Bulgaria's High-Technology Industry Emerges From The Cocoon of Communism

November 1, 2010
By George I. Seffers, SIGNAL Magazine
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Alexander Tsvetkov, Bulgarian Minister of Transport, Information Technology and Communications, attends a groundbreaking ceremony for a new river information system that will help monitor traffic conditions on the Danube River, help ensure better navigation safety and reduce the impact of traffic on the environment. Tsvetkov leads Bulgaria’s e-government efforts.

Industry struggles to rise above faltering economy.

Bulgaria’s technology sector enjoyed healthy growth rates in the late 1990s and the early part of this  century, but that growth has largely flatlined due to the worldwide banking crisis and resulting recession. With the downturn in the economy, the government has scaled back spending in some high-profile military and advanced technology efforts. In the summer of 2009, for example, the government killed a planned nanotechnology center in an effort to save 50 million Bulgarian lev, which equals roughly $33 million. The cancellation occurred just months after the government announced an agreement with IBM to build the center.

To understand the structure of Bulgarian information technology and defense, it is important to trace the history of the country’s high-technology industry from a centralized economy to a market economy. Following emancipation from the former Soviet Union, Bulgaria held its first free elections in 1990. The former Communist country, which joined the European Union on January 1, 2007, averaged more than six percent economic growth from 2004 to 2008, according to the U.S. Central Intelligence Agency’s (CIA’s) 2010 World Fact Book.

That growth was driven by significant amounts of foreign direct investment, including many international technology companies such as IBM, Cisco Systems, Microsoft, Hewlett-Packard, Oracle, BAE Systems International and ITT Electronic Systems, among others. Successive government administrations have demonstrated a commitment to economic reforms and responsible fiscal planning, according to the CIA Fact Book, but the global downturn is reducing exports, capital inflows and industrial production. Gross domestic product (GDP) in 2009 contracted by approximately five percent, and corruption in the public administration, a weak judiciary and the presence of organized crime remain significant challenges to industrial growth. The CIA estimates Bulgaria’s 2009 GDP purchasing power to be at about $90 billion, placing it 71st in the world.

Both information technology and defense were the subject of special attention under the totalitarian regime, and they have gone through a complicated process of change, explains Konstantin Zografov, deputy chairman of the supervisory board of Industrial Holding PLC in Sofia, Bulgaria. “In the field of defense electronics, traditionally, Bulgaria specialized in the production of some field radio systems, radars, optronics and jamming systems. The conventional information technology sector focused on mainframes, personal computers, and magnetic and optic storage media,” Zografov says. “Based on this heritage, the development of the current industry diverged into three main directions: part of the state-owned defense electronics companies continued to produce on long-term contracts with the government and remained under a special privatization regime. A second group of companies was established as a result of privatization or were newly created from business-oriented people from that sector. A third large and dynamic sector was based on foreign investments by large international companies that created their own branches, daughter companies or acquisitions of Bulgarian companies.”

Domestic Bulgarian information technology companies generally work with foreign companies both in-country and internationally. Telecommunications and mobile communications companies were privatized during the past 20 years and have seen significant growth. The country boasts about 250 companies with a national scope of activities, and many more that are involved in retail and services. Traditional Bulgarian companies include Electron Progress, the first Bulgarian company to become a NATO supplier; Samel 90; Tcherno More; Bitovo Electronica; and Opticoelectron. 

Bulgarian industry has retained some of its historic specialization in field radios, radars, jammers and optics, while some companies have developed skills as system integrators and service providers, including for NATO missions. Some software companies also develop test, simulation and training software for leading defense companies, Zografov explains. In the aftermath of privatization, the government lacks resources for doing information technology work internally and, therefore, outsources many projects, especially supplies and services-related efforts. “In most large government programs, big international companies participate individually or in a consortium with Bulgarian companies. Not many Bulgarian companies have enough capacity and resources to manage larger projects alone. There are some cases where the leading partners are Bulgarian companies, as this is a definite requirement of the contract,” Zografov explains. Some maintenance and repair activities for the Ministry of Defense are provided by the state-owned TEREM company. 

In 2002, the first strategy was adopted to create electronic services for private citizens and businesses, which required building an internal administrative information and communications infrastructure. The effort is described on the English-version Web homepage of the Bulgarian Ministry of Transport, Information Technology and Communications as part of the transition from an industrial society to an information society, as well as a means of increasing the competitiveness of the Bulgarian economy and improving the overall business climate. It is designed to reduce the time, effort and cost for individuals and businesses using government services and to increase efficiency and reduce the cost of services provided by the administration.

The project is a European Union effort and was important to Bulgaria’s 2007 admittance into that international body. Recently the Ministry of Transport, Information Technology and Communications published for public discussion a Concept for eGovernment in Bulgaria 2010-2015. The detailed document outlines the technical, legal, methodological and financial issues associated with electronic governance. Last year, the government began issuing new identification cards and passports with biometric data. The electronic government portal, www.egov.bg, which currently is available only in Bulgarian, offers a range of services and information.

The government in 2004 launched i-Bulgaria, a plan to make the country more computer and Internet literate. A major part of the strategy involves technology centers across the country. The centers enable local residents to access the Internet affordably and to learn about technology. The effort is designed to drive wealth creation and close the country’s digital divide. The U.N. Development Programme, which helps developing countries attract and effectively use international aid, provided financial assistance for the project. A 2007 U.N. mid-term review of the centers concluded that the centers were technically well-established, well-implemented and equipped with updated software, hardware and fast connectivity. In addition, Bulgaria is one of eight nations involved in the Regions for Better Broadband Connection project. The other countries involved are Italy, the United Kingdom, Greece, Spain, Poland, Cyprus and Hungary. The broadband connection project is intended to improve the effectiveness of regional development policies in the information society by optimizing the best practices of broadband implementation in disadvantaged areas.

More recently, the government launched a new effort to develop an information system to monitor traffic along the Danube River, ensure better navigation and reduce the impact of river traffic on the environment. The Bulgarian Ports Infrastructure Company, a state-owned company, announced an agreement in May with the Ministry of Transport, Information Technology and Communications to start on the project, which is scheduled for completion in late 2013.

Regarding communications infrastructure, the CIA estimates that more than 2 million Bulgarian landline telephones were in use in 2008, compared to more than 10 million cellular telephones. The agency reports that Bulgaria inherited an extensive but antiquated telecommunications network from the Soviet era, but quality has improved with a modern digital trunk line now connecting switching centers in most regions, and remaining areas are connected by digital microwave radio relay. Domestically, the Bulgaria Telecommunications Company’s fixed-line monopoly ended five years ago in an effort to modernize landline services. A submarine cable connects Bulgaria to Ukraine and Russia, and a combination of submarine cable and land-based fiber optic system connects the country to Italy, Albania and Macedonia.

The republic also uses three satellite earth stations, Intersputnik for the Atlantic Ocean region and two Intelsat systems in the Atlantic and Indian Ocean regions. In 2008, Bulgaria had more than 700,000 Internet hosts, placing it 45th in the world, and more than 2.6 million Internet users, according to CIA estimates.

The information and communications technology supply market has been driven largely by growth in local demand for traditional computing and office machinery, as well as information technology service outsourcing and offshoring, according to an information, communications and technology report written by the Applied Research and Communications Fund (ARC Fund), a Bulgarian innovation policy and research institute founded in 1991. Part of the ARC Fund’s vision is to promote innovation and facilitate the transfer of new and advanced technologies and know-how. Diffusion of elements such as computers, local network integration, Internet access, Web pages and enterprise software in enterprises, schools and homes boomed after 2000, according to the ARC Fund.

This growth increased the demand for telecommunication services and locally produced software and implementation services, the report states. Furthermore, companies producing office machines and apparatus, precise instruments and optical goods offer a serious competitive advantage and contribute to new product development. In addition, local telecommunications companies have established their own technology development units, and non-information technology companies have created a demand for information technology products and services.

With spending being scaled back, the e-government effort has become more important to industry. “Considering the limited national budget and reduction of armed forces modernization programs, e-government gains importance for the public sector for the information technology market,” Zografov observes.

The country also has had some difficulty implementing information technology-related strategies. The policy framework for information and communication technology has been defined largely by the National Policy for Information Society Development adopted in 1999 and updated in 2001 and 2008, according to another ARC Fund-published report, e-Bulgaria 2020. But, these strategies have been incoherent, uncoordinated and poorly resourced, which has resulted in lack of implementation, the report states.

Even the e-government effort has not gone entirely smoothly, according to the ARC Fund. The systems composed of e-governance elements remain dispersed, functionally incompatible and non-interoperable; a number of legal provisions are not observed; the number and scope of working electronic services remain far too limited; attempts to develop new types of electronic governance services have seen only a few isolated successes; and senior administration officials often do not understand or are unaware of the concept and principles of e-government, the ARC Fund reports.

Furthermore, the information technology sector has, in large part, failed to invest adequately in research and development following privatization, the ARC Fund has found. Defense research and development has gone steadily downward, from 1.4 percent of the defense budget in 1990, to 0.25 percent in 2006. After 1989, most of the research and production units of the former defense industry have been privatized and significantly downsized, and companies have downsized or eliminated research and development efforts due to a lack of resources.

Despite challenges, however, the government has expressed the political willpower to continue implementing electronic governance, and the general public supports the effort, Zografov states. In addition, the country has invested in the human capital needed to continue its transformation. “For me, the most positive action of the international information technology business is the right evaluation of the Bulgarian information technology human capital. Despite the small size of the internal market, many companies have established their offices, competence and service centers, software development centers and training programs,” he says.

CIA World Fact Book 2010: https://www.cia.gov/library/publications/the-world-factbook/geos/bu.html
Bulgaria Ministry of Transport, Information Technology and Communications: http://bit.ly/9gXr0d
Bulgarian Technology Centre: www.icentres.net/index.php?id=201

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