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Invest in New Bulgaria

Invest in New Bulgaria. Ministry of Economy July 2003. The Competitive Edge of Bulgaria. Strategic geographic location Liberalised access to markets with over 560m consumers (incl. EU, CEFTA, Turkey) Almost 100 agreements on the protection of investments and avoidance of double taxation

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Invest in New Bulgaria

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  1. Invest in New Bulgaria Ministry of Economy July 2003

  2. The Competitive Edge of Bulgaria • Strategic geographic location • Liberalised access to markets with over 560m consumers (incl. EU, CEFTA, Turkey) • Almost 100 agreements on the protection of investments and avoidance of double taxation • Forthcoming NATO and EU membership

  3. Investors in Bulgaria Will Find... • Among the lowest costs of doing business in Europe • Robust legal framework focused on attracting and protecting foreign investment • Fast improving business climate • among the lowest taxes in Europe • significant reduction in regulatory obstacles and start up costs • aggressive business stimulus package introduced in 2002/2003 • Institutional support for major foreign investment projects • Superb academic and vocational training • Excellent labour quality/labour cost ratio • average monthly salary of EUR144

  4. Significant Business Climate Improvements • Simplified licensing, permit and registration regimes • simplification or abolishment of more than 50% of the existing ones; clarification of remaining regimes • new regimes to be imposed solely by Parliament vote • Ambitiouseconomic programme stimulating the economy • 0% profit tax in over 1/3 of the territory of the country • pending creation of industrial zones with significant investment incentives • VAT-free imports for investment projects over EUR5m • Adoption of International Accounting Standards (IAS) • 2003 for financial institutions and public companies • 2005 for all other companies

  5. Macroeconomic Indicators

  6. Bulgarian Economy in Early 2003:Accelerating Growth • Industrial production grew by +23.4% yoy in March and by +9.2% yoy in April. Industrial sales – by +30.4% and +9.6% respectively • Exports for the first four months jumped up by impressive +40.4% yoy • Unemployment went down to 14.3% in May 2003, a record low level for the last three years • Inflation stays at bay: 0.8% for the first five months, 1.5% of the year and deflation of 0.6% is recorded for May

  7. Bulgarian Economy in 2002: Well on Track • Bulgaria is among the leaders in Europe in economic growth: 6.4% in Q3, 3.4% in Q4, 4.8% for 2002 • Inflation of 3.8% • Unemployment of 16.27%, a drop of 1.63% compared to 2001 • Record high forex reserves: EUR4.58bn • Near record low external public debt: USD8.3bn • Robust growth in tourism revenues: 10% compared to 2001 • Improving current and trade account deficits to GDP ratios

  8. Macroeconomic Stability – Testimony from Abroad • The Government’s economic program has received positive evaluation. The country’s credit rating has been raised on several occasions. The rating for Bulgaria’s long-term foreign currency currently stands at: • BB+ (with stable outlook) according to Standard&Poor’s • BB (with positive outlook) by Fitch IBCA • Bа2 (with stable outlook) by Moody’s • BB+ (with positive outlook) by the Japan Credit Rating Agency • more rating upgrades are expected in 2003 • Support of the international financial institutions • the IMF approved a two-year stand-by agreement for SDR250m • the World Bank adopted a supporting strategy worth USD750m in total • the EBRD launched a USD500m private sector financing program

  9. Second Generation of Economic Reforms (1) • VAT-free imports for investment projects over EUR5m • 0% profit tax in high unemployment regions • Significant reduction of bureaucracy • introduction of one-stop-shop • Introduction of “silent consent” approach • reduction of licensing regimes • new regimes to be imposed solely by Parliament • Planned creation of industrial zones with significant investment incentives • Planned introduction of 100% yearly depreciation for equipment for priority investment projects

  10. Second Generation of Economic Reforms (2) • The launch of a Private Equity Fund(s) is shortly expected • state participation of up to EUR51m (BGN100m) • additional investment from the private sector • the funds will be invested in equities of developing Bulgarian companies • strong competition for the professional management of the Fund: 15 applications • 4 candidates selected (TBIF Financial Services BV and Equest Partners Ltd., Copernicus Capital Management SP, GED Capital Development SA, Time Capital Partners and BAC)

  11. GDP Growth (by Quarters, %) Source: CANSTAT, EUROSTAT

  12. GDP Growth (%) Source:EBRD, Ministry of Economy

  13. Gross Domestic Product (EUR bn) Source: Ministry of Finance

  14. GDP Structure (by Sector, %) Source: National Statistics Institute

  15. GDP Structure (by Ownership, %) Source: National Statistics Institute

  16. Annual Inflation (%, Year-End, 1991-2003E) Source: National Statistics Institute

  17. Inflation (%, Year-End) Source: Governmental Sourcesand National Statistics Institute

  18. Unemployment (%, 01/1992-05/2003) Source: Employment Agency

  19. Unemployment (%, 01/2001-05/2003) Source: Employment Agency

  20. Base (Benchmark) Interest Rate(%, 01/1998-05/2003) 2.96% Source: Bulgarian National Bank

  21. Base (Benchmark) Interest Rate(%, Year-End) Source: Governmental Sources and Bulgarian National Bank

  22. Budget Surplus/Deficit (% GDP) Bulgaria CEE Countries (2002) Source: Governmental Sources and Ministry of Finance

  23. Foreign Exchange Reserves (EUR m, 1998-2002) Source: Bulgarian National Bank

  24. Foreign Debt (USD m, 1996-2002) Source: Bulgarian National Bank

  25. Government Debt (% GDP, 1997-2002) 110% 105.1% 100% 90% 86.7% 83.2% 77.1% 80% 70.1% 70% Maastricht criterion 60% 56% 50% 1997 1998 1999 2000 2001 2002 Source: Ministry of Finance

  26. Average Monthly Salary (EUR, 01/2000-03/2003) Source: National Statistics Institute

  27. Gross Monthly Salary Levels (USD) Low average High average Source: AIMS Human Capital Bulgaria (2002)

  28. Gross Monthly Salary Levels (USD) Low average High average Source: AIMS Human Capital Bulgaria

  29. Gross Capital Formation (% GDP, 1996-2002) Source: National Statistics Institute

  30. Gross Capital Formation (BGN bn, 1997-2002) Gross Capital Formation (BGN bn, 1997-2002) Source: National Statistics Institute

  31. Macroeconomic Indicators (1) Source: Ministry of Finance

  32. Macroeconomic Indicators (2) Source: Ministry of Finance, Ministry of Economy and Bulgarian National Bank

  33. Taxation

  34. Among the Lowest Taxes in Europe • Corporate tax • 23.5% • 0% in regions with high unemployment, 1/3 of the country’s territory • fast depreciation rates: 2 years for computers, 3 1/3 years for equipment • Personal income tax • highest rate at 29% • rates of 0, 15, 22, 26 and 29% (year 2003) • Capital gains tax: 0% • Interest income tax: 0%

  35. 0% Corporate Profit Tax in 2003 (Green Regions) N.B. The list is solely based on unemployment figures The regions include industrial sites with developed infrastructure

  36. Tax and Accounting Reform • Adoption of International Accounting Standards (IAS) from 2003 for financial institutions and public companies and from 2005 for all other companies • Introduction of 100% yearly depreciation for equipment for priority investment projects • Creation of a single State Revenues Agency • Value added tax (VAT) • exemption for imports for investment projects over EUR5m • general tax refund time falls from 4 to 3 months • 45 days refund for export-oriented companies • exemption for software exports • registration threshold falls to BGN50,000 from BGN75,000

  37. Personal Income Tax Rates/Brackets(%, 1999-2005) Source: Ministry of Finance

  38. Market Access & Foreign Trade

  39. Preferential Market Access (1) • WTO membership since 1996 • European Union Association Agreement • EFTA Agreement • CEFTA membership • Free Trade Area with Turkey, Macedonia, Latvia, Lithuania, Israel, and Estonia • Sighed Free Trade Agreement with Albania • Pending signature of a Free Trade Agreement with Moldova, Bosnia & Herzegovina, and Serbia & Montenegro

  40. Preferential Market Access (2) Free Trade Agreement With: • European Union • EFTA • CEFTA • Others Pending FTAs: • Bosnia & Herzegovina • Serbia & Montenegro • Moldova

  41. Exports (by Region, %, 1995-2002) Source: National Statistics Institute

  42. Imports (by Region, %, 1995-2002) Source: National Statistics Institute

  43. Exports (by Country, %, 1999-2002) Source: National Statistics Institute

  44. Bulgarian Export Growth (%, 1996-2002) Source: Bulgarian National Bank

  45. Bulgarian Exports(by Commodity Groups, 2002) Source: National Statistics Institute

  46. Bulgarian Imports(by Commodity Groups, 2002) Source: National Statistics Institute

  47. Current and Trade Account Deficit/Surplus(% GDP) Bulgaria CEE Countries (2002) Source: Governmental Sources and Bulgarian National Bank

  48. Foreign Trade with the European Union(USD bn, 2001-2005F)

  49. Foreign Trade Projections Up to 2005 • Improving trade balance • trade deficit to drop from USD1.3 m in 2001 to USD0.9 m • Exports will continue to grow, reaching a 29% increase compared to 2002 • Imports will continue to grow, reaching a 14% increase compared to 2002 • Exports/imports ratio will increase to 0.82 (from a current value of 0.74) • No major changes in commodity groups’ relative shares of exports and imports

  50. FDI and Business Climate

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