IN May 2004, the Government launched 11 priority projects worth over 1.5 billion leva for modernising Bulgaria's armed forces by 2010 and bringing them in line with NATO requirements. Today, almost a year after the start of the programme and in spite of many promises made by top state officials, Bulgarian arms producers are left without any orders on the modernisation and are facing an uncertain future. Meanwhile, Bulgaria continues to be framed as an illicit arms exporter.

An impossible revival

"The modernisation of the Bulgarian army will be a locomotive to revive this country's defence industry." These words belong to the former Deputy Prime Minister and Economy Minister Lydia Shuleva. They were said on July 2 last year but nothing serious has happened since then and the pledge to take care of the local arms producers has started to sound more like a prayer for the dying instead of a serious intent.
The collapse of the Bulgarian arms producers is obvious. While 115 000 people worked in this industry in 1989, only 25 000 are employed in military firms now. Bulgarian military exports fell from 650 million euro before the fall of communism to 33 million euro in 2000 but bounced back to over 100 million euro in 2002, according to an Economy Ministry estimate.
Bulgaria produces mainly Makarov pistols, Kalashnikov assault rifles and machine guns, anti-tank grenade launchers, explosives and ammunition. Although the manufactured quantities of these small arms and ammunition are small now, the country's military plants have the capacity to give much more to the country's economy.
Realising this fact, companies from the sector called upon the Government in early April to consider the preparation of legislation on the local defence industry that would regulate the responsibilities of the state and of the industry itself.
The lack of modernisation orders is not the only threat seen by the arms producers in this country. They fear also the privatisation of the still state-owned factories that will most probably fall into the hands of large Western companies and will thus lose any significance they might have had so far.
The chief of the Kazanluk-based plant Arsenal Nikolai Ibushev told the media on April 5 that it would be better if no foreign capital at all was admitted in the privatisation of the Bulgarian defence industry, which according to him is part of the country's national security. "Over the past years we have been arming foreign armies with arms better than the ones of the Bulgarian army," Ibushev said. Instead of helping, the Bulgarian state is obstructing local arms producers, which export 95 per cent of their output, said Ibushev.
In fact, any argument on the privatisation of the local arms manufacturing plans seems a bit obsolete. Most of them are already private, and the few left, although the largest, can hardly survive if serious money is not injected into them.
"We lack investments that will allow our military industry to function up to NATO standards," Shuleva was saying in 2004. Oh well, the producers responded, then find state money and invest it in us, instead of inviting the big sharks to swallow us, they said.
Optix AD of Panagurishte executive director Ivan Cholakov said that Bulgarian arms are in no way inferior to those of leading world companies and are cheaper and that is why foreign companies are seeking ways to discredit Bulgarian arms output. But, this is another worry, which is related to the PR war among arms manufacturers all over the world.
This is a voice state officials would hardly hear in all the noise created around the modernisation of the armed forces. Meanwhile, it becomes obvious that contractors for the priority deals related to the modernisation of the army will be, in all likelihood, big Western manufacturers.
Most foreign giants in the defence industry have shown interest in participating in the started tenders. A number of big companies including Northrop Grumman Corporation, Motorola, Lockheed Martin, Elbit Systems, Thales, EADS, Unisys, Mantech and Alenia have been applying aggressive approaches towards winning state orders in Bulgaria. No benefit whatsoever could be seen for Bulgarian arms producers.
During the communist period, the so-called military industrial complex was characterised by a clear focus on manufacture for export (about 90 per cent of its output), advanced production technology and efficient production structure, as the Centre for Study of Democracy (CSD) pointed out in a recent report. The complex's product range was oriented towards market niches and Bulgaria's specialisation within the Warsaw Pact.
This specialisation included small arms and light weapons, armoured vehicles, and electronics. Bulgaria supplied arms to countries from the Warsaw Pact, the Middle East, North Africa, India and other smaller markets.
A relatively large share, between 30 and 40 per cent of the exports, depended on the political relations that Bulgaria had with these partner countries. This trade was worth several hundred million US dollars a year.
The healthy state of the defence industry at the start of the transition period was due to its privileged position under communism, rather than to exceptional management. A large part of the loans granted in these years were to secure Bulgaria's mobilisation preparedness.
In the early 1990s, there was a need for a new business culture and a new type of relationship with the state, as the complex was still state-owned. However, the state did not succeed in formulating a consistent defence industry policy or guidance for long-term development. Reforms were often simply imposed or took shape on an ad hoc basis, in response to severe crises within the industry or to reports of Bulgarian companies taking part in illicit deals somewhere in the world.
In the new free market conditions the defence companies had to determine their products and market strategies on their own. The defence industry was in a rather unstable position because several governments had failed to define clearly the different roles of the state as owner, key broker, customer, regulator and business promoter. Thus, conflicts of interest became unavoidable.
More attention was given to arms trade regulation, without tackling in any depth the full range of problems related to the restructuring of the defence industry. In the absence of clear state procurement needs it was difficult for companies to project their level of output. Currently, the applied modernisation plan for the armed forces again left the local producers out of the orders.
As international experience shows, there is normally no sustainable development of a national defence industry without it having a sizable share of a reliable and protected domestic market. And since the domestic market is now related mainly to modernising the army and bringing it in line with NATO requirements, it is clear that Bulgaria's weapon manufacturers will be left empty handed.
A number of firms have already been liquidated and others are likely to follow. The arms manufacturing companies have virtually no funds to invest in product research and development, facility modernisation, or future market development and are badly in need of investment.
Speaking of the privatisation of the defence industry, this was marked by an inconsistent and protracted policy process, as CSD also found in their report. After years of postponement of the beginning of the privatisation in the industry, it became clear that potential foreign investors were lost, the financing opportunities of the industry were reduced, and some companies had already become insolvent.
In 1998, the government of Ivan Kostov worked out a program for the privatisation and restructuring of the defence industry envisaging that the state would keep a limited stake of 34 per cent ("golden share") in no more than five key companies. However, since most of the other companies were privatised through the notorious employee-management buyouts, no fresh money entered them.
Today, there are 27 defence companies in the industry, with only five of them still remaining state-owned. They are the largest and their privatisation seems to be one of the toughest processes, since the current Government could not find a serious buyer for any of them. Although several foreign companies showed an interest in the privatisation, no foreign investors purchased companies. The biggest failure was the recent attempt to sell TEREM - a conglomerate of eight plants from all over the country.
Meanwhile, the major European defence industry companies (such as BAE Systems, Thales, Siemens, Alenia-Marconi, EADS and Sagem) are active on the Bulgarian market. They are even included in the list of strategic partners of the Defence Ministry.
It is certain that the Bulgarian defence industry is not alone in facing serious challenges in adjusting to new post-Cold War political and economic realities. In the post-Cold War era, cutbacks in peacetime defence budgets worldwide have resulted in a significant reduction and consolidation of defence industries globally. This process is not yet complete and the defence industry worldwide has continued to be under pressure to consolidate and restructure.
Thus, to some extent, the challenges facing the Bulgarian defence industry are a division of issues affecting defence industries everywhere, and reflect the need to rationalise facilities and improve efficiency while maintaining competition in a peacetime era of lower global demand for military products.
The level of demand for military equipment and services in peacetime means that many smaller nations will not be able to afford stand-alone defence industries to supply their needs. In spite of the desire to maintain separate domestic industries on national security grounds, considerations of basic economics will inevitably drive national industries toward continued downsizing and further integration. Many smaller countries, like Bulgaria, will no longer be able to afford to maintain defence contractors, and their industries are likely to migrate toward subcontractor or niche roles in areas where they have comparative advantage.
This process is already occurring in Europe, where only a few military platform providers can now be found in the smaller countries. It is also occurring in Bulgaria, where some weapon manufacturers are finding "other ways" of surviving...

In search of new niches

Bulgaria has regularly been slammed in the past decade for whenever there has been an arms trade scandal somewhere in the world, the country has always been allegedly involved in it.
Human Rights Watch (HRW) has never spared its criticism of this country for taking part in illicit trade in weapons in sensible areas all over the world.
In a series of reports, HRW wrote that since joining the Wassenaar Arrangement (WA) of arms-exporting countries that have agreed to exercise transparency and restraint in the international weapons trade and pledging to adhere to the European Union Code of Conduct, Bulgaria had approved deals that violate the spirit of the WA and directly contravened the provisions of the code.
HRW has on many occasions blamed Bulgaria for selling weapons to Uganda, "where the equipment might exacerbate multiple internal armed conflicts in which all sides have committed serious human rights abuses", or for supplying both sides in the Ethiopia-Eritrea border conflict, which led to large displacements of civilians in both countries.
In criticising Bulgaria, HRW often cites shortcomings in the Bulgarian legal system. Bulgaria's arms trade law, for example, has been described as not containing any text that bars weapons transfers to forces that have been responsible for gross human rights abuses and violations of international humanitarian law, nor to countries suspected of diverting or re-transferring arms to unauthorised third parties.
Furthermore, according to the organisation, existing Bulgarian law does not account for the considerable "grey market" trade in weapons, whereby licensed arms deliveries were diverted or resold to unauthorised parties, often with the collusion of Bulgarian arms brokers, transport agents, or others.
It is exactly this last conclusion that applies most to what Bulgaria today represents as a threat in the area of illicit arms trade. This is valid for the domestic grey market, as well as for such markets all over the world, where Bulgarian small arms are sold.
CSD presented a report in end-March, called "Taming the Arsenal of Small Arms and Light Weapons in Bulgaria". According to the report, around 150 units of illegal small arms and light weapons (SALW) - mainly gas spray hand guns remodelled into combat pistols - are manufactured in Bulgaria annually.
The document, which covers research conducted by the CSD, in co-operation with London-based Saferworld, and the UNDP South Eastern Europe Clearinghouse for the Control of Small Arms and Light Weapons (SEESAC), says that weapons are illegally craft made in dozens of workshops countrywide, concentrated mostly in Kazanluk, Sopot and Karlovo. It is of no surprise to anyone that these are the towns where the largest Bulgarian defence plants are located.
Vladimir Gaidarski, chief of the Arms Smuggling, Dangerous Weapons and Proliferation Sector at the National Service for Combating Organised Crime, said at the official presentation of the report that a gas spray hand gun remodelled into a combat pistol costs about 200 leva in Bulgaria, compared to up to 600-800 euro on the black market in Western Europe. A fertile soil for flourishing illicit export of such arms.
The export to Western Europe of home-made guns remodelled from gas-spray devices has become a lucrative business for criminal circles in Bulgaria. The cheap Bulgarian hand-mades can be sold in Spain, Holland, Greece, or Turkey for a profit of 800 per cent.
Meanwhile, according to Interior Ministry data, about 40 000 units of weapons in Bulgaria are illegally possessed.
A distinction must be drawn between illegal possession and illegal market of weapons. There is no organised illegal weapons market in Bulgaria but merely isolated actions of separate individuals, Interior Ministry officials say.
The unlicensed weapons in the general population, which the authors of the report estimate at about 93 000 units, come mainly from what they see as the "existing" illegal weapons market. Some are stolen from defence enterprises and military depots or from people's homes, others are illegally imported, and still others are craft-made or remodelled in illegal workshops in Bulgaria.
At 36.8 registered firearms per 100 population, Bulgaria's current level of civilian possession is low, compared to the rest of Europe.
Frightening enough, the report has found out that with a population of less than eight million people, there are a million units of SALW in Bulgaria now, of which nearly 300 000 are legally registered by civilians.
Due to the gradual relaxation of the arms possession regime, the share of weapons owned by civilians has nearly tripled over the last decade.
The demand for illegal weapons in Bulgaria appears to be driven by several factors, the most important of which is the need that criminals have for unregistered weapons, the report has found. As police and customs seizures across the region show, a second stimulus for the illegal trade in weapons, and particularly for their illegal production, is the black market created by criminal gangs in Western Europe or neighbouring countries.
A third factor driving illicit possession is a minority of hunters who turn to the illegal market to obtain cheap weapons. This type of weapon continues to appear in police seizure statistics year on year, albeit in small numbers. There is also a small demand for illegal weapons among citizens who have failed to obtain a permit.
Ongoing problems with border security have left the country susceptible to illicit trafficking of a number of commodities, including SALW. The most acute problem is the security of border facilities and the need to upgrade equipment for border control. Of particular concern is the security around airports and seaports, where most Bulgarian arms exports take place, in particular in the towns of Varna and Bourgas.
Despite the efforts of security and border control agencies, it is clear from this research that individuals regularly smuggle small quantities of SALW through Bulgaria's borders.
Reported seizures of Bulgarian weapons in other European countries have shown some interesting trends too, according to the CSD. In the past two years, law enforcement agencies in Western Europe have identified approximately 100 seized weapons as being of Bulgarian origin.
The available figures point to the main route for trafficked SALW being the Turkey - Serbia and Montenegro route. Along the Turkey - Serbia route most of the "transiting" arms were being trafficked to Western Europe, although a small number were also smuggled into Turkey. From 1998 - 2003 there were a total of 53 cases along this route.
The second highest smuggling destination appears to be Macedonia, with 18 cases. According to one official interviewed, in recent years Macedonia has become a destination for both illegally and legally exported Bulgarian SALW. The types of exported or smuggled weapons are not only pistols but also semi-automatic hunting rifles, manufactured in Arsenal, whose intended use is not always clear.
A review of publicly available information on Bulgaria's recent SALW exports reveals that exports have gone to a number of destinations of potential concern. The potentially problematic destinations listed for the 2001-2003 period include Colombia, Georgia, Guatemala, India, Indonesia, Macedonia, the Russian Federation, Turkey and Saudi Arabia. Each of these destinations may be considered sensitive and potentially problematic in the light of the eight expert criteria stipulated by the EU Code of Conduct, to which Bulgaria is aligned.
So far as can be determined, the main impact of the SALW successfully smuggled out of Bulgaria has been to increase the firepower of organised crime structures in Western Europe, the CSD report says. SALW being smuggled out of Bulgaria are known to have found their way to countries such as the UK and Spain. For example, in November 2003, Spanish police, supported with information supplied by their Bulgarian counterparts, arrested six Bulgarian nationals in Gandia, Spain. They were found to possess 50 spray-gas pistols (apparently from Bulgaria), that had been remodelled into working hand-guns. In addition, there were seven Kalashnikov assault rifles.
In their submission to the UK All Party Parliamentary Group on gun crime, the UK Association of Chief Police Officers quoted Bulgaria as the source of illicit altered Baikal spray guns, which are being recovered in increasing numbers from criminals across the UK.
In another recent seizure, Italian border police at the sea-port in Venice found 40 automatic hand guns, 40 silencers, several thousand rounds of ammunition, laser-optical sights, and detonators, hidden in special compartments in a car coming from Bulgaria.
In countries such as Spain and the UK, which serve as the end-point for Bulgarian SALW traffickers, there will certainly be negative effects on levels of crime and perhaps even terrorism.
The conclusions made by the CSD in their report are proof that Bulgaria still possesses enough capacity to produce small arms either legally or illegally. Now, it is in the hands of any Bulgarian government - the current one, or the new that will come after the parliamentary elections in June - to find the way of employing this capacity for developing the defence industry and not the world's organised crime and terrorist groups.