Bulgaria investment climate and business opportunities February 2011
Macroeconomic indicators show consistent growth in the years leading up to the global financial crisis Real GDP Growth Inflation 4.5% 5.0% 6.6% 6.2% 6.3% 6.2% 6.0% 12.5% -4.9% 4.0% 7.0% 6.5% 7.8% 0.6% 4.5% 2002 2003 2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009 2010 Unemployment FDI Inflow mln. 9 052 12.2% 10.7% 9.1% 6.9% 6.3% 9.1% 9.2% 980 1 851 2 736 3 152 6 222 6 686 3 382 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 Source: Bulgarian National Bank Page 2
Consistent strong performance, compared to the Central European region and EU-27 GDP growth has outperformed the EU average and is forecasted to speed up again after the crisis Bulgaria and Estonia are the only two countries in EU- 27 with net positive rating action by Moody s since 2009 8% 6% 4% 2% Bulgaria EU-27 0% -2% -4% -6% 2005 2006 2007 2008 2009 2010 2011 Upgrade or outlook raise 2 rating / outlook downgrades Rating / outlook downgrade 3+ rating / outlook downgrades Source: Eurostat; Moody s Page 3
Role of Bulgaria as FDI location has grown significantly for the last 10 years 10,000 9,000 Inward FDI per country ( mln.) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1999 2000 2001 2002 2003 2004 2005 Romania Croatia Bulgaria Czech Republic Hungary 2006 2007 2008 2009Slovakia
FDI in Bulgaria comes mostly from EU countries and is concentrated in four main sectors FDI by host country, 1996-2009 ( mln.) FDI flows by industry, 1996-2009 ( mln.) (1) Austria 5,904 Real Estate 8,253 (2) Netherlands 4,643 (3) Greece 3,420 (4) UK 3,037 (5) Germany 2,526 (6) Cyprus 1,921 (7) USA 1,310 (8) Hungary 1,276 (9) Italy 1,170 (10) Russia 1,088 Finance 7,273 Manufacturing 6,958 Trade 6,319 Construction 2,481 Energy 2,172 Telecom 1,729 Other 2,902 Source: Bulgarian National Bank Page 5
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 Page 6
Bulgaria enjoys one of the most stable political and economic environments in Southeastern Europe Bulgaria is a member of some of the most prestigious political organizations European Union member since 2007 NATO member since 2004 WTO member since 1996 the culture of impunity that once plagued Bulgaria has largely gone May 27, 2010 Strong commitment to political reform and transparency has earned praise from leading media and experts worldwide Stable currency Bulgarian Lev has been pegged to the Euro since the adoption of the currency in 2002 Currency board backed by IMF The Bulgarian economy looks to be stabilizing after weathering the recent financial crisis better than most of its neighbors the government has earned accolades from Western economists July 20, 2010 Page 7
Government financial indicators are remarkable not only in the region, but on a pan-european scale Bulgarian government debt is 3 rd lowest in Europe Budget surplus / deficit has consistently outperformed regional and European averages Estonia 7% Government debt, % of GDP 3% Bulgaria 15% Romania 24% 2% 1% 0% Czech Republic 35% -1% UK 68% -2% -3% Germany 73% -4% Bulgaria Hungary Euro area 78% 79% -5% -6% -7% Euro Area Greece 115% -8% CEE average 2005 2006 2007 2008 2009 Source: Eurostat Page 8
Bulgaria has one of the lowest business costs in Europe (1) taxes and labor costs Lowest corporate income tax rate in Central / Eastern Europe Most competitive cost of labor in Central / Eastern Europe Bulgaria (*) 10% Bulgaria 327 Average wage, / month Q2 2010 Romania 16% Serbia 451 Hungary 19% Romania 456 Slovakia 19% Slovakia 705 Croatia 20% Hungary 730 Czech Rep 20% Croatia 730 Turkey 20% Czech Rep 1,099 * 0% tax rate for manufacturing companies in regions with low employment Slovenia 1,483 Source: Eurostat; CEIC Page 9
Bulgaria has one of the lowest business costs in Europe (2) energy costs and rent Bulgarian cost of electricity for industrial users is 67% of the European average Office rents in Bulgaria are among the lowest in Europe Estonia 0.059 /kwh, 2009 Sofia 177 / sq. m / year, Q1 2010 Bulgaria 0.064 Zagreb 200 Romania 0.081 Bucharest 234 EU average Germany 0.095 0.098 Budapest Prague Warsaw 240 252 276 Czech Rep 0.106 Istanbul 355 Hungary 0.122 Athens 396 Slovakia 0.142 Moscow 629 Source: Eurostat, CB Richard Ellis Page 10
Bulgaria is only 3 hours flight from all major destinations in Europe, Russia and the Mediterranean region Strategic geographic location Major transport corridors passing through Bulgaria EU and EFTA Russia and CIS Turkey and Middle East Page 11
The role of the European Union as a trade partner for Bulgaria has been growing consistently Share of EU-27 exports has grown by 50 percentage points since 1995... in absolute terms EU-27 exports have grown approximately 5 times 10,000 9,000 EU-27 44% 56% 60% 64% 8,000 7,000 mln 6,000 Balkans 16% 5,000 Asia 11% 21% 18% 15% 4,000 3,000 Other 29% 6% 6% 7% 17% 16% 14% 2,000 1,000 1995 2000 2005 2009 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 Page 12
Educated and skilled workforce is among the main advantages of Bulgaria Almost 60,000 students graduate every year from over 50 universities Bulgaria has one of the highest proportions of students abroad from all European countries Iceland 17.8% Business 19,480 Ireland 14.2% Social sciences 8,372 Slovakia 10.2% Engineering 7,178 Bulgaria 8.3% Education 3,677 Greece 5.8% Health 3,166 Austria 4.7% Law 1,553 Germany 3.1% Architecture 833 EU-27 average 2.8% Agriculture 860 Romania 2.2% Other 12,684 Czech Republic 2.1% Students in another EU / EEA country, % of all Source: National Institute of Statistics, Bulgaria Page 13
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 10m 3.5 in regions with high unemployment and 2m 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 Individual administrative services Page 14
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 25 + 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) Page 15
Attractive FDI destinations Services: Information technology Public Sector Transport and tourism Industry: Electronic and electrical equipment Machine building Metal processing Resources: Mining Oil Alternative energy Source: Deloitte Consulting; United Nations (UNCTAD) Page 16
Major foreign investors in Bulgaria Information Technology & Business Process Outsourcing SAP Labs (Germany) the Company has been operating for more than 7 years on the Bulgarian market and employs more than 470 software developers Hewlett Packard, IBM, Sony, Microsoft, Coca Cola, and other companies have set up service support and call centers in Bulgaria Mechanical and Electrical Engineering Liebherr (Germany) the Company has invested more than 80 mln in its Bulgarian production facilities near Plovdiv Schneider Electric (France) Schneider has set up a greenfield plant in Maritsa Industrial zone (near Plovdiv) for production of electric distribution products ABB (Switzerland) the Company has been operating for more than 10 years in Bulgaria and has invested recently 25 mln in a greenfield manufacturing plant for low voltage equipment Montupet (France) the European leader in the manufacture of cylinder heads for engines set up a a greenfield plant in Ruse industrial zone, ~ 80 mln Page 17
Major foreign investors in Bulgaria Construction Materials Telecom and media Holcim (Switzerland) the leading cement producer has invested 70 mln in Bulgaria Sisecam (Turkey) the Turkish glass producer has invested more than 380 mln in 4 production facilities in Bulgaria Saint-Gobain (France) the company has started building a 100 mln greenfield plasterboard factory in Gabrovo Italcementi (Italy) Italcementi has started an 250 mln modernization project of its cement-producing factory in Bulgaria AIG Global Investment (USA) the Group has acquired 65% of the Bulgarian Telephone Company for 1.08 bn Telekom Austria acquired the largest mobile operator, Mtel, for 1.2 bn MTG (Sweden) acquired the second most popular TV channel, Nova TV, for 620 mln CME acquired three television channels for 110 mln Page 18
Major foreign investors in Bulgaria Energy CEZ (Czech Republic) the company has invested more than 150 mln in the energy distribution network and 200 mln in acquiring energy generating units in Bulgaria E.ON (Germany) the company has invested more than 80 mln in the energy distribution network in Bulgaria EVN (Austria) the company has invested more than 220 mln in the energy distribution network in Bulgaria Enel (Italy) the company has invested 700 mln in HPP Maritsa-Iztok 3 AES (USA) the company has undertaken HPP Maritsa-Iztok 1 project, worth 1.3 bn Page 19
InvestBulgaria Agency InvestBulgaria Agency is a Government investment promotion arm, part of the Ministry of Economy, Energy and Tourism 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 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