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Bulgarian Foreign Trade in High Tech Products

Marieta Tzvetkovska, researcher, Center for Economic Development

Trade in high tech products as a part of Bulgarian foreign trade

Promotion of technological development in Bulgaria is highly dependent on trade in high tech products as import ensures a supply of necessary technologies and it is through export that a part of the high tech products produced in the country are sold abroad. Increase of foreign trade and the share of export in total world exports are referred to as a major criterion for national economy competitiveness while increase of trade in high tech products is referred to as a criterion for technological development.

A picture of the Bulgarian foreign trade in 1997-1998

The development of the foreign trade of Bulgaria in 1998 was accompanied by a continuous drop in the prices of major raw materials and low processed products, the dynamics of the export being determined entirely by the situation on the international markets. In 1998 the Bulgarian foreign exchange of commodities amounted to USD 8939.9 million, which is 8.8% decrease compared to 1997. The registered foreign trade deficit of USD 316 million (FOB-FOB) was due to 13% contraction of the Bulgarian exports to the amount of USD 4139.2 million and a slight increase of imports by some 1% compared to 1997 reaching USD 4800.7 million.

In 1998 the Bulgarian export was negatively influenced by the reduced demand abroad and by the reduction in prices of chief exported products in the chemical and metallurgical sectors. In spite of the overall decrease in the value of exports, an increase was registered with many groups of products, compared to 1997. In quantitative terms the biggest increase in export – by 28.3%, was registered with exported garments and accessories, which accounted for over 10% of the overall export of products from the processing industry. Export of furniture was increased by 16.3%, which is also indicative of a re-direction towards products with greater value added but still from the group of low-tech productions. In fact these tendencies were preserved in the next two years though recently export value of chemicals and metals rose due to increased prices on international markets. In 1998 there was a considerable drop in the import of mineral products and fuels, as well as of metals. There was an increase of 31.5% for the group of machines and equipment, which showed an enhanced investment activity in the country and a tendency towards promoting technology development.

The drop in export revenues in 1998 is a proof that part of the Bulgarian economy lacks competitive power as a result of structural reform delay in the real sector of the economy, as well as, the low level of introduction of new technologies and know-how in productions. The reason for these developments is greatly due to weakly developed bank lending in the country, insufficient volume of foreign investments and weakly developed small and medium-sized enterprises sector.

The inherited inefficient structure of the economy predetermined the inefficient product structure of the Bulgarian export as well. Exports are concentrated in several major product groups – chiefly raw materials (57% of the export for 1997 and 53.3% for 1998) and products of low degree of processing, mainly labour-intensive and low tech (such as textiles and wearing apparel). In addition, some structure defining enterprises in the economy and chief exporters were still state-owned monopolists, at that time.

The reduction of revenues from exports were due to some external causes, as well:

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  reduction in prices of chief exported products – metals, fertilisers, chemicals (which only comes to prove the unfavourable structure of exported products, which includes products of low level of processing, the prices of which are most sensitive to changes in the market situation);
  
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  loss of traditional markets for some major Bulgarian export products (due to the world financial crisis a considerable reduction in demand for fertilisers was witnessed);
  
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  delay in growth rates in the Western European countries, Bulgarian chief trading partners;
  
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  the financial crisis in Russia (still an important market);
  
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  the Kosovo crisis (political uncertainty in the region and problems with the transportation of export commodities).
  

As a positive tendency we can point out the increase in import of investment products. This is related to modernisation of the technological facilities of the economy, and hence to the improvement of the competitive power of the economy and creation of an export potential. The increase in import of investment goods in 1998, compared to 1997 totalled 27.8% (238.5 million USD). This tendency was kept during the last two years.

The geographic structure of Bulgarian foreign trade is an important indicator for the competitiveness of the national economy. Having in mind that the OECD countries occupy the leading places in Bulgarian foreign trade one can draw a conclusion about the competitiveness of the Bulgarian export. The exchange of commodities with these countries increased to 53.5% of the total 1997 exchange of commodities, and in late 1998 reached 61%, tending to grow even more during the next two years. In this way the developed industrial countries preserve and strengthen their role of a chief trade partner of Bulgaria. The fundamental re-orientation of the geographic structure of the Bulgarian foreign trade is due to the implementation of the European Agreement for Association of Bulgaria and of the additional agreements to it, thus transferring the European Union into the leading trade partner of the country over the last years. The exchange of commodities with the EU countries jumped from 40% in 1997 to 49% in 1998 and tended to grow in the next two years, exceeding 50% by now.

Other extremely important trade partner of Bulgaria is the group of the Balkan countries, accounting for 18% of the total exchange of commodities in 1998 (including Greece and Turkey); Russia - 13.3%; the CEFTA countries - 5.5%; Ukraine – 3.4%; the USA - 3.1%.

Identification of main high tech sectors of the Bulgarian economy and analyses of foreign trade in high tech products

A well known fact is that the larger the share of trade in high tech products the more competitive the national economy is. The retrospective analysis of Bulgarian foreign trade indicates that it has moved in a downward direction – from more sophisticated high tech industries such as heavy machine building, computer peripherals and specialised equipment to primary industries. The reason for the change in the industrial specialisation pattern of Bulgaria since 1990 can be found in the lost of the guaranteed and protected former CMEA markets. Now, after the collapse of the CMEA and transferring of foreign trade to new more sophisticated markets we have to identify competitive high tech sectors producing enough export production during the last years.

In the period 1997-1998 high tech exports show decrease not only in value but in share of total exports, too, while imports register an increase of almost 20% in value and in 1998 these products take more than 33% of all Bulgarian imports. Main Bulgarian high tech products exported are chemical products (about 15-18%) followed up by household appliances (5-6%) and electrical machines and apparatus (2.5%) (see Appendix 4, Table 38&Table 39 ). Except for the sector of transport equipment (about 2%) the share of all other high tech sectors in total Bulgarian exports is less than 1% and these are exactly the sectors referred to as higher high tech productions.

If we investigate foreign trade data in high tech products for 1997 and 1998 we can find out some main trends, both favourable and unfavourable. As positive trends can be mentioned:

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  Increase of imports of high tech products not only as a total value but even more seriously as a share of all imports;
  
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  20% increase of imports of high tech products when all imports drop slightly;
  
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  more rapid increase of import of cars, motor vehicles, office equipment, radio, TV and communication equipment than of chemical products and household appliances
  
• 
  positive balance of trade in high tech products for 1997 which is 4 times larger than the whole positive trade balance.
  

As negative trends can be mentioned:

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  decrease in total value of high tech exports;
  
• 
  decrease in share of high tech exports in total Bulgarian exports;
  
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  the decrease in high tech exports exceeds the decrease in all exports;
  
• 
  decrease in prices of major Bulgarian high tech export – chemical products;
  
• 
  negative balance of trade in high tech products in 1998 which represents 70% of whole negative trade balance.
  

But for the purposes of the analyses of trade in high tech products identification of high tech production sectors (see Appendix 4, Table 38&Table 39 ) is not enough. An in-depth analysis getting down to 3- or 4-digit or even 6-digit level of the commodity groups in order to identify not only the main high tech production sectors producing for export but also competitive high tech products possessing export potential. It is very important to know what kind of chemical products we are exporting, mainly: fertilisers, inorganic chemicals, oil products, plastics, pharmaceuticals or cosmetic products. For instance, there are about 30 high tech products among the first 100 commodities exported from Bulgaria and their share in all exports is 18% and they present 30% of the amount of these 100 export commodities. Only 11 high tech products are presenting among the first 50 Bulgarian export commodities: oil lubricants take 5.32% of all exports, soda ash – 1.57%, medicines – 1.34%. And these 50 commodities form 46% of total exports, almost half of it (see Appendix 4, Table 40&Table 41).

Competitive high tech products regularly exported from Bulgaria apart from oil lubricants, soda ash and medicines are tooth past, cosmetic products, antibiotics, machine spare parts, polyethylene, polypropylene, ammonia nitrogen. Some high tech products exported in the near past (till 1997) are no longer in the export list because of their low value added, low market prices and high import prices of raw materials for them. These are different organic and inorganic elements at lower level of processing. Due to the restructuring of major Bulgarian enterprises exports of some high tech products as ships and boats, electric power machinery, electric distributing equipment, etc. were exempted from export list after 1997-1998. And in the end, there are some high tech products newly exported, such as machines and apparatus for tobacco processing, hydraulic power machines, photographic materials (plaques, films, etc.).

Level of high tech development in Bulgaria can be characterised not only by exports of high tech products but by their demand markets, as well. More than 50% of total Bulgarian exports in 1997-1998 were directed towards the highly sophisticated and demanding EU market. Main markets for Bulgarian high tech products are EU countries, former socialist countries from Central and East Europe, Balkan countries (see Appendix 4, Table 42). The share of EU in Bulgaria’s trade in high tech products is a reliable indicator of the competitiveness of Bulgarian production having in mind that sophisticated foreign demand for Bulgarian export goods places very high quality requirements.

The role of the foreign trade policy for the effectiveness of trade in high tech products

Bulgaria is a small country with negligible internal market for high tech products and it could hardly survive without broad access to international markets. High tech development and raising competitiveness of national economy is highly dependent on foreign trade regime and customs tariff. This means that we need stable and predictable foreign trade policy, consistent liberalisation of foreign trade, reduction of tariffs and non-tariff barriers, further negotiation of additional trade concessions through different bilateral and multilateral agreements (more than 60% of Bulgarian foreign trade is conducted under free trade conditions, now). All these are aiming to increase the efficiency of the production and the competitive power of Bulgarian goods. The openness of the national economy towards the world economy throughout adequate foreign trade policy gives Bulgarian producers the opportunity to work in a competitive environment and makes them improve their production all the time. More detailed information about Bulgarian foreign trade regime is presented in Appendix 6.