BULGARIAN ECONOMIC TOP NEWS DIGEST
WEEKLY REPORT (15 – 22 MAY 2009 )
Sections/headline briefs:
MACROECONOMY:
· World Bank approved new USD 200 M loan for Bulgaria
· IBRD grants Bulgaria loan at the amount of EUR 149.3 M
· Bankers advise Sofia to speed up euro adoption
· World Bank: Global financial crisis opportunity for Bulgaria
· Bulgaria refuses foreign financial aid
· Sofia negotiates for EUR 114 M EIB loan
· Contracts signed for 83% of ISPA money
· PM: Reserves guarantee Bulgaria's financial stability
· Interest rates go down slightly
· Bulgaria is 38th in competitiveness among 57 economies
· Bulgaria ranks first among outsourcing destinations in Europe
· Solar expansion in energetics
· Bulgarian art week set to debut in Shanghai
· Bulgaria's business demands two anchors for economy
INVESTMENTS:
· €400 M to be invested in Burgas & Varna airports
· VETs Popsko received top investment certificate for EUR 29.7 M wind energy project
· Piccadilly to build EUR 15 M logistics centre in Elin Pelin
· Bulgaria Real Estate aims at impressing Kuwait investors
· Aurubis Bulgaria invests BGN 30 million in new capacities
· Zaharni Zavodi invest BGN 18.5 М in subsidiaries
COMPANIES:
· Unicredit Bulbank finances Bulgarian firms with 50 M EUR from EBRD
· IBM and Bulgaria sign a strategic partnership agreement
· Time Warner steps into Bulgaria
GLOBAL FINANCIAL CRISIS ANALYSIS AND NEWS:
· BIA Chairman: Bulgaria won’t overcome financial crisis until 2012
· Crisis hits cellulose and pulp branch
- Crisis did not pull Bulgarian banking walls down
· The Economist print edition: Bulgarian rhapsody
- Can Bulgaria avoid asking for IMF help?
- Its time for Bulgaria to switch from tomatoes to high-tech
Articles:
MACROECONOMY:
World Bank approved new USD 200 M loan for Bulgaria
The World Bank's Board of Executive Directors has approved a USD 200 M loan to Bulgaria to support the country's reforms in the social sectors to modernize the education system, improve the financing of health services and create more and better jobs.The loan is the third and last of a series of Social Sector Institutional Reform Development Policy Loans (SIR DPL) for the Republic of Bulgaria.The support to Bulgaria through the SIR DPL series is part of the framework of the Country Partnership Strategy (CPS) that went to the Board in June 2006 and has included substantial World Bank technical assistance in education, health and social protection policy."The measures adopted by the Government and supported by the SIR DPL series are expected to contribute to laying the ground for enhanced productivity through increased skills of the labor force, a better investment climate, and more efficient health, education, and social assistance systems," said Orsalia Kalantzopoulos, World Bank Director for Central European and Baltic Countries.
IBRD grants Bulgaria loan at the amount of EUR 149.3 M
Bulgaria has agreed with the International Bank for Reconstruction and Development (IBRD) to receive a loan at the amount of EUR 149,3mln in conformity with standard national financial conditions for loans, press centre of the Ministry of Finances informed. The third loan agreement for policy development – institutional reform in social sectors (DPL3) between Republic of Bulgaria and the International Bank for Reconstruction and Development has been signed Friday through documents exchange.
Bankers advise Sofia to speed up euro adoption
Bulgaria should adopt the common European currency, Euro, as soon as possible and under an operating currency board, which is an anchor of economic stability in the conditions of widening global financial crisis, said Marco Annunziata, Chief Economist at Unicredit Group, at a discussion dedicated to the accession of the Central and East European countries into the Eurozone. The conference was part of the annual meeting of the European Bank for Reconstruction and Development (EBRD) in London, which ended Saturday. "The sooner Bulgaria joins the Eurozone, the better. For quite some time now we have been coping with the disadvantages of the Lev being pegged to the Euro, and now we should spare no effort to adopt the common European currency as soon as possible, said Levon Hampartsumyan, CEO of UniCredit Bulbank. Bulgaria's UniCredit Bulbank and the European Bank for Reconstruction and Development have signed an agreement for a EUR 50 m credit line, part of its funding for the crisis-hit region. The credit line will fund small and medium-sized enterprises, whose turnover does not exceed EUR 50 M and who have no more than 249 employees.
World Bank: Global financial crisis opportunity for Bulgaria
The global financial crisis is an opportunity for Bulgaria to develop new projects, particularly in infrastructure.The advice was given by World Bank Vice-President, Kristalina Georgieva.According to World Bank experts there is a great possibility Bulgaria's economy to decrease 3,5% until the end of 2009. That may not have such a affect the country so severely, if the government manages to keep the unemployment rate down.The World Band foresees budget deficit of 5-6% in the whole region. Bulgaria, though, may succeed to lower that percentage.The flow of funds towards the region is expected to grow as the economies of the USA and the other developed countries have already started recovering.Currently, the global funds shortage is estimated between USD 200-700 B, and the South-East European region is seriously affected.
Bulgaria refuses foreign financial aid
"Bulgaria doesn't need financial aid from abroad," Deputy Minister of Economy and Energy Yavor Kuyumdzhiev declared during a London-held forum of the European Bank for Reconstruction and Development. The EBRD announced it will set aside 7 billion euro for Europe's ex-communist countries. According to Kuyumdzhiev, Bulgaria was doing quite well because, in spite of the global crisis, there is no large scale of bankruptcies, currency devaluation or monthly unemployment rate rises. "We have accumulated 23 billion levs (1 euro = 1.95 levs) in Bulgarian currency and fiscal reserves. This is a uniquely large buffer. We would not be facing problems even if we see a decrease in the amount of the foreign direct investments," Kuyumdzhiev stated.
Nonetheless, EBRD signed a 50-million-euro agreement for bailout plans funding with UniCredit Bulbank. The money will be loaned to small and medium Bulgarian enterprises.
Sofia negotiates for EUR 114 M EIB loan
Sofia Municipality intends to negotiate with the European Investment Bank (EIB) for EUR 114 M loan for Sofia subway projects.Sofia Deputy Mayor, Minko Gerdzhikov, will ask the city council to authorize the Mayor, Boyko Borisov, to negotiate for a structural long-term aid loan.EUR 14 M (no Value Added Tax - VAT, included) will be used for the construction of subway station "St. Nedelya", and a four level underground parking lot. The project is due to start 2009 and will be completed in 2 years.The construction of "James Boucher" station will cost EUR 18 M, and is planned to start in June 2009.The subway line from Sofia Airport to Tsarigradsko Shose Bul. is estimated EUR 48 M. Almost all pre-construction phases are completed, and is should be built in 3 years starting 2010.
Contracts signed for 83% of ISPA money
Bulgaria has already made up for the delay in absorbing the financing made available to it under the ISPA Programme. Contracts have been signed for 1,359,883,000 euro, over 83 per cent of the allocated 1,551,700,000 euro, Deputy Prime Minister Meglena Plougchieva's press office said on Wednesday.Over 39 per cent of the money has already been paid, according to analysis of the Finance Ministry and the three ministries managing projects under the programme: of transport, of the environment and of regional development and public works.The Transport Ministry manages 911 million euro available under the ISPA Programme. Contracts worth 790 million euro have been signed so far, and 305 million euro (39 per cent) has been paid out. This funding includes already successfully completed projects - the Sofia Airport Reconstruction, Development and Extension Project and Transit Roads 3 - Lots 3, 4, 8 and 9.Considerable progress has been made in the organization and implementation of construction and assembly of the adjoining infrastructure in the project for a road-railway bridge over the Danube at Vidin-Calafat.The Environment Ministry has announced all tender procedures concerning the implementation of ISPA-financed projects. Twenty-one financial memorandums worth 508 million euro are being implemented. It is realistic to expect that the entire ISPA financing may be absorbed until December 2010 when the programme ends.The Regional Development and Public Works Ministry is implementing financial memorandums for ISPA projects worth 132.7 million euro. Contracts worth 134.8 million euro have been signed, i.e. slightly over 100 per cent. The balance has been provided from the national budget. The Ministry has paid out 63,252,000 euro.All projects financed under the EU ISPA Programme and by the international financial institutions should be implemented by the end of 2010 when the ISPA Programme ends.
PM: Reserves guarantee Bulgaria's financial stability
"Thanks to our consistent and predictable policy, we have solid reserves that may guarantee the financial stability of the country, the national stability, the currency board and the savings of citizens," Prime Minister Sergei Stanishev said Monday in Veliko Tarnov, North Central Bulgaria.Bulgaria proved to be more prepared for the crisis than many other countries, he added. Stanishev was among the guests celebrating the patronal festival of Sts Cyril and Methodius University of Veliko Turnovo. According to the Prime Minister, the anti crisis plan of the government is being constantly updated to include new measures, directed mainly at supporting the real sector rather than affecting capital outlays. In the last two months only, the Bulgarian Development Bank extended credits worth 250 million leva for the stimulation of production and protection of jobs in 120 Bulgarian companies.The efforts are directed towards achieving the best solutions in a dynamic and complicated environment in dialogue with business, trade unions and the non-governmental sector. Meanwhile, besides criticism, the opposition has not submitted any anticrisis plan, Stanishev also said.
Interest rates go down slightly
Bankers and financial analysts forecast a slight decrease of credit interest rates. Interest rates have considerably decreased in the Euro zone since the interference of the European Central Bank, which has not been sensed in Bulgaria yet. The credit interest rates are about to be a little lower, Krassen Yotov, financial analyst of the Industry Watch, told the Bulgarian News Agency BTA. Considerable shrink in consumer loans is expected at the credit market, because these loans depend to a large extent on income, Yotov added. The demand for housing and the respective mortgage crediting has been stabilized. More deals at lower costs are concluded at the real estates market and this trend will persist, analysts believe.
Bulgaria is 38th in competitiveness among 57 economies
Bulgaria ranks 38th in competitiveness among 57 leading world and regional economies in the World Competitiveness Yearbook 2009, Rouslan Stefanov from the Center for the Study of Democracy told a news conference. International investors closely follow the countries' rankings in the Yearbook, he said.Bulgaria has climbed up a notch from 2008 and is ahead of countries like Spain, Brazil, Poland, Hungary, Turkey, Italy, Romania, Croatia and Ukraine. Of all groups of factors, Bulgaria's ranking is highest in Economic Efficiency at 26th place in 2009, up from 38th last year. As to Government Efficiency, this country is 28th in 2009, up one place from 2008. In terms of Infrastructure Efficiency, Bulgaria has slid two notches from 2008 to 43rd place. Business Efficiency was evaluated lowest of all aspects, with Bulgaria in 47th place, moving up from 54th position two years ago.Stefanov called Bulgaria's improved ranking, from 41st position in 2006 to 38th in 2009, "an undoubted positive signal" to international investors about the economy's potential compared with other countries of the region. The global crisis and inherited shortcomings are major setbacks to economic development, especially as regards access to capital, coping with intercompany debt, improving the country's image, respect for the rule of law, fair competition, curbing the grey economy and corruption, ensuring skilled labor and managerial experience, developing innovations, technology and science, he added. The ranking shows that the strengths of the Bulgarian economy are foreign investments as a percentage of GDP, tourism revenues as a percentage of GDP, real growth of per capita GDP, the cost of living index, low corporate income tax, short-term interest, government debt, the remuneration of managers, investment in telecommunications as a percentage of GDP, the price of Internet access, the number of mobile phone users, the Dependency Index (which shows the proportion of people under 15 and over 64 as a proportion of the workforce aged between 15 and 64), and per capita medical staff.The weaknesses of the Bulgarian economy are the current account deficit, the volume of exports, inflation, per capita GDP, personal property protection and security, the country's credit rating, consumption tax, labor productivity, the change in the price of labor per unit of output, the discrepancy between business requirements for managerial staff and education in the respective disciplines, energy intensity, business expenditures on research and development and total expenditures on R&D as a percentage of GDP, the number of computers per 1,000 population, bribery and corruption, the transparency of governance, and audit and accounting practices.
Bulgaria ranks first among outsourcing destinations in Europe
Bulgaria has outscored all rival offshoring destinations in Europe in the latest edition of management consulting firm A.T. Kearney's Global Services Location Index, a ranking of the most attractive outsourcing destinations. Bulgaria is ranked 13th, down four spots from last year's edition of the survey, A.T. Kearney said in a statement late on Monday. Romania is the only other country from southeast Europe to land in the survey, rising 14 spots from the previous edition of the survey to 19th place. The survey analyses and ranks the top 50 countries worldwide for locating outsourcing activities, including IT services and support, contact centers and back-office support. A.T.Kearney evaluates the financial attractiveness, people and skills availability and business environment in each country. A raft of foreign companies have opened outsourcing centres in Bulgaria over the past couple of years, taking advantage of the skilled workforce and the low labour costs in the country of 7.6 million people. Bulgaria joined the European Union in 2007.
Solar expansion in energetics
In a year, the share of power obtained from renewable energy sources in Bulgaria should reach 11% of the total energy consumption. This is stated in the indicative goals of the country concerning the new EU energy policy. According to preliminary data of the Ministry of Economy and Energy, this share was 6.5% in 2008, Maria Minova, expert at the ministry said during the conference Renewable energy sources – photovoltaic power stations – investments and redeemability, organised by Pari daily. Over 90% of the ecoenergy comes from water power plants, Minova added. The share of solar energy, that has raised serious interest among investors over the last years, is still minimal with 0.2 GWh against 122.2 GWh produced by wind power parks. Experts, however, forecast the development of solar power stations and the increase of the capacities installed to 200MW. one of the motivations for the development of this kind of electricity is the fact that its purchasing price is the highest. The joining of solar energy into the electricity distribution system is much easier compared to the wind or another type of renewable energy, Stefan Apostolov from CEZ commented. Financing of renewable energy projects can be provided by the banks. DSK for example has a special department for crediting projects financed by European funds.
Bulgarian art week set to debut in Shanghai
Bulgarian Art Week will be opened Thursday in Shanghai Times Square, China by the Consul General of Bulgaria, Ivan Dimitrov.In an interview for Urbanatomy.com, Dimitrov talked about the week stating; "Quite simply, its purpose is to introduce to Shanghai people some aspects of Bulgaria."Dimitrov went on to explain about the exhibition, that will be on show until May 31, "It includes an exhibition by young Bulgarian artist Kristina Thomsen; Bulgarian wine from three famous wineries; "Momchilovtsi" yogurt, part of our age-old tradition, manufactured by Shanghai-based "Bright" company; and rose oil cosmetics by Biofresh, the top natural cosmetic brand of Bulgarian rose oil. Bulgaria is known as 'The Land of Roses.' The rose is our national flower, and Bulgarian rose oil, considered to be the highest quality in the world, is the symbol of Bulgaria."Dimitrov also mentioned that "The Bulgarian community in Shanghai is not very big, around 100, but it's very vibrant."He concluded by suggesting that Chinese tourists should visit Bulgaria; "Bulgaria is a small, beautiful country in southeast Europe with warm-hearted and hospitable people. It offers wide and varied opportunities for leisure to its Chinese guests."
Bulgaria's business demands two anchors for economy
Preservation of the currency board and another International Monetary Fund loan is what Bulgaria's business community wants. Both demands are embedded in a Pact for Economic Stability proposed by the Confederation of Employers and Industrialists in Bulgaria that will seek approval by the major political powers in the country.
"The government should satisfy our demand for preservation of the currency board unconditionally," CEIB Chair Ivo Prokopiev declared, "and they should also initiate negotiations with the IMF as soon as possible," he insisted. In Prokopiev's opinion, Bulgaria could benefit a lot from the latest IMF crediting programs, which were preventive in essence and at the same time allow for drawing amounts on certain conditions. "Mexico and Poland have already signed such IMF agreements," Prokopiev motivated his claim.Businessmen have demanded that the budget expenditures are further decreased."In the current situation, the planned 10-percent decrease is insufficient and should be doubled," Prokopiev said.He quoted data about the tax collection in the country, standing at some 80%."It turns out that 20% of the funds aren't available and this sum can be compensated only by shrinking the expenditures," he explained."If the budget expenditures are not reconsidered now, the payments will have to be postponed by the year and this will result in serious budget deficit," the businessman explained. In his opinion, the country is in a state of hidden deficit. "The business has no alternative for survival and has already decreased its expenditures by some 20%-30%; the administration should follow the example," Prokopiev recommended.
INVESTMENTS:
€400 M to be invested in Burgas & Varna airports
The perspective is through the European funds and the functional programs to succeed to develop completely the railway and road infrastructure, and through corridor number 7 favorable conditions for sailing and development of the passenger transportation to be secured.This said the minister of transport Peter Mutafchiev to the participants in the Fifth world meeting of the Bulgarian media, informed BTA, cited by news.bg.Among the priority projects pointed out by minister Mutafchiev, are the intermodal terminals in Burgas, Varna, Russe, Sofia and Plovdiv, the development of the infrastructure of the airports and the railway sections, which will be reconstructed for a speed of 160km/h.According to the minister the number of the passengers using the airports has doubled in 2008.394 million euro are to be invested in Burgas and Varna airports. For the modernization of the harbors we use all possible financial schemes, including funding from the state budget and public-private partnership, claimed the minister. He added that the crisis was earliest felt by the transport sector.We have to be ready in order to be able to meet the development of the economy after the crisis, said Peter Mutafchiev.
VETs Popsko received top investment certificate for EUR 29.7 M wind energy project
The local company VETs Popsko will receive a first-class investment certificate for its project to install 9 wind power generators with 3 MW capacity each near the southern town of Ivailovgrad . The investment is estimated at BGN 58mn (EUR 29.7mn). The project will open 14 permanent jobs and includes also an improvement of the road infrastructure in the region. The investors plan to expand the wind park to 16 units with total production capacity of 48 MW at a later stage.
Piccadilly to build EUR 15 M logistics centre in Elin Pelin
Serbian retailer Delta Maxi, which owns Bulgarian supermarket chain Piccadilly, plans to construct a logistics centre in industrial zone Sofia East located in the town of Elin Pelin, around 20 kilometres from the Bulgarian capital, the company said. The facility will sprout on a 15,000 sq m site and will have a built-up area of 30,000 sq m. The total investment cost of the project, which will also include offices, is seen to the north of EUR 15 million. Delta Maxi has already secured a building permit and is yet to pick a contractor among several offers it has received. Construction works are expected to begin in 2010. The new logistics hub will accommodate the products of all suppliers before they are distributed to separate towns and cities. It will service both the Piccadilly stores and the company’s new soft discounter chain Tempo that is yet to be developed. German discounters Penny Market and Lidl, which are still prepping their Bulgarian market entries, have already broken ground on logistics capacities in the country. In an interview for SeeNews newswire, Piccadilly financial director Nikolay Neshev said seven new supermarkets should pop up on the market by the end of the year. The launches will include several Piccadilly Express convenience stores with outlet area at 200 to 400 sq m. Two stores of the brand are already operational in Sofia, and the company plans to build 20 more in the capital and as many across the country. Piccadilly has eight stores in Varna, four in Sofia, two in Plovdiv and one each in Veliko Tarnovo, Vidin, Lovech, Bourgas, Stara Zagora, Yambol and Samokov.
Bulgaria Real Estate aims at impressing Kuwait investors
Bulgaria participates in the international exhibit "Investments and Real Estate 2009" in Kuwait with its own exhibit pavilion.The news was reported by Bulgaria's Foreign Ministry.The pavilion was officially opened by the Bulgarian Ambassador to Kuwait, Ilko Shivachev, and the Undersecretary of the Kuwait Ministry of Commerce and Industry, Rashid Al-Tabtabaei.The expo is organized by the Kuwait Ministry of Commerce and the Kuwait International Fair. Its launch was honored by the Kuwait ruling family, many businessmen, and Kuwaiti journalists.Kuwaiti investors have shown increased interest towards Bulgaria despite the global financial crisis, due to the good reputation of the country's tourism and the attractive real estate prices, according to Bulgaria's Foreign Ministry.Kuwait has invested over USD 20 M in Bulgarian properties in 2008.
Aurubis Bulgaria invests BGN 30 million in new capacities
Aurubis Bulgaria is the new name of the Pirdop-based copper smelter Cumerio Med. The company has turned the first sod of an investment project worth BGN 30 million aiming at increasing capacity by 30% to 800,000 tons and complete automatisation of all processes. The new unit will be ready by September 30, 2010.
Zaharni Zavodi invest BGN 18.5 М in subsidiaries
Net incomes of Zaharni Zavodi AD dropped by the minimal 1% to BGN 10.2 million, non-consolidated report of the company for the first quarter of 2009 shows. Compared to the same period the previous year earnings from realised production rose by 46% to BGN 10.34 million. Itemised expenses reached BGN 9.9 million by end-March, up by 4% compared to the first three months of 2008. The company also reported a loss of BGN 214,000 for the corresponding period. Zaharni Zavodi invested BGN 18.519 million in it subsidiaries.
COMPANIES:
Unicredit Bulbank finances Bulgarian firms with 50 M EUR from EBRD
Unicredit Bulbank will fund Bulgarian companies with 50 million euro under a credit line from the European bank for reconstruction and development, informed the bank institution.The agreement was signed today in London within the framework of the Annual meeting of the European bank for reconstruction and development (EBRD).On behalf of the EBRD the loan is signed by Jean-Marc Peterschmit, director of “Financial institutions” in EBRD, and on behalf of “Unicredit Bulbank” by its executive director and chair of the management board Levon Hampartzumian and the chief operative director and deputy chairman of the management board Andrea Kazini.The funds under this 5-year credit will be used for mid- and long-term funding of small and medium enterprises with up to 249 employees and maximum allowed turnover of 50 million euro.The credit is part of the joint initiative of the EBRD with “Unicredite Group” for continuation of the investments in Eastern Europe and securing of possibilities for funding in the real economy.Through banks of “Unicredite Group” EBRD invests altogether 432.4 million euro in eight East European states as part of the joint effort for overcoming the influence of the global economic crisis in the region. “Unicredit Group” is the biggest bank group in Central and Eastern Europe with over 4000 branches in 19 countries. Apart from its own programs for funding of its banks, the group cooperates with international institutions such as EBRD in order to secure consecutive support for the local economies.
IBM and Bulgaria sign a strategic partnership agreement
The agreement for strategic partnership between the Bulgarian government and IBM for joint works in the field of nanotechnologies through the first for Central and Eastern Europe nanotechnology center will be signed today at 10.30 am in the Council of ministers’ building.For the Bulgarian side the document will be signed by the deputy minister of finance Lyubomir Datzov, and for IBM – by Marcello Lema, who is general manager for Central and Eastern Europe. The official ceremony will be attended by the minister of finance Plamen Oresharski and the US ambassador in Bulgaria Nancy McEldowney.In the beginning of April this year the cabinet decided “Bulgarian nanotechnology center” to be established. The capital of the company is 25 million euro. Main partner of the project will be IBM. The American company possesses over 10 000 patents in these fields.The realization of the initiative is an important step for the development of the research and industrial national potential in nanotechnologies, nanomaterials, nanoproducts and micro machines, which will lead to increase of the competitiveness of the economy.The partnership with IBN will guarantee the successful stepping of the country on the international nanotechnologies market and is a prerequisite for winning big projects under the Seventh framework program of the EU. 3.5 billion euro are to be granted under this program.The incomes from nanotechnologies are expected to be over 2.95 trillion US dollars by 2015.Bulgaria’s timely positioning as a nanotechnology center will help for the taking a certain market share from the international nanotechnologies market, as well as for the attraction of investments in the high-technology sector.
Time Warner steps into Bulgaria
US media giant Time Warner Inc. (TWX) has finalised its USD 241.5 M acquisition of a 31% stake in CME, the Central and Eastern European broadcaster. The companies previously announced the signing of the transaction on March 23, 2009.CETV bought two Bulgarian television channels in 2008 - TV2 and the only sport broadcasting channel in Bulgaria, Ring TV.For its investment, Time Warner will receive 19 million newly issued Central European Media shares.The two companies will link up to launch and operate thematic TV channels in current CME territories including Bulgaria, Croatia, the Czech Republic, Romania, Slovakia, Slovenia and Ukraine.The channels - a number of which will be Warner Bros-branded - will carry international films and TV series, including titles from the Warner Bros library.The deal allows Ronald Lauder, cosmetics billionaire and founder of CME broadcast company, to vote Time Warner's shares of CME for at least four years with some exceptions. Lauder has agreed to support two of the company's nominees to CME's board.
GLOBAL FINANCIAL CRISIS ANALYSIS AND NEWS:
BIA Chairman: Bulgaria won’t overcome financial crisis until 2012
Bulgarian Industrial Association (BIA) Chairman, Bozhidar Danev, has stated that Bulgaria will not overcome the negative effects of the global economic crisis until 2012.Danev stated that the revenues to the national budget are falling and the condition of the banking system has deteriorated, in an interview for Bulgarian National Radio.Danev added that the deteriorating liquidity of Bulgaria's budget and businesses make the country extremely vulnerable to external shocks."The banking system will suffer heavy blows in the immediate future, as the economy is deteriorating, but the experts prefer not to mention this fact," Danev continued.Danev concluded by saying that many companies have consulted the BIA on the implementation of massive layoffs and that the oncoming general elections will further aggravate the condition of Bulgaria's economy.
Crisis hits cellulose and pulp branch
At the end of May the biggest manufacturer of non-bleached pulp and craft paper on the Balkans, the plant in Stamboliyski, will be closed for indefinite time. It couldn’t recover from the problems it faced during privatisation even after the purchase by Mondi Corporation, one of the world giants in the branch. Similar is the fate of the plant for hardwood in Nikopol, which stopped work more than a year ago as the investor, the Austrian Mayr-Melnhof, withdrew from it. Svilotsel manufacturer, specialised in the production of bleached pulp, has not been operating for two months now and the forecast for its opening is not very optimistic. Pulp and cellulose manufacturing in Bulgaria is being destroyed. The reason is not only the slump of paper prices on the stock markets because of the global crisis. Manufacturers in Bulgaria cannot compete the high price of wood that rose by 80% for the last two or three years. Natural gas price also increased. Closure of Mondi Stamboliyski and Sviloza should not be allowed, as this will practically mean the extinguishment of pulp industry in Bulgaria. To preserve them is important not only for the economy of the country but also for the preservation of 400 job in the former and 700 workers in the latter, as well as of another 80,000 employees working indirectly for the two factories. The investments in them are very high, about EUR 100 million in both, Krassimir Savov, executive director of the Branch Chamber of the Pulp and Paper Industry (BCPPI), commented for Pari daily.
Crisis did not pull Bulgarian banking walls down
Publication: Banker Weekly English
Provider: Financial Information Agency Ltd.
The Bulgarian banking sector will most likely take its first exam on surviving under the conditions of a global economic crisis with excellent marks. If the recent prognoses for the first signs of economic revival in Western Europe come true still at the beginning of 2010, the Bulgarian companies can expect a growth in the number of orders from foreign customers while the banks will enjoy resumed financing. This will be the fresh blood to our economy, marking the end of the country's crisis. If this happen the Bulgarian banking sector will boast of having overcome the crisis with no solvency problems or state bailouts. It is therefore interesting to find how many of the financial and credit systems of the EU-member countries may boast of similar results? By the way, data compiled by the Bulgarian National Bank for March 2009 show that our banks have entrenched themselves against the attacks of the global financial crisis. As BANKER weekly already mentioned in its previous issue the banks' profit totalled BGN271.27 million in March 2009, compared to BGN358.96 million a year ago. The indices pertaining to asset and capital returns have also suddenly flagged. This process, however, is logical enough. First, the market conditions forced the banks to sharply decrease the interest rate margin. And second, the crisis forced credit institutions to begin step by step restructuring their assets by increasing the share of the fast-liquidity but less lucrative financial instruments, namely deposits and state securities. In other words, the banks forfeited profits in the name of increasing their stability and solvency. And just this adjustment of the assets to the conditions of the international financial crisis speaks for the lower effectiveness among most of the leading banks. The ratio of their credits to the assets' total volume was quite big, namely between 75% and 80 percent. Anyhow, the market is stable in defiance of all gloomy prognoses and spells by both Western and local experts, rating agencies and international financial institutions. No doubt, as usual, there are banks which manage to put themselves on the right track fast enough or their long-term policy is more conservative and they do not need to restructure their assets. According to the classification that BANKER weekly has been compiling every three months now since 1999, the best banks for the period January-March 2009 are UniCredit Bulbank and DSK Bank. We have to remind that the banks are being rated in accordance with five indices, namely balance sheet, own capital, profit, and returns on assets and own capital. The top positions are occupied only by credit institutions which take the first ten places on all the five indices. The latter speak for a good balance between data speaking for their significance for the Bulgarian market, as well as for their stability and effectiveness. Moreover, the combination of these indices cannot distort the classification as a result of occasional big deals. What is typical for UniCredit Bulbank is that it has never been notable for an extremely aggressive policy on the Bulgarian market. Boasting of managing the country's largest bank, its top management refrains from taking part in the furious race for extending mortgage credits, attracting clients for customer loans, in drastic decrease on interest rates, or in the rapid increase attracted funds' interest rates since the beginning of 2008. This helped UniCredit Bulbank to meet the crisis making not complete change of policy and thus keeping its relatively good indices. For example, the bank's assets jumped by 31.82% to BGN11.11 billion over the year from March 2008 to March 2009. It is worth mentioning that the balance sheet of some banks has dwindled over the same period. This means that there have been withdrawal of clients or repayment of big foreign financing. Among the banks, UniCredit Bulbank has the biggest own capital of BGN1.44 billion. The bank also posted the biggest profit of BGN58.79 million for the period in question. It is important that all Bulgarian banks increase their capital as a measure for improving their stability. As for the profit, the situation is a bit more complicated. Many credit institutions have registered a 50-% year-on-year drop in their profits, remaining incomparable to UniCredit Bulbank which registered a decrease of just 25% to BGN58.79 million. And just the fact that the bank has managed to keep its good profit helped it to report a favorable return on assets of 0.53% and a capital return of 4.1 percent. The situation pertaining to DSK Bank is almost the same as that of UniCredit Bulbank. It differs just in terms of more actively offering of new financial products both in credits and deposits. Over the 12 months to March 2009 its assets jumped to BGN7.55 billion from BGN6.5 billion. However, it has to be mentioned that they marked a decrease of BGN150 million over the first quarter of 2009. The bank's capital jumped to BGN1.28 billion, ranking second on the Bulgarian financial market. Its March 2009 profit of BGN48.75 million is lower as compared to the March 2008 one, but this is just a 19.65 year-on-year decrease and it is absolutely normal as we take into account the negative effects of the world financial crisis. As for the other financial institutions, they have more or less established their own mechanisms for protecting themselves from the crisis. Some of them even try to avail themselves of their rivals' inertness and get bigger slice of the financial services market. And there is nothing bad with it if the players in question abide by the Central Bank's regulations. For the time being, however, the Bulgarian banks' managers place stability first.
The Economist print edition: Bulgarian rhapsody
Why the European Commission imposed sanctions on its poorest Balkan member
For a man facing the threat of bankruptcy in six months' time, thanks to European Union sanctions on his country, Stefan Petrov has pretty warm words for Brussels. Mr Petrov is a dairy farmer from the rolling hills of northern Bulgaria.Two-and-a-half years after his country joined the EU, his business is in peril after €800m (.1 billion) in transitional aid for new members, including farm aid, was frozen by the European Commission last year, amid complaints about fraud, contract-padding and conflicts of interest. About €220m of the frozen money has been lost for ever, after a deadline for spending the cash expired in November.The pot of €110m that includes Mr Petrov's grant is due to expire at the end of this year. Yet the farmer does not quarrel with the logic of the decision to freeze Bulgaria's aid, which is the toughest sanction ever imposed on any EU member. "Those who govern us tried to steal the funds, and partly succeeded," says Mr Petrov, when asked why the European money was blocked. The EU, he insists, is "good for farmers".To meet European standards, Mr Petrov had to connect his cowsheds to the water mains. He has just installed a gleaming new Swedish milking parlour, replacing an old system of pipes and pumps that, to the amateur eye, seemed to be held together by rust and cobwebs. He had an EU grant equivalent to €50,000 approved last autumn.That was why a local bank lent him money with minimal fuss, even though he had to put up his four cowsheds-large barns from an old collective farm, filled with twittering swallows and the sweet smell of dung-as collateral. A former trolley-bus driver under communism, he started with one cow in 1991 and now has 230, making him one of the biggest farmers in his district, near Pleven. His EU grant application included a chunk of money for a new, Czech-built tractor, to increase his business's profitability.The tractor is already roaring about the farmyard, but the EU money is another story. The grant awarded to Mr Petrov comes from a special pot of transitional farm aid, known as SAPARD funds. The Bulgarian government says it has fixed problems identified by the EU, and will pay urgent grants out of national coffers. Gloomy European officials say Bulgaria still seems in no hurry to fix the problem, as different ministries squabble and continue to protect cronies.Mr Petrov was expecting his grant two months ago. With milk prices low at the moment, he thinks he can make loan interest payments for another six months, then he will go under. Yet he still declares: "Our hope is with Europe."His views are widely shared. Most Bulgarian voters tell pollsters they trust EU institutions. As many as three-quarters say they distrust their national parliament and government. But will Bulgarian tolerance last if funds remain frozen much longer or if other bits of EU funding have to be frozen in the future? It is a question which resonates far beyond Bulgaria.Plenty of diplomats and politicians in Brussels say that Romania and Bulgaria were admitted too soon, arguing that once such countries get into the club, the EU loses most of its leverage over them. (Many say much the same of Cyprus as well.) The counter-argument is that admitting countries like Romania and Bulgaria is the best way to protect and encourage internal reformists who are the best hope for the future.Either way, what is clear is that the decision by the European Commission to freeze funds for Bulgaria was not just a technical measure. It was a deeply political experiment-nothing less than an attempt to claw back leverage over governments after they entered the union. The success of the experiment matters. The next countries hoping to join the EU mostly come from the Balkans, and many will display the same problems as Bulgaria and Romania in even more extreme form.If the EU can use the tough love of frozen funds in Bulgaria and yet still maintain voter support, that will be a boost not only to reformers in that country, but also to the whole cause of future enlargement. If, on the other hand, EU sanctions trigger a backlash against Europe in Bulgaria, the commission's experiment could turn out less well.
When sanctions work
The fate of EU funds has become a big political issue in Bulgaria, which will hold a general election in July, a month after the election of a new European Parliament. Although the current Socialist-led government trumpeted the release of €115m in EU road cash on May 12th, much more money remains frozen.Opposition leaders such as Boyko Borisov-an ex-wrestler and police chief who now serves as mayor of Sofia-say that government corruption gave Brussels "no choice" but to impose sanctions. Mr Borisov, whose party leads in the polls, offers few concrete plans for cleaning up the system, but he makes such stirring promises as "we will do what it takes for Europe to approve of us." Mr Borisov also notes the "paradox" that Bulgarians' trust in European institutions "actually increased when the money was frozen".Back on the farm, Mr Petrov signals that his patience is not infinite. The freezing of EU funds was the "right" sanction, he admits. But the EU should think of another way of delivering money, he says, bypassing the government in Sofia if need be. A local mayor says 50 of his neighbours are in the same boat at Mr Petrov. The road to the nearest town was going to be fixed with funds that are now frozen, the mayor adds: yet locals still trust the EU.The next wave of EU spending planned for Bulgaria adds up to more than €10 billion. If that money flows smoothly, EU popularity should not be a problem. But if Bulgarian corruption forces Brussels to freeze even bigger sums, plausible political consequences could range from a reformist revolution to a slide into nationalism. EU enlargement was always something of an experiment: it may be poised to enter uncharted territory.
Can Bulgaria avoid asking for IMF help?
From: businessneweurope.eu (bne)
Author: Nadia Damon
With the news that Romania has been granted an almost €20bn International Monetary Fund-led bailout package, neighbouring Bulgaria's own economic situation is now increasingly coming under the microscope.In mid-May, data showed that the Bulgarian economy shrank by 3.5% on year in the first quarter after growing by a similar amount of 3.5% in the fourth quarter. And in recent weeks, political opponents - most notably the former prime minister, Ivan Kostov, who heads up the DSB (Democrats for a Stronger Bulgaria) opposition party, have been calling on the Socialist-led coalition government to get a handle on the financial crisis, claiming that Bulgaria is on the verge of requiring similar assistance.But with national elections set for July, such rhetoric is only to be expected - as Bulgarian PM Sergei Stanishev has been quick to point out. He maintains that the country is doing more than enough to maintain its fiscal reserves and has scotched any talk of Bulgaria following in the footsteps of Hungary, Latvia and Romania in having to approach the IMF.In its Global Financial Stability Report, released in April, the IMF acknowledged that Bulgaria's public finances are in surplus and the balance sheets of the central bank and the government enjoy "strong buffers." The Fund has also since admitted that the external debt financing figures for Bulgaria were not as bad as it gave in the original report, cutting those requirements to 132% of reserves from 188%, though Fitch Ratings in mid-May said the scale of external financing means it still believes there is a "reasonable likelihood" that Bulgaria, along with Croatia and Lithuania, will seek IMF-led programmes to "help meet potential financing gaps and give breathing space for necessary adjustment to take place."
Budget pruning
The IMF also maintains that the cabinet's current approach to budget cuts (the decision was taken in December to limit spending to 90% of the originally agreed amount) isn't aggressive enough and is urging the government to take greater steps to prevent an erosion of its precious fiscal reserve account and maintain confidence in the currency board, which pegs the lev to the euro.The IMF, which worked with the World Bank and EU in putting together the package for Romania, estimates that the current level of Bulgarian spending will result in a deficit of about 1% of GDP for 2009. It also projects a 3.5% GDP decline in 2009 and a further 1% contraction in 2010, due to falling net capital inflow and shrinking export and import volumes. The European Bank for Reconstruction and Development said in May it reckons that Bulgaria's GDP growth will shrink by 3% this year and a further 1% in 2010.Bulgarian Finance Minister Plamen Oresharski appears to share the IMF's concerns, and has reportedly asked the cabinet to impose more radical measures on the back of his department's figures for March, which showed that Bulgaria's fiscal reserves (which the country is required to maintain as part of its currency board agreement) fell by 4.2% to BGN7.95bn (€4.06bn) that month.However, Tsvetoslav Tsachev, chief analyst and head of the research at Sofia-based Elana Trading, argues that the government's 2009 budget - based on 16% tax revenue growth - isn't overly optimistic. And while it's true to say that the credit crunch certainly took Bulgaria's leaders by surprise, he adds that the prudent policies of recent years mean that the country should be able to navigate its way through the crisis. "We have developed at one step behind these other countries in Eastern Europe and we are underdeveloped in many areas including banking system which is more conservative compared to others in the region," Tsachev states, something he claims is now working to Bulgaria's advantage. "We have less leverage than the Western banks, so I do not think we will have the same problems - in terms of banking credit, for example. We will have some, but not as many."Tsachev also insists the IMF, along with the World Bank, is painting too bleak a picture of Bulgaria, as well as Romania. "I don't exclude the possibility that problems will arise if interest rates continue to rise and inflation becomes high," he says. "We have a huge current account deficit and it will decline, but we know that part of this current account deficit is due to large capital influx and investments, which is good.""We have seen some fluctuation in consumer demand, electronics, large products, but this will not affect the Bulgarian economy as much as it affects others. We are still a very poor country compared to the average one in the EU, but the average Bulgarian will continue to consume in a way that will guarantee some good revenues in terms of VAT and excise taxes, so while the budget will be under some pressure, it will not match that being seen in Germany or the US, for example. There are some very serious problems, but they will not be so severe that they require the government to take some extreme measures."Essentially, while it's still a case of weathering the storm, Tsachev points out that large and liquid publicly-listed companies have continued to do steady business with even 30-40 % lower revenues in the first quarter (something he partially blames on the lower price of materials), ensuring the majority still made a profit.Bulgaria's banks have also raked in huge profits during 2008 - which Tsachev says they are now harnessing for capital. "They will use it to lend more money in the future," he states, "which is why I think the Bulgarian economy will emerge stronger and that the problems here are not so severe. They will not derail the economy or create industries that need bailing out."While Bulgaria's past experiences may help guide it through the current crisis, both the IMF and analysts agree the country will need all the EU funds on offer to compensate for the downturn. But, crucially, the release of these funds is still dependent on the country's effectiveness in the fight against corruption. "We need to see a huge improvement in this area," Tsachev concedes. "If we are fruitful, then we will receive more funds and this will be able to plug the current account gap, something that will mean that we won't have any problems in the mid-term. We are a small economy, so several billion euros will make a lot of difference."
Its time for Bulgaria to switch from tomatoes to high-tech
Given the current structure of the national economy and the unprecedented global crisis, the economic growth in Bulgaria will considerably lower down (between 1 and 2% for 2009.) The decrease of the direct foreign investments by about 48% for 2008 will increase the tension in the stabilizing the balance of payments. Although the banking system seems stable: high liquidity, solid reserves, the blocking of transfers from the Euro zone banks to their Bulgarian branches betrays a grim trend. The obvious conclusion is that it is high time to take measures for the gradual moving of Bulgaria away from the fringes of the world economy and the EU so that it can occupy a more decent place in the structures of the contemporary international division of labour. The formation of a new and modern structure of the economy requires the existence and establishment of a strong innovative potential in science absorbing branches, such as:
Robot-building, production of computer equipment, microprocessors, nanotechnologies, communication equipment, laser production, bio-technologies and other scientific sub-branches and productions. For example, Bulgaria has registered significant achievements connected with nanotechnologies and efficient channeling of capitals (state-owned or private) in this area could bring important results in the next 10-15 years. Instead, however, Bulgaria spends over 500 million euro on purchasing military equipment.Bearing in mind that Bulgarias current cabinet is only weeks away from the end of its term in office, it will hardly focus its attention on the structural changes in Bulgarias economy. But the next Bulgarian cabinet should make this issue a priority exceptionally significant and necessary for Bulgaria?s economy.