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Economy
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How favourable is it for foreign investors?
The Bulgarian economy is growing rapidly, thanks to strong domestic demand fuelled by rising levels of net income, higher employment and more readily available bank credit. The United States and other major international entities have recently recognised Bulgaria as a fully functioning market economy – but the business environment still contains pitfalls for the unwary.
The communist legacy means that many bureaucrats look unfavourably on the business community are this means they are often unresponsive to the needs of the private sector - doing business in Bulgaria is frustrating because there tends to be a lot of red tape.
Although Company law has been streamlined and tightened up in compliance with the requirements for EU membership, the EU commission has said that there is a need for the enforcement of legislation on the protection of intellectual and industrial property rights.
Navigating the business environment in Bulgaria is best done through a combination of local business connections who have access to the country’s informal networks, and the help of law, accounting, and human resources professionals to keep one on the correct side of the law.
The European Commission, in its latest report in November 2003 on the progress being made by European Union candidate countries, noted that Bulgaria had made further progress in creating a non-discriminatory regime of national treatment for foreigners performing economic activities in Bulgaria.
In late 2003, Parliament approved changes to the Foreign Investment Act. These changes include treating domestic and foreign investors on an equal footing. The changes are also geared to reducing the amount of time spent on administrative issues.
Investors with dual citizenship can decide which status to use, that of a local or foreign investor. Foreigners are allowed to take part in all types of companies, with no restrictions. However, constitutional restrictions on foreigners owning land remain in place, though these will fall in 2014 at the latest. In any case, in real life any foreigner who wants to “own” land does so through setting up a local company.
The amended act is meant to encourage investments in products meant for export, in agricultural production and in IT, as well as investments that can be implemented within three years or open new jobs. Investment Bulgaria Agency, according to the new law, must issue certificates to investors, categorising the investment as first, second, or third class. The degree of assistance by the state will depend on the class of the investment.
The Bulgarian economy, in recent years, has achieved a high degree of macroeconomic stability, thanks to a good policy mix achieved through the currency board arrangement (put in place in 1998 to stabilise the currency, the mechanism ties the performance of the Lev to that of the Euro), a tight fiscal stance, and wage moderation.
As a result, economic development in Bulgaria has shown positive trends in various areas, including tourism, the capital market, and the banking system.
The EU also noted that the Bulgaria had made good progress in adopting new legislation on capital movements and payments.
Bulgaria also benefits from a well-educated and computer-literate workforce. Labour costs, for the time being at least, are considerably lower than in Western countries. Infrastructure is also steadily improving, mainly thanks to foreign funding.
For all the shortcomings, many believe that Bulgaria is a country, which has a lot of potential – most are confident that, with determined effort, the country will overcome the current challenges in the business environment. Many expatriates employed in Bulgaria find it a pleasant place to live and work.
ECONOMIC INDICATORS
GDP in billions dollars
| GDP |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
| Nominal GDP |
13 |
13 |
14 |
16 |
20 |
24 |
* |
| Per capital |
1577 |
1542 |
1706 |
1995 |
2546 |
3078 |
5420 |
| GDP growth |
2.3 |
5.4 |
4.1 |
4.9 |
4.3 |
5.6 |
5.4 |
Bulgaria will receive 3.5 bn Euro in funds for infrastructure development upon joining the EU.
* As a result of economic convergence and due to its low base, it is expected that Bulgaria per capita income will grow at the fastest rate of all the EU members over the next 10 years
Inflation - positive inflation dynamics
During 2004, the major pro-inflationary factors were: excise tax increases, administrative prices increases and fuels prices dynamics
In 2003, average inflation was 2.3%, below the end-year inflation of 5.6%
In 2004, annual inflation in Bulgaria is 4 %. In March and June there was deflation
In 2005, annual inflation in Bulgaria was 4.5 %.
(Source: European Commission, Deutsche Bank, National Statistics Institutes)
Unemployment
Unemployment is still a little high, but in line with other emerging economies, and now lower than Croatia, Poland and Slovakia. The unemployment rate on an annual basis decreased by 4.5 percentage points in 2004 compared to the highs of 2000
The reduction in the unemployment rate is mainly as a result of the interplay of the labour market upswing in the private sector and the implementation of the government’s active labour market measures underway. Hidden employment is widespread in the booming construction sector.
Unemployment rate %
| 1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
| 13.8 |
18.1 |
17.5 |
17.4 |
14.8 |
14 * |
11.5 |
*At December 2004 the unemployment rate was 12.2%
Foreign Direct Investment
Strategic investors drive FDI up by 50% to 100%
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| FDI inflow in Bulgaria 1995-2004F, USD m |
 |
Trade Balance in billions dollars
| 1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
| -1.1 |
-1.2 |
-1.6 |
-1.6 |
-2.5 |
-2.8 |
Credit Ratings
Since late 2001 the international credit rating agencies have affirmed the economic progress and foreign policy achievements of Bulgaria through several rating upgrades Bulgaria received for the first time an investment rating on June 24, 2004 by Standard & Poor’s and on August 4, 2004 by Fitch
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Investment Opportunity
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General information
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Airports
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Climate
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Culture and Traditions
As you’d expect of a country with such a long a chequered history Bulg... more
History
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Bulgaria’s entry into the EU
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The property market in Bulgaria
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Government
Bulgaria is a stable Parliamentary Republic. The constitution was rat... more
Useful Tips
Body language
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