Bulgaria – investment climate and business opportunities

Sofia

October 2013

Macroeconomic indicators show consistent pre-crisis economic growth and quick post-crisis recovery

Real GDP Growth Inflation (HICP)

Unemployment FDI Inflow

Source: Bulgarian National Bank, Eurostat

2012

0.8%

2011

1.8%

2010

0.4%

2009

-5.5%

2008

6.2%

2007

6.4%

2006

6.5%

2005

6.4%

2012

2.4%

2011

3.4%

2010

3.0%

2009

2.5%

2008

12.0%

2007

7.6%

2006

7.4%

2005

6.0%

2012

11.4%

2011

10.4%

2010

9.2%

2009

9.1%

2008

6.3%

2007

6.9%

2006

9.1%

2005

10.7%

EU-27Bulgaria EU-27Bulgaria

20122007

1,478

2011

1,315

2010

1,151

2009

2,437

2008

6,728

9,052

2006

6,222

2005

3,152

€ mln.EU-27Bulgaria

FDI in Bulgaria comes mostly from EU countries and is concentrated in four main sectors

Source: Bulgarian National Bank

FDI by host country, 1996-2012 (€ mln.) FDI flows by industry, 1996-2012 (€ mln.)

Other 2,915

Telecom 2,209

Construction 2,891

Energy 3,522

Trade 6,698

Manufacturing 6,750

Finance 7,604

Real Estate 7,990

(10) Hungary 1,311

(5) UK

(9) Italy 1,395

(7) Russia 1,750

2,578

(4) Germany 2,702

(3) Greece 3,569

(2) Netherlands 5,710

(1)Austria 5,799

Page 4

The total value of Italian direct investment to Bulgaria is €1.4 bn from 1996 until 2013

94,33

51,19

100,09

379,54

163,94

25,07

87,8171,21

126,55

180,9138,78

42,98

-51,13

2000 2002 2004 2006 2008 2010 2012

FDI have peaked in 2007. Last two years the biggest investments are in the construction sector

Manufacturing

Finance

Trade, repair and maintenance

Real Estate

Construction

Other

Six economic sectors represent about 97% of all Italian investments

Source: Bulgarian National Bank Source: Bulgarian National Bank

41%

20%

12%

11%

9%

5%

Italian FDI (€ mln)

Why invest in Bulgaria?

• Political and business stability– EU and NATO member

– Currency board

– Low budget deficit and government debt

• Low cost of doing business– 10% corporate tax rate

– Lowest cost of labor within EU

• Access to markets– European Union / EFTA

– Russia

– Turkey / Middle East

• Educated and skilled workforce

• Government incentives

Government financial indicators are remarkable not only in the region, but on a pan-European scale

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

-4% 1%-3% -2%-13% -12% -11% 15%-1% 0%-6%-7% -5%

Spain

Greece

Ireland

Estonia

Germany

DenmarkCzech Republic

Belgium

Romania

Portugal

Poland

AustriaNetherlands

Malta

Hungary

Turkey

Lithuania

Latvia

Cyprus

Italy

France

Average budget deficit/surplus (2007-2012)

Croatia

Bulgaria

Norway

Iceland

United Kingdom

Sweden

FinlandSlovakia

Slovenia

Luxembourg

Source: Eurostat

Average government debt (2007-2012)

Source: The Economist, Finance Ministry, Moody’s

Budget deficit for 2012, % of GDP

Bulgarian economy maintains its excellent performance despite global challenges

BG

Germany 0.1%

Switzerland 0.0%

Sweden 0.0%

China -1.6%

Turkey -2.0%

Brazil -2.5%

Austria -2.6%

Hungary -2.8%

Italy -3.0%

Euro Area -3.3%

Denmark -3.6%

Poland -3.7%

Netherlands -4.1%

France -4.5%

Czech Republic -5.0%

India -5.6%

United States -7.0%

Greece -7.0%

Spain -8.0%

United Kingdom -8.3%

Japan -9.8%

Egypt -10.9%

01/1307/1201/1207/1101/1107/1001/10

Cyprus

Bulgaria

Ireland

Greece

Estonia

Turkey

Spain

Portugal

Lithuania

Bulgaria was the only European country with increased credit rating by Moody’s in 2010 and 2011

Page 7

Latvia

Iceland

Hungary

Bulgaria has one of the lowest business costs in Europe

Lowest corporate income tax rate in Europe

Source: Eurostat; Savills

Turkey 20%

Croatia 20%

Czech Rep 19%

Slovakia 19%

Hungary 19%

Romania 16%

Bulgaria 10%

Cost of electricity for industrial users is 70% of the EU average

Netherlands 9,472

Germany 9,193

Belguim 8,079

France 6,909

Greece 4,000

Poland 3,671

Czech Rep. 3,621

Slovakia 3,343

Bulgaria 1,671

Romania 1,616

Lowest cost of agricultural land in the European Union

€ / ha, 2011

Page 8

Germany 0.130

Slovakia 0.127

EU average 0.124

Hungary 0.108

Czech Rep 0.103

Turkey 0.096

Romania 0.083

Estonia 0.082

Bulgaria 0.078 €/kWh, 2012

Educated and skilled workforce is among the main advantages of Bulgaria

Almost 60,000 students graduate every year from over 50 universities

Source: National Institute of Statistics, Bulgaria

860

833

Agriculture

Architecture

Law 1,553

Health 3,166

Education 3,677

Engineering 7,178

Social sciences 8,372

Business 19,480

Other 12,684

Bulgaria has one of the highest proportions of students abroad from all European countries

2.1%Czech Republic

Romania 2.2%

EU-27 average 2.8%

Germany 3.1%

Austria 4.7%

Greece 5.8%

Bulgaria 8.3%

Slovakia 10.2%

Ireland 14.2%

Iceland 17.8%

Students in another EU / EEA country, % of all

The government supports specific industries under the Investment Promotion Act (IPA)

• Investments must be related to the following sectors:

– Manufacturing

– Research & development

– Education

– Healthcare

– High-tech services

– Warehousing and logistics

• Minimum investment amounts must exceed €2.5m

– €1m in regions with high unemployment and €0.5m for

investment projects in high-tech services

• Benefits for certified investors include:

– Shortened administrative procedures

– Preferential acquisition of state or municipal land

– Financial support for professional training / education

– Infrastructure subsidies

– Labor cost subsidies

– Individual administrative services

Biggest investors are supported through a priority investment scheme

• Priority projects can be related to all sectors of the

economy, which do not contradict regulation 800/2008 of

the European Commission

– Subsidies not allowed in mining, primary agriculture

production, and shipbuilding

• Priority projects should exceed €50m and create at least

200 new working places for a 3-year period

– €25m + 100 working places for certain manufacturing projects

– €10m + 50 working places for high-tech services and R&D

• Priority projects receive all benefits for certified investors,

as well as the following:

– Lowest possible costs for the acquisition of government and

municipal land + waived taxes for land status changes

– Working group for project support is assigned by the Council

of Ministers

– Financial grant scheme for up to 10% of the investment

project cost (50% for R&D)

• Services:

– Transport and Logistics

– Information technologies

– Outsourcing of business processes

– Health and tourism related to healthy

lifestyle

• Industry:

– Transport equipment and machine

building

– Electronics and Electrical engineering

– Chemical industry

– Food and Agriculture

Which economic sectors have the highest potential for attracting Italian investors ?

Leading global investors have chosen Bulgaria as an FDI destination

IT development Back office operations

Chemical and metal Industry

Engineering Food

Page 13

InvestBulgaria Agency is a Government investment promotion arm, part of the Ministry of Economy and Energy

IBA services:

• Macroeconomic data on Bulgaria

• Legal advice

• Data on operational costs

• Regional information: industrial zones and infrastructure, data on unemployment, skilled labour force and level of education

• Recommendation of investment project sites

• Identification of potential suppliers, contract manufacturers and joint-venture partners

• Personalized administrative servicing

• Liaison with central and local governments

• Liaison with branch chambers and NGOs

InvestBulgaria Agency

InvestBulgaria Agency

Sofia 1000, 31 Aksakov Str.

Phone: (+359 2) 985 5500

Fax: (+359 2) 980 1320

E-mail: iba@investbg.government.bg

Web: www.investbg.government.bg