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Country Commercial Guides
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CHAPTER V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
A. Best Prospects for Non-Agricultural Goods and Services
The following are best prospect sectors, ranked by estimated dollar growth in U.S. exports over the coming year.
RANK SECTOR SECTOR NAME CODE
1 ELP Electrical Power Systems 2 CSF Computer Software 3 BLD Building Products 4 AGM Agricultural Machinery and Equipment 5 TES Telecommunications Services 6 MED Medical Equipment 7 CPT Computers and Peripherals 8 APS Automotive Parts and Service Equipment 9 TEL Telecommunications EquipmentNote: Exchange rates used are 1,682 Bulgarian levs (BGL) per U.S. dollar for 1997, BGL 1,760 for 1998, BGL 1,800 for 1999, and 1.80 new Bulgarian levs (BGN) for 2000. BGN 1.00 equals BGL 1,000.
1. Electrical Power Systems (ELP)
Bulgarian electrical power generation capacity is 12,688 megawatts, 88 percent operated by the state-owned electric utility Natsionalna Elektricheska Kompania - NEK. The other 12 percent consists of co-generation facilities operated by district heating companies and large industrial enterprises. NEK's power plants are 45 percent thermal (two-thirds lignite and brown coal, one-third imported coal), 34 percent nuclear (at Kozloduy, on the Danube River), and 21 percent hydropower. Bulgaria has big plans for investment that will offer excellent opportunities for U.S. suppliers of electrical power equipment in 1999 and beyond. The most promising subsectors are nuclear power generating equipment, turbines, and cogeneration equipment. The Committee of Energy's top priority is improvement of the safety and operations of the Kozloduy reactor units. Other projects include major upgrades at the Maritza East 2 Thermal Power Plant, replacement of the Maritza East 1 plant, and the rehabilitation of Maritza East 3. The U.S. utility Entergy has entered into a joint development agreement with the Committee of Energy for Maritza East 3, while another U.S. company, Access International, has an agreement to build and operate Maritza East 1. Westinghouse, using the first-ever credit guarantee from Eximbank for Bulgaria, will upgrade Kozloduy 5 and 6's control, protection, computer and diagnostic systems.
The Privatization Agency is selling 22 hydropower plants to private companies. Restructuring of the National Electric Company's system is also under way, aiming to separately privatize design activities, engineering operations, consulting services and equipment repair services into separate companies. The Kozloduy nuclear power plants and the high voltage network are not included in the privatization program.
(millions of U.S. dollars) 1997 1998 1999 A. Total market size 21.7 14.4 56.9 B. Total local production 13.7 11.3 23.6 C. Total exports 4.5 0.7 6.4 D. Total imports 12.5 3.8 28.5 E. Imports from the U.S. 0.9 0 14.9Note: the above statistics are unofficial estimates.
2. Computer Software (CSF)
Bulgaria has a growing computer software market for U.S. products, which are well regarded as more advanced than Bulgarian products. Imports of computer software from the United States are expected to expand more than 800 percent in 1999 compared to 1998. Promising subsectors include application software, networking software, electronic design automation, CAD/CAM, computer aided engineering (CAE), Internet software. Demand for Internet software is strong and imports from the United States are expected to grow significantly in the next two years. With the stabilization of the banking and financial system, the number of automatic teller machines (ATM's) will considerably grow and e-commerce will start to become popular. Although 76 percent of the off-the-shelf software used in Bulgaria is pirated, this is down from over 90 percent in just one year, helping to explain the sudden growth in imports.
As a rule, large Bulgarian organizations still tend to use custom-designed products in-house rather then rely on "off the shelf" products. Ninety percent of the software produced in Bulgaria is customized accounting, payroll and database software, while only ten percent is off-the shelf application software. However, Y2K concerns and other needs for new software are changing this ratio. Bulgarian production is dominated by seven companies, although the 200 small developers have the potential of creating competitive products, and of localizing U.S. software, as Bulgarian programmers are well-educated, talented and English-speaking.
In December 1998 the Ministry for State Administration publicly signed an agreement with Microsoft to legalize the use of important Microsoft software. This is intended to set a good example for the Bulgarian private sector. Microsoft also announced it will help develop a software vendor and support industry for Microsoft and compatible products.
(millions of U.S. dollars) 1997 1998 1999 A. Total market size 10.7 11.7 14.5 B. Total local production 10.4 13.0 8.0 C. Total exports 0.8 2.5 3.5 D. Total imports 1.1 1.2 10.0 E. Imports from the U.S. 0.3 1.1 9.0Note: the above statistics are unofficial estimates.
3. Building Products (BLD)
Reflecting a weak Bulgarian economy, the Bulgarian building materials market, including both commercial and residential, declined over the past several years, but should double in size in 1999 compared to 1998, along with imports from the United States.
New Bulgarian building construction is primarily steel-reinforced concrete and brick, but some home builders are starting to look at American-style platform-frame wood construction and prefabricated housing for their different styles, superior energy performance in Bulgaria's climate, soundproofing, earthquake resistance, and price-competitiveness with European products. U.S. value-added residential building products for single-family homes that may have very good market prospects include wooden and vinyl windows, doors, flooring and kitchen cabinets. Other potential imports from the United States could include framing lumber, plywood, molding and fiberboard. In addition, the Bulgarian remodeling market may grow significantly over the long term, offering U.S. companies opportunities in this subsector.
Real estate prices have remained stable, in the $20,000-30,000 range for a 100 square meter two-bedroom apartment. However, low personal incomes have made home purchases increasingly difficult for working people. During 1998, there were only 9,300 housing starts in Bulgaria, 2,900 houses and 6,400 apartment units.
As most modern building materials are imported, Bulgaria has no applicable standards or testing in this sector. Materials from well-known manufacturers that have certificates from the country of origin are accepted in the market based on technical merit.
The Ministry of Regional and Urban Development plans to privatize more than 90 percent of existing construction companies, selling 150 companies in 1999 -- including all shares in 120 companies.
(millions of U.S. dollars) 1997 1998 1999 A. Total market size 112.4 97.8 231.5 B. Total local production 154.9 144.7 185.8 C. Total exports 91.0 85.0 19.7 D. Total imports 48.5 38.1 76.8 E. Imports from the U.S. 2.6 0.5 4.9 Note: the above statistics are unofficial estimates.4. Agricultural Machinery and Equipment (AGM)
Market demand for agriculture machinery is expected to hold steady for 1999 as imports from the United States increase market share. Over the next year, the market is expected to expand at a rate of 10 - 13 percent. Since the breakup of the communist era agricultural cooperatives starting in 1989, Bulgaria has had a strong demand for agricultural equipment. The agricultural reform in Bulgaria and the land restitution process is increasing the number of small farms. At present Bulgaria has 4.8 million hectares of agricultural land, of which 3.8 million hectares are under cultivation and 1 million hectares are not under cultivation.
As restitution has divided ownership of agricultural machinery among thousands of new owners, the majority of which lacked the knowledge of how to maintain and service the equipment, the result has been a rapid decline in the quantity and condition of the available agriculture machine inventory. From 1978 to 1997 the number of tractors decreased from 62,500 to 42,600, and combines including grain harvesters decreased from 24,600 to 7,960. Total machinery value has dropped 80 percent since 1991.
The trend toward smaller farms has meant increased demand for smaller machines. Tractor size decreased from 73 hp to 50 hp between 1978 and 1997. Bulgaria has one-sixth the agricultural mechanization of the rest of Europe, an average of 50 hp of tractor capacity per 100 hectares of agricultural land, compared to 300 hp per 100 hectares for all of Europe.
Local producers supply tractors in the 0.6 - 2 ton range, provided financing is available. Tractors in these sizes and larger tractors ranging from 3 to 5 tons are imported. The German Claas, the U.S. John Deere, Case and Massey Ferguson are all sold in Bulgaria. Prices of imported new tractors vary from $300 to $500 or DM 540 - 850 per hp, while domestic machines are $130 - $170 or DM 230 - 350 per hp. Industry experts forecast a near-term demand for between 150,000 and 300,000 tractors, minitractors and motor cultivators.
(millions of U.S. dollars) 1997 1998 1999 A. Total market size 68.0 56.2 56.7 B. Total local production 8.9 7.0 6.8 C. Total exports 6.7 7.7 7.2 D. Total imports 65.8 56.9 57.1 E. Imports from the U.S. 8.4 4.0 7.8Note: The above estimates are unofficial estimates.
5. Telecommunications Services (TES)
While overall market growth is forecast to be about 11 percent from 1998 to 1999 due to economic effects of the spring 1999 Kosovo conflict, economic activity in Bulgaria is expected to pick up during the rest of 1999. Four other major factors will contribute to expected overall market growth of at least 15 percent in 2000. First is the privatization in the summer of 1999 of the state-owned Bulgarian Telecommunications Company (BTC), which has a 92 percent share of telephone services. A 51 percent share of BTC was sold in July 1999 by the Privatization Agency to a consortium between OTE of Greece and KPN from the Netherlands. The privatization contract is expected to be signed by September 1999. Second, the number of Internet users will double from 1998 to 1999 and again in 2000, creating great additional demand for high quality telephone service. Third, BTC predicts that mobile phone use will increase substantially as mobile phone usage fees drop 50 percent or more due to the increased competition expected from the licensing of a second GSM operator to the purchasers of BTC. And fourth, significant growth of digital service as a share of the market continues.
The privatization of BTC will enable BTC to begin offering its residential and business subscribers more than the basic telephone services that they have received until now. For example, while BTC has just started offering call forwarding, it does not offer call-waiting, conference calling, or inward toll-free dialing. These factors should help create expanded demand for U.S. providers of advanced telephone service solutions. Frame relay and ATM technologies are expected to take increasing market shares, as well as value-added services.
(millions of U.S. dollars) 1997 1998 1999 A. Total sales 243.0 302.0 333.0 B. Sales by local firms 250.0 300.0 330.0 C. Foreign sales by local firms 20.0 22.0 24.0 D. Sales by foreign-owned firms 13.0 24.0 27.0 E. Sales by U.S.-owned firms 6.5 12.0 14.0Note: The above statistics are unofficial estimates
6. Medical Equipment (MED)
Prospects are for greatly increased imports of medical equipment over the near term in Bulgaria, due to a number of factors. First, two new Bulgarian laws affecting the health insurance system and health care institutions are expected to improve competition among hospitals and health care services providers. Second, the health care budget for fiscal year 1999 increased to 4.2 percent of the national budget, up from 2.8 percent of a smaller 1998 budget. Third, as the value added tax (VAT) was reduced from 22 to 20 percent, and the 2 percent import tax was abolished, the cost of importing medical equipment dropped 4 percent over 1998. And fourth is the privatization of state-owned polyclinics.
As of July 1, 1999 the government of Bulgaria introduced a new National Health Insurance Fund (NHIF) as an attempt to deregulate the health care system, to restructure and reform the health sector, to change the health financing system and develop new legislation adequate to the needs of the reform and in compliance with the European legislation, principles and standards.
Best prospects for imports of medical equipment include anesthesia equipment, monitoring devices, cardiology equipment, ultrasound equipment, defibrillators, radiology equipment, and electrocardiographs.
(millions of U.S. dollars) 1997 1998 1999 A. Total Market Size 63.0 56.0 60.5 B. Total Local Production 21.0 9.0 9.7 C. Total Exports 6.2 4.2 4.0 D. Total Imports 48.2 51.2 54.8 E. Imports from the U.S. 7.1 5.9 7.5Note: The above estimates are unofficial estimates
7. Computers and Peripherals (CPT)
The computer and peripherals market in Bulgaria is very well developed. The top 20-25 suppliers dominate a market of 500 companies. Brand name computers such as IBM, Hewlett Packard and Compaq occupy 60 percent of the total market while local assembly of computers from imported components has 40 percent of the market. In 1998, 30,000 computers were assembled in Bulgaria, representing sales of about $20 million. Although this represented an increase from 24,000 units in 1996 and 27,000 in 1997, total sales volume stayed flat. However, the market is expecting a steady growth of about 10 percent over the next few years. No computer components or peripherals are made in Bulgaria.
Best prospect subsectors for U.S. suppliers include local area network (LAN) and Internet sharing equipment, personal computers, modems and printers. There are currently no import duties on computers and peripherals.
Siemens-Nixdorf is the only significant competitor on the Bulgarian computer market to U.S. equipment suppliers, while the main competitors to U.S. companies for peripherals sales are Epson and Acer. Some of the locally assembled computers are made from components brought into Bulgaria without payment of duty or taxes. These lower quality computers are cheaper and preferred by the home computer market, but this represents only 2 percent of the total market. The market for used home computers is insignificant and is only another 2 percent of the total market. The number of home users is expected to increase somewhat as a result of expanded Internet interest and lowered computer prices.
In most cases computers and peripherals in Bulgaria are purchased directly from computer suppliers, who actively advertise both in specialized and daily newspapers. The biggest end-users of brand name computers in Bulgaria are state organizations (whose computer purchases are usually financed by international financial organizations) and foreign investors in the country (particularly banks and industrial enterprises).
(millions of U.S. dollars) 1997 1998 1999 A. Total market size 58.5 75.0 82.8 B. Total local production 20.0 20.0 22.0 C. Total exports 7.3 2.0 2.2 D. Total imports 45.8 57.0 63.0 E. Imports from the U.S. 12.1 11.5 13.0Note: the above statistics are unofficial estimates.
8. Automotive Parts and Service Equipment (APS)
U.S. after-market automotive parts and accessories and service equipment are increasing market share faster than the growth of Bulgaria's market, which is already 95 percent imports. Bulgaria's automotive fleet is dominated by rapidly aging Eastern European models and increasing numbers of used Western European models acquired individually by dealers from used car lots in France and Germany. One of three Bulgarian households own a car, while the average car is 15-20 years old. While imports from Western Europe are increasing 10 percent, factory parts imports for Russian-made Ladas (made under license from Fiat) and Moskowitchs (made under license from Opel) are dropping.
Many Bulgarian car owners do their own service, such as oil changes. They do their own repairs after buying parts from independent auto parts stores, or obtain service or repairs from one of the many small independent garages or auto repair shops. Cars are often out of service for 2-3 weeks awaiting repair. Gasoline stations do not offer service or repair, although the Shell stations sell consumables in their co-located convenience stores. Car importers have extensive auto repair capabilities throughout the country, although they use only factory authorized parts for repairs.
Best prospects include consumables, including oil and air filters, wiper blades, rubber belts, hoses, gaskets, and rings; engine parts and brake parts; body trim such as weatherstripping and seals; exhaust system parts including mufflers and retrofit catalytic converters; accessories such as wheel covers, car/truck bed covers, car battery operated vacuum cleaners and air compressors, and exterior accessory lights; auto security products such as alarms and steering wheel locks; and service equipment for electronic diagnosis, testing and analyzing, wheel balancing, tire changing, oil changing, and battery chargers, and quick-repair kits and tools.
(millions of U.S. dollars) 1997 1998 1999 A. Total market size 47.7 76.8 78.6 B. Total local production 35.0 21.01 19.8 C. Total exports 17.8 17.0 15.3 D. Total imports 30.5 72.8 74.11 E. Imports from the U.S. 8.4 2.2 3.2Note: the above statistics are unofficial estimates.
9. Telecommunications Equipment (TEL)
The telecommunications equipment market is expected to have growth of more than 50 percent over the next several years, due to the general stabilization of the economy, the privatization of the Bulgarian Telecommunications Company (BTC) in the summer of 1999 and expected new investments in the telecommunication infrastructure. The major customer of telecommunications equipment in Bulgaria is the state-owned Bulgarian Telecommunications Company (BTC), which has an 90 percent market share of telecommunications services.
Almost the entire Bulgarian market for telecommunications equipment is imported. However, there are eight small Bulgarian producers of telecom equipment in Bulgaria, which make digital and analog private branch exchanges (PBX's), digital transmission systems and access equipment. Local production is expected to double in 2000 due to big tenders of national importance where production and supply of telecommunications equipment will be included.
U.S. telecommunications equipment, world known for its high quality, is very well received on the Bulgarian market. U.S. telecom equipment manufacturers represented in Bulgaria include Hewlett Packard, Cisco, Lucent Technologies, Nortel, 3Com and Bay Networks. However, the Bulgarian market is dominated by European telecom equipment makers Siemens and Ericsson, followed by Alcatel. Companies from Taiwan and China have entered the market for low-end office switchboards and PBX's.
The best market prospects are for terminal devices, telephone terminals, office terminals, Internet share boxes, telephones, fax machines. Internet-related equipment is expected to have the fastest development.
Starting January 1, 1999 there are no import duties for U.S. telecom equipment, which will increase its competitiveness.
(millions of U.S. dollars) 1997 1998 1999 A. Total market size 56.9 104.0 114.0 B. Total local production 6.0 8.0 8.0 C. Total exports 8.8 4.0 4.0 D. Total imports 59.7 100.0 110.0 E. Imports from the U.S. 2.3 6.9 7.5Note: the above statistics are unofficial estimates.
B. Best Prospects for Agricultural Goods and Services
Good prospects exist for the following agricultural commodities:
1. Meat and edible offal
The livestock industry in 1998 is doing better compared to 1997 due to easily available and less expensive feed which resulted in a higher number of heads of livestock and poultry.
However, low efficiency in the poultry industry leads to higher prices of locally produced chicken compared to imported, especially for chicken cuts and chicken MDM. Good opportunities exist for turkey, whole and in parts, and MDM since local production is negligible and demand is growing. The latest trade data shows a U.S. market share on the poultry market of 14 percent and a total market size of $2.5 million.
Beef for processing is in demand, but the United States must export hormone-free meat since local legislation follows EU regulations. The Latest data shows U.S. market share of 4 percent and a total market size above $12.0 million. Beef and chicken edible offal have very good prospects since they are used both for processing and for direct consumption. Local production of pork revitalized in 1998 and meets the demand, so export opportunities are minimal. The total market size for imported meat and edible offal in 1997 was $39 million. Major competitors of the U.S. are Australia and Argentina for beef, Belgium and Greece for poultry, and Romania and France for pork.
2. Hides and skins
Hides and skins have always been imported due to the lack of significant local production and lower quality. Total imports in 1997 were $60 million. Competitors are Italy and Russia.
3. Soybean meal
Soybean meal has always been imported due to the lack of significant local production. Competitors are Argentina and Brazil.
(thousands of metric tons) 1996 1997 1998 (estimated) Total market size 53 64 58 Total local production 8 5 4 Total exports 5 1 2 Total imports 50 65 55 Imports from the U.S. 0 6 54. Rice
Rice has always been imported due to the lack of significant local production. The U.S. market share is 35 percent and total imports in 1997 were 33,000 MT. Competitors are China, Vietnam, Egypt, Greece and Italy.
5. Cotton
Cotton has always been imported due to the lack of significant local production. Total imports in 1997 were 29,000 MT at a value of $124 million. Competitors are Greece and the former Soviet Republics.
6. Wood Hardwood logs and all types of veneer are imported due to the lack of certain types of logs and veneer and much higher quality compared to local production. Competitors are Russia and the Ukraine.
7. Tobacco
Virginia tobacco has always been imported due to the lack of sufficient local production. Competitors are Greece, Italy, and Turkey.
1996 1997 1998(estimated) Total market size 57 45 46 Total local production 40 72 72 Total exports 23 21 24 Total imports 37 15 10 Imports from the U.S. 0.140 0.100 0.1508. Fruits juices and concentrates
Although U.S. market share is small, under 1 percent, this market is quickly developing and total market size is about $5.0 million. Imports in 1997 were 7,000 MT. Major competitors are Greece and Austria.
9. Margarine
Total imports in 1997 were 10,000 MT, market size is about $6.0 million and it is growing every year. The U.S. share is negligible, although prospects are very good. The demand is both for margarine for industrial and direct human consumption.
10. Other food products
This category includes food ingredients and has a market size of about $4.0 million. It has good prospects to grow with development of food industry and privatization. The U.S. market share is 12 percent and estimated export growth rate is about 15 percent annually over the next five years.
C. Significant Investment Opportunities
1. Opportunities for U.S. Investors
Significant investment opportunities for U.S. companies in Bulgaria are the following:
a. Cogeneration Projects for Heat and Electric Power
District heating companies can be upgraded to supply both electricity, up to 35 megawatts, and steam and/or hot water, through cogeneration technology. The best candidates for U.S. companies that can supply the technology and investment capital are the district heating plants in Pernik, Vratsa, Varna and Pravetz. In addition, the are proposals being discussed that all central heating companies will be pooled together and privatized.
b. Banks
The Bank Consolidation Company is actively marketing the privatization of the four remaining state-owned banks: Bulbank, Bulgaria's largest bank, based in Sofia, Biochim, also based in Sofia, Hebrosbank, based in Plovdiv, and Expressbank, based in Varna. Further information can be found on the website of the Bulgarian Foreign Investment Agency: www.bfia.org.
c. State-owned Companies Being Privatized
The Privatisation Agency is currently marketing a large number of industrial and trading companies for privatization. Further information can be found on their website: www.privatisation.online.bg.
d. Value-added Food Processing
Value-added food processing has seen a substantial amount of foreign investment in dairy, confectionery, bakery, and other enterprises, and industry experts believe that Bulgaria offers substantial opportunity to utilize the country's agricultural production to manufacture a variety of processed foods.
e. Tourist Infrastructure
Opportunities for investment in Bulgaria's tourist infrastructure center on the ski resorts, Black Sea summer resorts, and hot springs.
f. Wineries
Companies that produce Bulgaria's high-quality wines may be attractive candidates for companies to upgrade their production for export.
2. Large Investment Projects with Significant Procurement Opportunities
The Bulgarian Industrial Association website keeps a current listing of infrastructure investment projects in Bulgaria: www.bia-bg.comm/investments.
a. Transport Projects
Bulgaria has a number of major transport infrastructure projects that could offer significant procurement opportunities if financing can be found:
Sofia Airport Reconstruction Passenger Terminal and Runway Extension $200 million Cargo Terminal $200 million Plovdiv - Burgas Highway $500 million Burgas - Varna Highway $300 million Tunnel Under Shipka Mountain $120 million Burgas Harbor Ro-ro, Container, Cargo Ferry Terminals $300 million Sofia - Skopje Railroad $180 million Danube River Bridge at Vidin or Lom $120 millionb. Environmental Projects
Bulgaria's largest environmental project is a nationwide $220 million plan for the processing of industrial waste. Bulgaria also has a large number of environmental remediation projects under $5 million that could offer opportunities for U.S. companies. Bulgarian companies and regional authorities are aggressively seeking U.S. partners under the Ecolinks program for some of these projects. Interested U.S. companies should consult with Commercial Service Sofia concerning these opportunities.
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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