We get a blindingly truthful introduction to the Bulgarian economy by the young and pragmatic Minister of Economy, Energy and Tourism, Mr. Delian Dobrev
AT: Maybe you can start us off with an introduction to the major developments that occurred in your sector the last 3-years.
Mr. Dobrev: We are trying to create a stable environment within the economy; primarily through stimulating the development of the energy sector in order to create competitive prices for businesses with the most important aspect in the energy sector being diversification of the gas supply. This is important to us because currently the gas prices are 4x the amount than the US average. To achieve this we have done several tasks; including diversifying routes and connecting our gas system to neighboring countries so that we can have other sources of gas aside from Russia supplied gas. We are also striving to stimulate the local production of gas, done by offering concessions to large companies to explore territory. So far we have been successful in a few cases; in the North Central part of Bulgaria as well as the offshore exploration in the depths of the Black Sea which has bids from international companies Exxon Mobil (United States) and Total (France). [Winner to be selected by end of July 2012].
At this stage we stimulate mostly energy coming from water projects and biomass. Biomass for example is great because it helps tackle unemployment as it creates a lot of jobs
AT: Can you please enlighten us on the stance that Bulgaria holds in regards to Green Energy?
Mr. Dobrev: We are one of the champions within the EU of reaching our Green Energy target in 2020 with the end goal of achieving 21% of energy consumed in Bulgaria coming from Green Energy sources; so far we are at 15.5%. I would like to say that green energy has a positive impact on businesses; however, it is still very expensive compared to other sources so at the moment we are trying to cool down investor interest in this area. Reason being is so that we can guarantee sustainable development in the overall energy sector for the next 7-8 years and guarantee that prices will pay for clean energy thereby becoming competitive. This is because over time, as the technology for clean energy develops, prices fall and then investment price falls. We have already seen prices within certain types of clean energy drop by over 300% just in the last 2.5 years, so we believe our train of thought is on track with reality. As a whole, we are stalling renewable energy growth, in fact, to give our foreign investors a competitive advantage upon arrival.
…the largest benefit to any investor is our flat 10% tax; corporate, income and personal and stable macro-economic policy and stable political environment which pretty much forms 70% of an investment decision
AT: What type of clean energy does Bulgaria subsidize at this point and where do you see the largest opportunity for growth for American investors?
Mr. Dobrev: We subsidize all types of green energy from biomass projects to windmill farms to hydro dams. At this stage we stimulate mostly energy coming from water projects and biomass. Biomass for example is great because it helps tackle unemployment as it creates a lot of jobs. Whereas most other types we are not actively promoting as we’ve nearly reached our 2020 objective but also because those clean energy services raise the overall cost of our energy supply making it less competitive.
AT: We’ve spoken about Green Energy and Gas, is there potential for oil exploration?
Mr. Dobrev: Yes, but the possibilities for gas are much larger and the quantities available will be much larger.
AT: How competitive is Bulgaria’s energy compared to others in the region?
Mr. Dobrev: Our energy prices are lower than our neighbor’s. We have been a Net exporter of electricity for the past 20 years. Those lower costs are due to the fact that we have a nuclear power plant that produces very cheap electricity at a price of €25/megawatt. This again, makes a foreign investor’s investment more competitive. But this is of course only one factor; the largest benefit to any investor is our flat 10% tax; corporate, income and personal and stable macro-economic policy and stable political environment which pretty much forms 70% of an investment decision. In addition to these factors we also have an investment law in place which offers investments of over €10M a Class-A investor certificate which guarantees a number of things:
- Free infrastructure to the site where a factory is to be built
- Guarantee of 0% corporate tax if investing in an area with above average unemployment (around 11%)
- Currently passing through legislation is a change which relieves the employer from social payments for a 3-year period with the end effect of reducing labor costs by 18%
- Benefit from the EU grants provided to Bulgaria.
- a. Foreign investor can apply for grants for equipment updates, allowing for a 50% reduction in costs
- b. Grants which pay for the training of Bulgarian staff (€500/person for as long as necessary)
- c. 6-months of salaries paid for by EU for newly graduated engineers
AT: What sectors within the economy do you think will form the pillars of growth for Bulgaria?
Mr. Dobrev: We have a strong base in manufacturing with many investments already in the automotive industry; not for building cars but rather components. We believe this area will continue to develop. Additionally, we have a number of call centers because in our universities the foreign languages field is very strong which produces strong professionals making this form of investment very suitable for foreign investors.
AT: Please tell us a little about the potential for tourism in your country. Also, what incentives and opportunities are available to foreign investors?
Mr. Dobrev: We have seen great growth in this sector for the last 10 years, even during the recession we achieved growth with an average growth rate of 5-10% growth year-over-year. It’s an important sector here as it contributes about 12% of GDP.
We have a robust industry surrounding the Black Sea in the summer and winter resorts for skiing. With over 2,000 years of history, potential for investors lies in cultural tourism. Another growth opportunity that is currently underdeveloped is our natural mineral springs which are ripe for the development of spa centers around the country. The largest benefit for any tourism oriented business is the newly established VAT of 9% compared to VAT of 20% for any other enterprise in Bulgaria.
AT: Who are some of the largest foreign investors in Bulgaria and how have they thrived?
Mr. Dobrev: This year for example we have Devyna Cement with an investment of over €150M which will change the production method of an existing plant in Bulgaria, hiring an additional 1,000 people. We also have the Turkish glass maker, Thracia Glass that has set up shop with a €140M investment. Aside from raw product production we have had a new company called ALC, which produces leather seats for some of the largest car brands in the world, employing over 500 people. We also have an exciting joint-venture between a Chinese firm and a Bulgarian counterpart which produces cars with a current investment of €20M and reaching a total investment of €100M by 2017.
As you can see we have had an influx of production investments. To give an example of the increase; last year we issued only 4 Class-A investor certificates at a value of €45M and this year, in the first 5-months alone, we have issued 5 with a total value of €250M.
AT: As Minister of Economy, what is your main ambition and main goals during your tenure?
Mr. Dobrev: Basically, we are FDI oriented as you can see in all the benefits mentioned earlier. What I failed to mention was with a Class-A investor certificate that firm also receives a dedicated project manager to see the project through successfully to completion. The main objective assigned to this project manager is to fight through bureaucracy on behalf of the company, not only on the government level but the local municipals as well. I cannot deny that bureaucracy is not an issue, but we have taken steps to streamline the process to gain investor confidence. Importantly, we’ve seen success in this program and have received great feedback from the companies I mentioned earlier.
…with a Class-A investor certificate that firm also receives a dedicated project manager to see the project through successfully to completion
AT: With President Plevneliev’s visit with Mr. Obama in May this year to celebrate their relations; from your seat, what is the link with the US and what would you like the US to be in Bulgaria?
Mr. Dobrev: Well, my personal link is that I graduated in the US from Wesleyan University. My hope is that we are able to attract more FDI from the US. Currently, we’ve seen the largest investments in the energy sector; for example, we have an American investment from AES in a coal power plant as well as firms investing in the renewable energy sector. However, we are keen to attract investments from Americans in the services or production sector. Right now Hewlett Packard has its largest call center located in Bulgaria which has employed over 1,500 people. Using HP as an example I think call centers have huge potential for the American investor, as well as shared service centers and overall IT services. These are the major sectors in which we’d like to see growth and will offer much support too.