Bulgaria – investment climate and business opportunities

Sofia

June 26, 2012

Page 2

Bulgaria at a glanceLocation and key data

• Area: 110,910 sq. km

• Number of inhabitants (2011): 7.4 mln

• Capital and largest City: Sofia

• Other cities: Plovdiv, Varna, Bourgas, Ruse, Stara Zagora, Pleven, Veliko Tarnovo

• Natural Resources: oil, gas, coal, iron ore, copper, lead, zinc, antimony, chromite, gold, silver, magnesium, nickel, pyrite, marble, limestone, salt, arable land

• Major industries: electricity, water and gas supply; food, beverages and tobacco; machinery and equipment; base metals, chemical products, coke, refined petroleum

• Currency: Lev (BGN). Fixed exchange rate with Euro.

• EU Member since 2007, NATO Member since 2004

• Government type: parliamentary republic

• Last government elections: July 2009

Dobrudja

Sandanski

Bansko

Veliko Tarnovo

Belogradchik

Kozloduy NPP

Sofia

Bulgaria at a glanceGeography, landmarks and economic overview

Page 3

Maritza Iztok

Balchik

Varna

Sunny Beach

Sozopol

Rousse

Plovdiv

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

1.7%

-5.5%

6.2%6.4%6.5%6.4%6.6%

20112010

0.2%

200920082007200620052004

3.4%3.0%2.5%

12.0%

7.6%7.4%6.0%6.1%

2004 2011201020092008200720062005

10.4%9.1%9.1%

10.7%12.2%

20112010

9.2%

20092008

6.3%

2007

6.9%

200620052004

EU-27Bulgaria EU-27Bulgaria

2010

1,779

2009

2,437

2008

6,728

2007

9,052

2006

6,222

2005

3,152

2004

2,736

€ mln.EU-27Bulgaria

Page 4

Role of Bulgaria as FDI location has grown significantly for the last 10 years

Inward FDI per country ($bn.)

Source: UNCTAD

Greece

Croatia

Bulgaria

-1

9

8

7

6

5

4

3

2

14

13

12

11

10

1Macedonia

Slovakia

Hungary

Romania

Czech Republic

201020092008200720062005200420032002200120001999

Serbia

0

Page 5

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

Source: Bulgarian National Bank

FDI by host country, 1996-2010 (€ mln.) FDI flows by industry, 1996-2010 (€ mln.)

Telecom 1,968

Energy 2,502

Construction 2,672

Manufacturing 6,475

Trade 6,489

Finance 7,516

Real Estate 8,407

Other 2,384(10) Italy 1,235

(9)USA 1,284

(8) Russia 1,316

(7) Hungary 1,365

(6) Cyprus 2,219

(5) Germany 2,683

(4) UK 2,943

(3) Greece 3,773

(2) Austria 5,203

(1) Netherlands 5,746

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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 7

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

• 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 culture of impunity that once plagued Bulgaria has largely gone“

May 27, 2010

„While governments across the euro-zone periphery are on the ropes or have been felled by the economic crisis, Prime Minister Boyko Borisov's government has drawn international accolades for cutting spending while maintaining high levels of public support.”

September 10, 2011

Page 8

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%

Malta

Average budget deficit/surplus (2005-2010)

-9% -8% -7% -6% -5% -4% -3% -2% -1%

Luxembourg

Iceland

LithuaniaLatvia

Estonia

Germany

Denmark

Czech Republic

Bulgaria

Belgium

Ireland

Greece

Spain

France

Italy

Cyprus

2% 16%1%0%

TurkeyCroatia

NorwayUnited Kingdom

Sweden

Hungary

Finland

SlovakiaSlovenia

Romania

Portugal

Poland

Austria

Netherlands

Source: Eurostat

Average government debt (2005-2010)

Page 9

Source: Eurostat, The Economist, National Statistics

1.2%

0.8%

0.2%

-1.0%

-1.4%

-1.6%

-2.6%

-2.6%

-3.7%

-3.8%

-3.9%

-4.3%

-4.8%

-5.3%

-5.4%

-5.6%

-8.2%

-8.4%

-8.6%

-8.7%

-10.0%

-10.0%

France

Poland

Spain

United Kingdom

Japan

United States

Greece

Egypt

Netherlands

Czech Republic

Italy

Euro Area

India

BG

Hungary

Switzerland

Sweden

Germany

Denmark

Austria

Turkey

China

Brazil

Budget deficit for 2011, % of GDP Expected real GDP growth, 2012

0.5%

United Kingdom 0.6%

Hungary

Bulgaria

1.1%

2.3%

Slovenia

Romania

1.0%

2.1%

Czech Republic

United States

0.7%

1.5%

0.6%

Slovakia

EU-27

Lithuania 3.4%

Macedonia 2.5%

Poland 2.5%

In 2011, Bulgarian economy maintained its excellent performance despite global challenges

Page 10

Bulgaria is the only country in Europe with a credit rating upgrade by Moody’s since the beginning of 2010

09/1107/1105/1103/1101/1109/1007/1005/1003/1001/10

Turkey

Lithuania

Ireland

Hungary

Greece

Estonia

Bulgaria

11/10

Source: Moody’s

Portugal

Latvia

Iceland

Cyprus

Aa1

A1

Baa1

Ba1

B1

Caa1

Ca

Page 11

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

0.080

Bulgaria 0.064

Estonia 0.062

Slovakia 0.123

Czech Rep 0.110

Hungary 0.104

EU average 0.092

Germany 0.090

Turkey 0.086

Romania

€/kWh, 2011

11,070

10,000Germany

Spain

UK 11,400

Poland 5,000

Czech Rep. 5,000

France 5,000

Greece 4,000

Hungary 3,000

Romania 2,000

Bulgaria 1,595

Lowest cost of agricultural land in the European Union

€ / ha, 2008

Page 12

Bulgaria is only 3 hours flight from all major destinations in Europe, Russia and the Mediterranean region

Strategic geographic location Major transport corridors pass through Bulgaria

EU and EFTA

Rus

sia

and

CIS

Turkey and

Middle East

Page 13

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

12,684Other

19,480Business

8,372Social sciences

7,178Engineering

3,677Education

3,166Health

1,553Law

Architecture

Agriculture

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

2.1%

2.2%

2.8%

3.1%

4.7%

5.8%

8.3%

17.8%Iceland

14.2%Ireland

10.2%Slovakia

Bulgaria

Greece

Austria

Germany

EU-27 average

Romania

Czech RepublicStudents in another EU / EEA country, % of all

Page 14

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

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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)

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• 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

• Resources:– Mining

– Oil

– Alternative energy

Attractive FDI sectors

Page 17

Leading global investors have chosen Bulgaria as an FDI destination

IT & BPO Mechanical and Electrical

Engineering

Construction Materials

Telecom and Media

Energy Finance

Page 18

Bulgaria is a R&D, service and manufacturing hub for a number of leading multinationals

• In 2008, Lufthansa opened an aircraft repair facility at Sofia airport

• State-of-the-art hangars and equipment. Over 500 workers

• D-checks, the most extensive scheduled maintenance is carried in Bulgaria

• Johnson Controls International has one of its major IT & software development centers in Sofia since 2001

• Develops automotive software for BMW, Ford, Citroen

• Over 460 engineers work in the Sofia office

• Hewlett Packard has over 4000 people in its Bulgarian office

• In 2010 Bulgaria became one of the 6 designated delivery hubs worldwide

• Customers include 21 companies from 2011 Fortune Global 500

• Nestle acquired one of the largest confectionery factories in Bulgaria in 1994

• Over €80m invested so far in plant modernization and new equipment

• Major brands produced in Bulgaria for the entire CEE market

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Bulgaria is a R&D, service and manufacturing hub for a number of leading multinationals

• The copper smelter and refinery, owned by German company Aurubis, is the third largest in Europe

• Annual turnover exceeds €2m.• The plant was established in

1955 and purchased by Belgian group Umicore in 1997

• Montupet is a leading supplier of automotive aluminum parts

• Greenfield investment project in Ruse for €80m

• Bulgarian plant produces engine heads for Audi’s 4- and 6-cylinder engines

• Agropolychim is one of the leading manufacturers of nitrogen and phosphorus fertilizers in the region

• About 400 ths tons exported to Europe, America, Middle East and Asia in 2010

• Sisecam (Trakiya Glass) is the largest greenfield manufacturing investment in Bulgaria

• The plant produces glassware, fl at glass, household glassware, mirrors and car glass factories

• Clients include IKEA, Coca Cola, Indesit, Bosch, Audi, BMW

Page 20

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

Page 21

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