Economic impact of corruption in the Bulgarian public procurement market and the role of EU financial support for improving governance Stefan Karaboev Analyst, Economic Program Center for the Study of Democracy

Contents The Bulgarian public procurement sector Dynamics and corruption risks in the construction sector – market and firm level analysis The role of EU funding Improving governance and combating corruption through EU funding – what is the impact of the provided financial support

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Overall public procurement trends and corruption dynamics The Bulgarian PP market constitutes an average of 9% from GDP. Its volume naturally creates corruption pressure. The corruption risks are highlighted by two distinct trends: High levels of administrative irregularities revealed by control bodies and financial inspections; Criminal prosecution remains ineffective, focused on lower levels of governance and with very few final sentences enforced.

The Bulgarian construction sector: Highlighted PP risks Impact of the economic crisis Turnover slumped by more than 30%, compared to its peak in 2008, reducing the share of the sector in total GVA. Increase in the importance of public procurement for the construction sector. Increased dependence of construction companies, in particular larger ones, on public procurement contracts.

In 2013 the total PP value for construction works reached 31% of the total construction sector turnover, making the public administration the key customer and decision maker in the survival of sector.

EU funding perspectives EU funds continue to increase their impact on the PP sector – ¼ of all contracts signed Value of PP contracts, published in TED by type of funding, 2007-2015

PP with EU funds more competitive PP, published on TED, by number of offers and type of financing, 2007 - 2015 (%)

PP with EU funds – more secure but not immune Increased impact and weight of EU Funds Sectoral focus: infrastructure and environment as means for Bulgaria to overcome existing basic infrastructure gaps Analysis confirms that EU funds remain 4 times more secure from corruption than PP funded exclusively by the national budget

Economic dependencies and corruption risks – firm level analysis Public procurement contracts have grown even larger for the top 40 construction companies; Corruption pressure on the administration; Leverage in the hands of the public administration.

Weight of the EU funding in the PP market value of the top 40 construction companies

Improving governance in Bulgaria: Evaluating the Impact of EU Conditionality through Policy and Financial Assistance Public procurement is only one of the sectors vulnerable to corruption. Anti-corruption progress in Bulgaria continues to be fragmented and slow. CVM: Bulgaria still faces three key governance challenges – combatting high-level corruption, building an institutional approach to anti-corruption, and judicial independence.

Support for Justice and Home Affairs (JHA) during the accession period (allocated EU contribution in EUR mln.) EUR mln.

Direct support for AC and CVM benchmarks was limited during transition Overview and agreed budget support for the CVM`s six benchmarks on Bulgaria (EUR million) EUR mln.

Support in total actual payments for anticorruption-related actions during the 2007-2013 programming period (EUR mil.) EUR mln.

Dynamics of the overall provided support for anticorruption-related actions (actual EC payments, EUR mln.)

The positive EU membership increased efficiency, transparency and data accessibility. Public procurement with EU funds is, on average, four times less likely to be corrupt than contracts, exclusively financed by the national budget. Effectiveness, impact and purposefulness of the EU-funded projects however remain problematic.

The negative Lack of formal link between AC progress under the CVM and provision of financial support. Despite negative CVM reports, funds allocated to AC projects have dropped off since 2010. Lack of genuine political will and commitment in Bulgaria to undertake reforms. Track record includes very few final convictions in cases involving substantial corruption. EU`s decreasing leverage to apply external pressure.

The way forward Civil society as pressure tool. EU in need to strengthen its internal and external mechanisms for policy-making in the good governance domain. Conditionalities should be tied to financial support and based on a common system of monitoring and evaluation of progress. Discussion questions (to be added)