Bulgaria is on the periphery of Europe, both geographically and economically. Could the wave of new digital technologies help bring the country closer to its European peers?
While internet access has grown dramatically in recent years and the ICT sector has become the country’s top service export, Bulgaria still lags behind the rest of Europe when it comes to adoption of digital technologies. The lack of digital knowledge and skills, low levels of investment in research and development (R&D) and the incomplete digitization of public services are holding back the country.
It might paint a grim picture, but there is huge potential for improved growth and productivity if such a digital transformation takes place. The seeds of this transition are already growing in Bulgarian tech-based companies like Nexo, a cryptocurrency fintech startup; Gtmhub, an OKR SAAS platform with clients across Europe and the United States; and Dronamics, which launched one of the first drone delivery fleets in Europe. But is it enough?
By building on the framework developed by the recent World Bank flagship report âEurope 4.0: Responding to the Digital Dilemmaâ, we can identify some of the key policy priorities for economy-wide digitization. The report distinguishes three types of digital technologies, each of which requires a different policy approach to accelerate digital adoption among businesses, while ensuring that small businesses are not left behind.
Figure 2. Political priorities for meeting the digital challenge facing Bulgaria
Source: authors’ compilation
Transactional technologies, such as e-commerce platforms, reduce information asymmetries and provide digital infrastructure to match supply and demand. With less than 15% of Bulgarian companies selling online, well below the EU average of 26%, e-commerce is one of the most promising growth sectors given the small size of the domestic market. Bulgarian.
- Bulgaria should prioritize improvement first digital literacy and building confidence in digital transactions, which are factors that significantly limit the size of the domestic e-commerce market. Almost a quarter of Bulgarians have never used the internet and consumers still do not trust online transactions.
- Resolution last mile delivery challenges is the next step to unlock the e-commerce market. Delivery markets have only recently started supporting local e-merchants with dedicated national and cross-border services. Bulgaria is the only member of the EU where the national postal service is not among the top three carriers of business-to-customer deliveries in the domestic market.
Information technology, such as artificial intelligence, big data analytics, and cloud computing are leveraging exponential growth in data, falling IT costs, and improved access to digital infrastructure to deliver new services. Bulgarian companies have low IT adoption rates, with just 6% of companies using cloud computing and 7% using big data in 2018, both well below EU averages.
- First, Bulgaria should focus on opening up public data and completing the digitization of government services. The country recently created a new state agency for e-government (SEGA) and set up an open data portal, but implementing both has proven difficult. These priority areas have the potential not only to improve the delivery of public services, but also to expand the internal market for local providers of digital service solutions.
- Second, to develop the ecosystem of digital startups to help Bulgarian entrepreneurs develop their startups, raise venture capital and access technical and managerial talents and new markets. The Bulgarian ecosystem, although developing and dynamic, is far from having reached maturity. Venture capital is generally available, but the pipeline of new startups to invest developing advanced digital technologies is still relatively small.
Operational technologies, such as intelligent robots, 3D printing and the Internet of Things (IoT), reduce production costs by integrating data with industrial equipment. While employment has increased in Bulgarian technology-intensive industries, robot intensity (measured by the number of robots per 1,000 workers) is below 1%, one of the lowest rates in the world. EU, which makes this category the most difficult for countries.
- Bulgaria should double its R&D funding to meet its targets; it currently stands at 0.7% of GDP, well below the 1.5% target for 2020. Bulgarian public research institutions are underfunded, their researchers are underpaid and few resources are available for technology transfer.
- Policies to support the adoption of technology have borne fruit and should be continued. Over the past 10 years, the country has made significant productivity improvements through the adoption of technology, but Bulgarian companies are still among the least digitized in Europe.
Finally, the country must improve the supply of basic and advanced digital skills. In 2019, only 30% of Bulgarian adults had basic or higher overall digital skills, compared to an average of almost 60% in the EU-27. Investment in digital skills is likely to be increasingly important in the future, especially as the country reports a net loss of skills due to out-migration and competition for advanced digital skills in Europe is only expected to intensify. The COVID-19 pandemic has further exposed gaps in Bulgaria’s digital preparedness; more than 10 percent of the country’s students did not have devices that enabled them to fully participate in distance education.
Bulgaria has the opportunity to deepen its integration with its European peers and modernize its economy by embracing the digital wave. The new government (after the next spring 2021 election) will have a range of competing investment decisions and policies to kick start the post-pandemic economic recovery; digitization should be at the top of the list.