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Cross-border cooperation in the Bulgaria–Greece–FYR of Macedonia triangle

Cross-border cooperation in the Bulgaria–Greece–FYR of Macedonia triangle

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points in the Balkan countries, aiming to foster CBC and, thus, reduce the

isolation of neighbouring societies and economies.

Under these circumstances, the countries under investigation have implemented restructuring plans, which include the adjustments of their economic systems in order to adapt to the new conditions of the market

economy. Consequently, a new economic geography has emerged in the

area, where interaction between developed and less-developed regions has

intensified and proved to be of crucial importance for both sides. This

phenomenon marks a new era for border areas, which are traditionally

viewed as disadvantaged and low-opportunity regions,3 enabling

cooperation to develop across borders and creating chances for local firms

to participate in the new, EU and globalized economy.

The south-eastern part of Europe presents a telling example of the trend

described above, in which a strong West–East interaction has been observable in recent years between Greece, Bulgaria and the FYR of Macedonia.

CBC between these countries is not a new phenomenon, given the rigorous

Greek investment activity that has been directed towards Bulgaria and the

FYR of Macedonia during these years, as well as the established trade

relationships between the three countries. What remains a novel phenomenon, however, is the proactive investment activity on the part of the former

state socialist economies.

The available statistical data reveal, for example, that although Greece’s

share of global volumes of outward FDI is very small, namely 0.267 per

cent in 2007 (UNCTAD, 2008), the country holds a leading position among

Balkan countries and especially in Bulgaria and the FYR of Macedonia.

Concretely, Greece is the third largest foreign investor in Bulgaria (following Austria and the Netherlands), having invested US$1598.2 million in

total during the period 1992–2005 (Embassy of the Republic of Bulgaria in

London, 2005), while it is in second position in terms of FDI in the FYR of

Macedonia (following Austria), with €159.9 million during the period

2003–07 (National Bank of the Republic of Macedonia, 2008). Bulgaria has

also contributed to a large extent to the FYR of Macedonia’s restructuring

processes, through investments in different sectors (including banks and the

sugar industry). Trade volumes between the three countries have also

increased significantly during these years.

On the regional level, the spatial concentration of cross-border activities,

which also includes Albania, led to the formation of a regional market with

international specialization, in which Albania’s agricultural resources are

combined with Bulgaria’s and the FYR of Macedonia’s manufacturing, as

well as Greece’s tertiary sector, creating the conditions for the port of

Thessaloniki to become a major transportation hub in the area (Petrakos,

1996, p. 18). The specific market involves cooperation between local firms



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seeking to exploit the advantages derived from neighbouring regions of

different levels of economic development. This phenomenon was particularly evident in sectors such as manufacturing, and more specifically the

garment industry, in which Greek firms hold the position of second-layer

subcontracting assigner to Bulgaria and FYR of Macedonia, thus creating a

form of ‘triangular manufacturing’ (Labrianidis, 1996; 2001), although its

importance has decreased over time.

Although the initiatives mentioned above were originally undertaken

solely at firm level, European,4 national and regional policies have been

designed and implemented in order to encourage CBC between Greece,

Bulgaria and the FYR of Macedonia. EU support under the three INTERREG programmes, as well as PHARE/CARDS initiative,5 has contributed

to a large extent to stimulating interregional cooperation and fostering

balanced development within the area. A significant share of funds has been

directed to infrastructure improvement projects, thus enabling the transportation of goods across the borders. Moreover, cooperation at an institutional

level (including local authorities and business support organizations) is

likely to provide a foundation for enterprise-based CBC in the future.

However, cross-border policies do not always reflect the specialized needs

of local stakeholders (organizations, institutions and enterprises), since

their opinions are rarely taken into consideration (Dimitrov et al., 2003,

p. 20).

This chapter aims to provide an empirical assessment of CBC that has

developed between Greece, Bulgaria and the FYR of Macedonia.6 Special

attention is given to the bordering areas of the countries, since, on the one

hand, they comprise all the negative aspects of peripheral regions, and, on

the other hand, they possess the advantages of geographical proximity and

familiarity with the other side of the borders, advantages which can

constitute enabling factors for CBC.

The structure of this chapter is as follows: the first section contains a short

presentation of the case study regions (CSRs) and some methodological

notes on the fieldwork conducted there, while the next section constitutes an

empirical assessment of CBC in the area, accompanied by a discussion of

the main findings. In the third section the major concluding points are

presented and key implications for policy drawn. Our analysis reveals the

advantages and opportunities created for local enterprises, institutions and

neighbouring societies in a context, which during recent decades, has not

encouraged CBC.



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THE CASE STUDY REGIONS (CSRS)

Geography, Social Characteristics and Economic Development

The area under investigation involves the bordering regions of Greece,

Bulgaria and the FYR of Macedonia (Figure 5.1). More specifically, the

first CSR includes the bordering regions between northern Greece and

southern Bulgaria: the Prefectures of Serres, Drama and Thessaloniki in

Greece and the District of Blagoevgrad in Bulgaria. There are two crossing

points in this area (Kulata-Promachonas and Ilinden-Exohi), with the latter

starting operation in 2006.

The second CSR includes the border regions between north-western

Greece and southern FYR of Macedonia: the Prefectures of Florina and

Pella, together with Thessaloniki in Greece and the region of Pelagonia,

which mainly includes the neighbouring Municipalities of Bitola and Prilep

in the FYR of Macedonia. This area includes one crossing point: the border

station of Metjitlija-Niki.



Figure 5.1 The case study regions (CSRs)



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The third area under study involves the border regions between Bulgaria

and the FYR of Macedonia, specifically the District of Kyustendil in the

south-western part of Bulgaria and the north-eastern region of the FYR of

Macedonia.

It is in these areas that the majority of cross-border cooperation between

the three countries takes place. The area covered by the CSRs constitutes

quite a fragmented space in both social and economic terms, since all the

regions examined – perhaps with the exception of Thessaloniki – present

similar characteristics of small size, restricted shares in total population and

national Gross Domestic Product (GDP), as well as low population density

and percentages of urban population.

An examination of the available data confirms the widely held view that

border regions are traditionally disadvantaged, facing significant developmental problems and constraints. The CSRs are economies of small size and

low contribution to total added value on the national level, while all three

countries have a lower than EU-27 average of GDP/capita for the period

2000–08. Moreover, even though Greece holds a notably enhanced position

when compared to Bulgaria and the FYR of Macedonia, it still lags behind

the EU-27 average figure. It is worth mentioning that the grey economy in

all three countries has a significant share, reaching 37 and 36.7 per cent of

GDP in the case of Bulgaria’s GDP7 and Greece (Tatsos 2001), respectively.

With the exception of Thessaloniki and the Region of Pelagonia the other

regions also present a significantly lower percentage of the regional GDP

than the national average, ranging from 50.3 per cent for the case of the

north-east region in the FYR of Macedonia to 76.4 per cent for Blagoevgrad

on average during 2000–05 (Figure 5.2). Hence, it is clear that we are

talking about relatively small sizes of the local economies on both sides of

the borders.

Unemployment constitutes another crucial developmental barrier in the

CSRs, especially for the Greek regions, where the relevant rate reached 17.5

per cent for Drama in 2007, compared to 9.8 per cent in 2000 (Eurostat,

2009). A similar situation is also apparent in Serres and Florina, where in

both regions unemployment exceeds 15 per cent; and in Pella, in which

unemployment rates among the labour force reached a two-digit number

during recent years. These figures primarily represent the ‘dark side’ of the

Greek firms’ opening to the Balkans and particularly the delocalization of

garment manufacturing firms during the 1990s to Southern Bulgaria (and

more recently to the FYR of Macedonia).

At the same time, unemployment rates among the active population

constitute one of the most unsettling barriers to growth in the FYR of

Macedonia, boosting social disparities between the regions and increasing

the gap with neighbouring European areas. According to official data



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Source: Eurostat, General and Regional Statistics (2009).



Figure 5.2 Regional GDP in percentage of the countries’average

(1995–2005)

provided by the State Statistical Office (2007), national unemployment

reached 34.9 per cent in 2007, compared with 36 per cent in 2006.

According to the same source, unemployment was 39.7 and 48.6 per cent

for the regions of Pelagonia and the north-east region respectively during

2002.

Unemployment in the Bulgarian CSRs is relatively low, amounting to 6.7

per cent for Blagoevgrad Province (Petrich CSR) and 8.2 per cent for

Kyustendil Province (Employment Agency, 2008). On one hand this could

be partially attributed to the level of foreign direct investment in these areas,

which has created new working positions there. On the other hand, low

unemployment can encourage local cross-border activities, since low

unemployment corresponds with increased purchasing power as well as

with increasing interest in economic activities on the other side of the

border. By contrast, high unemployment leads to reduced CBC as in the

case of the Bulgarian–Serbian border.

These bordering regions are characterized by the existence of various

bilingual ethnic minorities,8 due to immigration and population exchanges

in the area (particularly after the Balkan wars from 1912–13), populations

that are sometimes considered to be the main source of national tensions. It

is useful to note that this area was part of the Ottoman Empire from the early

fifteenth to the early twentieth century, which brought together previously



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separated peoples and cultures and produced an amalgamation of populations out of which new social groups emerged, thereby creating an impact

on CBC development in the wider Balkan region. The most dramatic effects

on the social and economic structures in the regions studied were associated

with the nationalistic policies implemented by the governments after the

end of Ottoman rule and the twentieth-century wars, which caused mass

migration processes, mutual animosity and disorientation, together with

isolating cross-border populations and regimes. Although the sociopolitical context has changed with the events of the late nineteenth to

mid-twentieth centuries, the longer-term historical legacy needs to be taken

into account as a significant factor on CBC, even today. It is important to

clarify that the ‘leftovers’ of the past may positively contribute to CBC. For

example, the fact that some populations of this area are bilingual allows the

development of closer communication and trust networks to occur.



SAMPLE AND METHODOLOGY

The findings presented and discussed below are primarily the outcome of

fieldwork conducted in the CSRs from March–October 2007, which

involved semi-structured interviews with both entrepreneurs and key

informants currently or previously engaged in CBC. Specifically for the

Greece–Bulgaria CSRs, the sample comprised 79 enterprises, of which 40

are located on the Greek side of the borders and 39 in Bulgaria. The first

phase of the research also involved 42 key informant, semi-structured

interviews conducted on both sides of the borders: 24 in Greece and 18 in

Bulgaria, including representatives from the local authorities (municipalities and prefectures), chambers of commerce and industry, exporters’

associations, commercial unions and NGOs that have experience of CBC

with their counterparts on the other side.

The data collection instrument employed involved a semi-structured

questionnaire in order to encourage the interlocutors to express freely their

views on issues related with CBC and to recount their experiences during

face-to-face interviews. Interviews were mainly conducted in the informants’ native languages but English was also occasionally used. Our sample

of enterprises was constructed on the basis of information provided through

key-informant interviews as well as from available information in business

directories on the Internet; the ‘snowball’ technique was also used in order

to complete our database from the CSRs. It is worth mentioning that most

cases (51 per cent) involved firms operating in manufacturing and more

specifically within the garment industry, in which subcontracting is the

basic form of cooperation (see Figure 5.3).



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1%

23%



3%



51%

22%



Industry



Source:



Services



Transport



Retail & Distribution



Other



Authors.



Figure 5.3 Share of firms per sector

A common type of CBC identified at the enterprise level in Petrich

(Bulgarian–Greek border) is based on long-term relations between partners.

The most widespread type of these relations is between supplier (Greek

enterprise) and buyer (Bulgarian enterprise). By contrast, enterprises registered in Kyustendil and involved in CBC (Bulgarian–FYR of Macedonia

border) operate mainly in light industries and the service sector (including

wholesale and retail).

Concerning the age of the participants, most were between 36 and 50

years, although 21 per cent were younger entrepreneurs and employees

(18–35 years old) working in firms engaged in CBC. The vast majority of

our interviewees were male (88 per cent). A noteworthy feature referred to

the linguistic skills of the people engaged in CBC (Figure 5.4), since

common language constitutes an extremely important factor for developing

partnerships. More specifically, knowledge of the dominant language of the

cross-border region was common among all our interlocutors. However, the

relevant percentage was distinctly higher in the case of entrepreneurs aged

51–65 (84.2 per cent), compared to 56 per cent for people aged 18–35 and

36–50, and only 33.3 per cent for interviewees aged over 65.



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100%



97



10.5%



90%

36.0%



34.1%



8.0%



9.8%



5.3%



33.3%



80%

70%

60%



Other languages

33.3%



50%



Minority language of crossborder region



84.2%



40%

30%



56.0%



56.1%



Dominant language of crossborder region



20%



33.3%



10%

0%

18–35



Source:



36–50



51–65



Over 65



Authors.



Figure 5.4 Distribution of interviewees according to linguistic skills



EMPIRICAL FINDINGS AND DISCUSSION

The Effects of EU Enlargement on Cross-Border Activity

One of the most important elements regarding CBC involves trust and

security in transactions between enterprises located at the borders, as

pointed out by several entrepreneurs who participated in the fieldwork.

Given the fact that the physical distance between them is relatively small in

all cases, interpersonal relations and familiarization are easily facilitated.

However, CBC is easier to achieve if the regions on either side of the border

are both part of the EU. At the same time, this argument is not as strong in

the case of entrepreneurs as in the case of institutions, since the former are

able to overcome barriers in a more effective way, compared to institutions

where the problems experienced are sometimes national issues.

Bulgaria’s accession to the EU proved to be a stimulating factor for CBC

since it encouraged Greek firms either to develop or retain CBC, compared



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to the case of firms located in the FYR of Macedonia. Entrepreneurs

identified several positive effects of EU enlargement among the wider

socio-economic environment of Bulgaria:

On a commercial level, EU enlargement to include Bulgaria and Romania is very

positive, due to the fact that there are many new consumers with improved

purchasing power. This is not the case in the FYR of Macedonia, where there still

is unemployment and economic problems. Consequently, our commercial activities are not very good there. The residents of FYR of Macedonia mostly

consume 60–70 per cent cheaper products from Turkey and China. (Florina

Enterprise 3)



It could be argued that Bulgaria’s accession to the EU created an important

‘pull’ factor for Greek enterprises to establish CBC in Bulgaria, since a new

potential market emerged in the neighbouring region. Apart from the fact

that this could lead to an extension of the customer base, it was also

suggested that Bulgarian consumers gradually turn to more expensive,

higher-quality products. Consequently, this phenomenon could also encourage Greek entrepreneurs to abandon the low-cost strategies implemented

during the early years of expansion in the Balkan market and focus on

higher value-added activities.

As regards CBC in general and more specifically in northern Greece, the highest

interest is presented in knowledge transfer and product exporting. We should

focus on knowledge transfer and high-quality product exporting, if we are able

to produce them. The service sector is also of great importance, as Bulgarian

citizens will begin to search for higher quality, just like all the other European

citizens. (Thessaloniki Key informant 24)



Increased access to the Balkan markets could be seen as an opportunity that

will help companies in Greece to confront the deeper problems facing the

Greek economy. It has previously been argued that the low-cost strategies

implemented in the neighbouring markets cannot provide Greek firms with

a sustainable competitive advantage. Instead, they tend to produce rather

negative results, such as lost jobs reported in Greece in the short term, as

well as longer-term negative effects. The latter include postponing the

restructuring of firms necessary to upgrade them in order to produce more

value-added products and to become internationally competitive (Labrianidis, 2001a, p. 4), ultimately leading to the absence of new and innovative

investments in Bulgaria and FYR of Macedonia. In other words, CBC could

be considered as an excellent chance for Greek companies to move up the

value chain and produce for the upper segment of the market. The shortterm effects, which include increased bankruptcies and unemployment in



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Greece as a result of the companies’ delocalization to the other side of the

borders, could be cushioned (Labrianidis, 1996).

For Bulgarian companies the CBC opportunities created by EU accession

are mostly related to the diversification of their supply sources and access to

new markets. Bulgarian accession to the EU meant that Greek–Bulgarian

CBC now involves simplified procedures at the borders, which facilitates

product transport. Therefore, entrepreneurs sense their exports are better

secured and trust levels are enhanced. There are also shorter delivery times

now for exported products across the Greek–Bulgarian borders.

The most serious problem you come across when cooperating with the other side

of the border has to do with the transportation of the products, because of the

problems that occur at the customs houses. After EU enlargement and the

accession of Bulgaria, things have improved; the whole procedure is much

simpler now and also it costs us less to transport goods from Bulgaria. (Florina

Enterprise 5)

Bulgaria’s accession to the EU, overall, has had a positive influence on firms’

activities in relation to a number of dimensions: facilitated regime of VAT

taxation, delivery in a shorter-term, facilitated crossing of the border and fewer

border checks. (Petrich Enterprise 19)



In contrast, in the case of the FYR of Macedonia–Greece, there are still

crucial barriers regarding human and capital flows. The above statements

are highly representative of the changes that occurred after the EU enlargement and the consequent improvement in CBC between Greece and Bulgaria. With Bulgaria’s membership of the EU, the regulatory regimes

concerning CBC between Bulgaria and Greece became equipotent, thereby

creating a better position for Bulgarian entrepreneurs. This argument is

further enforced by the examination of the case of the CBC with the FYR of

Macedonia, since entrepreneurs recognize that since the country is not part

of the EU, there is little evidence of radical changes in their cooperation.

Bulgarian entrepreneurs reported that their accession to the EU not only

lacks any positive effects in terms of increasing CBC between them and

entrepreneurs in the FYR of Macedonia, but that it has also increased

fragmentation in the Balkan region. EU membership created additional

barriers for CBC between member and non-member countries, which

include new visa regimes, border controls and adjustments to the legal

systems. This trend was particularly clear in the responses of Bulgarian

entrepreneurs:

EU enlargement creates new barriers for CBC with Serbia and Macedonia. For

example, firms lose their clients because visas are necessary for both countries.



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Bulgarian visas should be free of charge but in fact they require payment. So, the

main problem is the visa regime. In this regard, a subscription to a ‘50 km

non-visa zone’ is being discussed. But this is absurd because ‘another border in

the country could not be made’. Furthermore, Macedonian people changed their

interaction with Bulgarians after EU enlargement. (Kyustendil Enterprise 15)



As a result, it could be argued that EU membership has a twofold effect,

either negative or positive depending on whether the CBC dyad includes

parts of an EU member or non-member country (Bulgaria–the FYR of

Macedonia) or two members (Greece–Bulgaria) respectively. At the same

time, this argument highlights the need for an integrated strategy for the

development of the post-1989 Balkan region. Countries such as the FYR of

Macedonia are obliged to pay serious attention to intra-Balkan economic

relations (Petrakos and Totev, 2001, pp. 24–25). Given the country’s distance from the EU core, together with the fact that it shares common borders

with two member states (Greece and Bulgaria), cutting off the trade

linkages with them poses severe threats to local economic development.

In addition, harmonization with the EU’s legislative framework resulted

in Bulgaria developing an image of a more secure business environment

than previously. Common business codes and symbols emerged as a result

of adjustment in the legal systems, while, additionally, signs of corruption

are no longer considered by Greek entrepreneurs to be a significant barrier

in Bulgaria.

The elimination of corruption that has been actively pursued in the past years [in

Bulgaria], particularly following the EU enlargement, creates a sense of security.

(Serres Enterprise 9)

The accession of Bulgaria has had a negative impact on the firm’s CBC with its

Macedonian partners. The number of the orders fell drastically and as a

consequence so did the profit. The main reason was the introduction of trade

restrictions for the Macedonian merchants. (Kyustendil Enterprise 7)



However, a completely different attitude was reported towards the FYR of

Macedonia by both Bulgarian and Greek entrepreneurs, who judge that the

country still lags behind other European countries in terms of economic

development and governance structures. In the case of CBC between

Greece and the FYR of Macedonia, national and political barriers have had

a negative impact on trust levels and consequently on CBC development,

due to the ongoing dispute over the name ‘Macedonia’ (see Europa 2000,

pp. 2335–7). This issue creates enormous difficulties for CBC between the

two sides, as clearly stated during the interviews:



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