Europe’s best-kept secret is open for business

Foreign Investment in Bulgaria is on the increase as they prepare to enter the Schengen zone.

Political turmoil in the Middle East and the subsequent financial instability has made many investors look for safer economies to invest in. Bulgaria is one of the countries opening its arms to foreign investors by offering exceptional investment incentives.

The country is currently on the verge of entering Schengen, which means that Bulgaria will be at the financial gate of the EU, providing foreign investors with suitable market conditions to launch their business without having to pay the high corporation taxes of other EU cities. To gain an insight into the country and what it has to offer for potential investors, Global Citizen talks to Borislav Stefanov, Executive Director of the Invest Bulgaria Agency (IBA) ahead of his speech at the medical tourism summit in Dubai, which will showcase Bulgaria as a top destination in Europe for medical treatment.

Mr Stefanov heads up the government investment promotion agency IBA, which was set up to attract investment to Bulgaria and to assist project set-ups and ensure successful project development resulting in job creation, as well as exports and know-how transfer for the Bulgarian economy. The agency offers their services for free to help potential and existing investors explore the investment opportunities in the country and to carry out green- field investment projects. They also have direct access to the Bulgarian government and local institutions to facilitate the entry and development of your business in the country.

Can you please give us an overview of the current economic situation in Bulgaria?

The Bulgarian economic environment is considered quite stable and predictable. It’ s easy for investors to do business, as they can find professional advisors, counterparts, partners and subcontractors etc.

Visible signs exist that the Bulgarian economy is recovering rapidly from the crisis. The economy started a modest recovery during the second and third quarter of 2010, and in the last quarter of the year GDP registered a massive 2.8% growth compared to the previous quarter, which is much higher than the European average on an annual basis, GDP growth was 0.2% somewhat low, compared to the 6% average for the 2003-2008 periods, but with a stable upward trend nevertheless. Expectations are that the GDP growth in 2011 will accelerate to 3–3.6% on an annual basis.

After a 7% growth in the last quarter of 2010 consumption returned to its pre-crisis levels and now is no longer considered an obstacle for GDP growth, but rather a moving force. The business climate continues to be volatile, but indicators are generally moving upward.

Unemployment indicators remain quite stable and with a 9.8% unemployment rate Bulgaria is on par with the EU average inflation increased to 5.2% in February 2011, which is a 1.9% growth in comparison to December 2010. It is, however, expected given the increased consumption and investment, as well as the rising costs of fuel and food. Keeping inflation within the projected 3% for the whole of 2011 will be one of the main challenges for the Government this year.

Foreign trade remains the best- performing sector of the Bulgarian economy. Exports already surpassed the pre-crisis levels and are a key driver in the recovery processes of the Bulgarian economy. In January 2011, the total value of exported goods both to EU and non-EU countries was over €1.6bn, nearly 73% increase on an annual basis. As a result, Bulgaria’s cur- rent account has a surplus of €158m, compared with a deficit of €291m for January 2010.

After strong decrease in the past two years, foreign direct investment also experienced growth starting from the last quarter of 2010. FDI have almost doubled to EUR 103.8m, against EUR 57.3m a year ago another sign that the Bulgarian economy is success- fully emerging from the crisis.

How does Bulgaria compare with other emerging EU countries in terms of benefits for foreign investors and their ROI?

Competition for attracting foreign investors in Central and Eastern Europe is quite strong. Neighbouring countries – Romania, Serbia, Slovakia, and Hungary – are trying to attract the same investors as we do. In general, the countries of Central and Eastern Europe share similar benefits to potential investors – low costs of doing business, proximity to the lucrative Western European markets and a skilled workforce.

I would say that Bulgaria usually outperforms other countries in the region on most of these indicators. For example, corporate tax here is only 10%, compared to 16%-20% for most CEE countries. Dividend tax at 5% is also one of the lowest. Rents here are among the most competitive in the European Union and the region in general, energy and other costs, too.

If you had to sum up Bulgaria’s top advantages as a foreign investment destination in addition to the very low corporate and income taxes, what would those be?

Bulgaria has multiple advantages and a very high potential, though it still remains a “well hidden secret.” Perhaps we need to advertise it a bit more actively. Bulgaria has a great location in Southeastern Europe, at the cross- roads of five major European transport corridors, which helps us to have direct access to major markets like the European Union, Russia, Turkey and the Middle East.

The “why invest here” list also includes EU and Nato membership, macroeconomic and fiscal stability of the state, the absence of currency risk due to the fact that the Bulgarian currency lev (BGN) is pegged to the Euro, low levels of public debt, the investment grade credit rating, well- educated and a highly-skilled labor force at competitive prices and relatively low operational costs.

Add to that, that Bulgaria has Europe’s most favorable tax legislation, 10% corporate (0% in areas with high unemployment) and 10% personal income tax, flat rate. Furthermore, the Bulgarian government has repeatedly identified foreign direct investment as one of the key drivers of sustainable economic development. To support this process, important legislative measures have been taken, including amendments to the investment Promotion Act, offering government support for large-scale projects.

Which economic sectors does Bulgaria focus on, in order to attract foreign investors?

The Bulgarian economy, which registered a solid growth in the last ten years, is well diversified, export-oriented and the share of knowledge- based sectors is increasing fast. Modernization and development in the high-value added manufacturing and service sectors is a government priority. The chemical industry, electrical and mechanical engineering, electronics, pharmacy, transport equipment and manufacturing of auto parts are all areas with strong traditions in Bulgaria, as well as boasting skillful workers at a very competitive cost.

Business process outsourcing, mainly in IT support and administrative and financial services, has been rapidly expanding in Bulgaria, thanks to our talent pool with good language skills and competitive real estate prices. HP was one of the first companies to open a global service center in Bulgaria – one of only six in the world – which currently employs about 3000 people with plans to expand to 5000 by the end of next year.

The strategic location of the country as a bridge between Europe and Asia enables implementation of a broad range of logistics projects. The so called “new industries” such as bio- technologies and clean-tech are also among the mix of industries, where our country will concentrate its efforts in order to ensure the sustainable development of the Bulgarian economy.

You meet with investors on a daily basis. What would you like to tell our readers who are all potential investors?

I would like to thank you for pro- viding me this opportunity to invite the foreign investors to explore the business climate and investment opportunities in Bulgaria and to assure them that they can rely on our support and assistance in learning more about Bulgaria and making their first business steps in the country. As a government institution, we have excellent contacts with all branches of central and regional administration, with major multinationals, as well as local companies and leading consultants.

Political instability in the Middle East and financial problems in Europe has had a knock on effect on investors, with some completely pulling out of the ME region. How stable is Bulgaria for investors?

Being a member of the European Union and NATO, as well as the World Trade organization and expecting its forthcoming accession to the Schengen area, Bulgaria has become synonymous with a safe and stable location. EU membership has enhanced the overall perception of the country and facilitated trade relations. Moreover, it has opened the road for potential investors to a safe, predictable and profitable Bulgaria, where national treatment, favourable business environment and reliable partners are easy to find. Besides political stability and in contrast to the current financial problems throughout Europe, Bulgaria enjoys one of the lowest budget deficits and government debt, which together with the currency board and as I already mentioned, the investment grade credit rating is at the root of the fiscal and financial stability of the country. Furthermore, Bulgaria is a party on more than 60 bilateral treaties on encouragement and reciprocal protection of investments.


 Entering into the Schengen area will help both tourists and businessmen.


How will Bulgaria’s accession to the Schengen affect the country’s international status, economic budget and investment plans? (What is the level of used EU funds available for Bulgaria?)

Entering the Schengen zone will be another step to further ensure the political and business stability of the country and to sustainably boost the image of Bulgaria as a stable and predictable destination not only for doing business, but also for living and working in. Steady business environment is one of the key factors being considered by potential investors during the decision making process of where to implement their projects. In our opinion being part of the Schengen area will be a kind of “international acknowledgement” that will contribute to the further improvement of the investment potential of the brand “Bulgaria” in all of its aspects, not only in the investment one. On a more specific basis, entering the Schengen area will help tourists and businessmen, especially from countries of the Middle East, Asia and Russia. They usually already have Schengen visas to travel and do business in the European Union, thus the accession of Bulgaria will allow them to come here for business and tourism without having to apply for an additional visa.

Some countries are opposed to Bulgaria’s accession to Schengen. Do you think that Bulgaria is “technically” ready to join the Schengen zone and how this will attract more investors?

The Bulgarian government’s view is that the country is ready to access into the Schengen area in the present year 2011. That view is backed up by most of the existing members of the Union. The government has put a lot of effort to ensure that this goal, set up years ago, will be achieved. We are quite optimistic, that in the very near future Bulgaria will be able to convince all the Schengen countries in its readiness to join the area as a full member.

What is the role and function of the Invest BG Agency?

Invest Bulgaria is a government agency, whose mission is to promote Bulgaria as a place to do business and to assist companies with the successful implementation of their investment projects.

What do you hope to achieve from the upcoming Bulgarian Investment Summit for Medical Tour- ism in Dubai and who will represent your country at this event?

This investment summit is planned for the end of April in Dubai. The summit will bring together local (UAE) investors and representatives of government health institutions and their respective contra parties from Bulgaria. The presence of our Agency, represented by me with other Bulgarian government officials will provide credibility and first hand information about the specific opportunities that Bulgaria has to offer in this field. We hope the Summit will be the first in a series of roadshows we would like to organize in the region, focusing on increasing awareness of Bulgaria as a destination for investments.

Interested parties can find more information about the event, which will take place in the Capital Club in DIFC from their website.

What does Bulgaria have to offer in this specific sector in comparison to countries such as Germany, Austria, and the Czech Republic who are all better known for medical tourism?

Bulgaria has a unique combination of mountain and sea resorts with numerous mineral springs, together with long-term traditions in balneotherapy and well-qualified specialists, which have made Bulgaria an excellent tourist destination for spa and rehabilitation. Our problem is the relative lack of proper marketing and the small size of the country. In reality, it has been a “medical tourism center” much earlier than the better-known Germany, Austria, or the Czech Republic. Many Bulgarian cities were founded back in Roman times and even earlier because of their mineral springs and pleasant climate. For example, the city of Hissar (not far from Plovdiv, the second largest city in Bulgaria, about 150 km from Sofia and about 400km from Istanbul) has over two-dozen springs and a very mild climate. It is famous for being visited by one of the most revered Roman emperors, Septimus Severus himself. Even Sofia, the capital of Bulgaria was founded by the Romans because of the numerous mineral springs in the area.

In the past few years Bulgaria’s medical sector has gradually developed. Many private and public medical institutions in the country are now equipped with the most modern equipment and offer services and treatment of the highest quality. Similarly to other sectors of the Bulgarian economy, these services come at a very competitive price. The clinics and hospitals offer treatment in the fields of plastic surgery, dentistry, prophylaxis, surgery, dermatology, rehabilitation, ophthalmology, sports medicine and many other medical areas.

Please outline some additional benefits for foreign investors in Bulgaria such as the Bulgarian investor program for residence and citizenship?

As per the Canadian model of the immigrant investor Program that has attracted billions of dollars into the Canadian economy, Bulgaria made legislative reforms in 2009, allowing foreigners who invest in an approved government bond portfolio for 5 years to obtaining residence and future citizenship under special conditions.

The program is very efficient and allows qualified investors and their families to become residents of Bulgaria within 6 to 8 months. Applicants can start the process with the verification of the source of their funds and a back- ground check, done by international firms who specializing in these matters. After the Certification from the Ministry of finance to prove their investment of 1M (BGN) or the equivalent of about €512, 000 in bonds, the investor can apply for Visa D.

At this stage, the Bulgarian foreign ministry in collaboration with the Ministry of Interior and its Migration Department is making security checks on each applicant. All applicants are also screened through the SiS (Schengen information System) which is a governmental database used by several European countries to maintain and distribute information on individuals for national security, for border control and law enforcement purposes. All Schengen countries use the Schengen information System, and Bulgaria became part of it in Jan 2011.

Through this process, once the investors and their families obtain Permanent Resident Status they have to maintain it for five years before qualifying for citizenship and allowing them to settle, study and work in most EU countries. The applicants in this Program have many benefits: Same rights as Bulgarians, except for the right to vote, Free movement within Schengen countries possibly after 2011, Access to free health care within the EU Conditional, tax exemption on world wide income future EU citizenship. Over the last few years, this program has attracted over 100 applicants and many of them are exploring additional FDI in some of the largest projects in Bulgaria. We hope this program is just the key to unlock the potential of what our country has to offer to foreign high net worth investors and their companies.

For additional information on our services, updates on legislation and financial statistics on our economy, please contact us through our website or contact our local Consulate General in Dubai.