MUNICIPAL POLICY FOR SUPPORT TO SMALL AND MEDIUM-SIZE BUSINESS

Assen Dyulgerov

Municipal Secretary

Municipality of Sofia

The Bulgarian municipalities have many times expressed their wish and willingness to formulate their own policies to encourage the business agents within their territory. However, the scope of this intent goes far beyond the regulatory framework of the Small and Medium-size Enterprises Act. Many general and specialized legislative acts assign the municipalities competencies and obligations to the territorial community, and this should be taken into consideration in every individual case.

Art. 13 of the Small and Medium-size Enterprises Act outlines 10 different types of possible incentives, most of which may be applied by the municipalities. These might be reviewed on the basis of their current applicability.

Access to public orders. The major question in this regard is to what extent the Public Orders Act allows special qualifying and pre-qualifying terms in an open or limited procurement procedure. More specifically, could the quality "small or medium-size enterprise" /SME/ be a condition for participation in procurement procedures. So far the attempts to impose such special terms have always been countered by the inevitable objection of equality in doing business. However, the attempt to put in order the procurement of small orders that go without the applicability of the legislation, is a positive effort. The Council of Ministers adopted an ordinance on the procurement of small orders. Usually, the so-called "small orders" would be of interest to SMEs. But the other aspect of SMEs participation in public procurement procedures is much more important. The municipalities should provide conditions that would not exclude SMEs participation by default. The practice in this respect is still insufficient but the fact is that the legislation provides enough opportunities for the selection of offers /the pre-qualification invitation/ to be made only among small and medium-size enterprises.

Involvement in municipal privatization. This is the relatively easiest to achieve element of a municipal policy for support to SMEs. The positive factor in this case is the legislation which provides for preferences in three major cases:

- payment in installments in the privatization of spin-offs;

- payment in installments in the privatization of unfinished construction sites;

- payment in installments when an SME is the sole candidate to buy municipal stock or shares.

The encouragement of privatization within the Municipality of Sofia is a policy oriented to small and medium-size business. The deals are mostly for spin-offs. The Municipality expects that in this way it will stimulate the appearance of a maximum number of owners and the creation of a maximum number of jobs. These are based directly on the structure of municipal tax revenues. As of recently, the Municipality is also applying the preferences for SMEs in privatization. Unfortunately, this happened with some delay, due to the lack of required registrations.

Lease of municipal property. The Small and Medium-size Enterprises Act provides for smaller preferences in this respect. The major problem here is the contradiction with the reigning municipal policy of full, if possible, privatization. In one or two years, the municipalities won't own significant property, with the exception of those needed to satisfy their own needs. The exception to this rule are the removable installations where the municipal land may be leased under Art. 17 of the Territorial Development and Town Planning Act. For the bigger cities, this provides a significant encouragement resource. As a rule, commerce in removable installations is a specific area of activity of SMEs and micro enterprises. This should be taken into consideration by the municipal councils when adopting the measure under Art. 25 Para 1, of the Small and Medium-size Enterprises Act, namely, when identifying the private municipal property sites that may be leased only to SMEs. In general, this requires an internal bid or competition for the lease of municipal property, to which only SMEs are allowed. Unfortunately, the preference in this case is valid only for commercial companies and not for production and high tech companies that take the first place in the encouragement priorities of the act.

Creation of infrastructure and business incubators. At present, Sofia is surveying the availability of municipal lots for business incubators. The problem is that a business incubator requires before all the existence of infrastructure which is extremely expensive. The investments that the municipalities may make are restricted to 5% of the annual own revenues. This means that every municipality, at any time, has more important competitive sites to fund. Therefore, the municipalities can rely only on attracting funds from international programs.

Municipal programs in support of SMEs. These programs are derived on the basis of regional ones, as their implementation depends on the provision of resources from the regional programs. The municipalities that depend on the development of production and high tech activities should focus their efforts on establishing specialized business incubators. The world practice is a very good example in this respect.

The municipalities are not allowed to have a differentiated tax policy that would allow them to stimulate small business. This is due to the fact that they are not allowed to define the amount of local taxes - a significant obstacle that can be overcome only by an amendment to the Constitution.

Every municipal administration should know the exact number, type and specific activity of the SMEs within its territory. This requires a close cooperation with the Small and Medium-size Enterprises Agency, mostly in the exchange of current information. And last, but not least, is the development of SME support programs and their funding by attracting foreign resources and by means of the various forms of public-private partnership.