Does Bulgaria need more entrepreneurs?

According to previous Flash Eubarometer entrepreneurship surveys (e.g. Flash Eurobarometer 354, 2012) Bulgaria’s population has a better than average attitude towards startups and entrepreneurial activity when compared to the rest of the EU. Yet Bulgaria’s slow recovery from the 2008 economic crisis implies problems with the quality of entrepreneurship in the country. Since the Global Entrepreneurship Index (GEI) approach highlights the quality aspects of entrepreneurship (as opposed to the quantity of startups and new businesses used by other entrepreneurship measures) it is an ideal tool with which to explore the strengths and the weaknesses of Bulgaria’s entrepreneurial ecosystem.

In the latest GEI 2015 report, Bulgaria’s overall GEI score was 42.7 (±5%), a bit higher than would be expected given the country’s level of development. As a result, Bulgaria ranked 44th out of 130 countries, just ahead of Hungary and behind Slovakia and Romania. Bulgaria’s average individual variable score on a 0-1 scale was 0.69 while its institutional scores lag behind at 0.57 on average. Out of the three sub-indices, entrepreneurial attitudes ranked the highest, reinforcing the Flash Eubarometer survey results. Bulgaria’s entrepreneurial ability sub-index score was relatively low and its entrepreneurial aspirations score even lower.

Digging into the pillar level Bulgaria’s weakest pillars (and therefore the most critical bottlenecks in the entrepreneurial ecosystem) were Technology absorption, Risk capital, and other aspiration related pillars like Internationalization, Product innovation, and High growth. Altogether, four out of the five Aspiration related pillars were below average. On the contrary, Startup skills was the highest out of the fourteen pillars. The other four attitude related pillars were around or above average.

The patterns we see in Bulgaria’s performance on the 14 pillars of the GEI can be used to structure entrepreneurship policy for the country. But why use the GEI to formulate policy rather than looking to more conventional measures of entrepreneurship? Because the GEI treats entrepreneurship and the economy as a system and correlates well with longer term progress rather than simply short term growth. While measures like entrepreneurial activity correlate positively, but weakly with growth these measures negatively correlate with per capita GDP. On the contrary, GEI positively correlates with economic development and (weakly) negatively with growth. Since GEI’s objective is to explain not short term growth but the longer term path of economic development, we prefer a policy approach that focuses on the multilayer quality aspects of entrepreneurship and of entrepreneurial ecosystem.

So what do these pillar scores say about an optimal entrepreneurship policy strategy for Bulgaria?  The most effective way to increase Bulgaria’s GEI scores is to alleviate the bottleneck pillars. Since Bulgaria’s attitude pillar scores are relatively good, policy effort should target the ability and aspiration related pillars. For a five point increase in GEI score, Bulgaria should turn 24% of its additional resources to improve Technology absorption, 22% to increase Risk capital, 17% to raise Internationalization and Product innovation. The remaining resources should be spent to raise High growth (15%) and Competition (6%). Altogether 30% of the additional resources serve to improve entrepreneurial abilities and 70% to address entrepreneurial aspirations. Taking a closer look at the institutional and the individual components of the weak pillars, it is clear that Bulgaria needs more institutional development, mainly in technology absorption capacity, financial markets, technology transfer, the sophistication of business strategy and reducing monopolistic markets.

On the whole it seems that Bulgaria does not need more entrepreneurs in general and does not need to spend money and effort on improving the entrepreneurial attitudes of the population. However, Bulgaria needs such institutional progress in the ecosystem that result more high quality, innovative, high growth potential businesses and more developed financial markets.