불가리아 주요 경제뉴스 ( 26 JUNE – 3 JULY 2009 )

BULGARIAN ECONOMIC TOP NEWS DIGEST

WEEKLY REPORT ( 26 JUNE – 3 JULY 2009 )

 

 

Sections/headline briefs:

 

 

MACROECONOMY:

 

·        Import decreases quicker than export: deputy economy minister

·        Raiffeisen Economist: Bulgaria discusses bailout aid with IMF

·        Bulgaria should cope with crisis without IMF aid

·        Germany is No1 trade partner

·        Bulgarian first PV capacity boosts power sales 300% in 2008

·        Construction sector sees chances in heat insulation

·        Nielsen:Bulgarians spend most in supermarkets

·        Antitrust watchdog digs into cement association cartel

·        Saudi prince shows interest in Bulgarian hotels

·        Bulgaria’s EU funds – frozen till September

·        Bulgaria reports EUR 4.2 billion fiscal reserve

 

 

INVESTMENTS:

 

·        Turkish glassmaker Sisecam borrows $70 M from IFC for investments in Bulgaria

·        Economy Minister: Investors in Bulgaria can rely on government support in future

·        BGN 2 M invested in new material

·        Hewlett-Packard opens in Sofia largest training centre in southeastern Europe

·        Creating a future in IT

 

 

 

 

 

 

COMPANIES:

 

·        Toyota, Lexus record 40% drop in Bulgaria sales in 2008

·        Cisco Bulgaria to swap oversees trips for virtual meetings

·        EPIQ: In neutral gear

 

 

GLOBAL FINANCIAL CRISIS ANALYSIS AND NEWS:

 

·        The crisis brings new rules

·        Bulgaria's Albena Jsc freezes investment plans over crisis

·        Six ways out of economic crisis

·        Is there light at the end of the tunnel?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Articles:

 

 

MACROECONOMY:

 

 

Import decreases quicker than export: deputy economy minister

 

Both import and export has decrease in the last year. The positive thing is the import decreases quicker than export, deputy economy minister Yavor Kuyumdzhiev said in an interview with Focus News Agency.“We expect the agriculture production to be at the same levels as last year. Engineering industry, electrical engineering, textile has been most affected by the global financial and economic crisis. Both the import and export in these fields had decreased,” he pointed.60% of our import is towards EU. The decease there is biggest.“Fortunately, our companies has orientated to markets, which are not that affected by the crisis, like Middle East and Latin America,” Kuyumdzhiev pointed. The matter in point is about engineering industry.

Raiffeisen Economist: Bulgaria discusses bailout aid with IMF

Bulgaria is having informal discussions with the International Monetary Fund over the growing negative effects of the global financial crisis.The announcement was made by Raiffeisen Centrobank SA Chief Economist, Peter Brezinschek, Bloomber.com reported.The Bulgarian government that emerges after July 5 elections will seek an international bailout to repay the country's short-term debt, he said."There are informal discussions with the IMF... This is not official yet, they haven't reached a conclusion. After the elections, a new government will be in power and we'll have an official announcement that Bulgaria will get assistance from the IMF in conjunction with the European Union.The country will have the majority of the short-term refinancing needs met by the financial aid from the IMF. The development for Bulgaria principally depends on the new government, how the new government will create an environment for foreign direct investors to invest.The country must divert foreign direct investment flows into more industries that support exports to achieve more a sustainable expansion. If they can manage that, and maintain the currency board until this change in the industrial structure takes place, I would feel confident. Otherwise they have to give it up because it's too confident", Brezinschek said in a June 26 interview in New York.Bulgaria, like Latvia and Belarus, lacks sufficient reserves to cover debt coming due this year and may have to tap "official sources" for more capital, the World Bank said on June 22.Gross foreign debt is equivalent to 107 percent of the economy and foreign reserves slumped 16 percent in the second half of last year. The budget surplus fell 83 percent in the first four months to BGN 352 M (USD 249 M) and may be wiped out by the end of 2009.The government and the central bank have rejected calls for an international bailout similar to those received by fellow EU states Hungary, Latvia and Romania and by Belarus, Serbia and Ukraine outside the bloc. Bulgarian officials maintain the currency peg is backed by central bank reserves of USD 16 B.

 

 

Bulgaria should cope with crisis without IMF aid

Bulgaria, which will hold general election on Sunday, should not seek funding from the International Monetary Fund (IMF) to ride out the global economic crisis as this would be perceived as a bad sign for the state of the country's economy and its lev-euro currency peg, economists said.The best way is that we cope with the challenge on our own," Georgi Angelov, senior economist at the non-profit Open Society Institute Foundation, told a news conference on Tuesday. This is best in view of the confidence that the foreign markets have in Bulgaria and also in view of the economic growth, because the fund usually goes into countries which have very serious problems."The ongoing financial crisis has curbed demand for Bulgarian exports, sending the country's economy into recession and questioning the stability of its currency board regime. Bulgaria operates an IMF-prescribed currency board which pegs the lev at a fixed exchange rate to the euro. It limits the central bank's monetary operations leaving fiscal policy as the only macroeconomic policy lever.Bulgaria has seen its budget revenue fall since the beginning of the year, as in the meantime the government raised spending in the runup to the elections and foreign analysts projected that Bulgaria is the next in line to seek international bailout similar to ones won by Serbia, Romania, Hungary, Ukraine and Latvia.In the current situation we are heading for a [budget] deficit of 2-3% of GDP. If measures are not taken, we will frighten the international markets," Angelov said. He added that the government should immediately scale down spending, or otherwise the country could turn to a budget deficit of 2.9 billion levs ($2.08 billion/1.48 billion euro) this year from a surplus of 2.0 billion levs in 2008.Under the best-case scenario, we ourselves cut the budget spending, under the other scenario the IMF comes and forces us to do it," Angelov said. The fund should not be viewed as a rescue mechanism which pours money into local banks which in turn lend it on to local businesses," Lachezar Bogdanov, an economist with Sofia-based independent think-tank Industry Watch, told the same news conference. Last month opposition right-of-centre party GERB, which according to polls enjoys highest public approval, said that if it forms a cabinet after the June 5 election, it will immediately start talks with the IMF to avoid risks arising from a possible budget deficit and guarantee the country's financial stability. The outgoing Socialist-led government has repeatedly said that the country does not need external aid to maintain macroeconomic stability because of its hefty fiscal and foreign currency reserves and years of budget surpluses. For the time being, there is no economic threat that could make the currency board collapse, Georgi Ganev, an economist with independent think-tank Centre for Liberal Strategies, said. If for several consecutive years there are serious budgets deficits, nothing will help save the board," he added.

Germany is No1 trade partner

 

German-Bulgarian economic relationships have a long history but things have improved drastically since 2001, Mitko Vassilev, chief manager of German-Bulgarian Trade and Industrial Chamber, told the Pari daily in a special interview. Germany is the fifth biggest investor in Bulgaria. The exchange of goods between the two countries in 2008 grew by 9.7% to EUR 4 billion. Because of the crisis, there might be a drop of 20% in 2009.

 

 

 

 

Bulgarian first PV capacity boosts power sales 300% in 2008

Bulgarian firm Eco Energy Investments, which operates the country’s first photovoltaic (PV) plant in Aitos, eastern Bulgaria, booked BGN 207,000 (USD 148,000/EUR 106,000) in electricity sales in 2008, which is a hefty 300% rise from 2007 when power revenue added up to BGN 52,000, showed corporate data.The company whose capital is equally split between Galin Hristov and Lilia Mihailova assembled the first PV capacity on the roof of a glass-making workshop in Aitos back in March 2006. Nine months later the unit was cleared by the energy regulator paving the way for PV energy generation.The firm runs a second solar capacity of 210 kWp located in Aitos fields and five wind turbines.Eco Energy Investments has own capital of BGN 31,000, including a BGN 26,000 profit. Last year’s profit stood at BGN 8,000 and assets came in at BGN 537,000 at the end of 2008. The company reported amortisation costs of BGN 129,000, tiny expenses of BGN 33,000 for materials and contractors and zero staff costs. Interest expenses came in at BGN 46,000. The earnings before interest, tax, depreciation and amortisation (EBITDA) totalled BGN 174,000. The firm owes BGN 426,000 to financial institutions, having repaid debts of BGN 107,000 over a year.

Construction sector sees chances in heat insulation

 

The crisis in the construction in all its stages and forms, from building of new structures to small interior renovation works, is among the biggest in the Bugarian economy. However, in spite of the bad indications of the first half of the year, the shrinkage of work volumes and the freezing of large construction projects, there is still a real option for limiting the negative impact on this important sector. one of the favourable scenarios would be if the state adopts a strategy for heat insulation of already existing buildings, sector representatives believe. According to them, legislation in this respect needs to undergo some changes, and especially as far as the condominium ownership is concerned. The changes should be aimed at facilitating state financing for these activities. According to Energy Efficiency Agency, the largest losses of heat energy (up to 60%) are registered through external walls, while up to 30% stem from poor window insulation. The only effective solution in combating energy losses could be to improve heat insulation systems. The profits from a massive action for renovating the insulation at older buildings are significant: the move could save energy in the long run, it could create new jobs and would mean a responsible attitude to environment (the lower energy consumption would mean less harmful emissions and reasonable use of natural resources). A well done overhaul could significantly reduce people's expenses on heating in the years to come. According to present legislation, though, the state may contribute sums equaling to 20% of people's insulation costs, but only for works on entire buildings and if the condominium has been registered as a legal entity. Apart from that, our analysis of the sector prices showed that base prices are affordable: between BGN37 and BGN50 per square metre of insulated space depending on the technology and materials needed. Repair works that use scaffolding are more expensive than the so called alpine method that is becoming increasingly popular. However, not all buildings are suitable for climbers and lower sections (at a height of between 3 and 10 metres) are usually insulated through erecting a scaffolding construction. If we add such extra costs as for framing the windows and painting the walls, the price per square metre would reach at least BGN40 and can go as high as BGN70. Companies specializing in external insulations say that there is a drop in demand for their services, but it has not exceeded 10% to 15% on an annual basis. The crisis, of course, is a factor for expansion of the grey sector - there are more and more small working teams (of 2 to 3 people) who offer extremely low prices and dubious quality. They use materials that are not always suitable for insulation. Sector representatives say that this kind of insulations are cheaper, but they might not offer the required effects that a good insulation should. A disrespect to the established technology is a guarantee for future problems, experts warn. For example, if the insulation is laid at temperatures of above 30 degrees Celsius or below minus 5, there is a risk it may not stick well enough. At least 24 hours should elapse between the laying of the first and the second ground coat layer, while the fine coat (or the painting) should be done at least three days after the first layer is finished.

 

Nielsen:Bulgarians spend most in supermarkets

The Bulgarian consumers are spending the biggest portion of their income in supermarkets, showed a survey on consumer trends conducted by consultancy Nielsen in the first two months of 2009. Seventy percent of respondents spend heavily on food and non-food essentials in supermarkets. The share of customers who lavish money on hypermarkets have doubled, while small and mid-sized shops are losing ground on a national scale, the data revealed. Outdoor marketplaces remain the most preferred trade channel for purchase of fruits and vegetables. A growing number of people are buying fish products from special stores and stands and shopping around for best bargains is still a common practice among Bulgarians, the survey showed.

Antitrust watchdog digs into cement association cartel

The Commission for Protection of Competition (CPC) has launched a probe into the Bulgarian cement industry association over suspicions that its members have agreed on prices and market behavior thus harming competition. The organisation groups the three cement heavyweights, Devnya Cement, Holcim Bulgaria and Titan Zlatna Panega Cement. The association denied the accusations saying it had never discussed at its regular meetings prices and sale quantities of its members. on June 26, the competition authority searched the association office and seized documents that are yet to be reviewed. If proved guilty of hurting market competition, the organisation would be fined up to BGN 150,000. Smaller breaches would result in fines of up to BGN 50,000 and BGN 100,000. Fines for price fixing make up to 10% of the offending company’s turnover for the preceding year under the latest amendments to the competition law that took effect in late 2008. However, the association does not make profits and would pay a smaller penalty. Holcim Bulgaria could not be reached for comment. Devnya Cement said its spokesperson Valentina Grozganova was the only one to discuss the issue but added she was absent. Titan Zlatna Panega executive director Alexander Chakmakov said he could have an opinion once he gets details on the case. The company is an associated member of the organisation, holding around a 28% share of the domestic market. Titan idled some of its production capacities in early 2009 to adjust to slimmer sales. The ongoing economic downturn and imports of Turkish cement at lower prices have depressed Bulgarian cement makers’ sales by around 30% in the first half of 2009 under data from the association. Holcim has suspended its clinker furnaces in its two plants near Pleven and Beli Izvor and Italcementi group has idled its production capacities in Devnya and Dimitrovgrad as well. Three months ago the association accused importers of Turkish cement of low quality products with high chrome content that may trigger health problems. Checks established higher than admissible chrome content in one Bulgarian and three Turkish cement samples but the name of the Bulgarian producer was not disclosed. The representative of Turkey’s NUH Cimento Galin Vasilev accused Bulgarian producers of entering into agreements that mar competition. Back in 1999 the antitrust body fined Bulgarian cement plants a total of BGN 295,000 for price fixing. Two years later Devnya Cement was investigated for competition breaches but the competition authority ruled in favour of the plant.

Saudi prince shows interest in Bulgarian hotels

 

Prince Al-Waleed bin Talal bin Abdul Aziz Al Saud, member of the Royal House of Saud and President of Kingdom Holding company, plans to invest in tourism and hotel-keeping, he told Bulgaria's Minister of Economy Petar Dimitrov.Within a month the Prince will send a business delegation to Bulgaria, which is to meet with representatives of the Bulgarian business and administration. The Prince intends to invest in sites of national prestige. Prince Al-Waleed bin Talal bin Abdul Aziz Al Saud and his beautiful wife, Princes Ameera, were on a working visit to Bulgaria yesterday when they were received by Bulgaria's President Georgi Parvanov and his wife Zorka Parvanova. Later on, the President decorated the Prince with a Madara Horseman Order, I class, for his great contribution to the development of the Bulgarian-Saudi economic relations. 

Bulgaria’s EU funds – frozen till September

No earlier than September or October will Bulgaria regain its access to the interim payments, the core of EU funding, EC officials reported. An EC spokesperson officially confirmed the information that a new report would be drawn up on Bulgaria, that will explore EU funds absorption since accession. The Bulgarian authorities have begun depositing the new compliance evaluations, which in the middle of last year were returned for revision. Payments under the seven operative programs cannot commence without Brussels’ approval. According to Dennis Abbot, Spokesman on Regional Policy the Commission’s initial assessment says there are certain improvements along these lines. So, in case everything is right, the EC will give Bulgaria green light for all operative programs no later than September or October. Right after that, the interim payments, that account for 80 percent of the envisaged funds for Bulgaria, would begin.
Meanwhile, a message was received that EC would draw up an EU funds management report for Bulgaria and Romania.    

 

Bulgaria reports EUR 4.2 billion fiscal reserve

 

Bulgaria's fiscal reserved amounted to BGN 8.3 billion (EUR 4.2 billion) at the end of May 2009, the Ministry of Finance reported Thursday. The budget balance on the consolidated fiscal program (CFP - which includes the state budget, the National Social Security Institute, the National Health Fund, the municipalities and the judiciary) was EUR 284 million on May 31, 2009. This is a decline of the budget surplus compared to the end of April, when it was EUR 345.1 million. The budget’s overall balance is still positive thanks largely to the surplus it had in January 2009. The CFP income and aid amounted to BGN 5.5 billion at the end of May which is 33,9% of the planned amount for 2009. The income is 94% of the income in the same period of 2008 because of considerable decline of export, the decline in the import of energy sources and raw materials, and the dramatic drop in the prices of oil, metals, and other raw materials on the international market, which resulted from the global financial crisis.

 

 

INVESTMENTS:

 

 

Turkish glassmaker Sisecam borrows $70 M from IFC for investments in Bulgaria

 

Trakya Cam, a unit of Turkish glassmaker Sisecam, has secured a $70 million (49.8 million euro) loan from the International Finance Corporation (IFC) for investments in Bulgaria and Turkey. Part of the funds will go for environment investment and operational capital for its unit in Bulgaria, Trakya Cam said in a statement to the Istanbul Stock Exchange.Trakya Cam has opened flat glass, household glass, mirror and processed glass factories worth a combined $380 million in Targovishte, northeastern Bulgaria. The company has announced plans to build flat, automotive, coated and laminated glass plants by 2010 at Targovishte site under a $415 million project. At the end of 2008 it said that it would decide this year whether to proceed with the project. Trakya Cam's Bulgarian plants export their output to 45 countries, mainly in Europe.

 

Economy Minister: Investors in Bulgaria can rely on government support in future

 

In the future, investors in Bulgaria can rely on direct government support, Economy and Energy Minister Peter Dimitrov said Monday. He was speaking at a roundtable on investment opportunities in Eastern Bulgaria held in this northeastern town. Quite a few EU member states make direct payments to investors as they implement their investment plans - up to 50 per cent of the investment costs, and this is not considered unlawful state aid, the Minister commented. "The struggle for investors is getting fierce and the winner will be the one who offers better conditions," he also said. Such government support will help open new jobs and generate more taxes for the public purse.Foreign direct investment in Bulgaria reached the record-setting 8.5 billion euro in 2007 but most of it went to the Black Sea coast, mountain resorts, Sofia, Varna and Bourgas, creating strong regional disparities, the Economy Minister said. The financial crunch has resulted in contraction of foreign investment to Bulgaria but foreign investors have not fled this country. Any foreign capital in 2009 were focused on financial services and the real estate sector, while last year foreign investors had strong positions in construction and the processing industry, Dimitrov said. InvestBulgaria Agency chief Stoyan Stalev said that some 1 billion euro has been invested in Bulgaria this year despite the crisis. The past three years have seen a real boom in foreign direct investment with the grand total at 21 billion euro. That is two-thirds of all foreign investments made since 1990, Stalev said. Interest in Bulgaria is strongest in the German-speaking world, with Austria taking the first place with the volume of investment in the past ten years. Sizeable investment has already been made by business people from the neighbouring countries, especially Greece and Cyprus, according to InvestBulgaria figures.By sectors, the bulk of foreign investments has gone to the real estate sector, finances, the processing industry and construiction, among others. InvestBulgaria has been trying to encourage investment in electronics, machine building, the manufacture of autonotive parts and the chemical industry. The Agency is currently supporting 117 projects worth more than 10 billion euro, Stalev said.

 

BGN 2 M invested in new material

 

The engineers of Sofia-based Izobeton TM company created the building material of the future. It is made of concrete and styrofoam and is extremely light and cheap. Its other characteristics are that it is water-resistant and a good heat insulator. The project costs BGN 2 million own funds and production so far is mainly for the local market.

 

Hewlett-Packard opens in Sofia largest training centre in southeastern Europe

 

Hewlett-Packard opened in Sofia on Wednesday the largest training centre in Southeastern Europe. The investment stands at nearly one million leva, the company said.This is a substantial investment in these turbulent times, but when the crisis is over, business in Bulgaria will again start to experience lack of skilled workforce, according to Iravan Hira, Director General of Hewlett-Packard Bulgaria. He also said that these companies which are investing today in the training of their employees will be better equipped than their competitors to take advantage of future economic growth.

Creating a future in IT

On June 5 2009, US ambassador Nancy McEldowney launched the first US-Bulgarian partnership dedicated to Information Technology and Innovation."What we are doing today – to put it most simply – is opening a door. We are opening a door to entrepreneurship and economic development, a door to innovation and ingenuity, a door that will lead inevitably to greater transparency, immediacy, and meritocracy," McEldowney said at the launch of the programme.The partnership project looks to build on Bulgaria’s strengths in information technology and aims to improve the country’s competitive advantage.The pilot project has received $500 000 in initial US government funding, which is to be matched by the Bulgarian government, with expected future funding provided by private sources.The current call for concept papers only covers IT and innovation, but future developments could possibly extend the scope of the project to other sectors, though no decisions have been taken in that direction.The call for proposals will be taken on the road to Bourgas, Plovdiv and Varna in July, where public meetings and presentations will be held, aiming to reach potential applicants outside the capital.A second project that aims to invest in Bulgaria’s information technology future, is the establishment of the Bulgarian Nanotechnology Center (BNtC), the first centre of its kind in Central and Eastern Europe, for which contracts were signed in May 2009. The creation of the BNtC, for which IBM had been selected as a primary partner, was supported by the US embassy to Bulgaria. Bulgarian partners in the project included several universities, the Bulgarian Academy of Sciences.The 500 sq m centre, which was expected to open in 2010, would make use of an IBM Blue Gene supercomputer that the State Agency for Information Technology and Communication bought in 2008.The BNtC was to establish a research facility for nanotechnology and implement a programme of research activities. A third part of the project included the set-up of a consultancy group, including policy makers, industry and legal experts, which will focus on the commercialisation of research results, striving to maximise economic benefit from the research.Know-how and intellectual property, in the form of patentable inventions that would be made available as marketable nanotech products, were expected to generate new business, directly benefitting Bulgarian industry and generating an income stream that would feed back into the BNtC.

 

 

COMPANIES:

 

Toyota, Lexus record 40% drop in Bulgaria sales in 2008

The Japanese care makes Toyota and Lexus recorded a 40% decrease in the number of cars sold in Bulgaria in 2008.The data was announced Wednesday by TM Auto, the official Toyota dealer in Bulgaria.The overall profit of the company was BGN 116,6 M in 2008. The net profit decreased by 71% to BGN 5,1 M, while the gross profit fell by 56% to 12,6 M in 2008 compared to 2007.TM Auto's future goals are to increase its market share, to finish the construction of the new trade center, and to optimize company's expenses.

Cisco Bulgaria to swap oversees trips for virtual meetings

Cisco Bulgaria, the local division of the tech giant, will switch to web-based videoconferencing with its international offices, customers and oversees partners, said manager Petar Ivanov.The company’s cutting-edge TelePresence videoconferencing technology, which was devised two years ago, is being deployed at the Bulgarian office in a move to slash travel costs. once in place by the beginning of August, the TelePresence 3000 system will integrate three 65-inch plasma screens and a specially designed table that seats six participants on one side of the "virtual table." It supports life-size images with ultra-high-definition video and spatial audio. While it will be debuted on the Bulgarian market at the Cisco office, two more companies are eyeing purchasing the system, the producer said. Cisco has estimated that the technology has cut business travel expenses by two-thirds, having delivered savings to the tune of some USD 1.5 billion.

 

 

 

 

 

 

 

 

EPIQ: In neutral gear

Asked to describe the current state of Bulgarian car parts manufacturers, Ognyan Vassilev, quality control director at electronics manufacturer EPIQ Electronic Assembly, relates an African proverb."Every morning, the antelope wakes up knowing that it must outrun the fastest lion, or it will be eaten. Every morning, the lion wakes up knowing that it must run faster than the slowest antelope, or it will starve.""The company’s success on the market nowadays depends on how fast we work and the quality of the product. Unless we improve ourselves, we will soon stop being good," he says.The company owns three plants in Botevgrad in central Bulgaria, which account for two thirds of the manufacturing in the group, the rest spread over facilities in China, the Czech Republic, France, Germany and Mexico.So far, it has invested more than 20 million euro in Bulgarian operations and its revenue for 2008 topped 268 million leva. one of the few high-tech investments in Bulgaria, the local subsidiary has expanded rapidly and is often hailed as an example of good management practices.But even EPIQ could not avoid being affected by the economic slowdown. In early January, two production facilities had to switch to employing its workers part-time, which resulted in a salary cut of 30 per cent, on average. The direct reason, however, is not the economic crisis, but falling quantities of goods from subcontractors."We have made very few staff redundant since January. We prefer to continue paying our employees even if they are not employed full-time and keep them with the company," EPIQ said. "Over the past several months we have had unexpectedly large orders from some of our customers and we expect that in the second half of the year, the market situation will improve. Still, we will recover to where we were before the recession struck only in a year or two."Two other major car parts manufacturers in Bulgaria – French firm Montupet, which has a production facility in Rousse, and Japan’s Yazaki in Yambol – do not seem greatly affected and are not complaining about a lack of new orders. Montupet’s plant in Rousse started several months ago making engine cylinder heads for Dacia as part of a long-term contract with Renault, the majority shareholder in the Romanian car maker.Quality control testing prior to the launch of production took five months, human resources manager Ivelin Dimitrov said. The company is now quality testing the production cycle of engine parts that would be manufactured for Renault and Audi.Yazaki, too, relies heavily on a strategic partner. At the start of the year, the company began production of cables for the Renault Scenic. It also makes all the wiring that goes into different versions of the Renault Megane. "Both models are highly sought after in Europe and since February we have seen our orders double," general manager Uwe Abraham said. Abraham said he expected Yazaki’s turnover in Bulgaria to rise from 18 million euro in 2008 to 53 million euro in 2009. The company will even hire additional staff, increasing its payroll from 2850 to 3000 over coming months.

 

Bumpyroad

Not all car manufacturers have enjoyed a smooth ride, however. Among the firms that have felt the pinch in Bulgaria is Switzerland Oskar Ruegg, which manufactures parts for motor vehicle lighting systems in Stara Zagora. Its main customers are Audi, Volkswagen and Daimler. "We have felt the impact of the crisis very strongly since November," the administrative manager of Oskar Ruegg Bulgaria, Tsvetomira Hristova, said.In November, orders dropped by 15 per cent and, since most components are hand-made, the company had to lay off staff. By now, the decline in orders has reached 50 per cent of the pre-crisis levels, forcing the management to make six per cent of its workers redundant and move the rest to a four-hour working day, with each employee receiving half a salary and 120 leva on top."We are living in a time of unprecedented challenges. The motor vehicle industry, the main market for Melexis, has been hit especially hard by the financial and economic crisis and 2008 was a bad year for the company," Melexis Bulgaria financial director Diana Dimitrova said.Revenues decreased by nine per cent for the full year, with sales shrinking the most in the fourth quarter, when demand for cars reached its lowest. Operating profit fell 29.6 million euro, prompting the company to make 10 per cent of staff redundant globally. "The Bulgarian unit is making its contribution. We are periodically halting production at our three production facilities for periods ranging from several days to two-and-a-half weeks. In Germany and Belgium, we use every opportunity to reduce the working hours of all our personnel, but in Bulgaria, unfortunately, there are no such state programmes," Dimitrova said.All measures are geared towards allowing Melexis to generate cost savings and to ensure sufficient cash generation over the next quarters, as well as improving gross margins in the long term.

New opportunities

 

Increasingly, companies that manufacture parts for the motor vehicle industry are looking for opportunities to branch out their operations and minimise the risk to their business. Some Bulgarian companies have already started doing the same – the subsidiary of Germany’s Grammer, which manufactures car seats in Troudovetz, is also making seats for buses, trucks and tractors. Its management is trying to avoid laying off any of its 570 employees by moving them to other subsidiaries.EPIQ, for its part, branched out long ago, manufacturing parts for telecommunications systems (Sony), household appliances (Tefal, Rowenta, SEB Group, Calor) and medical equipment (IEM, Tefal).Melexios too is not relying only on the motor vehicle industry. About 70 per cent of its revenue is generated by the sector, but the rest come from telecommunications, medical equipment and the industrial sector.Oskar Ruegg Bulgaria’s Tsvetomira Hristova said: "We are also working on developing new products and plan to launch a production line servicing another sector in the autumn."In times of crisis, good managers become more inventive in seeking new opportunities for their business and that might just be one of the factors that will speed economicrecovery.

Koreans on the prowl

South Korean companies are interested in investing in car parts manufacture in Bulgaria, with the country’s embassy commissioning a report on the automotive and related industries from the National Chamber of Electrical Engineering, the organisation’s chairperson Roumen Atanassov has said. The South Korean firms, however, are still only at the fact-finding phase.According to Deloitte Consulting, potential investors in the sector are looking at, in order of decreasing importance, political and economic risks, the availability of qualified personnel, foreign language proficiency, infrastructure, corruption and, lastly, tax breaks.A recent survey by management consultancy A.T. Kearney, carried out among 180 managers in the automotive sector worldwide, showed that about 40 per cent plan to relocate manufacturing capacities to other countries, while another 15 per cent said they were considering the option.

Kapital weekly, issue 25

 

GLOBAL FINANCIAL CRISIS ANALYSIS AND NEWS:

 

The crisis brings new rules

It is no secret that companies, both national and foreign, drop drastically expenditures in an attempt to survive. Survey of Ernst&Young shows that most of the firms focus on survival but there are few that make use of the situation and seek new opportunities. Data of the survey reveal that over the last year 86% of the executive directors focused on expenditure reduction programmes, 52% emphasised on re-structuring plans and 38% launched programmes for job cuts. Bulgaria is part of the process and the tendency.All companies, no matter of the sector they operate in, began optimisation of their activity with the aim to reduce expenses and rescheduling of their debts, survey of the Pari daily revealed. Some time ago the executive director of Sopharma pharmaceutical company Ognyan Donev said the company will freeze temporarily its plans for expansion in Eastern Europe because of the crisis and their main goal would be to preserve the level of profit. Similar steps were taken by other companies. The executive director of Stara Planina Hold shared that the profit for the first quarter of 2009 was made possible due to great drop in expenses and job cuts. In the opinion of Krassimir Katev from Prime Capital Management, the winning decision is to reduce the employees’ payment and working time. The crisis will be over and everyone knows that qualified personnel is needed and difficult to find.

Bulgaria's Albena Jsc freezes investment plans over crisis

The Bulgarian company "Albena" Jsc has decided to freeze its investment program for the rest of 2009 over the effects of the global financial crisis.The general assembly of the Albena shareholders decided Saturday to give out a dividend of BGN 0,5 per share, while the Board of Directors wanted to place all of the profit in the reserve fund.Albena's 2008 profit was BGN 13,885 M, which is a 22% declined compared to the BGN 17,729 M in 2007.In 2008, the company invested about BGN 55 M in various projects. The investments planned for 2010 so far are EUR 1 M for the design of a new wellness and spa hotel complex.Albena's tourism investments are going to be concentrated on congress tourism aiming to make this sector about 20-30% of its total tourism assets.The company also plans the construction of a hyper modern festival complex to be ready in 2014, an investment which is expected to cost about EUR 30 M.Albena Jsc manages one of Bulgaria's top Black Sea resorts, "Albena".

Six ways out of economic crisis

Speaking of crisis is not a crime this was the topic of a discussion on the unfolding economic crisis organized by the Standart newspaper in the coastal city of Bourgas. The participants in the forum - politicians and businessmen tried to find an answer to the question whether the end of the global economic meltdown is in sight. The politicians were discussing the question whether the end of the crisis is near, or the worst is still to come."The issue that we have gathered to discuss is very important to the Bulgarian people, so it should not be politicized," Standart Editor-in-Chief Mrs. Slavka Bozukova, who anchored the discussion, said.Finance Minister Plamen Oresharski, who is also the leader of the Coalition for Bulgaria ticket at the oncoming general elections, made the most optimistic prognosis."The worst has passed but it will be a long way to recovery," he said.
In his view, the figures for the second trimester are a positive signal for the world's leading economies. Oresharski also underscored that hereafter Bulgaria shouldn't fear any dramatic declines, but did point out that the forecasted 10-percent downslide in tourism this season could be bigger than expected. Minister Oresharski stated that the government had taken all necessary measures to alleviate the consequences of the crisis. An example is the guaranteeing of bank deposits.The rest of the politicians were much more pessimistic in their forecasts. "The crisis will deepen," said Vesselin Morozov, centrist NMS representative.He believes the nearest future stores shortage of financial resources in economic sectors which have not been affected by the crisis yet. "Not a single sector has been left unaffected and the process will intensify," warned Evdokia Maneva, representative of the rightist Blue Coalition. "The end of 2009 will be the hardest," said Diana Yordanova from the centrist GERB. All of the participants in the forum were of the same opinion on the necessity for establishing infrastructure which will facilitate the business. Different opinions were expressed on whether Bulgaria needs to sign a new agreement with the International Monetary Fund. The MRF majority nominee, Yordan Tsonev thinks such an agreement is not necessary. He pointed out that Bulgaria has the lowest tax rates compared to the 30% or 40% in the other European countries. If a new agreement is signed with the Fund, pressure will be exerted towards change of tax rates and the next government will experience difficulties in keeping the current rates, Tsonev thinks. Participants also expressed different opinions on whether the budget should be reconsidered. The business asked that the power-vested should produce clear rules and legislation to help normal business work.

Is there light at the end of the tunnel?

Author: Jens Bastian, Senior Economic Research Fellow, ELIAMEP

Since the onset of the financial crisis in the autumn of 2008, the global economic environment continued to worsen in the first quarter of 2009. It appears to be slightly easing in the second quarter. The Balkans is among the regions most adversely affected, reflecting dramatic GDP contraction and numerous external challenges (e.g. large current account deficits, shortfalls in foreign currency inflows and declining export capacity). All countries in the region - with the possible exception of Albania - are expected to register a sharp output decline. Romania, Serbia and Bulgaria are particularly adversely affected. on average, GDP contraction will reach minus 3.2 per cent for the entire region in 2009. Such a freefall in their economies is only comparable to the initial transition period in the early 1990s.International funding institutions have come to the rescue of eight countries in Central, Eastern and South East Europe. Between October 2008 and May 2009, they have provided about $108 billion of emergency lending to Romania, Serbia, Ukraine, Belarus, Hungary, Poland, Bosnia and Herzegovina and Latvia to weather the economic and financial crises. Other countries such as Albania, Croatia and Bulgaria are currently considering their options.These interventions represent an unprecedented level of co-operation between the IMF, World Bank, EBRD and EU. They also expressed a powerful message; namely that East, Central and South East Europe, including the Balkans, has a safety net that will be extended across the regions by the international [financial] community! The full extent of the financial sector crisis in the region has yet to translate into the real economy. Three areas are of particular importance:

(i)    credit volumes to households and the corporate sector remain conditioned by the risk of rising non-performing loans and eventual debt defaults;

(ii)    bank de-leveraging after years of excessive credit growth, in particular mortgages, consumer loans, corporate finance and credit card debt;

(iii)    uncertainty over the future engagement of Western parent banks – including Greek financial institutions - vis-a-vis their local subsidiaries in the Balkans.

The level of non-performing loans (NPLs) is currently the most important risk indicator for the stability of commercial banking in the Balkans.Together with accelerated credit contraction rising NPLs exert significant burdens on banking operations in the region. It is only a matter of time until this combination of financial sector stress factors filter through into the real economy.

Social implications of the economic and financial crises

The economic contraction in the Balkans is re-ordering citizens’ assessments about their future expectations in areas such as employment, wages, welfare services and the availability of banking credit. In practice, austerity programs are gradually rippling down the social hierarchy, with adjustments taking place in every segment of society.The rescue packages from the IMF, the World Bank and the EU include painful conditionalities that will have to be met with budget cuts and public spending limitations during 2009/10. The measures are primarily affecting public sector employees, reduced funding for cities and local administration as well as retirement benefits. The social implications of such conditionalities are dire and subject to public controversy.One key indicator is remittances. According to the World Bank, money sent home by migrant workers to their families in the Balkans is set to fall by up to 13 per cent in 2009. The regional impact of lower remittances is further influenced by country-specific currency arrangements. Through the depreciation of domestic currencies, non-euro countries such as Albania, Bulgaria, FYR Macedonia, Romania and Serbia will be more adversely affected than Montenegro and Kosovo where the euro is legal tender.

Outlook

Any economic forecast for the Balkans is currently fraught with considerable uncertainty in both downside and upside directions. The best these countries can hope for during 2009/10 are some green shoots emerging. But they will have to continue identifying the necessary remedies in order to manage ongoing economic and political volatility. Each country has weaknesses that could hamper a long-term economic recovery in the region. Exports and foreign direct investment flows, critical for many markets in the Balkans, are still anaemic in the second quarter 2009. Export capacity to EU countries has been particularly hurt by the downturn. Countries in the Balkans have relatively small domestic economies that can hardly compensate weaker demand from Germany, Austria, Italy and France.Rising budget deficits in places like Albania, Serbia, Romania and even Bulgaria limit the fiscal space available to policy makers to stimulate their economies. Moreover, industrial production in Balkan economies has not rebounded, nor have levels of retail sales shown any signs of bottoming out.Technically, most countries may be moving out of recession in 2010. But the trend growth rate of most countries in the region will be much closer to one to three per cent than five to eight per cent in the coming years. Such levels constitute a major re-adjustment of GDP growth expectations in the Balkans! This will have consequences for foreign direct investment and the business plan priorities of Greek banks in the region.The broader concerns across the region are twofold. one is political. How will different constituencies react to economic lean times and a perception that their hard-earned gains have been erased? Voters, forced by recession to live more leanly, are irate as was evidenced in the recent EU parliamentary elections in Romania and Bulgaria as well as the general election from last week in Albania.The second issue concerns where and how the recovery will come from? Governments and the international community have started to implement emergency lending programs in order to confront short-term requirements. But they are nowhere near recognising what will need to be done medium-to long-term in Belgrade, Bucharest, Sofia, or Tirana. This endeavor includes re-thinking how governments in the region can generate additional fiscal space without having to rely so strongly on emergency funding from abroad.The social implications of the crisis also require re-evaluating the pillars of the social safety net. This is exactly the time when the importance of having a decent social safety net is driven home to everybody in the Balkans.In sum, thought-provoking choices about the nature of their political economies will have to be made after the crisis and before the recovery.Jens Bastian is a Senior Economic Research Fellow at the Hellenic Foundation for European and Foreign Policy, ELIAMEP, in Athens.