Pro Ads:The Report: Bulgaria 2008

The Art of Translation and Interpreting

your business,
products, services


vos affaires,
produits et services

17:01, 9 June 2008 (UTC)

The Report: Bulgaria 2008

Oxford business group

Accession to the EU in 2007 has been the major driver of change in Bulgaria of late, and the country is working to come on line with its new EU neighbours on the political and economic front.

The country has seen consistent growth in foreign direct investment (FDI) over the past three years, and both the industrial segment and tourism look particularly strong. The banking sector also looks set to continue to enjoy good health, as the injection of EU funds into various programmes will require co-financing from banks. A tough agricultural season in the summer of 2007 led to rising prices and climbing inflation, though the government is confident that domestic measures aimed at boosting the supply side, as well as continued investment, will help cool off the economy in 2008.

  • ISBN: 1-90202339-92-4
  • ISSN (Online): 1755-2338
  • ISSN (Print): 1744-4551


Print report

Buy individual chapters online as a PDF download




This section provides a quick overview of some facts about the country, its population, natural resources, geography, culture, education system, government, language and climate.


Prime Minister Sergei Stanishev's Bulgarian Socialist Party (BSP) has an overwhelming majority in parliament but is seeing increasing challenge from the opposition movements, including the Citizens for the European Development of Bulgaria (GERB), which has been gaining in popularity since its formation in 2006. Boyko Borisov, GERB's leader, has been calling for elections to be held before the scheduled date of June 2009, claiming the present government is “disastrous” for the country. The ultranationalist Ataka party has also gone through periods of popularity, demonstrating that public opinion is divided and changeable. In 2007, Bulgaria's first elections for the European Parliament in May and local polls in October showed growing support for the centre-right. Allegations of corruption involving former economy and energy minister Rumen Ovcharov led to a slight reshuffling of the cabinet, though changes were more minimal than expected. The government signalled it would continue its conservative fiscal policy and commitment to a surplus, which was followed through in autumn 2007 when Stanishev faced down a month-and-a-half strike by teachers demanding pay rises and increased investment in education. While it is too early to say if the local elections will mean be a turning point in Bulgarian politics, the opposition does seem to be gaining ground in criticising a number of issues, including the privatisation of the Kremikovtsi steel plant and the proposed South Stream pipeline, which would carry Russian gas from the Black Sea to the Aegean. In addition, a report by the European Commission contained some stiff criticism on corruption, organised crime and judicial in the country, signalling that while Bulgaria has joined the EU, it is still being pressured to reform.

This chapter includes interviews with Sergei Stanishev, Prime Minister; Ivailo Kalfin, Minister of Foreign Affairs and Deputy Prime Minister; Geoffrey Van Orden, European Parliament Rapporteur to Bulgaria, 1999-2007; and US Senator George Voinovich, US Senator, Member of , the Foreign Relations Committee; while French President Nicolas Sarkozy , President of France, provides a viewpoint.


Bulgaria finished up 2007 with a growth rate of 6.2%, largely due to fixed capital investment and strong domestic demand, as well as excellent performances from the manufacturing, construction and services sectors. While industry continues to grow, contributing 31% to GDP last year and pushing up exports, the demand for raw materials and investment goods has caused the trade deficit to widen, in turn inflating the current account deficit. However, industry experts predict manufacturing companies will remain competitive and Bulgaria is already growing its share of European markets. Growth for 2008 is forecast at 6%, thanks to continued inflow of EU funding. Such grants and loans will have a major impact on a variety of sectors, from construction to tourism to education. The government has remained committed to a tight fiscal policy and successfully maintained a budget surplus for the past few years, achieving 3.8% of GDP in 2007. Economists are predicting the surplus will remain stable for the next three years, though there is some concern that politicians will be tempted to use the surplus for activities related to the 2009 elections. Foreign direct investment (FDI) has grown for the third year in a row, and reached a record high of 4.4bn euros in 2006. There is some imbalance in these inflows, however, with 60% of FDI going to real estate, tourism and commerce, and only 30% to production. The drought in summer 2007 was a tough time for Bulgaria, causing food prices to soar and driving year-on-year inflation up to 12.5% in December. Inflation is expected to stay up in 2008 with higher energy prices and excise taxes, though the state hopes that building up capacity to bolster the supply side, as well as high investment rates, can lend a hand in cooling the economy.

This chapter includes interviews with André Bergen, CEO, KBC Group; Anand Seth, Director for Bulgaria, Croatia and Romania, World Bank; and Milen Ivanov, Managing Partner, Jordan Sheppard; while Plamen Oresharski, Minister of Finance, provides a viewpoint.


Credit growth was the major story in 2007, with banks continuing to lend and EU accession bringing renewed interest from foreign investors. The banking sector is nearly saturated, with an assets-to-GDP ratio of almost 100%. However, growing incomes and increasing numbers of small- and medium-sized businesses should continue to provide opportunities. With EU membership bringing a vast amount of funding, banks should have plenty of chances to co-finance development projects and new products are already being introduced for such programmes. Increased competition in the sector may bring a round of mergers and acquisitions. The country's 29 banks have seen total assets more than double in the past three years, with this progress due largely to reforms and the push to privatise enacted after the financial crisis of 1996. A currency board pegging the lev to the euro was also instituted at that time and is still in place. The participation of foreign groups has brought a healthy dose of competition and boosted confidence in the banking sector. As a result, Bulgaria's banks have shown resilience to the recent upheaval in global financial markets. To the future, credit growth is predicted to continue in the next few years, though this will provide a challenge to the central bank as it takes efforts to keep spending in check.

This chapter includes interviews with Ivan Iskrov, Governor of the Bulgarian National Bank; Philippe Maystadt, President, European Investment Bank; and Maya Georgieva, Executive Director, First Investment Bank.


Despite being relatively young, Bulgaria's capital markets have underlying strengths which have been attracting significant attention from investors, and the Bulgarian Stock Exchange (BSE) has shown positive growth every year since 2001. An initial drop in the first two months of 2007 was chalked up to a natural correction, and the exchange achieved 44% growth for the year. The BSE is divided into two sections, termed the official and unofficial markets, based on the size and liquidity of the companies listed. Bulgaria's accession to the EU has helped put the bourse into international investors' frame of reference, and economic reforms have put the country closer in line with European standards. In 2008, for example, the BSE intends to upgrade its trading platform, using the Deutsche Borse's technology, which will enable a greater volume of international trade. Bulgaria's capital markets currently consist of stocks and bonds, with the bond market quite small, though some analysts are predicting this may shift if the equities market does not pick up soon. Futures and short-selling will probably not be introduced for another two to three years. There is a strong indication that mutual funds, as well as pensions, are becoming more popular. Despite the slight downturn due to the November 2007 correction, observers are generally optimistic that by the second half of 2008, many investors will return to Bulgaria.

This chapter includes interviews with Bistra Ilkova, Executive Director, Bulgarian Stock Exchange, and Krassimir Tahchiev, Head of Research, First Financial Brokerage House. First Financial Brokerage House provides share analysis of the following companies: Eurohold Bulgaria, First Investment Bank, Holding Roads, Kaolin, and Lead and Zinc Complex.


The Bulgarian insurance market has been showing steady growth in recent years, with 37 companies operating in the country as of February 2008. Motor vehicle insurance dominates the non-life segment, though areas such as property, industry and marine insurance have all registered gains. The life insurance sector is also making a comeback after challenges due to massive inflation in the late 1990s, and should continue to show growth as Bulgarians increase in wealth. The market is dominated by large international insurers, which have introduced a healthy dose of competition and led to new products, yet there are some concerns that they are beginning to push out local players. In response, some local insurance groups have started to look to expanding their share in neighbouring markets such as Macedonia and Romania. Rapid growth is expected to continue for at least the next three to four years, and EU accession should lead to some restructuring of the industry, though a new insurance code should minimise the number of dramatic regulatory changes to the sector.


Massive changes are in store for the Bulgarian transport sector, with EU accession bringing funding for infrastructure upgrades and development programmes. The road and rail systems are in particular need of attention and will receive the largest share of grant money, with over 2bn euros expected to go into these segments by 2013. This is good news for transported goods, which are currently hampered by slow travel times on poor roads, with figures on transported goods already increasing. Major highways in Struma, Trakia, Maritza and Hemus will see major construction work in 2008, and second- and third-class roads connecting tourist destinations to ports and EU corridors will also be upgraded. The national rail system is also getting a facelift, with new coaches being purchased and repairs to the rail network. Upgrades to all the main lines will allow trains to run at 160 km per hour and drastically reduce travel times. Air transportation is also making progress, and there was a 13% increase in passenger numbers in 2007. Bulgaria's ports, traditionally handling 60% of all imports and exports, did not see such a good year, however, with a decrease in traffic for 2007. In response, the government is looking to increase spending on its ports and hopes to take advantage of the shift towards more maritime transit to Western Europe.

This chapter includes interviews with Ivan Vassilev, Country General Manager, TNT Express, and Vessela Gospodinova, Deputy Minister of Transport.


Following the closure of two nuclear power units in January 2007, Bulgaria has seen an abrupt decline in electricity capacity, leading to the current shortfall. The country also faces challenges in terms of the efficiency of its energy production, and still has some work to do to bring the sector in line with European standards. Changes have followed, including higher consumer prices and a ban on energy exports, which will stay in place for the first months of 2008. While the country is working to build up its capacity, it remains dependent on oil and gas imports, much of it coming from Russia. Bulgaria transports Russian gas to Turkey, and when the Nabucco pipeline project comes on line, it will significantly increase the amount carried through the country to Western Europe. The Burgas refinery, with a capacity of 300,000 barrels per day, is undergoing an expansion programme that aims to increase bring production figures even higher. Further liberalisation is in store following EU membership, and despite the electricity market being about 60% liberalised, it is still somewhat difficult for small players to enter the market – production is state-owned and distributors must get prices approved. A contract signed in January 2008 with Atomstroyexport, controlled by Russia's Gazprom, anticipates the construction of two nuclear reactors, the first scheduled to be completed in 2013. There has been some criticism however, that the plant may not be economically feasible. While the country is home to significant coal reserves, environmental issues are becoming increasingly pressing and Bulgaria is taking its EU membership commitment to generating a portion of its electricity through renewable sources, looking in particular at developing hydropower, which currently accounts for about 10% of the country's production. Wind power also shows significant promise, with several new wind farms coming on line.

This chapter includes an interview with Andris Piebalgs, EC Commissioner for Energy.


Providing some 14% of gross domestic product (GDP) and accounting for a significant portion of the country's jobs, travel and tourism play an important role in Bulgaria's economy. The EU is still Bulgaria's main source of tourism revenues, with around 75% of visitors coming from Europe. Tourism has been relatively successful in recent years, with a good deal of investment poured into accommodations and amenities, though some challenges in the country's transport infrastructure remain to be addressed. The country has a major benefit in its geographic location, which allows it to profit from both ski tourism during the snowy winters and summer tourists visiting its Black Sea beaches. Package tours are widely available, allowing visitors to access multiple resorts, and international tour operators have put these to good use. The World Travel and Tourism Council (WTTC) predicts that by the year 2017, Bulgaria will be attracting over 16m visitors per year. There are still some questions, however, as to just how successful Bulgaria's industry is, with allegations circulating that the National Statistics Office may be less than accurate in its reporting of figures. Nonetheless, new tourism projects are springing up rapidly, including beach complexes and mountain resorts. There are some concerns that the country may encounter problems with overcapacity, though this does not seem to have diminished investors' enthusiasm, with, for example, the ski site at Borovets undergoing a major overhaul and expansion of its facilities, and set for a new 20,000 to 30,000 square metre hotel and apartment development.

This chapter includes an interview with Kamen Kitchev, Regional Manager, Austrian Airlines and Member of the Executive Committee of the National Tourism Board.


Times are good for Bulgaria's construction industry, with continued growth in the real estate sector, in addition to a host of infrastructure improvements spurred by EU accession, keeping local firms busy. This success only looks set to continue, with the Bulgarian Entrepreneurial Chamber in building forecasting annual sector growth of between 12% and 16% until 2010. The private sector accounts for around 90% of housing development, and also contributes heavily to infrastructure works. Local supply companies are stepping up production to respond to the heavy demand, though rising prices for materials are becoming an increasing concern across the sector. EU accession has highlighted irregularities in the tendering process, with calls for more clarity and better competitive practices across the board. Labour issues are also still prevalent, with calls for better educational opportunities to increase the supply of skilled professionals in the industry. It is hoped that the master plan for the development of capital city Sofia, ratified in 2007, will bring some clarity to land usage and provide further opportunities for the private sector.

The real estate sector is maturing, with significant interest from foreign investment . As Bulgarians' incomes grow, and more people move to urban locations, housing costs are on the rise, particularly in capital city Sofia. This has meant steady growth in housing loans and mortgage loans. Despite analysts' predictions of a slowdown, prices increased by 28.9% in 2007, though a much smaller growth figure is anticipated for 2008. Over 90% of Bulgarians own their own homes, though the housing market continues to see heavy investment, spurred on by a shift away from rural dwelling and purchases of vacation homes. Increased interest is also being shown for office space, with a number of projects underway or recently completed. Much of Bulgaria's available office space has been B-grade, though EU accession has brought about more demand for prime spaces, of which there is currently a lack. Shopping centres are starting to pick up as a concept, with 10 new malls planned for Sofia and a number of other centres in the works throughout the country. This has also led to an increased need for warehouse and logistics real estate spaces, with the average size of units requested increasing 10 times over the last five years. While the outlook for Bulgaria as a whole looks balanced for the short-to-medium term, demand may soon outstrip supply in rapidly expanding Sofia.

This chapter includes an interview with Julian Edwards, Managing Director, Tishman International, as well as a viewpoint from Rosen Plevneliev, General Manager, Lindner .


The mobile segment still dominates the Bulgarian telecoms sector, and recent years have seen dropping prices as the three main operators – M-Tel, Globul and Vivatel – compete for new customers. While some estimates have put mobile penetration at 117%, fixed line services are suffering, declining 8% in 2007. Accession to the EU has proved a major stimulus, and nearly 2bn euros in foreign direct investment (FDI) was poured into the information and communications technology (ICT) sector between 2005 and 2007, almost all of this amount directed toward telecommunications. This however, has meant some changes were necessary to come on line with European standards, in particular cutting roaming rates drastically. Although all three operators are expanding their 3G and GPRS capacities, in an effort to entice subscribers to switch services, video and other value-added services have not yet caught on, meaning there is little room for average return per user (ARPU) growth. Regulation for mobile number portability, allowing users to switch operators but keep their telephone number, has been slow in coming though a draft agreement in January 2008 looks set to finally get the option rolling.

WiMax technology has been similarly slow to take off, though several companies have obtained WiMax licences. The most aggressive player has been Max Telecom, which already covered 30% to 40% of the country in the first months of 2008 and aims to increase this figure to 80% by the end of the year. Nonetheless, costs for the new technology remain prohibitively high for most Bulgarians, and will need to be cut by about half before WiMax can be truly profitable. Overall, Bulgaria's information technology (IT) sector is considered quite successful and a key part of the economy. According to the International Data Corporation, the sector grew by 24% in 2007, and may account for 10% of GDP. Nonetheless, internet penetration is low (only about 19% at the end of 2007) and educating an IT-savvy labour force remains an issue. Better government regulation has been widely sought after, and many insiders are calling for the establishment of an independent ministry to manage the sector. However, the State Agency for ICT is working to address some concerns and has laid out a programme to ensure better distribution of funds, especially EU grants. The country's business-to-business software industry is particularly strong, with many foreign companies operating in Bulgaria.

This chapter includes an interview with Sasha Bezuhanova, General Manager, HP Bulgaria, and Co-Chairperson, Confederation of Employers and Industrialists in Bulgaria.


Bulgaria's industrial sector is in its developing stages and the country is primarily a producer of raw materials, concentrated on low-tech, labour-intensive industries. The sector is also relatively fragmented. However, a steady stream of foreign investment has helped propel sector growth of about 8% per year since 2003. While still relatively small, Bulgaria's mining industry, producing mainly copper, iron, lead, zinc, manganese and coal, has also witnessed substantial growth as privatisation efforts have taken effect, with production increasing 8.5% in 2007. Some insiders have suggested the government could do still more to promote the mining industry and make the country less reliant on foreign imports. The textiles segment has shown itself to be a stable player, despite serious competition from regional neighbours and Asia. This is primarily due to the country's serving niche and boutique markets in Greece and Italy, though there are some concerns the textile sector may be about to hit a slowdown, with exports slowly declining. A lack of qualified labour and outdated technology are challenges, as are rising wages, which are leading to increased competition from countries such as Macedonia, Romania and Serbia. Other issues to be addressed include Bulgaria's outdated transport infrastructure and technology, a lack of qualified labour and spiralling energy prices. The pharmaceuticals industry is showing good growth, with foreign and local companies bringing new products onto the home market, as well as expanding their presence abroad. Many of the roadbumps associated with EU accession have been resolved, leaving analysts confident that, despite the remaining challenges, the industrial sector should continue its upward growth trend.

Retail in Bulgaria has benefited from the expansion of the middle class, and local and international chains have begun to spread across the country. Electronics and clothing have also seen considerable development. Continued growth of the middle classes is seen as essential for the ongoing progress of the sector. There has been increasing demand for downtown and city-centre retail space, and for shopping centres across the country. There are some concerns that the market will soon reach saturation, and it is clear that such high levels of growth cannot be sustainable in the long term. Still, for the short-to-medium term, there remains plenty of room for investment in the retail property sector, with demand for mall space still high. The grocery segment has seen significant investment from Balkan chains, and EU accession has led to increased interest from large international companies such as Carrefour. Overall, a move to higher quality and luxury food products is expected.

This chapter includes an interview with Alexandar Kerezov, Member of the Managing Board, Chimimport, and Tzvetan Lazhanski, CEO, Devin Water; as well as a viewpoint from Guy Meyohas, CEO, Orchid Developments Group.


The agricultural sector had a rocky year in 2007, with widespread drought in the spring followed by heavy flooding in the summer, factors which required careful intervention from the government. In addition, the country's accession to the EU has meant ongoing reforms, as well as a welcome influx of funds aimed at helping the sector to develop and compete on a more even playing field with other European states. The main concerns for Bulgarian agriculture include animal hygiene and quality control, as well as promoting investment into new technologies, rural development programmes and protecting the environment. There have been some roadbumps in the matter of EU funds, with some concerns that disbursements were not allocated to legitimate sources, and some delays by the Bulgarian government in setting up agencies to distribute grant money. It is hoped that a series of meetings with the EU commission have resolved this issue, and Bulgaria has been removed from an EU watch list. A number of developments, as well as education and training, are needed in the sector, especially in areas such as irrigation. EU accession will provide the country with new potential markets and will also stimulate competition within Bulgaria, in turn boosting standards and production. Fragmentation of the sector remains a serious hurdle to development, with 75% of landowners owning less than 1 hectare, and a number of uncultivated plots currently unused. However, a number of agricultural land funds have taken on the task of buying up and consolidating these plots for resale to farming companies. Overall, the Bulgarian agricultural sector shows a lot of promise, with analysts confident that EU membership will help ramp up production and improve standards. There has been an improvement in financing mechanisms for small- and medium-sized farm operations, and wine, organic farming and rose oil exports have already seen growth in recent years.

This chapter includes an interview with Veselin Petrov, Executive Director, Elana Property Management.


In partnership with Ernst & Young, this chapter provides an overview of Bulgaria's new tax legislation. Boris Boyanov & Co guide the reader through the judicial reforms that have come online following the country's accession to the EU, as well as the latest amendments to the business law.

This chapter includes an interview with Panos Papazoglou, Country Manager, Ernst & Young; while Kina Chuturkova, Partner, Boris lav Boyanov & Co, provides a viewpoint on strengthening the judicial system.


This chapter takes the reader on a brief tour of capital city Sofia and the nearby ski resort at Mount Vitosha. It also introduces the medieval city of Ruse, just across the River Danube from Bucharest, and delves into the history and rituals of chess and football, two national pastimes. A comprehensive listing of hotels is included, as are indispensable tips for business visitors on etiquette, currency, visas, tipping and transport.



High-quality translation services over the Internet - professional solutions for translating all your documents.

>>>Our services