Bulgaria investment climate and business opportunities

September 2011

Macroeconomic indicators show consistent pre-crisis economic growth and quick post-crisis recovery
Real GDP Growth
6.6% 6.2% 6.5% 6.4% 6.2%
Bulgaria EU-27

Inflation
Bulgaria EU-27

12.0% 7.6% 2.5% 3.0%

2.0%

0.2%

6.1%

6.0%

7.4%

-5.5%

2004

2005

2006

2007

2008

2009

2010

2011 Q2

2004

2005

2006

2007

2008

2009

2010

Unemployment
12.2%
Bulgaria EU-27

FDI Inflow
mln.
6,222 2,736 3,152 9,052 6,728

10.7% 9.1% 9.1%

9.2%

9.5%

6.9%

6.3%
2,412 1,639

2004

2005

2006

2007

2008

2009

2010

2011

2004

2005

2006

2007

2008

2009

2010

* August 2011

Source: Bulgarian National Bank, Eurostat

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Visible signs exist that the Bulgarian economy is emerging rapidly from the crisis
Exports ( mln.) Real GDP growth (% annual basis)

+28%
5,000
7% 6% 5%

6.6%

4.7%
3.7% 3.3%

4,500

4% 3% 2% 1% 0%

2.0%

4,000

-0.4% -1.9% -3.3% -4.6% -5.6%

0.0%

+83%
3,500

-1% -2% -3% -4% -5%

3,000

-6% -7% -8%

-8.9%

0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

-9%
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011

Source: National Institute of Statistics, Bulgaria

Role of Bulgaria as FDI location has grown significantly for the last 10 years
Inward FDI per country ( mln.) 10,000 9,000 8,000 7,000 6,000

Czech Republic
5,000 4,000 3,000 2,000 1,000 0 -1,000 1999

Romania Hungary Bulgaria Croatia Slovakia

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010
Page 4

Source: UNCTAD

FDI in Bulgaria comes mostly from EU countries and is concentrated in four main sectors
FDI by host country, 1996-2010 ( mln.) (1) Netherlands (2) Austria (3) Greece (4) UK (5) Germany (6) Cyprus (7) Hungary (8) USA (9) Russia (10) Italy 3,763 2,948 2,646 2,229 1,362 Energy 1,337 1,229 1,221 Telecom Other 1,955 2,376 2,492 Manufacturing Trade Construction 2,608 6,552 6,425 5,740 5,183 Finance 7,422 FDI flows by industry, 1996-2010 ( mln.)

Real Estate

8,419

Source: Bulgarian National Bank

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Why invest in Bulgaria?

Political and business stability

EU and NATO member Currency board Low budget deficit and government debt

Low cost of doing business

10% corporate tax rate Lowest cost of labor within EU

Access to markets
European Union / EFTA Russia Turkey / Middle East

Educated and skilled workforce Government incentives

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Bulgaria enjoys one of the most stable political and economic environments in Southeastern Europe
Bulgaria is a member of some of the most prestigious political organizations
European Union member since 2007 NATO member since 2004 WTO member since 1996 the culture of impunity that once plagued Bulgaria has largely gone
May 27, 2010

Strong commitment to political reform and transparency has earned praise from leading media and experts worldwide Stable currency
Bulgarian Lev has been pegged to the Euro since the adoption of the currency in 2002 Currency board backed by IMF

While governments across the eurozone periphery are on the ropes or have been felled by the economic crisis, Prime Minister Boyko Borisov's government has drawn international accolades for cutting spending while maintaining high levels of public support.
September 10, 2011

Page 7

Government financial indicators are remarkable not only in the region, but on a pan-European scale
Average government debt (2005-2010)

120%

Greece
110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

Italy

Belgium Portugal Hungary

France

Austria Malta Cyprus Iceland

Germany Netherlands Turkey Sweden Norway Finland Denmark Bulgaria Luxembourg Estonia

Ireland

United Kingdom Poland Spain Czech Republic Slovakia Romania

Croatia Slovenia

Lithuania Latvia

0%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

16%

Average budget deficit/surplus (2005-2010)

Source: Eurostat

Page 8

Bulgaria is the only country in Europe with a credit rating upgrade by Moodys since the beginning of 2010
Ireland Portugal Estonia Malta Hungary Lithuania Iceland Cyprus Bulgaria Latvia Turkey

Ukraine Moldova

Greece

01/10

03/10

05/10

07/10

09/10

11/10

01/11

03/11

05/11

07/11

09/11

Source: Moodys

Bulgaria has one of the lowest business costs in Europe

(1) taxes and labor costs

Lowest corporate income tax rate in Central / Eastern Europe

Most competitive cost of labor in Central / Eastern Europe Bulgaria Serbia

Bulgaria (*) Romania Hungary Slovakia Czech Rep Croatia Turkey

10% 16%

352 480 493 746

Average wage, / month March 2011

Romania 19% Hungary 19% 19% 20% 20% Slovakia Poland Czech Republic Croatia Slovenia
* 0% tax rate for manufacturing companies in regions with low employment

802 878 949 1,065 1,524

Source: Eurostat; CEIC

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Bulgaria has one of the lowest business costs in Europe

(2) energy costs and rent

Bulgarian cost of electricity for industrial users is 70% of the European average
/kWh, 2011

Office rents in Bulgaria are among the lowest in Europe

/ sq. m / year, Q2 2011

Estonia Bulgaria Romania Turkey Germany EU average Hungary Czech Rep Slovakia

0.062 0.064 0.080 0.086 0.090 0.092

Sofia Zagreb Bucharest Budapest Prague Warsaw Athens Istanbul Moscow

168 191 234 240 252 312 336 339

0.104 0.110 0.123

724

Source: Eurostat, CB Richard Ellis

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Bulgaria is only 3 hours flight from all major destinations in Europe, Russia and the Mediterranean region
Strategic geographic location Major transport corridors passing through Bulgaria

EU EF and TA

Ru an ssia dC IS Tu Mi rkey dd le and Ea st

Page 12

The role of the European Union as a trade partner for Bulgaria has been growing consistently
Share of EU-27 exports has grown by 50 percentage points since 1995 ... in absolute terms EU-27 exports have grown approximately 5 times
10,000 9,000

EU-27

44% 56% 60% 64%

8,000

mln
7,000 6,000

Balkans Asia

16% 11%

5,000 4,000
21% 6% 18% 6% 15% 7%

3,000 2,000 1,000 0 1994 1996 1998 2000 2002 2004 2006 2008 2010

Other

29% 17% 16%

14%

1995

2000

2005

2009

Page 13

Educated and skilled workforce is among the main advantages of Bulgaria

Almost 60,000 students graduate every year from over 50 universities Bulgaria has one of the highest proportions of students abroad from all European countries

Iceland Business Social sciences Engineering Education Health Law Architecture Agriculture Other 3,677 Greece 3,166 1,553
833 860

17.8% 14.2% 10.2%

8.3% 5.8% 4.7% 3.1% 2.8% 2.2% 2.1%
Students in another EU / EEA country, % of all

19,480 Ireland 8,372 Slovakia 7,178 Bulgaria

Austria Germany EU-27 average Romania 12,684 Czech Republic

Source: National Institute of Statistics, Bulgaria

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The government supports specific industries under the Investment Promotion Act (IPA)
Investments must be related to the following sectors:
Manufacturing Research & development Education Healthcare High-tech services Warehousing and logistics

Minimum investment amounts must exceed 10m

3.5 in regions with high unemployment and 2m for investment projects in high-tech services

Benefits for certified investors include:

Shortened administrative procedures Preferential acquisition of state or municipal land Financial support for professional training / education Infrastructure subsidies Individual administrative services

Page 15

Biggest investors are supported through a priority investment scheme

Priority projects can be related to all sectors of the economy, which do not contradict regulation 800/2008 of the European Commission
Subsidies not allowed in mining, primary agriculture production, and shipbuilding

Priority projects should exceed 50m and create at least 200 new working places for a 3-year period
25 + 100 working places for certain manufacturing projects 10m + 50 working places for high-tech services and R&D

Priority projects receive all benefits for certified investors, as well as the following:
Lowest possible costs for the acquisition of government and municipal land + waived taxes for land status changes Working group for project support is assigned by the Council of Ministers Financial grant scheme for up to 10% of the investment project cost (50% for R&D)

Page 16

Attractive FDI sectors

Services:
Transport and Logistics Information technologies Outsourcing of business processes Health and tourism related to healthy lifestyle

Industry:
Transport equipment and machine building Electronics and Electrical engineering Chemical industry Food and Agriculture

Resources:
Mining Oil Alternative energy

Page 17

Leading global investors have chosen Bulgaria as an FDI destination

IT & BPO Mechanical and Electrical Engineering Construction Materials Telecom and Media Energy Finance

Page 18

InvestBulgaria Agency
InvestBulgaria Agency is a Government investment promotion arm, part of the Ministry of Economy, Energy and Tourism IBA services: Macroeconomic data on Bulgaria Legal advice Data on operational costs Regional information: industrial zones and infrastructure, data on unemployment, skilled labour force and level of education Recommendation of investment project sites Identification of potential suppliers, contract manufacturers and joint-venture partners Personalized administrative servicing Liaison with central and local governments Liaison with branch chambers and NGOs

Page 19

InvestBulgaria Agency Sofia 1000, 31 Aksakov Str. Phone: (+359 2) 985 5500 Fax: (+359 2) 980 1320 E-mail: iba@investbg.government.bg Web: www.investbg.government.bg