Банкеръ Weekly

Briefs

BULGARIAN COMPANIES WILL LOSE FROM THE WAR IN IRAQ

The managers of big Bulgarian companies were the first to believe that the war in Iraq is inevitable. Since the end of 2002 they have been trying to calculate their evenual losses from the war in the Middle East and are considering ways for overcoming them. But balancing between the two priorities in its foreign policy - Bulgaria's accession to the European Union and NATO - the Government forgot about them. Business always pays for the military games of politicians, believes Krassimir Dachev, Chairman of the Svishtov-based company Sviloza. He notes that the Bulgarian companies have not yet succeeded to overcome the losses from the crisis in Kosovo, although four years have already passed since its end. At that time the destroying of one road thoroughfare increased several times the transport costs of Bulgarian firms. The businessmen trading with the Central European countries still remember that the two demolished bridges over the Danube near Novi Sad have stopped navigation in that section for quite a long time. It was one of the greatest injuries to the Bulgarian economy at that time and it has not been forgotten yet. The head of the Svishtov-based manufacturer of synthetic fabrics and silk claims that the marketing of unsold products from the year 1999 costs him BGN3MN.Now, the moment has come when the negative effects of the ripening military conflict in the Middle East begin to be felt. According to the Bulgarian entrepreneurs, the consequences of an eventual war cannot be preestimated. For the time being, however, it is doubtful that transport and insurance costsof the cargoes will go up drastically. For that reason the Paper Mill of Stambolijski is renegotiating the terms for trade with the Middle East. Annual turnover with the countries from that part of the world amounts to some USD5MN. The enterprise has so far delivered its products to Turkey, Pakistan, Iran and the United Arab Emirates by its own transport, but under the new agreements the company's contractors from the region undertake the transporation and insurance of cargoes. The managers of the company, whose owners are the European Bank for Reconstruction and Development (EBRD) and the International Financial Corporation (IFC) fear that the Suez Canal will be attacked during the forthcoming military actions. It is expected to be closed and transportation by land would considerably raise the cost of the deliveries. A detour round Africa through the Straits of Gibraltar would increase dramatically the transport costs. For that reason the company is holding negotiations with the Japanese company Itochu, through which it will be probably selling paper in Pakistan. As a whole the Paper Mill of Stambolijski is reorientating its trade contacts to Balkan and European countries, although it may lose from that. The company is also holding negotiations with various refineries from the region for delivery of fuel oil. The managers are seriously worried by the 4% price rise of fuel oil over the last two-three months alone. They don't want deliveries to depend on one supplier only, as during an evenual crisis he could dictate prices.The Finance Ministry's document, published is the BANKER's previous issue (No 6, dated February 8, 2002), remarked that the price of petrol would affect Bulgaria's economy if it remains at the level around USD40/barrel for two or three months. In that case the negative impact will be felt both by producers and consumers. According to Valeri Petrov, Executive Director of Orgachim, that will be the main negative effect of an eventual war. The increase of costs cannot be entirely transferred onto the price of products and the burden will be mostly undertaken by the companies themselves, he added.Valeri Petrov is also worried about the stability of his company's markets in Egypt. Pharmachim Holding, whose traditional markets are in the Middle East, also faces such a problem. But as a whole it is belived that Bulgaria's foreign markes will not be seriously affected by the eventual military conflict. Bulgaria's 2001 turnover with the Arab countries amounted to USD198.6MN, which is only 1.6% of our foreign commercial exchange. In the same year Bulgaria exported to the Arab world products worth USD161MN, which is 3.2% of the country's entire export. Exporters are rather worried by the USD exhange rateSome businessmen remember the beginning of the year 1999 when the conflict in Kosovo was ripening and the USD/BGN exchange rate reached 1.6-1.7. Big exporters are mostly affected in such cases. The devaluation of the US dollar may result in considerable losses for the Bulgarian exporters, whose goods are usually evaluated in US currency. Statistics show that the mostly traded Bulgarian goods on the international markets are processed products - 23% of the entire export. They are followed by mineral fuels and lubricants, accounting for 13.5% of Bulgarian exports. Chemical products are also demanded on the internaational markets and account for almost 11% of Bulgaria's exports. Goods of plant origin, machines, and chemical products, are among the Bulgarian commodities, enjoying the highest interst on the Arab markets.Some of the Bulgarian companies will probably face one more inevitable consequence of the forthcoming military conflict. The fears of Tosho Dimov, member of the Managemnt Board of Neochim, are mainly connected with the price rise of natural gas, which would follow the upward movement of petrol prices. According to Mr. Dimov, this factor will have the worst negative impact on the chemical enterprises and the fertilizer industry as a whole. In fact, fertilizer manufacurers have been constantly complaining of the expensive natural gas. But now the companies will have to rely mostly on the dexterity of their own managers, and not on protectionist acts on the part of the State.

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