Foreign Direct Investments in Bulgaria and the Business Climate

1. Foreign Direct Investments in Bulgaria and the Business Climate

2. 1001 819 694 636 620 500 256 163 211 102 34 Foreign Direct Investment(USD m, 1992-2002E) Source: Bulgarian Foreign Investment Agency

3. Inflow of Foreign Investment (by Sector, % and USD m, 1998-2001) Source: Bulgarian Foreign Investment Agency

4. Inflow of Foreign Investment by Country(USD m, until 11/2002) Source: Bulgarian Foreign Investment Agency

5. Privatisation (1) • Privatisation Law • completely new law embodying new philosophy • state-owned stakes in some 1,600 enterprises are declared open for privatisation • no preferences for employee-management buyouts • limited deferred payments • concentration of privatisation process in a specialised body-the Privatisation Agency • new Post-Privatisation Control Agency

6. Privatisation (2) • Privatisation achievements • Biochim Bank • DZI (insurance) • Forthcoming major deals • Bulgartabac (tobacco) • BTC (telecommunications) • DSK Bank • Electricity distribution companies

7. Privatisation Revenues(EUR m, 01/1997-12/2002) Source: Privatisation Agency

8. Business Climate and Reduction of Bureaucracy (1) • In May 2002, the Government opted for the removal of 20% (c. 72 out of 360) of the existing licensing, permit and registration regimes, and for the simplification of another 33% (c. 120 out of 360) of them • About half of the changes have already been implemented • A new Law on the Regulation of Economic Activity, waiting for approval, will regulate the introduction of new registration and permit regimes

9. Business Climate and Reduction of Bureaucracy (2) • An upsweep in the activity of the courts with regard to companies • Radical reform of the Company Act (Commercial Code) in its section on liquidation and insolvency procedures • According to Transparency International data, in the period 1998-2001 Bulgaria has moved from the 66th to the 47th place in the list based on the international index of corruption perceptions

10. Transparency International Index * * Higher figures show improvement WEF Corruption Subindex Ranking International Corruption Indicators (1998-2002) Source: Transparency International, World Economic Forum Global Competitiveness Report 2002-2003

11. Negotiations on EU AccessionProgress of the candidate countries in the negotiation process by 18/11/2002 Source: EU Commission

12. Education • Bulgaria’s secondary education is among the best in the world in recent years: 5th in the world in sciences, 11th in mathematics • Bulgarians rank second in international IQ tests (MENSA International) • Bulgarians are among the top university students worldwide (2nd in the world in SAT scores) • Many students abroad • A top-quality MBA (Master of Business Administration) program starting in 2003

13. IT Certified Professionals(Top 10 Countries in % of Population) Source:Global IT IQ Report of March 2002 of Brainbench, Inc.The data for the population is taken from the mid-2001 estimates ofU.S. Census Bureau, International Database and The World Factbook,2000.

14. Electronics & Electrical Engineering • Strategic sector with priority in long-term development programs • Potential for more than 200 enterprises with possible specialisation in: • Electrical engineering, Computer and office facilities, Electronics, Radio engineering and communication equipment, Household appliances, Defense industry Source: Bulgarian Foreign Investment Agency

15. IT and Telecoms • Cross-point for telecommunications traffic from Europe to the Middle East and Asia • Regulatory framework harmonised with EU standards • By rate of development in 2000, Bulgarian market for mobile telephone services ranked 5th among CEE countries; over 1.5m mobile phone subscribers • Telephone switch exchange manufacturing presents another opportunity Source: Bulgarian Foreign Investment Agency

16. Investments expected until 2005 USD2.5-5.8bn Energy • Stable legal and regulatory framework harmonised with EU standards. • Positioning of Bulgaria as a reliable country for the provision of future transit of oil, natural gas and electric power and as a dispatching and market centre in the region • Introduction of clear and sustainable market rules and a clear schedule for the opening of the internal and external energy market to competition • Infrastructure projects expected to form the major investment inflow and contribute most to economic growth • Power generation and distribution companies offered for sale

17. Transport and Logistics • Strategic geographic location • Infrastructure comprising more than 37,000 km road, including 416 km highways • 6,500 km railways, more than 64% electrified • Two main ports, servicing over 60% of foreign trade • The Danube River and the Black Sea as international water roads • Five international airports Source: Bulgarian Foreign Investment Agency

18. Leisure • Established holiday destination for Germans, Scandinavians, British and East Europeans: 2.756m tourists for 2001 • USD1.2bn revenues in 2001, USD1.3-1.5bn expected in 2002 • Bulgaria is one of the few European destinations with strong growth in tourism in 2002 • Wide range of products: Beach/Recreation, Winter Sports, Spa/Health, Culture/Museum/Monasteries, Nature/Activity, Touring, Conference Source: Bulgarian Foreign Investment Agency

19. Textile and Clothing • One of the oldest and fastest developing sectors • Some 3,000 enterprises, accounting for 22% of exports • Opportunity for productivity gains by investment in modern equipment • Main partners and consumers include Germany, France, Italy, Belgium, USA, Canada and the Scandinavian countries Source: Bulgarian Foreign Investment Agency

20. Food Processing and Beverage Industry • Excellent climate and natural conditions • Established traditions • Famous for organic food production • EU support program, SAPARD, extending EUR52m per year for 2001-2006 • Up to 50% investment subsidy provided for private investment projects to Bulgarian registered companies, incl. with foreign participation Source: Bulgarian Foreign Investment Agency

21. Automotive Parts Production Locations Fasteners Car tyres Castings, wheel covers Pistons, piston rings Car radiators, filters andbatteries Batteries,car accessories Cogged wheels, castings Wheel covers,non-ferrousmetal castings Forgings,chassis Engines Cogged wheels, car seats Steering mechanisms Driving axles, forgings, cogged wheels Steel, tyres, rubber products, electronicscogged wheels Castings Forgings Cast-iron castings Generators,starters,auto bulbs Section steel Section steel Bearings Forgings Batteries Fasteners,electronics

22. Selected Input Prices • Steel prices • section steel: 250-300 USD/ton • rolled steel: • hot-rolled sheet iron: 280-300 USD/ton • cold-rolled sheet iron: 320-350 USD/ton • galvanised sheet iron: 390-420 USD/ton • Electricity prices for industrial use - medium voltage (1kV-60kV, including VAT, as of June 2002) • peak: 0.070 EUR/kWh • day: 0.043 EUR/kWh • night: 0.027 EUR/kWh

23. Customs Regulations • Customs Act harmonised with the EU Customs Code • Inward processing preferences without or with limited collateral • Option for local custom office for major industrial companies • Option for simplified export/import customs declaration procedures • Option for inward processing under customs control