Bulgaria – investment climate and business opportunities

June 2013

Macroeconomic indicators show consistent pre-crisis economic growth and quick post-crisis recovery

Real GDP Growth Inflation (HICP)

Unemployment FDI Inflow

Source: Bulgarian National Bank, Eurostat

0.8%1.8%

-5.5%

6.2%6.4%6.5%6.4%

20122010

0.4%

2009200820072006 20112005

2.4%3.4%3.0%2.5%

12.0%

7.6%7.4%6.0%

2006 20112005 20122010200920082007

11.4%10.4%9.1%9.1%

10.7%

6.9%

20112010

9.2%

20092008

6.3%

20072006 20122005

EU-27Bulgaria EU-27Bulgaria

2012

1,478

2010

1,151

2009

2,437

2008

6,728

2007

9,052

2006

6,222

2011

1,315

2005

3,152

€ mln.EU-27Bulgaria

FDI in Bulgaria comes mostly from EU countries and is concentrated in four main sectors

Source: Bulgarian National Bank

FDI by host country, 1996-2012 (€ mln.) FDI flows by industry, 1996-2012 (€ mln.)

Telecom 2,209

Construction 2,891

Energy 3,522

Trade 6,698

Manufacturing 6,750

Finance 7,604

Real Estate 7,990

Other 2,915(10) Italy 1,287

(9) Switzerland 1,289

(8) Hungary 1,332

(7) Russia 1,658

(6) Cyprus 2,317

(5) Germany 2,501

(4) UK 2,606

(3) Greece 3,576

(2) Austria 5,638

(1) Netherlands 6,601

Why invest in Bulgaria?

• Political and business stability– EU and NATO member

– Currency board

– Low budget deficit and government debt

• Low cost of doing business– 10% corporate tax rate

– Lowest cost of labor within EU

• Access to markets– European Union / EFTA

– Russia

– Turkey / Middle East

• Educated and skilled workforce

• Government incentives

Bulgaria enjoys one of the most stable political and economic environments in Southeastern Europe

• Bulgaria is a member of some of the most prestigious political organizations

– European Union member since 2007

– NATO member since 2004

– WTO member since 1996

• Strong commitment to political reform and transparency has earned praise from leading media and experts worldwide

• Stable currency

– Bulgarian Lev has been pegged to the Euro since the adoption of the currency in 2002

– Currency board backed by IMF

„While governments across the euro-zone periphery are on the ropes or have been felled by the economic crisis, Prime Minister Boyko Borisov's government has drawn international accolades for cutting spending while maintaining high levels of public support.”

September 10, 2011

August 10, 2012

Standard & Poor's ratings agency raised its short-term foreign and local currency sovereign credit ratings on Bulgaria to 'A-2' from 'A-3' based on its recently adopted methodology. The agency also affirmed our 'BBB' long-term foreign and local currency sovereign credit ratings.The outlook is stable.

Government financial indicators are remarkable not only in the region, but on a pan-European scale

 0%

 10%

 20%

 30%

 40%

 50%

 60%

 70%

 80%

 90%

 100%

 110%

 120%

 130%

LithuaniaLatvia

Cyprus

Italy

-6% -5% -4% -3% -2%-11% -10%

Average budget deficit/surplus (2006-2011)

16%15%1%0%

TurkeyCroatia Norway

-1%

IcelandUnited Kingdom

SwedenFinland

Slovakia

Slovenia

Romania

Portugal

Poland

Austria

Netherlands

MaltaHungary

Luxembourg

France

Spain

Greece

Ireland

Estonia

Germany

DenmarkCzech Republic

Bulgaria

Belgium

Source: Eurostat

Average government debt (2006-2011)

Bulgarian economy maintains its excellent performance despite global challenges

Budget deficit for 2012, % of GDP Bulgaria was the only European country with increased credit rating by Moody’s in 2010 and 2011

-9.8%

-8.0%

-3.6%

-2.5%

0.1%

0.0%

0.0%

-1.6%

-2.0%

-2.6%

-2.8%

-3.0%

-3.3%

-3.7%

-4.1%

-4.5%

-5.0%

-5.6%

-7.0%

-7.0%

-8.3%

-10.9%

United States

Greece

Spain

Netherlands

France

Czech Republic

India

Switzerland

Sweden

China

Turkey

Brazil

Austria

Hungary

Italy

Euro Area

Denmark

Poland

United Kingdom

Japan

Egypt

Germany

BG

01/1307/1201/1207/1101/1107/1001/10

Turkey

Spain

Portugal

Lithuania

Ireland

Greece

Estonia

Cyprus

Bulgaria

Bulgaria has one of the lowest business costs in Europe

Lowest corporate income tax rate in Europe

Source: Eurostat; Savills

Turkey 20%

Croatia 20%

Czech Rep 19%

Slovakia 19%

Hungary 19%

Romania 16%

Bulgaria 10%

Cost of electricity for industrial users is 70% of the EU average

Netherlands 9,472

Germany 9,193

Belguim 8,079

France 6,909

Greece 4,000

Poland 3,671

Czech Rep. 3,621

Slovakia 3,343

Bulgaria 1,671

Romania 1,616

Lowest cost of agricultural land in the European Union

€ / ha, 2011

Germany 0.130

Slovakia 0.127

EU average 0.124

Hungary 0.108

Czech Rep 0.103

Turkey 0.096

Romania 0.083

Estonia 0.082

Bulgaria 0.078 €/kWh, 2012

Bulgaria is only 3 hours flight from all major destinations in Europe, Russia and the Mediterranean region

Strategic geographic location Major transport corridors passing through Bulgaria

EU and EFTA

Rus

sia

and

CIS

Turkey and

Middle East

Educated and skilled workforce is among the main advantages of Bulgaria

Almost 60,000 students graduate every year from over 50 universities

Source: National Institute of Statistics, Bulgaria

860

833

12,684Other

19,480Business

8,372Social sciences

7,178Engineering

3,677Education

3,166Health

1,553Law

Architecture

Agriculture

Bulgaria has one of the highest proportions of students abroad from all European countries

2.1%

2.2%

2.8%

3.1%

4.7%

5.8%

8.3%

17.8%Iceland

14.2%Ireland

10.2%Slovakia

Bulgaria

Greece

Austria

Germany

EU-27 average

Romania

Czech RepublicStudents in another EU / EEA country, % of all

The government supports specific industries under the Investment Promotion Act (IPA)

• Investments must be related to the following sectors:

– Manufacturing

– Research & development

– Education

– Healthcare

– High-tech services

– Warehousing and logistics

• Minimum investment amounts must exceed €2.5m

– €1m in regions with high unemployment and €0.5m for

investment projects in high-tech services

• Benefits for certified investors include:

– Shortened administrative procedures

– Preferential acquisition of state or municipal land

– Financial support for professional training / education

– Infrastructure subsidies

– Labor cost subsidies

– Individual administrative services

Biggest investors are supported through a priority investment scheme

• Priority projects can be related to all sectors of the

economy, which do not contradict regulation 800/2008 of

the European Commission

– Subsidies not allowed in mining, primary agriculture

production, and shipbuilding

• Priority projects should exceed €50m and create at least

200 new working places for a 3-year period

– €25m + 100 working places for certain manufacturing projects

– €10m + 50 working places for high-tech services and R&D

• Priority projects receive all benefits for certified investors,

as well as the following:

– Lowest possible costs for the acquisition of government and

municipal land + waived taxes for land status changes

– Working group for project support is assigned by the Council

of Ministers

– Financial grant scheme for up to 10% of the investment

project cost (50% for R&D)

• Services:– Transport and Logistics

– Information technologies

– Outsourcing of business processes

– Health and tourism related to healthy

lifestyle

• Industry:– Transport equipment and machine

building

– Electronics and Electrical engineering

– Chemical industry

– Food and Agriculture

• Resources:– Mining

– Oil

– Alternative energy

Attractive FDI sectors

Leading global investors have chosen Bulgaria as an FDI destination

IT development Back office operations

Chemical and metal Industry

Engineering Food

Page 14

InvestBulgaria Agency is a Government investment promotion arm, part of the Ministry of Economy, Energy and Tourism

IBA services:

• Macroeconomic data on Bulgaria

• Legal advice

• Data on operational costs

• Regional information: industrial zones and infrastructure, data on unemployment, skilled labour force and level of education

• Recommendation of investment project sites

• Identification of potential suppliers, contract manufacturers and joint-venture partners

• Personalized administrative servicing

• Liaison with central and local governments

• Liaison with branch chambers and NGOs

InvestBulgaria Agency

InvestBulgaria Agency

Sofia 1000, 31 Aksakov Str.

Phone: (+359 2) 985 5500

Fax: (+359 2) 980 1320

E-mail: iba@investbg.government.bg

Web: www.investbg.government.bg