Bulgaria Meets The West
Brian Perry
21-Jun-07
Since becoming a member of the European Union (EU) in January of this year, Bulgaria has already attracted lots of interest from both people going on holidays to those looking for affordable property investments outside of the UK.
History
After a violent communist takeover, Bulgaria became a People's Republic in 1947. The communist regime collapsed in November 1989, but the Bulgarian Communist Party— renamed the Bulgarian Socialist Party (BSP)— won the country's first free election. The anti-communist Union of Democratic Forces (UDF) formed a government after the October 1991 election, but this was replaced in December 1992 by a technocratic government backed by the BSP and the mainly ethnic Turkish Movement for Rights and Freedoms (MRF). The December 1994 election returned the BSP to power, but a severe economic crisis in 1996-97 forced an early election in April 1997, which was won by a UDF-led centre-right coalition. The newly founded Simeon II National Movement (SNM) won the 2001 election and governed with the MRF until the June 2005 election. The 2005 election was won by the BSP, although it fell far short of winning an absolute parliamentary majority. After lengthy negotiations, the BSP, the SNM and the MRF formed a governing coalition in August 2005.
Economy
Bulgaria's economy contracted dramatically after 1989 with the loss of the market of the Council for Mutual Economic Assistance (COMECON) member states, to which the Bulgarian economy had been closely tied. The standard of living fell by about 40%, but it regained pre-1990 levels in June 2004. United Nations sanctions against Yugoslavia and Iraq took a heavy toll on the Bulgarian economy. The first signs of recovery emerged in 1994 when the GDP grew and inflation fell. During 1996, the economy collapsed due to lack of international economic support and an unstable banking system. Since 1997, the country has been on the path to recovery, with GDP growing at a 4% — 5% rate, increasing FDI, macroeconomic stability and European Union membership.
The former government, elected in 2001, pledged to maintain the fundamental economic policy objectives adopted by its predecessor in 1997, i.e., retaining the Currency Board, practising sound financial policies, accelerating privatisation, and pursuing structural reforms. Economic forecasts for 2005 and 2006 predict continued growth in the economy. The annual year-on-year GDP growth for 2005 and 2006 is expected to total 5.3% and 6.0%, respectively. Industrial output for 2005 was forecast to rise by 11.9% from the previous year, and for 2006 by 15.2%. Unemployment for 2005 was projected at 11.5% and for 2006 about 9%. As of 2006 the GDP structure is: agriculture 8.0%; industry 26.1%; services 65.9%.
Growth in domestic demand will ease slightly over the forecast period. This, together with the strength of the euro, will cause real GDP growth to slow from an estimated 6% in 2006 to an annual average of closer to 5% in 2007-08. Real GDP growth will slow further to an average of around 4% per year for the rest of the forecast period, as Bulgaria's poor demographic situation increasingly weighs on the economy's ability to expand quickly.
Increases in excise duty pushed up prices in 2006, but inflation is forecast to fall sharply in 2007 as a result of strong base effects, and more gradually in 2008-10. We expect Bulgaria to adopt the euro in 2010 or 2011. The current-account deficit is estimated to have risen close to 16% of GDP in 2006. It is forecast to decline gradually over the forecast period, as more moderate growth in domestic demand and lower oil prices lead to a slowdown in import growth. However, the deficit will still be around 10% of GDP in 2011.
Bulgaria joined the EU in January 2007, but the European Commission will monitor Bulgaria's progress in reforming the judiciary and fighting corruption under a post-accession "benchmarking" procedure. Bulgarians will face greater restrictions in working abroad than the previous wave of EU entrants.
Source: Economist
Property Investments
Bulgaria is among the top destinations to invest in for 2007, claims FC Exchange, a leading UK-based commercial currency brokerage. Among the other places listed as most lucrative are Cyprus, central Portugal, America and France, while Spain should probably be avoided, Finance Daily reported on December 11.
FC Exchange, a company that buys currency at commercial rates not available to individual purchasers, believes that Spain's dominance of the overseas property market — where there are an estimated two million British expatriates currently living — could be coming to end as British buyers look further away for overseas property investments.
"Bulgaria is attracting shrewd investors keen to take advantage of the current low prices, especially in comparison to the rest of Europe," says Nick Fullerton, director of FC Exchange, quoted by Finance Daily. " The investment opportunities in Bulgaria are as a result of extensive World Bank funding, which has allowed dramatic improvements to Bulgaria's infrastructure and tourism industry, transforming it from its former communist days."
Nonetheless, it came as a big surprise that Spain, which for years has been a favourite destination for British buyers, is rapidly losing its appeal. According to FC Exchange, the inflated property prices are just one reason for that. The major turn-off for British buyers, however, is the investigations by the new Spanish government into bogus planning permissions. As a result, a number of new build blocks are being ripped down with little or no compensation for the owners.
A number of different criteria were involved in deciding on the hot spots. Individual economies, the strength of each currency and the supply and demand already present in each market, which always affects prices and availability, were all taken into consideration. FC Exchange advises when investing anywhere that buyers should look out for small independent restaurants, cafes, shops and even estate agents in the local area. These all indicate the arrival of new and affluent locals, FC Exchange says. It also warns investors to be wary of large chain restaurants and stores, as these normally indicate that an area has completed its boom period and the investment is unlikely to increase in value.
Source: Invest in Bulgaria
Top Bulgarian Investment Sectors
Information and communication technologies (ICT)
According to IDG there are approximately 15,000 IT specialists in the country; 1,000-1,500 IT university graduates on average enter the market each year. Most companies on the market successfully provide outsourcing services to big international players from various business areas like IBM, Siemens, Nortel, Lockheed Martin, Ford, etc. due to the availability of strong IT skills at reasonable cost; some of the largest companies being Sciant - Switzerland, Codix - France, InterConsult - Denmark and the Bulgarian Bianor.
Business process outsourcing
Bulgaria is in the list of the leading outsourcing destinations for technical support and shared services among countries in Eastern Europe. This is due to the large pool of qualified multilingual professionals both in IT and business services that could be attracted at competitive cost, the reliable telecom infrastructure and the availability of modern office space at reasonable rent/purchase price.
Electronic manufacturing services (EMS)
EMS industry in Bulgaria is not very large but growing at some 25-30% per annum. The major drivers behind have been the Bulgarian expertise, the competitive labour cost and the export orientation of the sector (over 75%). Under the former Council for Mutual Economic Assistance, Bulgaria was the country that specialised in electronics, being known as the Silicon Valley of Eastern Europe. Currently the labour force in the sector is estimated at around 10,000 people. Over 2,500 students graduate each year under the university programs of electronic engineering and automation - around 60% of them from universities in Sofia.
Automotive parts industry
Bulgaria has recently become a desired destination for automotive parts manufacturers due to the reasonable operational cost and the tendency for original equipment manufacturers to move eastwards. The Bulgarian automotive parts industry is export oriented as there are no car assembly companies in the country. Major customers of the Bulgarian companies are Valeo, Delphi, Electricfil, Mannesmann, Sauer-Danfoss, Renault, Rover, Ford, Tyco Electronics, Magneti Marelli, etc.
Legal Framework
Foreign persons may freely choose the form of investment to be performed in Bulgaria. Foreign investment is defined as any investment or increase of investment made by a foreign person or its branch, in shares or stakes of trade companies, right of ownership and limited ownership rights over movable and immovable property, debentures, treasury bonds and other kinds of securities, issued by the State, by the municipalities or by Bulgarian legal persons (with a remaining term until maturity not shorter than 6 months), loans and financial leasing for not less than 12-month period, right of ownership of detached parts of commercial companies with more than 50% state or municipal participation in the capital in the sense of the Law on Privatisation and Post-privatisation Control, intellectual property rights, rights stemming from concession contracts, etc. There are no limitations on the share participation of foreign persons in commercial companies. There are no minimum capital investment requirements, nor is prior permission for the investment needed.
Source: Invest in Bulgaria
Bulgaria is a very interesting market and one that should not be overlooked. Next time you're planning a vacation, it might be an excellent idea to pack up the family and take an exploratory trip to this beautiful and upcoming country.
