Olympic Insurance collapse hits Bulgaria where it hurts

(Dialogos, Public domain)

The liquidation of Cyprus’ Olympic Insurance has left almost 200,000 policyholders with no coverage in Bulgaria. Olympic Insurance held around 10 per cent of Bulgaria’s market.

At the same time, it accounted for only 0.5 per cent of the insurance market in its home country, Cyprus. Bulgarian President Rumen Radev has denounced what he called a “crisis of statehood” and the administration’s incapacity to run sectors of systemic importance for the country. The president said that such worrying developments were taking place precisely while the Bulgarian authorities are trying to convince its EU partners about the country’s capacity to join ERM-2.

The European Commission spokesperson Christian Spahr said that insurance companies are subject to EU legislation, which regulates their activities, for example in terms of capital requirements and market conduct. He also said that the EU legal framework allows companies to use the so-called “passporting rights” and sell their policies in other member states in the single market, following a notification to their home supervisory authority.

Bulgaria’s head of insurance supervision Ralitsa Agayn resigned bowing to pressure from politicians to quit after a Cyprus-based insurance company was wound up, leaving nearly 200,000 Bulgarians without car insurance.

“Bulgarians bought Olympic Insurance policies worth about BGN40m (EUR20.5m) but their losses will be smaller as many policies were payable in installments,” Ms. Agayn has said.

Last month Bulgaria applied to join the European Union’s banking union as part of its bid to enter the “waiting room” for the Eurozone membership and it must strengthen insurance supervision to improve its chances.

FDI collapses

Foreign direct investment into Bulgaria has reached rock-bottom, falling tenfold from about EUR9bn at the time of Sofia’s EU accession in 2007 to EUR0.9bn in 2017, the Bulgarian Industrial Association said in a report. The fall in FDI as part of the country’s GDP has been even more dramatic — from 28 per cent in 2007 to 2 per cent last year.

“We’ve reached a level at which remittances coming from Bulgarians who live abroad outperform foreign investors,” said Radosvet Radev, president of the Bulgarian Industrial Association. “There is a total collapse of foreign investment in the country,” added Kamen Kolev, vice-president of the organization.

Among the main reasons listed by Radev and Kolev are the loss of the comparative advantages of the Bulgarian business environment and the worsening image of the country due to perceived problems in the judiciary and the state administration. Corruption and the perception of corruption also plays a serious role, according to the industrialists.

European funds, domestic state investment in the form of public tenders paid for by the state budget and private domestic investment have filled the gap left by foreign businesses, according to the Industrial Association. “The unique advantages of Bulgaria from the past are being shed one by one,” Kolev said. “The myth of the cheap, well-trained and educated workforce is busted, there is a lot of legal unpredictability and the quality of the administrative service, especially in terms of electronic governance, was shown in the case of the company register crisis,” he added.

However, Bulgaria’s automotive industry is expected to generate 5 per cent of the country’s gross domestic product (GDP) in 2018, the CEO of Automotive Cluster Bulgaria, Lyubomir Stanislavov, told SeeNews. “We established Automotive Cluster Bulgaria about five years ago and back then the automotive industry was generating less than 1 per cent of the GDP. Now, its share stands at some 4.5 per cent and is expected to reach 5 per cent this year,” Mr. Stanislavov said.

According to Mr. Stanislavov the results of the efforts of the governments of Bulgaria and Serbia to attract investors from the automotive sector are yet to materialize. “Unfortunately, we are carrying out now the activity demonstrated by countries like the Czech Republic, Slovakia and Hungary some 15 years ago. The Bulgarian government has realized the potential of the sector and how it can increase the country’s GDP,” he added and stressed that Bulgaria has five or six possibilities to attract a large car manufacturer and interesting news is expected in the short term.

“The question is how successful Bulgaria will be in the negotiations. It 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 neighbors in Southeast Europe (SEE), like Serbia or Romania,” Mr. Stanislavov added.

One of the largest problems that the automotive companies face in Bulgaria is the lack of skilled workforce, which also is a problem in Serbia and Romania.

No passenger cars are currently manufactured in Bulgaria, as Chinese automaker Great Wall suspended assembling operations in the country in January 2016. The Great Wall car assembly plant near Lovech, in northern Bulgaria, opened in February 2012. Its output was sold in several neighboring markets, including Romania, Macedonia and Serbia.

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