Standard but Poor: Understanding Northwestern Bulgaria

Standard but Poor: Understanding Northwestern Bulgaria

by Kristina Georgieva

Since August 2012, people in the Bulgarian capital, Sofia, have been riding on one of the sexiest metro lines on the Old Continent. It is fast, it is arty, it is fancy, and it is the pride and joy of the ruling party Citizens for European Development of Bulgaria. Ironically, less than 100km north, you can find a rather underdeveloped region; in fact, the poorest in the European Union - Northwestern Bulgaria.

So what does the poorest region in the European Union look like? 

The Northwestern region of Bulgaria encompasses five municipalities between the Danube river and the Balkan mountain: Vidin, Montana, Vratsa, Pleven, and Lovetch with total population of approximately 800 000 people (as of 2011). Ten years ago, it used to be around 20% more; however, due to high migration and low natural population growth, Northwestern Bulgaria has been shrinking rapidly. Its scores are in the worst possible ranges in almost all indicators presented in the Eurostat regionalyearbook 2012. The GDP and the primary income of households in the region are below 50% of the EU 27 average; it has the lowest population change and life expectancy, and to top it all off, Northwestern Bulgarians are also the least educated. In short, the situation is pretty dreary, and the forecasts for the future do not look much brighter. And these are merely the statistics behind the personal tragedies of the many people struggling and failing to make a living there.

But why so surprised?

Bulgaria joined the EU a mere five years ago, it hasn’t yet adopted the Euro, nor is it even near entering the Schengen area, and since somebody has to be the poorest in the EU, why not Northwestern Bulgaria? In fact, economic theory gives us quite a few answers to this question. To begin with, one of the borders of the Northwestern Bulgarian region is the Danube River, which should create better conditions for economic activity, as it allows cheap trade with other cities on or in proximity to the river. Considering that some of those cities are major European Capitals (Vienna, Bratislava, Budapest, and Belgrade), the economy of Northwestern Bulgaria should be benefiting largely from this major geographical asset. But it is not. It should also be benefiting from Bulgaria’s accession to the EU, which should trigger convergence, and thus rapid growth in the natural process of catching up. In fact, this growth should be even more explicit in the Northwestern region than in others, as it is on the western Bulgarian border, which should be the entry point of all new investment. But it’s not; the situation in the region has even deteriorated since the accession in 2007. Thus, it is surprising that contrary to economic logic, a region close to a major European river, in a new EU Member State, and in relative proximity to the “center” of the Single Market is not growing, but actually shrinking to the point of being the poorest in the EU.

How did this happen?

One possible explanation of why Northwestern Bulgaria’s economy is performing so poorly is its inability to adapt from making goods to making ideas – the most demanded product of our time. Similarly to the case of Detroit, Michigan, manufacturing in Northwestern Bulgaria was specialised in mass production of tangible goods: in Detroit it was cars, and in Northwestern Bulgaria: ceramics, accumulators, and automobile tires. With the sole goal of increasing production and decreasing costs on the assembly lines, firms both in Detroit and in Northwestern Bulgaria ended up creating a disincentive for innovation and an oblivious labour force. This archaic practice of cheap mass production cannot meet the consumers’ increasing demand for variety and constant quality improvement. Since it is incompatible with the changing market dynamics, Northwestern Bulgaria, like Detroit, is bound to struggle to stay above water.

But there’s more. Unlike Detroit’s economy, that of Northwestern Bulgaria did not always accommodate perfect competition or the right to private property, nor was it influenced by the forces of supply and demand. So when in 1989 the Berlin wall collapsed, so did the Bulgarian economy. It could not survive in the highly competitive capitalist market: production was no longer subsidised and became unsustainable, factories closed, unemployment shoot up, and people accustomed to working on the assembly line were incapable of running a business. While that story is the same across all of Bulgaria (and the other transition countries), the case of Northwestern Bulgaria is worse as the region was more industrialised than the others.

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Still, there is light in the end of the tunnel with the recent opening of three IKEA factories, and another two – one for batteries and one for bikes. A new road bridge across the Danube is planned to open soon providing a connection between Vidin, Bulgaria and Calafat, Romania. So there is an opportunity for growth even in the poorest region, but bringing back the assembly lines and simply combating the physical distance from the market will not save Northwestern Bulgaria. If the Bulgarian politicians and policy-makers would like to achieve something more than reelection, they should shift the focus from convenient infrastructure projects to long-term investment in human capital and innovation, so that the region can adapt to the dynamic economic environment. If not, Northwestern Bulgaria will continue to reign as the “EU’s poorest” region.

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The metro line in Sofia:

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It there a life after Malév? A challenge for transport economists

Let’s imagine the following picture. Near our beautiful, charming city a well organized, well staffed, well equipped high quality airport is working. Citizens like it as well as trading companies. People can reach the airport easily and quickly with low cost, airport crew is always smiling so people like to travel. That means active airport activity through high demand. Because of these tendencies the environment for airlines is favourable, airport attracts them. The result will be more airlines who compete which drives the prices down and led to better services or simply larger airport capacity. The process makes the airways even more attractive to businessmen, companies and turists. The whole thing ends up like a city with more exporting and importing companies more employees who can share their ideas and get ideas from abroad so economic prosperity begins.

That story about circular causation tells us spillover effects are in the table not appear directly in the profit of the airport since the process has advantages to the broader economy. As we see the airport doesn’t have the right amount of incentives to stimute airtraffic, state should play a role. The main question is simple: HOW? Some possible answers follow.

State owned airline

A case strongly related to Malév. Maintaining a state owned airline for create those spillover effects has advantages. Focus on the disadvantages! This is prohibited by the EU law because of this action’s countercompetitive impacts. In the past that plan is worked, see figure, which shows how decrease airport traffic in short run after Malév went bankrupt. In the short run Budapest Airport (BA) has difficulties to fill the gap that Malév made but in the long run the absence of Malév may push down traffic intensity. In reality set up a sate owned airline is not a possibility.

Ruin down alternatives

With the MÁV’s recently launched new train line Schwechat, the largest airport of the region, can be reached in four hours. No question this causes pain to BA, so to stimulate it’s airtraffic the MÁV project should be stopped. Not suprise the BA lobby raised their voice against the issue.

Is to stop MÁV trains travelling to Schwechat useful? Yes it is useful for BA. Is it useful for the citizens? I have doubts. Supporting the airport is not equals with supporting the country. If people travel to Schwechat to take their plane there rather than to travel from Ferihegy this will deliver the evidence that MÁV project is useful for citizens. In very short run stopping that railway line can be useful if BA is on the edge of collapse, but in other cases it is not a good idea.

Reach the airport easier

There is a plan to build a fast train line from Keleti railway station to Ferihegy. State currently having the negotiations with the chinese constructor. May the investment doesn’t pay off but again think to spillover effects! If Hungary supports the project in a clever way it can have positive overall effects.

Develop airport services

A lot of people complaining about the rudeness of airport workers, about the lack of organisation in Ferihegy (for example airport buses) and about flights that are usually late. What about provide incentives to solve these problems? Or airport can introduce some yummy campaign based on the peolple’s psychological factors to attract them. The airplane museum next to terminal 2 is a good step.

Cope with transit

Pass through passengers and cargo should be served. Some experts say low cost airlines are not able to handle the transit traffic. What can we do? This question is not clear and need some consideration.

Is developing air traffic harm other means of transport? Which are the alternetives of air travel? Since air transport don’t have real alternative the stimulation effects economy and not just damages others. 

What do you think, attractive air travelling causes bustling business life or vica versa? How do you think state should stimulate the airtraffic? Do you have ideas? Share with us in comment below!

Dávid Réfi

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What is the use of a bridge? The impacts of the Danube Bridge 2

Constantine’s Bridge, the largest bridge of the ancient times was built in the 4^th century, under the reign of the Roman Emperor Constantine I the Great. It was also the first bridge in the Romanian-Bulgarian section of the Danube, followed by the Ruse-Giurgiu Bridge more than 1600 years later, in 1954, which was built under the initiative of Joseph Stalin.

Accordingly, when finished in November 2012, the Danube Bridge 2 will be the third bridge ever built in this section of the river in the past 2000 years. The total cost of the construction is estimated to be € 226m from which € 70m is covered by the European Union as a part of its regional policy. The bridge will be 1971 m long, and include road and pedestrian paths to both directions and a railway track connecting the towns of Calafat (Romania) and Vidin (Bulgaria).

The costs of the construction are clear, but how can one estimate the benefits of building such a bridge? According to the European Union, by integrating Bulgaria’s road and railway system into the European transportation network, the Danube Bridge 2 will be an important part of the European Transport Corridor IV, which runs from Dresden to Istanbul connecting Western and Eastern Europe. In terms of economic geography, the most obvious effect of the construction will be the substantial reduction of the transport costs. The two towns are now linked by a ferryboat for which it takes around 20 minutes to cross the Danube. The ferry has no schedule, and it takes off only when all of its six trucks are filled. With the bridge, the same journey will take only one and a half minute.

As it can be seen in the map, there are several smaller towns around Vidin, while the Romanian side is relatively drear. According to the core model of economic geography which assumes two sectors and mobile labour force in one of the sectors, the main beneficiaries of the construction will be the towns of Vidin and Calafat which will be directly connected by the bridge. The model suggests that the reduction of transport costs will induce agglomeration in the town with a production cost advantage. Since wages are considerably lower in Vidin, it will experience the largest growth in size (and therefore, in welfare), while Calafat will have only a modest benefit from the construction.

However, the model cannot account for several other factors which also affect the spatial distribution of economic activity: there might be other factors influencing the workers’ ability to migrate (e.g. differences in language as Bulgarian is a Slavic while Romanian is a Latin language), and the construction will undoubtedly attract investments from other parts of the country or even from other countries. In addition, the sectorial composition of the economy is much more complex in real life than in the model (e.g. industry, transport, agriculture etc.).

Nevertheless, some of the potential effects are predictable. Vidin is a main town in north-western area of Bulgaria with a population around 47 000. The region is borders Romania and the Danube to the north and Serbia and Montenegro to the west and south. During the Yugoslavian wars in the 1990s, the region suffered badly from the trade embargo against Serbia. As a result, in spite of its advantageous geographic and transport location, it is considered to be the most under-developed region in the country. The unemployment rate is twice as high as the country’s average, and young people either emigrate or move to other parts of the country. Because of the high unemployment, hundreds of people commute to Romania from Vidin every day. By inducing agglomeration, the bridge is expected to change this deteriorating trend: the construction already created 1000 jobs, and attracted foreign investments which have increased the real estate prices in the area. In addition, as the city has several famous landmarks, the bridge may attract tourists and create other employment possibilities.

In the Romanian side, the town of Calafat is considerably smaller than Vidin with a population around 16 000. Although they say that the bridge is not as important for them as it is for the Bulgarians (this was actually predicted by the model), the people of Calafat also expect positive long-term economic impacts from the construction mainly through new employment possibilities. The construction is expected to pump an estimated € 57m into the local economies on both sides.

Besides stimulating local economies, the bridge has key importance in strengthening the relationship between Romania and Bulgaria. In the past, in spite of their shared history the two countries were largely separated from each other by politics and language. The construction of the bridge can be considered as an evidence for the countries’ willingness to cooperate with each other. This is essential, given the fact that the countries’ border areas, like Vidin and Calafat have similar development problems that could be overcome only by common solutions.

Anna Trendl

References

History. (2010). 

New Danube bridge to speed up international traffic. (2010, January 16). from Regional Policy-Inforegio

The Romania-Bulgaria Cross Border Cooperation Programme. (2010). from Partnership for Active Cooperation and Encouragement in the Cross-border Region Silistra-Calarasi

Cost of 2nd Bulgarian-Romanian Danube Bridge Up EUR 26 M. (2012, January 27). from novinite.com - Sofia news Agency 

Two new bridges to be built over the Danube. (2012, February 11). from Europost - Weekly for politics, business and culture

Brunwasser, M. (2006, June 14). Bridge to a new era for Bulgaria and Romania - Europe - International Herald Tribune. from The New York Times

News on the construction of Danube bridge 2. (n.d.). from Vidin Estates

Sommerbauer, J. (2007, January 2). Danube II: bridging united waters. from cafebabel.com - The European Magazine

VIDIN - Geography and history. (n.d.). from Portrait of the Regions 

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