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Foreign Direct Investments in Bulgaria The Euros are Coming Authors: Petya Boevska Nemanja Grujičić General Trends: Since 1997 – rapid growth in Foreign Direct Investment in the country Increasing investment flows following clear prospects for NATO and EU membership UNCTAD Report – “Bulgaria among the world’s 10 most attractive destinations for investors” Why invest in Bulgaria? I Legislative framework No differentiation between local and foreign firms Government support is provided for major investment projects Since January 1, 2007 – the lowest corporate tax in the EU (along with Cyprus) Big real capital investments are exempt of VAT “One-stop shop” procedure adopted in 80% of state, regional and municipal administration Why invest in Bulgaria? II Political environment Political consensus on EU and NATO membership A “region of stability” in the Balkans Market size theory The market size hypothesis Bulgaria’s market = EU internal market Why invest in Bulgaria? III Economic stability Sustainable real GDP growth of more than 5% since 2002 A continuous budget surplus Currency stability following the introduction of a currency board in 1997 – lev pegged to the Euro Other advantages Low costs of doing business Qualified work-force Data breakdown and Analysis I Total FDI in Bulgaria – 1990-2006 A sizeable increase since 1997 Overlap between government post 1997 reforms and EU’s “Agenda 2000” 2.9 3 2.7 FDI (net) USD bn 2.2 2.1 FDI (net) USD bn 1 0.8 1990 1991 0 0 0 1992 1993 1994 0.1 0.1 1995 1996 0.5 0.5 1997 1998 1999 0.8 2000 2001 0.9 2002 2003 2004 2005 2006e 2007f Data breakdown and Analysis II The decrease in FDI flows due to the end of privatisation process Shift towards “green field” investments and reinvested earnings Bulgaria is fourth among CEECs in terms of FDI as a percentage of GDP Data Breakdown and Analysis III 1000.0 800.0 600.0 1998 400.0 1999 2000 200.0 2006 2004 0.0 -200.0 2002 2000 1998 2001 2002 2003 2004 2005 2006 Data Breakdown and Analysis IV EU's share in Bulgaria's FDI 14000.0 12000.0 10000.0 8000.0 6000.0 4000.0 2000.0 0.0 1999 2000 2001 2002 EU Total (EUR million) 2003 2004 Total FDI in Bulgaria 2005 2006 Data Breakdown and Analysis V Comparison with 10 new EU Member States shows similar pattern of FDI flows As in Bulgaria, increase in FDIs started previous to accession It was followed by a minor decrease in the 2 years prior to accession (the flows remained relatively high) Future developments Prospects for future FDI flows increased following the formal entry of 10 new Member States The same projections can be made for Bulgaria given the stable macroeconomic conditions in the country Remaining challenges Unfinished judicial reforms High level of corruption Bureaucratic inefficiencies still present References Bulgarian National Bank Invest Bulgaria.com Dnevnik, Sofia Forem Consulting, Sofia Bulgarian Investment Agency Thank you for your attention