Financial crisis and its impact on the real economy

The situation has not improved in the last weeks. Indeed, the first companies have been obliged to reduce their workforce. I am not speaking here of Kremikovtzi, a large stell plant that is hauting the city of Sofia with its yellow smoke, but of other production companies like Druzhba, a piston producer, or Tchugunoleene JSC, a foundry that is dismissing 25% of its employees. The list will definitely gets longer as time goes by.

A positive factor for the Bulgarian economy is that, due to the very low productivity of their employees, the companies have an important optimisation potential and should be in a position to offer their products for cheaper prices than what they do now.

This is only true if these companies currently make money on the orders they fulfill. Indeed, due to a lack of sofisticated pricing models, most companies only generate a return on their average orders. As far as the foundries for example are concerned, they may lose money on small complex parts for example and lose orders on large simple parts. With the crisis coming at full speed, they may be left mostly with the money losing orders, which may put them in a very difficult situation.

Provided that their cost calculation is more or less correct, the next step will be to analyse the production process and correct the production norms, so that they reflect the reality. In the last 3 years, working for a number of medium and large companies in Bulgaria, we are still hoping to find a single company where this is the case. We have again shortly conducted an analysis and come to the conclusion that the norms were twice as large as necessary. High norm, low productivity, overtime, the deadly cycle is started.

Based on the corrected production norms, it is then possible to assess the capacity needed for the next months and to adapt it to the sales forecast.

Finally, it is important, not to forget to have a look at the supporting functions. They consume a lot of money and are in most cases desesperately inefficient.

Do not lose time, call a specialist to support you, time is key, cash is king.

Austrian banks have lent 78% of Austrian GDP to Eastern Europe

Austria is the country with the highest exposition to East European economy and its problems. Austrian banks has lent about € 234 billions to East European companies or companies investing in Eastern Europe. This development have of course supported the positive earnings results of the bank during the past few years. Now the deadly spiral of credit provisioning and of a restrictive credit policy will follow. As a result, not only will it be harder for company to invest in Eastern Europe, but also to get credits to finance projects in Austria.

Raiffeisen International has just published a first earnings warning. Be prepare for more in the next few months and years. In Bulgaria, the volume of credits of the Austrian Banks is "only 4.5 billions". How much of it will be saved remains open.

From our observation of the Bulgarian market and of the banks' organisation in Bulgaria, it is clear that a very high number of relatively well paid bank clerk jobs will have to go. The productivity of the bank clerks was and still is very low and the organisation inefficient.

The view of the specialist (click on title)

The view of the macroeconomists.

Deutsche Bank urges more support for real economy

"Bulgaria should concentrate its efforts on keeping competitiveness, raising the quality of labour and improving infrastructure to open up new opportunities, Deutsche Bank board member Jurgen Fitschen told a lecture on the financial crisis and its impact on the economy.

Bulgaria has so far managed to stand up to the financial challenges but the upcoming second wave of the crisis will strike a blow to developing markets, including Bulgaria, according to Fitschen. " dnevnik.bg

The message is clear for who wants to hear. We have again collected some evidences that the way prices are calculated (let us say for example on a per kg basis) let companies to believe that they are making money on some orders although they are actually losing money. The reason is that the time needed to produce a particular product is not taken into account. This is certaily one area where it is necessary to make good decisions in difficult times like these. Other way, the road to profitability and survival will be closed down for ever.