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:

  • We have...

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Bulgaria Operational Risk Coverage (9)

Bulgaria Operational Risk

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BMI View: 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 57.3 out of 100 is above the regional average of 56.1 and the global average of 48.8. Its rank of 13th 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...

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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 does offer 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 score in the BMI Logistics Risk Index, which at 53.4 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 59.9 out of 100, placing it 1 1 th regionally, between Macedonia and Croatia, and 46th out of 170 countries worldwide.

Bulgaria is a relatively open country for economic activity due to its market-oriented...

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Bulgaria Industry Coverage (19)

Autos

Bulgaria Autos

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In H114 Bulgarian passenger car sales rose 15.2% y-o-y, following a 5.6% y-o-y increase in June. While this is positive news for the sector, it does represent a slowdown from the 25% growth recorded for 4M14. This is in line with our view that growth would temper as the year goes on and lesser base effects come into play. We are maintaining our forecast for growth of 10% in passenger car sales in 2014, as we expect a further deceleration in the rate of growth in the latter part of the year. We expect this cooling period for vehicle sales to carry over into 2015 with projected growth of just 3.8%.

Part of the problem for the new vehicle market is the practice of hanging on to older vehicles. 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. As of end-April 2014, the total number of registered vehicles was 3.57mn. This means there is a...

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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:   W e made a significant revision to the Bulgarian consumer electronics market forecast in the Q115 to better reflect economic and political risks, as well as technology trends within the market, for instance declining device prices in key product categories. However, 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,...

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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 e urozone, 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 (...

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Freight Transport

Bulgaria Freight Transport

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BMI View: Political instability in Bulgaria will continue to stifle private consumption and investment, weighing on headline growth through 2014 and proving detrimental to the country ' s freight industry. Despite government expenditures and a positive contribution from net exports propping up economic activity, real GDP growth will reach just 0.5% and 1.5% in 2013 and 2014 respectively.

The effect of political instability in Bulgaria is evident in Q2 2013 data, with weak investment and private consumption leading to the first year-on-year (y-o-y) contraction of real GDP since 2010. The mass protest movement that spurred early elections has largely subsided, though demonstrations are ongoing and anti-government sentiment remains pervasive. While a measured rebound in consumer and business sentiment should take hold in the remainder of H213 and...

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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.   T he 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 construction industry forecast for Bulgaria at 1.3% real growth in 2014, a return to positive growth after five consecutive years of contraction. S igns of improvement in Bulgaria's construction sector have been confirmed by official Q114 data , which reported low , but positive growth. W e believe the worst is over for the industry and we expect transport and energy infrastructure projects to drive the recovery .

Key Trends And Developments

  • Infrastructure projects in Bulgaria continue...

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Insurance

Bulgaria Insurance

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BMI View: As of mid-2014, the newsflow from Bulgaria's small insurance sector confirms our view that premium growth will likely be fairly anaemic in both the non-life and the life segments. In the non-life segment, the main challenge is brutal price competition in motor-related lines which account for the majority of the premiums written. In the life segment, the main challenge remains the low level of households' incomes - a problem that we have highlighted for years: we therefore think that the double-digit rise in life insurance premiums that took place during 2013 is an aberration.

As of mid- 2014, the latest statistics from the Financial Supervision Commission (FSC) and comments from leading companies active in Bulgaria indicate that the insurance sector is, and will remain, underdeveloped through the forecast period. Motor related premiums, which account for nearly three-quarters of the...

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Medical Devices

Bulgaria Medical Devices

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BMI Industry View : Bulgari a represents one of the small est medical de vice markets in the EU, at US$235.5 mn in 2013. Per capita spending is low at US$ 3 3 , 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 m uch improved, with a CAGR of 4.2 % forecast...

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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 minimal production growth over the next five years. Bulgaria's mining sector value will grow very slightly from USD1.0bn in 2013 to USD1.1bn in 2018 . 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 1.2% from 2012 levels, reaching USD1.1bn in 2018, due to our expectations for...

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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 , while a moratorium on hydraulic fracturing remains in place . Bulgaria's oil sector is uninspiring with limited new activity and a continued decline in domestic production. Upside in Bulgaria's oil and gas sector comes from the USD 1. 5 bn investment to upgrade the Neftochim refinery which will add a 50,000 barrel per day vacuum distillation unit , and from the...

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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:  Large order increases from within the hospital sector and robust consumer demand  will  spur pharmaceutical sales growth in 2014 and 2015. However, external slowdown will begin to impact the Bulgarian market from 2015 onwards. Bulgaria's healthcare system will continue to face issues around its funding.

Headline Expenditure Projections

  • Pharmaceuticals: BGN2.32bn (USD1.58bn) in 2013 to BGN2.44bn (USD1.67bn) in 2014; +5.0% in local currency terms and 5.7% in US dollar terms. US dollar forecast revised upward due to expectations of lev appreciation.

  • Healthcare: BGN5.89bn (USD4.00bn) in 2013 to BGN6.06bn (USD4.14bn) in 2014; +2.8% in local currency terms and +3.5% in US dollar terms. US dollar...

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Real Estate

Bulgaria Real Estate

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BMI View: We are expecting short-term stability in Bulgaria's commercial real estate market, with stable rental rates and yields over the rest of 2014 and 2015. M acroeconomic stability and steadily growing GDP, fixed investment and consumer spending will bode well for the future development of the sector, both in terms of rental rates and new projects.

GDP growth is expected to increase steadily over our forecast period, reaching 4.1% by 2018. This will provide a backdrop for increased investment by companies and spending by individuals, supporting growth in the commercial real estate market in general. Increased industrial activity and exports will be a positive for industrial real estate, while falling unemployment will boost consumer spending, and demand for retail space.

The office real estate market will be driven by...

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Retail

Bulgaria Retail

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BMI View:   BMI expects the Bulgarian economy to continue making a modest recovery over our projection period into 2018. However, the retail market ranks as one weakest in the Central and Eastern European Region ,   placing second to last in BMI's Retail Risk/ Reward Ratings for the region . 

Despite Bulgaria's anaemic growth, developers are investing in new shopping complexes as well as updating current structures in the country. Bulgaria maintains one of the least saturated retail markets in Europe. In September, Mega Mall celebrated its opening in the capital of Sofia. With 24,000sq m of gross leasable area, the shopping complex is...

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Shipping

Bulgaria Shipping

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Domestic Economy Lagging Behind Export Recovery

BMI is maintaining its outlook for the Bulgarian economy to grow by a relatively weak 1.4% this year, as export demand rises but the domestic economy remains mired in political uncertainty and low confidence levels. Despite some signs of recovery in retail sales we believe the domestic economy faces a prolonged period of anaemic growth. The problem lies in political uncertainty, deflationary monetary conditions, and still-high unemployment. The construction sector remains in recession, and industrial output is barely growing. While in theory the government could boost its spending to revive the economy (public debt and the fiscal deficit are both comparatively small), it lacks a majority in the National Assembly. So we expect net exports to be the main stimulus to the economy, with consumption and investment as lagging factors. In line with a...

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Telecommunications

Bulgaria Telecommunications

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BMI View:   Net additions of 114,000 in Q214 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 1.1% quarter-on-quarter (q-o-q) while having contracted by 4.7% y-o-y in Q214.

  • Market blended ARPU at EUR5.9 in Q214was stable year-on-year (y-o-y).

  • The fixed-line market contracted by 4.6% in 2013.

...

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Tourism

Bulgaria Tourism

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BMI View: We believe that the low cost of land and lack of luxury accommodation make for a good investment environment for international hoteliers and this is likely to encourage further enlargement of their national footholds in the future. Further, although continuing economic uncertainty might affect Bulgaria's tourism industry in the short term, we expect a strong recovery in the future as the region benefits from improving consumer spending and a growing middle class.

Moreover expanding in Bulgaria and in the wider CEE region is a key strategy for many of the top global hotel chains, the majority of which currently have a rather limited presence in the country, where present at all. Equally, we expect Spa tourism to continue to develop, as it is likely to become a key growth area for the Russian market. Finally, we...

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