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.

  • Bulgaria's economic recovery will be weak in 2015 as domestic demand remains elusive. Deflation and political uncertainty compound already weak confidence levels among businesses and mean that a sharp bounce back for the economy is unlikely.

  • We are forecasting Bulgaria's current account to return to deficit in 2015 on account of the economy's exposure to the eurozone as both an export market and remittance origination point.

Major Forecast Changes:

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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 FDI-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 increase risks for investors.

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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 underdeveloped logistics network, combined with the struggling economies of major export markets, a limited consumer market, and continuing political uncertainty, will hinder economic growth and cool investor interest in the country over the medium term. Nevertheless, the logistics network offers generally widespread coverage, with electricity, internet services and water available across the country, and roads, railways and inland waterways providing some diversification in freight transport options. These factors are reflected in Bulgaria's overall...

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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 57.9 out of 100, placing it 14th regionally, between Slovenia and Kazakhstan, and 53rd out of 170 countries worldwide.

Bulgaria is a relatively open...

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Bulgaria Industry Coverage (19)

Autos

Bulgaria Autos

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We forecast for the slowdown in vehicle sales growth seen in 2014 to intensify in 2015 and have revised down our passenger car sales forecast for the year to growth of just 1.1% to 20,583 units, down from 3.8% previously. This weak performance will come as shrinking access to credit, a worsening of consumer confidence, and a poor macroeconomic backdrop all drag on consumer spending on cars over 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...

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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 have not made any big changes to our outlook this quarter following significant revisions to the Bulgarian consumer electronics market forecast in the Q115. Our assessment of the underlying growth dynamic is unchanged, with our expectation for short term challenges to act as a drag on growth, including economic weakness and regional political and security risks. Despite the challenges for vendors we expect growth in 2014 particularly for sales of smartphones, flat-panel TV sets and low-cost Android tablets. However, we consider the consumer electronics market in Bulgaria to have strong medium-term growth potential. Low penetration across most device categories will allow vendors to tap into the first-time buyer and upgrade/replacement markets as incomes rise and confidence returns among households.

Headline...

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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: We are sceptical about the longer-term sustainability of Bulgaria's consumer spending story. It is unclear how the country will be able to maintain its current level of consumption in the face of deteriorating external demand. Once the base effects from the recovery begin to wane, which we expect to occur at some point in 2016, the country will struggle to maintain current levels of economic activity given our expectations for persistently weak demand in the eurozone, thus making export-led growth unlikely. Against this backdrop, we forecast private consumption to grow 1.8% and 2.5% in 2015 and 2016, contributing 1.2 and 1.7 percentage points (pp) to growth, respectively.

Headline Industry Data:

  • 2015 food consumption (local currency...

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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

Insurance

Bulgaria Insurance

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BMI View: For some time, we have seen Bulgaria's insurance sector as being underdeveloped, and with limited scope for growth. This remains the case. Constraints and challenges include the small size of the economy, and the low income levels of many households. These factors will limit volumes and growth therein. The fragmented nature of the non-life segment means that prices are more likely to fall than to rise. Development of the life segment is being held back by a lack of understanding of the benefits of life insurance.

The Financial Services Commission (FSC- the regulator), non-life and life premiums rose by 3% and 10% respectively in BGN terms during the first 10 months of 2014, relative to the previous corresponding period. In the short-term, the main factor limiting the growth of premiums in USD terms will be the slippage in the BGN. However, we are...

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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 USD235.5mn in 2013. Per capita spending is low at USD33, indicating considerable potential for expansion. Primarily supplied by imports, the market contracted at a CAGR of 2.3% in US dollar terms over the 2008-2013 period. The outlook over the next five years is much improved, with a CAGR of 4.2...

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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...

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Oil & Gas

Bulgaria Oil & Gas

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Headline Forecasts (Bulgaria 2013-2019)
2013 2014e 2015f 2016f 2017f 2018f 2019f
e/f = BMI estimate/forecast. Source: EIA, BMI

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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: In 2015, we expect the fallout from the banking and NHIF funding crises to impact pharmaceutical and healthcare spending, but given the passage of reforms to healthcare financing, we hold a more positive view for the long term development of the pharmaceutical & healthcare sector.

Headline Expenditure Projections

  • Pharmaceuticals: BGN2.50bn (USD1.71bn) in 2014 to BGN2.41bn (USD1.54bn) in 2015; -3.7% in local currency terms and -10.2% in US dollar terms. Forecast revised downwards from Q115.

  • Healthcare: BGN6.06bn (USD4.14bn) in 2014 to BGN5.81bn (USD3.70bn) in 2015; -4.1% in local currency terms and -10.6% in US dollar terms. Forecast revised...

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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: Despite the harsh economic climate in the European Union, the Bulgarian retail sector posted strong growth figures in the end of 2014 and the beginning of this year. The market is very active and we anticipate it to continue growing and diversifying as modern retailers increase their sales. The growth of household income and Bulgaria's increasing economic integration will drive the sector's growth until 2019.

The growth of total household spending will be rather flat in Bulgaria in the first half of the forecast period. The country underwent a harsh year in 2014 as the bankruptcy of Corporate Commercial Bank, the crisis in Ukraine, the weakening of leu against dollar and the overall political instability created a lot of uncertainty for the households and the businesses in the country. However, it did not take long for the Bulgarian retail sector to start rebounding...

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Shipping

Bulgaria Shipping

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Growth Forecasts Cut Back Again

Low single-digit growth is expected for cargo throughput at Varna Port this year. Tonnage has always been rather volatile at the port, and we have updated our numbers to incorporate a steep decline last year according to published official data. For 2015, we now expect a very small recovery. The general deceleration of Bulgaria's foreign trade growth will be a factor. Box traffic growth will also be subdued, but a little stronger than last year, in part because - although constrained - domestic consumption remains the main driver of the economy, and tends to require a high proportion of containerised imports.

We are downbeat about Bulgaria's immediate economic prospects, and since our last quarterly report have cut the 2015 GDP growth projection to 0.8% (down from 1.9% previously). We expect 1.2% growth next year (down from 2.9% three months ago)....

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Telecommunications

Bulgaria Telecommunications

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BMI View: Net additions of 203,000 in Q314 in Bulgaria's mobile market might indicate that market correction has been achieved after more than two consecutive years of contraction since 2012. We also retain the view that the weak subscriptions growth opportunities, along with strong take-up of smartphones, will drive operators to develop their data service offerings to take advantage of value growth from non-voice services.

Key Data

  • The mobile market grew by 1.9% quarter-on-quarter (q-o-q) and by 3.2% y-o-y to Q214.

  • Market blended ARPU at EUR5.9 in Q314 was stable year-on-year (y-o-y).

  • The fixed-line...

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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...

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