Our comprehensive assessment of Bulgaria's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Bulgaria, as well as the latest industry developments that could impact Bulgaria's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Bulgaria before your competitors.

Country Risk

Bulgaria Country Risk

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Core Views:

  • Bulgaria's debt and deficit will continue to increase over the coming years, having grown considerably in 2014 due to a bank bailout and weak revenue growth. Nevertheless, the country will remain on a sustainable fiscal trajectory due in part to its exceptionally low public load.

  • Domestic demand will pick up considerably in 2015 as consumer purchasing power is bolstered by low global oil prices.

  • We are forecasting Bulgaria's current account to continue posting small surpluses over the coming years as relatively strong demand from the eurozone, particularly Germany, increases Bulgarian export growth.

Major Forecast Changes:

  • We have revised up our 2015 headline real GDP growth forecasts from 1.2% to 1.5% to reflect the...

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Bulgaria Operational Risk Coverage (9)

Bulgaria Operational Risk

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BMI View: Bulgaria remains a relatively attractive destination for investment in the Emerging Europe region. Its foreign direct investment-oriented policies, access to EU trade and financial markets, and cheap labour costs relative to other EU members make Bulgaria a good destination for investors looking to outsource labour-intensive tasks within the EU area. With only a modest risk of terrorism and interstate conflict, investors can also look forward to a more stable business environment. However, we note that there are a number of serious shortcomings to Bulgaria's Operational Risk profile. In particular, overly bureaucratic business and tax procedures, declining labour availability and market size, and a deteriorating and poorly connected transport network all serve to...

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Bulgaria Crime & Security

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Bulgaria is a generally safe place for foreign business travellers, expatriates, and tourists. Although Bulgaria's overall Crime and Security Risks score is undermined by the large presence of organised criminal groups, these do not for the most part threaten foreign visitors. The greatest danger faced by foreigners in terms of crime is ATM/card fraud, and pick-pocketing and theft. Violent crime is unlikely to affect foreigners. Cyber criminal activities are rising up the public security agenda, with Bulgaria having emerged as the world's fourth-biggest source of data breaches. Bulgaria's Security Risk score is 68.9.

Bulgaria faces a modest risk of terrorism. The bombing of an Israeli tourist bus in 2012 appears to have been an exception rather than marking the start of a new terror campaign. Nevertheless, we believe Bulgaria could be an attractive target to international Islamist terrorist groups, owing to Sofia's staunchly pro-US foreign...

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Bulgaria Labour Market

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Bulgaria's entrance into the EU in 2007 has enhanced the country's Labour Market prospects, leading the country to adopt wide-ranging legislation that will have long-term benefits for gender equality, access to education and movement of labour. The relatively small size of the population is an impediment for investors, as the labour pool is fairly small and continues to shrink. Bulgaria's overall Labour Market Risk score of 56.9 out of 100 is above the regional average of 55.8 and the global average of 48.8. Its rank of 14 th out of 30 countries in Emerging Europe demonstrates that although it is an above average investment destination, there are still a number of hurdles for businesses operating in the country.

The most important of these hurdles is the demographic crisis in Bulgaria, which is resulting in an unfavourable long-term decline in the population, as well as a rise in the average age. Partly due to emigration,...

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Bulgaria Logistics

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BMI View: Bulgaria's logistics network offers generally widespread coverage, with electricity, internet services and water available across the country. Fuel prices have fallen, which reduces costs for businesses but does little to encourage investment in the country's domestic production. The country's high levels of corruption and red tape lead to heightened operational costs for investors. Although Bulgaria's roads, railways and inland waterways provide some diversification in freight transport options, the country's all transport sectors suffer from delays owing to inadequate infrastructure, owing to Bulgaria's poor quality road and rail. These factors are reflected in Bulgaria's overall score in the BMI Logistics Risk Index, which at 60.3 out of 100...

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Bulgaria Trade & Investment

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BMI View: Bulgaria faces some of the highest trade and investment risks in the EU despite its relatively open economy and harmonization of EU regulations. The major risks to trade are posed by lack of contract enforceability and systemic corruption. However, the government offers attractive financial incentives to certain industries. In addition, high rates of foreign direct investment (FDI) help to partially mitigate these risks, and encourage further investment. Bulgaria's average performance across the three pillars in the Trade And Investment Risk Index is underlined by its overall score of 59.4 out of 100, placing it 14th regionally, between Slovenia and Kazakhstan, and 60th out of 201 countries worldwide.

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Bulgaria Industry Coverage (19)

Autos

Bulgaria Autos

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We forecast that the slowdown in vehicle sales growth seen in 2014 will intensify in 2015, and forecast growth of just 1.1% to 20,583 units. Owing to our Country Risk team's bearish macroeconomic outlook for Bulgaria, we also hold bearish views on light commercial vehicle and heavy truck sales forecasts for 2015.

Part of the longer term problem for the new vehicle market in Bulgaria is the practice of hanging on to older vehicles, a practice which we believe will intensify due to lower oil prices. According to a report published in June 2014, data from the Bulgarian traffic police show that 39% of all registered vehicles are more than 20 years old. We believe this trend will continue as fuel costs fall alongside falling oil prices. Falling fuel prices will make replacing older, less fuel-efficient vehicles with more fuel efficient new vehicles a much less attractive option than simply keeping older vehicles. Owing to our Country Risk...

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Commercial Banking

Bulgaria Commercial Banking

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...
Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Bulgaria Consumer Electronics

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BMI View: We revised both historical data and our forecast for consumer electronics spending in the Q415 update. Lev depreciation against the US dollar in 2015 will erode Bulgarian household purchasing power and therefore reduce the affordability of imported hardware. We expect the handset market will be the only segment to expand in 2015, with smartphone sales growth, the greater necessity of handset ownership and the ability of vendors and retailers to absorb some of the cost increase ensuring spending continues to grow in US dollar terms. The challenging operating environment is expected to ease over the medium term, with all three market segments expected to return to growth in 2016 and we highlight opportunities in the smartphone, flat panel TV set and low-...

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Defence & Security

Bulgaria Defence & Security

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On 18th August 2014 it was reported that Bulgaria's main political parties had agreed to increase the share of the country's defence budget which is spent on equipment by up to 20 percent. Bulgaria has come under considerable pressure in recent years to enhance and modernise its materiel. In particular, the North Atlantic Treaty Organisation is encouraging Bulgaria to invest in advanced equipment which can correspondingly reduce the manpower size of the country's armed forces.

On average, the Bulgarian armed forces have maintained a numerical size of 78,200 personnel between 2001 and 2011 across all three services. The size of the armed forces has declined from circa 111,300 in 2001 to 47,300 in 2011. The size of the armed forces is expected to contract still further with up to 1,300 civilian and military personnel being laid off by the end of 2014.

On 18th August 2014, Bulgarian defence minister Yelizar Shalamanov...

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Food & Drink

Bulgaria Food & Drink

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BMI View: The outlook for the Bulgarian economy has improved slightly over the last few months as falling global oil prices and strong real wage growth have boosted domestic demand. Indeed, we expect consumer price inflation to remain low over the coming quarters, supporting this trend. However, although we believe private consumption will drive modest growth this year and into 2016, we still see significant structural impediments to growth. We expect subdued growth in the food, drink and mass grocery retail industries in our five-year forecast period to 2019.

Headline Industry Data:

  • 2015 food consumption (local currency) growth: +0.2%; forecast compound annual growth rate (CAGR) 2014 to 2019: +1.0%.

  • 2015 alcoholic drinks sales volume growth: +0.9%; forecast CAGR 2014 to 2019: +1.6%.

  • ...

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Freight Transport

Bulgaria Freight Transport

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Bulgaria registered a 3.8% quarter-on-quarter (q-o-q) rise in the transportation of freight goods in Q1 2014, according to preliminary seasonally adjusted data released by the National Statistical Institute. Goods transported by land and water climbed 19.7% year-on-year (y-o-y) in the same period, according to the preliminary non-adjusted data, reported by Focus.

Although 2015 will see a slightly slower growth rate across the freight modes in Bulgaria compared to 12 months previous, we still anticipate moderate growth to be the norm this year. Leading the way is set to be the road freight sector (7.30% y-o-y growth), while air freight is also pencilled in to register healthy y-o-y gains of 5.00%.

That said, the large contractions in growth that peppered the latter years of the '00s and the early '10s look to be a thing of the past, which is welcome news going into the midterm.

...

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Information Technology

Bulgaria Information Technology

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BMI View: After several years of anaemic growth, or even contraction, the Bulgarian IT market is forecast to move onto a faster growth trajectory from 2015 as the economic environment strengthens.   The Bulgarian IT market is one of the least developed in Europe, with relatively low penetration of hardware among consumers and enterprises, which we believe will result in a period of faster catch-up growth once confidence levels recover. For instance, the low PC penetration rate means there is potential for vendors to tap into demand from first-time buyers and upgrades/replacements - in contrast to more developed markets. Other areas of the market where we expect strong growth include cloud services,...

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Infrastructure

Bulgaria Infrastructure

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BMI View: We maintain our view that Bulgaria's construction industry will growth by 1.3% and 1.4% in 2015 and 2016, respectively, supported by the transport infrastructure sector, particularly projects in the road and railway subsectors. Although Bulgaria will continue to be highly dependent on EU funding for infrastructure development, we have started to note increased international interest in this market.

Key Trends And Developments

  • Driven by transport infrastructure projects, we forecast Bulgaria's construction industry to growth by an average of 2.1% between 2016-2020. However, infrastructure projects will continue to face challenges in securing financing.

  • Bulgaria remains highly dependent on EU funding for...

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Insurance

Bulgaria Insurance

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BMI View: Although Bulgaria's insurance sector clearly has strengths, it is the weaknesses and challenges which will continue to dominate the development of premiums over the medium term. The problems include the low income levels of many households, who are too poor to buy life insurance. In the non-life segment, a sluggish economy will constrain volume growth. Prices are falling in the motor vehicle insurance sub-sector, which accounts for about two thirds of activity in the non-life segment.

Most of the metrics of Bulgaria's insurance sector are uninspiring. The absolute size of the market is small. Even in the context of Central and Eastern Europe, it is not large. The local currency is falling relative to the USD. Both penetration (premiums as a percentage of GDP) and density (premiums per capita) are at low levels and are likely to remain so for the duration of the...

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Medical Devices

Bulgaria Medical Devices

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BMI Industry View : Bulgaria represents one of the smallest medical device markets in the EU, at USD258.0mn in 2014. Per capita spending is low at USD36, indicating considerable potential for expansion. Primarily supplied by imports, we expect the US dollar value of the market to rise by a 2014-2019 CAGR of...

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Mining

Bulgaria Mining

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BMI View : Bulgaria's mining sector will remain a relatively small mineral producer in Eastern Europe focused primarily on supplying domestic industry. We forecast stagnation and then declining production growth over the next five years. The country's main mineral commodities are coal and copper, with additional production of zinc, lead and gold.

We forecast Bulgaria's mining industry value to grow at an annual average rate of 0.4% from 2014 levels, reaching USD1.1bn in 2019, due to our expectations for weakening metals prices and little production growth. That said, modest interest in copper and...

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Oil & Gas

Bulgaria Oil & Gas

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BMI View: The Bulgarian business environment remains challenging, suffering from high levels of corruption and inefficiency. Lower oil prices are reducing the incentive to invest in domestic production as import costs fall. The refining sector has picked up due to low oil prices.

Headline Forecasts (Bulgaria 2013-2019)
2013 2014e 2015f 2016f 2017f...

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Petrochemicals

Bulgaria Petrochemicals

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The Bulgarian petrochemicals industry is recovering but remains vulnerable to supply-side shocks in the form of gas feedstock restrictions and high oil prices as well as sluggish external demand, according to BMI's latest Bulgaria Petrochemicals report.

Bulgarian petrochemicals output enjoyed a surge in 2014 as the country's economy began its recovery in earnest. The index for rubber and plastic output surged by an average of 15.7% year-on-year (y-o-y) in the January-August period of 2014, while chemicals output grew 3.1% y-o-y. This compares with overall manufacturing growth of 3.5%.

In 2014, Bulgaria's petrochemicals capacities remained unchanged with olefins capacities of 300,000 tonnes per annum (tpa) ethylene, 80,000tpa propylene and 50,000tpa butadiene. This feeds relatively small polymer plants that are insufficient to cover domestic needs. Amid a surge of cheap gas-based production in the...

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Pharmaceuticals & Healthcare

Bulgaria Pharmaceuticals & Healthcare

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BMI View: Strong pharmaceutical sales growth in 2015 will be moderated over the medium term by cost containment measures. Healthcare payers in Central and Eastern Europe will become increasingly assertive in using their purchasing power to demand discounts from drugmakers in order to contain rising healthcare costs. The announcement of a joint procurement drive with Romania will increase pricing pressures on pharmaceutical manufacturers over the long term.

Headline Expenditure Projections

  • Pharmaceuticals: BGN2.53bn (USD1.72bn) in 2014 to BGN2.71bn (USD1.52bn) in 2015; -7.0% in local currency terms and -11.5% in US dollar terms. Forecast revised upwards from Q...

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Real Estate

Bulgaria Real Estate

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BMI View: The commercial real estate market has witnessed a slowdown in 2014 as a sluggish economy and escalating banking crisis has translated into falling confidence and weakening demand. The market's fundamentals remain relatively strong, however, which should see international investors start to return to the market as conditions improve.

Bulgaria's commercial real estate sector has come under increasing pressure during 2014 with an escalating banking crisis slowing the economy and restricting access to lending while also tarnishing the country's reputation among the international investment community. With the crisis lingering into the final weeks of the year, the impact on foreign direct investment (FDI) levels appears to have been significant with Figures from the Bulgarian National Bank (BNB) showing real estate FDI to have contracted by 30.1% during the nine months to September 2014....

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Retail

Bulgaria Retail

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BMI View: Bulgaria, the poorest country in the EU, will see its economy grow slowly throughout the forecast period. The country will lag to catch up with other members of the economic bloc and is unlikely to move out of the category of the least developed countries in the EU. However, despite lagging growth of household income and spending, the retail sector will expand and diversify.

Retailers in Bulgaria are projected to face limited growth opportunities during 2015-2019. No political decisions have been taken and economic reforms implemented which would provide optimism about rapid economic growth in Bulgaria throughout the forecast period. Real GDP will grow apathetically by 1.0% this year and the rate will not accelerate to above 2.0% until 2019. The Balkan country has a shaky financial system influenced by risky Greek banks and past bankruptcies, including the default of...

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Shipping

Bulgaria Shipping

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BMI View: The Port of Varna is positioned to enjoy an impressive year of growth with tonnage set to be the outperformer, forecast to increase by 14.00% year-on-year (y-o-y), while container throughput is also pencilled in to enjoy healthy growth of 7.00% y-o-y. The ongoing cyclical recovery in the eurozone will support Bulgarian export growth over the coming quarters, as Germany and Italy receive over 20% of Bulgarian exports, hence our forecasts.

In addition, although we maintain that the lev is overvalued, euro depreciation has meant that the lev has also depreciated considerably against major currencies over the course of 2015. As a result, exports to non-EU countries increased by 10.4% y-o-y between over the first five months of 2015, underpinning the...

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Telecommunications

Bulgaria Telecommunications

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BMI View: There are few opportunities for new infrastructure-focused players in Bulgaria's mobile and wireline voice and broadband markets. New LTE operator Max Telecom has wisely partnered with Blizoo, putting pay-TV services at the heart of its business model. In effect, though, it is merely following in the footsteps of incumbent Vivacom and alternative player M-Tel. The high quality of Vivacom's FTTx and xDSL markets will be a major barrier to Max Telecom's expansion and a partnership with M-Tel, which has yet to fully leverage the potential of its cable TV network, would be another wise move. We see no real opportunities for a fourth mobile network operator.

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Tourism

Bulgaria Tourism

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BMI View : The Bulgarian tourism industry is set for growth, both in terms of inbound and outbound tourism, over the remainder of the current forecast period. Strong growth in arrivals in particular will drive growth in tourism-related receipts and an increase in the hotel industry value.

The surge in tourist numbers travelling to Bulgaria, growing at 4-5% annually from 2015-2018 is driven by increased economic stability in Europe, which provides the vast bulk of arrivals to the country. In addition, the diplomatic fallout from the Ukraine crisis will see more Russian and Ukrainian tourists depart to Bulgaria, despite the country's EU status. Key growth areas in Bulgaria's tourism offer include health tourism and the country's winter...

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