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COMPETITIVENESS OF THE BULGARIAN ECONOMY AND ENERGY

COMPETITIVENESS OF THE BULGARIAN ECONOMY AND ENERGY. Petar Dimitrov Minister of Economy and Energy June 2008. FINANCIAL STABILITY. Currency Board since 1 st July 1997 Bulgarian currency rate fixed to the Euro

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COMPETITIVENESS OF THE BULGARIAN ECONOMY AND ENERGY

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  1. COMPETITIVENESS OF THE BULGARIAN ECONOMY AND ENERGY Petar Dimitrov Minister of Economy and Energy June 2008

  2. FINANCIAL STABILITY • Currency Board since 1st July 1997 • Bulgarian currency rate fixed to the Euro • Foreign reserves of €12 936.8 million of the Bulgarian National Bank up to 30 April 2008 • Resources of €4 135.4 million for the Fiscal budget, calculated on the basis of programmed currency rates as of 31 March 2008 • Budget surplus of €547million as of 31 March 2008

  3. MACROECONOMIC ENVIRONMENT Source: NSI, EUROSTAT, Ministry of Finance • High and constantly rising economic growth • Bulgaria is among the leaders of CEE countries • The main contributor to the GDP growth is the industrial sector

  4. MACROECONOMIC ENVIRONMENT • Low levels of unemployment rate (under 7%) Source: National Employment Agency • Decrease of the unemployment rate by 5.25 % compared to the end of 2004 • Financial backing of Euro 1.2 bln for investments in human resources under the “Human Resources Development” Operational Program

  5. INTERNATIONAL POSITION OF BULGARIA Business conditions – classification of the World Bank Source: World bank – Doing Business Now Bulgaria is ranked: • 46th among 178 countries in terms of business conditions according to the World Bank Doing Business Report • 39th in terms of competitiveness out of 55 top economies, according to the International Institute for Management Development (IMD) • 79th among 131 countries in terms of competitiveness according to the World Economic Forum, Davos

  6. CREDIT RATING Investment rating Fitch has confirmed the long-term credit rating of Bulgaria, however the long-term credits perspective has been lowered from stable to negative. Fitch has revised the Region outlook due to the change of macroeconomic conditions. Subinvestment rating Source: Ministry of finance • An investment rating was assigned to Bulgaria for the first time in 2004. Since 2005 the international credit rating agencies have increased Bulgaria’s credit rating 13 times.

  7. FOREIGN TRADE , (USD bn) Source: BNB • The Bulgarian exports increased more than three timessince 1999 and in 2007 г. amounted to USD18.4bn

  8. EXPORT Major export destinations 2006/2007(USDmillion) Source: NSI

  9. BILATERAL TRADE TURNOVER WITH USA Source: NSI • In 2007 Bulgarian exportfor the USA came up toUSD424.8millionand decreased by 0.2% as compared to the year 2006. The import from the USA amounted to USD 323.1million, or decreased by 30.4% as compared to the same period of the year 2006 . The trade balance is positive for Bulgaria and amounts to USD101.7 million.

  10. STRUCTURE OF TRADE TURNOVER WITH USA BY SECTORS FOR 2007 Source: MEE

  11. FAVORABLE BUSINESS CLIMATE Bulgaria is ranked 2nd in the Business climate rating for EU-27 (after Denmark) Source: Association of European Industrial Chambers

  12. 10% corporate tax since 2007 (34.3% in 1999) 0%corporate tax in 138 municipalities with unemployment rate higher than the average level 0% capital gains tax 5% dividend tax from January 1, 2008 Lower social security burden with 6 percentage points in 2006 and by other 3 percentage points since October 1, 2007 10% “flat tax” of incomes of physical persons since 2008 FAVORABLE BUSINESS CLIMATE According to the World Bank Report Bulgaria is ranked 1st among 178 countries in successful implementation of tax reforms for the period 2006-2007

  13. CORPORATE TAX FOR 2008 (%) Source: EU Taxation Database,World Wide Taxes - www.worldwide-tax.com

  14. PERSONAL INCOME TAX FOR 2008 (MAXIMUM RATE %) Source: EU Taxation Database,World Wide Taxes - www.worldwide-tax.com

  15. SOCIAL INSURANCES SOCIAL INSURANCES PAID BY THE EMPLOYER IN 2006 (% of total employer’s expenses, incl.salaries, insurances, compensations, tuition’s expenses ,etc) * Source:Eurostat *Note: In 2007 social security burden paid by the employer is reduced by 2.5%

  16. LABOR COST AVERAGE MONTHLY EXPENDITURES FOR THE EMLOYERSIN 2006 (incl. salaries, insurances, compensations, etc) Source: Eurostat

  17. ELECTRICITY PRICES IN 2007 FOR FINAL INDUSTRIAL CONSUMERS (EURO/ kWh) Source: Eurostat

  18. NATURAL GAS PRICES IN 2007 FOR FINAL INDUSTRIAL CONSUMERS (EURO/GJ) Source: Eurostat

  19. INVESTMENT CLIMATE Source: A.T. Kearney 2007 Global Services Location Index • According to the report of A.T. Kearney from 2007 Bulgaria is ranked 9th in the World and 1st in Central and Eastern Europe as most attractive country for business; • According toUNCTADBulgaria takes 7th place as the most attractive investment destination. Bulgaria has moved up in this rating by 14 places in comparison with the 2005 report.

  20. FOREIGN DIRECT INVESTMENTS Source:BNB and Bank Austria Creditanstalt expectations Preliminary data Source: BNB

  21. BULGARIA LEADS CEE COUNTRIES IN TERMS OF FDI TO GDP INDICATOR

  22. FDI STOCK BY SECTORS, 1998 – 2007, Total for the period 24 266 Euro mln.

  23. INVESTMENT PROMOTION LAW • Focusing on the following sectors of economic activities: Industrial Sector Processing industry; Power generation from renewable energy resources. Services sector High tech activities in the field of computer technologies; Research and development activities; Education; Healthcare. • Two classes of investment „А” and „B” • Minimum amount of investments in a single project for class А – 70 mlnBGN (~56 mln USD) for classB – 40 mlnBGN (~32 mln USD)

  24. INVESTMENT PROMOTION LAW CLASSIFICATION OF INVESTMENTS DEPENDING ON THE REGION In municipalities with unemployment rate of 35% or higher than the national, the minimum required amount is: for class A - 35 mlnBGN (~28 mln USD)  for class B - 20 mlnBGN (~16 mln USD) In municipalities with unemployment rate of up to 35% higher than the national, the minimum required amount is:  for class А - 45 mlnBGN (~ 36 mln USD)  for class B - 25 mlnBGN (~ 20 mln USD) DEPENDING ON THE ECONOMIC SECTOR Minimum amount of investments in high tech production - two times lower:  for class А - 35 mlnBGN (~28 mln USD) • for classB - 20mln BGN (~16 mln USD) The minimum required amount in high tech activities in the services sector is three times lower: for class А - 24mlnBGN (~19 mln USD) for class B - 14mlnBGN (~11 mln USD)

  25. INVESTMENT PROMOTION LAW ENCOURAGEMENT MEASURES • Shorter terms of administrative service (forclass А or class B) • Individual administrative service(forclass А) – the measure is implemented by the Invest Bulgaria Agency before central authorities of the executive power and in the rest of the cases by the territorial authorities of the executive power; • Acquisition of property rights or establishment of limited rights to real estate – private state or municipal property” (forclass А or class B); • Financial assistance for construction of public infrastructure for class A and for accomplishment of two or more certified investment projects in the boundaries of an industrial zone; implementation of the two classes in certain conditions. The accent is posed on the industrial; • Financial assistance for training for acquiring professional qualification to persons 29 years old or younger, including trainees from Bulgarian universities employed as new recruits in the investment project.

  26. US DIRECT IMVESTMENTS IN BULGARIA FDI in Bulgaria ,1992-2007, USD million Source: NSI • For the period 1992-2007 the USA ranked 8th among the investors in Bulgaria in terms of FDI amount – USD 1.254bln

  27. US INVESTMENTS IN BULGARIA (total USD 1 254 m.) Major US Investments in Bulgaria • American Standard (production of sanitary faience), USD 239,7 m. • Hilton(hotel), USD 39,7 m. • Craft Foods (chocolate factory),USD 38 m. • MacDonald's, USD (fast food chain)23 m. • News Incorporated (tv channel) USD 22,8 m. • World Trade Company /Gort Securities UK/ (Radisson Hotel), USD 17.7 м. • Westinghouse –modernization of 5 & 6 energy units of NPP “Kozlodui” (completed) Ongoing projects with US participation in Bulgaria • AES Corporation – construction of a new 670 MW TPP within “Maritza East 1” TPP (for the period 2006-2009) – the biggest “green” investment of AES in SEE, worth more than USD 2 bln. • Textron –offset agreement (signed in November 2007) for USD 20,4 m. ”green” investment in the construction of Low-voltage equipment Factory • Honeywell - modernization of 1,2 and 4 energy units of TPP “Maritza East 2” for USD16,9 m. (started 2006) • Hewlett Packard- “Global service centre” for its clients in Europe, Africa and Near East. • Microsoft is to open in Bulgaria a free online software support centre, covering SEE • Microsoft, Cisco Systems and Siemens – are to launch soon a centre for innovations

  28. INVESTMENT COOPERATION BETWEEN BULGARIA AND USA Forthcoming US projects in Bulgaria • AES-Bulgaria plans to build a 120 MW Wind Power Park for USD 250 m. • Tishman International Companies”plans to invest in a Logistics and Business Centre more than USD 300 m. • Honeywell– plans to open a centre for assembling of industrial automation systems • CISCO – plans to open a fund for investment in IT SMEs in CEE, including Bulgaria Possibilities for future US investment in Bulgaria • In 2008 will commence a Special Public Procurement Award “Development of Communication and Information Means” (Offset Project №9) for the modernization of the Bulgarian Armed Forces, USD 300 m. - ITT Corporation, Lockheed Martin and General Dynamics are interested to participate • In 2010 the Offset Project № 3 “Acquisition of a new multiple-role fighter” for the modernization of the Bulgarian Armed Forces is to be started. - Lockheed Martin and Boeing have presently expressed interest to participate. • Global Environment Fundhas included Bulgaria in its long-term plans for investment in renewable energy sources and water treatment plants in Bulgaria. • Bulgarian-American Investment Fund and its Bulgarian –American Credit Bank provides funds for investment in Bulgaria (mainly in the field of tourism and SMEs) with a capital USD 70 m.

  29. SUFFICIENT ACQUISITION OF THE EU FUNDS IS ANOTHER IMPORTANT PRIORITY FOR STIMULATING THE ECONOMY The Ministry of Economy and Energy runs Operational Program “Competitiveness” with a Budget of EUR 1.2 billion • Priority 1: Economic development based on knowledge and innovation activities (budget – EUR 246 million or 21%) • Priority 2: Increasing production efficiency and development of favorable business environment (budget – EUR 593million or 51%) • Priority 3: Provision of financial resources for business development (budget – EUR 200million or 17%) • Priority 4: Strengthening of the Bulgarian economy's position in international markets (budget – EUR 87million or 7.5%) • Technical support (budget – EUR 34 million or 3%) • Considerable financial support for SMEs

  30. SIGNIFICANT PROJECTS UNDER IMPLEMENTATION (valued over 8 bln. euro) • Construction of a new nuclear capacity at the site of Belene nuclear power plant –Euro 4 bln; • Construction of spare capacity plant at Maritza East 1 thermal power plant – Euro 1.3 bln; • Rehabilitation and installation of flue gas desulphurization plants in Units 1-4 and increase of the production capacity of Units 5 and 6 at Maritza East 2 thermal power plant – Euro 190 mln.; • Rehabilitation and modernization of Maritza East 3 thermal power plant – Euro 800 mln.; • Construction of hydro power plant Tsankov Kamak – Euro 220 mln;

  31. ENERGY PROJECTS UNDER STUDY • Construction of hydro power complex Nikopol (Bulgaria) – Turnu Magurele (Romania) – Euro 1.5 bln; • Construction of hydro power complex Silistra (Bulgaria) – Kalarash (Romania) – Euro 1.2 bln; • Construction of Gorna Arda Cascade and Tundja Dam; • Construction of Maritza East 4 thermal power plant.

  32. Bor Vidin ELECTRICITY INTERCONNECTION PROJECTS • (Under implementation) Construction of electricity interconnection between Bulgaria and Macedonia: substation Chervena Mogila (Bulgaria) – substation Shtip (Macedonia). • (Planned)- Extension of electricity interconnectionstowards Albania to Italy /European Corridor N 8/ • (Planned)Construction of second electricity interconnection between Bulgaria and Serbia (Vidin – Bor). • (Planned)Construction of second electricity interconnection between Bulgaria and Greece: substation Maritsa East (Galabovo, Bulgaria) – substation Filippi or Nea Santa (Greece) --------

  33. NABUCCO PROJECTROUTE & TECHNICAL DATA • Pipeline diameter: 56” (1422 mm) • Distance: 3 300 km • Investment: 8 billion € • Maximum transport capacity: 31 bcm/y

  34. “SOUTH STREAM” PROJECT POSSIBLE ROUTES OF THE BRANCHES & TECHNICAL DATA NORTH HU RU SR BG IT Transport capacity: 31 bcm/y Under discussion - 2 branches “SOUTH” and “NORTH” Offshore part RU-BG – 900 km Max. deep: 2000 m Singed MoU Eni-Gazprom 23.06.2007 Signed agreements of Russia with: Bulgaria,Serbia, Hungar, Greece Total amount of the investment: Euro 12 bln. SOUTH GR

  35. REGIONAL GAS INFRASTRUCTURE PROJECTS 1. GAS PIPELINE BULGARIAN (BG) GRID – TURKEY – GREECE INTERCONNECTOR 2. REGIONAL LNG TERMINAL (BG & SEE REGION)3. DUPNITZA – NIS GAS PIPELINE (BG-SR)5. RUSE – GIURGU GAS INTERCONNECTION (BG-RO) Giurgu 4 Ruse Nis 3 Dupnitsa 1 Haskovo LNG 2

  36. OIL TRANSPORT INFRASTRUCTURE PROJECTS Oil pipeline Bourgas- Alexandroupolis • Length of the pipeline-290km, BG territory - 155 km; • Pipe diameter – 900 mm (36”); • Capacity: 0.75 Mbarrels/day (35 M tons/y); • 2 pump stations; • Trilateral agreement Bulgaria-Greece-Russia signed and ratified; • IPC establishment - February 2008; • Expected: Start of the construction by the end of 2008.

  37. OIL TRANSPORT INFRASTRUCTURE PROJECTS Oil pipeline Bourgas– Vlore (along the European Corridor No. 8 route) • Length of the pipeline – 900km; • On Bulgarian territory – 480 km; • Pipe diameter – 900 mm (36“); • Capacity: 0.75Mbarrels/day (35 M tons/y); • 4 pump stations; • Convention Albania-Bulgaria-Macedonia signed and ratified.

  38. OUTLOOK FOR THE PERIOD 2008 - 2010 Source: Agency for Economic Analysis and Forecasting. FDI – prognosis of MEE • It is expected that the dynamic and ascending development of the Bulgarian economy will continues. • The economic growth rate is envisaged to exceed 6% annually. • According to the forecast in the end of the period the average annual inflation rate will drop to 3.7%. • The unemployment rate will remain 7%. • The current account deficit will remain 21% of GDP. • In order to cover the current account deficit FDI should increase annually by 8%

  39. GLOBAL COMPANIES ARE GAINING INSIGHT IN ADVANTAGES OF DOING BUSINESS IN BULGARIA Examples of those who already have discovered their opportunity in Bulgaria “Very well educated, talented and committed workforce, large talent pool, very competitive cost structure, European culture, good English skills, short flight times and almost no time difference from Western Europe…” - Dr. Peter Kurpic, Senior Vice President NetWeaver Foundation SAP AG “Political and economic stability, the qualified labor force and the cost structure” – Gilles Bernard, Executive Director of EPIQ (Belgium) YOURLOGOHERE “…among the reasons why HP had chosen Bulgaria were the high level of education in terms of technical skills and languages, good infrastrucutre and investor-friendly legislation.“ – Tino Canegrati, HP Global Delivery General Manager “Over the past several years, we have proven that Bulgaria is a competitive, productive place to do business with a lot of talented and well trained people. As we look to expand here in Sofia we plan to continue hiring the best and the brightest people that Bulgaria has to offer.” – Eric Dumas, Director of Tumbleweed Communications Bulgaria “The combination of existing and proven local expertise, the excellent academic facilities and the strength of the Bulgarian economy, made Sofia an ideal choice for further investment in our global mixed-signal engineering capabilities.” – Nelly Pergoot, Managing Director, AMI Semiconductor (USA) The list of foreign companies in Bulgaria is growing quickly! Source: Invest Bulgaria Agency – Bulgaria Investment Guide 2007, Value Scope Bulgaria, http://neveq.com

  40. THANK YOU FOR YOUR ATTENTION! Ministry of Economy and Energy www.mee.government.bg

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