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BULGARIA


  
  

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 19,859 15,608 13,600 69
         
GNI per capita
 US $ 2,130 1,790 1,650 106
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 119 - (30/04/07)

Brussels' big mistake
Five months into its EU membership, along with Romania, it may be doubted whether the EU was wise to let Bulgaria or its neighbour in so soon. They should have both been obliged to clean up their act first as a precondition of entry. For, as everybody knows, their elites are thoroughly corrupt and their capitalists often criminalized, as in Russia and other former communists countries, uncalculated with the idea that capitalism is crime per se, as depicted in Das Kapital.

Brussels has lost most of its leverage here. It is elementary psychology to put the redress of failings before the grant of favours in any walk of life. The EU taxpayers are paying the penalty here, as their money ends up in dodgy Balkan bank accounts.

Premature entry was a bad thing for the two countries in question too. They remain in the hands of venal leaders and crooked businessmen. Meanwhile there are signs of overheating in their economies as a direct result of entry, as we shall see.

Corruption remains the vital issue
Bulgarians see corruption among magistrates and politicians as a major problem, despite reforms allegedly carried out to meet EU accession criteria. The Centre for the Study of Democracy (CSD) presented its eighth annual corruption evaluation report on April 23.

According to the report, Bulgaria annually loses from corruption a sum equal to the yearly average of EU funds allocated to the country. Indeed, a certain causal relationship doubtless exists. Over the past year Bulgaria lost nearly one billion lev from corruption practices related to public procurement, Bulgarian news agency BTA reported. 

People and businesses increasingly believe that corruption among members of Parliament, ministers and mayors is becoming more widespread. This is the sinister trend, worsened by EU entry.

Measures countering corruption have proved to be inefficient, people said. Statistics show that in Bulgaria it is more likely to be harmed in a traffic accident than to get punished for giving or receiving a bribe.

Most cases of corruption remain unpopular. Even if a trial is launched, it rarely ends with a proper verdict, the CSD report shows. 

Bulgarian Economy Threatened by Overheating?
"The continued trend of upgrades outnumbering downgrades since 2000 for (emerging European) sovereign countries reflects the sustained improvements in their economies," said Ana Mates, Standard & Poor's credit analyst and one of the authors of a new report released on April 18th. 

"For some of these sovereigns, however, the prospect of increased investment flows and buoyant domestic demand brings with it the possibility of economic overheating," Mates said. 
Five countries are at most risk: the Baltic states Estonia, Latvia and Lithuania, as well as the European Union's newest members Bulgaria and Romania. All five countries are ranked investment grade. Latvia and Romania, however, will likely experience the hardest landing, Standard and Poor's said. 

Latvia's predicament exemplifies a common problem in emerging Europe, where membership in the European Union has boosted domestic demand close to unsustainable levels. The five "overheaters" have to rein in large current account deficits and credit booms. The need to finance large external imbalances makes the balance of payments vulnerable to fluctuations in investor confidence and international liquidity conditions. 

Lars Christensen, senior analyst at Denmark's Danske Bank, agrees that there is a clear regional trend of overheating. 

"Domestic demand has accelerated all across Central and Eastern Europe and the overheating 'zone' is not far off in many of the new EU countries," Christensen said in a recent note. 

"The situation is worst in the Baltic States, where recent inflation numbers have surprised strongly on the upside and in southeastern Europe, where the current account situation has deteriorated further in recent months." 

Because economic growth is becoming less sustainable in emerging Europe, there is a higher risk of increased volatility in regional stock markets, Christensen said. 

Positive credit trends
Despite the risks of overheating, emerging European economies have enjoyed mostly positive ratings actions. Out of 18 emerging markets sovereigns in Europe, 12 are rated investment grade, including Poland, Slovakia, the Czech Republic, Russia, Hungary, Croatia and Kazakstan. 

The positive trend in ratings since 2000 has continued into 2007. Poland and Montenegro were upgraded earlier this year. 
In late 2006, Kazakhstan and Bulgaria also received upgrades, while Hungary's outlook was revised to stable from negative. 

"In much of emerging Europe, efforts to achieve EU membership have brought about structural changes leading to modernization of institutions that would otherwise only have occurred over a long time span, if at all," Standard and Poor's said. 

On the negative side, the outlooks for Romania and Ukraine were revised downward in early April. The outlook on Ukraine was revised to negative from stable, citing the deteriorating political situation in the country sparked by the power struggle between the president and the prime minister. 

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AUTOMOBILES

Central European car sales surge on new demand

Central European car sales have raced ahead this year, data released April 13th showed, outpacing auto markets in Western Europe as growing economic prosperity takes hold across the region, New Europe reported.
Drawn up by the Brussels-based European Automobile Manufacturers' Association (ACEA), the data showed sales in the European Union's new member states in Central Europe surging by 13.8 per cent in the first three months of the year, underpinned by double-digit in several EU newcomers. This compared to a 1.1 per cent fall during the first three months of the year in Western Europe, with the figures dragged down by a hefty hike in value-added tax in Germany, which is Europe's biggest car market. At the same time, however, car sales in Central European nations such as Latvia bounded ahead by a staggering 73 per cent during the first quarter, as a result adding to worries about overheating in the economies of several new EU members. It was a story repeated across the Baltics with Estonia posting a first-quarter increase of 48.9 percent and Lithuania chalking up a 28.6 per cent jump in car sales. March car registrations in Poland, which is Central Europe's biggest economy, hit their highest level since the nation joined the EU in May 2004, jumping by 29.3 per cent last month. The Czech Republic also reported solid growth with car sales increasing by 9.2 per cent during the opening three months of 2007 following a 4.3 per cent rise in March. The latest ACEA car data was also buoyed by car sales from Romania and Bulgaria, which became the EU's 26th and 27th member states in January. While Romania's car sales rose surged by 24.9 per cent in March, Bulgaria climbed by 22.8 per cent. 

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BANKING

UniCredit to merge 3 subsidiaries to create new lender

Italian banking group UniCredit will merge its three Bulgarian subsidiaries (Bulbank, HVB Bank Biochim and Hebros Bank) soon to create a lender with eight billion levs in assets or a fourth of the sector total, Bulbank CEO, Levon Hampartzoumian, said recently, Sofia News Agency reported. 
Bulbank is the biggest of UniCredit's three banks in the country, while the other two subsidiaries previously owned by German banking group HVB, were acquired by UniCredit in 2005.
The three banks will merge their IT platforms, which will change the IBAN codes of the banks' customers, but will allow the group to offer a wider array of products. The three UniCredit banks posted a combined profit of 117.9 million levs for 2006, up 25 per cent over 2005. Bulbank, with profit of 77.4 million levs, will pay out 52.6 million levs as the dividend. 
The assets of the lender rose 23.4 per cent to 4.2 billion levs in 2006, while credits added 25 per cent to 2.1 billion levs. Biochim reported a profit of 42.9 million levs with assets at three billion levs, including 1.7 billion levs in credits. At Hebros, profit stood at 14.5 million levs with assets at close to a billion levs and credits at 440 million levs. The newly-created bank will also have more than 300 branches and more than one million clients. 

8 foreign banks plan to enter Bulgarian market

Bulgaria's central bank announced on March 30th that eight foreign banks plan to begin operations in Bulgaria, Sofia News Agency reported. 
The banks are Germany's DEPFA AG, French Euler Hermes SFAC and Compagnie Generale D'Affacturage, UK-based Credit Suisse International, Austria's Hypo Alpe-Adria Bank AG and Raiffeisen Zentralbank Osterreich AG, Hungary's MKB Bank and Cyprus-registered Kommunalkredit International Bank Ltd. MKB Bank, owned by Germany's Bayerische Landesbank (BayernLB), already has operations in the country. The banks are licensed in European countries. Likewise, Raiffeisen Zentralbank Osterreich AG owns Raiffeisen International, whose Bulgarian subsidiary is the country's fourth-largest bank by assets.

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CREDIT RATINGS

Fitch says Bulgaria's economy still competitive 

Global credit rating agency Fitch announced on March 26th that that Bulgaria's economy still remains competitive, despite accruing a massive current account gap. "Despite disconcertingly high current account deficit, Bulgaria is seeing strong export growth and rising export market share, suggesting the real economy remains competitive," the head of the agency's sovereign ratings division, Andrew Colquhoun, was cited as saying in a report. Fitch rates Bulgaria at BBB in the investment-rating category, with a stable outlook, a Fitch press release said. 
The report stated that the deficit, which reached 16.3 per cent last year, is a reflection of booming domestic demand, not a crisis of competitiveness. Trade deficits have grown because soaring domestic demand has pushed imports ever higher, but export growth was still a solid 21 per cent in 2006. "Ultimately, external imbalances on this scale are unsustainable and will need to be corrected at some stage," said Colquhoun, adding that current developments were in line with the scenario of gradual adjustment and convergence with western European living standards. 

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ENERGY

Piebalgs insists on EU diversifying gas supplies

Energy Commissioner, Andris Piebalgs, on April 13th highlighted the need for the European Union to diversify its energy supplies. The commissioner is wary of Europe's gas dependence, especially on Russia. During a press conference in Athens on April 13th, following his meeting with Greek Development Minister, Dimitris Sioufas, Piebalgs told reporters that, regarding the EU's dependence on Russian gas, "The answer is we should diversify because we need suppliers. We should build more LNG and we should try to get gas from any supplier -- Azerbaijan, Kazakstan, Turkmenistan, Iraq and also Iran."
Later, Piebalgs met with Prime Minister, Costas Karamanlis, at the Maximos Mansion in Athens, New Europe reported.
Piebalgs praised the work Greece does for diversification of energy supplies to the European Union and to the world markets. "Quick realisation of the Bourgas-Alexandroupolis project will give much more chances to deliver oil from the Caspian region to the world markets," he told the press conference. "The (gas pipeline) inter-connector Turkey-Greece is a historical achievement," he said, adding that he has accepted an invitation to attend an inauguration ceremony in July. He said the project is a very important infrastructural project for the European Union as a whole.
The commissioner said he hoped that a new natural gas pipeline project expected to connect Greece with Italy will "ship gas from the Caspian area and of new suppliers." The pipeline would be an extension of the Turkey-Greece gas pipeline.
Asked about Gazprom's participation in the Turkey-Greece-Italy pipeline, the commissioner told New Europe that so far he has not heard about such a plan. Piebalgs said the Commission hopes that the pipeline would carry gas from the Caspian countries. "We have enough Russian gas in our infrastructure. We are not short of gas from Russia, we are short from other suppliers," he said.
Piebalgs discussed with Sioufas the developments following the March European Council meeting which addressed the creation of an energy policy for Europe. He said Europe needs to strengthen the internal EU energy market and to achieve a Renewable Sources of Energy (RES) target of 20 per cent for its energy needs by 2020.
"Because the main chance for the European Union to achieve its objectives of security of supply and climate change is when we will have a well interconnected EU internal market, but not only internal market, but well interconnected with the third countries bordering us," Piebalgs said. "For this it is very important the further development of the energy community. This summer we could look up enlarging this community to Ukraine, Moldova and Norway but it is very important to make strong progress in Euro-Med region energy cooperation."
Piebalgs also noted very good progress in the electricity inter-connector between Greece and Turkey and hailed the decision to build another line from Greece to Italy.
He noted the progress in renewable support legislation in the renewable sector and the positive development in internal market legislation.
On his part, Sioufas stressed that Greece will meet the RES 20-per cent goal before 2020, adding that power production capacity of RES plants has doubled over the past three years, while the prediction for 2007 is expected to exceed the 1,100MW-mark.
But energy security dominated the talks. The commissioner said the problem for the EU is not its dependence on Russia, but rather Gazprom, which has a monopoly in the gas-rich country.
Piebalgs' visit followed Greece's agreement on April 11 with Gazprom chairman Alexei Miller to negotiate a 24-year extension, until 2040, of Russia's contract to supply natural gas to Greece. Russia supplies about 80 per cent of Greece's gas and also has a majority stake in the planned Bourgas-Alexandroupolis oil pipeline.
Asked if the agreement would further increase the EU's dependence on Russian gas, Piebalgs told New Europe the contract extension is still in negotiations. "In my opinion this is something different. With the current deal that expires in 2016 Greece will need to have more gas and Russia should assure they will be continued gas supplies," the commissioner explained.

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FOREIGN INVESTMENT

Bulgaria to receive 21m after joining EEA

After joining the European Economic Area (EEA), Bulgaria is to receive 21 million Euro, Sofia News Agency recently reported. 
At its regular session, the cabinet approved the results of the financial and commercial negotiations on Bulgaria's and Romania's accession to EEA, the government's information service told the news agency. Bulgaria's standing representative to the EU Stanislav Daskalov endorsed the final document, the press office of the Bulgarian Foreign Ministry announced. 
The agreement creating the EEA was negotiated between the Community, the then member states, and seven member countries of the EFTA and was signed in May 1992. Subsequently, Switzerland decided not to participate following a referendum, and three others joined the EU. 
The EEA Agreement entered into force on January 1, 2004 and was maintained because of the wish of the three remaining countries (Norway, Iceland and Liechtenstein) to participate in the internal market, while not assuming the full responsibilities of EU membership. 
Bulgaria submitted its application to join EEA in July 2005. The ensuing accession agreement is to be signed officially. The total amount of funds Bulgaria and Romania are to receive in 2007-2009 is 72 million Euro. The priority areas included in the effective multilateral financial mechanism are improvement of the environment through reducing pollution and encouraging energy generation from renewable sources, encouraging sustainable development through better use and management of resources, preservation of the European cultural heritage, human resources development through encouraging education and training, and health care and care for the young. 
Norway has suggested agreeing bilateral programmes for cooperation for economic growth and sustainable development with Bulgaria and Romania. In 2009, Norway will make available to the two countries a total of about 68 million Euro. Of these, Bulgaria is to get about 20 million Euro. The document reads that the EEA could finance up to 90 percent of the total value of projects with NGO and social partner participation. 
In addition, Norway committed to finance programmes on cooperation for economic growth and steady development in Bulgaria and Romania. In this way, Bulgaria is to receive 20 million Euro in the period January 1, 2007 - April 30, 2009. Priority fields are energy efficiency and renewable energy sources, reduction of greenhouse emissions, Schengen legislation enforcement, support for the National Schengen Action Plan and strengthening judiciary.

Business ties to be strengthened with Czech Republic

Bulgaria offers a good investment climate that is favourable for Czech entrepreneurs, President of the Czech Senate, Premysl Sobotka, said, Sofia News Agency reported.
On a visit to Bulgaria, Sobotka met Parliament Speaker, Georgi Pirinski, on March 29th. Pirinski welcomed participants in a Bulgarian - Czech business forum, which was held at the Military Club in Sofia. The Czech officials, together Bulgaria's Deputy Economy Minister, Nina Radeva, and Pirinski joined the business forum. Pirinski said that Bulgaria was thankful for the fast ratification process of its EU accession treaty in the Czech Republic. 
Bulgaria could benefit from the Czech experience in the utilisation of EU funds, Pirinski said. "Bulgaria is a perspective trade partner of the Czech Republic, and the economic collaboration between the two countries could be effective not only as far as tourism and agriculture are concerned," Sobotka added. The President of the Confederation of Industry Stanislav Kazecky, who also joined the Czech delegation, said the companies in his country are interested in long-term relations with Bulgaria. "We would like to develop joint energy, transport, environmental and building projects," Kazecky was quoted as saying. 

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TECHNOLOGY

Vestitel BG launches first fibre-optic IPTV

After a series of tests involving 200 households, Vestitel BG launched Bulgaria's first fibre-optic Internet protocol television (IPTV) at the beginning of April, Sofia News Agency reported. 
Vestitel BG is a telecom company developing its own infrastructure in parallel with the Bulgarian gas distribution network. It operates fibre-optic communication networks in Sofia, Varna, Veliko Turnovo, Rousse and Bourgas. In November 2006, it opened a cross-border fibre-optic communication line linking Sofia with the Greek port of Thessaloniki. Vestitel's new service is offered as part of the operator's Triple Play Plus package, which includes broadband Internet, Voice over IP, 60 digital TV channels and interactive services and is available in 120 versions at prices ranging between 29 and 95 levs (between 14.83 and 48.57 Euro) a month.

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TELECOMMUNICATIONS

Landline telecom carrier BTC predicts falling profits

The consolidated profit of Bulgaria's dominant landline telecom carrier BTC almost halved in 2006, the company's annual financial report said. The consolidated results reflect the performance of companies co-owned by BTC and the increased competition on the telecommunications market, Sofia News Agency reported. 
Consolidated operating income was reported just over one billion levs, against 995 million levs in the unconsolidated financial report. Consolidated operating costs reached 867 million levs, compared to 678 million levs in the unconsolidated report. Group profit fell by more than half to 148 million levs in 2006. 
After-tax profit was expected to drop from 132.3 million levs in 2006 to 111.6 million levs in 2007 and 105.6 million levs in 2008, the company said in a statement to the Bulgarian Stock Exchange, where it is listed. BTC sees a further downslide in profit this year and 2008, while operating income and expenses are expected to shift up on tighter competition and modernisation costs, it was reported. 
BTC's domination of the fixed-line segment in Bulgaria, which has a fixed-line penetration rate of 85 per cent, remains largely uncontested, but its biggest challenge comes from the strong growth of the mobile segment of the market, where the penetration rate has reached 105 per cent at the end of last year. BTC is attempting to tap into the segment, launching its mobile arm Vivatel at the end of 2005. The cell phone operator remains by far the smallest of the three players on the market, Sofia News Agency reported. 
The telecom said its share of the local market for telecom services declined in 2006. Icelandic billionaire Thor Bjorgolfsson is considering selling his option for 65 per cent in BTC and has appointed Lehman Brothers to shortlist investors interested in the acquisition, which experts value at around 1.2 billion Euro to 1.3 billion Euro, it was reported. 
Turkey's leading fixed-line operator Turk Telecom, which competes domestically with Turkcell, has also been linked with BTC. Turkcell and private equity investment funds Providence Equity Partner, Texas Pacific Group, Warburg Pincus and Mid Europa Partners were eyeing the deal, it was reported. Bjorgolfsson's investment vehicle Novator bought the call option on the 65 per cent stake in BTC last year from US equity fund Advent International, which took control of formerly state-owned BTC in 2004. Novator has said it expects Lehman to have proposals on how to proceed with the deal at the end of April at the latest. 

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TOURISM

Tourist boom in Eastern Europe expected 

Bulgaria and Romania's accession to the European Union is expected to generate a boom in tourism around Eastern Europe, especially on the Balkans, reports leading online holiday company directline-holidays.co.uk. After the two countries joined the Union, experts envisage that Bulgaria is bracing itself for a 10 percent rise in foreign tourists during 2007 as a total of 5.6 million are expected to visit, Sofia News Agency reported. 
Joining the EU increases the visibility of a country as a tourist destination. Bulgaria's EU membership has made it more popular as a travel destination. In fact, Bulgaria boosted tourism in 2006, earning the record-breaking amount of nearly one billion Euro. This has even prompted directline-holidays.co.uk to hire travel consultants with unique knowledge of Eastern Europe in order to deal with specific Balkans holiday enquiries. The increase, according to directline-holidays Sales Manager, Alex Pilkington, points to a bright future for tourism in the Balkans. 
Tourists are realising Balkans holidays offer the best of both worlds: from sunny beaches to world class ski resorts. They are also among the countries offering the lowest prices for package tours. With an increasing number of Britons choosing activity holidays and most of them turning to the mountain slopes, a boom in Bulgaria skiing holidays has followed, with direct-line skiing. 
Budget airlines have also attracted tourism to Eastern Europe with no-frills air carriers increasing the number of flights they offer, whilst competition is expected to bring prices down further. One of the reasons for more flight options is that after EU entry, aviation companies no longer need government permission to secure landing rights.

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