Bulgaria – investment climate and business opportunities

2012

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

0.4%

200920082007200620052004

3.4%3.0%2.5%

12.0%

7.6%7.4%6.0%6.1%

200620052004 20112010200920082007

10.4%9.1%9.1%

10.7%12.2%

20112010

9.2%

20092008

6.3%

2007

6.9%

200620052004

EU-27Bulgaria EU-27Bulgaria

2011

1,341

2010

1,209

2009

2,437

2008

6,728

2007

9,052

2006

6,222

2005

3,152

2004

2,736

€ 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, 1996-2011 (€ mln.) FDI flows by industry, 1996-2011 (€ mln.)

Telecom 2,260

Energy 2,699

Construction 2,705

Manufacturing 6,479

Trade 6,522

Finance 7,652

Real Estate 8,204

Other 2,664(10) Hungary 1,272

(9) Italy 1,279

(8) USA 1,283

(7) Russia 1,486

(6) Cyprus 2,257

(5) Germany 2,523

(4) UK 2,733

(3) Greece 3,664

(2) Austria 5,809

(1) Netherlands 6,018

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

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

„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

August 10, 2012

Standard & Poor's ratings agency raised its short-term foreign and local currency sovereign credit ratings on Bulgaria to 'A-2' from 'A-3' based on its recently adopted methodology. The agency also affirmed our 'BBB' long-term foreign and local currency sovereign credit ratings.The outlook is stable.

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%

LithuaniaLatvia

Cyprus

Italy

-6% -5% -4% -3% -2%-11% -10%

Average budget deficit/surplus (2006-2011)

16%15%1%0%

TurkeyCroatia Norway

-1%

IcelandUnited Kingdom

SwedenFinland

Slovakia

Slovenia

Romania

Portugal

Poland

Austria

Netherlands

MaltaHungary

Luxembourg

France

Spain

Greece

Ireland

Estonia

Germany

DenmarkCzech Republic

Bulgaria

Belgium

Source: Eurostat

Average government debt (2006-2011)

Source: Eurostat, The Economist, National Statistics

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

Poland 2.7%

Lithuania 2.4%

United States 2.0%

Slovakia 1.8%

Romania 1.4%

Bulgaria 0.5%

United Kingdom 0.5%

Czech Republic 0.0%

EU-27 0.0%

Hungary -0.3%

Slovenia -1.4%

Bulgarian economy maintains its excellent performance despite global challenges

-8.6%

-8.4%

-5.6%

-3.8%

1.2%

0.8%

0.2%

-1.0%

-1.4%

-1.6%

-2.6%

-2.6%

-3.7%

-3.9%

-4.3%

-4.8%

-5.3%

-5.4%

-8.2%

-8.7%

-10.0%

-10.0%

Germany

Turkey

China

Brazil

Austria

Denmark

Czech Republic

Italy

Euro Area

Netherlands

India

France

Poland

Spain

United Kingdom

Japan

United States

Greece

Egypt

BG

Hungary

Switzerland

Sweden

Bulgaria is the only country in Europe with a credit rating upgrade by Moody’s in 2010 and 2011

04/12 07/12 10/1201/1210/1107/1104/1101/1110/1007/1004/1001/10

Turkey

Spain

Hungary

Greece

Estonia

Bulgaria

Source: Moody’s

Portugal

Lithuania

Latvia

Iceland

Cyprus

Ireland

Aaa

A1

Baa1

Ba1

B1

Caa1

Ca

Bulgaria has one of the lowest business costs in Europe(1) taxes and labor costs

Lowest corporate income tax rate in Central / Eastern Europe

* 0% tax rate for manufacturing companies in regions with low employment

Most competitive cost of labor in Central / Eastern Europe

Monthly wage, nominal, € / month December 2011

Source: Eurostat; Bank Austria

Turkey 20%

Poland 19%

Czech Rep 19%

Slovakia 19%

Hungary 19%

Romania 16%

Bulgaria (*) 10%

Slovenia 20%

20%Croatia 995

876

792

758

518

363

350

Slovenia 1,520

Croatia 1,048

Czech Republic

Poland

Slovakia

Hungary

Serbia

Romania

Bulgaria

Bulgaria has one of the lowest business costs in Europe(2) energy costs and rent

Bulgarian cost of electricity for industrial users is 70% of the European average

Source: Eurostat, CB Richard Ellis

0.123

0.110

0.104

0.092

0.090

0.086

0.080

0.064

0.062

Czech Rep

Hungary

EU average

Germany

Turkey

Romania

Bulgaria

Estonia

Slovakia

€/kWh, 2011

Office rents in Bulgaria are among the lowest in Europe

724

339

336

312

252

240

234

191

168

Moscow

Athens

Warsaw

Prague

Budapest

Bucharest

Zagreb

Sofia

Istanbul

€ / sq. m / year,

Q2 2011

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

Rus

sia

and

CIS

Turkey and

Middle East

The role of the European Union as a trade partner for Bulgaria has been growing consistently

9%6%6%

12%

8%

16%18%21%

16%

14%

61%60%56%

44%

62%

Other

Asia

Balkans

EU-27

2010

15%

2005

15%

2000

16%

1995

28%

2011

16%

Share of EU-27 exports has increased visibly since 1995

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

10,000

1,000

0

201020082006200420022000199819961994

€ mln

2012

11,000

12,000

13,000

+39%

... in absolute terms EU-27 exports have grown more than 7 times

Source: National Institute of Statistics, Bulgaria

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

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

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)

• 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

Leading global investors have chosen Bulgaria as an FDI destination

IT & BPO Mechanical and Electrical

Engineering

Construction Materials

Telecom and Media

Energy Finance

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

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