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 9M14, Bulgarian passenger car sales rose 9.0% year on year (y-o-y), following a meagre 0.6% y-o-y increase in September. While the growth over 9M14 is positive news for the sector, it does represent a slowdown from the 15.2% growth in H114 and the 25% growth recorded for 4M14. This is in line with our view that growth would temper over Q2 and Q3 as low base effects come into play. We are maintaining our forecast for growth of 10% in passenger car sales in 2014, as we expect the deceleration in the rate of growth to cease over Q4. We expect this cooling period for vehicle sales to carry over into 2015, with projected growth of just 3.8% due to wider economic stagnation.

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,...

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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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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.   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 currently forecast 1.7% real growth in Bulgaria's construction industry in 2015, following a moderate recovery in 2014, estimated at 0.6% real growth. Our view is supported by strong demand for infrastructure projects, EU financial support, and low base effects following an industry contraction of five consecutive years (2009-2013).

Key Trends And Developments

  • Driven by transport and energy infrastructure projects, we forecast Bulgaria's construction industry to growth by an average of 2.6% between 2016 and 2019. However, infrastructure projects will continue to face strong headwinds due to the lack of investor confidence and endemic corruption.

  • In terms of macroeconomic fundamentals, we expect the unemployment rate to decline in line with faster growth in 2014, presenting un upside risk...

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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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Headline Forecasts (Bulgaria 2012-2018)
  2012 2013 2014f 2015f 2016f 2017f 2018f
Crude, NGPL & other liquids prod, 000b/d

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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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Moderate Growth Expected At Varna In 2015

We are predicting modest cargo throughput at the port of Varna in 2015. Growth in tonnage will be slower relative to last year, reflecting a general deceleration of Bulgaria's foreign trade growth. Box traffic growth will also be subdued, but a little stronger than last year, in part because domestic consumption remains the main driver of the economy, and tends to require a high proportion of containerised imports.

No party or coalition won a clear majority in the October 5 2014 parliamentary elections. A month after the poll it appeared that former Prime Minister Boiko Borisov would preside over a minority government formed by his centre-right GERB party and the Reformist Bloc, an alliance of five smaller parties, also of the centre-right. Pending final coalition talks the outlook remained uncertain. Uncertainty has been weighing down on the country's...

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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 : 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 particul ar 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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