BULGARIAN ECONOMIC TOP NEWS DIGEST
WEEKLY REPORT ( 5 - 12 OCTOBER 2007)
Sections/headline briefs:
MACROECONOMY:
· World Bank announces 3-year country partnership strategy with Bulgaria
· World Bank names Bulgaria among top developing countries in 2007
· Analysts expect inflation in Bulgaria to jump to 13.9 % in September
· Budget requests exceed macro framework by BGN 6bn
· Debtors owe BGN 200m to Sofia heating utility
· Bulgaria to Get �7 Billion in 5 Years
· Bulgaria to get less than 10% of the EU money
· NRA collects BGN 8.5bn revenue Jan-Sept
· Bulgarian medical community unhappy with 2008 health budget
· Russian gas pipeline more likely than EU's Nabucco
· Bulgaria exports with 8,6% more than in 2006
· BCCI President: If lobbyism law is not worked out well, corruption-related thing might be legalized
· Funding for energy companies thinned
· Belene NPP construction to get 30 % costlier
· Natural gas price to go up by 4%
· Tax authorities probe alleged used car VAT scams
· Car sales boom in Bulgaria calms down
· Bulgaria registers 7.6 Billion foreign trade gap
· Bulgaria and Sweden team up in energy sector
· Economic relations with Turkey face bright prospects
· USAID mission to Bulgaria close doors
· Builder of new Sofia subway route to be named early 2008
· Bulgaria gets full euro subsidy for agriculture
· Sofia compensates draught-hit farmers with state aid
· BSE organizes forth regional conference
INVESTMENTS:
· Economist bearish on Bulgaria FDI outlook
· Every third Lev invested in construction
· Groundbreaking ceremony of a "Mega" winter resort
· Business complexes to replace old plants
· First-Class Shopping Center for �150 M to Appear in Varna
· Immoeast to build shopping centre in Varna
· Bulgarian telco Nexcom to invest �20 М in WiMAX deployment
· Linde Gas to open new plant in Stara Zagora
· Cyprus vows to invest in Bulgaria tourism
· Turkish healthcare consortium to invest in private hospitals in Bulgaria
· Carlsberg invests �10 M in Shumensko Pivo in the next 3 years
· Bulgarian company Stad to build logistics center near Sofia
· Another 50 holiday complexes to be built in Razlog
COMPANIES:
· Number of SMEs in Bulgaria at 250,000
· Bulgarian companies pay 40% larger taxes
· Bulgarian drug distributor Sopharma Trading edges close to bourse
· Sopharma acquires stake in OlainFarm
· CEZ to export power to Greece via Bulgaria
· Logicom Stepped in Bulgaria
· Bulgarian beverage company rivals Coca Cola
· Raiffeisen to launch new residential project
· Kodak opens a new lab at Bulgaria`s Boyana Film Studios
· Camera maker Olympus opens office in Sofia
· Lukoil to up number of franchised filling stations in Bulgaria
· Henkel opens factory near Sofia
ANALYSIS:
· Invest in Eastern Europe
· IMF warns investments make Eastern Europe vulnerable
· Watch Out! Turbulence is coming!
Articles:
MACROECONOMY:
World Bank announces 3-year country partnership strategy with Bulgaria
The World Bank announced its three-year Country Partnership Strategy (CPS) with Bulgaria today, BTA reported.It is based upon the country's significant achievements over the last eight years which have ultimately led to its accession to the EU, and seeks to help address key challenges to its successful EU integration, the World Bank said.The new business model will involve a more flexible approach in defining lending and non-lending activities within the broad CPS strategic priorities, with assistance programmes for the 2007 and 2008-2009 financial years, yet to be agreed to by the Bulgarian Government.
World Bank names Bulgaria among top developing countries in 2007
Bulgaria was among the top ten developing countries in the world, a World Bank (WB) report showed, as quoted by the Bulgarian National Radio (BNR) on October 10.Other successfully developing states included Egypt, which was the absolute leader in the ranking, as well as Croatia, Macedonia, Georgia and others, said Simeon Dyankov, manager for of the Doing Business project of the WB and a lead author of the report.The ranking was based on 10 indicators of business regulation that track the time and cost to meet government requirements in business start-up, operation, trade, taxation, and closure. They would not reflect such areas as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates. Since 2003 Doing Business has inspired or informed more than 113 reforms around the world.Thanks to reforms of business regulations, more businesses were starting up, found the “Doing Business 2008”, the fifth in an annual report series.Countries in Eastern Europe and the former Soviet Union reformed the most in 2006 and 2007, along with a large group of emerging markets, including China and India.Reformers made it simpler to start a business, strengthened property rights, enhanced investor protections, increased access to credit, eased tax burdens, and expedited trade while reducing costs. In all, 200 reforms in 98 economies were introduced between April 2006 and June 2007.Eastern Europe and Central Asia, as a region, surpassed East Asia this year in the ease of doing business. Several of the region’s countries, including Bulgaria, have even passed many economies of Western Europe on this score, the report says.
Analysts expect inflation in Bulgaria to jump to 13.9 % in September
Year-on-year inflation in Bulgaria in September was expected to reach 13.9 per cent, said a Danske Bank forecast, quoted on October 8 by the daily newspaper Dnevnik.Bulgaria's National Statistical Institute (NSI) is due to announce the exact figures October 12. At the end of August, year-on-year inflation rose to 12 per cent, because of a serious increase in food and utility prices.End-year inflation in Bulgaria could largely exceed the 3.1 per cent targeted by the Government, even though Economy Minister Petar Dimitrov had said he expected the trend to reverse before the end of the year, Dnevnik said.Inflationary pressures were increasingly becoming evident in Central and Eastern Europe (CEE), and in some countries inflation was now at a level where it was beginning to threaten economic and financial stability. This was particularly the case in Bulgaria and Latvia where inflation now was in double digits and rising sharply, Danske Bank said in an analysis.The continued rise in inflation in CEE was broad based. Hence, both supply side factors – higher energy and food prices – and very strong wage pressures and strong growth in domestic demand. As such, most new EU countries seemed to be far away from fulfilling the Maastricht criteria on inflation and therefore it was not surprising that the European Central Bank (ECB) had again raised concerns of overheating and increased imbalances in the CEE economies.The ECB seemed to have suggested that the new EU countries that operate fixed exchange rate regimes, like the Baltic countries and Bulgaria, might not be able to do enough about the imbalances in the economies if the fixed exchange rate policies were kept. Therefore, if inflation was not brought under control it could lead investors to question the sustainability of the pegs in these countries, Danske Bank says.
Budget requests exceed macro framework by BGN 6bn
The budgets requested by the Bulgarian ministries for 2008 exceed by BGN 6 billion the macroeconomic framework, finance minister Plamen Oresharski said. In his words, it is very difficult to decide which budgets to cut, because most of the requests are backed with prudent policies.The surplus envisaged in the 2008 budget stands at 2.5% of the gross domestic product. However, the finance minister insists that the surplus should be set at 3%, due to the big current account deficit, which may reach 18 or 20% of GDP. The 2008 macroeconomic framework envisages economic growth of 6% and inflation of 3.7%. The lev/dollar exchange rate is projected at 1.47, the current account deficit is seen at 17.2%. Budget revenue will amount to BGN 24.5 billion (42% of GDP), spending will stand at BGN 23 billion. Bulgaria's contribution to the EU will total BGN 690 million.
Debtors owe BGN 200m to Sofia heating utility
A decision on the sale of the heating utility in Sofia, Toplofikatsia, will be take by the end of the current government's term, minister of economy and energy Petar Dimitrov said. According to Bulgaria's memorandum with the European Bank for Reconstruction and Development, a consultant will be selected for the company's privatisation.
Toplofikatsia's outstanding receivables amount to nearly BGN 200 million. At the same time the company owes more than BGN 150 million for natural gas supplies, minister Dimitrov said.
Bulgaria to Get �7 Billion in 5 Years
Bulgaria will receive 7 billion EUR on operative programs until 2013, informed the chairperson of the EC's representation in Bulgaria Michael Humphreys. Money will be spread between transport, infrastructure, ecology and human resources.Bulgaria will participate actively in the Lisboan's strategy for reaching economy growth and realizing bigger employment, said Humphreys.He thinks that the state should solve the present educational issues, for reaching high results in the national economics development.This can happen only in one stable educational system, which can prepare the necessary cadres, Humphreys added.
Bulgaria to get less than 10% of the EU money
Less than 10% of the EU funds will have been absorbed by Bulgaria by the end of the year. This is what Yuliana Nikolova, Director of the NGO European Institute Foundation, said on a seminar organized by the Konrad Adenauer Foundation. "Bulgaria has contributed by 300 million Euros to the budget of the EU. But the amount to be absorbed from the funds is only 50-60 million," Nikolova said. Eighty-five percent of all Bulgarian companies are completely unaware of the EU funds absorption procedures, according to a Vitosha Research poll. Some tenders under operative programs will be made as soon as next week. Unfortunately, the EU programs have been uploaded on the websites of the Bulgarian ministries only in English. "The procedures for absorbing EU funds are extremely complicated, which is why the Bulgarian state must educate the business community how to do it," Nikolova added. Barely 3,8% of the companies in Bulgaria have had a project under the pre-accession funds of the EU financed. The share of those that have submitted a project and received disapproval is 5,7%, the poll indicates futher.
NRA collects BGN 8.5bn revenue Jan-Sept
Bulgaria's National Revenue Agency (NRA) collected BGN 8.5 billion revenue for the first nine months of 2007. The figure stands at more than 85% of the annual target. The revenue from taxes amounted to BGN 5.4 billion, while the revenue collected from social security contributions stood at BGN 3.1 billion.The revenue from income and corporate taxes registered the largest increase compared to the corresponding period of 2006. The revenue from corporate tax stood at BGN 1.25 billion as at the end of September 2007, up by 40% compared to a year earlier.The revenue from income taxes of individuals in the period January to September 2007 exceeded by 30% the figure for the year-ago period.
Bulgarian medical community unhappy with 2008 health budget
The budget of Bulgaria's National Health Insurance Fund (NHIF), which reimburses hospitals, GPs and dentists for predetermined set of medical treatments and services, will be increased by around 12% or 150 mln levs for 2008.The 12% increase will actually translate into a much smaller amount in hand given that the full-year inflation is forecast to reach 8% in 2007.The budget estimates were proposed by the finance ministry and have already been approved by the NHIF board. The budget draft will be reviewed by a general meeting of the NHIF scheduled for October 25.The NHIF budget for health insurance payments will rise by 110 mln levs to 1.423 bln levs in 2008, including 743 mln levs for payments to the hospitals which will get 60 mln levs more than they were allocated in 2007.There is no change in the NHIF budget for payments to general practitioners.The budget for dental services is increased y 6 mln levs.The budget figures announced on Wednesday stunned the Bulgarian Medical Union which had warned a week earlier that the NHIF budget should be doubled to 2.2 bln levs in 2008.
Russian gas pipeline more likely than EU's Nabucco
A major Kremlin-backed gas pipeline may have a better chance of supplying Europe with new gas than the much-touted EU-backed Nabucco project, designed to ease the bloc's dependence on Russia, analysts say, cited by Reuters .Although both projects are riddled with problems and may not move off the drawing board, the main question behind long-delayed Nabucco is whether it can secure enough Caspian and Middle East supplies to fill the pipe."Nabucco has fantastic political will behind it but so far no reality," said Jonathan Stern of the Oxford Institute for Energy Studies."The crucial problem with Nabucco is that while it has political support it doesn't have the supplies to fill the 9 billion cubic metres for the first phase," said Derek Brower, an independent energy writer who specialises in the region.But so far the five signatory countries to the 4.6 billion euro pipeline - Turkey, Bulgaria, Romania, Hungary and Austria - have not secured any gas and without supplies it would be difficult to raise funding, analysts said.
Bulgaria exports with 8,6% more than in 2006
Bulgaria's export for the period January - July 2007 goes to 14,45 billion BGN (7,2 billion EUR), National Statistical Institute (NSI) reports.This is 8,6% increase comparing to the same period last year.The import for the first six months of the year is 23,157 billion BGN (11,75 billion EUR) - 18,7% increase for 2007.The export for countries in EU is round 9 billion BGN (4,5 billion EUR), while the import from the Union is 13,7 billion BGN (6,5 billion EUR).By the end of July 2007 is marked growth (37,6 %) in exporting beverage drinks, alcohol drinks and tobacco, compared to last year.
BCCI President: If lobbyism law is not worked out well, corruption-related thing might be legalized
We should not see the lobbyism bill on its own – it is interwoven with other laws and it should be drawn up in such a way that it will be able to correspond with them, not exclude them. If the lobbyism law is not worked out well, we will risk legalizing something related to corruption, Bozhidar Bozhinov, President of the Bulgarian Chamber of Commerce and Industry, told Focus News Agency.“Defending a certain group of people by means of the law, we are asking – who is to defend those who are not defended by lobbyists. Secondly, we are asking why there is no law on branch unions, which are actually the biggest lobbyist organizations. We would like the lobbyist law to have much more transparency, because the Act on Political Parties’ Financing is not a good one, and here we will have such interests interwoven,” he added.
Funding for energy companies thinned
The Bulgarian state will cut the funding for the energy companies as of January 1. The return rate of private energy distributing companies of and their owners - EVN, CEZ and E.ON will thin by 4%, experts from the energy regulator informed. 16% of the rate of return for the first three years was staked upon the energy sector privatization. Thus the guaranteed profit of the three companies will drop to 12% after New Year. There is no guarantee that the electricity rates will get cheaper. on the contrary, they may boost in the summer season as fuels will get more costly. In the meantime Bulgaria’s energy minister Petar Dimitrov visited the Belene NPP on Saturday. The strategic investor for the project will be chosen by the end of 2007. There are ten bidders for the 49% minority stake in Belene. Investments amount to EUR 4 billion.
Belene NPP construction to get 30 % costlier
"Belene Nuclear Power Plant (NPP)'s building may turn out 30% more expensive and rise to a 5,2 billion Euro," said in Beijing Irina Esipova, the press secretary of Atomstroyexport, the Russian contractor, which is to build the plant. If this happens, Bulgaria's second nuke would cost 5,2 billion Euro instead of the initially envisaged 4 billion. "There are no grounds yet for such apprehensions. It is too early to talk of a price rise," Esipova said. "It will be not earlier than 2008 that the construction contract for Belene NPP will be signed by the National Electric Company (NEC) and Atomstroyexport," she added. The contract will particularize under what conditions the Russians will be allowed to rise or lower the construction price. For example, one such condition could be more advanced technologies, or more modern construction process, or any other additional requirements the contracting authority NEC might come up with.Atomstroyexport stated that they were ready with the conceptual project and the technical assignment. Contrary to an earlier statement by Esipova that the architects of the state-owned holding Atomenergoprom had worked for 6 months without having been paid due to a delayed payment on the part of Bulgaria. Currently the Russians are working for the advance payment provided by NEC for this year. No earlier than summer-2008 will the Bulgarian Ministry of Public Works and Regional Development issue a building permit for the nuke's construction. Afterwards it will take at least six months for the Bulgarian Nuclear Regulatory Agency to license Belene NPP. "Nevertheless there should be no apprehensions that there might be a delay. The plant will commence work as it has been planned - in 2014," said Esipova. According to the sources of The Standart, however, the plant's start will be suspended for a year.
Natural gas price to go up by 4%
The price of natural gas will go up by only 4% by the end of 2007. This means that Bulgargas will sell natural gas at a price 5% lower than the one set by the State Commission for Energy and Water Regulation. Thus gas companies will pay BGN 332.3 per 1,000 cu m of natural gas. The agreement will be signed by Bulgargas and all companies in the sector on Friday. In order to achieve a lower price hike, the government had to give up its dividend from Bulgargas for the last quarter of 2007, which is estimated to be around BGN 17 million. The expected increase in the price of natural gas as of January 2008 will not exceed 10%, most executive directors of gas companies.
Tax authorities probe alleged used car VAT scams
Bulgaria's National Revenue Agency said it is checking for possible VAT fraud on the part of local used car importers. The probe was set off after the European VAT number validation system reported a discrepancy between the revenues declared for taxation purposes and the actual VAT payments made by the Bulgarian used car businesses. The detected discrepancies were 4,200 but 68% were due to a technical error; in 21% of the cases the Bulgarian traders failed to declare the purchase of community goods while in 11% of the cases the VAT payment overstepped the law-prescribed five-day period.
Car sales boom in Bulgaria calms down
Car sales in Bulgaria for the period January-August 2007 increased by 18,2%, the National Statistical Institute (NSI) reported.Although car deals have grown in number, last years' high sales rates are slowly beginning to shrink, the NSI data points out.Fuels and lubricants sales have swollen up by 7.1%. The trade with household goods and appliances, as well as with textile, clothing, and shoes has expanded by 9.2%. Foods, drinks and cigarettes sales have increased by 8.6%.
Bulgaria registers 7.6 Billion foreign trade gap
Bulgaria registered a gap of 7.6 billion levs (1euro=1.95levs) in its foreign trade for the first seven months of 2007, sources from the National Statistical Institute informed.
Bulgaria's import continues growing two times faster than export. From January till July, the import increased by 18,7% and, together with transport and insurance costs, amounts to 23,15 billion levs. At the same time, Bulgaria's export grew by only 8.6% to reach 14,44 billion levs. Due to the gap in Bulgaria's foreign trade, the European Commission insists that Bulgaria's state treasury should finish 2007 with a surplus worth 3 % of the GDP. That's why it is likely that Bulgaria's ministries will not receive 10% of the funds planned in the budget. Bulgaria's top export markets are Germany, Italy and Greece, while imports come mainly from Russia, Germany and Italy.
Bulgaria and Sweden team up in energy sector
"Power generation, biofuels, tourism, pharmaceutical industry and army modernization are the fields in which Swedish companies may expand their investments in Bulgaria," said President Georgi Parvanov at the opening of a Swedish-Bulgarian seminar in Stockholm. The forum will be attended by King Carl XVI Gustaf of Sweden and the heiress to the Swedish throne Princess Victoria. "The Bulgarian state will be supportive of every company having a sincere interest to invest in its economy," Parvanov added. At the invitation of the Bulgaria's President and the First Lady, the Swedish royal couple honoured with their presence a Bulgarian concert featuring kaval virtuoso Teodosii Spassov, the duo Elitsa Todorova-Stoyan Yankoulov and the Women's Choir of the Bulgarian Community in Stockholm, the Bulgarian News Agency (BTA) reported.
Economic relations with Turkey face bright prospects
Bulgaria's Minister of Foreign Affairs Ivaylo Kalfin met Monday Turkish Deputy Foreign Minister Haydar Berk, who is in Bulgaria heading a delegation of politicians and businessmen from the region of Izmir.The economic relations between the two countries were among the main topics debated during the meeting."Our trade-economic relations face bright future due to the rapidly developing economic systems in all the states from the region," Minister Kalfin said. Minister Berk announced Izmir's bid to host Expo 2015 by accentuating the potential advantages this would have for South-East Europe as a whole, including for Bulgaria.The two officials have also discussed the exchange of visits of representatives of their countries' chambers of commerce.
USAID mission to Bulgaria close doors
Today will be holding the ceremony celebrating the US - Bulgaria partnership and the closing of the US Agency for International Development (USAID) Mission to Bulgaria.The ceremony will take place at 16.00h in Sofia's Grand Ballroom at the Kempinski Hotel Zografski.Vice Prime Minister Daniel Valchev will be main speakers at the ceremony, along with Henrietta Fore, USAID Acting Administrator, US Ambassador John Beyrle, and USAID Mission Director Michael Fritz.The ceremony will be attended by more than 500 government officials and partners of USAID programs including representatives of civil society organizations, businesses and media.USAID, the US Government's foreign assistance agency, began to support Bulgaria's transition to a democracy and free market economy in 1990. It continued its program over the next 17 years with more than $ 600 million in assistance.Assistance to Bulgaria was focused on 3 broad goals: fostering a competitive market economy led by the private sector; supporting the transition to transparent and accountable governance, and the empowerment of citizens through democratic structures and processes; strengthening the management of the human dimension of the transition, and improving the quality of life.Examples of achievements of U.S. assistance to Bulgaria include the creation of more than 100 municipal customer service and information centers; assistance in establishing a stable banking sector and capital markets; provision of more than 50,000 micro-credits to small business owners; creation of more than 130,000 jobs; provision of residential mortgages in the amount of 300 million BGN (150 million EUR).
Builder of new Sofia subway route to be named early 2008
All 10 companies and consortia that submitted offers for the construction of a new section of the Sofia subway system, connecting the northern-lying Nadezhda borough with the downtown Cherni Vrah boulevard, have advanced beyond the prequalification stage of the procedure.The candidate list includes Italian tie-ins Pizrotti-Seli and Condotte-Ansaldo, Spain's FCC and Obrascón Huarte Lain, Czech Metrostav, Greek consortium Aktor-Terna and JP Avax also from Greece. Three Bulgarian companies are also in the frame. Geotechmin is the only local entrant not part of any alliance with foreign corporations. Glavbolgarstroy will contest the contract in partnership with Germany's Hochtief while Moststroy has teamed up with Turkey's Dogus Group.The Sofia municipality said all 10 candidates meet the minimum financial capacity and otherwise requirements set for participation in the next stage of the competition.The construction of the new route - stretching from the Nadezhda residential district down south-east to the Central Train Station, the Tzum department store, the National Palace of Culture, the Hemus hotel up to the Cherni Vrah boulevard, should get underway in the spring of 2008. This route will have a total of seven subway stations. Work on a route going in the opposite direction - from Nadezhda further up north to the Obelia borough, is scheduled to begin in late 2008. Service along both new routes should start in late 2011. Work is currently underway on an 8 km stretch of the subway system from the St. Nedelya square through the Interpred World Trade Center to the Mladost 1 residential district. The route, with a total of six stations, should be operational by 2009. A further 7.2 km will be added to the metropolitan subway system with a route from Mladost up north to the Druzhba borough and the Sofia International Airport. The selection of the a contractor for this section is due to get underway in the second half of 2008. The existing 12 km of subway routes have 8 stations and are used by 25 mln commuters annually.
Bulgaria gets full euro subsidy for agriculture
Bulgaria will receive full euro subsidy for direct payments in the agriculture sector. Commissaries decided not to activate the preventive clause for agriculture in Bulgaria, which means that the country gets the complete sum of more than 250 million EUR.I would like to express special thankfulness to the Agriculture EU Commissioner Mrs. Mariann Fisher Boel for the high and justice evaluation expressed for Bulgaria.This was stated by Bulgaria's Agricultural Minister Nihat Kabil on occasion of the Brussels' decision.I took the engagement Bulgarian Agriculture not to receive the prevention clause and I completed it, added Kabil.The integrate system for administration and control in Bulgaria guarantee correctly using of the EU resources for direct payments per one area and I am pleased that this opinion is also shared by the EU Commissioners, said the Minister.The big aim now is successful start of the Programme for development of farm regions, which for a period of 7 years 2007-2013 will revive Bulgarian agriculture, pointed out Kabil.
Sofia compensates draught-hit farmers with state aid
At the EU Agriculture Council meeting in Luxembourg on October 20-22, Bulgaria expects an authorization to compensate farmers for their draught-ruined wheat and barley crops by State aid, Bulgarian Deputy Agriculture and Food Supply Minister Dimiter Peichev told a meeting with farmers here on Wednesday. If such an authorization is granted, payment of compensations may start straightway, BTA reports. Farmers are to receive 350 leva per hectare of field planted with wheat and 300 leva per hectare of land put under barley. Enough financial resources have been allocated to compensate the farmers 100 per cent, and the regional agriculture services have registered the ruined crops. The planned state aid, including possible compensations for the maize and sunflower plantings destroyed by the draught, amounts to some 100 million leva, Peichev said. Some 4,000 young farmers are expected to take advantage of the EU funds for a business start-up of their own, the Deputy Minister siad. Each farmer aged between 18 and 40, who registers for the first time as an agricultural producer, is entitled to a grant support of up to 25,000 euro. Young farmers who lack proper qualifications can attend a free 150-hour training course.
BSE organizes forth regional conference
Forth regional round table "The Bulgarian Stock Exchange and the Business - Partners in the European Union" is going to take place in the Spa resort of Stara Zagora on 23 November, announced BSE. On the event the advantages of the capital market and the alternative financing using the stock exchange are going to be presented. Other topics of the discussions are going to be procedures for gaining public statute, the legal framework of the capital market, the experience of the public companies and so forth.Invitations for participation have been sent to companies from the SEE region, investment mediators, banks, industrial organizations and others.Government and local officials are going also to attend the conference.There is going to be possibility for individual business meetings among the investment mediators and the companies.The form for participation could be downloaded from the official site of BSE. The tax is 120 BGN (60 euro) for a single person and the limit for the number of participants is two persons for a single firm.
INVESTMENTS:
Economist bearish on Bulgaria FDI outlook
Foreign Direct Investment (FDI) influx to the Bulgarian economy will decline almost twofold in '08, forecasts the analytical unit of the Economist magazine, Economist Intelligence Unit. The outlook is similar to those outlined by most ratings agencies and financial experts who expect an outflow of capital from Eastern Europe as a fallout from the local credit crunch. FDI is forecast to cover 36% of the country's c/a deficit in '08, down from 66.4% in '07. The c/a gap will narrow but slower than the FDI downturn.
Every third Lev invested in construction
Between 2,3 and 2,6 billion Euros are invested in construction in Bulgaria per annum, an Industry Watch analysis shows. This means that a third of all the investments to this country were made in that field. For the past 12 months building permits for architectural projects covering 12,4 millions sq m have been issued. Of this area, 60% is the share to housing construction projects. During the past six trimesters the tendency for a strong 28 to 50 percent growth rate of building permits issuance has been preserved. For now any apprehensions that this growth rate might slow down can be defined as completely groundless.
Groundbreaking ceremony of a "Mega" winter resort
The groundbreaking ceremony of the winter resort project "Super Borovetz" was held monday, announced news.bg. We expect investments of about 500 million euro over the next 5 years and 2000 new permanent job vacancies, said in a speech during the ceremony the PM Sergei Stanishev.The total built-up area of the living places and the hotels is going to be 623500 sq. m. and 4- and 5-star hotels are going to be raised. The construction of new skiing tracks of total length 40 km. is planned.The project "Super Borovetz" is going to be carried out, divided in two main parts in the years 2007 - 2008.The mayor of the near-by town of Samokov said that after the construction of the "Rila" highway the traveling from the central area of Sofia to the Borovetz resort is going to take between 35 and 40 minutes.The project "Super Borovetz" is announced to be of national importance, as it is believed to contribute to the good appearance of Bulgaria on the European tourist market.The government expects the investors to build in an environmentally sustainable manner, explained the P.M. The unique thing about the project is that it began with the building of a chair lift instead of hotels, he said in addition.
Business complexes to replace old plants
New business complexes with shopping centres, offices and residential buildings will be erected in the place of old plants in the central parts of Bulgaria's big cities. Several such projects were presented at the autumn property exhibition, BalPex, in Sofia.The former refrigerator plant, Mraz, in the northern part of Sofia will be transformed into a business complex, the owners of the plant, the Vassilev brothers, said. Vassilev Business City will be carried out by Pavas, which will invest more than EUR 20 million. As much as EUR 30 million has been injected in the project already. The complex will be finished by the end of 2010, offering more than 90,000 sq. m of administrative, commercial and residential space.Spain's Riofisa also plans to build a commercial and entertainment centre with an office tower and a hotel part on 84,000 sq. m in the industrial zone behind the central station in Sofia. A residential complex is also mulled near the centre. Germany's ECE Projektmanagement and Advance Properties are already clearing the site of Balkancar Sredets, where they will build Europa Park. A luxury development, Este Home & Spa, will appear in the place of Sofprom's old building in the Iztok residential district. The project of Advance Properties was also presented at the exhibition. In Plovdiv, Galaxy Property Group will build a large gated complex on the site of the former bread-making plant in the Karshiaka district.
First-Class Shopping Center for �150 M to Appear in Varna
ECE Projektmanagement, the European market leader for shopping centers, is developing a first-class shopping center in Varna.With its more than 54,000 mІ of leasable area, more than 220 high-quality shops, and approx. 2,300 parking lots, the Cherno More Park will create an attractive shopping location in the strongly growing town at the Black Sea coast. The total investment volume of Cherno More Park is 150 mln EUR.The completion is planned for 2010. Cherno More Park will be located on Vladislav Varnencik Boulevard, one of the most important transport axes of Varna. Several bus lines stop in front of the center.In view of its good connection to the area's traffic network, Cherno More Park will become the top shopping destination for Varna, the largest port city on the Bulgarian Black Sea Coast and third-largest town of the country.The main focus of the shopping mall will be on international fashion. Textile department stores, a market for consumer electronics, a hypermarket and a sports store will act as anchor tenants. Several international retail companies have already committed themselves to the project.In Bulgaria, ECE is already working on two large scale projects in Sofia. The Serdika Center with a leasing area of 50,000 mІ and 35,000 mІ of office space will open in fall 2009. Additionally ECE is building the Europe Center (70,000 mІ of leasing area) and the Europe Tower, which is going to be the highest building in Bulgaria after its completion in 2010.Recently Invest Bulgaria Agency awarded Europe Center Sofia with the status of a First Class Investment.
Immoeast to build shopping centre in Varna
Austrian construction and investment company Immoeast plans to build a shopping centre in Varna. Construction works are expected to start in the third quarter of 2008, while the facility is slated for completion in 2010. A total of 54,000 sq. m of commercial space will be offered for rent within the shopping centre. The complex will be built jointly with another company, which is yet to be disclosed. Immoeast has announced another deal sealed in Bulgaria in the end of 2006. The company acquired the Antim Tower business centre in Sofia's Zaharna Fabrika district. The building offers 10,000 sq. m of office space for rent and the company plans to build further 90,000 sq. m. Thus, the overall investment is expected to top EUR 150 million. Construction works are scheduled for completion by 2012. Immoeast is the largest investment fund for Central and Eastern Europe. The company set foot in Bulgaria several years ago with the acquisition of stakes in the Prime Properties special purpose vehicle and in the Global Finance fund. Immoeast announced earlier this year plans to invest EUR 2.6 billion in Southeastern Europe by the end of 2008.
Bulgarian telco Nexcom to invest �20 М in WiMAX deployment
Nexcom, the local telecom start-up, said it plans inward investment of over 20 mln euro through 2009.The investment program will be partially bankrolled by Nexcom itself while the remainder will be provided by the telco's new partners: Intel Capital, Intel's global investment organisation, and MCI Management SA, a leading financial group managing venture capital and private equity funds.MCI Management has invested $7.1 mln in Nexcom in exchange for a 31.6% stale in the company.The size of the Intel Capital investment in the Bulgarian alternative telecom was not disclosed.Nexcom said the drafting in of two financial organisations will give a serious impetus to the deployment of its nation-wide WiMAX network that will deliver a bundled solution of voice and wireless Internet services.The investment resource that will be made available to Nexcom will enable the company's WiMAX network to blanket Bulgaria's entire territory within nine months and carve out at least a 10% share of the fixed-line voice and broadband Internet market.The rollout of WiMAX-based mobile services are also on the near-term agenda.Nexcom should provide complete wireless coverage in all major Bulgarian cities by the end of 2007, said executive director Emil Nikolov. The service will be commercially available in all population centers with up to 50,000 residents within nine months.This month, the company marks the first anniversary of the launch of its WiMAX-based services. They are now available In Sofia, Bansko, Burgas as well as a number of other resort locations. Nexcom won the national WiMAX frequency permit on a competitive basis in 2005.
Linde Gas to open new plant in Stara Zagora
Linde Gas Bulgaria, a subsidiary of Germany's Linde Group, will open a EUR 10 million plant for the production of gases near Stara Zagora on Friday. The plant was built on a 1.8-ha plot on the site of the former nitrogen fertiliser maker Agrobiochim, which went bankrupt in the end of the 1990s. Installations for liquefied oxygen, nitrogen and argon were set up at the new facility in less than a year. A 35-metre tall tower, which uses air for the production of gases, was also built. The new plant will use modern and environmentally friendly production technologies, which are fully automated. The plant will produce 18 million cu. m of liquefied gases annually and will be services by just seven specialists. The liquefied oxygen will be supplied mainly to hospitals. Acetylene will be produced for the shipbuilding yards in Rousse and Bourgas.
Cyprus vows to invest in Bulgaria tourism
Cyprus has promised to lend a helping hand in developing Bulgaria's tourism industry by training and investments.The assurance was given by Cyprus Minister of Commerce, Industry and Tourism Antonis Michaelides, who conferred in Sofia with Bulgaria's Economy and Energy Minister Petar Dimitrov.Minister Michaelides pointed out that the Republic of Cyprus has excellent experience with Bulgarian workers and has placed no restrictions on Bulgarian jobseekers.Most of the 30,000 Bulgarians working in Cyprus are involved in its tourism industry as waiters and hotel staff, Antonis Michaelides said.
The Cyprus delegation, visiting Bulgaria, includes fourteen companies in the field of tourism, real estate property and banking.The country is the fifth biggest investor in Bulgaria with more than EUR 750 M invested over the last ten years.Companies in Bulgaria's tourism industry are finding it more and more difficult to recruit labour force and have recently warned they will be short of 30,000 workers next year.Empty beds are only one of the Bulgarian tourism industry's problems. Businesses have invested millions of euros to build beautiful hotel grounds, bars and other amenities, but the corresponding infrastructure, transportation and communication networks are too little or completely lacking.
Turkish health care consortium to invest in private hospitals in Bulgaria
Turkish health care consortium Hospitalium Medical Group (HMC), is planning to invest $50 million (35.46 million euro) in a chain of private clinics in Bulgaria and Albania.Abit Bakistanli Grubun, CEO of HMC, made the announcement on October 7, as quoted by Bulgarian National Radio (BNR).The $50 million would be spent on long-term health care initiatives. In the initial stage a $30 million (21.28 million euro) would be used to build and launch four clinics, two in each Bulgaria and Albania, BNR said.Hospitalium Medical Group owns and operates four Turkish hospitals in Camlıca, Haznedar, Sisli and Umraniye.
Carlsberg invests �10 M in Shumensko Pivo in the next 3 years
Carlsberg Bulgaria, reported sales growth of 26,5% in January-September 2007, Journey.bg informed, citing officials from the Bulgarian office of the company. Despite that the result represents a slight retreat from the 30% growth level reached last year, the company has narrowed its lag behind the first- and second-ranked players on the market, Heineken and InBev.Carlsberg is now in control of 25% of the market, where Heineken holds 30% and InBev holds 26%.The sales pick-up is largely attributable to soaring sales of Shumensko pivo (24% growth).The company will continue with investments into technological upgrades. In the next 3 years it plans to invest 20 million BGN (10 million EUR) in brewery based in Shumen.
Bulgarian company Stad to build logistics center near Sofia
Bulgarian company Stad has announced plans for a logistics center of the same name to be built in Sofia's Kazichene borough.The contemporary facility will occupy a 0.6 ha lot facing the Sofia ring road.The property, with a built-up area of 6,500 sq m, will also comprise an office building, retail facilities, bank office and showroom. The storage section will offer a capacity of 6,000 pallet positions.The storage space rents start from 5-6 euro/sq m while the office space will be rented out at 10-12 euro/sq m.The Stad logistics center will offer a comprehensive range of services: from storage, labeling, repackaging to door-to-door distribution and up-to-the-minute information on inventory levels.The Stad company operates a forwarding fleet of 10 trucks and is also active in the import of metals and construction materials.The Stad warehouses are in operation in Sofia and Dupnitsa. In related news, a market survey by property consultants Cushman&Wakefield shows that Bulgaria offers the most expensive for-rent contemporary storage space in Central and Eastern Europe with rates starting at 6 euro/sq m.The tight domestic supply is to blame for the high rent rates, said Sergei Koinov, executive director of local Cushman&Wakefield affiliate Forton.Around 27,000 sq m of storage space were placed on the market in Hungary in the last quarter versus less than 10,000 sq m in Bulgaria, Koinov said.Romania is also facing a shortage with rent rates in Bucharest at 4 euro/sq m.The Polish market absorbed 345,000 sq m of new storage facilities in the last quarter, a record increase of 19% quarter-on-quarter. Rents there start at 4 euro/sq m.Storage facilities in Budapest command rent rates of 4.5-5 euro/sq m. Although logistics properties in Bulgaria no longer generate a double-digit yield they are still hovering around 9% annually which is three to four percentage points higher than Central Europe.To ensure a good yield margin on a logistics property in Bulgaria, land acquisition costs should not exceed 35 euro/sq m while the resulting product should be rented out for at least 4.5 euro/sq m per month.
Another 50 holiday complexes to be built in Razlog
Тhe municipality of Razlog has issued nearly 50 construction permits for big holiday complexes, the local authorities said. Each of them will have a total built-up area of more than 10,000 sq. m with some 200 apartments. The whole territory of nearly 600 ha has a master plan, which facilitates the installation of communications and infrastructure.
Apartment prices in the region are around EUR 1,000 per sq. m. Brokers and investors, however, are cautious because of fluctuations in demand.One of the new projects is the extension of the luxury holiday complex Katarino Spa 2. Investor Balkanstroy plans to erect four apartment buildings and a large new spa centre. The total area of the project is about 32,000 sq. m, including 450 apartments. The entertainment section includes several restaurants, bars, sports facilities and tennis courts.Sofia-based Pirin Properties has a construction permit for a complex of some 300 apartments and a spa centre near the golf course in the Izvorite place. Effekten und Finanz, Mountain Holidays, Tempo Holiday and Lex Group Bulgaria are also investing in in the region.
COMPANIES:
Number of SMEs in Bulgaria at 250,000
A total of 250,000 small and medium-sized enterprises (SME) operate in Bulgaria, accounting for 99.6% of the companies registered in the country, Boycho Kolev, executive director of the Bulgarian Small and Medium Enterprises Promotion Agency (BSMEPA) said. Medium and large-scale companies account for 80% of the exports. The number of this companies makes for 15-20% of the number of companies in the country, according to Kolev. The average annual exports of Bulgarian SMEs amounts to EUR 25,000. Small companies often have no established partners in Europe and come across deals accidentally. BSMEPA plans to reverse this trend through the organisation of information seminars. The commercial aspects of Bulgaria's EU accession, export insurance and export financing opportunities will be among the topics of the seminars.
Bulgarian companies pay 40% larger taxes
Over 1.250 billion levs (1 Euro = 1.95 levs) from corporate tax entered Bulgaria's state treasury by the end of September, which is by 40% more compared to the same period of 2006. Nearly 8.5 billion levs, constituting 85% of the annually planned revenues, reached the bank accounts of the Bulgarian National Revenue Agency (NRA) end-September. Some 5.4 billion have been collected from taxes, and the social insurance contributions revenue has amounted to 3.1 billion levs. The income tax revenues exceed last year's by 30%. The report for the fulfillment of the state budget until end-September was read at the NRA's strategic session that took place in the resort of Borovets. Also, at the session Deputy Financial Minister Kiril Zhelev assured all NRA managers of his full support for their actions. Other issues subjected to the discussion were the computer system which is to manage the revenues, as well as the reasons for recalling revision acts of the Bulgarian tax authorities.
Bulgarian drug distributor Sopharma Trading edges close to bourse
Sopharma Trading, a unit of local drug maker Sopharma, is expected to be registered on the Bulgarian stock exchange within days after the Central Depository Monday entered in its records the company's capital of 30 mln levs divided into as many shares with a nominal value of 1 lev.Five months ago, the shareholders of the drug distributor gave the go-ahead for the company to go public through a secondary offering of shares.The capital of the company was then raised from 20 mln to 30 mln levs through the issue of 10 mln new shares. The issuance was subscribed only existing shareholders.Sopharma Trading was among the nation's top 3 drug distributors in 2006 with a market share of 15.66% and sales of 138.82 mln levs.The company plans to boost by 80% its warehousing capacity - currently at 17,000 sq m, with new facilities in Veliko Tarnovo and Burgas. A new distribution center should open in Sofia by April 2008.After a series of acquisitions in 2006 Sopharma Trading merged the operations of 5 local drug distributors: Sanita Trading, Kaliman RT, Global Medical, Consupharm and Elpharm. The company stocks 3,500 pharmacies and 100 private and public hospitals with over 7,000 products.
Sopharma acquires stake in OlainFarm
Sopharma has acquired 108,500 shares in Latvian pharmaceutical company OlainFarm, it emerged from a statement sent to the Bulgarian Stock Exchange (BSE). Sopharma has acquired the stock at an initial public offering. The shares have LVL 1 par value each. OlainFarm is among the three biggest pharmaceutical companies in the Baltic States. The news for the Sopharma's purchase was broken after the trade closed on the Bulgarian Stock Exchange (BSE) on Friday. Sopharma's stock depreciated by 1.63% to an average of BGN 9.03 per share on the day.
CEZ to export power to Greece via Bulgaria
CEZ AS, the biggest central European power company, started to sell electricity to Greece Oct 8 in a one-week contract that will test possibilities of exporting power to the country, reports news agency Bloomberg. The Prague-based CEZ began its first-ever sale of power to Greece, it said in an e-mailed statement quoted by Bloomberg. The contract for the delivery of 'a small amount' may be the beginning of larger business with the country, CEZ trade director Alan Svoboda said. The power for Greece will be produced mostly in Romania and Hungary and will be exported via Bulgaria, CEZ said. CEZ spokeswoman Eva Novakova declined to give details of the size of the contract.
Logicom Stepped in Bulgaria
The IT technologies distributor Logicom Group announced the start of its activity in Bulgaria during the official presentation on October, 4 in Hilton hotel, informed from the company.At the beginning Logicom will distribute the whole gamut of Cisco systems. In the near future the company will expand its portfolio, offering products of other leading IT companies.“Bulgaria has many possibilities and qualified specialists and the fast speed of your economy secures favorable business environment”, claimed Nikos Kiriaku, regional manager for the European markets of Logicom.Logicom is leading distributor of network and telecommunication equipment, computer accessories and peripheral devices in South East Europe, Middle East and the Persian gulf. The company distributes Cisco systems since 1998 and is currently one of the five key distributors of Cisco in 16 countries from the above mentioned regions.The company's shares are traded at the Cyprus Stock Exchange.
Bulgarian beverage company rivals Coca Cola
Bulgarian beverage producer Nova Trade's own Derby brand is rivalling Coca-Cola in domestic sales, according to market research data. Derby captured 21 pct of the soft drinks market in 2006, trailing Coca-Cola by just two points, information from the market research organisation Canadean has revealed.Nova Trade confirmed to Flexnews that a significant investment programme which included a 30 million euro upgrade to its production process, as well as a cash injection into market and distribution, were major factors behind the success.Nova Trade has a 28 pct overall share of the Bulgarian soft drinks market, trailing Coca-Cola Hellenic Bottling Company’s 41 pct, which includes all Coca-Cola brand products.Almost 550 million litres of carbonated drinks were sold in Bulgaria in 2006.
Raiffeisen to launch new residential project
Austria's Raiffeisen Evolution will build a second gated residential project in Sofia. The company has already acquired a 10,500-sq. m plot in the Boyana district near the Vitosha national park. Construction works are scheduled to start in the beginning of 2009. A total of EUR 15 million will be invested in the project. Houses will account for 30% of the properties of the complex. The concept is similar to that of the Sofia Sky complex, which Raiffeisen Evolution launched in 2006. Sofia Sky will be completed in the end of 2008. Some 30% of its apartments have already been sold.
Kodak opens a new lab at Bulgaria`s Boyana Film Studios
US photographic materials and equipment firm Eastman Kodak opened a film lab worth five million leva (2.55 million euro) in Sofia, Dnevnik daily newspaper reported on October 7.The local subsidiary Kodak Cinelabs Bulgaria was quoted by Dnevnik daily as saying the lab was placed in one of the buildings of the Boyana Film Studios.Boyana Film Studios is located in the outskirts of the Bulgarian capital and has been sold to Nu Image in a privatisation procedure in 2006.The new facility was part of a growing network of Kodak’s labs in Eastern Europe.One of the commitments made by Nu Image and Kodak was to build the lab, as soon as the sale of Boyana Fim was finalised.Three years ago, while on a visit to Sofia, Eastman Kodak’s Peter Boyce, business manager for CEEMA (Central and Eastern Europe, Middle East and Africa), said the lab was going to be open to all customers from Bulgaria and abroad, interested in using the firm’s equipment, and not only to Nu Image.Kodak’s investment was spent on the equipment for the new lab, on the reconstruction and renovation of the entire building where the facility is placed, and on personnel training, Dnevnik says.Kodak Cinelabs Bulgaria will offer services for the filming, advertising and music production industries.
Camera maker Olympus opens office in Sofia
Olympus, the Japanese maker of medical, industrial and imaging equipment, has opened a trade office in Bulgaria in an attempt to build up on its local market presence. According to the company, it owns 12% of the Bulgarian market for digital cameras. Olympus opened an office in neighboring Romania a month ago. Across Eastern Europe, the company has a market share of 16-20%, ranking no.1 in Croatia and featuring in the top 3 in Slovenia and Serbia.
Lukoil to up number of franchised filling stations in Bulgaria
The local division of Russian oil major Lukoil said it plans to increase the local number of franchised filling stations by 15 over the next three years to a total of 27. Lukoil Bulgaria inaugurated Thursday a new filling station in Sofia, bringing to 180 the outlets in its local company-owned network. The number of Lukoil filling stations in Bulgaria should reach 300, propelling the company to the position of market leader. Some $300 mln have been earmarked for investment in new filling stations through 2011. Fuel retailer Petrol currently has the biggest market share with over 25%, followed by Lukoil with 16-18% (according to company data). Austria's OMV and Anglo-Dutch powerhouse Shell are nipping at its heels with 16% each. Romania's Rompetrol and Eko Elda, a unit of Greece's Hellenic Petroleum, also plan to grow their fuel retailing business in Bulgaria through franchising as well as through acquisitional and organic growth.
Henkel opens factory near Sofia
Henkel opened a factory for the production of dry construction materials and adhesives near the village of Mirovyane close to Sofia. The world's reputed German company specializing in household products manufacturing has invested 16 million BGN into the project (about 8 million EUR.) The inauguration ribbon was cut by Bulgaria's Minister of Regional Development and Public Works, Assen Gagauzov."The first sod of the factory was turned a year ago," stated Senior Vice-President of Henkel Peter Ruiner."Henkel expects to expand its production in Bulgaria in 2008," Mr. Ruiner said further.
Henkel also plans to open a second factory in Bulgaria by 2010.
ANALYSIS:
Invest in Eastern Europe
Author: Ellen Kelleher, Financial Times
Buy-to-let investing in this country does not look particularly appealing as property prices and mortgage rates are high. So, if you are keen to plough money into a second property for the purpose of letting, you might want to consider a flat in Estonia, Poland or Bulgaria as an alternative.Growth in residential property prices is slowing in most parts of the world because of the rise in interest rates and the tightening of lending criteria. But there are still countries where sterling goes far and value can be found in property."It's not all bad news for the global market," says Liam Bailey, head of residential research at Knight Frank, the international estate agent. "The Baltics, for example, have seen incredible growth over the last two years. And prices there are still at least 50 per cent less than those of properties in western Europe.In Estonia, Poland, Romania and Hungary, the feeling is there's much more room for potential growth."A decade ago, when British property investors suffered a bout of wanderlust, they tended to buy villas in southern Spain. These days, however, more property investors are flocking to France, Portugal, eastern Europe and the coast of southern Turkey, where property prices have jumped 40 per cent in the past three years."Investors seem to be steering clear of Spain as they feel that the relentless modernisation along the coast has robbed the country of its rustic charm and that the volume of property to let has now reached its saturation point," says Matthew Weston, manager of overseas mortgages at Blevins Franks, the financial services group.This year, the average value of a two-bedroom villa in Mallorca fell 20.5 per cent from 2006 while the value of a three-bedroom home dropped 12 per cent, according to Kyero, a Spanish property group. Prices also fell in Valencia and showed only a slight rise in Murcia.Analysts claim Praia da Luz in Portugal, Nice, Cannes and even Paris are now far more attractive to Brits, with the price of properties in these areas ranging from EUR250,000 (£173,300) to EUR1m. The wealthy are also increasingly drawn to French ski resorts in Les Trois Valles.While the price of a property in Courchevel is as much as EUR20,000 sq m, demand remains high as yields on properties hover between 5 and 7 per cent per year. Capital appreciation on homes in Chamonix ranged from 5 to 10 per cent over the past decade, according to Blevins Franks.For many, the Baltics and eastern Europe - where prices tend to be a quarter of the price of UK properties - are even more enticing. In Poland, scores of new developments are sprouting up in Warsaw and Krakow, for example.A two-bedroom flat in the centre of Warsaw costs £75,000. Annual yields on properties in the city range from 6 per cent for more expensive developments to 8 per cent for starter flats.In Tallinn, Estonia, the average price of a twobedroom apartment jumped 10 per cent this year from the same period in 2006, reports Blevins Franks. Rental prices rose almost 16 per cent in the city's centre."There's always an element of speculation in markets like Estonia and you've got to do your research. But if you buy a quality product near a centre of employment, it should be relatively easy to let," advises Weston.One point to consider before investing overseas is the cost: buyers need more money upfront - about 35 per cent of the purchase price in cash for a deposit and expenses, according to Ray Boulger of John Charcol, the mortgage adviser.Also, securing a mortgage may pose more problems outside the UK as lending requirements tend to be stricter (mortgage brokers advise taking out a mortgage in the country's currency to hedge risk). Mortgage rates vary widely from one country to another, but there are still good deals around, according to Conti Financial Services.In France, a five-year fixed mortgage and interest repayment can be secured at a rate of 4.30 per cent with a maximum loan-to-value (LTV) ratio of 80 per cent. Variable rate, interest-only mortgages are available for 6.15 per cent with a maximum LTV of 80 per cent.In Croatia, rates for variable mortgages are much higher and investors face a minimum rate of 8.5 per cent. In Bulgaria, rates for variable mortgages are also high at 7.5 per cent.
IMF warns investments make Eastern Europe vulnerable
Author: Krishna Guha, Financial Times
The economies of eastern Europe are vulnerable to a reversal of the surge of private capital that has poured into emerging markets in recent years, the International Monetary Fund says in its latest World Economic Outlook analysis.The IMF says "large capital inflows are of particular concern to countries with substantial current account deficits, such as many in emerging Europe", as well as countries with inflexible exchange rate regimes.Eastern Europe is the only region highlighted by the IMF in this way as particularly vulnerable to a change in private capital flows.The sections of the IMF report released today do not include its estimates for global growth. However, reports originating in the Italian media suggest the IMF has cut its estimate for world growth next year from 5.2 per cent to 4.8 per cent, with US growth revised down from 2.8 per cent to 1.9 per cent.These reports say the IMF has revised eurozone growth down from 2.5 per cent to 2.1 per cent, with the biggest reduction in Spain. UK growth is cut from 2.7 per cent to 2.3 per cent and Japan from 2 per cent to 1.7 per cent. By contrast, the IMF reportedly shaved its forecast for China only by a fraction and left its forecast for India unchanged.The IMF declined to comment on the reported revisions which, if accurate, would be consistent with a soft landing. However, the full version is also likely to argue that the risk of a harder landing has increased. Rodrigo Rato, managing director of the IMF, told the FT recently "the downside risks are bigger to me".The analytical section of the report says there are "interesting differences" between the current wave of private capital flows into emerging markets and the prior wave in the mid-1990s that ended with the Asian financial crisis.The IMF says most emerging markets now have much stronger current account positions and have been building up foreign exchange reserves.Eastern Europe is an exception, though. Gross capital inflows into the region have reached levels relative to gross domestic product that are "unprecedented for emerging market countries in recent history" while "unlike in other regions...net capital inflows have been accompanied by a deteriorating external position".However, even in eastern Europe foreign direct investment has made up the majority of net capital inflows in the current wave. Private capital outflows from emerging markets have also shot up, as these economies integrate with the rest of the world.The IMF says capital controls are generally ineffective at managing surges of private capital inflows, though some countries have been able to ease the pressure on exchange rates by liberalising outflows.It says efforts to stop currencies appreciating without fuelling domestic inflation are unlikely to succeed in the face of persistent capital inflows, and suggests governments focus on restraining government spending when capital pours in.
Watch Out! Turbulence is coming!
Author: Kerin Hope, Financial Times
The country is enjoying another year of strong growth, rising foreign investment and a steady decline in unemployment.There has been fierce competition among international banks to lend to an emerging middle class seeking mortgages to buy brand-new apartments, and consumer loans to furnish them.The rush by foreigners to acquire property in Bulgaria, from large tracts of agricultural land to a retirement home in a mountain village, continues unabated.Transfers from the European Union structural funds are due to start flowing next year, enabling Bulgaria to start on the long process of catching up with richer partners.But this sunny outlook could soon turn cloudy. The European Bank for Reconstruction and Development warned this month the international credit squeeze would have an impact on eastern Europe, slowing growth as the cost of credit rises.Erik Berglof, the EBRD's chief economist, said this month that east European economies may face a short-term liquidity crisis, but "the more important effects will come in the longer term as growth will come down from very high levels due to the difficulties and higher risks associated with obtaining credit".The World Bank said in a report on the east European EU member-states that tightening credit would weaken growth in developed markets, with a knock-on effect for emerging market exports.The new EU member-states have so far remained "relatively unscathed" by market turbulence, while preparations for future euro membership, along with close monitoring from Brussels, have strengthened their position.But the report, published last month, adds that the possibility of a deepening financial crisis and of a sustained reduction in external financing would affect countries with a high current account deficit.Bulgaria is among those seen as vulnerable. Fuelled by rapid credit expansion, the first-half current account deficit reached �2.5bn, equal to 10.6 per cent of gross domestic product. It is projected to end the year at a record 19 per cent of gross domestic product.Plamen Oresharski, the finance minister, says that before the credit crunch hit, the deficit had not given cause for concern, mainly because a high percentage of imports covered equipment and machinery for fast-growing local companies and foreign investors setting up in Bulgaria."It's clear we may face risks if European growth slows, as more than 60 per cent of our trade is with the EU," he says.Foreign direct investment of around �4bn in the run-up to EU accession fully covered the current account deficit last year. While first-half inflows this year exceeded �2bn, covering 74 per cent of the deficit, it is doubtful whether last year's performance can be repeated, says Dikran Tebeyan, economist at the Bulgarian Industrialists' Association.Yet Bulgaria has an additional cushion of at least �1bn in remittances from migrant workers in western Europe. "This figure could actually be considerably higher as people working abroad bring home large amounts of cash," Mr Tebeyan says.The central bank intervened this year to slow credit expansion, which had been growing at an annual rate of more than 40 per cent, by raising the mandatory reserve requirement for banks from 8 to 12 per cent. The surge in private sector borrowing has already pushed up Bulgaria's gross external debt to 80 per cent of GDP.There is comfort for Bulgaria in Mr Berglof's view that the presence of foreign-owned banks will underpin financial stability. The sector is dominated by subsidiaries of banks based elsewhere in the EU that rely on parent groups to provide funds for lending.After three years of annual growth above 6 per cent of GDP, a cooling-off period could even bring benefits, Mr Oresharski suggests."At the moment we have issues with both wage and price inflation, while a damping of demand would have a positive effect on the current account," he says.The year-on-year inflation rate jumped to 9.3 per cent in August, driven by a recent sharp rise in food prices as a result of drought. The year-end target has been revised upwards to around 8.5 per cent.Wages in the public sector increased 16 per cent over the past year, while private sector increases are estimated at more than 30 per cent as fastgrowing companies scramble to find skilled workers.The jobless rate fell this summer to around 6.5 per cent, the lowest since the start of transition. But this figure conceals a worsening shortage of labour in sectors such as construction and services that have been driving growth.Mr Oresharski says Bulgaria has no choice but to maintain the tight fiscal policies that have resulted in budget surpluses, given that the country's currency board arrangement takes away the option of using monetary policy as a tool.The surplus this year is set to rise to 2.7 per cent of GDP, boosted by higher tax revenues following the introduction of a 10 per cent corporate rate. Income tax will also fall next year to a flat rate of 10 per cent in a renewed effort to capture more of the grey economy in its net.Next year's budget is still being prepared but Mr Oresharski says it will assume "another year of sustained growth".Provided, that is, the new EU member-states can weather further turbulence in global financial markets.