” Foreign investors in Bulgaria must look beyond enduring problems”
In the days of globalisation and high speed Internet investing abroad has never been easier. Given my Bulgarian origin, I am often asked not only about how my country looks like, but also what investment opportunities can be interesting. There is no simple answer to that question. To start, it is important to know that Bulgaria is an EU member state. The implications of its EU membership means that EU wide regulation is also implemented in local law. From macro economic point of view Bulgaria has strong fundamentals. Debt to GDP is one of the lowest in the region and currently and currently stands at 24%. Country’s GDP has been steadily expanding at 3.6% for the last couple of years. It is also forecast to continue its steady expansion at similar rate until 2021. Unemployment is around 7%, while government 10 year bonds are yielding 1.3%. The local currency – BGN is pegged to the EUR at a rate of 1.95. Hard currency foreign reserves currently stand at 43 BLN BGN. Interbank rates are currently negative. Both corporates and individuals are taxed at a flat rate of 10%, the lowest in the EU. There is VAT a fixed at 20%. The official language is Bulgarian, English is widely spoken amongst the business and investment communities. Home ownership rate currently stands at 82%. Currently S&P rates Bulgaria BBB- with positive outlook while Fitch has rates the country as BBB also with stable outlook. Population is 7.8 mln. Wages are at all time high with an average of 1123 BGN per month. The main hurdle of doing business in Bulgaria is the level of corruption which is amongst the highest in Europe.
The country has got strong economic fundamentals average FDI is low and currently averages 180 mln EUR a month for the last 20 years. As the population is educated and taxation is low there are numerous business opportunities. Depending on what is your focus and preference there are number of avenues to investing in the country.
The main benchmark of the Bulgarian Stock market is SOFIX index. It represents the 15 largest market caps of the market. It has overperformed most of its CEE peers in 2017. Opening accounts with local brokers is complex and the easiest way to get exposure is to perhaps buy an ETF. To the best of my knowledge there is only one and more details can be found here. The main downside of the stock market in Bulgaria is that it is not liquid and it would be difficult to liquidate investments.
How to invest directly in the real estate market is perhaps the most common question I get every now and than. Firstly, it is worth knowing that local legislation bans foreigners from owning land in Bulgaria. Second, yes indeed the real estate market in Bulgaria offers significant opportunities because of three main factors: the sector has been under invested for years after 2008 crash, economy and purchasing power have expanded significantly over the last 10 years, record low yields and interest rate have driven both local buyers and foreign institutions to the market. Personally, I believe real estate investment in Bulgaria offers significant upside opportunities. However, it has to be the right property, the right price at the right location. As a foreigner it is best to carefully choose your local partner, as there are many shady companies in the sector.
This is perhaps the most interesting sector to invest in Bulgaria. It is defined by double digit growth a lot of great ideas and a number of driven individuals. It is also the sector where capital lacks the most as local banks are unwilling to lend and the local VC infrastructure is nascent. The best way to get involved is to find a trustworthy local partner and the idea you believe in. Personally, I also believe in the sector and have invested in two concepts.
Investing in Bulgaria is not easy but attractive due to the macro economic stability, highly educated population and numerous opportunities. Lowest tax rate in the EU and sound financial system make the country attractive as a tax optimisation destination as well as first step of an EU expansion strategy. Finding a loyal, trustworthy local partner is key to your success. I hope this article is a useful first step in your information gathering and by all means if you would like to know more feel free to drop me line, will be happy to help.