The contents of the report are largely based on formal interviews with senior level representatives of environmental businesses across the widest possible geographical range and company spectrum (size, ownership, income, area of expertise). Up to 150 environmental businesses were interviewed in each country. The research was carried out between October 1996 and February 1997.
The development of the environmental business sector is principally influenced by government commitment to environmental protection, comprehensive environmental policy and legislation, efficient economic mechanisms, incentives to environmental investments by both the public and the private sector, regulatory enforcement capability and the general business environment.
Government commitment to environmental protection issues is quite different in each country. The highest commitment was seen in Slovenia whereas the lowest commitment can be found in Croatia. However, Croatia in some respects is a different case compared with other countries, due to the negative influence the recent war has had on the political and economic development. Governments in Bulgaria and Romania demonstrated a serious commitment, but concrete actions are hindered by the widespread economic problems that plague the whole business environment.
Each of the surveyed countries has implemented its own general or framework act together with various comprehensive legislation, e.g. regulations to air, water, and waste management. However, the efficiency and effectiveness of such regulations varies in all the countries. Bulgaria introduced its Environmental Protection Law in 1991, followed by Slovenia's Environmental Protection Act in 1993. Croatia and Romania implemented their Environmental Protection Acts in 1994 and 1995 respectively. Framework environmental acts and their amendments include principles such as polluter pays, the prevention and precautionary, free access to environmental information and public participation.
The level of enforcement is still inconsistent in all the countries, and the responsible authorities (e.g. the environmental inspectorates) are often understaffed or do not have appropriate equipment and training to carry out their duties as required. Enforcement policies rely mainly on monetary penalties and fines, both of which are too low to change business attitudes toward environmental protection and foster environmental investments.
Total environmental spending from both government and private sectors in the surveyed countries exceeded USD 600 million in 1995. In the future, environmental expenditure is expected to grow at a rate of 6 to 10 percent annually. Further, a major change is expected in the financing of environmental protection. Currently the main sources of the funds for environmental projects are derived from the state budgets (including state environmental protection funds, which are in operation in Bulgaria and Slovenia), municipal budgets and investors' own funds. Over the next few years the share from the private sector is expected to increase, whereas the contribution from the state budget will decrease significantly.
Environmental spending is mainly allocated to water and wastewater projects and air pollution control activities. Waste management-related activities are the third largest priority area of the surveyed countries. The major bulk of state financing tends to be allocated to the construction of wastewater treatment and sewage facilities, while the remainder goes to air protection and waste management issues. Investments in the latter two are covered mainly by industrial plants and municipalities.
The size of the environmental market and the status of the environmental business sector also is quite different in each country. The market is relatively young in all countries, and most of the companies were established after 1990. It is estimated that the environmental business sector comprises more than 700 providers of environmental services and technologies, of which approximately 450 were included in the survey. The highest percentage of privatized companies was in Croatia (81 percent), followed by Romania (68 percent), Slovenia (57 percent) and Bulgaria (54 percent).
The highest percentage of joint-ventures with foreign partners was found in Croatia (14 percent), whereas the lowest percentage was found in Bulgaria (7 percent). Partners' mainly came from Austria, Germany and the United States.
Total annual environmental revenues of surveyed businesses exceeded USD 240 million in 1995. Croatian and Slovenian environmental businesses indicated the highest annual turnover, which amounted to USD 99 million and 87 million, respectively. In all the countries, technical services generated the highest revenues (47 percent), followed by the sale of environmental technologies (29 percent) and testing and monitoring activities (13 percent). Croatian firms earned the highest share of income from technical services (51 percent), while Bulgarian firms reported the highest share of income from environmental technologies (33 percent).
Across the four countries, companies said they generate 36 percent of their annual turnover from water and wastewater activities, 29 percent from waste-related activities and 9 percent each from air pollution control and energy-related activities. Other non-media specific activities accounted for 17 percent, which includes industrial safety and noise, environmental impact assessment, environmental management, soil and land.
In the surveyed countries, there are no effective formal channels for information on project opportunities. Personal and professional contacts, daily press, the Ministry for Environment, participation in environmental fairs, and environmental publications are among the primary sources for business opportunities. Professional associations, such as chambers of commerce, academies of sciences, etc., are not seen as major information sources or as effective lobbying groups for the environmental business sector.
Environmental professionals showed high interest in the following six environmental information topics: domestic environmental regulations, information on where to find domestic partners, domestic environmental problems, new environmental technologies, sources of project financing and domestic tenders for projects. In general, their interest in information and project opportunities beyond the borders, e.g. international tenders for projects, EU environmental regulations, information on where to find international partners, was not high. This also indicates the early stages of development of the environmental business sector in these countries.
The majority of environmental professionals showed high interest in regular newsletters containing updated information on project opportunities, technologies and financing. More than half of the respondents were willing to pay for such a product. Other delivery options in high demand were conferences arranged to address specific environmental problems and project opportunities and an environmental business directory that included relevant market information. Almost half of the respondents indicated they would pay for such services.
As the environmental field becomes more competitive, professional training becomes an important issue. Professional training was, in particular, requested on environmental regulations and policy, environmental impact assessment, financing environmental investments, environmental economics, and environmental management.
In most of the countries more than half of respondents indicated the government was an important source for business assistance. The responses citing the importance of government assistance ranged from 65 percent in Bulgaria to 26 percent in Romania. Other important sources of assistance mentioned were business or industrial associations and financial institutions. Scientific or academic institutions, international organizations and professional training institutions received only minor attention. Also it was found that, in general, the environmental business sector in Romania received low assistance from other institutions than in other surveyed countries.
Environmental professionals indicated access to credit and finance as the biggest barrier to business development. This was especially true in Romania and Bulgaria, where the financial markets are particularly weak and characterized by high interest rates and an unstable banking sector. Although the environmental market is growing, the environmental business sector is still perceived by all the countries as very risky for potential investors. In general, banks require for the funding of projects guarantees such as cash flow and property, and they look for short-term profits, which young businesses normally are not able to provide. The second major barrier facing environmental professionals is high taxes that are applied, in general, to the business environment. Also, legal regulation and registration requirements, general access to information, market demand and environmental legislation are considered to be barriers to development. Foreign competition, however, was only considered by 22 percent as a barrier.
In conclusion, the environmental business sector in the surveyed countries, with the exception of Slovenia, is in its early stages of development and is not able to meet fully the potential demand of environmental services and technologies.