Economic Policy Review ISSN 1313 - 0544

Local Business Environment Index 2011

11.05.2011
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The Local Business Environment Index 2011 is issued for a second year and aims to explore differences in business environment at local level and to indicate where in Bulgaria (in which city) is easiest to do business.

The index covers all 28 districts of Bulgaria, each of them represented by one city – the district center. The assessment is based on the results of each city on the following ten indicators.

 

Local Taxes

e-Government

Public Registers

Employment

Education

Local Fees

Construction Permits

Perception of Corruption

Wages

FDI

 

The first place in the overall ranking is held by GABROVO. The city does not hold first place on any single indicator, but performed well on all of them and as result its total score is the highest. Gabrovo has relatively low local taxes, while the economic activity is quite high.

Second place was taken by RUSE, while third – by SLIVEN.

KARDZHALI holds the last place. In nine out of the ten indicators Kardzhali’s performance is quite unsatisfactory – the perception of corruption in local government places the municipality last in the ranking, and also the economic activity is assessed far beyond the other districts.

 

Overall Local Business Environment Index Ranking

Source: Local Business Environment Index 2011, IME

 

The business environment in Bulgaria can vary quite substantially from city to city. Although a great deal of the taxes and regulations are set at national level, differences at local level are a fact.

This study attempts to highlight those differences – not so much to just rank cities, but moreover to identify good examples and to provoke fruitful competition between municipalities, leading to better conditions for doing business in each of them.

The ranking is an appropriate source of good ideas and practices that any municipality determined to improve its business environment can use with ease.

 

Does it metter?

For the period 2007 – 2009 the districts with the highest growth of foreign direct investment (more than doubled) were Sliven, Smolyan, Gabrovo, Yambol, Dobrich, Montana, Pazardzhik, Ruse – 5 of those cities are ranked in top 10 in the overall chart.

Investments declined in Silistra, Vidin, Haskovo, Stara Zagora, Shumen, Veliko Tarnovo and Kardzhali – 5 of those cities are ranked below the 20th position in the overall chart.

Correlation between good business environment and investments is clearly seen in the lower graph – the higher the rank of the city, the more rapid growth of investments in the whole area.

 

Correlation between the Index rank and the FDI rate of change

Source: Local Business Environment Index 2011, IME

 

Conclusions

The path for better local governance and better business environment goes through the establishment of the right incentives for good governance at local level. These incentives come in the process of decentralization and competition between local authorities, which will lead to better conditions for business and citizens alike.

Data from recent years indicate that municipalities carry out proactive fiscal policy and in many cases this leads to lower local taxes. More tax freedom and the existence of local budget deficits raise the debate on fiscal rules at the local level.

 

Competition between municipalities is a natural (automatic) mechanism leading to the creation of better business environment at local level

 The cornerstone in the process of decentralization is the ability to conduct independent fiscal policy by local government 

 

The economic activity within a municipality is not an exogenous variable – it is also affected and determined by local policies. Successful municipalities – those who create the appropriate conditions for doing business – provoke economic activity in the whole region.

 

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The whole analysis is available on a dedicated web page http://www.effectivemunicipality.com

 

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For further information: mail@ime.bg ; 02/952 62 66, 952 35 03