BULGARIAN ECONOMIC TOP NEWS DIGEST
WEEKLY REPORT ( 29 JANUARY – 5 FEBRUARY 2010 )
Sections/headline briefs:
MACROECONOMY:
· Bulgarian exporters see light at the end of the tunnel
· Equipment and machinery firms want an agro bank to tackle EU money
· Brussels funds renovation of Bulgarian hospitals
· Critical list for hospitals in Bulgaria, 100 closing down
· Reuters: Bulgaria looks to privatise hospitals after reform
· State company to manage water sector
· Varna city starts EUR 17.5 M water management projects
· Foreign debt's advantages and disadvantages
· CED expects 5 per cent GDP drop for 2009
· Minister: 50km of motorways will be constructed in 2010
· EU rules force Bulgaria battery sellers to recycle
· BCCI: Reducing tax on dividends would be good for business
· Bulgaria to receive EUR 133 million in EU funds
INVESTMENTS:
· Fort Noks launches construction of EUR 60M office centre in Sofia
· Balchik Municipality to invest EUR 350 000 in tourism development programme
· Chemical plant Polimeri to invest EUR 85 M in membrane electrolysis unit
· Bulgaria's Insa Oil to open € 28 M unit later in February
COMPANIES:
· Ireland's west incorporated acquires Sofia telephone palace
· Bulgaria National Electricity Company appoints new head
· EBRD extends EUR 6.5 M loan to top Bulgaria meat processor
· Bulgaria top water bottler Devin 2009 profit up 300%
THE CRISIS:
· Crisis pummels 2009 profits of 22 Bulgarian banks
· The 2010 Annual Threat Assessment: Bulgarian economy fragile
· Ernst&Young: The financial crisis has put the brakes on globalisation
Articles:
MACROECONOMY:
Bulgarian exporters see light at the end of the tunnel
Analysts’ forecasts that exporters will be the first Bulgarian companies to see the first green shoots of recovery came true as almost all earnings reports displayed a rosier picture. The uptick was attributed to the revival in European economies, with Bulgarian exporters shipping 80% of their produce to the EU. The improvement was also backed by entries in new, non-EU markets. Drug maker Sopharma on Friday posted a 73% increase in its annual profit as sales surged by 12% year-on-year. The company pegged the good figures on better exports and cost optimisation. Exports saw a 16% rise helped by hefty sales in Russia and Ukraine. The company made gains on new markets such as Turkey and Serbia. Cable maker Emka boosted fourth-quarter sales by almost 20% year-on-year to just under BGN 11 million. And while turnover shrank by 36% on the year, a sharp cutback in operating costs propped up profit by 88% to BGN 1.34 million. Lesoplast, the timber products manufacturer, which sells approximately 77% of its output abroad, saw oversees sales swell by more than 27% by volume and more than 15% by value offsetting a steep decline on domestic sales. Exports were aided by a rebounding Italian market. Other Bulgarian companies selling on foreign markets are enjoying similar gains. Miner Kaolin compensated in the second and the third quarter a much deeper drop reported in the first three months of the year. The ceramic market almost regained its share in the company’s revenue structure largely thanks to an expansion into the Middle East.
Equipment and machinery firms want an agro bank to tackle EU money
Equipment and machinery companies suggested that the state should set up an agro bank or institution to guarantee the EU payments to beneficiaries eligible under the rural development programme. At the moment 82% of the agro machinery was outdated. The traders also said Bulgaria needed a national policy like the ones undertaken in Turkey and Romania. There, the state purchased the farmers’ old equipment at EUR 5 000 apiece, given they’d buy the new models.
Brussels funds renovation of Bulgarian hospitals
Brussels will allot funds for the renovation of Bulgarian hospitals and purchase of modern equipment for them. State and university clinics may receive 150 million levs (1 euro = 1.95 levs) for repair and equipment. The possibility is envisioned in the Regional Development operational program. The procedure for submission of documents ended on January 25.After the adoption of the projects, 85% of the funds will be granted by the EU funds and 15% will come from national co-funding.The negotiations for the funds should end by 2013, and the payment can be effected by 2015. only 10 of the applying hospitals will receive funds, experts explained.
Critical list for hospitals in Bulgaria, 100 closing down
The problems connected with Bulgarian healthcare have come back in the most painful way. Under the pressure of the financial crisis, Healthcare Minister Bozhidar Nanev has announced that in order to make up for the lack of finances the ministry will have to close down or restructure wards and hospitals, introduce three-month delegated budgets for healthcare institutions and tighten the financial discipline. There isnt enough money but the ministry is making attempts to reformat the system in very difficult times and conditions, and this could have happened some time ago when the conditions were much better, said the minister. He forecast that as early as during the first half of 2010, about 70-80 health treatment institutions will close down or will be turned into hospices and hospitals for completion of medical treatment. In some smaller towns, this will happen as early as this year, because they have practically gone bankrupt. Experts are developing nine medical paths for completion of hospital treatment and rehabilitation, which will be paid for from the national health insurance fund and through which the new centres will be financed. Nanev has also announced that the money for healthcare for next year amounts to 2.6 billion levs (about 1.3 billion euros,) with the money for hospital treatment being curtailed the most by 220 million levs. This amount is expected to be compensated with the help of the reform and with putting a stop to the process of draining finances. About 30% of hospitalizations are currently unnecessary, Nanev also said, trying to formulate another reason for the closing down of hospitals. Next year, clinics which do not correspond to the standards for the respective disease or do not have a full-time specialist, will not be able to work with the national healthcare insurance fund, which would mean that they will not be financed. According to the minister, there are such wards in about 100 healthcare institutions in Bulgaria and they will gradually drop out. Nanev added that the money for medicines, allocated for next year by the national healthcare fund, is at a critical level, since it has been reduced by 10 million levs and currently amounts to 320 million levs. We will have a high death toll during this reform, Sergei Stanishev, leader of BSP, and the most recent former prime minister, grimly forecast some days ago. The healthcare minister immediately opposed this viewpoint and said that the closing of some hospitals will give a breath of fresh air to the healthcare system and assist the overall development of the reform. Nobody has ever stopped talking about reforms in Bulgaria for 111 years now, and this is the case especially in the healthcare sphere. The closing of the hospitals may not be affected as easily as it sounds in theory. Moreover, a study, carried out by the World Healthcare Organization, indicated that Bulgaria ranks 102nd in the world in terms of quality of the healthcare system, which is another reason why Bulgarians are especially sensitive with respect to the topic of health.
Reuters: Bulgaria looks to privatise hospitals after reform
The Bulgarian government is likely to begin a privatisation programme of its state hospitals this year, once an overhaul of the indebted and inefficient sector is complete, Health Minister Bozhidar Nanev said on Thursday. He told Reuters in an interview that investor interest would rise once the Balkan country had put in place a better funding structure for hospitals, with extra money likely to come from people paying more into both public and private health funds. Moves by the centre-right government, elected last July, to close down 21 state-run communist-era hospitals and to raise contribution levels have triggered protests in towns across the Balkan country. Crowds including doctors and nurses have demonstrated, saying while reforms were badly needed they feared thousands of people living in remoter areas could be left without access to hospital treatment. Another 130 hospitals will also be shut or converted to smaller centres, as part of the governments plan, which Nanev said would be carried out, despite public opposition. "Privatisation is the way to go," Nanev, 47, a former surgeon said. "There must be privatisation of both hospitals and the services provided by hospitals". Most of Bulgarias 350 hospitals are state-owned, of which 71 were on a list of assets banned for privatisation. Nanev said this could be changed through legal amendments once the government had a clear strategy on sell-offs. He said the reforms needed to show results so as to showcase the investment potential to investors. Years of post-communist neglect and lack of political will for reforms have left many hospitals understaffed, heavily indebted, lacking contemporary equipment and even medicines. Corruption in the sector is widespread and paying bribes to doctors for services due to be covered by insurances is the norm. Opinion polls show Bulgarians are the most dissatisfied with their healthcare system in of the 27-member European Union. To secure money for the planned reforms, Sofia is considering obliging Bulgarians to pay extra private health insurance and to raise by 2 percentage points to 10 percent of gross income, payments to state health funds as of 2011. An existing voluntary scheme to contribute to private funds has failed to work. The ministry was also working on a new methods of calculating prices of medical services to reflect the market reality, he said. "Reforms needs money. We cannot make reforms by saving money, this must be clear," Nanev said but did not give figures. The budget of the state health fund for hospitals fell 24 percent to 709 million levs ($503.2 million) in 2010, data showed. Hospitals; debt stood at some 350 million levs by end-November last year. The poorest EU country cut total health spending this year by 350 million levs to 2.25 billion, or some 4.2 percent of GDP, nearly halve the proportion spent in many Western nations.
State company to manage water sector
Environment and Waters Minister Nona Karadzhova Tells Banker Weekly Mrs Karadzhova, Bulgaria has more than one or two ecological problems, but the biggest among them seems to be that pertaining to the water sector. Our country is significantly lagging behind with the construction of water-purification stations in towns of more than 10,000 in population. Is there any chance for us to escape the European sanctions, having in mind that we have just one year left to build all the stations needed? -Currently, we are working hard to compensate the delay, but we will hardly compensate the loss until the end of 2010. Unfortunately, over the last four years the financial resources our Ministry had have been squandered on small-scale projects without meeting the commitments of our EU Accession Agreement. There has been control neither on the projects' evaluation, nor on the advisability and effectiveness of their financing. It turns out that 90% of the budget funds have been spent on small-scale projects for settlements of even less than 2,000 peoples. At the same time, the construction of water-purification stations for towns of more than 10,000 residents has lagged behind. The question is about a total 70 priority projects that are lagging behind and because of them a new punitive action will be taken against Bulgaria until March 2011, the latest. No doubt, this step has been aimed at merely adopting the money under the operational programme, having not a clear vision on its ecological and social effects. All this led to the need of a new approach in the assessment of the projects and their preparation. We are about to finish the assessment of all towns of more than 10,000 in population and we already started active discussions with municipalities whose projects are well advanced. We worked hard with municipal representatives from Pernik, Botevgrad, Sofia, etc. We also radically changed the approaches, we developed new rules and new procedures, aiming at regaining the trust of our European partners. Do you think the way for settling the water-and-sewage companies' ownership (as the previous government has approved it) is a rational one and will bear fruits? -Bulgaria's water sector needs a radical reform, especially the management of the respective equipment since now it is not coordinated and transparent. Part of the country's dams belongs to Dams and Cascades Company, which, in turn, is part of Bulgarian Energy Holding. Other dams belong to Irrigation Systems, which is part of the Agriculture and Food Ministry. There are also dams that are under the umbrella of the water-and-sewage companies, which belong to Regional Development and Public Works Ministry. And the highway water-conduits are public state ownership. So far, nobody was aware that this leads to bad management in the water sector and nobody was willing to part with his own slice of the cake. The formal side of the issue is that certain acts have to be passed, but the political will remains the most important thing. I am completely backed by my colleagues Traycho Traykov, Rossen Plevneliev and Miroslav Naydenov for the development of a strategy, through which a coordinated management will be introduced, and which will make for the sector's further development and reformation. What is important is that the Parliament has to adopt such point of view and achieve consensus on the sector's long-term development. Will we soon talk about concession of other water-and-sewage companies other than that in Sofia? -The strategy will define who will manage the water equipment in the country. I hope that there will be broad-minded approach towards the issue. The companies in question should not belong to any of the ministries. Bulgaria is small in territory and we therefore have to set up a national company for these extremely important facilities. We may also establish separate special-status state companies to manage the water facilities in the country's four regions. Such a consolidation will be very beneficial since the present water-and-sewage companies are extremely small. Even if we give them on concession so as to attract capitals and investments for infrastructure renovations, we need this consolidation. The present law allows these facilities to be given on concession, but the fact that no investor has been so far attracted, excluding that in Sofia, means that the systems are too small. If the situation remains unchanged, they will never be managed on a local level, although that the question is about public utilities that have to be provided by the local authorities. Our Ministry wants the water supply and purification, and the waste management to really become a local activity in the foreseeable future. one of Bulgaria's biggest problems pertains to the waste management and the state will likely has to pay through the nose for it. The regional depots had to be completed still in the middle of summer-2009... -Whether and what sanctions will be imposed on Bulgaria depends only on our efforts. I think that we have all the chances to minimize the risk of being fined or, at the worst, the size of the fine, if we manage to convince the European Commission that we have become organized well enough, we have secured state budget money and strictly abide by the programme we are currently developing. If we want to take care of our own interest, we have to focus all our efforts, both that of ministries and municipalities, so as to have this process completed as soon as possible. To this end, an August 2009 Government decree secured the entire financial package for the infrastructure for waste treatment. The funds under the Environment Operational Programme are not sufficient. A total BGN693 million have been earmarked for the programme's Waste item. And the above decree allows an additional resource of BGN286 million. Thus, we will have a total BGN979 million needed for the construction of waste depots as required by the European legislation. However, the mayors don't welcome the amendments that are to be made to the Waste Management Act. -Experts of the Ministry's Waste Management Directorate carried out a number of consultations with representatives of the National Association of Municipalities on the preparation of the amendments to the above act so as to develop a working model for the country's waste management. The latest working meeting was focused on issues such as setting up and functioning of regional municipal associations for waste treatment and specifying the ownership of the facilities themselves. The bill allows the members of the local associations to specify the ownership on their own (it could be owned either by the municipality where the facility is, or by all municipalities that belong to the association). If the partnership is a public-private one, then the facility will be owned by the private partner who provides the financing. The need of the introduction of a new economic instrument was also discussed. The question is about the so-called depot fee, through which the Environment and Waters Ministry will stimulate waste recycling and reclaiming. The meeting also ended with an agreement, which says the price for treating one tonne of waste should be one and the same for all members of the regional associations and should include transportation and construction costs. Of course, there will be further discussions and proposals for amendments to other acts will also be discussed if needed. How will you solve the problem with the delaying of the ISPA projects that the Ecology Ministry is in charge of? Which among them are the most endangered of being left with no EU financing and what are the concrete reasons for it? -There is a delay in the implementation of all projects under ISPA and we carried out all the analyses needed so as to speed up the work. We scrutinized the problems pertaining to any of them and we are currently in talks with the respective institutions so as to evade further delays. We are focusing all our efforts on negotiating with the companies; we regularly meet their representatives and ask them to implement the contracts in time. As for one of the biggest projects, that in Lovech, we already negotiated with the construction company and the project is well advanced. However, we are yet to receive an answer from the European Commission on the prolongation of the ISPA deadline. If this doesn't happen, we have to pay from the state budget for all projects that have not been completed until the end of the financial memorandum. For the time being, there are sings that there will be prolongations only for those contracts whose financial memorandums have been signed after 2004. These are the projects for the integrated water cycles of Sofia, Sliven and Kyustendil. one of the first steps you took upon your entering the office was the amendment to the National Plan for allocation of carbon dioxide quotas. When will the Bulgarian companies be at least able to join the emissions trading scheme? -In December 2009, the Council of Ministers passed the National Plan for allocation of quotas for emissions trading over 2008-2012. The plan was already sent for approval to the European Commission. This is the latest requirement that Bulgaria had to meet if willing to join the above scheme. Over the last several years, the plan has been submitted two times in Brussels, but it has not received a final approval. Its latest reading has been drawn up in accordance with the Commission's recommendations and this makes us believe that this time we will be given the green light. Some time ago business representatives showed discontent over being not able to invest and do their business because the Environment Ministry usually delays the complex permits they need... - The procedure on the complex permits was finished still at the beginning of our mandate. Four installations that had not such permits were closed down and 12 permits were issued for another 14 facilities. After receiving them, the big polluters started implementing certain programmes so as to achieve all ecological requirements. And most of them already meet the requirements. Kardzhali Lead-Zinc Factory still has some problems, but we talked to its management. As a result, prompt measures were taken and further steps were outlined. Moreover, we already drew up also an order saying all companies and factories that don't meet the ecological norms will be sanctioned. We don't want to stimulate the pollution-against-money mechanism, but to restrict the incidental cases. Environment Ministry is fired with the ambition (and I do care much about it) to closely monitor and control all companies and factories in Bulgaria. It is important for us to have a full register of the controlled sites, as well as why and how many times they have been monitored, and whether they have managed and for how long to meet the requirements. We will monitor all of them in one and the same manner and thus the "light" business will not feel as if being damaged because it abides by the rules. No doubt, one of the questions that has gathered head the most is that pertaining to Kremikovtsi metallurgical plant. What is going to happen to it? It is obvious that there is hardly anyone to make ecological investments there... -That's true. It is an extremely actual problem and there are several reasons for it. The question about the plant's fate and the subsidies it has received in the past is widely discussed. I think that there is even not a theoretical possibility for the plant's polluting operations to be launched again. You know that Kremikovtsi withdrew its previous complex permit and recently applied for a new one that pertains to the so-called clearer productions. However, having in mind the plant's huge debts, I see no way for it to finance an eco programme. Unfortunately, this is one of a series of reforms, which have not been implemented and we are supposed to take a decision, no matter how tough it may be.
Varna city starts EUR 17.5 M water management projects
Local Hydro-Transstroy-Consortium will start the repair of the waste water purification system in the northern Black Sea city of Varna . The project is valued at some EUR 12mn. The capacity of the facility is to serve 450,000 people. The total population who lives in the city amounted to 318,300 at the end of 2008, according to latest data of the statistical institute. At the same time, Hydrostroy Varna will launch also today the refurbishment of the water supply pipelines and the sewerage system in Varna . The value of the project stands at EUR 5.5mn. The projects are financed by the pre-accession programme ISPA and state budget contributions.
Foreign debt's advantages and disadvantages
Bulgarian economy owes EUR 40 billion to foreign creditors A huge gross foreign debt and a huge deficit on the current account of the payment balance are the main risks that Bulgaria's financial stability is now facing. These are the fears of the Moody's experts, despite the latter have shifted the country's crediting rating from "stable" to "positive". Statistics of the Bulgarian National Bank (BNB) show that at the end of November 2009, the country's gross foreign debt was EUR36.79 billion or 108.4% of the gross domestic product (GDP). Although that there are many who are sceptical about the rating agencies' analyses on Bulgaria, one cannot deny that the Moody's experts prove to be right at least for the gross foreign debt. A foreign debt of EUR36.79 billion against GDP of EUR34.01 billion is an extremely huge quantity against the background of the Bulgarian pretensions for EU membership. Especially having in mind that several governments have so far boasted that the country's foreign debt is too small and completely meets Maastricht Treaty's requirement to exceed not 60% of GDP. At first sight, the things seem be right, but it is true that both statements are correct. It is true that the gross foreign debt is EUR36.97 billion and that of the state is just EUR4.16 billion of it, or 12.4% of GDP. The significant contribution to the remaining BGN32.82 billion is thanks to the private banks and companies. And while the state debt directly affects the state budget, GDP is what, although indirectly, speaks for the status of the entire economy. And when the economy grows it is good for the companies and banks to have enough foreign financing. In crisis time, however, the accumulated foreign debt turns into a burden not only because it has to be repaid, but also because it is not sure that the creditors will be apt to lend new credits. The private companies' foreign debt could be divided into three parts. The first of them includes the banks' foreign debts, which are now estimated at EUR8.07 billion. The companies' debts to foreign creditors amount to EUR12 billion. And third comes the money that foreign companies have allocated under the form of loans to their Bulgarian subsidiaries - a total EUR14.05 billion. These intercorporate debts are also considered as foreign investments in Bulgaria whose beneficiaries are in practice obliged to repay them in the same currency. The difference between them and the direct investments is that in the first case the owner invests money in the Bulgarian company's capital and he is allowed to withdraw them only if he sells the company. According to BNB statistics, for the first 11 months of 2009 banks' foreign debt was divided into long-term debts of EUR1.65 billion and short-term ones totalling EUR6.42 billion. Of that EUR6.42 billion, EUR5.14 billion are under the form of deposits that foreign banks have left in our credit institutions. This is important to be explained since a deposit owner (in contrast to the debts) may be willing to withdraw it anytime before the redemption date. In other words, some 64% of the foreign financing to the Bulgarian banks may "leave" them, especially if the situation in the countries it comes from worsens. Exactly this is what prevents the local credit institutions from using the EUR5.14 billion in question to extend loans for more than one year. According to BNB, the foreign financing of the Bulgarian banks is not increasing. Moreover, it has shrunk by more than EUR1 billion as compared to November 2008. To cut the long story short, the banks don't have free funds to use for extending new and cheaper loans. The situation with the corporate debts to foreign creditors is a bit rosier. It is interesting that the foreign financing to the Bulgarian commercial companies (of almost EUR12 billion) has not marked a drop within one year. The good news is that nearly half of it is a long-term one. In other words, the companies that have secured foreign debts can hardly get additional funds, but this frees them from the pressure of their foreign creditors to repay this money before the due date. No doubt, the companies that enjoy access to foreign loans are not that much. The bulk of the companies rely only on bank credits and when the latter stop or their price become unaffordable, the companies fall into collapse. The same is the situation with the intercorporate debts to foreign creditors. Not only that they have not decreased in 2009, but they grew by EUR773 million. It is good to have a rich relative abroad. Now the question is about owners, most of whom take care and are responsible enough for their Bulgarian subsidiaries. What is alarming is that out of EUR14.5 billion in intercorporate debts to foreign creditors, EUR5.33 billion have to be immediately repaid if demanded. According to some analysts, the question is about short-term financing that has been intended for purchasing raw materials that the parent company may take back at any time. Using mainly the statistical data, the situation with the huge gross foreign debt seems to be not so dangerous for the country's financial stability. It could be true if the bulk of the money has been used for the development of production capacities. It could be better, though, if they were intended for the establishment of an export-oriented business. However, according to some experts, the reality is quite different. The bulk of the foreign financing is used for stimulating the demand for commodities and services. Such an example is the credits that are intended for export of foods, household goods, construction materials and furniture. In other words, the foreign investors have injected money into establishment of a market for the commodities and services of the companies of their own countries. And this is normal. Let us not forget that banks, both foreign and local ones, are not charitable associations and social foundations, but commercial enterprises whose main goal is to operate against maximum profits and lower risks. Their scheme is as following: we give money to Bulgaria to be used for extending mortgage and consumer loans that will provide us higher profitability as compared to that we have in Western Europe. But getting foreign loans to develop production is entirely different from stimulating the imports through them as it is now in Bulgaria. The proof for this statement is that while the economy used to grow and the cheap foreign financing used to pour into the country, the trade deficit was constantly on the rise. At the end of November 2008, it was EUR7.96 billion or 23.3% of GDP, which is considered one of the world's highest proportions. But after the foreign financing stopped, the trade deficit, too, decreased. It was EUR3.73 billion for the first 11 months of 2009 or 11.1% of GDP. At the same time, imports are flagging more significantly by 34.6% of the exports, which, in turn, dropped by 24.3 percent. In other words, if foreign financing was used not for stimulating the demand, but for the establishment of production, the trade deficit would have been significantly lower now, and during its time of growth its proportion against GDP would have been a single-digit number instead of a double-digit one. The foreign loans then would have really stimulated the economy without threatening the country's financial stability. Moreover, we may also have avoided the present situation when some EUR6 billion a year leave the country for the payment of interests and principals. But there is something worse. Over the first 11 months of 2009, the state and the local banks and companies paid a total EUR6.19 billion in debts to their foreign creditors, while receiving loans of EUR5.57 billion from abroad. So, it turns out that the country has parted with EUR600 million. This is how the country's currency reserve is slowly melting away. And in order to stop this trend, after the end of the crisis the Government will likely take measures for propping up the export-oriented production, not for stimulating the trade and imports. Otherwise, we could never join the Eurozone and, God forbid, even part with the Currency Board.
CED expects 5 per cent GDP drop for 2009
The Center for Economic Development (CED) expects the decline of Bulgaria's gross domestic product to decelerate to some 5 per cent in the last quarter of 2009. The GDP drop for the full year 2009 is also expected at 5 per cent, according to a CED report released on Friday.The Center's experts predict a slight economic growth only in the third or fourth quarter of 2010.The acceleration of exports has resulted in a surplus on foreign trade in goods and services for the first time sicne the third quarter of 2004. The current account deficit contracted to 2,600 million euro for January-November 2009, and its GDP share dropped from 22.5 per cent to 7.6 per cent on an annual basis.After an unprecedented shrinkage of 24.3 per cent for exports and 34.7 per cent for imports in January-November 2009, the situation has been gradually improving since October, with exports increasing year-on-year for the first time in November, by 6.3 per cent. For the eleven-month period, exports stood at 10,800 million euro (FOB) and imports at 15,300 million euro (CIF). The trade deficit was halved, from 9,200 million to 4,500 million euro (FOB/CIF) or 13.4 per cent of projected GDP. The CED expects exports for the full year to reach 12,000 million euro, imports 17,000 million euro, and the deficit 5,000 million euro or 15 per cent of GDP. The signs of recovery of the European and global economy prompt an expectation of a gradual rise of external demand and a more substantial increase of exports after March-April 2010, the report says.By the end of November 2009, the inflow of foreign direct investment was estimated at 2,630 million euro, half of the level a year earlier. After adjustment for the data from the financial statements of joint ventures, the FDI figure may reach 3,500 million euro. There is a strong likelihood of the dramatic contraction of capital flows in 2009 to be followed by a gradually quick recovery of the influx of capital in 2010 without reaching the record highs of 2007 and 2008.The reason is that Western companies will again transfer capacities to countries and regions with lower production costs, and Bulgaria ranks among the countries with excellent opportunities to attract business. The country has sufficient advantages: market potential, low taxes, low production costs and public-private partnership possibilities, but the success will largely depend on good organization and good administration, the CED argues.In 2010 the CED expects investments to remain unchanged from 2009 or even drop by some 3,000 million euro. Inflation is forecast at some 2.5-3 per cent this year, up from 2009.According to monthly figures of the National Employment Agency, unemployment accelerated in the last months of 2009. It stood at 9.13 per cent for December (up from 6.27 per cent a year earlier) and will probably peak at some 10 per cent in the winter and spring of 2010.
Minister: 50km of motorways will be constructed in 2010
About 50km of motorways are scheduled for construction in 2010, according to Regional Development Minister Rossen Plevneliev, Investor.bg reported on January 28 2010.In September 2009, Bulgarian Prime Minister Boiko Borissov had said during the visit of the European transport commissioner Antonio Tadjani that 65km of motorways would be built annually, but Plevneliev explained that, in fact, that level of construction would be reached by 2011.Regarding the construction of the Lyulin motorway, which is scheduled for completion by the end of 2010, Turkish firm Mapa Gengiz is trying to re-negotiate the final price of the project, saying that expenses have increased, while the minister told Bulgarian media that it is possible for the final price of the project to be re-examined.When asked how much the construction of Lyulin motorway would increase, Plevneliev said that the "analysis and reassessment will be completed by February 10 2010"."At this stage, we cannot terminate our contract with the Turkish firm, otherwise compensation payments would exceed 120 million euro," Plevneliev said.Bulgarian construction firms had called for the government to discard Mapa Gengiz and opt for Bulgarian firms to build the motorway instead.Regarding the public procurement documents for Lot 2 of the Trakiya motorway, the minister said that the paperwork will be completed before the March 10 deadline. "The winning bid will be announced by the end of January," Investor.bg quoted him as saying.
EU rules force Bulgaria battery sellers to recycle
New EU rules have come into force that require some Bulgarian stores selling batteries to provide in-store recycling bins.Any Bulgarian shop selling more than 32 kg of batteries a year - equivalent to one pack of four AA batteries a day - must comply to the new directive as part of targets on cutting landfill.Battery maker Varta warned that a lack of awareness among consumers could hamper the scheme's success, the BBC reported.Most batteries currently end up in landfill sites, where they can leak toxic chemicals into the soil. The EU Batteries Directive aims to tackle that problem and cut carbon emissions by reducing the need for new batteries to be made from scratch.
BCCI: Reducing tax on dividends would be good for business
The reduction of Value Added Tax will be pointless if the delays of its refund to companies continue. This opinion was expressed by Tsvetan Simeonov, President of the Bulgarian Chamber of Commerce and Industry (BCCI) at a working meeting: Urgent Measures for Combatting Economic Crisis, organized by the Union of Democratic Forces, the BCCI said in a press release. According to Simeonov, it is inappropriate to "pour" considerable state funds into the economy citing the fighting of the economic crisis as a motive. In his view, currently, it is necessary to avoid methods for stimulating the economy the results of which are unclear. one such proposal is to float part of the fiscal reserve to the banks so as to stimulate lending, he went on to say. Given that banks in Bulgaria are mostly owned by foreign entities, the state could not influence the transfer of resources between the mother-bank abroad and its Bulgarian-based subsidiaries and it is not clear what the effect of one such measure on the real economy would be.It would be much better for the Bulgarian business to reduce the tax for sole traders and tax on dividends from 15 to 10 per cent, Simeonov also said. The fact that Bulgaria reduces taxes at a time, when they are increased in the rest of the world would be a positive signal to foreign investors, he added. However, the already promised curtailing of the social security contribution by 2 percentage points remains a first priority. The BCCI President expects considerable foreign investments in Bulgaria in the next one to two years. The business delegation, accompanying Prime Minister Boyko Borissov on his visit to Germany from January 24 to 26, has confirmed the interest of German business in Bulgaria. An increasing number of investors are also expected from Greece due to the dire straits of the Greek economy. According to Simeonov, unemployment will not exceed 10-12 per cent in 2010.
Bulgaria to receive EUR 133 million in EU funds
Bulgarian companies may receive up to 133 million euro under the operational program "Competitiveness" of the EU over the first six months of 2010."Bulgarian companies may also apply for financing under six other procedures for gratuitous aid, including EUR 200 million available for absorption under the financial instrument JEREMIE," sources from Bulgaria's Ministry of Economy informed.
INVESTMENTS:
Fort Noks launches construction of EUR 60M office centre in Sofia
Building company Fort Nox kicked off construction of what is touted as the highest building that will jut out in the Bulgarian capital when completed in three years. The 126-metre Capital Ford skyscraper is set to dwarf Sofia’s current tallest building -- the 108-metre Rodina hotel. The project, sited on Sofia’s busy Tsarigradsko Shosse boulevard, will stomach an investment of roughly EUR 60 million, the investor said. Capital Ford will comprise twp buildings with an area of 45,000 square metres. one will have 28 aboveground levels, including 24 office floors sprawled on an area of over 31,000 sq m. The shorter building will accommodate offices spanning 10,000 sq m suitable for larger companies. The complex will feature also retail space including cafes and restaurants, a fitness centre, bank offices, pharmacies, etc. The project will have a 680-car park spread on two underground levels.
Balchik Municipality to invest EUR 350 000 in tourism development programme
Balchik Municipality will invest 700,000 leva (roughly 300,000 euro) in a programme for development of tourism, the Municipality said. A new directory of hotels and restaurants in the municipality of Balchik will be published for the upcoming tourist season together with an updated map of the village of Kranevo. LED panels popularizing landmarks in the region will be put in place at exit thoroughfares. Information boards will also be put in place along the walking alley from Balchik to the Albena resort. Some of the money will go towards Balchik's participation in tourism exchanges in Sweden, Romania and other countries.Under the programme, some 280,000 leva will be used to modernize infrastructure that supports tourism. The facade of the St Petka Church in Balchik will be fitted with a lights display. Street lighting and benches along the alley from Balchik to Albena will be replaced.Besides sea holidays, Balchik Municipality plans to promote spa tourism, ecotourism, hunting expeditions and spots like the Balchik Palace, the University Botanical Garden and the newly opened Temple of Cybele.
Chemical plant Polimeri to invest EUR 85 M in membrane electrolysis unit
Chemical plant Polimeri, based in the north-eastern town of Devnya , is to invest EUR 85mn in the construction of a new unit, Dnevnik Daily reads. The new plant will use membrane electrolysis technology in the production process, which will cut the production expenditures, the energy intensity and the hazardous waste from production. The supply contract is expected to be signed by end-February and installations works are to continue 30 months. The company intends to invest EUR 15mn in cogeneration unit but has not received yet all permits to build a gas pipeline, which will bring natural gas to the facility. Polimeri has bought a new EUR 4mn installation for hydrochloric acid production, which is to start functioning by the end of the spring. Its capacity is 120,000 tons annually and the producer should hire 150 employees by the time the installation is inaugurated. At present Polimeri employs 240 workers. It exports 60% of its production, mainly to Greece , Romania , and Turkey .
Bulgaria's Insa Oil to open € 28 M unit later in February
Bulgarian oil products retailer Insa Oil, part of local petrochemical group Insa, will open later this month a 28 million euro ($38.8 million) installation for hydrogen-based desulphurization of gas oil, the company said on Thursday. The installation at the Insa Oil refinery in Belozem, in southern Bulgaria, is the first one in Bulgaria using such technology. It will produce 115,000 tonnes of diesel fuel and industrial gasoline a year, Insa Oil said in a statement. "The new installation will expand production by up to 115,000 tonnes of fuel a year and allows us to raise sales by up to 77%," the group's owner Georgi Samuilov said in the statement. "Its wrap-up is part of our strategy for continuing expansion of our activity." Samuilov told SeeNews in an interview last year the installation would reach full capacity in two to three years' time. Insa Oil has more than 200 trading partners in Bulgaria and sells more than 150,000 tonnes of oil products yearly. It exports its output to Romania, Serbia and Kosovo. Besides Insa Oil, the Insa group comprises propane-butane distributor Insa Gas, petrochemical warehouse and port operator Insa Port and motor, transmission and industrial lubricants producer Insa. The group has a network of over 600 partners at home and abroad. Group sales rose to 177 million levs ($125.3 million/90.5 million euro) in 2008 from 115 million levs in 2007. It expects sales to rise 40% in 2009, Samuilov told SeeNews last year.
COMPANIES:
Ireland's west incorporated acquires Sofia telephone palace
Irish property investment company West Incorporated has acquired the so called Telephone Palace building in Sofia, one of the most significant landmarks in the very heart of Bulgaria’s capital city, the company announced.The deal value is estimated at over EUR 22.5 M with the total investment in the project to potentially exceed EUR 100 M.The Telephone Palace - the first building of the National Telecommunication Company in Bulgaria – has a total built-up area of 17, 401 sq. m., spread across 6 floors above ground. The building is considered one of Sofia’s finest and most recognizable landmarks.West Incorporated has declined to disclose the future purpose of the building but the company said it has already employed a team of top European and Asian professionals, who in the last 6 months have been researching the possibilities to make this building a unique cultural and social center both in Bulgaria and in Eastern Europe.“It is my strong desire that on its completion this building will be a magnificent re-energized landmark in Sofia, that would offer people unmatched experience, where historical, cultural and architectural heritage meets modern and futuristic lifestyle,“ Brian Conneely, owner and CEO of West Incorporated Group of Companies commented.Brian Conneely confirmed that the façade and the name of the building will stay unchanged.According to him this project will create many jobs and top class working environment, as well as it will become a large income generator for Bulgaria’s economy as a whole.“We are presently exploring different development options and designs, but our ultimate goal is to make The Telephone Palace a place that Bulgarians will be proud of. We intend to offer the people of Sofia and its visitors an unforgettable “journey” that would take them through the threshold of history to the present date and into the 21st century”, Conneely said.
Bulgaria National Electricity Company appoints new head
Bulgaria’s National Electricity Company (NEK) has appointed a new executive director - Krasimir Parvanov. He replaces current executive director Georgi Mihov in the top position.Parvanov moves from his present position as head of the Directorate for Access and Network Development at CEZ Distribution, NEK has announced on Monday.CEZ is the Czech power utility that supplies power in western Bulgaria.The management reshuffle was confirmed by the Deputy Minister of Economy, Energy and Tourism, Maya Hristova, who is also chair of the Board of Directors of the Bulgarian Energy Holding. NEK is part of the structure of the BEH holding.Hristova declined to give details of the change, and promised that the ministry will issue an official announcement later on Monday.Mikov, who was appointed to the position at the end of August 2009, has repeatedly stated his willingness to resign because he claimed he did not have the necessary freedom to make changes in NEC and to form its own, independent structure.One of his ideas was to create a strong market-based company, a proposal that did not gain the necessary management support of Bulgaria Energy Holding.
EBRD extends EUR 6.5 M loan to top Bulgaria meat processor
The European Bank for Reconstruction and Development (EBRD) has extended a New EUR 6,5 M loan to Boni Holding, the leading meat processing company in Bulgaria.The EBRD loan is aimed to support Boni Holding’s drive to improve energy efficiency and to bring it into line with EU environmental standards.The proceeds of the loan will be used to complete the second stage of Boni Holding’s plant modernisation programme, initiated with the support of a EUR 15 M EBRD loan in 2006. The new financing will help the company finalise the refurbishment of pig farms and implement energy efficiency measures at its production facility.“This project reinforces the EBRD’s commitment to support the development of private businesses with strong vision in the current challenging market conditions. We are pleased to continue our successful relationship with Boni Holding and help the company raise further its production and environmental standards”, said Gilles Mettetal, Director of the EBRD Agribusiness Team.Boni Holding began meat trading and processing in 1991 and subsequently expanded to become one of the leading companies in the sector in Bulgaria. Boni specialises in pig breeding and pork meat processing and is market leader in raw-dried products, owning some of the leading brands.
Bulgaria top water bottler Devin 2009 profit up 300%
Leading Bulgarian mineral water bottler Devin said its net profit for last year increased more than a whopping 300% to BGN 1,1 M on an annual basis as revenues rose faster than costs.Revenues marked a slight decrease by 1,5%, totaling BGN 67,9 M.The company said it has significantly boosted its efficiency thanks to investments in the production lines and overhaul of the facilities.In September last year US-based global private equity fund Advent International acquired a 79% stake in Bulgaria's leading water bottling company Devin, majority owned by Austria's Soravia Group.Soravia acquired full control of Devin and distributor Devin Royal in 2005 for an undisclosed sum.Advent bought the stake at a price of BGN 3.06 a share, valuing the company at a total enterprise value of EUR 40 M.In January this year Advent International unveiled plans to delist Devin from the Bulgarian Stock Exchange (BSE) upon acquisition of at least 95% of the shares.Bulgaria's financial regulator gave earlier the green light to Luxembourg-based Advent Water to buy out the 21% stake it does not own yet in Devin.The buyout will be completed through Sofia-based Elana Trading investment intermediary, the Financial Supervision Commission (FSC) said in a statement.The price has been set at BGN 3.50 per share.Advent Water is the special purpose vehicle set up by US-based Advent International for the acquisition of Devin.Advent has been active across Central Europe for 15 years and has already made several investments in the food and drink sector Brewery Holdings in Romania, Star Foods in Poland, Uno in Turkey and Graffigna in Argentina. It is banking on further growth for Devin.Founded in 1992, Devin has grown into the country’s number one bottled water company with its self-branded product, according to Advent. The drinks company has also established distribution agreements in Bulgaria for Red Bull and the juice brand Granini in the past two years.
THE CRISIS:
Crisis pummels 2009 profits of 22 Bulgarian banks
Bulgaria’s banking sector rounded off 2009 at a profit but 22 out of the 33 market players have turned in a worse performance than a year earlier as the crisis rumbled on. Data by the Bulgarian National Bank (BNB) revealed that banks have suffered deterioration of between 8% and a staggering 79%, with West-East Bank plummeting almost 225% after it swung to a BGN 3.9 million loss from a profit of BGN 3.1 million for 2008. Six banks have pulled off better performance including Corporate Commercial Bank, ProCredit Bank, Citibank Sofia Branch, International Asset Bank, Teximbank, Bulgarian Development Bank and Central Cooperative Bank. Alpha Bank Sofia Branch and Emporiki Bank have seen profits stage precipitous drops from BGN 68.9 million to BGN 23.1 million, and from BGN 7.024 million to BGN 3.7 million, respectively. Banks’ write-down costs stood at BGN 1.040 billion in 2009, a whopping increase from BGN 330.5 million for the previous year as both firms and households scrambled to pay fat loans handed out when lending was all abuzz. Overdue loans are creeping up, with loans with delays of over 30 days hitting 13.64% of the total gross volume. Loans which are more than 90 days overdue speak for 6.42% of the combined portfolio. The banking system posted an unaudited profit of BGN 780 million for 2009 versus BGN 1.4 billion for 2008. Assets added up to BGN 70.9 billion, up 1.9% year-on-year.
The 2010 Annual Threat Assessment: Bulgarian economy fragile
Three Balkan economies, including Bulgaria, are still on shaky ground, according to a new report prepared by US National Intelligence head Dennis C. Blair. The 2010 Annual Threat Assessment, which maps out the major threats the world is facing, sounds the alarm that currency boards might put East European economies in peril. The Bulgarian Ministry of Finance did not comment on the report. Most economists contacted by Dnevnik dismissed as superficial and ungrounded placing Bulgaria in the risk group. The consensus was foreign companies will shrug off the report when making investment decisions. But investors polled by Reuters yesterday openly said Bulgaria is not on their radar screens at all. In an analysis on whether investors are ready to go back to Bulgaria’s property sector, a key driver of growth in the country, Richard Peterson of real estate services company Cushman & Wakefield said investors are being pushed off by Bulgaria’s threadbare infrastructure he said will take at least 20 years to develop. Stefan Brendgen, CEO of property insurer Allianz Real Estate Germany, said the firm is not interested in Russia, Romania and Bulgaria in the foreseeable future.Greece, which also appears in Blair’s report, is becoming an acute problem for the region after the European Commission (EC) yesterday approved the Greek government’s deficit-cutting plan but used Article 121 of the Lisbon Treaty for the first time to push for badly needed structural reforms. Article 121 states that ministers from other governments can issue “necessary recommendations” to a member-state “without taking into account the vote of … the member state concerned”. Greece will be subjected to a strict surveillance programme on a quarterly basis to ensure targets are met.
Ernst&Young: The financial crisis has put the brakes on globalisation
One of the biggest fears evoked by the current global economic slowdown was that governments across the world would tighten their borders in an attempt to protect their economies, repeating the mistakes that exacerbated the Great Depression. Having committed to major fiscal stimulus packages and carrying out the biggest corporate bailouts ever, governments again have become big market players, but in spite of the bevy of concerns, the process of globalisation is expected to resume as the economy recovers from the current recession, according to one report. one of the two major trends singled out in a recent Ernst&Young study is that while globalisation has been reversed, opponents of the process will only get a brief respite. "The financial crisis has put the brakes on globalisation. But as the economy recovers, the [Globalisation] Index predicts that the globalisation rate will once again resume, although at a slower pace than earlier in the 2000s," the report said.The Globalisation Index, introduced in the report, measured and tracked the performance of the world’s 60 largest countries according to 20 separate indicators that capture the key aspects of cross-border integration of business. The indicators were grouped into five broad categories: openness to trade; capital movement; exchange of technology and ideas; labour movement; and cultural integration.
These categories have been weighted, ranging from 17 per cent to 22 per cent for each, based on the significance placed on each factor by 520 surveyed senior company executives doing international business. To provide a basis for comparison, the index has been calculated retroactively to 1995 and future behaviour was forecast until 2013, measuring relative globalisation – a country’s trade, investment, technology, labour and cultural integration with other countries relative to its gross domestic product rather than by the absolute value of these elements being exchanged. Singapore ranked top of the list, a predictable outcome since small countries that rely more on international integration were favoured by the report’s definition of globalisation. Hong Kong was second, followed by Ireland, Belgium and Sweden. Rounding up the top 10 were Denmark, Switzerland, The Netherlands, Israel and Finland. Bulgaria ranked 28th, scoring highest in the movement of capital and movement of goods and services, but doing poorly in the exchange of technology and ideas category. Bulgaria is expected to become slightly more globalised in respect to movement of finance, movement of labour and cultural integration, while the movement of goods and services score is expected to decrease. Starting from such a low point, the exchange of technologies is expected to shoot up, in line with the report’s second major trend, namely that technology would remain the main driver of globalisation."Without technological innovations such as mobile telephony and the internet, globalisation in its current form would not have been possible. As globalisation picks up from 2010, it will be the spread of technology that once again provides the main impetus behind greater integration," the report said. That is not to say that globalisation would proceed as smoothly as it had before the economic downturn. "At a macro level, global and domestic economic imbalances have yet to be unwound and could again cause disruption if left unaddressed. Global governance still lags market integration, multilateral institutions are grappling with the changing balance of power in the world economy, and momentous challenges such as climate change and food and energy shortages loom ever larger," the report said. "Much of the debate will be framed by the seismic shift in economic power from West to East, and this will reshape micro-level thinking within companies too. This involves long-term reallocation of capital and resources and a profound reappraisal of how companies should be structured to meet the needs of the world’s emerging customers." Redrawing the Map: Globalisation and the Changing World of Business was drafted by consultancy and audit firm Ernst&Young, using research by the Economist Intelligence Unit, on January 29 2010, during this year’s World Economic Forum in Davos, Switzerland.