Bulgaria – investment climate and business opportunities

Sofia

5 November 2012

Focus on Food and Agriculture

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

0.4%

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

Page 4

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

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

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)

Page 7

Source: Eurostat, The Economist, National Statistics

Budget deficit for 2011, % of GDP

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%

BG

Hungary

Switzerland

Sweden

Germany

Turkey

China

Brazil

Austria

Denmark

Czech Republic

Italy

Euro Area

Netherlands

India

France

Poland

Spain

United Kingdom

Japan

United States

Greece

Egypt

Greece

Hungary

Ireland

Lithuania

Turkey

01/10 04/10 07/10 10/10 04/11 07/1101/11 10/11

Bulgaria

Estonia

Bulgaria was the only European country with increased credit rating by Moody’s in 2010 and 2011

Page 8

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 9

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

Page 10

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 11

• 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 12

Leading global investors have chosen Bulgaria as an FDI destination

IT & BPO Mechanical and Electrical

Engineering

Construction Materials

Telecom and Media

Energy Finance

Page 13

Interesting facts about Bulgarian food sector

• Bulgaria is among the top EU Member States in terms of average

profitability growth (2010 numbers: Bulgaria +23%, EU-27

+12.3%)

• Between 2003 and 2010, Bulgaria reported the largest growth

in the use of agricultural land EU-wide.

• Bulgaria was the biggest producer of lavender oil for 2011 and

one of the top three producers of rose oil

• Bulgaria is among the top 15 producers of buffalo and sheep milk

in the world

• Bulgaria is famous for her regions with a very specific

microclimate suitable for the symbiotic development of authentic

strains of Lactobacillus Bulgaricus and Streptococcus

thermophilus, thanks to which they produce a unique fermented

milk product

• Bulgaria is among the world’s top 10 producers of goose, donkey,

and rabbit meat

• Kit Kat chocolate bars for all of South-Eastern Europe are

produced in Bulgaria

• Bulgaria produces a variety of wines, including some which are

unique to the country

Page 14

Bulgaria produces variety of food products and agriculture is an important part of our economy

Export of food and agricultural products is varied and totals around $3.5 bn

167.3Cigars and cigarettesBread and bakery

products

194.5

Maize

Meat and offal

448.7

Sugar

337.5

167.1

Unprocessed tobacco

162.3

Rape or colza seeds

106.9

Sunflower seeds

159.0

Wheat and meslin

103.4Sunflower oil

Barley

Cheese and curd

Fruit incl. preserved

Wine from fresh grapesChocolate and cocoa

products

76.6

75.1

97.3

63.3

63.1

221.2

Export 2010,USD million

Source: Agriculture report 2010

Bulgaria’s share of agriculture to total GDP is slightly higher than European average

Germany

India

1.4%

China

3.3%

Turkey

5.3%

Brasil

0.7%

Bulgaria

0.9%

3.4%

UK

Russia

USA

19.0%

4.0%

Japan

1.2%

Spain

5.8%

10.2%

Poland

9.6%

Agriculture to GDP (2009), %

Page 15

72% of Bulgarian agricultural exports go to EU, with Russia and the Arab countries regaining their former export share

Cheese• Greece – 32,8%• Romania -16,7%• USA – 11,9%• Germany – 7,7%• Lebanon – 5,1%

Honey

• Germany – 51,8%

• Poland – 11,6%

• Italy – 8,1%

• France – 6,6%

• Austria – 3,1%

Sunflower oil

• Greece – 34,9%

• Macedonia – 24,1%

• Romania – 16,3%

• Italy – 4,7%

• Kosovo– 4,6%

Canned meat

• France – 47%

• Romania – 28,7%

• Netherlands – 6,7%

• Belgium – 4,8%

• UK– 1%

Sugar and confectionery

• Romania – 65,3%

• Greece – 16%

• Serbia – 3,5%

• UK– 2,1%

• Italy – 1,8%

Bakery products

• Romania – 10,7%

• Poland – 8,9%

• UK– 8,6%

• Croatia – 5,3%

• Turkey – 4,7%

Canned vegetables

• Greece – 40,5%

• Germany – 14%

• USA– 12%

• Russia– 4,6%

• Italy – 2,9%

Canned fruit

• Germany – 49,8%

• Romania – 33,1%

• Russia – 5,7%

• Italy – 1,6%

• Moldova – 1,1%

Page 16

Plovdiv is the main university hub for food and agriculture studies

Agrarian University (Plovdiv)• 2 700 students;• Faculties of Agronomy, Viticulture and Horticulture, plant protection and Agricultural

ecology, Economics and Languages• Departments of Farming and Herbology, Animal Science, Crop Science, Plant

Genetics and Breeding, Botany and Agrometeorology, Agrochemistry and Soil Science, Plant Physiology and Biochemistry, Fruit Growing, Agricultural Machinery, Melioration with Geodesy, Phytopathology etc.

University of Food Technology (Plovdiv)• 2 000 students;• Faculties of Technology, Engineering, Economics, Language Studies, Physical

Education and Sports• Departments of Chemistry and Physical Chemistry, Organic Chemistry and

Microbiology, Biochemistry and Molecular Biology, Wine and Beer Technology, Grain and Feed Technology; Bakery and Confectionery Production; Technology of milk and dairy products; Conservation and Chilling; Economy of the Food Industry, Biotechnology and others.

Agricultural College (Plovdiv)• 6 000 students;• Subjects in Agricultural Technology (farming), technology in

Horticulture and Wine Production, Economics of Tourism, Alternative Tourism, Agrarian Economics

Page 17

Production of bread and bakery products

Production of milk and dairy products

Production of chocolate and sugar confectionery

Canned and processed fruit and vegetables

Meat processing & production

Production of vegetable and animal oils

Other

Food industry is spread across all Bulgarian regions

7,202 (9.9%)

483 (11.0%)

11,383 (14.1%)

589 (13.0%)

10,229 (12.7%)

549 (12.0%)

North-West Region: North-Central Region: North-East Region:

23,724 (29.5%)

1091 (24.0%)

South-West Region:

16,649 (20.7%)

969 (22.0%)

South-Central Region:

11,360 (14.1%)

695 (16.0%)

South-West Region:

Page 18

Leading food industry investors in Bulgaria

Canning industryDairy and

sugar products

Meat and sausages

Soft drinksProduction of

wineBeer

Page 19

• Bulgaria is the first country in Eastern Europe which the Coca-Cola company entered in 1965.

• Modern production facility built in 1995 in Kostinbrod. Canned beverages were first introduced to the market then.

• Invested over BGN 500M into Bulgaria’s economy

• Entered the Bulgarian market in 1994

• Bulgaria is a major manufacturing and export centre for Canada, Great Britain, Finland, Germany, Italy, Austria, Czech Republic, Poland, Hungary, Romania, Greece and others

• 1993 – Kraft Jacobs Suchard acquired the chocolate factory in Svoge

• Revenue of BGN 210 million• Three locations: Commercial unit in

Sofia, Chocolate plant in Svoge, Coffee plant in Kostinbrod

Major multinational companies have already chosen Bulgaria as an investment location

• The world’s largest yoghurt producer. Portfolio includes five brands with over 50 high-quality products

• The only company in Bulgaria to manufactures products in Tetra Top format.

Page 20

• LB Bulgaricum is a technology leader in the dairy industry in Bulgaria.

• 11 patents for Bulgarian dairy products, 45 trademarks registered in Bulgaria, a corporate trademark registered in 26 countries and 6 designations of origin.

• Top positions in the export of Feta cheese and kashkaval.

• Bella Bulgaria is the biggest food producer in the country, and occupies a leading position in the meat processing market.

• Bella exports its products to markets with a population of 500,000,000

• Manufactures over 500 products (cans, ketchup, tomato based and soya sauces, lutenitsa, preserves and jams, mayonnaises, mustards, olive oil, etc.).

• Four factories equipped with state-of-the-art equipment

• Full production cycle management

• Leader in the production of chicken meat in Bulgaria.

• Regular supplier to customers in Greece and Romania, and also exports its products to the Netherlands, France, Germany, and Britain.

Besides multinationals, major Bulgarian companies have also emerged in the food industry

Page 21

Bulgaria ranks among the 20 largest wine exporters in the world

• Vine planted areas in agrarian holdings during 2009 amounted to 101,434 ha

• Average production yield of 4,944 kg/ha (5,240 kg/ha for red wine, 4,424 kg/ha for white wine and 5,315 kg/ha for dessert grapes)

• Total grape production in 2009: 281,302 tones (93.6% wine grapes and 6.4% dessert grape)

• Approximately 245 425 tonnes of grapes harvested in 2009 were processed into wine and other derivatives of grapes, while 35 877 tonnes were intended for direct consumption

• More than 220 industrial wineries with a total capacity of 710 million litres

• Major foreign trade partners to which Bulgaria exports wine are the countries of Central and Eastern Europe such as Russia, Poland, Slovakia, and Belarus.

• Bulgarian wines also entered new markets such as Germany, UK, the USA and others

• Bulgaria traditionally exports about 80-90% of the wine produced. Wine exports increased by 50% in the first quarter of 2010 over the same period of 2009. More than 80% of exported wine is bottled

Page 22

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