19 It is interesting to note that a recent FIAS study has found that firms covered by their survey do not regard enterprise registration as the most questionable administrative procedures encountered by businesses (FIAS 2004, p. 10). However, this merely suggests that other regulatory areas impose heavier burden and should not undercut the ongoing reform effort to improve conditions in business administration in Bulgaria. Several different separate registration regimes involving the courts, the tax administration, the statistics institute, and often the local government all contribute to an unnecessarily arcane system.

Another area ‘standing out’ in a negative sense is contract enforcement. The process for a firm is lengthy; 440 days as compared with 335 days in Romania, 154 days in Lithuania and 50 days in New Zealand. Other sources corroborate this assessment of ineffective rule of law and point to a systemic problem. A recent World Bank study argues that (a) trust in the courts remains in Bulgaria low relative to other state institutions; (b) firms do not trust in the ability of courts to enforce decisions; and (c) the gap between demand for judicial services and the capacity of courts to deliver has been on the increase (World Bank 2005b). The absence of specialized commercial courts, summary proceedings and default judgments, out of court settlements and heavy reliance of Bulgarian courts on written over oral procedures together with their complexities further embitter contract enforcement. In all, while fewer than half of firms in almost all transition countries surveyed in 2002 believed that courts were able to enforce their decisions, the situation in Bulgaria appears to be much worse. The dominant perception among Bulgarian firms that it is difficult to have judicial decisions enforced has not abated.

This is a serious problem, as demand for judicial services tends to grow with progress in structural reforms and transition to competitive markets. The absence of efficient courts suppresses investments and business transactions, as it limits investor confidence in the ability of the courts to enforce contracts, in ownership and shareholders rights (see below) and intellectual property rights.

Closely linked to the contract enforcement, the protection of investor rights is the last regulatory area that is well below international standards. The index captures seven different aspects of disclosure of financial information and ownership protecting investors and shareholders against fraud. The absence of regulations compelling disclosure has several negative consequences: investment are lower as potential investors fear of expropriation; the stock market is undercapitalized; economic growth is lower than under full disclosure;<sup>13</sup> and returns from investment are lower (WB 2005a, p. 56-57). With the value of the disclosure index of 2 with its value ranging between 0 and 7, Bulgaria together with Romania was at the very bottom of CEEC-11. For other countries the values of this index ranged between 4 (Croatia, Estonia, Poland and Slovenia), 5 (Hungary and Latvia) and 6 (Czech Republic, Lithuania and Slovakia). Bulgaria also lags behind some SEE-countries, for instance, the index for Macedonia was 4.

There are also other factors compounding the overall hassle cost of doing business. Foreign investors often complain about government bureaucracy, poor infrastructure and frequent changes in the legal framework. This view seems to be shared by local entrepreneurs. FIAS survey points to firms’ complaints about dealings with tax administration, discrepancies in legal interpretations of procedures across municipalities and fear by enterprises of disputing decisions taken by the administration (FIAS 2004). As for complaints about tax administration, uncertainty over tax rates and rules outweigh other issues, with 65 percent of firms surveyed identifying it as a major burden (Figure 6). Needless to add that lack of stability in tax rates and rules make business planning extremely difficult. So do other deficiencies in dealings with the tax administration identified by firms. The rapidly changing tax rules and their differing administrative interpretations create an environment of uncertainty with firms challenging arbitrary decisions. However, the problem is that—according to almost half of respondents—appeals mechanisms appear to be ineffective and penalties, both severe and capricious.

> 13 For instance, it is estimated that if Jordan had the same regulations as highly developed OECD economies, its turnover in equities would quadruple and annual economic growth would be by up to 1.1 percentage higher a year (WB 2005a, p. 57)