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Country Commercial Guides FY 2000: Bulgaria Report prepared by U.S. Embassy Sofia, released July 1999 Note*

CHAPTER I. EXECUTIVE SUMMARY

This Country Commercial Guide (CCG) presents a comprehensive look at the Republic of Bulgaria's commercial environment, using economic, political and market analysis. The CCGs were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. embassies through the combined efforts of several U.S. Government agencies.

In an era of declining fortunes of emerging markets throughout the world such as in Asia and Russia, Bulgaria is a market that deserves closer attention by U.S companies for its trade and investment potential. This oasis of economic and political stability in the Balkan Peninsula has greatly expanded its commercial ties with Western Europe and the United States. Over half of Bulgaria's exports currently go to Western Europe, and the United States is currently one of Bulgaria's top foreign investors. A small nation of 8.3 million mostly ethnic Bulgarians located on the Black Sea south of Romania, north of Greece and northwest of Turkey, with FYR Macedonia and Yugoslavia to the west, Bulgaria has aspirations to join the European Union and NATO over the next several years. The Soviet Union's staunchest ally in the Communist bloc until 1989, Bulgaria's current commercial climate is a great contrast to the woes presently facing the Russian Federation.

Bulgaria has followed a slow but sure path towards a market economy since Prime Minister Ivan Kostov of the Union of Democratic Forces (UDF) took office in April 1997. The change to the present government followed street demonstrations in Sofia, seen throughout the world on television in January 1997, against several years of disastrous rule of the Communist-successor Bulgarian Socialist Party. Since 1997 the severe economic hardship for the Bulgarian people has greatly eased as the Bulgarian currency, the lev (BGN), has been stabilized at a current rate of BGN 1.96 levs per euro (equivalent to 1 lev per deutschmark), inflation has been reduced from over 500 percent in 1997 to just 1 percent in 1998, and confidence in the banking system is starting to return. Bulgaria's 1998 Gross Domestic Product (GDP) reached $12,700 million in 1998, and 1998's real GDP growth rate of 3.5 percent. The 1999 GDP growth rate of only 1.5% is in part due to the Kosovo conflict.

These promising economic trends are the result of the foresight and discipline of the new government. The principal reason has been the institution of a currency board, mandated by the International Monetary Fund, which reduced inflation and halted the crash of the lev. The Government of Bulgaria (GOB) must now maintain hard currency reserves to cover all levs in circulation as well as the commercial banks' reserves in the central bank.

The new government also has launched a campaign against crime and corruption, and Bulgaria is the first non-OECD nation to ratify the Anti-bribery Convention. Other further market-oriented changes have been made to the laws governing foreign investment, taxation and land ownership by foreigners.

After years of foot-dragging by its predecessors, the Kostov government has accelerated the pace of privatization of thousands of state-owned enterprises, from the Bulgarian Telecommunications Company and Balkan Bulgarian Airlines to hotels and resorts. Privatization is the only practical way for Bulgaria to restructure its economy, create new jobs, and introduce new technology. Privatization is also crucial to efforts to attract foreign investment, halt the slide in production and increase exports to generate revenue to support needed imports. The Kostov government has also recognized the importance of small and medium sized enterprises in creating jobs.

Bulgaria is still a poor country with average per capita income estimated at under $1,500 per year. While this limits consumer purchasing power for relatively expensive U.S. products, Bulgaria's work force offers attractions to manufacturing investors for its good education, especially in engineering and foreign-language ability.

With the improved economic climate, a wide variety of products of all types can now be found in Sofia's increasing numbers of shops, and the Bulgarian government and some large state-owned enterprises can finance priority imports by themselves. Bulgaria has an active trade show calendar attracting exhibitors from all over the world. Bulgaria is moving forward on $2 billion in transport and environmental remediation projects. Nonetheless, international financing of major infrastructure projects remains essential, and Bulgaria is still very dependent on financing from multilateral banks and other non-Bulgarian sources. Financing from the Export-Import Bank of the United States (Eximbank) is now available to finance U.S. exports to Bulgarian enterprises, provided that the GOB issues a sovereign guarantee of the transaction.

While the Kosovo crisis has interrupted Bulgaria's main highway and Danube River trade routes with Western Europe, which may slow the pace of short term economic growth, the Stability Pact, a comprehensive regional plan for economic development, democratization and security, should lead to new and expanded trade and investment opportunities in Bulgaria over the long term.

Despite the current international situation, many American high technology, industrial, and consumer products whose only substantial competition is European do offer significant price and quality advantages and enjoy good markets in Bulgaria. U.S. technology and know-how are widely respected and financing very much needed. The price, quality, technological leadership and reputations of U.S. companies are often viewed in Bulgaria as effective counterweights to pressure from European Union (EU) companies to "buy European."

The industry sectors with the best prospects for U.S. firms include electrical power generation equipment, telecommunications equipment and services, computers, software and information technology, medical equipment, automotive parts and service equipment, agricultural equipment and building materials.

Market access for U.S. companies is improving, but Bulgaria is not yet an easy place to do business. There are several business conglomerates with suspect origins and business practices that wield considerable influence in the Bulgarian economy and which the GOB is trying to limit. Bureaucratic delays due to ministry reorganization, replacement of senior officials and enterprise advisory boards dictate the need for good relationship building and patience. Tenders occasionally get bogged down for lack of clarity in the rules or even-handed enforcement, but transparency in general has improved. However, international investors are less subject to pressures such as bureaucratic delays or corruption than Bulgarian companies.

Country Commercial Guides are available for U.S. exporters from the National Trade Data Bank's CD-ROM or via the Internet. Please contact STAT-USA at 1-800-STAT-USA for more information. Country Commercial Guides can be accessed via the World Wide Web at http://www.stat-usa.gov, http://1997-2001.state.gov and http://www.mac.doc.gov. They can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS. U.S. exporters seeking general export information/assistance and country-specific commercial information should contact the U.S. Department of Commerce, Trade Information Center by phone at 1-800-USA-TRAD(E) or by fax at (202) 482-4473.