Bulgaria offers investors a holiday from high taxes

A change is usually as good as a break – but Bulgaria really has to be seen to be believed. A country brimming with investment opportunities, tourism ranks as the top money earner – even though most Western Europeans have yet to discover the wonders of the River Danube.

InvestBulgaria Agency – an executive government agency under the supervision of the Ministry of Economy and Energy – told a news conference on September 24 that €2.85bn in foreign direct investment (FDI) had been secured between January and July 2008 – an increase of Ä200m during a global recession.

Impressive for a country that rates its Black Sea resorts and ski slopes among the best in Europe. But this is more than a growing tourist destination for British, Germans and Russians. InvestBulgaria Agency lists eight reasons why western investors are flocking to the Balkan state.

Tax breaks
EU membership, 10 percent corporate income tax rate, 10 percent personal income tax, VAT exemption on equipment imports for investment projects over €5m, a highly-skilled, multilingual workforce and Europe’s most competitive wages. And that’s just for starters. Dr Stoyan Stalev, Executive Director of InvestBulgaria, is in no doubt about his country’s greatest asset.

“Well of course, EU membership is a strong factor,” he says. “It gives us access to the European market, but it also allows investors to reach new markets close to Bulgaria, which are not in the Union. We are able to provide access to Russia and the Black Sea areas, Turkey and the middle Asian republics.”

Unique location
Bulgaria’s geographic location is important because it thrives as a transit country for goods such as energy and manufacturing. Bordering Romania, Serbia, Macedonia, Greece and Turkey, there are specialist fields available to investors in the auto sub-supply market and software, as well as more traditional, heavy industries of mining and steel production.

With taxation policies that are among the most favourable in Europe, and a legal framework attached to its EU membership in 2007, Bulgaria’s economy is stronger today than ever.

FDI inflow reached record levels in 2006, 2007 and 2008.

Austria remains the largest investor, with Holland second, followed by the UK and Germany. The UK continues to be strongest in real estate investment.

Impressive FDI
Officials figures show FDI reached €6bn in 2006, €6.5bn in 2007 and Ä2.85bn by the end of July, 2008. “I’m realistically optimistic we will reach €5.5bn or €6bn this year,” says Dr Stalev. “In the current situation, that would be a good result. We will have to see how we perform by the end of the year, but this really shows we are still not substantially affected by the worst of the crisis.

“We are a relatively small economy, which helps us avoid the bigger waves and danger.” If FDI is impressive, Bulgaria’s economic stability is founded on sustained economic expansion – one area in which it has few rivals.

Record GDP growth
GDP growth has averaged six percent for the past five years and for the first half of 2008 it climbed to seven percent, way above the EU average
High levels of inflation (it hit a five year high of 8.4 percent in 2007) pose some concerns, but GDP is expected to grow at six or seven percent for the next three years.

Stifling the ‘brain drain’ of workers, who have left for more prosperous regions of the Union, remains a challenge that will inevitably impact on inflation as higher wages become available. These rises are seen as necessary to keep existing workers locals, while tempting the travellers back home. The InvestBulgaria mission is to attract investment and create new jobs. But the continual migration, particularly to Greece and Spain, mirrors those problems faced by Romania and Poland. Dr Stalev is convinced the answer lies in improved pay and conditions.

Better salaries
“This is a natural process for all east European countries,” he says. “But we can only deal with this by improving working and living climate.
”I hope salaries will grow by 15 percent a year, which will keep us competitive in the frame work of the EU over next 10 years.

“It’s crucial to attract workers back for the economic future of Bulgaria. “With appropriate programmes and marketing we can attract them back in the same way that Poland is achieving now. “I’m confident there is enough labour force here for investors.”

Education among Bulgaria’s student population remains another healthy option for long term business growth. More than a quarter of the workforce holds a university degree, while 40,000 students are studying in the EU, outside Bulgaria. Half are in Germany and Austria, with most of the rest studying in London. In Bulgarian universities and schools, the stress is on education in the technologies, an area considered most important to the state’s progress.

New technologies
New technologies like green energy and IT are crucial to the economy already, and could offer more opportunities to investors. Some have already taken to initiative thanks to generous government subsidies.

Kaliakra Wind Power Park, located in the area of Bulgarevo village, Kavarna municipality, was certified as a 1st class investment by InvestBulgaria Agency in June 2006. The plant was officially opened by H.E. Mr Tsuneharu Takeda, Ambassador of Japan to Bulgaria, 25 July 2008. 

“This is a priority for us,” said Dr Stalev “We are very proud of this wind investment.” More wind powered projects are planned, as are innovative solar programmes for which state funding is available. IT development and business has also received government help and support.

Hewlett-Packard
Hewlett-Packard opened its main office in Sofia in 1998 and has expanded operations ever since.

The Bulgarian government supported HP’s investment by offering €500,000 in educational training for the firm’s staff. It has since provided more than 1,200 jobs in Sofia.

Other key growth areas are manufacturing, transportation, telecommunications, software development, the service industries and banking.
But the main GDP growth area is tourism, recording a 20 percent rise in 2007. More government cash is being invested to attract visitors from all over the world on the back of this success.

”We need to develop tourism,” explained Dr Stalev. “We have to market ourselves much better. In the space of one hour it is possible to enjoy the seaside and the snow on mountains. The Danube River has great potential. We need to ensure our tourist industry can cater for visitors throughout the year, not only in the summer and winter months. We must also develop our spa mineral water resources that are not being utilised.”

Opportunities
The main competitors to tourist revenue are neighbouring countries.

Serbia represents an up-and-coming region, while Croatia is arguably among the strongest local rivals for holiday trade.

“Turkey is huge too,” said Dr Stalev. “But Bulgaria has its own accent and trends that we have to make better use of.” While the neighbouring regions may pose a challenge to Bulgaria’s tourist aspirations, overseas investors can look to the new opportunities available – and something out of the ordinary.

A high growth zone, with low taxes. A break from the norm.

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