING THE MOMENTUM Sevki Acuner, Director for Ukraine EBRD

Ukraine is Europe’s largest state in terms of territory and is well known across the world for its extremely fertile black soil ideal for agribusiness. The country’s favourable geographical location, on the Black Sea coast and right on the border with the European Union, has made it a destination of choice for many investors looking to expand crop cultivating, cattle breeding or food processing activities. The country is nowadays harvesting over

60 million tonnes of grain, which makes it very attractive to all grain traders. Ukraine’s agriculture is a jewel in the crown of the national economy and it has a lot of potential which can be much better utilised if land reform can be implemented. There are 40 million hectares of land in Ukraine and a well-functioning land reform can bring a lot of investments into the sector In recent years Ukraine, which boasts highly-skilled but affordable labour force, has been attracting a variety of manufacturers and IT companies, which outsourced their businesses here. Among the things that make Ukraine interesting is that over the past few years, it has been an economy where a lot of improvements and reforms have taken place. For example, major changes completely re-shaped the country’s oil and gas and banking sectors. Corporate governance reform and unbundling of the country’s oil and gas giant Naftogaz of Ukraine allowed it to make a dramatic U-turn and return to profitability. The job done by the banking sector regulator, the National Bank of Ukraine, is outstanding. The NBU can be credited for a swift and dramatic sector clean-up, which allowed stamping out related party lending and curtailing other poor practices thus bringing back confidence in domestic financial institutions. The EBRD is very proud to be part of these efforts of the government through the ongoing political dialogue and technical support of relevant reforms. UZBEKISTAN: THE DAWN OF NEW OPPORTUNITIES Alkis Vryenios-Drakinos, Associate Director, Head of Tashkent Regional Office, EBRD

In late 2016, Uzbekistan - Central Asia’s most populous state with around 85

33 million people, half the people of the entire region - elected its former prime minister Shavkat Mirziyoyev as president. Since then the country has embarked on an impressive journey of reform, introducing drastic changes to the way the country has been functioning. Soon after taking office, Uzbekistan’s new leader put forward a programme of comprehensive reforms, designed to put the economy on track to realising the country’s significant potential. More importantly, Mirziyoyev’s arrival ended the country’s self-imposed isolation: he dramatically improved relations with Uzbekistan’s neighbours and called for its greater openness towards the world. International recognition was immediate: reputable international institutions and financiers are increasingly interested in the country and more tourists from all over the world are already booking holidays in Uzbekistan. Internally, Uzbek citizens anticipate better days and have started enjoying unprecedented access to social media and virtual cabinets of government officials where ordinary people can provide feedback and proposals on topics of common interest including laws, regulations and government performance. The European Bank for Reconstruction and Development (EBRD) was one of the quickest international institutions to respond. Following the launch of the broad reform programme, the Bank took its engagement with the country to a new stage by opening an office in Tashkent in November 2017 and signing a number of projects in the banking, agribusiness and general industry sectors. The EBRD has already identified more projects to be signed in 2018 and is planning to be a strategic partner for Uzbekistan, contributing not only much needed financing but also best international business standards and corporate governance practices. •

BUSINESS

Green economy at the Heart of EBRD’s Mandate Terry McCallion

ver since it was created in 1991, the EBRD has always placed a very high emphasis on environmental concerns. Over the years we have mainstreamed our activities into a comprehensive and consistent approach leading towards a green economy, going beyond energy and also including areas such as resource efficiency and climate change adaptation. Addressing both economic concerns and political considerations, energy has played an important role for the Bank since its early days: Many of our countries of operations have the highest energy intensity in the industrial world. Likewise, many have been working very hard over the past 25 years to diversify their sources of energy supply. This high awareness put the EBRD in a strong position when the Bank launched its Sustainable Energy Initiative in 2006, initially focusing on energy efficiency and renewable energy investments and in later years widening the range to climate resilience projects and investments focusing on optimising the use of resources. The Bank developed a business model that combines investments with technical assistance and – to overcome market barriers – donor-funded concessional finance. Key partners for delivering this climate finance include the European Union, the Climate Investments Funds, the Global Environment Facility and the Green Climate Fund. In addition, the EBRD works with governments to create an environment that fosters green investment. The successful initiative was transformed in 2015 into the Green Economy Transition (GET) approach which further

broadened the Bank’s engagement in this area. The results speak for themselves. Since 2006, the Bank’s green investments have amounted to more than 26 billion euros with expected emission reductions of around 90 million tonnes. Last year alone, financing for the green economy rose from 2.9 billion euros in 2016 to 4.1 billion euros, accounting for 43 per cent of total financing. The Bank had pledged, ahead of the 2015 Paris Agreement, to devote 40 per cent of its financing to green investment by 2020. This goal has been met three years early. The achievement is the result of the Bank’s hard and determined work, but it would not have been possible without the growing commitment of the EBRD countries of operations to the same goals: For instance, renewables have achieved a real breakthrough in many countries and offer a commercially viable alternative to fossil fuels. Today, EBRD-financed projects range from wind farms in Mongolia to geothermal in Turkey and solar in Egypt, where we are funding the largest

– and award-winning – photovoltaic energy park in Africa. The GET approach also includes dedicated credit lines through partner financial institutions to finance investments in sustainable energy by companies, municipalities as well as private households. Green Economy Financing Facilities have been rolled out across 25 countries in Europa, Africa and Asia and provided almost 4.5 billion in green financing to date. The Bank is also engaged in fostering environments that promote green investments, from creating legal standards to introducing modern procurement and supporting tariff reforms. One recent example is the introduction of competitive auctions for renewable energy to achieve better prices and even out the playing field for investors. The EBRD has recently published new policy guidelines, written jointly with the Energy Community Secretariat and the International Renewable Energy Agency. With its approach the EBRD is making a contribution to the green transformation of the countries where it in invests as well as supporting the delivery of the UN Sustainable Development Goals. Only 12 years remain for the implementation of this enormous pledge and despite significant progress, there is no time to waste. The EBRD remains ready to be at the forefront of this huge global goal. •

Terry McCallion is the EBRD Director, Energy Efficiency.

BUSINESS

Crediting Ukrainian Business – Which Collateral to Choose? Sergiy Benedysiuk

he Ukrainian economy is currently growing, despite the conflict in the eastern part of the country and internal issues such as corruption. Ukrainian businesses looking to expand are increasingly looking to debt financing. However, given the extremely high interest rates offered by the Ukrainian banks, more and more Ukrainian companies are looking for cheaper finance from foreign financial institutions or private investors. However, the efficiency of Ukrainian courts and law enforcement authorities is far from perfect, and many foreign creditors ask a legitimate question – what would be sufficient security to mitigate the risks? Which collateral should be sought from the Ukrainian borrowers? Although Ukrainian law allows a broad range of assets to be pledged as a security, effective enforcement is not the same in respect of different asset types. Pledge of right of claim under a contract with a third party or pledge of goods in circulation, though practically applied by the local Ukrainian banks, are efficient only if the business of the pledgor is wellknown to the pledgee and the collateral is properly monitored on a day-to-day basis. Such a type of pledge does not appear to be an efficient tool to secure substantial longterm financing. Pledge of shares in joint stock companies is enforceable. At the same time, pledge of so called equity shares of a Ukrainian limited liability company (LLC), the most common type of company in Ukraine, can be difficult to enforce in practice due to a lack of efficient mechanisms of registration of the title to the equity shares to the pledgee. The efficien-

cy of enforcement will be improved when the new LLC law enters into force (June 2018), although it is still not clear how enforcement practices will develop. The most common and effective security is mortgage of real estate. Mortgage over non-residential buildings and premises and land plots can be effectively enforced. In addition to standard enforcement via court, so called out-of-court enforcement is available in regard of the real estate. Under out-of-court enforcement, the real estate can be collected from the borrower in case of default and subject to 30 day notice. On the other hand, the downside of such enforcement is termination of any further claims under the loan. In other words, if a piece of real estate, for example a building or a number of buildings, is enforced under the out-of-court procedure, claims under the respective loan agreement are terminated from the moment of the enforcement (where several pieces of real estate are mortgaged – from the moment when the first of them is foreclosed), irrespective of the fact that the value of the foreclosed asset may be substantially lower than the outstanding 87

debt. It is also worth mentioning that such enforcement does not apply automatically. For the out-of-out enforcement to be applicable, the respective clause should be properly worded and incorporated in the mortgage agreement. Last but not least, some enforcement formalities, such a proper notification of the debtor, shall be complied with for the out-of-court enforcement to be effective and legitimate (not exposed to the risk of being successfully challenged in the future). Another effective form of collateral is the pledge of crops or other agriculture products. Such tools are quite commonly applied for financing (especially shortterm) of Ukrainian agriculture companies. The key point here that the agriproducts provided into pledge should be stored at a licensed warehouse of a reliable third party. Such storage is formalised by double warehouse receipt, which ensures that no goods could be taken from the warehouse without the pledgee’s consent. Needless to say, the collateral documentation should be properly elaborated, and a number of the respective formalities (such as inclusion of the records regarding the collateral to the respective state registеrs) should be performed to ensure that the pledge is enforceable. In Ukraine even minor formal deficiencies may be applied by unfair debtor to invalidate the collateral or to suspend the enforcement. However, if the collateral is properly structured from the beginning, the level of certainty and comfort in respect of the future enforcement is quite high. • Sergiy Benedysiuk is Head of Corporate and M&A at Evris Law.

Outlook on Bulgaria

Often unfairly labelled as the EUâ&#x20AC;&#x2122;s laggard, Bulgaria is in fact a dynamic country with a huge amount to offer investors in a variety fields. Challenges remain, but the countryâ&#x20AC;&#x2122;s presidency of the European Council this year has given it a chance to shine.

OUTLOOK ON BULGARIA

BULGARIA

INBRIEF

Bulgarian assumed the rotating sixmonth presidency of the European Council on January 1. During a ceremony in Sofia to mark the occasion the country’s Prime Minister Boyko Borisov set out four priorities for the Bulgarian presidency: “The future of Europe and young people, the European prospects of the Western Balkans and the connectivity between the EU and the Western Balkans, a secure and stable Europe, digital economy and the skills needed for the future.”

ny, Laktima, and also had interests in construction, real estate and tourism.

Just two days after Bulgaria assumed the presidency, President Rumen Radev vetoed an anti-corruption bill passed in parliament in December, saying it would not be effective. He argued that the bill would not be independent and could be used to persecute political opponents. The EU has been pressing the government to take steps to rein in administrative and political corruption for years. Anti-corruption agency Transparency International has said Bulgaria is the most corrupt country in the bloc.

Bulgaria’s Finance Minister Vladislav Goranov suggested in January that the Balkan country is ready to join the eurozone, and that it will take its first steps along the road to adopting the single currency this summer. Mr Goranov told assembled journalists in Sofia that Bulgaria will “most likely apply in the first semester” to join the EU Exchange Rate Mechanism (ERM II), the successor to ERM which helps non euro-area countries prepare themselves for participation in the euro area. The convergence criterion on exchange rate stability requires participation in ERM II.

On January 9, influential businessman Petar Hristov was shot dead outside his office in broad daylight in Sofia, in a case which raised serious questions about organised crime in Bulgaria. Mr Hristov was a 49-yearold executive said to have close ties to Bulgaria’s ruling party. He was shot in the chest while getting into his jeep. He was taken to hospital but died of his wounds soon after. Mr Hristov was the owner of a large dairy compa-

In early January, plans to create one of Europe’s largest ski areas in the mountains above the town of Bansko provoked some of the largest public protests Bulgaria has seen since the fall of communism in 1990. According to the World Wildlife Fund (WWF) the plans for the extended Bansko ski area threaten a World Heritage site home to bears, chamois, wolves and centuries old pine forests.

Bulgaria performed well in the latest Open Budget Survey (OBS), which assesses budget accountability and transparency in 115 countries across the world. The country was ranked 21st worldwide, fourth in emerging Europe behind Georgia, Romania and Slovenia. Foreign Minister Ekaterina Zakharieva welcomed the publication of the European Commission’s Western Balkans 90

strategy in February and committed Bulgaria to doing all it can to further the European integration of the regions. “We welcome the commission’s readiness to support the countries of the Western Balkans with six new initiatives to strengthen the rule of law, security and migration, socio-economic development, transport and energy connectivity, the digital agenda and the abandonment of roaming and good neighbourly relations,” she said. Bulgaria will host a Western Balkans summit in Sofia in May.

The Bulgarian outsourcing industry continued to grow. In February, the Bulgarian Outsourcing Association (BOA) announced that as many as 20,000 new jobs might be needed within the sector by 2020. The outsourcing industry in Bulgaria has evolved of late, moving from what were merely call centre-related activities to more complex processes including analytics, building, maintaining and securing growth of core business operations. According to the BOA, the outsourcing industry is expected to generate a turnover of 2.5 billion euros, or 4.3 per cent of the GDP, by 2020. In March, Bulgaria was ticked off by the EU for not meeting the requirements of the Third Energy Package for the liberalisation of the electricity and gas market. According to the European Commission, Bulgaria misapplied several of the requirements of the directive regarding the separation of networks from gen-

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eration and supply activities and the separation of transmission system operators. “The Commission expects all member states to fully comply with the EU acquis, and, if necessary, we stand ready to offer technical assistance to our member states in order to ensure that they will meet those requirements,” Anna-Kaisa Itkonen, European Commission spokesperson for climate action and energy told Emerging Europe. A state commission claimed in March that the renowned Bulgarian psychoanalyst and philosopher Julia Kristeva worked as an agent and collaborator with the Balkan country’s secret services during the communist era. Kristeva, 76, is the author of more than 30 books and worked alongside leading French intellectuals such as Jacques Derrida, Jacques Lacan and Roland Barthes. The commission that identifies people who had worked for the communist-era secret services alleged that Kristeva, under the code name 'Sabina', had been a

collaborator for the first department of the Committee for State Security. The department oversaw intelligence in the area of the arts and mass media. The Bulgarian Euroins Insurance Group (EIG), one of the largest independent insurance groups in emerging Europe, announced on April 17 that it had bought ERV Ukraine, the travel insurance business of Germany-based ERGO, part of Munich-Re. With purchase agreements signed, the deal is expected to be finalised once regulatory approval has been granted. EIG did not disclose how much it would pay for ERV Ukraine. “The acquisition of ERGO’s travel insurance business in Ukraine is in line with our strategy to expand and diversify our portfolio in Eastern Europe and strengthens our position as a leading insurance group in the region,” said Kiril Boshov, CEO of EIG. Later in April the Bulgarian football club Slavia Sofia have sacked Kenya international Aboud Omar, accusing the defender of insulting his team mates and

coaches. In a statement the club said the problems had been going on for several months and that he had also shown disrespect to Bulgaria. "I decided to remove Aboud Omar from the team and his contractual relations with the club will be suspended under the existing legal order," Slavia president Ventseslav Stefanov said in a statement. The 25-year-old left back became the first Kenyan player in the Bulgarian league when he joined them in 2016. The Bulgarian seaside resort of Sunny Beach was named as the cheapest European beach holiday destination for 2018 in the 12th annual Post Office Travel Money Holiday Costs Barometer. The ranking looked at the price of nine typical holiday items – a cup of coffee, a bottle of local beer, a Coca-Cola, a glass of wine, a bottle of water, suncream, insect repellent, a two-course lunch for two, and a three-course evening meal for two with a bottle of house wine, the cost of which in Sunny Beach is less than 50 euros.

OUTLOOK ON BULGARIA

Maintaining Relationships Alexander Manolev, the Bulgarian deputy minister of economy, speaks to Andrew Wrobel about the country’s stability and potential.

Andrew Wrobel: In April 2016, I spoke to Bojidar Loukarsky, the then minister of economy, who told me that Bulgaria was an island of stability in Europe. Is it still? Alexander Manolev: It is, and several facts strongly confirm this statement. First of all, the political stability — the last parliamentary elections a year ago confirmed the credibility of the largest political party in Bulgaria, which has a stable majority and a clear horizon of governance. Moreover, the main priority is to maintain macroeconomic and fiscal stability to create conditions for economic growth. I can say that this is a trend we have maintained in recent years. Preliminary data for GDP in 2017 demonstrate growth of 3.6 per cent in 2017 and 3.9 per cent in 2016. The 2017 current account balance was positive at about 2 billion euros and at the end of January 2018 it is about 140 million euros. There has also been a steady decline in unemployment since 2015, with a rate of 7.1 per cent in 2017 and it keeps falling. So I can say that the good macroeconomic indicators and political stability are key factors in attracting more investment and guaranteeing sustainable economic growth. But we are not satisfied with these achievements. Today we are faced with many challenges, not only at national level, but also internationally — globalisation, declining demographics, migration, the need for timely measures on environmental protection, increasing resource constraints, as well as the need to introduce technical and technological innovations. Global changes in recent years and advancement of partners and competitors call

for decisive action and even closer cooperation to ensure the future in the coming decades. When we talk about stability, we do not mean only Bulgaria, but also the entire region. One of the priorities of the Bulgarian Presidency of the Council of the EU is security and stability in the Western Balkans. And our country strives to be an active participant in the integration process and strengthening the cooperation among all countries in the region. The aim is to ensure the connectivity of the Western Balkan countries - transport, energy, educational and digital – consistent with our continuing efforts over the years for their European perspective. Before I continue with the challenges, let me circle back to the 3.6 per cent growth. What is your forecast for 2018 like? Indeed, the Bulgarian economy reported 3.6 per cent real growth in 2017, with an expected 4 per cent in the September 2017 forecast. This was due to the stronger negative contribution of net exports, while domestic demand performed better than expected. According to the Ministry of Finance forecast, GDP growth is expected to accelerate to 3.9 per cent in 2018, with domestic demand continuing to be the driving force. GDP growth rates are expected to remain relatively high in the future. Consumption is expected to rise by 5 per cent and the growth of fixed capital investment is expected to reach 10 per cent. Similarly, the forecast for 20202021 is good. Of course, we have GDP growth, but we must strive for even better results to catch up with Western European countries. 92

So we have the growing economy but when we look at the business climate it seems the situation has deteriorated. In the 2017 Doing Business ranking the country came 39th and in 2018 Bulgaria ranked 50th. Has the government introduced any necessary reforms? Allow me disagree with you. This year the ranking methodology has been changed, so the results should not be compared automatically with the previous year. Bulgaria is performing well in cross-border trade indicators (21st place), protection of minority share-holders (24th place), execution of contracts (40th place) and loans (42nd place). But the methodology changes frequently and some countries go up or down. Of course there are lower score indicators and we are aware of those issues. We face many challenges and yet I think we are progressing and achieving better results. And this is confirmed by a number of surveys and studies that various organisations and embassies undertake with foreign businesses in Bulgaria. For example, according to German-Bulgarian Chamber of Commerce research, over 90 per cent of German companies in Bulgaria would invest again in our country if they had this opportunity. Another survey, made by the Embassy of Sweden and processed in their country, among their businesses, shows that 74 per cent of Swedish companies in Bulgaria are planning to expand their operations over the next three years and 94 per cent of the existing investors will maintain or expand their activity

OUTLOOK ON BULGARIA

Alexander Manolev. Photo courtesy Bulgarian Ministry of Economy

here. Similar data is available for Italian businesses and third-country companies. For me this is the most credible indicator of the business environment in Bulgaria and reflective of the attitude of foreign investors. However, as I said, it does not mean there is nothing to improve. On the contrary, we maintain relationships with business and we aim to constantly improve the environment and solve the problems they face. As an example, I can point out that reducing the administrative burden is a top priority not only for the ministry of economy

but also for the whole government. We have made a review of all services and regimes our ministry is responsible for, and we made changes affecting 60 per cent of them such as reducing or dropping fees; reduction of required documents; digitalisation of services. Equally strong measures are taken throughout the administration - ministries, agencies, etc. I can talk a great deal about the things we do â&#x20AC;&#x201D; the support for small and medium-sized enterprises, attracting investment in value-added sectors of the economy, the promotion of implementation and 93

development of innovation. Many of these priorities are supported by the matching budgets. So I think the business environment in Bulgaria is constantly improving and with the joint efforts of the private sector and the state, I hope we will achieve even better results. In January 2017, Bulgaria celebrated its 10th anniversary as an EU member state. Now we are half way through the Bulgarian Presidency of the Council of the European Union, which you briefly mentioned. Do you

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think people's expectations related to the EU membership have been met? I think there is no EU state where people’s expectations regarding the membership have been completely fulfilled. Moreover, the EU is a living organism that continues to grow and improve. As far as Bulgaria is concerned people’s expectations generally about the transition to democracy and particularly joining the EU were higher in terms of the pace of the reforms. Bulgarians were not prepared for the extended process and the high price which this journey required. Nevertheless, EU membership was a motivating and unifying driver for our society which we accomplished relatively quickly. The macroeconomic indicators prove we have achieved remarkable results after accession – the GDP has doubled; exports have reached record heights and our economy has attracted billions of investment. The outcome for a large number of our companies was their successful integration into the value added supply chains within the EU. A good example is the establishment of the Bulgarian automotive parts and components which is interconnected with the EU automotive industry. Bulgaria’s exports have increased over 30 times after the year 2000 and more than 10 times following the accession with 80 per cent destined to the EU. Another compelling example is the apparel industry which has started its integration within EU supply chains since the beginning of the 21st century. It is a primary driver for our exports and improved competitiveness with 90 per cent of the production aimed at EU markets. Bulgaria benefits greatly from the EU’s Cohesion Policy which has a major impact on our economy and the country as whole. But these outcomes are still to be felt in further increasing individual incomes and wealth. This continues to be our primary goal which will improve people’s satisfaction with the membership. However Bulgarians are optimistic about the EU. A recent study by the EU Repre-

sentation in Bulgaria marking the decade of our accession showed that since 2007 the approval of EU membership has maintained its level of 50 per cent with 16 per cent dissatisfaction and 34 per cent undecided. I promised to come back to the challenges, and demographics is a real issue in Bulgaria. The population has already fallen and base-line scenarios predict a further decline by approximately 7 per cent by 2030. How do you see that? Indeed, the negative EU trends for ageing population and declining birth rates are very prominent in Bulgaria. Tackling those issues is of primary importance for the government which takes multi-faceted measures in reducing the brain drain, attracting emigrants to return home, encouraging young entrepreneurs, sustainable economic development, maintain the intellectual capacity and wellbeing of the people. It is our priority to strengthen the ties between education and the labour market by introducing and implementing dual education. We encourage employers to engage in defining the curriculums to reflect their regional needs so that schools could meet those expectations. As such we aim to enhance balanced regional development and create regional sector specialisation. We have drafted a contract between employers and students so that their employment is guaranteed during education and after graduation. These measures correspond with people’s aspirations to find work closer to their homes and relatives. But if some sectors are underdeveloped and underpaid it is only natural for people to look for professional opportunities. We are trying to reverse this trend. Our National Strategy for SME Promotion 2014-2020 features a special focus on Entrepreneurship by aiming to support young entrepreneurs and entrepreneurship education in schools. We have a longstanding tradition as a Ministry to deliver projects which stimulate entrepreneurs to start 94

their own companies and engage with innovation. We also allocate financial resources to educate students on the benefits and mechanisms of starting their own business. We also manage the EU Operational Programme Competitiveness and Innovation which in 2018 will provide 35 million euros to reinforce start-ups. The increase of Bulgaria’s competitiveness will support our efforts to reverse the negative trends we have discussed. I also need to ask you about corruption. This year's Corruption Perception Index ranks Bulgaria 43rd. That doesn't seem to have changed, does it? This is again a top priority for the government and a number of specific actions have been taken over the last year, many of which in line with the recommendations of the European Commission's Co-operation and Evaluation Mechanism. A package of legislative changes has been adopted. We have also developed a National Strategy for Prevention and Counteraction to Corruption, which envisages building an effective system of anti-corruption bodies and units, strengthening the capacity of the institutions and improving the inter-institutional cooperation. A Law on Counteracting Corruption and the Removal of Unlawfully Acquired Property, which creates an effective mechanism for counteracting high-level corruption, has already been adopted. According to its provisions, a centralised anti-corruption body was established. The Code of Criminal Procedure has also been amended and detailed as the Special Criminal Court will now address corruption offences. I'm not a specialist on the subject, of course, and I do not want to go into details, but since the formation of the government, many decisive actions have been undertaken. I also want to assure all potential investors that the institutions in Bulgaria will react to every signal and even to the least suspicion of exerting pressure or any attempt for corrupt practices.

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Alexander Manolev. Photo courtesy Bulgarian Ministry of Economy

Finally, in June the EBRD and Emerging Europe are organising an investment conference showcasing investment opportunities in London. What generally makes Bulgaria attractive for investors? What will be your message for investors? There are quite a few of them. Bulgaria has the lowest tax rates in the EU â&#x20AC;&#x201D; a 10 per cent total direct tax rate, a 5 per cent dividend tax and the lowest operating costs in Europe. Computers, software, new equipment and assets have a 50 per cent annual depreciation. Good labour qualifications are highly appreciated by foreign investors. At the same time, we have the lowest operational costs and our country has proven to be politically and economically stable. A number of incentives are also offered under the Investment Promotion Act, and each serious company receives personalised service from the Bulgarian Investment Agency throughout the whole investment process. Investors appreciate the beneficial environment. Suffice it to say that over the last ten years, according to Bul-

garian National Bank, over 29 billion euros have been invested in Bulgaria. The first among foreign investors is the Netherlands (with over 6 billion euros), followed by Austria (with nearly 3 billion euros), Germany (over 2 billion euros) and Greece (1.9 billion euros). In other words, a very solid base has been created in our country, which we need to continue to improve. In line with the objectives of the Europe 2020 Strategy for sustainable growth driven by knowledge and innovation, the main objectives of Bulgaria's investment policy are to increase investments for technological development in high value-added manufacturing and services and to generate new high-productivity jobs. We aim to undertake integrated counteraction to negative trends in investment activity and employment. We strive to promote industrial zones actively as value-added locations for potential investors. Most of them are managed by the state through a national company, and this provides additional security for companies. As I said, with investments we also 95

try to develop what we have achieved so far. Bulgaria has the fastest growing ICT sector in Southeastern Europe, and we are expecting these professionals to create the world we will live in tomorrow. That is why we must do our best to retain these experts in our country and educate their successors. There are a lot of changes in the service sector and we achieve top rankings along with the best outsourcing locations in Europe. And let me point out that this is also a sector of the future that will be driven much more by knowledge resources than the low cost of raw materials. Mechanical engineering creates jobs for thousands of people in Bulgaria, and the sector is expected to grow in the next years due to constantly evolving and intelligent technologies. Undoubtedly the automotive industry is one of the fastest growing sectors of the Bulgarian economy. A lot of interesting things are going to happen in this sector, and many of them are related to high technology. A lot of other sectors also deserve to be mentioned, including electronics. â&#x20AC;˘

OUTLOOK ON BULGARIA

For Aerospace Investors, the Glamour is Back Vesselin Vassilev

he aerospace sector worldwide is today steadily and rapidly regaining its technological glamour and high business attractiveness, involving not only old and new players in its various supply and value chains but also general pub-

lic fans of aviation and space, including the always eager for new excitement young people. All of this is due both to the rapid and exciting development of new technologies allowing us to fly easily and safely – from the fast development of new aeroplane designs (including

materials, avionics, engines), through various types of personally operated UAVs, to novel non-aeroplane family flight devices such as ‘flying car’, gyrocopters, or even new exciting sports flying equipment such as ‘flight suite’, or ‘iron man’ style equipment, and much else.

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Lowering the barriers The development of new commercial end-user products and services lowering the barrier between the user and aerospace technology (e.g. personal courier services by drones or even the low-cost airline flights, and not to forget security and defence applications and services-aerial imagery and surveillance), further widens the base for rising interest in aerospace sector development, and the use of aerospace technologies in all layers of society. As identified by a number of different studies, the sector has the typical potential to offer the amazing figure of over 400 per cent return on investment in a typical five-year investment horizon. Aerospace is exciting, inspiring and profitable even under slow economic growth conditions. Aerospace expertise today is also largely distributed among various players, thus the bottom-up approach of structuring and executing academic, public and commercial activities is highly feasible and provides competitive advantage for old and new players. The number of start-ups active in the areas of aerospace technologies, UAVs, space technology and their applications is constantly increasing and driving a new ecosystem, complimenting but also gradually changing the game in the sector. Bulgaria is one of the EU countries having certainly strong but largely unexplored potential for developing of aerospace industry. Bulgarian aerospace-oriented business and users are speeding up to take part of the global developments in the sector. Historically, the country was among the pioneers of aviation – being among the first worldwide to use airplanes in military operations during the Balkan war (1912 – 1913) and setting up a national aircraft design and manufacturing industry (1925-1954), with more than 40 aircraft designs and 1000 aircraft units manufactured. Over the years Bulgarian scientists, engineers and experts contributed and held lead positions with different aerospace companies worldwide (Boeing, NASA and others)

and also contributed to the development in the last few decades of a strong national aircraft maintenance and repair industry – both civil and defence oriented. Bulgaria in space Bulgarian aerospace and engineering sciences expertise also led the development of national space science and engineering activities, leading to Bulgaria becoming in 1968 the 18th space nation by launching a nationally-developed satellite payload, and further implementing two national human space flight science programs (1979 and 1988) and various scientific instruments within the former East European INTERCOSMOS program. The Bulgarian public today is among the leaders in the EU willing to support increased EU investment in aviation and space R&TD, infrastructure and services, as shown by some of the European Commission’s Eurobarometer survey series. Bulgarian engineers and professionals are excited by aviation and space activities, willing to dedicate their expertise, energy and career into the sector. Excellent aircraft maintenance engineering education is among the lead factors driving the development today of Bulgaria as a European hub for both civil and military aircraft maintenance and service. The strong world-class engineering expertise of Bulgarian professionals and SMEs in areas such as ICT, electronics (including avionics), mechanical engineering, composites (including carbon fibre), embedded systems, high-speed wireless communications, radars and full systems development and other, is the ground for further developing an aircraft design, aircraft production and aircraft modernisation industry and related business models, including activities related to ground operations and services and air-traffic management. Exciting times In addition to the number of potential vendors through the whole supply 97

chain, there already exist a number of players with expertise in full aircraft and aircraft system design and production – starting from ultra-light sports and recreation airplane design and assembly including avionics, through the development of novel UAV systems for commercial and defence applications (for example long range and time of flight, high payload and speeds). Furthermore, such technological expertise is a strong driver for creating a national space sector industry, largely stimulated by Bulgaria’s associate membership with ESA. There has been increasing attention over the last few years of government bodies to the development of the aerospace industry - opening new opportunities for business activities both in the civil sector, by providing various incentives and support to investors, but also through the national plan for air force modernisation and related purchase and long-term aircraft and aircraft systems maintenance. It is also worth mentioning some new initiatives of the regional authorities in the sector – the participation of Sofia municipality in the aerospace city of the future initiative of the Financial Times, the initiatives of the public and private bodies to develop a national network of small airfields to serve the increasing number of private aircraft owners and pilots. As such, it is correct to say that today the aerospace sector in Bulgaria, although in its initial development phase, offers an exciting and a rapidly growing number of opportunities for achieving excellent R&D and business results to the benefit of both the vendors and the users of the aviation and space related technologies, products and services. Let’s explore these opportunities together! •

Dr Vesselin Vassilev is the CEO of the independent industry-driven Bulgaria-based consortia Cluster for Aerospace Technologies, Research and Applications”(CASTRA, castra.org).

OUTLOOK ON BULGARIA

Energising Industry Claudia Patricolo Bulgaria’s energy sector is one of the main exporters of electricity in South Eastern Europe, and is among the best performing countries in the EU when it comes to green power.

ulgaria is currently ranked as number 44 on the Energy Architecture Performance Index Report, a benchmark of 126 countries, which indicates that it has improved energy efficiency in recent years. Most of the country’s power is generated by the two working nuclear power plants at Kozloduy, which produce one third of Bulgaria’s electricity. Some of the rest is coal-powered, primarily from the mines at Maritsa Iztok, which, according to the World Coal Institute, produces 88 per cent of Bulgaria’s total coal output for generating both heat and electricity. This could be problematic if, as expected, the price of extracted lignite increases, threatening the viability of the mine. “Coal is a basic raw material for all energy. If its price is increased, it will cause a rise in prices throughout the entire production chain,” Minister of Energy Temenujka Petkova said, after a meeting with representatives of Maritsa Iztok. However, Mrs Petkova also stressed how things have changed since the new government took office in 2014. “The mines were in extremely poor financial condition, even wages did not reach the minimum level. Now the situation is radically changed: for the first time the company has positive financial results, and revenues have increased as well as the wages.” Black gold

Bulgaria has also the biggest oil refinery in the Balkans: Lukoil (Lu-

koil Neftochim Burgas), which was purchased by the Russians in 1999. Although oil is mainly imported from Russia, the country is becoming less dependent on it due to pipeline connections to Turkey, Greece and Macedonia. “Bulgarian participation in the project to build a liquefied natural gas terminal near Alexandroupolis is strategically important for the diversification and security of energy supply,” added Mrs Petkova said. “The procedures for choosing a pipe supplier and an engineering consultant are underway. The first of these procedures involves 10 candidates from different continents, which is a sign of the assessment that business gives to the promise of the project. By the end of April, the participants in the second round of the competition will be an98

nounced, and the contractor will be selected in June.” Furthermore, in 2016 Bulgaria signed an agreement with Romania for an underwater section of gas interconnector. This interconnection will bring Bulgaria one step closer to implementing the European Energy Union’s principles of a more secure and stable energy delivery for Bulgaria and its neighbouring countries. But how does Bulgaria aim to move from a transit country for Russian gas to an energy trading centre? “To be honest, I don’t see how it could be implemented as Bulgaria has gas connections only with the Russian pipelines through Romania (in Greece a new pipeline is under construction linking Turkey to Western Greece and on to Italy). Taking into account the

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current political situation there are almost no possibilities to get gas from the Middle East due to the insecure political situation in the region,” Evelina Stoykova, manager at the Sofia Energy Centre tells Emerging Europe. Renewable When it comes to renewable energy, there is no doubt that Bulgaria is performing well. According to Eurostat, Bulgaria reached a 19 per cent share of green energy production by 2012 – well above its mandatory target of 16 per cent for 2020, and well ahead of schedule. “In Bulgaria we have only low-quality coal which has little future. The main potential now is nuclear and solar energy,” Mrs Stoykova says. Currently 80 per cent of the territory of Bulgaria is suitable for utilisation of solar energy. “Using the sun for energy is not new. It is the largest renewable source of electricity. There are many technologies to use solar. They apply in different spheres of life: residential, commercial and industrial, agriculture and transport,” said Dimitar Believe, chairman of the board of directors of the Central Power Renewal Base. For residents the main obstacle is the relatively high initial investment in solar energy utilisation equipment. There seems to be potential for the use of conventional thermal solar panels. Currently traditional solar panels are sold mainly to hotels and office buildings for hot-water supply. Then, biomass is a somewhat unexploited renewable energy source that has a good technical potential of installation. Biomass could cover about 9 per cent of the end energy consumption in Bulgaria and it is somewhere between 0.5 to three times cheaper compared to the widely used diesel fuel. But the Bulgarian renewable energy market is still being hampered by an unfavourable regulatory framework and a hostile and restrictive state policy. According to the Bulgarian Solar Association (BSA), only a few hundred kilowatts of PV were deployed in the coun-

try over the past three years. “Several retroactive measures were implemented against solar in Bulgaria over the past few years, and their negative impact on all of the producers have resulted in insolvency and bankruptcy for a number of them as they have not managed to repay their loans,” explained BSA’s president Malinka Nikolova. “On the other hand people in power regularly discuss the termination of the large solar power installations contracts and cutting their preferential purchase price – they have been trying to do that for years. To date, common sense has prevailed, but the topic is regularly raised in the public space,” she continued. EU impact The European Commission has made it clear that Bulgaria still does not meet the requirements of the Third Energy Package for the liberalisation of the electricity and gas market. The country misapplied several of the requirements of the directive regarding the separation of networks from generation and supply activities and the separation of transmission system operators. “The Commission expects all member states to fully comply with the EU 99

acquis, and, if necessary, we stand ready to offer technical assistance to our member states in order to ensure that they will meet those requirements,” Anna-Kaisa Itkonen, European Commission spokesperson for climate action and energy tells Emerging Europe. As well as that, the privatisation of energy producers and distributors, initiated in 2002, needs to speed up. It is a slow process however, and the sector continues to be somewhat inefficient and in need of a lot more investment. “Promised measures for the transition to clean energy aim at preserving the competitiveness and sustainability of the industry in Europe,” said Minister Petkova. “At the end of 2016, the European Commission presented the ambitious Clean Energy package for all Europeans, which brings together measures aimed at preserving the competitiveness of the transition economy to decarbonisation. I assure Bulgarian companies that they in the government they have a secure partner, defending their interests. In the framework of the first Bulgarian Presidency of the Council of the EU, the Ministry of Energy aims to maintain the pace of discussions on the package so as to bring the dossier to a successful conclusion. •

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World Leader: Bulgarian Outsourcing Shakhil Shah Bulgaria is one of the world’s leading destinations for BPO and ITO outsourcing services. Having won the Global Sourcing Association award for Offshoring Destination of the Year 2015, the country has continued to develop its outsourcing industry.

ulgaria is one of the most progressive countries across CEE when it comes to outsourcing,” says Tom Quigley, CEO of the Emerging Europe Alliance for Business Services, Innovation and Technology. “From government through to the outsourcing association, and investment promotion agency to service providers, there is clear alignment behind the capability of the country.” “Bulgaria was named as the number one outsourcing destination across Europe in 2015, and in 2016 and 2017 we retained top three placings,” adds Svetoslav Ivanov, executive director of the Bulgarian Outsourcing Association (BOA). Rapid development The outsourcing sector in Bulgaria is developing at a rapid pace and has seen significant change and growth in recent years. During this time the country has transitioned from a location for outsourcing services - such as call centres to offering more advanced and complex services such as BPO and ITO services. According to a report produced by the BOA, the outsourcing industry in Bulgaria is expected to generate 2.5 billion euros and account for 4.3 per cent of the country’s GDP by 2020. “The Bulgarian outsourcing sector has gone through fundamental changes over the past decade, moving from customer support services in the period 2010-2013, where the processes and technologies were relatively unified and standardised, to services with high added value,” says Stefan Bumov,

co-founder and COO at HeleCloud. “Driven by customer needs the outsourcing sector now provides far more complex processes including analytics, building, maintaining and securing growth of core business operations such as marketing, sales, accounting, human resources management and Fin Tech, amongst others.” Mr Ivanov says that in its first phase, between 2008-2015, the industry grew on average at 25 per cent year on year. Since then, growth in the industry has slowed. “The outsourcing business in Bulgaria is entering its matured stage,” he says. “While growth is still visible, it has dropped to approximately 10-15 per cent year on year. This trend is logical and understandable as a huge part of the biggest local players are already established and are now in the process of growing their local structures outside the capital Sofia across second tier cities like Plovdiv, Varna and Burgas.” Challenges With this fast paced growth there are inevitably going to be challenges that companies looking to transfer services will face. Some of these challenges include, but are not limited to a shortage of employees, finding appropriate facilities, and increased competition in the industry. With regards to the workforce, by 2020 it is expected that there will be 20,000 new jobs in the Bulgarian outsourcing sector. One of the biggest challenges is finding a well-educated and skilled workforce, especially given that at present the country is experi100

encing a shortage of graduates. “This sector needs experts in HR management, finance and accounting, and IT specialists,” says Plamen Tsekov, board member responsible for government relations at the BOA. He adds that the ability to speak two or more languages is becoming less of an advantage, and he believes that what is more important for the growth of the sector when it comes to the workforce are people with engineering and business skills. However, all is certainly not lost. As Mr Bumov points out, BOA, the Bulgarian government and local authorities are working together to ensure stable growth as well as finding ways to develop the business environment. “The increasing need for an educated workforce is being addressed with numerous state-supported initiatives including the launch of the national education IT Career programme, which engages business organisations and mentors from leading companies in the sector and incorporates the latest technologies, best practices and industry know-how,” Mr Bumov adds. He also mentions the initiative taken by the city of Sofia in launching a new digital platform aimed at facilitating dialogue between schools, universities and business representatives. In addition, several new high schools have been opened, all of which put a particular focus on developing language, mathematical and IT skills. Beyond Sofia Another challenge mentioned above is finding appropriate facilities.

OUTLOOK ON BULGARIA

At present approximately 80 per cent of all outsourced services are concentrated in Bulgaria’s capital Sofia. This causes several issues, not only with access to the talent pool, but also finding office space. “Currently, Sofia has over 1.66 million sq metres of class A and B office space. Demand is rising and the outsourcing sector is the primary driver in this business segment,” Mr Bumov adds. Both Mr Bumov and Mr Ivanov agree that there are increased opportunities and development potential in second tier cities such as Plovdiv, Burgas, Varna and Veliko Tarnovo. Mr Ivanov goes on to add that: “the two leading segments of the industry in Bulgaria are BPO and ITO. The back offices of global organisations, shared service centres and outsourced R&D are among the key outsourcing activities across the industry. In the past 12 months international companies including Coca-Cola, Siemens and VMware have continued to invest in Sofia and

across the country.” In spite of the challenges, Mr Quigley states: “many of the service providers I have encountered have a genuine desire to partner, and approach any transaction with a long-term view in other words you will find many of them, certainly those who are members of the BOA, vested in the relationship, keen to achieve a win-win outcome, and a flexible partner.” Why Bulgaria? There are many reasons for choosing Bulgaria as an outsourcing destination, which include geographical location, developed infrastructure, real estate equipped to accommodate industry needs, an educated work force, taxation, well developed second tier cities and cost savings. However, from the various interviews and conversations that have taken place, it is clear that Bulgaria has maintained its high ranking in Europe with regards to outsourcing also because of the alignment between the government, 101

associations and businesses. According to Mr Quigley, “one of the advantages is the aforementioned vertical alignment of communication and effort from the top down. What’s more, the country is also investing more in future skills within its education programmes, ensuring ongoing access to a steady supply of IT resources. Finally, there is clear evidence that the favourable taxation treatment is luring many Bulgarians back to their homeland, bringing a variety of key skills and competencies back to the country.” Mr Quigley’s advice to companies or investors looking to outsource their services to Bulgaria is that they should “engage directly with BOA. Not only are they incredibly knowledgeable about the skills sets that are prominent in the various cities, but they are genuinely passionate about providing you with the facts and not the hyperbole around outsourcing in the country.” “Please visit us face to face, meet the business, meet the people” Mr Ivanov concludes. •

OUTLOOK ON BULGARIA

Bulgarian Agriculture and Agribusiness Bozhidar Ivanov

ulgaria is ranked fourth amongst EU members in terms of GDP growth for the last decade. Aggregated economic growth reached 85 per cent between 2006 – 2017, whereas accumulated inflation for the period amounts to just 34 per cent. The stable development of the entire economy is reinforced by the strict monetary policy, where the national currency rate is pegged to the euro and the money supply is tied to foreign currency reserves, which engender a less risky and more predictable investment environment. The monetary regime, adopted in 1997, has facilitated the achievement of a conservative fiscal policy over the last 20 years, as the share of consolidated governmental debts amounts to 29 per cent of GDP, which places Bulgaria third among EU member states with the lowest percentage of governmental liabilities. The macroeconomic stability is steadied by the relatively high percentage of total investments, which in the last 10 years represent an average of 24 per cent of GDP annually. Enhancing farming investments The stable macroeconomic conditions, accession to European Union with its common market and valuable cohesive, social and agricultural support policy promote the viability of Bulgarian agri-business. The strongest effect on agriculture is seen in the stabilisation of farm incomes and enhancement of farmers’ investments, which is prompted by tangible public support to agriculture. Annual incomes per farm rose from around 3000 euros in 2007 to over 10000 euros in 2016. Revenues from subsidies rose from around 500

euros per farm in 2007 to nearly 4000 euros in 2016, 40 per cent of factor incomes. Bulgarian agriculture has modernised and significantly improved its technological capacity. Bulgaria's accession to the EU accelerated the restructuring process in Bulgarian agriculture. The number of farms fell from 493,000 in 2007 to 204,000 in 2016 and the average size increased from 6.2 ha to 18 ha. per holding. This is one of the biggest and most significant changes seen since accession: the disappearance of the smallest farms. The GVA from agriculture in recent years has constantly declined and is about 4 per cent of the national GDP due to outmatching growth in secondary and tertiary industries over agriculture. The highest performance is seen within grain and oilseed production, which compose of about 50 per cent of the GAO. Their growth is notable. Public investment Agriculture has taken advantage of the public investment aid bound to the sector. Over 10 years of EU membership, the growth in indirect productive investment in agriculture jumped annually threefold from 50 million euros up to 150 million euros. This has brought a beneficial economic impact. Investments in agriculture grow significantly, but a predominant part of investment also goes on indirect capital (non-productive and auxiliary machinery, buildings and so on) instead of direct (production investment in livestock and crops), which partially improves productivity and efficiency in agriculture but does not contribute significantly to Gross Value Added. Although agriculture’s contribu102

tion to the country’s GDP has fallen, the value added from the food processing industry in the food value chain has achieved significant results. In recent years, the food industry has seen growth of 65 per cent compared to the period prior to accession. The share in total industry GVA remains high over 10 per cent. Since Bulgaria joined the EU, the food industry has adapted well to the conditions of European membership and has overtaken a lot of other industrial sectors. Food exports have increased substantially and their share in the total export volume of the country exceeds 9 per cent. The future challenges to the Bulgarian agriculture are related to achieving a sustainable and vibrant development of the food chain, particularly in terms of boosting the value added. It can be attained by focusing on livestock, fruit and vegetables. The value chain is characterised by a shortage of domestically produced primary raw materials for the meat and dairy processing chains and canning industry, weaknesses are noted in insufficient production efficiency due to high fixed costs and underuse of technological capacity. These challenges should be handled hereinafter. Agriculture provides very good conditions for investment, in the meat industries and vegetable-growing (greenhouses), which heavily depend on capital. Internal conditions are favourably attributed to resource availability, low costs to production factors, while reliable local and external market demand should guarantee further stability, policy consistency and support for different initiatives. • Bozhidar Ivanov is associate professor at the Institute of Agricultural Economics Sofia (IAE).

OUTLOOK ON BULGARIA

Bulgarian Auto: Ripe for Investment Lubomir Stanislavov

ulgaria is increasingly attracting the interest of foreign investors and the country currently has five or six possibilities of bringing in a large car manufacturer. At the moment more than 150 large enterprises from the automotive industry in Bulgaria produce parts for almost any brand of the global automotive industry imaginable. Most of the companies are Tier 1, 2 and 3 suppliers. The export is for 9 of 10 of the biggest carmakers in the world. With over 4.5 per cent of Bulgaria’s Gross Domestic Product and around 43,000 occupied, the automotive industry is surely taking the leading position in the economy of the country. Exisiting companies willing to invest in new property or upgrading what they currently have represent about 30 per cent of all automotive companies in the country. Most of them are planning to invest in equipment and some of them plan to unveil new R&D centres. Magna will be making a new investment in Bulgaria during the period 2018-2021 of more than 100 million euros. Etem has announced plans to expand its factory in Sofia with an investment worth more than 50 million euros. Sensata is going to build a third plant in Bulgaria with an investment of more than 100 million euros, while Melexis Bulgaria is expanding its plant in Sofia with an investment of over 75 million euros. Running R&D facilities are currently concentrated in the development of electronics and diagnostic software, electric and mechanical system design, sensor and indicator design, manufac-

turing system development, etc. Companies like Visteon, Etem, Magna and Sensata will invest in the development of R&D centres. Digitalisation, Industry 4.0, new logistics possibilities and clever infrastructure are among the main topics in the B2B meetings currently being organised in the country. Bulgaria has its advantages when it comes to the automotive industry, as the expertise of the workforce makes the country a much more convenient place for production of car electronics or development of autonomous vehicle technologies than some of its neighbours in Southeast Europe (SEE), such as Serbia or Romania. More and more partnerships with technical high schools and universities are starting to develop, but unfortunately Bulgaria is about 10 years behind the leaders in the region such as Slovakia. The cost of labour is one of the advantages of Bulgaria when choosing a country for the expansion of a business. However, the labor cost is not the only measure when it comes to human capital. Bulgaria is well known for the high skill sets of the talent pool as well. Nowadays, Bulgaria is becoming a popular destination, as employees are fluent in various languages, command mathematics, IT and engineering skills. Also, due to the religious and cultural coherence of the country (over 90 per cent are Christian Orthodox), the employees express loyalty in their work, which is also appreciated by employers. In terms of mathematical and engineering science, Bulgaria takes place among many international pre- and post-college science competitions, many of which won by the Bul103

garian students. Together with the government, Automotive Cluster Bulgaria is developing projects for new industrial zones which will be convenient for the automotive industry — the industrial zones are designed to satisfy the needs of all types of car companies, including Original Equipment Manufacturers (OEMs). Тhe state also supports changes in the education system: for example the introduction of dual education in secondary schools in Bulgaria over the last three years in order to support the business. Automotive Cluster Bulgaria and the local authorities are focused in attracting automotive business in the country and individually prepared to offer incentives, as well as to support the launch of any production in the country. Bulgaria has experience in the production of cars, for example, the Great Wall in the city of Lovech, where production is going to be restarted at the end of 2018, under the brand of Haval, after a restructuring period; BulgarRenault in the 60s and the Rover with the Darucar company in the 90s in Varna. The difference and optimistic attitude today comes from the collaboration between the government, supported by branch organisations such as Automotive Cluster Bulgaria, Financial Institutions (Bulgarian Development Bank), Science Institutes, Universities and Communities. All of them demonstrates readiness and determination to support. • Lubomir Stanislavov is CEO at the Automotive Cluster Bulgaria.

OUTLOOK ON BULGARIA

Unsustainable Tourism? Craig Turp As a number of cities, regions and even countries begin to question their own tourist booms and look to either reduce the overall number of visitors or encourage different, more sustainable kinds of tourism, Bulgaria has so far remained committed to bringing in as many mass tourists as possible. Under pressure from environmental groups, this might be about to change.

he numbers are impressive, and on paper, Bulgarian tourism has never been in better shape. Almost 9 million visitors chose the country as a holiday or shortbreak destination in 2017: a number which exceeds the population of the country. Revenue from international tourism reached 6.9 billion leva (3.53 billion euros) last year, an increase of 9 per cent on 2016. “The growth in tourist numbers over the past five years has averaged six per cent each year,” says Bulgaria’s Minister of Tourism Nikolina Angelkova. “This is above EU and worldwide averages.” The figures for 2018 so far are even higher: up almost 19 per cent on 2017. “There are visibly more tourists in Sofia,” says Paromita Sanatani, who has published the Sofia Insider for more than two decades. “At the weekends it is now almost impossible to hear Bulgarian being spoken in the city centre; English dominates. I would put it down to the huge number of flights: both Ryanair and Wizz Air have bases at Sofia. The majority of these visitors seem to be young people, backpackers, and they are coming from all over the world, from Europe, the US, Latin America.” Pirin in peril Ongoing protests against a project to extend the ski area at Bansko, already Bulgaria’s largest ski resort with around 60 kilometres of pistes, were some of the largest the country has witnessed since the collapse of the

A gondola lift at Bansko. BigStockPhoto

communist government in 1989. Tens of thousands of people took to the streets of Sofia and other major cities in opposition to the project, which would see further construction take place in the Pirin National Park, a UNESCO World Heritage site home to bears, chamois, wolves and centuries old pine forests. Environmental campaigners have condemned the plans. The operator of the Bansko ski area wants to extend the ski area to over 330 kilometres of pistes served by 110 lifts. “When the Bulgarian government amended the Pirin National Park management plan in December 2017 it opened up 48 per cent of the park for construction,” said Konstantin Ivanov, regional head campaigns and communications at the WWF’s Danube-Carpathian Programme. The current man104

agement plan allows for construction on just 0.6 per cent of the park’s territory.” “We are appealing the amendment in court but it could take a long time to get a decision,” Mr Ivanov tells Emerging Europe. “The protests have been going on for more than three months now, taking place in more than 50 cities in Bulgaria and abroad, including in Sofia during the informal council of EU environmental ministers in April.” The row over Bansko highlights a growing problem for Bulgarian tourism, particular winter resorts: many are now well-over capacity, victims of their own success, combining as they do outstanding value for money with facilities as impressive as anywhere in western Europe. The WWF is keen to point out that

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they are far from killjoys, stating in an in-depth report prepared by strategy and policy advisory firm Dalberg that skiing provides opportunities for sport and recreation and to be in close contact with nature. Skiing is also seen as an important stimulant to local economies, and that there are many areas where downhill ski development is appropriate. However, skiing can have a negative impact on ecosystems and their natural value when its development is not controlled and not regulated properly. Any investment must be prudent, with a longer-term perspective of the relative costs and benefits and must be aligned with the principles of sustainable development of World Heritage sites. When boom turns to bust “On the Black Sea coast and at Bansko in particular the building boom which began around 2004 in the anticipation of Bulgaria entering the EU got out of control,” Paromita Sanatani tells Emerging Europe. “More property was built than there were buyers, and infrastructure couldn’t keep up. We have ended up with places like Sunny Beach on the coast which in the peak season suffers from huge water shortage problems. Those people who bought thinking they could make a quick buck have seen property prices stagnate or even go down. There is still far more supply than demand.” “Such development puts enormous pressure on the ecosystem, destroys habitats and in the long run deprives Bulgaria of nature that may not be found anywhere else and which local people can rely on to attract a different type of tourists without destroying nature,” adds the WWF’s Mr Ivanov. In Bansko – whose outskirts remain littered with uninhabited or half-completed apartment complexes, the problem is that lift capacity cannot cope with bed capacity which leads to long queues for the lifts. This is one of the reasons that the resort’s operator is so keen to extend the ski area and double bed capacity. Development at

knows the city intimately. Minister of Tourism Nikolina Angelkova said recently that she wants to encourage more tourism in Bulgaria’s interior, particularly the country’s vineyards. Bulgaria has a longstanding wine-making tradition and increasingly produces wines of very high quality which remain competitive on international markets. The country exported more than 34 million euros worth of wine in 2017. La vie en rose

The church at Assenovgrad Fortress

Borovets, another Bulgarian ski resort, which sits in the middle of a forest less than an hour from Sofia has been much better planned than as Bansko. “As a ski destination Borovets remains more attractive and less busy than Bansko,” says Mrs Sanatani. “Building has been a little less overwhelming, more carefully distributed, plus of course you are not reliant on the one lift to get you up the mountain.” Plovdiv Buzz The current buzz around Plovdiv, Bulgaria’s second largest city, is about far more than being a European Capital of Culture in 2019. The city has a relatively young and dynamic mayor who has been keen to attract all kinds of events to the city. The rejuvenation of the city’s central Kapana district, which had been all but derelict for years, has been a real hit, not only with locals but internationally. “The weather is great, selection of musical events in the amphitheatre is fabulous, and Plovdiv is a great location from which to set out for other places in the region, be it Pamporovo or Smolyan in the south or Isar in the north. And of course, Plovdiv is in the heart of the country’s main wine-making region,” says Paromita Sanatani, who also published a city guide to Plovdiv and 105

Close to Plovdiv is the small town of Kazanlak, ground zero for Bulgaria’s lucrative rose oil industry. Each May the town plays host to the colourful Festival of the Roses, which ends with an extravagant parade along the length of Kazanlak’s main street. Tens of thousands of people line the streets, with the grandstands reserved for local dignitaries and, increasingly, coachloads of Japanese tourists, for whom the festival has become something of an annual pilgrimage. “We get visitors from all over the world, but the most numerous are the Japanese,” Teo Dimitrov, who organises tours of rose oil factories, tells Emerging Europe. “They have been coming since before the fall of communism, but only recently in such huge numbers. I think it’s the unique colour of rose blossom – and the smell of course - that attracts people.” Dimitrov’s sustainable, slow-paced tours which offer insight into Bulgarian tradition, history, and support the local economy are exactly the kind of holidays that the WWF is keen to promote. “Unfortunately, there has been little public discussion on the development of tourism in Bulgaria and in most places development has been carried out on a case by case basis,” says the WWF’s Konstantin Ivanov. “Imagine if the country had a working strategy for the development of spa or eco-tourism? Unfortunately, I don’t see a strategic approach to the development of tourism in Bulgaria.” •

OUTLOOK ON BULGARIA

Easier Than Ever: Getting to Bulgaria

ne of the reasons Bulgaria has been so phenomenally successful at attracting visitors is because the country’s four international airports are all served by a number of international airlines. This despite the fact Bulgaria’s own once prominent airline, Balkan Bulgarian, went out of business more than 15 years ago. Founded in 1947, Balkan became a significant European airline during the 1970s, and was responsible for bringing in almost all of the hundreds of thousands of package tourists who flocked to Bulgaria for extraordinarily cheap holidays. Like many national carriers in emerging Europe however, it struggled to cope with the instability caused by the fall of communism - the airline was a constant source of dispute amongst warring political factions - and after several failed attempts at privatisation it was liquidated in December 2002. Its successor, Bulgaria Air - owned by Chimimport, a large holding company listed on the Sofia Stock Exchange - is currently the second-largest airline in Bulgaria: Wizz Air is the largest. In 2016, the airline saw a small drop in passenger

numbers, down 2 per cent to 1,246,350 million. In 2017 the airline – officially now the national flag carrier – accounted for 15.4 per cent of all traffic from Sofia Airport, the country’s busiest. Wizz Air flew more than 31.5 per cent of Sofia’s passengers, Ryanair 22.2 per cent. Bulgaria Air’s revenue in 2016 totalled 147.6 million euros, and the company made a loss of 3.6 million euros. Bulgaria Air serves 22 major cities in Europe and the Middle East from Sofia, as well as domestic flights to Varna and Burgas. Wizz Air serves 30 destinations from Sofia – including Brussels, Budapest, Geneva, Lisbon, London, Madrid, Paris and Rome, as well as offering nine more routes from Varna and four from Burgas, both on the Black Sea coast. The next biggest player on the market is Ryanair, which flies to nine countries from Sofia, four from Plovdiv, seven from Burgas and one from Varna. Sofia Airport has seen much development in recent times but remains something of an enigma, and the overall experience depends very much on what terminal is used. The small Terminal 1, first built before World War II, primarily serves low-cost and charter

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flights. Terminal 2, opened in 2006, is much more modern and far larger, and yet endless delays in finding a company to run it have meant that it lacks a number of services. Since 2015, Sofia Airport has been linked to the city centre by a direct metro connection. The airport saw a 7.8 per cent year-onyear increase in passenger numbers in March 2018, (556,088 versus 515,857 in the third month of last year), including a steep hike in domestic passenger numbers, which increased 62 per cent. The amount of cargo handled by the airport also grew, by 8.5 per cent yearon-year, to 1890 tonnes. Many visitors – from neighbouring countries especially – choose to drive to Bulgaria. The country’s roads are improving, but some routes remain congested, especially on single-carriageway sections (much of the route from Ruse and the Romanian border to Sofia is single-carriageway). The A1 motorway, which links Sofia to Burgas, and the A4, which links Sofia to Erdine on the Turkish border, have sped things up: Sofia to Istanbul is now just a six-hour drive. The A3, heading south from Sofia, currently goes as far as Blagoevgrad. Only short sections of the A2, which should connect Sofia with Varna, have so far been opened. From continental Europe, the principal train routes to Bulgaria are Vienna to Sofia via Zagreb and Belgrade, and Budapest to Sofia via Belgrade or Bucharest. Sleeping cars are usually available on these services. Approaching Bulgaria from the south, there are direct trains to Sofia from Istanbul, and from Thessaloniki, Greece. Be warned however that despite some improvements in the country’s railway infrastructure, journey times remain far longer than they ought to be. Travelling by train in Bulgaria is for those who have a love of trains and are not in too much of a hurry to reach their destination. •

OUTLOOK ON BULGARIA

Breaking Records: An Outlook on the Bulgarian Real Estate Market Iglika Yordanova

he real estate market in Bulgaria over the past year has progressed, achieving record levels in a number of major segments. The indicators point towards further growth. Outstanding results have been registered in the investment and the office arenas with the outsourcing and automotive industries contributing to the overall buoyant market. The investment market had a record year in 2017 with total sales transactions volume, according to Colliers data, reaching 957 million euro for the first time in the last decade. International buyers have increased activity, prevailing over locals – unseen since 2012. South African funds took the lead, contributing to 71 per cent of total transactions, attracted mostly by shopping centres, followed by offices. A yield compression was observed, consequent to the positive development and the big number of large-scale deals with high quality income generating assets. Following the strong year for the retail segment investment, offices, industrial and logistics, and hotels are likely to start catching up in 2018. Strong end-user demand remains among the country’s advantages, which may reinforce further investment interest. The office market had a record breaking 2017 as well, with total takeup of more than 200,000 sqm or 55 per cent annual growth. The segment had not seen such growth in 10 years. A market specific is the large number of transactions with properties under construction, due to scarce contem-

porary office space availability, with vacancies standing at 9 per cent in 2017. IT and outsourcing companies have played the role of a distinguished demand driver over the few past years. The input of the outsourcing sector on the total number of transactions was evident with its 53 per cent share in the second half of the last year. Furthermore, the sector seems to be establishing itself as a priority sector for the overall economy of the country, now contributing 3.6 per cent to GDP. Another sector with a similar share in GDP (4 per cent) and of growing importance to the country and the real estate market, in particular, is automotive. According to the most recent survey of Colliers International, Automotive Cluster Bulgaria and Pwc, conducted last year, the automotive companies in the country, producing components for top international automotive brands, toal 130, employing over 37,000 people. These are predominantly Tier 1, 2 and 3 suppliers and include producers, which service other industries as well. The components, manufactured in Bulgaria, are aimed at leading brands such as Tesla, Аudi, Mercedes-Benz, BMW, Mini Cooper, Porsche, Bentley, Lamborghini, Ford, Nissan, Seat, Alfa Romeo, Volkswagen, Volvo, Renault, Mitsubishi, Skoda, Fiat. A notable statistic is that 90 per cent of the airbag sensors in European cars are being made in Bulgaria. The unquestionable advantages of the country, identified in the survey, include the strategic geographical location, EU membership, tax incentives, low taxes and operational costs, 107

currency board, variety of educational institutions. All these, combined with one of the lowest corporate tax rates in the EU – 10 per cent, way below Romania with 16 per cent, Poland – 19 per cent, and Slovakia – 21 per cent, make Bulgaria a preferred location for the automotive industry. The other major real estate segments in the country – retail and industrial and logistics, although not breaking records, continued their stable upward development. The retail segment, most appealing to investors in 2017, is likely to experience higher dynamics - modifications in the tenant mix, transformations and reconstructions, resulting from the change of ownership of some of the shopping centres. Retail park attractiveness will grow directly proportional courtesy to the continuous tenant mix diversification. The potential of the industrial and logistics market may well unfold, influenced to a large extent by the automotive sector’s expansion. State industrial zones are likely to enjoy increasing popularity, due to their strategic locations, rapid access to major roads and technical infrastructure, inter alia. Speculative project construction will sustain with 55,000 m2 expecting completion in 2018. The escalation of growth, seen in most of the major real estate segments throughout 2017, points toward a 2018 leitmotif of breaking through to further market prosperity. • Iglika Yordanova is the managing director of Colliers International Bulgaria.

OUTLOOK ON BULGARIA

Is Bulgaria Really as Corrupt as the Headlines Would Suggest? Shakhil Shah

In the most recent Corruption Perception Index (CPI) carried out by Transparency International (TI) in 2017, Bulgaria scored very low, taking 43 points out of a possible 100, as well as ranking 71 out of 180 countries. Based on the results, Bulgaria is the most corrupt country in the European Union.

orrupt means incapable to act by following the rules, Kalin Slavov, executive director at Transparency International Bulgaria tells Emerging Europe. “It is a political and social issue at the same time. On the political side – the public authorities do not perform their functions within the established institutional and legal models and this makes the rules a facade. On the social side – in their everyday lives citizens often face difficulties in taking advantage of their rights according to the formally established rules.” CCTV-ed by the EU “No one is prosecuting political corruption, there are no ex-government officials in jail,” says Ognian Shentov, chairman of the Centre for the Study of Democracy (CSD) in Sofia. “We have reached a stage of state corruption which we describe as state capture.” Bulgaria has been in the EU for over a decade and remains under the EC’s special monitoring mechanism (CVM) in order to bring the country’s justice system in line. The CVM was only intended to last a few years but both Bulgaria and Romania remain subject to it.

“Clearly, the mechanism has produced results. Bulgaria has managed to bring organised crime under control,” Ruslan Stafanov, director of CSD’s Economic Programme told the Guardian. “But on corruption and judicial reform, it is not producing the results the EU and Brussels had expected.” Mr Stafanov also adds that the findings of TI are unjustified, in labelling Bulgaria as the most corrupt country in the EU. “The TI report is a question of whether you like your country or not. I don’t think Bulgaria is experiencing more corruption than, say, Slovakia, but the potential impact is much bigger because the economy in Bulgaria is much smaller,” he says. Whilst Bulgaria has made progress when it comes to corruption, there is still a long way for them to go. Especially in combating high-level graft. More reform needed “What is needed is adequate reform within the public administration, while reform of the judiciary system must also be pursued. Those are the fundamental areas where we should focus our efforts,” said Vanya Nusheva, a political scientist and programme director at Transparency International Bulgaria. 108

“The largest challenge is the defamation of the process of establishment of public institutions through vote-buying and control/pressure over the voters,” TI’s Mr Slavov says. “This is a basis for further replication of the corrupt model in the actions of the authorities. Within our initiative for monitoring last year’s parliamentary elections, TI Bulgaria analysed the anti-corruption measures proposed by political parties in their election platforms.” “At the political level there is ‘competition’ between the president and the government to take ownership of the fight against corruption,” Mr Slavov continues. “This is why there were two separate anti-corruption draft laws. One, which would have seen the president appoint the management of the anti-corruption body, did not pass. Practically speaking, the ‘new’ law represents a codification via incorporation of previously existing laws and does not provide for new regulations. This was the reason for the president stating that such a law was not necessary. The presidential veto itself was more a political act than an attempt at improvement.” But things are starting to look up for Bulgaria. On January 19 a new Anti-corruption and Forfeiture of Assets Act (AFAA) came into force, replac-

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ing two existing pieces of legislation – the Prevention of Conflict of Interest Act, and the Forfeiture of Illegally Acquired Assets Act. In addition, the AFAA creates a single commission to enforce the law. Under arrest In the months since the law came in to force, the Special Prosecution Office and the Anti-corruption and Forfeiture of Assets Committee (AFAC), have been cleaning up corruption in Bulgaria. In March 2018 it was reported that 11 employees of the National Revenue Agency had been detained and would face charges of corruption, while some would also face charges of money laundering and one with heading an organised crime group. More recently, on April 17, Desislava Ivancheva, mayor of Sofia’s central district, was arrested in a raid carried out by the police, the Special Prosecution Office and AFAC. Ivan Gehsev, head of the Special Prosecution Office, said in a press conference on April 18 that “Desislava Ivancheva, the mayor of Mladost, one of the largest districts of Bulgaria’s capital, Sofia, allegedly demanded a bribe of 500,000 euros to allow the construction of four new buildings in her district.” Some critics believe that Ms Ivancheva’s highly publicised arrest was more a show of force than anything else. Nikolay Hajighenov, a lawyer, who runs an anti-corruption blog and is a critic of the government, spoke out on public radio: "This show arrest has nothing to do with justice. A bribe is proven when it

is handed over, not after a chase through the centre of the city." Ekaterina Zaharieva, deputy prime minister for judicial reform, also agrees that the operation involving Ms Ivancheva “went a bit over the top.” Despite the controversy involving Ms Ivancheva’s arrest, it is clear that Bulgaria’s new anti-corruption agen109

cy is taking real steps to lower corruption in the country. It must be given all the support it needs, not least by the EU. As the enormously successful DNA in neighbouring Romania demonstrates, effective anti-corruption agencies can make a positive difference to the perception investors have about a country, becoming powerful national brands. •

OUTLOOK ON BULGARIA

Feeling Good: FDI in Bulgaria Yoan Stanev Bulgaria has seen a significant rise in foreign direct investments since its accession to the EU. But what have investors told us about the business climate in the country?

ccording to preliminary data from the Bulgarian National Bank, Bulgaria received 158.8 million euros in foreign direct investments (FDI) in January 2018 alone, a 64.7 per cent (62.4 million euros) increase from the first month of 2017, which saw 96.5 million euros in FDI. Last year saw 39.9 billion euros in FDI, of which 32.9 billion euros were in non-financial enterprises – an increase of 9.4 billion euros from 2016, according to National Statistical Institute data. The macroeconomic forecasts published by the European Commission are also showing positive signs: real GDP growth in 2017 is estimated at 3.8 per cent (0.4 per cent higher than the previous year, as per World Bank data), driven by both consumption and investment. Higher consumption was fuelled mostly by strong wage increases linked to tighter labour market conditions and to public sector wage increases. Since the financial crisis of the 1990s, Bulgaria’s GDP has increased more than fourfold between 2000 and 2008 – from 13.1 to 54.4 billion US dollars respectively. There are many factors that have contributed to these statistics: for instance, Bulgaria has the lowest corporate tax rate of 10 per cent in the European Union (narrowly beating Cyprus and Ireland who have 12.5 per cent each) and a skilled and

efficient workforce that produces value for money, depending on the industry. However, FDI levels for the last several years have oscillated around 2-3 per cent of GDP, which is significantly lower than the pre-2008 period, when they reached close to 30 per cent, writes Rumen Galabinov – a leading economist. According to Mr Galabinov, the number of investors who plan to do business in Bulgaria in the longterm – 10 years at least – are still too few, and the country cannot rely on EU funds if it wants sustainable economic growth. Therefore, despite the obvious foreign interest in the country, Bulgaria’s business climate is still far from ideal. Emerging Europe has contacted leading entrepreneurs and senior representatives of foreign companies in the country, to see how they have experienced the Bulgarian business climate. Feeling positive On the whole, they gave us a significantly positive image of the business environment in the country. Omourtag Petkov, Chairman of the British Bulgarian Business Association (BBBA) and Partner in Djingov, Gouginski, Kyutchukov & Velichkov (DGKV) – a legal consultancy firm, told Emerging Europe “in combination with low-cost labour, macroeconomic and (relative) political stability, 110

a good geographical location and the somewhat improved infrastructure, low tax rates are seen as the icing on the cake.” Jeffrey Puritt, president and CEO of TELUS International, which operates delivery centres in eight countries, including Romania and Bulgaria, told Emerging Europe that Bulgaria ticked all the boxes: “First and foremost, you need access to a skilled labour pool. Secondly, you need a reliable business environment, and reliability has a number of attributes – an economic climate that’s receptive to foreign direct investment so that companies such as ours have the degree of visibility, the confidence and the certainty that there’ll be an opportunity to generate a return on that investment. I also mean reliability in terms of the infrastructure; whether it’s connectivity, power, airports or roads and the like.” Sofia is undoubtedly the hub of FDI in Bulgaria. Of the 23.5 billion euros invested in 2016, 12.21 billion euros were invested in the capital city itself – over half for the entire country. What makes Sofia so attractive? The founders of Escreo – Yassen Rusev, Elena Nikolova and Iskren Mitev – said that, as a capital city, Sofia’s advantages include “good inner country connections, a rich market and a natural innovation leadership status, thus attracting foreign businesses when they decide to initiate a local develop-

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ment.” The city has many bookstores, vast public transport coverage, street musicians at every corner, farmers markets and it’s constantly striving to improve itself. Vladislav Mihaylov, CEO of Birlibam – a digital business card app – described Sofia as “a city that is developing really fast and is populated with extremely talented, creative and young specialists”. He also mentioned that his enterprise was lucky to be born in Sofia – “At pres-

ent, the entrepreneurial spirit spreads around the country and young people are not afraid to start their journey to the future.” Corruption remains an issue Although Bulgaria has proven to be an attractive business destination for many entrepreneurs, it is not without its downsides. Mr Petkov added that amongst Bulgaria’s disadvantag-

The NDK Building in Sofia. Photo: BigStockPhoto

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es are “excessive corruption pressure in certain sectors of the economy and issues with the rule of law … on a couple of occasions there have been major attempts at ‘stealing’ big businesses from their foreign owners by means of frivolous litigation based on bogus arguments combined with shenanigans at the Registration Agency.” Nikolay Mutafov, CEO of Accedia, recently told Invest Sofia that he recognised the attraction of the highly skilled in-

OUTLOOK ON BULGARIA

Sofia's busy orbital highway. Photo: BigStockPhoto

dividuals in the country and persuading them to stay in the long run as the biggest challenge for him and his company. In addition, he too recognised that the high level of corruption in Bulgaria has proven to be the biggest obstacle to improving the business climate, as is the inefficiency and inflexibility of the state administrative processes and lack of e-government. And although Sofia is a booming capital city, there is significant room for improvement of the infrastructure to allow for a more favourable business atmosphere in the city. In terms of sectors, there are significant investment prospects in the automotive, the outsourcing, and the IT industries. These sectors are thriving in Bulgaria, which has become a top destination for them at European and even worldwide level, adds Mr Petkov. This is generally the case because they fall “outside the radar of the government and politics in general – no public procurement and no public funding is involved.” Also, businesses in those sectors are mostly exporting their

goods and services, they have been kept safe from the changes in the economic fortunes of Bulgaria after 2008. Therefore, they have not experienced the corruption pressure that plagues other industries. Ease of doing business Emerging Europe also spoke to Alan Hutchison, CEO of ProsFit Technologies – a company that develops the technology for prosthetic sockets. ProsFit was founded in Bulgaria and its team is located there, with customers across Europe, Asia Pacific and the Middle East. He emphasised the convenient location of Bulgaria: “We do not have any problems serving these international markets from Bulgaria,” he said. There is political stability and predictability regarding the fiscal and regulatory environment, with access to risk capital and strong logistics connections that ease the import and export procedures. Mr Hutchison also commented on the human capital in Bulgaria, which is extremely valuable, 112

mentioning that the availability of suitable intelligent individuals, suppliers and service providers, the stability, commitment and cultural compatibility of the workforce, as well as the access to technical universities made the country a natural choice. Furthermore, Mr Hutchison drew our attention to the ease with which he launched ProsFit: “We have not experienced any hurdles which were more significant than in other countries. We have not experience any issues with the legal or bureaucratic system or experienced any corruption. The bureaucratic system is relatively effective and often enables paperwork to be handled more easily than in other countries,” said the CEO. The main hurdle for ProsFit Technologies was in fact the language barrier, which was easy to overcome due to being surrounded by supportive people with excellent language skills. Regarding the access to talent in the country, Mr Hutchison recognised that there is indeed a big “fight for talent” to secure individuals with certain skills, especially related

OUTLOOK ON BULGARIA

Central Plovdiv. Photo: BigStockPhoto

to IT and software. “We have recently seen a lack of people in Bulgaria who have international business development and sales experience, but we expect this to grow over time,” he told Emerging Europe. On the other hand, Mr Petkov stated that in more than 40 per cent of Bulgarian business, “the lack of personnel is perceived as the single most important obstacle to the growth” and he adds that “the recently liberalised regime of the socalled blue cards, easing the hiring of skilled labour from outside the EU, will help at least to a certain extent.” However, sectors such as tourism and construction continue to experience difficulties in finding capable non-qualified personnel.

Partnerships Despite such obstacles, Bulgaria continues to attract foreign investors, as it has many of the conditions required for launching and developing a business. However, Mr Petkov highlighted that “having an experienced and reputable local partner and dedicated and highly qualified lawyers would help a foreign investor a lot to succeed in Bulgaria.” Although the state bureaucracy may not have been a significant obstacle for businesses such as Mr Hutchison’s ProsFit, it has nonetheless left a mark on Bulgaria’s business reputation. Mr Petkov added that “detailed and clearly structured relationships and contracts with local 113

partners and suppliers means no unpleasant surprises at a later stage … it is better to avoid the need to look for help and support from the political establishment.” Mr Hutchison maintained that Bulgaria is an excellent investment destination that ProsFit actively promotes. He adds that you can build a good company in the country, from where you can serve international markets. ProsFit’s international investors have been very satisfied with the local situation, security and prospects in Bulgaria and he added that “Bulgaria offers a stable environment for our business, and we intend to continue in Bulgaria - we do not have concerns about keeping the company here in the longer term.” •

OUTLOOK ON BULGARIA

Domestic Demand Still Driving Growth Larisa Manastirli, director for Bulgaria at the European Bank for Reconstruction and Development (EBRD), spoke to Andrew Wrobel about the Bulgarian EU Presidency as well as the challenges the country is facing.

Andrew Wrobel: When we spoke more than a year ago, when Bulgaria celebrated 10 yeras as an EU member state, you told me that a lot of expectations related to the EU membership hadnâ&#x20AC;&#x2122;t been met. Now we are half way through the Bulgarian Presidency of the Council of the European Union. Have things improved? Larisa Manastirli: Well, half-way through the EU Presidency, I would say that the Bulgarian government has been managing the task in a professional and well-coordinated manner and the prime minister and government ministers have been driving the EU agenda discussions on various topics, including sensitive ones, in a very inclusive way by trying to close the gap between various EU member states, while at the same time focusing on achieving shared goals and declared objectives. Expectations were high, and surely met, but we need to wait for a final assessment until the end of the term. I think the priorities chosen for the Western Balkans, which are connectivity and integration, have been well selected and could serve as good examples of strengthening regional cooperation, sharing knowledge and building improved hard and soft infrastructure. These are important steps towards strengthening peace and fruitful trade and economic relationships between and within the countries of the Balkans for mutual benefit. In 2017, we also spoke about the political situation and the upcom-

we canâ&#x20AC;&#x2122;t say that the situation has deteriorated in absolute terms. However, it is a strong signal that Bulgaria has to accelerate and improve the quality and enforcement of actions that contribute to a conducive investment climate in all sectors as the country competes globally for investments. In that sense it is a brutal, yet welcome reminder that competition never ceases. In 2017, the economy grew by 3.6 per cent. It seems that the growth might be slightly lower this and next year â&#x20AC;&#x201D; by 0.1-0.2 percentage points. What pushes the economy forward?

ing elections. Is the situation stable, would you say? Political forces in Bulgaria have managed to maintain political stability despite disagreements. However, it is difficult to predict what will happen once the EU Presidency will be over. When it comes to the business climate it seems the situation has deteriorated. In the 2017 Doing Business ranking the country came 39th and in 2018 Bulgaria ranked 50th. Has the government introduced any necessary reforms? Is the economic situation more predictable long term? I would say the drop in the ranking is mainly due to the fact that other countries have done more than Bulgaria to improve their business climate. So 114

Domestic demand was the main driver of growth in 2017. Private consumption grew as a result of the tight labour market and rising wages, while the improved absorption of EU structural funds saw investment pick up. We expect domestic demand to remain the main driver of growth in 2018-19, driven by these two factors. With GDP per capita standing at 49 per cent of the EU average there are positive convergence-based growth prospects in the medium term, but this may be challenged if structural reforms are not reinvigorated. How do you see the fight against corruption. Has the situation improved? The current government and parliament have taken important steps such as the adoption of a new anti-corruption bill and the establishment of a new anti-corruption authority. These

OUTLOOK ON BULGARIA

Larisa Manastirli. Photo courtesy EBRD

are welcome developments. The society and the business community want to see a more holistic approach and the implementation of all recommendations of the EU Cooperation and Verification Mechanism, including addressing shortcomings in the judiciary, the fight against corruption and organised crime. Demographics is a real issue in Bulgaria. The population has already fallen and base-line scenarios predict a further decline by approximately 7 per cent by 2030. How do you see that? Emigration and ageing weigh on Bulgariaâ&#x20AC;&#x2122;s long-term growth prospects. The job market is expected to tighten further in the coming years, and employers are having increasing difficul-

ties to fill highly qualified positions. We are currently commissioning a study on the labour markets in Romania and Bulgaria, which will also focus on demographic trends and challenges and develop policy recommendations to address these. The EBRD has invested almost 4 billion euros in Bulgaria. In which sectors do you see largest opportunities? We are open to work with companies from many sectors and our portfolio is quite diversified. This mirrors the Bulgarian economy which is also quite diversified and offers many opportunities. Sectors that are growing and in need of funding, include manufacturing, the automotive industry, agribusiness (from primary agricul115

ture to food industry), infrastructure, ICT, power and energy, and tourism. In June the EBRD and Emerging Europe are organising an investment conference showcasing investment opportunities in London. Why would you recommend doing business in the country? Bulgaria is a member of the European Union and as such offers all advantages of the EU Single Market and Customs Union. It boasts an attractive geographical location, has a well-educated and open-minded population speaking foreign languages, offers a mild climate and a well-diversified economy with growth potential, which could be unlocked with new investments. â&#x20AC;˘

OUTLOOK ON BULGARIA

Early Election? Bulgarian Politics Petar Cholakov

Boyko Borisov’s grip on power seems firm but early elections might be just around the corner.

t first glance, both Boyko Borisov - now in his third term as Prime Minister of Bulgaria - and his party GERB have accomplished a lot. The unemployment rate is around 6 per cent (the lowest since 2008) and GDP per capita is increasing. Furthermore, Borisov has embarked on several impressive foreign policy initiatives. The PM hosted the EU-Turkey summit in Varna on March 26, and the cabinet has set the integration of the Western Balkans as a top priority for the Bulgarian presidency of the EU Council. This initiative could not only prove to be very beneficial for the economic development of the region but to also limit Russia’s persistent attempts to destabilise the Balkans. However, even with expected economic growth of 4 per cent for 2018, Bulgaria remains the poorest EU country and the one with the highest level of corruption in the public sector (Transparency International’s CPI, 2017). The freedom of the press has rapidly deteriorated. According to the annual media freedom index published by Reporters Without Borders, Bulgaria collapsed from the 36th position in 2006 to 109th in 2017. The party system is at the stage of a cartel. In general, ruling formations are tempted to use the resources of the state in order to remain in the corridors of power. Nepotism is widespread. Often, instead of engaging in a real competition, parties prefer to

work together behind closed doors, a malicious practice which enables each of them to receive a piece of the pie. The recent sale of CEZ Bulgaria to the small and virtually unknown company Inercom, as well as the chaotic reaction of Borisov’s government to the deal which will affect 3 million consumers, remains the biggest scandal that continues to pose a threat to the ruling coalition between GERB and the United Patriots (UP). The UP consists of three small populist radical right parties – Ataka, NFSB and IMRO. The actions of the leaders of these formations often cast a menacing shadow on Borisov’s ambition to portray his government as a pillar of EU values and a loyal supporter of NATO. The Bulgarian PM withdrew from parliament a motion to ratify the Istanbul Convention on preventing and combating violence against women, faced with ever-growing resistance from the UP, the opposition BSP, and more broadly, with the population. In April 2018, Mr Volen Siderov, the leader of Ataka and an admirer of Vladimir Putin’s regime, said in Crimea that the peninsula was “not annexed by Russia” and claimed that under the influence of his party, the Bulgarian government decided not to expel Russian diplomats over the Scripal affair – a position which is in sharp contrast with the stance of NATO and most EU countries. The opinion polls reveal that despite the incessant scandals GERB remains the strongest political party. 116

However, the gap between Borisov’s formation and the Socialists is shrinking and at present stands at only 2.5 per cent. The most popular politician, with an approval rating of 57 per cent of respondents, is President Radev, who was elected with the help of the Socialists. Borisov’s own rating (33 per cent) lags far behind. The public support for the United Patriots has been reduced significantly to a mere 5 per cent. In order to demonstrate that they have not been tamed by GERB, the leaders of the UP are becoming more and more critical of Borisov’s policies and engage in risky publicity stunts. It is likely that the ongoing scandals will take a toll on GERB while its unruly partners continue to resort to a political blackmail. In this situation Borisov may decide to throw the towel once again and roll the dice by causing a snap election. Thus he will be able to catch the opposition, which grows stronger but is still not ready to rule, off guard. After all, the leader of GERB already employed successfully this strategy at the end of 2016, after his party lost the presidential race. •

Dr Petar Cholakov is a Senior Lecturer in Political Conflicts at the Institute for the Study of Societies and Knowledge of the Bulgarian Academy of Sciences in Sofia.

OUTLOOK ON BULGARIA

Staying Positive: Bulgaria in the EU Eli Gateva

ulgaria joined the European Union (EU) on January 1, 2007. The accession marked an important turning point in the history of the country and the reunification of the European continent. Membership has provided Bulgaria with new opportunities and more importantly a place at the table where the future of Europe is decided. Over the last 11 years Bulgaria’s economic performance has improved. However, incomplete reforms in the areas of judicial reform and the fight against corruption and organised crime have cast a shadow on Bulgaria’s membership and prevented the country from achieving its potential. On January 1, 2018 Bulgaria took over the rotating presidency of the Council of the EU. Leading the Council at turbulent times is not an easy task even for big and experienced member states, but if Bulgaria can rise up to the challenge, it will also allow the country to shape the future of European integration. EU membership has had a positive impact on the Bulgarian economy. The GDP has increased from 28.7 billion euros in 2007 to 45 billion euros in 2016. The Balkan country has benefitted from EU Cohesion policy and regional policy. EU funds have supported the development of major infrastructure projects (including the extension of the Sofia metro and the completion of Trakia and Maritsa motorways) and environmental services. Bulgaria has also used EU funding to boost regional development, competitiveness and innovation. The econom-

ic indicators have improved, but they are still below EU average. Although there is disappointment about the slow pace of economic convergence, support for EU membership remains high. Most Bulgarians think that they country has benefitted from EU membership and continue to support further European integration. Higher standards EU membership has enhanced consumer rights and environmental standards. Despite initial restrictions, Bulgarians have exercised their rights as European citizens and embraced the opportunity to study and work in other EU member states. However, the free movement of labour has made it more difficult for Bulgaria to retain and attract highly skilled professionals. This is a pressing issue which Bulgarian politicians will need to address as a matter of urgency. The Bulgarian authorities have also been urged to address outstanding issues in the areas of judiciary reform and the fight against corruption and organised crime. The main EU institutions have repeatedly raised concerns about the slow pace of reforms. Bulgaria has been monitored by the European Commission under the Cooperation and Verification Mechanism (CVM) for more than a decade. The 2016 CVM report noted that ‘over the past ten years, overall progress has not been as fast as hoped as for and a number of significant challenges remain to be addressed.’ Enhancing the efficiency and the ef117

fectiveness of judiciary is crucial for advancing the quality of democracy and economic development. The national interest In addition to driving domestic reforms, EU membership enables member states to pursue their national interests at European level. The Bulgarian Presidency has prepared an ambitious agenda with key priorities including: cohesion policy, the digital single market and the European perspective of the Western Balkans and Turkey. It is too early judge how successful the presidency will be. However, it has managed to put enlargement back on the EU agenda and has tried to enhance the partnership between the EU and Turkey. EU membership has had a positive impact on Bulgaria. However, it is clear that there are still a number of important reforms that need to be completed in order to allow Bulgarians to enjoy higher levels of economic prosperity, better governance and better quality of life. Being at the helm of the Council in the first half of 2018 is a huge responsibility, but it will also provide Bulgarian politicians with the opportunity to demonstrate their European credentials and allow them to shape the debates about the future of the Union. • Eli Gateva is Associate Lecturer at the University of York. Her main research interests include EU conditionality, EU enlargement policy and EU democratic governance.

OUTLOOK ON BULGARIA

Bulgaria's EU Presidency: Expansive Yoan Stanev At the helm of EU decision-making 11 years after accession, Bulgaria is seeking to lead the Western Balkans into the EU.

ulgaria acceded to the EU in 2007 along with Romania and, exactly 11 years later, took up the presidency of the council of the EU – the EU institution representing the executive governments of the member states. It is the first time that the country has had to step up to such a leading role within the Union. Unlike the traditional public negativity towards the state institutions, the public mood was generally positive towards the country’s EU presidency. In a Gallup International survey of late 2017, 55 per cent of respondents believed that Bulgaria will do well during its Presidency, 16 per cent thought the opposite, and over a quarter, 29 per cent, did not know or did not provide an answer. A key priority of the presidency is foreign policy – the Western Balkans and its European Perspective and Connectivity. In its official programme, the presidency recognises that accession to the EU is “the most effective instrument for guaranteeing peace, stability and prosperity in the Western Balkans.” By prioritising the neighbouring region, Bulgaria has sought to cement itself as the leader of the Balkans into Europe, even claiming that its ambition during is “to be a Balkan presidency.” The Commission’s Strategy Paper for the Western Balkans, published in February 2018, kick started the presidency’s Western Balkan ambitions. The paper sets 2025 as a target year for Serbia and Montenegro to join the EU if they carry out all the necessary reforms – it is explicit that this is not an accession promise. With this strategy paper, the EU reaffirmed its commitment to the region: “The door is open ... There is a clear path for the Western Balkans

to finally join the European Union,” EU foreign policy chief Federica Mogherini said of the six countries in question, as she presented the plan at the European Parliament in Strasbourg. However, realising that such favouritism on the part of the Commission, by setting a goal date only for Montenegro and Serbia, does reinforce the regatta principle – that the EU is encouraging the Western Balkan countries to race and outdo each other in the lead up to accession – which is in itself contradictory to EU calls for regional cooperation as a prerequisite for accession. Commission president Jean-Claude Juncker subsequently stated that the 2025 target should apply to all Western Balkan nations. Sofia, therefore, has a chance to bring about greater consistency in EU policy towards Western Balkan accession when it hosts the EU-Western Balkans summit on May 17. An important step in the right direction was the historic (and long overdue) signing of the Treaty of Friendship, Good Neighbourliness and Cooperation between Bulgaria and the Republic of Macedonia (FYROM). The treaty seeks to mend differences regarding historic events, the celebration of mutual holidays and improved links between the countries. The Balkans are known for having good transport connections to Western Europe, but intraregional transport infrastructure remains inadequate. Having remained unfinished since the communist period, the construction of the Sofia-Skopje railway service is expected to be renewed and completed by 2027, connecting several towns along the route in both countries. Although the task of leading the integration of the Western Balkans into

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the EU is a justified one for the Bulgarian presidency to set itself, it is by no means an easy and straightforward process. The highlight of the presidency will indeed be the EU-Western Balkans summit. Bulgaria has never before hosted an international meeting of this magnitude, which is to include all 28 EU leaders and the six Western Balkan leaders, including, yes, Kosovo. The difficulties regarding Kosovo and its international status means that not all who are invited are willing to sit at the same table. Spanish Prime Minister Mariano Rajoy told his Bulgarian counterpart Boyko Borissov that he may not attend if Kosovo is participating – Mr Rajoy himself faces problems with separatists at home. Sofia’s plan to ease tensions is to host a first stage of the summit – a dinner with the 28 member states only, and a second day with the leaders of the EU institutions and the six Balkan hopefuls. However, this plan may prove to fail: not surprisingly, Serbia may refuse to sit at a table with Kosovo. The Bulgarian presidency is understandable, and rightfully, seeking to replicate the role of Catherine Ashton during her mediation of Belgrade-Prishtina talks in 2013, but it will have greater difficulty, as the discussions will not be about the normalisation of Serbia-Kosovo relations, but aboutthe accession of the six nations, thus de facto recognising Kosovo as a potential candidate country and, in practice, an independent state. Hopefully, Sofia can utilise its current presidencyof the council of the EU and establish itself as a key regional player and promoter of peace and stability in the entire Balkan region. We will see how Bulgaria will mediate on May 17. •

OUTLOOK ON BULGARIA

Unlocking Georgia to the world

119

After Hours

Sand dunes on the Curonian Spit, Lithuania. Fabulously sandy beaches, often deserted, as well as ice cold waters await the intrepid bather on the Baltic Riviera. Klaipeda is the perfect base from which to explore the area, see pages 134-135.

AFTER HOURS

ARTS Photo: Wikipedia

CARTOONS Poking fun at Nicolae Ceausescu Mihai Stanescu

In his little shop opposite the Sala Palatului, whose concave roof makes it one of Bucharest’s most recognisable buildings, cartoonist Mihai Stanescu would welcome visitors – be they fans or simply curious tourists looking for souvenirs - with the same nonchalance that made it possible for him to mercilessly mock the regime of Romania’s dictator Nicolae Ceausescu during the 1980s. A prize awarded by a Japanese organisation in 1982 offered Stanescu international notoriety and protected him from too much interference from the Securitate, Romania’s omnipresent less-than-secret secret police. “I used to act like a free man,” he said in one of his last interviews. “I used to draw exactly what I wanted, and when no publication would print my cartoons, I would simply carry them around in my portfolio and show them to people on the street. I would send them abroad, too: then they would be published. And a few won me prizes, which gave me a kind of protection. Once, with the help of the artists’ union, I managed to print 5000 copies of a book featuring my work. It had no title, we just called it ‘Mihai Stanescu.’ We sold 4000 in two days before

the Ministry of Culture found out and confiscated the rest.” His most famous cartoon, produced in the late 1980s, mocked Ceausescu’s policy of exporting Romanian produce to pay off its foreign debt, a policy which led to serious food shortages throughout the country. The cartoon depicts a skeletal figure on a dentist’s chair, who has just been given a filling. “Best not eat for at least three hours,” the dentist tells the skeleton, as if Romanians in those days had a choice as to when (or even if) they could eat. Stanescu, who died in April at the age of 78, was born in 1939 in the vil122

lage of Grădiștea, near Mizil in southeastern Romania. He chose art school in defiance of his mother, who wanted him to study medicine. Sent after graduation to the Tourism Ministry, for whom he created brochures, he soon became bored and went freelance: almost unheard of in communist Romania. One of his best-known projects was a series of photographs featuring his daughter, Daiana, wearing the same dress, taken from the age of 6 to 29. She would often help out in the shop, which Stanescu eventually closed in 2016 to enjoy retirement.

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THEATRE Cost of Living Martyna Majok

in, when his behaviour became unhinged, he started to alienate himself from that community. And because my mother was associated with him, she was also alienated. And alone in a lot of abuse. The community excluded her so she took herself out. She turned to her kids. A different job. To other people, not in that community. And eventually she left that man.” FILM

Photo: Joan Marcus

Polish-American playwright Martyna Majok, whose play Ironbound was one of the outstanding plays of the 2015 Women’s Voices Theatre Festival, has been awarded the 2018 Pulitzer Prize for Drama for her play Cost of Living. Premiering at the Williamstown Festival, Cost of Living received an Off-Broadway production from the Manhattan Theatre Club in June, 2017. Majok, who was born in Bytom, near Katowice, is known for giving the voiceless a voice in her plays, which include stories immigrants, women, and the disabled. Cost of Living is no exception. It features two couples: Eddie and Ani, an ex-truck driver and his wife who is quadriplegic, and John, a man with cerebral palsy, and Jess, his caregiver. It is a play that delves into the chasm between abundance and need and explores the space where bodies - abled and disabled, rich and poor - meet each other. “I came to the US when I was young and grew up in a largely immigrant neighbourhood,” she told Playwrights Centre in a recent interview. “My mother began learning English when she came over. Everybody was working similar jobs. They had factory jobs together; they were cleaning houses, and taking care of the elderly. My mother was invited to America by a man she ended up marrying. He introduced her to ‘his’ community—a subset of Polish immigrants amongst a larger immigrant community with people from everywhere. A few years

Men Don’t Cry Alen Drljević

Buddhist meditation teaches us that anger towards someone else is only a reflection of our own failures and fears. As this is true in everyday life, it becomes even more real for those people who have experienced war. Bosnian director Alen Drljević brings different veterans together for an unusual workshop: “the war ended 20 years ago, but not for you” is the slogan of Ivan the therapist. Men Don’t Cry (Muskarci koji ne placu) takes place in a hotel, otherwise closed for the off-season, in the Bosnian mountains. Here a group of survivors have just begun a new war: their own. They 123

come from different backgrounds: they are Serbs, Croats, Bosnians, Christians and Muslims; some of them have physical disabilities, others only psychological wounds. But they are all there because they have been promised a monetary reward for their participation, which for most of them could be very useful as they are facing a very difficult period of their lives (divorces, unemployment and financial problems). Men Don’t Cry, Drljević’s film debut, won the 2017 Special Jury Prize at the 52nd Karlovy Vary International Film Festival and it was selected, although not nominated, as the Bosnian entry for the Best Foreign Language Film at the 90th Academy Awards. Through amusing team-building activities and trust exercises, Drljević explores the modern male world, made up of machos values, ethnic and religious prejudices and male dominance. Not all of the characters will accept their past. On the contrary, some preconceptions will remain, maybe stronger than before. Alen Drljević was already known for his work related to the Yugoslav war. His graduation film Paycheck won the EFA/UIP Award at the 11th Sarajevo Film Festival and was nominated for the Best Short Film Award of the European Film Academy. Furthermore, his feature documentary Carnival was screened at one of the most important documentary film festivals, IDFA.

AFTER HOURS

Post-Soviet Vision: The New East Tamara Karelidze Photos: Armen Parsadanov [left], Patrick Bienert and Max von Gumppenberg [right]

An insightful and provocative exhibition warns against romanticising the countries of the former Soviet Union.

lmost 28 years have passed since the collapse of the Soviet Union. Post-Soviet countries have started along a new path, and an entire generation has since been born which, unlike their parents, has no experience or memory of living in the USSR. However, they do have a common past, and common interests are never too difficult to find. How is life in Post-Soviet countries after the collapse of the Union? This is one of the most popular subjects for many academics, researchers, journalists and even ordinary people from Western Europe. They see the emerging European region as one full of countries offering an entirely different perspective on life. Many people are interested in how the new, young gen-

eration sees their countries and how the past impacts the present. Shared experience The shared experience of post-Soviet countries and the way they are developing was one of the main inspirations behind the Calvert 22 Foundation’s decision to launch a photo exhibition dedicated to these countries. Calvert 22 is a non-profit organisation which works in the field of culture and creativity of the New East (the term includes Eastern Europe, the Balkans, Russia and Central Asia). The organisation also publishes a journal. Its online magazine mostly covers life in the New Easts: its contemporary culture, including films, photography or architecture. The exhibition Post Soviet Vi124

sion is about photos and photography, which explores visual representations of lifestyle and landscape in Eastern Europe. “Since 2014, The Calvert Journal has been a guide to the New East,” says Will Strong, programme manager at the Calvert 22 Foundation. “This new exhibition draws on many years working with photographers and artists from across the region. It was a chance for us to explore the so-called Post-Soviet aesthetic through the lens of young and emerging photographers who are forging new national identities in image-making, but live with the legacy of communism.” Living in the post-collapse period was not easy for former members of the USSR. These new democracies faced different economic, political or

AFTER HOURS

Photo: Dima Komarov

cultural challenges. The young people, the 1990s generation, has a collective experience of years without electricity, hot water and of food shortages. These years had a particular impact on their mentality. The internal and the external “My photos, which are exhibited, are about the conflict between the internal and external being of an individual. I try to show a different reality, where people live, their gravitation and physical existence,” David Meskhi told Emerging Europe. His photo featuring skater kids in Georgia is one of the photos in the exhibition. He says that he took on board a suggestion the Calvert 22 Foundation made after the Amsterdam Film Festival, where he presented his film When the Earth Seems to Be Light. Meskhi, a young Georgian photographer, is today based in Berlin and works on a number of projects, believes that the west has a different kind of approach to Post-Soviet countries. He remembers his first exhibition in Germany, where he got the perception that western European people romanticise the reality of post-Soviet countries. “They see us from their perspective, from their point of view and think that everything is exotic. They see Post-Soviet things from the western angle and projection, and their perception is very different from reality,” said Mr Meskhi. The primary goal of the Calvert 22 Foundation is to bring the countries of the New East closer to the west, and to share their culture, vision and art, which – whatever the motives – appears to be attractive for western Europe. The exhibition is a way of achieving that. “The post-Soviet landscape is the backdrop to these images,” says Will Strong. “The show depicts a region underrepresented in the English-speaking world, through the stylistic and ar-

tistic expression of the people who live and do work there.” People do not change The exhibition features work by 15 photographers from Georgia, Germany, Latvia, Poland, Russia, Ukraine and Uzbekistan. The organisers aim to show how new identities have been forged across the vast landmass, which was once divided by political ideology. It noticeable that the reality, reflected in these photos, does not show politics or division of East and West, but the identities of people: gender or sexuality. The exhibition shows how Soviet remembrance still holds influence over its former states and those of the former Eastern Bloc. Pictures from post-Soviet photographers, depicting skateboarders from Georgia or teenagers from Uzbekistan reflect this influence in the clearest way. These kinds of images show how social mores, and not politics, impact the population, especially the generation born after the collapse of the Soviet Union. “I suppose that people do not change. The only things which change are the countries and cities where these people live,” David Meskhi told Emerging Europe. The Calvert 22 Foundation believe that post-Soviet countries can bring a new vision of culture, the kind of underground movements and developments that the West has already explored. “The recent international success of designers such as Gosha Rubchinskiy and Demna Gvasalia has brought post-Soviet culture to the international spotlight, coupled with major showcase events such as Tbilisi Fashion Week, Riga Photo Month and the Baltic Triennial -to name only a few. The cultural offer from the region is clear,” says Will Strong. • 125

Photo: Dime Komarov Sasha Liza1

Post-Soviet Vision, Curated by Ekow Eshun and Anastasiia Fedorova, runs until the middle of April at the Calvert 22 Foundation, 22 Calvert Avenue, London E2. It will not be the last event dedicated to emerging Europe. It plans to offer space and opportunity to artists from different New East countries to present their work to western audiences.

AFTER HOURS

What is Abkhazia? Tamara Karelidze

Almost 25 years have passed since the armed conflict between Georgia and Abkhazia, a breakaway republic in the northwest of the country. The war, which started on August 14, 1993, lasted almost two months and left around 40 000 people dead and created more than 250,000 refugees. Since then, the situation on the ground has not changed a great deal. Tension and a lack of communication encourage the separation of people.

avid Tsiramua, a Georgian, was nine years old when the war started, and his family has since relocated from Sukhumi, the capital of the breakaway republic, to Georgia. He remembers his hometown well. “I had a lot of Abkhazian friends,” he says. “Susana, the first girl I liked, was Abkhazian. I remember my neighbour Astamur, we were the same age, and he could eat Ajika (a very sour sauce from the west of Georgia) like honey.” “Abkhazia is a brother who is being led astray by Russia. I believe that they will turn and express their condolence for the hate and lost time,” says Giga, from Tbilisi, the Georgian capital. Unlikely as it may appear to David and Giga, many Abkhazians think that freedom has brought a breath of fresh air to their country. For Kami, a 29 year-old woman from Sukhumi, Abkhazia is “a state with a high spirit, which can deal with different challenges for freedom.” “I am aware of Abkhazia being one of the holiday destinations of choice for a lot of middle and working-class Russians,” says Andrei, a 23 year-old from Moscow. “It is pretty cheap in comparison with other options in Europe. The

first thing that comes to mind when somebody mentions Abkhazia is wine, as it is currently available everywhere in Russia. According to the majority of Muscovites Emerging Europe spoke to however, for the vast majority of Russians Abkhazia is an unsafe place. The young generation lacks any real knowledge about the conflict. Russian history schoolbooks describe Abkhazia as an independent country which has yet to gain international recognition. Identity Every side of the conflict has its own perception of Abkhazians. The Abkhazians themselves take a very nationalist attitude while Georgians see them as a part of the Georgian national identity. For Russians, Abkhazians are people, like others, migrating to Russia for the jobs and a better lifestyle. “I know that there are some people from that region living in Moscow simply because of the better options available for their careers and lives. They tend to stick together and do not let other people get to know them too well,” said Andrei. In a comparison with Russians, he views Abkhazians favourably, as hard workers with lower expectations. 126

“I have met several young Abkhazians in conferences. They are a proud people but very vulnerable to Russian propaganda. Most of them believe that Russia rescued Abkhazia from Georgia, its enemy,” says Giga. “Every individual deserves to have the right of choice. Freedom is the issue, which is a choice of my citizens, my friends or my neighbours,” said Kami from Abkhazia, who thinks that freedom, as the Abkhazian people’s choice, is not respected by Georgians. Relationships between Georgians and Abkhazians are not common, but they happen. Kami, who left Sukhumi for Tbilisi, is a good example. She refused to study in Moscow and went to Georgia. Her choice was not acceptable for any of her relatives except her mother, who is Georgian. “Young Abkhazians have a huge interest in Georgians,” she says. “Compared to the older generation, there is less aggression. Everybody goes to Moscow or Yerevan, but nobody wants to go to Georgia. That is why they have an interest. Moreover, Georgia is the enemy. For a lot of Abkhazians, it is a neighbour and an unstable country, which could take some kind of military action anytime,” she says. Kami thinks that situation in Georgia is not ideal, and that Georgians are

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not exactly in love with Abkhazians. Love is not an obligation for her, but she realises these two nations should understand each other in order to defeat disinformation from both sides. Russia’s role Russia is one of the significant players in the conflict, perceived as a defender of independence by Abkhazians but also as a threat. “We do not want to be a part of Russia or Georgia,” says Kami. On the other hand, Georgians feel that Abkhazians do not have any choice but to follow Russia’s lead, and that Abkhazia is an excellent instrument for Russia to maintain its interests in the region. People we spoke to in Georgia were critical of their government’s approach to the frozen conflict. “We are pushing Abkhazia towards Russia,” says David Tsiramua. “Abkhazia is currently the subject of an international blockade because that is what Georgia demands. We lose out by taking this approach. Georgians and Abkhazians have both made similar mistakes in this conflict. Our problem is that we played Russia’s game, escalating the situation.”

“I am opposed to the the involvement of Russians in this matter as it is none of our business,” said Victoria, from Moscow. “I believe that if the area wants independence, it must be done via diplomatic conversation, we do live in the 21st century, and this should be possible.” She feels that to solve the issue both the Georgian and Russian governments need to step up their game. Future relations between Georgia and Abkhazia Georgian-Abkhazian relations are, as can be expected, very complicated, with both countries taking an entirely different approach. “It could be a good idea to organise a meeting between young artists, sportspeople or musicians. We have the same pain, and we have to find common ground. I often think what I would do if it became possible to go back. And I realise that I would go,” says David. “I am ready to help the Abkhazians if that’s what they need. To speak more, show more from our common past and show another side of our common enemy, which is perceived as a rescuer and 127

friend. I can even fight against Russia with them, but I do not want to fight against Abkhazians. Enough victims have died already for this territory,” said Giga. For the Russian we spoke to, the future of Abkhazia is somewhat ambiguous. Andrei considers that too much responsibility is placed on Russian-Georgian relations and negotiations. Today, besides economic and social problems, one of the most significant challenges for Abkhazia is demography. According to official data from 2016, there are only around 125,000 Abkhazians left in the breakaway republic. Kami believes that Abkhazians should start worrying about this a little more. After 25 years, relations between Abkhazia and Georgia are not good. Both publicly play the game of diplomacy, but they do not share the same positions. For most Georgians the Abkhazians, as citizens of a lost territory, are victims of Russian propaganda. On the other hand, Abkhazians see Georgians as a badly-informed enemy. In these circumstances, moving forward and dealing with the tension remains challenging. •

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Emptying Abkhazia

School No. 11, Sukhumi. Photo: Anuna Bukia

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The breakaway republic of Abkhazia is a disputed territory on the eastern coast of the Black Sea, south of the Greater Caucasus mountains, in northwestern Georgia. Only Russia, Nauru, Nicaragua and Venezulea recognise Abkhazia as an independent state. A bloody war of secession from 1992-93 left between 8000 and 10,0000 people dead, while as many 250,000 ethnic Georgians were expelled. The republicâ&#x20AC;&#x2122;s capital Sukhumi suffered significant damage during the war, and the present-day population of 60,000 is only half of that living there at before the conflict.

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The sea at Sukhumi. Photo by Anuna Bukia

New Athos Cave. Photo by Anuna Bukia

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A house in a Sukhumi suburb, destroyed during the war. Photo by Anuna Bukia

A street close to the seafront in Sukhumi. Photo by Anuna Bakui

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48 Hours in Durrës: Albania’s Coastal Gem Craig Turp

Albania’s second-largest city, Durrës has long been the Balkan gateway to the world. Greeks, Romans, and Byzantines all made use of its splendid natural harbour, and it remains one of the busiest ports on the Adriatic.

Why Visit Now? Boasting the largest Roman amphitheatre in the Balkans, Byzantine city walls, wonderful seafood and a buzzing nightlife, Durrës has a stylish seaside sass few places in the country can match. And prices remain a fraction of what you would pay elsewhere. Get Your Bearings Durrës is a short drive from Tirana, Albania’s capital: just over half an hour, although it depends on traffic. Taxis will bring you here from Tirana airport for around 30-40 euros. From Tirana city centre there are buses and mini-buses costing next to nothing, which depart every 30 minutes from the capital’s bus station. Durrës is cen-

tred on its harbour: the old town occupies the little peninsula to the west of the port, the city’s long sandy beach is to the east. Sleep If you want to stay in the old town, then our pick is the rather simple yet charming Hotel Nais (hotelnaisdurres. com), a genuine bed and breakfast with bags of charm and a wonderful street café. If it’s a beach hotel and a little more luxury that you are after, then the Palace is where to head. DAY 1: Greeks and Romans Kick off your day at the Archaelogical Museum (Rruga Taulantia 32), possibly the best museum in the country 132

and a real primer on Albanian history. Head next to the Roman amphitheatre. At first glance you may be forgiven for thinking that it has not been well looked after: truth is, having been built during the rule of Hadrian around 100 AD, it was damaged by earthquake (twice) and then buried by the Ottomans in the 16th century. It was excavated in 1966, and while somewhat hemmed in by modern housing, what’s left is more than enough to convey a sense of its once epic scale. A Christian chapel, added in the 13th century, is impeccably well preserved, its interior frescoes stunning. Shady Dealings There are more ruins – the Byzantine Forum and the Roman baths – just

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north of Shatervani Square, a pleasant enough space surrounded by modern buildings. Older residents of the city spend their summer afternoons here chatting in the shade below the trees. If you have the legs for it, a walk up Durrës hill will bring you to the now abandoned Royal Villa, also known as Zog’s Villa after modern Albania’s one and only king, Zog, who reigned from 1928-39. The building was used as a guest house for foreign dignitaries by Albania’s communist rulers, but was subsequently ransacked during Albania’s descent into anarchy in 1997, when a number of pyramid schemes collapsed rendering hundreds of thousands penniless overnight. Venetian Evenings The elegant Epidam boulevard, the old town’s main street, lined by palm trees, street cafes, restaurants, shops and bars, leads all the way to the harbour, where the city gathers for its evening constitutional. The so-called Venetian Tower at the water’s edge and the wall that runs from it are the best-preserved remains of the city’s Byzantine fortifications. There are

some good places to eat in the area (including a café atop the tower), but it’s worth taking a 10 minute stroll along the seafront at sunset to Aragosta (Rruga Taulantia 71), the finest seafood venue in town which comes complete with its own pier. DAY 2: Beach Bums Wide, and blessed with the softest golden sand, Durrës beach is almost a vibrant city in itself. At weekends during the summer you will need to get here early to find a spot: if it is a deserted beach you are looking for, head much further south. Once installed however you will not need to move all day: a never-ending procession of hawkers will purvey you of coffee, tea, cocktails, snacks and anything else you might need. As the beach bars compete with each other to see who can play their music loudest it all becomes life-affirmingly noisy, chaotic and brilliantly Balkan. Away Days If you can bear to tear yourself away from the beach for the afternoon, you

will quickly discover that there is more to the Albanian coast than Durrës (indeed, many a local will whisper in your ear that the best of the Albanian Riviera is to be found further south). Twitchers should head for the Divjakë-Karavasta National Park (or just Karavasta Lagoon) about 20 minutes south of the city, a vast area of lagoons and wetlands, woodland and marshes. Not far from here is one of Albania’s oldest monasteries, the 13th century Ardenica Monastery, whose St. Mary’s Church contains some exquisite icons painted by Athanas Zograf, an Albanian who was one of the most sought-after ecclesiastical artists of the 18th century. Last Supper The restaurant at the Hotel Oaz (hotel-oaz.com) in Golem, at the southern end of Durrës beach, features tables so close to the sea you can smell the brine. Fresh fish, amazing seafood and a sunset you will not forget in a hurry make it one of our favourite spots in the country. •

DURRËS

IN ONE PARAGRAPH Chaotically Balkan with an unmistakable Italian edge. Superb fish and seafood at prices unrivalled anywhere else in the region. Look out for remnants of Albania’s Christian past amidst the minarets and mosques of its Muslim present. Hire a car and take a spin along the coast to the Karavasta Lagoon.

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48 Hours in Klaipeda: Lithuania’s Baltic Capital Craig Turp

Klaipeda is the largest of the resorts on what has become known as the Lithuanian Riviera. A busy harbour town most of the year, for the short Baltic summer it becomes a young, party destination where the weather is not always as bad as you may expect.

Why Visit Now? he Baltic Sea may not be as warm as its southern brethren but the oft-deserted beaches of the Curonian Spit are amongst the widest, wildest and sandiest in Europe. Even during high summer you need not worry about somebody knocking over your sandcastle on the endless stretches of white beach. Although the wind might. The threeday Klaipeda Sea Festival – sailing races, live music, food and drink -takes places at the beginning of August and is the biggest party of the year. Get Your Bearings Palanga airport welcomes flights all year round to and from Copenhagen, Oslo and Riga, with the addition of

flights to and from Moscow during the summer. Kaunas airport is a two hour drive away. Ferries serve Klaipeda from Kiel in Germany and Karlshamn in Sweden. Most sights are in or around the Old Town which, built on a grid system, is unique in the Baltics. To get to the city’s beach on the Curonian Spit you need to take a short ferry ride across the lagoon. Sleep The National Hotel (nationalhotel. lt) in the heart of the Old Town is a gorgeous Art Nouveaux place first built in 1855. For a combination of Scandinavian simplicity and luxury a stay at the Smiltyne Yacht Club (smiltynesjachtklubas.lt) on the Curonian Spit is a sublime experience. 134

DAY 1: Memelburg The story of Klaipeda begins with Memelburg (later just Memel), a castle built by the Teutonic Knights in the 13th century. Sited just south of the Old Town little remains today (it was demolished in the 19th century, having lost its strategic importance) although part is currently being reconstructed. A museum operates under one of the surviving bastions. Theatres & Poets The heart of Klaipeda’s Old Town is Theatre Square, which takes its name from the 18th century theatre which occupies two sides. The fountain in front of the theatre, which has become a symbol of the city, features the statue

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of a young girl, Ann of Tharau, muse of poet Simon Dach, a bas-relief of whom adorns the fountain’s base. This is not the original (which disappeared in the chaos of 1945): it is a 1990 replica. Cafes and restaurants line the square and in the summer it’s the liveliest part of the city. Klaipeda Nights Friedricho Pasazas (pasazas.lt) on the eastern edge of the Old Town is a perfect introduction to Lithuanian food. The kepta duona (black bread fried in garlic with melted cheese on top) will keep you going while the chef prepares your cepelinai, traditional Lithuanian potato dumplings. There’s plenty of fresh fish too, and it’s all served in fabulous surroundings. At the weekend head for the oh-so-sassy Kurpiai (facebook.com/ jazzkurpiai), a fabulous live music bar offering up mainly jazz. DAY 2: On the Spit The Curonian Spit, formed around 5000 years ago (according to Baltic

mythology by a giantess, Neringa), is a UNESCO World Heritage Site which stretches from Klaipeda to Kaliningrad (it is one of very few UNESCO sites shared by two countries). Home to the highest sand dunes in Europe the spit also hosts Lithuania’s most exclusive destination, Nida, a small resort close to the Kaliningrad border famed for its wooden houses. An artists’ colony in the late 19th and early 20th centuries, Nobel Prize-winning writer Thomas Mann had a home here. The resort hosts a jazz festival every August. Nida Good Lunch Tik Pas Jona (facebook.com/RukytosZuvysTikPasJona) with views over the lagoon, serves freshly smoked fish: so freshly smoked in fact that if you arrive too early that day’s catch will not be ready. There is a huge range to choose from: turbot, seabass, catfish, sea bream, eel, mackerel. All reasonably priced and perfect for fuelling up before tacking the Parnidis Dune, which rises to the south of Nida. Probably the best way to reach the top is

to follow the coastline of the lagoon from Nida’s port for about 1km before heading into the woods and climbing the wooden steps. Last Supper The Meridianas (restoranasmeridianas.lt) is an upscale restaurant set on a beautifully restored sailing boat moored on the Danes river in the centre of Klaipeda. It offers a vast selection of tapas and boasts one of the most impressive wine lists in all Lithuania. You will need a reservation, and note that it is far from cheap: but as the perfect way to end a summer Klaipeda weekend it’s hard to beat. •

KLAIPEDA

IN ONE PARAGRAPH Home to a unique Old Town which merits exploration. Gateway to the wilderness of the Curonian Spit and some of Europe’s most spectacularly sandy beaches, and the highest sand dunes on the continent. Eat smoked fish, cepelinai and enjoy the long, light summer nights. Party with the locals at the Klaipeda Sea Festival.

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Bringing Polish Flavour to the World

Photos courtesy Damian Wawrzyniak

Photo: Richard Harris

Recently voted as one of the UK’s top 10 food pioneers, Damian Wawrzyniak is Great Britain’s Polish food ambassador. He speaks to Craig Turp about his latest project, House of Feasts.

ike many great chefs Damian Wawrzyniak is not from the big city. The small town in which he grew up, Sompolno, is in the heart of Poland set amidst lakes and forests. It’s no wonder that nature plays such an important role in his cooking. “Both my mum and dad are chefs,” he tells Emerging Europe. “So I did not have much of a choice when it came to what I was going to do. Growing up in

a family of chefs, the kitchen was only way forward.” Travel is another theme that often crops up in conversation with leading chefs. Wawrzyniak is no exception. “I left Poland when I was 19 and went travelling,” he says. “I worked in France, Germany, Ireland, the UK Scandinavia. I was learning about food and creating my own palette.” After a spell at Noma, Copenhagen – widely regarded as the world’s 136

best restaurant – Wawrzyniak settled in the UK in 2005 and has since become one of the country’s most recognisable chefs. His appearance with baking legend Mary Berry on the BBC in 2017 – when he showed the country how to make the classic Polish Easter cake, babka – has brought him legendary status. Wawrzyniak also once served pierogi and smalec, two other Polish staples, to Prince William and Kate Middleton. It’s fair to say he is

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now part of the establishment. “Eastern European cuisine was always a bit behind trend,” Wawrzyniak says. “This is despite the fact that we do create amazing flavours. What we lack is marketing and bringing our tradition to light as big players do. However, I do believe that Polish cuisine will be next big thing. Pierogi served in a new way, sourdough bread and smalec will soon see a renaissance and will hopefully spread worldwide.” One of the places at which Wawrzyniak is creating that renaissance is his fabulous modern-European restaurant House of Feasts on the outskirts of Peterborough. Here, besides the a la carte selection, Wawrzyniak offers two amazing tasting menus, one of five and another of seven courses. “House of Feasts is getting stronger

every week,” he says. “We are working very hard on every new dish, create new menus and ways of presenting the food.” Wawrzyniak will also reportedly soon be opening a restaurant in London’s trendy Clapham, which will be devoted to modern Polish food, with contemporary interpretations on classic dishes. It will include an open kitchen and robata grill, with a focus on preserving and curing methods to extend the summer season. An à la carte menu will feature alongside a number of sharing plates. All of Wawrzyniak’s culinary endeavours are based on sustainability, which he views as being key to the development of the business. “Sustainability is a key factor for all restaurateurs,” he says. “We need to work in a sustainable way. It can enable us to achieve so much more, to keep the en-

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vironment in a better condition.” Diners across the world have become more knowledgeable about food in recent years, a phenomenon that Wawrzyniak has seen for himself. “There is a lot more education going on,” he says, “through restaurants, hotels and food brands. Customers are now asking more and more questions, ordinary clients knows more about the cooking techniques used in a professional kitchen than they did a few years ago. Many more flavours are being brought to the UK by overseas chefs, more new ingredients and definitely a larger variety of cuisines.” People are clearly ready to try new things. “Maybe that’s why my new venture was listed as one of the most anticipated openings of the year!” says Wawrzyniak. “It says a lot.” •

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Life in Belarus John Roseman

decided to emigrate from the United States because of its pervasive car culture, rampant consumerism, wholesale privatisation of nature and aggressive militarism. After living in Russia for 17 years, I saw many of the same problems emerging there. And Russia also suffers from pervasive corruption and a general degradation of the public space. Meanwhile, Belarus had managed to preserve more of the positive features of the Soviet system. Most important was public ownership of land, which guarantees that nature would not be privatised. Public space abounds in Belarus, and it is well maintained. Belarus also has free universal health care, free child care and relatively even wealth distribution. I have lived in Belarus for nine years. I am director of a software development firm specialising in Artificial Intelligence and data-based web

design. I am also active in the cycling and environmental movements. Actually, the day I moved to Belarus, I went on a bike trip outside the city. I was amazed by the unspoilt nature and excellent cycling conditions. I invite foreigners to see Belarus by bike, it’s a completely different perspective. Travelling through untouched forests and quiet car-free villages gives you a window on a completely different world. There is a gradual westernisation that is most noticeable in younger people. Westernisation is an inevitable result of ubiquitous internet connected devices, and the fact that people have a real chance to visit Western Europe. The internet has also enabled a vibrant technology sector, which is nourished by aggressive government policies to create a high-tech park everywhere in Belarus. People ask me what it is like to live in the “last dictatorship in Europe.” 138

The centralisation of power in Belarus is a legacy of communism. It’s not one of the more desirable legacies of communism, but it has enabled Belarus to preserve the other features of the previous system that are worth saving. Hopefully dictatorship is a transitional stage in the political evolution of an independent Belarus, which is still in its infancy. In any case it was premature to call Belarus "the last dictatorship in Europe.” Moscow is also in Europe, and the concentration of power is even worse now in Russia than in Belarus. Also, neighbouring Poland seems to be going in a similar direction. I plan to stay in Belarus and get Belarusian citizenship later this year. My wife and my two-month-old son are Belarusian citizens. • John Roseman is the director of Functional AI, a software engineering company based in Minsk.

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THE LAST WORD

Can’t We All Be Happy? Craig Turp

referendum on changing Romania’s constitution is likely to be held at some stage this summer. Were this to be a constructive change, such as declaring poverty, domestic violence or homelessness unconstitutional, I’d happily stand with its organisers, regardless of their political affiliations. Unfortunately, however, as is so often the case in our part of the world, the proposed change amounts to little more than outlawing happiness. The issue at question is same-sex marriage. Although Romania’s government or parliament currently has no intention of legalising either – there is no great public demand for it, not even from the gay community, which understandably keeps a low profile in Romania – a group calling itself the Family Coalition wants to

change the constitution to ensure that such things can never be legalised, at least not without yet another (and almost impossible) constitutional change. Specifically, the change they want to codify is a clause in the current constitution which defines a family. The coalition wants that clause to explicitly state that a family is comprised of a man and a woman and not, as now, two spouses (the proposed change also would also appear to suggest that single parents could no longer constitute a family). I completely understand that some people don’t like the idea of same-sex marriage or even same-sex civil partnerships. Whether it’s on religious or purely personal grounds, each of us is entitled to an opinion. Indeed, I’d be disappointed if the church – any church, not just the Catholic or Or-

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thodox varieties – came out in favour of same-sex marriage. No, churches should stick to their canons and their principles. I would also personally be horrified to see same-sex marriages carried out in church. Why? Because I oppose the church being forced to do something against its teachings with the same vehemence as I oppose the church forcing others to live by its rules. At the same time however, it needs to be said that there is a huge difference between disliking something and actively trying to prevent people from doing what it is you dislike. Not least when that thing does no harm whatsoever to you personally. I understand that for many religious people, same-sex marriage is a sin. But for others, there is no sin involved. It is, in a nutshell, really rather simple: if you don’t like gay marriage, don’t get gay married! Otherwise, mind your own business and let people live their own lives. We make our own choices in life, we shouldn’t be making other people’s for them. To me it is about treating others as we would ourselves like to be treated. Nobody told me for example who I could or couldn’t marry: who am I to do otherwise? Who am I to judge? (I am sure I have read something about not judging others in a book somewhere…) My message to those across emerging Europe who oppose marriage equality (and there are many) is this: oppose it by all means. Stick to your beliefs and stay true to your principles. You do not have to like it, and nobody expects you to like it. But do not actively prevent it, for you are preventing two people who love each other from being happy. And who wants to prevent happiness? •

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Invest in Bydgoszcz Poland

• More than 1 million residents within 50 km

• CIJ Awards Poland 2017: Best Investor-Friendly City

• 1st place in The World Bank’s report – Doing Business in Poland 2015

• CEE Shared Services and Outsourcing Awards 2016: Emerging City of the Year

• Regional economic centre • Academic hub of the region

• Eurobuild Awards 2015: Most Investor-Friendly City

• International airport located within 3.5 km from the city center

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