30.08.2021 BDB will work to create an innovation fund for the Three Seas Initiative

Iliya Lingorski, Chief Economist of the Bulgarian Development Bank, in the show "The World is Business" on Bloomberg TV

The Bulgarian Development Bank (BDB) has initiated the creation of an innovation fund for the Three Seas Initiative, which will support the development of innovative companies. BDB is also reviewing its 3-year strategy, which will be aimed at supporting the intensive development of small and medium-sized enterprises, especially in their implementation of digitalization and energy efficiency. At the same time, development banks as a whole will have a very important role to play in the recovery of Europe after the pandemic crisis and in the Green Transition process. These are some of the theses advocated by Iliya Lingorski, Chief Economist of the Bulgarian Development Bank in the studio of "The World is Business" hosted by Ivaylo Lakov.

The big structural and fundamental problem for the economies facing all countries in the Three Seas Initiative is catching up with the developed economies in the EU. As the Union expanded, expectations were for much faster convergence, Lingorski recalls. This did not happen, not without the negative impact of the crises the world has gone through in the last 15 years. The main goal of the Three Seas Initiative is to fill these gaps, which are mainly in the field of infrastructure and economic and trade connectivity, the economist says.

The Initiative's fund, set up by 9 development banks as shareholders, including BDB, has already made its first three investments in the three priority areas - digitalization, transport connectivity and energy and energy connectivity, with a strong focus on renewable energy. In regard to the latter, an investment has been made in the company Enery, where there will be a large Bulgarian component in terms of generation of solar energy.

The fund has already raised 1 billion euros, but it remains open and is very active in terms of attracting private capital, the guest explains.

What happened in Sofia, first on the initiative of President Rumen Radev and then the idea being further developed by Minister Vasilev, is the addition of another aspect of connectivity of these countries, namely in terms of science, research and innovation, he continues. Discussions have already started in Sofia for the creation of another fund for the Three Seas Initiative, however not for investments in infrastructure but aimed at investments that support the development of innovative companies using this infrastructure or that have great potential to develop as a result of infrastructure development, especially when it comes to digitalization.

BDB is in active talks with other shareholder banks to create this second instrument to support innovative companies, Lingorski explains. The bank is also preparing a mini-conference, in which it will invite funds that invest in venture capital, especially in the innovative sectors. The focus will not only be on digitalization and software but also on vital science-related sectors such as biotechnology.

BDB is in the process of reviewing and revising its 3-year strategy. The bank will place a strong focus on the principles of sustainable development. Particular emphasis will be placed on small and medium-sized enterprises, because they need additional investments in digitalization, clean energy and energy efficiency in order to be competitive. The economist notes that not only in Bulgaria are these companies really taking advantage of such opportunities and improving their efficiency. At the same time, Bulgarian business is in a position to take advantage of the shortening of supply chains that the EU will build over the next 10 years.

"Our country is already in a phase in which the prerequisites for extensive economic development have been exhausted. They have reached their peak," Lingorski says. "From now on, in order to achieve development in terms of higher added value and closer integration in supply chains within the European economies, it is necessary to focus investment resources in intensive development, i.e. the companies investing in their own processes and capacities."

The conversation also touched on the Green Transition. According to Lingorski, it is very important to specify the priorities that we will have in the context of the transition. He reminds that our economy is much more energy-intensive than most economies in the EU. We consume 3.5 to 5 times more energy to produce a unit of gross product than Germany or other more developed economies.

"Investing in a new energy efficiency is an essential step in the Green Transition and is a way to introduce new technologies in the management processes of these companies."

Investing in smart processes and technologies allows companies to both improve their efficiency and thus consume less energy and be more sustainable. This will be an important aspect in terms of the investment products and programs that BDB will set with its new strategy because it is a kind of a technological transition.

"Looking at it this way, we see that this Green Transition is actually an opportunity for something extremely important in a post-crisis recovery period, such as the Three Seas initiative, because there is no recovery after a global systemic crisis without stimulating investment and infrastructure development."

The role of development banks, including BDB, in recovering in Europe will be significant, Lingorski says.

The economist also focuses on macroeconomic processes at the moment. Inflation needs to be looked at in order to see the causes that lead to this inflationary pressure, he said. Lingorski points out that last year's decline, followed by a rapid recovery, is putting upward pressure on consumption. The measures taken by the central banks also contribute to this.

"On the other hand, this crisis also causes shocks that can be likened to stagflation shocks. When supply chains are broken on the supply side or structures in the economy are destroyed (a typical example at the moment is microelectronics and the production of chips and components), when there is such a shock on the supply side as we have experienced in the last year, this undoubtedly creates a more dangerous inflationary pressure."

These processes are introduced, but very quickly become difficult for our industry. On the other hand, the BNB's inflation forecasts for the medium term are not so frightening, the expert says. In the long term, this may also have a positive effect on normalization in terms of interest rates and financing because we have spent a long time in a special period in terms of quantitative measures of central banks. He sees again opportunities for development banks that can support flexible entrepreneurs who can fill emerging niches.