Банкеръ Weekly



The recently elected Economy Minister Milko Kovachev tried to prove he has listened to the recommendation of Premier Simeon Saxe-Coburg-Gotha for continuity in the Cabinet. During his first public appearance in his new position Mr. Kovachev reported the achievements of his predecessor Lidiya Shouleva. One of them is the record high growth of foreign direct investments in 2004. At the press conference on Tuesday (March 8) Mr. Kovachev announced that according to BNB's preliminary figures, foreign capitals worth EUR1.957BN (10.1% of Bulgaria's GDP) entered the country. Investments in 2003 amounted to 1.85BN, or 10.5% of GDP.Mr. Kovachev explained last year's result by the improved business climate in Bulgaria during the mandate of the National Movement Simeon II (NMSII), the passing of the new Encouragement of Investments Act, the support to small and medium-sized businesses, the promotion of innovation activities, and the elimination of some of the licensing regimes. These merits chiefly go to Ms. Shouleva's team. Of course, a considerable part of the reported investments were in the energy sector, which was the responsibility of Minister Kovachev until recently. However, personal merits are not so important. What matters really is if Bulgaria has begun turning into a oasis for foreign companies. BNB's data hint that things are not so rosy. A comparison of net investments shows that in 2004 they were EUR344MN less than in 2003. Investments in the form of deals decreased by EUR294.5MN, from EUR763.2MN in 2003 to EUR468. 7MN in 2004. The EUR107MN growth of foreign direct investments in 2004 was due to proceeds from privatisation. In 2003 they were only EUR312MN, while in the end of 2004 (after the sale of the Bulgarian Telecommunications Company and of the seven electricity distribution companies), they reached EUR936.3MN, which is 47% of the aggregate amount of foreign investment in this country. Of course, it is good that fresh money from the sale of state-owned assets enter the economy. But the privatisation process is coming soon to its end and sooner or later this inflow will cease. The so-called greenfield investments are a far more objective indicator for the improvement of the business environment. But for the time being they were mainly in small and medium-sized enterprises. Asked by a reporter of the BANKER weekly if he was not worried by such a distribution of foreign investments in the country Mr. Kovachev replied: Why should proceeds from privatisation be considered apart from the other investments?A similar stance is shared by the Foreign Investment Agency head Pavel Ezekiev. According to him, the money which foreigners set aside in order to acquire assets in Bulgaria through privatisation should not be underestimated. In addition, most of the foreign companies which buy state-owned enterprise, undertake as well commitments to make investments in them in the post-privatisation period. As an example Mr. Ezekiev pointed to Viva Ventures' programme for modernisation of the Bulgarian telecom. In terms of the size of attracted foreign investments, amounting to 10.1% of domestic GDP, Bulgaria is a leader among the countries of Central and Eastern Europe. Behind us are: Romania (5.6%), Estonia (5%), and the Czech Republic (4%). Practically, 30% of all foreign investments in the Balkans and 10% of those in Central and Eastern Europe were directed to our country in 2004. But the Ministry of Economy is cautious in its forecasts for 2005. Mr. Ezekiev himself expects foreign direct investments to reach EUR2BN. His hopes are inspired by the higher investors' interest in the sphere of info technologies, trade, leisure industry, etc. The forthcoming parliamentary elections in June are among the the events that could have either a positive or a negative effect on the companies' decisions.And we should not forget the signing of the treaty for Bulgaria's accession to the EU, scheduled for April 25. It is only logical to believe that after that Bulgaria will be looked upon as a still better place for making business.

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